<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
GENERAL INSTRUMENT CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
, 1997
Dear Stockholder:
You are cordially invited to attend a Combined Annual and Special Meeting of
Stockholders (the "Meeting") of General Instrument Corporation (the "Company")
to be held on , 1997 at [time] at [place]. At the Meeting, you will be
asked to consider and vote upon a proposal to divide the Company into its three
separate businesses: (i) the manufacture and sale of broadband communications
products used in the cable television, satellite and telecommunications
industries (the "Communications Business"); (ii) the manufacture and sale of
coaxial, fiber optic and other electronic cable used in the cable television,
satellite and other industries (the "Cable Manufacturing Business"); and (iii)
the manufacture and sale of discrete power rectifiers and transient voltage
suppression components used in telecommunications, automotive and consumer
electronic products (the "Power Semiconductor Business").
This important proposal, and two related proposals (collectively, the
"Distribution Proposals"), provide for the distribution (the "Distribution") to
the Company's stockholders of the outstanding shares of the common stock of each
of (i) NextLevel Systems, Inc. ("NextLevel Systems"), an indirect wholly owned
subsidiary of the Company, and (ii) CommScope, Inc. ("CommScope"), an indirect
wholly owned subsidiary of the Company. The Distribution would separate the
Company into three publicly owned companies. After the Distribution, the Company
will change its name to General Semiconductor, Inc. ("General Semiconductor")
and will continue to conduct the Power Semiconductor Business, NextLevel Systems
will conduct the Communications Business and CommScope will conduct the Cable
Manufacturing Business.
In the Distribution, a holder of shares of the Company's common stock (the
"GI Common Stock") would receive one share of NextLevel Systems common stock for
each share of GI Common Stock held by such holder and one share of CommScope
common stock for every shares of GI Common Stock held by such holder and
would retain the shares of GI Common Stock held by such holder immediately prior
to the Distribution. Immediately following the Distribution, General
Semiconductor will effect a for reverse stock split of its common stock.
Prior to the Distribution, the Company will effectuate certain internal
stock and asset transfers intended to allocate assets and liabilities relating
to the Communications Business to NextLevel Systems, assets and liabilities
relating to the Cable Manufacturing Business to CommScope and assets and
liabilities relating to the Power Semiconductor Business to the Company. In
addition, NextLevel Systems, CommScope and the Company have entered or will
enter into various agreements among such companies to effectuate the
Distribution and to provide an orderly transition, all as described in the
accompanying Proxy Statement-Prospectus.
The Board of Directors of the Company believes that the Company's three
diverse businesses will be better positioned as three independent public
companies. The businesses have different dynamics and business cycles, serve
different markets and customers, are subject to different competitive forces and
must be managed with different long-term and short-term strategies and goals.
The Distribution will allow the management of each company to focus on its own
business, organize its capital structure, evaluate its growth opportunities,
allocate its resources, develop corporate strategies and design equity-based
compensation programs targeted to its own performance. Accordingly, the Board
has approved the Distribution Proposals and recommends that stockholders vote
for both of the Distribution Proposals.
In addition, you will be asked to consider and vote upon certain proposals
(the "Annual Meeting Proposals") which would normally be considered at the
Meeting. Details of the Distribution Proposals and the Annual Meeting Proposals
to be considered at the Meeting, as well as important information relating to
the Distribution, including a description of the businesses, directors and
management of NextLevel Systems, CommScope and General Semiconductor after the
Distribution, are set forth in the accompanying Proxy Statement-Prospectus and
should be considered carefully.
<PAGE>
If the proposal for the Distribution is not approved, the Board of Directors
of the Company will reevaluate its intention to effect the Distribution. After
such review, the Board could determine to revise the terms of the Distribution
and effect the Distribution as revised or abandon the Distribution. The Board
has further retained discretion, even if stockholder approval of the
Distribution Proposals is obtained and the other conditions to the Distribution
are satisfied, to abandon, defer or modify the Distribution or other elements
contained in the Distribution Proposals, provided that following stockholder
approval the Board will not make any change in the terms of the Distribution or
the other elements of the Distribution Proposals unless the Board determines
that such changes would not be materially adverse to the Company's stockholders.
The Annual Meeting Proposals, if approved, will become effective whether or not
the Distribution Proposals become effective.
It is important that your shares be represented at the Meeting, whether or
not you are able to attend personally. You are therefore urged to complete,
sign, date and return the enclosed proxy card promptly in the accompanying
envelope, which requires no postage if mailed in the United States.
You are, of course, welcome to attend the Meeting and vote in person, even
if you have previously returned your proxy card.
Sincerely,
[LOGO]
Richard S. Friedland
Chairman of the Board and
Chief Executive Officer
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTICE OF COMBINED ANNUAL AND SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1997
The Combined Annual and Special Meeting of Stockholders (the "Meeting") of
General Instrument Corporation (the "Company") will be held on , 1997, at
[time] at [place]. Doors to the Meeting will open at .
The Meeting will be conducted:
1. To consider and to vote upon three related proposals (collectively, the
"Distribution Proposals") described in the attached Proxy Statement-Prospectus:
PROPOSAL ONE: Approval of (i) the internal stock and asset transfers
intended to allocate the assets and liabilities relating to (a) the
manufacture and sale of broadband communications products used in the cable
television, satellite and telecommunications industries to the Company's
indirect wholly owned subsidiary, NextLevel Systems, Inc., a Delaware
corporation ("NextLevel Systems"), (b) the manufacture and sale of coaxial,
fiber optic and other electronic cable used in the cable television,
satellite and other industries to the Company's indirect wholly owned
subsidiary, CommScope, Inc., a Delaware corporation ("CommScope"), and (c)
the manufacture and sale of discrete power rectifiers and transient voltage
suppression components used in telecommunications, automotive and consumer
electronic products to General Semiconductor (as defined below), (ii) a
special dividend, consisting of the distribution (the "Distribution") to the
holders of the Company's outstanding shares of common stock, par value $.01
per share, of the outstanding shares of common stock, par value $.01 per
share, of NextLevel Systems, and the outstanding shares of common stock, par
value $.01 per share, of CommScope, on the basis described in the attached
Proxy Statement-Prospectus and (iii) the Distribution Agreement, dated as of
, 1997, among the Company, NextLevel Systems and CommScope, as the
same may be amended, supplemented or modified from time to time;
PROPOSAL TWO: Approval of an amendment to the Certificate of
Incorporation of the Company to change the name of the Company to General
Semiconductor, Inc. after the Distribution (the Company after the
Distribution being referred to herein as "General Semiconductor" and the GI
Common Stock after the Distribution being referred to herein as the "General
Semiconductor Common Stock"); and
PROPOSAL THREE: Approval of an amendment to the Certificate of
Incorporation of the Company to effect a for reverse stock split of
the General Semiconductor Common Stock immediately following the
Distribution (if approved, each shares of outstanding General
Semiconductor Common Stock will be converted into share of General
Semiconductor Common Stock).
2. To consider and to vote upon the following additional proposals described
in the attached Proxy Statement-Prospectus:
PROPOSAL FOUR: Approval of an amendment to the Certificate of
Incorporation of the Company to declassify the Board of Directors and to
provide for the annual election of all directors; and
PROPOSAL FIVE: The election of four directors. If the Distribution
occurs, it is expected that all but one of the Company's directors will
resign and be replaced by new directors.
3. To transact such other business as may properly come before the Meeting.
THE EFFECTIVENESS OF PROPOSALS TWO AND THREE IS CONDITIONED UPON THE
APPROVAL OF PROPOSAL ONE. IF PROPOSAL ONE IS NOT APPROVED, THE BOARD OF
DIRECTORS OF THE COMPANY WILL REEVALUATE ITS INTENTION TO EFFECT THE
DISTRIBUTION. AFTER SUCH REVIEW, THE BOARD COULD DETERMINE TO REVISE THE TERMS
OF THE DISTRIBUTION AND EFFECT THE DISTRIBUTION AS REVISED OR ABANDON THE
DISTRIBUTION. IF PROPOSAL ONE IS APPROVED, BUT ONE OR BOTH
i
<PAGE>
OF PROPOSALS TWO AND THREE ARE NOT APPROVED, THE COMPANY INTENDS TO PROCEED WITH
THE DISTRIBUTION WITHOUT CHANGING THE NAME OF THE COMPANY OR EFFECTING THE
REVERSE STOCK SPLIT, AS THE CASE MAY BE.
The Board has further retained discretion, even if stockholder approval of
the Distribution Proposals is obtained and the other conditions to the
Distribution are satisfied, to abandon, defer or modify the Distribution or
other elements contained in the Distribution Proposals, provided that following
stockholder approval the Board will not make any change in the terms of the
Distribution or the other elements of the Distribution Proposals unless the
Board determines that such changes would not be materially adverse to the
Company's stockholders.
The Company has conditioned the Distribution on, among other things, receipt
of a ruling from the Internal Revenue Service to the effect, among other things,
that receipt of shares of common stock of NextLevel Systems and CommScope by
stockholders of the Company will be tax free except with respect to cash
received in lieu of fractional shares. This condition may not be waived or
modified by the Board of Directors of the Company.
Stockholders of record at the close of business on , 1997 will be
entitled to notice of and to vote at the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
[LOGO]
SUSAN M. MEYER
SECRETARY
, 1997
EACH STOCKHOLDER IS REQUESTED TO EXECUTE AND PROMPTLY RETURN THE ENCLOSED PROXY
IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
ii
<PAGE>
THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
(COVER PAGE CONTINUED)
PRELIMINARY--SUBJECT TO COMPLETION, DATED APRIL 30, 1997
PROXY STATEMENT-PROSPECTUS
------------------------
PROXY STATEMENT
FOR
GENERAL INSTRUMENT CORPORATION
COMBINED ANNUAL AND SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
------------------------
NEXTLEVEL SYSTEMS, INC.
PROSPECTUS
SHARES OF
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
COMMSCOPE, INC.
PROSPECTUS
SHARES OF
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
This Proxy Statement-Prospectus (the "Proxy Statement") is being furnished
to the stockholders of General Instrument Corporation, a Delaware corporation
(the "Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the Combined Annual and Special Meeting of
Stockholders (the "Meeting") of the Company to be held on , 1997 at
[time] at [place] and any adjournment or postponement thereof.
At the Meeting, the stockholders of the Company will be asked to consider
and vote upon the following three related proposals (collectively, the
"Distribution Proposals"): PROPOSAL ONE: Approval of (i) the internal stock and
asset transfers intended to allocate the assets and liabilities relating to (a)
the
(CONTINUED)
------------------------------
THIS PROXY STATEMENT ALSO CONSTITUTES THE PROSPECTUS OF EACH OF NEXTLEVEL
SYSTEMS AND COMMSCOPE WITH RESPECT TO SHARES OF NEXTLEVEL SYSTEMS COMMON STOCK
AND COMMSCOPE COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE DISTRIBUTION. SEE
"RISK FACTORS" BEGINNING ON PAGE 26 HEREIN FOR A DISCUSSION OF CERTAIN RISKS
DESERVING SPECIAL CONSIDERATION.
---------------------
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE DISTRIBUTION HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT- PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement-Prospectus is , 1997.
2
<PAGE>
(COVER PAGE CONTINUED)
manufacture and sale of broadband communications products used in the cable
television, satellite and telecommunications industries (the "Communications
Business") to the Company's indirect wholly owned subsidiary, NextLevel Systems,
Inc., a Delaware corporation ("NextLevel Systems"), (b) the manufacture and sale
of coaxial, fiber optic and other electronic cable used in the cable television,
satellite and other industries (the "Cable Manufacturing Business") to the
Company's indirect wholly owned subsidiary, CommScope, Inc., a Delaware
corporation ("CommScope"), and (c) the manufacture and sale of discrete power
rectifiers and transient voltage suppression components used in
telecommunications, automotive and consumer electronic products (the "Power
Semiconductor Business") to General Semiconductor (as defined), (ii) a special
dividend, consisting of the distribution (the "Distribution") to the holders of
the Company's outstanding shares of common stock, par value $.01 per share (the
"GI Common Stock"), of the outstanding shares of common stock, par value $.01
per share (the "NextLevel Systems Common Stock"), of NextLevel Systems, and the
outstanding shares of common stock, par value $.01 per share (the "CommScope
Common Stock"), of CommScope, on the basis described herein and (iii) the
Distribution Agreement, dated as of , 1997, among the Company,
NextLevel Systems and CommScope, as the same may be amended, supplemented or
modified from time to time (the "Distribution Agreement"); PROPOSAL TWO:
Approval of an amendment to the Certificate of Incorporation of the Company to
change the name of the Company to General Semiconductor, Inc. after the
Distribution (the Company after the Distribution being referred to herein as
"General Semiconductor" and the GI Common Stock after the Distribution being
referred to herein as the "General Semiconductor Common Stock"); and PROPOSAL
THREE: Approval of an amendment to the Certificate of Incorporation of the
Company to effect a for reverse stock split of the General Semiconductor
Common Stock immediately following the Distribution (if approved, each
shares of General Semiconductor Common Stock will be converted into
share of General Semiconductor Common Stock).
THE EFFECTIVENESS OF PROPOSALS TWO AND THREE IS CONDITIONED UPON THE
APPROVAL OF PROPOSAL ONE. IF PROPOSAL ONE IS NOT APPROVED, THE BOARD OF
DIRECTORS OF THE COMPANY WILL REEVALUATE ITS INTENTION TO EFFECT THE
DISTRIBUTION. AFTER SUCH REVIEW, THE BOARD COULD DETERMINE TO REVISE THE TERMS
OF THE DISTRIBUTION AND EFFECT THE DISTRIBUTION AS REVISED OR ABANDON THE
DISTRIBUTION. IF PROPOSAL ONE IS APPROVED, BUT ONE OR BOTH OF PROPOSALS TWO AND
THREE ARE NOT APPROVED, THE COMPANY INTENDS TO PROCEED WITH THE DISTRIBUTION
WITHOUT CHANGING THE NAME OF THE COMPANY OR EFFECTING THE REVERSE STOCK SPLIT,
AS THE CASE MAY BE.
The Board has further retained discretion, even if stockholder approval of
the Distribution Proposals is obtained and the other conditions to the
Distribution are satisfied, to abandon, defer or modify the Distribution or
other elements contained in the Distribution Proposals, provided that following
stockholder approval the Board will not make any change in the terms of the
Distribution or the other elements of the Distribution Proposals unless the
Board determines that such changes would not be materially adverse to the
Company's stockholders.
The Company has conditioned the Distribution on, among other things, receipt
of a ruling from the Internal Revenue Service to the effect, among other things,
that receipt of shares of NextLevel Systems Common Stock and CommScope Common
Stock by stockholders of the Company will be tax free except with respect to
cash received in lieu of fractional shares. This condition may not be waived or
modified by the Board of Directors of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
EACH OF THE DISTRIBUTION PROPOSALS.
In addition, stockholders will also be asked to vote upon the following
proposals (the "Annual Meeting Proposals"): PROPOSAL FOUR: Approval of an
amendment to the Certificate of Incorporation of the Company to declassify the
Board of Directors and to provide for the annual election of all directors; and
PROPOSAL FIVE: The election of four directors. If the Distribution occurs, it is
expected that all but one of the
3
<PAGE>
(COVER PAGE CONTINUED)
Company's directors will resign and be replaced by new directors. The
effectiveness of the Annual Meeting Proposals is not conditioned on the approval
of the Distribution Proposals.
Each stockholder of record as of the Meeting Record Date (as defined below)
is entitled at the Meeting to one vote for each share of GI Common Stock held.
The affirmative vote of the holders of a majority of the outstanding shares of
GI Common Stock is required to approve each of the Distribution Proposals. The
affirmative vote of the holders of a majority of the outstanding shares of GI
Common Stock is also required to approve Proposal Four. The affirmative vote of
the holders of a plurality of shares of GI
Common Stock present in person or represented by proxy at the Meeting is
required to elect the directors nominated pursuant to Proposal Five. As of
, 1997, there were shares of GI Common Stock outstanding and
entitled to vote at the Meeting.
The Board of Directors of the Company has fixed the close of business on
, 1997 (the "Meeting Record Date") as the record date for determining
the holders of outstanding shares of GI Common Stock entitled to receive notice
of, and to vote at, the Meeting. On that date, there were shares of GI
Common Stock issued and outstanding. The Notice of Combined Annual and Special
Meeting, this Proxy Statement and the form of proxy are first being mailed to
stockholders of the Company on or about , 1997.
Any stockholder who executes and returns a proxy may revoke it at any time
prior to the voting of the proxies by giving written notice to the Secretary of
the Company, by executing a later-dated proxy, or by attending the Meeting and
giving oral notice to the Secretary of the Company.
4
<PAGE>
AVAILABLE INFORMATION
NextLevel Systems and CommScope, as co-registrants, have filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
(of which this Proxy Statement is a part and which term shall encompass any
amendments thereto) on Form S-4 (the "Registration Statement") pursuant to the
Securities Act of 1933, as amended, with respect to the securities offered
hereby. This Proxy Statement does not contain all the information set forth in
the Registration Statement and the exhibits and schedules thereto, certain
portions of which are omitted as permitted by the rules and regulations of the
Commission. Statements made in this Proxy Statement as to the contents of any
contract, agreement or other document referred to are not necessarily complete;
with respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. For further information
about the Company, NextLevel Systems and CommScope and the securities offered
hereby, reference is made to the Registration Statement and to the exhibits
filed as a part thereof.
The Company is (and after the Distribution, each of NextLevel Systems,
General Semiconductor and CommScope will be) subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files (and, after the Distribution, each of
General Semiconductor, NextLevel Systems and CommScope will file) reports and
other information with the Commission. The Registration Statement, the exhibits
and schedules forming a part thereof and the reports and other information filed
by the Company (and, after the Distribution, to be filed by General
Semiconductor, NextLevel Systems and CommScope) with the Commission in
accordance with the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549 and at the following regional
offices of the Commission: Seven World Trade Center, Suite 1300, New York, New
York 10048 and Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material or any part thereof may also be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, DC 20549 at prescribed rates or may be accessed electronically
on the Commission's Web site at http://www.sec.gov. The GI Common Stock is
listed on the New York Stock Exchange (the "NYSE"), and reports and other
information concerning the Company can be inspected at the offices of the NYSE,
20 Broad Street, New York, New York 10005.
------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT IN CONNECTION WITH THE
OFFERING AND SOLICITATION MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY STATEMENT, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION OR FROM ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS PROXY
STATEMENT SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN OR IN THE AFFAIRS OF THE
COMPANY, NEXTLEVEL SYSTEMS OR COMMSCOPE SINCE THE DATE HEREOF.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WITH RESPECT TO THE
COMPANY THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(EXCLUDING EXHIBITS THERETO, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY HOLDER OF GI COMMON STOCK, TO WHOM THIS PROXY STATEMENT IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST TO THE SECRETARY, GENERAL INSTRUMENT
CORPORATION, 8770 WEST BRYN MAWR AVENUE, CHICAGO, ILLINOIS 60631, TELEPHONE
(773) 695-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY , 1997.
4
<PAGE>
The following documents filed by the Company with the Commission pursuant to
Section 13 of the Exchange Act are incorporated herein by reference: (i) the
Annual Report on Form 10-K for the year ended December 31, 1996, (ii) the
Current Report on Form 8-K filed with the Commission on January 7, 1997 and
(iii) the Current Report on Form 8-K filed with the Commission on March 5, 1997.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Proxy Statement and prior to the date of the Meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and other documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy Statement, to the
extent that a statement contained herein or in any other subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Proxy Statement contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 concerning, among other
things, General Semiconductor's, NextLevel Systems' and CommScope's prospects,
developments and business strategies for their respective operations, all of
which are subject to risks and uncertainties. These forward-looking statements
are identified by their use of such terms and phrases as "intends," "intend,"
"intended," "goal," "estimate," "estimates," "expects," "expect," "expected,"
"project," "projects," "projected," "projections," "plans," "anticipates,"
"anticipated," "should," "designed to," "foreseeable future," "believe,"
"believes" and "scheduled" and in many cases are followed by a cross reference
to "Risk Factors."
When a forward-looking statement includes a statement of the assumptions or
bases underlying the forward-looking statement, the management of General
Semiconductor, NextLevel Systems or CommScope, as the case may be, cautions
that, while it believes such assumptions or bases to be reasonable and makes
them in good faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending upon the circumstances. Where, in any forward-looking
statement, General Semiconductor, NextLevel Systems or CommScope or its
management expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished.
The actual results of General Semiconductor, NextLevel Systems or CommScope
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include (i) the factors
discussed under "Risk Factors" and particularly, in cases where the
forward-looking statement is followed by a cross reference to "Risk Factors,"
the factors discussed in the section or sections under "Risk Factors" that are
referred to in the cross reference, (ii) the factors discussed under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Communications Business," "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Cable
Manufacturing Business," "Business of NextLevel Systems," "Business of
CommScope" and "Business of General Semiconductor" and (iii) the following
factors: (a) the general political, economic and competitive conditions in the
United States and other markets where General Semiconductor, NextLevel Systems
or CommScope operates; (b) changes in capital availability or costs, such as
changes in interest rates, market perceptions of the industry in which General
Semiconductor, NextLevel Systems or CommScope operates, or security ratings; (c)
employee workforce factors, including issues relating to collective bargaining
agreements or work stoppages; and (d) authoritative generally accepted
accounting principles or policy changes from such standard-setting bodies as the
Financial Accounting Standards Board and the Commission.
5
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 4
PROXY STATEMENT SUMMARY.................................................................................... 11
RISK FACTORS............................................................................................... 26
RISKS RELATING TO THE DISTRIBUTION....................................................................... 26
Lack of Recent Operating History as Separate Entities.................................................. 26
Potential Responsibility for Liabilities Not Expressly Assumed......................................... 26
Potential Indemnification Liabilities.................................................................. 26
Leverage After the Distribution; Certain Restrictions Under Credit Facilities.......................... 27
Certain Tax Considerations............................................................................. 27
No Current Public Market for NextLevel Systems Common Stock or CommScope Common Stock.................. 28
Changes in Trading Prices.............................................................................. 28
Dividend Policies...................................................................................... 28
Certain Antitakeover Features--NextLevel Systems and CommScope......................................... 29
Certain Consent Requirements........................................................................... 29
Fraudulent Transfer Considerations; Legal Dividend Requirements........................................ 29
RISKS RELATING TO THE BUSINESSES OF NEXTLEVEL SYSTEMS, COMMSCOPE AND GENERAL SEMICONDUCTOR............... 30
Dependence of NextLevel Systems and CommScope on the Cable Television Industry and Cable Television
Capital Spending...................................................................................... 30
Telecommunications Industry Competition and Technological Changes Affecting NextLevel Systems and
CommScope............................................................................................. 31
Competition............................................................................................ 32
Impact of Price Fluctuations of Raw Materials on CommScope; Sources of Raw Materials................... 33
International Operations; Foreign Currency Risks....................................................... 33
Environment............................................................................................ 34
Legal Proceedings...................................................................................... 35
THE MEETING................................................................................................ 36
Matters for Consideration at the Meeting............................................................... 36
Voting Rights and Proxy Information.................................................................... 37
Proposed Amendments to Certificate of Incorporation.................................................... 38
No Appraisal Rights.................................................................................... 38
THE DISTRIBUTION PROPOSALS................................................................................. 39
PROPOSAL ONE: THE DISTRIBUTION........................................................................... 39
General................................................................................................ 39
Background and Reasons for the Distribution............................................................ 39
Solvency Opinion....................................................................................... 40
Manner of Effecting the Distribution................................................................... 41
Federal Income Tax Aspects of the Distribution......................................................... 42
Interests of Certain Persons in the Distribution....................................................... 43
Listing and Trading of NextLevel Systems Common Stock and CommScope Common Stock....................... 43
Listing and Trading of General Semiconductor Common Stock.............................................. 44
Conditions; Termination................................................................................ 44
Future Management of the Separate Companies............................................................ 45
Internal Transfers..................................................................................... 45
Relationship Among NextLevel Systems, CommScope and General Semiconductor After the Distribution....... 46
Regulatory Approvals................................................................................... 51
Accounting Treatment................................................................................... 51
PROPOSAL TWO: APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY.... 51
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PROPOSAL THREE: APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF THE COMPANY TO EFFECT A REVERSE
STOCK SPLIT............................................................................................ 51
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General................................................................................................ 51
Amendment to the Certificate of Incorporation.......................................................... 52
Effect of the Proposed Reverse Split................................................................... 52
Reasons for the Reverse Stock Split.................................................................... 53
Surrender of Stock Certificates and Payment for Fractional Shares...................................... 53
Federal Income Tax Consequences........................................................................ 54
THE COMMUNICATIONS BUSINESS SELECTED FINANCIAL DATA........................................................ 55
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMMUNICATIONS
BUSINESS................................................................................................. 57
THE COMMUNICATIONS BUSINESS PRO FORMA CAPITALIZATION....................................................... 65
THE COMMUNICATIONS BUSINESS PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.............................. 66
The Communications Business Unaudited Pro Forma Combined Balance Sheet................................. 67
The Communications Business Unaudited Pro Forma Combined Statement of Operations....................... 68
THE CABLE MANUFACTURING BUSINESS SELECTED FINANCIAL DATA................................................... 69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE CABLE
MANUFACTURING BUSINESS................................................................................... 70
THE CABLE MANUFACTURING BUSINESS PRO FORMA CAPITALIZATION.................................................. 74
THE CABLE MANUFACTURING BUSINESS PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS..................... 75
The Cable Manufacturing Business Unaudited Pro Forma Consolidated Balance Sheet........................ 75
The Cable Manufacturing Business Unaudited Pro Forma Consolidated Income Statement..................... 76
THE POWER SEMICONDUCTOR BUSINESS PRO FORMA CAPITALIZATION.................................................. 77
THE POWER SEMICONDUCTOR BUSINESS PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS..................... 78
The Power Semiconductor Business Unaudited Pro Forma Consolidated Balance Sheet........................ 79
The Power Semiconductor Business Unaudited Pro Forma Consolidated Statement of Operations.............. 80
BUSINESS OF NEXTLEVEL SYSTEMS.............................................................................. 86
General................................................................................................ 86
Market Overview........................................................................................ 86
Business Strategy...................................................................................... 89
NextLevel Systems Business Units....................................................................... 90
Broadband Networks Group............................................................................... 90
Satellite Data Networks Group.......................................................................... 91
NLC.................................................................................................... 92
Technology and Licensing............................................................................... 93
Research and Development............................................................................... 93
Sales and Distribution................................................................................. 94
Patents................................................................................................ 94
Backlog................................................................................................ 94
Competition............................................................................................ 94
Raw Materials.......................................................................................... 95
Environment............................................................................................ 95
Properties............................................................................................. 95
Employees.............................................................................................. 95
Legal Proceedings...................................................................................... 96
BUSINESS OF COMMSCOPE...................................................................................... 97
General................................................................................................ 97
Business Strategy...................................................................................... 97
CommScope Business Units............................................................................... 98
Cable TV Division...................................................................................... 98
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Network Cable Division................................................................................. 100
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Manufacturing.......................................................................................... 101
Research and Development............................................................................... 102
Sales and Distribution................................................................................. 103
Patents................................................................................................ 103
Backlog................................................................................................ 103
Competition............................................................................................ 104
Raw Materials.......................................................................................... 104
Environment............................................................................................ 104
Properties............................................................................................. 105
Employees.............................................................................................. 105
Legal Proceedings...................................................................................... 105
BUSINESS OF GENERAL SEMICONDUCTOR.......................................................................... 106
General................................................................................................ 106
Business Strategy...................................................................................... 106
Principal Products..................................................................................... 107
Sales and Distribution................................................................................. 108
Research and Development............................................................................... 109
Patents................................................................................................ 109
Backlog................................................................................................ 109
Competition............................................................................................ 109
Raw Materials.......................................................................................... 109
Environment............................................................................................ 110
Properties............................................................................................. 110
Employees.............................................................................................. 111
Legal Proceedings...................................................................................... 111
FINANCING.................................................................................................. 113
NextLevel Systems...................................................................................... 113
CommScope.............................................................................................. 113
General Semiconductor.................................................................................. 113
MANAGEMENT OF NEXTLEVEL SYSTEMS............................................................................ 114
Board of Directors of NextLevel Systems................................................................ 114
Compensation of Directors.............................................................................. 115
Committees of the Board of Directors................................................................... 115
Executive Officers..................................................................................... 116
Executive Officer Compensation......................................................................... 118
NextLevel Systems Table I.............................................................................. 118
Stock Options.......................................................................................... 119
NextLevel Systems Table II............................................................................. 120
NextLevel Systems Table III............................................................................ 121
Pension Plan and SERP.................................................................................. 122
Certain Relationships and Related Transactions......................................................... 122
The NextLevel Systems 1997 Long-Term Incentive Plan.................................................... 122
Ownership of NextLevel Systems Common Stock............................................................ 126
NextLevel Systems Table IV............................................................................. 127
MANAGEMENT OF COMMSCOPE.................................................................................... 129
Board of Directors of CommScope........................................................................ 129
Compensation of Directors.............................................................................. 129
Committees of the Board of Directors................................................................... 129
Executive Officers..................................................................................... 130
Executive Officer Compensation......................................................................... 131
CommScope Table I...................................................................................... 131
Stock Options.......................................................................................... 132
CommScope Table II..................................................................................... 132
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CommScope Table III.................................................................................... 133
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CommScope Supplemental Executive Retirement Plan....................................................... 133
Employment Arrangements................................................................................ 133
The CommScope 1997 Long-Term Incentive Plan............................................................ 133
Ownership of CommScope Common Stock.................................................................... 137
CommScope Table IV..................................................................................... 137
MANAGEMENT OF GENERAL SEMICONDUCTOR........................................................................ 140
Board of Directors of General Semiconductor............................................................ 140
Compensation of Directors.............................................................................. 140
Committees of the Board of Directors................................................................... 140
Executive Officers..................................................................................... 141
Executive Officer Compensation......................................................................... 141
General Semiconductor Table I.......................................................................... 142
Stock Options.......................................................................................... 142
General Semiconductor Table II......................................................................... 143
General Semiconductor Table III........................................................................ 144
Pension Plan and SERP.................................................................................. 144
Employment and Severance Arrangements.................................................................. 145
Ownership of General Semiconductor Common Stock........................................................ 145
General Semiconductor Table IV......................................................................... 145
DESCRIPTION OF NEXTLEVEL SYSTEMS CAPITAL STOCK............................................................. 148
General................................................................................................ 148
NextLevel Systems Common Stock......................................................................... 148
NextLevel Systems Preferred Stock...................................................................... 148
NextLevel Systems Rights Plan.......................................................................... 148
Transfer Agent......................................................................................... 150
DESCRIPTION OF COMMSCOPE CAPITAL STOCK..................................................................... 150
General................................................................................................ 150
CommScope Common Stock................................................................................. 150
CommScope Preferred Stock.............................................................................. 150
CommScope Rights Plan.................................................................................. 151
Transfer Agent......................................................................................... 152
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK................................................................. 152
General................................................................................................ 152
GI Common Stock........................................................................................ 152
GI Preferred Stock..................................................................................... 152
The Company Rights Plan................................................................................ 153
Transfer Agent......................................................................................... 154
PRICE RANGE OF GI COMMON STOCK AND DIVIDENDS............................................................... 154
COMPARISON OF RIGHTS OF STOCKHOLDERS OF NEXTLEVEL SYSTEMS, COMMSCOPE AND GENERAL SEMICONDUCTOR............. 155
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS........................................................ 155
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS..................................................... 155
LIMITATIONS ON CHANGES IN CONTROL OF NEXTLEVEL SYSTEMS AND COMMSCOPE....................................... 156
THE ANNUAL MEETING PROPOSALS............................................................................... 158
PROPOSAL FOUR: APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION TO DECLASSIFY THE BOARD OF DIRECTORS
OF THE COMPANY........................................................................................... 158
PROPOSAL FIVE: ELECTION OF DIRECTORS....................................................................... 158
Nominees............................................................................................... 159
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY.............................. 160
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THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD......................................................... 162
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Committees of the Board--Board Meetings................................................................ 162
Compensation Committee Interlocks and Insider Participation............................................ 163
Director Compensation.................................................................................. 163
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.......................................................... 163
COMPENSATION OF EXECUTIVE OFFICERS......................................................................... 164
Company Summary Compensation Table..................................................................... 164
Option Grants in Fiscal Year 1996...................................................................... 164
Option Exercises and Values for Fiscal Year 1996....................................................... 165
COMPENSATION AND PLAN COMMITTEE REPORT ON COMPENSATION OF EXECUTIVE OFFICERS............................... 166
Stock Ownership........................................................................................ 167
Base Salary............................................................................................ 167
Annual Incentive Bonus................................................................................. 168
Chief Executive Officer Compensation................................................................... 168
Compliance With Internal Revenue Code Section 162(m)................................................... 169
PERFORMANCE GRAPH.......................................................................................... 170
EMPLOYMENT ARRANGEMENTS.................................................................................... 171
SEVERANCE PROTECTION AND OTHER AGREEMENTS.................................................................. 171
GI PENSION PLAN AND GI SERP................................................................................ 173
COMMSCOPE SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN........................................................... 173
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS....................................................... 174
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................. 174
EXPERTS.................................................................................................... 174
LEGAL MATTERS.............................................................................................. 174
STOCKHOLDER PROPOSALS FOR THE COMPANY'S 1998 ANNUAL MEETING................................................ 174
SOLICITATION OF PROXIES.................................................................................... 174
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
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ANNEXES
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A Form of Amended and Restated Certificate of Incorporation of NextLevel Systems
B Form of Amended and Restated Certificate of Incorporation of CommScope
C Form of Amendments to the Certificate of Incorporation of the Company
D Form of Amended and Restated By-Laws of NextLevel Systems
E Form of Amended and Restated By-Laws of CommScope
F Form of Distribution Agreement among the Company, NextLevel Systems and CommScope
G Marshall & Stevens Opinion
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PROXY STATEMENT SUMMARY
THIS SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION SET FORTH
ELSEWHERE IN THIS PROXY STATEMENT, WHICH SHOULD BE READ IN ITS ENTIRETY.
THE MEETING
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DATE, TIME AND PLACE OF MEETING... The Combined Annual and Special Meeting of Stockholders
of the Company will be held at [time] at [place] on
, 1997.
MATTERS FOR CONSIDERATION AT THE
MEETING......................... At the Meeting, the stockholders of the Company will be
asked to consider and vote upon the following
Distribution Proposals:
PROPOSAL ONE: Approval of (i) the internal stock and
asset transfers intended to allocate the assets and
liabilities relating to (a) the Communications Business
to NextLevel Systems, (b) the Cable Manufacturing
Business to CommScope and (c) the Power Semiconductor
Business to General Semiconductor (collectively, the
"Internal Transfers"), (ii) a special dividend,
consisting of the distribution (the "Distribution") to
the holders of GI Common Stock of the outstanding shares
of NextLevel Systems Common Stock and the outstanding
shares of CommScope Common Stock on the basis described
herein and (iii) the Distribution Agreement;
PROPOSAL TWO: Approval of an amendment to the
Certificate of Incorporation of the Company to change
the name of the Company to General Semiconductor, Inc.
after the Distribution; and
PROPOSAL THREE: Approval of an amendment to the
Certificate of Incorporation of the Company to effect a
for reverse stock split of the General
Semiconductor Common Stock immediately following the
Distribution (if approved, each shares of General
Semiconductor Common Stock will be converted into
share of General Semiconductor Common Stock).
THE EFFECTIVENESS OF PROPOSALS TWO AND THREE IS
CONDITIONED UPON THE APPROVAL OF PROPOSAL ONE. IF
PROPOSAL ONE IS NOT APPROVED, THE BOARD OF DIRECTORS OF
THE COMPANY WILL REEVALUATE ITS INTENTION TO EFFECT THE
DISTRIBUTION. AFTER SUCH REVIEW, THE BOARD COULD
DETERMINE TO REVISE THE TERMS OF THE DISTRIBUTION AND
EFFECT THE DISTRIBUTION AS REVISED OR ABANDON THE
DISTRIBUTION.
The Board has further retained discretion, even if
stockholder approval of the Distribution Proposals is
obtained and the other conditions to the Distribution
are satisfied, to abandon, defer or modify the
Distribution or any other element contained in the
Distribution Proposals, provided that following
stockholder approval the Board will not make any change
in the terms of the Distribution or the other elements
of the Distribution Proposals
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unless the Board determines that such changes would not
be materially adverse to the Company's stockholders.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR EACH OF THE DISTRIBUTION
PROPOSALS.
In addition, the stockholders of the Company will also
be asked to vote upon the following Annual Meeting
Proposals:
PROPOSAL FOUR: Approval of an amendment to the
Certificate of Incorporation of the Company to
declassify the Board of Directors and to provide for the
annual election of all directors; and
PROPOSAL FIVE: The election of four directors. If the
Distribution occurs, it is expected that all but one of
the Company's directors will resign and be replaced by
new directors.
The effectiveness of the Annual Meeting Proposals is not
conditioned on the approval of the Distribution
Proposals.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR BOTH OF THE ANNUAL MEETING
PROPOSALS.
MEETING RECORD DATE............... , 1997.
VOTING............................ Each stockholder of record as of the Meeting Record Date
is entitled at the Meeting to one vote for each share of
GI Common Stock held. The affirmative vote of the
holders of a majority of the outstanding shares of GI
Common Stock is required to approve each of the
Distribution Proposals. The affirmative vote of the
holders of a majority of the outstanding shares of GI
Common Stock is also required to approve Proposal Four.
The affirmative vote of the holders of a plurality of
shares of GI Common Stock present in person or
represented by proxy at the Meeting is required to elect
the directors nominated pursuant to Proposal Five. As of
, 1997, there were shares of GI Common Stock
outstanding and entitled to vote at the Meeting.
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THE DISTRIBUTION
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GENERAL........................... If the Distribution is consummated, the Company will be
divided into three separate, publicly traded companies:
NextLevel Systems, CommScope and General Semiconductor.
SHARES TO BE DISTRIBUTED.......... In the Distribution, each stockholder of record of the
Company as of the Distribution Record Date (as defined
below) will receive one share of NextLevel Systems
Common Stock for each share of GI Common Stock held by
such stockholder and one share of CommScope Common Stock
for every shares of GI Common Stock held by such
stockholder. Accordingly, each such stockholder will own
approximately the same percentage of the outstanding
common stock of each of NextLevel Systems, CommScope and
General Semiconductor as such stockholder
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currently owns of the outstanding common stock of the
Company. Stockholders will receive cash in lieu of
fractional shares, if any.
DISTRIBUTION RECORD DATE.......... The "Distribution Record Date" will be established by
the Board of Directors of the Company following the
Meeting.
DISTRIBUTION DATE................. The "Distribution Date" will be established by the Board
of Directors of the Company following the Meeting. On
the Distribution Date, the Company will deliver shares
of NextLevel Systems Common Stock and CommScope Common
Stock to ChaseMellon Shareholder Services, L.L.C., as
Distribution Agent (the "Distribution Agent"). The
Distribution Agent will mail account statements
reflecting ownership of shares of NextLevel Systems
Common Stock and CommScope Common Stock as soon as
practicable thereafter. See "The Distribution
Proposals--Proposal One: The Distribution--Manner of
Effecting the Distribution."
CONDITIONS TO THE DISTRIBUTION.... The Distribution is conditioned upon, among other
things, (i) the Internal Revenue Service having issued a
ruling (the "Tax Ruling") in response to the Company's
request in form and substance satisfactory to the Board
of Directors of the Company (see "--Tax Consequences"
below) and (ii) stockholder approval of the Distribution
Proposals at the Meeting. Even if all conditions are
satisfied, the Board has reserved the right to abandon,
defer or modify the Distribution or the other elements
of the Distribution Proposals at any time prior to the
Distribution Date. The Board will not, however (i) waive
receipt of the Tax Ruling from the Internal Revenue
Service or (ii) waive any other condition to the
Distribution or make any changes in the terms of the
Distribution or the other elements of the Distribution
Proposals after the Distribution Proposals are approved
by the Company's stockholders unless the Board
determines that such waivers or changes would not be
materially adverse to the Company's stockholders. In
determining whether any such waivers or changes would be
materially adverse to the Company's stockholders, the
Board will consider, as appropriate, advice from its
outside financial and legal advisors as well as the
recommendation of management as to the potential impact
of such waivers or changes on the Company and the
Company's stockholders. See "The Distribution
Proposals--Proposal One: The Distribution--Conditions;
Termination."
REASONS FOR THE DISTRIBUTION...... The Distribution is designed to separate three types of
businesses that have different dynamics and business
cycles, serve different markets and customers, are
subject to different competitive forces and must be
managed with different long-term and short-term
strategies and goals. The Distribution will allow the
management of each company to focus on its own business,
organize its capital structure, evaluate its growth
opportunities, allocate its resources, develop corporate
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strategies and design equity-based compensation programs
targeted to its own performance.
INTERNAL TRANSFERS................ On or prior to the Distribution Date and subject to
stockholder approval, the Company intends to consummate
certain internal stock and asset transfers intended to
allocate assets and liabilities relating to (i) the
Communications Business to NextLevel Systems, (ii) the
Cable Manufacturing Business to CommScope and (iii) the
Power Semiconductor Business to General Semiconductor
(I.E., the Internal Transfers). See "The Distribution
Proposals--Proposal One: The Distribution-- Internal
Transfers," "The Communications Business Pro Forma
Condensed Combined Financial Statements," "The Cable
Manufacturing Business Pro Forma Condensed Consolidated
Financial Statements" and "The Power Semiconductor
Business Pro Forma Condensed Consolidated Financial
Statements."
RELATIONSHIP AMONG NEXTLEVEL
SYSTEMS, COMMSCOPE AND GENERAL
SEMICONDUCTOR AFTER THE
DISTRIBUTION.................... For purposes of governing certain ongoing relationships
among NextLevel Systems, CommScope and General
Semiconductor after the Distribution and to provide
mechanisms for an orderly transition, the Company,
NextLevel Systems and CommScope have entered into or
will enter into certain agreements. Such agreements
include: (i) the Distribution Agreement, providing for,
among other things, the Distribution and cross-
indemnification provisions, (ii) the Tax Sharing
Agreement (as defined below), (iii) the Employee
Benefits Allocation Agreement (as defined below), (iv)
the transition services agreements, (v) the Trademark
License Agreement (as defined below), (vi) the Insurance
Agreement (as defined below) and (vii) the Debt and Cash
Allocation Agreement (as defined below) (such agreements
other than the Distribution Agreement are referred to
herein collectively as the "Ancillary Agreements"). See
"The Distribution Proposals--Proposal One: The
Distribution--Relationship Among NextLevel Systems,
CommScope and General Semiconductor After the
Distribution."
FINANCING......................... NextLevel Systems has engaged in discussions with
certain banks concerning provision of a revolving credit
facility in the amount of $600 million to certain of its
subsidiaries. It is expected that will be
the lead bank and that NextLevel Systems will be
permitted to choose between three interest rate options:
the Adjusted Base Rate (as defined), which is based on
the prime rate of , a Eurodollar rate (LIBOR)
plus % and a competitive bid loan rate. It is
expected that, in connection with the Distribution,
NextLevel Systems will borrow approximately $140.9
million under such facility to repay indebtedness
originally incurred under the GI Credit Facility
(defined below). See "Financing--NextLevel Systems."
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CommScope has engaged in discussions with certain banks
concerning provision of a revolving credit facility in
the amount of $325 million to certain of its
subsidiaries. It is expected that will be
the lead bank and that CommScope will be permitted to
choose between three interest rate options: the Adjusted
Base Rate (as defined), which is based on the prime rate
of , a Eurodollar rate (LIBOR) plus
% and a competitive bid loan rate. It is expected
that CommScope will borrow approximately $264.2 million
under such facility to pay a dividend to General
Instrument Corporation of Delaware, the Company's wholly
owned subsidiary ("GI Delaware"), in such amount
immediately prior to the Distribution. See
"Financing--CommScope."
The Company has engaged in discussions with its current
lenders concerning an amendment to its revolving credit
facility (the "GI Credit Facility") to provide for
revolving credit to certain of its subsidiaries in the
amount of $275 million after the Distribution. It is
expected that will be the lead bank and that
General Semiconductor will be permitted to choose
between three interest rate options: the Adjusted Base
Rate (as defined), which is based on the prime rate of
, a Eurodollar rate (LIBOR) plus %
and a competitive bid loan rate. See "Financing--General
Semiconductor."
On or prior to the Distribution Date, the Company
intends to redeem, to the extent not previously
converted into GI Common Stock, all of its outstanding
5% Convertible Junior Subordinated Notes due 2000 (the
"GI Convertible Notes").
TAX CONSEQUENCES.................. The Company has conditioned the Distribution on receipt
of a ruling from the Internal Revenue Service to the
effect, among other things, that receipt of shares of
NextLevel Systems Common Stock and CommScope Common
Stock by stockholders of the Company will be tax free
except with respect to cash received in lieu of
fractional shares. This condition may not be waived or
modified by the Board of Directors of the Company. For a
description of the consequences to the Company,
NextLevel Systems, CommScope and the stockholders if the
Distribution were not to qualify as tax free, see "Risk
Factors--Risks Relating to the Distribution--Certain Tax
Considerations."
ACCOUNTING TREATMENT.............. If the stockholders of the Company approve the
Distribution at the Meeting, the Company will thereafter
present the businesses of NextLevel Systems and
CommScope as discontinued operations to the extent
financial information for periods prior to the
Distribution is required to be included in the Company's
historical financial statements. After the Distribution,
the businesses of NextLevel Systems and CommScope will
each present separate financial statements.
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EXPENSES.......................... All expenses incurred in connection with the
Distribution on or prior to the Distribution Date
(approximately $ million as of , 1997),
whether or not paid on or prior to the Distribution
Date, will be paid by the Company. However, each of
NextLevel Systems and CommScope will be responsible for
any expenses separately and directly incurred by it in
connection with the Distribution.
APPRAISAL RIGHTS.................. Stockholders of the Company will not be entitled to
appraisal rights under Delaware law in connection with
the Distribution Proposals.
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NEXTLEVEL SYSTEMS AFTER THE DISTRIBUTION
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BUSINESS.......................... NextLevel Systems is a newly formed indirect wholly
owned subsidiary of the Company. Following the Internal
Transfers and the Distribution, NextLevel Systems,
through its subsidiaries (primarily NextLevel Systems of
Delaware, Inc. ("NextLevel Systems Delaware"), its sole
direct subsidiary) will conduct the Communications
Business as now conducted by the Company and certain of
its subsidiaries.
NextLevel Systems will be a leading worldwide supplier
of systems and equipment for high-performance networks
delivering video, voice and data/Internet services. The
Communications Business is organized into three business
units: the Broadband Networks Group, the Satellite Data
Networks Group and Next Level Communications ("NLC").
The Broadband Networks Group is the world leader in
digital and analog set-top systems for wired and
wireless cable television networks, as well as hybrid
fiber/coaxial network transmission systems used by cable
television operators. The Satellite Data Networks Group
is a leading provider of digital satellite systems for
satellite programmers, direct-to-home satellite network
providers and private networks for business
communications. NLC provides telephone network solutions
through its NLevel(3) Switched Digital Services system.
The Communications Business had sales of $1.76 billion
for the year ended December 31, 1996.
PRINCIPAL OFFICES................. The principal executive offices of NextLevel Systems
will be located at 8770 West Bryn Mawr Avenue, Chicago,
Illinois 60631. Its telephone number at that address
will be (773) 695-1000.
BOARD OF DIRECTORS................ The following individuals are expected to be the
members of the Board of Directors of NextLevel Systems
as of the close of business on the Distribution Date:
. Certain of the foregoing currently serve as
directors of the Company and will resign from the
Company's Board of Directors effective as of the
Distribution Date. See "Management of NextLevel
Systems-- Board of Directors of NextLevel Systems."
TRADING MARKET.................... There is currently no public market for the NextLevel
Systems Common Stock. NextLevel Systems intends to list
the NextLevel
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Systems Common Stock on the NYSE under the symbol "NLV."
See "Risk Factors--Risks Relating to the
Distribution--No Current Public Market for NextLevel
Systems Common Stock or CommScope Common Stock" and "The
Distribution Proposals--Proposal One: The
Distribution--Listing and Trading of NextLevel Systems
Common Stock and CommScope Common Stock."
CERTAIN PROVISIONS OF CERTIFICATE
OF INCORPORATION, BY-LAWS AND
RIGHTS PLAN..................... Certain provisions of the Certificate of Incorporation
and By-Laws of NextLevel Systems which will be in effect
at the time of the Distribution may have the effect of
making more difficult an acquisition of control of
NextLevel Systems in a transaction not approved by
NextLevel Systems' Board of Directors. In addition,
NextLevel Systems has adopted a stockholders' rights
plan (the "NextLevel Systems Rights Plan"), which, under
certain circumstances, would significantly dilute the
interest in NextLevel Systems of persons seeking to
acquire control of NextLevel Systems without the prior
approval of NextLevel Systems' Board of Directors. See
"Limitations on Changes in Control of NextLevel Systems
and CommScope" and "Description of NextLevel Systems
Capital Stock--NextLevel Systems Rights Plan."
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COMMSCOPE AFTER THE DISTRIBUTION
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BUSINESS.......................... CommScope is a newly formed indirect wholly owned
subsidiary of the Company. Following the Internal
Transfers and the Distribution, CommScope, through its
subsidiaries (primarily CommScope, Inc. of North
Carolina ("CommScope NC"), its sole direct subsidiary),
will continue to conduct the Cable Manufacturing
Business as now conducted by CommScope NC and its
subsidiaries.
CommScope will be the leading worldwide supplier of
coaxial cable for broadband communications. As cable
television, telephone, Internet access and other
communications services converge, broadband
communication systems are increasingly being configured
in a hybrid design that includes both fiber optic and
coaxial cables. CommScope NC is the largest manufacturer
and supplier of coaxial cable for cable television
applications and is a leading supplier of coaxial cable
for satellite television and other broadband video
distribution applications. CommScope NC also
manufactures and sells electrical and optical cable for
local area network and other high-performance cable
applications. The Cable Manufacturing Business had sales
of $572 million for the year ended December 31, 1996.
PRINCIPAL OFFICES................. The principal executive offices of CommScope will be
located at 1375 Lenoir-Rhyne Boulevard, Hickory, North
Carolina 28601. Its telephone number at that address
will be (704) 324-2200.
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<S> <C>
BOARD OF DIRECTORS................ The following individuals are expected to be the
members of the Board of Directors of CommScope as of the
close of business on the Distribution Date: .
Certain of the foregoing currently serve as directors of
the Company and will resign from the Company's Board of
Directors effective as of the Distribution Date. See
"Management of CommScope--Board of Directors of
CommScope."
TRADING MARKET.................... There is currently no public market for the CommScope
Common Stock. CommScope intends to list the CommScope
Common Stock on the NYSE under the symbol "CTV." See
"Risk Factors--Risks Relating to the Distribution--No
Current Public Market for NextLevel Systems Common Stock
or CommScope Common Stock" and "The Distribution
Proposals--Proposal One: The Distribution--Listing and
Trading of NextLevel Systems Common Stock and CommScope
Common Stock."
CERTAIN PROVISIONS OF CERTIFICATE
OF INCORPORATION, BY-LAWS AND
RIGHTS PLAN..................... Certain provisions of the Certificate of Incorporation
and By-Laws of CommScope which will be in effect at the
time of the Distribution may have the effect of making
more difficult an acquisition of control of CommScope in
a transaction not approved by CommScope's Board of
Directors. In addition, CommScope has adopted a
stockholders' rights plan (the "CommScope Rights Plan"),
which, under certain circumstances, would significantly
dilute the interest in CommScope of persons seeking to
acquire control of CommScope without the prior approval
of CommScope's Board of Directors. See "Limitations on
Changes in Control of NextLevel Systems and CommScope"
and "Description of CommScope Capital Stock--CommScope
Rights Plan."
</TABLE>
THE COMPANY AFTER THE DISTRIBUTION
<TABLE>
<S> <C>
BUSINESS.......................... Following the Internal Transfers and the Distribution,
the Company will be renamed General Semiconductor, Inc.
and, through its subsidiaries (primarily General
Semiconductor of Delaware, Inc. ("GS Delaware"), its
sole direct subsidiary), will continue to conduct the
Power Semiconductor Business currently conducted by the
Company's Power Semiconductor Division (the "Power
Semiconductor Division").
General Semiconductor will be a world leader in the
design, manufacture and sale of low- to medium-power
rectifiers and transient voltage suppression components.
These products are used throughout the electrical and
electronics industries to condition current and voltage
and to protect electrical circuits from power surges.
Applications for General Semiconductor's products
include consumer electronics, telecommunications,
computers, lighting ballasts, home appliances,
automotive and
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
industrial products. The Power Semiconductor Business
had sales of $362 million for the year ended December
31, 1996.
PRINCIPAL OFFICES................. The principal executive offices of General Semiconductor
will be located at 10 Melville Park Road, Melville, New
York 11747-3113. Its telephone number at that address
will be (516) 847-3000.
BOARD OF DIRECTORS................ Effective as of the Distribution Date, following the
resignations of all but one of the Company's directors
(some of whom are or will become directors of NextLevel
Systems or CommScope), and the election of new
directors, the Board of Directors of General
Semiconductor is expected to consist of the following
persons: . See "Management of
General Semiconductor--Board of Directors of General
Semiconductor."
TRADING MARKET.................... The General Semiconductor Common Stock is expected to
continue to be listed on the NYSE following the
Distribution; however, its ticker symbol will be changed
to "SEM." The trading price of the General Semiconductor
Common Stock will be substantially affected by the
Distribution. If Proposal Three is approved, immediately
following the Distribution, General Semiconductor will
effect a for reverse stock split of the General
Semiconductor Common Stock. See "Risk Factors--Risks
Relating to the Distribution--Changes in Trading Prices"
and "The Distribution Proposals--Proposal Three:
Approval of Amendment to Certificate of Incorporation of
the Company to Effect a Reverse Stock Split."
</TABLE>
RISK FACTORS
Stockholders should consider carefully the specific investment
considerations set forth under "Risk Factors," as well as the other information
set forth in this Proxy Statement.
19
<PAGE>
THE COMPANY
SUMMARY FINANCIAL DATA
The following table presents summary historical financial data of the
Company. The information set forth below should be read in conjunction with the
"Pro Forma Condensed Consolidated Financial Statements of the Power
Semiconductor Business," the historical consolidated financial statements and
notes thereto of the Company included elsewhere in this Proxy Statement and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the Company's Annual Report to Stockholders for the
year ended December 31, 1996, incorporated herein by reference. The consolidated
statement of operations data set forth below for each of the three years ended
December 31, 1996 and the consolidated balance sheet data at December 31, 1996
and 1995 are derived from, and are qualified by reference to, the audited
consolidated financial statements of the Company included elsewhere in this
Proxy Statement. The consolidated statement of operations data for the years
ended December 31, 1993 and 1992 and the consolidated balance sheet data at
December 31, 1994, 1993 and 1992 are derived from audited consolidated financial
statements of the Company not included in this Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996(A) 1995(B) 1994(C) 1993(D) 1992(E)
------------ ------------ ------------ ------------ ------------
<CAPTION>
(IN THOUSANDS, UNLESS OTHERWISE NOTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales.................................. $ 2,689,688 $ 2,432,024 $ 2,036,323 $ 1,392,522 $ 1,074,695
Cost of sales............................ 1,997,625 1,690,639 1,403,585 956,154 755,466
Selling, general and administrative...... 265,717 224,269 179,631 149,362 137,335
Research and development................. 209,257 147,253 111,462 73,741 58,149
Purchased in-process technology.......... -- 139,860 -- -- --
NLC litigation costs..................... 141,000 -- -- -- --
Amortization of excess of cost over fair
value of net assets acquired........... 24,577 24,702 25,574 25,722 25,883
Operating income........................... 51,512 205,301 316,071 187,543 97,862
Interest expense-net....................... (46,356) (41,059) (52,751) (72,458) (110,304)
Income (loss) before extraordinary item and
cumulative effect of changes in
accounting principles.................... (1,864) 123,782 248,452 90,366 (41,395)
Net income (loss).......................... $ (1,864) $ 123,782 $ 246,535 $ 90,583 $ (52,993)
Primary earnings (loss) per share before
extraordinary item and cumulative effect
of changes in accounting principles...... $ (.01) $ 1.00 $ 2.01 $ .74 $ (.42)
Fully diluted earnings (loss) per share
before extraordinary item and cumulative
effect of changes in accounting
principles............................... (.01) .96 1.89 .74 (.42)
</TABLE>
(continued)
20
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<CAPTION>
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets............................... $ 2,706,851 $ 2,300,758 $ 2,108,951 $ 1,776,088 $ 1,727,495
Long-term debt, including current
maturities............................... 703,135 742,879 796,849 840,204 989,222
Other non-current liabilities.............. 278,696 162,205 178,273 209,432 138,458
Stockholders' equity....................... 1,173,153 915,343 677,178 389,105 291,332
</TABLE>
- ------------------------
(a) 1996 includes charges of $237 million ($151 million net of tax), or $1.14
per primary share, reflecting restructuring charges related to the Company's
plan to separate into three independent companies, NLC litigation costs and
other charges primarily related to the transition to the Company's next-
generation digital products and the write-down of certain assets (see Notes
2, 9 and 15 to the consolidated financial statements of the Company).
(b) 1995 includes a charge of $140 million ($90 million net of tax), or $.72 per
primary share and $.62 per fully diluted share, for purchased in-process
technology in connection with the Company's acquisition of NLC.
(c) 1994 includes an income tax benefit of $30 million, or $.24 per primary
share and $.20 per fully diluted share, as a result of a reduction in a
valuation allowance, as of December 31, 1994, related to domestic deferred
income tax assets.
(d) 1993 includes a cumulative effect credit of $10 million and a cumulative
effect charge of $10 million to reflect the adoption of Statements of
Financial Accounting Standards No. 109, Accounting for Income Taxes, and No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions,
respectively.
(e) 1992 includes a $12 million extraordinary charge for the write-off of
deferred financing costs in connection with the early extinguishment of
debt.
21
<PAGE>
THE COMMUNICATIONS BUSINESS
(WHICH WILL BECOME NEXTLEVEL SYSTEMS, INC. FOLLOWING THE DISTRIBUTION)
SUMMARY FINANCIAL DATA
The following table presents summary historical financial data of the
Communications Business. The information set forth below should be read in
conjunction with "The Communications Business Pro Forma Condensed Combined
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Communications Business" and the
historical combined financial statements and notes thereto of the Communications
Business included elsewhere in this Proxy Statement. The unaudited pro forma
operations data set forth below was prepared to give effect to the Distribution
as if it had occurred on January 1, 1996, and the unaudited pro forma balance
sheet data was prepared to give effect to the Distribution as if it had occurred
on December 31, 1996, and does not purport to represent what the Communications
Business' operating results or financial position would have been or to project
its operating results or financial position for any future date. The combined
statement of operations data set forth below for each of the three years ended
December 31, 1996 and the combined balance sheet data at December 31, 1996 and
1995 are derived from, and are qualified by reference to, the audited combined
financial statements of the Communications Business included elsewhere in this
Proxy Statement. The combined balance sheet data at December 31, 1994 are
derived from the audited combined balance sheet of the Communications Business
at December 31, 1994, which is not included in this Proxy Statement. The
combined statement of operations data for the years ended December 31, 1993 and
1992 and the combined balance sheet data at December 31, 1993 and 1992 are
derived from unaudited combined financial statements of the Communications
Business not included in this Proxy Statement.
The historical financial information may not be indicative of the
Communications Business' future performance and does not necessarily reflect
what the financial position and results of operations of the Communications
Business would have been had the Communications Business operated as a separate,
stand-alone entity during the periods presented. Per share data for net income
(loss) has not been presented because the Communications Business was operated
through the Company for the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA
1996 (A) 1996(A) 1995(B) 1994(C) 1993 1992
------------ ------------ ------------ ------------ ---------- ----------
<CAPTION>
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales.............................. $ 1,755,585 $ 1,755,585 $ 1,532,595 $ 1,275,307 $ 782,960 $ 556,990
Cost of sales........................ 1,349,815 1,349,815 1,079,916 877,667 528,719 383,773
Selling, general and
administrative..................... 182,232 174,432 138,209 102,753 87,389 84,316
Research and development............. 198,071 198,071 137,930 104,795 67,610 52,432
Purchased in-process technology...... -- -- 139,860 -- -- --
NLC litigation costs................. 141,000 141,000 -- -- -- --
Amortization of excess of cost over
fair value of net assets
acquired........................... 14,278 14,278 14,418 14,931 15,027 15,141
Operating income (loss)................ (129,811) (122,011) 22,262 175,161 84,215 21,328
Interest expense--net.................. (17,280) (25,970) (22,933) (27,337) (35,026) (54,869)
Income (loss) before income taxes and
cumulative effect of changes in
accounting principles................ (148,518) (149,408) (2,408) 149,204 58,133 (33,624)
Net income (loss)...................... $ (95,767) $ (96,310) $ 4,206 $ 121,049 $ 49,856 $ (39,061)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA
1996 1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ---------- ----------
<CAPTION>
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets........................... $ 1,630,736 $ 1,629,736 $ 1,354,338 $ 1,199,002 $ 969,635 $ 901,940
Long-term obligations, including
current maturities................... 280,000 -- -- -- -- --
Other non-current liabilities.......... 48,945 188,045 75,125 77,890 103,293 39,276
Divisional net equity.................. 896,074 1,051,174 926,168 763,895 629,016 637,056
</TABLE>
- ------------------------
(a) 1996 includes charges of $226 million ($145 million net of tax) reflecting
NLC litigation costs and other charges primarily related to the transition
to the Communications Business' next-generation digital products and the
write-down of certain assets (see Notes 4 and 10 to the combined financial
statements of the Communications Business).
(b) 1995 includes a charge of $140 million ($90 million net of tax) for
purchased in-process technology in connection with the acquisition of NLC.
(c) 1994 includes an income tax benefit of $31 million, as a result of a
reduction in a valuation allowance related to domestic deferred income tax
assets.
23
<PAGE>
THE CABLE MANUFACTURING BUSINESS
(COMMSCOPE, INC. OF NORTH CAROLINA)
SUMMARY FINANCIAL DATA
The following table presents summary historical financial data of CommScope
NC, hereinafter referred to as the Cable Manufacturing Business. The information
set forth below should be read in conjunction with the "The Cable Manufacturing
Business Pro Forma Condensed Consolidated Financial Statements," "Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Cable Manufacturing Business" and the historical consolidated financial
statements and notes thereto of the Cable Manufacturing Business included
elsewhere in this Proxy Statement. The unaudited pro forma operations data set
forth below was prepared to give effect to the Distribution as if it had
occurred on January 1, 1996, and the unaudited pro forma balance sheet data was
prepared to give effect to the Distribution as if it had occurred on December
31, 1996, and does not purport to represent what the Cable Manufacturing
Business' operating results or financial position would have been or to project
its operating results or financial position for any future date. The
consolidated statement of operations data set forth below for each of the three
years ended December 31, 1996 and the consolidated balance sheet data at
December 31, 1996 and 1995 are derived from, and are qualified by reference to,
the audited consolidated financial statements of the Cable Manufacturing
Business included elsewhere in this Proxy Statement. The consolidated balance
sheet data at December 31, 1994 are derived from the audited consolidated
balance sheet of the Cable Manufacturing Business at December 31, 1994, which is
not included in this Proxy Statement. The consolidated statement of operations
data for the years ended December 31, 1993 and 1992 and the consolidated balance
sheet data at December 31, 1993 and 1992 are derived from unaudited consolidated
financial statements of the Cable Manufacturing Business not included in this
Proxy Statement.
The historical financial information may not be indicative of the Cable
Manufacturing Business' future performance and does not necessarily reflect what
the financial position and results of operations of the Cable Manufacturing
Business would have been had the Cable Manufacturing Business operated as a
separate, stand-alone entity during the periods presented. Per share data for
net income has not been presented because the Cable Manufacturing Business was
operated through the Company for the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA
1996 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales.......................................... $ 572,212 $ 572,212 $ 485,160 $ 445,328 $ 341,789 $ 286,946
Cost of sales.................................... 417,123 417,123 355,732 317,466 243,665 202,441
Selling, general and administrative.............. 44,342 44,342 34,835 31,625 25,144 22,227
Research and development......................... 5,348 5,348 4,255 3,213 2,979 2,673
Amortization of excess of cost over fair value of
net assets acquired............................ 5,145 5,145 5,075 5,254 5,288 5,327
Operating income................................... 100,254 100,254 85,263 87,770 64,713 54,278
Interest expense--net.............................. (17,663) (9,990) (8,665) (12,281) (17,451) (25,576)
Income before income taxes and cumulative effect of
changes in accounting principles................. 84,430 92,103 76,713 75,485 47,261 29,095
Net income......................................... $ 52,441 $ 57,122 $ 47,331 $ 45,096 $ 27,336 $ 15,621
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA
1996 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets...................................... $ 480,885 $ 479,885 $ 412,378 $ 397,843 $ 336,281 $ 328,759
Long-term obligations, including current
maturities...................................... 275,000 10,800 10,800 -- -- --
Other non-current liabilities..................... 9,565 9,565 6,925 5,561 5,659 4,226
Stockholders' equity.............................. 127,560 393,560 339,177 343,169 300,786 296,958
</TABLE>
24
<PAGE>
THE POWER SEMICONDUCTOR BUSINESS
(GENERAL INSTRUMENT CORPORATION, TO BE RENAMED GENERAL SEMICONDUCTOR, INC.,
FOLLOWING THE DISTRIBUTION)
PRO FORMA SUMMARY FINANCIAL DATA
The following table presents unaudited pro forma summary financial data of
the Power Semiconductor Business prepared to give effect to the Distribution.
The unaudited pro forma summary financial data should be read in conjunction
with the historical consolidated financial statements of the Company and the
notes thereto appearing elsewhere in this Proxy Statement. The unaudited pro
forma statements of operations data set forth below were prepared to give effect
to the Distribution for each of the most recent three years as if it had
occurred on the first day of the earliest period presented, and do not purport
to represent what the operations actually would have been, or to project the
Power Semiconductor Business' operating results for any future period. The
unaudited pro forma summary balance sheet data was prepared to give effect to
the Distribution as if it had occurred on December 31, 1996, and does not
purport to represent what the financial position actually would have been, or to
project the Power Semiconductor Business' financial position, for any future
period.
<TABLE>
<CAPTION>
PRO FORMA FOR THE
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
PRO FORMA OPERATIONS DATA
Net sales.......................................................... $ 361,891 $ 414,269 $ 315,688
Cost of sales.................................................... 230,687 254,991 208,452
Selling, general and administrative.............................. 46,943 51,225 45,253
Research and development......................................... 5,838 5,068 3,454
Amortization of excess of cost over fair value of net assets
acquired........................................................ 5,154 5,209 5,389
Operating income................................................... 73,269 97,776 53,140
Interest expense--net.............................................. (19,450) (19,450) (19,450)
Income from continuing operations before income taxes.............. 53,768 78,054 27,160
Income from continuing operations.................................. $ 31,801 $ 66,152 $ 15,629
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA AT
DECEMBER 31, 1996
-----------------
<S> <C>
PRO FORMA BALANCE SHEET DATA
Total assets......................................................................... $ 586,869
Long-term obligations, including current maturities.................................. 275,000
Other non-current liabilities........................................................ 81,086
Stockholders' equity................................................................. 82,972
</TABLE>
25
<PAGE>
RISK FACTORS
The following factors, in conjunction with the other information included in
this Proxy Statement (including the documents incorporated by reference herein),
should be carefully considered by the stockholders of the Company in evaluating
the matters presented herein.
RISKS RELATING TO THE DISTRIBUTION
LACK OF RECENT OPERATING HISTORY AS SEPARATE ENTITIES
Upon consummation of the Distribution, NextLevel Systems will own and
operate the Communications Business, CommScope will own and operate the Cable
Manufacturing Business and General Semiconductor will own and operate the Power
Semiconductor Business. None of these companies has a recent operating history
as a separate entity.
After the Distribution, each of NextLevel Systems, CommScope and General
Semiconductor will be a smaller and less diversified company than the Company
was prior to the Distribution. The ability of each of NextLevel Systems,
CommScope and General Semiconductor to satisfy its respective obligations and
maintain profitability will be solely dependent upon its own future performance,
and each company will not be able to rely on the capital resources and cash
flows of the other two businesses. In particular, in recent years, the
Communications Business has invested heavily in the development of new
technologies and products and relied on the cash flows of the Company's other
businesses to help fund these expenditures. Although this source of funding will
no longer be available after the Distribution, management of NextLevel Systems
believes that its expected cash flow, as well as other sources of funding
available to it, will be sufficient to finance its planned expenditures.
However, the future performance and cash flows of each company will be subject
to prevailing economic conditions and to financial, business and other factors
affecting the business operations of such company, including factors beyond its
control.
The division of the Company may result in some temporary dislocation and
inefficiencies to the business operations, as well as the organization and
personnel structure, of each company, and will also result in the duplication of
certain personnel, administrative and other expenses required for the operation
of independent companies. In addition, although after the Distribution each
business will continue to be managed by its current operating management, the
managements of General Semiconductor and CommScope, respectively, have not
previously operated their businesses as separate public companies. Accordingly,
there can be no assurance that the transition will not alter or disrupt, at
least temporarily, the management and operations of one or more of the
businesses.
POTENTIAL RESPONSIBILITY FOR LIABILITIES NOT EXPRESSLY ASSUMED
The Distribution Agreement and the Ancillary Agreements allocate among
NextLevel Systems, CommScope, General Semiconductor and their respective
subsidiaries responsibility for various indebtedness, liabilities and
obligations. See "The Distribution Proposals--Proposal One: The Distribution--
Relationship Among NextLevel Systems, CommScope and General Semiconductor After
the Distribution." It is possible that a court would disregard this contractual
allocation of indebtedness, liabilities and obligations among the parties and
require NextLevel Systems, CommScope or General Semiconductor or their
respective subsidiaries to assume responsibility for obligations allocated to
another party, particularly if such other party were to refuse or was unable to
pay or perform any of its allocated obligations.
POTENTIAL INDEMNIFICATION LIABILITIES
Pursuant to the Distribution Agreement and certain of the Ancillary
Agreements, each of NextLevel Systems, CommScope and General Semiconductor has
agreed to indemnify the other parties (and certain related persons) from and
after consummation of the Distribution with respect to certain indebtedness,
26
<PAGE>
liabilities and obligations, which indemnification obligations could be
significant. See "The Distribution Proposals--Proposal One: The
Distribution--Relationship Among NextLevel Systems, CommScope and General
Semiconductor After the Distribution."
LEVERAGE AFTER THE DISTRIBUTION; CERTAIN RESTRICTIONS UNDER CREDIT FACILITIES
Following the Distribution, NextLevel Systems will be significantly less
leveraged than the Company was prior to the Distribution, although CommScope and
General Semiconductor will have substantial leverage. As of December 31, 1996,
the Company had total long-term debt, including current maturities, of $703
million and total stockholders' equity of $1.17 billion. Assuming that the
Distribution, and the redemption of the GI Convertible Notes had been
consummated as of December 31, 1996, on a pro forma basis: (i) NextLevel Systems
would have had total long-term debt of $280 million (which includes additional
debt in the amount of $139 million related to the NLC litigation described
below) and total stockholders' equity of $896 million; (ii) CommScope would have
had total long-term debt of $275 million and total stockholders' equity of $128
million; and (iii) General Semiconductor would have had total debt of $275
million and total stockholders' equity of $83 million, as of December 31, 1996.
The allocation of indebtedness among the three companies reflects, in
substantial part, the relative expected capital requirements and cash flows of
the three businesses.
The degree to which each company is leveraged could have important
consequences, including the following: (i) each company's ability to obtain
additional financing in the future for working capital, capital expenditures,
product development, acquisitions, general corporate purposes or other purposes
may be impaired; (ii) a portion of each company's and its subsidiaries' cash
flow from operations must be dedicated to the payment of the principal of and
interest on its indebtedness; (iii) each company's credit agreement will contain
certain restrictive financial and operating covenants, including, among others,
requirements that the company satisfy certain financial ratios; (iv) a
significant portion of each company's borrowings will be at floating rates of
interest, causing each company to be vulnerable to increases in interest rates;
(v) each company's degree of leverage may make it more vulnerable in a downturn
in general economic conditions; and (vi) each company's degree of leverage may
limit its flexibility in responding to changing business and economic
conditions. In addition, in a lawsuit by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy, a court may be asked to void the
Distribution (in whole or in part) as a fraudulent conveyance and to require
that the stockholders return the special dividend (in whole or in part) to the
Company or require each of the companies to fund certain liabilities of the
other companies for the benefit of creditors. See "--Fraudulent Transfer
Considerations; Legal Dividend Requirements."
CERTAIN TAX CONSIDERATIONS
The Company has conditioned the Distribution on the receipt of a favorable
ruling from the Internal Revenue Service, which condition may not be waived or
modified. See "The Distribution Proposals-- Proposal One: The
Distribution--Federal Income Tax Aspects of the Distribution." Such rulings,
while generally binding upon the Internal Revenue Service, are subject to
certain factual representations and assumptions. If such factual representations
and assumptions were incorrect in a material respect, such ruling would be
jeopardized. The Company is not aware of any facts or circumstances which would
cause such representations and assumptions to be untrue. The Company, NextLevel
Systems and CommScope have agreed to certain restrictions on their future
actions to provide further assurances that the Distribution will qualify as tax
free. See "The Distribution Proposals--Proposal One: The
Distribution--Relationship Among NextLevel Systems, CommScope and General
Semiconductor After the Distribution-- Distribution Agreement."
If the Distribution were not to qualify as a tax free spin-off under Section
355 of the Internal Revenue Code of 1986, as amended (the "Code"), then, in
general, a corporate tax would be payable by the consolidated group of which the
Company is the common parent based upon the difference between the
27
<PAGE>
fair market value of the stock distributed and the distributing corporation's
adjusted basis in such stock. The corporate level tax would be payable by
General Semiconductor and could substantially exceed the net worth of General
Semiconductor. However, under certain circumstances, NextLevel Systems and
CommScope have agreed to indemnify General Semiconductor for such tax liability.
See "The Distribution Proposals--Propsosal One: The Distribution--Relationship
Among NextLevel Systems, CommScope and General Semiconductor After the
Distribution--Tax Sharing Agreement." In addition, under the consolidated return
rules, each member of the consolidated group (including NextLevel Systems and
CommScope) is severally liable for such tax liability.
Furthermore, if the Distribution were not to qualify as a tax free spin-off
under Section 355 of the Code, each holder of GI Common Stock who receives
shares of NextLevel Systems Common Stock and CommScope Common Stock in the
Distribution would be treated as if such stockholder received a taxable
distribution in an amount equal to the fair market value of the NextLevel
Systems Common Stock and CommScope Common Stock received, which would result in
(i) a dividend to the extent of such stockholder's PRO RATA share of the
Company's current and accumulated earnings and profits, (ii) a reduction in such
stockholder's basis in GI Common Stock to the extent the amount received exceeds
such stockholder's share of earnings and profits and (iii) gain from the
exchange of GI Common Stock to the extent the amount received exceeds both such
stockholder's share of earnings and profits and such stockholder's basis in GI
Common Stock.
NO CURRENT PUBLIC MARKET FOR NEXTLEVEL SYSTEMS COMMON STOCK OR COMMSCOPE COMMON
STOCK
There is not currently a public market for the NextLevel Systems Common
Stock or the CommScope Common Stock and there can be no assurance as to the
prices at which trading in such stock will occur after the Distribution. Until
each of the NextLevel Systems Common Stock and CommScope Common Stock is fully
distributed and an orderly market develops, the prices at which trading in such
stock occurs may fluctuate significantly. NextLevel Systems intends to list the
NextLevel Systems Common Stock on the NYSE and CommScope intends to list the
CommScope Common Stock on the NYSE. See "The Distribution Proposals--Proposal
One: The Distribution--Listing and Trading of NextLevel Systems Common Stock and
CommScope Common Stock."
CHANGES IN TRADING PRICES
It is expected that the General Semiconductor Common Stock will be listed
and traded on the NYSE after the Distribution. The combined trading prices of
the NextLevel Systems Common Stock, the CommScope Common Stock and the General
Semiconductor Common Stock held by stockholders after the Distribution may be
less than, equal to or greater than the trading prices of the GI Common Stock
prior to the Distribution. See "The Distribution Proposals--Proposal One: The
Distribution--Listing and Trading of General Semiconductor Common Stock."
DIVIDEND POLICIES
Since its organization in 1990, the Company has not paid dividends on the GI
Common Stock and none of General Semiconductor, NextLevel Systems and CommScope
anticipates paying dividends on its common stock in the future. As a holding
company, whether each of General Semiconductor, NextLevel Systems and CommScope
is able to pay dividends will depend upon the receipt of dividends or other
payments from its subsidiaries. The credit agreement of each of General
Semiconductor, NextLevel Systems and CommScope following the Distribution will
likely contain provisions which limit the ability of GS Delaware, NextLevel
Systems Delaware or CommScope NC, respectively, to pay cash dividends or make
other distributions to its parent. Any determination to pay cash dividends in
the future will be at the discretion of the Board of Directors of each of
General Semiconductor, NextLevel Systems and CommScope and will be dependent
upon the respective company's results of operations, financial condition,
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contractual restrictions and other factors deemed relevant at that time by the
company's Board of Directors. See "Financing--NextLevel Systems," "--CommScope"
and "--General Semiconductor."
CERTAIN ANTITAKEOVER FEATURES--NEXTLEVEL SYSTEMS AND COMMSCOPE
The Certificate of Incorporation and By-Laws of each of NextLevel Systems
and CommScope which will be in effect at the time of the Distribution will
contain several provisions that may make the acquisition of control of NextLevel
Systems or CommScope more difficult or expensive. The Certificate of
Incorporation and By-Laws of each of NextLevel Systems and CommScope which will
be in effect at the time of the Distribution, among other things, will (i)
classify the Board of Directors into three classes, with directors of each class
serving for a staggered three-year period, (ii) provide that directors may be
removed only for cause and only upon the affirmative vote of the holders of at
least a majority of the outstanding shares of common stock entitled to vote for
such directors, and (iii) permit the Board of Directors (but not the company's
stockholders) to fill vacancies and newly created directorships on the Board.
Such provisions would make the removal of incumbent directors more difficult and
time-consuming and may have the effect of discouraging a tender offer or other
takeover attempt not previously approved by the Board of Directors. Under the
Certificate of Incorporation of each of NextLevel Systems and CommScope which
will be in effect at the time of the Distribution, the Board of Directors of the
company also has the authority to issue up to 20,000,000 shares of preferred
stock in one or more series and to fix the powers, preferences and rights of any
such series without stockholder approval. The Board of Directors of NextLevel
Systems or CommScope, as the case may be, could, therefore, issue, without
stockholder approval, preferred stock with voting and other rights that could
adversely affect the voting power of the holders of common stock of the company
and could make it more difficult for a third party to gain control of the
company. In addition, each of NextLevel Systems and CommScope has adopted a
stockholders' rights plan, which, under certain circumstances, would
significantly dilute the interest in the company of persons seeking to acquire
control of the company without the prior approval of the Board of Directors. See
"Description of NextLevel Systems Capital Stock--NextLevel Systems Rights Plan,"
"Description of CommScope Capital Stock--CommScope Rights Plans" and
"Limitations on Changes in Control of NextLevel Systems and CommScope."
CERTAIN CONSENT REQUIREMENTS
The Company has reviewed its existing debt and other contractual
arrangements to determine whether consummation of the Distribution and related
transactions would result in a violation of these obligations or require the
consent of a third party to effect the necessary transfers. In a substantial
number of situations, an amendment, consent or waiver from third parties will be
required. It is a condition of the Distribution that these amendments, consents
or waivers have been obtained, except for those the failure of which to be
obtained would not have a material adverse effect on NextLevel Systems,
CommScope or General Semiconductor, respectively. Although the Company believes
that no single agreement for which an amendment, consent or waiver is being
sought is material, the failure of the Company to receive a significant number
of such amendments, waivers or consents could have a material adverse effect on
the ability of NextLevel Systems, CommScope or General Semiconductor, as the
case may be, to continue to conduct its respective business as currently being
conducted.
FRAUDULENT TRANSFER CONSIDERATIONS; LEGAL DIVIDEND REQUIREMENTS
Marshall & Stevens Incorporated ("Marshall & Stevens"), the Company's
independent appraisal firm, has delivered its opinion, dated , 1997, to
the Company's Board of Directors, regarding the solvency of the Company,
NextLevel Systems, CommScope and General Semiconductor and the permissibility of
the Distribution under Section 170 of the Delaware General Corporation Law (the
"DGCL"). The full text of such opinion is set forth in Annex G hereto. It is a
condition to the consummation of the Distribution that Marshall & Stevens, or
another independent appraisal firm, deliver an updated opinion to the
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Company's Board of Directors immediately prior to the time the special dividend
is declared, in substantially the same form as the opinion set forth in Annex G.
See "The Distribution Proposals--Proposal One: The Distribution--Solvency
Opinion." Although the Company's Board has the right to waive such condition, it
has no present intention to do so. There is no certainty, however, that a court
would find the solvency opinion rendered by the Company's independent appraisal
firm to be binding on creditors of the Company, NextLevel Systems, CommScope or
General Semiconductor or that a court would reach the same conclusions set forth
in such opinion in determining whether the Company, NextLevel Systems, CommScope
or General Semiconductor was insolvent at the time of, or after giving effect
to, the Distribution.
If a court in a lawsuit by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy, were to find that at the time the
Company effected the Distribution, the Company, NextLevel Systems, CommScope or
General Semiconductor, as the case may be, (i) was insolvent, (ii) was rendered
insolvent by reason of the Distribution, (iii) was engaged in a business or
transaction for which the Company's, NextLevel Systems', CommScope's or General
Semiconductor's, as the case may be, remaining assets constituted unreasonably
small capital, or (iv) intended to incur, or believed it would incur, debts
beyond its ability to pay as such debts matured, such court may be asked to void
the Distribution (in whole or in part) as a fraudulent conveyance and require
that the stockholders return the special dividend (in whole or in part) to the
Company, or require NextLevel Systems, CommScope or General Semiconductor, as
the case may be, to fund certain liabilities of the other companies for the
benefit of creditors. The measure of insolvency for purposes of the foregoing
will vary depending upon the jurisdiction whose law is being applied. Generally,
however, each of the Company, NextLevel Systems, CommScope and General
Semiconductor, as the case may be, would be considered insolvent if the fair
value of its assets were less than the amount of its liabilities or if it
incurred debt beyond its ability to repay such debt as it matures. In addition,
under Section 170 of the DGCL (which is applicable to the Company in the
Distribution), a corporation generally may make distributions to its
stockholders only out of its surplus (net assets minus capital) and not out of
capital.
The Company's Board of Directors and management believe that, in accordance
with the solvency opinion discussed above, (i) the Company, and each of
NextLevel Systems, CommScope and General Semiconductor, will be solvent at the
time of the Distribution (in accordance with the foregoing definitions), will be
able to repay its debts as they mature following the Distribution and will have
sufficient capital to carry on its businesses, and (ii) the Distribution will be
made entirely out of surplus, as provided under Section 170 of the DGCL.
RISKS RELATING TO THE BUSINESSES OF NEXTLEVEL SYSTEMS, COMMSCOPE
AND GENERAL SEMICONDUCTOR
DEPENDENCE OF NEXTLEVEL SYSTEMS AND COMMSCOPE ON THE CABLE TELEVISION INDUSTRY
AND CABLE
TELEVISION CAPITAL SPENDING
Approximately 71% and 74% of the sales of the Communications Business and
the Cable Manufacturing Business, respectively, for the year ended December 31,
1996 came from sales of systems and equipment to the cable television industry.
Demand for these products depends primarily on capital spending by cable
television operators for constructing, rebuilding or upgrading their systems.
The amount of this capital spending, and, therefore, NextLevel Systems' and
CommScope's sales and profitability, will be affected by a variety of factors,
including general economic conditions, consolidation in the industry, the
financial condition of domestic cable television operators and their access to
financing, competition from satellite and wireless television providers and
telephone companies, technological developments in the broadband communications
industry and new legislation and regulation of cable television operators as
described below. Capital spending in the cable television industry fell sharply
in the middle of 1990
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compared to 1989 and remained at a low level until it began to recover in
mid-1992. Although the management of each of NextLevel Systems and CommScope
believes that the constraining pressures on domestic cable television capital
spending eased and that cable television capital spending generally increased
from mid-1992 through 1996, there can be no assurance that such increases will
continue or that such increased level of cable television capital spending will
be maintained. Moreover, Tele-Communications, Inc. and its affiliates ("TCI"),
which accounted for approximately 23% and 11%, respectively, of the revenues of
the Communications Business and the Cable Manufacturing Business for the year
ended December 31, 1996, announced in late 1996 that it would significantly
curtail capital spending on its cable networks, although TCI informed the
Communications Business that it planned to continue spending on its digital
cable networks.
In recent years, cable television capital spending has also been affected by
new legislation and regulation, on the federal, state and local level, and many
aspects of such regulation are currently the subject of judicial proceedings and
administrative or legislative proposals. During 1993 and 1994, the Federal
Communications Commission (the "FCC") adopted rules under the Cable Television
Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"),
regulating rates that cable television operators may charge for lower tiers of
service and generally not regulating the rates for higher tiers of service. In
1996, the Telecommunications Act of 1996 (the "Telecom Act") was enacted to
eliminate certain governmental barriers to competition among local and long
distance telephone, cable television, broadcasting and wireless services. When
fully implemented by the FCC, the Telecom Act may significantly impact the
communications industry and alter federal, state and local laws and regulations
regarding the provision of cable and telephony services. Among other things, the
Telecom Act eliminates substantially all restrictions on the entry of telephone
companies and certain public utilities into the cable television business.
Telephone companies may now enter the cable television business as traditional
cable operators, as common carrier conduits for programming supplied by others,
as operators of wireless distribution systems, or as hybrid common carrier/cable
operator providers of programming on so-called "open video systems." The
economic impact of the 1992 Cable Act, the Telecom Act and the rules thereunder
on the cable television industry, NextLevel Systems and CommScope is still
uncertain.
Although the domestic cable television industry is comprised of
approximately 11,200 cable systems, a small number of cable television operators
own a majority of cable television systems and account for a majority of the
capital expenditures made by cable television operators. Ten cable television
operators accounted for approximately 45% and 30% of the sales of the
Communications Business and the Cable Manufacturing Business, respectively, for
the year ended December 31, 1996. The loss of some or all of these cable
television operators as customers could have a material adverse effect on the
business of NextLevel Systems and CommScope.
TELECOMMUNICATIONS INDUSTRY COMPETITION AND TECHNOLOGICAL CHANGES AFFECTING
NEXTLEVEL SYSTEMS AND COMMSCOPE
NextLevel Systems will be significantly affected by the competition among
cable television operators, satellite television providers and telephone
companies to provide video, voice and data/Internet services. In particular,
although cable television operators have historically provided television
services to the majority of U.S. households, direct-to-home ("DTH") satellite
television has attracted a growing number of subscribers and the regional
telephone companies have begun to offer competing cable and wireless cable
services. This competitive environment is characterized by rapid technological
changes, particularly with respect to developments in digital compression and
broadband access technology.
Management of NextLevel Systems believes that, as a result of the new
products developed by the Communications Business based on emerging technologies
and the diversity of its product offerings, it is well positioned to supply each
of the cable, satellite and telephone markets. The future success of NextLevel
Systems, however, will be dependent on its ability to market and deploy these
new products
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successfully and continue to develop and timely exploit new technologies and
market opportunities both in the United States and internationally. The
development of the Communications Business' digital television systems took
significantly longer than anticipated as a result of several factors, including
increased system complexity, evolving international Motion Picture Experts Group
2 ("MPEG-2") standards and other system design issues. Accordingly, volume
shipments to cable television operators and satellite television programmers
were delayed from their original expected delivery dates. There can be no
assurance that NextLevel Systems will be able to continue to successfully
introduce new products and technologies, that it will be able to deploy them
successfully on a large-scale or that its technologies and products will achieve
significant market acceptance. Further, there can be no assurance that the
development of products using new technologies (such as digital compression)
will not have an adverse impact on sales by NextLevel Systems of certain of its
other products. In addition, because of the competitive environment and the
nature of NextLevel Systems' business, there have been and may continue to be
legal challenges to its new technologies. See "--Legal Proceedings," "Business
of NextLevel Systems--Legal Proceedings" and "Business of NextLevel
Systems--Competition."
Many of the markets that CommScope serves are characterized by advances in
information processing and communications capabilities which require increased
transmission speeds and greater capacity ("bandwidth") for carrying information.
These advances require ongoing improvements in the capabilities of wire and
cable products. CommScope's management believes that CommScope's future success
will depend in part upon its ability to enhance existing products and to develop
and manufacture new products that meet or anticipate such changes. The failure
to introduce successful new or enhanced products on a timely and
cost-competitive basis could have an adverse impact on CommScope's operations
and financial condition.
Fiber optic technology presents a potential substitute for the products that
comprise the majority of CommScope's sales. To date, fiber optic cables have
penetrated the cable television and local area network ("LAN") markets served by
CommScope in high-bandwidth point-to-point and trunking applications. Fiber
optic cables have not, to date, significantly penetrated the local distribution
and residential application markets served by CommScope because of the high
relative cost of electro-optic interfaces and the high cost of fiber termination
and connection. At the same time, advances in data transmission equipment and
copper cable technologies have increased the relative performance of
copper-based cables which are CommScope's principal product offerings. However,
a significant decrease in the cost of fiber optic systems could make such
systems superior on a price/performance basis to copper systems. While CommScope
is a fiber optic cable manufacturer and supplier to a small portion of the cable
television market and certain specialty markets, such a significant decrease in
the cost of fiber optic systems would likely have an adverse effect on
CommScope.
NextLevel Systems' and CommScope's sales to international markets have
recently increased substantially and will continue to be an important focus of
each company in the future. However, there can be no assurance that
international markets will continue to expand, or that growth and profitability
in international sales will not be affected by political uncertainties, currency
exchange rate fluctuations or variations in capital spending cycles in
developing countries. See "--International Operations; Foreign Currency Risks."
COMPETITION
NextLevel Systems' products and services will compete with those of a
substantial number of foreign and domestic companies, some with greater
resources, financial or otherwise, than NextLevel Systems, and the rapid
technological changes occurring in NextLevel Systems' markets are expected to
lead to the entry of new competitors. NextLevel Systems' ability to anticipate
technological changes and introduce enhanced products on a timely basis will be
a significant factor in NextLevel Systems' ability to expand and remain
competitive. Existing competitors' actions and new entrants may have an adverse
impact on NextLevel Systems' sales and profitability. The management of
NextLevel Systems believes that NextLevel Systems
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will enjoy a strong competitive position because of its large installed cable
television equipment base, its strong relationships with the major cable
television operators, its technological leadership and new product development
capabilities, and the likely need for compatibility of new technologies with
currently installed systems. There can be no assurance, however, that
competitors will not be able to develop systems compatible with, or that are
alternatives to, NextLevel Systems' proprietary technology or systems. See
"Business of NextLevel Systems--Competition."
CommScope's coaxial, fiber optic and electronic cable products compete with
those of a substantial number of foreign and domestic companies, some with
greater resources, financial or otherwise, than CommScope, and the rapid
technological changes occurring in the telecommunications industry could lead to
the entry of new competitors. Existing competitors' actions and new entrants may
have an adverse impact on CommScope's sales and profitability. CommScope's
management believes that CommScope enjoys a strong competitive position in the
coaxial cable market because of its position as a low-cost, high-volume coaxial
cable producer and its reputation as a high-quality provider of state-of-the-art
cables, along with its strong orientation toward customer service. However,
there can be no assurance that CommScope will continue to compete successfully
with its existing competitors or that it will be able to compete successfully
with new competitors. See "Business of CommScope--Competition."
General Semiconductor will be subject to competition from a substantial
number of foreign and domestic companies, some of which have greater financial,
engineering, manufacturing and other resources than General Semiconductor.
General Semiconductor's competitors can be expected to continue to improve the
design and performance of their products and to introduce new products with
competitive price and performance characteristics. Although General
Semiconductor's management believes that General Semiconductor will enjoy
certain technological and other advantages over its competitors, realizing and
maintaining such advantages will require continued investment by General
Semiconductor in engineering, research and development, marketing and customer
service and support. There can be no assurance that General Semiconductor will
have sufficient resources to continue to make such investments or that General
Semiconductor will be successful in maintaining such advantages. See "Business
of General Semiconductor--Competition."
IMPACT OF PRICE FLUCTUATIONS OF RAW MATERIALS ON COMMSCOPE; SOURCES OF RAW
MATERIALS
Fabricated aluminum, copper and plastics are the principal raw materials
purchased by CommScope, and CommScope's profitability may be affected by changes
in the market price of these materials (which are linked to the commodity
markets). Although CommScope has generally been able to pass on increases in the
price of these materials to its customers, there can be no assurance that
CommScope will be able to do so in the future. Additionally, significant
increases in the price of CommScope's products due to increases in the cost of
raw materials could have a negative effect on demand for CommScope's products.
In 1996, approximately 15% of CommScope's raw material purchases were for
bi-metallic center conductors for coaxial cables, nearly all of which were
purchased from Copperweld Corporation under a long-term supply arrangement
expiring in December 1998. In addition to bi-metallic wires, fine aluminum wire
is purchased primarily from a single source; neither of these major raw
materials could be readily replaced in sufficient quantities if all supplies
from the respective primary sources were disrupted for an extended period. See
"Business of CommScope--Raw Materials."
INTERNATIONAL OPERATIONS; FOREIGN CURRENCY RISKS
U.S. broadband system designs and equipment are increasingly being employed
in international markets, where cable television penetration is low. However,
there can be no assurance that international markets will continue to develop or
that NextLevel Systems or CommScope will receive additional contracts to supply
its systems and equipment in international markets. See "--Competition,"
"Business of NextLevel Systems" and "Business of CommScope."
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A significant portion of NextLevel Systems' products are manufactured or
assembled in Mexico and Taiwan (Republic of China) and other countries outside
the United States, and a significant portion of General Semiconductor's products
are manufactured or assembled in Taiwan (Republic of China) and Ireland and
other countries outside the United States, with a new factory in the People's
Republic of China expected to begin production in the third quarter of 1997. In
addition, sales of equipment into international markets by each of NextLevel
Systems and CommScope have recently grown. These foreign operations are subject
to the usual risks inherent in situating operations abroad, including risks with
respect to currency exchange rates, economic and political destabilization,
restrictive actions by foreign governments, nationalizations, the laws and
policies of the United States affecting trade, foreign investment and loans, and
foreign tax laws. General Semiconductor's and NextLevel Systems'
cost-competitive status relative to other competitors could be adversely
affected if the New Taiwan dollar or another relevant currency appreciates
relative to the U.S. dollar.
The Company uses hedging programs to reduce market risk arising from changes
in foreign exchange rates. On a selective basis, the Company enters into
contracts to hedge the currency exposure of contractual and other firm
commitments denominated in foreign currencies and the currency exposure of
anticipated, but not yet committed, transactions expected to be denominated in
foreign currencies. Foreign currency transaction losses included in the
Company's net income were $3 million in 1996, and deferred gains or losses on
such contracts at December 31, 1996 and March 31, 1997 were not significant.
(See Notes 13 and 14 to the Consolidated Financial Statements of the Company and
Notes 14 and 15 to the Combined Financial Statements of the Communications
Business.) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Communications Business--Foreign Exchange."
ENVIRONMENT
The Company has been, and after the Distribution, NextLevel Systems,
CommScope and General Semiconductor will be, subject to various federal, state,
local and foreign laws and regulations governing the use, discharge and disposal
of hazardous materials. The Company's manufacturing facilities are believed to
be in substantial compliance with current laws and regulations. Compliance with
current laws and regulations has not had a material adverse effect on the
Company's financial condition and is not expected to have a material adverse
effect on the financial condition of NextLevel Systems, CommScope or General
Semiconductor after the Distribution. The Company is involved in remediation
programs, principally with respect to former manufacturing sites, that are
proceeding in connection with federal and state regulatory oversight. In
addition, the Company is currently named as a "potentially responsible party"
with respect to the disposal of hazardous wastes at nine hazardous waste sites
located in six states and Puerto Rico.
The Company has engaged independent consultants to assist management in
evaluating potential liabilities related to environmental matters. The Company's
management assesses the input from these independent consultants along with
other information known to the Company in its effort to continually monitor
these potential liabilities. Management assesses its environmental exposure on a
site-by-site basis, including those sites where the Company has been named a
"potentially responsible party." Such assessments include the Company's share of
remediation costs, information known to the Company concerning the size of the
hazardous waste sites, their years of operation and the number of past users and
their financial viability. Although the Company estimates, based on assessments
and evaluations made by management, that its exposure with respect to these
environmental matters could be as high as $58 million, the Company believes that
the reserve for environmental matters of $38 million at December 31, 1996 is
reasonable and adequate. However, there can be no assurance that the ultimate
resolution of these matters will approximate the amount reserved.
After the Distribution, General Semiconductor will retain the obligations of
the Company with respect to environmental matters relating to the Company's
discontinued operations and its status as a
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"potentially responsible party." Based on the factors discussed above, capital
expenditures and expenses for the Company's remediation programs, and the
proportionate share of the cost of the necessary investigation and eventual
remedial work that may be needed to be performed at the sites for which the
Company has been named as a "potentially responsible party," are not expected to
have a material adverse effect on the financial statements of General
Semiconductor. The Company's present and past facilities have been in operation
for many years, and over that time in the course of those operations, such
facilities have used substances which are or might be considered hazardous, and
the Company has generated and disposed of wastes which are or might be
considered hazardous. Therefore, it is possible that additional environmental
issues may arise in the future which the Company, NextLevel Systems and
CommScope cannot now predict.
LEGAL PROCEEDINGS
On June 11, 1996, the United States District Court for the Eastern District
of Texas entered judgment against NLC and two of its founders for $136.7 million
plus interest in an action entitled DSC COMMUNICATIONS CORPORATION AND DSC
TECHNOLOGIES CORPORATION V. NEXT LEVEL COMMUNICATIONS, THOMAS R. EAMES AND PETER
W. KEELER, Case No. 4:95cv96, which had been brought on April 10, 1995, by DSC
Communications Corporation and DSC Technologies Corporation (collectively,
"DSC") alleging, among other things, that the individual defendants diverted a
corporate opportunity of DSC and misappropriated its trade secrets and that NLC
made use of or benefited from these actions. The judgment was entered on the
corporate opportunity count and a related conspiracy count. The District Court
denied DSC's request to aggregate amounts awarded by the jury on the various
claims so as to arrive at a total judgment in excess of $369 million plus
pre-judgment interest and attorney's fees, and it also denied DSC's request for
entry of permanent injunctive relief. In connection with the acquisition of NLC,
the Company agreed to indemnify the founders, to the extent permitted by
applicable law, for any judgment awarded against them in the matter, and
following entry of judgment the Company recorded a charge to earnings of $141
million reflecting the judgment and costs of litigation. On February 28, 1997,
the Court of Appeals affirmed the denial of DSC's request for injunctive relief,
ruled that the claim for diversion of a corporate opportunity was legally
insufficient and remanded the case to the District Court for entry of judgment
on the jury award for misappropriation of trade secrets which, as revised by the
District Court, would be for not more than $137.7 million (including the award
on a related conspiracy count), plus accrued interest. Enforcement of the
judgment was stayed pending the determination of the appeal. Both parties have
filed motions for rehearing with the Court of Appeals, and these motions have
not been decided as of the date hereof. NextLevel Systems has agreed to assume
the Company's obligations in connection with this litigation. See "Business of
NextLevel Systems--Legal Proceedings."
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THE MEETING
This Proxy Statement is being furnished to the stockholders of the Company
in connection with the solicitation of proxies by the Board of Directors of the
Company from holders of record of GI Common Stock as of the close of business on
the Meeting Record Date, for use at the Meeting to be held on , 1997, at
[time] at [place] and at any adjournment or postponement thereof. This Proxy
Statement is first being mailed to the Company's stockholders on , 1997.
References in this Proxy Statement to the Company means General Instrument
Corporation prior to the Distribution described below. The principal executive
offices of the Company are located at 8770 West Bryn Mawr Avenue, Suite 1300,
Chicago, Illinois 60631. Following the Distribution, the principal executive
offices of NextLevel Systems will be located at such location, the principal
executive offices of General Semiconductor will be located at 10 Melville Park
Road, Melville, New York 11747 and the principal executive offices of CommScope
will be located at 1375 Lenoir-Rhyne Boulevard, Hickory, North Carolina 28601.
MATTERS FOR CONSIDERATION AT THE MEETING
At the Meeting, the stockholders of the Company will be asked to consider
and vote upon the following three related proposals, denominated Proposals One,
Two and Three:
PROPOSAL ONE: Approval of (i) the Internal Transfers, (ii) a special
dividend, consisting of the distribution to the holders of the GI Common
Stock of the outstanding shares of NextLevel Systems Common Stock and of
CommScope Common Stock on the basis described herein and (iii) the
Distribution Agreement (see "The Distribution Proposals--Proposal One: The
Distribution");
PROPOSAL TWO: Approval of an amendment to the Certificate of
Incorporation of the Company to change the name of the Company to General
Semiconductor, Inc. after the Distribution (see "The Distribution
Proposals--Proposal Two: Approval of Amendment to Certificate of
Incorporation To Change the Name of the Company"); and
PROPOSAL THREE: Approval of an amendment to the Certificate of
Incorporation of the Company to effect a for reverse stock split of
the General Semiconductor Common Stock immediately following the
Distribution (if approved, each shares of General Semiconductor Common
Stock will be converted into share of General Semiconductor Common
Stock) (see "The Distribution Proposals--Proposal Three: Approval of
Amendment to Certificate of Incorporation of the Company to Effect a Reverse
Stock Split").
THE EFFECTIVENESS OF PROPOSALS TWO AND THREE IS CONDITIONED UPON THE
APPROVAL OF PROPOSAL ONE. IF PROPOSAL ONE IS NOT APPROVED, THE BOARD OF
DIRECTORS OF THE COMPANY WILL REEVALUATE ITS INTENTION TO EFFECT THE
DISTRIBUTION. AFTER SUCH REVIEW, THE BOARD COULD DETERMINE TO REVISE THE TERMS
OF THE DISTRIBUTION AND EFFECT THE DISTRIBUTION AS REVISED OR ABANDON THE
DISTRIBUTION. IF PROPOSAL ONE IS APPROVED, BUT ONE OR BOTH OF PROPOSALS TWO AND
THREE ARE NOT APPROVED, THE COMPANY INTENDS TO PROCEED WITH THE DISTRIBUTION
WITHOUT CHANGING THE NAME OF THE COMPANY OR EFFECTING THE REVERSE STOCK SPLIT,
AS THE CASE MAY BE.
The Board has further retained discretion, even if stockholder approval of
the Distribution Proposals is obtained and the other conditions to the
Distribution are satisfied, to abandon, defer or modify the Distribution or
other elements contained in the Distribution Proposals, provided that following
stockholder approval the Board will not make any change in the terms of the
Distribution or the other elements of the Distribution Proposals unless the
Board determines that such changes would not be materially adverse to the
Company's stockholders.
It is a condition to the Distribution that the Company receive the Tax
Ruling from the Internal Revenue Service. Such condition may not be waived or
modified by the Board of Directors of the Company.
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THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
EACH OF THE DISTRIBUTION PROPOSALS.
For a description of the reasons for the Distribution, see "The Distribution
Proposals--Proposal One: The Distribution--Background and Reasons for the
Distribution."
In addition, the stockholders of the Company will also be asked to consider
and to vote upon the following Annual Meeting Proposals:
PROPOSAL FOUR: Approval of an amendment to the Certificate of
Incorporation of the Company to declassify the Board of Directors and to
provide for the annual election of all directors (see "The Annual Meeting
Proposals--Proposal Four: Approval of Amendment to Certificate of
Incorporation to Declassify the Board of Directors of the Company"); and
PROPOSAL FIVE: The election of four directors (see "The Annual Meeting
Proposals--Proposal Five: Election of Directors"). If the Distribution
occurs, it is expected that all but one of the Company's directors will
resign and be replaced by new directors.
The effectiveness of the Annual Meeting Proposals is not conditioned on the
approval of the Distribution Proposals.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
BOTH OF THE ANNUAL MEETING PROPOSALS.
VOTING RIGHTS AND PROXY INFORMATION
Only holders of record of shares of GI Common Stock as of the close of
business on the Meeting Record Date will be entitled to notice of and to vote at
the Meeting or any adjournment or postponement thereof. Such holders of shares
of GI Common Stock are entitled to one vote per share on any matter which may
properly come before the Meeting. The presence, either in person or by properly
executed proxy, of the holders of a majority of the then outstanding shares of
GI Common Stock is necessary to constitute a quorum at the Meeting and to permit
action to be taken by the stockholders at the Meeting. The affirmative vote of
the holders of a majority of the outstanding shares of GI Common Stock is
required to approve each of the Distribution Proposals. The affirmative vote of
the holders of a majority of the outstanding shares of GI Common Stock is also
required to approve Proposal Four. The affirmative vote of a plurality of shares
of GI Common Stock present in person or represented by proxy at the Meeting is
required to elect the directors nominated pursuant to Proposal Five. "Plurality"
means that the individuals who receive the largest number of votes cast are
elected as directors up to the maximum number of directors to be chosen at the
Meeting.
For purposes of determining the number of votes cast with respect to any
voting matter, only those cast "for" or "against" are included; abstentions and
broker non-votes are excluded. Consequently any shares not voted (whether by
abstention, broker non-vote or otherwise) will have no impact in the election of
directors, except to the extent that the failure to vote for an individual
results in another individual receiving a larger proportion of votes. For
purposes of determining whether the affirmative vote of a majority of the shares
present at the Meeting and entitled to vote has been obtained, abstentions will
be included in, and broker non-votes will be excluded from, the number of shares
present and entitled to vote. Accordingly, with respect to all matters other
than the election of directors, abstentions will have the effect of a vote
"against" the matter and broker non-votes will have the effect of reducing the
number of affirmative votes required to achieve the majority vote. As of ,
1997, there were shares of GI Common Stock outstanding and entitled to
vote at the Meeting.
All shares of GI Common Stock that are represented at the Meeting by
properly executed proxies received prior to or at the Meeting and not revoked
will be voted at the Meeting in accordance with the instructions indicated in
such proxies. If no instructions are indicated for a particular proposal, such
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proxies will be voted in accordance with the Board of Directors' recommendations
as set forth herein with respect to such proposal(s).
In the event that a quorum is not present at the time the Meeting is
convened, or if for any other reason the Company believes that additional time
should be allowed for the solicitation of proxies, the Company may adjourn the
Meeting with or without a vote of the stockholders with respect to such
adjournment. If the Company proposes to adjourn the Meeting by a vote of the
stockholders, the persons named in the enclosed form of proxy will vote all
shares of GI Common Stock for which they have voting authority in favor of such
adjournment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with ChaseMellon Shareholder Services, L.L.C. in its capacity as transfer agent
for the Company (the "Transfer Agent"), at or before the Meeting, a written
notice of revocation bearing a later date than the proxy, (ii) duly executing a
subsequent proxy relating to the same shares of GI Common Stock and delivering
it to the Transfer Agent at or before the Meeting or (iii) attending the Meeting
and voting in person (although attendance at the Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice revoking a proxy
should be sent to the Transfer Agent at 450 West 33rd Street, New York, New York
10001.
The Company will bear the cost of the solicitation of proxies. In addition
to solicitation by mail, the Company will request banks, brokers and other
custodian nominees and fiduciaries to supply proxy materials to the beneficial
owners of GI Common Stock of whom they have knowledge, and will reimburse such
banks, brokers and other custodian nominees and fiduciaries for their expenses
in so doing; and certain directors, officers and other employees of the Company,
not specially employed for such purpose, may solicit proxies, without additional
remuneration therefor, by personal interview, mail, telephone or telegraph. In
addition, the Company has retained Morrow & Co. to assist in the solicitation of
proxies for a fee of $7,000 plus expenses.
PROPOSED AMENDMENTS TO CERTIFICATE OF INCORPORATION
If the Distribution Proposals are approved and the Distribution is
consummated, or if Proposal Four is approved, the Company will file with the
Secretary of State of the State of Delaware either an amendment to its
Certificate of Incorporation or an Amended and Restated Certificate of
Incorporation setting forth those amendments approved by stockholders at the
Meeting.
NO APPRAISAL RIGHTS
As the Distribution is not within the class of transactions (mergers and
consolidations) to which Section 262 of the DGCL applies, stockholders of the
Company will not be entitled to appraisal rights under Delaware law in
connection with the Distribution Proposals.
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THE DISTRIBUTION PROPOSALS
PROPOSAL ONE: THE DISTRIBUTION
GENERAL
The Board of Directors of the Company has approved (subject to the
satisfaction of the conditions to the Distribution discussed under
"--Conditions; Termination" below and the actual declaration of the dividend in
respect of the Distribution) a plan to distribute the outstanding shares of
NextLevel Systems Common Stock and the outstanding shares of CommScope Common
Stock to all holders of outstanding GI Common Stock. In the Distribution, each
holder of GI Common Stock will receive as a dividend one share of NextLevel
Systems Common Stock for each share of GI Common Stock held by such holder and
one share of CommScope Common Stock for every shares of GI Common Stock
held and would retain the shares of GI Common Stock held by such holder
immediately prior to the Distribution. If Proposal Three is approved,
immediately following the Distribution, General Semiconductor will effect a
for reverse stock split with the effect that every shares of General
Semiconductor Common Stock will become share of General Semiconductor
Common Stock.
BACKGROUND AND REASONS FOR THE DISTRIBUTION
The Company is currently comprised of three businesses: the Communications
Business; the Cable Manufacturing Business; and the Power Semiconductor
Business. For several years, the Company's senior management has been
considering ways to more effectively manage and operate these three diverse
businesses. During the period from July 1996 through December 1996, senior
management and the Company's independent financial advisors, Goldman, Sachs &
Co. ("Goldman Sachs"), Merrill Lynch & Co. ("Merrill Lynch"), and Lazard Freres
& Co. LLC ("Lazard") considered various transactions which would separate the
three businesses into two or more companies. In addition, Marshall & Stevens,
the Company's independent appraisal firm, was retained to advise the Company
with respect to certain solvency and related issues in connection with a
possible transaction. In December 1996, the Company also engaged Merrill Lynch
to act as a financial advisor to the Company to evaluate the feasibility of a
possible disposition of the Company's Power Semiconductor Business. The
Company's senior management and the independent financial advisors discussed the
plan for the Distribution with the Company's Board of Directors at its meetings
on December 5, 1996 and December 19, 1996. The proposal to effect the
Distribution, as ultimately developed by senior management of the Company with
advice from its advisors, was presented to the Board of Directors for a vote at
its meeting on January 6, 1997 and was unanimously approved by the Board, with
one director abstaining. (The abstaining director was Felix G. Rohatyn, a
Managing Director of Lazard, one of the Company's independent financial
advisors; on April 14, 1997, Mr. Rohatyn resigned from the Company's Board to
pursue other professional endeavors, and not as a result of any disagreement
with the Board or management of the Company.) Subsequent to that meeting,
management continued to evaluate the feasibility of a possible disposition of
the Power Semiconductor Business but determined, with the concurrence of the
Board of Directors, that proceeding with the Distribution as planned would be in
the best interest of the Company's stockholders.
The Board of Directors approved the Distribution for the following principal
reasons:
MANAGEMENT FOCUS. The Company's three businesses have different
dynamics and business cycles, serve different marketplaces and customer
bases, are subject to different competitive forces, and must be managed with
different long-term and short-term strategies and goals. The Company
believes that separating its businesses into independent public companies,
each with its own management team and board of directors, is necessary to
address current and future management issues and considerations that result
from operating these diverse businesses under a single holding company
structure. The separation will enable the management of each business to
manage that business, and to adopt and implement strategies for that
business, solely with regard to the needs and objectives of that business.
In addition, as a result of the separation, the management of each business
will be able to devote its full attention to managing that business.
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ALLOCATION OF RESOURCES. The principal focus of the Company's resource
allocation in recent years has been the investment in advanced technologies
and systems needed to provide growth for the Communications Business. The
Company's strategy has been focused largely on the transition of its
communications customers from analog systems to digital systems. During this
period, the Company's resource allocation policies have tended to favor the
Communications Business even though the other businesses require significant
capital expenditures to remain competitive and grow. After the Distribution,
each company will be able to allocate resources to support the strategic
goals of its own business more effectively.
ACQUISITION ACTIVITIES. The Company believes that growth through
acquisition is an important ingredient of the future success of each of its
businesses. The Company's management believes that, as a result of the
Distribution, the Communications Business will have a more attractive
currency, its stock, through which to make acquisitions. The NextLevel
Systems Common Stock is expected to be a more desirable security for a
seller of a high-technology business than GI Common Stock because of
NextLevel Systems' expected focus on higher-technology businesses.
Additionally, General Semiconductor and CommScope will be able to utilize
their strong cash flow positions more effectively to pursue acquisition
strategies.
ATTRACTING AND RETAINING KEY EMPLOYEES. The Company's management
believes that the ability to attract and retain key personnel is fundamental
to its ability to further the technology required to maintain a leadership
position in the telecommunications industry. In particular, under the
existing corporate structure, the Company has been unable to offer
equity-based compensation linked specifically to the performance of its
high-growth Communications Business. The Distribution would enable NextLevel
Systems, CommScope and General Semiconductor to establish focused equity-
based compensation programs which should enable each of them to better
attract and retain key personnel.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
PROPOSAL ONE.
SOLVENCY OPINION
In reaching a decision to recommend the Distribution Proposals, the Board
considered, among other things, the oral opinion of Marshall & Stevens, its
independent appraisal firm. A summary of the written opinion, dated ,
1997, rendered by Marshall & Stevens with respect to the Distribution is set
forth below. The opinion assumes that the Distribution is consummated
substantially as described in this Proxy Statement.
In a written opinion dated , 1997, Marshall & Stevens stated
that, based upon the considerations set forth therein and on other factors it
deemed relevant, it was of the opinion that, assuming the Distribution is
consummated as proposed: (i) with respect to each of NextLevel Systems,
CommScope and General Semiconductor, immediately after giving effect to the
Distribution (a) the fair value of such company's aggregate assets will exceed
such company's total liabilities (including contingent liabilities); (b) such
company will be able to pay its debts and other liabilities (including
contingent liabilities) as they mature; and (c) the capital remaining in such
company after the Distribution will not be unreasonably small for the business
in which such company is engaged; and (ii) with respect to each of the Company
and GI Delaware immediately before consummation of the Distribution, (a) the
surplus of such company will exceed the value of the Distribution, as provided
under Section 170 of the DGCL, (b) such company will be able to pay its debts
and other liabilities (including contingent liabilities) on a pro forma basis
and (c) such company will not have unreasonably small capital for the business
in which it is engaged. The full text of Marshall & Stevens' opinion is set
forth in Annex G, and this summary is qualified in its entirety by reference to
the text of such opinion. It is a condition to the consummation of the
Distribution that Marshall & Stevens, or another independent appraisal firm,
deliver an updated opinion to the Board in substantially the same form as the
opinion set forth in Annex G (see "--Conditions; Termination").
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For purposes of its opinion, Marshall & Stevens made such reviews, studies
and analyses as it deemed prudent and necessary. In preparing its opinion,
Marshall & Stevens relied on the accuracy and completeness of all financial and
other information supplied or otherwise made available to it by the Company.
Such opinion was based on market and other conditions existing on the date such
opinion was rendered.
Marshall & Stevens is a recognized independent appraisal firm that
specializes in providing independent, supportable valuation counsel of
businesses and tangible and intangible assets for mergers and acquisitions and
for solvency, fairness, estate and gift tax, ESOP, financing, insurance,
leasing, property accounting, tax planning and feasibility issues.
The Company will pay Marshall & Stevens a fee of $ for services
rendered in connection with the Distribution, including services it has
conducted to enable it to render its opinion. Marshall & Stevens had not
rendered any services to the Company prior to its engagement in connection with
the Distribution.
MANNER OF EFFECTING THE DISTRIBUTION
If the Company's stockholders approve the Distribution Proposals and all
other conditions thereto are satisfied (or waived by the Board of Directors of
the Company), the Distribution will be made on the Distribution Date to
stockholders of record of the Company as of the Distribution Record Date. The
Distribution Record Date will be established by the Board following the Meeting.
On the Distribution Date, all outstanding shares of NextLevel Systems Common
Stock and CommScope Common Stock will be delivered by the Company to the
Distribution Agent. As soon as practicable thereafter, account statements
reflecting ownership of shares of NextLevel Systems Common Stock and CommScope
Common Stock will be mailed by the Distribution Agent to holders of record of GI
Common Stock as of the Distribution Record Date to reflect the distribution of
one share of NextLevel Systems Common Stock for each share of GI Common Stock
held on that date and one share of CommScope Common Stock for every shares
of GI Common Stock held on that date. All such shares will be fully paid and
nonassessable and the holders thereof will not be entitled to preemptive rights.
The shares of NextLevel Systems Common Stock and CommScope Common Stock to be
transferred to the Company's stockholders in the Distribution will be initially
issued to the Company's wholly owned subsidiary, GI Delaware, as consideration
for the transfer of the Communications Business and the Cable Manufacturing
Business, respectively.
No holder of GI Common Stock will be required to pay any cash or other
consideration for the shares of NextLevel Systems Common Stock and CommScope
Common Stock received in the Distribution or to surrender or exchange shares of
GI Common Stock in order to receive shares of NextLevel Systems Common Stock or
CommScope Common Stock.
No certificates representing fractional shares of NextLevel Systems Common
Stock or CommScope Common Stock will be issued in the Distribution. The
Distribution Agent will aggregate fractional shares into whole shares of
NextLevel Systems Common Stock and CommScope Common Stock, as applicable, and an
independent agent retained by the Company will sell them in the open market at
prevailing prices on behalf of holders who otherwise would be entitled to
receive fractional share interests. Such persons will then receive a cash
payment for the amount of their allocable share of the total sale proceeds. The
amount of such payment will depend on the prices at which the aggregated
fractional shares are sold by the independent agent in the open market shortly
after the Distribution Date. Such sales are expected to be made as soon as
practicable after the Distribution. NextLevel Systems and CommScope, as
appropriate, will bear the cost of any commission incurred in connection with
such sales.
In connection with the acquisition of NLC in September 1995, the Company
issued restricted shares of GI Common Stock (the "GI Restricted Shares") to
stockholders of NLC who, prior to the acquisition, held shares of NLC common
stock that were subject to repurchase rights. In connection with the
Distribution but prior to the Distribution Record Date, up to of the GI
Restricted Shares held by employees of the Company will be repurchased by the
Company in exchange for shares of NextLevel Systems Common Stock, pursuant to an
exchange ratio based upon the when-issued trading price of the NextLevel Systems
Common Stock on the NYSE prior to the Distribution Date.
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Certificates representing outstanding shares of GI Common Stock will
continue to represent rights to purchase shares of the Series A Junior
Participating Preferred Stock of the Company pursuant to the Rights Agreement
dated as of January 6, 1997, between the Company and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent. See "Description of the Company's Capital
Stock--The Company Rights Plan."
FEDERAL INCOME TAX ASPECTS OF THE DISTRIBUTION
The Company has conditioned the Distribution on the receipt of the Tax
Ruling from the Internal Revenue Service under Sections 355 and 368 of the Code
to the following effect:
(1) No gain or loss will be recognized by (and no amount will be
included in the income of) a holder of GI Common Stock upon the receipt of
NextLevel Systems Common Stock and CommScope Common Stock in the
Distribution, except that Company stockholders who receive cash in lieu of
fractional share interests will recognize gain or loss equal to the
difference between such cash and the tax basis allocated to such fractional
share interests. Any such gain or loss will constitute capital gain or loss
if such fractional share interests would have been held as a capital asset
on the Distribution Date.
(2) The aggregate basis of the General Semiconductor Common Stock, the
NextLevel Systems Common Stock and CommScope Common Stock in the hands of
the stockholders of the Company (including fractional share interests to
which they are entitled) immediately after the Distribution will be the same
as the aggregate basis of the GI Common Stock held immediately before the
Distribution, allocated in proportion to the fair market value of each.
(3) The holding period of the NextLevel Systems Common Stock and
CommScope Common Stock received by the stockholders of the Company
(including fractional share interests to which they are entitled) will
include the holding period of the GI Common Stock with respect to which the
Distribution will be made, provided that such stockholder held the GI Common
Stock as a capital asset on the Distribution Date.
(4) No gain or loss will be recognized by the Company upon the
Distribution.
Application has been made to the Internal Revenue Service for the Tax
Ruling. As of the date hereof, the Internal Revenue Service has not yet issued
the Tax Ruling. The Company believes and has been advised by its outside tax
advisors that the positions asserted by the Company in requesting the Tax Ruling
are consistent with the Code and the rules and regulations promulgated
thereunder. However, there is no certainty that the Internal Revenue Service
will issue a favorable ruling. If the Tax Ruling is not obtained, the Board will
not proceed with the Distribution. See "--Conditions; Termination."
The Tax Ruling, while generally binding upon the Internal Revenue Service,
will be subject to certain factual representations and assumptions. If such
factual representations and assumptions were incorrect in a material respect,
the holdings of such ruling would be jeopardized. The Company is not aware of
any facts or circumstances which would cause such representations and
assumptions to be untrue. The Company, NextLevel Systems and CommScope have
agreed to certain restrictions on their future actions to provide further
assurances that the Distribution will qualify as tax free. See "The Distribution
Proposals--Proposal One: The Distribution--Relationship Among NextLevel Systems,
CommScope and General Semiconductor After the Distribution--Distribution
Agreement."
If, however, the Distribution were not to qualify as a tax free spin-off
under Section 355 of the Code, then, in general, a corporate tax would be
payable by the consolidated group of which the Company is the common parent
based upon the difference between the fair market value of the stock distributed
and the distributing corporation's adjusted basis in such stock. The corporate
level tax would be payable by General Semiconductor and could substantially
exceed the net worth of General Semiconductor. However, under certain
circumstances, NextLevel Systems and CommScope have agreed to indemnify General
Semiconductor for such tax liability. See "The Distribution Proposals--Proposal
One: The Distribution--
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Relationship Among NextLevel Systems, CommScope and General Semiconductor After
the Distribution--Tax Sharing Agreement." In addition, under the consolidated
return rules, each member of the consolidated group (including NextLevel Systems
and CommScope) is severally liable for such tax liability.
Furthermore, if the Distribution were not to qualify as a tax free spin-off
under Section 355 of the Code, each holder of GI Common Stock who receives
shares of NextLevel Systems Common Stock and CommScope Common Stock in the
Distribution would be treated as if such stockholder received a taxable
distribution in an amount equal to the fair market value of the NextLevel
Systems Common Stock and CommScope Common Stock received, which would result in
(i) a dividend to the extent of such stockholder's PRO RATA share of the
Company's current and accumulated earnings and profits, (ii) a reduction in such
stockholder's basis in GI Common Stock to the extent the amount received exceeds
such stockholder's share of earnings and profits and (iii) gain from the
exchange of GI Common Stock to the extent the amount received exceeds both such
stockholder's share of earnings and profits and such stockholder's basis in GI
Common Stock.
Current Treasury regulations require each holder of GI Common Stock who
receives NextLevel Systems Common Stock or CommScope Common Stock pursuant to
the Distribution to attach to his or her federal income tax return for the year
in which the Distribution occurs a detailed statement setting forth such data as
may be appropriate in order to show the applicability of Section 355 of the Code
to the Distribution. The Company will convey the appropriate information to each
holder of record of GI Common Stock as of the Distribution Record Date.
THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE DOES NOT
PURPORT TO COVER ALL FEDERAL INCOME TAX CONSEQUENCES THAT MAY APPLY TO
STOCKHOLDERS THAT ARE NOT U.S. CITIZENS OR RESIDENTS OR THAT ARE OTHERWISE
SUBJECT TO SPECIAL TREATMENT UNDER THE CODE. ALL STOCKHOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR FEDERAL, FOREIGN, STATE AND
LOCAL TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE APPLICATION OF
STATE, LOCAL AND FOREIGN TAX LAWS.
INTERESTS OF CERTAIN PERSONS IN THE DISTRIBUTION
In the Distribution, stockholders should be aware, and should carefully
consider, that certain members of the Company's management and the Company's
Board of Directors may be deemed to have interests in the Distribution that are
in addition to their interests as holders of GI Common Stock generally and that
may create potential conflicts of interest. In this regard, certain of the
directors and executive officers of the Company before the Distribution will be
directors and executive officers of NextLevel Systems or CommScope after the
Distribution and NextLevel Systems and CommScope, as applicable, will obtain
director and officer insurance and enter into indemnification agreements with
respect to such individuals. In addition, each director of the Company who will
become a non-employee director of either NextLevel Systems or CommScope, as the
case may be, will receive, as compensation for serving as a director, an annual
cash retainer, shares of restricted stock of such company and options to
purchase stock of such company. The Board of Directors was aware of these
interests and considered them, among other matters, in approving the
Distribution. See "Management of NextLevel Systems" and "Management of
CommScope."
LISTING AND TRADING OF NEXTLEVEL SYSTEMS COMMON STOCK AND COMMSCOPE COMMON STOCK
There is not currently a public market for NextLevel Systems Common Stock or
CommScope Common Stock. Prices at which NextLevel Systems Common Stock and
CommScope Common Stock may trade prior to the Distribution on a "when-issued"
basis or after the Distribution cannot be predicted. Until each of the NextLevel
Systems Common Stock and CommScope Common Stock is fully distributed and an
orderly market develops, the prices at which trading in such stock occurs may
fluctuate significantly. The prices at which NextLevel Systems Common Stock and
CommScope Common Stock trade will be determined by the marketplace and may be
influenced by many factors, including, among others, the depth and liquidity of
the market for such stock, investor perception of NextLevel Systems and
CommScope and the industries in which they participate, NextLevel Systems' and
CommScope's dividend policy and general economic and market conditions. Such
prices may also be affected by certain provisions of the Certificates
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of Incorporation and By-Laws of NextLevel Systems and CommScope, as each will be
in effect at the time of the Distribution, which will have an antitakeover
effect. See "Limitations on Changes in Control of NextLevel Systems and
CommScope."
NextLevel Systems intends to list the NextLevel Systems Common Stock on the
NYSE and CommScope intends to list the CommScope Common Stock on the NYSE. Each
of NextLevel Systems and CommScope initially will have approximately
stockholders of record based upon the number of stockholders of record of the
Company as of , 1997. For certain information regarding options to
purchase NextLevel Systems Common Stock and CommScope Common Stock that will be
outstanding after the Distribution, see "Management of NextLevel
Systems--NextLevel Systems 1997 Long-Term Incentive Plan--Awards under NextLevel
Systems Incentive Plan" and "Management of CommScope-- CommScope 1997 Long-Term
Incentive Plan--Awards under CommScope Incentive Plan."
LISTING AND TRADING OF GENERAL SEMICONDUCTOR COMMON STOCK
It is expected that the GI Common Stock will continue to be listed and
traded on the NYSE after the Distribution; however, its ticker symbol will be
changed to "SEM." If Proposal Three is approved, immediately following the
Distribution, General Semiconductor will effect a for reverse stock
split of the General Semiconductor Common Stock. Following the Distribution,
General Semiconductor's financial results will no longer be consolidated with
those of CommScope and NextLevel Systems and General Semiconductor's revenues,
income and other results of operations will be substantially lower than those of
the Company prior to the Distribution. Accordingly, as a result of the
Distribution, the trading price range of the General Semiconductor Common Stock
immediately after the Distribution (without giving effect to the proposed
reverse stock split) is expected to be significantly lower than the trading
price range of the GI Common Stock prior to the Distribution. The combined
trading prices of the General Semiconductor Common Stock, NextLevel Systems
Common Stock and CommScope Common Stock held by stockholders after the
Distribution may be less than, equal to or greater than the trading price of the
GI Common Stock prior to the Distribution. The prices at which the General
Semiconductor Common Stock trades after the Distribution will be determined by
the marketplace and may be influenced by many factors, including, among others,
the continuing depth and liquidity of the market for General Semiconductor
Common Stock, investor perception of General Semiconductor's development,
dividend policy and general economic and market conditions.
CONDITIONS; TERMINATION
The Distribution is conditioned upon, among other things, (i) the Internal
Revenue Service having issued the Tax Ruling in response to the Company's
request in form and substance satisfactory to the Board; (ii) stockholder
approval of the Distribution Proposals; (iii) the transfers of assets and
liabilities contemplated by the Distribution Agreement having been consummated
in all material respects; (iv) the NextLevel Systems Common Stock having been
approved for listing on the NYSE subject to official notice of issuance (and the
General Semiconductor Common Stock having been approved for listing on the NYSE,
subject to the effectiveness of the Distribution); (v) the CommScope Common
Stock having been approved for listing on the NYSE subject to official notice of
issuance; (vi) the Board of Directors of NextLevel Systems having been duly
elected, and the Certificate of Incorporation and By-Laws of NextLevel Systems,
as each will be in effect at the time of the Distribution, having been adopted
and being
in effect; (vii) the Board of Directors of CommScope having been duly elected,
and the Certificate of Incorporation and By-Laws of CommScope as each will be in
effect at the time of the Distribution, having been adopted and approved; (viii)
certain third-party consents to the transactions contemplated by the
Distribution Proposals having been obtained, except for those the failure of
which to obtain would not have a material adverse effect on NextLevel Systems,
CommScope or General Semiconductor; (ix) General Semiconductor, NextLevel
Systems and CommScope shall have executed and delivered the Ancillary Agreements
and such agreements shall be in full force and effect; (x) the Company and the
employees named in the NLC Agreement shall have executed and delivered the NLC
Agreement and such Agreement shall be in full force and effect; (xi)
consummation of the transactions contemplated in the
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Distribution Agreement shall not be prohibited by law and no governmental
authority shall have enacted any law which materially restricts, prevents or
prohibits any transaction contemplated by the Distribution Agreement; and (xii)
Marshall & Stevens, or another independent appraisal firm, having delivered an
updated opinion to the Company's Board of Directors. Even if all conditions are
satisfied, the Company's Board of Directors has reserved the right to abandon,
defer or modify the Distribution or the other elements of the Distribution
Proposals at any time prior to the Distribution Date. The Company's Board of
Directors will not, however, (i) waive receipt of the Tax Ruling from the
Internal Revenue Service or (ii) waive any other condition to the Distribution
or make any changes in the terms of the Distribution or the other elements of
the Distribution Proposals after the Distribution Proposals are approved by the
Company's stockholders unless the Company's Board of Directors determines that
such waivers or changes would not be materially adverse to the Company's
stockholders. In determining whether any such waivers or changes would be
materially adverse to the Company's stockholders, the Company's Board of
Directors will consider, as appropriate, advice from its outside financial and
legal advisors as well as the recommendation of management as to the potential
impact of such waivers or changes on the Company and the Company's stockholders.
FUTURE MANAGEMENT OF THE SEPARATE COMPANIES
NEXTLEVEL SYSTEMS
Following the Distribution it is intended that NextLevel Systems will
continue to conduct the Communications Business in substantially the manner in
which it is currently operated. NextLevel Systems will conduct the
Communications Business with substantially the same operating management with
which it is presently conducted. Richard S. Friedland, who is currently Chairman
of the Board and Chief Executive Officer of the Company, will serve as Chairman
of the Board and Chief Executive Officer of NextLevel Systems. Charles T.
Dickson, who is currently the Vice President and Chief Financial Officer of the
Company, will serve as Vice President and Chief Financial Officer of NextLevel
Systems. Paul J. Berzenski, who is currently the Vice President and Controller
of the Company, will serve as the Vice President and Controller of NextLevel
Systems. Thomas A. Dumit, who is currently the Vice President, General Counsel
and Chief Administrative Officer of the Company, will serve as the Vice
President, General Counsel and Chief Administrative Officer of NextLevel
Systems. The other executive officers of NextLevel Systems will be drawn from
the current management of the Company. See "Management of NextLevel
Systems--Executive Officers."
COMMSCOPE
Following the Distribution it is intended that CommScope will continue to
conduct the Cable Manufacturing Business in substantially the manner in which it
is currently operated. CommScope will conduct the Cable Manufacturing Business
with substantially the same operating management with which it is presently
conducted. Frank M. Drendel, who is currently the Chairman, President and Chief
Executive Officer of CommScope NC, will serve as the Chairman, President and
Chief Executive Officer of CommScope. Jearld L. Leonhardt, who is currently
Executive Vice President, Finance and Treasurer of CommScope NC, will serve as
Executive Vice President, Finance and Treasurer of CommScope. William R. Gooden,
who is currently Senior Vice President and Controller of CommScope NC, will
serve as Senior Vice President and Controller of CommScope. The other executive
officers of CommScope will be drawn from the current management of CommScope NC.
See "Management of CommScope--Executive Officers."
GENERAL SEMICONDUCTOR
Following the Distribution it is intended that General Semiconductor will
continue to conduct the Power Semiconductor Business in substantially the manner
in which it is currently operated. General Semiconductor will conduct the Power
Semiconductor Business with substantially the same operating management with
which it is presently conducted. Ronald A. Ostertag, who is currently Vice
President and President, Power Semiconductor Division of the Company, will serve
as President and Chief Executive
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Officer of General Semiconductor. Andrew M. Caggia, who is currently Senior Vice
President, Finance, of the Power Semiconductor Division, will serve as Senior
Vice President, Finance, of General Semiconductor. The other executive officers
of General Semiconductor will be drawn from the current management of the Power
Semiconductor Division. See "Management of General Semiconductor--Executive
Officers."
INTERNAL TRANSFERS
On or prior to the Distribution Date, GI Delaware will transfer to NextLevel
Systems the stock of NextLevel Systems Delaware, which will hold, directly or
indirectly, all of the assets and business of the Communications Business, and
will transfer to CommScope the stock of CommScope NC, which will hold, directly
or indirectly, all of the assets and businesses of the Cable Manufacturing
Business. On or prior to the Distribution Date, the Company will effectuate
certain transactions intended to allocate assets and liabilities relating to the
Communications Business to NextLevel Systems Delaware, assets and liabilities
relating to the Cable Manufacturing Business to CommScope NC and assets and
liabilities relating to the Power Semiconductor Business to GI Delaware.
RELATIONSHIP AMONG NEXTLEVEL SYSTEMS, COMMSCOPE AND GENERAL
SEMICONDUCTOR AFTER THE DISTRIBUTION
For the purpose of governing certain of the ongoing relationships among
NextLevel Systems, CommScope and General Semiconductor after the Distribution
and to provide mechanisms for an orderly transition, the Company, NextLevel
Systems and CommScope have entered or will enter into the various agreements,
and will adopt policies, as described in this section. The Company, NextLevel
Systems and CommScope believe that the agreements are fair to each of the
parties and contain terms which generally are comparable to those which would
have been reached in arm's-length negotiations with unaffiliated parties. The
services to be provided by each of the companies pursuant to the various
agreements described below will be billed at their approximate cost to the
provider and in each case the terms of these agreements have been reviewed by
individuals who will have senior management positions at General Semiconductor,
NextLevel Systems or CommScope after the Distribution.
DISTRIBUTION AGREEMENT
The Distribution Agreement provides for the terms of the Distribution, the
conditions to the Distribution (see "--Conditions; Termination"), the various
actions to be taken prior to the Distribution (see "--Internal Transfers") and
the relationship among the parties subsequent to the Distribution.
The Distribution Agreement provides that, from and after the Distribution
Date, (i) General Semiconductor shall assume, pay, perform and discharge all
General Semiconductor Liabilities (as defined in the Distribution Agreement) in
accordance with their terms, (ii) NextLevel Systems shall assume, pay, perform
and discharge all NextLevel Systems Liabilities (as defined in the Distribution
Agreement) in accordance with their terms, and (iii) CommScope shall assume,
pay, perform and discharge all CommScope Liabilities (as defined in the
Distribution Agreement) in accordance with their terms.
In addition, the Distribution Agreement provides for cross-indemnities that
require (i) General Semiconductor to indemnify NextLevel Systems and CommScope
(and their respective subsidiaries, directors, officers, employees and agents
and certain other related parties) against all losses arising out of or in
connection with the General Semiconductor Liabilities or the breach of the
Distribution Agreement or any Ancillary Agreement by General Semiconductor, (ii)
NextLevel Systems to indemnify General Semiconductor and CommScope (and their
respective subsidiaries, directors, officers, employees and agents and certain
other related parties) against all losses arising out of or in connection with
the NextLevel Systems Liabilities or the breach of the Distribution Agreement or
any Ancillary Agreement by NextLevel Systems, and (iii) CommScope to indemnify
General Semiconductor and NextLevel Systems (and their respective subsidiaries,
directors, officers, employees and agents and certain other related parties)
against all losses arising out of or in connection with the CommScope
Liabilities or the breach of the Distribution Agreement or any Ancillary
Agreement by CommScope, and for contribution in certain circumstances.
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Pursuant to the Distribution Agreement, each of the parties has agreed to
use all reasonable efforts to take or cause to be taken all action, and do or
cause to be done all things, reasonably necessary, proper or advisable to
consummate the transactions contemplated by and carry out the purposes of the
Distribution Agreement and the Ancillary Agreements. As such, the Distribution
Agreement provides that if any contemplated pre-Distribution transfers and
assignments have not been effected on or prior to the Distribution Date, the
parties will cooperate to effect such transfers as quickly thereafter as
practicable. The entity retaining any asset or liability which should have been
transferred prior to the Distribution Date will continue to hold that asset for
the benefit of the party entitled thereto or that liability for the account of
the party required to assume it, and must take such other action as may be
reasonably requested by the party to whom such asset was to be transferred or by
whom such liability was to be assumed in order to place such party, insofar as
reasonably possible, in the same position as would have existed had such asset
or liability been transferred or assumed as contemplated by the Distribution
Agreement.
The Distribution Agreement also provides for the execution and delivery of
certain other agreements governing the relationship among General Semiconductor,
NextLevel Systems and CommScope prior to and following the Distribution. See
"--Employee Benefits Allocation Agreement," "--Tax Sharing Agreement,"
"--Transition Services Agreements," "--Trademark License Agreement,"
"--Insurance Agreement" and "--Debt and Cash Allocation Agreement" below.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
Prior to the Distribution Date, the Company, NextLevel Systems and CommScope
will enter into an employee benefits allocation agreement (the "Employee
Benefits Allocation Agreement") providing for the allocation of certain
liabilities and responsibilities with respect to employee compensation, benefits
and labor matters. The allocation of responsibility and adjustments to be made
pursuant to the Employee Benefits Allocation Agreement are substantially
consistent with the existing rights of the Company's employees under the
Company's various compensation plans. The Employee Benefits Allocation Agreement
will provide that, effective as of the Distribution Date, each of NextLevel
Systems and CommScope will or will cause one or more of its subsidiaries to
assume or retain, as the case may be, all liabilities of the Company, to the
extent unpaid as of the Distribution Date, under employee benefit plans,
policies, arrangements, contracts and agreement, including under collective
bargaining agreements, with respect to employees who on or after the
Distribution Date will be employees of NextLevel Systems or its subsidiaries or
CommScope or its subsidiaries. The Employee Benefits Allocation Agreement will
also provide that General Semiconductor generally will assume or retain, as the
case may be, all other liabilities under employee benefit plans maintained by
General Semiconductor or any of its subsidiaries with respect to employees of
General Semiconductor or any of its retained subsidiaries after the
Distribution. The Company, NextLevel Systems and CommScope believe that the
Employee Benefits Allocation Agreement is fair to each of the parties and
contains terms which generally are comparable to those which would have been
reached at arms-length negotiations with unaffiliated parties.
DEFINED BENEFIT PLANS. Effective as of the Distribution, the General
Instrument Corporation Pension Plan for Salaried and Hourly Paid Non-Union
Employees (the "GI Pension Plan") will effect a spin-off of the assets and
liabilities pertaining to all Active Employees and Former Employees (as such
terms are defined in the Employee Benefits Allocation Agreement) of NextLevel
Systems and its subsidiaries to the NextLevel Systems defined benefit pension
plan. The GI Pension Plan will retain the remainder of the assets and
liabilities.
DEFINED CONTRIBUTION PLANS. Effective as of the Distribution Date,
NextLevel Systems will establish the NextLevel Systems Savings Plan for the
benefit of its Active Employees and those of its subsidiaries. General
Semiconductor will cause the account balances in the General Instrument
Corporation Savings Plan (the "Savings Plan") of each Active Employee of
NextLevel Systems and any of its subsidiaries with respect to whom the Savings
Plan maintains an account to be transferred to the NextLevel Systems Savings
Plan as of the Distribution Date. To the extent that such accounts are invested
in General Semiconductor
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Common Stock as of the Distribution Date, the transferred amounts will include
such stock together with
shares of NextLevel Systems Common Stock and Commscope Common Stock received in
respect thereof in the Distribution. After the Distribution, CommScope will
continue to maintain the CommScope Employee Profit Sharing and Savings Plan (the
"CommScope Savings Plan"). With respect to contributions made after the
Distribution Date, (i) General Semiconductor Common Stock will not be offered as
an investment option by the NextLevel Systems Savings Plan or the CommScope
Savings Plan, (ii) NextLevel Systems Common Stock will not be offered as an
investment option by the Savings Plan or the CommScope Savings Plan and (iii)
CommScope Common Stock will not be offered as an investment option by the
Savings Plan or the NextLevel Systems Savings Plan. Participants in any of such
plans will, however, be permitted to reinvest that portion of their account
balances which is invested in shares of whichever of General Semiconductor,
NextLevel Systems or CommScope do not sponsor the plan in which they
participate.
EQUITY-BASED PLANS AND TREATMENT OF OUTSTANDING STOCK-BASED AWARDS. Prior
to the Distribution Date, it is expected that NextLevel Systems and CommScope
will establish, respectively, the NextLevel Systems 1997 Long Term Incentive
Plan (the "NextLevel Systems Incentive Plan") and the CommScope 1997 Long Term
Incentive Plan (the "CommScope Incentive Plan"). Effective as of the
Distribution Date, all outstanding options in respect of GI Common Stock held by
NextLevel Systems or CommScope Active Employees (the "Current Options") will be
replaced with substitute options (the "Substitute Options") in respect of
NextLevel Systems Common Stock or CommScope Common Stock, as the case may be,
issued under either the NextLevel Systems Incentive Plan or the CommScope
Incentive Plan. Such Substitute Options will be designed to preserve the
economic value of the related Company options, and the vesting and expiration
dates and other terms of the related awards will remain in effect under the
Substitute Options, as applicable. The exercise price under the Substitute
Options will be determined by multiplying the exercise price under the
applicable Current Option by a fraction, the numerator of which is the average
of the high and low trading prices of NextLevel Systems Common Stock or
CommScope Common Stock, as applicable, for the five trading days immediately
after the Distribution Date and the denominator of which is the average of the
high and low trading prices of GI Common Stock for the five trading days
immediately preceding the Distribution Date. The number of shares of NextLevel
Systems Common Stock or CommScope Common Stock subject to Substitute Options
will be determined by multiplying the number of shares of GI Common Stock
covered by the Current Option by a fraction, the numerator of which is the
average of the high and low trading prices of GI Common Stock for the five
trading days immediately preceding the Distribution Date and the denominator of
which is the average of the high and low trading prices of the NextLevel Systems
Common Stock or CommScope Common Stock, as applicable, for the five trading days
immediately after the Distribution Date.
Effective as of the Distribution Date, all outstanding options in respect of
GI Common Stock held by General Semiconductor employees as of the Distribution
Date will be adjusted as necessary to reflect the Distribution. The exercise
price of each such option will be adjusted by multiplying the exercise price by
a fraction, the numerator of which is the average of the high and low trading
prices of GI Common Stock for the five trading days immediately after the
Distribution Date and the denominator of which is the average of the high and
low trading prices of GI Common Stock for the five trading days immediately
preceding the Distribution Date. The number of shares subject to each such
option will be adjusted by multiplying the number of shares covered by the
option by a fraction, the numerator of which is the average of the high and low
trading prices of GI Common Stock for the five trading days immediately
preceding the Distribution Date and the denominator of which is the average of
the high and low trading prices of GI Common Stock for the five trading days
immediately after the Distribution Date. One former employee of the Company and
certain retired directors currently have options outstanding in respect of GI
Common Stock. Such options will be adjusted so that, after the Distribution,
such persons will also hold options in respect of NextLevel Systems Common Stock
and CommScope Common Stock, and the aggregate exercise price under the
applicable option will be allocated among the three options based on the
relative values of
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the common stock of each of the three companies over the first five trading days
after the Distribution Date.
TAX SHARING AGREEMENT
The Company, NextLevel Systems and CommScope will enter into a tax sharing
agreement (the "Tax Sharing Agreement") that defines the parties' rights and
obligations with respect to federal, state and other income or franchise taxes
relating to the Company's businesses for tax periods prior to, including and
following the Distribution and with respect to certain other tax matters. In
general, NextLevel Systems will be responsible for consolidated federal income
taxes, consolidated or combined state income taxes, and separate state income
taxes of the Company and its subsidiaries through the Distribution Date. Such
liability will be determined assuming a closing of the books on the Distribution
Date. Liability for foreign income taxes and non-income taxes will generally be
allocated to the legal entity on which such taxes are imposed except that
liability for such taxes relating to the Broadband Networks Group (as defined in
the Tax Sharing Agreement) will generally be allocated to NextLevel Systems.
NextLevel Systems generally will prepare and file consolidated federal income
tax and consolidated or combined state income tax returns for periods ending on
or before, or for periods beginning before and ending after, the Distribution
Date.
In general, and except as provided below, NextLevel Systems will be
responsible for any taxes resulting from the Distribution. However, each of
CommScope and General Semiconductor will be responsible for any such taxes to
the extent that such taxes are attributable to action taken by that entity or
its affiliates after the Distribution that is inconsistent with the tax
treatment contemplated in the ruling requested from the Internal Revenue
Service. The Company, NextLevel Systems and CommScope believe that the Tax
Sharing Agreement is fair to each of the parties and contains terms which
generally are comparable to those which would have been reached at arms-length
negotiations with unaffiliated parties. See "--Federal Income Tax Aspects of the
Distribution."
TRANSITION SERVICES AGREEMENTS
In connection with the Distribution, NextLevel Systems will enter into two
separate transition services agreements to provide (i) risk management services,
cash management and international banking services, certain tax return
preparation services, pension plan services, corporate reporting, customs
services and other administrative services to General Semiconductor and (ii)
risk management services, customs services and information technology services
to CommScope. These agreements are intended to provide certain administrative
services, at agreed upon fees, for a limited transition period (ranging from
to depending upon the service provided). The management of each of
CommScope and General Semiconductor presently expects that its company will be
able to provide these services itself after the applicable transition period
without material expense, although no assurance can be given that this will be
the case. Each party has the right to terminate its transition services
agreement upon a material breach by the other party thereto. The Company,
NextLevel Systems and CommScope believe that these agreements are fair to each
of the parties and contain terms which generally are comparable to those which
would have been reached at arms-length negotiations with unaffiliated parties.
TRADEMARK LICENSE AGREEMENT
Effective as of the Distribution, NextLevel Systems will hold the rights in
the mark GENERAL INSTRUMENT, the logo "GI," and other rights to various
trademarks, service marks, and trade names containing "General Instrument,"
alone and in combination with other terms and/or symbols and variations thereof
(collectively, the "GI Trademarks") in the United States and elsewhere
throughout the world. In connection with the Distribution, NextLevel Systems,
CommScope and General Semiconductor will enter into a trademark license
agreement (the "Trademark License Agreement"). Pursuant to the Trademark License
Agreement, NextLevel Systems will grant to each of CommScope and General
Semiconductor a limited, non-exclusive, non-assignable, worldwide, royalty-free
license to use the GI
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Trademarks, with respect to specified goods and services as follows: (a) for a
period of up to 12 months (the "Transition Period") following the Distribution
Date, each of CommScope and General Semiconductor will be permitted to use
and/or sell its existing parts and products which have imprinted thereon the GI
Trademarks to the extent such parts and products were in existing inventory
prior to the Distribution Date and (b) for the Transition Period, each of
CommScope and General Semiconductor will be permitted to use the GI Trademarks
on existing signs, stationery, displays or other identification or advertising
material to the extent that such signs, stationery, displays or other
identification or advertising material were in existing inventory prior to the
Distribution Date. The Trademark License Agreement is immediately terminable by
NextLevel Systems as to CommScope or General Semiconductor upon a material
breach of the Trademark License Agreement by such party. The Company, NextLevel
Systems and CommScope believe that the Trademark License Agreement is fair to
each of the parties and contains terms which generally are comparable to those
which would have been reached at arms-length negotiations with unaffiliated
parties.
INSURANCE AGREEMENT
The Company has historically maintained a number of different insurance
policies covering risks presented by its, and its subsidiaries', various
operations and corporate responsibilities. Pursuant to an insurance agreement to
be entered into among General Semiconductor, NextLevel Systems and CommScope
(the "Insurance Agreement") in connection with the Distribution, new insurance
policies will be obtained separately by General Semiconductor, NextLevel Systems
and CommScope to cover the risks unique to each entity's operations and
corporate obligations. The Company, NextLevel Systems and CommScope believe that
the Insurance Agreement is fair to each of the parties and contains terms which
generally are comparable to those which would have been reached at arms-length
negotiations with unaffiliated parties.
Also pursuant to the Insurance Agreement, the Company's existing insurance
coverages will be terminated, as follows: (i) insurance policies written on an
"occurrence" basis (i.e., policies that provide coverage for acts or omissions
occurring during a specified period) will be terminated on the Distribution Date
for acts or omissions occurring thereafter and (ii) insurance policies written
on a "claims-made" basis ( i.e., policies which provide coverage for claims made
during a specified period) will be terminated on the Distribution Date for any
claims not made prior thereto. General Semiconductor, NextLevel Systems and
CommScope, however, will all continue to have insurance protection for acts or
omissions which occurred prior to the Distribution Date, in the case of the
terminated occurrence-based policies, and for claims made prior to the
Distribution Date, in the case of the terminated claims-made policies, subject,
in both cases, to the respective limits of coverage and other terms and
conditions of the terminated policies.
DEBT AND CASH ALLOCATION AGREEMENT
The debt and cash allocation agreement to be entered into among General
Semiconductor, NextLevel Systems and CommScope in connection with the
Distribution (the "Debt and Cash Allocation Agreement") will govern the
allocation among the parties of the debt (net of cash) of the Company and its
consolidated subsidiaries as of the close of business on the Distribution Date
(the "Distribution Time"). The Debt and Cash Allocation Agreement will (i)
require that General Semiconductor obtain and have in place prior to the
Distribution Time a credit facility that will be used by General Semiconductor
(along with amounts provided by NextLevel Systems and CommScope) to prepay the
GI Credit Facility (which had approximately $450.0 million outstanding as of
March 31, 1997) and for other general corporate purposes, (ii) require that
CommScope obtain and have in place prior to the Distribution Time a credit
facility that will be used by CommScope to pay to GI Delaware a dividend in the
amount of approximately $264.2 million and for general corporate purposes, (iii)
require that NextLevel Systems obtain and have in place prior to the
Distribution Time a credit facility that will be used by NextLevel Systems to
repay a portion of the GI Credit Facility in the amount of approximately $140.9
million, to satisfy amounts
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incurred in connection with certain pending legal proceedings and for general
corporate purposes, (iv) govern the conduct of the post-Distribution audit to be
undertaken to ascertain the amount of debt and cash held by each of General
Semiconductor and CommScope upon consummation of the Distribution and (v)
require that post-closing payments be made between the parties so that as of the
close of business on the Distribution Date: (a) CommScope has consolidated debt
(net of cash) of approximately [$275] million and (b) General Semiconductor has
consolidated debt (net of cash) of approximately [$275] million. The Company,
NextLevel Systems and CommScope believe that the Debt and Cash Allocation
Agreement is fair to each of the parties and contains terms which generally are
comparable to those which would have been reached at arms-length negotiations
with unaffiliated parties.
REGULATORY APPROVALS
The Company does not believe that any material federal or state regulatory
approvals will be necessary in connection with the Distribution.
ACCOUNTING TREATMENT
If the stockholders of the Company approve the Distribution at the Meeting,
the Company will thereafter present the businesses of NextLevel Systems and
CommScope as discontinued operations to the extent financial information for
periods prior to the Distribution is required to be included in the Company's
historical financial statements. After the Distribution, the businesses of
NextLevel Systems and CommScope will each present separate financial statements.
PROPOSAL TWO: APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION TO CHANGE
THE NAME OF THE COMPANY
The Company's Board of Directors has approved an amendment to the Company's
Certificate of Incorporation to change the name of the Company to General
Semiconductor, Inc. after the Distribution. The Board of Directors believes that
if the Distribution is approved and consummated, the Company's name, General
Instrument Corporation, would not accurately reflect the nature of General
Semiconductor's business. The Board of Directors believes that by changing the
name of the Company to "General Semiconductor, Inc." it will be more clearly
identified with the business of the Power Semiconductor Division, which will be
the Company's primary business after the Distribution. The effectiveness of
Proposal Two is conditioned upon approval of Proposal One. Accordingly, failure
of the stockholders to approve Proposal One will mean that the Certificate of
Incorporation of the Company will not be amended to change the name of the
Company.
If Proposal One and Proposal Two are approved, it is expected that the
amendment to the Company's Certificate of Incorporation changing the Company's
name will become effective as of the close of business on the Distribution Date.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
PROPOSAL TWO.
PROPOSAL THREE: APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF THE
COMPANY TO EFFECT A REVERSE STOCK SPLIT
GENERAL
The Company's Board of Directors has approved an amendment to the Company's
Certificate of Incorporation (the "Reverse Split Amendment") to effect a for
reverse stock split of the General Semiconductor Common Stock immediately
following the Distribution. The full text of the Reverse Split Amendment is
included in Annex C hereto. If Proposal Three is approved, every shares of
General Semiconductor Common Stock will be reclassified as and converted into
share of General Semiconductor Common Stock. The effectiveness of Proposal
Three, however, is conditioned upon approval of Proposal One. Accordingly,
failure of the stockholders to approve Proposal One will
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mean that the Certificate of Incorporation of the Company will not be amended to
effect the for reverse stock split. If the reverse stock split is
effected, fractional shares of General Semiconductor Common Stock will not be
issued as a result of the reverse stock split. Stockholders entitled to receive
a fractional share of General Semiconductor Common Stock will instead receive
from General Semiconductor a cash payment as described below.
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
The proposed reverse stock split will be effected by means of either an
amendment to the Certificate of Incorporation of the Company or an Amended and
Restated Certificate of Incorporation. If Proposal One and Proposal Three are
approved, the Reverse Split Amendment will amend Article Fourth of the
Certificate of Incorporation of the Company to add a new section providing for
the reverse stock split. The Reverse Split Amendment will become effective upon
filing with the Secretary of State of the State of Delaware. It is expected that
the Reverse Stock Split Amendment will become effective as of the close of
business on the Distribution Date and, without further action on the part of
General Semiconductor or the stockholders, every shares of General
Semiconductor Common Stock will be reclassified as and converted into share
of General Semiconductor Common Stock. In accordance with Delaware law, and
notwithstanding approval of the Reverse Split Amendment by stockholders, at any
time prior to the filing of the documents reflecting the Reverse Split
Amendment, the Board of Directors of the Company may, in its sole discretion,
abandon the proposed amendment without any further action by stockholders.
Although the Company's Board of Directors has no present intention to abandon
the proposed amendment, it reserves the right to do so in light of changing
market conditions, stock exchange requirements or other factors.
EFFECT OF THE PROPOSED REVERSE STOCK SPLIT
As a result of the reverse stock split, each stockholder who owns fewer than
shares of General Semiconductor Common Stock will have its fractional share
of General Semiconductor Common Stock converted into the right to receive cash
as set forth below in "--Surrender of Stock Certificates and Payment for
Fractional Shares." The interest of such stockholder in General Semiconductor
will thereby be terminated. Each stockholder who owns or more shares of
General Semiconductor Common Stock will continue to own shares of General
Semiconductor Common Stock, but such interest will be represented by the
number of shares that such stockholder owned before the reverse stock split,
except that no fractional shares will be issued. The Company does not anticipate
that the reverse stock split will result in a significant reduction in the
number of the Company's stockholders or affect the registration of the Company
under the Exchange Act. It also should not affect any stockholder's percentage
ownership interest in General Semiconductor, except for minor differences due to
fractional shares. On a pro forma basis, based on the number of shares of GI
Common Stock outstanding as of , 1997, after the reverse stock split
General Semiconductor would have 400,000,000 shares of General Semiconductor
Common Stock authorized and shares outstanding. See "The Power
Semiconductor Business Pro Forma Condensed Consolidated Financial Statements"
for information concerning the financial impact of the reverse stock split on
General Semiconductor.
As of , 1997, under the Company's 1993 Long-Term Incentive
Plan (as defined), there were outstanding options to purchase an aggregate of
shares of GI Common Stock, and shares remained available for grant.
The 1993 Long-Term Incentive Plan provides that the Committee (as defined in the
1993 Long-Term Incentive Plan), in the event of a change in capitalization such
as a reverse stock split may, in its sole discretion, adjust the aggregate
number and class of shares of stock or other securities available under the 1993
Long-Term Incentive Plan, the number and class of shares of stock or other
securities covered by an award, and the option price applicable to outstanding
options. Accordingly, after first giving effect to the adjustments described in
"The Distribution Proposals-- Proposal One: The Distribution--Employee Benefits
Allocation Agreement" (the "First Adjustment"),
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upon implementation of the for reverse stock split, the Committee will
make adjustments so that the number of shares of General Semiconductor Common
Stock issuable upon exercise of outstanding options will be reduced to of
such issuable amount after the First Adjustment, with per share exercise prices
appropriately adjusted, and the number of shares of General Semiconductor Common
Stock available for grant will be reduced to of such available amount
after the First Adjustment. The limitation on the number of shares issuable
under the 1993 Long-Term Incentive Plan will likewise be adjusted to reflect the
reverse stock split.
As the reverse stock split is not within the class of transactions (mergers
or consolidations) to which Section 262 of the DGCL applies, stockholders of the
Company will not be entitled to appraisal rights under Delaware law in
connection with the reverse stock split.
REASONS FOR THE REVERSE STOCK SPLIT
As a result of the Distribution (and without giving effect to the reverse
stock split), the Company believes that the General Semiconductor Common Stock
will likely trade at a significantly lower per share price following the
Distribution Date than the GI Common Stock traded prior to the Distribution
Date. Therefore, the Company desires to reduce the number of outstanding shares
so as to try to improve the trading price range and marketability of the
existing shares and reduce stockholder transaction costs following the
Distribution. The Company believes that the reverse stock split will encourage
greater interest in the General Semiconductor Common Stock by certain members of
the financial community who may find lower priced stocks unattractive from an
economic standpoint. In addition, lower priced stocks may result in individual
stockholders paying brokerage commissions and other transaction costs which are
a higher percentage of their total share value than would be the case with
higher priced stocks.
There can be no assurance, however, that the market price for the General
Semiconductor Common Stock will increase proportionately, or at all, as a result
of the reverse stock split or that any other potentially favorable consequences
of the reverse stock split will occur. The Company cannot predict what effect
the reverse stock split will have on the market price of the General
Semiconductor Common Stock.
SURRRENDER OF STOCK CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES
The reverse stock split will occur on the Distribution Date without any
action on the part of stockholders of General Semiconductor and without regard
to the date certificates representing pre-split shares of General Semiconductor
Common Stock are physically surrendered. No fractional shares of General
Semiconductor Common Stock will be issued in connection with the reverse stock
split. General Semiconductor's transfer agent will aggregate fractional shares
into whole shares of General Semiconductor Common Stock and an independent agent
retained by General Semiconductor will sell them in the open market at
prevailing prices on behalf of holders who otherwise would be entitled to
receive fractional share interests. Such persons will then receive a cash
payment for the amount of their allocable share of the total sale proceeds. The
amount of such payment will depend on the prices at which the aggregated
fractional shares are sold by the independent agent in the open market shortly
after the Distribution Date. Such sales are expected to be made as soon as
practicable after the Distribution.
As soon as practicable after the Distribution Date, a transmittal form will
be mailed to each holder of record of certificates for shares of General
Semiconductor Common Stock to be used in forwarding its certificates for
surrender. After receipt of such transmittal form, each holder should surrender
the certificates representing pre-split shares of General Semiconductor Common
Stock. Each holder that surrenders certificates will receive an account
statement reflecting ownership of the whole number of shares of post-split
General Semiconductor Common Stock to which it is entitled and any cash payable
in lieu of a fractional share. The transmittal form will be accompanied by
instructions specifying other details of the surrender. STOCKHOLDERS SHOULD NOT
SEND THEIR CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM.
After the Distribution Date, each certificate representing pre-split shares
of General Semiconductor Common Stock will, until surrendered as described
above, be deemed, for all corporate purposes, to
53
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evidence ownership of the whole number of post-split shares of General
Semiconductor Common Stock, and the right to receive from General Semiconductor
the amount of cash for any fractional shares, into which the shares evidenced by
such certificate have been converted, except that the holder of such unexchanged
certificates will not be entitled to receive any dividends or other
distributions payable by General Semiconductor after the Distribution Date,
until the certificates representing pre-split shares of General Semiconductor
Common Stock have been surrendered. Such dividends and distributions, if any,
will be accumulated, and at the time of the surrender of the certificates for
pre-split shares of General Semiconductor Common Stock, all such unpaid
dividends or distributions will be paid without interest.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the reverse stock split. This summary does not purport to be complete and
does not address the tax consequences to holders that are subject to special tax
rules, such as banks, insurance companies, regulated investment companies,
personal holding companies, foreign entities, nonresident alien individuals,
broker-dealers and tax-exempt entities. This summary is based on the Code,
Treasury regulations and proposed regulations, court decisions and current
administrative rulings and pronouncements of the Internal Revenue Service, all
of which are subject to change, possibly with retroactive effect, and assumes
that the post-split shares of General Semiconductor Common Stock will be held as
a "capital asset" as defined in the Code. Holders of General Semiconductor
Common Stock are advised to consult with their own tax advisers regarding the
particular tax consequences of the proposed reverse stock split to them,
including the application of state, local and foreign tax laws.
No gain or loss will be recognized by General Semiconductor as a result of
the reverse stock split. No gain or loss will be recognized by a stockholder who
receives only General Semiconductor Common Stock upon the reverse stock split.
The aggregate basis of the shares of General Semiconductor Common Stock
received in the reverse stock split (including any fractional share deemed
received) will be the same as the aggregate basis of the shares of General
Semiconductor Common Stock surrendered in exchange therefor. The holding period
of the shares of General Semiconductor Common Stock received in the reverse
stock split (including any fractional share deemed received) will include the
holding period of the shares of General Semiconductor Common Stock surrendered
in exchange therefor.
A holder of General Semiconductor Common Stock receiving cash in lieu of a
fractional share will be treated as receiving the payment in connection with a
redemption of the fractional share, with the tax consequences of the redemption
determined under Section 302 of the Code. Such a holder will generally recognize
gain or loss upon such payment equal to the difference, if any, between such
stockholder's basis in the fractional share (described above) and the amount of
cash received. Such gain or loss will be capital gain or loss and will be
long-term capital gain or loss if the stockholder's holding period (as described
above) exceeds one year. A holder of General Semiconductor Common Stock
receiving cash in lieu of a fractional share may be subject to dividend
treatment on such payment if the redemption of the fractional share is
"essentially equivalent to a dividend" under Section 302 of the Code. Based on a
published Internal Revenue Service ruling, dividend treatment will likely not
apply if, taking into account the constructive ownership rules set forth in
Section 318 of the Code, (a) the stockholder's relative stock interest in the
Company is minimal (b) the stockholder exercises no control over the Company's
affairs and (c) there is a reduction in the stockholder's proportionate interest
in the Company.
ACCORDINGLY, ALL HOLDERS OF GI COMMON STOCK ARE URGED TO CONSULT WITH THEIR
OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE PROPOSED REVERSE
STOCK SPLIT, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL THREE.
54
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THE COMMUNICATIONS BUSINESS
(WHICH WILL BECOME NEXTLEVEL SYSTEMS, INC. FOLLOWING THE DISTRIBUTION)
SELECTED FINANCIAL DATA
The following table presents selected historical financial data of the
Communications Business. The information set forth below should be read in
conjunction with the "The Communications Business Pro Forma Condensed Combined
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Communications Business" and the
historical combined financial statements and notes thereto of the Communications
Business included elsewhere in this Proxy Statement. The combined statement of
operations data set forth below for each of the three years ended December 31,
1996 and the combined balance sheet data at December 31, 1996 and 1995 are
derived from, and are qualified by reference to, the audited combined financial
statements of the Communications Business included elsewhere in this Proxy
Statement. The combined balance sheet data at December 31, 1994 are derived from
the audited combined balance sheet of the Communications Business at December
31, 1994, which is not included in this Proxy Statement. The combined statement
of operations data for the years ended December 31, 1993 and 1992 and the
combined balance sheet data at December 31, 1993 and 1992 are derived from
unaudited combined financial statements of the Communications Business not
included in this Proxy Statement.
The historical financial information may not be indicative of the
Communications Business' future performance and does not necessarily reflect
what the financial position and results of operations of the Communications
Business would have been had the Communications Business operated as a separate,
stand-alone entity during the periods presented. Per share data for net income
(loss) has not been presented because the Communications Business was operated
through the Company for the periods presented.
55
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THE COMMUNICATIONS BUSINESS
(WHICH WILL BECOME NEXTLEVEL SYSTEMS, INC. FOLLOWING THE DISTRIBUTION)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996(A) 1995(B) 1994(C) 1993 1992
------------ ------------ ------------ ---------- ----------
<CAPTION>
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales........................................... $ 1,755,585 $ 1,532,595 $ 1,275,307 $ 782,960 $ 556,990
Cost of sales..................................... 1,349,815 1,079,916 877,667 528,719 383,773
Selling, general and administrative............... 174,432 138,209 102,753 87,389 84,316
Research and development.......................... 198,071 137,930 104,795 67,610 52,432
Purchased in-process technology................... -- 139,860 -- -- --
NLC litigation costs.............................. 141,000 -- -- -- --
Amortization of excess of cost over fair value of
net assets acquired............................. 14,278 14,418 14,931 15,027 15,141
Operating income (loss)............................. (122,011) 22,262 175,161 84,215 21,328
Interest expense--net............................... (25,970) (22,933) (27,337) (35,026) (54,869)
Income (loss) before income taxes and cumulative
effect of changes in accounting principles........ (149,408) (2,408) 149,204 58,133 (33,624)
Net income (loss)................................... $ (96,310) $ 4,206 $ 121,049 $ 49,856 $ (39,061)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
------------ ------------ ------------ ---------- ----------
<CAPTION>
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets................................... $ 1,629,736 $ 1,354,338 $ 1,199,002 $ 969,635 $ 901,940
Other non-current liabilities.................. 188,045 75,125 77,890 103,293 39,276
Divisional net equity.......................... 1,051,174 926,168 763,895 629,016 637,056
</TABLE>
- ------------------------
(a) 1996 includes charges of $226 million ($145 million net of tax) reflecting
NLC litigation costs and other charges primarily related to the transition
to the Communications Business' next-generation digital products and the
write-down of certain assets (see Notes 4 and 10 to the combined financial
statements of the Communications Business).
(b) 1995 includes a charge of $140 million ($90 million net of tax) for
purchased in-process technology in connection with the acquisition of NLC.
(c) 1994 includes an income tax benefit of $31 million, as a result of a
reduction in a valuation allowance related to domestic deferred income tax
assets.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE COMMUNICATIONS BUSINESS
This discussion should be read in conjunction with the information contained
under "Business of NextLevel Systems" and the Combined Financial Statements of
the Communications Business and the Notes thereto appearing elsewhere in this
Proxy Statement.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 WITH
THE YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales for the year ended December 31, 1996 were $1,756
million compared to $1,533 million for the year ended December 31, 1995, an
increase of $223 million, or 15%. This increase in net sales reflects higher
sales in the Broadband Networks Group, partially offset by lower sales in the
Satellite Data Networks Group. Analog and digital products represented 67% and
33%, respectively, of the sales of the Communications Business in 1996, compared
to 70% and 30%, respectively, in 1995.
Worldwide Broadband Networks sales (consisting of digital and analog cable
and wireless television systems and network transmission systems) increased $273
million, or 30%, from 1995 to $1,181 million in 1996 primarily as a result of
increased U.S. sales volume of CFT-2200 advanced analog set-top terminals,
first-time sales of DCT-1000 MPEG-2 digital set-top terminals and increased
global sales volume of mature analog addressable set-top terminals and
transmission electronics. These sales reflect the continued commitment of
domestic cable television operators to deploy state-of-the-art addressable
systems and enhanced services and the continued deployment of new cable
television systems in international markets. International Broadband Networks
sales increased $107 million, or 37%, to $392 million in 1996 and represented
33% of worldwide Broadband Networks sales in 1996 compared to 31% in 1995.
Analog and digital products of the Broadband Networks Group represented 96% and
4%, respectively, of worldwide Broadband Networks sales in 1996. In 1995, all
worldwide Broadband Networks sales related to analog products. Satellite Data
Networks sales decreased $50 million, or 8%, from 1995 to $575 million in 1996
due to lower sales volume of digital satellite receivers to PRIMESTAR Partners
("PRIMESTAR") and VideoCipher RS-TM- analog satellite modules and receivers,
partially offset by higher sales volumes of DigiCipher-TM- II/MPEG-2 digital
satellite systems and digital video broadcast ("DVB") compliant Magnitude-TM-
satellite encoders. International Satellite Data Networks sales increased $30
million, or 76%, to $69 million in 1996 and represented 12% of worldwide
Satellite Data Networks sales in 1996 compared to 6% in 1995. Analog and digital
products of the Satellite Data Networks Group represented 8% and 92%,
respectively, of worldwide Satellite Data Networks sales in 1996, compared to
25% and 75%, respectively, in 1995. In late 1996, TCI announced that it would
significantly curtail capital spending on its cable networks, although TCI
informed the Communications Business that it planned to continue spending on its
digital cable networks. TCI represented approximately 23% and 30%, respectively,
of the revenues of the Communications Business for the years ended December 31,
1996 and 1995 respectively. The Communications Business does not expect this
announcement to have a significant negative impact on its 1997 financial
statements, as the Communications Business expects sales of digital products to
TCI to increase significantly from 1996, although no assurance can be given as
to the amount of such sales.
GROSS PROFIT (NET SALES LESS COST OF SALES). Gross profit decreased $47
million, or 10%, to $406 million in 1996 from $453 million in 1995 and was 23%
of sales in 1996 compared to 30% in 1995. The lower gross profit margin in 1996
includes $71 million of charges recorded in the fourth quarter of 1996 for the
write-down of inventories to their estimated net realizable values and the
accrual of upgrade and product warranty liabilities primarily related to the
transition to the Communications Business' next-generation digital products (see
Note 4 to the Combined Financial Statements of the Communications Business). The
lower gross profit margin also reflects the shift in product mix from higher
margin VideoCipher RS analog satellite receiver consumer modules to new advanced
analog and digital television system products, which initially carry lower
margins.
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SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
("SG&A") expense was $174 million in 1996 compared to $138 million in 1995 and
was 10% of sales in 1996 compared to 9% of sales in 1995. SG&A base spending was
greater in 1996 than in 1995 as the Communications Business targeted new growth
opportunities, including the marketing of NLC's broadband access systems to
telephone companies for interactive digital video, voice and data services, and
as the Communications Business increased its sales force, field support and
marketing activities to take advantage of continued growth opportunities in
international cable and satellite television and worldwide telecommunications
markets. SG&A expense in 1996 also included $14 million of restructuring and
other charges primarily related to the Company's plan to separate into three
independent companies, the write-down of various fixed assets to their estimated
net realizable values and the settlement of a litigation matter (see Note 4 to
the Combined Financial Statements of the Communications Business). SG&A expense
for 1995 included a $5 million restructuring charge primarily related to the
direct costs associated with the consolidation of corporate headquarters and
reorganization of its divisions and $14 million related to a national
advertising campaign for C-band satellite systems.
RESEARCH AND DEVELOPMENT. The Communications Business' research and
development ("R&D") expense increased $60 million, or 44%, to $198 million in
1996 from $138 million in 1995 and was 11% of sales in 1996 compared to 9% in
1995. The Broadband Networks Group, the Satellite Data Networks Group and NLC
incurred $96 million, $85 million and $17 million, respectively, of the
Communications Business' 1996 R&D expense compared to $81 million, $54 million
and $3 million, respectively, of the 1995 expense, and the Broadband Networks
Group and Satellite Data Networks Group R&D expense represented 8% and 15%,
respectively, of the business units sales in 1996 compared to 9% for both
business units in 1995. The increased level of spending reflects: the continued
development of next-generation products, including cable modems and telephone
company access products through NLC, as well as the modification of existing
products for international markets; continued development of enhanced
addressable analog terminals and advanced digital systems for cable and
satellite television distribution; ongoing cost-reduction programs; and product
development and international expansion through strategic alliances. The
Communications Business' research and development expenditures are expected to
approximate $210 million for the year ending December 31, 1997.
NLC LITIGATION COSTS. In June 1996, the Communications Business recorded a
pre-tax charge of $141 million reflecting the judgment and costs of litigation
in the case involving NLC, its founders and DSC (the "NLC Litigation") (see
Notes 10 and 17 to the Combined Financial Statements of the Communications
Business). See "Risk Factors--Risks Relating to the Businesses of NextLevel
Systems, CommScope and General Semiconductor--Legal Proceedings" and "Business
of NextLevel Systems--Legal Proceedings."
INTEREST EXPENSE-NET. Net interest expense represents an allocation of
interest expense from the Company and was allocated based upon the
Communications Business' net assets as a percentage of the total net assets of
the Company. Net interest expense allocated to the Communications Business
increased $3 million to $26 million in 1996 from $23 million in 1995 as a result
of higher net interest expense of the Company.
INCOME TAXES. Income taxes have been determined as if the Communications
Business had filed separate tax returns under its existing structure for the
periods presented. Accordingly, future tax rates could vary from the historical
effective tax rates depending on the Communications Business' future legal
structure and tax elections. The Communications Business recorded a tax benefit
of $53 million and $7 million in 1996 and 1995, respectively (see Note 9 to the
Combined Financial Statements of the Communications Business).
58
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 WITH
THE YEAR ENDED DECEMBER 31, 1994
NET SALES. Net sales for the year ended December 31, 1995 were $1,533
million compared to $1,275 million for the year ended December 31, 1994, an
increase of $258 million, or 20%. This increase in net sales reflects both
higher sales volume in the Broadband Networks Group and the Satellite Data
Networks Group. Analog and digital products represented 70% and 30%,
respectively, of the sales of the Communications Business in 1995, compared to
83% and 17%, respectively, in 1994.
Worldwide Broadband Networks sales increased $99 million, or 12%, to $908
million in 1995 primarily as a result of increased sales volume of addressable
analog set-top terminals, primarily related to first-time sales of CFT-2200
advanced analog set-top terminals and transmission electronics. International
Broadband Networks sales increased $56 million, or 25%, to $285 million in 1995
and represented 31% of worldwide Broadband Networks sales in 1995 compared to
28% in 1994. The higher sales volume primarily reflects the commitment of
domestic cable operators to deploy state-of-the-art addressable systems in the
United States and new cable television systems in international markets. In 1995
and 1994, all worldwide Broadband Networks sales related to analog products.
Satellite Data Networks sales in 1995 increased $158 million, or 34%, to $625
million due to higher sales volume of DigiCipher digital television systems,
primarily digital satellite consumer receivers to PRIMESTAR, partially offset by
lower sales volume of C-band satellite systems. The higher sales volume of
digital television systems reflects the commercialization of digital broadband
systems in the United States. Sales of DigiCipher products represented 30% of
the Communications Business' 1995 sales. In 1994, the Communications Business
had significant sales of VideoCipher RS analog satellite receiver consumer
modules to persons who had been receiving without authorization (or "pirating")
the commercial satellite programming data signals. In 1995, sales of these
modules were at lower levels as expected. International Satellite Data Networks
sales decreased $2 million, or 4%, to $39 million in 1995 and represented 6% of
worldwide Satellite Data Networks' sales in 1995 compared to 9% in 1994. Analog
and digital products of the Satellite Data Networks Group represented 25% and
75%, respectively, of worldwide Satellite Data Networks sales in 1995, compared
to 52% and 48%, respectively, in 1994.
GROSS PROFIT (NET SALES LESS COST OF SALES). Gross profit increased $55
million, or 14%, to $453 million in 1995 from $398 million in 1994 and was 30%
of sales in 1995 compared to 31% in 1994. The lower gross profit margin in 1995
resulted from a shift in product mix from higher margin VideoCipher RS analog
satellite receiver consumer modules to CFT-2200 advanced analog and DigiCipher
digital television system products, new products which initially carry lower
margins. The decrease in gross margin resulting from a shift in product mix was
partially offset by higher margins earned on mature products as a result of
cost-reduction programs.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expense was $138 million in 1995
compared to $103 million in 1994 and represented 9% of sales in 1995 compared to
8% of sales in 1994. SG&A expense in 1995, reflecting higher sales volume,
included: marketing and selling costs incurred by the Communications Business to
increase its sales force; field support and marketing activities to take
advantage of growth opportunities in international cable and satellite
television and worldwide telecommunications markets; a national advertising
campaign to support sales of C-band satellite systems; and a $5 million
restructuring charge for the direct costs associated with the consolidation of
the corporate headquarters and of its divisions.
RESEARCH AND DEVELOPMENT. The Communications Business' R&D expense
increased $33 million, or 32%, to $138 million in 1995 from $105 million in 1994
and was 9% of sales in 1995 compared to 8% in 1994. The Broadband Networks
Group, the Satellite Data Networks Group and NLC incurred $81 million, $54
million and $3 million, respectively, of the Communications Business' 1995 R&D
expense compared to $46 million and $59 million, respectively, for the Broadband
Networks Group and Satellite Data Networks Group in 1994, and the Broadband
Networks Group and Satellite Data Networks Group R&D expense
59
<PAGE>
represented 9% of both business units sales in 1995 compared to 6% and 13%,
respectively, of the business units sales in 1994. Research and development
expenditures reflect continued development of the next generation of cable
set-top terminals, which incorporate digital compression and multimedia
capabilities, cable modems, telephone company access products, advanced digital
systems for cable and satellite television distribution, next-generation direct
broadcast satellite systems and product development through strategic alliances.
Emerging research and development activities include development of broadband
telephony products and interactive multimedia technologies for broadband
networks.
PURCHASED IN-PROCESS TECHNOLOGY. In connection with the completion of the
acquisition of NLC in September 1995, the Communications Business recorded a
pre-tax charge of $140 million for purchased in-process technology which had not
yet reached technological feasibility and had no alternative future use. Further
development activities primarily consist of costs for design, prototype
development and lab and field testing.
INTEREST EXPENSE-NET. Net interest expense represents an allocation of
interest expense from the Company and was allocated based upon the
Communications Business' net assets as a percentage of the total net assets of
the Company. Net interest expense allocated to the Communications Business
decreased $4 million to $23 million in 1995 from $27 million in 1994 as a result
of lower net interest expense of the Company.
INCOME TAXES. Income taxes have been determined as if the Communications
Business had filed separate tax returns under its existing structure for the
periods presented. Accordingly, future tax rates could vary from the historical
effective tax rates depending on the Communications Business' future legal
structure and tax elections. The Communications Business recorded a benefit of
$7 million in 1995 and a provision of $27 million in 1994 (see Note 9 to the
Combined Financial Statements of the Communications Business).
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was $77 million in 1996 compared to cash provided by
operations of $18 million and $65 million in 1995 and 1994, respectively. Cash
used in operations in 1996 reflects increased working capital requirements. Cash
provided by operations decreased in 1995 compared to 1994 due primarily to lower
income, adjusted for non-cash items.
At December 31, 1996, working capital was $372 million compared to $221
million at December 31, 1995 and $69 million at December 31, 1994. The working
capital increases in 1996 over 1995 and in 1995 over 1994 were due primarily to
increased sales volume and corresponding increases in accounts receivable and
inventory build-up to support business growth and the introduction of new
products, partially offset by related increases in accounts payable. Based on
current levels of order input and backlog, as well as significant sales
agreements not yet reflected in order and backlog levels, management of the
Communications Business believes that working capital levels are appropriate to
support future operations. There can be no assurance, however, that future
industry specific developments or general economic trends will not alter the
Communications Business' working capital requirements.
During the year ended December 31, 1996, the Communications Business
invested $134 million in equipment and facilities compared with $97 million and
$79 million in 1995 and 1994, respectively. The higher levels of capital
spending were attributable to capacity expansion to meet increased current and
future demands for analog and digital products. In 1997, the Communications
Business expects to continue to expand its capacity to meet increased current
and future demands with capital expenditures for the year expected to
approximate $160 million.
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The Communications Business' research and development expenditures were $198
million in 1996 compared to $138 million and $105 million in 1995 and 1994,
respectively, and are expected to approximate $210 million in 1997. See
"--Comparison of Results of Operations for the Year Ended December 31, 1996 with
the Year Ended December 31, 1995--Research and Development" above.
The Communications Business management assesses its liquidity in terms of
its overall ability to obtain cash to support its ongoing business levels and to
fund its growth objectives. The Communications Business currently participates
in the Company's cash management program. To the extent the Communications
Business generates positive cash, such amounts are remitted to the Company. To
the extent the Communications Business experiences temporary cash needs for
working capital purposes or capital expenditures, such funds have historically
been provided by the Company.
The Communications Business' principal sources of liquidity both on a
short-term and long-term basis have been cash flows provided by operations and
funds provided by the Company. Net cash transfers from the Company were $226
million, $89 million and $14 million in 1996, 1995 and 1994, respectively.
Management believes that, based upon its analysis of the Communications
Business' combined financial position and the expected results of its operations
in the future, the Communications Business will have sufficient cash flows from
future operations and the financial flexibility to attract both short- and
long-term capital on acceptable terms as may be needed to fund operations,
research and development expenditures, capital expenditures and its other growth
objectives. There can be no assurance, however, that future industry specific
developments or general economic trends will not adversely affect the
Communications Business' operations or its ability to meet its cash
requirements.
The Communications Business is engaged in discussions with certain banks to
act as its agent to obtain a $600 million revolving credit facility (the
"NextLevel Systems Credit Facility"). It is expected that the NextLevel Systems
Credit Facility will contain certain financial and operating covenants,
including restrictions upon: incurring indebtedness and liens; entering into any
transaction to acquire or merge with any entity; making certain other
fundamental changes; selling property; and paying dividends. After giving effect
to the Distribution, the Communications Business is expected to have
approximately $280 million of outstanding indebtedness. Approximately $141
million of such indebtedness is being incurred to repay indebtedness under the
GI Credit Facility and approximately $139 million is being incurred to discharge
liabilities in connection with the NLC Litigation.
In June 1996, a final judgment against NLC and the individual defendants was
entered in the NLC Litigation which, in February 1997, was affirmed in part,
reversed in part and remanded to the trial court by the U.S. Court of Appeals
for the Fifth Circuit. Management of the Communications Business expects the
judgment on remand to result in a damage award of not more than $137.7 million
plus accrued interest. Both parties have filed motions for rehearing with the
Court of Appeals and these motions have not been decided as of the date hereof.
During 1997, the Communications Business expects to incur approximately $20
million of charges for costs related to dividing the Company's Taiwan operations
between the Communications Business and General Semiconductor and for other
costs related to the Distribution, of which approximately 50% will be payable in
1997. The Company's Taiwan legal entity is currently comprised of operations
which support both the Communications Business and the Power Semiconductor
Business. In order to effectuate the Distribution, the Company will be required
to incur costs, primarily employee costs, in order to separate its Taiwan
operations. The Company does not expect the separation to result in a material
disruption of the Communications Business or the Power Semiconductor Business.
NEW TECHNOLOGIES
The Communications Business has entered a new competitive environment in
which its success will be dependent upon numerous factors, including its ability
to continue to develop appropriate technologies and successfully implement
applications based on those technologies. In this regard, the Communications
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Business has made significant investments to develop advanced systems and
equipment for the cable and satellite television, local telephone access, and
Internet/data delivery markets.
Management of the Communications Business believes that the
commercialization of advanced digital broadband systems and equipment, which
provide for greatly expanded channel capacity and programming options, improved
quality and security of signal transmission and the capability of delivering
enhanced features and services, is an important market for the Communications
Business. Management of the Communications Business also believes that the
Communications Business' position in this developing market is significantly
enhanced by the Broadband Networks Group's leadership in a key enabling
technology, digital video compression, which converts television signals to a
digital format and then compresses the signals of several channels of television
programming into the bandwidth currently used by just one analog channel. The
Communications Business has developed and is deploying digital television
systems that enable cable television operators and satellite programmers to
deliver over their existing networks up to 16 times as much information as is
possible with existing analog technology.
Management of the Communications Business expects that cable and other
broadband network operators will begin to deploy digital terminals in their
customers' homes in order to take advantage of the enhanced capabilities of the
digital networks. The rate of deployment will depend largely on consumer demand
for new services made available through the digital network and the relative
cost of the more advanced digital terminals. The Broadband Networks Group sold
its first DCT-1000 digital subscriber terminals and headend systems in the
fourth quarter of 1996. As a result of the high costs of initial production,
digital products currently being shipped carry substantially lower margins than
the Communications Business' mature analog products. As the Communications
Business progresses through the initial stages of production of its digital
products, the Communications Business expects these margins to improve. See
"Business of NextLevel Systems--Broadband Networks Group--Digital Network
Systems."
Management of the Communications Business expects cable television operators
in the United States and abroad to continue to purchase analog products to
upgrade their basic networks and invest in new systems construction primarily to
compete with other television programming sources, such as DTH and cable
networks planned by some telephone companies, and to develop, using U.S.
architecture and systems, international markets where cable penetration is low
and demand for entertainment programming is growing. Sales of analog consumer
descramblers have declined, as expected, to minimal levels over the past two
years as a result of the availability of competing digital satellite video
services. The Communications Business plans to introduce, in the second quarter
of 1997, its first digital descramblers for the backyard C-band market. This
product, called 4DTV, will allow C-band dish owners to take advantage of the
wealth of digital programming now being transmitted by satellite. There can be
no assurance, however, that volume shipments of 4DTV will commence in 1997 or as
to the degree of market acceptance of this new product. See "Business of
NextLevel Systems--Satellite Data Networks Group--Digital Analog Satellite
Products."
In September 1995, the Company, on behalf of the Communications Business,
acquired NLC, which was formed to design, manufacture and market a
next-generation telecommunications broadband access system for the delivery of
telephony, video and data from a telephone company central office or cable
television headend to the home. NLC's product, NLevel(3), is designed to permit
the cost-effective delivery of a suite of standard telephony and advanced
services such as high-speed Internet/data, work-at-home, distance-learning,
video-on-demand and video-telephony to the home from a single access platform.
The NLevel(3) system is designed to work with and enhance existing telephony
networks and offers the capability to provide voice services (POTS), ISDN,
high-speed Internet/data and video services over both copper-twisted-pair and
fiber-to-the-curb networks. In the fourth quarter of 1996, NYNEX Corporation
("NYNEX") entered into an agreement with NLC to deploy approximately one million
lines of transport electronics in the greater Boston and New York City areas to
carry voice, video and data services. NYNEX also has options to extend its
deployment of the NLevel(3) system up to five million lines. A significant
amount of research and development expenditures will be required to fund the
successful deployment and
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market growth of telephony networks. NextLevel Systems does not expect NLC to
generate significant revenues until 1998, and there can be no assurance that
delays will not occur in the deployment of NLC's products or that the products
will be commercially successful. See "Business of NextLevel Systems-- NLC."
The Communications Business commenced initial commercial deployment of its
SURFboard-TM- modem for cable networks during the third quarter of 1996.
SURFboard enables network operators to link subscribers to interactive video and
data services at speeds up to 1,000 times faster than conventional telephone
modems. SURFboard modems have been selected in the U.S. and internationally by
several cable operators, including Continental Cable, Adelphia Cable, Television
International in Mexico and Red Argentina, Argentina's largest cable television
operator. There can be no assurance that the SURFboard product line will be
commercially successful. See "Business of NextLevel Systems--Satellite Data
Networks Group--High-Speed Data Networks."
With these new technologies and applications under development, the
Communications Business believes it is well positioned to take advantage of the
opportunities presented in the new competitive environment. There can be no
assurance, however, that these technologies and applications will be
successfully developed, or, if they are successfully developed, that they will
be implemented by the Communications Business' customers or that the
Communications Business will otherwise be able to successfully exploit these
technologies and applications.
FOREIGN EXCHANGE
A significant portion of the Communications Business' products are
manufactured or assembled in Taiwan and Mexico. In addition, as mentioned above,
the Communications Business' sales of its equipment into international markets
have increased. These foreign operations are subject to risk with respect to
currency exchange rate fluctuations. The Communications Business monitors its
underlying exchange rate exposures on an ongoing basis and continues to
implement selective hedging strategies to reduce the market risks from changes
in exchange rates (see Notes 14 and 15 to the Combined Financial Statements of
the Communications Business). The Company uses hedging programs to reduce market
risk arising from changes in foreign exchange rates. On a selective basis, the
Company enters into contracts to hedge the currency exposure of contractual and
other firm commitments denominated in foreign currencies and the currency
exposure of anticipated, but not yet committed, transactions expected to be
denominated in foreign currencies. Gains and losses on hedges related to
contractual and other firm commitments are deferred and recognized in the
Communications Business' results of operations in the same period as the gain or
loss from the underlying transactions. Gains and losses on forward exchange
contracts used to hedge anticipated, but not yet committed, transactions are
recognized in the Communications Business' results of operations as changes in
exchange rates for the applicable foreign currencies occur. Foreign currency
transaction losses included in the Communications Business' results of
operations were $2 million and $5 million in 1996 and 1995, respectively, and
deferred gains or losses on such contracts at December 31, 1996 and 1995 were
not significant.
INTERNATIONAL MARKETS
Management of the Communications Business believes that a significant amount
of NextLevel Systems' growth over the next several years will come from
international markets. In order to support the Communications Business'
international product and marketing strategies, it is currently expected that
NextLevel Systems will add operations in foreign markets in the following areas,
among others: customer service, order entry, finance and product warehousing. In
particular, recent contract awards for digital systems in the United Kingdom
will require an incremental investment of resources to support product
development and system integration services in such location. Although no
assurance can be given, management expects that the expansion of international
operations will not require significant capital
63
<PAGE>
expenditures and that increased costs will be offset by increased sales in such
markets. See "Business of NextLevel Systems--Market Overview--International
Video Networks" and "--Business Strategy."
EFFECT OF INFLATION
The Communications Business continually attempts to minimize any effect of
inflation on earnings by controlling its operating costs and selling prices.
During the past few years, the rate of inflation has been low and has not had a
material impact on the Communications Business' results of operations.
64
<PAGE>
THE COMMUNICATIONS BUSINESS
(WHICH WILL BECOME NEXTLEVEL SYSTEMS, INC. FOLLOWING THE DISTRIBUTION)
PRO FORMA CAPITALIZATION
The following table sets forth, as of December 31, 1996, the capitalization
of the Communications Business and the pro forma capitalization after giving
effect to the Distribution. This information should be read in conjunction with
the historical and pro forma combined financial statements of the Communications
Business and the related notes thereto included elsewhere in this Proxy
Statement. The pro forma information set forth below may not reflect the
capitalization of the Communications Business in the future or as it would have
been had the Communications Business been a separate, stand-alone company at
December 31, 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
----------------------------
<S> <C> <C>
HISTORICAL AS ADJUSTED(A)
------------ --------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Current Maturities of Long-Term Debt........................... $ -- $ --
------------ --------------
Long-Term Debt................................................. -- 280,000
------------ --------------
Divisional Net Equity.......................................... 1,051,174 --
Stockholders' Equity
Common Stock................................................. -- 141
Additional Paid-in-Capital................................... -- 895,933
Retained Earnings............................................ -- --
------------ --------------
Total Stockholders' Equity................................. 1,051,174 896,074
------------ --------------
Total Capitalization..................................... $ 1,051,174 $ 1,176,074
------------ --------------
------------ --------------
</TABLE>
- ------------------------
(a) Reflects the incurrence of an estimated $280 million of debt, of which
$140.9 million of the proceeds will be utilized to pay a portion of the GI
Credit Facility and the remaining $139.1 will be utilized to pay the NLC
litigation liability. Further, it reflects the capitalization of divisional
net equity into additional paid-in-capital relating to the issuance of an
estimated 141 million shares of NextLevel Systems Common Stock to be issued
to stockholders of the Company as a dividend in the Distribution. Also,
additional paid-in-capital includes a $20 million charge ($14.2 million net
of tax), related to the Communications Business' portion of the costs to
separate its Taiwan operations from the Company and other costs directly
attributable to the Distribution and related transactions incurred prior to
the Distribution.
65
<PAGE>
THE COMMUNICATIONS BUSINESS
(WHICH WILL BECOME NEXTLEVEL SYSTEMS, INC. FOLLOWING THE DISTRIBUTION)
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements of the
Communications Business, which will become NextLevel Systems following the
Distribution, set forth below consist of a pro forma balance sheet as of
December 31, 1996 and a pro forma statement of operations for the year ended
December 31, 1996. The pro forma balance sheet was prepared to give effect to
the Distribution as if it had occurred on December 31, 1996 and the pro forma
statement of operations was prepared to give effect to the Distribution as if it
had occurred on January 1, 1996. The unaudited pro forma balance sheet set forth
below does not purport to represent what the Communications Business' financial
position actually would have been had the Distribution occurred on the date
indicated or to project the Communications Business' financial position for any
future date. The unaudited pro forma statement of operations set forth below
does not purport to represent what the Communications Business' operations
actually would have been or to project the Communications Business' operating
results for any future period. The unaudited pro forma adjustments are based
upon currently available information and certain assumptions that the
Communications Business' management believes are reasonable. The unaudited pro
forma statements should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Communications
Business" and the historical combined financial statements of the Communications
Business and the notes thereto appearing elsewhere in this Proxy Statement.
66
<PAGE>
THE COMMUNICATIONS BUSINESS
(WHICH WILL BECOME NEXTLEVEL SYSTEMS, INC. FOLLOWING THE DISTRIBUTION)
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
---------------------------------------
<S> <C> <C> <C>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------- ------------
<CAPTION>
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................................... $ -- $ 139,100(a) $ --
(139,100)(b)
Accounts receivable--net............................................ 392,984 392,984
Inventories......................................................... 263,829 263,829
Prepaid expenses and other current assets........................... 17,657 17,657
Deferred income taxes............................................... 81,226 81,226
------------ ----------- ------------
Total current assets............................................ 755,696 -- 755,696
Property, plant and equipment--net.................................. 251,748 251,748
Intangibles--net.................................................... 92,802 92,802
Excess of cost over fair value of net assets acquired--net.......... 478,783 478,783
Deferred income taxes............................................... 32,499 32,499
Other long-term assets.............................................. 18,208 1,000(a) 19,208
------------ ----------- ------------
Total assets.................................................... $ 1,629,736 $ 1,000 $ 1,630,736
------------ ----------- ------------
------------ ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................................................... $ 201,382 $ -- $ 201,382
Accrued expenses and income taxes payable........................... 182,782 (5,800)(c) 197,982
20,000(c)
1,000(a)
------------ ----------- ------------
Total current liabilities....................................... 384,164 15,200 399,364
Long-term debt...................................................... 280,000(a) 280,000
Deferred income taxes............................................... 6,353 6,353
NLC litigation liability............................................ 139,100 (139,100)(b) --
Other non-current liabilities....................................... 48,945 48,945
Divisional net equity............................................... 1,051,174 (140,900)(a) --
(910,274)(d)
Common stock........................................................ 141(d) 141
Additional paid-in-capital.......................................... 910,133(d) 895,933
(14,200)(c)
Retained earnings................................................... --
------------ ----------- ------------
Total liabilities and stockholders' equity...................... $ 1,629,736 $ 1,000 $ 1,630,736
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
- ------------------------
(a) To record the incurrence of an estimated $280 million of debt, of which
$140.9 million of the proceeds will be utilized to pay a portion of the GI
Credit Facility and the remaining $139.1 million will be utilized to pay the
NLC litigation liability. In addition, to record $1 million of costs to
obtain new borrowings.
(b) To record the payment of the NLC litigation liability.
(c) To record the Communications Business' portion of estimated costs to
separate its Taiwan operations from the Company and to record estimated
costs expected to be incurred prior to the Distribution which are directly
attributable to the Distribution and related transactions ($20 million,
$14.2 million net of tax).
(d) To capitalize divisional net equity into additional paid-in capital and give
effect to the issuance of an estimated 141 million shares of NextLevel
Systems Common Stock to be issued to stockholders of the Company as a
dividend in the Distribution.
67
<PAGE>
THE COMMUNICATIONS BUSINESS
(WHICH WILL BECOME NEXTLEVEL SYSTEMS, INC. FOLLOWING THE DISTRIBUTION)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------
<S> <C> <C> <C>
HISTORICAL ADJUSTMENTS(E) PRO FORMA
------------ -------------- ------------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND
UNLESS OTHERWISE NOTED)
<S> <C> <C> <C>
Net sales............................................................. $ 1,755,585 $ -- $ 1,755,585
Operating costs and expenses
Cost of sales....................................................... 1,349,815 1,349,815
Selling, general and administrative................................. 174,432 7,800(a) 182,232
Research and development............................................ 198,071 198,071
NLC litigation costs................................................ 141,000 141,000
Amortization of excess of cost over fair value of net assets
acquired.......................................................... 14,278 14,278
------------ ------- ------------
Total operating costs and expenses.................................... 1,877,596 7,800 1,885,396
------------ ------- ------------
Operating loss........................................................ (122,011) (7,800) (129,811)
Other expense--net.................................................. (1,427) (1,427)
Interest expense--net............................................... (25,970) 8,690(b) (17,280)
------------ ------- ------------
Loss before income taxes.............................................. (149,408) 890 (148,518)
Income tax benefit.................................................... 53,098 (347)(c) 52,751
------------ ------- ------------
Net loss.............................................................. $ (96,310) $ 543 $ (95,767)
------------ ------- ------------
------------ ------- ------------
Shares to be issued................................................. 141,000(d)
------------
------------
Net loss per share.................................................. $ (.68)(d)
------------
------------
</TABLE>
- ------------------------
(a) To eliminate the allocation of corporate expenses to the Cable Manufacturing
Business and the Power Semiconductor Business, as such costs subsequent to
the Distribution will no longer be allocable. Management of the
Communications Business expects that the corporate costs currently being
incurred will continue at this level.
(b) To record a reduction in interest expense from the amounts allocated in the
historical financial statements to reflect the estimated interest expense
based on the incurrence of an estimated $280 million of debt at an assumed
weighted average borrowing rate of 6.10%, and to reflect the amortization of
debt issuance costs associated with the new borrowings. A fluctuation of
.125% in the assumed weighted average borrowing rate would change pro forma
interest expense by $350.
(c) To reflect the estimated tax effects for the pro forma adjustments.
(d) Pro forma net loss per share is computed based on an estimated 141 million
shares of NextLevel Systems Common Stock to be issued in the Distribution.
(e) The pro forma adjustments do not reflect an estimated $20 million ($14.2
million net of tax) of non-recurring costs expected to be incurred within
the next 12 months directly attributable to the Distribution and related
transactions. This amount relates primarily to costs to separate the Taiwan
operations from the Company and costs directly attributable to the
Distribution and related transactions. The Company's Taiwan legal entity is
currently comprised of operations which support both the Communications
Business and the Power Semiconductor Business. In order to effectuate the
Distribution, the Company will be required to incur costs, primarily
employee costs, in order to separate its Taiwan operations.
68
<PAGE>
THE CABLE MANUFACTURING BUSINESS
(COMMSCOPE, INC. OF NORTH CAROLINA)
SELECTED FINANCIAL DATA
The following table presents selected historical financial data of the Cable
Manufacturing Business. The information set forth below should be read in
conjunction with the "The Cable Manufacturing Business Pro Forma Condensed
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Cable Manufacturing
Business" and the historical consolidated financial statements and notes thereto
of the Cable Manufacturing Business included elsewhere in this Proxy Statement.
The consolidated statement of operations data set forth below for each of the
three years ended December 31, 1996 and the consolidated balance sheet data at
December 31, 1996 and 1995 are derived from, and are qualified by reference to,
the audited consolidated financial statements of the Cable Manufacturing
Business included elsewhere in this Proxy Statement. The consolidated balance
sheet data at December 31, 1994 are derived from the audited consolidated
balance sheet of the Cable Manufacturing Business at December 31, 1994, which is
not included in this Proxy Statement. The consolidated statement of operations
data for the years ended December 31, 1993 and 1992 and the consolidated balance
sheet data at December 31, 1993 and 1992 are derived from unaudited consolidated
financial statements of the Cable Manufacturing Business not included in this
Proxy Statement.
The historical financial information may not be indicative of the Cable
Manufacturing Business' future performance and does not necessarily reflect what
the financial position and results of operations of the Cable Manufacturing
Business would have been had the Cable Manufacturing Business operated as a
separate, stand-alone entity during the periods presented. Per share data for
net income has not been presented because the Cable Manufacturing Business was
operated through the Company for the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales................................................. $ 572,212 $ 485,160 $ 445,328 $ 341,789 $ 286,946
Cost of sales........................................... 417,123 355,732 317,466 243,665 202,441
Selling, general and administrative..................... 44,342 34,835 31,625 25,144 22,227
Research and development................................ 5,348 4,255 3,213 2,979 2,673
Amortization of excess of cost over fair value of net
assets acquired....................................... 5,145 5,075 5,254 5,288 5,327
Operating income.......................................... 100,254 85,263 87,770 64,713 54,278
Interest expense--net..................................... (9,990) (8,665) (12,281) (17,451) (25,576)
Income before income taxes and cumulative effect of
changes in accounting principles........................ 92,103 76,713 75,485 47,261 29,095
Net income................................................ $ 57,122 $ 47,331 $ 45,096 $ 27,336 $ 15,621
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets.............................................. $ 479,885 $ 412,378 $ 397,843 $ 336,281 $ 328,759
Long-term obligations, including current maturities....... 10,800 10,800 -- -- --
Other non-current liabilities............................. 9,565 6,925 5,561 5,659 4,226
Stockholder's equity...................................... 393,560 339,177 343,169 300,786 296,958
</TABLE>
69
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE CABLE MANUFACTURING BUSINESS
This discussion should be read in conjunction with the information contained
under "Business of CommScope" and the Consolidated Financial Statements of the
Cable Manufacturing Business (CommScope, Inc. of North Carolina) and the Notes
thereto appearing elsewhere herein.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 WITH
THE YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales for the year ended December 31, 1996 were $572 million
compared to $485 million for the year ended December 31, 1995, an increase of
$87 million or 18%. This increase in net sales reflects higher sales in cable
television and other video distribution markets, as well as for LAN and other
applications. Sales to cable television and other video markets increased $69
million from 1995 to $489 million in 1996, primarily due to higher sales volume
of both semi-flexible coaxial cables used in the trunk and feeder distribution
portion of cable television systems and flexible coaxial (drop) cable primarily
used for connecting the feeder cable to the cable television subscriber's
residence. Higher sales volume to cable television markets reflect increased
investment in HFC infrastructure by major cable television operators in the
United States, as well as, the deployment of HFC for new cable television
systems in international markets. Sales for LAN and other data applications
increased $8 million from 1995 to $66 million in 1996 due to higher sales volume
for premise wiring of LANs. Partially offsetting the volume increases for cable
television and LAN products, were decreases in the average selling prices of
these products. Sales of other high performance cable products increased by $10
million in 1996 to $17 million, primarily due to sales of airplane cables and
other specialty cables. This increase results from the Cable Manufacturing
Business' acquisition of certain assets of the Thermatics Division of Teledyne
Industries, Inc. ("Teledyne"), a high performance cable manufacturer
specializing in high temperature cables (see Note 5 to the Consolidated
Financial Statements of the Cable Manufacturing Business). See "Business of
CommScope--General." International sales increased $35 million, or 21%, to $201
million in 1996 and represented 35% of the Cable Manufacturing Business' sales
in 1996 compared to 34% in 1995.
GROSS PROFIT (NET SALES LESS COST OF SALES). Gross profit increased $26
million, or 20%, to $155 million in 1996 from $129 million in 1995 and was 27%
of sales in each period. The higher gross profit reflects the increased sales
volume noted above, reduced material costs and improved per unit labor and
overhead costs resulting from production efficiencies, partially offset by the
lower average selling prices described above.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expense increased $9 million, or
27%, to $44 million in 1996 from $35 million in 1995, and increased as a
percentage of sales to 8% in 1996 from 7% in 1995. The increase in SG&A expense
was principally attributable to increased marketing and selling expenditures,
which contributed to the higher sales volumes discussed above. The Cable
Manufacturing Business has increased its sales force, field support and
marketing activities to take advantage of increased growth opportunities in
international cable and network markets. SG&A expense in 1996 also reflects
increased costs associated with the Teledyne Thermatics acquisition.
RESEARCH AND DEVELOPMENT. R&D expense increased $1 million to $5 million in
1996 from $4 million in 1995. The increase resulted from the Cable Manufacturing
Business' ongoing programs to develop new products and market opportunities for
its products and core capabilities and new manufacturing technologies to achieve
cost reductions. R&D expenditures are expected to be approximately $7 million
for the year ended December 31, 1997.
OTHER INCOME (EXPENSE)--NET. Other income (expense) for the year ended
December 31, 1996 primarily reflects the Cable Manufacturing Business' share of
income generated by its Australian joint venture. See "Business of
CommScope--Business Strategy."
70
<PAGE>
INTEREST EXPENSE--NET. Net interest expense represents an allocation of
interest expense from the Company and was allocated based upon the Cable
Manufacturing Business' net assets as a percentage of the total net assets of
the Company. Net interest expense allocated to the Cable Manufacturing Business
increased $1 million to $10 million in 1996 from $9 million in 1995 as a result
of higher net interest expense of the Company.
INCOME TAXES. The provision for income taxes has been determined as if the
Cable Manufacturing Business had filed separate tax returns under its existing
structure for the periods presented. Accordingly, future tax rates could vary
from the historical effective tax rates depending on the Cable Manufacturing
Business' future tax elections (see Note 9 to the Consolidated Financial
Statements of the Cable Manufacturing Business).
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 WITH
THE YEAR ENDED DECEMBER 31, 1994.
NET SALES. Net sales for the year ended December 31, 1995, were $485
million compared to $445 million for the year ended December 31, 1994, an
increase of $40 million or 9%. Of this increase $24 million reflects higher
cable sales for LAN and other data applications which grew to $59 million in
1996 due to higher sales volume. Sales to cable television and other
distribution markets increased $15 million from 1994 to $420 million in 1995
primarily due to higher sales volume of flexible coaxial (drop) and fiber optic
cable, partially offset by lower sales volume of semi-flexible coaxial cables
used in the trunk and feeder distribution portion of cable television systems.
Partially offsetting the volume increases were decreases in the average selling
prices of products in these divisions. International sales increased $31
million, or 23%, to $166 million in 1995 and represented 34% of the Cable
Manufacturing Business' sales in 1995 compared to 30% in 1994.
GROSS PROFIT (NET SALES LESS COST OF SALES). Gross profit increased $1
million, or 1%, to $129 million in 1995 from $128 million in 1994 and was 27% of
sales in 1995 compared to 29% of sales in 1994. The increased gross profit
reflects the increased sales volume noted above, reduced material costs and
improved per unit labor and overhead costs resulting from production
efficiencies, partially offset by a shift in product mix and a decrease in
average selling prices.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expense increased $3 million, or
10%, to $35 million in 1995 from $32 million in 1994, and was 7% of sales in
each period. The increase in SG&A expense was principally attributable to
increased marketing and selling expenditures, which contributed to the higher
sales volumes discussed above. The Cable Manufacturing Business increased its
sales force, field support and marketing activities to take advantage of
increased growth opportunities in international cable and network markets.
RESEARCH AND DEVELOPMENT. R&D expense increased $1 million to $4 million in
1995 from $3 million in 1994. The increase resulted from ongoing programs to
develop new products and market opportunities for its products and core
capabilities and new manufacturing technologies to achieve cost reductions.
INTEREST EXPENSE--NET. Net interest expense represents an allocation of
interest expense from the Company and was allocated based upon the Cable
Manufacturing Business' net assets as a percentage of the total net assets of
the Company. Net interest expense allocated to the Cable Manufacturing Business
decreased $3 million to $9 million in 1995 from $12 million in 1994 as a result
of lower net interest expense of the Company.
INCOME TAXES. The provision for income taxes has been determined as if the
Cable Manufacturing Business had filed separate tax returns under its existing
structure for the periods presented. Accordingly, future tax rates could vary
from the historical effective tax rates depending on the Cable Manufacturing
Business' future tax elections (see Note 9 to the Consolidated Financial
Statements of the Cable Manufacturing Business).
71
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations for the year ended December 31, 1996 was $52
million compared to $64 million and $33 million for 1995 and 1994, respectively.
Cash provided by operations decreased by $12 million in 1996 compared to 1995
due to increased working capital. Cash provided by operations increased $31
million in 1995 compared to 1994 due primarily to lower working capital
increases in 1995 compared to 1994.
At December 31, 1996, working capital was $107 million compared to $73
million at December 31, 1995 and $69 million at December 31, 1994. The working
capital increase in 1996 over 1995 and in 1995 over 1994 were due primarily to
increased sales volume and projected business growth with corresponding
increases in accounts receivable and inventory to support business growth and
the introduction of new products, partially offset by the related increases in
accounts payable. Additionally, working capital was greater in 1996 than in 1995
and 1994 as a result of the Cable Manufacturing Business' acquisition of certain
assets of the Teledyne Thermatics Division in May 1996 (see Note 5 to the
Consolidated Financial Statements of the Cable Manufacturing Business). Based on
current levels of orders and backlog, management of the Cable Manufacturing
Business believes that working capital levels are appropriate to support future
operations. There can be no assurance, however, that future industry-specific
developments or general economic trends will not alter the Cable Manufacturing
Business' working capital requirements.
During the year ended December 31, 1996, the Cable Manufacturing Business
invested $33 million in equipment and facilities compared to $27 million and $33
million in 1995 and 1994, respectively. This level of capital spending was
attributable to capacity expansion across the business units of the Cable
Manufacturing Business to meet increased current and anticipated future demands.
In 1997, the Cable Manufacturing Business expects to continue to expand its
capacity to meet increased current and future demands with capital expenditures
for the year ending December 31, 1997 expected to approximate $45 million.
Management of the Cable Manufacturing Business assesses its liquidity in
terms of its overall ability to obtain cash to support its ongoing business
levels and to fund its growth objectives. The Cable Manufacturing Business
participates in the Company's cash management program. To the extent the Cable
Manufacturing Business generates positive cash, such amounts are remitted to the
Company. To the extent the Cable Manufacturing Business experiences temporary
cash needs for working capital purposes or capital expenditures, such funds have
historically been provided by the Company.
The Cable Manufacturing Business' principal sources of liquidity both on a
short-term and long-term basis have been cash flows provided by operations and
funds provided by the Company. Net cash transfers to the Company were $1
million, $46 million and $0.3 million in 1996, 1995 and 1994, respectively.
Management believes that, based upon its analysis of the Cable Manufacturing
Business' consolidated financial position and the expected results of its
operations in the future, the Cable Manufacturing Business will have sufficient
cash flows from future operations and the financial flexibility to attract both
short- and long-term capital on acceptable terms as may be needed to fund
operations, capital expenditures and its other growth objectives. There can be
no assurance, however, that future industry specific developments or general
economic trends will not adversely affect the Cable Manufacturing Business'
operations or its ability to meet its cash requirements.
The Cable Manufacturing Business is engaged in discussions with certain
banks to act as its agent to obtain a $325 million revolving credit facility
(the "CommScope Credit Facility"). It is expected that the CommScope Credit
Facility will contain certain financial and operating covenants, including
restrictions upon: incurring indebtedness and liens; entering into any
transaction to acquire or merge with any entity; making certain other
fundamental changes; selling property; and paying dividends. After giving effect
to the Distribution, the Cable Manufacturing Business is expected to have
approximately $275 million of outstanding indebtedness. Approximately $264
million of such indebtedness is being incurred to pay a dividend to the Company.
72
<PAGE>
EFFECT OF INFLATION
The Cable Manufacturing Business continually attempts to minimize any effect
of inflation on earnings by controlling its operating costs and selling prices.
During the past few years, the rate of inflation has been low and has not had a
material impact on the Cable Manufacturing Business' results of operations. The
Cable Manufacturing Business has experienced some volatility in the purchase
price of certain raw materials which fluctuate as the commodity market price
fluctuates. Thus far in 1997, commodity prices related to aluminum and copper
based raw materials have increased at rates higher than general inflation and,
if this trend continues, may have a negative effect on operating results in 1997
compared to 1996. See "Risk Factors--Risks Relating to the Businesses of
NextLevel Systems, CommScope and General Semiconductor--Impact of Price
Fluctuations of Raw Materials on CommScope; Sources of Raw Materials" and
"Business of CommScope--Raw Materials."
INTERNATIONAL MARKETS
Management of the Cable Manufacturing Business intends to gradually expand
its international market penetration, particularly in Europe, the Pacific Rim
and Latin America. Currently, the Cable Manufacturing Business has one
commercial warehouse in the United Kingdom, and an interest in an Australian
manufacturing joint venture, and generally does not have international sales
offices. In response to customer preferences, management expects to continue to
experience a shift in its international distribution channels away from
distributors and to rely more on direct selling, which over time will
necessitate more warehouse facilities. In addition, it intends to evaluate
opportunities for additional international manufacturing facilities through sole
or joint ownership arrangements, in order to further improve distribution
capability, reduce shipping and importation costs and enhance customer service.
These new warehouse and manufacturing facilities could also house international
sales offices.
73
<PAGE>
THE CABLE MANUFACTURING BUSINESS
(COMMSCOPE, INC. OF NORTH CAROLINA)
PRO FORMA CAPITALIZATION
The following table sets forth, as of December 31, 1996, the capitalization
of the Cable Manufacturing Business and the pro forma capitalization after
giving effect to the Distribution. This information should be read in
conjunction with the historical and pro forma consolidated financial statements
and the related notes thereto of the Cable Manufacturing Business included
elsewhere in this Proxy Statement. The pro forma information set forth below may
not reflect the capitalization of the Cable Manufacturing Business in the future
or as it would have been had the Cable Manufacturing Business been a separate,
independent company at December 31, 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
--------------------------
<S> <C> <C>
HISTORICAL AS ADJUSTED(A)
---------- --------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Current Maturities of Long-Term Debt.............................. $ -- $ --
---------- --------------
Long-Term Debt.................................................... 10,800 275,000
---------- --------------
Stockholders' Equity
Common Stock.................................................... 2 70
Additional Paid-in-Capital...................................... 197,068 127,490
Retained Earnings............................................... 196,490 --
---------- --------------
Total Stockholders' Equity.................................. 393,560 127,560
---------- --------------
Total Capitalization...................................... $ 404,360 $ 402,560
---------- --------------
---------- --------------
</TABLE>
- ------------------------
(a) Reflects the incurrence of an estimated additional $264.2 million of debt
which will be paid to the Company as a dividend and the issuance of an
estimated 70 million shares of CommScope Common Stock to be issued to
stockholders of the Company as a dividend in the Distribution. Also,
retained earnings includes a $3 million charge ($1.8 million net of tax)
related to costs directly attributable to the Distribution and related
transactions.
74
<PAGE>
THE CABLE MANUFACTURING BUSINESS
(COMMSCOPE, INC. OF NORTH CAROLINA)
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements of the
Cable Manufacturing Business set forth below consist of a pro forma balance
sheet as of December 31, 1996 and a pro forma income statement for the year
ended December 31, 1996. The pro forma balance sheet was prepared to give effect
to the Distribution as if it had occurred on December 31, 1996 and the pro forma
income statement was prepared to give effect to the Distribution as if it had
occurred on January 1, 1996. The unaudited pro forma balance sheet presented
below does not purport to represent what the Cable Manufacturing Business'
financial position actually would have been had the Distribution occurred on the
date indicated or to project the Cable Manufacturing Business' financial
position for any future date. The unaudited pro forma income statement set forth
below does not purport to represent what the Cable Manufacturing Business'
operations actually would have been or to project the Cable Manufacturing
Business' operating results for any future period. The unaudited pro forma
adjustments are based upon currently available information and certain
assumptions that the Cable Manufacturing Business' management believes are
reasonable. The unaudited pro forma statements should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Cable Manufacturing Business" and the historical consolidated
financial statements of the Cable Manufacturing Business and the notes thereto
appearing elsewhere in this Proxy Statement.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
------------- --------------- -----------
<S> <C> <C> <C>
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
ASSETS
Accounts receivable--net............................................. $ 101,817 $ $ 101,817
Inventories.......................................................... 41,136 41,136
Prepaid expenses and other current assets............................ 1,287 1,287
Deferred income taxes................................................ 13,742 13,742
------------- --------------- -----------
Total current assets............................................... 157,982 -- 157,982
Property, plant and equipment--net................................... 117,022 117,022
Intangibles--net..................................................... 24,956 24,956
Excess of cost over fair value of net assets acquired--net........... 175,568 175,568
Other long-term assets............................................... 4,357 1,000(a) 5,357
------------- --------------- -----------
Total assets....................................................... $ 479,885 $ 1,000 $ 480,885
------------- --------------- -----------
------------- --------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................................................... $ 18,953 $ -- $ 18,953
Income taxes payable................................................. 2,148 (1,200)(c) 948
Accrued expenses..................................................... 29,661 1,000(a) 33,661
3,000(c)
------------- --------------- -----------
Total current liabilities.......................................... 50,762 2,800 53,562
Long-term debt....................................................... 10,800 264,200(a) 275,000
Deferred income taxes................................................ 15,198 15,198
Other non-current liabilities........................................ 9,565 9,565
Common stock......................................................... 2 (2)(b) 70
70(b)
Additional paid-in-capital........................................... 197,068 (69,510)(a) 127,490
(68)(b)
Retained earnings.................................................... 196,490 (194,690)(a) --
(1,800)(c)
------------- --------------- -----------
Total stockholders' equity........................................... 393,560 (266,000) 127,560
------------- --------------- -----------
Total liabilities and stockholders' equity........................... $ 479,885 $ 1,000 $ 480,885
------------- --------------- -----------
------------- --------------- -----------
</TABLE>
- ------------------------
(a) To record the incurrence of an estimated additional $264.2 million of debt,
the proceeds of which will be paid to the Company as a dividend. In
addition, to record $1 million of costs to obtain the new borrowings.
(b) To reflect the issuance of an estimated 70 million shares of CommScope
Common Stock to be issued to stockholders of the Company as a dividend in
the Distribution.
(c) To record estimated costs expected to be incurred prior to the Distribution
which are directly attributable to the Distribution and related transactions
($3 million, $1.8 million net of tax).
75
<PAGE>
THE CABLE MANUFACTURING BUSINESS
(COMMSCOPE, INC. OF NORTH CAROLINA)
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------
<S> <C> <C> <C>
HISTORICAL ADJUSTMENTS(E) PRO FORMA
---------- -------------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA
AND UNLESS OTHERWISE NOTED)
<S> <C> <C> <C>
Net sales.......................................................... $ 572,212 $ -- $ 572,212
---------- -----------
Operating costs and expenses:
Cost of sales.................................................... 417,123 417,123
Selling, general and administrative (d).......................... 44,342 44,342
Research and development......................................... 5,348 5,348
Amortization of excess of cost over fair value of net assets
acquired....................................................... 5,145 5,145
---------- ------- -----------
Total operating costs and expenses................................. 471,958 -- 471,958
---------- ------- -----------
Operating income................................................... 100,254 100,254
Other income-net................................................. 1,839 1,839
Interest expense-net............................................. (9,990) (7,673)(a) (17,663)
---------- ------- -----------
Income before income taxes......................................... 92,103 (7,673) 84,430
Income tax provision............................................... (34,981) 2,992(b) (31,989)
---------- ------- -----------
Net income......................................................... $ 57,122 $ (4,681) $ 52,441
---------- ------- -----------
---------- ------- -----------
Shares to be issued................................................ 70,000(c)
-----------
-----------
Net income per share............................................... $ .75(c)
-----------
-----------
</TABLE>
- ------------------------
(a) To record an increase in interest expense on the incurrence of an estimated
additional $264.2 million of debt at an assumed weighted average borrowing
rate of 6.35%, and to reflect the amortization of debt issuance costs
associated with the new borrowings. A fluctuation in the assumed weighted
average borrowing rate of .125% would change pro forma interest expense by
$344.
(b) To reflect the estimated tax effect for pro forma adjustment (a).
(c) Pro forma net income per share is computed based on an estimated 70 million
shares of CommScope Common Stock to be issued in the Distribution.
(d) Selling, general and administrative expense includes an allocation of $3.9
million of corporate administrative expenses. Such allocation reflects an
estimate of the allocable corporate expenses relating to the Cable
Manufacturing Business within the Company. The Company's management believes
that the allocations have been made on a reasonable and consistent basis.
However, such allocation may not necessarily be indicative of the costs that
the Cable Manufacturing Business would have incurred had it operated as a
separate, stand-alone entity. Management of the Cable Manufacturing Business
believes that the actual costs for the services provided by the consolidated
group, and other stand-alone costs to be incurred subsequent to the
Distribution, will not be materially different than the allocated amounts
included in SG&A.
(e) The pro forma adjustments do not reflect an estimated $3 million ($1.8
million net of tax), of non-recurring costs expected to be incurred within
the next 12 months related directly to the Distribution and related
transactions.
76
<PAGE>
THE POWER SEMICONDUCTOR BUSINESS
(GENERAL INSTRUMENT CORPORATION, TO BE RENAMED GENERAL SEMICONDUCTOR, INC.,
FOLLOWING THE DISTRIBUTION)
PRO FORMA CAPITALIZATION
The following table sets forth, as of December 31, 1996, the historical
capitalization of the Company and the as adjusted capitalization after giving
effect to the Distribution. This information should be read in conjunction with
the historical and pro forma consolidated financial statements of the Company
and the related notes thereto included elsewhere herein. The pro forma
information set forth below may not reflect the capitalization of the Power
Semiconductor Business in the future or as it would have been had the Power
Semiconductor Business been a separate, independent company at December 31,
1996.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
----------------------------
<S> <C> <C>
AS ADJUSTED
HISTORICAL (A)
------------ --------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Current Maturities of Long-Term Debt........................... $ 4,310 $ 4,310
------------ --------------
Long-Term Debt................................................. 698,825 270,690
------------ --------------
Stockholders' Equity
Common Stock................................................. 1,371 1,371
Additional Paid-in-Capital................................... 925,166 --
Retained Earnings............................................ 254,552 88,872
Treasury Stock............................................... (7,271) (7,271)
Unearned Compensation........................................ (665) --
------------ --------------
Total Stockholders' Equity............................... 1,173,153 82,972
------------ --------------
Total Capitalization................................. $ 1,876,288 $ 357,972
------------ --------------
------------ --------------
</TABLE>
- ------------------------
(a) Reflects the cash paid from the Cable Manufacturing Business and the
Communications Business at the date of the Distribution and the distribution
of 70 million shares of CommScope Common Stock and 141 million shares of
NextLevel Systems Common Stock at $.01 par value per share to the Company's
stockholders.
77
<PAGE>
THE POWER SEMICONDUCTOR BUSINESS
(GENERAL INSTRUMENT CORPORATION, TO BE RENAMED GENERAL SEMICONDUCTOR, INC.,
FOLLOWING THE DISTRIBUTION)
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements of the
Power Semiconductor Business set forth below consist of a pro forma balance
sheet as of December 31, 1996 and pro forma statements of operations for each of
the most recent three years. The pro forma balance sheet was prepared to give
effect to the Distribution as if it had occurred on December 31, 1996 and the
pro forma statements of operations were prepared to give effect to the
Distribution as if it had occurred on the first day of the earliest period
presented. The unaudited pro forma balance sheet presented below does not
purport to represent what the Power Semiconductor Business' financial position
actually would have been had the Distribution occurred on the date indicated or
to project the Power Semiconductor Business' financial position for any future
date. The unaudited pro forma statements of operations set forth below do not
purport to represent what the Power Semiconductor Business' operations actually
would have been or to project the Power Semiconductor Business' operating
results for any future period. The unaudited pro forma adjustments are based
upon currently available information and certain assumptions that the Company
believes are reasonable. The unaudited pro forma statements should be read in
conjunction with the historical consolidated financial statements of the Company
and the notes thereto appearing elsewhere in this Proxy Statement and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the Company's Annual Report to Stockholders for the
year ended December 31, 1996 incorporated herein by reference.
78
<PAGE>
THE POWER SEMICONDUCTOR BUSINESS
(GENERAL INSTRUMENT CORPORATION, TO BE RENAMED GENERAL SEMICONDUCTOR, INC.,
FOLLOWING THE DISTRIBUTION)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ADJUSTMENTS FOR
DISTRIBUTION
-------------------------- GENERAL
COMPANY NEXTLEVEL AS ADJUSTED SEMICONDUCTOR
HISTORICAL SYSTEMS(A) COMMSCOPE(A) HISTORICAL ADJUSTMENTS PRO FORMA
--------- ---------- -------------- ----------- ----------- -------------
<CAPTION>
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.............. $ 20,252 $ -- $ -- $ 20,252 $ (12,235)(b) $ --
(8,017)(e)
Short-term investments................. 49,946 -- -- 49,946 49,946
Accounts receivable--net............... 544,430 (392,984) (101,817) 49,629 49,629
Inventories............................ 336,516 (263,829) (41,136) 31,551 31,551
Prepaid expenses and other current 24,619 (17,657) (1,287) 5,675 5,675
assets...............................
Deferred income taxes.................. 107,322 (81,226) (13,742) 12,354 12,354
--------- ---------- -------------- ----------- ----------- -------------
Total current assets............... 1,083,085 (755,696) (157,982) 169,407 (20,252) 149,155
Property, plant and equipment--net..... 571,051 (251,748) (117,022) 202,281 202,281
Intangibles--net....................... 131,051 (92,802) (24,956) 13,293 13,293
Excess of cost over fair value of net
assets acquired--net................. 827,373 (478,783) (175,568) 173,022 173,022
Deferred income taxes--net............. 58,891 (32,499) 15,198 41,590 41,590
Other long-term assets................. 35,400 (18,208) (4,357) 12,835 (6,307)(d) 7,528
1,000(d)
--------- ---------- -------------- ----------- ----------- -------------
Total assets....................... $2,706,851 $(1,629,736) $ (464,687) $ 612,428 $ (25,559) $ 586,869
--------- ---------- -------------- ----------- ----------- -------------
--------- ---------- -------------- ----------- ----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable....................... $ 272,041 $ (201,382) $ (18,953) $ 51,706 $ -- $ 51,706
Income taxes payable................... 20,703 (4,896) (2,148) 13,659 (8,300)(c) 2,899
(2,460)(d)
Accrued expenses....................... 237,666 (177,886) (29,661) 30,119 1,000(d) 78,102
55,000(c)
(8,017)(e)
Current portion of long-term debt...... 4,310 -- -- 4,310 4,310
--------- ---------- -------------- ----------- ----------- -------------
Total current liabilities.......... 534,720 (384,164) (50,762) 99,794 37,223 137,017
Long-term debt......................... 698,825 -- (10,800) 688,025 (140,900)(b) 270,690
(264,200)(b)
(12,235)(b)
Deferred income taxes.................. 21,457 (6,353) -- 15,104 15,104
NLC litigation liability............... 139,100 (139,100) -- -- --
Other non-current liabilities.......... 139,596 (48,945) (9,565) 81,086 81,086
Stockholders' equity................... 1,173,153 (1,051,174) (393,560) (271,581) 140,900(b) 82,972
264,200(b)
(3,847)(d)
(46,700)(c)
--------- ---------- -------------- ----------- ----------- -------------
Total liabilities and stockholders' $2,706,851 $(1,629,736) $ (464,687) $ 612,428 $ (25,559) $ 586,869
equity...........................
--------- ---------- -------------- ----------- ----------- -------------
--------- ---------- -------------- ----------- ----------- -------------
</TABLE>
- ------------------------------
(a) To adjust the historical financial statements for the impact of the
Distribution of the Communications Business and the Cable Manufacturing
Business to stockholders.
(b) To reflect the payment of $140.9 million by the Communications Business and
the receipt of $264.2 million from the Cable Manufacturing Business in
connection with the Distribution and related transactions to be used to pay
down long-term debt. In addition, to record a $12.2 million debt payment to
reflect an estimated debt level of $275 million at the date of the
Distribution.
(c) To record estimated employee separation costs related to the Taiwan
operations, estimated costs directly attributable to the transaction to be
incurred prior to the Distribution and related tax benefits ($55 million,
$46.7 million net of tax).
(d) To reflect the write-off of deferred financing fees and the recording of
the related tax receivable ($6.3 million, $3.8 million net of tax) in
connection with the Distribution and related transactions. In addition, to
record $1 million of costs to obtain the new borrowings.
(e) To reflect the utilization of cash to pay a portion of the accrued
transaction costs. The remaining transaction costs are expected to be paid
through working capital.
79
<PAGE>
THE POWER SEMICONDUCTOR BUSINESS
(GENERAL INSTRUMENT CORPORATION, TO BE RENAMED GENERAL SEMICONDUCTOR, INC.,
FOLLOWING THE DISTRIBUTION)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ADJUSTMENTS FOR DISTRIBUTION
------------------------------
<CAPTION>
GENERAL
COMPANY NEXTLEVEL AS ADJUSTED SEMICONDUCTOR
HISTORICAL SYSTEMS(A) COMMSCOPE(A) HISTORICAL ADJUSTMENTS(E) PRO FORMA
----------- ------------ ---------------- ----------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $ 2,689,688 $ (1,755,585) $ (572,212) $ 361,891 $ -- $ 361,891
Costs and expenses:
Cost of sales.............. 1,997,625 (1,349,815) (417,123) 230,687 230,687
Selling, general and
administrative(f)........ 265,717 (174,432) (44,342) 46,943 46,943
Research and development... 209,257 (198,071) (5,348) 5,838 5,838
NLC litigation costs....... 141,000 (141,000) -- --
Amortization of excess of
cost over fair value of
net assets acquired...... 24,577 (14,278) (5,145) 5,154 5,154
----------- ------------ ---------------- ----------- ------- -------------
Total operating costs and
expenses................... 2,638,176 (1,877,596) (471,958) 288,622 -- 288,622
----------- ------------ ---------------- ----------- ------- -------------
Operating income............. 51,512 122,011 (100,254) 73,269 73,269
Other income
(expense)--net........... 361 1,427 (1,839) (51) (51)
Interest expense--net...... (46,356) 25,970 9,990 (10,396) (9,054)(b) (19,450)
----------- ------------ ---------------- ----------- ------- -------------
Income before income taxes... 5,517 149,408 (92,103) 62,822 (9,054) 53,768
Income tax provision......... (7,381) (53,098) 34,981 (25,498) 3,531(c) (21,967)
----------- ------------ ---------------- ----------- ------- -------------
Net income (loss)............ $ (1,864) $ 96,310 $ (57,122) $ 37,324 $ (5,523) $ 31,801
----------- ------------ ---------------- ----------- ------- -------------
----------- ------------ ---------------- ----------- ------- -------------
Earnings (loss) per share.... $ (.01) $ .23(d)
----------- -------------
----------- -------------
</TABLE>
- ------------------------
(a) To adjust the historical financial statements for the impact of the
Distribution of the Communications Business and the Cable Manufacturing
Business to stockholders to reflect only those ongoing business operations
of the Power Semiconductor Business.
(b) To record the estimated increase in interest expense based upon an
estimated $275 million of debt expected to be outstanding at the date of the
Distribution, at an assumed weighted average borrowing rate of 7.0%, and to
reflect the amortization of debt issuance costs associated with the new
borrowings. A fluctuation in the assumed weighted average borrowing rate of
.125% would change pro forma interest expense by $344.
(c) To reflect the estimated tax impact for the pro forma adjustment (b).
(d) Pro forma earnings per share reflects the impact of the Distribution of
NextLevel Systems Common Stock and CommScope Common Stock and the pro forma
adjustments. The pro forma earnings per share assumes that the GI
Convertible Notes are redeemed.
(e) The pro forma adjustments do not reflect an estimated $55 million ($46.7
million net of tax), of non-recurring costs expected to be incurred within
the next 12 months. This amount relates principally to
80
<PAGE>
costs to separate the Taiwan operations from the Company and costs directly
attributable to the Distribution and related transactions. The Company's
Taiwan legal entity is currently comprised of operations which support both
the Communications Business and the Power Semiconductor Business. In order
to effectuate the Distribution, the Company will be required to incur costs,
primarily employee costs, in order to separate its Taiwan operations.
(f) SG&A includes an allocation of $3.9 million of corporate administrative
expenses. Such allocation reflects an estimate of the allocable corporate
expenses relating to the Power Semiconductor Business within the Company.
The Company's management believes that the allocations have been made on a
reasonable and consistent basis. However, such allocation may not
necessarily be indicative of the costs that would have been incurred had the
Power Semiconductor Business operated as a separate, stand-alone entity.
Management of the Power Semiconductor Business believes that the actual
costs for the services provided by the consolidated group, and other
stand-alone costs to be incurred subsequent to the Distribution, will not be
materially different than the allocated amounts included in SG&A.
81
<PAGE>
THE POWER SEMICONDUCTOR BUSINESS
(GENERAL INSTRUMENT CORPORATION, TO BE RENAMED GENERAL SEMICONDUCTOR, INC.
FOLLOWING THE DISTRIBUTION)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ADJUSTMENTS FOR DISTRIBUTION
------------------------------
<CAPTION>
GENERAL
NEXTLEVEL AS ADJUSTED SEMICONDUCTOR
HISTORICAL SYSTEMS(A) COMMSCOPE(A) HISTORICAL ADJUSTMENTS(E) PRO FORMA
----------- ------------ ---------------- ----------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $ 2,432,024 $ (1,532,595) $ (485,160) $ 414,269 $ -- $ 414,269
Costs and expenses:
Cost of sales.............. 1,690,639 (1,079,916) (355,732) 254,991 254,991
Selling, general and
administrative(f)........ 224,269 (138,209) (34,835) 51,225 51,225
Research and development... 147,253 (137,930) (4,255) 5,068 5,068
Purchased in-process
technology............... 139,860 (139,860)
Amortization of excess of
cost over fair value of
net assets acquired...... 24,702 (14,418) (5,075) 5,209 5,209
----------- ------------ ---------------- ----------- ------- -------------
Total operating costs and
expenses................... 2,226,723 (1,510,333) (399,897) 316,493 -- 316,493
----------- ------------ ---------------- ----------- ------- -------------
Operating income............. 205,301 (22,262) (85,263) 97,776 97,776
Other (expense)--net....... (1,894) 1,737 (115) (272) (272)
Interest expense--net...... (41,059) 22,933 8,665 (9,461) (9,989)(b) (19,450)
----------- ------------ ---------------- ----------- ------- -------------
Income before income taxes... 162,348 2,408 (76,713) 88,043 (9,989) 78,054
Income tax provision......... (38,566) (6,614) 29,382 (15,798) 3,896(c) (11,902)
----------- ------------ ---------------- ----------- ------- -------------
Net income................... $ 123,782 $ (4,206) $ (47,331) $ 72,245 $ (6,093) $ 66,152
----------- ------------ ---------------- ----------- ------- -------------
----------- ------------ ---------------- ----------- ------- -------------
Earnings per share........... $ .96 $ .47(d)
----------- -------------
----------- -------------
</TABLE>
- ------------------------
(a) To adjust the historical financial statements for the impact of the
Distribution of the Communications Business and the Cable Manufacturing
Business to stockholders to reflect only those ongoing business operations
of the Power Semiconductor Business.
(b) To record the estimated increase in interest expense based upon an
estimated $275 million of debt expected to be outstanding at the date of the
Distribution, at an assumed weighted average borrowing rate of 7.0%, and to
reflect the amortization of debt issuance costs associated with the new
borrowings. A fluctuation in the assumed weighted average borrowing rate of
.125% would change pro forma interest expense by $344.
(c) To reflect the estimated tax impact for the pro forma adjustment (b).
(d) Pro forma earnings per share reflects the impact of the Distribution of
NextLevel Systems Common Stock and CommScope Common Stock and the pro forma
adjustments. The pro forma earnings per share assumes the GI Convertible
Notes are redeemed.
(e) The pro forma adjustments do not reflect an estimated $55 million ($46.7
million net of tax), of non-recurring costs expected to be incurred within
twelve months. This amount relates principally to costs
82
<PAGE>
to separate the Taiwan operations from the Company and costs directly
attributable to the Distribution and related transactions. The Company's
Taiwan legal entity is currently comprised of operations which support both
the Communications Business and the Power Semiconductor Business. In order
to effectuate the Distribution, the Company will be required to incur costs,
primarily employee costs, in order to separate its Taiwan operations.
(f) SG&A includes an allocation of $4.3 million of corporate administrative
expenses. Such allocation reflects an estimate of the allocable corporate
expenses relating to the Power Semiconductor Business within the Company.
The Company's management believes that the allocations have been made on a
reasonable and consistent basis. However, such allocation may not
necessarily be indicative of the costs that would have been incurred had the
Power Semiconductor Business operated as a separate, stand-alone entity.
Management of the Power Semiconductor Business believes that the actual
costs for the services provided by the consolidated group, and other
stand-alone costs to be incurred subsequent to the Distribution, will not be
materially different than the allocated amounts included in SG&A.
83
<PAGE>
THE POWER SEMICONDUCTOR BUSINESS
(GENERAL INSTRUMENT CORPORATION, TO BE RENAMED GENERAL SEMICONDUCTOR, INC.
FOLLOWING THE DISTRIBUTION)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ADJUSTMENTS FOR DISTRIBUTION
------------------------------
<CAPTION>
GENERAL
NEXTLEVEL AS ADJUSTED SEMICONDUCTOR
HISTORICAL SYSTEMS(A) COMMSCOPE(A) HISTORICAL ADJUSTMENTS(E) PRO FORMA
----------- ------------ ---------------- ----------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $ 2,036,323 $ (1,275,307) $ (445,328) $ 315,688 $ -- $ 315,688
Costs and expenses:
Cost of sales.............. 1,403,585 (877,667) (317,466) 208,452 208,452
Selling, general and
administrative(f)........ 179,631 (102,753) (31,625) 45,253 45,253
Research and development... 111,462 (104,795) (3,213) 3,454 3,454
Amortization of excess of
cost over fair value of
net assets acquired...... 25,574 (14,931) (5,254) 5,389 5,389
----------- ------------ ---------------- ----------- -------------- -------------
Total operating costs and
expenses................... 1,720,252 (1,100,146) (357,558) 262,548 -- 262,548
----------- ------------ ---------------- ----------- -------------- -------------
Operating income............. 316,071 (175,161) (87,770) 53,140 53,140
Other (expense)--net....... (5,154) (1,380) 4 (6,530) (6,530)
Interest expense--net...... (52,751) 27,337 12,281 (13,133) (6,317)(b) (19,450)
----------- ------------ ---------------- ----------- -------------- -------------
Income before income taxes... 258,166 (149,204) (75,485) 33,477 (6,317) 27,160
Income tax (provision)
benefit.................... (9,714) 26,710 30,389 47,385 2,464(c) (11,531)
(61,380)(g)
----------- ------------ ---------------- ----------- -------------- -------------
Income before cumulative
effect of change in
accounting principle....... $ 248,452 $ (122,494) $ (45,096) $ 80,862 $ (65,233) $ 15,629
----------- ------------ ---------------- ----------- -------------- -------------
----------- ------------ ---------------- ----------- -------------- -------------
Earnings per share before
cumulative effect of change
in accounting principle.... $ 1.89 $ .11(d)
----------- -------------
----------- -------------
</TABLE>
- ------------------------
(a) To adjust the historical financial statements for the impact of the
Distribution of the Communications Business and the Cable Manufacturing
Business to stockholders to reflect only those ongoing business operations
of the Power Semiconductor Business.
(b) To record the estimated increase in interest expense based upon an
estimated $275 million of debt expected to be outstanding at the date of the
Distribution, at an assumed weighted average borrowing rate of 7.0%, and to
reflect the amortization of debt issuance costs associated with the new
borrowings. A fluctuation in the assumed weighted average borrowing rate of
.125% would change pro forma interest expense by $344.
(c) To reflect the estimated tax impact for the pro forma adjustment (b).
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(d) Pro forma earnings per share reflects the Distribution of NextLevel Systems
Common Stock and
CommScope Common Stock and the pro forma adjustments. The pro forma earnings
per share assumes the GI Convertible Notes are redeemed.
(e) The pro forma adjustments do not reflect an estimated $55 million ($46.7
million net of tax), of non-recurring costs expected to be incurred within
twelve months. This amount relates principally to costs to separate the
Taiwan operations from the Company and costs directly attributable to the
Distribution and related transactions. The Company's Taiwan legal entity is
currently comprised of operations which support both the Communications
Business and the Power Semiconductor Business. In order to effectuate the
Distribution, the Company will be required to incur costs, primarily
employee costs, in order to separate its Taiwan operations.
(f) SG&A includes an allocation of $3.4 million of corporate administrative
expenses. Such allocation reflects an estimate of the allocable corporate
expenses relating to the Power Semiconductor Business within the Company.
The Company's management believes that the allocations have been made on a
reasonable and consistent basis. However, such allocation may not
necessarily be indicative of the costs that would have been incurred had the
Power Semiconductor Business operated as a separate, stand-alone entity.
Management of the Power Semiconductor Business believes that the actual
costs for the services provided by the consolidated group, and other
stand-alone costs to be incurred subsequent to the Distribution, will not be
materially different than the allocated amounts included in SG&A.
(g) To adjust the income tax provision of the continuing operations of the
Power Semiconductor Business to give effect to the allocation between
continuing operations and discontinued operations.
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BUSINESS OF NEXTLEVEL SYSTEMS
GENERAL
NextLevel Systems, a newly formed indirect wholly owned subsidiary of the
Company, will own and operate the Communications Business after the
Distribution. References in this section to "NextLevel Systems" refer to
NextLevel Systems and its subsidiaries after giving effect to the Internal
Transfers and the Distribution. References to the "Communications Business"
refer to the historical business and operations of the Communications Business
conducted by the Company prior to the Distribution.
MARKET OVERVIEW
NextLevel Systems is a leading worldwide supplier of systems and equipment
for high-performance networks delivering video, voice and data/Internet
services. NextLevel Systems is the only company currently providing such systems
and equipment for broadband networks (I.E., networks having the capacity, or
bandwidth, to transmit large volumes of information) using all of the following
architectures: (i) wired systems including analog signals over the traditional
hybrid fiber coaxial cable television plant ("HFC"), digital signals over the
HFC plant, and switched-digital technology over fiber-to-the-curb architecture
("FTTC"); (ii) multichannel multipoint distribution systems ("wireless cable");
and (iii) direct-to-home ("DTH") satellite television systems. The management of
NextLevel Systems believes that NextLevel Systems' technological leadership
position and its ability to deliver any type of content over any type of network
around the world makes it well positioned to continue to be a leading provider
of broadband systems and equipment regardless of the network and architecture
used.
U.S. VIDEO NETWORKS. Historically, broadband video networks in the United
States have been used predominantly by cable television operators in a wired
cable television architecture. Accordingly, the Communications Business has been
focused primarily on supplying traditional analog systems and equipment to cable
television multiple systems operators ("MSOs"). Sales of digital and analog
addressable systems, including set-top terminals, and headend signal processing
equipment, distribution amplifiers, fiber optic transmission equipment and
passive components for wired cable television distribution systems in the United
States accounted for approximately 45% of the sales of the Communications
Business in 1996.
NextLevel Systems' management believes that consumer demand for video
entertainment is increasing, creating the need for more and varied types of
programming. Based on the Company's own experience and data presented in
industry trade publications and reports prepared by telecommunications industry
analysts, management of NextLevel Systems believes that the number of national
cable programming networks has more than doubled since 1990. This expansion,
however, is limited by the channel capacity of cable systems. Based on the
sources indicated above, management of NextLevel Systems estimates that of the
more than 11,000 cable systems in the United States, only approximately 14% have
the capacity to deliver 54 or more channels.
Cable television operators are facing competition from DTH programmers using
broadband networks to transmit television signals, via satellite, directly to
subscribers' home receivers. Historically, most consumers had only one option
for receiving multi-channel video entertainment--the local cable television
operator. Currently, consumers also have access to national DTH digital
television services which provide up to approximately 200 channels of
programming, with high-quality digital video and audio. DIRECTV and PRIMESTAR,
the two leading small-dish DTH providers, have gained more than four million
subscribers since the introduction of these digital services in 1994. NextLevel
Systems is the exclusive supplier of digital consumer receivers for PRIMESTAR,
and is the exclusive supplier of encoders for both DIRECTV and PRIMESTAR.
In addition, wireless cable television operators and local telephone
companies have begun competing with existing cable television companies to offer
video entertainment in many markets in the United States. Wireless cable is an
architecture in which signals are sent from transmitter towers over the airwaves
to
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small antennas that reside on customer homes. NextLevel Systems is the leading
supplier of set-top terminals for analog and digital wireless cable systems. Of
the telephone companies offering video services, GTE Corporation ("GTE") has
selected NextLevel Systems to supply equipment for the first three sites of
GTE's broadband network.
In response to increasing consumer demand and competition, many cable
television operators have increased, or are planning to increase, the number of
channels they are capable of offering, either by upgrading the existing cable
plant using an HFC architecture, or by implementing digital compression
technology over the existing cable plant. HFC combines fiber optic and radio
frequency technologies to increase the capacity, reliability and capability of a
broadband network by connecting a headend to a neighborhood node using fiber
optic cable and connecting the neighborhood node to the home subscriber using
coaxial cable. Digital compression technology allows cable television operators
to transmit the equivalent of four to 16 channels of video information on the
bandwidth used by one analog channel. In addition, digital signals are more
resistant to noise and distortion than analog signals. Thus, digital systems
will allow cable television operators to offer a very large number of
high-quality video and music channels and user-friendly features, such as
interactive program guides, and still leave capacity to offer near-video-
on-demand services. As a leading provider of HFC systems and equipment, as well
as the only company shipping digital cable headend equipment and terminals in
volume, NextLevel Systems management believes that NextLevel Systems is well
positioned to serve its traditional customer base, whichever path to increasing
capacity the cable television operators choose.
INTERNATIONAL VIDEO NETWORKS. NextLevel Systems management believes that
international markets represent a key growth opportunity for sales of broadband
networks. In 1996, international sales by the Communications Business
represented 26% of its total sales, and management's goal is to increase that
percentage to approach 40% over the next several years. Based on the Company's
own experience and data presented in industry trade publications and reports
prepared by telecommunications industry analysts, NextLevel Systems management
estimates that more than 80% of the television households in the world are
outside the United States; however, despite the growing demand for entertainment
programming in these markets, the penetration of multichannel services is
approximately 21% in these markets compared to approximately 72% in the United
States.
International markets employ the same types of broadband network
architectures used in the United States: traditional wired cable television;
wireless cable; and DTH systems. In certain countries, like the United Kingdom,
operators have been using system architectures that are similar to systems used
by U.S. cable networks, partly because many of these systems are being developed
by affiliates of certain U.S. cable television operators and telephone
companies. Management of NextLevel Systems believes that NextLevel Systems has a
competitive advantage in these markets because of its leadership in the cable
equipment market in the United States, its relationship with the U.S. cable
operators, its technological leadership and its fully integrated product line.
Management of NextLevel Systems also believes that it is more likely that
significant growth in sales of its analog systems will be attributable to
increased international deployment of broadband equipment.
Wireless cable systems are being used internationally in areas where the
cost of installing a cable television infrastructure is not justified due to the
low density of homes, a relatively small subscriber base or geographical
constraints. The management of NextLevel Systems believes that the
Communications Business has supplied a majority of the addressable cable and
wireless cable systems currently in use in international markets.
DTH systems have become increasingly popular in international markets,
particularly as digital compression technology allows satellite service
providers and programmers to maximize their limited transponder capacity in
order to reach geographically dispersed subscribers. NextLevel Systems' digital
satellite television technology, DigiCipher II, which incorporates the MPEG-2
international standard for digital compression and transport, has been widely
accepted in North America, but has not been widely deployed in international
markets. Many of these markets have adopted a different technology, DVB. In
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1996, the Communications Business acquired the DVB compliant Magnitude digital
satellite product line from Compression Labs, Inc. The Communications Business
has, to date, employed DVB technology only in encoders and not in consumer
receivers. NextLevel Systems management expects to have DVB compliant consumer
receivers available beginning in the third quarter of 1997, and believes that
the introduction of this product will enable the Communications Business to
compete more effectively in the international DTH market.
HIGH-SPEED DATA NETWORKS. NextLevel Systems management believes that the
rapid growth in personal computer ownership and, in particular, usage of on-line
and Internet access services, has created a demand for increased data
transmission speeds. Based on the Company's own experience and data presented in
industry trade publications and reports prepared by telecommunications industry
analysts, management of NextLevel Systems estimates that there are now
approximately 39 million computer households in the United States, compared to
approximately 22 million in 1990, and approximately 17 million computer
households subscribe to on-line services, compared to approximately two million
in 1990. Traditional telephone modems, typically delivering up to 28.8 kilobits
of information per second, may not be adequate to service the proliferation of
Internet sites and the increasing amounts of data, sophisticated graphics and
video.
The Communications Business has developed a high-speed modem that delivers
information via the cable television infrastructure instead of telephone lines.
NextLevel Systems' SURFboard modem, which began commercial shipment to cable
television operators in the third quarter of 1996, is capable of delivering
information down the cable at speeds up to nearly 1,000 times faster than a
traditional telephone modem, while delivering instructions and other information
upstream from the consumer over telephone lines. Most of the competing modems
currently on the market are "two-way" cable, meaning that the information both
delivered to the consumer and sent back from the consumer to the network travels
over the cable plant. Because only a small percentage of existing cable systems
are capable of effective two-way communications, management of NextLevel Systems
believes that its SURFboard cable modem with telephone return path is the
optimal product for the current environment. Management of NextLevel Systems
expects to introduce its SURFboard two-way cable product line by 1998, as more
cable systems become capable of two-way communications. The Communications
Business is also developing SURFboard product lines for satellite and wireless
cable applications.
TELEPHONY NETWORKS. The Communications Business entered a new market, the
telephone local loop access market, with its purchase of NLC in September 1995.
Based on the Company's own experience and data presented in industry trade
publications and reports by telecommunications industry analysts, NextLevel
Systems management estimates that local telephone companies in the United States
spend approximately $2 billion per year to rebuild their local loop equipment.
Although the local telephone companies have been concentrating on their core
business of voice transmission, they have begun to implement video and data
services. NextLevel Systems management believes that NLC's NLevel(3) next-
generation switched-digital broadband access system, which provides an
integrated suite of voice, video and data services over an FTTC architecture, is
an ideal solution because it allows telephone companies to upgrade their systems
to provide voice-only services currently while migrating to data and video
services over time. FTTC is a fiber-rich switched digital architecture in which
fiber is deployed to very small neighborhood nodes, each serving eight to 50
customer homes, and the customer homes are connected to the nodes through copper
cable for telephone services and coaxial or copper cable for video services.
The Regional Bell Operating Companies ("RBOCs") are currently evaluating
various architectures available to provide upgraded voice, as well as video and
data services, and may determine to deploy several architectures. In the first
quarter of 1997, NLC began delivering equipment under an agreement with a
subsidiary of NYNEX to supply its NLevel(3) system for one million lines of
telephone service in metropolitan New York and Boston. NYNEX also has options to
extend its deployment of the NLevel(3) system up to five million lines. As of
March 20, 1997, three of the other RBOCs had announced their
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intention to employ FTTC architectures using switched-digital video technology
in their planned broadband networks, and four others had announced their
intention to use HFC networks. Several of the RBOCs are also evaluating DTH and
wireless cable.
For a description of telecommunications industry factors affecting the
business of NextLevel Systems, see "Risk Factors--Risks Relating to the
Businesses of NextLevel Systems, CommScope and General Semiconductor."
BUSINESS STRATEGY
NextLevel Systems' strategy is to use its technological leadership in secure
broadband systems and equipment to enhance its leading position in its
traditional markets while expanding into new markets. This strategy is based on
the belief that (i) consumers, both in the U.S. and international markets, will
continue to demonstrate an increasing demand for new entertainment and
information services and (ii) content and service providers will continue to
create new bandwidth-intensive video, voice and data applications at the upper
limits of network capabilities. NextLevel Systems management believes that these
factors will generate a continuing need for systems and equipment with greater
capacity for all networks and architectures. The key elements of NextLevel
Systems' strategy are set forth below.
- TECHNOLOGICAL LEADERSHIP IN ADVANCED DIGITAL NETWORKS. NextLevel Systems
intends to build upon its world leadership in the development and
implementation of advanced broadband communications systems and equipment.
The Communications Business recently began commercial deployment of two of
the most advanced communications systems in the world: its MPEG-2 digital
cable television system, which provides more than 100 channels of
high-quality digital video and audio, including greatly expanded
pay-per-view offerings; and its NLevel(3) switched-digital broadband
access system, which provides advanced voice, data and video services for
the telephone local loop. NextLevel Systems management believes that it is
the only company currently shipping digital cable headend equipment and
terminals in volume and that its leadership position in core enabling
technologies, such as digital compression, will enhance its ability to
compete successfully in new markets.
- DELIVERY OF ANY TYPE OF CONTENT OVER ANY NETWORK. NextLevel Systems will
supply a broad range of end-to-end systems that provide the capability to
deliver any type of content or services--video, voice or data--over any
type of network and architecture (wired analog and digital, wireless,
satellite and FTTC). NextLevel Systems management believes that it is the
only company capable of serving all of the service providers in this
increasingly competitive environment, making it uniquely positioned to
expand its leadership position in the provision of broadband networks.
- RAPID INTERNATIONAL EXPANSION. NextLevel Systems management believes that
a significant amount of its growth will come from international markets.
There is a growing demand for entertainment programming in these markets,
but the penetration of multi-channel video services is low. NextLevel
Systems management intends to focus on expanding its international sales
with the goal that international sales will approach 40% of its total
sales over the next several years.
- PROVIDE HIGH-SPEED INTERNET AND DATA NETWORK SOLUTIONS. NextLevel Systems
management believes that high-speed data networks are an emerging growth
opportunity. Until recently, the principal barrier to expanding the
bandwidth available to home users has been the speed limitations on data
transmitted over copper telephone wires. The Communications Business
recently began commercial shipment of its SURFboard modem, which provides
Internet and multimedia services to homes and businesses at speeds up to
nearly 1,000 times faster than conventional telephone modems. NextLevel
Systems management intends to focus on the development of its cable modem
products and expects to introduce its two-way cable modem by 1998.
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NEXTLEVEL SYSTEMS BUSINESS UNITS
NextLevel Systems is organized into three business units: the Broadband
Networks Group; the Satellite Data Networks Group; and NLC.
The Broadband Networks Group is the world leader in digital and analog
set-top systems for wired and wireless cable television networks, as well as HFC
network transmission systems used by network operators.
The Satellite Data Networks Group is the world's leading provider of digital
satellite systems for programmers, DTH satellite network providers, and private
networks for business communications and distance learning. It offers a complete
product line of digital compression and transmission systems including MPEG-2,
DVB and Advanced Television Systems Committee (ATSC) compliant solutions. The
Satellite Data Networks Group is also a leader in the development of high-speed
data networks.
NLC provides telephony network solutions through its new NLevel(3) Switched
Digital Services system. This system supports both residential and small
business communications services over a high-speed, digital broadband transport
architecture.
BROADBAND NETWORKS GROUP
ADVANCED NETWORK SYSTEMS AND TRANSMISSION NETWORK SYSTEMS. The principal
analog products of the Broadband Networks Group represented 64%, 59%, and 63% of
the sales of the Communications Business in the years ended December 31, 1996,
1995 and 1994, respectively. Subscriber products include primarily addressable
systems which permit control, through a set-top terminal, of a subscriber's
cable television services from a central headend computer without requiring
access to the subscriber's premises. Addressable systems also enable a cable
television operator to more easily provide pay-per-view programming services and
multiple tiers of programming packages. Transmission products include headend
signal processing equipment, distribution amplifiers, fiber optic transmission
equipment and passive components for wired television distribution systems.
Throughout the last several years, the Broadband Networks Group has been the
market share leader in the U.S. analog-addressable market, with more than 50% of
that market. The management of NextLevel Systems believes that cable television
operators have sought to improve the quality, capacity and capabilities of their
networks during this period by increasing their capital spending for addressable
systems and transmission infrastructure upgrades. NextLevel Systems management
expects cable television operators in the United States and abroad to continue
to upgrade their basic networks and invest in new system construction primarily
to compete with other television programming sources, such as DTH and cable
networks planned by some telephone companies, and to develop, using U.S.
architecture and systems, international markets where cable penetration is low
and demand for entertainment programming is growing. See "Risk Factors--Risks
Relating to the Businesses of NextLevel Systems, CommScope and General
Semiconductor--Dependence of NextLevel Systems and CommScope on the Cable
Television Industry and Cable Television Capital Spending."
Beginning in the second quarter of 1995, the Broadband Networks Group began
shipping its CFT-2200 advanced analog terminal, which increased the
functionality and features of its prior analog addressable subscriber terminals.
The CFT-2200 incorporates a user feature platform that allows cable operators to
deploy applications of their choice for new services, including electronic
program guides, supplementary sports and entertainment information and
play-along game shows, and can be modularly upgraded to deliver digital audio,
providing CD-quality simulcasts of premium services. The CFT-2200 can also be
upgraded to the Broadband Networks Group's second generation end-to-end digital
television system, which is compatible with the MPEG-2 international standard
for digital compression and transport. The Broadband Networks Group had shipped
more than 1.8 million CFT-2200 units by December 31, 1996, and, as of March 20,
1997, the Broadband Networks Group had received commitments and letters of
intent for approximately 3.5 million additional CFT-2200 terminals.
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DIGITAL NETWORK SYSTEMS. NextLevel Systems management believes that the
commercialization of advanced digital broadband systems and equipment, which
provide for greatly expanded channel capacity and programming options, improved
quality and security of signal transmission and the capability of delivering
enhanced features and services, is an important market for NextLevel Systems.
The management of NextLevel Systems also believes that NextLevel Systems'
position in this developing market is significantly enhanced by the Broadband
Networks Group's leadership in a key enabling technology, digital compression,
which allows the broadcast of multiple digital channels in the same bandwidth
occupied by one uncompressed video channel. The Broadband Networks Group,
through its Digital Networks Systems business unit, is deploying its digital
television system that enables satellite programmers and cable television
operators to deliver over their existing networks four to ten times as much
information as is possible with existing analog technology. This system was the
first digital video compression system to demonstrate capabilities over cable
and satellite television networks. The Broadband Networks Group began shipping
its first-generation digital encoders and decoders for satellite programmers and
cable television commercial headend operators in 1993.
NextLevel Systems management expects that cable and other broadband network
operators will begin to deploy digital terminals in their customers' homes in
order to take advantage of the enhanced capabilities of the digital networks.
The rate of deployment will depend largely on consumer demand for new services
made available through the digital network and the relative cost of the more
advanced digital terminals. The Broadband Networks Group sold its first 100,000
DCT-1000 digital subscriber terminals in the fourth quarter of 1996, and also
sold 12 headend systems with the capacity to deliver digital services to more
than two million subscribers. As of March 20, 1997, the Broadband Networks Group
had obtained commitments and letters of intent for four million DCT-1000 and
DWT-1000 terminals from major North American cable and wireless cable system
operators and GTE. The Broadband Networks Group has entered into an agreement to
supply network equipment, featuring CFT-2200 and DCT-1000 digital terminals, for
the first three sites of GTE's planned HFC network. The Broadband Networks Group
is working with AT&T Network Systems to bring advanced services to GTE's
customers in these new video dial-tone networks.
The Broadband Networks Group's DCT-1000 terminals incorporate the MPEG-2
international standard, and the Communications Business' digital television
system has the capacity to carry various video, audio and data elements through
a complex information infrastructure that will have an improved capability to
interact with other consumer devices using MPEG-2 compression.
SATELLITE DATA NETWORKS GROUP
DIGITAL AND ANALOG SATELLITE PRODUCTS. The Satellite Data Networks Group
designs, manufactures and sells analog and digital satellite uplink and downlink
products for commercial and consumer use. Using the Communications Business'
DigiCipher digital technology, commercial customers are able to compress their
video, audio and data transmissions resulting in significant cost savings over
traditional analog transmission. The Satellite Data Networks Group also offers
state-of-the-art network management and access control products and services
allowing program packagers to efficiently and cost-effectively manage customer
transactions and securely transmit their programming to only authorized
end-users. For consumers, the Satellite Data Networks Group provides "user
friendly" graphical user interfaces, excellent video quality and high-end audio
reception. Satellite products represented 33%, 41% and 37% of the sales of the
Communications Business for the years ended December 31, 1996, 1995 and 1994,
respectively. The Satellite Data Networks Group is the leading manufacturer of
access control and scrambling and descrambling equipment used by television
programmers for the satellite distribution of proprietary programming.
The Satellite Data Networks Group was a pioneer in digital satellite
television with its DigiCipher I system, the world's first digital compression,
access control and encryption transport system designed for the delivery of
video entertainment signals. The digital system relies on encoders located at
the point
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where programming originates, and decoders located at either commercial headends
or at consumers' homes for use with their satellite dishes.
In the second quarter of 1994, the Satellite Data Networks Group began
deployment of DigiCipher I consumer receivers to PRIMESTAR, a consortium of
cable television operators and GE Americom, which offers a medium-power Ku-band
DTH television system, and, through December 31, 1996, had delivered
approximately 2.3 million DigiCipher I receivers to PRIMESTAR. The Satellite
Data Networks Group began shipment of its second generation, MPEG-2 compatible
DigiCipher II system and Magnitude system, which utilizes the DVB standard, in
1996.
The Satellite Data Networks Group is the sole supplier of digital satellite
receivers to PRIMESTAR and digital satellite encoders for DTH providers
PRIMESTAR, DIRECTV, USSB, Galaxy Latin America and DIRECTV Japan. The Satellite
Data Networks Group is also a leading supplier of digital satellite systems to
private networks for such applications as business communications and distance
learning. The group's digital satellite systems are in use by organizations such
as Ford Motor Company and South Carolina Educational TV.
The analog satellite products of the Communications Business are the
exclusive systems for the distribution of encrypted C-band (large dish)
satellite-delivered programming to cable television operators and large-diameter
backyard satellite dish owners. The system consists primarily of scramblers,
which are installed at the point where the programming originates, and
descramblers, which are installed at the commercial headends of cable television
systems or purchased by consumers for use with their backyard C-band satellite
dishes.
Sales of analog consumer descramblers have declined, as expected, to minimal
levels over the past two years as a result of the availability of competing
digital satellite video services. NextLevel Systems plans to introduce, in the
second quarter of 1997, its first digital descramblers for the backyard C-band
market. This product, called 4DTV-TM-, will allow C-band dish owners to take
advantage of the wealth of digital programming now being transmitted by
satellite. There can be no assurance, however, that volume shipments of 4DTV
will commence in 1997 or as to the degree of market acceptance of this new
product.
HIGH-SPEED DATA NETWORKS. NextLevel Systems management believes that
high-speed data networks are an emerging growth opportunity for the Satellite
Data Networks Group. The initial product offered by the group is the SURFboard
cable modem, which provides Internet and multimedia services to homes and
businesses at speeds up to nearly 1,000 times faster than conventional telephone
modems. Initial commercial shipment of SURFboard modems for cable networks
commenced during the third quarter of 1996. SURFboard modems are scheduled to be
deployed by several cable television operators in the United States and abroad.
Most of the competing modems currently on the market are "two-way" cable,
meaning that the information both delivered to the consumer and sent back from
the consumer to the network travels over the cable plant. Because only a small
percentage of existing cable systems are capable of effective two-way
communications, management of NextLevel Systems believes that its SURFboard
cable modem with telephone return path is the optimal product for the current
environment. Management of NextLevel Systems expects to introduce its SURFboard
two-way cable product line by 1998, as more cable systems become capable of
two-way communications. There can be no assurance that this new product will be
available for volume shipments in 1997 or as to the degree of its market
acceptance. The Satellite Data Networks Group is currently developing versions
of the SURFboard modem for use in wireless and satellite networks.
NLC
In September 1995, the Company acquired NLC, which was formed to design,
manufacture and market a next-generation telecommunications broadband access
system for the delivery of telephony, video, and data from a telephone company
central office or cable television headend to the home. NLC's product,
NLevel(3), is designed to permit the cost-effective delivery of a suite of
standard telephony and advanced services such as high-speed data/Internet,
work-at-home, distance learning, video-on-demand
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and video-telephony to the home from a single access platform. The NLevel(3)
system is designed to work with and enhance existing telephony networks and
offers the capability to provide voice services (POTS), ISDN, high-speed
data/Internet and video services over both copper-twisted-pair and FTTC
networks.
In the fourth quarter of 1996, NLC entered into an agreement with a
subsidiary of NYNEX, pursuant to which NLC will supply its NLevel(3) system for
one million lines of telephone service in metropolitan New York and Boston.
Initial shipments for the greater Boston area began in the first quarter of
1997. NYNEX also has options to extend its deployment of the NLevel(3) system up
to five million lines. NLC has also demonstrated NLevel(3) for the other RBOCs,
and three of those RBOCs have announced their intention to employ FTTC
architectures using switched-digital video technology in their planned broadband
networks.
A significant amount of research and development expenditures will be
required to fund the successful deployment and market growth of telephony
networks. Management of NextLevel Systems does not expect NLC to generate
significant revenues until 1998, and there can be no assurance that delays will
not occur in the deployment of NLC's products or that such products will be
commercially successful.
TECHNOLOGY AND LICENSING
The management of NextLevel Systems believes that the Communications
Business is in the unique position of currently producing the majority of the
world's analog-addressable systems, while also leading the deployment of the
digital technology that will eventually replace these systems. As a result,
NextLevel Systems will seek to build upon the Communications Business' core
enabling technologies, digital compression, encryption and conditional access
and control, in order to lead the transition of the market for broadband
communications networks from analog to digital systems.
The Communications Business began shipment of its MPEG-2 system to satellite
television programmers in early 1996, and began delivery of MPEG-2 systems to
cable television operators in the fourth quarter of 1996. To allow for broad
deployment of the Communications Business' MPEG-2 system, a number of
semiconductor manufacturers have received licenses, including Motorola,
SGS-THOMSON Microelectronics, LSI Logic, C-Cube Microsystems and Samsung
Electronics. To ensure the availability of interoperable equipment to cable
television operators and other digital providers, DigiCipher II/MPEG-2
technology has been licensed to Hewlett-Packard, Zenith and Pace Micro
Technology, Ltd., a major supplier of DTH satellite television systems in
international markets.
The Communications Business has also entered into other license agreements,
both as licenser and licensee, covering certain products and processes with
various companies. Under one such agreement, the Communications Business holds a
non-exclusive worldwide license under an unaffiliated third party's patent
regarding encryption and decryption of satellite television signals. These
license agreements require the payment of certain royalties which are not
expected to be material to NextLevel Systems' financial statements.
RESEARCH AND DEVELOPMENT
NextLevel Systems intends to continue the current policy of actively
pursuing the development of new technologies and applications. Research and
development expenditures relating to the Communications Business for the year
ended December 31, 1996 were $198 million compared to $138 million and $105
million for the years ended December 31, 1995 and 1994, respectively. NextLevel
Systems management expects research and development expenditures to approximate
$210 million in 1997. Research and development expenditures reflect continued
development of the next generation of cable set-top terminals, which incorporate
digital compression and multimedia capabilities, broadband telephony and
switched digital video products, cable modems, advanced digital systems for
cable and satellite television distribution, next-generation direct broadcast
satellite systems and product development through strategic alliances.
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SALES AND DISTRIBUTION
The broadband communications products and services of the Communications
Business are marketed primarily to cable television operators, cable and
satellite television programmers and providers, and telephone companies. Demand
for NextLevel Systems' products and services will depend primarily on capital
spending by cable television operators, satellite programmers and telephone
companies for constructing, rebuilding or upgrading their systems. The amount of
this capital spending and, therefore, a majority of NextLevel Systems' sales and
profitability, will be affected by a variety of factors, including general
economic conditions, access by cable television operators to financing,
regulation of telecommunications service providers and technological
developments in the broadband communications industry. Although NextLevel
Systems management believes that cable television capital spending has
increased, there can be no assurance that such increases will continue or that
such increased level of cable television capital spending will be maintained.
See "Risk Factors--Risks Relating to the Businesses of NextLevel Systems,
CommScope and General Semiconductor--Dependence of NextLevel Systems and
CommScope on the Cable Television Industry and Cable Television Capital
Spending."
Broadband communications systems are sold primarily through the efforts of
sales engineers or other sales personnel employed by the Communications Business
who are skilled in the technology of the particular system.
Because a limited number of cable and satellite television operators provide
services to a large percentage of television households in the United States,
the loss of some of these operators as customers could have a material adverse
effect on NextLevel Systems' sales. TCI, including its affiliates, and Time
Warner, including its affiliates, accounted for 23% and 13%, respectively, of
the consolidated net sales of the Communications Business for the year ended
December 31, 1996.
PATENTS
The Communications Business' policy has been, and NextLevel Systems' policy
will be, to protect its proprietary position by, among other methods, filing
U.S. and foreign patent applications to protect technology, inventions and
improvements that NextLevel Systems considers important to the development of
its business. Although NextLevel Systems management believes that the
Communications Business' patents provide a competitive advantage, NextLevel
Systems will rely equally on its proprietary knowledge and ongoing technological
innovation to develop and maintain its competitive position.
BACKLOG
At March 31, 1997 and December 31, 1996 and 1995, the Communications
Business had a backlog of approximately $470 million, $406 million and $498
million, respectively. This includes only orders for products scheduled to be
shipped within six months. Orders may be revised or canceled, either pursuant to
their terms or as a result of negotiations; consequently, it is impossible to
predict accurately the amount of backlog orders that will result in sales.
COMPETITION
NextLevel Systems' products and services will compete with those of a
substantial number of foreign and domestic companies, some with greater
resources, financial or otherwise, than NextLevel Systems, and the rapid
technological changes occurring in NextLevel Systems' markets are expected to
lead to the entry of new competitors. NextLevel Systems' ability to anticipate
technological changes and introduce enhanced products on a timely basis will be
a significant factor in NextLevel Systems' ability to expand and remain
competitive. Existing competitors' actions and new entrants may have an adverse
impact on NextLevel Systems' sales and profitability. The management of
NextLevel Systems believes that NextLevel Systems will enjoy a strong
competitive position in its existing cable and satellite television markets due
to the Communications Business' large installed cable and satellite television
equipment base, its strong relationships with the major cable television
operators and satellite television programmers, its technological
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leadership and new product development capabilities, and the likely need for
compatibility of new technologies with currently installed systems. There can be
no assurance, however, that competitors will not be able to develop systems
compatible with, or that are alternatives to, NextLevel Systems' proprietary
technology or systems or that NextLevel Systems will be able to introduce new
products and technologies on a timely basis. In addition, the Communications
Business, through NLC, has entered into a new market, the local telephone access
equipment market, in which NLC will be competing with a number of well-
established existing suppliers. There is no assurance that NextLevel Systems
will be successful in this market. See "Risk Factors--Risks Relating to the
Businesses of NextLevel Systems, CommScope and General
Semiconductor--Competition."
RAW MATERIALS
The Communications Business purchases raw materials from many sources in the
United States, as well as from sources in the Far East, Canada and Europe and
its products include certain components that are currently available only from
single sources. The Communications Business has in effect inventory controls and
other policies intended to minimize the effect of any interruption in the supply
of these components. There is no single supplier the loss of which would have a
continuing material adverse effect on the Communications Business.
ENVIRONMENT
The Communications Business has been, and NextLevel Systems will be, subject
to various federal, state, local and foreign laws and regulations governing the
use, discharge and disposal of hazardous materials. The manufacturing facilities
of the Communications Business are believed to be in substantial compliance with
current laws and regulations. Compliance with current laws and regulations has
not had, and is not expected to have, a material adverse effect on NextLevel
Systems' financial condition. See "Risk Factors--Risks Relating to the
Businesses of NextLevel Systems, CommScope and General
Semiconductor--Environment."
PROPERTIES
The Communications Business has manufacturing, warehouse, sales, research
and development and administrative facilities worldwide which have an aggregate
floor space of 2.9 million square feet. Of these facilities, aggregate floor
space of approximately 1.1 million square feet is leased, and the remainder will
be owned by NextLevel Systems. The management of NextLevel Systems does not
believe that there is any material long-term excess capacity in its facilities,
although utilization is subject to change based on customer demand. New
headquarters facilities for the Broadband Networks Group, in Horsham,
Pennsylvania, and for the Satellite Data Networks Group, in San Diego,
California, are under construction and expected to be completed in the first
quarter of 1998. These facilities, totalling approximately .7 million square
feet will be leased by NextLevel Systems and will be used for administrative,
sales, marketing and engineering purposes. The management of NextLevel Systems
believes that the Communications Business' facilities and equipment, as
supplemented by the new facilities, generally are well maintained, in good
operating condition and suitable for NextLevel Systems' purposes and adequate
for present operations.
EMPLOYEES
At December 31, 1996, approximately 8,600 people were employed by the
Communications Business. Of these employees, approximately 2,400, 2,300, and
2,600 were located at the U.S., Taiwan and Mexico facilities, respectively, with
the balance located in Puerto Rico, Europe and the Far East. As of December 31,
1996, approximately 2,700 of the Communication Business employees were covered
by collective bargaining agreements. Of these employees, approximately 2,300
were located at the Taiwan facilities and approximately 400 were located at the
Mexico facilities. The management of NextLevel Systems believes that the
Communications Business' relations with both its union and non-union employees
are satisfactory.
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LEGAL PROCEEDINGS
On June 11, 1996, the United States District Court for the Eastern District
of Texas entered judgment against NLC and two of its founders for $136.7 million
plus interest in an action entitled DSC COMMUNICATIONS CORPORATION AND DSC
TECHNOLOGIES CORPORATION V. NEXT LEVEL COMMUNICATIONS, THOMAS R. EAMES AND PETER
W. KEELER, Case No. 4:95cv96, which had been brought on April 10, 1995, by DSC
alleging, among other things, that the individual defendants diverted a
corporate opportunity of DSC and misappropriated its trade secrets and that NLC
made use of or benefited from these actions. The judgment was entered on the
corporate opportunity count and a related conspiracy count. The District Court
denied DSC's request to aggregate amounts awarded by the jury on the various
claims so as to arrive at a total judgment in excess of $369 million plus
pre-judgment interest and attorneys' fees, and it also denied DSC's request for
entry of permanent injunctive relief. In connection with the acquisition of NLC,
the Company agreed to indemnify the founders, to the extent permitted by
applicable law, for any judgment awarded against them in the matter, and
following entry of judgment the Company recorded a charge to earnings of $141
million reflecting the judgment and costs of litigation. On February 28, 1997,
the Court of Appeals affirmed the denial of DSC's request for injunctive relief,
ruled that the claim for diversion of a corporate opportunity was legally
insufficient and remanded the case to the District Court for entry of judgment
on the jury award for misappropriation of trade secrets which, as revised by the
District Court, would be for not more than $137.7 million (including the award
on a related conspiracy count), plus accrued interest. Enforcement of the
judgment was stayed pending the determination of the appeal. Both parties have
filed motions for rehearing with the Court of Appeals, and these motions have
not been decided as of the date hereof. NextLevel Systems has agreed to assume
the Company's obligations in connection with this litigation.
An action entitled BROADBAND TECHNOLOGIES, INC. V. GENERAL INSTRUMENT CORP
was brought in March 1997 in the United States District Court for the Eastern
District of North Carolina. The complaint alleges that the Company infringes
BroadBand Technologies, Inc.'s U.S. Patent No. 5,457,560 (the "560 Patent"),
covering an electronic communications systems which delivers television signals,
and seeks monetary damages and injunctive relief. The Company has filed a motion
to dismiss the complaint for lack of personal jurisdiction. The motion has not
been decided as of the date of this Proxy Statement. NextLevel Systems has
agreed to indemnify the Company in respect of its obligations, if any, arising
out of or in connection with this litigation. See "Business of General
Semiconductor--Legal Proceedings."
In March 1997, NLC commenced an action against BroadBand Technologies, Inc.
in the United States District Court for the Northern District of California for
a declaratory judgment that BroadBand Technologies, Inc.'s 560 Patent is invalid
and unenforceable; for patent infringement; and for violation of the antitrust
laws of the United States. In the patent infringement claim, NLC charges that
BroadBand Technologies, Inc. infringes two patents licensed to NLC relating to
video compression and video signal processing. BroadBand Technologies, Inc. has
answered the complaint and does not contest jurisdiction.
The Company is currently a defendant in two stockholder litigation
proceedings relating to public disclosures concerning the Communications
Business. NextLevel Systems has agreed to indemnify the Company in respect of
its obligations, if any, arising out of or in connection with such litigation.
See "Business of General Semiconductor--Legal Proceedings."
The Communications Business is involved in certain other legal proceedings
arising in the ordinary course of business (and NextLevel Systems will be
required to indemnify CommScope and General Semiconductor in respect of certain
legal proceedings), none of which NextLevel Systems management believes will
have a material adverse effect on NextLevel Systems' financial condition. In
addition, because of the competitive environment and the nature of NextLevel
Systems' business, there have been and may continue to be legal challenges to
its new technologies.
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BUSINESS OF COMMSCOPE
GENERAL
CommScope, a newly formed indirect wholly owned subsidiary of the Company,
will own and operate the Cable Manufacturing Business after the Distribution.
References in this section to "CommScope" refer to the historical business and
operations of the Cable Manufacturing Business currently conducted by CommScope
NC.
CommScope designs, manufactures and markets coaxial cables and other
high-performance electronic and fiber optic cable products primarily for
communication applications. The principal use of CommScope's coaxial cables is
in HFC cable systems being deployed in advanced communication systems throughout
the world. The primary end markets for CommScope's products are cable television
systems, telephone companies that are also providing video services, residential
and commercial wiring markets for video distribution such as satellite
television and security, and commercial markets for premise wiring of LANs. For
the year ended December 31, 1996, approximately 85% of CommScope's sales were to
the worldwide cable television and video distribution markets, 12% were for LAN
applications, and 3% were for other high-performance cable markets such as
airplane wiring, industrial and other applications.
CommScope is the largest manufacturer and supplier of coaxial cable for
cable television applications in the United States in terms of sales volume,
with more than a 50% market share in 1996, and is a leading supplier of coaxial
cable for satellite television applications. Management of CommScope believes
that CommScope's competitive strength in the coaxial cable market is due to its
extensive coaxial cable product line, its delivery and service capability and
its efficient, low-cost manufacturing operations. CommScope also supplies the
developing market for high-bandwidth coaxial cables used in HFC networks that
provide local access to a combination of services that can include cable
television, telephone and Internet access. These "full service" or "broadband
service" HFC networks are being installed by cable operators and telephone
companies including the RBOCs. In the last several years, CommScope has also
become a major supplier of coaxial cables to international markets for cable
television and broadband services. CommScope's international sales, primarily
for coaxial cables, have increased from $66 million in 1992 to $201 million in
1996.
CommScope has recently expanded into additional markets through internal
development of new products and by acquisition. Cell Reach is an internally
developed coaxial cable product designed to be installed on antenna towers for
cellular telephone, personal communication services (PCS), paging and other
wireless or cellular communication applications. CommScope has recently started
marketing its Cell Reach cables and accessories to cellular network operators
located in the United States and certain international markets.
The acquisition of the Thermatics Division of Teledyne in May 1996 enhanced
CommScope's LAN cable manufacturing capability and expanded CommScope's product
capability and market presence in other high performance cable markets. These
markets include aircraft and aerospace wiring, industrial, automotive and other
specialty cable markets that require cables to perform in extremely hostile
operating environments. As a result of the acquisition, CommScope has broadened
its array of cable manufacturing process and product capabilities.
BUSINESS STRATEGY
CommScope has achieved, and intends to expand and strengthen, its current
market position as a leading supplier of cable for worldwide broadband
telecommunications and other applications by emphasizing four business
strategies: (i) supplying high-quality products and services; (ii) international
expansion; (iii) seeking operating efficiencies through both economies of scale
and close monitoring of costs; and (iv) developing new product and market
opportunities. The key elements of CommScope's strategy are set forth below.
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- HIGH-QUALITY PRODUCTS AND SERVICE LEVELS. CommScope designs, manufactures
and markets an extensive product line of high-quality coaxial and fiber
optic cables available for cable television and broadband service
applications. These cables, as well as LAN cables, are produced to the
highest commercial standards of performance and are tested during and
after manufacture to insure final conformance to these specifications.
CommScope's three largest manufacturing facilities are ISO 9001 certified.
CommScope's management believes that CommScope's capacity to manufacture
coaxial cables is greater than that of any other manufacturer, which gives
it a unique high-volume service capability. CommScope has quick order
turnaround capability due to its 24 hour, seven days per week continuous
manufacturing operations. CommScope also provides material management and
logistics services to its cable product customers, including rapid
delivery services through a large company operated private trucking fleet.
CommScope's cable television and LAN businesses seek to attain high levels
of customer satisfaction.
- INTERNATIONAL EXPANSION. CommScope has identified certain international
markets, principally Europe, the Pacific Rim and Latin America, as
significant sources of future growth because of the size and potential of
these markets. CommScope intends to capitalize on this potential by
continuing its international strategy of seeking to increase sales by
existing operations while developing manufacturing capability in new
markets. In furtherance of this strategy, in 1995 CommScope formed a joint
venture with the Olex Cables Division of Pacific-Dunlop Ltd. for the
manufacture and sale of trunk and distribution coaxial cable. This joint
venture, known as Vision Cables Pty. Ltd., is located near Melbourne,
Australia. CommScope intends to establish or acquire additional
international manufacturing facilities to further improve distribution
capabilities, reduce shipping and importation costs and enhance customer
service.
- IMPROVED OPERATING EFFICIENCIES. CommScope intends to effectively manage
the costs of its businesses and continue to implement procedures to lower
costs and increase profitability. CommScope seeks to improve operating
efficiency through reductions in purchasing costs, developing and
implementing new manufacturing technologies and achieving unit cost
reduction through economies of scale.
- DEVELOPMENT OF NEW PRODUCT AND MARKET OPPORTUNITIES. CommScope intends to
maintain an active program to identify, develop and commercialize new
products and/or market opportunities for its products and core
capabilities. In the past, this strategy has led to the development of new
products and entry into new markets such as satellite cables, the LAN
market, specialized coaxial based telecommunication cables, broadcast
audio and video cables, pre-conduited coaxial cables and, most recently,
cellular communication system cables and accessories. This strategy may be
augmented by the acquisition of attractive cable or related component
businesses that expand CommScope's capacity for existing products or that
offer synergistic cable related growth opportunities.
COMMSCOPE BUSINESS UNITS
CommScope has been organized into two business units: the Cable TV Division
and the Network Cable Division. The Cable TV Division is a leading manufacturer
of coaxial and optical cables for cable television systems and other broadband
networks. The Network Cable Division manufactures and sells coaxial and other
electrical and optical cables satisfying the comprehensive demands of LAN,
satellite television and other communications and high-performance cable
applications. CommScope intends to consolidate the organizational structure of
the Cable TV Division and the Network Cable Division during 1997.
CABLE TV DIVISION
DOMESTIC MARKET. CommScope designs, manufactures and markets coaxial cable
primarily for use in the cable television industry. CommScope manufacturers two
primary types of coaxial cable: semi-flexible,
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which has an aluminum or copper outer tubular shield or outer conductor; and
flexible, which is typically smaller in diameter than semi-flexible coaxial
cable and has a more flexible outer conductor typically made of metallic tapes
and braided fine wires. (For a description of coaxial cables see
"--Manufacturing.") Semi-flexible coaxial cables are used in the trunk and
feeder distribution portion of cable television systems, and flexible coaxial
cables (also known as drop cables) are used for connecting the feeder cable to
the cable television subscriber's residence, and in other communications
applications.
Cable television service has traditionally been provided primarily by cable
television system operators or MSOs that have been awarded franchises from the
municipalities they serve. In response to increasing competitive pressures, MSOs
have been expanding the variety of their service offerings not only for video,
but for Internet access and telephony, which generally requires increasing
amounts of system bandwidth. MSOs have generally adopted, and CommScope's
management believes that for the foreseeable future will continue to adopt, HFC
cable system designs when seeking to increase system bandwidth. Such systems
combine the advantages of fiber optic cable in transmitting clear signals over a
long distance without amplification, and the advantages of coaxial cable in ease
of installation, low cost and compatibility with the receiving components of the
customer's communications devices. CommScope's management believes that while
MSOs are likely to increase their use of fiber optic cable for the trunk and
feeder portions of their cable systems, there will be an ongoing need for
high-capacity coaxial cable for the local distribution and street-to-the-home
portions of the cable system because coaxial cable remains the most cost
effective means for the transmission of broadband signals to the home over
shorter distances in cable networks. For local distribution purposes, coaxial
cable has the necessary signal carrying capacity or bandwidth to handle upstream
and downstream signal transmission.
The construction, expansion and upgrade of cable systems require significant
capital investment by cable operators. MSOs have been significant borrowers from
the credit and capital markets, and, accordingly, capital spending within the
domestic cable television industry has historically been cyclical, depending to
a significant degree on the availability of credit and capital. The cable
television industry has also been subject to varying degrees of both national
and local government regulation, most recently, the Telecom Act and the 1992
Cable Act, and its implementing regulations adopted in 1993 and 1994. The RBOCs
and other telephone service providers have generally been subject to regulatory
restrictions which prevented them from offering cable television service within
their franchise telephone areas. However, the Telecom Act removes or phases out
many of the regulatory and sale restrictions affecting MSOs and telephone
operating companies in the offering of video and telephone services. CommScope's
management believes that the Telecom Act will encourage competition among MSOs,
telephone operating companies and other communications companies in offering
video, telephone and data services such as Internet access to consumers, and
that providers of such services will upgrade their present communications
delivery systems. As of January 1997, CommScope has provided coaxial cables to
most major U.S. telephone operating companies, several of which have announced
plans to install broadband networks for the delivery of video, telephone and
other services to some portion of their telephone service areas. The broadband
networks proposed by some of the telephone companies utilize HFC technologies
similar to those employed by many cable television operators. While there is no
assurance that these proposed networks will be built, to the extent they are
implemented, they could represent a significant incremental sales opportunity
for CommScope beyond its traditional cable television customer base. See "Risk
Factors--Risks Relating to the Businesses of NextLevel Systems, CommScope and
General Semiconductor--Telecommunications Industry Competition and Technological
Changes Affecting NextLevel Systems and CommScope."
INTERNATIONAL MARKETS. Cable system designs utilizing HFC technology are
increasingly being employed in international markets with low cable television
penetration. Based upon industry trade publications and reports from
telecommunications industry analysts, CommScope's management estimates that
approximately 42% of the television households in Western Europe subscribe to
some form of multichannel television service as compared to a subscription rate
of approximately 72% in the United
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States. Based upon such sources, CommScope's management estimates subscription
rates in the Asian and Latin American/Caribbean markets are even lower at
approximately 16% and 15%, respectively. In terms of television households, it
is estimated that there were approximately 141 million television households in
Western Europe, approximately 472 million in Asia and approximately 91 million
in Latin America and the Caribbean. This compares to approximately 96 million
television households in the United States.
International sales of CommScope's coaxial cables have increased steadily in
recent years, from approximately $66 million in 1992 to approximately $195
million in 1996. In 1996, CommScope had sales in 76 countries. Penetration of
the international marketplace has been accomplished through a network of
distributors and agents located in major countries where CommScope does
business. The Cable TV Division also employs its own 13-person international
direct sales force to supplement and manage its network of distributors and
agents. In addition to new customers developed by CommScope's network of
distributors and sales representatives, many large U.S. cable television
operators, with whom CommScope has had long established business relationships,
are active investors in cable television systems outside the United States.
CommScope's management believes that continued growth in international
markets, including the developing markets in Asia, the Middle East and Latin
America, and the expected privatization of the telecommunications structure in
many European countries, represent significant future opportunities. While
growth in international revenues could serve to mitigate the effects of future
capital spending cycles by domestic cable operators, such growth may be subject
to political and economic uncertainties. See "Risk Factors--Risks Relating to
the Businesses of NextLevel Systems, CommScope and General
Semiconductor--International Operations; Foreign Currency Risks."
CELLULAR COMMUNICATION APPLICATIONS. Management of CommScope believes that
the rapid deployment of cellular or "wireless" communication systems throughout
the United States and the rest of the world presents a growth opportunity for
CommScope. Semi-flexible coaxial cables are used to connect the antennae located
at the top of cellular antenna towers to the radios and power sources located
adjacent to or near the antenna site. In 1996, CommScope developed Cell Reach, a
line of copper shielded semi-flexible coaxial cables and related connectors and
accessories to address this market. CommScope has significant manufacturing
capacity in place for certain sizes of this product line and is currently
developing additional products and marketing programs for Cell Reach for both
the U.S. and certain international markets. Management of CommScope began
receiving orders and making shipments of Cell Reach in the first quarter of
1997. There are larger, well established companies with significant financial
resources and brand recognition in the cellular market which have established
marketing channels for coaxial cables and accessories. Accordingly, there can be
no assurance that the Cell Reach line will generate any significant level of
sales in 1997 or beyond.
NETWORK CABLE DIVISION
LAN APPLICATIONS. The proliferation of personal computers, and more broadly
the practice of distributed computing, has created a need for products which
enable users to share files, applications and peripheral equipment such as
printers and data storage devices. LANs, typically consisting of at least one
dedicated computer (a "server"), peripheral devices, network software and
interconnecting cables, were developed in response to this demand. CommScope
manufactures a variety of twisted pair, coaxial and fiber optic cables to
transmit data for LAN applications. The most widely used cable design for this
application consists of four high-performance twisted pairs that are capable of
transmitting data at rates in excess of 155 mbps. CommScope focuses its products
and marketing on cables with enhanced electrical and physical performance such
as CommScope's recently introduced Ultra II unshielded twisted pair ("UTP").
CommScope's management believes that Ultra II cable is among the highest
performing UTP cables in the industry. Copper and fiber optic composite cables
are frequently combined in a single cable to reduce installation costs and
support multimedia applications.
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VIDEO AND BROADCAST APPLICATIONS (NON-CABLE TELEVISION). As with the LAN
market, many specialized markets or applications are served by multiple cable
media, I.E., coaxial, twisted pair (shielded or unshielded), fiber optic or
composites of each. CommScope has become a leading producer of composite cables
made of flexible coaxial and UTPs for full service communications providers
worldwide. In the satellite DTH cable market, where specialized composite
coaxial and copper cables transmit satellite-delivered video signals and antenna
positioning/control signals, CommScope has developed a leading market position.
DTH cables are specified by leading original equipment manufacturers ("OEMs"),
distributors and service providers. Beginning in 1996, CommScope decided to
launch an array of premium metallic and optical cable products directed at the
broadcasting and video production studio market. Because of CommScope's position
in other video transport markets and access to distribution channels within the
market, these products are viewed by CommScope's management as a growth
opportunity, although there can be no assurance that CommScope will be able to
penetrate this market successfully.
SPECIALTY CABLES AND OTHER MARKETS. CommScope has also developed a strategy
for addressing additional cable consuming markets. By combining narrowly focused
product and market management with its cable manufacturing and operational
skills, CommScope is entering new markets for telephone central office,
industrial control and data, and other high-performance cable applications. With
the 1996 acquisition of the Teledyne Thermatics Division, CommScope gained
access to additional specialized materials, processes and markets to further
this strategy. The Teledyne Thermatics Division acquisition has also given
CommScope access to the aerospace cable market. Additionally, selected
high-temperature materials and processes now available to CommScope as a result
of the acquisition, including radiation cross linking, may have application in
other cable consuming markets.
MANUFACTURING
CommScope employs advanced cable manufacturing processes, the most important
of which are: thermoplastic extrusion for insulating wires and cables,
high-speed welding and swaging of metallic shields or outer conductors,
braiding, cabling and automated testing. Many of these processes are performed
on equipment that has been modified for CommScope's purposes or specifically
built to CommScope's specifications, often internally in CommScope's own machine
shop facilities. CommScope fabricates very few of the raw material components
used in making most of its cables, such as wire, tapes, tubes and similar
materials, but CommScope's management believes such fabrication, to the extent
economically feasible, could be done by CommScope instead of being outsourced.
The manufacturing processes of the three principal types of cable manufactured
by CommScope--coaxial cables, twisted copper pair cables and fiber optic
cables--are further described below.
COAXIAL CABLES. CommScope employs a number of advanced plastic and metal
forming processes in the manufacture of coaxial cable. Three fundamental process
sequences are common to almost all coaxial cables.
First, a plastic insulation material, called the dielectric, is melt
extruded around a metallic wire or center conductor. Current, state-of-the-art
dielectrics consist of foamed plastics to enhance the electrical properties of
the cable. Precise control of the foaming process is critical to achieve the
mechanical and electrical performance required for broadband services and
cellular communications applications. CommScope's management believes that
plastic foam extrusion, using proprietary materials, equipment and control
systems, is a core competency of CommScope.
The second step involves sheathing the dielectric material with a metallic
shield or outer conductor. Three basic shield designs and processes are used.
For semi-flexible coaxial cables, solid aluminum or copper shields are applied
over the dielectric by either pulling the dielectric insulated wire into a long,
hollow metallic tube or welding the metallic tube directly over the dielectric.
Welding allows the use of thinner metal, resulting in more flexible products.
CommScope uses a proprietary welding process that achieves significantly higher
process speeds than those achievable using other cable welding methods. The
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same welding process has led to extremely efficient manufacturing processes of
copper shielded products for cellular communications. For both hollow and welded
tubes, the cable is passed through tools that form the metallic shield tightly
around the dielectric.
Flexible coaxial cables, which are usually smaller in diameter than
semi-flexible coaxial cables, generally are made with the third shield design.
Flexible outer shield designs involve laminated metallic foils and braided fine
wires which are used to enhance flexibility which is more desirable for indoor
wiring or for connecting subscribers in drop cable applications.
The third and usually final process sequence is the melt extrusion of
thermoplastic jackets to protect the coaxial cable. A large number of variations
are produced during this sequence including: incorporating an integral strength
member, customer specified extruded stripes for identification; abrasion and
crush resistant jackets and adding moisture blocking fillers.
TWISTED COPPER PAIRS. Single copper wires are insulated using high-speed
thermoplastic extrusion techniques. Two insulated copper singles are then
twinned (twisted into an electrically balanced pair unit) in a separate process
and then bunched or cabled (the grouping of two or more pair units into larger
units for further processing) in one or more further processes depending on the
number of pairs desired within the completed cable. The cabled units are then
shielded and jacketed or simply jacketed without applying a metallic shield in
the jacketing process (the extrusion of a plastic jacket over a shielded or
unshielded cable core). The majority of the sales of CommScope twisted copper
pairs are derived from plenum rated unshielded twisted pair cables for LAN
applications. Plenum cables are cables rated under the National Electrical Code
as safe for installation within the air plenum areas of office buildings due to
their flame retarding and low smoke generating characteristics when heated.
Plenum cables are made from more costly thermoplastic insulating materials which
have significantly higher extrusion temperature profiles that require more
costly extrusion equipment than non-plenum rated cables. CommScope believes that
the processing of plenum rated materials is one of its core competencies.
FIBER OPTIC CABLES. To manufacture fiber optic cables, CommScope purchases
bulk uncabled optical fiber singles, then colors and buffers them before cabling
them into unjacketed core units. Protective outer jackets and, sometimes,
shields and jackets are then applied in a final process before testing.
Manufacturing and test equipment for fiber optic cables are distinct from that
used to manufacture coaxial and copper twisted pair cables. The majority of
fiber optic cables produced by CommScope are sold to the cable television
industry and are produced under licenses acquired from Lucent Technologies.
COMPOSITE CABLES. Cables that are combinations of some or all of coaxial
cables, copper singles or twisted copper pairs and fiber optic cables within a
single cable are also produced by CommScope for a variety of applications. The
most significant of the composite cables manufactured by CommScope are
combination coaxial and copper twisted pairs within a common outer jacket which
are being used by some telephone companies and cable operators to provide both
cable television services and telephone services to the same households over HFC
networks. Nearly all markets currently addressed by CommScope have applications
for composite cables which CommScope is capable of manufacturing.
RESEARCH AND DEVELOPMENT
CommScope's research, development and engineering expenditures for the
creation and application of new and improved products and processes were $5
million, $4 million and $3 million for the years ended December 31, 1996, 1995
and 1994, respectively. CommScope focuses its research and development efforts
primarily on those product areas that it believes have the potential for broad
market applications and significant sales within a one-to-three year period.
CommScope's management anticipates that the level of spending on product
development activities will accelerate in future years. Total research and
development expenditures are expected to be approximately $7 million in 1997.
The widespread deployment of broadband services and HFC systems is expected to
provide opportunities for CommScope to enhance its
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coaxial cable product lines and to improve its manufacturing processes.
Additionally, CommScope's management expects that CommScope's participation in
the LAN, cellular communications and other new markets now identified will
require higher rates of product development spending in relation to sales
generated than has been the case in recent years.
SALES AND DISTRIBUTION
CommScope markets its products worldwide through a combination of more than
80 direct sales and manufacturers' representative personnel. CommScope supports
its sales organization with regional service centers in North Carolina,
California, Alabama, Birmingham, England and Melbourne, Australia. In addition,
CommScope utilizes local inventories, sales literature, internal sales service
support, design engineering services and a group of product engineers who travel
with sales personnel and assist in product application issues, and conduct
technical seminars at customer locations to support its sales organization. A
key aspect of CommScope's customer support and distribution chain is the use of
CommScope's private truck fleet.
CommScope's products are used in a wide variety of applications. CommScope's
products are sold both directly to cable system operators and telecommunications
companies, OEMs and through distributors. There has been a trend on the part of
OEM customers to consolidate their lists of qualified suppliers to companies
that have a global presence, can meet quality and delivery standards, have a
broad product portfolio and design capability, and have competitive prices.
CommScope has concentrated its efforts on service and productivity improvements
including advanced computer aided design and manufacturing systems, statistical
process controls and just-in-time inventory programs to increase product quality
and shorten product delivery schedules. CommScope's strategy is to provide a
broad selection of products in the areas in which it competes. CommScope has
achieved a preferred supplier designation from many of its cable television,
telephone and OEM customers.
Cable television services in the United States are provided primarily by
MSOs. It is estimated that the six largest MSOs accounted for approximately 65%
of the cable television subscribers in the United States. The major MSOs include
such companies as TCI, Time Warner, Continental Cablevision, Comcast Cable
Communications and Cablevision Systems. Many of the major MSOs are customers of
CommScope, including those listed above. During 1996, sales to TCI and its
affiliates accounted for 11% of CommScope's net sales and was the only customer
which accounted for 10% or more of the net sales of CommScope during the period.
Certain RBOCs and other telecommunications companies that have traditionally
provided telephone service are increasingly becoming significant customers of
CommScope. CommScope's management believes that telecommunications companies, if
they pursue their announced intentions for building full service networks
offering video, voice and data communications, could become even more
significant purchasers of coaxial cable and interconnect related products.
PATENTS
CommScope pursues an active policy of seeking intellectual property
protection, namely patents, for new products and designs. CommScope holds 50
patents worldwide and has 35 pending applications. Although CommScope considers
its patents to be valuable assets, no single patent is considered to be material
to CommScope's operations as a whole. CommScope intends to rely on its
proprietary knowledge and continuing technological innovation to develop and
maintain its competitive position.
BACKLOG
At March 31, 1997 and December 31, 1996 and 1995, CommScope had a backlog of
approximately $45 million, $36 million and $33 million, respectively. Orders
typically fluctuate from quarter to quarter based on customer demand and general
business conditions. This includes only orders for products scheduled to be
shipped within six months. Unfilled orders may be canceled prior to shipment of
goods; however, such
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cancellations historically have not been material. However, significant elements
of CommScope's business, such as sales to the cable television industry,
distributors, the computer industry, and other commercial customers, generally
have short lead times. Therefore, current backlog may not be indicative of
future demand.
COMPETITION
CommScope encounters competition in substantially all areas of its business.
CommScope competes primarily on the basis of product specifications, quality,
price, engineering, customer service and delivery time. Competitors include
large, diversified companies, some of which have substantially greater assets
and financial resources than CommScope, as well as medium to small companies.
CommScope also faces competition from certain smaller companies that have
concentrated their efforts in one or more areas of the coaxial cable market.
CommScope's management believes that CommScope enjoys a strong competitive
position in the coaxial cable market due to its position as a low-cost,
high-volume coaxial cable producer and reputation as a high-quality provider of
state-of-the-art cables with a strong orientation toward customer service.
CommScope's management also believes that CommScope enjoys a strong competitive
position in electronic cable market due to the existence of one of the larger
direct field sales organizations within the LAN segment, the comprehensive
nature of its product line, and its long established reputation for quality. See
"Risk Factors--Risks Relating to the Businesses of NextLevel Systems, CommScope
and General Semiconductor--Competition."
RAW MATERIALS
In the manufacture of coaxial and twisted pair cables, CommScope processes
metal tubes, tapes and wires including bi-metallic wires (wires made of aluminum
or steel with thin outer skins of copper) that are fabricated from high-grade
aluminum, copper and steel. Most of these fabricated metal components are
purchased under supply arrangements with some portion of the unit pricing
indexed to commodity market prices for these metals. CommScope has adopted a
hedging policy pursuant to which it may, from time to time, attempt to match
futures contracts or option contracts for a specific metal with some portion of
the anticipated metal purchases for the same periods. Other major raw materials
used by CommScope include polyethelenes, polyvinylchlorides and other plastic
insulating materials, optical fibers, and wood and cardboard shipping and
packaging materials. In 1996, approximately 15% of CommScope's raw material
purchases were for bi-metallic center conductors for coaxial cables, nearly all
of which were purchased from Copperweld Corporation under a long-term supply
arrangement expiring in December 1998. In addition to bi-metallic wires, fine
aluminum wire is purchased primarily from a single source; neither of these
major raw materials could be readily replaced in sufficient quantities if all
supplies from the respective primary sources were disrupted for an extended
period. With respect to all other major raw materials used by CommScope,
alternative sources of supply or access to alternative materials are generally
available. Supplies of all raw materials used by CommScope are generally
adequate and expected to remain so for the foreseeable future. See "Risk
Factors--Risks Relating to the Businesses of NextLevel Systems, CommScope and
General Semiconductor--Impact of Price Fluctuations of Raw Materials on
CommScope; Sources of Raw Materials."
ENVIRONMENT
CommScope uses hazardous substances and generates solid and hazardous waste
in the ordinary course of its business. Consequently, CommScope is subject to
various federal, state, local and foreign laws and regulations governing the
use, discharge and disposal of hazardous materials. Because of the nature of its
business, CommScope has incurred, and will continue to incur, costs relating to
compliance with such environmental laws. Although CommScope's management
believes that CommScope is in substantial compliance with such environmental
requirements, and CommScope has not in the past been required to incur material
costs in connection therewith, there can be no assurance CommScope's cost to
comply with
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such requirements will not increase in the future. Although CommScope is unable
to predict what legislation or regulations may be adopted in the future with
respect to environmental protection and waste disposal, compliance with existing
legislation and regulations has not had and is not expected to have a material
adverse effect on CommScope's financial condition. See "Risk Factors--Risks
Relating to the Businesses of NextLevel Systems, CommScope and General
Semiconductor--Environment."
PROPERTIES
CommScope's administrative, production and research and development
facilities are located in Hickory, Catawba, Claremont and Elm City, North
Carolina and Scottsboro, Alabama. The Hickory, North Carolina facility occupies
approximately 36,000 square feet pursuant to a lease expiring in December 1997
and is the location of CommScope's executive offices and the Cable TV Division's
sales office.
The Catawba, North Carolina facility occupies approximately 900,000 square
feet and is owned by CommScope. The Catawba facility manufactures coaxial
cables, is the major distribution facility for cable television products and
houses administrative and engineering activities, principally for the Cable TV
Division.
The Claremont, North Carolina facility occupies approximately 450,000 square
feet and is owned by CommScope. The Claremont facility manufactures coaxial,
copper twisted pair and fiber optic cables and is the principal administrative,
sales and engineering location for the Network Cable Division.
The Elm City, North Carolina facility was acquired by CommScope in 1996 and
occupies approximately 246,000 square feet. The Elm City facility produces
copper twisted pair and specialty high performance cables and is the principal
administrative, sales and engineering facility for specialty cable products.
The Scottsboro, Alabama facility occupies approximately 118,000 square feet
and is owned by CommScope. The Scottsboro facility manufactures coaxial cables.
CommScope's management does not believe there is any material long-term
excess capacity in CommScope's facilities, although utilization is subject to
change based on customer demand. Furthermore, CommScope's management believes
that CommScope's facilities and equipment generally are well maintained, in good
operating condition and suitable for CommScope's purposes and adequate for its
present operations.
EMPLOYEES
At January 31, 1997, approximately 2,600 people were employed by CommScope.
Substantially all employees are located in the United States. CommScope's
management believes that CommScope's relations with its employees are
satisfactory.
LEGAL PROCEEDINGS
The Cable Manufacturing Business is not involved in any pending legal
proceedings other than various claims and lawsuits arising in the normal course
of business. The management of CommScope does not believe that any such claims
or lawsuits will have a material adverse effect on CommScope's financial
statements.
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BUSINESS OF GENERAL SEMICONDUCTOR
GENERAL
The Company, which will be renamed General Semiconductor, Inc. after the
Distribution, will conduct the Power Semiconductor Business currently conducted
by the Power Semiconductor Division. The Company has been engaged in the Power
Semiconductor Business since 1967. References in this section to "General
Semiconductor" refer to General Semiconductor and its subsidiaries after giving
effect to the Internal Transfers and the Distribution. References to the "Power
Semiconductor Division" refer to the historical business and operations of the
Power Semiconductor Division prior to the Distribution.
The Power Semiconductor Division is a world leader in the design,
manufacture and sale of low- to medium-power rectifiers and transient voltage
suppression ("TVS") components in axial, bridge, surface mount and array
packages. These products are used throughout the electrical and electronics
industries to condition current and voltage and to protect electrical circuits
from power surges. Applications include components for circuits in consumer
electronics, computers, telecommunications, lighting ballasts, home appliances
and automotive and industrial products.
BUSINESS STRATEGY
The principal components of General Semiconductor's business strategy will
be:
- MAINTAIN MARKET POSITION. The Power Semiconductor Division is a leading
manufacturer of power rectifiers and TVS devices. General Semiconductor's
management estimates that the Power Semiconductor Division's share of the
approximately $1.4 billion worldwide rectifier market in which it
participates is 22%, nearly twice the size of its next leading competitor.
General Semiconductor's management further estimates that its share of the
approximately $240 million worldwide protection product market is
approximately 26%. The Power Semiconductor Division has increased market
share in recent years and General Semiconductor expects to continue this
trend in the future.
- MAINTAIN AND EXPAND STRONG CUSTOMER RELATIONSHIPS. The Power Semiconductor
Division's products occupy a segment of the semiconductor industry
characterized by long design-in positions, relatively low research and
development investments and utilization of proven wafer fabrication
technology. The Power Semiconductor Division maintains relationships with
major computer, telecommunications, automotive and consumer electronics
companies worldwide. General Semiconductor intends to continue to build
upon these strong relationships to enhance market share.
- FOCUS ON VALUE-ADDED INVESTMENT AND MANUFACTURING. General Semiconductor
intends to continue to focus on value-added investments in capital, sales
and marketing and research and development. In addition, General
Semiconductor intends to continue the Power Semiconductor Division's
value-added manufacturing strategy which is based on its high-volume,
highly automated operations, which are currently capable of producing
approximately 17 million units per day. This strategy is characterized by
high-quality and very low-defect output which gives the Power
Semiconductor Division the competitive advantage of being a low cost
producer.
- CAPITALIZE ON GLOBAL SALES AND DISTRIBUTION CAPABILITIES. General
Semiconductor intends to continue to capitalize on the Power Semiconductor
Division's international presence. International sales represented 72% of
the Power Semiconductor Division's 1996 sales. The Power Semiconductor
Division maintains 11 sales offices worldwide and utilizes a worldwide
sales force of over 1,000 persons, including sales agents and
representatives. Additionally, the Power Semiconductor Division has a 60
person direct sales force with over ten years average sales experience in
the industry. General Semiconductor intends to continue the Power
Semiconductor Division's strategy of utilizing direct and indirect sales
forces on a global scale.
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- TARGET MULTIPLE HIGH GROWTH END-USE MARKETS. The overall growth
projections for the power rectifier and TVS device markets are below
General Semiconductor's growth objectives. In order to exceed market
growth and to ameliorate the effects of the semiconductor business cycle,
General Semiconductor intends to continue the Power Semiconductor
Division's strategy of targeting the highest growth segments of rapidly
expanding end-use markets including computers, automotive,
telecommunications and consumer electronics.
PRINCIPAL PRODUCTS
The Power Semiconductor Division designs, manufactures and sells low- to
medium-power rectifiers and TVS components in axial, bridge, surface mount and
array packages. Power rectifiers and protection products are essential
components of most electronic devices and systems. Rectifiers convert
alternating current (AC) into direct current (DC) which can be utilized by
electronic equipment. TVS devices are semiconductors that are designed to
provide protection from electrical surges, ranging from electrostatic discharge
to induced lightning. The Power Semiconductor Division's products are primarily
targeted for use in the computer, automotive, telecommunications and consumer
electronics industries.
The use of semiconductors has expanded well beyond computer systems, to
applications such as communication systems, automotive systems, consumer goods
and industrial automation and control systems as product performance has been
enhanced and size and cost have decreased. In addition, system users and
designers now demand systems with more functionality, higher levels of
performance, greater reliability and shorter design cycle times, all in smaller
packages and at lower costs. These demands have resulted in increased
semiconductor content as a percentage of overall system content. Other industry
market segments where semiconductors are becoming more prevalent include:
industrial applications (manufacturing systems, industrial controls, security
and energy management and medical equipment); consumer applications (audio,
video, personal electronics, video games and appliances); and automotive systems
(engine management, anti-lock braking systems, climate control, collision
warning and in-car entertainment). The increasing semiconductor content in these
products combined with a broadening of end markets in all regions worldwide has
created a more stable demand for semiconductor suppliers that sell globally into
multiple markets.
Management of General Semiconductor believes that the demand for discrete
semiconductors will be driven by several factors including (i) increased
electronic content in a broad range of products, devices and systems, including
automotive, consumer products and industrial equipment; (ii) greater demand for
voice and data communications products; (iii) growth in personal computers and
peripheral products; (iv) the rapid replacement of heavier and less efficient
magnetic lighting ballasts with electronic ballasts; and (v) increasing
international demand, particularly in Southeast Asia, for all discrete products.
Given the growing prevalence of semiconductors in other market segments,
General Semiconductor's management believes that new products and technologies
will play a significant role in its growth. The management of General
Semiconductor further believes that based upon its current product offerings,
General Semiconductor is well positioned to compete for market share in these
other segments. For example, the Power Semiconductor Division's patented
Passivated Anisotropic Rectifier process is increasing the reliability of many
automotive electronics applications. In addition, the Power Semiconductor
Division has developed a new line of transient voltage protection devices and a
new line of rectifiers for automotive applications.
RECTIFIERS. The Power Semiconductor Division offers standard, Schottky and
fast, efficient rectifiers and offers the widest selection of rectifier package
types in the world, including plastic encapsulated, glass passivated,
Superectifier-TM- and surface mount packaging. Standard rectifiers are
rectifiers which offer a recovery time of greater than 100 nanoseconds. The
Power Semiconductor Division offers this device in standard and fast-recovery
types in a variety of packages in axial, Superectifier and surface mount
configurations.
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The Power Semiconductor Division's Schottky rectifier is designed for use in
high-speed and low-power load applications. Its metal-silicon junctions and
majority carrier conduction result in nearly zero recovery times and very low
forward voltage drop. The Power Semiconductor Division's unique sputtered
metallization process and ion implanted guard ring technology result in a highly
reliable Schottky product.
Fast, efficient rectifiers are an extension of the Power Semiconductor
Division's Schottky product portfolio. These products offer reverse recovery
times as low as 25 nanoseconds at voltage levels as high as 1,000 volts while
maintaining the efficiencies of a lower forward voltage loss. The Power
Semiconductor Division produces fast efficient rectifiers in axial, power and
surface mount packages.
BRIDGE ASSEMBLIES. Bridge assemblies are essential components of most
electronic equipment which plug into an electrical outlet. A bridge assembly is
comprised of four separate rectifier components arranged in a single package.
Bridge assemblies convert alternating current (AC) into full wave direct current
(DC) which can be utilized by electronic equipment. The Power Semiconductor
Division manufactures a complete line of bridge assemblies to meet the power
requirements of almost all electronic equipment.
TRANSIENT VOLTAGE SUPPRESSORS. The Power Semiconductor Division's TVS
devices are designed to provide protection against all types of transient
threats, ranging from electrostatic discharge to induced lightning. The Power
Semiconductor Division offers a broad range of state-of-the-art semiconductor
surge protection TVS devices for use in modern electronic equipment. As
semiconductor content as a percentage of overall electronic content grows and as
integrated circuits become smaller, management of General Semiconductor believes
that there will be a significant increase in demand for TVS devices to protect
smaller and more sensitive integrated circuits.
ADDITIONAL PRODUCTS. Supported by a strong research and development effort,
the Power Semiconductor Division continually adds new devices to its product
portfolio. Recent additions to its product line include alternator and TVS
rectifiers targeted for automotive applications and a broad range of fast
efficient and Schottky rectifiers targeted for computer and switch-mode power
supply applications. These products were customer co-developed and the Power
Semiconductor Division expects to begin shipment of these products in the first
quarter of 1997.
SALES AND DISTRIBUTION
The Power Semiconductor Division's products are targeted primarily to the
computer, automotive, telecommunications and consumer electronics industries. In
1996, international sales represented 72% of the Power Semiconductor Division's
sales. Of such international sales, 38% were to customers in Europe, 56% were to
customers in the Asia-Pacific region and 6% were to customers in Canada. No
single customer accounted for more than 10% of the Power Semiconductor
Division's sales revenue during the year ended December 31, 1996.
To support its worldwide sales and distribution, the Power Semiconductor
Division utilizes more than 1,000 sales personnel worldwide, including sales
representatives, distributors and 60 direct sales agents. The Power
Semiconductor Division maintains 11 sales offices located in Melville, New York;
Phoenix, Arizona; Arlington Heights, Illinois; Norcross, Georgia; London,
England; Paris, France; Munich, Germany; Tokyo and Osaka, Japan; Taipei, Taiwan;
and Singapore. In addition, the Power Semiconductor Division has on-going
relationships with several electronics distributors including Arrow/Spoerle,
Future Electronics and Nadex.
Additionally, the Power Semiconductor Division leverages information
technology to obtain and maintain strong customer relationships by utilizing
electronic data interchange ("EDI") capability with many of its major customers
and plans to increase this capability with a majority of its customers. This use
of EDI, combined with strong technical marketing, has helped the Power
Semiconductor Division obtain significant print positions with major customers.
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RESEARCH AND DEVELOPMENT
The Power Semiconductor Division conducts an internally funded research and
development program and employs 63 full-time research and development personnel.
The Power Semiconductor Division operates research and development labs in
Ireland and Taiwan that focus primarily on the development of new packaging
technology and a third research and development lab in Westbury, New York which
focuses on applied material sciences. In addition to its in-house research and
development efforts, the Power Semiconductor Division funds dedicated research
through a grant program with the National Microelectronics Research Center at
the College of Cork in Ireland.
For the years ended December 31, 1996, 1995 and 1994, the Power
Semiconductor Division spent $6 million, $5 million and $3 million,
respectively, on research and development. Total research and development
expenditures are expected to be approximately $8 million in 1997. General
Semiconductor's research and development program will continue to focus
principally on the advancement of new product and packaging technologies
targeted for the automotive, telecommunications and computer end-market
applications.
PATENTS
The Power Semiconductor Division pursues an active policy of seeking patents
for new products and designs. As of March 20, 1997, the Power Semiconductor
Division held 43 U.S. patents. Although General Semiconductor's management
believes that the Power Semiconductor Division's patents provide it with a
competitive advantage, no single patent is material to its business and General
Semiconductor intends to rely on its proprietary knowledge and continuing
technological innovation to develop and maintain its competitive position.
BACKLOG
At March 31, 1997 and December 31, 1996 and 1995, the Power Semiconductor
Division had a backlog of approximately $148 million, $141 million and $248
million, respectively. The Power Semiconductor Division includes in backlog any
orders for products scheduled to be shipped within six months. Orders may be
revised or canceled, either pursuant to their terms or as a result of
negotiations; consequently, it is impossible to predict accurately the amount of
backlog orders that will result in sales.
COMPETITION
The power semiconductor industry is highly competitive. The Power
Semiconductor Division competes, and General Semiconductor will compete, with
companies worldwide, some of which have greater financial, marketing and
management resources than General Semiconductor. General Semiconductor's
management believes, however, that the Power Semiconductor Division competes
favorably with its competitors on the basis of its continued commitment to
global distribution and customer service, value-added manufacturing,
technological leadership and new product innovation. See "Risk Factors--Risks
Relating to the Businesses of NextLevel Systems, CommScope and General
Semiconductor-- Competition."
RAW MATERIALS
Silicon ingots, molding compound and lead frames typically account for
approximately two-thirds of the Power Semiconductor Division's raw material
expense. In 1996, raw materials represented approximately 40% of the overall
cost of goods sold for the Power Semiconductor Division. General Semiconductor's
management believes that the Power Semiconductor Division's relations with its
suppliers are good and does not anticipate any supply shortages in the near
term.
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ENVIRONMENT
The Power Semiconductor Division uses hazardous substances and generates
solid and hazardous waste in the ordinary course of its business. Consequently,
the Power Semiconductor Division is, and General Semiconductor will be, subject
to various federal, state, local and foreign laws and regulations governing the
use, discharge and disposal of hazardous materials. Because of the nature of its
business, the Power Semiconductor Division has incurred, and General
Semiconductor will continue to incur, costs relating to compliance with such
environmental laws. Although General Semiconductor's management believes that
the Power Semiconductor Division is in substantial compliance with such
environmental requirements, and the Power Semiconductor Division has not in the
past been required to incur material costs in connection therewith, there can be
no assurance that General Semiconductor's cost to comply with such requirements
will not increase in the future. Although General Semiconductor is unable to
predict what legislation or regulations may be adopted in the future with
respect to environmental protection and waste disposal, compliance with existing
legislation and regulations has not had a material adverse effect on the Power
Semiconductor Division and is not expected to have a material adverse effect on
General Semiconductor's financial statements. All of the Power Semiconductor
Division's manufacturing facilities are ES category 1 rated for environmental
situations. See "Risk Factors--Risks Relating to the Businesses of NextLevel
Systems, CommScope and General Semiconductor--Environment."
After the Distribution, General Semiconductor will retain the obligations of
the Company with respect to environmental matters relating to the Company's
discontinued operations and its status as a "potentially responsible party."
Based on several factors including capital expenditures and expenses for the
Company's remediation programs, and the proportionate share of the cost of the
necessary investigation and eventual remedial work that may be needed to be
performed at the sites for which the Company has been named as a "potentially
responsible party," these matters are not expected to have a material adverse
effect on the financial statements of General Semiconductor. The Company's
present and past facilities have been in operation for many years, and over that
time in the course of those operations, such facilities have used substances
which are or might be considered hazardous, and the Company has generated and
disposed of wastes which are or might be considered hazardous. Therefore, it is
possible that additional environmental issues may arise in the future which the
Company cannot now predict. See "Risk Factors--Risks Relating to the Businesses
of NextLevel Systems, CommScope and General Semiconductor--Environment."
PROPERTIES
The Power Semiconductor Division's administrative, production and research
and development facilities are located in Melville and Westbury, New York;
Taipei, Taiwan; Macroom, Ireland and Tianjin, China (production expected to
begin in the third quarter of 1997).
The Melville, New York facility occupies approximately 52,000 square feet
pursuant to a lease expiring in 2004 and is the location of the Power
Semiconductor Division's executive offices.
The Westbury, New York facility occupies approximately 13,000 square feet
pursuant to leases expiring in 2000. The Westbury facility is the location of
the Power Semiconductor Division's epitaxial silicon wafer manufacturing
operations and its applied material sciences research and development
laboratory.
The Taiwan facility is owned by a subsidiary of the Company and occupies
approximately 350,000 square feet. At the Taiwan facility, the Power
Semiconductor Division manufactures standard, Schottky and fast efficient
rectifiers and TVS devices. The Power Semiconductor Division also maintains a
research and development laboratory at its Taiwan facility.
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The Power Semiconductor Division owns approximately 120,000 square feet of
manufacturing space in Macroom, Ireland. The Power Semiconductor Division
manufactures standard rectifiers, TVS devices and bridge assemblies and
maintains a research and development laboratory at the Ireland facility.
The Power Semiconductor Division owns an approximately 120,000 square feet
manufacturing facility in Tianjin, China. The China facility is located on land
that is leased by the Power Semiconductor Division pursuant to a ground lease
expiring in 2045. General Semiconductor expects to begin production of bridge
and standard rectifiers at this facility in the third quarter of 1997.
All of the Power Semiconductor Division's operating facilities are ISO9001
and QS9000 qualified. General Semiconductor's management does not believe there
is any material long-term excess capacity in the Power Semiconductor Division's
facilities, although utilization is subject to change based on customer demand.
Furthermore, General Semiconductor's management believes that the Power
Semiconductor Division's facilities and equipment generally are well maintained,
in good operating condition and suitable for the Power Semiconductor Division's
purposes and adequate for its present operations.
EMPLOYEES
As of January 31, 1997, the Power Semiconductor Division employed
approximately 3,000 people, of whom 123 were employed at the Power Semiconductor
Division's executive offices in Melville, New York, 45 were employed at the
Westbury, New York facility, approximately 2,100 were employed at the Taipei,
Taiwan facility, approximately 600 were employed at the Macroom, Ireland
facility and approximately 100 were employed at the Tianjin, China facility. As
of that date, approximately 2,400 of the Power Semiconductor Division's
employees were covered by collective bargaining agreements. Of these employees,
approximately 400 were located at the Ireland facility and approximately 2,000
were located at the Taiwan facility and the remainder were located at the
Westbury facility. General Semiconductor's management believes that the Power
Semiconductor Division's relations with both its union and non-union employees
are satisfactory.
LEGAL PROCEEDINGS
A securities class action is presently pending in the United States District
Court for the Northern District of Illinois, Eastern Division, IN RE GENERAL
INSTRUMENT CORPORATION SECURITIES LITIGATION. This action, which consolidates
numerous class action complaints filed in various courts between October 10 and
October 27, 1995, is brought by plaintiffs, on their own behalves and as
representatives of a class of purchasers of GI Common Stock during the period
March 21, 1995 through October 18, 1995. The complaint alleges that the Company
and certain of its officers and directors, as well as Forstmann Little & Co. and
certain related entities violated the federal securities laws, namely, Sections
10(b) and 20(a) of the Exchange Act, by allegedly making false and misleading
statements and failing to disclose material facts about the Company's planned
shipments in 1995 of its CFT-2200 and DigiCipher II products. The plaintiffs
have moved for class certification. The Company has filed a motion to dismiss
the Consolidated Amended Class Action Complaint. Also pending in the same court,
under the same name, is a derivative action brought on behalf of the Company.
The derivative action alleges that the members of the Company's Board of
Directors, several of its officers and Forstmann Little & Co. and related
entities had breached their fiduciary duties by reason of the matter complained
of in the class action and the defendants' alleged use of material non-public
information to sell shares of the Company's stock for personal gain. The Company
has filed a motion to dismiss the derivative complaint.
An action entitled BKP PARTNERS, L.P. V. GENERAL INSTRUMENT CORP. was
brought in February 1996 by shareholders of NLC, which was merged into a
subsidiary of the Company in September 1995. The action was originally filed in
the Northern District of California and was subsequently transferred to the
Northern District of Illinois. The complaint alleges that the GI Common Stock,
which was received by the plaintiffs as a result of the merger, was overpriced
because of the matters complained of in the class action and the
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Company's failure to disclose information concerning a significant reduction in
its gross margins. The Company has filed a motion to dismiss the complaint.
NextLevel Systems has agreed to indemnify the Company in respect of its
obligations, if any, arising out of or in connection with the IN RE GENERAL
INSTRUMENT CORPORATION SECURITIES LITIGATION and the BKP PARTNERS, L.P. V.
GENERAL INSTRUMENT CORP. litigation. See "Business of NextLevel Systems--Legal
Proceedings."
An action entitled BROADBAND TECHNOLOGIES, INC. V. GENERAL INSTRUMENT CORP
was brought in March 1997 in the United States District Court for the Eastern
District of North Carolina. The complaint alleges that the Company infringes
BroadBand Technologies, Inc.'s 560 Patent, covering an electronic communications
systems which delivers television signals, and seeks monetary damages and
injunctive relief. The Company has filed a motion to dismiss the complaint for
lack of personal jurisdiction. The motion has not been decided as of the date of
this Proxy Statement. NextLevel Systems has agreed to indemnify the Company in
respect of its obligations, if any, arising out of or in connection with this
litigation. See "Business of NextLevel Systems--Legal Proceedings."
In March 1997, NLC commenced an action against BroadBand Technologies, Inc.
in the United States District Court for the Northern District of California for
a declaratory judgment that BroadBand Technologies, Inc.'s 560 Patent is invalid
and unenforceable; for patent infringement; and for violation of the antitrust
laws of the United States. In the patent infringement claim, NLC charges that
BroadBand Technologies, Inc. infringes two patents licensed to NLC relating to
video compression and video signal processing. BroadBand Technologies, Inc. has
answered the complaint and does not contest jurisdiction.
The Company and the Power Semiconductor Division are not parties to any
other pending legal proceedings other than various claims and lawsuits arising
in the normal course of business and those for which they will be indemnified
pursuant to agreements with NextLevel Systems and CommScope. See "The
Distribution Proposals--Proposal One: The Distribution--Relationship Among
NextLevel Systems, CommScope and General Semiconductor After the
Distribution--Distribution Agreement." The management of General Semiconductor
does not believe that any such claims or lawsuits will have a material adverse
effect on General Semiconductor's financial statements.
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<PAGE>
FINANCING
NEXTLEVEL SYSTEMS
NextLevel Systems is engaged in discussions with certain banks to obtain the
$600 million NextLevel Systems Credit Facility. It is expected that
will be the lead bank and that the NextLevel Systems Credit Facility will permit
NextLevel Systems to choose between three interest rate options: the Adjusted
Base Rate, which is based on the prime rate of , a Eurodollar rate
(LIBOR) plus % and a competitive bid loan rate. It is also expected that the
NextLevel Systems Credit Facility will contain certain financial and operating
covenants, including restrictions upon: incurring indebtedness and liens;
entering into any transaction to acquire or merge with any entity; making
certain other fundamental changes; selling property; and paying dividends.
COMMSCOPE
CommScope is engaged in discussions with certain banks to obtain the $325
million CommScope Credit Facility. It is expected that will be the
lead bank and that the CommScope Credit Facility will permit CommScope to choose
between three interest rate options: the Adjusted Base Rate, which is based on
the prime rate of , a Eurodollar rate (LIBOR) plus % and a competitive bid
loan rate. It is also expected that the CommScope Credit Facility will be
unsecured and will contain certain financial and operating covenants, including
restrictions upon: incurring indebtedness and liens; entering into any
transaction to acquire or merge with any entity; making certain other
fundamental changes; selling property; and paying dividends.
GENERAL SEMICONDUCTOR
The Company is engaged in discussions with its current lenders concerning an
amendment to the GI Credit Facility to provide for revolving credit in the
amount of $275 million (the "General Semiconductor Credit Facility"). It is
expected that will be the lead bank and that the General
Semiconductor Credit Facility will permit General Semiconductor to choose
between three interest rate options: the Adjusted Base Rate, which is based on
the prime rate of , a Eurodollar rate (LIBOR) plus % and a
competitive bid loan rate. It is also expected that the General Semiconductor
Credit Facility, as so amended, will contain certain financial and operating
covenants, including restrictions upon: incurring indebtedness and liens;
entering into any transaction to acquire or merge with any entity; making
certain other fundamental changes; selling property; and paying dividends.
113
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MANAGEMENT OF NEXTLEVEL SYSTEMS
BOARD OF DIRECTORS OF NEXTLEVEL SYSTEMS
Prior to the Distribution Date, GI Delaware, as sole stockholder of
NextLevel Systems, expects to elect the persons identified below to the Board of
Directors of NextLevel Systems (the "NextLevel Systems Board"). Each individual
listed below is currently a director of the Company and will resign from the
Board of Directors of the Company effective as of the Distribution Date. The
NextLevel Systems Board will be divided into three classes. Directors for each
class will be elected at the annual meeting of stockholders held in the year in
which the term for such class expires and will serve thereafter for three years.
The following table sets forth names, in alphabetical order, and information
as to the persons who are expected to serve as directors of NextLevel Systems
following the Distribution.
<TABLE>
<CAPTION>
NAME, AGE AND CURRENT INITIAL TERM
PRINCIPAL OCCUPATION EXPIRES INFORMATION
- ---------------------------------------------- --------------------- ----------------------------------------------
<S> <C> <C>
</TABLE>
114
<PAGE>
COMPENSATION OF DIRECTORS
Employee directors will not receive additional compensation for serving on
the NextLevel Systems Board. Non-employee directors will receive an annual
retainer of $25,000, and committee chairmen will receive an additional $5,000
annual retainer. The non-employee directors' remuneration is paid annually,
unless payment is deferred. In addition, each director, upon election to the
NextLevel Systems Board, will receive 1,000 shares of restricted Nextlevel
Systems Common Stock which will be vested immediately and will be granted an
option to purchase 20,000 shares of NextLevel Systems Common Stock at an
exercise price per share equal to the fair market value on the date of grant,
which option becomes exercisable with respect to one-third of the underlying
shares on each of the first three anniversaries of the grant date. If a director
remains in office, a similar option is granted every three years.
COMMITTEES OF THE BOARD OF DIRECTORS
NextLevel Systems will have Audit, Compensation and Executive Committees of
the NextLevel Systems Board. Members of the Audit and Compensation Committees
will not be employees of NextLevel Systems.
AUDIT COMMITTEE. The Audit Committee's principal functions will be to
review the scope of the annual audit of NextLevel Systems by its independent
auditors, review the annual financial statements of NextLevel Systems and the
related audit report as prepared by the independent auditors, recommend the
selection of independent auditors each year and review any non-audit fees paid
to the independent auditors. The members of the Audit Committee are expected to
be the following non-employee directors: , and .
COMPENSATION COMMITTEE. The Compensation Committee will administer the
stock option and incentive plans of NextLevel Systems, and in this capacity it
will make or recommend option grants or awards under these plans. In addition,
the Compensation Committee will make recommendations to the NextLevel Systems
Board with respect to the compensation of the Chief Executive Officer and will
determine the compensation of the other senior executives. The Compensation
Committee will also recommend the establishment of policies dealing with various
compensation and employee benefit plans for NextLevel Systems. The members of
the Compensation Committee are expected to be the following non-employee
directors: , and .
EXECUTIVE COMMITTEE. The Executive Committee will have the authority to
exercise all powers and authority of the NextLevel Systems Board that may be
lawfully delegated to it under Delaware law. It may meet between regularly
scheduled NextLevel Systems Board meetings to take such action as is necessary
for the efficient operation of NextLevel Systems. The members of the Executive
Committee are expected to be , and .
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<PAGE>
EXECUTIVE OFFICERS
Set forth below is certain information with respect to the persons who are
expected to serve as executive officers of NextLevel Systems immediately
following the Distribution. Those persons named below who are currently officers
of the Company will relinquish their positions with the Company effective as of
the Distribution Date.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE PRIOR TO BECOMING
NAME AND TITLE AGE AN EXECUTIVE OFFICER OF NEXTLEVEL SYSTEMS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Richard S. Friedland................................. 46 Richard S. Friedland has been a director of the
Chairman and Chief Executive Officer Company since October 1993. He became President and
Chief Operating Officer of the Company in October
1993, Chief Executive Officer of the Company in
August 1995 and Chairman of the Board of Directors of
the Company in December 1995. He was Chief Financial
Officer of the Company and GI Delaware from March
1992 to January 1994 and Vice President, Finance of
the Company from May 1991 to October 1993. He was
Vice President, Finance and Assistant Secretary of GI
Delaware from October 1990 to October 1993 and Vice
President and Controller of GI Delaware from November
1988 to January 1994. He is a director of Department
56, Inc.
Richard D. Badler.................................... 46 Richard D. Badler became Vice President, Corporate
Vice President, Corporate Communications Communications of the Company in February 1996. He
was an Executive Vice President and Account Director
for Golin/ Harris Communications from September 1993
to February 1996 and Director of Public Affairs for
Kraft General Foods from May 1990 to September 1993.
Paul J. Berzenski.................................... 44 Paul J. Berzenski became Controller of the Company in
Vice President and Controller January 1994 and Vice President of the Company in
November 1994. He was Assistant Controller of GI
Delaware from January 1991 to January 1994.
Charles T. Dickson................................... 42 Charles T. Dickson became Vice President and Chief
Vice President and Chief Financial Officer Financial Officer of the Company in January 1994. He
was Vice President-Finance and Administration of
several divisions of MCI Communications Corporation
from 1988 to 1993.
Thomas A. Dumit...................................... 54 Thomas A. Dumit became Vice President, General
Vice President, General Counsel and Chief Counsel and Secretary of the Company in 1991 and
Administrative Officer Chief Administrative Officer of the Company in
December 1995.
</TABLE>
116
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE PRIOR TO BECOMING
NAME AND TITLE AGE AN EXECUTIVE OFFICER OF NEXTLEVEL SYSTEMS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Susan M. Meyer............................ 53 Susan M. Meyer became Vice President and
Vice President, Secretary and Deputy Secretary of the Company in December 1995,
General Counsel and has been Deputy General Counsel of the
Company since May 1991. Ms. Meyer was
Assistant Secretary of GI Delaware from
June 1992 to December 1995.
Kenneth Pelowski.......................... 37 Kenneth Pelowski became Vice President,
Vice President, Corporate Development Corporate Development of the Company in
June 1996. Mr. Pelowski was Vice
President, Corporate Planning and
Development with Quantum Corporation from
May 1995 to June 1996 and from 1989 to
1995, he was Senior Director, Corporate
Planning and Development at Sun
Microsystems.
Richard C. Smith.......................... 52 Richard C. Smith has been Vice President
Vice President, Taxes and Treasurer of GI Delaware since March 1989 and
Treasurer of the Company since September
1991. Mr. Smith has been Vice President
and Assistant Secretary of the Company
since May 1991 and has been Treasurer of
the Company since March 1992. From June
1986 to November 1994, he was Director of
Taxes for GI Delaware and from May 1991 to
November 1994, he was Director of Taxes of
the Company.
Clark E. Tucker........................... 47 Clark E. Tucker has been Vice President,
Vice President, Human Resources Human Resources of the Company since May
1995. From August 1992 until November
1994, Mr. Tucker was Vice President, Human
Resources for Witco Corporation; from
April 1990 until August 1992, he served as
a management consultant with Towers,
Perrin, Forster & Crosby.
Michael R. Bernique....................... 53 Michael R. Bernique has been Vice
Vice President and President, Satellite President of the Company and President of
Data Networks Group the Company's Satellite Data Networks
Group since June 1996. From December 1993
to December 1995, Mr. Bernique was Senior
Vice President North American Sales and
Service of DSC Communications and from
December 1992 to December 1993, he was
Vice President and General Manager of
Transmission Products for DSC
Communications.
</TABLE>
117
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE PRIOR TO BECOMING
NAME AND TITLE AGE AN EXECUTIVE OFFICER OF NEXTLEVEL SYSTEMS
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C> <C>
Edward D. Breen...................................... 41 Edward D. Breen became President of the Company's
Vice President and President, Broadband Networks Broadband Networks Group in February 1996 and Vice
Group President of the Company in November 1994. He was
Executive Vice President, Terrestrial Systems, from
October 1994 to January 1996 and Senior Vice
President of Sales from June 1988 to October 1994.
</TABLE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY OF COMPENSATION. NextLevel Systems Table I below sets forth a
summary of the compensation paid by the Company for the last three fiscal years
to the persons expected to be the Chief Executive Officer of NextLevel Systems
and the four additional most highly compensated executive officers of NextLevel
Systems (based on their historical compensation from the Company).
NEXTLEVEL SYSTEMS TABLE I
NEXTLEVEL SYSTEMS SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(A) COMPENSATION(B) OPTIONS(#)(C) COMPENSATION
- ----------------------------------- --------- --------- --------- ---------------- ------------- ---------------
Richard S. Friedland............... 1996 $ 750,000 $ -- $ -- 250,000 $ 5,460(d)
Chairman and Chief Executive 1995 589,583(e) 214,445(e) -- 560,000 5,460
Officer 1994 420,000 327,600 -- 270,000 5,460
Thomas A. Dumit.................... 1996 $ 345,000 $ -- $ -- 42,000 $ 5,460(d)
Vice President, General Counsel 1995 320,000 89,120 -- 24,000 5,460
and Chief Administrative 1994 310,999 134,753 -- 48,000 5,460
Officer
Edward D. Breen.................... 1996 $ 300,000 $ 62,820 $ -- 60,000 $ 4,568(f)
Vice President and President, 1995 227,872 25,339 -- 16,000 3,618
Broadband Networks Group 1994 199,770 95,216 -- 104,000 3,517
Charles T. Dickson................. 1996 $ 297,333 $ -- $ -- 24,000 $ 5,460(d)
Vice President and Chief 1995 265,000 73,803 76,384(g) 24,000 5,454
Financial Officer 1994 228,387 148,452 -- 90,000 5,322
Richard C. Smith................... 1996 $ 225,000 $ -- $ -- 16,000 $ 5,310(f)
Vice President, Taxes and 1995 215,000 47,902 -- 20,000 5,274
Treasurer 1994 205,000 71,076 -- 24,000 5,238
</TABLE>
- ------------------------
(a) Amounts reported for 1996 reflect cash bonus awards paid pursuant to the
General Instrument Corporation Annual Incentive Plan (the "Annual Incentive
Plan") in 1997 with respect to performance in 1996. Amounts reported for
1995 reflect cash bonus awards paid pursuant to the Annual Incentive Plan in
1996 with respect to performance in 1995. Amounts reported for 1994 reflect
cash bonus awards paid pursuant to the Annual Incentive Plan in 1995 with
respect to performance in 1994.
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<PAGE>
(b) Unless otherwise indicated, with respect to any individual named in the
above table, the aggregate amount of perquisites and other personal
benefits, securities or property was less than either $50,000 or 10% of the
total annual salary and bonus reported for the named executive officer.
(c) Reflects the number of shares of GI Common Stock underlying options granted.
All of the options were granted pursuant to the General Instrument
Corporation 1993 Long-Term Incentive Plan (the "1993 Long-Term Incentive
Plan"). Each grant set forth for 1994 was made in connection with the
cancellation of an option to purchase the same number of shares, previously
granted in 1994, except the grant set forth to Mr. Friedland, with respect
to which an option to purchase 70,000 shares had previously been granted in
1994 and the remainder had been granted in 1993. Those options granted, and
subsequently canceled, in 1994 are not reflected in the table for the named
executive officer.
(d) Reflects payment by the Company in 1996 of (i) premiums for term life
insurance of $960 and (ii) the matching contribution for 1996 by the Company
under the Savings Plan in the amount of $4,500.
(e) Reflects compensation of Mr. Friedland for the full year 1995. Effective
August 1995, Mr. Friedland was promoted to Chief Executive Officer of the
Company. Prior to that date Mr. Friedland was President and Chief Operating
Officer of the Company. In December 1995, Mr. Friedland also became Chairman
of the Board of the Company.
(f) Reflects payment by the Company in 1996 of (i) premiums for term life
insurance of $960 and $810 on behalf of each of Messrs. Breen and Smith,
respectively, and (ii) the matching contribution for 1996 by the Company
under the Savings Plan in the amount of $3,608 and $4,500 for each of
Messrs. Breen and Smith, respectively.
(g) Reflects payment by the Company in 1995 in the amounts of $56,304 and
$20,080, respectively, for relocation costs and personal use of the
Company's aircraft.
STOCK OPTIONS
GRANT OF OPTIONS. NextLevel Systems Table II below sets forth information
with respect to grants of options to purchase GI Common Stock during the year
ended December 31, 1996 to the executives listed in NextLevel Systems Table I.
These grants were made pursuant to the 1993 Long-Term Incentive Plan and are
reflected in NextLevel Systems Table I.
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<PAGE>
NEXTLEVEL SYSTEMS TABLE II
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE ---------------------------
NAME GRANTED FISCAL YEAR(A) ($/SHARE)(B) EXPIRATION DATE 5%($) 10%($)
- -------------------------------- ----------- ----------------- ------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Friedland............ 250,000(c) 14.0 $ 26.75 2/21/06 $ 4,213,125 $ 10,633,125
Thomas A. Dumit................. 42,000(d) 2.3 27.25 2/14/06 721,035 1,819,755
Edward D. Breen................. 60,000(d) 3.4 27.25 2/14/06 1,030,050 2,599,650
Charles T. Dickson.............. 24,000(d) 1.3 27.25 2/14/06 412,020 1,039,860
Richard C. Smith................ 16,000(d) 0.9 27.25 2/14/06 274,680 693,240
</TABLE>
- ------------------------
(a) Percentages included are based on a total of 1,789,676 options granted to
245 employees of the Company during 1996.
(b) The Board of Directors has authorized the Company to offer that these
options be cancelled as of January 10, 1997, and new options in respect of
the same number of shares ("repriced options") be granted as of such date at
an exercise price of $23.125 per share, the closing market price per share
of the GI Common Stock on such date. The repriced options would become
exercisable with respect to one-third of the shares covered thereby on each
of the following dates: July 10, 1997, January 10, 1998 and January 10,
1999. The price reported here is the exercise price on the date of grant
which equaled the closing market price per share of GI Common Stock on the
date of grant.
(c) The option becomes exercisable with respect to one-third of the shares
covered thereby on February 21 in each of 1997, 1998 and 1999.
(d) The option becomes exercisable with respect to one-third of the shares
covered thereby on February 14 in each of 1997, 1998 and 1999.
AGGREGATED OPTION EXERCISES AND YEAR-END VALUE. The following table sets
forth as of December 31, 1996, for each of the executives listed in NextLevel
Systems Table I (i) the total number of unexercised options to purchase GI
Common Stock (exercisable and unexercisable) held and (ii) the value of such
options which were in-the-money at December 31, 1996 (based on the difference
between the closing price of GI Common Stock at December 31, 1996 and the
exercise price of the option on such date).
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<PAGE>
NEXTLEVEL SYSTEMS TABLE III
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-
NUMBER OF SECURITIES THE-MONEY
UNDERLYING STOCK
UNEXERCISED STOCK OPTIONS OPTIONS AT
AT FISCAL
FISCAL YEAR-END (#) YEAR-END($)(A)
-------------------------- -----------
<S> <C> <C> <C> <C> <C>
SHARES ACQUIRED
ON EXERCISE VALUE
NAME (#)(B) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE
- ---------------------------------------- ----------------- ----------------- ----------- ------------- -----------
Richard S. Friedland.................... -- -- 393,667 722,333 $ 158,625
Thomas A. Dumit......................... -- -- 62,500 81,500 132,188
Edward D. Breen......................... -- -- 65,250 110,584 30,844
Charles T. Dickson...................... -- -- 68,000 70,000 --
Richard C. Smith........................ -- -- 35,416 41,584 74,906
<CAPTION>
<S> <C>
NAME UNEXERCISABLE
- ---------------------------------------- -------------
Richard S. Friedland.................... $ 52,875
Thomas A. Dumit......................... 44,063
Edward D. Breen......................... 30,844
Charles T. Dickson...................... --
Richard C. Smith........................ 24,969
</TABLE>
- ------------------------
(a) Based on the difference between the closing price of $21.75 per share at
December 31, 1996, as reported on the NYSE Composite Tape, and the exercise
price of the option on such date.
(b) No options were exercised in 1996 by any of the executives listed in
NextLevel Systems Table I.
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<PAGE>
PENSION PLAN AND SERP
The following table shows, as of December 31, 1996, estimated aggregate
annual benefits payable upon retirement at age 65 under the GI Pension Plan and
the GI SERP.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS
UPON RETIREMENT, WITH
AVERAGE ANNUAL BASIC REMUNERATION YEARS OF SERVICE INDICATED
DURING SIXTY CONSECUTIVE CALENDAR ------------------------------------------
MONTHS PRIOR TO RETIREMENT 15 YEARS 20 YEARS 25 YEARS 30 YEARS
- ---------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$125,000.............................................................. $ 26,057 $ 34,742 $ 43,428 $ 52,114
150,000.............................................................. 31,682 42,242 52,803 63,364
175,000.............................................................. 37,307 49,742 62,178 74,614
200,000.............................................................. 42,932 57,242 71,553 85,864
225,000.............................................................. 48,557 64,742 80,928 97,114
250,000.............................................................. 54,182 72,242 90,303 108,364
300,000.............................................................. 54,182 72,242 90,303 108,364
</TABLE>
The compensation covered by the GI Pension Plan and the GI SERP is
substantially that described under the "Salary" column of the NextLevel Systems
Table I. However, pursuant to Section 401(a)(17) of the Code, the maximum amount
of compensation that can be considered in computing benefits under the GI
Pension Plan for 1996 was $150,000. Under the GI SERP, compensation for 1996 in
excess of $150,000, but not exceeding $250,000, is considered in computing
benefits. Accordingly, the total compensation covered by the GI Pension Plan and
the GI SERP for the calendar year 1996 for each of Messrs. Friedland, Dumit,
Breen and Dickson was $250,000 and for Mr. Smith was $225,000. Credited years of
service under both the GI Pension Plan and the GI SERP as of December 31, 1996
are as follows: Mr. Friedland, 18 years; Mr. Dumit, five years; Mr. Breen, 18
years; Mr. Dickson, two years; and Mr. Smith, 13 years. Estimated benefits set
forth in the Pension Plan Table were calculated on the basis of a single life
annuity and Social Security covered compensation as in effect during 1996. Such
estimated benefits are not subject to any deduction for Social Security or other
offset amounts.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of certain relationships and related transactions with
NextLevel Systems management or directors that are expected to exist subsequent
to the Distribution, see "Certain Relationships and Related Party Transactions."
THE NEXTLEVEL SYSTEMS 1997 LONG-TERM INCENTIVE PLAN
GENERAL
The NextLevel Systems Incentive Plan is expected to be adopted by the
NextLevel Systems Board, and GI Delaware, as sole stockholder of NextLevel
Systems, prior to the Distribution. The NextLevel Systems Incentive Plan will
provide for the granting of options, stock appreciation rights, restricted
stock, performance units, performance shares and phantom stock to employees of
NextLevel Systems and its subsidiaries and granting of options to non-employee
directors of NextLevel Systems (collectively or individually, "NextLevel
Awards").
One of NextLevel Systems' principal methods to attract and retain key
employees will be the grant of Options pursuant to the NextLevel Systems
Incentive Plan. Management of NextLevel Systems believes that it is in NextLevel
Systems' best interests to grant Options in order (i) to attract and retain key
122
<PAGE>
employees and (ii) to provide additional incentive and reward opportunities to
current employees to encourage them to enhance the profitable growth of
NextLevel Systems.
The principal provisions of the NextLevel Systems Incentive Plan are
summarized below. This summary, however, does not purport to be complete and is
qualified in its entirety by reference to the NextLevel Systems Incentive Plan
which has been filed as an exhibit to the Registration Statement of which this
Proxy Statement is a part. All capitalized terms used below have the meanings
set forth in the NextLevel Systems Incentive Plan, unless otherwise indicated.
PURPOSE OF THE NEXTLEVEL SYSTEMS INCENTIVE PLAN
The NextLevel Systems Board believes that the NextLevel Awards will provide
a means by which key employees and directors of NextLevel Systems and its
subsidiaries can acquire and maintain stock ownership, thereby strengthening
their commitment to the success of NextLevel Systems and its subsidiaries and
their desire to remain employed by NextLevel Systems and its subsidiaries,
focusing their attention on managing NextLevel Systems as an equity owner, and
aligning their interests with those of NextLevel Systems' stockholders. The
NextLevel Systems Incentive Plan also is intended to attract and retain key
employees and to provide those employees with additional incentive and reward
opportunities designed to encourage them to enhance the profitable growth of
NextLevel Systems and its subsidiaries.
DESCRIPTION OF THE NEXTLEVEL SYSTEMS INCENTIVE PLAN
The NextLevel Systems Incentive Plan will be administered by the Committee
initially consisting of at least two directors of NextLevel Systems who are
"nonemployee directors" within the meaning of Rule 16b-3 promulgated under
Section 16(b) of the Exchange Act, but the number of directors on the Committee
may be changed in accordance with law. In addition, with respect to NextLevel
Awards to be granted to participants who are not subject to Section 16 of the
Exchange Act, the authority of the Committee may be exercised by the full Board
or by a committee, consisting of at least one individual, appointed by the
Board. The Committee will (i) select those employees to whom NextLevel Awards
will be granted, and (ii) determine the type, the size and the terms and
conditions of NextLevel Awards, including the per share purchase price of
restricted stock and Options, the vesting provisions of restricted stock,
phantom stock and Options, and the restrictions or performance criteria relating
to restricted stock, phantom stock, performance units and performance shares.
The Committee will also construe and interpret the NextLevel Systems Incentive
Plan. The Committee will have the authority to cancel outstanding NextLevel
Awards and make adjustments to outstanding NextLevel Awards with the consent of
the Grantee and to accelerate the exercisability of NextLevel Awards or to waive
the restrictions and conditions applicable to NextLevel Awards.
The maximum number of shares of NextLevel Systems Common Stock with respect
to which Options and stock appreciation rights may be granted to any individual
over the term of the plan is 1,300,000, in addition to any shares covered by
Substitute Options held by the individual. The maximum number of shares of
NextLevel Systems Common Stock that may be made the subject of NextLevel Awards
granted under the NextLevel Systems Incentive Plan will be the number of shares
necessary to issue Substitute Options under the NextLevel Systems Incentive Plan
plus 6,500,000. In the event of any Change in Capitalization, however, the
Committee may adjust the maximum number and class of shares with respect to
which NextLevel Awards may be granted, the number and class of shares which are
subject to outstanding NextLevel Awards and the purchase price therefor. In
addition, if any NextLevel Award is canceled or expires or terminates without
having been exercised, the shares of NextLevel Systems Common Stock subject to
that NextLevel Award again become available for grant under the NextLevel
Systems Incentive Plan. Of the total number of shares allotted under the
NextLevel Systems Incentive Plan, not more than one-third may be used for
restricted stock and phantom stock NextLevel Awards.
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<PAGE>
ELIGIBILITY. Any of NextLevel Systems' and its subsidiaries' approximately
8,300 employees and any of NextLevel Systems' non-employee directors is eligible
to participate in the NextLevel Systems Incentive Plan.
OPTIONS. Pursuant to the NextLevel Systems Incentive Plan, the Committee
will grant to each non-employee director of NextLevel Systems Nonqualified Stock
Options to purchase 20,000 shares of NextLevel Systems Common Stock in
connection with his or her initial election to the Board. Options to be granted
to non-employee directors in connection with their initial election as directors
of NextLevel Systems will be subject to the following terms. Each Option granted
to a nonemployee director will be exercisable with respect to one-third of the
underlying shares on each of the first, second and third anniversaries of the
Grant Date. If a director ceases to serve as a director of NextLevel Systems for
any reason, the Option will be exercisable, during the remaining term of the
Option, to the extent that the Option was exercisable on the date the director
ceases to serve as a director. The NextLevel Systems Incentive Plan also
provides for additional NextLevel Awards of Options in respect of 20,000 shares
of NextLevel Systems Common Stock on each third anniversary of each non-employee
director's first appointment to the Board, if such non-employee director is
still serving on the Board.
In addition, the Committee may grant Nonqualified Stock Options and
Incentive Stock Options to any eligible employee of NextLevel Systems or its
subsidiaries. The per share exercise price of the Options is fixed by the
Committee when the Options are granted and must be at least, and in the case of
Options granted to non-employee directors will be, 100% of the Fair Market Value
of the NextLevel Systems Common Stock on the Option Grant Date (110% in the case
of an Incentive Stock Option granted to a 10% Owner).
Each Option (other than Options granted to non-employee directors) will be
exercisable at the times and in the installments determined by the Committee,
commencing not earlier than the first anniversary of the Option Grant Date. All
outstanding Options will become fully exercisable upon a Change of Control. In
addition, the Committee reserves the authority to accelerate the exercisability
of any Option (other than Options granted to non-employee directors). Each
Option terminates at the time determined by the Committee, except that the term
of each Option may not exceed, and in the case of Options granted to
non-employee directors will be, ten years (five years in the case of an
Incentive Stock Option granted to a 10% Owner). Options are not transferable by
the Grantee except by will or the laws of descent and distribution or pursuant
to a domestic relations order (within the meaning of Rule 16a-12 promulgated
under the Exchange Act) and may be exercised during the Grantee's lifetime only
by the Grantee or the Grantee's guardian or legal representative. In the
discretion of the Committee, the purchase price for shares acquired pursuant to
the exercise of an Option may be paid (i) in cash, (ii) by transferring shares
of restricted or unrestricted NextLevel Systems Common Stock to NextLevel
Systems, or (iii) by a combination of the foregoing.
STOCK APPRECIATION RIGHTS. The NextLevel Systems Incentive Plan permits the
granting of stock appreciation rights to employees of NextLevel Systems or a
Subsidiary in connection with an Option or other NextLevel Award or as a
freestanding right. A stock appreciation right permits the Grantee to receive,
upon exercise of the stock appreciation right, cash and/or shares, at the
discretion of the Committee, equal in value to the excess, if any, of the then
per share Fair Market Value over the per share Fair Market Value on the Grant
Date of the stock appreciation right, multiplied by the number of shares as to
which the stock appreciation right is being exercised. When a stock appreciation
right is granted, however, the Committee may establish a limit on the maximum
amount the Grantee may receive upon exercise of the stock appreciation right.
The Committee will decide, when each stock appreciation right is granted, the
time or times when the stock appreciation right will be exercisable, commencing
not earlier than the first anniversary of the Grant Date. However, the Committee
reserves the authority to thereafter accelerate the exercisability of any stock
appreciation right.
124
<PAGE>
RESTRICTED STOCK. The Committee will determine, when each restricted stock
NextLevel Award is made, the terms of the restricted stock NextLevel Award,
including the price, if any, to be paid by the Grantee for the restricted stock,
the restrictions placed on the shares and the time or times when the
restrictions will lapse. In addition, when the restricted stock is granted under
the Plan, the Committee may, in its discretion, decide: (i) whether dividends
paid on the restricted stock will be remitted to the Grantee or deferred until
the restrictions on the restricted stock NextLevel Award lapse, (ii) whether any
deferred dividends will be invested in additional shares of NextLevel Systems
Common Stock, (iii) whether interest will be accrued on any dividends not
reinvested in additional shares of restricted stock, (iv) whether any stock
dividends paid on the restricted stock NextLevel Award will be subject to the
restrictions applicable to the restricted stock award, and (v) whether, and to
what extent, the restrictions on the restricted stock shall lapse upon a Change
of Control.
PERFORMANCE UNITS AND PERFORMANCE SHARES. Performance units and performance
shares will be awarded as the Committee may determine, and the vesting of
performance units and performance shares will be based upon NextLevel Systems'
attainment of specified performance objectives within the Measuring Period.
Performance objectives and the length of the Measuring Period for performance
units and performance shares will be determined by the Committee when the
NextLevel Award is made, but no Measuring Period will be less than one year nor
more than five years. Prior to the end of a Measuring Period, the Committee, in
its discretion, may adjust the performance objectives to reflect any Change in
Capitalization or other event which may materially affect the performance of
NextLevel Systems or any Subsidiary. The agreements evidencing NextLevel Awards
of performance units and performance shares will set forth the terms and
conditions of the NextLevel Awards, including those applicable in the event of
the Grantee's Termination of Employment or a Change of Control. Performance
units may be denominated in dollars or in shares of NextLevel Systems Common
Stock, and payments in respect of vested performance units will be made in cash
or shares of NextLevel Systems Common Stock or any combination of the foregoing,
as determined by the Committee. Performance shares are initially denominated in
shares of NextLevel Systems Common Stock, but the Committee may ultimately
settle performance share NextLevel Awards in cash, shares of NextLevel Systems
Common Stock or a combination thereof, at its discretion.
PHANTOM STOCK. The Committee may grant phantom stock to employees employed
outside the United States, subject to the terms and conditions established by
the Committee. Upon the vesting of a phantom stock NextLevel Award, the Grantee
will be entitled to receive a cash payment in respect of each share of phantom
stock equal to the Fair Market Value of a share of NextLevel Systems Common
Stock as of the date the phantom stock NextLevel Award was granted or such other
date as determined by the Committee when the phantom stock NextLevel Award was
granted. The Committee may, when a phantom stock NextLevel Award is granted,
provide a limitation on the amount payable in respect of each share of phantom
stock.
TANDEM AWARDS. The NextLevel Systems Incentive Plan provides that the
Committee may grant any Award in tandem with another NextLevel Award. Unless
otherwise provided by the Committee, upon the exercise, payment or forfeiture of
one tandem NextLevel Award, the related tandem NextLevel Award will be canceled
to the extent of the number of shares as to which the tandem NextLevel Award is
so exercised, paid or forfeited.
AMENDMENT AND TERMINATION. The NextLevel Systems Incentive Plan will
terminate on the tenth anniversary of its adoption in 2007. However, the Board
of Directors may sooner terminate or amend the NextLevel Systems Incentive Plan
at any time without stockholder approval, except where stockholder approval is
required to retain the favorable tax treatment of Incentive Stock Options under
the Code, to qualify the shares offered under the NextLevel Systems Incentive
Plan for listing on any securities exchange, or is otherwise required by law.
The termination of the NextLevel Systems Incentive Plan will not affect then
outstanding NextLevel Awards.
125
<PAGE>
AWARDS UNDER THE NEXTLEVEL SYSTEMS INCENTIVE PLAN. Effective as of the
Distribution, Nonqualified Stock Options will be issued under the NextLevel
Systems Incentive Plan to officers, key employees and non-employee directors of
NextLevel Systems to replace options awarded under the 1993 Long-Term Incentive
Plan. See "The Distribution Proposals--Proposal One: The
Distribution--Relationship Among NextLevel Systems, CommScope and General
Semiconductor After the Distribution--Employee Benefits Allocation Agreement"
for a description of how the number of shares subject to such awards and the
exercise price thereof will be determined.
The terms and conditions of each Substitute Option issued under the
NextLevel Systems Incentive Plan, including, without limitation, the time or
times when, and the manner in which each shall be exercisable, the duration of
the exercise period, the permitted method of exercise, settlement and payment,
and the rules that shall apply in the event of the termination of employment,
shall be the same as those of the surrendered Company option award.
Future NextLevel Awards under the NextLevel Systems Incentive Plan are not
determinable because they are made at the discretion of the Committee.
OWNERSHIP OF NEXTLEVEL SYSTEMS COMMON STOCK
NextLevel Systems is currently an indirect wholly owned subsidiary of the
Company. NextLevel Systems Table IV sets forth information as to the beneficial
ownership of NextLevel Systems Common Stock as of the Distribution Date (and
following the Distribution) as if the Distribution took place on , 1997 by
all expected directors and the persons listed in NextLevel Systems Table I as
well as by directors and executive officers of NextLevel Systems as a group and,
to the best knowledge of NextLevel Systems management, beneficial owners of 5%
or more of NextLevel Systems Common Stock after the Distribution. The
information in NextLevel Systems Table IV is based on the ownership of GI Common
Stock as of , 1997 and the number of shares of NextLevel Systems Common
Stock expected to be distributed to each existing stockholder of the Company in
the Distribution.
126
<PAGE>
NEXTLEVEL SYSTEMS TABLE IV
<TABLE>
<CAPTION>
SHARES OF NEXTLEVEL % OF SHARES OUTSTANDING
SYSTEMS (NET OF TREASURY SHARES)
COMMON STOCK EXPECTED TO EXPECTED TO BE BENEFICIALLY
NAME BE BENEFICIALLY OWNED(1) OWNED
- ----------------------------------------------------- -------------------------- -------------------------------
<S> <C> <C>
MBO-IV(2)............................................
Instrument Partners(2)...............................
Oppenheimer Group,Inc.(3)............................
Brinson Partners, Inc.(4)............................
J.P. Morgan & Co. Incorporated (5)...................
Edward D. Breen......................................
Charles T. Dickson...................................
Thomas A. Dumit......................................
Nicholas C. Forstmann(2).............................
Theodore J. Forstmann(2).............................
Richard S. Friedland.................................
Winston W. Hutchins(2)...............................
Steven B. Klinsky(2).................................
Wm. Brian Little(2)..................................
Richard C. Smith.....................................
John A. Sprague(2)...................................
All current directors and officers of the NextLevel
Systems as a group ( persons)(2)..............
</TABLE>
- ------------------------
* The percentage of shares of NextLevel Systems Common Stock expected to be
beneficially owned does not exceed one percent of the shares of NextLevel
Systems Common Stock expected to be outstanding.
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of NextLevel Systems Common Stock which
such person has the right to acquire within 60 days following , 1997.
For purposes of computing the percentage of outstanding shares of NextLevel
Systems Common Stock held by each person or group of persons named above,
any security which such person or persons has or have the right to acquire
within 60 days following , 1997 is deemed to be outstanding, but is
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(2) The general partner of Instrument Partners, a New York limited partnership
("Instrument Partners"), is FLC XXII Partnership, a general partnership of
which Messrs. Wm. Brian Little, Nicholas C. Forstmann, John A. Sprague,
Steven B. Klinsky and Winston W. Hutchins, and TJ/JA L.P., a Delaware
limited partnership ("TJ/JA L.P."), are general partners. The general
partner of TJ/JA L.P. is Theodore J. Forstmann. The general partner of
Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership-IV, a New York limited partnership ("MBO-IV"), is FLC
Partnership, L.P., a limited partnership of which Messrs. Theodore J.
Forstmann, Nicholas C. Forstmann, Steven B. Klinsky, Winston W. Hutchins,
Ms. Sandra J. Horbach and Mr. Thomas H. Lister are general partners.
Accordingly, each of such individuals and partnerships (other than Ms.
Horbach and Mr. Lister, for the reasons described below) may be deemed the
beneficial owners of shares owned by MBO-IV and Instrument Partners in which
such individual or partnership is a general partner and, for purposes of
this table, such beneficial ownership is included. Ms. Horbach and Mr.
Lister do not have any voting or investment power with respect to, or any
economic interest in, the shares of NextLevel Systems Common Stock held by
MBO-IV; and, accordingly Ms. Horbach and Mr. Lister are not deemed to be the
beneficial owners thereof. Theodore J. Forstmann and Nicholas C. Forstmann
are brothers. Mr. Little is a special limited partner in FLC Partnership,
L.P. and each of FLC Partnership, L.P. and FLC XXII Partnership is a limited
partner of Instrument
127
<PAGE>
Partners. None of the other limited partners in each of MBO-IV and
Instrument Partners is otherwise affiliated with the Company, GI Delaware or
Forstmann Little & Co. The address of MBO-IV and Instrument Partners is c/o
Forstmann Little & Co., 767 Fifth Avenue, New York, New York 10153.
(3) This information is obtained from a Schedule 13G, dated February 20, 1997,
filed with the Commission jointly by Oppenheimer Group, Inc. ("Oppenheimer")
and Oppenheimer Capital. Oppenheimer reports beneficial ownership of
13,970,650 shares of GI Common Stock and claims shared voting power and
shared dispositive power with respect to all of such shares. Oppenheimer
Capital, a registered investment advisor and a subsidiary of Oppenheimer,
reports beneficial ownership of 13,929,450 of such shares and claims shared
voting power and shared dispositive power with respect to all 13,929,450
shares. The Schedule 13G states that: Oppenheimer is a holding and service
company owning a variety of companies engaged in the securities business;
70.78% of the issued and outstanding common stock of Oppenheimer is owned by
Oppenheimer & Co., L.P. ("Oppenheimer LP"); and management of the affairs of
Oppenheimer's subsidiaries and of certain investment advisory clients,
including decisions respecting disposition and/or voting of the shares of GI
Common Stock, resides in the respective officers and directors of such
companies and is not directed by Oppenheimer or Oppenheimer LP. The address
of the principal business of each of Oppenheimer and Oppenheimer Capital is
Oppenheimer Tower, World Financial Center, New York, New York 10281.
(4) This information is obtained from a Schedule 13G, dated February 12, 1997,
filed with the Commission by Brinson Partners, Inc. ("BPI") on behalf of
itself, Brinson Trust Company ("BTC"), Brinson Holdings, Inc. ("BHI"), SBC
Holding (USA), Inc. ("SBUSA") and Swiss Bank Corporation ("SBC"). BTC is a
wholly owned subsidiary of BPI. The Schedule 13G states that: BPI is a
wholly owned subsidiary of BHI; BHI is a wholly owned subsidiary of SBUSA;
and SBUSA is a wholly owned subsidiary of SBC. BPI reports beneficial
ownership of 11,305,062 shares of GI Common Stock and claims shared voting
power and shared dispositive power with respect to all of such shares. BTC
reports beneficial ownership of 2,268,600 shares of GI Common Stock and
claims shared voting power and shared dispositive power with respect to all
of such shares. BHI reports beneficial ownership of 11,305,062 shares of GI
Common Stock and claims shared voting power and shared dispositive power
with respect to all of such shares. SBUSA reports beneficial ownership of
11,406,476 shares of GI Common Stock and claims shared voting power and
shared dispositive power with respect to all of such shares. SBC reports
beneficial ownership of 11,406,476 shares of GI Common Stock and claims
shared voting power and shared dispositive power with respect to all of such
shares. The Schedule 13G states that by virtue of their corporate
relationships, SBC, SBUSA, BHI and BPI may be deemed to beneficially own and
have the power to dispose and vote or direct the disposition or voting of
the GI Common Stock held by BTC and BPI. Each of BPI, BTC and BHI's
principal business office is located at 209 South LaSalle, Chicago, Illinois
60604-1295. SBUSA's principal business office is located at 222 Broadway,
New York, New York 10038. SBC's principal business office is located at
Aeschenplatz 6, CH-4022, Basel, Switzerland.
(5) This information is obtained from a Schedule 13G, dated January 31, 1997,
filed with the Commission by J.P. Morgan & Co. Incorporated. J.P. Morgan &
Co. Incorporated reports beneficial ownership of 10,113,201 shares of GI
Common Stock as follows: 9,690,046 shares and 423,155 shares where there is
a right to acquire. J.P. Morgan & Co. Incorporated claims sole voting power
with respect to 6,549,568 shares, shared voting power with respect to 65,105
shares, sole dispositive power with respect to 9,976,366 shares and shared
dispositive power with respect to 130,285 shares. J.P. Morgan & Co.
Incorporated's principal business office is located at 60 Wall Street, New
York, New York 10260.
128
<PAGE>
MANAGEMENT OF COMMSCOPE
BOARD OF DIRECTORS OF COMMSCOPE
Prior to the Distribution Date, GI Delaware, as sole stockholder of
CommScope, expects to elect the persons identified below to the Board of
Directors of CommScope (the "CommScope Board"). Certain individuals listed
below, and identified with an asterisk, are currently directors of the Company
and will resign from the Board of Directors of the Company effective as of the
Distribution Date. The CommScope Board will be divided into three classes.
Directors for each class will be elected at the annual meeting of stockholders
held in the year in which the term for such class expires and will serve
thereafter for three years.
The following table sets forth names, in alphabetical order, and information
as to the persons who are expected to serve as directors of CommScope after the
Distribution.
<TABLE>
<CAPTION>
NAME, AGE AND CURRENT INITIAL TERM
PRINCIPAL OCCUPATION EXPIRES INFORMATION
- ------------------------------------------ ------------------ -------------------------------------------------
<S> <C> <C>
</TABLE>
COMPENSATION OF DIRECTORS
Employee directors will not receive additional compensation for serving on
the CommScope Board. Non-employee directors will receive an annual retainer of
$25,000, and committee chairmen will receive an additional $5,000 annual
retainer. The non-employee directors' remuneration will be paid annually, unless
payment is deferred. In addition, each director, upon election to the CommScope
Board, will receive 1,000 shares of restricted CommScope Common Stock which will
be vested immediately and will be granted an option to purchase 20,000 shares of
CommScope Common Stock at an exercise price per share equal to the fair market
value on the date of grant, which option becomes exercisable with respect to
one-third of the underlying shares on each of the first three anniversaries of
the grant date. If a director remains in office, a similar option will be
granted every three years.
COMMITTEES OF THE BOARD OF DIRECTORS
CommScope will have Audit, Compensation and Executive Committees of the
Board. Members of the Audit and Compensation Committees will not be employees of
CommScope.
AUDIT COMMITTEE. The Audit Committee's principal functions will be to
review the scope of the annual audit of CommScope by its independent auditors,
review the annual financial statements of CommScope and the related audit report
as prepared by the independent auditors, recommend the selection of independent
auditors each year and review any non-audit fees paid to the independent
auditors. The members of the Audit Committee are expected to be the following
non-employee directors: , and .
COMPENSATION COMMITTEE. The Compensation Committee will administer the
stock option and incentive plans of CommScope, and in this capacity it will make
or recommend option grants or awards under these plans. In addition, the
Committee will make recommendations to the CommScope Board with respect to the
compensation of the Chief Executive Officer and will determine the Compensation
of the other senior executives. The Committee will also recommend the
establishment of policies dealing with various compensation and employee benefit
plans for CommScope. The members of the Compensation Committee are expected to
be the following non-employee directors: , and .
129
<PAGE>
EXECUTIVE COMMITTEE
The Executive Committee will have the authority to exercise all powers and
authority of the CommScope Board that may be lawfully delegated to it under
Delaware law. It may meet between regularly scheduled CommScope Board meetings
to take such action as is necessary for the efficient operation of the Company.
The members of the Executive Committee are expected to be ,
and .
EXECUTIVE OFFICERS
Set forth below is certain information with respect to the persons who are
expected to serve as executive officers of CommScope immediately following the
Distribution. Those persons named below who are currently officers of the
Company will relinquish their positions with the Company effective as of the
Distribution Date.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE PRIOR TO BECOMING
NAME AND TITLE AGE AN EXECUTIVE OFFICER OF COMMSCOPE
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Frank M. Drendel 52 Frank M. Drendel has served as Chairman and President of
Chairman and Chief Executive Officer CommScope NC since 1986 and has served as Chief Executive
Officer of CommScope NC since 1976. He has served as a director
of GI Delaware and its predecessors from 1987 to March 1992,
when he was elected to serve as a director of the Company.
Jearld L. Leonhardt 48 Jearld L. Leonhardt has been Executive Vice President, Finance
Executive Vice President, Finance and and Administration, and Treasurer of CommScope NC since 1983.
Administration, and Treasurer
William R. Gooden 55 William R. Gooden has been Senior Vice President and Controller
Senior Vice President and Controller of CommScope NC since 1996 and was Vice President and
Controller from 1991 to 1996.
Larry W. Nelson 54 Larry W. Nelson has been Executive Vice President, Development
Executive Vice President, Development of CommScope NC since 1997. From 1988 to 1997, he was Executive
Vice President and General Manager of the Cable TV Division of
CommScope NC.
Brian D. Garrett 48 Brian D. Garrett was appointed Executive Vice President
Executive Vice President, Operations Operations of CommScope NC in 1997. From 1996 to 1997, he was
Executive Vice President and General Manager of the Network
Cable Division of CommScope NC and Vice President and General
Manager of the Network Cable Division from 1986 to 1996.
Frank J. Logan 54 Frank J. Logan has been Executive Vice President, International
Executive Vice President, International of CommScope NC since 1996. From 1989 to 1996, he was Vice
President, International of CommScope NC.
Gene W. Swithenbank 57 Gene W. Swithenbank has been Executive Vice President, Sales
Executive Vice President, Sales and and Marketing for CommScope NC since 1997 and Executive Vice
Marketing President, CATV Sales and Marketing since 1996. From 1992 to
1996, Mr. Swithenbank was Senior Vice President CATV Sales of
CommScope NC.
Randall Crenshaw, 40 Randall Crenshaw has been Executive Vice President,
Executive Vice President, Procurement/Logistics of CommScope NC since 1997. From 1994 to
Procurement/Logistics 1997, Mr. Crenshaw was Vice President Operations for the
Network Cable Division of CommScope NC. Prior to that time, Mr.
Crenshaw has held various positions with CommScope NC since
1985.
</TABLE>
130
<PAGE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY OF COMPENSATION. CommScope Table I below sets forth a summary of
the compensation paid by the Company for the last three fiscal years to the
persons expected to be the Chief Executive Officer of CommScope and the four
additional most highly compensated executive officers of CommScope (based on
their historical compensation from the Company).
COMMSCOPE TABLE I
COMMSCOPE SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------- -------------
<S> <C> <C> <C> <C> <C>
SECURITIES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(A) OPTIONS(#)(B) COMPENSATION
- ------------------------------------------------------------ --------- ---------- --------- ------------- -------------
Frank M. Drendel............................................ 1996 $ 410,016 $ 93,275 24,000 $ 17,976(c)
President and Chief Executive Officer 1995 410,016 114,185 24,000 19,937
1994 398,808 163,757 72,000 17,154
Jearld L. Leonhardt......................................... 1996 $ 185,025 $ 51,224 -- $ 17,198(c)
Executive Vice President, Finance and Administration, and 1995 179,400 17,456 20,800 22,329
Treasurer 1994 172,280 40,244 10,400 16,573
Larry W. Nelson............................................. 1996 $ 205,092 $ 71,208 -- $ 17,224(c)
Executive Vice President, Development 1995 198,912 22,119 31,200 23,059
1994 191,012 54,506 15,400 16,151
Brian D. Garrett............................................ 1996 $ 169,842 $ 37,866 -- $ 16,603(c)
Executive Vice President, Operations 1995 156,864 71,457 21,600 21,884
1994 150,644 38,775 10,400 16,815
Frank J. Logan.............................................. 1996 $ 143,898 $ 37,471 -- $ 15,113(c)
Executive Vice President, International 1995 127,368 10,622 15,200 18,237
1994 122,308 25,073 6,900 13,599
</TABLE>
- ------------------------
(a) Amounts reported for 1996 reflect cash bonus awards paid pursuant to the
Annual Incentive Plan in 1997 with respect to performance in 1996. Amounts
reported for 1995 reflect cash bonus awards paid pursuant to the Annual
Incentive Plan in 1996 with respect to performance in 1995. Amounts reported
for 1994 reflect cash bonus awards paid pursuant to the Annual Incentive
Plan in 1995 with respect to performance in 1994.
(b) Reflects the number of shares of GI Common Stock underlying options
granted. All of the options were granted pursuant to the 1993 Long-Term
Incentive Plan. Each grant set forth for 1994 was made in connection with
the cancellation of an option to purchase the same number of shares,
previously granted in 1994. Those options granted and subsequently canceled
in 1994, are not reflected in the table for the named executive officer.
(c) Reflects (i) the matching contribution under the CommScope Savings Plan in
the amount of $2,733, $2,759, $2,718, $2,244 and $1,878 for 1996 on behalf
of Messrs. Drendel, Leonhardt, Nelson, Garrett and Logan, respectively, (ii)
the allocation of $13,813, $13,813, $13,813, $13,813 and $12,790 to the
account of Messrs. Drendel, Leonhardt, Nelson, Garrett and Logan,
respectively, under the CommScope Savings Plan for 1996 and (iii) payment by
CommScope NC in 1996 of premiums of $1,430,
131
<PAGE>
$626, $693, $546 and $445 for term life insurance on behalf of Messrs.
Drendel, Leonhardt, Nelson, Garrett and Logan, respectively.
STOCK OPTIONS
GRANT OF OPTIONS. CommScope Table II below sets forth information with
respect to grants of options to purchase GI Common Stock during the year ended
December 31, 1996 to the executives listed in CommScope Table I. These grants
were made pursuant to the 1993 Long-Term Incentive Plan and are reflected in
CommScope Table I.
COMMSCOPE TABLE II
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------------ VALUE AT ASSUMED ANNUAL
PERCENT OF TOTAL RATES OF STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR OPTION
SECURITIES GRANTED TO EXERCISE TERM
UNDERLYING OPTIONS EMPLOYEES IN PRICE ------------------------
NAME GRANTED(#) FISCAL YEAR(A) ($/SH)(B) EXPIRATION DATE 5%($) 10%($)
- --------------------------- ------------------- ------------------- ------------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Frank M. Drendel........... 24,000(c) 1.3 $ 27.25 2/14/06 $ 412,020 $ 1,039,860
Jearld L. Leonhardt........ -- -- -- -- -- --
Larry W. Nelson............ -- -- -- -- -- --
Brian D. Garrett........... -- -- -- -- -- --
Frank J. Logan............. -- -- -- -- -- --
</TABLE>
- ------------------------
(a) Percentages included are based on a total of 1,789,676 options granted to
245 employees of the Company during 1996.
(b) The Board of Directors has authorized the Company to offer to the optionees
that these options be cancelled as of January 10, 1997, and new options in
respect of the same number of shares ("repriced options") be granted as of
such date at an exercise price of $23.125 per share, the closing market
price per share of the GI Common Stock on such date. The repriced options
would become exercisable with respect to one-third of the shares covered
thereby on each of the following dates: July 10, 1997, January 10, 1998 and
January 10, 1999. The price reported here is the exercise price on the date
of grant which equaled the closing market price per share of GI Common Stock
on the date of grant.
(c) The option becomes exercisable with respect to one-third of the shares
covered thereby on February 14 in each of 1997, 1998 and 1999.
AGGREGATED OPTION EXERCISES AND YEAR-END VALUE. The following table sets
forth as of December 31, 1996, for each of the executives listed in CommScope
Table I (i) the total number of shares received upon exercise of options during
1996, (ii) the value realized upon such exercise, (iii) the total number of
unexercised options to purchase GI Common Stock (exercisable and unexercisable)
and (iv) the value of such options which were in-the-money at December 31, 1996
(based on the difference between the closing price of GI Common Stock at
December 31, 1996 and the exercise price of the option on such date).
132
<PAGE>
COMMSCOPE TABLE III
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
STOCK THE-MONEY STOCK
OPTIONS OPTIONS AT
SHARES AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(A)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank M. Drendel............ 17,000 $ 272,000 56,000 72,500 $ -- $ 49,938
Jearld L. Leonhardt......... -- -- 21,366 21,084 44,063 22,031
Larry W. Nelson............. 10,800 187,650 20,665 31,335 -- 31,725
Brian D. Garrett............ -- -- 19,333 20,467 30,550 15,275
Frank J. Logan.............. -- -- 15,516 14,384 34,369 11,456
</TABLE>
- ------------------------
(a) Based on the difference between the closing price of $21.75 per share at
December 31, 1996, as reported on the NYSE Composite Tape and the exercise
price of the option on such date.
COMMSCOPE SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
CommScope NC maintains the CommScope Supplemental Executive Retirement Plan
(the "CommScope SERP") for the benefit of certain executives of CommScope NC and
its subsidiaries. The CommScope SERP provides for the payment of a monthly
retirement (or early retirement) benefit to participants who retire from
CommScope NC on or after age 65 (or, for early retirement benefits, on or after
age 55 with 10 years of service). All individuals who were participants in the
CommScope SERP on August 22, 1990, including Messrs. Drendel, Leonhardt, Nelson,
Garrett and Logan, are fully vested in their benefits under the CommScope SERP
and, thus, could retire prior to attaining age 65 (or age 55 in the case of
early retirement) and receive a deferred benefit.
The benefits provided under the CommScope SERP are payable over 15 years and
are equal to a specified percentage, which does not exceed 50%, of the
participant's highest consecutive 12 months earnings during the participant's
final 60 months of employment. Early retirement benefits are subject to
actuarial reductions. Based on compensation earned for the calendar year which
ended December 31, 1996, the estimated annual benefit payable to Messrs.
Drendel, Leonhardt, Nelson, Garrett and Logan on or after attaining age 65 are
$136,671, $61,674, $68,363, $63,280 and $47,895.
EMPLOYMENT ARRANGEMENTS
See "The Annual Meeting Proposals--Proposal Five: Election of
Directors--Employment Arrangements" for a description of the employment
agreement between the Company, CommScope NC and Mr. Drendel.
THE COMMSCOPE 1997 LONG-TERM INCENTIVE PLAN
GENERAL
The CommScope Incentive Plan is expected to be adopted by the CommScope
Board and GI Delaware, as sole stockholder of CommScope, prior to the
Distribution. The CommScope Incentive Plan will provide for granting of options,
stock appreciation rights, restricted stock, performance units, performance
shares and phantom stock to employees of CommScope and its subsidiaries and
granting of options to non-employee directors of CommScope (collectively or
individually, "CommScope Awards").
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One of CommScope's principal methods to attract and retain key employees
will be the grant of Options pursuant to the CommScope Incentive Plan. CommScope
believes that it is in its best interests to grant Options in order (i) to
attract and retain key employees and (ii) to provide additional incentive and
reward opportunities to current employees to encourage them to enhance the
profitable growth of CommScope.
The principal provisions of the CommScope Incentive Plan are summarized
below. This summary, however, does not purport to be complete and is qualified
in its entirety by the terms of the CommScope Incentive Plan which has been
filed as an exhibit to the Registration Statement of which this Proxy Statement
is a part. All capitalized terms used below have the meaning set forth in the
CommScope Incentive Plan, unless otherwise indicated.
PURPOSE OF THE COMMSCOPE INCENTIVE PLAN
The CommScope Board believes that the CommScope Awards will provide a means
by which key employees and directors of CommScope and its subsidiaries can
acquire and maintain stock ownership, thereby strengthening their commitment to
the success of CommScope and its subsidiaries and their desire to remain
employed by CommScope and its subsidiaries, focusing their attention on managing
CommScope as an equity owner, and aligning their interests with those of
CommScope's stockholders. The CommScope Incentive Plan also is intended to
attract and retain key employees and to provide those employees with additional
incentive and reward opportunities designed to encourage them to enhance the
profitable growth of CommScope and its subsidiaries.
DESCRIPTION OF THE COMMSCOPE INCENTIVE PLAN
The CommScope Incentive Plan will be administered by the Committee initially
consisting of at least two directors of CommScope who are "nonemployee
directors" within the meaning of Rule 16b-3 promulgated under Section 16(b) of
the Exchange Act, but the number of directors on the Committee may be changed in
accordance with law. In addition, with respect to CommScope Awards to be granted
to participants who are not subject to Section 16 of the Exchange Act, the
authority of the Committee may be exercised by the full Board or by a committee,
consisting of at least one individual, appointed by the Board. The Committee
will (i) select those employees to whom CommScope Awards will be granted, and
(ii) determine the type, the size and the terms and conditions of CommScope
Awards, including the per share purchase price of restricted stock and Options,
the vesting provisions of restricted stock, phantom stock and Options, and the
restrictions or performance criteria relating to restricted stock, phantom
stock, performance units and performance shares. The Committee will also
construe and interpret the CommScope Incentive Plan. The Committee will have the
authority to cancel outstanding CommScope Awards and make adjustments to
outstanding CommScope Awards with the consent of the Grantee and to accelerate
the exercisability of CommScope Awards or to waive the restrictions and
conditions applicable to CommScope Awards.
The maximum number of shares of CommScope Common Stock with respect to which
Options and stock appreciation rights may be granted to any individual over the
term of the plan is 440,000, in addition to any shares covered by Substitute
Options held by the individual. The maximum number of shares of CommScope Common
Stock that may be made the subject of CommScope Awards granted under the
CommScope Incentive Plan will be the number of shares necessary to issue
Substitute Options under the CommScope Incentive Plan plus 2,200,000. In the
event of any Change in Capitalization, however, the Committee may adjust the
maximum number and class of shares with respect to which CommScope Awards may be
granted, the number and class of shares which are subject to outstanding
CommScope Awards and the purchase price therefor. In addition, if any CommScope
Award is canceled or expires or terminates without having been exercised, the
shares of CommScope Common Stock subject to that CommScope Award again become
available for grant under the CommScope Incentive Plan. Of the total
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number of shares allotted under the CommScope Incentive Plan, not more than
one-third may be used for restricted stock and phantom stock CommScope Awards.
ELIGIBILITY. Any of CommScope's and its subsidiaries' approximately 2,600
employees and any of CommScope's non-employee directors is eligible to
participate in the CommScope Incentive Plan.
OPTIONS. Pursuant to the CommScope Incentive Plan, the Committee will grant
to each non-employee director of CommScope Nonqualified Stock Options to
purchase 20,000 shares of CommScope Common Stock in connection with his or her
initial election of the Board. Options to be granted to non-employee directors
in connection with their initial election as directors of CommScope will be
subject to the following terms. Each Option granted to a nonemployee director
will be exercisable with respect to one-third of the underlying shares on each
of the first, second and third anniversaries of the Grant Date. If a director
ceases to serve as a director of CommScope for any reason, the Option will be
exercisable, during the remaining term of the Option, to the extent that the
Option was exercisable on the date the director ceases to serve as a director.
The CommScope Incentive Plan also provides for additional CommScope Awards of
Options in respect of 20,000 shares of CommScope Common Stock on each third
anniversary of each non-employee director's first appointment to the Board, if
such non-employee director is still serving on the Board.
In addition, the Committee may grant Nonqualified Stock Options and
Incentive Stock Options to any eligible employee of CommScope or its
subsidiaries. The per share exercise price of the Options is fixed by the
Committee when the Options are granted and must be at least, and in the case of
Options granted to non-employee directors will be, 100% of the Fair Market Value
of the CommScope Common Stock on the Option Grant Date (110% in the case of an
Incentive Stock Option granted to a 10% Owner).
Each Option (other than Options granted to non-employee directors) will be
exercisable at the times and in the installments determined by the Committee,
commencing not earlier than the first anniversary of the Option Grant Date. All
outstanding Options will become fully exercisable upon a Change of Control. In
addition, the Committee reserves the authority to accelerate the exercisability
of any Option (other than Options granted to non-employee directors). Each
Option terminates at the time determined by the Committee, except that the term
of each Option may not exceed, and in the case of Options granted to
non-employee directors will be, ten years (five years in the case of an
Incentive Stock Option granted to a 10% Owner). Options are not transferable by
the Grantee except by will or the laws of descent and distribution or pursuant
to a domestic relations order (within the meaning of Rule 16a-12 promulgated
under the Exchange Act) and may be exercised during the Grantee's lifetime only
by the Grantee or the Grantee's guardian or legal representative. In the
discretion of the Committee, the purchase price for shares acquired pursuant to
the exercise of an Option may be paid (i) in cash, (ii) by transferring shares
of restricted or unrestricted CommScope Common Stock to CommScope, or (iii) by a
combination of the foregoing.
STOCK APPRECIATION RIGHTS. The CommScope Incentive Plan permits the
granting of stock appreciation rights to employees of CommScope or a Subsidiary
in connection with an Option or other CommScope Award or as a freestanding
right. A stock appreciation right permits the Grantee to receive, upon exercise
of the stock appreciation right, cash and/or shares, at the discretion of the
Committee, equal in value to the excess, if any, of the then per share Fair
Market Value over the per share Fair Market Value on the Grant Date of the stock
appreciation right, multiplied by the number of shares as to which the stock
appreciation right is being exercised. When a stock appreciation right is
granted, however, the Committee may establish a limit on the maximum amount the
Grantee may receive upon exercise of the stock appreciation right. The Committee
will decide when each stock appreciation right is granted the time or times when
the stock appreciation right will be exercisable, commencing not earlier than
the first anniversary of the Grant Date. However, the Committee reserves the
authority to thereafter accelerate the exercisability of any stock appreciation
right.
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RESTRICTED STOCK. The Committee will determine when each restricted stock
CommScope Award is made, the terms of the restricted stock CommScope Award,
including the price, if any, to be paid by the Grantee for the restricted stock,
the restrictions placed on the shares and the time or times when the
restrictions will lapse. In addition, when the restricted stock is granted under
the Plan, the Committee may, in its discretion, decide: (i) whether dividends
paid on the restricted stock will be remitted to the Grantee or deferred until
the restrictions on the restricted stock CommScope Award lapse, (ii) whether any
deferred dividends will be invested in additional shares of CommScope Common
Stock, (iii) whether interest will be accrued on any dividends not reinvested in
additional shares of restricted stock, (iv) whether any stock dividends paid on
the restricted stock CommScope Award will be subject to the restrictions
applicable to the restricted stock CommScope Award, and (v) whether, and to what
extent, the restrictions on the restricted stock shall lapse upon a Change of
Control.
PERFORMANCE UNITS AND PERFORMANCE SHARES. Performance units and performance
shares will be awarded as the Committee may determine, and the vesting of
performance units and performance shares will be based upon CommScope's
attainment of specified performance objectives within the Measuring Period.
Performance objectives and the length of the Measuring Period for performance
units and performance shares will be determined by the Committee when the
CommScope Award is made, but no Measuring Period will be less than one year nor
more than five years. Prior to the end of a Measuring Period, the Committee, in
its discretion, may adjust the performance objectives to reflect any Change in
Capitalization or other event which may materially affect the performance of
CommScope or any Subsidiary. The agreements evidencing CommScope Awards of
performance units and performance shares will set forth the terms and conditions
of the CommScope Awards, including those applicable in the event of the
Grantee's Termination of Employment or a Change of Control. Performance units
may be denominated in dollars or in shares of CommScope Common Stock, and
payments in respect of vested performance units will be made in cash or shares
of CommScope Common Stock or any combination of the foregoing, as determined by
the Committee. Performance shares are initially denominated in shares of
CommScope Common Stock, but the Committee may ultimately settle performance
share CommScope Awards in cash, shares of CommScope Common Stock or a
combination thereof, at its discretion.
PHANTOM STOCK. The Committee may grant phantom stock to employees employed
outside the United States, subject to the terms and conditions established by
the Committee. Upon the vesting of a phantom stock CommScope Award, the Grantee
will be entitled to receive a cash payment in respect of each share of phantom
stock equal to the Fair Market Value of a share of CommScope Common Stock as of
the date the phantom stock CommScope Award was granted or such other date as
determined by the Committee when the phantom stock CommScope Award was granted.
The Committee may, when a phantom stock CommScope Award is granted, provide a
limitation on the amount payable in respect of each share of phantom stock.
TANDEM AWARDS. The CommScope Incentive Plan provides that the Committee may
grant any CommScope Award in tandem with another CommScope Award. Unless
otherwise provided by the Committee, upon the exercise, payment or forfeiture of
one tandem CommScope Award, the related tandem CommScope Award will be canceled
to the extent of the number of shares as to which the tandem CommScope Award is
so exercised, paid or forfeited.
AMENDMENT AND TERMINATION. The CommScope Incentive Plan will terminate on
the tenth anniversary of its adoption in 2007. However, the Board of Directors
may sooner terminate or amend the CommScope Incentive Plan at any time without
stockholder approval, except where stockholder approval is required to retain
the favorable tax treatment of Incentive Stock Options under the Code, to
qualify the shares offered under the CommScope Incentive Plan for listing on any
securities exchange, or is otherwise required by law. The termination of the
CommScope Incentive Plan will not affect then outstanding CommScope Awards.
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AWARDS UNDER THE COMMSCOPE INCENTIVE PLAN. Effective as of the
Distribution, Nonqualified Stock Options will be issued under the CommScope
Incentive Plan to officers, key employees and non-employee directors to replace
options awarded under the 1993 Long-Term Incentive Plan. See "The Distribution
Proposals--Proposal One: The Distribution--Relationship Among NextLevel Systems,
CommScope and General Semiconductor After the Distribution--Employee Benefits
Allocation Agreement" for a description of how the number of shares subject to
such awards and the exercise price thereof will be determined.
The terms and conditions of each Substitute Option issued under the
CommScope Incentive Plan, including, without limitation, the time or times when,
and the manner in which, each shall be exercisable, the duration of the exercise
period, the permitted method of exercise, settlement and payment, and the rules
that shall apply in the event of the termination of employment, shall be the
same as those of the surrendered Company award.
Future CommScope Awards under the CommScope Incentive Plan are not
determinable because they are made at the discretion of the Committee.
OWNERSHIP OF COMMSCOPE COMMON STOCK
CommScope is a wholly owned subsidiary of the Company. CommScope Table IV
sets forth information as to the beneficial ownership of CommScope Common Stock
as of the Distribution Date (and following the Distribution) as if the
Distribution took place on , 1997 by all expected directors and the
persons listed in CommScope Table I as well as by directors and executive
officers of CommScope as a group and, to the best knowledge of CommScope's
management, beneficial owners of 5% or more of CommScope Common Stock after the
Distribution. The information in CommScope Table IV is based on the ownership of
GI Common Stock as of , 1997 and the number of shares of CommScope Common
Stock expected to be distributed to each existing Company stockholder in the
Distribution.
COMMSCOPE TABLE IV
<TABLE>
<CAPTION>
% OF SHARES OUTSTANDING
(NET
SHARES OF COMMSCOPE OF TREASURY SHARES)
COMMON STOCK EXPECTED TO EXPECTED
NAME BE BENEFICIALLY OWNED(1) TO BE BENEFICIALLY OWNED
- ---------------------------------------------------------- ------------------------- ---------------------------
<S> <C> <C>
MBO-IV(2).................................................
Instrument Partners(2)....................................
Oppenheimer Group, Inc.(3)................................
Brinson Partners, Inc.(4).................................
J.P. Morgan & Co. Incorporated(5).........................
Frank M. Drendel(6).......................................
Nicholas C. Forstmann(2)..................................
Theodore J. Forstmann(2)..................................
Brian D. Garrett..........................................
William R. Gooden.........................................
Winston W. Hutchins(2)....................................
Steven B. Klinsky(2)......................................
Jearld L. Leonhardt.......................................
Wm. Brian Little(2).......................................
Frank J. Logan............................................
Larry W. Nelson...........................................
John A. Sprague(2)........................................
Gene W. Swithenbank.......................................
All current directors and officers of CommScope as a group
( persons)(2)..........................................
</TABLE>
- ------------------------
* The percentage of shares of CommScope Common Stock expected to be
beneficially owned does not exceed one percent of the shares of CommScope
Common Stock expected to be outstanding.
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(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of CommScope Common Stock which such
person has the right to acquire within 60 days following , 1997. For
purposes of computing the percentage of outstanding shares of CommScope
Common Stock held by each person or group of persons named above, any
security which such person or persons has or have the right to acquire
within 60 days following , 1997 is deemed to be outstanding, but is
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(2) The general partner of Instrument Partners, a New York limited partnership
("Instrument Partners"), is FLC XXII Partnership, a general partnership of
which Messrs. Wm. Brian Little, Nicholas C. Forstmann, John A. Sprague,
Steven B. Klinsky and Winston W. Hutchins, and TJ/JA L.P., a Delaware
limited partnership ("TJ/JA L.P."), are general partners. The general
partner of TJ/JA L.P. is Theodore J. Forstmann. The general partner of
Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership-IV, a New York limited partnership ("MBO-IV"), is FLC
Partnership, L.P., a limited partnership of which Messrs. Theodore J.
Forstmann, Nicholas C. Forstmann, Steven B. Klinsky, Winston W. Hutchins,
Ms. Sandra J. Horbach and Mr. Thomas H. Lister are general partners.
Accordingly, each of such individuals and partnerships (other than Ms.
Horbach and Mr. Lister for the reasons described below) may be deemed the
beneficial owners of shares owned by MBO-IV and Instrument Partners in
which such individual or partnership is a general partner and, for
purposes of this table, such beneficial ownership is included. Ms. Horbach
and Mr. Lister do not have any voting or investment power with respect to,
or any economic interest in, the shares of CommScope Common Stock held by
MBO-IV; and, accordingly, Ms. Horbach and Mr. Lister are not deemed to be
the beneficial owners thereof. Theodore J. Forstmann and Nicholas C.
Forstmann are brothers. Mr. Little is a special limited partner in FLC
Partnership, L.P. and each of FLC Partnership, L.P. and FLC XXII
Partnership is a limited partner of Instrument Partners. None of the other
limited partners in each of MBO-IV and Instrument Partners is otherwise
affiliated with the Company, GI Delaware or Forstmann Little & Co. The
address of MBO-IV and Instrument Partners is c/o Forstmann Little & Co.,
767 Fifth Avenue, New York, New York 10153.
(3) This information is obtained from a Schedule 13G, dated February 20, 1997,
filed with the Commission jointly by Oppenheimer Group, Inc.
("Oppenheimer") and Oppenheimer Capital. Oppenheimer reports beneficial
ownership of 13,970,650 shares of GI Common Stock and claims shared voting
power and shared dispositive power with respect to all of such shares.
Oppenheimer Capital, a registered investment advisor and a subsidiary of
Oppenheimer, reports beneficial ownership of 13,929,450 of such shares and
claims shared voting power and shared dispositive power with respect to
all 13,929,450 shares. The Schedule 13G states that: Oppenheimer is a
holding and service company owning a variety of companies engaged in the
securities business; 70.78% of the issued and outstanding common stock of
Oppenheimer is owned by Oppenheimer & Co., L.P. ("Oppenheimer LP"); and
management of the affairs of Oppenheimer's subsidiaries and of certain
investment advisory clients, including decisions respecting disposition
and/or voting of the shares of GI Common Stock, resides in the respective
officers and directors of such companies and is not directed by
Oppenheimer or Oppenheimer LP. The address of the principal business of
each of Oppenheimer and Oppenheimer Capital is Oppenheimer Tower, World
Financial Center, New York, New York 10281.
(4) This information is obtained from a Schedule 13G, dated February 12, 1997,
filed with the Commission by Brinson Partners, Inc. ("BPI") on behalf of
itself, Brinson Trust Company ("BTC"), Brinson Holdings, Inc. ("BHI"), SBC
Holding (USA), Inc. ("SBUSA") and Swiss Bank Corporation ("SBC"). BTC is a
wholly owned subsidiary of BPI. The Schedule 13G states that: BPI is a
wholly owned subsidiary of BHI; BHI is a wholly owned subsidiary of SBUSA;
and SBUSA is a wholly owned subsidiary of SBC. BPI reports beneficial
ownership of 11,305,062 shares of GI Common Stock and claims shared voting
power and shared dispositive power with respect to all of such shares. BTC
reports beneficial ownership of 2,268,600 shares of GI Common Stock and
claims shared voting power and shared dispositive power with respect to
all of such shares. BHI reports beneficial ownership of 11,305,062 shares
of GI Common Stock and claims shared voting power and shared dispositive
power with respect to all of such shares. SBUSA reports beneficial
ownership of
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11,406,476 shares of GI Common Stock and claims shared voting power and
shared dispositive power with respect to all of such shares. SBC reports
beneficial ownership of 11,406,476 shares of GI Common Stock and claims
shared voting power and shared dispositive power with respect to all of
such shares. The Schedule 13G states that by virtue of their corporate
relationships, SBC, SBUSA, BHI and BPI may be deemed to beneficially own
and have the power to dispose and vote or direct the disposition or voting
of the GI Common Stock held by BTC and BPI. Each of BPI, BTC and BHI's
principal business office is located at 209 South LaSalle, Chicago,
Illinois 60604-1295. SBUSA's principal business office is located at 222
Broadway, New York, New York 10038. SBC's principal business office is
located at Aeschenplatz 6, CH-4022, Basel, Switzerland.
(5) This information is obtained from a Schedule 13G, dated January 31, 1997,
filed with the Commission by J.P. Morgan & Co. Incorporated. J.P. Morgan &
Co. Incorporated reports beneficial ownership of 10,113,201 shares as
follows: 9,690,046 shares and 423,155 shares where there is a right to
acquire. J.P. Morgan & Co. Incorporated claims sole voting power with
respect to 6,549,568 shares, shared voting power with respect to 65,105
shares, sole dispositive power with respect to 9,976,366 shares and shared
dispositive power with respect to 130,285 shares. J.P. Morgan & Co.
Incorporated's principal business office is located at 60 Wall Street, New
York, New York 10260.
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MANAGEMENT OF GENERAL SEMICONDUCTOR
BOARD OF DIRECTORS OF GENERAL SEMICONDUCTOR
Immediately prior to the Distribution, all of the current members of the
Board of Directors of the Company (other than ) are expected to
resign, and be replaced with new directors. The Board of Directors of
General Semiconductor (the "General Semiconductor Board") is expected to consist
of directors after the Distribution.
The following table sets forth names, in alphabetical order, and information
as to the persons who are expected to serve as directors of General
Semiconductor after the Distribution:
<TABLE>
<CAPTION>
NAME, AGE AND CURRENT
PRINCIPAL OCCUPATION INFORMATION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
</TABLE>
The Company's Board of Directors is currently divided into three classes,
with terms expiring in succeeding years. If Proposal Four is approved by the
stockholders, the General Semiconductor Board will not continue to be so
classified. See "The Annual Meeting Proposals--Proposal Four: Approval of
Amendment to Certificate of Incorporation to Declassify the Board of Directors
of the Company." Accordingly, the proposed directors of General Semiconductor
after the Distribution have not been assigned to classes, but will be so
assigned if Proposal Four is not approved.
COMPENSATION OF DIRECTORS
Employee directors will not receive additional compensation for serving on
the General Semiconductor Board. Non-employee directors will receive an annual
retainer of $25,000 and committee chairmen will receive an additional $5,000
annual retainer. The non-employee directors' remuneration will be paid annually,
unless payment is deferred. In addition, each director, upon election to the
General Semiconductor Board, will receive 1,000 shares of restricted General
Semiconductor Common Stock which will be vested immediately and will be granted
an option to purchase 20,000 shares of General Semiconductor Common Stock at an
exercise price per share equal to the fair market value on the date of grant,
which option becomes exercisable with respect to one-third of the underlying
shares on each of the first three anniversaries of the grant date. If a director
remains in office, a similar option will be granted every three years.
COMMITTEES OF THE BOARD OF DIRECTORS
The business of General Semiconductor will be managed under the direction of
the General Semiconductor Board. The Company's Board of Directors currently has
three standing committees: Executive, Audit and Compensation. General
Semiconductor will maintain each such committee after the Distribution. For a
description of the principal functions of each such committee, see "The Annual
Meeting Proposals--The Board of Directors and Committees of the Board." General
Semiconductor will consider nominees to the General Semiconductor Board
recommended by stockholders of General Semiconductor in accordance with the
current nomination procedures of the Company.
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<PAGE>
EXECUTIVE OFFICERS
Set forth below is certain information with respect to the persons who are
expected to serve as executive officers of General Semiconductor immediately
following the Distribution.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE PRIOR TO BECOMING AN
NAME AND TITLE AGE EXECUTIVE OFFICER OF GENERAL SEMICONDUCTOR
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Ronald A. Ostertag................................... 56 Mr. Ostertag has been Vice President of the Company
President and Chief Executive Officer since February 1989 and President of the Power
Semiconductor Division since September 1990.
Andrew M. Caggia..................................... 48 Mr. Caggia has been Senior Vice President, Finance of
Senior Vice President, Finance the Power Semiconductor Division since September
1990.
Vincent M. Guercio................................... 43 Mr. Guercio has been Senior Vice President, Worldwide
Senior Vice President, Worldwide Sales and Sales and Marketing of the Power Semiconductor
Marketing Division since January 1992.
W. John Nelson....................................... 42 Mr. Nelson has been Senior Vice President, Worldwide
Senior Vice President, Worldwide Operations Operations of the Power Semiconductor Division since
March 1994. From 1991 to 1994, he was President of GI
Taiwan.
John P. Phillips..................................... 52 Mr. Phillips has been Senior Vice President,
Senior Vice President, Worldwide Technology Worldwide Technology of the Power Semiconductor
Division since March 1992.
</TABLE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY OF COMPENSATION. General Semiconductor Table I below sets forth a
summary of the compensation paid by the Company for the last three fiscal years
to the person expected to be the Chief Executive Officer of General
Semiconductor and the four additional most highly compensated executive officers
of General Semiconductor immediately after the Distribution (based on their
historical compensation from the Company).
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<PAGE>
GENERAL SEMICONDUCTOR TABLE I
GENERAL SEMICONDUCTOR SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(A) COMPENSATION(B) OPTIONS(#)(C) COMPENSATION
- ----------------------------------------- --------- --------- ----------- ---------------- --------------- ---------------
Ronald A. Ostertag....................... 1996 $ 320,000 $ -- $ -- 30,000 $ 5,460(d)
President and Chief Executive Officer 1995 305,000 195,810 -- 24,000 5,460
1994 280,000 110,122 -- 72,000 6,516
W. John Nelson........................... 1996 $ 215,209 $ -- $ 132,816(e) 7,000 $ 5,275(d)
Senior Vice President, Worldwide 1995 205,981 107,110 197,574(e) 31,200 5,242
Operations 1994 199,506 92,500 220,522(e) 23,600 5,218
Vincent M. Guercio....................... 1996 $ 185,622 $ -- $ -- 7,000 $ 5,168(d)
Senior Vice President, Worldwide Sales 1995 176,275 79,106 -- 20,245 5,135
and Marketing 1994 165,447 44,700 -- 6,960 5,096
Andrew M. Caggia......................... 1996 $ 168,743 $ -- $ -- 6,000 $ 5,107(d)
Senior Vice President, Finance 1995 161,277 73,381 -- 16,500 5,081
1994 154,249 41,700 -- 7,800 5,055
John P. Phillips......................... 1996 $ 165,919 $ -- $ -- -- $ 5,097(d)
Senior Vice President, Worldwide 1995 158,786 72,191 -- 17,200 5,072
Technology 1994 153,358 41,500 -- 7,000 5,052
</TABLE>
- ------------------------
(a) Amounts reported for 1995 reflect cash bonus awards paid pursuant to the
Annual Incentive Plan in 1996 with respect to performance in 1995. Amounts
reported for 1994 reflect cash bonus awards paid pursuant to the Annual
Incentive Plan in 1995 with respect to performance in 1994.
(b) Unless otherwise indicated, with respect to any individual named in the
above table, the aggregate amount of perquisites and other personal
benefits, securities or property was less than either $50,000 or 10% of the
total annual salary and bonus reported for the named executive officer.
(c) Reflects the number of shares of GI Common Stock underlying options granted.
All of the options were granted pursuant to the 1993 Long-Term Incentive
Plan. Each grant set forth for 1994 was made in connection with the
cancellation of an option to purchase the same number of shares, previously
granted in 1994.
(d) Reflects payment by the Company in 1996 of (i) premiums for term life
insurance of $960, $775, $668, $607 and $597 on behalf of each of Messrs.
Ostertag, Nelson, Guercio, Caggia and Phillips, respectively and (ii) the
matching contribution for 1996 by the Company under the Savings Plan in the
amount of $4,500 for each of Messrs. Ostertag, Nelson, Guercio, Caggia and
Phillips.
(e) Reflects relocation costs.
STOCK OPTIONS
GRANT OF OPTIONS. General Semiconductor Table II below sets forth
information with respect to grants of options to purchase GI Common Stock during
the year ended December 31, 1996 to the executives listed in General
Semiconductor Table I. These grants were made pursuant to the 1993 Long-Term
Incentive Plan and are reflected in General Semiconductor Table I.
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GENERAL SEMICONDUCTOR TABLE II
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED ANNUAL
-------------------------------------------------------------------- RATES OF STOCK PRICE
NUMBER OF PERCENT OF TOTAL APPRECIATION
SECURITIES OPTIONS GRANTED EXERCISE FOR OPTION TERM
UNDERLYING OPTIONS TO EMPLOYEES PRICE EXPIRATION ------------------------
NAME GRANTED(#) IN FISCAL YEAR(A) ($/SH) DATE 5%($) 10%($)
- ---------------------------------- ------------------- ------------------- ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ronald A. Ostertag................ 30,000(c) 1.7 $ 27.25(b) 2/14/06 $ 515,025 $ 1,299,825
W. John Nelson.................... 7,000(d) 0.4 22.50 1/12/06 62,512 250,425
Vincent M. Guercio................ 7,000(d) 0.4 22.50 1/12/06 62,512 250,425
Andrew M. Caggia.................. 6,000(d) 0.3 22.50 1/12/06 85,050 214,650
John P. Phillips.................. -- -- -- -- -- --
</TABLE>
- ------------------------
(a) Percentages included are based on a total of 1,789,676 options granted to
245 employees of the Company during 1996.
(b) The Board of Directors has authorized the Company to offer that these
options be cancelled as of January 10, 1997, and new options in respect of
the same number of shares ("repriced options") be granted as of such date at
an exercise price of $23.125 per share, the closing market price per share
of the GI Common Stock on such date. The repriced options would become
exercisable with respect to one-third of the shares covered thereby on each
of the following dates: July 10, 1997, January 10, 1998 and January 10,
1999. The price reported here is the exercise price on the date of grant
which equaled the closing market price per share of GI Common Stock on the
date of grant.
(c) The option becomes exercisable with respect to one-third of the shares
covered thereby on
February 14 in each of 1997, 1998 and 1999.
(d) The option becomes exercisable with respect to one-third of the shares
covered thereby on January 12 in each of 1997, 1998 and 1999.
AGGREGATED OPTION EXERCISES AND YEAR-END VALUE. The following table sets
forth as of December 31, 1996, for each of the executives listed in General
Semiconductor Table I (i) the total number of shares received upon exercise of
options during 1996, (ii) the value realized upon such exercise, (iii) the total
number of unexercised options to purchase GI Common Stock (exercisable and
unexercisable) and (iv) the value of such options which were in-the-money at
December 31, 1996 (based on the difference between the closing price of GI
Common Stock at December 31, 1996 and the exercise price of the option on such
date).
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<PAGE>
GENERAL SEMICONDUCTOR TABLE III
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY STOCK OPTIONS
STOCK OPTIONS AT AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(A)
-------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES
ACQUIRED ON VALUE
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ------------- ----------- ----------- ------------- ----------- -------------
Ronald A. Ostertag.............. -- -- 72,000 78,000 $ 94,000 $ 47,000
W. John Nelson.................. -- -- 31,132 40,668 29,375 29,375
Vincent M. Guercio.............. 2,500 $ 26,250 13,888 25,317 14,688 14,688
Andrew M. Caggia................ -- -- 17,450 21,850 39,656 13,219
John P. Phillips................ -- -- 12,799 16,201 14,100 14,100
</TABLE>
- ------------------------
(a) Based on the difference between the closing price of $21.75 per share at
December 31, 1996, as reported on the NYSE Composite Tape, and the exercise
price of the option on such date.
PENSION PLAN AND SERP
The following table shows, as of December 31, 1996, estimated aggregate
annual benefits payable upon retirement at age 65 under the GI Pension Plan and
the GI SERP.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS
UPON RETIREMENT, WITH
AVERAGE ANNUAL BASIC REMUNERATION YEARS OF SERVICE INDICATED
DURING SIXTY CONSECUTIVE CALENDAR ------------------------------------------
MONTHS PRIOR TO RETIREMENT 15 YEARS 20 YEARS 25 YEARS 30 YEARS
- ----------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$125,000......................................................... $ 26,057 $ 34,742 $ 43,428 $ 52,114
150,000......................................................... 31,682 42,242 52,803 63,364
175,000......................................................... 37,307 49,742 62,178 74,614
200,000......................................................... 42,932 57,242 71,553 85,864
225,000......................................................... 48,557 64,742 80,928 97,114
250,000......................................................... 54,182 72,242 90,303 108,364
300,000......................................................... 54,182 72,242 90,303 108,364
</TABLE>
The compensation covered by the GI Pension Plan and the GI SERP is
substantially that described under the "Salary" column of the Summary
Compensation Table. However, pursuant to Section 401(a)(17) of the Code, the
maximum amount of compensation that can be considered in computing benefits
under the GI Pension Plan for 1996 was $150,000. Under the GI SERP, compensation
for 1996 in excess of $150,000, but not exceeding $250,000, is considered in
computing benefits. Accordingly, the total compensation covered by the GI
Pension Plan and the GI SERP for the calendar year 1996 for each of Messrs.
Ostertag, Nelson, Guercio, Caggia and Phillips was $250,000, $215,209 , $185,622
, $168,743 and $165,919 . Credited years of service under both the GI Pension
Plan and the GI SERP as of December 31, 1996 are as follows: Mr. Ostertag, 18
years; Mr. Nelson, six years; Mr. Guercio, 22 years, Mr. Caggia, ten years and
Mr. Phillips, seven years. Estimated benefits set forth in the Pension Plan
Table were calculated on the basis of a single life annuity and Social Security
covered compensation as in effect during 1996. Such estimated benefits are not
subject to any deduction for Social Security or other offset amounts.
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<PAGE>
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
The named executive officers listed in General Semiconductor Table I have
executed letter agreements which provide for stay, sale and severance payments.
See "Severance Protection and Other Agreements."
OWNERSHIP OF GENERAL SEMICONDUCTOR COMMON STOCK
After the Distribution, the General Semiconductor Common Stock will remain
outstanding. General Semiconductor Table IV sets forth information as to the
beneficial ownership of General Semiconductor Common Stock as of the
Distribution Date (and following the Distribution) as if the Distribution took
place on , 1997 by all expected directors and the persons listed in
General Semiconductor Table I as well as by directors and executive officers of
General Semiconductor as a group and, to the best of General Semiconductor's
knowledge, beneficial owners of 5% or more of General Semiconductor Common Stock
after the Distribution. The information set forth below does not give effect to
the proposed for reverse stock split of the General Semiconductor Common
Stock. See "The Distribution Proposals-- Proposal Three: Approval of Amendment
to Certificate of Incorporation of the Company to Effect a Reverse Stock Split."
GENERAL SEMICONDUCTOR TABLE IV
<TABLE>
<CAPTION>
SHARES OF GENERAL % OF SHARES OUTSTANDING
SEMICONDUCTOR COMMON (NET EXPECTED
STOCK EXPECTED TO BE OF TREASURY SHARES)
NAME BENEFICIALLY OWNED(1) TO BE BENEFICIALLY OWNED
- ------------------------------------------------------------- ---------------------- -----------------------------
<S> <C> <C>
MBO-IV(2)....................................................
Instrument Partners(2).......................................
Oppenheimer Group, Inc.(3)...................................
Brinson Partners, Inc.(4)....................................
J.P. Morgan & Co. Incorporated (5)...........................
Andrew M. Caggia(6)..........................................
Nicholas C. Forstmann(2).....................................
Theodore J. Forstmann(2).....................................
Vincent M. Guercio(7)........................................
Winston W. Hutchins(2).......................................
Steven B. Klinsky(2).........................................
Wm. Brian Little(2)..........................................
W. John Nelson(8)............................................
Ronald A. Ostertag(9)(10)....................................
John P. Phillips (11)........................................
John A. Sprague(2)...........................................
All current directors and officers of General Semiconductor
as a group ( persons)(2)(9)(12)...........................
</TABLE>
- ------------------------
* The percentage of shares of General Semiconductor Common Stock expected to
be beneficially owned does not exceed one percent of the shares of General
Semiconductor Common Stock expected to be outstanding.
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of General Semiconductor Common Stock
which such person has the right to acquire within 60 days following
, 1997. For purposes of computing the percentage of outstanding
shares of General Semiconductor Common Stock held by each person or group of
persons named above, any security which such person or persons has or have
the right to acquire within 60 days
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<PAGE>
following , 1997 is deemed to be outstanding, but is not deemed to
be outstanding for the purpose of computing the percentage ownership of any
other person.
(2) The general partner of Instrument Partners, a New York limited partnership
("Instrument Partners"), is FLC XXII Partnership, a general partnership of
which Messrs. Wm. Brian Little, Nicholas C. Forstmann, John A. Sprague,
Steven B. Klinsky and Winston W. Hutchins, and TJ/JA L.P., a Delaware
limited partnership ("TJ/JA L.P."), are general partners. The general
partner of TJ/JA L.P. is Theodore J. Forstmann. The general partner of
Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership-IV, a New York limited partnership ("MBO-IV"), is FLC
Partnership, L.P., a limited partnership of which Messrs. Theodore J.
Forstmann, Nicholas C. Forstmann, Steven B. Klinsky, Winston W. Hutchins,
Ms. Sandra J. Horbach and Mr. Thomas H. Lister are general partners.
Accordingly, each of such individuals and partnerships (other than Ms.
Horbach and Mr. Lister for the reasons described below) may be deemed the
beneficial owners of shares owned by MBO-IV and Instrument Partners in which
such individual or partnership is a general partner and, for purposes of
this table, such beneficial ownership is included. Ms. Horbach and Mr.
Lister do not have any voting or investment power with respect to, or any
economic interest in, the shares of GI Common Stock held by MBO-IV; and,
accordingly Ms. Horbach and Mr. Lister are not deemed to be the beneficial
owners thereof. Theodore J. Forstmann and Nicholas C. Forstmann are
brothers. Mr. Little is a special limited partner in FLC Partnership, L.P.
and each of FLC Partnership, L.P. and FLC XXII Partnership is a limited
partner of Instrument Partners. None of the other limited partners in each
of MBO-IV and Instrument Partners is otherwise affiliated with the Company,
General Semiconductor Delaware or Forstmann Little & Co. The address of
MBO-IV and Instrument Partners is c/o Forstmann Little & Co., 767 Fifth
Avenue, New York, New York 10153.
(3) This information is obtained from a Schedule 13G, dated February 20, 1997,
filed with the Commission jointly by Oppenheimer Group, Inc. ("Oppenheimer")
and Oppenheimer Capital. Oppenheimer reports beneficial ownership of
13,970,650 shares of GI Common Stock and claims shared voting power and
shared dispositive power with respect to all of such shares. Oppenheimer
Capital, a registered investment advisor and a subsidiary of Oppenheimer,
reports beneficial ownership of 13,929,450 of such shares and claims shared
voting power and shared dispositive power with respect to all 13,929,450
shares. The Schedule 13G states that: Oppenheimer is a holding and service
company owning a variety of companies engaged in the securities business;
70.78% of the issued and outstanding common stock of Oppenheimer is owned by
Oppenheimer & Co., L.P. ("Oppenheimer LP"); and management of the affairs of
Oppenheimer's subsidiaries and of certain investment advisory clients,
including decisions respecting disposition and/or voting of the shares of GI
Common Stock, resides in the respective officers and directors of such
companies and is not directed by Oppenheimer or Oppenheimer LP. The address
of the principal business of each of Oppenheimer and Oppenheimer Capital is
Oppenheimer Tower, World Financial Center, New York, New York 10281.
(4) This information is obtained from a Schedule 13G, dated February 12, 1997,
filed with the Commission by Brinson Partners, Inc. ("BPI") on behalf of
itself, Brinson Trust Company ("BTC"), Brinson Holdings, Inc. ("BHI"), SBC
Holding (USA), Inc. ("SBUSA") and Swiss Bank Corporation ("SBC"). BTC is a
wholly owned subsidiary of BPI. The Schedule 13G states that: BPI is a
wholly owned subsidiary of BHI; BHI is a wholly owned subsidiary of SBUSA;
and SBUSA is a wholly owned subsidiary of SBC. BPI reports beneficial
ownership of 11,305,062 shares of GI Common Stock and claims shared voting
power and shared dispositive power with respect to all of such shares. BTC
reports beneficial ownership of 2,268,600 shares of GI Common Stock and
claims shared voting power and shared dispositive power with respect to all
of such shares. BHI reports beneficial ownership of 11,305,062 shares of GI
Common Stock and claims shared voting power and shared dispositive power
with respect to all of such shares. SBUSA reports beneficial ownership of
11,406,476 shares of GI Common Stock and claims shared voting power and
shared dispositive power with respect to all of such shares. SBC reports
beneficial ownership of 11,406,476 shares of GI Common Stock and claims
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<PAGE>
shared voting power and shared dispositive power with respect to all of such
shares. The Schedule 13G states that by virtue of their corporate
relationships, SBC, SBUSA, BHI and BPI may be deemed to beneficially own and
have the power to dispose and vote or direct the disposition or voting of
the GI Common Stock held by BTC and BPI. Each of BPI, BTC and BHI's
principal business office is located at 209 South LaSalle, Chicago, Illinois
60604-1295. SBUSA's principal business office is located at 222 Broadway,
New York, New York 10038. SBC's principal business office is located at
Aeschenplatz 6 CH-4022, Basel, Switzerland.
(5) This information is obtained from a Schedule 13G, dated January 31, 1997,
filed with the Commission by J.P. Morgan & Co. Incorporated. J.P. Morgan &
Co. Incorporated reports beneficial ownership of 10,113,201 shares as
follows: 9,690,046 shares and 423,155 shares where there is a right to
acquire. J.P. Morgan & Co. Incorporated claims sole voting power with
respect to 6,549,568 shares, shared voting power with respect to 65,105
shares, sole dispositive power with respect to 9,976,366 shares and shared
dispositive power with respect to 130,285 shares. J.P. Morgan & Co.
Incorporated's principal business office is located at 60 Wall Street, New
York, New York 10260.
147
<PAGE>
DESCRIPTION OF NEXTLEVEL SYSTEMS CAPITAL STOCK
GENERAL
Pursuant to NextLevel Systems' Amended and Restated Certificate of
Incorporation which will be in effect at the time of the Distribution, the
authorized capital stock of NextLevel Systems consists of (i) 400,000,000 shares
of NextLevel Systems Common Stock of which shares will be issued and
outstanding upon consummation of the Distribution (based on the number of shares
of GI Common Stock outstanding as of , 1997) and (ii) 20,000,000
shares of preferred stock, $.01 par value per share ("NextLevel Systems
Preferred Stock"), none of which will be issued and outstanding upon
consummation of the Distribution. All outstanding shares of NextLevel Systems
Common Stock are, and the shares to be issued in the Distribution will be,
validly issued, fully paid and nonassessable.
NEXTLEVEL SYSTEMS COMMON STOCK
Each holder of NextLevel Systems Common Stock is entitled to one vote for
each share owned of record on all matters submitted to a vote of stockholders.
There are no cumulative voting rights. Accordingly, the holders of a majority of
the shares voting for the election of directors can elect all the directors if
they choose to do so, subject to any voting rights of holders of NextLevel
Systems Preferred Stock to elect directors. Subject to the preferential rights
of any outstanding series of NextLevel Systems Preferred Stock, and to any
restrictions on payment of dividends imposed by the NextLevel Systems Credit
Facility, the holders of NextLevel Systems Common Stock will be entitled to such
dividends as may be declared from time to time by the NextLevel Systems Board
from funds legally available therefor, and will be entitled, after payment of
all prior claims, to receive PRO RATA all assets of NextLevel Systems upon the
liquidation, dissolution or winding up of NextLevel Systems. Holders of
NextLevel Systems Common Stock have no redemption or conversion rights or
preemptive rights to purchase or subscribe for securities of NextLevel Systems.
Certain provisions of the Certificate of Incorporation and By-Laws of NextLevel
Systems which will be in effect at the time of the Distribution may have the
effect of making more difficult an acquisition of control of NextLevel Systems
in a transaction not approved by NextLevel Systems' Board of Directors. See
"Limitations on Changes in Control of NextLevel Systems and CommScope."
NextLevel Systems intends to list the NextLevel Systems Common Stock on the
NYSE under the symbol "NLV."
NEXTLEVEL SYSTEMS PREFERRED STOCK
The authorized capital stock of NextLevel Systems includes 20,000,000 shares
of NextLevel Systems Preferred Stock, none of which are currently issued or
outstanding. The NextLevel Systems Board is authorized to divide the NextLevel
Systems Preferred Stock into series and, with respect to each series, to
determine the preferences and rights and the qualifications, limitations or
restrictions thereof, including the dividend rights, conversion rights, voting
rights, redemption rights and terms, liquidation preferences, sinking fund
provisions, the number of shares constituting the series and the designation of
such series. The NextLevel Systems Board could, without stockholder approval,
issue NextLevel Systems Preferred Stock with voting and other rights that could
adversely affect the voting power of the holders of NextLevel Systems Common
Stock and which could have certain antitakeover effects.
In connection with the NextLevel Systems Rights Plan, the NextLevel Systems
Board has authorized 400,000 shares of Series A Participating Preferred Stock
(the "NextLevel Systems Series A Preferred"). No shares of NextLevel Systems
Series A Preferred are outstanding. For a description of the rights, powers and
preferences of the NextLevel Systems Series A Preferred, see "--NextLevel
Systems Rights Plan."
NEXTLEVEL SYSTEMS RIGHTS PLAN
The NextLevel Systems Board has adopted the NextLevel Systems Rights Plan
pursuant to which, concurrently with or promptly after the Distribution, one
right (collectively, the "NextLevel Systems
148
<PAGE>
Rights") to purchase one one-thousandth of a share of NextLevel Systems Series A
Preferred would be distributed as a dividend for each outstanding share of
NextLevel Systems Common Stock at a purchase price of $ per one
one-thousandth of a share of NextLevel Systems Series A Preferred, subject to
adjustment. The NextLevel Systems Rights are issuable on the terms and subject
to the conditions set forth in the NextLevel Systems Rights Plan. No NextLevel
Systems Rights will be issued under the NextLevel Systems Rights Plan until the
consummation of the Distribution. The NextLevel Systems Rights will expire no
later than on the tenth anniversary of the adoption of the NextLevel Systems
Rights Plan in 2007. The NextLevel Systems Rights will be exercisable on the
earlier to occur of (i) the first date of public announcement that a person or
"group" (other than FLC Entities (as defined) to the extent FLC Entities,
individually or as a group, beneficially own no more than 20% of the then
outstanding NextLevel Systems Common Stock) has acquired beneficial ownership of
15% or more of the outstanding NextLevel Systems Common Stock (except pursuant
to a Permitted Offer, as defined) (a "NextLevel Acquiring Person"); and (ii) ten
business days (or such later date as the NextLevel Systems Board may determine)
following the commencement of, or announcement of an intention to commence, a
tender offer or exchange offer the consummation of which would result in a
person or group becoming a NextLevel Acquiring Person. "FLC Entities" means
Instrument Partners, a New York Limited Partnership, Forstmann Little & Co.
Subordinated Debt and Equity Management Buyout Partnership-IV, a New York
Limited partnership, Theodore J. Forstmann, Nicholas C. Forstmann, Wm. Brian
Little, Steven B. Klinsky, Sandra J. Horbach, Winston W. Hutchins and Thomas H.
Lister and their affiliates and associates who or which are considered as one
person and references to the FLC Entities include any or all such persons.
If any person or group becomes a NextLevel Acquiring Person or commences a
tender offer upon consummation of which such person or group would become a
NextLevel Acquiring Person, each NextLevel Systems Right not owned by such
NextLevel Acquiring Person or certain related parties would entitle its holder
to purchase, at the NextLevel Systems Right's then current exercise price,
shares of NextLevel Systems Common Stock, or, in the discretion of the NextLevel
Systems Board, the number of one one-thousandths of a share of NextLevel Systems
Series A Preferred having a value of twice the NextLevel Systems Right's
exercise price. In addition, if, after a person or group becomes a NextLevel
Acquiring Person, NextLevel Systems is involved in a merger or other business
combination transaction in which the holders of all of the outstanding NextLevel
Systems Common Stock immediately prior to the consummation of the transaction
are not the holders of the surviving corporation's voting power or more than 50%
of NextLevel Systems' assets or earning power is sold or transferred, each
NextLevel Systems Right will entitle its holder to purchase common shares of the
acquiring company having a value equal to two times the NextLevel Systems
Right's then current exercise price.
The purchase price payable, and the shares issuable, upon exercise of the
NextLevel Systems Rights will be subject to adjustment from time to time as
specified in the NextLevel Systems Rights Plan. NextLevel Systems will generally
be entitled to redeem the NextLevel Systems Rights in whole, but not in part, at
$0.01 per NextLevel Systems Right at any time prior to the earlier to occur of
(i) a person becoming an Acquiring Person or (ii) expiration of the NextLevel
Systems Rights.
Shares of NextLevel Systems Series A Preferred purchasable upon exercise of
the NextLevel Systems Rights will not be redeemable. Each Share of NextLevel
Systems Series A Preferred will be entitled to a minimum preferential quarterly
dividend payment of $10.00 per share but, if greater, will be entitled to an
aggregate dividend per share of 1,000 times the dividend declared per NextLevel
Systems Common Share. In the event of liquidation of NextLevel Systems, the
holders of NextLevel Systems Series A Preferred will be entitled to a minimum
preferential liquidation payment of $100.00, provided that they will be entitled
to an aggregate payment per share of at least 1,000 times the aggregate payment
made per share of NextLevel Systems Common Stock. Each share of NextLevel
Systems Series A Preferred will have one thousand votes, voting together with
the NextLevel Systems Common Stock. These rights are protected by customary
antidilution provisions. In the event that the amount of accrued and unpaid
dividends on the NextLevel Systems Series A Preferred is equivalent to at least
six full quarterly dividends, the holders of the NextLevel Systems Series A
Preferred will have the right, voting as a class, to elect two directors in
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<PAGE>
addition to the directors elected by the holders of NextLevel Systems Common
Stock until all dividends in default on the NextLevel Systems Series A Preferred
have been paid in full and dividends for the current dividend period declared
and funds therefor set apart.
TRANSFER AGENT
The Transfer Agent for the NextLevel Systems Common Stock will be
ChaseMellon Shareholder Services, L.L.C.
DESCRIPTION OF COMMSCOPE CAPITAL STOCK
GENERAL
Pursuant to CommScope's Amended and Restated Certificate of Incorporation
which will be in effect at the time of the Distribution, CommScope's authorized
capital stock consists of (i) shares of CommScope Common Stock of which
shares will be issued and outstanding upon the consummation of the
Distribution (based on the number of shares of GI Common Stock outstanding as of
, 1997) and (ii) 20,000,000 shares of preferred stock, $.01 par value
per share (the "CommScope Preferred Stock"), none of which will be issued and
outstanding upon consummation of the Distribution. All outstanding shares of
CommScope Common Stock are, and the shares to be issued in the Distribution will
be, validly issued, fully paid and nonassessable.
COMMSCOPE COMMON STOCK
Each holder of CommScope Common Stock is entitled to one vote for each share
owned of record on all matters submitted to a vote of stockholders. There are no
cumulative voting rights. Accordingly, the holders of a majority of the shares
voting for the election of directors can elect all the directors if they choose
to do so, subject to any voting rights of holders of CommScope Preferred Stock
to elect directors. Subject to the preferential rights of any outstanding series
of CommScope Preferred Stock, and to any restrictions on payment of dividends
imposed by the CommScope Credit Facility, the holders of CommScope Common Stock
will be entitled to such dividends as may be declared from time to time by the
CommScope Board from funds legally available therefor, and will be entitled,
after payment of all prior claims, to receive pro rata all assets of CommScope
upon the liquidation, dissolution or winding up of CommScope. Holders of
CommScope Common Stock have no redemption or conversion rights or preemptive
rights to purchase or subscribe for securities of CommScope. Certain provisions
of the Certificate of Incorporation and By-Laws of CommScope which will be in
effect at the time of the Distribution may have the effect of making more
difficult an acquisition of control of CommScope in a transaction not approved
by CommScope's Board of Directors. See "Limitations on Changes in Control of
NextLevel Systems and CommScope."
CommScope intends to list the CommScope Common Stock on the NYSE under the
symbol "CTV."
COMMSCOPE PREFERRED STOCK
The authorized capital stock of CommScope includes 20,000,000 shares of
CommScope Preferred Stock, none of which are currently issued or outstanding.
The CommScope Board is authorized to divide the CommScope Preferred Stock into
series and, with respect to each series, to determine the preferences and rights
and the qualifications, limitations or restrictions thereof, including the
dividend rights, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking fund provisions, the number of shares
constituting the series and the designation of such series. The CommScope Board
could, without stockholder approval, issue CommScope Preferred Stock with voting
and other rights that could adversely affect the voting power of the holders of
CommScope Common Stock and which could have certain antitakeover effects.
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<PAGE>
In connection with the CommScope Rights Plan, the CommScope Board has
authorized shares of Series A Participating Preferred Stock (the
"CommScope Series A Preferred"). No shares of CommScope Series A Preferred are
outstanding. For a description of the rights, powers and preferences of the
CommScope Series A Preferred, see "--CommScope Rights Plan."
COMMSCOPE RIGHTS PLAN
The CommScope Board has adopted the CommScope Rights Plan pursuant to which,
concurrently with or promptly after the Distribution, one right (collectively,
the "CommScope Rights") to purchase one one-thousandth of a share of CommScope
Series A Preferred would be distributed as a dividend for each outstanding share
of CommScope Common Stock at a purchase price of $ per one one-thousandth
of a share of CommScope Series A Preferred, subject to adjustment. The CommScope
Rights are issuable on the terms and subject to the conditions set forth in the
CommScope Rights Plan. No CommScope Rights will be issued under the CommScope
Rights Plan until the consummation of the Distribution. The CommScope Rights
will expire no later than on the tenth anniversary of the adoption of the
CommScope Rights Plan in 2007. The CommScope Rights will be exercisable on the
earlier to occur of (i) the first date of public announcement that a person or
"group" (other than FLC Entities) to the extent FLC Entities, individually or as
a group, beneficially own no more than 20% of the then outstanding CommScope
Common Stock) has acquired beneficial ownership of 15% or more of the
outstanding CommScope Common Stock (except pursuant to a Permitted Offer, as
defined) (a "CommScope Acquiring Person"); and (ii) ten business days (or such
later date as the CommScope Board may determine) following the commencement of,
or announcement of an intention to commence, a tender offer or exchange offer
the consummation of which would result in a person or group becoming a CommScope
Acquiring Person.
If any person or group becomes a CommScope Acquiring Person or commences a
tender offer upon consummation of which such person or group would become a
CommScope Acquiring Person, each CommScope Right not owned by such CommScope
Acquiring Person or certain related parties would entitle its holder to
purchase, at the CommScope Right's then current exercise price, shares of
CommScope Common Stock, or, in the discretion of the CommScope Board, the number
of one one-thousandths of a share of CommScope Series A Preferred having a value
of twice the CommScope Right's exercise price. In addition, if, after a person
or group becomes a CommScope Acquiring Person, CommScope is involved in a merger
or other business combination transaction in which (i) the holders of all of the
outstanding CommScope Common Stock immediately prior to the consummation of the
transaction are not the holders of the surviving corporation's voting power or
(ii) more than 50% of CommScope's assets or earning power is sold or
transferred, each CommScope Right will entitle its holder to purchase common
shares of the acquiring company having a value equal to two times the CommScope
Right's then current exercise price.
The purchase price payable, and the shares issuable, upon exercise of the
CommScope Rights will be subject to adjustment from time to time as specified in
the CommScope Rights Plan. CommScope will generally be entitled to redeem the
CommScope Rights in whole, but not in part, at $0.01 per CommScope Right at any
time prior to the earlier to occur of (i) a person becoming a CommScope
Acquiring Person or (ii) expiration of the CommScope Rights.
Shares of CommScope Series A Preferred purchasable upon exercise of the
CommScope Rights will not be redeemable. Each share of CommScope Series A
Preferred will be entitled to a minimum preferential quarterly dividend payment
of $10.00 per share but, if greater, will be entitled to an aggregate dividend
per share of 1,000 times the dividend declared per share of CommScope Common
Stock. In the event of liquidation of CommScope, the holders of CommScope
Preferred will be entitled to a minimum preferential liquidation payment of
$100.00, provided that they will be entitled to an aggregate payment per share
of at least 1,000 times the aggregate payment made per share of CommScope Common
Stock. Each share of CommScope Series A Preferred will have one thousand votes,
voting together with the CommScope Common Stock. These rights are protected by
customary antidilution provisions. In the event
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that the amount of accrued and unpaid dividends on the CommScope Preferred is
equivalent to at least six full quarterly dividends, the holders of the
CommScope Series A Preferred will have the right, voting as a class, to elect
two directors in addition to the directors elected by the holders of CommScope
Common Stock until all dividends in default on the CommScope Series A Preferred
have been paid in full and dividends for the current dividend period declared
and funds therefor set apart.
TRANSFER AGENT
The transfer agent for the CommScope Common Stock will be ChaseMellon
Shareholder Services, L.L.C.
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
GENERAL
Pursuant to its Certificate of Incorporation, the Company's authorized
capital stock currently consists of (i) 400,000,000 shares of GI Common Stock,
and (ii) 20,000,000 shares of preferred stock, par value $.01 per share ("GI
Preferred Stock"). As of , 1997, shares of GI Common Stock were
issued and outstanding. All outstanding shares of GI Common Stock are fully paid
and nonassessable. No shares of GI Preferred Stock are issued and outstanding.
If the Distribution Proposals are approved and the Distribution is consummated,
or if Proposal Four is approved, the Certificate of Incorporation of the Company
will be amended to change the name of the Company to General Semiconductor,
Inc., to effect the for reverse stock split of the General Semiconductor
Common Stock and to declassify the Board of Directors. No amendments will be
made prior to the Distribution with respect to the Company's authorized capital
stock.
GI COMMON STOCK
Each holder of GI Common Stock is entitled to one vote for each share owned
of record on all matters submitted to a vote of stockholders. There are no
cumulative voting rights. Accordingly, the holders of a majority of the shares
voting for the election of directors can elect all the directors if they choose
to do so, subject to any voting rights of holders of GI Preferred Stock to elect
directors. Subject to the preferential rights of any outstanding series of GI
Preferred Stock and to the restrictions on payment of dividends imposed by the
GI Credit Facility, the holders of GI Common Stock will be entitled to such
dividends as may be declared from time to time by the Board from funds legally
available therefor, and will be entitled, after payment of all prior claims, to
receive pro rata all assets of the Company upon the liquidation, dissolution or
winding up of the Company. Holders of GI Common Stock have no redemption,
conversion rights or preemptive rights to purchase or subscribe for securities
of the Company.
The GI Common Stock is currently listed on the NYSE under the symbol "GIC."
The GI Common Stock is expected to continue to be listed on the NYSE following
the Distribution; however, its ticker symbol will be changed to "SEM." The
trading price of the GI Common Stock will be substantially affected by the
Distribution. If Proposal Three is approved, immediately following the
Distribution, the Company will effect a for reverse stock
split of the General Semiconductor Common Stock. See "Risk Factors--Risks
Relating to the Distribution--Changes in Trading Prices" and "The Distribution
Proposals--Proposal Three: Approval of Amendment to Certificate of Incorporation
of the Company to Effect a Reverse Stock Split."
GI PREFERRED STOCK
The authorized capital stock of the Company includes 20,000,000 shares of GI
Preferred Stock, none of which are currently issued or outstanding. The Board is
authorized to divide the GI Preferred Stock into series and, with respect to
each series, to determine the preferences and rights and the qualifications,
limitations or restrictions thereof, including the dividend rights, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
sinking fund provisions, the number of shares constituting
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<PAGE>
the series and the designation of such series. The Board could, without
stockholder approval, issue GI Preferred Stock with voting and other rights that
could adversely affect the voting power of the holders of GI Common Stock and
which could have certain antitakeover effects.
In connection with the Company Rights Plan (as defined), the Board of
Directors of the Company has authorized 400,000 shares of Series A Participating
Preferred Stock (the "Series A Preferred"). No shares of the Series A Preferred
are outstanding. For a description of the rights, powers and preferences of the
Series A Preferred, see "--The Company Rights Plan."
THE COMPANY RIGHTS PLAN
The Company has entered into a Rights Agreement (the "Company Rights Plan")
with Chase Mellon Shareholder Services, as Rights Agent, with the following
terms. The Company Rights Plan will continue in effect after the Distribution,
if it occurs. Under the Company Rights Plan, the Board of Directors declared and
distributed a dividend of one right (collectively, the "Company Rights") for
each outstanding share of GI Common Stock to the stockholders of record as of
January 24, 1997. Each Company Right entitles a registered holder to purchase
one one-thousandth of a share of Series A Preferred at a purchase price of
$100.00 per one one-thousandth of a share of Series A Preferred, subject to
adjustment. The Company Rights will expire no later than January 6, 2007. The
Company Rights will be exercisable on the earlier to occur of (i) the first date
of public announcement that a person or "group" (other than FLC Entities to the
extent FLC Entities, individually or as a group, beneficially own no more than
20% of the then outstanding GI Common Stock) has acquired beneficial ownership
of 15% or more of the outstanding GI Common Stock (except pursuant to a
Permitted Offer, as defined) (an "Acquiring Person"); and (ii) ten business days
(or such later date as the Board of Directors of the Company may determine)
following the commencement of, or announcement of an intention to commence, a
tender offer or exchange offer the consummation of which would result in a
person or group becoming an Acquiring Person.
If any person or group becomes an Acquiring Person or commences a tender
offer upon consummation of which such person or group would become an Acquiring
Person, each Company Right not owned by such Acquiring Person or certain related
parties would entitle its holder to purchase, at the General Semiconductor
Right's then current exercise price, shares of GI Common Stock, or, in the
discretion of the Board of Directors of the Company, the number of one
one-thousandths of a share of Series A Preferred having a value of twice the
Company Right's exercise price. In addition, if, after a person or group becomes
an Acquiring Person, the Company is involved in a merger or other business
combination transaction in which (i) the holders of all of the outstanding GI
Common Stock immediately prior to the consummation of the transaction are not
the holders of the surviving corporation's voting power or (ii) more than 50% of
the Company's assets or earning power is sold or transferred, each Company Right
will entitle its holder to purchase common shares of the acquiring company
having a value equal to two times the Company Right's then current exercise
price.
The purchase price payable, and the shares issuable, upon exercise of the
Company Rights Plan are subject to adjustment from time to time as specified in
the Company Rights Plan. The Company is generally entitled to redeem the Company
Rights in whole, but not in part, at $0.01 per Company Right at any time prior
to the earlier to occur of (i) a person becoming an Acquiring Person or (ii)
expiration of the Company Rights. In the event that a majority of the directors
serving on the Board following a meeting of stockholders or stockholder action
by written consent are not nominated by the Board of Directors of the Company
serving immediately prior to such meeting or action, then for 365 days following
such meeting or action the Company Rights may not be redeemed if such redemption
is reasonably likely to facilitate a combination or sale of assets or earning
power (a "Transaction") with an Acquiring Person or affiliate or associate
thereof who has directly or indirectly proposed or nominated a member of the
Board of Directors of the Company who is in office at the time the Transaction
is being considered.
Shares of Series A Preferred purchasable upon exercise of the Company Rights
will not be redeemable. Each Share of Series A Preferred will be entitled to a
minimum preferential quarterly dividend
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payment of $10.00 per share but, if greater, will be entitled to an aggregate
dividend per share of 1,000 times the dividend declared per share of GI Common
Stock. In the event of liquidation of the Company, the holders of Series A
Preferred will be entitled to a minimum preferential liquidation payment of
$100.00, provided that they will be entitled to an aggregate payment per share
of at least 1,000 times the aggregate payment made per GI Common Stock. Each
share of Series A Preferred will have one thousand votes, voting together with
the GI Common Stock. These rights are protected by customary antidilution
provisions. In the event that the amount of accrued and unpaid dividends on the
Series A Preferred is equivalent to at least six full quarterly dividends, the
holders of the Series A Preferred will have the right, voting as a class, to
elect two directors in addition to the directors elected by the holders of GI
Common Stock until all dividends in default on the Series A Preferred have been
paid in full and dividends for the current dividend period declared and funds
therefor set apart.
TRANSFER AGENT
The transfer agent for the General Semiconductor Common Stock is ChaseMellon
Shareholder Services, L.L.C.
PRICE RANGE OF GI COMMON STOCK AND DIVIDENDS
The GI Common Stock is listed on the NYSE and is traded under the symbol
"GIC." The following table sets forth, for the fiscal periods indicated, the
high and low sales prices per share of the GI Common Stock as reported on the
NYSE Composite Tape. The Company has not paid dividends on the GI Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1994
1st Quarter............................................................................... $ 30.875 $ 21.500
2nd Quarter............................................................................... 31.625 21.250
3rd Quarter............................................................................... 33.000 28.250
4th Quarter............................................................................... 34.625 26.750
1995
1st Quarter............................................................................... 36.250 25.625
2nd Quarter............................................................................... 39.250 30.500
3rd Quarter............................................................................... 41.625 29.875
4th Quarter............................................................................... 29.750 18.250
1996
1st Quarter............................................................................... 28.375 21.000
2nd Quarter............................................................................... 34.375 26.250
3rd Quarter............................................................................... 29.375 21.500
4th Quarter............................................................................... 27.125 18.125
1997
1st Quarter............................................................................... 25.625 21.000
2nd Quarter (through April 29, 1997)...................................................... 23.125 21.250
</TABLE>
On January 6, 1997, the last trading day before the Company announced that
the Board of Directors had approved the Distribution subject to certain
conditions, the high and low sales prices for the GI Common Stock on the NYSE
Composite Tape were $22.75 and $22.00, respectively. On , 1997, the
last trading day for which quotations were available prior to the date of this
Proxy Statement, the closing price for the GI Common Stock on the NYSE Composite
Tape was $ . Stockholders are urged to obtain current trading price
information.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF NEXTLEVEL SYSTEMS,
COMMSCOPE AND GENERAL SEMICONDUCTOR
There will be no material differences between the rights of holders of
NextLevel Systems Common Stock and CommScope Common Stock after the Distribution
and the current rights of holders of GI Common Stock. However, if Proposal Four
is approved, the Company's Certificate of Incorporation will be amended to
declassify the Company's Board of Directors and stockholders of the Company
would have the right to elect all directors annually rather than one-third of
the Board of Directors each year for three-year terms. See "The Annual Meeting
Proposals--Proposal Four: Approval of Amendment to Certificate of Incorporation
to Declassify the Board of Directors of the Company."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Certificate of Incorporation of each of NextLevel Systems and CommScope
which will be in effect at the time of the Distribution and of General
Semiconductor provides that a director will not be personally liable to the
company or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except in certain cases where liability is mandated by the
DGCL. The Certificate of Incorporation and By-Laws of each of NextLevel Systems
and CommScope which will be in effect as of the Distribution and of General
Semiconductor also provide for indemnification, to the fullest extent permitted
by the DGCL, of any person who is or was involved in any manner in any pending,
threatened or completed investigation, claim or other proceeding by reason of
the fact that such person is or was a director or officer of NextLevel Systems,
CommScope or General Semiconductor, as the case may be, or, at the request of
such company, is or was serving as a director or officer of another entity,
against all expenses, liabilities, losses and claims actually incurred or
suffered by such person in connection with the investigation, claim or other
proceeding. Each of CommScope and NextLevel Systems has entered into, or intends
to enter into, agreements to provide indemnification for directors and certain
officers in addition to the indemnification provided for in their respective
Certificate of Incorporation and By-Laws. These agreements, among other things,
will indemnify directors and certain officers to the fullest extent permitted by
Delaware law for certain expenses (including attorneys' fees) and all losses,
claims, liabilities, judgments, fines and settlement amounts incurred by such
person arising out of or in connection with such person's service as a director
or officer of the company or another entity for which such person was serving as
an officer or director at the request of NextLevel Systems or CommScope, as the
case may be. Other than as described herein, there is no pending litigation or
proceeding involving a director, officer, employee or other agent of NextLevel
Systems or CommScope or any other entity as to which indemnification is being
sought from NextLevel Systems or CommScope, and none of NextLevel Systems or
CommScope is aware of any pending or threatened litigation that may result in
claims for indemnification by a director, officer, employee or other agent. See
"Risk Factors--Risks Relating to the Businesses of NextLevel Systems, CommScope
and General Semiconductor--Legal Proceedings" and "Business of NextLevel
Systems--Legal Proceedings."
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Each of NextLevel Systems, CommScope and General Semiconductor is subject to
the provisions of Section 203 ("Section 203") of the DGCL. In general, Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or,
in certain cases, within three years prior, did own) 15% or more of the
corporation's voting stock. Under Section 203, a business combination between
the corporation and an interested stockholder is prohibited unless it satisfies
one of the following conditions: (i) the Board of Directors must have previously
approved either
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<PAGE>
the business combination or the transaction that resulted in the stockholder
becoming an interested stockholder, or (ii) on consummation of the transaction
that resulted in the stockholders becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation, outstanding at the time the transaction commenced (excluding, for
purposes of determining the number of shares outstanding, shares owned by (a)
persons who are directors and also officers and (b) employee stock plans, in
certain instances) or (iii) the business combination is approved by the Board of
Directors and authorized at an annual or special meeting of the stockholders by
the affirmative vote of at least 66-2/3% of the outstanding voting stock which
is not owned by the interested stockholder.
The Certificate of Incorporation of each of NextLevel Systems and CommScope
which will be in effect as of the Distribution provides for a classified Board
of Directors consisting of three classes. Each class will consist, as nearly as
may be possible, of one-third of the total number of directors constituting the
entire Board of Directors. The term of the initial Class I directors will
terminate on the date of the 1998 annual meeting of stockholders; the term of
the initial Class II directors will terminate on the date of the 1999 annual
meeting of stockholders; and the term of the initial Class III directors will
terminate on the date of the 2000 annual meeting of stockholders. Beginning in
1998, at each annual meeting of stockholders, successors to the class of
directors whose term expires at that annual meeting will be elected for a
three-year term and until their respective successors are duly elected and
qualified. A director may be removed only for cause by the affirmative vote of
the holders of a majority of the outstanding shares of capital stock entitled to
vote in the election of directors.
The Certificate of Incorporation of the Company also currently provides for
a classified Board of Directors consisting of three classes. Each class
consists, as nearly as possible, of one-third of the total number of directors
constituting the entire Board. At each annual meeting of stockholders,
successors to the class of directors whose term expires at that annual meeting
will be elected for a three-year term and until their respective successors are
elected and qualified. The Board of Directors of the Company has approved and is
recommending that the stockholders approve an amendment to the Certificate of
Incorporation of the Company which will eliminate the three classes of directors
so that all directors are elected at each annual meeting of stockholders for
one-year terms. See "The Annual Meeting Proposals-- Proposal Four: Approval of
Amendment to Certificate of Incorporation to Declassify the Board of Directors
of the Company."
LIMITATIONS ON CHANGES IN CONTROL OF NEXTLEVEL SYSTEMS AND COMMSCOPE
The Certificate of Incorporation of each of NextLevel Systems and CommScope
which will be in effect as of the Distribution provides for a classified Board
of Directors consisting of three classes serving staggered three-year terms.
Such Certificates of Incorporation also provide that a director may be removed
only for cause by the affirmative vote of the holders of a majority of the
shares entitled to vote for the election of directors. These provisions, when
coupled with the provisions in the Certificate of Incorporation and By-Laws of
NextLevel Systems and CommScope authorizing the Board of Directors to fill newly
created directorships and vacancies on the Board of Directors, will preclude
stockholders from removing incumbent directors without cause and simultaneously
gaining control of the Board of Directors by filling the vacancies created by
such removal with their nominees. The foregoing provisions, the provisions
authorizing the Board of Directors to issue preferred stock without stockholder
approval, and the provisions of Section 203 could have the effect of delaying,
deferring or preventing a change in control of NextLevel Systems or CommScope,
as the case may be, or the removal of existing management.
In addition, the By-Laws of each of NextLevel Systems and CommScope which
will be in effect as of the Distribution establish advance notice procedures for
stockholders to make nominations of candidates for election as directors, or
bring other business before an annual meeting of stockholders (the "Stockholder
Notice Procedures").
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<PAGE>
The Stockholder Notice Procedures provide that only persons who are
nominated by or at the direction of the Board of Directors, or by a stockholder
who has given timely written notice to the Secretary of NextLevel Systems or
CommScope prior to the meeting at which directors are to be elected, will be
eligible for election as directors of NextLevel Systems or CommScope, as the
case may be. The Stockholder Notice Procedures also provide that at an annual
meeting only such business may be conducted as has been specified in the notice
of the meeting given by, or at the direction of, the Board of Directors (or any
duly authorized committee thereof) or by a stockholder who has given timely
written notice to the Secretary of the corporation of such stockholder's
intention to bring such business before such meeting.
Under the Stockholder Notice Procedures, notice of stockholder nominations
to be made or business to be conducted at an annual meeting must be received by
the corporation, not less than 60 days nor more than 90 days prior to the date
of the annual meeting or, in the event that less than 70 days notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, then notice must be received by the close of business on the tenth
day following the day on which such notice was mailed or such public disclosure
was made, whichever first occurs. Under the Stockholder Notice Procedures,
notice of a stockholder nomination to be made at a special meeting at which
directors are to be elected must be received by the corporation not later than
the close of business on the tenth day following the day on which such notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever first occurs.
In addition, each of NextLevel Systems and CommScope has adopted a
stockholders' rights plan, which, under certain circumstances, would
significantly dilute the interest in the company of persons seeking to acquire
control of the company without the prior approval of the Board of Directors. See
"Description of NextLevel Systems Capital Stock--NextLevel Systems Rights Plan"
and "Description of CommScope Capital Stock--CommScope Rights Plans."
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<PAGE>
THE ANNUAL MEETING PROPOSALS
PROPOSAL FOUR: APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION TO
DECLASSIFY THE BOARD OF DIRECTORS OF THE COMPANY
The Board of Directors of the Company has approved and is recommending that
the stockholders approve an amendment to Article Fifth of the Company's
Certificate of Incorporation which will declassify the Company's Board of
Directors. Article Fifth of the Company's Certificate of Incorporation currently
provides for three classes of directors with one-third of the directors elected
annually to three-year terms. Adoption of the proposed amendment to the
Certificate of Incorporation would eliminate the three classes of directors and
would transform the Board from one with a staggered-term structure whose
directors serve three-year terms and approximately one-third of whose membership
is elected each year, to one whose entire membership is elected annually. If
Proposal Four is approved, all directors would serve one-year terms.
Accordingly, it would be easier for a person or group owning a significant
percentage of the Company's voting securities to gain control of the composition
of the Company's Board within a single year.
At the Company's 1996 Annual Meeting of Stockholders, a stockholder proposal
was approved by the Company's stockholders (upon the recommendation of the
Company's Board of Directors) directing the Board to take the steps necessary to
declassify the Company's Board. The proposed amendment to the Company's
Certificate of Incorporation is being submitted to the stockholders for approval
in accordance with such stockholder proposal. If Proposal Four is approved, it
is expected that the amendment will become effective shortly after the Meeting
and prior to the Distribution (if it occurs).
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR PROPOSAL FOUR.
PROPOSAL FIVE: ELECTION OF DIRECTORS
The Company's Certificate of Incorporation currently provides that the Board
of Directors is classified into three classes with members of each class holding
office for staggered three-year terms. There are currently: four Class II
Directors, whose terms expire at the Meeting; four Class I Directors, whose
terms expire at the 1999 Annual Meeting of Stockholders; and four Class III
Directors, whose terms expire at the 1998 Annual Meeting of Stockholders (in all
cases subject to the election and qualification of their successors and to their
earlier death, resignation or removal). As described above, the Board of
Directors of the Company has proposed to amend the Company's Certificate of
Incorporation to declassify the Board of Directors of the Company and to provide
for the annual election of all directors. If the proposed amendment is approved,
all directors elected after the effectiveness of the amendment will serve for
one-year terms and will stand for re-election at each Annual Meeting of
Stockholders.
If the stockholders do not approve Proposal One, but do approve Proposal
Four, the proposed amendment to the Company's Certificate of Incorporation
eliminating the classification of the Company's Board of Directors, proxies will
be voted to elect the four nominees for Class II Director listed below, but all
of the directors are expected to be nominated for re-election at (or resign as
of) the Company's 1998 Annual Meeting of Stockholders. If the stockholders do
not approve the proposed amendment, proxies will be voted to elect the four
nominees for Class II Director listed below, and the Class I, Class II and Class
III Directors will continue to have three-year terms.
If the stockholders do approve Proposal One, however, all directors of the
Company (including the nominees set forth below) other than are expected
to resign from the Board of Directors of the Company effective as of the
Distribution Date and are expected to be replaced by new directors. For
biographical information with respect to each individual expected to become a
director of General Semiconductor following the Distribution, see "Management of
General Semiconductor--Board of Directors of General Semiconductor."
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<PAGE>
If any one or more of the nominees is unable to serve for any reason or
withdraws from nomination, proxies will be voted for the substitute nominee or
nominees, if any, proposed by the Board of Directors. The Board has no knowledge
that any nominee will or may be unable to serve or will or may withdraw from
nomination. All of the following nominees are present directors of the Company.
Information concerning the nominees for Directors is set forth below.
NOMINEES
LYNN FORESTER, age 42, has been a director of the Company since February
1995. She has been President and Chief Executive Officer of FirstMark Holdings,
Inc., since 1984, and of NetWave, Inc., an Internet company, since 1996. From
1989 to December 1994, she was Chairman and Chief Executive Officer of TPI
Communications International, Inc., a radio common carrier and paging company.
She is a director of Gulfstream Aerospace Corporation and Vice Chairman of the
Corporate Commission on Educational Technology.
NICHOLAS C. FORSTMANN, age 50, served as a director of GI Delaware from
August 1990 to March 1992, when he was elected to serve as a director of the
Company. He has been a General Partner of FLC Partnership, L.P., the General
Partner of Forstmann Little & Co., since he co-founded Forstmann Little & Co. in
1978. He is a director of Gulfstream Aerospace Corporation.
RICHARD S. FRIEDLAND, age 46, has been a director of the Company since
October 1993. He became President and Chief Operating Officer of the Company in
October 1993, Chief Executive Officer of the Company in August 1995 and Chairman
of the Board of Directors of the Company in December 1995. He was Chief
Financial Officer of the Company and GI Delaware from March 1992 to January 1994
and Vice President, Finance of the Company from May 1991 to October 1993. He was
Vice President, Finance and Assistant Secretary of GI Delaware from October 1990
to October 1993 and Vice President and Controller of GI Delaware from November
1988 to January 1994.
J. TRACY O'ROURKE, age 62, served as a director of GI Delaware from
September 1990 to March 1992, when he was elected to serve as a director of the
Company. He has been Chairman and Chief Executive Officer of Varian Associates,
Inc., a manufacturer of health care systems, semiconductor manufacturing
equipment and analytical instruments, since early 1990. He is a director of
National Semiconductor Corp.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR EACH OF THE
FOREGOING NOMINEES AS DIRECTOR OF THE COMPANY.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF THE COMPANY
The following table sets forth certain information known by the Company
regarding the beneficial ownership of the GI Common Stock, as of ,
1997, by each beneficial owner of more than five percent of the outstanding GI
Common Stock, by each of the Company's directors, by each of the executives
named in the Summary Compensation Table and by all current directors and
officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
NAME OWNED(1) PERCENTAGE OF CLASS
- ------------------------------------------------------------------------ -------------------- ---------------------
<S> <C> <C>
MBO-IV(2)...............................................................
Instrument Partners(2)..................................................
Oppenheimer Group, Inc.(3)..............................................
Brinson Partners, Inc.(4)...............................................
J.P. Morgan & Co. Incorporated(5).......................................
John Seely Brown........................................................
Frank M. Drendel........................................................
Thomas A. Dumit.........................................................
Lynn Forester...........................................................
Nicholas C. Forstmann(2)................................................
Theodore J. Forstmann(2)................................................
Richard S. Friedland....................................................
Winston W. Hutchins(2)..................................................
Steven B. Klinsky(2)....................................................
Wm. Brian Little(2).....................................................
Alex M. Mandl...........................................................
Ronald A. Ostertag......................................................
J. Tracy O'Rourke.......................................................
John A. Sprague(2)......................................................
All current directors and officers of the Company as a group (22
persons)(2)...........................................................
</TABLE>
- ------------------------
* The percentage of shares of GI Common Stock beneficially owned does not
exceed one percent of the outstanding shares of GI Common Stock.
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of GI Common Stock which such person
has the right to acquire within 60 days following , 1997. For
purposes of computing the percentage of outstanding shares of GI Common
Stock held by each person or group of persons named above, any security
which such person or persons has or have the right to acquire within 60
days following , 1997 is deemed to be outstanding, but is not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(2) The general partner of Instrument Partners, a New York limited partnership
("Instrument Partners"), is FLC XXII Partnership, a general partnership of
which Messrs. Wm. Brian Little, Nicholas C. Forstmann, John A. Sprague,
Steven B. Klinsky and Winston W. Hutchins, and TJ/JA L.P. , a Delaware
limited partnership ("TJ/JA L.P."), are general partners. The general
partner of TJ/JA L.P. is Theodore J. Forstmann. The general partner of
Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership-IV, a New York limited partnership ("MBO-IV") is FLC
Partnership, L.P., a limited partnership of which Messrs. Theodore J.
Forstmann, Nicholas C. Forstmann, Steven B. Klinsky, Winston W. Hutchins,
Ms. Sandra J. Horbach and Mr. Thomas H. Lister are general partners.
Accordingly, each of such individuals and partnerships (other than
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<PAGE>
Ms. Horbach and Mr. Lister, for the reasons described below) may be deemed
the beneficial owners of shares owned by MBO-IV and Instrument Partners in
which such individual or partnership is a general partner and, for
purposes of this table, such beneficial ownership is included. Ms. Horbach
and Mr. Lister do not have any voting or investment power with respect to,
or any economic interest in, the shares of GI Common Stock held by MBO-IV;
and, accordingly, Ms. Horbach and Mr. Lister are not deemed to be the
beneficial owners thereof. Theodore J. Forstmann and Nicholas C. Forstmann
are brothers. Mr. Little is a special limited partner in FLC Partnership,
L.P. and each of FLC Partnership, L.P. and FLC XXII Partnership is a
limited partner of Instrument Partners. None of the other limited partners
in each of MBO-IV and Instrument Partners is otherwise affiliated with the
Company, GI Delaware or Forstmann Little & Co. The address of MBO-IV and
Instrument Partners is c/o Forstmann Little & Co., 767 Fifth Avenue, New
York, New York 10153.
(3) This information is obtained from a Schedule 13G, dated February 20, 1997,
filed with the Commission jointly by Oppenheimer Group, Inc.
("Oppenheimer") and Oppenheimer Capital. Oppenheimer reports beneficial
ownership of 13,970,650 shares of GI Common Stock and claims shared voting
power and shared dispositive power with respect to all of such shares.
Oppenheimer Capital, a registered investment advisor and a subsidiary of
Oppenheimer, reports beneficial ownership of 13,929,450 of such shares and
claims shared voting power and shared dispositive power with respect to
all 13,929,450 shares. The Schedule 13G states that: Oppenheimer is a
holding and service company owning a variety of companies engaged in the
securities business; 70.78% of the issued and outstanding common stock of
Oppenheimer is owned by Oppenheimer & Co., L.P. ("Oppenheimer L.P."); and
management of the affairs of Oppenheimer's subsidiaries and of certain
investment advisory clients, including decisions respecting disposition
and/or voting of the shares of GI Common Stock, resides in the respective
officers and directors of such companies and is not directed by
Oppenheimer or Oppenheimer LP. The address of the principal business of
each of Oppenheimer and Oppenheimer Capital is Oppenheimer Tower, World
Financial Center, New York, New York 10281.
(4) This information is obtained from a Schedule 13G, dated February 12, 1997,
filed with the Commission by Brinson Partners, Inc. ("BPI") on behalf of
itself, Brinson Trust Company ("BTC"), Brinson Holdings, Inc. ("BHI"), SBC
Holdings (USA), Inc. ("SBUSA") and Swiss Bank Corporation ("SBC"). BTC is
a wholly owned subsidiary of BPI. The Schedule 13G states that: BPI is a
wholly owned subsidiary of BHI; BHI is a wholly owned subsidiary of SBUSA;
and SBUSA is a wholly owned subsidiary of SBC. BPI reports beneficial
ownership of 11,305,062 shares of GI Common Stock and claims shared voting
power and shared dispositive power with respect to all of such shares. BTC
reports beneficial ownership of 2,268,600 shares of GI Common Stock and
claims shared voting power and shared dispositive power with respect to
all of such shares. BHI reports beneficial ownership of 11,305,062 shares
of GI Common Stock and claims shared voting power and shared dispositive
power with respect to all of such shares. SBUSA reports beneficial
ownership of 11,406,476 shares of GI Common Stock and claims shared voting
power and shared dispositive power with respect to all of such shares. SBC
reports beneficial ownership of 11,406,476 shares of GI Common Stock and
claims shared voting power and shared dispositive power with respect to
all of such shares. The Schedule 13G states that by virtue of their
corporate relationships, SBC, SBUSA, BHI and BPI may be deemed to
beneficially own and have the power to dispose and vote or direct the
disposition or voting of the GI Common Stock held by BTC and BPI. Each of
BPI, BTC and BHI's principal business office is located at 209 South
LaSalle, Chicago, Illinois 60604-1295. SBUSA's principal business office
is located at 222 Broadway, New York, New York 10038. SBC's principal
business office is located at Aeschenplatz 6 CH-4022, Basel, Switzerland.
(5) This information is obtained from a Schedule 13G, dated January 31, 1997,
filed with the Commission by J.P. Morgan & Co. Incorporated. J.P. Morgan &
Co. Incorporated reports beneficial ownership of 10,113,201 shares as
follows: 9,690,046 shares and 423,155 shares where there is a right
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to acquire. J.P. Morgan & Co Incorporated claims sole voting power with
respect to 6,549,568 shares, shared voting power with respect to 65,105
shares, sole dispositive power with respect to 9,976,366 shares and shared
dispositive power with respect to 130,285 shares. J.P. Morgan & Co.
Incorporated's principal business office is located at 60 Wall Street, New
York, New York 10260.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors of the Company directs the management of the business
and affairs of the Company, as provided by Delaware law, and conducts its
business through meetings of the Board and three standing committees: Executive,
Audit and Compensation. The Company has no nominating or similar committee.
Should the Distribution be effected as described in "The Distribution
Proposals," the committees of the Board of Directors of the Company will
continue to be as set forth below; however, new members will be appointed.
COMMITTEES OF THE BOARD--BOARD MEETINGS
The Board of Directors of the Company held eight meetings in 1996. Each
incumbent director attended 75% or more of the aggregate of (i) meetings of the
Board held during the period for which he served as a director and (ii) meetings
of all committees held during the period for which he served on those
committees, other than John Seely Brown. Average attendance at all such meetings
of the Board and committees was approximately 90%.
The EXECUTIVE COMMITTEE of the Board has the authority, between meetings of
the Board of Directors, to exercise all powers and authority of the Board in the
management of the business and affairs of the Company that may be lawfully
delegated to it under Delaware law. The Executive Committee consists of Richard
S. Friedland, Theodore J. Forstmann and Steven B. Klinsky. The Executive
Committee held four meetings in 1996.
The AUDIT COMMITTEE's principal functions are to review the scope of the
annual audit of the Company by its independent auditors, review the annual
financial statements of the Company and the related audit report of the Company
as prepared by the independent auditors, recommend the selection of independent
auditors each year and review audit and any non-audit fees paid to the Company's
independent auditors. The audit reports of the Internal Audit Department are
also available for review by the Audit Committee, and the head of that
department attends Audit Committee meetings and gives reports to and answers
inquiries from the Audit Committee. The Audit Committee reports its findings and
recommendations to the Board for appropriate action. The Audit Committee is
composed of three non-employee directors: J. Tracy O'Rourke, Chairman; John
Seely Brown; and Alex M. Mandl. The Audit Committee held three meetings in 1996.
The COMPENSATION COMMITTEE is responsible for executive compensation,
including recommending to the Board of Directors the compensation to be paid to
the Chief Executive Officer and determining the compensation for all other
executive officers. The Compensation Committee is composed of three non-employee
directors: Nicholas C. Forstmann, Chairman; Lynn Forester and J. Tracy O'Rourke.
The Compensation Committee held five meetings in 1996.
The PLAN COMMITTEE administers the 1993 Long-Term Incentive Plan and the
Annual Incentive Plan. The Plan Committee is composed of two non-employee
directors: Lynn Forester and J. Tracy O'Rourke. The Plan Committee held two
meetings in 1996.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In connection with the Company's initial public offering in June 1992, the
Company's Board of Directors established a Compensation Committee composed of
three non-employee directors. Nicholas C. Forstmann, Lynn Forester and J. Tracy
O'Rourke served as members of the Compensation Committee during 1996.
Nicholas C. Forstmann served as President of the Company from June 30, 1990
through March 30, 1992, which was prior to the Company's initial public offering
in June 1992. Nicholas C. Forstmann received no compensation from the Company
for services rendered in such capacity.
An affiliate of Forstmann Little & Co. provides aircraft maintenance
services to the Company and charged the Company $2.1 million for services in
1996. The Company believes that the terms of these transactions were no less
favorable to the Company than the terms which could be obtained from an
unrelated third party.
DIRECTOR COMPENSATION
Prior to July 1993, directors did not receive any fees for serving on the
Company's Board of Directors, or any committees thereof, but were reimbursed for
their out-of-pocket expenses arising from attendance at meetings of the
Company's Board of Directors or committees thereof. In addition, each director
who was neither a partner in FLC Partnership, L.P., the general partner of
Forstmann Little & Co., nor a current or former officer of the Company or its
subsidiaries, was granted an option to purchase 80,000 shares of GI Common Stock
in connection with his election to the board of directors of GI Delaware or,
after the Company's initial public offering in June 1992, the Board of Directors
of the Company.
Effective as of July 28, 1993 (as adjusted on February 15, 1995 to reflect
the two-for-one split of GI Common Stock in August 1994), the Company's Board of
Directors approved the following standard compensation arrangements for
non-employee directors: (i) each non-employee director receives $1,000 for
attending, whether in person or by telephone, each meeting of the Board of
Directors or any committees thereof of which he or she is a member and is
reimbursed for all actual expenses in connection with attending any meeting of
the Board of Directors or any committees thereof of which he or she is a member
(limited to the cost of first-class travel on a commercial airline with respect
to air travel expenses); (ii) the Company provides, for the benefit of each
non-employee director, an insurance policy in the face amount of $200,000,
payable in the event of accidental death or dismemberment of the director while
in attendance at, or traveling in connection with, a meeting of the Board of
Directors or any committee thereof, or while engaged in or traveling in
connection with other business of the Company; and (iii) each non-employee
director elected on or after July 28, 1993 receives, effective as of the date of
such election, a grant of an option to purchase 80,000 shares of GI Common Stock
pursuant to the 1993 Long-Term Incentive Plan at an exercise price per share
equal to the fair market value of a share of GI Common Stock on the date of
grant, which option becomes exercisable with respect to one-third of the
underlying shares on each of the first three anniversaries of the date of grant.
The Company also requests that each non-employee director directly or indirectly
own at least 1,000 shares of GI Common Stock while a director of the Company.
The non-employee directors of the Company who are partners of Forstmann Little &
Co. have declined to receive any of the foregoing compensation.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and holders of more than 10% of the GI Common Stock to file
with the Commission reports of ownership and changes in ownership of GI Common
Stock and other equity securities of the Company on Forms 3, 4 and 5. The
Company undertakes to make such filings on behalf of its directors and officers.
Based on written representations of reporting persons and a review of those
reports, the Company believes that during the year ended December 31, 1996, its
officers and directors and holders of more than 10% of GI Common Stock complied
with all applicable Section 16(a) filing requirements.
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COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation TableThe following table sets forth individual
compensation information for all services rendered in all capacities during the
periods described below for the individuals who served as Chief Executive
Officer during 1996 and the four most highly compensated executive officers of
the Company (other than the Chief Executive Officer) who were serving as
executive officers at December 31, 1996. The following table sets forth
compensation information for each of those individuals for the years ended
December 31, 1996, 1995 and 1994.
COMPANY SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------ AWARDS
SECURITIES -------------
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) OPTIONS(#)(B) COMPENSATION
- ---------------------------------------------------- --------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Richard S. Friedland................................ 1996 $ 750,000 $ -- 250,000 $ 5,460(c)
Chairman and Chief Executive Officer 1995 589,583(d) 214,445(d) 560,000 5,460
1994 420,000 327,600 270,000 5,460
Frank M. Drendel.................................... 1996 $ 410,016 $ 93,275 24,000 $ 17,976(e)
Chairman, President and Chief Executive Officer of 1995 410,016 114,185 24,000 19,937
CommScope and Director of the Company 1994 398,808 163,757 72,000 17,154
Thomas A. Dumit..................................... 1996 $ 345,000 $ -- 42,000 $ 5,460(c)
Vice President, General Counsel and Chief 1995 320,000 89,120 24,000 5,460
Administrative Officer 1994 310,999 134,753 48,000 5,460
Ronald A. Ostertag.................................. 1996 $ 320,000 $ -- 30,000 $ 5,460(c)
Vice President and President, Power Semiconductor 1995 305,000 195,810 24,000 5,460
Division 1994 280,000 110,122 72,000 6,516
Edward D. Breen..................................... 1996 $ 300,000 $ 62,820 60,000 $ 4,568(f)
Vice President and President, Broadband Networks 1995 227,872 25,339 16,000 3,618
Group 1994 199,770 95,216 104,000 3,517
</TABLE>
- ------------------------
(a) Amounts reported for 1996 reflect cash bonus awards paid pursuant to the
Annual Incentive Plan in 1997 with respect to performance in 1996. Amounts
reported for 1995 reflect cash bonus awards paid pursuant to the Annual
Incentive Plan in 1996 with respect to performance in 1995. Amounts reported
for 1994 reflect cash bonus awards paid pursuant to the Annual Incentive
Plan in 1995 with respect to performance in 1994.
(b) Reflects the number of shares of GI Common Stock underlying options
granted. All of the options were granted pursuant to the 1993 Long-Term
Incentive Plan. Each grant set forth for 1994 was made in connection with
the cancellation of an option to purchase the same number of shares,
previously granted in 1994, except the grant set forth to Mr. Friedland,
with respect to which an option to purchase 70,000 shares had previously
been granted in 1994 and the remainder had been granted in 1993. Those
options granted, and subsequently canceled, in 1994 are not reflected in the
table for the named executive officer.
(c) Reflects payment by the Company in 1996 of (i) premiums for term life
insurance of $960 and (ii) the matching contribution for 1996 by the Company
under the Savings Plan in the amount of $4,500.
(d) Reflects compensation of Mr. Friedland for the full year 1995. Effective
August 1995, Mr. Friedland was promoted to Chief Executive Officer of the
Company. Prior to that date Mr. Friedland was President and Chief Operating
Officer. In December 1995, Mr. Friedland also became Chairman of the Board.
(e) Reflects (i) the matching contribution under the CommScope Savings Plan in
the amount of $2,733 for 1996, (ii) the allocation of $13,813 to Mr.
Drendel's account under the CommScope Savings Plan for 1996 and (iii)
payment by CommScope in 1996 of premiums of $1,430 for term life insurance
on behalf of Mr. Drendel.
(f) Reflects payment by the Company in 1996 of (i) premiums for term life
insurance of $960 and (ii) the matching contribution for 1996 by the Company
under the Savings Plan in the amount of $3,608.
OPTION GRANTS IN FISCAL YEAR 1996
The following table sets forth further information with respect to grants of
stock options during the year ended December 31, 1996 to the executives listed
in the Company Summary Compensation Table.
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These grants were made pursuant to the 1993 Long-Term Incentive Plan and are
reflected in the Company Summary Compensation Table. No stock appreciation
rights were granted during 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
-------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED YEAR(A) ($/SHARE)(B) DATE 5%($) 10%($)
- ------------------------------------- ----------- --------------- ------------- ----------- ------------ -------------
Richard S. Friedland................. 250,000(c) 14.0 $ 26.75 2/21/06 $ 4,213,125 $ 10,633,125
Frank M. Drendel..................... 24,000(d) 1.3 27.25 2/14/06 412,020 1,039,860
Thomas A. Dumit...................... 42,000(d) 2.3 27.25 2/14/06 721,035 1,819,755
Ronald A. Ostertag................... 30,000(d) 1.7 27.25 2/14/06 515,025 1,299,825
Edward D. Breen...................... 60,000(d) 3.4 27.25 2/14/06 1,030,050 2,599,650
</TABLE>
- ------------------------
(a) Percentages included are based on a total of 1,789,676 options granted to
245 employees of the Company during 1996.
(b) The Board of Directors has authorized the Company to offer to the optionees
that these options be cancelled as of January 10, 1997, and new options in
respect of the same number of shares ("repriced options") be granted as of
such date at an exercise price of $23.125 per share, the closing market
price per share of the GI Common Stock on such date. The repriced options
would become exercisable with respect to one-third of the shares covered
thereby on each of the following dates: July 10, 1997, January 10, 1998 and
January 10, 1999. The price reported here is the exercise price on the date
of grant which equaled the closing market price per share of GI Common Stock
on the date of grant.
(c) The option becomes exercisable with respect to one-third of the shares
covered thereby on
February 21 in each of 1997, 1998 and 1999.
(d) The option becomes exercisable with respect to one-third of the shares
covered thereby on
February 14 in each of 1997, 1998 and 1999.
OPTION EXERCISES AND VALUES FOR FISCAL YEAR 1996
The following table sets forth as of December 31, 1996, for each of the
executives listed in the Company Summary Compensation Table (i) the total number
of shares received upon exercise of options during 1996, (ii) the value realized
upon such exercise, (iii) the total number of unexercised options to purchase GI
Common Stock (exercisable and unexercisable) held and (iv) the value of such
options which were in-the-money at December 31, 1996 (based on the difference
between the closing price of GI Common Stock at December 31, 1996 and the
exercise price of the option on such date). None of the executive officers holds
stock appreciation rights.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS THE-MONEY OPTIONS AT
SHARES AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(A)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Friedland..................... -- -- 393,667 722,333 $ 158,625 $ 52,875
Frank M. Drendel......................... 17,000 $ 272,000 56,000 72,500 -- 49,938
Thomas A. Dumit.......................... -- -- 62,500 81,500 132,188 44,063
Ronald A. Ostertag....................... -- -- 72,000 78,000 94,000 47,000
Edward D. Breen.......................... -- -- 65,250 110,584 30,844 30,844
</TABLE>
- ------------------------
(a) Based on the difference between the closing price of $21.75 per share at
December 31, 1996, as reported on the NYSE Composite Tape, and the exercise
price of the option on such date.
COMPENSATION AND PLAN COMMITTEE REPORT ON COMPENSATION
OF EXECUTIVE OFFICERS
The Compensation Committee and the Plan Committee of the Board of Directors
are comprised entirely of non-employee directors. The Compensation Committee
considers and recommends to the Board of Directors the compensation to be paid
to the Chief Executive Officer, determines the compensation for all other
executive officers, makes recommendations to the Board with respect to the
Company's overall compensation policies, and performs such duties as the Board
may from time to time request. In April 1996, the Plan Committee was established
to make decisions regarding grants under the 1993 Long-Term Incentive Plan and
administer the Annual Incentive Plan with respect to executive officers. Until
that time, these functions had been performed by the Compensation Committee.
The basic objective of the Compensation Committee and the Plan Committee is
to formulate compensation policies and programs intended to attract, retain, and
motivate highly qualified key employees, including executive officers.
Compensation of executive officers and other key employees, including the Chief
Executive Officer, is comprised of three principal elements: (i) stock
ownership, (ii) base salary and (iii) annual bonuses.
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STOCK OWNERSHIP
The Compensation Committee and the Plan Committee believe that executive
officers and other key employees, who are in a position to make a substantial
contribution to the long-term success of the Company and to build stockholder
value, should have a significant stake in the Company's on-going success. This
focuses attention on managing the Company as an owner with an equity position in
the business and seeks to align these employees' interests with the long-term
interests of stockholders. Accordingly, one of the Company's principal methods
to motivate executive officers and other key employees has been through a broad
and deep stock option program.
During 1996, the Company awarded options to purchase an aggregate of
approximately 664,000 shares of GI Common Stock to 12 executive officers
(including executive officers named in the Company Summary Compensation Table).
The exercise price of each of these options as of the date of grant was the
closing market price per share of GI Common Stock on the date of grant. On
January 10, 1997 the Board authorized an offer to the holders of such options to
have the options cancelled as of such date and new options in respect of the
same number of shares ("repriced options") granted as of such date with an
exercise price of $23.125, the closing market price per share of GI Common Stock
on that date. Such repriced options would become exercisable with respect to
one-third of the shares covered thereby on each of the following dates: July 10,
1997, January 10, 1998 and January 10, 1999.
Management recommends to the Compensation Committee and the Plan Committee
those executive officers and other key employees to whom options should be
granted and the number of options to be granted to them. The recommendations are
based on a review of each employee's individual performance, position and level
of responsibility in the Company, long-term potential contribution to the
Company and the number of options previously granted to the employee. Neither
management nor the Compensation Committee or the Plan Committee assigned
specific weights to these factors, although the executive's position and a
subjective evaluation of his performance were considered most important.
Generally, the number of options granted to an executive reflects his or her
level of responsibility and position in the Company.
To encourage key employees to remain in the employ of the Company, options
generally vest and become exercisable over a three- or four-year period and are
not exercisable until one year after the date of grant. It is expected that
awards under the 1993 Long-Term Incentive Plan will be made periodically in
furtherance of goals described above.
BASE SALARY
The Compensation Committee believes that it is important to pay reasonable
and competitive salaries. Salaries paid to executive officers are based on the
Chief Executive Officer's recommendations to the Compensation Committee, which
is responsible for reviewing and approving or disapproving those
recommendations. The recommendations and the Compensation Committee's response
are based on a review of the same factors reviewed in connection with
determining option grants and a review of two surveys of the range of salaries
paid for comparable positions at approximately 100 other companies with
comparable revenues. (This survey information was provided by independent
benefits consulting firms on an aggregate basis, and the Compensation Committee
did not study the salaries or compensation practices of any particular company.
Any overlap of the companies included in these surveys and those included in the
Standard & Poor's Communication Equipment Manufacturers Index used in the graph
of cumulative stockholder return included in this Proxy Statement is
coincidental.) Neither management nor the Compensation Committee assigned
specific weights to these factors, although the executive's position and a
subjective evaluation of his performance were considered most important.
Generally, an executive's base salary reflects his level of responsibility and
position in the Company. Moreover, the Compensation Committee did not target
executives' cash compensation (or any element thereof) to any particular level
in
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the group of companies, but rather reviewed the surveys to confirm that
executive officers' cash compensation was within the middle of the range of cash
compensation paid by companies with comparable revenues.
In 1996, based on the Chief Executive Officer's recommendations and the
Compensation Committee's consideration of the factors discussed above, as well
as prior salary increases, six executive officers received increases averaging
approximately 9.6%. In addition, Mr. Breen received an increase of 33% in
connection with his promotion to President of the Broadband Networks Group.
ANNUAL INCENTIVE BONUS
In 1993, the Compensation Committee adopted the Annual Incentive Plan, which
was approved by stockholders at the 1994 Meeting of Stockholders, was amended
and restated by the Compensation Committee in February 1995 and approved by
stockholders at the 1995 Meeting of Stockholders. The Annual Incentive Plan is
intended to provide a means of annually rewarding certain key employees,
including the executives listed in the Company Summary Compensation Table, based
on the performance of the Company and its divisions. This approach allows
management to focus on key business objectives in the short-term, and to support
the long-term performance orientation of stock ownership.
Under the Annual Incentive Plan, in 1996 management recommended, and the
Compensation Committee established, for each officer a bonus target percentage
of the officer's salary. That percentage was based on the officer's position in
the Company and was the percentage of the officer's salary that would be paid if
the performance targets were met. The target award percentage for executive
officers for 1996 ranged from 35% to 70% for the Chief Executive Officer. All
executive officers of the Company participated in the Annual Incentive Plan in
1996.
Bonuses for officers, other than those employed at an operating division,
are a function of the Company's achievement of its earnings per share target
(which constitutes 60% of the bonus payment determination) and its consolidated
operating income target (which constitutes the remaining 40% of the bonus
payment determination). For the presidents of the Company's operating divisions,
bonuses are a function of the Company's achievement of its earnings per share
target and the division's achievement of its operating income target and may be
adjusted to reflect the division's quality performance. The weighting of the
financial targets in calculating individual bonus amounts for the division
presidents depends upon their division.
Under the Annual Incentive Plan, if a financial target is exceeded, the
portion of the bonus based on that target is increased above the target level,
but may not exceed 130% of the target level. In 1996, two divisions exceeded
their financial targets, the Company and the other divisions did not achieve
their financial targets and, in the case of each division, targets were adjusted
to reflect an assessment of its quality of performance. As a result, bonuses
less than the target bonuses were paid to Frank M. Drendel and Edward D. Breen,
and no bonuses were paid to each other officer who participated in the Annual
Incentive Plan.
CHIEF EXECUTIVE OFFICER COMPENSATION
Richard S. Friedland was elected Chief Executive Officer in August 1995,
after having served the Company as President and Chief Operating Officer since
October 1993, as Vice President and Chief Financial Officer from March 1992 to
January 1994, and before that in increasingly responsible management and
executive capacities since joining the Company in 1978. In determining Mr.
Friedland's compensation as Chief Executive Officer, the Compensation Committee,
while not assigning specific weights to the following factors, considered Mr.
Friedland's extensive experience with the Company; his individual performance,
including his instrumental role in the Company becoming a public company in
1992; and the Company's financial performance during his tenure as Chief
Financial Officer, President and Chief Operating Officer, including significant
overall growth in operating income and net income. Based
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on these considerations, the Compensation Committee approved a compensation
package consisting substantially of the following: (i) an annual base salary of
$750,000; (ii) an option to purchase an aggregate of 500,000 shares of GI Common
Stock, at an exercise price of $36.75 per share, the closing market price per
share of GI Common Stock on the date of the grant, to become exercisable over
three years (on January 10, 1997, the Board authorized an offer to have this
option cancelled as of such date and a new option in respect of the same number
of shares granted as of such date with an exercise price of $23.125 per share,
the closing market price per share of GI Common Stock on that date, to become
exercisable in one-third increments on July 10, 1997, January 10, 1998 and
January 10, 1999); and (iii) a target award percentage of 70% under the Annual
Incentive Plan. Since Mr. Friedland's salary was set more than halfway through
1995, he did not receive a salary increase in 1996. In February 1996, Mr.
Friedland was granted an option to purchase 250,000 shares of GI Common Stock,
at an exercise price of $26.75 per share, the closing market price per share of
the GI Common Stock on the date of grant.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Code, which was enacted in 1993, generally disallows a
federal income tax deduction to any publicly held corporation for compensation
paid in excess of $1 million in any taxable year to the chief executive officer
or any of the four other most highly compensated executive officers who are
employed by the Company on the last day of the taxable year. Section 162(m),
however, does not disallow a federal income tax deduction for qualified
"performance-based compensation," the material terms of which are disclosed to
and approved by stockholders.
The Compensation Committee and the Plan Committee have considered the tax
deductibility of compensation awarded under the 1993 Long-Term Incentive Plan
and the Annual Incentive Plan in light of Section 162(m). The Company structured
and intends to administer the stock option and stock appreciation right portions
of the 1993 Long-Term Incentive Plan with the intention that the compensation
resulting from that plan would be qualified "performance-based compensation" and
would be deductible. The Company has structured the annual cash bonus paid to
the Chief Executive Officer with the intention that it would be qualified
"performance-based" compensation and would be deductible. No executive officer's
compensation in 1996 exceeded $1 million. It is not expected that any executive
officer's compensation will be non-deductible in 1997 by reason of the
application of Section 162(m).
Respectfully submitted,
COMPENSATION COMMITTEE
Nicholas C. Forstmann Lynn Forester J. Tracy O'Rourke
PLAN COMMITTEE
Lynn Forester J. Tracy O'Rourke
169
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total return on $100 invested on
June 30, 1992 in each of the GI Common Stock, the Standard & Poor's 500 Index
and the Standard & Poor's Communication Equipment Manufacturers Index. The
return of the Standard & Poor's indices is calculated assuming reinvestment of
dividends. The Company has not paid any dividends. The graph covers a period
commencing June 1992, when the GI Common Stock was first publicly traded. The
stock price performance shown on the graph below is not necessarily indicative
of future price performance.
COMPARISON OF 54 MONTH CUMULATIVE TOTAL RETURN*
AMONG GENERAL INSTRUMENT CORPORATION, THE S&P 500 INDEX
AND THE S&P COMMUNICATIONS EQUIPMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GENERAL INSTRUMENT CORPORATION S&P 500 S&P COMMUNICATIONS EQUIPMENT
<S> <C> <C> <C>
6/92 $ 100 $ 100 $ 100
12/92 177 108 128
6/93 270 114 106
12/93 393 119 123
6/94 397 115 100
12/94 417 121 140
6/95 532 145 179
12/95 325 166 210
6/96 402 183 252
12/96 303 204 245
</TABLE>
* $100 INVESTED ON 6/30/92 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
<TABLE>
<CAPTION>
Cumulative Total Return
----------------------------------------------------------------------------
6/92 12/92 6/93 12/93 6/94 12/94
--- ----- --- ----- --- -----
<S> <C> <C> <C> <C> <C> <C> <C>
GENERAL INSTR CORP.................. GIC 100 177 270 393 397 417
S & P 500........................... 1500 100 108 114 119 115 121
S & P COMMUNICATIONS EQUIPMENT...... ICME 100 128 106 123 100 140
<CAPTION>
6/95 12/95 6/96 12/96
--- ----- --- -----
<S> <C> <C> <C> <C>
GENERAL INSTR CORP.................. 532 325 402 303
S & P 500........................... 145 166 183 204
S & P COMMUNICATIONS EQUIPMENT...... 179 210 252 245
</TABLE>
170
<PAGE>
EMPLOYMENT ARRANGEMENTS
In November 1988, Frank M. Drendel entered into an employment agreement with
GI Delaware and CommScope NC, providing for his employment as President and
Chief Executive Officer of CommScope NC for an initial term ending on November
28, 1991. The agreement provides for a minimum salary, which is less than Mr.
Drendel's current salary, and provides that Mr. Drendel will participate, on a
substantially similar basis as the presidents of the other broadband divisions
of the Company, in any management incentive compensation plan for executive
officers that the Company maintains. Commencing on November 29, 1989 (subject to
early termination by reason of death or disability or for cause), the agreement
extends automatically so that the remaining term is always two years, unless
either party gives notice of termination, in which case the agreement will
terminate two years from the date of such notice. As of the date of this Proxy
Statement, neither party has given notice of termination. Pursuant to the
agreement, Mr. Drendel is eligible to participate in all benefit plans available
to CommScope NC senior executives. The agreement prohibits Mr. Drendel, for a
period of five years following the term of the agreement, from engaging in any
business in competition with the business of CommScope NC or the other broadband
communications businesses of GI Delaware, in any country where CommScope NC or
GI Delaware's other broadband communications divisions then conduct business.
Effective as of the Distribution Date, GI Delaware will no longer be a party to
any employment agreement with Mr. Drendel, and the non-compete provision with
respect to GI Delaware contained in Mr. Drendel's employment agreement will
terminate.
SEVERANCE PROTECTION AND OTHER AGREEMENTS
The Company intends to enter into severance protection agreements with its
Chief Executive Officer and its other executive officers. These agreements will
have a two-year term which is automatically extended for one year upon the first
anniversary of the agreement and every anniversary thereafter unless
notification is given to either the Company or the executive.
The agreements will provide severance pay and other benefits in the event of
a termination of employment within 24 months of a Change in Control (as defined
in the agreement) of the Company if such termination is for any reason other
than by the Company for cause or disability, by reason of the executive's death
or by the executive for other than Good Reason (as defined in the agreement).
Such severance pay will be in an amount equal to two times the sum of the
executive's base salary and the highest bonus that would be payable to the
executive in the year of termination in the case of the Chief Executive Officer
and one and one-half times such sum in the case of all other executive officers;
provided that such amount may be increased by up to one-half times such sum if
an executive officer has not become employed within 24 months following such
termination, in the case of the Chief Executive Officer, or 18 months following
such termination, in the case of any other executive officer. The executive's
benefits will be continued for either 24 months, in the case of the Chief
Executive Officer, or 18 months in the case of all other executive officers. The
executive will also receive a PRO RATA bonus (calculated up to the executive's
termination date), reimbursement for outplacement, tax and financial planning
assistance and reimbursement for relocation under certain circumstances. If the
executive's employment is terminated without cause (i) within six months prior
to a Change in Control or (ii) prior to the date of a Change in Control but (A)
at the request of a third party who effectuates a Change in Control or (B)
otherwise in connection with, or in anticipation of, a threatened Change in
Control which actually occurs, such termination shall be deemed to have occurred
after the Change in Control.
In the case of a termination by the Company for disability or due to the
executive's death, the executive will receive a PRO RATA bonus in addition to
accrued compensation.
The agreements will provide for a gross-up payment by the Company in the
event that the total payments the executive receives under the agreement or
otherwise are subject to the excise tax under Section 4999 of the Code. In such
an event, the Company will pay an additional amount so that the executive is
made whole on an after-tax basis from the effect of the excise tax.
171
<PAGE>
Mr. Ostertag and each of the other named executives listed in General
Semiconductor Table I has executed a letter agreement (the "Letter Agreement")
with the Company providing for payments for: (i) remaining with the Power
Semiconductor Division (or a successor) until six months after a sale of all or
substantially all the assets of the Power Semiconductor Division or sale of
stock of the Company or any Company subsidiary containing all the assets of the
Power Semiconductor Division (the "Sale") or until May 31, 1998, if the Sale has
not occurred by such date, unless the executive's employment is terminated by
the Company other than For Cause (as defined in the Letter Agreement) or the
executive terminates employment For Good Reason (as defined in the Letter
Agreement) prior to the end of such six-month period (or May 31, 1998 if the
Sale has not occurred by such date) (the "Stay Incentive"); (ii) upon completion
of the Sale if such Sale occurs by December 31, 1998 and the executive is still
employed by the Power Semiconductor Division or an affiliate of the Company on
that date (the "Sale Incentive"); and (iii) upon termination of employment by
the Company other than For Cause or by the executive For Good Reason or
termination of employment by reason of the executive's death or permanent and
total disability if such termination takes place within two years of a Sale (the
"Special Severance Arrangement").
General Semiconductor is the successor to the Power Semiconductor Division
under the Letter Agreements. The Stay Incentives and Sale Incentives for Messrs.
Ostertag, Nelson, Guercio, Caggia and Phillips are each $160,000, $89,280,
$66,290, $63,350 and $62,300, respectively.
Benefits under the Special Severance Arrangement include guaranteed base
salary continuation for the Guarantee Period which is twenty-four months for Mr.
Ostertag and Mr. Guercio and twelve months for Messrs. Nelson, Caggia and
Phillips. If any executive accepts full-time employment during the Guarantee
Period, such executive's remaining monthly payments will be accelerated and paid
in a lump sum. If the executive has not accepted full-time employment by the end
of the Guarantee Period, the monthly payments will continue until the earlier
of: the date the executive accepts full-time employment or the end of an
additional twelve months in the case of Mr. Ostertag and an additional six
months in the case of the other executives. If employment is terminated during
the two years after the Sale due to the executive's death or permanent and total
disability, the executive or his spouse or other beneficiary will receive both
the guaranteed and additional monthly payments. Health benefits will continue
for as long as the executive receives monthly payments with the same monthly
costs, deductibles and co-payments as are applicable to active employees. The
Special Severance Arrangement also includes outplacement assistance for a
minimum period of six months. Payments under the Special Severance Arrangement
are conditioned upon the executive's signing an agreement with confidentiality,
non-compete and release provisions.
Except for the severance protection agreements described above, the GI
Pension Plan, the GI SERP, the CommScope SERP, the Savings Plan, the CommScope
Savings Plan, the 1993 Long-Term Incentive Plan, the Annual Incentive Plan, the
General Instrument Corporation of Delaware Voluntary Non-Qualified Deferred
Compensation Plan (under which certain employees may elect to defer receipt of a
designated percentage or amount of their compensation) and the Letter
Agreements, there are no compensatory plans or arrangements with respect to any
of the executive officers named in the Summary Compensation Table which are
triggered by, or result from, the resignation, retirement or any other
termination of such executive's employment, a change in control of the Company
or a change in such executive's responsibilities following a change in control.
172
<PAGE>
GI PENSION PLAN AND GI SERP
The following table shows, as of December 31, 1996, estimated aggregate
annual benefits payable upon retirement at age 65 under the GI Pension Plan and
the GI SERP.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS
UPON RETIREMENT, WITH
AVERAGE ANNUAL BASIC REMUNERATION YEARS OF SERVICE INDICATED
DURING SIXTY CONSECUTIVE CALENDAR ------------------------------------------
MONTHS PRIOR TO RETIREMENT 15 YEARS 20 YEARS 25 YEARS 30 YEARS
- ---------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$125,000.................................................. $ 26,057 $ 34,742 $ 43,428 $ 52,114
150,000.................................................. 31,682 42,242 52,803 63,364
175,000.................................................. 37,307 49,742 62,178 74,614
200,000.................................................. 42,932 57,242 71,553 85,864
225,000.................................................. 48,557 64,742 80,928 97,114
250,000.................................................. 54,182 72,242 90,303 108,364
300,000.................................................. 54,182 72,242 90,303 108,364
</TABLE>
The compensation covered by the GI Pension Plan and the GI SERP is
substantially that described under the "Salary" column of the Company Summary
Compensation Table. However, pursuant to Section 401(a)(17) of the Code, the
maximum amount of compensation that can be considered in computing benefits
under the GI Pension Plan for 1996 was $150,000. Under the GI SERP, compensation
for 1996 in excess of $150,000, but not exceeding $250,000, is considered in
computing benefits. Accordingly, the total compensation covered by the GI
Pension Plan and the GI SERP for the calendar year 1996 for each of Messrs.
Friedland, Dumit, Ostertag and Breen was $250,000. Credited years of service
under both the GI Pension Plan and the GI SERP as of December 31, 1996 are as
follows: Mr. Friedland, 18 years; Mr. Dumit, five years; Mr. Ostertag, 18 years;
and Mr. Breen, 18 years. Mr. Drendel does not participate in the GI Pension Plan
or the GI SERP because he is an employee of CommScope. Estimated benefits set
forth in the Pension Plan Table were calculated on the basis of a single life
annuity and Social Security covered compensation as in effect during 1996. Such
estimated benefits are not subject to any deduction for Social Security or other
offset amounts.
COMMSCOPE SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
CommScope maintains the CommScope SERP for the benefit of certain executives
of CommScope and its subsidiaries. The CommScope SERP provides for the payment
of a monthly retirement (or early retirement) benefit to participants who retire
from CommScope on or after age 65 (or, for early retirement benefits, on or
after age 55 with ten years of service). Frank M. Drendel is the only executive
named in the Company Summary Compensation Table who participates in the
CommScope SERP. Mr. Drendel, as well as all other individuals who were
participants in the CommScope SERP on August 22, 1990, is fully vested in his
benefits under the CommScope SERP and, thus, could retire prior to attaining age
65 (or age 55 in the case of early retirement) and receive a deferred benefit.
The benefits provided under the CommScope SERP are payable over 15 years and
are equal to a specified percentage, which does not exceed 50%, of the
participant's highest consecutive 12 months earnings during the participant's
final 60 months of employment. Early retirement benefits are subject to
actuarial reductions. Based on compensation earned for the calendar year which
ended December 31, 1996, the estimated annual benefit payable to Mr. Drendel on
or after attaining age 65 is $136,371.
173
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
An affiliate of Forstmann Little & Co. provides aircraft maintenance
services to the Company and charged the Company $2.1 million in 1996 for those
services. The Company believes that the terms of these transactions were no less
favorable to the Company than the terms which could be obtained from an
unrelated third party.
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, independent public accountants, has been appointed as
auditors of the Company for its fiscal year ending December 31, 1997. Deloitte &
Touche LLP has served as auditors for the Company since September 1990. A
representative of Deloitte & Touche LLP will be in attendance at the Meeting
with the opportunity to make a statement if the representative desires to do so
and will be available to respond to appropriate questions.
EXPERTS
The consolidated financial statements of the Company included and
incorporated by reference in this Proxy Statement, and the combined financial
statements of the Communications Business and the consolidated financial
statements of CommScope, Inc. of North Carolina as of December 31, 1996 and 1995
and for each of the three years in the period ended December 31, 1996 included
in this Proxy Statement, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and are included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the shares of NextLevel Systems Common Stock and CommScope
Common Stock offered hereby will be passed upon by Fried, Frank, Harris, Shriver
& Jacobson (a partnership including professional corporations), New York, New
York.
STOCKHOLDER PROPOSALS FOR THE COMPANY'S 1998 ANNUAL MEETING
Any stockholder who meets the requirements of the proxy rules under the
Exchange Act may submit to the Board of Directors proposals to be considered for
submission to the stockholders at the 1998 Annual Meeting. Any such proposal
should be submitted in writing by notice delivered or mailed by first-class
United States mail, postage prepaid, to the Secretary, General Instrument
Corporation, 8770 West Bryn Mawr Avenue, Chicago, Illinois 60631, and must be
received no later than , 1997. Any such notice shall set forth: (i)
the name and address of the stockholder and the text of the proposal to be
introduced; (ii) the number of shares of stock held of record, owned
beneficially and represented by proxy by such stockholder as of the date of such
notice; and (iii) a representation that the stockholder intends to appear in
person or by proxy at the meeting to introduce the proposal specified in the
notice. The chairman of the meeting may refuse to acknowledge the introduction
of any stockholder proposal not made in compliance with the foregoing
procedures.
SOLICITATION OF PROXIES
Proxies will be solicited by mail, telephone, or other means of
communication. Solicitation of proxies also may be made by directors, officers
and regular employees of the Company. The Company has retained Morrow & Co. to
assist in the solicitation of proxies from stockholders. Morrow & Co. will
receive a fee of $7,000 plus reimbursement of certain out-of-pocket expenses.
The Company will reimburse brokerage firms, custodians, nominees and fiduciaries
in accordance with the rules of the NYSE, for reasonable expenses incurred by
them in forwarding materials to the beneficial owners of shares. The entire cost
of solicitations will be borne by the Company.
174
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
GENERAL INSTRUMENT CORPORATION
Independent Auditors' Report............................................................................... F-2
Consolidated Statements of Operations for the three years ended December 31, 1996.......................... F-3
Consolidated Balance Sheets at December 31, 1996 and 1995.................................................. F-4
Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1996................ F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1996.......................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
Independent Auditors' Report............................................................................... F-28
Combined Statements of Operations for the three years ended December 31, 1996.............................. F-29
Combined Balance Sheets at December 31, 1996 and 1995...................................................... F-30
Combined Statements of Divisional Net Equity for the three years ended December 31, 1996................... F-31
Combined Statements of Cash Flows for the three years ended December 31, 1996.............................. F-32
Notes to Combined Financial Statements..................................................................... F-33
COMMSCOPE, INC. OF NORTH CAROLINA
Independent Auditors' Report............................................................................... F-51
Consolidated Statements of Income for the three years ended December 31, 1996.............................. F-52
Consolidated Balance Sheets at December 31, 1996 and 1995.................................................. F-53
Consolidated Statements of Stockholder's Equity for the three years ended December 31, 1996................ F-54
Consolidated Statements of Cash Flows for the three years ended December 31, 1996.......................... F-55
Notes to Consolidated Financial Statements................................................................. F-56
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
General Instrument Corporation:
We have audited the consolidated balance sheets of General Instrument
Corporation and its subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of General Instrument Corporation
and its subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 11 to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for postemployment
benefits to conform with Statement of Financial Accounting Standards No. 112.
/S/ DELOITTE & TOUCHE LLP
- ----------------------------
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 3, 1997
(February 28, 1997 as to Note 16)
F-2
<PAGE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1996 1995 1994
------------ ------------ ------------
NET SALES............................................................... $ 2,689,688 $ 2,432,024 $ 2,036,323
------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Cost of sales......................................................... 1,997,625 1,690,639 1,403,585
Selling, general and administrative................................... 265,717 224,269 179,631
Research and development.............................................. 209,257 147,253 111,462
Purchased in-process technology....................................... -- 139,860 --
NLC litigation costs.................................................. 141,000 -- --
Amortization of excess of cost over fair value of net assets
acquired............................................................ 24,577 24,702 25,574
------------ ------------ ------------
Total operating costs and expenses.................................. 2,638,176 2,226,723 1,720,252
------------ ------------ ------------
OPERATING INCOME........................................................ 51,512 205,301 316,071
Other income (expense)--net............................................. 361 (1,894) (5,154)
Interest expense--net................................................... (46,356) (41,059) (52,751)
------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE............................................................. 5,517 162,348 258,166
Provision for income taxes.............................................. (7,381) (38,566) (9,714)
------------ ------------ ------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE............................................................. (1,864) 123,782 248,452
Cumulative effect of change in accounting principle..................... -- -- (1,917)
------------ ------------ ------------
NET INCOME (LOSS)....................................................... $ (1,864) $ 123,782 $ 246,535
------------ ------------ ------------
------------ ------------ ------------
Weighted Average Shares Outstanding..................................... 132,390 124,374 123,393
EARNINGS (LOSS) PER SHARE:
Primary:
Income (loss) before cumulative effect of change in accounting
principle......................................................... $ (.01) $ 1.00 $ 2.01
Cumulative effect of change in accounting principle................. -- -- (.01)
------------ ------------ ------------
Net income (loss)................................................... $ (.01) $ 1.00 $ 2.00
------------ ------------ ------------
------------ ------------ ------------
Fully Diluted:
Income (loss) before cumulative effect of change in accounting
principle......................................................... $ (.01) $ .96 $ 1.89
Cumulative effect of change in accounting principle................. -- -- (.01)
------------ ------------ ------------
Net income (loss)................................................... $ (.01) $ .96 $ 1.88
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................ $ 20,252 $ 36,382
Short-term investments............................................................... 49,946 --
Accounts receivable, less allowance for doubtful accounts of $17,536 and $14,321,
respectively....................................................................... 544,430 367,672
Inventories.......................................................................... 336,516 281,398
Prepaid expenses and other current assets............................................ 24,619 26,992
Deferred income taxes................................................................ 107,322 111,750
------------ ------------
Total current assets............................................................... 1,083,085 824,194
Property, plant and equipment--net................................................... 571,051 437,194
Intangibles, less accumulated amortization of $110,298 and $94,654, respectively..... 131,051 146,646
Excess of cost over fair value of net assets acquired, less accumulated amortization
of $160,231 and $135,654, respectively............................................. 827,373 842,954
Investments and other assets......................................................... 28,999 27,576
Deferred income taxes, net of valuation allowance.................................... 58,891 8,885
Deferred financing costs, less accumulated amortization of $28,070 and $28,045,
respectively....................................................................... 6,401 13,309
------------ ------------
TOTAL ASSETS......................................................................... $2,706,851 $2,300,758
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................................................... $ 272,041 $ 215,761
Accrued interest payable............................................................. 7,772 3,571
Income taxes payable................................................................. 20,703 33,904
Other accrued liabilities............................................................ 229,894 204,874
Current portion of long-term debt.................................................... 4,310 4,310
------------ ------------
Total current liabilities.......................................................... 534,720 462,420
Deferred income taxes................................................................ 21,457 22,221
Long-term debt....................................................................... 698,825 738,569
NLC litigation liability............................................................. 139,100 --
Other non-current liabilities........................................................ 139,596 162,205
------------ ------------
Total liabilities.................................................................. 1,533,698 1,385,415
------------ ------------
Commitments and contingencies (See Note 9)
Stockholders' Equity:
Preferred Stock, $.01 par value; 20,000,000 shares authorized; no shares issued...... -- --
Common Stock, $.01 par value; 400,000,000 shares authorized; 137,144,412 and
126,034,911 shares issued, respectively............................................ 1,371 1,260
Additional paid-in capital........................................................... 925,166 666,190
Retained earnings.................................................................... 254,552 256,416
------------ ------------
1,181,089 923,866
Less-- Treasury Stock, at cost, 231,527 and 229,011 shares of Common Stock,
respectively................................................................... (7,271) (7,246)
--Unearned compensation........................................................... (665) (1,277)
------------ ------------
Total stockholders' equity......................................................... 1,173,153 915,343
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................................... $2,706,851 $2,300,758
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS COMMON
-------------------- PAID-IN (ACCUMULATED STOCK IN UNEARNED
SHARES AMOUNT CAPITAL DEFICIT) TREASURY COMPENSATION
--------- --------- ---------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994......................... 60,131 $ 601 $ 502,423 $ (113,901) $ (18) $ --
Two-for-one stock split.......................... 60,131 601 (601) -- -- --
Exercise of stock options........................ 1,954 20 9,076 -- -- --
Treasury Stock transactions...................... -- -- 15 -- 1 --
Issuance of restricted stock..................... 15 -- 480 -- -- (389)
Tax benefit from reduction in a valuation
allowance for domestic deferred tax assets..... -- -- 32,335 -- -- --
Net income....................................... -- -- -- 246,535 -- --
--------- --------- ---------- ------------ --------- -------------
BALANCE, DECEMBER 31, 1994....................... 122,231 1,222 543,728 132,634 (17) (389)
Exercise of stock options and related tax
benefit........................................ 1,103 11 25,897 -- -- --
Stock issued for business acquisition............ 2,465 25 92,052 -- (7,229) (1,394)
Costs associated with the sale/issuance of Common
Stock.......................................... -- -- (1,100) -- -- --
Amortization of unearned compensation............ -- -- -- -- -- 506
Conversion of Convertible Junior Subordinated
Notes--net..................................... 236 2 5,613 -- -- --
Net income....................................... -- -- -- 123,782 -- --
--------- --------- ---------- ------------ --------- -------------
BALANCE, DECEMBER 31, 1995....................... 126,035 1,260 666,190 256,416 (7,246) (1,277)
Exercise of stock options and related tax
benefit........................................ 162 2 3,473 -- -- --
Amortization of unearned compensation............ -- -- -- -- -- 612
Conversion of Convertible Junior Subordinated
Notes--net..................................... 10,947 109 255,503 -- -- --
Treasury Stock transactions...................... -- -- -- -- (25) --
Net loss......................................... -- -- -- (1,864) -- --
--------- --------- ---------- ------------ --------- -------------
BALANCE, DECEMBER 31, 1996....................... 137,144 $ 1,371 $ 925,166 $ 254,552 $ (7,271) $ (665)
--------- --------- ---------- ------------ --------- -------------
--------- --------- ---------- ------------ --------- -------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1996 1995 1994
----------- ----------- -----------
OPERATING ACTIVITIES:
Net income (loss).......................................................... $ (1,864) $ 123,782 $ 246,535
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization............................................ 129,136 110,140 97,350
NLC litigation costs-net................................................. 91,650 -- --
Purchased in-process technology-net...................................... -- 90,000 --
Loss from asset write-downs and divested businesses...................... 11,974 -- 3,153
Changes in assets and liabilities:
Accounts receivable.................................................... (171,135) (54,918) (95,035)
Inventories............................................................ (62,537) (67,218) (105,229)
Prepaid expenses and other current assets.............................. (2,228) (5,308) (4,446)
Deferred income taxes.................................................. 6,133 13,531 (50,435)
Accounts payable, income taxes payable and other accrued liabilities... 59,893 55,409 60,513
Other non-current liabilities.......................................... (23,439) (28,406) 4,605
Other.................................................................... 6,132 (5,185) 5,126
----------- ----------- -----------
Net cash provided by operating activities.................................. 43,715 231,827 162,137
----------- ----------- -----------
INVESTING ACTIVITIES:
Additions to property, plant and equipment............................... (227,902) (159,441) (135,740)
Acquisitions, net of cash acquired....................................... (29,520) (2,775) --
Proceeds from sales of assets............................................ 4,368 2,339 8,210
Purchase of short-term investments....................................... (24,974) -- --
Investments in other assets.............................................. (3,700) (8,796) --
----------- ----------- -----------
Net cash used in investing activities...................................... (281,728) (168,673) (127,530)
----------- ----------- -----------
FINANCING ACTIVITIES:
Costs associated with the issuance of debt and Common Stock.............. (1,053) (1,051) (804)
Proceeds from the issuance of Flexible Term Notes........................ -- 10,800 --
Net proceeds from (repayments of) revolving credit facilities............ 231,000 (57,000) (26,645)
Redemption of Convertible Junior Subordinated Notes...................... (6,440) -- --
Repayment of debt........................................................ (4,310) (2,155) (16,710)
Proceeds from stock options.............................................. 2,686 17,506 9,096
----------- ----------- -----------
Net cash provided by (used in) financing activities........................ 221,883 (31,900) (35,063)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents........................... (16,130) 31,254 (456)
Cash and cash equivalents, beginning of year............................... 36,382 5,128 5,584
----------- ----------- -----------
Cash and cash equivalents, end of year..................................... $ 20,252 $ 36,382 $ 5,128
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid........................................................ $ 56,381 $ 36,973 $ 70,815
Interest paid............................................................ $ 41,766 $ 47,801 $ 45,594
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial
statements include the accounts of General Instrument Corporation (the "Company"
or "GI") and its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES The preparation of the accompanying consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from those
estimates.
REVENUE RECOGNITION The Company recognizes revenue when products are
shipped and services are performed.
PRODUCT WARRANTY The Company warrants its products against defects and
accrues estimated warranty expense at the time of sale. Actual warranty costs
incurred are charged against the accrual when paid.
CASH EQUIVALENTS The Company considers all highly liquid debt instruments
with a maturity of three months or less at the date of purchase to be cash
equivalents.
INVENTORIES Inventories are stated at the lower of cost, determined on a
first-in, first-out ("FIFO") basis, or market.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at
cost. Provisions for depreciation are based on estimated useful lives of the
assets using the straight-line method. Average useful lives are 5 to 35 years
for buildings and improvements; economic useful life or lease term, whichever is
shorter, for leasehold improvements and 3 to 10 years for machinery and
equipment.
DEFERRED FINANCING COSTS Financing costs are capitalized and amortized
using the interest method over the term of the related financing.
INTANGIBLE ASSETS Intangible assets consist primarily of patents which are
being amortized on a straight-line basis over 5 to 17 years.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED The excess of cost
over fair value of net assets acquired is being amortized on a straight-line
basis over 35 to 40 years. Management continually reassesses the appropriateness
of both the carrying value and remaining life of the excess of cost over fair
value of net assets acquired by assessing recoverability based on forecasted
operating cash flows, on an undiscounted basis, and other factors. Management
believes that, as of December 31, 1996, the carrying value and remaining life of
the excess of cost over fair value of net assets acquired are appropriate.
LONG-LIVED ASSETS The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. SFAS No. 121
prescribes the accounting treatment for long-lived assets, identifiable
intangibles and goodwill related to those assets when there are indications that
the carrying values of those assets may not be recoverable. Whenever events
indicate that the carrying values of such assets may not be recoverable, the
Company evaluates the carrying values of such assets using future
F-7
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
undiscounted cash flows. The adoption of SFAS No. 121 did not have a material
impact on the Company's financial position or operations.
FOREIGN CURRENCY TRANSLATION The Company has determined the U.S. dollar to
be the functional currency of all foreign subsidiaries. Accordingly, gains and
losses recognized as a result of translating foreign subsidiaries' monetary
assets and liabilities from local foreign currencies to U.S. dollars are
reflected in the accompanying consolidated statements of operations. To hedge
certain foreign currency exposures on monetary assets and liabilities, the
Company enters into foreign currency forward exchange contracts on a
month-to-month basis.
BENEFIT PLANS Substantially all employees, including certain employees of
divested businesses, are covered by pension plans. The benefits under the plans
are based on years of service and compensation levels. Contributions to pension
funds are made when actuarial computations prescribe such funding.
INCOME TAXES Deferred income taxes reflect the future tax consequences of
differences between the financial reporting and tax bases of assets and
liabilities. Deferred income taxes have been provided for the income tax
liability which would be incurred on the repatriation of undistributed earnings
of the Company's foreign subsidiaries, except for locations where the Company
has designated earnings to be permanently reinvested.
EARNINGS (LOSS) PER SHARE Primary earnings (loss) per share is computed
based on the weighted average number of common and common equivalent shares
outstanding during the applicable periods. Fully diluted earnings (loss) per
share computations for all periods are based on net income (loss) adjusted for
interest and amortization of debt issuance costs related to convertible debt and
the weighted average number of common shares outstanding adjusted for the
dilutive effect of stock options and convertible securities. The computations of
primary and fully diluted earnings (loss) per share assume the exercise of stock
options using the treasury stock method, and to the extent that stock options
are anti-dilutive, they are excluded from the computation. For 1996, the
computation of fully diluted earnings (loss) per share is anti-dilutive;
therefore, the amounts reported for primary and fully diluted earnings (loss)
per share are the same.
RECLASSIFICATIONS Certain prior year amounts have been reclassified to
conform to the current year presentation.
2 RESTRUCTURING OF GENERAL INSTRUMENT CORPORATION
On January 7, 1997, the Company announced its intention to separate the
Company into three publicly-traded companies to focus on global growth
opportunities. The restructuring, expected to be completed in the third quarter
of 1997 through a tax-free distribution to stockholders, will create three
independent companies: NextLevel Systems, Inc., a leading worldwide supplier of
systems and components for high-performance networks, delivering video, voice
and Internet/data services to the cable, telephony and satellite markets;
CommScope, Inc., the world's largest manufacturer of coaxial cable for cable
television applications and a leading supplier of high-performance electronic
cables; and General Semiconductor, Inc. (which will change its name from General
Instrument Corporation), a world leader in the manufacture of low-to-medium
power rectifiers and transient voltage suppressors. The restructuring is subject
to the approval of the holders of a majority of the outstanding shares of the
Company, the receipt
F-8
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
2 RESTRUCTURING OF GENERAL INSTRUMENT CORPORATION (CONTINUED)
of a ruling from the Internal Revenue Service that the transactions related to
the separation of NextLevel Systems, Inc., CommScope, Inc. and General
Semiconductor, Inc. are not taxable to the Company or its stockholders, and the
absence of events or developments that would have a material adverse impact on
the Company or its stockholders. In connection with the restructuring, NextLevel
Systems, Inc., CommScope, Inc. and General Semiconductor, Inc. will enter into
various agreements that will generally provide for the separation and
distribution of the operating assets and liabilities and pension plan assets and
liabilities of the Company, as well as tax sharing, transition services and
other matters.
In connection with the restructuring, the Company recorded a charge of $12
million to selling, general and administrative expense in the fourth quarter of
1996, which included $8 million for the write-down of various assets to their
estimated net realizable values and $4 million for transaction costs incurred
through December 31, 1996. Such transaction costs were primarily comprised of
legal, accounting, consulting and other professional fees related to the
Company's strategic restructuring plan. These costs are expected to be paid by
March 31, 1997. During 1997, the Company expects to incur $50 to $70 million of
charges for costs related to dividing the Company's Taiwan operations between
NextLevel Systems, Inc. and General Semiconductor, Inc. and additional
transaction costs related to the restructuring.
3 ACQUISITIONS
In May 1996, CommScope, Inc. of North Carolina, an indirect wholly-owned
subsidiary of the Company, acquired certain assets of Teledyne, Inc.'s
Thermatics unit, a high performance wire and cable manufacturer specializing in
high temperature cables, for a net purchase price of $18 million. In June 1996,
the Company acquired the assets of the Magnitude-Registered Trademark-MPEG-2/DVB
product family of Compression Labs Inc. for a net purchase price of $13 million.
The Magnitude line consists of modular video and audio encoders and decoders for
the delivery of entertainment and information services over cable, satellite and
telephone networks. Both acquisitions were accounted for as purchases and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair value at the date of acquisition.
In September 1995, the Company acquired all the outstanding shares of Next
Level Communications ("NLC") not previously owned by the Company, including
shares issued upon conversion of all of NLC's outstanding options and warrants.
The total purchase price of $91 million consisted of 2.2 million common shares
of the Company valued at $75 million, Company stock options valued at $10
million and cash of $6 million. NLC is involved with the development of a next
generation broadband access system, NLevel(3), utilizing switched-digital access
technology. NLevel(3) is designed to provide delivery of video, voice and
Internet/data services over both copper-twisted-pair and fiber-to-the-curb
networks. The acquisition was accounted for as a purchase and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair value at
the date of acquisition. The purchase price of $91 million, plus the $2 million
of costs directly attributable to the completion of the acquisition, have been
allocated to the assets and liabilities acquired. Approximately $90 million of
the total purchase price represented the value, net of deferred income taxes, of
NLC's in-process technology. Since technological feasibility had not yet been
achieved and there was no alternative future use for the technology being
developed, the amounts allocated to the in-process technology were expensed
concurrent with the purchase. The net-of-tax charge of $90 million included $140
million associated with this technology charged to operating income, offset by a
non-cash tax benefit of $50 million.
F-9
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
4 INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Raw materials.......................................... $ 134,807 $ 142,573
Work in process........................................ 38,135 38,565
Finished goods......................................... 163,574 100,260
----------------- -----------------
$ 336,516 $ 281,398
----------------- -----------------
----------------- -----------------
</TABLE>
5 PROPERTY, PLANT AND EQUIPMENT-NET
Property, plant and equipment-net consists of:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Land and land improvements............................. $ 96,563 $ 96,152
Buildings, improvements and leasehold improvements..... 121,446 78,734
Machinery and equipment................................ 747,189 575,266
----------------- -----------------
965,198 750,152
Less accumulated depreciation.......................... (394,147) (312,958)
----------------- -----------------
$ 571,051 $ 437,194
----------------- -----------------
----------------- -----------------
</TABLE>
6 OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Salaries and compensation liabilities.................. $ 53,252 $ 48,345
Payroll, state and local taxes......................... 15,017 12,040
Product and warranty liabilities....................... 83,207 68,628
Other.................................................. 78,418 75,861
----------------- -----------------
$ 229,894 $ 204,874
----------------- -----------------
----------------- -----------------
</TABLE>
F-10
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
7 INCOME TAXES
The domestic and foreign components of income (loss) before income taxes and
cumulative effect of a change in accounting principle are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
Domestic...................................................................... $ (39,649) $ 78,390 $ 194,112
Foreign....................................................................... 45,166 83,958 64,054
---------- ---------- ----------
Total......................................................................... $ 5,517 $ 162,348 $ 258,166
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- -----------
Current:
Federal.................................................................... $ 25,278 $ 35,707 $ 26,153
Foreign.................................................................... 9,413 20,586 19,680
State...................................................................... 10,822 14,367 7,614
---------- ---------- -----------
45,513 70,660 53,447
---------- ---------- -----------
Deferred:
Federal.................................................................... (42,119) (30,864) 55,534
Foreign.................................................................... 4,398 (901) 3,543
State...................................................................... 39 1,328 3,941
---------- ---------- -----------
(37,682) (30,437) 63,018
---------- ---------- -----------
Net change in valuation allowance.......................................... (450) (1,657) (106,751)
---------- ---------- -----------
Provision for income taxes................................................. $ 7,381 $ 38,566 $ 9,714
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
F-11
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
7 INCOME TAXES (CONTINUED)
The following table presents the principal reasons for the difference
between the actual income tax provision and the tax provision computed by
applying the U.S. federal statutory income tax rate to income before income
taxes and cumulative effect of a change in accounting principle:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- ---------- ----------
Federal income tax provision at 35%............................................. $ 1,931 $ 56,822 $ 90,358
Valuation allowance benefit..................................................... (450) (1,657) (106,751)
State income taxes-net.......................................................... 7,060 10,202 7,511
Foreign operations.............................................................. (5,409) (21,227) 7,586
Non-deductible purchase accounting item......................................... 8,451 8,696 8,951
Settlement of tax audits........................................................ -- (12,000) --
Other-net....................................................................... (4,202) (2,270) 2,059
--------- ---------- ----------
Provision for income taxes...................................................... $ 7,381 $ 38,566 $ 9,714
--------- ---------- ----------
--------- ---------- ----------
Effective income tax rate....................................................... 133.8% 23.8% 3.8%
</TABLE>
Income taxes related to foreign operations in 1996 and 1995 reflect the
Company's ability to recognize the benefit of foreign tax credits. The amounts
included in "Other-net" in 1996 and 1995 primarily relate to the benefit
associated with the Company's Foreign Sales Corporation, partially offset by
other permanent items. The amount included in "Other-net" in 1994 primarily
reflects miscellaneous non-deductible items.
F-12
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
7 INCOME TAXES (CONTINUED)
Deferred income taxes as recorded in the accompanying consolidated balance
sheets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET LIABILITY NET ASSET LIABILITY NET
---------- --------- ---------- ---------- --------- ----------
Current Deferred Income Taxes:
Domestic net operating loss carryforwards......... $ -- $ -- $ -- $ 11,382 $ -- $ 11,382
Accounts receivable and inventory reserves........ 37,294 -- 37,294 43,054 -- 43,054
Product and warranty liabilities.................. 25,555 -- 25,555 15,376 -- 15,376
Employee benefits................................. 15,008 -- 15,008 13,870 -- 13,870
Other current..................................... 29,465 -- 29,465 28,068 -- 28,068
---------- --------- ---------- ---------- --------- ----------
$ 107,322 $ -- $ 107,322 $ 111,750 $ -- $ 111,750
---------- --------- ---------- ---------- --------- ----------
---------- --------- ---------- ---------- --------- ----------
Non-Current Deferred Income Taxes:
Domestic capital loss carryforwards............... $ 17,518 $ -- $ 17,518 $ 25,336 $ -- $ 25,336
Tax credit carryforwards.......................... 13,944 -- 13,944 7,091 -- 7,091
Fixed and intangible assets....................... (48,621) 1,218 (49,839) (3,296) 50,348 (53,644)
Environmental liabilities......................... 14,755 -- 14,755 1,503 (12,302) 13,805
Litigation liabilities............................ 48,955 -- 48,955 50 (412) 462
Employee benefits................................. 21,532 -- 21,532 2,193 (18,448) 20,641
Product and warranty liabilities.................. -- -- -- 5,629 -- 5,629
Other non-current................................. 10,585 20,239 (9,654) (1,576) 3,035 (4,611)
---------- --------- ---------- ---------- --------- ----------
78,668 21,457 57,211 36,930 22,221 14,709
Valuation allowance............................... (19,777) -- (19,777) (28,045) -- (28,045)
---------- --------- ---------- ---------- --------- ----------
$ 58,891 $ 21,457 $ 37,434 $ 8,885 $ 22,221 $ (13,336)
---------- --------- ---------- ---------- --------- ----------
---------- --------- ---------- ---------- --------- ----------
</TABLE>
Deferred taxes have not been provided on undistributed earnings of certain
foreign operations of $9 and $30 million in 1996 and 1995, respectively, as
those earnings are considered to be permanently reinvested. Determining the tax
liability that would arise if these earnings were remitted is not practicable.
As a result of adopting SFAS No. 109, "Accounting for Income Taxes,"
effective January 1, 1993, the Company recorded a valuation allowance to fully
reserve its domestic deferred tax assets. The valuation allowance was reduced
during 1994 to the extent that the Company generated domestic taxable income,
resulting in an income tax benefit of $77 million. In addition, based on
operating trends, positive industry and technological developments and
management's assessment of expected domestic taxable income included in the
Company's planning process, the Company recorded a further reduction to the
valuation allowance, as of December 31, 1994, resulting in an income tax benefit
of $30 million.
The valuation allowance which exists at December 31, 1996 relates
principally to domestic capital loss carryforwards, which expire in 2002. The
valuation allowance will be reduced when and if the Company generates domestic
capital gains.
During 1996 and 1995, the Company settled certain tax matters which resulted
in a $12 million credit to income taxes in 1995 and $8 and $36 million of
credits to goodwill in 1996 and 1995, respectively, since
F-13
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
7 INCOME TAXES (CONTINUED)
such matters related to the period prior to August 1990, when affiliates of
Forstmann Little & Co., a private investment firm, acquired the Company.
8 LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Senior bank indebtedness:
Revolving credit facilities.......................... $ 414,000 $ 183,000
Taiwan loan.......................................... 50,384 54,694
Flexible Term Notes.................................. 10,800 10,800
Convertible Junior Subordinated Notes.................. 227,951 494,385
-------- --------
703,135 742,879
Less current maturities................................ 4,310 4,310
-------- --------
Long-term debt......................................... $ 698,825 $ 738,569
-------- --------
-------- --------
</TABLE>
In August 1996, the Company amended and restated its senior bank credit
agreement (as further amended and restated, the "Credit Agreement") to lower its
interest costs and commitment fees, increase available credit commitments and
obtain greater operating flexibility with less restrictive financial and
operating covenants. The Credit Agreement, which matures on December 31, 2001,
provides for a $650 million unsecured revolving credit facility. Amounts
outstanding as of December 31, 1996 under this facility are classified as
long-term based on the Company's intent and ability to maintain these loans on a
long-term basis. The Credit Agreement requires the Company to pay a facility fee
of .125% per annum on the total commitment. The Credit Agreement permits the
Company to choose between three interest rate options: the Adjusted Base Rate,
which is based on the prime rate of The Chase Manhattan Bank, a Eurodollar rate
(LIBOR) plus .225% and a competitive bid loan rate. The interest rates and
facility fees are subject to change based on the Company's credit ratings as
issued by nationally recognized statistical rating companies specified in the
Credit Agreement. The Credit Agreement contains financial and operating
covenants, including limitations on contingent obligations and liens, and
requires the maintenance of certain financial ratios. In addition, under the
Credit Agreement, certain changes in control of the Company would cause an event
of default, and the banks could declare all outstanding borrowings under the
Credit Agreement immediately due and payable. None of the restrictions contained
in the Credit Agreement are expected to have a significant effect on the ability
of the Company to operate. As of December 31, 1996 and 1995, the Company was in
compliance with all financial and operating covenants under existing credit
agreements and other arrangements with debt holders. At December 31, 1996 and
1995, the Company had borrowings of $414 and $183 million, respectively, under
its revolving credit facilities and available credit of $233 and $264 million,
respectively.
The Company has a $60 million loan agreement with a consortium of banks in
Taiwan (the "Taiwan Loan Agreement"). Borrowings under the Taiwan Loan Agreement
are secured by a mortgage on land and buildings in Taiwan, and the interest rate
under the Taiwan Loan Agreement is equal to the Singapore Interbank Offered Rate
(SIBOR) plus 3/4%. At December 31, 1996, the variable rate was 6.75%. The
borrowings mature on June 30, 2000 and require nine semi-annual installments of
$2.2 million payable on
F-14
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
8 LONG-TERM DEBT (CONTINUED)
June 30 and December 31, which began on December 31, 1995, with the remaining
balance to be paid at maturity.
In January 1995, CommScope, Inc. of North Carolina, an indirect wholly-owned
subsidiary of the Company, entered into an $11 million loan agreement in
connection with the issuance of notes by the Alabama State Industrial
Development Authority (the "Flexible Term Notes"). Borrowings under the loan
agreement bear interest at variable rates based upon current market conditions
for short-term financing. At December 31, 1996, the variable rate was 6.28%. The
loan agreement will mature on January 1, 2015, and any remaining amounts
outstanding under the Flexible Term Notes will be due and payable on that date.
The Company consummated a public offering of an aggregate principal amount
of $500 million of 5% Convertible Junior Subordinated Notes (the "Notes") in
1993. The Notes mature on June 15, 2000 and have semi-annual interest payments
on each June 15 and December 15. The Notes have been redeemable since June 18,
1996 in whole or in part at the Company's option at amounts decreasing from
102.857% of principal plus accrued interest at June 18, 1996 to 100% of
principal at June 15, 2000. Holders of the Notes have a repurchase right,
pursuant to which, in the event certain changes of control of the Company occur,
each holder will have the right, at the holder's option, to require the Company
to repurchase all or any part of the holder's Notes at 100% of principal plus
accrued interest to the repurchase date. The Notes are convertible into Common
Stock at a conversion price of $23.75 per share. In May 1996, the Company issued
a notice to redeem $250 million in principal amount of the Notes. Of the Notes
called, $244 million in principal amount were converted into the Company's
Common Stock prior to the redemption date, with the remaining $6 million
redeemed for cash. Additionally, $16 and $6 million in principal amount of Notes
that were not called for redemption were also converted into the Company's
Common Stock during 1996 and 1995, respectively. These conversions resulted in
the issuance of 11.2 million shares of Common Stock, and approximately 9.6
million shares of Common Stock are reserved for issuance upon conversion of the
remaining outstanding Notes. In connection with the Common Stock conversions,
$4.4 million was charged to additional paid-in capital, net of the related tax
benefit, for unamortized deferred financing costs and accrued but unpaid
interest related to the converted Notes. The estimated fair value of the Notes,
which are publicly traded, as of December 31, 1996 and 1995 was $244 and $544
million, respectively, based on quoted market prices.
The weighted average interest rate on the Company's long-term debt at
December 31, 1996 and 1995 was 5.66% and 5.60%, respectively.
9 COMMITMENTS AND CONTINGENCIES
The Company leases office space, manufacturing and warehouse facilities and
transportation and other equipment under operating leases which expire at
various dates through the year 2009. Rent expense was $23, $17 and $14 million
in 1996, 1995 and 1994, respectively. In August 1996, the Company entered into a
seven-year operating lease agreement for two administrative facilities. The
total cost of the facilities covered by this lease agreement is limited to $115
million. The lease provides for a substantial residual value guarantee
(approximately 83% of the total cost) by the Company which is due upon
termination of the lease and includes purchase and renewal options. Upon
termination of the lease, the Company can either exercise its purchase option,
or the facilities can be sold to a third party. The Company expects the fair
market value of the leased facilities to substantially reduce or eliminate the
Company's payment under
F-15
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
9 COMMITMENTS AND CONTINGENCIES (CONTINUED)
the residual value guarantee. The table of future minimum operating lease
payments below excludes any payment related to this guarantee.
Future minimum lease payments required under operating leases as of December
31, 1996 were as follows:
<TABLE>
<S> <C>
1997............................................................... $ 11,558
1998............................................................... 13,976
1999............................................................... 12,241
2000............................................................... 10,793
2001............................................................... 9,622
Thereafter......................................................... 24,706
</TABLE>
The Company has approximately $60 million in letters of credit outstanding
at December 31, 1996.
The Company is subject to various federal, state, local and foreign laws and
regulations governing the use, discharge and disposal of hazardous materials.
The Company's manufacturing facilities are believed to be in substantial
compliance with current laws and regulations. Compliance with current laws and
regulations has not had, and is not expected to have, a material adverse effect
on the Company's financial condition. The Company is also involved in
remediation programs, principally with respect to former manufacturing sites,
which are proceeding in conjunction with federal and state regulatory oversight.
In addition, the Company is currently named as a potentially responsible party
with respect to the disposal of wastes at nine hazardous waste sites located in
six states and Puerto Rico.
The Company engages independent consultants to assist management in
evaluating potential liabilities related to environmental matters. Management
assesses the input from these independent consultants along with other
information known to the Company in its effort to continually monitor these
potential liabilities. Management assesses its environmental exposure on a
site-by-site basis, including those sites where the Company has been named as a
potentially responsible party. Such assessments include the Company's share of
remediation costs, information known to the Company concerning the size of the
hazardous waste sites, their years of operation and the number of past users and
their financial viability. Although the Company estimates, based on assessments
and evaluations made by management, that its exposure with respect to these
environmental matters could be as high as $58 million, the Company believes that
the reserve for environmental matters of $38 million at December 31, 1996 ($35
million at December 31, 1995) is reasonable and adequate. However, there can be
no assurance that the ultimate resolution of these matters will approximate the
amount reserved.
Based on the factors discussed above, capital expenditures and expenses for
the Company's remediation programs, and the proportionate share of the cost of
the necessary investigation and eventual remedial work that may be needed to be
performed at the sites for which the Company has been named as a potentially
responsible party, are not expected to have a material adverse effect on the
Company's financial statements. The Company's present and past facilities have
been in operation for many years, and over that time in the course of those
operations, the Company's facilities have used substances which are or might be
considered hazardous, and the Company has generated and disposed of wastes which
are or might be considered hazardous. Therefore, it is possible that additional
environmental issues may arise in the future, which the Company cannot now
predict.
F-16
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
9 COMMITMENTS AND CONTINGENCIES (CONTINUED)
In April 1995, prior to the Company's acquisition of NLC in September 1995,
DSC Communications Corporation and DSC Technologies Corporation (collectively,
"DSC") brought suit against NLC and the founders of NLC. On March 28, 1996, a
jury verdict was reached in the case which stated that the founders of NLC
breached certain employee agreements with DSC, failed to disclose and diverted a
corporate opportunity of DSC, misappropriated DSC trade secrets and conspired to
take certain of the foregoing actions, and that NLC used or benefited from the
diversion of corporate opportunity and misappropriation of trade secrets. In
June 1996, a final judgment against NLC and the individual defendants was
entered in favor of DSC, in a total amount of $137 million. However, the court
denied DSC's request for entry of permanent injunctive relief. In June 1996, a
pre-tax charge to earnings of $141 million was recorded, reflecting the judgment
and costs of litigation. Since the Company has the ability and intent to pay
this judgment utilizing borrowings under its Credit Agreement, the liability has
been classified as long term. Both sides appealed to the U.S. Court of Appeals
for the Fifth Circuit, and a decision was rendered in February 1997 (See Note
16).
During October 1995, the Company and certain of its officers and directors
were named as defendants in purported class action complaints in which the
plaintiffs alleged that during various periods, generally extending from March
21, 1995 through October 18, 1995, the Company and certain officers and
directors violated certain federal securities laws by making false and
misleading statements about the Company's financial prospects, and as a result,
the plaintiffs allege that the market value of the Company Stock declined,
thereby causing unspecified monetary damages to the plaintiffs. The Company
intends to vigorously defend these allegations.
In February 1996, the Company and NLC were named as defendants in a
complaint in which the plaintiffs, who are some of the former holders of
preferred stock of NLC, allege, among other things, that the defendants violated
federal securities laws by making misrepresentations and omissions and breached
fiduciary duties to NLC in connection with the acquisition by the Company of NLC
in September 1995. Plaintiffs seek, among other things, unspecified compensatory
and punitive damages and attorneys' fees and costs. The Company intends to
vigorously defend these allegations.
While the ultimate outcome of the matters described above cannot be
determined, management does not believe that the final disposition of these
matters beyond the amounts previously provided for in the financial statements
will have a material adverse effect on the Company's financial statements.
F-17
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
10 EMPLOYEE BENEFITS
Net pension cost consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
---------------------- --------------------- ---------------------
<CAPTION>
DOMESTIC FOREIGN DOMESTIC FOREIGN DOMESTIC FOREIGN
----------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost............................................ $ 2,464 $ 4,577 $ 1,999 $ 3,543 $ 2,113 $ 3,149
Interest................................................ 7,137 5,266 6,832 4,967 6,580 4,851
Loss (return) on plan assets............................ (7,441) (2,105) (22,872) (1,885) 5,974 (2,092)
Net amortization and deferral........................... 1,056 1,237 16,659 203 (12,097) (99)
----------- --------- ---------- --------- ---------- ---------
Net pension cost........................................ $ 3,216 $ 8,975 $ 2,618 $ 6,828 $ 2,570 $ 5,809
----------- --------- ---------- --------- ---------- ---------
----------- --------- ---------- --------- ---------- ---------
</TABLE>
The funded status of the pension plans and the related amounts as recorded
in the accompanying consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ----------------------
<S> <C> <C> <C> <C>
DOMESTIC FOREIGN DOMESTIC FOREIGN
---------- ---------- ---------- ----------
Actuarial present value of:
Vested benefits................................................. $ 87,354 $ 14,607 $ 87,503 $ 11,657
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Accumulated benefits............................................ $ 90,148 $ 44,634 $ 90,157 $ 39,305
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Projected benefit obligation.................................... $ 101,435 $ 89,471 $ 99,693 $ 82,768
Market value of plan assets....................................... 89,703 33,166 83,443 30,759
---------- ---------- ---------- ----------
Funded status..................................................... (11,732) (56,305) (16,250) (52,009)
Unrecognized loss (gain).......................................... (1,106) 32,634 2,947 32,069
---------- ---------- ---------- ----------
Accrued pension obligation........................................ $ (12,838) $ (23,671) $ (13,303) $ (19,940)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Actuarial assumptions:
Discount rate................................................... 7.75% 6.75% 7.25% 6.5%
Investment return............................................... 9% 8% 9% 8%
Compensation increases.......................................... 4.75% 6% 4.25% 6%
</TABLE>
The impact of the changes in the actuarial assumptions, as of December 31,
1996, have been reflected in the funded status of the domestic and foreign
pension plans, and the Company believes that such changes will not have a
material effect on net pension cost in 1997.
The domestic pension plans consist principally of a qualified retirement
plan which has satisfied the full funding limitation requirements under the
Employee Retirement Income Security Act of 1974 ("ERISA"). Contributions of $4
million were made in 1996, and no contributions were made to the plan during
1995. It is anticipated that no pension contributions will be required under
ERISA during 1997. In 1994, the Company established unfunded supplemental
retirement plans for certain members of management. Net pension cost and accrued
pension obligations for these plans are included in the amounts above. The
foreign pension plans consist principally of a Taiwan pension plan, which is
funded under Taiwan's statutory requirements. Pension contributions for the
Taiwan pension plan were $5, $6 and $4 million in
F-18
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
10 EMPLOYEE BENEFITS (CONTINUED)
1996, 1995 and 1994, respectively, and are expected to approximate $5 million in
1997. Domestic plans assets consist of fixed income and equity securities.
Foreign plans assets principally consist of fixed income securities.
CommScope, Inc. of North Carolina, an indirect wholly owned subsidiary of
the Company, maintains an Employees Profit Sharing and Savings Plan (the "Profit
Sharing and Savings Plan"). The majority of contributions to the Profit Sharing
and Savings Plan are made at the discretion of CommScope, Inc. of North
Carolina's Board of Directors. In addition, eligible employees may elect to
contribute up to 10% of their salaries. The subsidiary contributes an amount
equal to 50% of the first 4% of the employee's salary that the employee
contributes. During the years ended December 31, 1996, 1995 and 1994, the
subsidiary contributed $7, $7 and $6 million, respectively, to the Profit
Sharing and Savings Plan, of which $6, $6 and $5 million, respectively, was
discretionary.
The Company maintains a voluntary savings plan covering all domestic
non-union employees. Eligible employees not covered by the Profit Sharing and
Savings Plan (as described in the preceding paragraph) may elect to contribute
up to 10% of their salaries. The Company contributes an amount equal to 50% of
the first 6% of the employee's salary that the employee contributes.
Contributions were $3, $3 and $2 million for the years ended December 31, 1996,
1995 and 1994, respectively.
11 POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS
POSTRETIREMENT. The Company maintains an unfunded contributory group
medical plan (the "Plan") for all full-time U.S. employees not covered by a
collective bargaining agreement and who meet defined age and service
requirements. The Company recognizes the cost of providing and maintaining
postretirement benefits during employees' active service periods. The Plan is
the primary provider of benefits for retirees up to age 65. After age 65,
Medicare becomes the primary provider. Net postretirement benefit cost consists
of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Service cost......................................................................... $ 997 $ 669 $ 663
Interest............................................................................. 1,510 1,522 1,424
Net amortization and deferral........................................................ (515) (599) (515)
--------- --------- ---------
Net postretirement benefit cost...................................................... $ 1,992 $ 1,592 $ 1,572
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-19
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
11 POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
The status of the Plan and the related amounts as recorded in the
accompanying consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Accumulated postretirement benefit obligation ("APBO"):
Retirees................................................................. $ 12,691 $ 13,721
Active participants...................................................... 8,970 8,724
------- -------
Total APBO................................................................. 21,661 22,445
Unrecognized prior service cost............................................ 7,532 8,047
Unrecognized gain (loss)................................................... 1,959 (97)
------- -------
Accrued postretirement benefit obligation.................................. $ 31,152 $ 30,395
------- -------
------- -------
Discount rate used in determining APBO..................................... 7.75% 7.25%
</TABLE>
The assumed rate of future increases in health care cost during 1996 and
1995 was 14% and 15%, respectively, for pre-age 65 retirees, and 11% and 12%,
respectively, for post-age 65 retirees, and is expected to decline to 6% by the
year 2006. Under the Plan, the actuarially determined effect of a one percentage
point increase in the assumed health care cost trend rate on annual net
postretirement benefit cost and the APBO would be $.6 and $4 million,
respectively.
POSTEMPLOYMENT. Effective January 1, 1994, the Company adopted SFAS No.
112, "Employers' Accounting for Postemployment Benefits." Under SFAS No. 112,
the Company is required to accrue the cost of providing benefits to employees
after employment but before retirement. The postemployment benefit obligation
relates principally to medical costs for former employees on long-term
disability. Upon adoption of SFAS No. 112, the Company recorded a cumulative
effect charge to income of $2 million to recognize the accumulated
postemployment benefit obligation as of January 1, 1994.
12 STOCKHOLDERS' EQUITY
COMMON SHARES. In April 1995, the stockholders approved an amendment to the
Company's Certificate of Incorporation which increased the number of authorized
shares of Common Stock from 175 to 400 million.
STOCK OPTION AGREEMENTS. In May 1993, the stockholders of the Company
approved the General Instrument Corporation 1993 Long-Term Incentive Plan ("1993
Plan") which provides for the granting of stock options, stock appreciation
rights, restricted stock, performance units, performance shares and phantom
stock to employees of the Company and its subsidiaries and the granting of stock
options to directors of the Company. In March 1996, the stockholders approved an
increase of 6 million shares of Common Stock that may be awarded under the 1993
Plan.
F-20
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
12 STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes stock option activity relating to the
Company's stock option plans.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
----------- -----------------
<S> <C> <C>
Outstanding at January 1, 1994...................................................... 5,059 $ 12.72
Grants.............................................................................. 4,470 27.41
Exercised........................................................................... (1,954) 4.64
Canceled............................................................................ (2,638) 28.60
-----------
Outstanding at December 31, 1994.................................................... 4,937 20.74
Grants.............................................................................. 8,933 27.24
Exercised........................................................................... (1,103) 15.88
Canceled............................................................................ (3,116) 29.44
-----------
Outstanding at December 31, 1995.................................................... 9,651 24.50
Grants.............................................................................. 1,792 26.21
Exercised........................................................................... (162) 16.52
Canceled............................................................................ (679) 26.37
-----------
Outstanding at December 31, 1996.................................................... 10,602 $ 24.79
-----------
-----------
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable under the Company's stock option plans.
<TABLE>
<CAPTION>
SHARES UNDER OPTIONS OUTSTANDING
------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ------------------------------
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF AT DECEMBER CONTRACTUAL EXERCISE AT DECEMBER EXERCISE
EXERCISE PRICES 31, 1996 TERM (YEARS) PRICE 31, 1996 PRICE
- ------------------------------------------ ----------------- ----------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
$1.51--$2.75.............................. 106 6.4 $ 2.23 106 $ 2.23
15.88--24.75.............................. 4,189 8.2 20.40 943 19.81
25.19--29.88.............................. 5,188 8.3 26.93 2,108 26.52
30.06--39.50.............................. 1,119 8.7 33.43 184 36.37
</TABLE>
At December 31, 1996 and 1995, 5.2 and .3 million shares, respectively, were
reserved for future awards under the Company's stock award plans.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its plans. Since the exercise price of all stock options granted under the 1993
Plan in 1996, 1995 and 1994 was equal to the closing price of the Common Stock
on the New York Stock Exchange on the date of grant, no compensation expense has
been recognized by the Company for its stock-based compensation plans during
these years other than for restricted stock agreements. Compensation expense
would have been $22 and $7 million in 1996 and 1995, respectively, had
compensation cost for stock options awarded in 1996 and 1995 under the Company's
stock option agreements been determined based upon the fair value at the grant
date consistent with the methodology prescribed under SFAS No. 123, "Accounting
for Stock-Based Compensation," and the
F-21
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
12 STOCKHOLDERS' EQUITY (CONTINUED)
Company's pro forma net income/loss and fully diluted earnings/loss per share
would have been a net loss of $15 million and $0.12 loss per share for 1996 and
earnings of $119 million and $0.93 earnings per share for 1995. The
weighted-average per share fair value of the options granted during 1996 and
1995 was estimated as $10.80 and $10.00, respectively, on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Expected life (years)........................................................... 4.0 4.0
Risk-free interest rate......................................................... 6.18% 6.21%
Expected volatility............................................................. 43% 38%
Expected dividend yield......................................................... 0% 0%
</TABLE>
The pro forma effect on net income/loss and earnings/loss per share for 1996
and 1995 may not be representative of the pro forma effect in future years
because it includes compensation cost on a straight-line basis over the vesting
periods of the grants and does not take into consideration the pro forma
compensation costs for grants made prior to 1995.
In connection with the acquisition of NLC, the Company entered into
restricted stock agreements with NLC stockholders who, prior to the merger, held
NLC common stock that was subject to repurchase rights. The repurchase rights
generally permit the Company to repurchase shares of common stock upon certain
terminations of employment. At the acquisition date, unearned compensation,
based on the unamortized excess of the market value of the shares awarded over
the price paid by the recipient at the date of grant, was charged to
stockholders' equity and is being amortized to expense over the vesting period,
which expires in July 1999.
STOCKHOLDER RIGHTS PLAN. On January 6, 1997, the Board of Directors adopted
a stockholder rights plan designed to protect stockholders from various abusive
takeover tactics, including attempts to acquire control of the Company at an
inadequate price. Under the rights plan, each stockholder, subsequent to the
distribution date of January 24, 1997, receives a dividend of one right for each
outstanding share of Common Stock. The rights are attached to, and presently
only trade with, the Common Stock and currently are not exercisable. Except as
specified below, upon becoming exercisable, all rights holders will be entitled
to purchase from the Company one one-thousandth of a share of Series A
Participating Preferred Stock at a price of $100.
The rights become exercisable and will begin to trade separately from the
Common Stock upon the earlier of (i) the first date of public announcement that
a person or group (other than an existing 15% stockholder or pursuant to a
Permitted Offer, as defined) has acquired beneficial ownership of 15% or more of
the outstanding Common Stock, or (ii) 10 business days following a person's or
group's commencement of, or announcement of, an intention to commence a tender
or exchange offer, the consummation of which would result in beneficial
ownership of 15% or more of the Common Stock. The rights will entitle holders to
purchase Common Stock having a market value (immediately prior to such
acquisition) of twice the exercise price of the right. The Company may redeem
the rights for $0.01 each at any time prior to such acquisition. The rights will
expire on January 6, 2007, unless earlier redeemed.
In connection with the rights plan, the Board of Directors approved the
creation of, out of the authorized but unissued shares of Common Stock of the
Company, a Series A Junior Participating
F-22
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
12 STOCKHOLDERS' EQUITY (CONTINUED)
Preferred Stock ("Participating Preferred Stock"), consisting of .4 million
shares with a par value of $0.01 per share. The holders of the Participating
Preferred Stock are entitled to receive dividends, if declared by the Board of
Directors, from funds legally available. Each share of Participating Preferred
Stock is entitled to one thousand votes on all matters submitted to stockholder
vote. The shares of Participating Preferred Stock are not redeemable by the
Company nor convertible into Common Stock or any other security of the Company.
13 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
Derivative financial instruments are primarily used by the Company to reduce
market risk arising from changes in foreign exchange and interest rates. The
Company does not use derivative financial instruments for trading purposes, nor
does it engage in currency or interest rate speculation. Derivatives used by the
Company consist of foreign exchange, interest rate and other instruments. The
Company believes that the various counterparties with which the Company enters
into these agreements consist of only financially sound institutions and,
accordingly, believes that the credit risk for non-performance of these
contracts is remote. The Company monitors its underlying market risk exposures
on an ongoing basis and believes that it can modify or adapt its hedging
strategies as needed.
FOREIGN EXCHANGE INSTRUMENTS. The Company enters into forward exchange
contracts on a month-to-month basis to hedge foreign currency exposure with
regard to certain monetary assets and liabilities denominated in currencies
other than the U.S. dollar. These contracts generally do not subject the
Company's results of operations to risk of exchange rate movements because gains
and losses on these contracts generally offset, in the same period, gains and
losses on the monetary assets and liabilities being hedged.
On a selective basis, the Company enters into forward exchange and purchased
option contracts to hedge the currency exposure of contractual and other firm
commitments denominated in foreign currencies. The Company may also enter into
forward exchange and purchased option contracts designed to hedge the currency
exposure of anticipated, but not yet committed, transactions expected to be
denominated in foreign currencies. The purpose of these activities is to protect
the Company from the risk that the eventual net cash flows in U.S. dollars from
foreign receivables and payables will be adversely affected by changes in
exchange rates. Gains and losses on hedges related to contractual and other firm
commitments are deferred and recognized in the Company's results of operations
in the same period as the gain or loss from the underlying transactions. Gains
and losses on forward exchange contracts used to hedge anticipated, but not yet
committed, transactions are recognized in the Company's results of operations as
changes in exchange rates for the applicable foreign currencies occur.
Historically, foreign exchange contracts with respect to contractual and other
firm commitments and anticipated, but not yet committed, transactions have been
short-term in nature. In addition, purchased options have had no intrinsic value
at the time of purchase.
The Company generally settles forward exchange contracts at maturity at
prevailing market rates. The Company recognizes in its results of operations
over the life of the contract the amortization of contract premium or discount.
The amortization of these premiums or discounts during each of the three years
in the period ended December 31, 1996 was not significant. During 1995, in
response to first half of the year appreciation in the New Taiwan dollar, the
Company increased the volume of forward exchange contracts
F-23
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
13 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (CONTINUED)
utilized to hedge its cash flows in Taiwan. As of December 31, 1996 and 1995,
the Company had outstanding forward exchange contracts in the amounts of $12 and
$162 million, respectively, comprised of foreign currencies which were to be
purchased (principally the Irish punt in 1996 and the New Taiwan dollar in 1995)
and $43 and $46 million, respectively, comprised of foreign currencies which
were to be sold (principally the Japanese yen, Canadian dollar and German mark).
All outstanding forward exchange contracts at December 31, 1996 and 1995 mature
within six months, and the fair values of such contracts approximated their
carrying values. Accordingly, deferred gains or losses on such contracts at
December 31, 1996 and 1995 were not significant. Foreign currency transaction
losses included in net income were $3 and $10 million in 1996 and 1995,
respectively. Gains and losses in 1994 were not significant. As of December 31,
1996 and 1995, the Company had no purchased option contracts outstanding.
INTEREST RATE AND OTHER DERIVATIVE INSTRUMENTS. On a selective basis, the
Company from time to time enters into interest rate cap or swap agreements to
reduce the potential negative impact of increases in interest rates on its
outstanding variable-rate debt under the Credit Agreement. The Company
recognizes in its results of operations over the life of the contract, as
interest expense, the amortization of contract premiums incurred from buying
interest rate caps. Net payments or receipts resulting from these agreements are
recorded as adjustments to interest expense. The effect of interest rate
instruments on the Company's results of operations in each of the three years in
the period ended December 31, 1996 was not significant.
In the fourth quarter of 1994, the Company entered into two interest rate
cap agreements to hedge an aggregate amount of $150 million of outstanding
variable-rate borrowings under the Credit Agreement. Each contract had a
notional amount of $75 million and a one-year term, covering the period from
January 3, 1995 through January 3, 1996. At December 31, 1995, the fair value of
interest rate agreements was not material.
As of December 31, 1996, the Company also had four option contracts
outstanding, providing for the purchase and sale of certain investments. The net
premiums totaled $50 million, of which $25 million was paid on the transaction
settlement date subsequent to December 31, 1996. At December 31, 1996, the $50
million net premiums have been reported as short-term investments, and the $25
million which settled subsequent to December 31, 1996 is included in accounts
payable. The option contracts expire in February 1997 and are accounted for at
fair value with unrealized gains and losses recognized in earnings. As of
December 31, 1996, the net unrealized gains and losses on these open contracts,
for which the right of offset exists, were not material.
OTHER FINANCIAL INSTRUMENTS. The carrying value of cash and cash
equivalents approximates fair value because of the immediate or short-term
maturity of these financial instruments. The carrying amount of the Company's
senior bank indebtedness approximates fair value because the underlying
instruments have variable interest rates that adjust to market on a short-term
basis.
14 SEGMENT INFORMATION
The Company's major business segments are Broadband Communications and Power
Semiconductor. Broadband Communications offers a variety of products and
services for the cable and satellite television industries, including digital
and analog set-top systems, transmission systems, digital and analog satellite
systems, including digital compression and transmission systems, and coaxial and
fiber optic cable.
F-24
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
14 SEGMENT INFORMATION (CONTINUED)
Broadband Communications is also in the business of developing high-speed data
networks and telephony network solutions. Products offered by Power
Semiconductor include discrete power rectifying and transient voltage
suppression components used in telecommunications, automotive and consumer
electronic products. A significant portion of the Company's products are
manufactured or assembled in Mexico, Taiwan and Ireland. At December 31, 1996,
the net assets of these production operations were $20, $90 and $47 million,
respectively.
Operating profit represents net revenue less operating expenses, which
excludes interest, unallocated corporate expenses and income taxes. Identifiable
assets are those used in the operations of each segment or geographic area.
<TABLE>
<CAPTION>
UNITED
OPERATIONS BY GEOGRAPHIC AREA: STATES(A) EUROPE FAR EAST OTHER ELIMINATIONS CONSOLIDATED(B)
--------- --------- ----------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Net sales (c).............................. $2,385,032 $ 225,740 $ 30,068 $ 48,848 $ -- $2,689,688
Intercompany transfers (d)................. 230,978 41,369 288,552 22,489 (583,388) --
--------- --------- ----------- --------- ------------ --------------
Net revenues............................. 2,616,010 267,109 318,620 71,337 (583,388) 2,689,688
Operating profit........................... 70,573(e) 5,738 5,557 2,160 -- 84,028(e)
Identifiable assets........................ 2,179,208 126,224 231,582 36,017 -- 2,573,031
Year ended December 31, 1995:
Net sales (c).............................. 2,153,144 210,436 38,505 29,939 -- 2,432,024
Intercompany transfers (d)................. 202,091 47,801 250,190 16,828 (516,910) --
--------- --------- ----------- --------- ------------ --------------
Net revenues............................. 2,355,235 258,237 288,695 46,767 (516,910) 2,432,024
Operating profit........................... 180,275(f) 38,814 7,862 4,554 -- 231,505(f)
Identifiable assets........................ 1,888,401 89,773 194,018 28,760 -- 2,200,952
Year ended December 31, 1994:
Net sales (c).............................. 1,822,383 151,644 32,803 29,493 -- 2,036,323
Intercompany transfers (d)................. 140,691 32,772 221,930 23,264 (418,657) --
--------- --------- ----------- --------- ------------ --------------
Net revenues............................. 1,963,074 184,416 254,733 52,757 (418,657) 2,036,323
Operating profit........................... 299,944 16,854 20,186 4,336 -- 341,320
Identifiable assets........................ 1,753,161 80,061 169,331 16,836 -- 2,019,389
</TABLE>
- ------------------------
(a) Net sales by geographic segment reflect the originating source of the
unaffiliated sale. Included in the U.S. net sales amount are export sales of
$625, $513 and $413 million in 1996, 1995 and 1994, respectively.
(b) Excludes corporate expenses and assets which are shown separately in the
"Operations by Segment" table.
(c) A limited number of cable and satellite television operators provide
services to a large percentage of television households in the U.S. The loss
of some of these operators as customers could have a material adverse effect
on the Company's sales. One customer, including affiliates, accounted for
17%, 20% and 15% of the Company's consolidated net sales in 1996, 1995 and
1994, respectively. Sales to this customer are made primarily from the
Broadband Communications segment.
(d) Intercompany transfers reflect the originating geographic source of the
transfer and principally reflect product assembly which is accounted for at
cost plus a nominal profit.
(e) Includes charges of $237 million reflecting $12 million of restructuring
charges related to the Company's plan to separate into three independent
companies (see Note 2), $141 million of NLC litigation costs (see Note 9),
$57 million of charges primarily related to the transition to the Company's
next-generation digital products (see Note 15) and $27 million of other
charges related to the write-down of certain assets to their estimated net
realizable values and accruals for environmental and litigation matters (see
Note 15).
(f) Includes a charge of $140 million for purchased in-process technology in
connection with the Company's acquisition of NLC.
F-25
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
14 SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
BROADBAND POWER
COMMUNICATIONS SEMICONDUCTOR CORPORATE CONSOLIDATED
--------------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
OPERATIONS BY SEGMENT:
Year ended December 31, 1996:
Net sales.................................. $ 2,327,797 $ 361,891 $ -- $2,689,688
Operating profit (loss).................... (608)(a) 84,636(a) -- 84,028
Corporate expenses......................... -- -- (32,516 (a) (32,516)
Identifiable assets........................ 2,094,053 478,978 -- 2,573,031
Corporate assets........................... -- -- 133,820 133,820
Capital expenditures....................... 165,526 60,335 2,041 227,902
Depreciation and amortization expense...... 103,433 22,015 3,688 129,136
Year ended December 31, 1995:
Net sales.................................. 2,017,755 414,269 -- 2,432,024
Operating profit........................... 131,810(b) 99,695 -- 231,505
Corporate expenses......................... -- -- (26,204) (26,204)
Identifiable assets........................ 1,751,518 449,434 -- 2,200,952
Corporate assets........................... -- -- 99,806 99,806
Capital expenditures....................... 124,261 34,990 190 159,441
Depreciation and amortization expense...... 85,195 19,483 5,462 110,140
Year ended December 31, 1994:
Net sales.................................. 1,720,634 315,689 -- 2,036,323
Operating profit........................... 281,985 59,335 -- 341,320
Corporate expenses......................... -- -- (25,249) (25,249)
Identifiable assets........................ 1,590,876 428,513 -- 2,019,389
Corporate assets........................... -- -- 89,562 89,562
Capital expenditures....................... 112,080 23,406 254 135,740
Depreciation and amortization expense...... 71,618 19,627 6,105 97,350
</TABLE>
- ------------------------
(a) Operating profit (loss) for Broadband Communications and Power Semiconductor
and corporate expenses for Corporate include charges of $226, $2 and $9
million, respectively, reflecting restructuring charges related to the
Company's plan to separate into three independent companies, NLC litigation
costs and other charges primarily related to the transition to the Company's
next-generation digital products and the write-down of certain assets to
their estimated net realizable values (See Notes 2, 9 and 15).
(b) Includes a charge of $140 million for purchased in-process technology in
connection with the Company's acquisition of NLC.
F-26
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
15 QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly data for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30,
-------------------------- -------------------------- --------------------------
<CAPTION>
1996 1995 1996(A) 1995 1996 1995(B)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... $ 615,762 $ 608,716 $ 675,189 $ 611,639 $ 662,122 $ 563,251
Gross profit...................... 174,024 190,832 185,253 195,370 192,089 179,443
Net income (loss)................. $ 31,164 $ 57,055 $ (58,086 ) $ 54,051 $ 42,122 $ (40,892)
Earnings (loss) per share:
Primary......................... $ .25 $ .46 $ (.45 ) $ .44 $ .31 $ (.33)
Fully diluted(d)................ .24 .42 (.45 ) .40 .30 (.33)
Common Stock
Prices:(e)
High.......................... $ 28 3/8 $ 36 1/4 $ 34 3/8 $ 39 1/4 $ 29 3/8 $ 415/8
Low........................... 21 25 5/8 26 1/4 30 1/2 21 1/2 301/4
<CAPTION>
<S> <C> <C>
DECEMBER 31,
--------------------------
1996(C) 1995
----------- -----------
<S> <C> <C>
Net sales......................... $ 736,615 $ 648,418
Gross profit...................... 140,697 175,740
Net income (loss)................. $ (17,064 ) $ 53,568
Earnings (loss) per share:
Primary......................... $ (.12 ) $ .43
Fully diluted(d)................ (.12 ) .39
Common Stock
Prices:(e)
High.......................... $ 27 1/8 $ 29 3/4
Low........................... 18 1/8 18 1/4
</TABLE>
- ------------------------
(a) Includes a charge of $141 million ($92 million net-of-tax) reflecting NLC
litigation costs.
(b) Includes a charge of $140 million ($90 million net-of-tax) for purchased
in-process technology in connection with the acquisition of NLC.
(c) Includes a pre-tax charge of $12 million ($7 million net-of-tax) for costs
related to the Company's plan to separate into three independent companies,
a pre-tax charge of $57 million ($35 million net-of-tax) related to the
Company's transition to next-generation digital products and other pre-tax
charges of $27 million ($17 million net-of-tax). Of the total charge of $96
million, $73 million ($45 million net-of-tax) was recorded as cost of goods
sold and related to the write-down of inventories to their estimated net
realizable values and the accrual of upgrade and product warranty
liabilities related to the transition to the Company's next-generation
digital products. The remaining $23 million ($14 million net-of-tax) of
charges were recorded as SG&A expense and related to the Company's plan to
separate into three independent companies, the write-down of fixed assets to
their estimated net realizable values and accruals for environmental and
litigation matters.
(d) The sum of the four quarters does not equal the full-year fully-diluted
calculation because the Company recorded losses in certain quarters of 1996
and 1995, the impact of which had an anti-dilutive effect on the Company's
fully-diluted calculation during these periods.
(e) The New York Stock Exchange is the principal market on which these
securities are traded. The Company did not pay dividends on its Common Stock
during 1996 or 1995.
16 SUBSEQUENT EVENT
As discussed in Note 9, in 1995 DSC brought suit against NLC and the
founders of NLC. On February 28, 1997, the U.S. Court of Appeals for the Fifth
Circuit confirmed the trial court's denial of DSC's request for injunctive
relief, reversed the district court judgment for diversion of a corporate
opportunity and remanded the case to the trial court for the entry of judgment
on the misappropriation of trade secrets claim, which the Company expects to
result in a damage award of $138 million plus accrued interest.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
General Instrument Corporation:
We have audited the combined balance sheets of the Communications Business
of General Instrument Corporation (the "Company") as of December 31, 1996 and
1995, and the related combined statements of operations, divisional net equity
and cash flows for each of the three years in the period ended December 31,
1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Communications Business of
General Instrument Corporation at December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
As discussed in Note 12 to the combined financial statements, effective
January 1, 1994, the Communications Business of General Instrument Corporation
changed its method of accounting for postemployment benefits to conform with
Statement of Financial Accounting Standards No. 112.
/S/ DELOITTE & TOUCHE LLP
- ----------------------------
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 3, 1997
(February 28, 1997 as to Note 17)
F-28
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1996 1995 1994
------------ ------------ ------------
NET SALES............................................................... $ 1,755,585 $ 1,532,595 $ 1,275,307
------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Cost of sales......................................................... 1,349,815 1,079,916 877,667
Selling, general and administrative................................... 174,432 138,209 102,753
Research and development.............................................. 198,071 137,930 104,795
Purchased in-process technology....................................... -- 139,860 --
NLC litigation costs.................................................. 141,000 -- --
Amortization of excess of cost over fair value of net assets
acquired............................................................ 14,278 14,418 14,931
------------ ------------ ------------
Total operating costs and expenses.................................. 1,877,596 1,510,333 1,100,146
------------ ------------ ------------
OPERATING INCOME (LOSS)................................................. (122,011) 22,262 175,161
Other income (expense)--net............................................. (1,427) (1,737) 1,380
Interest expense--net................................................... (25,970) (22,933) (27,337)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE.................................................. (149,408) (2,408) 149,204
Benefit (provision) for income taxes.................................... 53,098 6,614 (26,710)
------------ ------------ ------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE............................................................. (96,310) 4,206 122,494
Cumulative effect of change in accounting principle..................... -- -- (1,445)
------------ ------------ ------------
NET INCOME (LOSS)....................................................... $ (96,310) $ 4,206 $ 121,049
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to combined financial statements.
F-29
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Accounts receivable, less allowance for doubtful accounts of $12,910 and $10,144,
respectively....................................................................... $ 392,984 $ 232,434
Inventories.......................................................................... 263,829 230,904
Prepaid expenses and other current assets............................................ 17,657 12,473
Deferred income taxes................................................................ 81,226 76,555
------------ ------------
Total current assets............................................................. 755,696 552,366
Property, plant and equipment--net................................................... 251,748 189,892
Intangibles, less accumulated amortization of $76,077 and $65,308, respectively...... 92,802 103,571
Excess of cost over fair value of net assets acquired, less accumulated amortization
of $93,552 and $79,274, respectively............................................... 478,783 487,677
Investments and other assets......................................................... 18,208 20,832
Deferred income taxes................................................................ 32,499 --
------------ ------------
TOTAL ASSETS......................................................................... $1,629,736 $1,354,338
------------ ------------
------------ ------------
LIABILITIES AND DIVISIONAL NET EQUITY
Current Liabilities:
Accounts payable..................................................................... $ 201,382 $ 172,375
Income taxes payable................................................................. 4,896 9,307
Other accrued liabilities............................................................ 177,886 149,513
------------ ------------
Total current liabilities........................................................ 384,164 331,195
Deferred income taxes................................................................ 6,353 21,850
NLC litigation liability............................................................. 139,100 --
Other non-current liabilities........................................................ 48,945 75,125
------------ ------------
Total liabilities................................................................ 578,562 428,170
------------ ------------
Commitments and contingencies (See Note 10)
Divisional net equity................................................................ 1,051,174 926,168
------------ ------------
TOTAL LIABILITIES AND DIVISIONAL NET EQUITY.......................................... $1,629,736 $1,354,338
------------ ------------
------------ ------------
</TABLE>
See notes to combined financial statements.
F-30
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
COMBINED STATEMENTS OF DIVISIONAL NET EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1996 1995 1994
------------ ---------- ----------
Balance, beginning of year................................................. $ 926,168 $ 763,895 $ 629,016
Net income (loss).......................................................... (96,310) 4,206 121,049
Transfers from General Instrument.......................................... 226,370 88,558 13,830
Other transactions with General
Instrument (See Notes 5 and 9)........................................... (5,054) 69,509 --
------------ ---------- ----------
Balance, end of year....................................................... $ 1,051,174 $ 926,168 $ 763,895
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
See notes to combined financial statements.
F-31
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ----------- ----------
OPERATING ACTIVITIES:
Net income (loss)............................................................ $ (96,310) $ 4,206 $ 121,049
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization.............................................. 84,500 68,042 55,811
NLC litigation costs-net................................................... 91,650 -- --
Purchased in-process technology-net........................................ -- 90,000 --
Loss from asset write-downs................................................ 11,974 -- --
Changes in assets and liabilities:
Accounts receivable...................................................... (160,550) (40,809) (58,425)
Inventories.............................................................. (42,450) (58,444) (94,821)
Prepaid expenses and other current assets................................ (2,185) (4,921) (3,107)
Deferred income taxes.................................................... (3,978) (173) (43,690)
Accounts payable, income taxes payable and other accrued liabilities..... 60,108 (16,917) 75,657
Other non-current liabilities............................................ (26,079) (12,109) 8,568
Other...................................................................... 6,674 (10,711) 4,374
---------- ----------- ----------
Net cash provided by (used in) operating activities.......................... (76,646) 18,164 65,416
---------- ----------- ----------
INVESTING ACTIVITIES:
Additions to property, plant and equipment................................. (134,353) (96,944) (79,246)
Acquisitions, net of cash acquired......................................... (11,671) (2,775) --
Investments in other assets................................................ (3,700) (7,003) --
---------- ----------- ----------
Net cash used in investing activities........................................ (149,724) (106,722) (79,246)
---------- ----------- ----------
FINANCING ACTIVITIES:
Transfers from General Instrument.......................................... 226,370 88,558 13,830
---------- ----------- ----------
Net cash provided by financing activities.................................... 226,370 88,558 13,830
---------- ----------- ----------
Change in cash and cash equivalents.......................................... -- -- --
Cash and cash equivalents, beginning of year................................. -- -- --
---------- ----------- ----------
Cash and cash equivalents, end of year....................................... $ -- $ -- $ --
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
See notes to combined financial statements.
F-32
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
1 DESCRIPTION OF THE BUSINESS AND BACKGROUND OF THE TRANSACTION
The Communications Business within General Instrument Corporation ("General
Instrument") operates in a single-industry segment as a leading worldwide
supplier of systems and equipment for high-performance networks delivering
video, voice and data/Internet services. The Communications Business' Broadband
Networks Group is the world leader in digital and analog set-top systems for
wired and wireless cable television networks, as well as hybrid fiber/coaxial
network transmission systems used by cable television operators. The
Communications Business' Satellite Data Networks Group is a leading provider of
digital satellite systems for programmers, direct-to-home satellite network
providers and private networks for business communications. Through its Next
Level Communications ("NLC") business, the Communications Business will provide
telephone network solutions through its NLevel(3) Switched Digital Services
system.
On January 7, 1997, the Board of Directors of General Instrument approved a
plan to distribute to General Instrument stockholders all of the outstanding
stock of its Communications Business ("NextLevel Systems, Inc." or "NextLevel
Systems") and its cable manufacturing business, CommScope, Inc. ("CommScope") in
a spin-off transaction (the "Distribution"). The Distribution, which is subject
to the approval of the holders of a majority of outstanding shares of General
Instrument, the receipt of a ruling from the Internal Revenue Service that the
Distribution is not taxable to General Instrument or its stockholders, and the
absence of events or developments that would have a material adverse impact on
General Instrument or its stockholders, is expected to occur in the third
quarter of 1997 and will result in NextLevel Systems and CommScope operating as
independent entities with publicly traded common stock. General Instrument will
have no ownership interest in NextLevel Systems or CommScope subsequent to the
Distribution, at which time General Instrument will be renamed General
Semiconductor, Inc. ("General Semiconductor") and will conduct General
Instrument's power semiconductor business.
For the purpose of governing certain of the ongoing relationships among
NextLevel Systems, CommScope and General Semiconductor after the Distribution
and to provide mechanisms for an orderly transition, NextLevel Systems,
CommScope and General Semiconductor have entered or will enter into various
agreements (See Note 16). NextLevel Systems, CommScope and General Semiconductor
believe that the agreements will be fair to each of the parties and be
comparable to those which would have been reached in arm's length negotiations
with unaffiliated parties.
2 BASIS OF PRESENTATION
The accompanying combined financial statements reflect the results of
operations, financial position, changes in divisional net equity and cash flows
of the Communications Business that will be transferred from General Instrument
to NextLevel Systems, Inc. in the Distribution. The combined financial
statements have been prepared using the historical basis of the assets and
liabilities and the historical results of operations directly attributable to
the Communications Business, and all intercompany accounts and transactions
between the Communications Business' operations have been eliminated.
The combined financial statements include an allocation of certain assets,
liabilities and general corporate expenses from General Instrument. In the
opinion of management, general corporate administrative expenses have been
allocated to the Communications Business on a reasonable and consistent basis
using corporate's estimate of services provided to the Communications Business
by General Instrument. However, such allocations are not necessarily indicative
of the level of expenses which might have been
F-33
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
2 BASIS OF PRESENTATION (CONTINUED)
incurred had the Communications Business been operating as a separate,
stand-alone entity during the periods presented.
The Communications Business participates in General Instrument's cash
management program, and the accompanying financial statements include an
allocation of net interest expense from General Instrument. To the extent the
Communications Business generates positive cash, such amounts are remitted to
General Instrument. To the extent the Communications Business has experienced
temporary cash needs for working capital purposes or capital expenditures, such
funds have historically been provided by General Instrument. The net effect of
these transactions are reflected in divisional net equity. Net interest expense
has been allocated based upon the Communications Business' net assets as a
percentage of the total net assets of General Instrument. The allocations were
made consistently in each year, and management believes the allocations are
reasonable. However, these interest costs would not necessarily be indicative of
what the actual costs would have been had the Communications Business operated
as a separate, stand-alone entity. Subsequent to the Distribution, the
Communications Business will be responsible for these cash management functions
using its own resources or purchased services and will be responsible for the
costs associated with operating a public company.
The Communications Business' financial results include the costs incurred by
the General Instrument pension and postretirement benefit plans for employees
and retirees of the Communications Business. Also, the provision for income
taxes has been determined as if the Communications Business had filed separate
tax returns under its existing structure for the periods presented.
The financial information included herein does not necessarily reflect the
combined results of operations, financial position, changes in divisional net
equity and cash flows of the Communications Business in the future or on a
historical basis had the Communications Business been a separate stand-alone
entity for the periods presented.
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION The accompanying combined financial statements
have been prepared using the historical basis in the assets and liabilities and
the historical results of operations directly attributable to the Communications
Business, and all intercompany accounts and transactions between the
Communications Business' businesses have been eliminated.
USE OF ESTIMATES The preparation of the accompanying combined financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from those
estimates.
REVENUE RECOGNITION The Communications Business recognizes revenue when
products are shipped and services are performed.
PRODUCT WARRANTY The Communications Business warrants its products against
defects and accrues estimated warranty expense at the time of sale. Actual
warranty costs incurred are charged against the accrual when paid.
F-34
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES Inventories are stated at the lower of cost, determined on a
first-in, first-out ("FIFO") basis, or market.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at
cost. Provisions for depreciation are based on estimated useful lives of the
assets using the straight-line method. Average useful lives are 5 to 35 years
for buildings and improvements; economic useful life or lease term, whichever is
shorter, for leasehold improvements and 3 to 10 years for machinery and
equipment.
INTANGIBLE ASSETS Intangible assets consist primarily of patents which are
being amortized on a straight-line basis over 5 to 17 years.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED The excess of cost
over fair value of net assets acquired is being amortized on a straight-line
basis over 35 to 40 years. Management continually reassesses the appropriateness
of both the carrying value and remaining life of the excess of cost over fair
value of net assets acquired by assessing recoverability based on forecasted
operating cash flows, on an undiscounted basis, and other factors. Management
believes that, as of December 31, 1996, the carrying value and remaining life of
the excess of cost over fair value of net assets acquired are appropriate.
LONG-LIVED ASSETS The Communications Business adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on January 1,
1996. SFAS No. 121 prescribes the accounting treatment for long-lived assets,
identifiable intangibles and goodwill related to those assets when there are
indications that the carrying values of those assets may not be recoverable.
Whenever events indicate that the carrying values of such assets may not be
recoverable, the Communications Business evaluates the carrying values of such
assets using future undiscounted cash flows. The adoption of SFAS No. 121 did
not have a material impact on the Communications Business' financial position or
operations.
FOREIGN CURRENCY TRANSLATION The Communications Business has determined the
U.S. dollar to be the functional currency of all foreign operations.
Accordingly, gains and losses recognized as a result of translating foreign
operations' monetary assets and liabilities from local foreign currencies to
U.S. dollars are reflected in the accompanying combined statements of
operations. For all periods presented, the Communications Business has been
considered in General Instrument's overall risk management strategy to reduce
its exposure to adverse movements in foreign exchange rates. To hedge foreign
currency exposure on monetary assets and liabilities, General Instrument, on
behalf of the Communications Business, enters into foreign currency forward
exchange contracts on a month-to-month basis.
BENEFIT PLANS The Communications Business participates in General
Instrument sponsored non-contributory, defined benefit pension plans covering
substantially all employees of the Communications Business. The benefits under
the plans are based on years of service and compensation levels. Contributions
to pension funds are made when actuarial computations prescribe such funding.
INCOME TAXES The Communications Business' operating results historically
have been included in General Instrument's consolidated U.S. and state income
tax returns and in tax returns of certain General Instrument foreign
subsidiaries. The provision for the Communications Business has been determined
as if the Communications Business had filed separate tax returns under its
existing structure for the periods presented. Accordingly, future tax rates
could vary from the historical effective tax rates depending upon
F-35
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the Communications Business' future legal structure and tax elections. Federal
and certain state income taxes, which are currently payable or receivable, are
settled with General Instrument through divisional net equity. Foreign taxes
currently due are included in income taxes payable. Deferred income taxes
reflect the future tax consequences of differences between the financial
reporting and tax bases of assets and liabilities. Deferred income taxes have
been provided for the income tax liability which would be incurred on the
repatriation of undistributed earnings of the Communications Business' foreign
operations, except for locations where the Communications Business has
designated earnings to be permanently reinvested.
4 RESTRUCTURING AND OTHER CHARGES
As described in Note 1, on January 7, 1997, the Board of Directors of
General Instrument approved a plan to distribute to General Instrument
stockholders all of the outstanding stock of NextLevel Systems, Inc. and
CommScope. As a result of General Instrument's decision to separate its
businesses, the Communications Business recorded a charge of $8 million to
selling, general and administrative expense in the fourth quarter of 1996 for
the write-down of various assets to their estimated net realizable values.
During 1997, the Communications Business expects to incur approximately $20
million of charges for costs related to dividing General Instrument's Taiwan
operations between the Communications Business and General Semiconductor and for
other costs related to the Distribution.
In the fourth quarter of 1996, the Communications Business also recorded
pre-tax charges of $77 million reflecting $57 million related to the
Communications Business' transition to next generation products and $20 million
of other charges related to the write-down of certain assets to their estimated
net realizable values and accruals for litigation matters. Of these charges, $71
million were recorded as cost of goods sold and related to the write-down of
inventories to their estimated net realizable values and the accrual of upgrade
and product warranty liabilities related to the transition to the Communications
Business' next-generation digital products. The remaining $6 million of charges
were recorded as selling, general and administrative expense and related to the
write-down of fixed assets to their estimated net realizable values and the
settlement of a litigation matter.
5 ACQUISITIONS
In June 1996, the Communications Business acquired the assets of the
Magnitude-Registered Trademark- MPEG-2/DVB product family of Compression Labs,
Inc. for a net purchase price of $13 million. The Magnitude line consists of
modular video and audio encoders and decoders for the delivery of entertainment
and information services over cable, satellite and telephone networks. The
acquisition was accounted for as a purchase and, accordingly, the acquired
assets and liabilities have been recorded at their estimated fair value at the
date of acquisition.
In September 1995, General Instrument, on behalf of the Communications
Business, acquired all the outstanding shares of NLC not previously owned,
including shares issued upon conversion of all of NLC's outstanding options and
warrants. The total purchase price of $91 million consisted of 2.2 million
common shares of General Instrument valued at $75 million, General Instrument
stock options valued at $10 million and cash of $6 million. NLC is involved with
the development of a next-generation broadband access system, NLevel(3),
utilizing switched-digital video technology. NLevel(3) is designed to provide
delivery of video, voice and Internet/data services over both
copper-twisted-pair and fiber-to-the-curb networks. The acquisition was
accounted for as a purchase and, accordingly, the acquired assets and
liabilities were
F-36
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
5 ACQUISITIONS (CONTINUED)
recorded at their estimated fair value at the date of acquisition. The purchase
price of $91 million, plus the $2 million of costs directly attributable to the
completion of the acquisition, have been allocated to the assets and liabilities
acquired. Approximately $90 million of the total purchase price represented the
value, net of deferred income taxes, of NLC's in-process technology. Since
technological feasibility had not yet been achieved and there was no alternative
future use for the technology being developed, the amounts allocated to the
in-process technology were expensed concurrent with the purchase. The net-of-tax
charge of $90 million included $140 million associated with this technology
charged to operating income, offset by a non-cash tax benefit of $50 million.
6 INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Raw materials......................................................... $ 104,984 $ 129,004
Work in process....................................................... 21,344 25,577
Finished goods........................................................ 137,501 76,323
---------- ----------
$ 263,829 $ 230,904
---------- ----------
---------- ----------
</TABLE>
7 PROPERTY, PLANT AND EQUIPMENT-NET
Property, plant and equipment-net consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Land and land improvements.......................................... $ 17,678 $ 17,990
Buildings, improvements and leasehold improvements.................. 23,111 19,354
Machinery and equipment............................................. 435,078 318,978
----------- -----------
475,867 356,322
Less accumulated depreciation....................................... (224,119) (166,430)
----------- -----------
$ 251,748 $ 189,892
----------- -----------
----------- -----------
</TABLE>
F-37
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
8 OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Salaries and compensation liabilities................................. $ 27,049 $ 19,886
Payroll, state and local taxes........................................ 12,542 8,263
Product and warranty liabilities...................................... 77,291 62,360
Other................................................................. 61,004 59,004
---------- ----------
$ 177,886 $ 149,513
---------- ----------
---------- ----------
</TABLE>
9 INCOME TAXES
The domestic and foreign components of income (loss) before income taxes and
cumulative effect of a change in accounting principle are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1996 1995 1994
----------- ---------- ----------
Domestic..................................................................... $ (189,487) $ (42,964) $ 110,951
Foreign...................................................................... 40,079 40,556 38,253
----------- ---------- ----------
Total........................................................................ $ (149,408) $ (2,408) $ 149,204
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
Current:
Federal..................................................................... $ (5,878) $ (17,823) $ 57,553
Foreign..................................................................... 4,312 4,810 8,909
State....................................................................... 1,796 6,572 3,938
---------- ---------- ----------
230 (6,441) 70,400
---------- ---------- ----------
Deferred:
Federal..................................................................... (52,635) (305) (10,260)
Foreign..................................................................... 1,269 1,781 (1,433)
State....................................................................... (1,962) (1,649) (949)
---------- ---------- ----------
(53,328) (173) (12,642)
---------- ---------- ----------
Net change in valuation allowance........................................... -- -- (31,048)
---------- ---------- ----------
Provision (benefit) for income taxes........................................ $ (53,098) $ (6,614) $ 26,710
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-38
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
9 INCOME TAXES (CONTINUED)
The following table presents the principal reasons for the difference
between the actual income tax provision and the tax provision computed by
applying the U.S. federal statutory income tax rate to income (loss) before
income taxes and cumulative effect of a change in accounting principle:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- --------- ----------
Federal income tax provision (benefit) at 35%................................... $ (52,293) $ (842) $ 52,222
Valuation allowance benefit..................................................... -- -- (31,048)
State income taxes--net......................................................... (108) 3,199 1,943
Foreign operations.............................................................. (6,655) (2,449) (2,174)
Non-deductible purchase accounting item......................................... 4,997 5,046 5,226
Settlement of tax audits........................................................ -- (12,000) --
Other--net...................................................................... 961 432 541
---------- --------- ----------
Provision (benefit) for income taxes............................................ $ (53,098) $ (6,614) $ 26,710
---------- --------- ----------
---------- --------- ----------
Effective income tax rate....................................................... 35.5% 274.7% 17.9%
</TABLE>
As a result of adopting SFAS No. 109, "Accounting for Income Taxes,"
effective January 1, 1993, the Communications Business recorded a valuation
allowance to fully reserve its domestic deferred tax assets. The valuation
allowance was reduced during 1994 as the Communications Business generated
domestic taxable income. In addition, based on operating trends, positive
industry and technological developments and management's assessment of expected
domestic taxable income included in the Communications Business' planning
process, the Communications Business reversed the remaining valuation allowance
at December 31, 1994.
The federal and state income taxes which are currently payable or receivable
are settled with General Instrument through divisional net equity. During the
years ended December 31, 1996 and 1995, General Instrument settled certain tax
matters which decreased the Communications Business' amount payable through
divisional net equity to General Instrument and resulted in credits of $5 and $2
million to goodwill for 1996 and 1995, respectively, since these matters related
to periods prior to the acquisition of General Instrument by affiliates of
Forstmann Little & Co. In addition, during 1995, General Instrument had a
favorable settlement of a tax matter related to the Communications Business
which resulted in a $12 million benefit to the 1995 income tax provision.
Deferred income taxes as recorded in the accompanying combined balance
sheets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET LIABILITY NET ASSET LIABILITY NET
---------- ----------- ---------- --------- --------- ----------
Current Deferred Income Taxes:
Accounts receivable and inventory reserves........... $ 27,600 $ -- $ 27,600 $ 34,728 $ -- $ 34,728
Product and warranty liabilities..................... 23,357 -- 23,357 13,655 -- 13,655
Employee benefits.................................... 8,128 -- 8,128 6,922 -- 6,922
Other current........................................ 22,141 -- 22,141 21,250 -- 21,250
---------- ----------- ---------- --------- --------- ----------
$ 81,226 $ -- $ 81,226 $ 76,555 $ -- $ 76,555
---------- ----------- ---------- --------- --------- ----------
---------- ----------- ---------- --------- --------- ----------
</TABLE>
F-39
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
9 INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------------- --------------------------------
ASSET LIABILITY NET ASSET LIABILITY NET
---------- ----------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Non-Current Deferred Income Taxes:
Fixed and intangible assets.......................... $ (26,839) $ -- $ (26,839) $ -- $ 33,381 $ (33,381)
Litigation liabilities............................... 48,690 -- 48,690 -- -- --
Employee benefits.................................... 6,865 -- 6,865 -- (6,175) 6,175
Other non-current.................................... 3,783 6,353 (2,570) -- (5,356) 5,356
---------- ----------- ---------- --------- --------- ----------
$ 32,499 $ 6,353 $ 26,146 $ -- $ 21,850 $ (21,850)
---------- ----------- ---------- --------- --------- ----------
---------- ----------- ---------- --------- --------- ----------
</TABLE>
Deferred taxes have not been provided on undistributed earnings of certain
foreign operations of $9 and $6 million in 1996 and 1995, respectively, as those
earnings are considered to be permanently reinvested. Determining the tax
liability that would arise if these earnings were remitted is not practicable.
10 COMMITMENTS AND CONTINGENCIES
The Communications Business leases office space, manufacturing and warehouse
facilities and transportation and other equipment under operating leases which
expire at various dates through the year 2009. Rent expense was $15, $11 and $9
million in 1996, 1995 and 1994, respectively. In August 1996, General Instrument
entered into a seven-year operating lease agreement for two administrative
facilities for the Communications Business. The total cost of the facilities
covered by this lease agreement is limited to $115 million. The lease provides
for a substantial residual value guarantee (approximately 83% of the total cost)
which is due upon termination of the lease and includes purchase and renewal
options. The Communications Business, through General Instrument, can either
exercise its purchase option, or the facilities can be sold to a third party.
Upon termination of the lease, General Instrument expects the fair market value
of the leased facilities to substantially reduce or eliminate General
Instrument's payment under the residual value guarantee. The table of future
minimum operating lease payments below excludes any payment related to this
guarantee. It is anticipated that these leases will be transferred to the
Communications Business in connection with the Distribution.
Future minimum lease payments required under operating leases as of December
31, 1996 were as follows:
<TABLE>
<S> <C>
1997................................................................ $ 7,548
1998................................................................ 10,525
1999................................................................ 9,322
2000................................................................ 8,463
2001................................................................ 7,765
Thereafter.......................................................... 21,532
</TABLE>
The Communications Business, through General Instrument, has approximately
$60 million of letters of credit outstanding at December 31, 1996.
The Communications Business is either a plaintiff or a defendant in several
pending legal matters. In addition, the Communications Business is subject to
various federal, state, local and foreign laws and
F-40
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
10 COMMITMENTS AND CONTINGENCIES (CONTINUED)
regulations governing the use, discharge and disposal of hazardous materials.
The Communications Business' manufacturing facilities are believed to be in
substantial compliance with current laws and regulations. Compliance with
current laws and regulations has not had, and is not expected to have, a
material adverse effect on the Communications Business' financial statements.
In April 1995, prior to General Instrument's acquisition of NLC in September
1995, DSC Communications Corporation and DSC Technologies Corporation
(collectively, "DSC") brought suit against NLC and the founders of NLC. On March
28, 1996, a jury verdict was reached in the case which stated that the founders
of NLC breached certain employee agreements with DSC, failed to disclose and
diverted a corporate opportunity of DSC, misappropriated DSC trade secrets and
conspired to take certain of the foregoing actions, and that NLC used or
benefited from the diversion of a corporate opportunity and misappropriation of
trade secrets. In June 1996, a final judgment against NLC and the individual
defendants was entered in favor of DSC, in a total amount of $137 million.
However, the court denied DSC's request for entry of permanent injunctive
relief. In June 1996, a pre-tax charge to earnings of $141 million was recorded,
reflecting the judgment and costs of litigation. Since the Communications
Business has the ability and intent to pay this judgment utilizing borrowings
from General Instrument on a long-term basis, the liability has been classified
as long term. Both sides appealed to the U.S. Court of Appeals for the Fifth
Circuit, and a decision was rendered in February 1997 (see Note 17).
F-41
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
10 COMMITMENTS AND CONTINGENCIES (CONTINUED)
During October 1995, General Instrument and certain of its officers and
directors were named as defendants in purported class action complaints in which
the plaintiffs alleged that during various periods, generally extending from
March 21, 1995 through October 18, 1995, General Instrument and certain officers
and directors violated certain federal securities laws by making false and
misleading statements about General Instrument's financial prospects, and as a
result, the plaintiffs allege that the market value of General Instrument's
stock declined, thereby causing unspecified monetary damages to the plaintiffs.
General Instrument intends to vigorously defend these allegations.
In February 1996, General Instrument and NLC were named as defendants in a
complaint in which the plaintiffs, who are some of the former holders of
preferred stock of NLC, allege, among other things, that the defendants violated
federal securities laws by making misrepresentations and omissions and breached
fiduciary duties to NLC in connection with the acquisition by General Instrument
of NLC in September 1995. Plaintiffs seek, among others things, unspecified
compensatory and punitive damages and attorneys' fees and costs. General
Instrument intends to vigorously defend these allegations.
In connection with the Distribution, NextLevel Systems has agreed to
indemnify General Instrument with respect to its obligations, if any, related to
these matters.
While the ultimate outcome of the matters described above cannot be
determined, management does not believe that the final disposition of these
matters beyond the amounts previously provided for in the financial statements
will have a material adverse effect on the Communications Business' financial
statements.
11 EMPLOYEE BENEFITS
The Communications Business participates in General Instrument's domestic
and foreign pension plans. At the Distribution, the Communications Business will
assume responsibility for pension benefits for retirees whose last work
assignment was with a business unit of the Communications Business and for
employees of the Communications Business. As discussed in Note 16, the
Communications Business, CommScope and General Semiconductor will enter into the
Employee Benefits Allocation Agreement, which will provide that, effective as of
the Distribution, the Communications Business will assume all liabilities of
General Instrument under General Instrument's employee benefit plans with
respect to individuals who are employees or retirees of the Communications
Business. The allocation of responsibilities pursuant to the Employee Benefits
Allocation Agreement are substantially consistent with the existing rights of
General Instrument employees under General Instrument's employee benefit plans.
Following the Distribution, the Communications Business will establish
separate defined benefit plans for the employees and retirees of the
Communications Business. Assets included in trusts under qualified pension plans
will be divided after the Distribution between the trusts for General
Instrument's qualified pension plans and the Communications Business' qualified
pension plans. Each such domestic plan will receive the legally required funding
under the Employee Retirement Income Security Act of 1974, and foreign plans
will receive funding as specified under the applicable statutory requirements.
F-42
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
11 EMPLOYEE BENEFITS (CONTINUED)
Net pension cost covering all General Instrument employees, including those
of the Communications Business, consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
---------------------- --------------------- ---------------------
<CAPTION>
DOMESTIC FOREIGN DOMESTIC FOREIGN DOMESTIC FOREIGN
----------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost............................................ $ 2,464 $ 4,577 $ 1,999 $ 3,543 $ 2,113 $ 3,149
Interest................................................ 7,137 5,266 6,832 4,967 6,580 4,851
Loss (return) on plan assets............................ (7,441) (2,105) (22,872) (1,885) 5,974 (2,092)
Net amortization and deferral........................... 1,056 1,237 16,659 203 (12,097) (99)
----------- --------- ---------- --------- ---------- ---------
Net pension cost........................................ $ 3,216 $ 8,975 $ 2,618 $ 6,828 $ 2,570 $ 5,809
----------- --------- ---------- --------- ---------- ---------
----------- --------- ---------- --------- ---------- ---------
</TABLE>
The Communications Business' share of General Instrument's consolidated net
pension cost which has been recorded in the accompanying statements of
operations in 1996, 1995 and 1994 was $5, $4 and $4 million, respectively.
The funded status of General Instrument's noncontributory defined benefit
plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ----------------------
<S> <C> <C> <C> <C>
DOMESTIC FOREIGN DOMESTIC FOREIGN
---------- ---------- ---------- ----------
Actuarial present value of:
Vested benefits................................................. $ 87,354 $ 14,607 $ 87,503 $ 11,657
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Accumulated benefits............................................ $ 90,148 $ 44,634 $ 90,157 $ 39,305
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Projected benefit obligation.................................... $ 101,435 $ 89,471 $ 99,693 $ 82,768
Market value of plan assets....................................... 89,703 33,166 83,443 30,759
---------- ---------- ---------- ----------
Funded status..................................................... (11,732) (56,305) (16,250) (52,009)
Unrecognized (gain) loss.......................................... (1,106) 32,634 2,947 32,069
---------- ---------- ---------- ----------
Accrued pension obligation........................................ $ (12,838) $ (23,671) $ (13,303) $ (19,940)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Actuarial assumptions:
Discount rate................................................... 7.75% 6.75% 7.25% 6.5%
Investment return............................................... 9% 8% 9% 8%
Compensation increases.......................................... 4.75% 6% 4.25% 6%
</TABLE>
The Communications Business' share of the actuarial present value of vested
benefits, accumulated benefits and the projected benefit obligation was $27, $39
and $62 million, respectively, as of December 31, 1996 and $24, $31 and $49
million, respectively, as of December 31, 1995. The actual amounts transferred
will be measured at the Distribution and may be different from these estimates.
The allocation of plan assets at fair value has not been determined at this
time.
General Instrument has reflected the impact of the changes in the actuarial
assumptions, as of December 31, 1996, in the funded status of the domestic and
foreign pension plans. General Instrument's domestic pension plans consist
principally of a qualified retirement plan which has satisfied the full funding
F-43
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
11 EMPLOYEE BENEFITS (CONTINUED)
limitation requirements under the Employee Retirement Income Security Act of
1974 ("ERISA"). General Instrument contributed $4 million in 1996, and no
contributions were made to the plan during 1995. In 1994, General Instrument
established unfunded supplemental retirement plans for certain members of
management. Net pension cost and accrued pension obligations for these plans are
included in the disclosed amounts above. General Instrument's foreign pension
plans consist principally of a Taiwan pension plan, which is funded under
Taiwan's statutory requirements. General Instrument contributed $5, $6 and $4
million in 1996, 1995 and 1994, respectively. General Instrument's domestic
plans' assets consist of fixed income and equity securities, and foreign plans'
assets principally consist of fixed income securities.
General Instrument maintains a voluntary savings plan covering all domestic
non-union employees. Eligible employees may elect to contribute up to 10% of
their salaries. General Instrument contributes an amount equal to 50% of the
first 6% of the employee's salary that the employee contributes. The
Communications Business' expense related to the General Instrument savings plan
was $3, $2 and $2 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The Communications Business expects to establish similar plans
following the Distribution.
12 POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS
POSTRETIREMENT. The Communications Business participates in the General
Instrument sponsored contributory health-care and life insurance benefits plan
(the "Plan"). The Plan is an unfunded contributory group medical plan for all
full-time U.S. employees of the Communications Business not covered by a
collective bargaining agreement and who meet defined age and service
requirements. General Instrument recognizes the cost of providing and
maintaining postretirement benefits during employees' active service periods.
The Plan is the primary provider of benefits for retirees up to age 65. After
age 65, Medicare becomes the primary provider. Following the Distribution, the
Communications Business will establish a separate postretirement benefit plan
for the employees and retirees of the Communications Business.
Net postretirement benefit cost covering all General Instrument employees,
consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Service cost......................................................................... $ 997 $ 669 $ 663
Interest............................................................................. 1,510 1,522 1,424
Net amortization and deferral........................................................ (515) (599) (515)
--------- --------- ---------
Net postretirement benefit cost...................................................... $ 1,992 $ 1,592 $ 1,572
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Communications Business' share of General Instrument's consolidated net
postretirement benefit costs which have been recorded in the accompanying
statements of operations in 1996, 1995 and 1994 are $.8, $.6 and $.5 million.
F-44
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
12 POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
The status of the General Instrument Plan is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation ("APBO"):
Retirees.............................................................. $ 12,691 $ 13,721
Active participants................................................... 8,970 8,724
--------- ---------
Total APBO.............................................................. 21,661 22,445
Unrecognized prior service cost......................................... 7,532 8,047
Unrecognized gain (loss)................................................ 1,959 (97)
--------- ---------
Accrued postretirement benefit obligation............................... $ 31,152 $ 30,395
--------- ---------
--------- ---------
Discount rate used in determining APBO.................................. 7.75% 7.25%
</TABLE>
The assumed rate of future increases in health care cost during 1996 and
1995 was 14% and 15%, respectively, for pre-age 65 retirees, and 11% and 12%,
respectively, for post-age 65 retirees, and is expected to decline to 6% by the
year 2006. Under the Plan, the actuarially determined effect of a one percentage
point increase in the assumed health care cost trend rate on annual net
postretirement benefit cost and the APBO would be $.6 and $4 million,
respectively.
The Communications Business' share of postretirement obligation as of
December 31, 1996 and 1995 was $11 and $10 million, respectively. The actual
amount transferred will be measured at the Distribution and may be different
from these amounts.
POSTEMPLOYMENT. Effective January 1, 1994, the Communications Business
adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits." Under
SFAS No. 112, the Communications Business is required to accrue the cost of
providing benefits to employees after employment but before retirement. The
postemployment benefit obligation relates principally to medical costs for
former employees on long-term disability. Upon adoption of SFAS No. 112, the
Communications Business recorded a cumulative effect charge to income of $1
million to recognize the accumulated postemployment benefit obligation as of
January 1, 1994.
13 STOCK COMPENSATION PLANS
During 1996, 1995 and 1994, certain employees of the Communications Business
were granted awards under the General Instrument Corporation 1993 Long-Term
Incentive Plan (the "GI Plan"). The GI Plan provides for the granting of stock
options, stock appreciation rights, restricted stock, performance units,
performance shares and phantom stock to employees of General Instrument and its
subsidiaries and the granting of stock options to its directors. Awards issued
to employees of the Communications Business consisted primarily of stock
options.
Immediately following the Distribution, outstanding options under the GI
Plan held by the Communications Business employees will be replaced by
substitute options under the Communications Business' long-term incentive plan,
which will be established prior to the Distribution. The substitute options will
have the same ratio of the exercise price per share to the market value per
share, the same aggregate difference between market values and exercise price
and the same vesting provisions, option period and
F-45
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
13 STOCK COMPENSATION PLANS (CONTINUED)
other terms and conditions as the General Instrument options being replaced. The
number of shares subject to these options and the exercise price per share will
be determined based on the average market value of General Instrument common
stock and the Communications Business common stock over a number of trading days
at approximately the date of the Distribution, and therefore, the Communications
Business cannot yet determine the number of shares of its common stock that will
be subject to substitute options after the Distribution.
The number of shares of General Instrument common stock subject to options
held by the Communications Business employees at December 31, 1996 and 1995 were
approximately 9 and 8 million, respectively.
In connection with the acquisition of NLC, General Instrument entered into
restricted stock agreements with NLC stockholders who, prior to the merger, held
NLC common stock that was subject to repurchase rights. The repurchase rights
generally permit General Instrument to repurchase shares of common stock upon
certain terminations of employment. Prior to the Distribution, outstanding
restricted stock of General Instrument will be replaced by substitute restricted
stock of NextLevel Systems. Unearned compensation, based on the unamortized
excess of the market value of the shares awarded over the price paid by the
recipient at the grant date, is being amortized to expense over the vesting
period, which expires in July 1999.
14 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
Derivative financial instruments are primarily used by the Communications
Business, through General Instrument, to reduce market risk arising from changes
in foreign exchange and interest rates. The Communications Business does not use
derivative financial instruments for trading purposes, nor does it engage in
currency or interest rate speculation. Derivatives used by the Communications
Business consist of foreign exchange instruments. The Communications Business
believes that the various counterparties with which General Instrument enters
into these agreements consist of only financially sound institutions and,
accordingly, believes that the credit risk for non-performance of these
contracts is remote. The Communications Business monitors its underlying market
risks exposures on an ongoing basis and believes that it can modify or adapt its
hedging strategies as needed.
The Communications Business enters into forward exchange contracts on a
month-to-month basis to hedge foreign currency exposure with regard to certain
monetary assets and liabilities denominated in currencies other than the U.S.
dollar. These contracts generally do not subject the Communications Business'
results of operations to risk of exchange rate movements because gains and
losses on these contracts generally offset, in the same period, gains and losses
on the monetary assets and liabilities being hedged.
On a selective basis, General Instrument, on behalf of the Communications
Business, enters into forward exchange and purchased option contracts to hedge
the currency exposure of contractual and other firm commitments denominated in
foreign currencies. The Communications Business may also use forward exchange
and purchased option contracts designed to hedge the currency exposure of
anticipated, but not yet committed, transactions expected to be denominated in
foreign currencies. The purpose of these activities is to protect the
Communications Business from the risk that the eventual net cash flows in U.S.
dollars from foreign receivables and payables will be adversely affected by
changes in exchange rates.
F-46
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
14 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (CONTINUED)
Gains and losses on hedges related to contractual and other firm commitments are
deferred and recognized in the Communications Business' results of operations in
the same period as the gain or loss from the underlying transactions. Gains and
losses on forward exchange contracts used to hedge anticipated, but not yet
committed, transactions are recognized in the Communications Business' results
of operations as changes in exchange rates for the applicable foreign currencies
occur. Historically, foreign exchange contracts with respect to contractual and
other firm commitments and anticipated, but not yet committed, transactions have
been short-term in nature. In addition, purchased options have had no intrinsic
value at the time of purchase.
The Communications Business generally settles forward exchange contracts at
maturity at prevailing market rates. The Communications Business recognizes in
its results of operations over the life of the contract the amortization of
contract premium or discount. The amortization of these premiums or discounts
during each of the three years in the period ended December 31, 1996 was not
significant. During 1995, in response to first half of the year appreciation in
the New Taiwan dollar, the Communications Business increased the volume of
forward exchange contracts utilized to hedge its cash flows in Taiwan. As of
December 31, 1996 and 1995, the Communications Business had outstanding forward
exchange contracts in the amounts of $9 and $82 million, respectively, comprised
of foreign currencies which were to be purchased (principally the Pound Sterling
in 1996 and the New Taiwan dollar in 1995) and $21 million, at the end of each
period, comprised of foreign currencies which were to be sold (principally the
Canadian dollar). All outstanding forward exchange contracts at December 31,
1996 and 1995 mature within six months, and the fair values of such contracts
approximated their carrying values. Accordingly, deferred gains or losses on
such contracts at December 31, 1996 and 1995 were not significant. Foreign
currency transaction losses included in net income were $2 and $5 million in
1996 and 1995, respectively. Gains and losses in 1994 were not significant. As
of December 31, 1996 and 1995, the Communications Business had no purchased
option contracts outstanding.
15 GEOGRAPHIC INFORMATION
The Communications Business' operates in a single-industry segment as a
leading supplier of systems and equipment for high-performance networks
delivering video, voice and data/Internet services. This segment includes
digital and analog set-top systems, network transmission systems, digital and
analog satellite systems, including digital compression and transmission system,
and high-speed data network and telephony network solutions. A significant
portion of the Communications Business' products are manufactured or assembled
in Mexico and Taiwan. At December 31, 1996, the net assets of these production
operations were $20 and $32 million, respectively.
F-47
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
15 GEOGRAPHIC INFORMATION (CONTINUED)
Operating profit represents net revenue less operating expenses, which
excludes interest and income taxes. Identifiable assets are those used in the
operations of each geographic area.
<TABLE>
<CAPTION>
UNITED
STATES(A) EUROPE FAR EAST OTHER ELIMINATIONS COMBINED
----------- --------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Operations by Geographic Area:
Year ended December 31, 1996:
Net sales(b)............................ $ 1,579,917 $ 126,820 $ -- $ 48,848 $ -- $ 1,755,585
Intercompany transfers(c)............... 140,123 -- 154,571 22,489 (317,183) --
----------- --------- --------- --------- ------------ -----------
Net revenues.............................. 1,720,040 126,820 154,571 71,337 (317,183) 1,755,585
Operating profit........................ (119,109 (d) 2,288 10,066 2,160 -- (104,595)(d)
Corporate expenses...................... -- -- -- -- -- (17,416)
Identifiable assets..................... 1,462,886 50,316 64,614 36,017 -- 1,613,833
Corporate assets........................ -- -- -- -- -- 15,903
Year ended December 31, 1995:
Net sales(b)............................ 1,400,678 101,978 -- 29,939 -- 1,532,595
Intercompany transfers(c)............... 118,445 -- 93,486 16,828 (228,759) --
----------- --------- --------- --------- ------------ -----------
Net revenues.......................... 1,519,123 101,978 93,486 46,767 (228,759) 1,532,595
Operating profit........................ 27,042(e) 4,368 6,296 4,554 -- 42,260(e)
Corporate expenses...................... -- -- -- -- -- (19,998)
Identifiable assets..................... 1,239,976 30,599 46,618 28,760 -- 1,345,953
Corporate assets........................ -- -- -- -- -- 8,385
Year ended December 31, 1994:
Net sales(b)............................ 1,174,769 71,045 -- 29,493 -- 1,275,307
Intercompany transfers(c)............... 72,746 -- 79,501 23,264 (175,511) --
----------- --------- --------- --------- ------------ -----------
Net revenues.......................... 1,247,515 71,045 79,501 52,757 (175,511) 1,275,307
Operating profit........................ 181,796 (222) 4,943 4,336 -- 190,853
Corporate expenses...................... -- -- -- -- -- (15,692)
Identifiable assets..................... 1,102,918 35,217 34,241 16,836 -- 1,189,212
Corporate assets........................ -- -- -- -- -- 9,790
</TABLE>
- ------------------------
(a) Net sales by geographic segment reflect the originating source of the
unaffiliated sale. Included in the U.S. net sales amount are export sales of
$285, $193 and $170 million in 1996, 1995 and 1994, respectively.
(b) A limited number of cable and satellite television operators provide
services to a large percentage of television households in the U.S. The loss
of some of these operators as customers could have a material adverse effect
on the Communications Business' sales. Two customers, including affiliates,
accounted for 23%, 30% and 20% and 13%, 14% and 13% of the Communications
Business' combined net sales in 1996, 1995 and 1994, respectively.
(c) Intercompany transfers reflect the originating geographic source of the
transfer and principally reflect product assembly which is accounted for at
cost plus a nominal profit.
(d) Includes charges of $226 million reflecting $8 million of restructuring
charges (see Note 4), $141 million of NLC litigation costs (see Note 10),
$57 million of charges primarily related to the transition to the
Communications Business' next-generation digital products (see Note 4), and
$20 million of other charges related to the write-down of certain assets to
their estimated net realizable values and accruals for litigation matters
(see Note 4).
(e) Includes a charge of $140 million for purchased in-process technology in
connection with the acquisition of NLC.
F-48
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
16 AGREEMENTS
As part of the Distribution, the Communications Business will be party to
certain agreements, including the following:
DISTRIBUTION AGREEMENT. The Distribution Agreement provides (i) that the
Communications Business, CommScope and General Semiconductor will assume, pay
and discharge all their respective liabilities as defined in the Distribution
Agreement; (ii) that the Communications Business, CommScope and General
Semiconductor will indemnify each other and their respective subsidiaries,
directors, officers, employees and agents against all losses arising in
connection with the breach of the Distribution Agreement; (iii) for the transfer
of books and records among the Communications Business, CommScope and General
Semiconductor and grants to each party access to certain information in the
possession of the others (subject to certain confidentiality requirements); and
(iv) for the allocation of shared privileges with respect to certain information
and requires, with certain exceptions, each party to obtain the consent of the
others prior to waiving any shared privilege.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT. The Employee Benefits Allocation
Agreement provides that, effective as of the Distribution, the Communications
Business and CommScope will assume or retain all liabilities of General
Instrument under employee benefit plans, policies, arrangements, contracts and
agreements, including under collective bargaining agreements, with respect to
employees who will become employees of the Communications Business or CommScope
subsequent to the Distribution.
TAX SHARING AGREEMENT. The Tax Sharing Agreement defines the rights and
obligations of the Communications Business, CommScope and General Semiconductor
with respect to deficiencies and refunds of federal, state and other income or
franchise taxes relating to General Instrument's businesses for tax years prior
to the Distribution and with respect to certain tax attributes to General
Semiconductor after the Distribution.
TRANSITION SERVICES AGREEMENT. The Communications Business will enter into
transition services agreements with CommScope and General Semiconductor in which
it will provide certain administrative services, including risk management, cash
management and international banking, certain tax return preparation, pension
plan, corporate reporting and information technology services for the fees and
time periods as set forth in the agreements.
TRADEMARK LICENSE AGREEMENT. Effective as of the Distribution, the
Communications Business will hold the rights in the mark GENERAL INSTRUMENT, the
logo "GI," and other rights. Pursuant to this agreement, the Communications
Business will grant to each of CommScope and General Semiconductor a limited,
non-exclusive, non-assignable, worldwide, royalty-free license to use the GI
Trademarks, with respect to specified goods and services, for a period of twelve
months following the Distribution.
F-49
<PAGE>
COMMUNICATIONS BUSINESS OF GENERAL INSTRUMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONCLUDED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
17 SUBSEQUENT EVENT
As described in Note 10, in 1995 DSC brought suit against NLC and the
founders of NLC. On February 28, 1997, the U.S. Court of Appeals for the Fifth
Circuit confirmed the trial court's denial of DSC's request for injunctive
relief, reversed the district court judgment for diversion of a corporate
opportunity and remanded the case to the trial court for entry of judgment on
the misappropriation of trade secrets claim, which the Communications Business
expects to result in a damage award of not more than $138 million plus accrued
interest.
F-50
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
General Instrument Corporation:
We have audited the consolidated balance sheets of CommScope, Inc. of North
Carolina and subsidiary ("CommScope") as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholder's equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of CommScope's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of CommScope, Inc. of North
Carolina and subsidiary at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
- ----------------------------
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 3, 1997
F-51
<PAGE>
COMMSCOPE, INC. OF NORTH CAROLINA
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
NET SALES.................................................................... $ 572,212 $ 485,160 $ 445,328
---------- ---------- ----------
OPERATING COSTS AND EXPENSES
Cost of sales.............................................................. 417,123 355,732 317,466
Selling, general and administrative........................................ 44,342 34,835 31,625
Research and development................................................... 5,348 4,255 3,213
Amortization of excess of cost over fair value of net assets acquired...... 5,145 5,075 5,254
---------- ---------- ----------
Total operating costs and expenses..................................... 471,958 399,897 357,558
---------- ---------- ----------
OPERATING INCOME............................................................. 100,254 85,263 87,770
Other income (expense)--net.................................................. 1,839 115 (4)
Interest expense--net........................................................ (9,990) (8,665) (12,281)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES................................................... 92,103 76,713 75,485
Provision for income taxes................................................... (34,981) (29,382) (30,389)
---------- ---------- ----------
NET INCOME................................................................... $ 57,122 $ 47,331 $ 45,096
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-52
<PAGE>
COMMSCOPE, INC. OF NORTH CAROLINA
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Accounts receivable, less allowance for doubtful accounts of $3,761 and $3,114,
respectively....................................................................... $ 101,817 $ 76,419
Inventories.......................................................................... 41,136 26,971
Prepaid expenses and other current assets............................................ 1,287 517
Deferred income taxes................................................................ 13,742 11,625
------------ ------------
Total current assets............................................................... 157,982 115,532
Property, plant and equipment--net................................................... 117,022 90,587
Intangibles, less accumulated amortization of $23,809 and $20,888, respectively...... 24,956 27,877
Excess of cost over fair value of net assets acquired, less accumulated amortization
of $33,040 and $27,895, respectively............................................... 175,568 175,293
Other assets......................................................................... 4,357 3,089
------------ ------------
TOTAL ASSETS......................................................................... $ 479,885 $ 412,378
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable..................................................................... $ 18,953 $ 16,005
Income taxes payable................................................................. 2,148 2,275
Other accrued liabilities............................................................ 29,661 24,344
------------ ------------
Total current liabilities.......................................................... 50,762 42,624
Long-term debt....................................................................... 10,800 10,800
Deferred income taxes................................................................ 15,198 12,852
Other non-current liabilities........................................................ 9,565 6,925
------------ ------------
Total liabilities.................................................................. 86,325 73,201
------------ ------------
Commitments and contingencies (See Note 11)
Stockholder's Equity:
Common Stock, $.01 par value; 2,000,000 shares authorized; 240,000 issued............ 2 2
Additional paid-in capital........................................................... 197,068 199,807
Retained earnings.................................................................... 196,490 139,368
------------ ------------
Total stockholder's equity........................................................... 393,560 339,177
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........................................... $ 479,885 $ 412,378
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-53
<PAGE>
COMMSCOPE, INC. OF NORTH CAROLINA
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
COMMON STOCK................................................................. $ 2 $ 2 $ 2
---------- ---------- ----------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year................................................... 199,807 251,130 253,843
Transfers to sole stockholder................................................ (962) (45,955) (300)
Other transactions with sole stockholder (See Note 9)........................ (1,777) (5,368) (2,413)
---------- ---------- ----------
Balance, end of year......................................................... 197,068 199,807 251,130
---------- ---------- ----------
RETAINED EARNINGS
Balance, beginning of year................................................... 139,368 92,037 46,941
Net income................................................................... 57,122 47,331 45,096
---------- ---------- ----------
Balance, end of year......................................................... 196,490 139,368 92,037
---------- ---------- ----------
TOTAL STOCKHOLDER'S EQUITY................................................... $ 393,560 $ 339,177 $ 343,169
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-54
<PAGE>
COMMSCOPE, INC. OF NORTH CAROLINA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income....................................................................... $ 57,122 $ 47,331 $ 45,096
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 18,952 17,219 16,422
Changes in assets and liabilities:
Accounts receivable.......................................................... (19,775) (4,329) (28,414)
Inventories.................................................................. (12,059) (4,761) (8,979)
Prepaid expenses and other current assets.................................... (705) 159 (345)
Deferred income taxes........................................................ 1,030 (1,895) (1,287)
Accounts payable, income taxes payable and other accrued liabilities......... 6,686 6,775 11,101
Other non-current liabilities................................................ 2,139 1,365 (718)
Other.......................................................................... (1,426) 1,646 395
--------- --------- ---------
Net cash provided by operating activities........................................ 51,964 63,510 33,271
--------- --------- ---------
INVESTING ACTIVITIES:
Additions to property, plant and equipment..................................... (33,218) (27,281) (33,089)
Acquisition of Teledyne Thermatics assets, net................................. (17,849) -- --
Investment in joint venture.................................................... -- (1,844) --
Other.......................................................................... 65 770 118
--------- --------- ---------
Net cash used in investing activities............................................ (51,002) (28,355) (32,971)
--------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from the issuance of Flexible Term Notes.............................. -- 10,800 --
Transfers to sole stockholder.................................................. (962) (45,955) (300)
--------- --------- ---------
Net cash used in financing activities............................................ (962) (35,155) (300)
--------- --------- ---------
Change in cash and cash equivalents.............................................. -- -- --
Cash and cash equivalents, beginning of year..................................... -- -- --
--------- --------- ---------
Cash and cash equivalents, end of year........................................... $ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-55
<PAGE>
COMMSCOPE, INC. OF NORTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
1 DESCRIPTION OF THE BUSINESS AND BACKGROUND OF THE TRANSACTION
CommScope, Inc. of North Carolina and subsidiary ("CommScope") is an
indirect wholly-owned subsidiary of General Instrument Corporation ("General
Instrument").
CommScope operates in the cable manufacturing business, and designs,
manufactures and markets coaxial, fiber optic and high performance electronic
cables primarily used in communications, local area network, aerospace and
industrial applications. CommScope is the largest manufacturer and supplier of
coaxial cable for cable television applications in the United States and is a
leading supplier of coaxial cable for satellite television applications.
CommScope is also a major supplier of coaxial cable to international cable
television markets.
On January 7, 1997, the Board of Directors of General Instrument approved a
plan to distribute to General Instrument stockholders all of the outstanding
stock of its communications business, NextLevel Systems, Inc. ("NextLevel
Systems"), and CommScope, in a spin-off transaction (the "Distribution"). The
Distribution, which is subject to the approval of the holders of a majority of
outstanding shares of General Instrument, the receipt of a ruling from the
Internal Revenue Service that the Distribution is not taxable to General
Instrument or its stockholders, and the absence of events or developments that
would have a material adverse impact on General Instrument or its stockholders,
is expected to occur in the third quarter of 1997 and will result in CommScope
and NextLevel Systems operating as independent entities with publicly traded
common stock. General Instrument will have no ownership interest in CommScope or
NextLevel Systems subsequent to the Distribution, at which time General
Instrument will be renamed General Semiconductor, Inc. ("General
Semiconductor"), and will conduct General Instrument's power semiconductor
business.
For the purpose of governing certain of the ongoing relationships among
CommScope, NextLevel Systems and General Semiconductor after the Distribution
and to provide mechanisms for an orderly transition, CommScope, NextLevel
Systems and General Semiconductor have entered or will enter into various
agreements (See Note 15). CommScope, NextLevel Systems and General Semiconductor
believe that the terms of the agreements will be fair to each of the parties and
comparable to those which would have been reached in arm's length negotiations
with unaffiliated parties.
2 BASIS OF PRESENTATION
The accompanying consolidated financial statements reflect the results of
operations, financial position, changes in stockholder's equity and cash flows
of CommScope that will be transferred from General Instrument in the
Distribution. The consolidated financial statements have been prepared using the
historical basis of the assets and liabilities and the historical results of
operations directly attributable to CommScope, and all intercompany accounts and
transactions between CommScope's businesses have been eliminated.
The consolidated financial statements include an allocation of certain
assets, liabilities and general corporate expenses from General Instrument. In
the opinion of management, general corporate administrative expenses have been
allocated to CommScope on a reasonable and consistent basis using corporate's
estimate of services provided to CommScope by General Instrument. However, such
allocations are not necessarily indicative of the level of expenses which might
have been incurred had CommScope been operating as a separate, stand-alone
entity during the periods presented.
F-56
<PAGE>
COMMSCOPE, INC. OF NORTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
2 BASIS OF PRESENTATION (CONTINUED)
CommScope participates in General Instrument's cash management program, and
the accompanying financial statements include an allocation of General
Instrument's net interest expense. To the extent CommScope generates positive
cash, such amounts are remitted to General Instrument. To the extent CommScope
has experienced temporary cash needs for working capital purposes or capital
expenditures, such funds have historically been provided by General Instrument.
The net effect of these transactions are included in additional paid-in capital
as transfers to sole stockholder. Net interest expense has been allocated based
upon CommScope's net assets as a percentage of the total net assets of General
Instrument. The allocations were made consistently in each year, and management
believes the allocations are reasonable. However, these interest costs would not
necessarily be indicative of what the actual interest costs would have been had
CommScope operated as a separate, stand-alone entity. Subsequent to the
Distribution, CommScope will be responsible for these cash management functions
using its own resources or purchased services and will be responsible for the
costs associated with operating a public company.
CommScope's financial results include the costs incurred by the General
Instrument postretirement benefit plan for employees and retirees of CommScope.
Also, the provision for income taxes has been determined as if CommScope had
filed separate tax returns under its existing structure for the periods
presented.
The financial information included herein does not necessarily reflect the
consolidated results of operations, financial position, changes in stockholder's
equity and cash flows of CommScope in the future or on a historical basis had
CommScope been a separate, stand-alone entity for the periods presented.
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial
statements include the accounts of CommScope, Inc. of North Carolina and its
wholly-owned subsidiary, Cable Transport, Inc. All intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES The preparation of the accompanying consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from those
estimates.
REVENUE RECOGNITION CommScope recognizes revenue when products are shipped
and services are performed.
INVENTORIES Inventories are stated at the lower of cost, determined on a
first-in, first-out ("FIFO") basis, or market.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at
cost. Provisions for depreciation are based on estimated useful lives of the
assets using the straight-line method. Average useful lives are 5 to 35 years
for buildings and improvements and 3 to 10 years for machinery and equipment.
Expenditures for repairs and maintenance are charged to expense as incurred.
LONG-LIVED ASSETS CommScope adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of,"
F-57
<PAGE>
COMMSCOPE, INC. OF NORTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
on January 1, 1996. SFAS No. 121 prescribes the accounting treatment for
long-lived assets, identifiable intangibles and goodwill related to those assets
when there are indications that the carrying values of those assets may not be
recoverable. Whenever events indicate that the carrying values of such assets
may not be recoverable, CommScope evaluates the carrying values of such assets
using future undiscounted cash flows. The adoption of SFAS No. 121 did not have
an impact on CommScope's financial position or operations.
INTANGIBLE ASSETS Intangible assets consist primarily of patents and
customer lists which are being amortized on a straight-line basis over
approximately 17 years.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED The excess of cost
over fair value of net assets acquired is being amortized on a straight-line
basis over 35 to 40 years. Management continually reassesses the appropriateness
of both the carrying value and remaining life of the excess of cost over fair
value of net assets acquired by assessing recoverability based on forecasted
operating cash flows, on an undiscounted basis, and other factors. Management
believes that, as of December 31, 1996, the carrying value and remaining life of
the excess of cost over fair value of net assets acquired are appropriate.
INCOME TAXES CommScope's operating results historically have been included
in General Instrument's consolidated federal and certain state income tax
returns. The provision for CommScope has been determined as if CommScope had
filed separate tax returns under its existing structure for the periods
presented. Accordingly, future tax rates could vary from the historical
effective tax rates depending upon CommScope's future legal structure and tax
elections. Federal and certain state income taxes, which are currently payable
or receivable, are settled with General Instrument through equity. Deferred
income taxes reflect the future tax consequences of differences between the
financial reporting and tax bases of assets and liabilities.
4 JOINT VENTURE
In August 1995, CommScope entered into a joint venture agreement with
Pacific Dunlop Ltd. to produce cable in Australia. CommScope has a 49% interest
in the joint venture. During 1996 and 1995, CommScope sold $27 and $20 million
of cable products into the joint venture. Gross profit from CommScope's sale of
cable products remaining in the joint ventures inventory has been eliminated to
the extent of CommScope's ownership interest. CommScope records income from the
joint venture on the equity method of accounting. Income from the joint venture
included in other income was $1.3 million in 1996 and was not significant in
1995.
5 ACQUISITION
In May 1996, CommScope acquired certain assets of Teledyne, Inc.'s
Thermatics unit, a high performance wire and cable manufacturer specializing in
high temperature cables, for a net purchase price of $18 million. The
acquisition was accounted for as a purchase and, accordingly, the acquired
assets and liabilities have been recorded at their estimated fair value at the
date of the acquisition.
F-58
<PAGE>
COMMSCOPE, INC. OF NORTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
6 INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Raw materials......................................................... $ 23,206 $ 9,353
Work in process....................................................... 4,978 4,248
Finished goods........................................................ 12,952 13,370
---------- ----------
$ 41,136 $ 26,971
---------- ----------
---------- ----------
</TABLE>
The principal raw materials purchased by CommScope (fabricated aluminum,
copper and plastics) are subject to changes in market price as these materials
are linked to the commodity markets. To the extent that CommScope is unable to
pass on the cost increases, the cost increases could have a significant impact
on the results of operations of CommScope.
7 PROPERTY, PLANT AND EQUIPMENT-NET
Property, plant and equipment-net consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Land and land improvements............................................ $ 2,586 $ 979
Buildings and improvements............................................ 40,680 30,806
Machinery and equipment............................................... 128,064 102,650
---------- ----------
171,330 134,435
Less accumulated depreciation......................................... (54,308) (43,848)
---------- ----------
$ 117,022 $ 90,587
---------- ----------
---------- ----------
</TABLE>
8 OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Salaries and compensation liabilities................................. $ 18,404 $ 13,196
Product reserves...................................................... 4,757 4,819
Other................................................................. 6,500 6,329
---------- ----------
$ 29,661 $ 24,344
---------- ----------
---------- ----------
</TABLE>
F-59
<PAGE>
COMMSCOPE, INC. OF NORTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
9 INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ----------
Current:
Federal....................................................................... $ 29,928 $ 27,796 $ 28,236
State......................................................................... 4,023 3,481 3,440
--------- --------- ----------
Current income tax provision.................................................. 33,951 31,277 31,676
--------- --------- ----------
Deferred:
Federal....................................................................... 1,044 (1,782) (1,188)
State......................................................................... (14) (113) (99)
--------- --------- ----------
Deferred income tax provision................................................. 1,030 (1,895) (1,287)
--------- --------- ----------
Total provision for income taxes.............................................. $ 34,981 $ 29,382 $ 30,389
--------- --------- ----------
--------- --------- ----------
</TABLE>
The following table presents the principal reasons for the difference
between the effective tax rate and the federal statutory income tax rate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Statutory rate..................................................................... 35.0% 35.0% 35.0%
State income taxes--net............................................................ 2.8 2.8 2.9
Foreign sales corporation.......................................................... (2.2) (2.3) (0.4)
Permanent items.................................................................... 2.3 2.7 2.7
Other.............................................................................. 0.1 0.1 0.1
--- --- ---
Effective rate..................................................................... 38.0% 38.3% 40.3%
--- --- ---
--- --- ---
</TABLE>
F-60
<PAGE>
COMMSCOPE, INC. OF NORTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
9 INCOME TAXES (CONTINUED)
Deferred income taxes as recorded in the accompanying consolidated balance
sheets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Current Deferred Income Tax Assets:
Accounts receivable and inventory reserves............................ $ 4,775 $ 4,533
Product reserves...................................................... 1,785 1,746
Employee benefits..................................................... 4,399 2,875
Other current......................................................... 2,783 2,471
--------- ---------
$ 13,742 $ 11,625
--------- ---------
--------- ---------
Non-Current Deferred Tax Liabilities:
Fixed and intangible assets........................................... $ 18,259 $ 15,470
Employee benefits..................................................... (2,894) (2,360)
Other non-current..................................................... (167) (258)
--------- ---------
$ 15,198 $ 12,852
--------- ---------
--------- ---------
</TABLE>
The federal and certain state income taxes which are currently payable or
receivable are settled with General Instrument through equity. During each of
the three years in the period ended December 31, 1996, General Instrument
settled certain tax matters which decreased CommScope's amount payable through
equity to General Instrument and resulted in credits of $2, $5, and $2 million
to goodwill for 1996, 1995, and 1994, respectively, since these matters related
to periods prior to the acquisition of General Instrument by affiliates of
Forstmann Little & Co.
10 LONG-TERM DEBT
In January 1995, CommScope entered into a $10.8 million loan agreement in
connection with the issuance of notes by the Alabama State Industrial
Development Authority (the "Flexible Term Notes"). Borrowings under the loan
agreement bear interest at variable rates based upon current market conditions
for short-term financing. At December 31, 1996, the variable rate was 6.28%. The
loan agreement will mature on January 1, 2015, and any remaining amounts
outstanding under the Flexible Term Notes will be due and payable on that date.
Company management has evaluated this debt instrument and has determined, based
on interest rates and terms, that the fair value approximates its carrying value
at December 31, 1996 and 1995.
F-61
<PAGE>
COMMSCOPE, INC. OF NORTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
11 COMMITMENTS AND CONTINGENCIES
CommScope leases certain equipment under operating leases which expire at
various dates through the year 2004. Rent expense was $4, $3 and $3 million in
1996, 1995 and 1994, respectively. Future minimum lease payments required under
operating leases as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................................ $ 2,164
1998................................................................ 1,799
1999................................................................ 1,570
2000................................................................ 1,223
2001................................................................ 839
Thereafter.......................................................... 970
</TABLE>
CommScope is either a plaintiff or a defendant in several pending legal
matters in the normal course of business. In addition, CommScope is subject to
various federal, state, local and foreign laws and regulations governing the
use, discharge and disposal of hazardous materials. CommScope's manufacturing
facilities are believed to be in substantial compliance with current laws and
regulations. Compliance with current laws and regulations has not had, and is
not expected to have, a material adverse effect on CommScope's financial
statements. Management does not believe that the final disposition of these
matters will have a material adverse effect on CommScope's financial statements.
12 EMPLOYEE BENEFIT PLANS
PROFIT SHARING AND SAVINGS PLAN. CommScope sponsors an Employees Profit
Sharing and Savings Plan (the "Profit Sharing and Savings Plan"). The majority
of contributions to the Profit Sharing and Savings Plan are made at the
discretion of CommScope's Board of Directors. In addition, eligible employees
may elect to contribute up to 10% of their salaries. CommScope contributes an
amount equal to 50% of the first 4% of the employee's salary that the employee
contributes. During the years ended December 31, 1996, 1995 and 1994, CommScope
contributed $7, $7 and $6 million, respectively, to the Profit Sharing and
Savings Plan, of which $6, $6 and $5 million, respectively, was discretionary.
RETIREMENT PLAN. CommScope also sponsors a non-qualified unfunded
supplemental executive retirement plan that provides certain executives with
defined pension benefits. Net pension cost consisted of interest costs of
approximately $.2 million in each of the three years in the period ended
December 31,
F-62
<PAGE>
COMMSCOPE, INC. OF NORTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
12 EMPLOYEE BENEFIT PLANS (CONTINUED)
1996. The funded status of this plan and the related amounts as recorded in the
accompanying consolidated balance sheets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Actuarial present value of:
Vested benefits........................................................ $ 1,165 $ 801
--------- ---------
--------- ---------
Accumulated benefits................................................... $ 2,436 $ 2,379
--------- ---------
--------- ---------
Projected benefit obligation........................................... $ (3,445) $ (3,352)
Market value of plan assets.............................................. -- --
--------- ---------
Funded status............................................................ (3,445) (3,352)
Unrecognized gain........................................................ (463) (313)
--------- ---------
Accrued pension obligation............................................... $ (3,908) $ (3,665)
--------- ---------
--------- ---------
Actuarial assumptions:
Discount rate.......................................................... 7.75% 7.25%
Investment return...................................................... N/A N/A
Compensation increases................................................. 4.75% 4.25%
</TABLE>
The impact of the changes in the actuarial assumptions, as of December 31,
1996, have been reflected in the funded status and CommScope believes that such
changes will not have a material effect on net pension cost in 1997.
POSTRETIREMENT. CommScope sponsors a contributory health-care benefits plan
(the "Plan"). The Plan is an unfunded contributory group medical plan for
employees who retire from CommScope at age 65 or greater with a minimum of 10
years of active service. CommScope recognizes the cost of providing and
maintaining postretirement benefits during employees' active service periods.
Medicare is the primary provider of health-care benefits for retirees after age
65. Net postretirement benefit cost consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Service cost...................................................... $ 412 $ 242 $ 289
Interest.......................................................... 263 182 191
Net amortization and deferral..................................... -- (10) --
--------- --------- ---------
Net postretirement benefit cost................................... $ 675 $ 414 $ 480
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-63
<PAGE>
COMMSCOPE, INC. OF NORTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
12 EMPLOYEE BENEFIT PLANS (CONTINUED)
The status of the Plan and the related amounts as recorded in the
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Accumulated postretirement benefit obligation ("APBO"):
Retirees................................................................. $ 31 $ 12
Active participants...................................................... 4,232 3,265
--------- ---------
Total APBO................................................................. 4,263 3,277
Unrecognized loss.......................................................... (460) (649)
--------- ---------
Accrued postretirement benefit obligation.................................. $ 3,803 $ 2,628
--------- ---------
--------- ---------
Discount rate used in determining APBO..................................... 7.75% 7.25%
</TABLE>
The assumed rate of future increases in health care cost during 1996 and
1995 was 14% and 15%, respectively, for pre-age 65 retirees, and 11% and 12%,
respectively, for post-age 65 retirees, and is expected to decline to 6% by the
year 2006. Under the Plan, the actuarially determined effect of a one percentage
point increase in the assumed health care cost trend rate on annual net
postretirement benefit cost and the APBO would be $.2 and $1.4 million,
respectively.
13 STOCK COMPENSATION PLANS
During 1996, 1995 and 1994 certain employees of CommScope were granted
awards under the General Instrument Corporation 1993 Long-Term Incentive Plan
(the "GI Plan"). The GI Plan provides for the granting of stock options, stock
appreciation rights, restricted stock, performance units, performance shares and
phantom stock to employees of General Instrument and its subsidiaries and the
granting of stock options to its directors. Awards issued to employees of
CommScope consisted solely of stock options.
Immediately following the Distribution, outstanding options under the GI
Plan held by CommScope employees will be replaced by substitute options under
CommScope's long-term incentive plan, which will be established prior to the
Distribution. The substitute options will have the same ratio of the exercise
price per share to the market values per share, the same aggregate difference
between market value and exercise price and the same vesting provisions, option
period and other terms and conditions as the General Instrument options being
replaced. The number of CommScope shares subject to these options and the
exercise price per share will be determined based on the average market value of
General Instrument common stock over a number of trading days and CommScope
common stock at approximately the date of the Distribution, and therefore
CommScope cannot yet determine the number of shares of its common stock that
will be subject to substitute options after the Distribution.
The number of shares of General Instrument common stock subject to options
held by CommScope employees at December 31, 1996 and 1995 was approximately .7
million.
F-64
<PAGE>
COMMSCOPE, INC. OF NORTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
14 MAJOR CUSTOMER
Sales of coaxial cable products to a major customer were approximately 11%,
12% and 18% of net sales in 1996, 1995 and 1994, respectively. No other customer
accounts for 10% or more of net sales.
15 AGREEMENTS
As part of the Distribution, CommScope will be party to certain agreements,
including the following:
DISTRIBUTION AGREEMENT The Distribution Agreement provides (i) that
CommScope, NextLevel Systems and General Semiconductor will assume, pay and
discharge all their respective liabilities as defined in the Distribution
Agreement; (ii) that CommScope, NextLevel Systems and General Semiconductor will
indemnify each other and their respective subsidiaries, directors, officers,
employees and agents against all losses arising in connection with the breach of
the Distribution Agreement; (iii) for the transfer of books and records among
CommScope, NextLevel Systems and General Semiconductor and grants to each party
access to certain information in the possession of the others (subject to
certain confidentiality requirements); and (iv) for the allocation of shared
privileges with respect to certain information and requires, with certain
exceptions, each party to obtain the consent of the others prior to waiving any
shared privilege.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT The Employee Benefits Allocation
Agreement provides that, effective as of the Distribution, CommScope and
NextLevel Systems will assume or retain all liabilities of General Instrument
under employee benefit plans, policies, arrangements, contracts and agreements,
including under collective bargaining agreements, with respect to employees who
will become employees of CommScope or NextLevel Systems subsequent to the
Distribution.
TAX SHARING AGREEMENT The Tax Sharing Agreement defines the rights and
obligations of CommScope, NextLevel Systems and General Semiconductor with
respect to deficiencies and refunds of federal, state and other income or
franchise taxes relating to General Instrument's businesses for tax years prior
to the Distribution and with respect to certain tax attributes to General
Semiconductor after the Distribution.
TRANSITION SERVICES AGREEMENTS CommScope will enter into transition
services agreements in which NextLevel Systems will provide certain
administrative services, including risk management, cash management and
international banking, certain tax return preparation, pension plan, corporate
reporting and information technology services for the fees and time periods as
set forth in the agreements.
TRADEMARK LICENSE AGREEMENT Effective as of the Distribution, NextLevel
Systems will hold the rights in the mark GENERAL INSTRUMENT, the logo "GI," and
other rights. Pursuant to this agreement, NextLevel Systems will grant to each
of CommScope and General Semiconductor a limited, non-exclusive, non-assignable,
worldwide, royalty-free license to use the GI Trademarks, with respect to
specified goods and services, for a period of twelve months following the
Distribution.
F-65
<PAGE>
ANNEX A
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NEXTLEVEL SYSTEMS, INC.
(PURSUANT TO SECTIONS 242 AND 245 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE)
The undersigned, , certifies that he is the of NextLevel
Systems, Inc., a corporation organized and existing under the laws of the State
of Delaware (the "Corporation"), and does hereby further certify as follows:
(1) The name of the Corporation is NextLevel Systems, Inc.
(2) The Corporation's original certificate of incorporation was filed
with the Secretary of State of the State of Delaware on January 6, 1997.
(3) This Amended and Restated Certificate of Incorporation, which amends
and restates the certificate of incorporation of the Corporation, was duly
adopted by unanimous stockholder written consent in accordance with Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware
(the "GCL").
(4) Pursuant to Section 103(d) of the GCL, this Amended and Restated
Certificate of Incorporation shall become effective at [time] on [date] (the
"Effective Date").
(5) The text of the Amended and Restated Certificate of Incorporation of
the Corporation is restated to read in its entirety as follows:
FIRST: The name of the Corporation is NextLevel Systems, Inc.
SECOND: The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the GCL.
FOURTH: The total number of shares of all classes of capital stock which
the Corporation shall have the authority to issue is 420,000,000 shares divided
into two classes of which 20,000,000 shares of par value $.01 per share shall be
designated Preferred Stock and 400,000,000 shares of par value $.01 per share
shall be designated Common Stock.
A. Common Stock
1. DIVIDENDS. Subject to the preferential rights, if any, of the Preferred
Stock, the holders of shares of Common Stock shall be entitled to receive, when
and if declared by the Board of Directors, out of the assets of the Corporation
which are by law available therefor, dividends payable either in cash, in
property, or in shares of Common Stock.
2. VOTING RIGHTS. Except as otherwise required by law, at every annual or
special meeting of stockholders of the Corporation, every holder of Common Stock
shall be entitled to one vote, in person or by proxy, for each share of Common
Stock standing in such holder's name on the books of the Corporation.
A-1
<PAGE>
3. LIQUIDATION, DISSOLUTION, OR WINDING UP. In the event of any voluntary
or involuntary liquidation, dissolution, or winding up of the affairs of the
Corporation, after payment or provision for payment of the debts and other
liabilities of the Corporation and of the preferential amounts, if any, to which
the holders of Preferred Stock shall be entitled, the holders of all outstanding
shares of Common Stock shall be entitled to share ratably in the remaining net
assets of the Corporation.
B. Preferred Stock
1. ISSUANCE. The Board of Directors of the Corporation is authorized,
subject to limitations prescribed by law, to provide for the issuance of shares
of Preferred Stock of the Corporation from time to time in one or more series,
each of which series shall have such distinctive designation or title as shall
be fixed by the Board of Directors prior to the issuance of any shares thereof.
Each such series of Preferred Stock shall have such voting powers, full or
limited, or no voting powers, and such qualifications, limitations or
restrictions thereof, as shall be stated in such resolution or resolutions
providing for the issue of such series of Preferred Stock as may be adopted from
time to time by the Board of Directors prior to the issuance of any shares
thereof pursuant to the authority hereby expressly vested in it, all in
accordance with the laws of the State of Delaware.
2. AMENDMENT. Except as may otherwise be required by law or this Amended
and Restated Certificate of Incorporation, the terms of any series of Preferred
Stock may be amended without the consent of the holders of any other series of
Preferred Stock or of any class of Common Stock of the Corporation.
FIFTH: The business and affairs of the Corporation shall be managed by and
under the direction of the Board of Directors. The Board of Directors may
exercise all such authority and powers of the Corporation and do all such lawful
acts and things as are not by statute or this Amended and Restated Certificate
of Incorporation directed or required to be exercised or done by the
stockholders.
A. NUMBER OF DIRECTORS. Except as otherwise fixed by or pursuant to the
provisions of this Amended and Restated Certificate of Incorporation relating to
the rights of the holders of Preferred Stock to elect directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the then authorized number of directors of the Corporation, but in
no event shall the number of directors be fewer than three. No director need be
a stockholder.
B. CLASSES AND TERMS OF DIRECTORS. The directors shall be divided into
three classes (I, II and III), as nearly equal in number as possible, and no
class shall include less than one director. The initial term of office for
members of Class I shall expire at the annual meeting of stockholders in 1998;
the initial term of office for members of Class II shall expire at the annual
meeting of stockholders in 1999; and the initial term of office for members of
Class III shall expire at the annual meeting of stockholders in 2000. At each
annual meeting of stockholders beginning in 1998, directors elected to succeed
those directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, and shall continue to hold office until their respective successors
are elected and qualified. In the event of any increase in the number of
directors fixed by the Board of Directors, the additional directors shall be so
classified that all classes of directors have as nearly equal numbers of
directors as may be possible. In the event of any decrease in the number of
directors, all classes of directors shall be decreased equally as nearly as may
be possible, but in no case will a decrease in the number of directors shorten
the term of any incumbent director.
C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the rights of the
holders of any series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the number of directors or any
vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or any other cause shall be
filled only by a majority of the directors then in office, even if less than a
quorum is then in office, or by the sole remaining director, and shall not
A-2
<PAGE>
be filled by stockholders. Directors elected to fill a newly created
directorship or other vacancies shall hold office for the remainder of the full
term of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor has been elected and has
qualified.
D. REMOVAL OF DIRECTORS. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, the directors or any director may be
removed from office at any time, but only for cause, at a meeting called for
that purpose, and only by the affirmative vote of the holders of at least a
majority of the voting power of all issued and outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
E. RIGHTS OF HOLDERS OF PREFERRED STOCK. Notwithstanding the foregoing
provisions of this Article FIFTH, whenever the holders of any one or more series
of Preferred Stock issued by the Corporation shall have the right, voting
separately by series, to elect directors at an annual or special meeting of
stockholders, the election, term of office, filling of vacancies and other
features of such directorships shall be governed by the rights and preferences
of such Preferred Stock as set forth in this Amended and Restated Certificate of
Incorporation or in the resolution or resolutions of the Board of Directors
relating to the issuance of such Preferred Stock, and such directors so elected
shall not be divided into classes pursuant to this Article FIFTH unless
expressly provided by such rights and preferences.
F. WRITTEN BALLOT NOT REQUIRED. Elections of directors need not be by
written ballot unless the By-laws of the Corporation shall otherwise provide.
SIXTH: To the fullest extent permitted under the law of the State of
Delaware, including the GCL, a director of the Corporation shall not be
personally liable to the Corporation or its stockholders for damages for any
breach of fiduciary duty as a director. No amendment to or repeal of this
Article SIXTH shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal. In the
event that the GCL is hereafter amended to permit further elimination or
limitation of the personal liability of directors, then the liability of a
director of the Corporation shall be so eliminated or limited to the fullest
extent permitted by the GCL as so amended without further action by either the
Board of Directors or the stockholders of the Corporation.
SEVENTH: Each person who was or is made a party or is threatened to be made
a party to or is involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit, arbitration, alternative dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), by reason of the fact that such person (the "Indemnitee") is or
was a director or officer of the Corporation or is or was serving at the request
of the Corporation as a director or officer of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan, whether the basis of such Proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving as such a director or officer, shall be indemnified and
held harmless by the Corporation to the full extent permitted by law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), or by other applicable law as then in effect, against all
expense, liability, losses and claims (including attorneys' fees, judgments,
fines, excise taxes under the Employee Retirement Income Security Act of 1974,
as amended from time to time, penalties and amounts to be paid in settlement)
actually incurred or suffered by such Indemnitee in connection with such
Proceeding.
EIGHTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, repeal, alter,
amend, or rescind the By-laws of the Corporation. In addition, the By-laws of
the Corporation may be adopted, repealed, altered, amended or rescinded by
A-3
<PAGE>
the affirmative vote of the holders of at least a majority of the voting power
of all the issued and outstanding shares of capital stock of the Corporation
entitled to vote thereon.
NINTH: The Corporation reserves the right to repeal, alter, amend or
rescind any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, NextLevel Systems, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by , its ,
on this day of , 1997.
NEXTLEVEL SYSTEMS, INC.
By:___________________________________
A-4
<PAGE>
ANNEX B
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COMMSCOPE, INC.
(PURSUANT TO SECTIONS 242 AND 245 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE)
The undersigned, , certifies that he is the of
CommScope, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), and does hereby further certify as
follows:
(1) The name of the Corporation is CommScope, Inc.
(2) The Corporation's original certificate of incorporation was filed
with the Secretary of State of the State of Delaware on January 28, 1997.
(3) This Amended and Restated Certificate of Incorporation, which amends
and restates the certificate of incorporation of the Corporation, was duly
adopted by unanimous stockholder written consent in accordance with Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware
(the "GCL").
(4) Pursuant to Section 103(d) of the GCL, this Amended and Restated
Certificate of Incorporation shall become effective at [time] on [date] (the
"Effective Date").
(5) The text of the Amended and Restated Certificate of Incorporation of
the Corporation is restated to read in its entirety as follows:
FIRST: The name of the Corporation is CommScope, Inc.
SECOND: The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the GCL.
FOURTH: The total number of shares of all classes of capital stock which
the Corporation shall have the authority to issue is shares divided into
two classes of which shares of par value $.01 per share shall be
designated Preferred Stock and shares of par value $.01 per share shall be
designated Common Stock.
A. Common Stock
1. DIVIDENDS. Subject to the preferential rights, if any, of the Preferred
Stock, the holders of shares of Common Stock shall be entitled toreceive, when
and if declared by the Board of Directors, out of the assets of the Corporation
which are by law available therefor, dividends payable either in cash, in
property, or in shares of Common Stock.
2. VOTING RIGHTS. Except as otherwise required by law, at every annual or
special meeting of stockholders of the Corporation, every holder of Common Stock
shall be entitled to one vote, in person or by proxy, for each share of Common
Stock standing in such holder's name on the books of the Corporation.
B-1
<PAGE>
3. LIQUIDATION, DISSOLUTION, OR WINDING UP. In the event of any voluntary
or involuntary liquidation, dissolution, or winding up of the affairs of the
Corporation, after payment or provision for payment of the debts and other
liabilities of the Corporation and of the preferential amounts, if any, to which
the holders of Preferred Stock shall be entitled, the holders of all outstanding
shares of Common Stock shall be entitled to share ratably in the remaining net
assets of the Corporation.
B. Preferred Stock
1. ISSUANCE. The Board of Directors of the Corporation is authorized,
subject to limitations prescribed by law, to provide for the issuance of shares
of Preferred Stock of the Corporation from time to time in one or more series,
each of which series shall have such distinctive designation or title as shall
be fixed by the Board of Directors prior to the issuance of any shares thereof.
Each such series of Preferred Stock shall have such voting powers, full or
limited, or no voting powers, and such qualifications, limitations or
restrictions thereof, as shall be stated in such resolution or resolutions
providing for the issue of such series of Preferred Stock as may be adopted from
time to time by the Board of Directors prior to the issuance of any shares
thereof pursuant to the authority hereby expressly vested in it, all in
accordance with the laws of the State of Delaware.
2. AMENDMENT. Except as may otherwise be required by law or this Amended
and Restated Certificate of Incorporation, the terms of any series of Preferred
Stock may be amended without the consent of the holders of any other series of
Preferred Stock or of any class of Common Stock of the Corporation.
FIFTH: The business and affairs of the Corporation shall be managed by and
under the direction of the Board of Directors. The Board of Directors may
exercise all such authority and powers of the Corporation and do all such lawful
acts and things as are not by statute or this Amended and Restated Certificate
of Incorporation directed or required to be exercised or done by the
stockholders.
A. NUMBER OF DIRECTORS. Except as otherwise fixed by or pursuant to the
provisions of this Amended and Restated Certificate of Incorporation relating to
the rights of the holders of Preferred Stock to elect directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the then authorized number of directors of the Corporation, but in
no event shall the number of directors be fewer than three. No director need be
a stockholder.
B. CLASSES AND TERMS OF DIRECTORS. The directors shall be divided into
three classes (I, II and III), as nearly equal in number as possible, and no
class shall include less than one director. The initial term of office for
members of Class I shall expire at the annual meeting of stockholders in 1998;
the initial term of office for members of Class II shall expire at the annual
meeting of stockholders in 1999; and the initial term of office for members of
Class III shall expire at the annual meeting of stockholders in 2000. At each
annual meeting of stockholders beginning in 1998, directors elected to succeed
those directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, and shall continue to hold office until their respective successors
are elected and qualified. In the event of any increase in the number of
directors fixed by the Board of Directors, the additional directors shall be so
classified that all classes of directors have as nearly equal numbers of
directors as may be possible. In the event of any decrease in the number of
directors, all classes of directors shall be decreased equally as nearly as may
be possible, but in no case will a decrease in the number of directors shorten
the term of any incumbent director.
C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the rights of the
holders of any series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the number of directors or any
vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or any other cause shall be
filled only by a majority of the directors then in office, even if less than a
quorum is then in office, or by the sole remaining director, and shall not
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be filled by stockholders. Directors elected to fill a newly created
directorship or other vacancies shall hold office for the remainder of the full
term of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor has been elected and has
qualified.
D. REMOVAL OF DIRECTORS. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, the directors or any director may be
removed from office at any time, but only for cause, at a meeting called for
that purpose, and only by the affirmative vote of the holders of at least a
majority of the voting power of all issued and outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
E. RIGHTS OF HOLDERS OF PREFERRED STOCK. Notwithstanding the foregoing
provisions of this Article FIFTH, whenever the holders of any one or more series
of Preferred Stock issued by the Corporation shall have the right, voting
separately by series, to elect directors at an annual or special meeting of
stockholders, the election, term of office, filling of vacancies and other
features of such directorships shall be governed by the rights and preferences
of such Preferred Stock as set forth in this Amended and Restated Certificate of
Incorporation or in the resolution or resolutions of the Board of Directors
relating to the issuance of such Preferred Stock, and such directors so elected
shall not be divided into classes pursuant to this Article FIFTH unless
expressly provided by such rights and preferences.
F. WRITTEN BALLOT NOT REQUIRED. Elections of directors need not be by
written ballot unless the By-laws of the Corporation shall otherwise provide.
SIXTH: To the fullest extent permitted under the law of the State of
Delaware, including the GCL, a director of the Corporation shall not be
personally liable to the Corporation or its stockholders for damages for any
breach of fiduciary duty as a director. No amendment to or repeal of this
Article SIXTH shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal. In the
event that the GCL is hereafter amended to permit further elimination or
limitation of the personal liability of directors, then the liability of a
director of the Corporation shall be so eliminated or limited to the fullest
extent permitted by the GCL as so amended without further action by either the
Board of Directors or the stockholders of the Corporation.
SEVENTH: Each person who was or is made a party or is threatened to be made
a party to or is involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit, arbitration, alternative dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), by reason of the fact that such person (the "Indemnitee") is or
was a director or officer of the Corporation or is or was serving at the request
of the Corporation as a director or officer of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan, whether the basis of such Proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving as such a director or officer, shall be indemnified and
held harmless by the Corporation to the full extent permitted by law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), or by other applicable law as then in effect, against all
expense, liability, losses and claims (including attorneys' fees, judgments,
fines, excise taxes under the Employee Retirement Income Security Act of 1974,
as amended from time to time, penalties and amounts to be paid in settlement)
actually incurred or suffered by such Indemnitee in connection with such
Proceeding.
EIGHTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, repeal, alter,
amend, or rescind the By-laws of the Corporation. In addition, the By-laws of
the Corporation may be adopted, repealed, altered, amended or rescinded by
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the affirmative vote of the holders of at least a majority of the voting power
of all the issued and outstanding shares of capital stock of the Corporation
entitled to vote thereon.
NINTH: The Corporation reserves the right to repeal, alter, amend or
rescind any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, CommScope, Inc. has caused this Amended and Restated
Certificate of Incorporation to be signed by , its
,
on this day of , 1997.
COMMSCOPE, INC.
By:
-----------------------------------
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ANNEX C
FORM OF AMENDMENTS
TO
CERTIFICATE OF INCORPORATION
OF
GENERAL INSTRUMENT CORPORATION
------------------------
If Proposals One and Two are approved, Article FIRST of the Certificate of
Incorporation will be amended by striking out Article FIRST thereof, and
inserting in lieu thereof the following language, so that, as amended, the text
of said Article shall read as follows:
"FIRST: The name of the Corporation is General Semiconductor, Inc."
If Proposals One and Three are approved, Article FOURTH of the Certificate
of Incorporation will be amended by striking out Article FOURTH thereof, and
inserting in lieu thereof the following language, so that, as amended, the text
of said Article shall read in its entirety as follows:
"FOURTH: The aggregate number of shares of all classes of capital
stock which the Corporation shall have authority to issue is (i)
400,000,000 shares of common stock, par value $.01 per share (the "New
Common Stock"), and (ii) 20,000,000 shares of preferred stock, par value
$.01 per share (the "Preferred Stock").
Immediately upon the filing of the Amended and Restated Certificate
of Incorporation [or the Certificate of Amendment of the Certificate of
Incorporation] (the "Effective Time"), each shares of the common
stock, par value $.01 per share, issued and outstanding immediately
prior to the Effective Time (the "Old Common Stock"), shall
automatically, without further action on the part of the Corporation or
any holder of such Old Common Stock, be reclassified as and converted
into one fully paid and nonassessable share of New Common Stock as
herein authorized (the "Reverse Stock Split"), subject to the treatment
of fractional share interests as described below. Such reclassification
and conversion of Old Common Stock into New Common Stock shall not
change the par value per share of the shares reclassified and converted,
which par value shall remain $.01 per share. The reclassification of the
Old Common Stock into New Common Stock will be deemed to occur at the
Effective Time, regardless of when the certificates representing such
Old Common Stock are physically surrendered to the Corporation. After
the Effective Time, certificates representing the Old Common Stock will,
until such shares are surrendered to the Corporation, represent the
number of shares of New Common Stock into which such Old Common Stock
shall have been converted pursuant hereto. The Corporation is authorized
to use a book-entry transfer facility to reflect ownership of the New
Common Stock; however, upon request and in accordance with the
procedures of any such book-entry transfer facility and Delaware law,
stockholders shall be entitled to receive a certificate representing
shares of New Common Stock. Fractional shares of New Common Stock shall
not be issued in connection with the Reverse Stock Split. Fractional
shares of New Common Stock shall be aggregated into whole shares of New
Common Stock and shall be sold in the open market at prevailing prices
on behalf of holders who otherwise would be entitled to receive
fractional share interests of New Common Stock. Such holders shall then
receive a cash payment equal to the amount of their pro rata share of
the total sale proceeds.
Following the Effective Time, the capital of the Corporation shall
be reduced to reflect the change in the outstanding shares of the
Corporation.
Shares of the Preferred Stock of the Corporation may be issued from
time to time in one or more classes or series, each of which class or
series shall have such distinctive designation or title as shall be
fixed by the Board of Directors of the Corporation (the "Board of
Directors")
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prior to the issuance of any shares thereof. Each such class or series
of Preferred Stock shall have such voting powers, full or limited, or no
voting powers, and such preferences and relative, participating,
optional or other special rights and such qualifications, limitations or
restrictions thereof, as shall be stated in such resolution or
resolutions providing for the issue of such class or series of Preferred
Stock as may be adopted from time to time by the Board of Directors
prior to the issuance of any shares thereof pursuant to the authority
hereby expressly vested in it, all in accordance with the laws of the
State of Delaware."
If Proposal Four is approved, Article FIFTH of the Certificate of
Incorporation will be amended by striking out Article FIFTH thereof, and
inserting in lieu thereof the following language, so that, as amended, the text
of said Article shall read in its entirety as follows:
"FIFTH: The business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. The number of directors
of the Corporation shall be from time to time fixed by, or in the manner
provided in, the By-laws of the Corporation."
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ANNEX D
FORM OF
AMENDED AND RESTATED
BY-LAWS OF
NEXTLEVEL SYSTEMS, INC.
(HEREINAFTER CALLED THE "CORPORATION")
(AS OF , 1997)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
within the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The Corporation may also have an office or offices
other than said registered office at such place or places, either within or
without the State of Delaware, as the Board of Directors shall from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders for the
election of directors or for any other purpose shall be held at any such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be held on
such date and at such time as shall be designated from time to time by the Board
of Directors and stated in the notice of the meeting or in a duly executed
waiver thereof. At such annual meetings, the stockholders shall elect by a
plurality vote the directors standing for election and transact such other
business as may properly be brought before the meeting in accordance with these
Amended and Restated By-Laws.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any
purpose or purposes, unless otherwise prescribed by statute may be called by the
Board of Directors, the Chairman of the Board of Directors, if one shall have
been elected, or the President and shall be called by the Secretary upon the
request in writing of a stockholder or stockholders holding of record at least a
majority of the voting power of the issued and outstanding shares of capital
stock of the Corporation entitled to vote at such meeting.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise expressly required by
statute, written notice of each annual and special meeting of stockholders
stating the date, place and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder of record entitled to vote thereat not less than ten nor
more than sixty days before the date of the meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice. Notice shall be given personally or by mail and, if by mail, shall be
sent in a postage prepaid envelope, addressed to the stockholder at such
stockholder's address as it appears on the records of the Corporation. Notice by
mail shall be deemed given at the time when the same shall be deposited in the
United States mail, postage prepaid. Notice of any meeting shall not be required
to be given to any person who attends such meeting, except when such person
attends the meeting in person or by proxy for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened, or who, either before or after the
meeting,
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shall submit a signed written waiver of notice, in person or by proxy. Neither
the business to be transacted at, nor the purpose of, an annual or special
meeting of stockholders need be specified in any written waiver of notice.
SECTION 5. ORGANIZATION. At each meeting of stockholders, the Chairman of
the Board, if one shall have been elected, or, in such person's absence or if
one shall not have been elected, the President, shall act as chairman of the
meeting. The Secretary or, in such person's absence or inability to act, the
person whom the chairman of the meeting shall appoint secretary of the meeting,
shall act as secretary of the meeting and keep the minutes thereof.
SECTION 6. CONDUCT OF BUSINESS. The chairman of any meeting of stockholders
shall determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of discussion
as seems to him or her in order. The date and time of the opening and closing of
the polls for each matter upon which the stockholders will vote at a meeting
shall be announced at the meeting.
SECTION 7. QUORUM, ADJOURNMENTS. The holders of a majority of the voting
power of the issued and outstanding shares of capital stock of the Corporation
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at all meetings of
stockholders, except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum shall not be present or represented by
proxy at any meeting of stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented by proxy. At such
adjourned meeting at which a quorum shall be present or represented by proxy,
any business may be transacted which might have been transacted at the meeting
as originally called. If the adjournment is for more than thirty days, or, if
after adjournment a new record date is set, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
SECTION 8. VOTING. Except as otherwise provided by statute or the
Certificate of Incorporation and these Amended and Restated By-Laws, each
stockholder of the Corporation shall be entitled at each meeting of stockholders
to one vote for each share of capital stock of the Corporation standing in such
stockholder's name on the record of stockholders of the Corporation:
(a) on the date fixed pursuant to the provisions of Section 7 of Article
V of these Amended and Restated By-Laws as the record date for the
determination of the stockholders who shall be entitled to notice of and to
vote at such meeting; or
(b) if no such record date shall have been so fixed, then at the close
of business on the day next preceding the day on which notice thereof shall
be given, or, if notice is waived, at the close of business on the date next
preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for such stockholder by a proxy
signed by such stockholder or such stockholder's attorney-in-fact, but no proxy
shall be voted after three years from its date, unless the proxy provides for a
longer period. Any such proxy shall be delivered to the secretary of the meeting
at or prior to the time designated in the order of business for so delivering
such proxies. When a quorum is present at any meeting, the affirmative vote of
the holders of a majority of the voting power of the issued and outstanding
stock of the Corporation entitled to vote thereon, present in person or
represented by proxy, shall decide any question brought before such meeting,
unless the question is one upon which by express provision of statute or of the
Certificate of Incorporation or of these Amended and Restated By-Laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question. Unless required by statute, or
determined by the chairman of the meeting to be advisable, the vote on any
question need not be by ballot. On a vote by ballot, each ballot shall be signed
by the stockholder voting, or by such stockholder's proxy, if there be such
proxy.
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SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. At least ten days before
each meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder shall be prepared. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city, town, or village where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
SECTION 10. INSPECTORS. The Board of Directors shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may appoint one or more
inspectors. Each inspector, before entering upon the discharge of such
inspector's duties, shall take and sign an oath faithfully to execute the duties
of inspector at such meeting with strict impartiality and according to the best
of such inspector's ability. The inspectors shall determine the number of shares
of capital stock of the Corporation outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as an inspector of an
election of directors. Inspectors need not be stockholders.
SECTION 11. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise
provided by statute or in the Certificate of Incorporation, any action required
to be taken or which may be taken at any annual or special meeting of the
stockholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of any such corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 12. ADVANCE NOTICE PROVISIONS FOR ELECTION OF DIRECTORS. Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 12 and on the record date for the
determination of stockholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this Section 12.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
in the case of an annual meeting, not less than 60 days nor more than 90 days
prior to the date of the annual meeting; PROVIDED, HOWEVER, that in the event
that less than 70 days' notice or prior public disclosure of the date of the
annual meeting is given or made to stockholders, notice by the stockholder in
order to be timely must be so received not later than the close of business on
the 10th day following the day on which such notice of the date of the annual
meeting was
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mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs; and (b) in the case of a special meeting of stockholders
called for the purpose of electing directors, not later than the close of
business on the 10th day following the day on which notice of the date of the
special meeting was mailed or public disclosure of the date of the special
meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to be named as
a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section 12.
If the Chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
SECTION 13. ADVANCE NOTICE PROVISIONS FOR BUSINESS TO BE TRANSACTED AT
ANNUAL MEETING. No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (i) who
is a stockholder of record on the date of the giving of the notice provided for
in this Section 13 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 13.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the date of the annual meeting;
PROVIDED, HOWEVER, that in the event that less than 70 days' notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, notice by the stockholder in order to be timely must be so
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired
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to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and record address of such
stockholder, (iii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
(iv) a description of all arrangements or understandings between such
stockholder and any other person or persons (including their names) in
connection with the proposal of such business by such stockholder and any
material interest of such stockholder in such business and (v) a representation
that such stockholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 13, PROVIDED, HOWEVER, that, once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 13 shall be deemed to preclude discussion by any
stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
ARTICLE III
DIRECTORS
SECTION 1. PLACE OF MEETINGS. Meetings of the Board of Directors shall be
held at such place or places, within or without the State of Delaware, as the
Board of Directors may from time to time determine or as shall be specified in
the notice of any such meeting.
SECTION 2. ANNUAL MEETING. The Board of Directors shall meet for the purpose
of organization, the election of officers and the transaction of other business,
as soon as practicable after each annual meeting of stockholders, on the same
day and at the same place where such annual meeting shall be held. Notice of
such meeting need not be given. In the event such annual meeting is not so held,
the annual meeting of the Board of Directors may be held at such other time or
place (within or without the State of Delaware) as shall be specified in a
notice thereof given as hereinafter provided in Section 5 of this Article III.
SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such time and place as the Board of Directors may fix. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same hour on the next succeeding business day.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the Chairman of the Board, if one shall have been elected, or by
two or more directors of the Corporation or by the President.
SECTION 5. NOTICE OF MEETINGS. Notice of regular meetings of the Board of
Directors need not be given except as otherwise required by law or these Amended
and Restated By-Laws. Notice of each special meeting of the Board of Directors
for which notice shall be required, shall be given by the Secretary as
hereinafter provided in this Section 5, in which notice shall be stated the time
and place of the meeting. Except as otherwise required by these Amended and
Restated By-Laws, such notice need not state the purposes of such meeting.
Notice of any special meeting, and of any regular or annual meeting for which
notice is required, shall be given to each director at least (a) four hours
before the meeting if by telephone or by being personally delivered or sent by
telex, telecopy, or similar means or (b) two days before the meeting if
delivered by mail to the director's residence or usual place of business. Such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage prepaid, or when transmitted if sent by telex,
telecopy, or similar means. Neither the business to be transacted at, nor the
purpose of, any special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting. Any director may waive notice of
any meeting by a writing signed by the director entitled to the notice and filed
with the minutes or corporate records. The attendance at or participation of
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the director at a meeting shall constitute waiver of notice of such meeting,
unless the director at the beginning of the meeting or promptly upon such
director's arrival objects to holding the meeting or transacting business at the
meeting.
SECTION 6. ORGANIZATION. At each meeting of the Board of Directors, the
Chairman of the Board, if one shall have been elected, or, in the absence of the
Chairman of the Board or if one shall not have been elected, the President (or,
in the President's absence, another director chosen by a majority of the
directors present) shall act as chairman of the meeting and preside thereat. The
Secretary or, in such person's absence, any person appointed by the chairman
shall act as secretary of the meeting and keep the minutes thereof.
SECTION 7. QUORUM AND MANNER OF ACTING. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and, except as otherwise expressly required
by statute or the Certificate of Incorporation or these Amended and Restated
By-Laws, the affirmative vote of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of Directors.
In the absence of a quorum at any meeting of the Board of Directors, a majority
of the directors present thereat may adjourn such meeting to another time and
place. Notice of the time and place of any such adjourned meeting shall be given
to all of the directors unless such time and place were announced at the meeting
at which the adjournment was taken, in which case such notice need only be given
to the directors who were not present thereat. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. The directors shall act only as
a Board and the individual directors shall have no power as such.
SECTION 8. ACTION BY CONSENT. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of the
proceedings of the Board of Directors or such committee, as the case may be.
SECTION 9. TELEPHONIC MEETING. Unless restricted by the Certificate of
Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.
SECTION 10. COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the entire Board of Directors, designate one or more committees,
including an executive committee, each committee to consist of one or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence of
disqualification of any member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not such members
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
Each such committee, to the extent provided in the resolution creating it,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which
require it; PROVIDED, HOWEVER, that no such committee shall have the power or
authority in reference to the following matters: (a) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
General Corporation Law of Delaware to be submitted to stockholders for approval
or (b) adopting, amending or repealing any by-law of the Corporation. Each such
committee shall serve at the pleasure of the Board of Directors and have such
name as may be determined from time to time by
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resolution adopted by the Board of Directors. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors.
SECTION 11. FEES AND COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board of Directors. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
SECTION 12. RESIGNATIONS. Any director of the Corporation may resign at any
time by giving written notice of such director's resignation to the Corporation.
Any such resignation shall take effect at the time specified therein or, if the
time when it shall become effective shall not be specified therein, immediately
upon its receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 13. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because such person's or
persons' votes are counted for such purposes if (a) the material facts as to
such person's or persons' relationship or interest and as to the contract or
transaction are disclosed or are known to the directors or committee who then in
good faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum, (b) the material facts as to such person's or persons'
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders
or (c) the contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified, by the Board of Directors, a committee
thereof or the stockholders. Interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen by the
Board of Directors and shall include a President, one or more Vice Presidents
(including Senior, Executive or other classifications of Vice Presidents) and a
Secretary. The Board of Directors, in its discretion, may also choose as an
officer of the Corporation a Chairman of the Board and a Vice Chairman of the
Board and may choose other officers (including a Treasurer, one or more
Assistant Secretaries and one or more Assistant Treasurers) as may be necessary
or desirable. Such officers as the Board of Directors may choose shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors. The Board of Directors may delegate to any officer of
the Corporation the power to choose such other officers and to proscribe their
respective duties and powers. Any number of offices may be held by the same
person, unless otherwise prohibited by law, the Certificate of Incorporation or
these Amended and Restated By-Laws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board and Vice Chairman of the Board of Directors, need such officers be
directors of the Corporation.
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SECTION 2. TERM. All officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any vacancy occurring in any office of the Corporation shall be filled
by the Board of Directors.
SECTION 3. RESIGNATIONS. Any officer of the Corporation may resign at any
time by giving written notice of such officer's resignation to the Corporation.
Any such resignation shall take effect at the time specified therein or, if the
time when it shall become effective shall not be specified therein, immediately
upon receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
SECTION 4. REMOVAL. Any officer may be removed at any time by the Board of
Directors with or without cause.
SECTION 5. COMPENSATION. The compensation of the officers of the Corporation
for their services as such officers shall be fixed from time to time by the
Board of Directors. An officer of the Corporation shall not be prevented from
receiving compensation by reason of the fact that such officer is also a
director of the Corporation.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one shall
have been elected, shall be a member of the Board, an officer of the Corporation
and, if present, shall preside at each meeting of the Board of Directors or the
stockholders. The Chairman of the Board shall advise and counsel with the
President, and in the President's absence with other executives of the
Corporation, and shall perform such other duties as may from time to time be
assigned to the Chairman of the Board by the Board of Directors.
ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. STOCK CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the Chairman of the Board or a Vice Chairman of the Board or the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation, certifying the
number of shares owned by such holder in the Corporation. If the Corporation
shall be authorized to issue more than one class of stock or more than one
series of any class, the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restriction of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock,
provided that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each stockholder who so requests the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 2. FACSIMILE SIGNATURES. Any or all of the signatures on a
certificate may be a facsimile, engraved or printed. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if such person was such officer, transfer
agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of
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Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or the owner's legal representative, to give the Corporation a
bond in such sum as it may direct sufficient to indemnify it against any claim
that may be made against the Corporation on account of the alleged loss, theft
or destruction of any such certificate or the issuance of such new certificate.
SECTION 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its records; PROVIDED, HOWEVER, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
SECTION 5. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.
SECTION 6. REGULATIONS. The Board of Directors may make such additional
rules and regulations, not inconsistent with these Amended and Restated By-Laws,
as it may deem expedient concerning the issue, transfer and registration of
certificates for shares of stock of the Corporation.
SECTION 7. FIXING THE RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 8. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its records as the owner
of shares of stock to receive dividends and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares of stock on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by law.
ARTICLE VI
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 1. GENERAL. Each person who was or is made a party or is threatened
to be made a party to or is involved (including, without limitation, as a
witness) in any threatened, pending or completed action, suit, arbitration,
alternative dispute resolution mechanism, investigation, administrative hearing
or any other proceeding, whether civil, criminal, administrative or
investigative ("Proceeding") brought by reason of the fact that such person (the
"Indemnitee") is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan, whether the basis of
such Proceeding is alleged action in an official capacity as a director or
officer or in any other capacity while serving as such a director or officer,
shall be indemnified and held harmless by the Corporation to the full extent
authorized by the General Corporation Law of Delaware, as the same
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exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), or by other applicable law as then in effect, against all
expenses, liabilities, losses and claims (including attorneys' fees, judgments,
fines, excise taxes under the Employee Retirement Income Security Act of 1974,
as amended from time to time, penalties and amounts to be paid in settlement)
actually incurred or suffered by such Indemnitee in connection with such
Proceeding (collectively, "Losses").
SECTION 2. DERIVATIVE ACTIONS. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to or is involved
(including, without limitation, as a witness) in any Proceeding brought by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that such person (also an "Indemnitee") is or was a director or officer of
the Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan, against Losses actually incurred or suffered by the Indemnitee in
connection with the defense or settlement of such action or suit if the
Indemnitee acted in good faith and in a manner the Indemnitee reasonably
believed to be in or not opposed to the best interests of the Corporation,
provided that no indemnification shall be made in respect of any claim, issue or
matter as to which Delaware law expressly prohibits such indemnification by
reason of an adjudication of liability of the Indemnitee unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
the Indemnitee is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
SECTION 3. INDEMNIFICATION IN CERTAIN CASES. Notwithstanding any other
provision of this Article VI, to the extent that an Indemnitee has been wholly
successful on the merits or otherwise in any Proceeding referred to in Sections
1 or 2 of this Article VI on any claim, issue or matter therein, the Indemnitee
shall be indemnified against Losses actually incurred or suffered by the
Indemnitee in connection therewith. If the Indemnitee is not wholly successful
in such Proceeding but is successful, on the merits or otherwise, as to one or
more but less than all claims, issues or matters in such Proceeding, the
Corporation shall indemnify the Indemnitee, against Losses actually incurred or
suffered by the Indemnitee in connection with each successfully resolved claim,
issue or matter. In any review or Proceeding to determine such extent of
indemnification, the Corporation shall bear the burden of proving any lack of
success and which amounts sought in indemnity are allocable to claims, issues or
matters which were not successfully resolved. For purposes of this Section 3 and
without limitation, the termination of any such claim, issue or matter by
dismissal with or without prejudice shall be deemed to be a successful
resolution as to such claim, issue or matter.
SECTION 4. PROCEDURE. (a) Any indemnification under Sections 1 and 2 of this
Article VI (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
Indemnitee is proper (except that the right of the Indemnitee to receive
payments pursuant to Section 5 of this Article VI shall not be subject to this
Section 4) in the circumstances because the Indemnitee has met the applicable
standard of conduct. Such determination shall be made promptly, but in no event
later than 60 days after receipt by the Corporation of the Indemnitee's written
request for indemnification. The Secretary of the Corporation shall, promptly
upon receipt of the Indemnitee's request for indemnification, advise the Board
of Directors that the Indemnitee has made such request for indemnification.
(b) The entitlement of the Indemnitee to indemnification shall be determined
in the specific case (1) by the Board of Directors by a majority vote of the
directors who are not parties to such Proceeding, even though less than a quorum
(the "Disinterested Directors"), or (2) if there are no Disinterested
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Directors, or if such Disinterested Directors so direct, by independent legal
counsel, or (3) by the stockholders.
(c) In the event the determination of entitlement is to be made by
independent legal counsel, such independent legal counsel shall be selected by
the Board of Directors and approved by the Indemnitee. Upon failure of the Board
of Directors to so select such independent legal counsel or upon failure of the
Indemnitee to so approve, such independent legal counsel shall be selected by
the American Arbitration Association in New York, New York or such other person
as such Association shall designate to make such selection.
(d) If the Board of Directors or independent legal counsel shall have
determined that the Indemnitee is not entitled to indemnification to the full
extent of the Indemnitee's request, the Indemnitee shall have the right to seek
entitlement to indemnification in accordance with the procedures set forth in
Section 6 of this Article VI.
(e) If the person or persons empowered pursuant to Section 4(b) of this
Article VI to make a determination with respect to entitlement to
indemnification shall have failed to make the requested determination within 60
days after receipt by the Corporation of such request, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and the Indemnitee shall be absolutely entitled to such indemnification,
absent (i) misrepresentation by the Indemnitee of a material fact in the request
for indemnification or (ii) a final judicial determination that all or any part
of such indemnification is expressly prohibited by law.
(f) The termination of any proceeding by judgment, order, settlement or
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, adversely affect the rights of the Indemnitee to indemnification
hereunder except as may be specifically provided herein, or create a presumption
that the Indemnitee did not act in good faith and in a manner which the
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Corporation or create a presumption that (with respect to any criminal
action or proceeding) the Indemnitee had reasonable cause to believe that the
Indemnitee's conduct was unlawful.
(g) For purposes of any determination of good faith hereunder, the
Indemnitee shall be deemed to have acted in good faith if the Indemnitee's
action is based on the records or books of account of the Corporation or an
affiliate, including financial statements, or on information supplied to the
Indemnitee by the officers of the Corporation or an affiliate in the course of
their duties, or on the advice of legal counsel for the Corporation or an
affiliate or on information or records given or reports made to the Corporation
or an affiliate by an independent certified public accountant or by an appraiser
or other expert selected with reasonable care to the Corporation or an
affiliate. The Corporation shall have the burden of establishing the absence of
good faith. The provisions of this Section 4(g) of this Article VI shall not be
deemed to be exclusive or to limit in any way the other circumstances in which
the Indemnitee may be deemed to have met the applicable standard of conduct set
forth in these Amended and Restated By-Laws.
(h) The knowledge and/or actions, or failure to act, of any other director,
officer, agent or employee of the Corporation or an affiliate shall not be
imputed to the Indemnitee for purposes of determining the right to
indemnification under these Amended and Restated By-Laws.
SECTION 5. ADVANCES FOR EXPENSES AND COSTS. All expenses (including
attorneys' fees) incurred by or on behalf of the Indemnitee (or reasonably
expected by the Indemnitee to be incurred by the Indemnitee within three months)
in connection with any Proceeding shall be paid by the Corporation in advance of
the final disposition of such Proceeding within twenty days after the receipt by
the Corporation of a statement or statements from the Indemnitee requesting from
time to time such advance or advances whether or not a determination to
indemnify has been made under Section 4 of this Article VI. The Indemnitee's
entitlement to such advancement of expenses shall include those incurred in
connection with any
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Proceeding by the Indemnitee seeking an adjudication or award in arbitration
pursuant to these Amended and Restated By-Laws. The financial ability of an
Indemnitee to repay an advance shall not be a prerequisite to the making of such
advance. Such statement or statements shall reasonably evidence such expenses
incurred (or reasonably expected to be incurred) by the Indemnitee in connection
therewith and shall include or be accompanied by a written undertaking by or on
behalf of the Indemnitee to repay such amount if it shall ultimately be
determined that the Indemnitee is not entitled to be indemnified therefor
pursuant to the terms of this Article VI.
SECTION 6. REMEDIES IN CASES OF DETERMINATION NOT TO INDEMNIFY OR TO ADVANCE
EXPENSES. (a) In the event that (i) a determination is made that the Indemnitee
is not entitled to indemnification hereunder, (ii) advances are not made
pursuant to Section 5 of this Article VI or (iii) payment has not been timely
made following a determination of entitlement to indemnification pursuant to
Section 4 of this Article VI, the Indemnitee shall be entitled to seek a final
adjudication either through an arbitration proceeding or in an appropriate court
of the State of Delaware or any other court of competent jurisdiction of the
Indemnitee's entitlement to such indemnification or advance.
(b) In the event a determination has been made in accordance with the
procedures set forth in Section 4 of this Article VI, in whole or in part, that
the Indemnitee is not entitled to indemnification, any judicial proceeding or
arbitration referred to in paragraph (a) of this Section 6 shall be de novo and
the Indemnitee shall not be prejudiced by reason of any such prior determination
that the Indemnitee is not entitled to indemnification, and the Corporation
shall bear the burdens of proof specified in Sections 3 and 4 of this Article VI
in such proceeding.
(c) If a determination is made or deemed to have been made pursuant to the
terms of Sections 4 or 6 of this Article VI that the Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration in the absence of (i) a misrepresentation of
a material fact by the Indemnitee or (ii) a final judicial determination that
all or any part of such indemnification is expressly prohibited by law.
(d) To the extent deemed appropriate by the court, interest shall be paid by
the Corporation to the Indemnitee at a reasonable interest rate for amounts
which the Corporation indemnifies or is obliged to indemnify the Indemnitee for
the period commencing with the date on which the Indemnitee requested
indemnification (or reimbursement or advancement of expenses) and ending with
the date on which such payment is made to the Indemnitee by the Corporation.
SECTION 7. RIGHTS NON-EXCLUSIVE. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Sections of this Article
VI shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any law,
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office.
SECTION 8. INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan, against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
Article VI.
SECTION 9. DEFINITION OF CORPORATION. For purposes of this Article VI,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent
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corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan, shall stand in the same position under this Article VI
with respect to the resulting or surviving corporation as such person would have
with respect to such constituent corporation if its separate existence had
continued.
SECTION 10. OTHER DEFINITIONS. For purposes of this Article VI, references
to "fines" shall include any excise taxes assessed on a person with respect to
any employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or agent
of the corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VI.
SECTION 11. SURVIVAL OF RIGHTS. The indemnification and advancement of
expenses provided by, or granted pursuant to this Article VI shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person. No
amendment, alteration, rescission or replacement of these Amended and Restated
By-Laws or any provision hereof shall be effective as to an Indemnitee with
respect to any action taken or omitted by such Indemnitee in Indemnitee's
position with the Corporation or any other entity which the Indemnitee is or was
serving at the request of the Corporation prior to such amendment, alteration,
rescission or replacement.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The
Corporation may, by action of the Board of Directors from time to time, grant
rights to indemnification and advancement of expenses to employees and agents of
the Corporation with the same scope and effect as the provisions of this Article
VI with respect to the indemnification of directors and officers of the
Corporation.
SECTION 13. SAVINGS CLAUSE. If this Article VI or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each person entitled to indemnification
under the first paragraph of this Article VI as to all losses actually and
reasonably incurred or suffered by such person and for which indemnification is
available to such person pursuant to this Article VI to the full extent
permitted by any applicable portion of this Article VI that shall not have been
invalidated and to the full extent permitted by applicable law.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the provisions of statute and the
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of stock of the
Corporation, unless otherwise provided by statute or the Certificate of
Incorporation.
SECTION 2. RESERVES. Before payment of any dividend, there may be set aside
out of any funds of the Corporation available for dividends such sum or sums as
the Board of Directors may, from time to time, in its absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation or
for such other purpose as the Board of Directors may think conducive to the
interests of the Corporation. The Board of Directors may modify or abolish any
such reserve in the manner in which it was created.
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SECTION 3. SEAL. The seal of the Corporation shall be in such form as shall
be approved by the Board of Directors.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be fixed,
and once fixed, may thereafter be changed, by resolution of the Board of
Directors.
SECTION 5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or other
orders for the payment of money of the Corporation shall be signed, endorsed or
accepted in the name of the Corporation by such officer, officers, person or
persons as from time to time may be designated by the Board of Directors or by
an officer or officers authorized by the Board of Directors to make such
designation.
SECTION 6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors may
authorize any officer or officers, agent or agents, in the name and on behalf of
the Corporation to enter into or execute and deliver any and all deeds, bonds,
mortgages, contracts and other obligations or instruments, and such authority
may be general or confined to specific instances.
SECTION 7. VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise provided
by resolution of the Board of Directors, the Chairman of the Board or the
President, from time to time, may (or may appoint one or more attorneys or
agents to) cast the votes which the Corporation may be entitled to cast as a
shareholder or otherwise in any other corporation, any of whose shares or
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. In the event one or more
attorneys or agents are appointed, the Chairman of the Board or the President
may instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chairman of the Board or the President may, or
may instruct the attorneys or agents appointed to, execute or cause to be
executed in the name and on behalf of the Corporation and under its seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the circumstances.
ARTICLE VIII
AMENDMENTS
These Amended and Restated By-Laws may be repealed, altered, amended or
rescinded in whole or in part, or new By-Laws may be adopted by either the
affirmative vote of the holders of at least a majority of the voting power of
all of the issued and outstanding shares of capital stock of the Corporation
entitled to vote thereon or by the Board of Directors.
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ANNEX E
FORM OF
AMENDED AND RESTATED
BY-LAWS OF
COMMSCOPE, INC.
(HEREINAFTER CALLED THE "CORPORATION")
(AS OF , 1997)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
within the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The Corporation may also have an office or
offices other than said registered office at such place or places, either within
or without the State of Delaware, as the Board of Directors shall from time to
time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders for the
election of directors or for any other purpose shall be held at any such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be held
on such date and at such time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver thereof. At such annual meetings, the stockholders shall elect by a
plurality vote the directors standing for election and transact such other
business as may properly be brought before the meeting in accordance with these
Amended and Restated By-Laws.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any
purpose or purposes, unless otherwise prescribed by statute may be called by the
Board of Directors, the Chairman of the Board of Directors, if one shall have
been elected, or the President and shall be called by the Secretary upon the
request in writing of a stockholder or stockholders holding of record at least a
majority of the voting power of the issued and outstanding shares of capital
stock of the Corporation entitled to vote at such meeting.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise expressly required by
statute, written notice of each annual and special meeting of stockholders
stating the date, place and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder of record entitled to vote thereat not less than ten nor
more than sixty days before the date of the meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice. Notice shall be given personally or by mail and, if by mail, shall be
sent in a postage prepaid envelope, addressed to the stockholder at such
stockholder's address as it appears on the records of the Corporation. Notice by
mail shall be deemed given at the time when the same shall be deposited in the
United States mail, postage prepaid. Notice of any meeting shall not be required
to be given to any person who attends such meeting, except when such person
attends the meeting in person or by proxy for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any
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business because the meeting is not lawfully called or convened, or who, either
before or after the meeting, shall submit a signed written waiver of notice, in
person or by proxy. Neither the business to be transacted at, nor the purpose
of, an annual or special meeting of stockholders need be specified in any
written waiver of notice.
SECTION 5. ORGANIZATION. At each meeting of stockholders, the Chairman of
the Board, if one shall have been elected, or, in such person's absence or if
one shall not have been elected, the President, shall act as chairman of the
meeting. The Secretary or, in such person's absence or inability to act, the
person whom the chairman of the meeting shall appoint secretary of the meeting,
shall act as secretary of the meeting and keep the minutes thereof.
SECTION 6. CONDUCT OF BUSINESS. The chairman of any meeting of stockholders
shall determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of discussion
as seems to him or her in order. The date and time of the opening and closing of
the polls for each matter upon which the stockholders will vote at a meeting
shall be announced at the meeting.
SECTION 7. QUORUM, ADJOURNMENTS. The holders of a majority of the voting
power of the issued and outstanding shares of capital stock of the Corporation
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at all meetings of
stockholders, except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum shall not be present or represented by
proxy at any meeting of stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented by proxy. At such
adjourned meeting at which a quorum shall be present or represented by proxy,
any business may be transacted which might have been transacted at the meeting
as originally called. If the adjournment is for more than thirty days, or, if
after adjournment a new record date is set, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
SECTION 8. VOTING. Except as otherwise provided by statute or the
Certificate of Incorporation and these Amended and Restated By-Laws, each
stockholder of the Corporation shall be entitled at each meeting of stockholders
to one vote for each share of capital stock of the Corporation standing in such
stockholder's name on the record of stockholders of the Corporation:
(a) on the date fixed pursuant to the provisions of Section 7 of Article
V of these Amended and Restated By-Laws as the record date for the
determination of the stockholders who shall be entitled to notice of and to
vote at such meeting; or
(b) if no such record date shall have been so fixed, then at the close
of business on the day next preceding the day on which notice thereof shall
be given, or, if notice is waived, at the close of business on the date next
preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for such stockholder by a proxy
signed by such stockholder or such stockholder's attorney-in-fact, but no proxy
shall be voted after three years from its date, unless the proxy provides for a
longer period. Any such proxy shall be delivered to the secretary of the meeting
at or prior to the time designated in the order of business for so delivering
such proxies. When a quorum is present at any meeting, the affirmative vote of
the holders of a majority of the voting power of the issued and outstanding
stock of the Corporation entitled to vote thereon, present in person or
represented by proxy, shall decide any question brought before such meeting,
unless the question is one upon which by express provision of statute or of the
Certificate of Incorporation or of these Amended and Restated By-Laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question. Unless required by statute, or
determined by the chairman of the meeting to be advisable, the vote on any
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question need not be by ballot. On a vote by ballot, each ballot shall be signed
by the stockholder voting, or by such stockholder's proxy, if there be such
proxy.
SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. At least ten days before
each meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder shall be prepared. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city, town, or village where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
SECTION 10. INSPECTORS. The Board of Directors shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may appoint one or more
inspectors. Each inspector, before entering upon the discharge of such
inspector's duties, shall take and sign an oath faithfully to execute the duties
of inspector at such meeting with strict impartiality and according to the best
of such inspector's ability. The inspectors shall determine the number of shares
of capital stock of the Corporation outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as an inspector of an
election of directors. Inspectors need not be stockholders.
SECTION 11. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise
provided by statute or in the Certificate of Incorporation, any action required
to be taken or which may be taken at any annual or special meeting of the
stockholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of any such corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 12. ADVANCE NOTICE PROVISIONS FOR ELECTION OF DIRECTORS. Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 12 and on the record date for the
determination of stockholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this Section 12.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
in the case of an annual meeting, not less than 60 days
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nor more than 90 days prior to the date of the annual meeting; PROVIDED,
HOWEVER, that in the event that less than 70 days' notice or prior public
disclosure of the date of the annual meeting is given or made to stockholders,
notice by the stockholder in order to be timely must be so received not later
than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure of
the date of the annual meeting was made, whichever first occurs; and (b) in the
case of a special meeting of stockholders called for the purpose of electing
directors, not later than the close of business on the 10th day following the
day on which notice of the date of the special meeting was mailed or public
disclosure of the date of the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to be named as
a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section 12.
If the Chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
SECTION 13. ADVANCE NOTICE PROVISIONS FOR BUSINESS TO BE TRANSACTED AT
ANNUAL MEETING. No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (i) who
is a stockholder of record on the date of the giving of the notice provided for
in this Section 13 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 13.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the date of the annual meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, notice by the stockholder in
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order to be timely must be so received not later than the close of business on
the 10th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 13, provided, however, that, once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 13 shall be deemed to preclude discussion by any
stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
ARTICLE III
DIRECTORS
SECTION 1. PLACE OF MEETINGS. Meetings of the Board of Directors shall be
held at such place or places, within or without the State of Delaware, as the
Board of Directors may from time to time determine or as shall be specified in
the notice of any such meeting.
SECTION 2. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
other time or place (within or without the State of Delaware) as shall be
specified in a notice thereof given as hereinafter provided in Section 5 of this
Article III.
SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such time and place as the Board of Directors may fix. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same hour on the next succeeding business day.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the Chairman of the Board, if one shall have been elected, or by
two or more directors of the Corporation or by the President.
SECTION 5. NOTICE OF MEETINGS. Notice of regular meetings of the Board of
Directors need not be given except as otherwise required by law or these Amended
and Restated By-Laws. Notice of each special meeting of the Board of Directors
for which notice shall be required, shall be given by the Secretary as
hereinafter provided in this Section 5, in which notice shall be stated the time
and place of the meeting. Except as otherwise required by these Amended and
Restated By-Laws, such notice need not state the purposes of such meeting.
Notice of any special meeting, and of any regular or annual meeting for which
notice is required, shall be given to each director at least (a) four hours
before the meeting if by telephone or by being personally delivered or sent by
telex, telecopy, or similar means or (b) two days before the
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meeting if delivered by mail to the director's residence or usual place of
business. Such notice shall be deemed to be delivered when deposited in the
United States mail so addressed, with postage prepaid, or when transmitted if
sent by telex, telecopy, or similar means. Neither the business to be transacted
at, nor the purpose of, any special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting. Any director may
waive notice of any meeting by a writing signed by the director entitled to the
notice and filed with the minutes or corporate records. The attendance at or
participation of the director at a meeting shall constitute waiver of notice of
such meeting, unless the director at the beginning of the meeting or promptly
upon such director's arrival objects to holding the meeting or transacting
business at the meeting.
SECTION 6. ORGANIZATION. At each meeting of the Board of Directors, the
Chairman of the Board, if one shall have been elected, or, in the absence of the
Chairman of the Board or if one shall not have been elected, the President (or,
in the President's absence, another director chosen by a majority of the
directors present) shall act as chairman of the meeting and preside thereat. The
Secretary or, in such person's absence, any person appointed by the chairman
shall act as secretary of the meeting and keep the minutes thereof.
SECTION 7. QUORUM AND MANNER OF ACTING. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and, except as otherwise expressly required
by statute or the Certificate of Incorporation or these Amended and Restated
By-Laws, the affirmative vote of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of Directors.
In the absence of a quorum at any meeting of the Board of Directors, a majority
of the directors present thereat may adjourn such meeting to another time and
place. Notice of the time and place of any such adjourned meeting shall be given
to all of the directors unless such time and place were announced at the meeting
at which the adjournment was taken, in which case such notice need only be given
to the directors who were not present thereat. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. The directors shall act only as
a Board and the individual directors shall have no power as such.
SECTION 8. ACTION BY CONSENT. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of the
proceedings of the Board of Directors or such committee, as the case may be.
SECTION 9. TELEPHONIC MEETING. Unless restricted by the Certificate of
Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.
SECTION 10. COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the entire Board of Directors, designate one or more committees,
including an executive committee, each committee to consist of one or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence of
disqualification of any member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not such members
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
Each such committee, to the extent provided in the resolution creating it,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the
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Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which require it; PROVIDED, HOWEVER, that no such committee shall have
the power or authority in reference to the following matters: (a) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by the General Corporation Law of Delaware to be submitted to
stockholders for approval or (b) adopting, amending or repealing any by-law of
the Corporation. Each such committee shall serve at the pleasure of the Board of
Directors and have such name as may be determined from time to time by
resolution adopted by the Board of Directors. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors.
SECTION 11. FEES AND COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board of Directors. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
SECTION 12. RESIGNATIONS. Any director of the Corporation may resign at any
time by giving written notice of such director's resignation to the Corporation.
Any such resignation shall take effect at the time specified therein or, if the
time when it shall become effective shall not be specified therein, immediately
upon its receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 13. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because such person's or
persons' votes are counted for such purposes if (a) the material facts as to
such person's or persons' relationship or interest and as to the contract or
transaction are disclosed or are known to the directors or committee who then in
good faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum, (b) the material facts as to such person's or persons'
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders
or (c) the contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified, by the Board of Directors, a committee
thereof or the stockholders. Interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen by the
Board of Directors and shall include a President, one or more Vice Presidents
(including Senior, Executive or other classifications of Vice Presidents) and a
Secretary. The Board of Directors, in its discretion, may also choose as an
officer of the Corporation a Chairman of the Board and a Vice Chairman of the
Board and may choose other officers (including a Treasurer, one or more
Assistant Secretaries and one or more Assistant Treasurers) as may be necessary
or desirable. Such officers as the Board of Directors may choose shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors. The Board of Directors may delegate to any officer of
the Corporation the power to choose such other officers and to proscribe their
respective duties and powers. Any number of offices may be held by the same
person, unless otherwise prohibited by law, the Certificate of Incorporation or
these Amended and Restated By-Laws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board and Vice Chairman of the Board of Directors, need such officers be
directors of the Corporation.
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SECTION 2. TERM. All officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any vacancy occurring in any office of the Corporation shall be filled
by the Board of Directors.
SECTION 3. RESIGNATIONS. Any officer of the Corporation may resign at any
time by giving written notice of such officer's resignation to the Corporation.
Any such resignation shall take effect at the time specified therein or, if the
time when it shall become effective shall not be specified therein, immediately
upon receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
SECTION 4. REMOVAL. Any officer may be removed at any time by the Board of
Directors with or without cause.
SECTION 5. COMPENSATION. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that such officer is also a
director of the Corporation.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one shall
have been elected, shall be a member of the Board, an officer of the Corporation
and, if present, shall preside at each meeting of the Board of Directors or the
stockholders. The Chairman of the Board shall advise and counsel with the
President, and in the President's absence with other executives of the
Corporation, and shall perform such other duties as may from time to time be
assigned to the Chairman of the Board by the Board of Directors.
ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. STOCK CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the Chairman of the Board or a Vice Chairman of the Board or the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation, certifying the
number of shares owned by such holder in the Corporation. If the Corporation
shall be authorized to issue more than one class of stock or more than one
series of any class, the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restriction of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock,
provided that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each stockholder who so requests the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 2. FACSIMILE SIGNATURES. Any or all of the signatures on a
certificate may be a facsimile, engraved or printed. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if such person was such officer, transfer
agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of
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Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or the owner's legal representative, to give the Corporation a
bond in such sum as it may direct sufficient to indemnify it against any claim
that may be made against the Corporation on account of the alleged loss, theft
or destruction of any such certificate or the issuance of such new certificate.
SECTION 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its records; PROVIDED, HOWEVER, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
SECTION 5. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.
SECTION 6. REGULATIONS. The Board of Directors may make such additional
rules and regulations, not inconsistent with these Amended and Restated By-Laws,
as it may deem expedient concerning the issue, transfer and registration of
certificates for shares of stock of the Corporation.
SECTION 7. FIXING THE RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 8. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its records as the owner
of shares of stock to receive dividends and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares of stock on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by law.
ARTICLE VI
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 1. GENERAL. Each person who was or is made a party or is threatened
to be made a party to or is involved (including, without limitation, as a
witness) in any threatened, pending or completed action, suit, arbitration,
alternative dispute resolution mechanism, investigation, administrative hearing
or any other proceeding, whether civil, criminal, administrative or
investigative ("Proceeding") brought by reason of the fact that such person (the
"Indemnitee") is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan, whether the basis of
such Proceeding is alleged action in an official capacity as a director or
officer or in any other capacity while serving as such a director or officer,
shall be indemnified and held harmless by the Corporation to the full extent
authorized by the General Corporation Law of Delaware, as the same
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exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), or by other applicable law as then in effect, against all
expenses, liabilities, losses and claims (including attorneys' fees, judgments,
fines, excise taxes under the Employee Retirement Income Security Act of 1974,
as amended from time to time, penalties and amounts to be paid in settlement)
actually incurred or suffered by such Indemnitee in connection with such
Proceeding (collectively, "Losses").
SECTION 2. DERIVATIVE ACTIONS. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to or is involved
(including, without limitation, as a witness) in any Proceeding brought by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that such person (also an "Indemnitee") is or was a director or officer of
the Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan, against Losses actually incurred or suffered by the Indemnitee in
connection with the defense or settlement of such action or suit if the
Indemnitee acted in good faith and in a manner the Indemnitee reasonably
believed to be in or not opposed to the best interests of the Corporation,
provided that no indemnification shall be made in respect of any claim, issue or
matter as to which Delaware law expressly prohibits such indemnification by
reason of an adjudication of liability of the Indemnitee unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
the Indemnitee is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
SECTION 3. INDEMNIFICATION IN CERTAIN CASES. Notwithstanding any other
provision of this Article VI, to the extent that an Indemnitee has been wholly
successful on the merits or otherwise in any Proceeding referred to in Sections
1 or 2 of this Article VI on any claim, issue or matter therein, the Indemnitee
shall be indemnified against Losses actually incurred or suffered by the
Indemnitee in connection therewith. If the Indemnitee is not wholly successful
in such Proceeding but is successful, on the merits or otherwise, as to one or
more but less than all claims, issues or matters in such Proceeding, the
Corporation shall indemnify the Indemnitee, against Losses actually incurred or
suffered by the Indemnitee in connection with each successfully resolved claim,
issue or matter. In any review or Proceeding to determine such extent of
indemnification, the Corporation shall bear the burden of proving any lack of
success and which amounts sought in indemnity are allocable to claims, issues or
matters which were not successfully resolved. For purposes of this Section 3 and
without limitation, the termination of any such claim, issue or matter by
dismissal with or without prejudice shall be deemed to be a successful
resolution as to such claim, issue or matter.
SECTION 4. PROCEDURE. (a) Any indemnification under Sections 1 and 2 of
this Article VI (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the Indemnitee is proper (except that the right of the
Indemnitee to receive payments pursuant to Section 5 of this Article VI shall
not be subject to this Section 4) in the circumstances because the Indemnitee
has met the applicable standard of conduct. Such determination shall be made
promptly, but in no event later than 60 days after receipt by the Corporation of
the Indemnitee's written request for indemnification. The Secretary of the
Corporation shall, promptly upon receipt of the Indemnitee's request for
indemnification, advise the Board of Directors that the Indemnitee has made such
request for indemnification.
(b) The entitlement of the Indemnitee to indemnification shall be determined
in the specific case (1) by the Board of Directors by a majority vote of the
directors who are not parties to such Proceeding, even though less than a quorum
(the "Disinterested Directors"), or (2) if there are no Disinterested
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Directors, or if such Disinterested Directors so direct, by independent legal
counsel, or (3) by the stockholders.
(c) In the event the determination of entitlement is to be made by
independent legal counsel, such independent legal counsel shall be selected by
the Board of Directors and approved by the Indemnitee. Upon failure of the Board
of Directors to so select such independent legal counsel or upon failure of the
Indemnitee to so approve, such independent legal counsel shall be selected by
the American Arbitration Association in New York, New York or such other person
as such Association shall designate to make such selection.
(d) If the Board of Directors or independent legal counsel shall have
determined that the Indemnitee is not entitled to indemnification to the full
extent of the Indemnitee's request, the Indemnitee shall have the right to seek
entitlement to indemnification in accordance with the procedures set forth in
Section 6 of this Article VI.
(e) If the person or persons empowered pursuant to Section 4(b) of this
Article VI to make a determination with respect to entitlement to
indemnification shall have failed to make the requested determination within 60
days after receipt by the Corporation of such request, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and the Indemnitee shall be absolutely entitled to such indemnification,
absent (i) misrepresentation by the Indemnitee of a material fact in the request
for indemnification or (ii) a final judicial determination that all or any part
of such indemnification is expressly prohibited by law.
(f) The termination of any proceeding by judgment, order, settlement or
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, adversely affect the rights of the Indemnitee to indemnification
hereunder except as may be specifically provided herein, or create a presumption
that the Indemnitee did not act in good faith and in a manner which the
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Corporation or create a presumption that (with respect to any criminal
action or proceeding) the Indemnitee had reasonable cause to believe that the
Indemnitee's conduct was unlawful.
(g) For purposes of any determination of good faith hereunder, the
Indemnitee shall be deemed to have acted in good faith if the Indemnitee's
action is based on the records or books of account of the Corporation or an
affiliate, including financial statements, or on information supplied to the
Indemnitee by the officers of the Corporation or an affiliate in the course of
their duties, or on the advice of legal counsel for the Corporation or an
affiliate or on information or records given or reports made to the Corporation
or an affiliate by an independent certified public accountant or by an appraiser
or other expert selected with reasonable care to the Corporation or an
affiliate. The Corporation shall have the burden of establishing the absence of
good faith. The provisions of this Section 4(g) of this Article VI shall not be
deemed to be exclusive or to limit in any way the other circumstances in which
the Indemnitee may be deemed to have met the applicable standard of conduct set
forth in these Amended and Restated By-Laws.
(h) The knowledge and/or actions, or failure to act, of any other director,
officer, agent or employee of the Corporation or an affiliate shall not be
imputed to the Indemnitee for purposes of determining the right to
indemnification under these Amended and Restated By-Laws.
SECTION 5. ADVANCES FOR EXPENSES AND COSTS. All expenses (including
attorneys' fees) incurred by or on behalf of the Indemnitee (or reasonably
expected by the Indemnitee to be incurred by the Indemnitee within three months)
in connection with any Proceeding shall be paid by the Corporation in advance of
the final disposition of such Proceeding within twenty days after the receipt by
the Corporation of a statement or statements from the Indemnitee requesting from
time to time such advance or advances whether or not a determination to
indemnify has been made under Section 4 of this Article VI. The Indemnitee's
entitlement to such advancement of expenses shall include those incurred in
connection with any
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Proceeding by the Indemnitee seeking an adjudication or award in arbitration
pursuant to these Amended and Restated By-Laws. The financial ability of an
Indemnitee to repay an advance shall not be a prerequisite to the making of such
advance. Such statement or statements shall reasonably evidence such expenses
incurred (or reasonably expected to be incurred) by the Indemnitee in connection
therewith and shall include or be accompanied by a written undertaking by or on
behalf of the Indemnitee to repay such amount if it shall ultimately be
determined that the Indemnitee is not entitled to be indemnified therefor
pursuant to the terms of this Article VI.
SECTION 6. REMEDIES IN CASES OF DETERMINATION NOT TO INDEMNIFY OR TO ADVANCE
EXPENSES. (a) In the event that (i) a determination is made that the Indemnitee
is not entitled to indemnification hereunder, (ii) advances are not made
pursuant to Section 5 of this Article VI or (iii) payment has not been timely
made following a determination of entitlement to indemnification pursuant to
Section 4 of this Article VI, the Indemnitee shall be entitled to seek a final
adjudication either through an arbitration proceeding or in an appropriate court
of the State of Delaware or any other court of competent jurisdiction of the
Indemnitee's entitlement to such indemnification or advance.
(b) In the event a determination has been made in accordance with the
procedures set forth in Section 4 of this Article VI, in whole or in part, that
the Indemnitee is not entitled to indemnification, any judicial proceeding or
arbitration referred to in paragraph (a) of this Section 6 shall be DE NOVOand
the Indemnitee shall not be prejudiced by reason of any such prior determination
that the Indemnitee is not entitled to indemnification, and the Corporation
shall bear the burdens of proof specified in Sections 3 and 4 of this Article VI
in such proceeding.
(c) If a determination is made or deemed to have been made pursuant to the
terms of Sections 4 or 6 of this Article VI that the Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration in the absence of (i) a misrepresentation of
a material fact by the Indemnitee or (ii) a final judicial determination that
all or any part of such indemnification is expressly prohibited by law.
(d) To the extent deemed appropriate by the court, interest shall be paid by
the Corporation to the Indemnitee at a reasonable interest rate for amounts
which the Corporation indemnifies or is obliged to indemnify the Indemnitee for
the period commencing with the date on which the Indemnitee requested
indemnification (or reimbursement or advancement of expenses) and ending with
the date on which such payment is made to the Indemnitee by the Corporation.
SECTION 7. RIGHTS NON-EXCLUSIVE. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Sections of this Article
VI shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any law,
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office.
SECTION 8. INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan, against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
Article VI.
SECTION 9. DEFINITION OF CORPORATION. For purposes of this Article VI,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent
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corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan, shall stand in the same position under this Article VI
with respect to the resulting or surviving corporation as such person would have
with respect to such constituent corporation if its separate existence had
continued.
SECTION 10. OTHER DEFINITIONS. For purposes of this Article VI, references
to "fines" shall include any excise taxes assessed on a person with respect to
any employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or agent
of the corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VI.
SECTION 11. SURVIVAL OF RIGHTS. The indemnification and advancement of
expenses provided by, or granted pursuant to this Article VI shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person. No
amendment, alteration, rescission or replacement of these Amended and Restated
By-Laws or any provision hereof shall be effective as to an Indemnitee with
respect to any action taken or omitted by such Indemnitee in Indemnitee's
position with the Corporation or any other entity which the Indemnitee is or was
serving at the request of the Corporation prior to such amendment, alteration,
rescission or replacement.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The
Corporation may, by action of the Board of Directors from time to time, grant
rights to indemnification and advancement of expenses to employees and agents of
the Corporation with the same scope and effect as the provisions of this Article
VI with respect to the indemnification of directors and officers of the
Corporation.
SECTION 13. SAVINGS CLAUSE. If this Article VI or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each person entitled to indemnification
under the first paragraph of this Article VI as to all losses actually and
reasonably incurred or suffered by such person and for which indemnification is
available to such person pursuant to this Article VI to the full extent
permitted by any applicable portion of this Article VI that shall not have been
invalidated and to the full extent permitted by applicable law.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the provisions of statute and the
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of stock of the
Corporation, unless otherwise provided by statute or the Certificate of
Incorporation.
SECTION 2. RESERVES. Before payment of any dividend, there may be set aside
out of any funds of the Corporation available for dividends such sum or sums as
the Board of Directors may, from time to time, in its absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation or
for such other purpose as the Board of Directors may think conducive to the
interests of the Corporation. The Board of Directors may modify or abolish any
such reserve in the manner in which it was created.
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SECTION 3. SEAL. The seal of the Corporation shall be in such form as shall
be approved by the Board of Directors.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be fixed,
and once fixed, may thereafter be changed, by resolution of the Board of
Directors.
SECTION 5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or other
orders for the payment of money of the Corporation shall be signed, endorsed or
accepted in the name of the Corporation by such officer, officers, person or
persons as from time to time may be designated by the Board of Directors or by
an officer or officers authorized by the Board of Directors to make such
designation.
SECTION 6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors may
authorize any officer or officers, agent or agents, in the name and on behalf of
the Corporation to enter into or execute and deliver any and all deeds, bonds,
mortgages, contracts and other obligations or instruments, and such authority
may be general or confined to specific instances.
SECTION 7. VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise provided
by resolution of the Board of Directors, the Chairman of the Board or the
President, from time to time, may (or may appoint one or more attorneys or
agents to) cast the votes which the Corporation may be entitled to cast as a
shareholder or otherwise in any other corporation, any of whose shares or
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. In the event one or more
attorneys or agents are appointed, the Chairman of the Board or the President
may instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chairman of the Board or the President may, or
may instruct the attorneys or agents appointed to, execute or cause to be
executed in the name and on behalf of the Corporation and under its seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the circumstances.
ARTICLE VIII
AMENDMENTS
These Amended and Restated By-Laws may be repealed, altered, amended or
rescinded in whole or in part, or new By-Laws may be adopted by either the
affirmative vote of the holders of at least a majority of the voting power of
all of the issued and outstanding shares of capital stock of the Corporation
entitled to vote thereon or by the Board of Directors.
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ANNEX F
- --------------------------------------------------------------------------------
FORM OF
DISTRIBUTION AGREEMENT
AMONG
GENERAL INSTRUMENT CORPORATION,
NEXTLEVEL SYSTEMS, INC.
AND
COMMSCOPE, INC.
Dated as of
[ ], 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ANNEX
PAGE
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<S> <C> <C>
ARTICLE I DEFINITIONS........................................................................... F-2
SECTION 1.01. General................................................................. F-2
SECTION 1.02. References.............................................................. F-11
ARTICLE II PRE-DISTRIBUTION TRANSACTIONS; CERTAIN COVENANTS...................................... F-12
SECTION 2.01. Corporate Restructuring Transactions.................................... F-12
SECTION 2.02. Charters and Bylaws..................................................... F-12
SECTION 2.03. Election of Directors of NextLevel Systems and CommScope................ F-12
SECTION 2.04. Transfer and Assignment of Certain Licenses and Permits................. F-12
SECTION 2.05. Transfer and Assignment of Certain Agreements........................... F-13
SECTION 2.06. Consents................................................................ F-14
SECTION 2.07. Other Transactions...................................................... F-14
SECTION 2.08. Election of Officers.................................................... F-14
SECTION 2.09. Registration Statements................................................. F-14
SECTION 2.10. State Securities Laws................................................... F-14
SECTION 2.11. Listing Application..................................................... F-14
SECTION 2.12. Certain Financial and Other Arrangements................................ F-14
SECTION 2.13. Director, Officer and Employee Resignations............................. F-15
SECTION 2.14. Transfers Not Effected Prior to the Distributions; Transfers Deemed
Effective as of the Distribution Date................................... F-16
SECTION 2.15. Ancillary Agreements.................................................... F-16
ARTICLE III THE DISTRIBUTIONS..................................................................... F-16
SECTION 3.01. GI Action Prior to the Distributions.................................... F-16
SECTION 3.02. The Distributions....................................................... F-17
SECTION 3.03. Fractional Shares....................................................... F-17
ARTICLE IV CONDITIONS TO THE DISTRIBUTIONS....................................................... F-18
SECTION 4.01. Conditions Precedent to the Distributions............................... F-18
SECTION 4.02. No Constraint........................................................... F-19
SECTION 4.03. Deferral of Distribution Date........................................... F-20
SECTION 4.04. Public Notice of Deferred Distribution Date............................. F-20
ARTICLE V COVENANTS............................................................................. F-20
SECTION 5.01. Further Assurances...................................................... F-20
SECTION 5.02. General Instrument Name and Affiliations................................ F-20
SECTION 5.03. Assumption and Satisfaction of Liabilities.............................. F-20
SECTION 5.04. No Representations or Warranties; Consents.............................. F-21
SECTION 5.05. Removal of Certain Guarantees........................................... F-22
SECTION 5.06. Public Announcements.................................................... F-22
SECTION 5.07. Intercompany Agreements................................................. F-23
SECTION 5.08. Tax Matters............................................................. F-23
SECTION 5.09. Nondisclosure Agreements................................................ F-23
SECTION 5.10. Certain Legal Proceedings............................................... F-23
ARTICLE VI ACCESS TO INFORMATION; CONFIDENTIALITY................................................ F-23
SECTION 6.01. Provision, Transfer and Delivery of Applicable Corporate Records........ F-23
SECTION 6.02. Access to Information................................................... F-24
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ANNEX
PAGE
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SECTION 6.03. Reimbursement; Other Matters............................................ F-24
SECTION 6.04. Confidentiality......................................................... F-25
SECTION 6.05. Witness Services........................................................ F-25
SECTION 6.06. Retention of Records.................................................... F-26
SECTION 6.07. Privileged Matters...................................................... F-26
ARTICLE VII INDEMNIFICATION....................................................................... F-27
SECTION 7.01. Indemnification by GS................................................... F-27
SECTION 7.02. Indemnification by NextLevel Systems.................................... F-27
SECTION 7.03. Indemnification by CommScope............................................ F-27
SECTION 7.04. Limitations on Indemnification Obligations.............................. F-27
SECTION 7.05. Procedures for Indemnification.......................................... F-28
SECTION 7.06. Indemnification Payments................................................ F-31
SECTION 7.07. Other Adjustments....................................................... F-31
SECTION 7.08. Obligations Absolute.................................................... F-31
SECTION 7.09. Survival of Indemnities................................................. F-31
SECTION 7.10. Remedies Cumulative..................................................... F-32
SECTION 7.11. Cooperation of the Parties With Respect to Actions and Third Party
Claims.................................................................. F-32
SECTION 7.12. Contribution............................................................ F-32
ARTICLE VIII MISCELLANEOUS......................................................................... F-33
SECTION 8.01. Complete Agreement; Construction........................................ F-33
SECTION 8.02. Ancillary Agreements.................................................... F-33
SECTION 8.03. Counterparts............................................................ F-33
SECTION 8.04. Survival of Agreements.................................................. F-33
SECTION 8.05. Responsibility for Expenses............................................. F-33
SECTION 8.06. Notices................................................................. F-33
SECTION 8.07. Waivers................................................................. F-34
SECTION 8.08. Amendments.............................................................. F-34
SECTION 8.09. Assignment.............................................................. F-34
SECTION 8.10. Successors and Assigns.................................................. F-34
SECTION 8.11. Termination............................................................. F-34
SECTION 8.12. No Third Party Beneficiaries............................................ F-35
SECTION 8.13. Attorney Fees........................................................... F-35
SECTION 8.14. Exhibits and Schedules.................................................. F-35
SECTION 8.15. Specific Performance.................................................... F-35
SECTION 8.16. Governing Law........................................................... F-35
SECTION 8.17. Severability............................................................ F-35
SECTION 8.18. Subsidiaries............................................................ F-35
SECTION 8.19. Title and Headings...................................................... F-35
SECTION 8.20. Consent to Jurisdiction................................................. F-35
ARTICLE IX DISPUTE RESOLUTION.................................................................... F-36
SECTION 9.01. Mediation............................................................... F-36
SECTION 9.02. Arbitration............................................................. F-36
</TABLE>
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<S> <C>
SCHEDULES
SCHEDULE 5.05 Appeal Bonds and Certain Other Credit Supports
SCHEDULE 5.10 Certain Legal Proceedings
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EXHIBITS
EXHIBIT A Employee Benefits Allocation Agreement
EXHIBIT B Corporate Restructuring Transactions
EXHIBIT C Debt and Cash Allocation Agreement
EXHIBIT D-1 GS Pro Forma Balance Sheet
EXHIBIT D-2 NextLevel Pro Forma Balance Sheet
EXHIBIT D-3 CommScope Pro Forma Balance Sheet
EXHIBIT E-1 GS Subsidiaries
EXHIBIT E-2 NextLevel Subsidiaries
EXHIBIT E-3 CommScope Subsidiaries
EXHIBIT F Insurance Agreement
EXHIBIT G Tax Sharing Agreement
EXHIBIT H Transition Services Agreements
EXHIBIT I-1 Form of Amended and Restated Certificate of Incorporation of NextLevel
Systems, Inc.
EXHIBIT I-2 Form of Amended and Restated By-Laws of NextLevel Systems, Inc.
EXHIBIT J-1 Form of Amended and Restated Certificate of Incorporation of CommScope,
Inc.
EXHIBIT J-2 Form of Amended and Restated By-Laws of CommScope, Inc.
EXHIBIT K Trademark License Agreement
EXHIBIT L NLC Agreement
</TABLE>
All exhibits and schedules intentionally omitted from this Proxy Statement.
iii
<PAGE>
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is made and entered into as of this [ ] day
of [ ], 1997, among GENERAL INSTRUMENT CORPORATION, a Delaware
corporation ("GI"), NEXTLEVEL SYSTEMS, INC., a Delaware corporation ("NEXTLEVEL
SYSTEMS"), and COMMSCOPE, INC. a Delaware corporation ("COMMSCOPE").
R E C I T A L S
WHEREAS, the Board of Directors of GI has deemed it appropriate and
advisable to:
(a) separate and divide the existing businesses of GI so that (i) the
business (the "COMMUNICATIONS BUSINESS") of the manufacture and sale of
broadband communications products used in the cable television, satellite
and telecommunications industries shall be owned directly and indirectly by
NextLevel Systems, (ii) the business (the "CABLE MANUFACTURING BUSINESS") of
the manufacture and sale of coaxial, fiber optic and other electronic cable
used in the cable television, satellite and other industries shall be owned
directly and indirectly by CommScope, and (iii) the business (the "POWER
SEMICONDUCTOR BUSINESS") of the manufacture and sale of discrete power
rectifiers and transient voltage suppression components used in
telecommunications, automotive and consumer electronic products shall be
directly and indirectly owned by GI, which will be renamed General
Semiconductor, Inc., a Delaware corporation ("GS"), immediately following
the Distributions; and
(b) distribute, following such separation and division, as a dividend to
the holders of shares of common stock, par value $.01 per share, of GI (the
"GI COMMON STOCK"), shares of common stock, par value $.01 per share, of
NextLevel Systems (the "NEXTLEVEL SYSTEMS COMMON STOCK"), and shares of
common stock, par value $.01 per share, of CommScope (the "COMMSCOPE COMMON
STOCK");
WHEREAS, each of GI, NextLevel Systems and CommScope has determined that it
is necessary and desirable to set forth the principal corporate transactions
required to effect such separation, division and distributions and to set forth
other agreements that will govern certain other matters prior to and following
such separation, division and distributions.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereto hereby agree as
follows:
F-1 (Annex)
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. GENERAL. Unless otherwise defined herein or unless the
context otherwise requires, the following terms will have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined).
"ACTION" means any action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority or any arbitration
tribunal.
"AFFILIATE" means, when used with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with the Person specified.
"AGENT" means ChaseMellon Shareholder Services, L.L.C., or such other trust
company or bank designated by GI, who shall act as agent for the holders of GI
Common Stock in connection with the Distributions.
"AGREEMENT" means this Distribution Agreement among GI, NextLevel Systems
and CommScope, including any amendments hereto and each Schedule and Exhibit
attached hereto.
"AGREEMENT DISPUTES" has the meaning ascribed to such term in SECTION 9.01.
"ANCILLARY AGREEMENTS" means all the written agreements, instruments,
understandings, assignments or other arrangements (other than this Agreement )
entered into by the parties hereto or any other member of their respective Group
in connection with the Corporate Restructuring Transactions, the Distributions
and the other transactions contemplated hereby or thereby, including without
limitation the following:
(i) the Employee Benefits Allocation Agreement;
(ii) the Tax Sharing Agreement;
(iii) the Transition Services Agreements;
(iv) the Trademark License Agreement;
(v) the Conveyancing and Assumption Instruments;
(vi) the Debt and Cash Allocation Agreement;
(vii) the Insurance Agreement; and
(viii) the NLC Agreement.
"ASSIGNEE" has the meaning ascribed to such term in SECTION 2.05(E).
"BKP LITIGATION" means the action entitled BKP PARTNERS, L.P. V. GENERAL
INSTRUMENT CORP., as more fully described in the Proxy Statement.
"BOOKS AND RECORDS" means all books, records, manuals, agreements and other
materials (in any form or medium), including without limitation all mortgages,
licenses, indentures, contracts, financial data, customer lists, marketing
materials and studies, advertising materials, price lists, correspondence,
distribution lists, supplier lists, production data, sales and promotional
materials and records, purchasing materials and records, personnel records,
manufacturing and quality control records and procedures, blue prints, research
and development files, records, data and laboratory books, accounts records,
sales order files, litigation files, computer files, microfiche, tape recordings
and photographs.
F-2 (Annex)
<PAGE>
"CABLE MANUFACTURING BUSINESS" has the meaning ascribed to such term in the
recitals to this Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"COMMSCOPE" has the meaning ascribed thereto in the first paragraph hereof.
"COMMSCOPE ASSETS" means, collectively, all the rights and assets that are
owned by CommScope and/ or any of its Subsidiaries as of the close of business
on the Distribution Date, including without limitation:
(i) the capital stock of the CommScope Subsidiaries;
(ii) all the assets included on the CommScope Pro Forma Balance Sheet
that are owned by CommScope or any of its Subsidiaries as of the close of
business on the Distribution Date;
(iii) all the assets and rights expressly allocated to CommScope or any
of the CommScope Subsidiaries under this Agreement or any of the Ancillary
Agreements; and
(iv) any other asset acquired by GI or any of its Subsidiaries from the
date of the CommScope Pro Forma Balance Sheet to the close of business on
the Distribution Date that is owned by GI or any of its Subsidiaries as of
the close of business on the Distribution Date and that is of a nature or
type that would have resulted in such asset being included as an asset on
the CommScope Pro Forma Balance Sheet had it been acquired on or prior to
the date of the CommScope Pro Forma Balance Sheet, determined on a basis
consistent with the determination of the assets included on the CommScope
Pro Forma Balance Sheet.
"COMMSCOPE BUSINESS" means the Cable Manufacturing Business that, after
giving effect to the Corporate Restructuring Transactions, is conducted by
CommScope, the CommScope Subsidiaries or any of the other members of the
CommScope Group.
"COMMSCOPE COMMON SHARES" means the shares of CommScope Common Stock owned
by GI after giving effect to the transfers provided for in the Corporate
Restructuring Transactions but prior to the Distributions.
"COMMSCOPE COMMON STOCK" has the meaning ascribed to such term in the
recitals to this Agreement.
"COMMSCOPE DISTRIBUTION" means the distribution, on the Distribution Date,
as a dividend to holders of record of shares of GI Common Stock as of the
Distribution Record Date, of all the outstanding CommScope Common Shares owned
by GI on the basis provided in SECTION 3.02.
"COMMSCOPE GROUP" means CommScope, the CommScope Subsidiaries and the
corporations, partnerships, joint ventures, investments and other entities that
represent equity investments of CommScope or any of the CommScope Subsidiaries
following the consummation of the Corporate Restructuring Transactions and the
Distributions.
"COMMSCOPE INDEMNITEES" means:
(i) CommScope, the CommScope Subsidiaries and each Affiliate thereof
after giving effect to the Corporate Restructuring Transactions and the
Distributions; and
(ii) each of the respective past, present and future directors,
officers, employees and agents of any of the entities described in the
immediately preceding clause (i) and each of the heirs, executors,
successors and assigns of any of such directors, officers, employees and
agents.
F-3 (Annex)
<PAGE>
"COMMSCOPE LIABILITIES" means, collectively, all the Liabilities of
CommScope, the CommScope Subsidiaries and each of the other members of the
CommScope Group after giving effect to the Corporate Restructuring Transactions,
the Distributions and the transactions contemplated by the Debt and Cash
Allocation Agreement including without limitation:
(i) all the Liabilities included on the CommScope Pro Forma Balance
Sheet that remain outstanding as of the close of business on the
Distribution Date;
(ii) all other Liabilities that are incurred or which accrue or are
accrued at any time prior to, on or after the date of the CommScope Pro
Forma Balance Sheet and that arise or arose out of, or in connection with,
the CommScope Assets or the CommScope Business, determined on a basis
consistent with the determination of Liabilities of CommScope on the
CommScope Pro Forma Balance Sheet, including without limitation Securities
Liabilities to the extent that they arise or arose out of or in connection
with information concerning the management, business or operations of
CommScope in the Registration Statements;
(iii) all the Liabilities of CommScope, the CommScope Subsidiaries or any
of the other members of the CommScope Group under, or to be retained or
assumed by CommScope, any CommScope Subsidiary or any of the other members
of the CommScope Group pursuant to, this Agreement or any of the Ancillary
Agreements; and
(iv) all the Liabilities of the parties hereto or their respective
Subsidiaries (whenever arising whether prior to, on or following the
Distribution Date) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Distribution Date
of the CommScope Business, except as otherwise specifically provided herein.
"COMMSCOPE PRO FORMA BALANCE SHEET" means the balance sheet of CommScope at
[ ], 1997, attached hereto as EXHIBIT D-3.
"COMMSCOPE RECORDS" has the meaning ascribed to such term in SECTION
6.01(B).
"COMMSCOPE SUBSIDIARIES" means the Subsidiaries listed on EXHIBIT E-3
hereto.
"COMMUNICATIONS BUSINESS" has the meaning ascribed to such term in the
recitals to this Agreement.
"CONSENTS" has the meaning ascribed to such term in SECTION 2.06.
"CONVEYANCING AND ASSUMPTION INSTRUMENTS" means, collectively, the various
written agreements, instruments and other documents to be entered into to effect
the Corporate Restructuring Transactions or otherwise to effect the transfer of
assets and the assumption of Liabilities in the manner contemplated by this
Agreement, the Ancillary Agreements and the Corporate Restructuring
Transactions.
"CORPORATE RESTRUCTURING TRANSACTIONS" means, collectively, (a) each of the
distributions, transfers, conveyances, contributions, assignments and other
transactions described and set forth on EXHIBIT B attached hereto, and (b) such
other distributions, transfers, conveyances, contributions, assignments and
other transactions that may be appropriate or required to be accomplished,
effected or consummated by any of GI, NextLevel Systems, CommScope or any of
their respective Subsidiaries and Affiliates in order to separate and divide, in
a series of transactions that, to the extent intended to qualify for tax-free
treatment under the Code, shall qualify for tax-free treatment under the Code,
the existing businesses of GI so that, except as otherwise expressly set forth
on EXHIBIT B hereto:
(i) the NextLevel Systems Assets, NextLevel Systems Liabilities and
NextLevel Systems Business shall be owned, directly and indirectly, by
NextLevel Systems;
(ii) the CommScope Assets, CommScope Liabilities and CommScope Business
shall be owned, directly and indirectly, by CommScope; and
F-4 (Annex)
<PAGE>
(iii) the businesses, assets and liabilities of GI that remain after the
separations and divisions described in clauses (i) and (ii) above, are,
after giving effect to the Distributions, owned, directly and indirectly, by
GS.
"DEBT AND CASH ALLOCATION AGREEMENT" means the Debt and Cash Allocation
Agreement by and among GS, NextLevel Systems and CommScope, which agreement
shall be entered into on the Distribution Date substantially in the form
attached hereto as EXHIBIT C.
"DGCL" means the Delaware General Corporation Law, as amended.
"DISTRIBUTION DATE" means such date as may hereafter be determined by GI's
Board of Directors as the date on which the Distributions shall be effected.
"DISTRIBUTION RECORD DATE" means the close of business on the date
determined by the Board of Directors of GI for the purpose of determining the
holders of record of GI Common Stock entitled to participate in the
Distributions.
"DISTRIBUTIONS" means the NextLevel Systems Distribution and the CommScope
Distribution.
"DSC LITIGATION" means the action entitled DSC COMMUNICATIONS CORPORATION
AND DSC TECHNOLOGIES CORPORATION V. NEXT LEVEL COMMUNICATIONS, THOMAS R. EAMES
AND PETER W. KEELER, Case No. 4:95cv96, as more fully described in the Proxy
Statement.
"EMPLOYEE BENEFITS ALLOCATION AGREEMENT" means the Employee Benefits
Allocation Agreement, among GS, NextLevel Systems and CommScope, which agreement
shall be entered into on the Distribution Date in the form attached hereto as
EXHIBIT A.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, principles of common law,
judgments, orders, decrees, permits, concessions, grants, franchises, licenses,
agreements or other governmental restrictions (including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
9601, ET SEQ.), whether now or hereafter in existence, relating to the
environment, natural resources, human health or safety, endangered or threatened
species of fish, wildlife and plants, or to emissions, discharges or releases of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes into the environment
(including without limitation indoor or outdoor air, surface water, groundwater
and surface or subsurface soils), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, petroleum or petroleum products, chemicals
or industrial, toxic or hazardous substances or wastes or the investigation,
cleanup or other remediation thereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GI" has the meaning ascribed to such term in the first paragraph hereof.
"GI COMMON STOCK" has the meaning ascribed to such term in the recitals to
this Agreement.
"GI DELAWARE" means General Instrument Corporation of Delaware, a Delaware
corporation and a wholly owned subsidiary of GI.
"GI HOLDERS" means the holders of record of GI Common Stock as of the
Distribution Record Date.
"GI NOTES" means the 5% Convertible Junior Subordinated Notes due 2000 of
General Instrument Corporation.
F-5 (Annex)
<PAGE>
"GI TRADEMARKS" means GENERAL INSTRUMENT, the logo "GI" and all other
trademarks, service marks, and trade names containing "General Instrument" or
variations thereof, along with their respective applications and registrations
wherever used or registered and the goodwill associated therewith.
"GOVERNMENTAL AUTHORITY" means any government or any agency, bureau, board,
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"GROUP" means (i) with respect to GS, the GS Group, (ii) with respect to
NextLevel Systems, the NextLevel Systems Group, and (iii) with respect to
CommScope, the CommScope Group.
"GS" has the meaning ascribed to such term in the recitals to this
Agreement.
"GS ASSETS" means, collectively, all the rights and assets that are owned by
GS or any of its Subsidiaries as of the close of business on the Distribution
Date (other than the NextLevel Systems Assets, the CommScope Assets and the
capital stock of CommScope and NextLevel Systems), including without limitation:
(i) the capital stock of the GS Subsidiaries;
(ii) all the assets included on the GS Pro Forma Balance Sheet which are
owned by GS and its Subsidiaries as of the close of business on the
Distribution Date;
(iii) all the assets and rights expressly allocated to GS or any of its
Subsidiaries under this Agreement and any of the Ancillary Agreements; and
(iv) any other asset acquired by GI or any of its Subsidiaries from the
date of the GS Pro Forma Balance Sheet to the close of business on the
Distribution Date that is owned by GI or any of its Subsidiaries as of the
close of business on the Distribution Date and that is of a nature or type
that would have resulted in such asset being included as an asset on the GS
Pro Forma Balance Sheet had it been acquired on or prior to the date of the
GS Pro Forma Balance Sheet, determined on a basis consistent with the
determination of the assets included on the GS Pro Forma Balance Sheet.
"GS BUSINESS" means the Power Semiconductor Business that, after giving
effect to the Corporate Restructuring Transactions, is conducted by GS, the GS
Subsidiaries or any of the other members of the GI Group.
"GS GROUP" means GS, the GS Subsidiaries and the corporations, partnerships,
joint ventures, investments and other entities that represent equity investments
of GS or any of the GS Subsidiaries following consummation of the Corporate
Restructuring Transactions and the Distributions.
"GS INDEMNITEES" means:
(i) GS, the GS Subsidiaries and each Affiliate thereof after giving
effect to the Corporate Restructuring Transactions and the Distributions;
and
(ii) each of the respective past, present and future directors,
officers, employees and agents of any of the entities described in the
immediately preceding clause (i) and each of the heirs, executors,
successors and assigns of such directors, officers, employees and agents.
"GS LIABILITIES" means, collectively, all the Liabilities of GS and the GS
Subsidiaries and each of the other members of the GS Group remaining after
giving effect to the Corporate Restructuring Transactions, the Distributions and
the transactions contemplated under the Debt and Cash Allocation Agreement,
including without limitation:
(i) all the Liabilities included on the GS Pro Forma Balance Sheet which
remain outstanding as of the close of business on the Distribution Date;
F-6 (Annex)
<PAGE>
(ii) all other Liabilities that are incurred or which otherwise accrue
or are accrued at any time prior to, on or after the date of the GS Pro
Forma Balance Sheet and that arise or arose out of, or in connection with,
the GS Assets or the GS Business, determined on a basis consistent with the
determination of Liabilities of GS on the GS Pro Forma Balance Sheet,
including without limitation Securities Liabilities to the extent that they
arise or arose out of or in connection with information concerning the
management, business or operations of GS in the Registration Statements;
(iii) all the Liabilities of GS, the GS Subsidiaries or any of the other
members of the GS Group under, or to be retained or assumed by GS, any GS
Subsidiary or any of the other members of the GS Group pursuant to the
Corporate Restructuring Transactions, this Agreement, or any of the
Ancillary Agreements;
(iv) all the Liabilities of the parties hereto or their respective
Subsidiaries (whenever arising whether prior to, on or following the
Distribution Date) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Distribution Date
of the GS Business, except as otherwise specifically provided herein; and
(v) except to the extent specifically provided to the contrary in
SECTION 5.10 hereof, all other Liabilities of GS, the GS Subsidiaries or any
of the other members of the GS Group (which do not constitute NextLevel
Systems Liabilities or CommScope Liabilities), including without limitation
any and all Liabilities arising out of or relating to (A) any discontinued
businesses or operations of GI, or (B) any Action or Third Party Claim by
any Governmental Authority or any other Person that is based on (1) any
violations or alleged violations by GI, its Subsidiaries (prior to giving
effect to the Distributions) and/or any of their respective directors,
officers, employees, agents or representatives, of any of the provisions of
the Exchange Act, Securities Act, or the rules and regulations of the
Commission promulgated thereunder or any other securities or other Law
regulating disclosure in respect of the purchase or sale of GI securities
(other than Liabilities for violations or alleged violations that arise out
of, or in connection with, information in the Registration Statements
concerning the management, business or operations of the NextLevel Systems
Business or the CommScope Business), or (2) any alleged breach of fiduciary
duty by the Board of Directors of GI or any member thereof.
"GS PRO FORMA BALANCE SHEET" means the balance sheet of GS at
[ ], 1997, attached hereto as EXHIBIT D-1.
"GS RECORDS" has the meaning ascribed to such term in SECTION 6.01(C).
"GS SUBSIDIARIES" means the Subsidiaries of GI set forth on EXHIBIT E-1
hereto and all other Subsidiaries of GI other than CommScope, NextLevel Systems,
the CommScope Subsidiaries and the NextLevel Systems Subsidiaries.
"INDEMNIFIABLE LOSSES" means, with respect to any Person, any and all
losses, liabilities, penalties, claims, damages, demands, costs and expenses
(including without limitation reasonable attorneys' fees, investigation
expenses, any and all other out-of-pocket expenses and any punitive or
consequential damages) or other Liabilities whatsoever that are assessed,
imposed, awarded against or incurred after the date hereof by such Person either
(a) in investigating, preparing for, defending against or otherwise arising out
of or in connection with any Actions, any potential or threatened Actions or any
Third Party Claims for which such Person would be entitled to indemnification
under ARTICLE VII hereof, or (b) in respect of any other event, occurrence or
matter for which such Person would be entitled to indemnification under ARTICLE
VII hereof, in each case whether accrued before, on or after the date of this
Agreement.
"INDEMNIFICATION AGREEMENTS" means collectively, the Indemnification
Agreement dated September 27, 1995, between GI and Thomas R. Eames and the
Indemnification Agreement, dated September 27,
F-7 (Annex)
<PAGE>
1995, between GI and Peter W. Keeler, wherein, among other things, GI agreed to
indemnify Messrs. Eames and Keeler for any judgment that may be awarded against
them in the DSC Litigation.
"INDEMNIFYING PARTY" has the meaning ascribed to such term in SECTION
7.04(A).
"INDEMNITEE" has the meaning ascribed to such term in SECTION 7.04(A).
"INSURANCE AGREEMENT" means the Insurance Agreement among GS, NextLevel
Systems and CommScope which agreement shall be entered into on the Distribution
Date substantially in the form attached hereto as EXHIBIT F.
"INSURANCE PROCEEDS" means, with respect to any insured party, those monies,
net of any applicable premium adjustment, retrospectively-rated premium,
deductible, retention or cost of reserve paid or held by or for the benefit of
such insured, which are either:
(i) received by an insured from an insurance carrier; or
(ii) paid by an insurance carrier on behalf of an insured.
"LAW" means all laws, statutes and ordinances and all regulations, rules and
other pronouncements of Governmental Authorities having the effect of law of the
United States, any foreign country, or any domestic or foreign state, province,
commonwealth, city, country, municipality, territory, protectorate, possession
or similar instrumentality, or any Governmental Authority thereof.
"LIABILITIES" means any and all debts, liabilities, obligations,
responsibilities, response actions, losses, damages (whether compensatory,
punitive or treble), fines, penalties and sanctions, absolute or contingent,
matured or unmatured, liquidated or unliquidated, foreseen or unforeseen, joint,
several or individual, asserted or unasserted, accrued or unaccrued, known or
unknown, whenever arising, including without limitation those arising under or
in connection with any Law (including any Environmental Law), Action, threatened
Action, order or consent decree of any Governmental Authority or any award of
any arbitration tribunal, and those arising under any contract, guarantee,
commitment or undertaking, whether sought to be imposed by a Governmental
Authority, private party, or party to this Agreement, whether based in contract,
tort, implied or express warranty, strict liability, criminal or civil statute,
or otherwise, and including any costs, expenses, interest, attorneys' fees,
disbursements and expense of counsel, expert and consulting fees and costs
related thereto or to the investigation or defense thereof.
"MANAGING PARTY" has the meaning ascribed to such term in SECTION 7.05(D).
"NEXTLEVEL SYSTEMS" has the meaning ascribed to such term in the first
paragraph hereof.
"NEXTLEVEL SYSTEMS ASSETS" means, collectively, all the rights and assets
that are owned by NextLevel Systems or any of its Subsidiaries as of the close
of business on the Distribution Date, including without limitation:
(i) the capital stock of the NextLevel Systems Subsidiaries;
(ii) all the assets included on the NextLevel Systems Pro Forma Balance
Sheet that are owned by NextLevel Systems or any of its Subsidiaries as of
the close of business on the Distribution Date;
(iii) all the assets and rights expressly allocated to NextLevel Systems
or any of the NextLevel Systems Subsidiaries under this Agreement or any of
the Ancillary Agreements; and
(iv) any other asset acquired by GI or any of its Subsidiaries from the
date of the NextLevel Systems Pro Forma Balance Sheet to the close of
business on the Distribution Date that is owned by GI or any of its
Subsidiaries as of the close of business on the Distribution Date and that
is of a nature or type that would have resulted in such asset being included
as an asset on the NextLevel Systems Pro Forma Balance Sheet had it been
acquired on or prior to the date of the NextLevel Systems Pro
F-8 (Annex)
<PAGE>
Forma Balance Sheet, determined on a basis consistent with the determination
of the assets included on the NextLevel Systems Pro Forma Balance Sheet.
"NEXTLEVEL SYSTEMS BUSINESS" means the Communications Business that, after
giving effect to the Corporate Restructuring Transactions, is conducted by
NextLevel Systems, the NextLevel Systems Subsidiaries or any of the other
members of the NextLevel Systems Group.
"NEXTLEVEL SYSTEMS COMMON SHARES" means the shares of NextLevel Systems
Common Stock owned by GI after giving effect to the transfers provided for in
the Corporate Restructuring Transactions but prior to the Distributions.
"NEXTLEVEL SYSTEMS COMMON STOCK" has the meaning ascribed to such term in
the recitals to this Agreement.
"NEXTLEVEL SYSTEMS DISTRIBUTION" means the distribution on the Distribution
Date as a dividend to holders of record of shares of GI Common Stock as of the
Distribution Record Date of NextLevel Systems Common Shares owned by GI on the
basis provided in SECTION 3.02.
"NEXTLEVEL SYSTEMS GROUP" means NextLevel Systems, the NextLevel Systems
Subsidiaries and the corporations, partnerships, joint ventures, investments and
other entities that represent equity investments of any of NextLevel Systems or
any of the NextLevel Systems Subsidiaries following the consummation of the
Corporate Restructuring Transactions and the Distributions.
"NEXTLEVEL SYSTEMS INDEMNITEES" means:
(i) NextLevel Systems and each Affiliate thereof after giving effect to
the Corporate Restructuring Transactions and the Distributions; and
(ii) each of the respective past, present and future directors,
officers, employees and agents of any of the entities described in the
immediately preceding clause (i) and each of the heirs, executors,
successors and assigns of any of such directors, officers, employees and
agents.
"NEXTLEVEL SYSTEMS LIABILITIES" means, collectively, all of the Liabilities
of NextLevel Systems, the NextLevel Systems Subsidiaries and each of the other
members of the NextLevel Systems Group after giving effect to the Corporate
Restructuring Transactions, the Distributions and the transactions contemplated
under the Debt and Cash Allocation Agreement, including, without limitation:
(i) all the Liabilities included on the NextLevel Systems Pro Forma
Balance Sheet which remain outstanding as of the close of business on the
Distribution Date;
(ii) all other Liabilities that are incurred or which accrue or are
accrued at any time prior to, on or after the date of the NextLevel Systems
Pro Forma Balance Sheet and that arise or arose out of, or in connection
with, the NextLevel Systems Assets or the NextLevel Systems Business,
determined on a basis consistent with the determination of Liabilities of
NextLevel Systems on the NextLevel Systems Pro Forma Balance Sheet,
including without limitation Securities Liabilities to the extent that they
arise or arose out of or in connection with information concerning the
management, business or operations of NextLevel Systems in the Registration
Statements;
(iii) all the Liabilities of NextLevel Systems, the NextLevel Systems
Subsidiaries or any of the other members of the NextLevel Systems Group
under, or to be retained or assumed by NextLevel Systems, any NextLevel
Systems Subsidiary or any of the other members of the NextLevel Systems
Group pursuant to this Agreement or any of the Ancillary Agreements; and
(iv) all the Liabilities of the parties hereto or their respective
Subsidiaries (whenever arising whether prior to, at or following the
Distribution Date) arising out of or in connection with or
F-9 (Annex)
<PAGE>
otherwise relating to the management or conduct before or after the
Distribution Date of the NextLevel Systems Business, except as otherwise
specifically provided herein.
"NEXTLEVEL SYSTEMS PRO FORMA BALANCE SHEET" means the balance sheet of
NextLevel Systems at [ ], 1997, attached hereto as EXHIBIT D-2.
"NEXTLEVEL SYSTEMS RECORDS" has the meaning ascribed to such term in SECTION
6.01(A).
"NEXTLEVEL SYSTEMS SUBSIDIARIES" means the Subsidiaries listed on EXHIBIT
E-2 hereto.
"NLC AGREEMENT" means the Agreement among GI and the Employees named
therein, which agreement shall be entered into prior to the Distribution Record
Date substantially in the form attached hereto as EXHIBIT L.
"NONDISCLOSURE AGREEMENTS" means all of the nondisclosure or confidentiality
agreements entered into from time to time prior to the Distribution Date,
between GI or GI Delaware and the parties named therein.
"NOTICE" has the meaning ascribed to such term in SECTION 8.06.
"NYSE" means the New York Stock Exchange.
"PERSON" means any natural person, corporation, business trust, joint
venture, association, company, partnership, limited liability company or other
entity, or any government, or any agency or political subdivision thereof.
"POWER SEMICONDUCTOR BUSINESS" has the meaning ascribed to such term in the
recitals to this Agreement.
"PRIVILEGE" has the meaning ascribed to such term in SECTION 6.07(A).
"PRIVILEGED INFORMATION" has the meaning ascribed to such term in SECTION
6.07(B).
"PROXY STATEMENT" means the Proxy Statement sent to the holders of GI Common
Stock in connection with the Distributions, including any amendment or
supplement thereto.
"REGISTRATION STATEMENTS" mean (i) the Registration Statement on Form S-4 to
be filed with the Commission pursuant to the requirements of the Securities Act
and the rules and regulations thereunder in order to register the NextLevel
Systems Common Stock and the CommScope Common Stock under the Securities Act,
and (ii) the Registration Statements on Form 8-A to be filed with the Commission
pursuant to the requirements of the Exchange Act and the rules and regulations
thereunder in order to register the NextLevel Systems Common Stock and the
CommScope Common Stock, respectively, under the Exchange Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES LIABILITIES" means any and all losses, liabilities, penalties,
claims, damages, demands, costs or expenses or other Liabilities whatsoever that
are assessed, imposed, awarded against, incurred or accrued by a Person arising
out of or relating in whole or in part to any Action, any potential or
threatened Action or any Third Party Claim (or potential or threatened Third
Party Claim) by any Governmental Authority or any other Person that is based on
any violations or alleged violations of the Securities Act, Exchange Act, any of
the rules or regulations of the Commission promulgated under the Securities Act
or Exchange Act, or any other securities or other similar Law, or on any alleged
breach of duty by a Person in causing, permitting or failing to prevent any such
violation or alleged violation.
F-10 (Annex)
<PAGE>
"SECURITIES LITIGATION" means the class action entitled IN RE GENERAL
INSTRUMENT CORPORATION SECURITIES LITIGATION, as more fully described in the
Proxy Statement.
"SUBSIDIARY" means, with respect to any Person:
(i) any corporation of which at least a majority in interest of the
outstanding voting stock (having by the terms thereof voting power under
ordinary circumstances to elect a majority of the directors of such
corporation, irrespective of whether or not at the time stock of any other
class or classes of such corporation shall have or might have voting power
by reason of the happening of a contingency) is at the time, directly or
indirectly, owned or controlled by such Person or by such Person and one or
more of its Subsidiaries; or
(ii) any non-corporate entity in which such Person or such Person and
one or more Subsidiaries of such Person either (A) directly or indirectly,
at the date of determination thereof, has at least majority ownership
interest, or (B) at the date of determination is a general partner or an
entity performing similar functions (E.G., manager of a limited liability
company or a trustee of a trust).
"TAX" or "TAXES" means any income, gross income, gross receipts, profits,
capital stock, franchise, withholding, payroll, social security, workers
compensation, unemployment, disability, property, ad valorem, stamp, excise,
occupation, services, sales, use, license, lease, transfer, import, export,
value added, alternative minimum, estimated or other similar tax (including any
fee, assessment or other charge in the nature of or in lieu of any tax) imposed
by any governmental entity or political subdivision thereof, and any interest,
penalties, additions to tax, or additional amounts in respect of the foregoing.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement among GS, CommScope
and NextLevel Systems, which agreement shall be entered into on the Distribution
Date in the form attached hereto as EXHIBIT G.
"THIRD PARTY CLAIM" has the meaning as defined in SECTION 7.05(A).
"TRADEMARK LICENSE AGREEMENT" means the Trademark License Agreement among
GS, NextLevel Systems and CommScope, which agreement shall be entered into on
the Distribution Date substantially in the form attached hereto as EXHIBIT K.
"TRANSITION SERVICES AGREEMENTS" means one or more Transition Services
Agreements between NextLevel Systems, CommScope and/or GS, which agreements
shall be entered into on the Distribution Date substantially in the form
attached hereto as EXHIBIT H.
SECTION 1.02. REFERENCES. References to an "Exhibit" or to a "Schedule"
are, unless otherwise specified, to one of the Exhibits or Schedules attached to
this Agreement, and references to a "Section" are, unless otherwise specified,
to one of the Sections of this Agreement.
F-11 (Annex)
<PAGE>
ARTICLE II
PRE-DISTRIBUTION TRANSACTIONS;
CERTAIN COVENANTS
SECTION 2.01. CORPORATE RESTRUCTURING TRANSACTIONS. On or prior to the
Distribution Date and otherwise in accordance with the terms and provisions set
forth in EXHIBIT B hereto, each of GI, CommScope and NextLevel Systems shall,
and shall cause each of their respective Subsidiaries to, as applicable, take
such action or actions as is necessary to cause, effect and consummate the
Corporate Restructuring Transactions. Each of GI, NextLevel Systems and
CommScope hereby agrees that any one or more of the Corporate Restructuring
Transactions may be modified, supplemented or eliminated; PROVIDED, HOWEVER,
that such modification, supplement or elimination is determined to be necessary
or appropriate (a) to separate and divide the existing businesses of GI so that
(i) the Communications Business shall be owned directly and indirectly by
NextLevel Systems, (ii) the Cable Manufacturing Business shall be owned directly
and indirectly by CommScope, and (iii) the Power Semiconductor Business shall be
directly and indirectly owned by GS, (b) to transfer the outstanding NextLevel
Systems Common Stock and CommScope Common Stock to the GI Holders, or (c) to
obtain a ruling from the Internal Revenue Service.
SECTION 2.02. CHARTERS AND BYLAWS.
(a) CERTIFICATE OF INCORPORATION AND BY-LAWS OF NEXTLEVEL SYSTEMS. On or
prior to the Distribution Date (but in all events prior to the Distributions),
GI and NextLevel Systems shall each take all necessary actions so that, as of
the Distribution Date, the Certificate of Incorporation and By-Laws of NextLevel
Systems will be substantially in the forms set forth in EXHIBIT I-1 and EXHIBIT
I-2, respectively.
(b) CERTIFICATE OF INCORPORATION AND BY-LAWS OF COMMSCOPE. On or prior to
the Distribution Date (but in all events prior to the Distributions), GI and
CommScope shall each take all necessary actions so that, as of the Distribution
Date, the Certificate of Incorporation and By-Laws of CommScope will be
substantially in the forms set forth in EXHIBIT J-1 and EXHIBIT J-2,
respectively.
SECTION 2.03. ELECTION OF DIRECTORS OF NEXTLEVEL SYSTEMS AND COMMSCOPE. On
or prior to the Distribution Date, GI Delaware, as the sole stockholder of each
of NextLevel Systems and CommScope, shall take all necessary action so that as
of the Distribution Date, the directors of each of NextLevel Systems and
CommScope will be as set forth in the Registration Statements.
SECTION 2.04. TRANSFER AND ASSIGNMENT OF CERTAIN LICENSES AND PERMITS.
(a) LICENSES AND PERMITS RELATING TO THE NEXTLEVEL SYSTEMS BUSINESS. On or
prior to the Distribution Date, or as soon as reasonably practicable thereafter,
each of GI and CommScope shall (and, if applicable, shall cause any other Person
over which it has direct or indirect control to), duly and validly transfer or
cause to be duly and validly transferred to the appropriate member of the
NextLevel Systems Group (as directed by NextLevel Systems) all transferable
licenses, permits and authorizations issued by any Governmental Authority that
relate to the NextLevel Systems Business but which are held in the name of any
member of the GS Group or the CommScope Group, or any of their respective
employees, officers, directors, stockholders or agents.
(b) LICENSES AND PERMITS RELATING TO THE COMMSCOPE BUSINESS. On or prior
to the Distribution Date, or as soon as reasonably practicable thereafter, each
of GI and NextLevel Systems shall (and, if applicable, shall cause any other
Person over which it has direct or indirect control to), duly and validly
transfer or cause to be duly and validly transferred to the appropriate member
of the CommScope Group (as directed by CommScope) all transferable licenses,
permits and authorizations issued by any Governmental Authority that relate to
the CommScope Business but which are held in the name of any member of the GS
Group or the NextLevel Systems Group, or any of their respective employees,
officers, directors, stockholders or agents.
F-12 (Annex)
<PAGE>
(c) LICENSES AND PERMITS RELATING TO THE GS BUSINESS. On or prior to the
Distribution Date, or as soon as reasonably practicable thereafter, each of
NextLevel Systems and CommScope shall (and, if applicable, shall cause any other
Person over which it has direct or indirect control to), duly and validly
transfer or cause to be duly and validly transferred to the appropriate member
of the GS Group (as directed by GI) all transferable licenses, permits and
authorizations issued by any Governmental Authority that relate to the GS
Business but which are held in the name of any member of the NextLevel Systems
Group or the CommScope Group, or any of their respective employees, officers,
directors, stockholders or agents.
SECTION 2.05. TRANSFER AND ASSIGNMENT OF CERTAIN AGREEMENTS.
(a) TRANSFER AND ASSIGNMENT OF GI BUSINESS AGREEMENTS. On or prior to the
Distribution Date, or as soon as reasonably practicable thereafter, and subject
to the limitations set forth in this SECTION 2.05, each of NextLevel Systems and
CommScope shall (and, if applicable, shall cause any other Person over which it
has direct or indirect control to), severally, assign, transfer and convey to GI
(or such other member of the GS Group as GI shall direct) all its (or such other
member of its Group's) right, title and interest in and to any and all
agreements that relate exclusively to the GS Business or any member of the GS
Group.
(b) TRANSFER AND ASSIGNMENT OF NEXTLEVEL SYSTEMS BUSINESS AGREEMENTS. On
or prior to the Distribution Date, or as soon as reasonably practicable
thereafter, and subject to the limitations set forth in this SECTION 2.05, each
of GI and CommScope shall (and, if applicable, shall cause any other Person over
which it has direct or indirect control to), assign, transfer and convey to
NextLevel Systems (or such other member of the NextLevel Systems Group as
NextLevel Systems shall direct) all its (or such other member of its Group's)
right, title and interest in and to any and all agreements that relate
exclusively to the NextLevel Systems Business or any member of the NextLevel
Systems Group.
(c) TRANSFER AND ASSIGNMENT OF COMMSCOPE BUSINESS AGREEMENTS. On or prior
to the Distribution Date, or as soon as reasonably practicable thereafter, and
subject to the limitations set forth in this SECTION 2.05, each of GI and
NextLevel Systems shall (and, if applicable, shall cause any other Person over
which it has direct or indirect control to), assign, transfer and convey to
CommScope (or such other member of the CommScope Group as CommScope shall
direct) all its (or such other member of its Group's) right, title and interest
in and to any and all agreements that relate exclusively to the CommScope
Business or any member of the CommScope Group.
(d) JOINT AGREEMENTS. Subject to the provisions of SECTION 2.05(F), any
agreement to which any party hereto (or any other member of such party's Group)
is a party that inures to the benefit of more than one of the GI Business, the
NextLevel Systems Business and the CommScope Business shall be assigned in part,
at the expense of the assignee, on or prior to the Distribution Date or as soon
as reasonably practicable thereafter, so that each party (or such other member
of such party's Group) shall be entitled to the rights and benefits inuring to
its business under such agreement.
(e) OBLIGATIONS OF ASSIGNEES. The assignee of any agreement assigned, in
whole or in part, hereunder (an "ASSIGNEE") shall, as a condition to such
assignment, assume and agree to pay, perform and fully discharge all obligations
of the assignor under such agreement (whether such obligations arose or were
incurred prior to, on or subsequent to the Distribution Date and irrespective of
whether such obligations have been asserted as of the Distribution Date) or, in
the case of a partial assignment under SECTION 2.05(D), such Assignee's related
portion of such obligations as determined in accordance with the terms of the
relevant agreement, where determinable on the face thereof, and otherwise as
determined in accordance with the practice of the parties prior to the
Distributions. Furthermore, the Assignee shall use its commercially reasonable
efforts to cause the assignor of such agreement to be released from its
obligations under the assigned agreements.
(f) NO ASSIGNMENT OF CERTAIN AGREEMENTS. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall not constitute an agreement to
assign any agreement, in whole or in part, or any rights thereunder if the
agreement to assign or attempt to assign, without the consent of a third party,
F-13 (Annex)
<PAGE>
would constitute a breach thereof or in any way adversely affect the rights of
the Assignee thereof until such consent is obtained. If an attempted assignment
thereof would be ineffective or would adversely affect the rights of any party
hereto so that the Assignee would not, in fact, receive all such rights, the
parties hereto will cooperate with each other to effect any arrangement designed
reasonably to provide for the Assignee the benefits of, and to permit the
Assignee to assume liabilities under, any such agreement.
SECTION 2.06. CONSENTS. The parties hereto shall use their best efforts to
obtain any third-party consents or approvals that are required to consummate the
Corporate Restructuring Transactions, the Distributions and the other
transactions contemplated hereby (the "CONSENTS").
SECTION 2.07. OTHER TRANSACTIONS. On or prior to the Distribution Date,
each of GI, CommScope and NextLevel Systems shall have consummated those other
transactions in connection with the Corporate Restructuring Transactions and the
Distributions that are contemplated by the Registration Statements and the
ruling request submission by GI to the Internal Revenue Service, dated
[ ], 1997, and not specifically referred to in SECTIONS 2.01 through
2.06, subject, however, to the limitations set forth in SECTION 2.01 above.
SECTION 2.08. ELECTION OF OFFICERS. On or prior to the Distribution Date,
each of GI, NextLevel Systems and CommScope shall, as applicable, take all
actions necessary and desirable so that as of the Distribution Date the officers
of GI, NextLevel Systems and CommScope, respectively, will be as set forth in
the Registration Statements.
SECTION 2.09. REGISTRATION STATEMENTS. Each of GI, NextLevel Systems and
CommScope shall prepare, and shall cause to be filed with the Commission, the
Registration Statements in accordance with the terms of this Section. The
Registration Statements shall set forth appropriate disclosure concerning GI,
NextLevel Systems, CommScope, the Distributions and such other matters as may be
required to be disclosed therein by the provisions of the Exchange Act, the
Securities Act and the rules and regulations promulgated thereunder. The
Registration Statement on Form S-4 of CommScope and NextLevel Systems shall
include a Proxy Statement relating to a combined Annual and Special Meeting of
the GI stockholders at which, among other things, the GI stockholders will be
asked to vote on the Distributions. GI, CommScope and NextLevel Systems shall
take all such actions as may be reasonably necessary or appropriate in order to
cause the Registration Statements to become effective by order of the Commission
pursuant to the Exchange Act and the Securities Act.
SECTION 2.10. STATE SECURITIES LAWS. Prior to the Distribution Date, GI,
NextLevel Systems and CommScope shall take all such action as may be necessary
or appropriate under the securities or blue sky laws of states or other
political subdivisions of the United States in order to effect the
Distributions.
SECTION 2.11. LISTING APPLICATION. Prior to the Distribution Date,
NextLevel Systems and CommScope shall prepare and file with the NYSE listing
applications and related documents and shall take all such other actions with
respect thereto as shall be necessary or desirable in order to cause the NYSE to
list on or prior to the Distribution Date, subject to official notice of
issuance, the NextLevel Systems Common Shares and the CommScope Common Shares.
SECTION 2.12. CERTAIN FINANCIAL AND OTHER ARRANGEMENTS.
(a) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN NEXTLEVEL SYSTEMS GROUP AND
GS GROUP. All intercompany receivables, payables and loans (other than
receivables, payables and loans otherwise specifically provided for in any of
the Ancillary Agreements or hereunder), including without limitation in respect
of any cash balances, any cash balances representing deposited checks or drafts
for which only a provisional credit has been allowed or any cash held in any
centralized cash management system, between any member of the NextLevel Systems
Group, on the one hand, and any member of the GS Group, on the other hand,
shall, as of the close of business on the Distribution Date, be settled,
capitalized or converted into ordinary trade accounts, in each case as may be
agreed in writing prior to the Distribution Date by duly authorized
representatives of GS and NextLevel Systems.
F-14 (Annex)
<PAGE>
(b) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN GS GROUP AND COMMSCOPE
GROUP. All intercompany receivables, payables and loans (other than
receivables, payables and loans otherwise specifically provided for in any of
the Ancillary Agreements or hereunder), including without limitation in respect
of any cash balances, any cash balances representing deposited checks or drafts
for which only a provisional credit has been allowed or any cash held in any
centralized cash management system, between any member of the GS Group, on the
one hand, and any member of the CommScope Group, on the other hand, shall, as of
the close of business on the Distribution Date, be settled, capitalized or
converted into ordinary trade accounts, in each case as may be agreed in writing
prior to the Distribution Date by duly authorized representatives of GS and
CommScope.
(c) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN COMMSCOPE GROUP AND
NEXTLEVEL SYSTEMS GROUP. All intercompany receivables, payables and loans (other
than receivables, payables and loans otherwise specifically provided for in any
of the Ancillary Agreements or hereunder), including without limitation in
respect of any cash balances, any cash balances representing deposited checks or
drafts for which only a provisional credit has been allowed or any cash held in
any centralized cash management system, between any member of the CommScope
Group, on the one hand, and any member of the NextLevel Systems Group, on the
other hand, shall, as of the close of business on the Distribution Date, be
settled, capitalized or converted into ordinary trade accounts, in each case as
may be agreed in writing prior to the Distribution Date by duly authorized
representatives of NextLevel Systems and CommScope.
(d) OPERATIONS IN ORDINARY COURSE. Except as otherwise provided in this
Agreement or any Ancillary Agreement, during the period from the date of this
Agreement through the Distribution Date, each of GI, NextLevel Systems and
CommScope shall, and shall cause any entity that is a Subsidiary of such party
at any time during such period to, conduct its business in a manner
substantially consistent with current and past operating practices and in the
ordinary course, including without limitation with respect to the payment and
administration of accounts payable and the collection and administration of
accounts receivable, the purchase of capital assets and equipment and the
management of inventories.
SECTION 2.13. DIRECTOR, OFFICER AND EMPLOYEE RESIGNATIONS. Subject to the
provisions of SECTIONS 2.03 and 2.08:
(a) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE GS GROUP. GS shall
cause all the directors and all employees of the GS Group to resign, effective
as of the close of business on the Distribution Date, from all boards of
directors or similar governing bodies of each member of the NextLevel Systems
Group or the CommScope Group on which they serve, and from all positions as
officers or employees of any member of the NextLevel Systems Group or the
CommScope Group, except as otherwise set forth in the Registration Statements or
mutually agreed to in writing on or prior to the Distribution Date by GI, on the
one hand, and, as applicable, NextLevel Systems and/or CommScope, on the other
hand.
(b) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE NEXTLEVEL SYSTEMS
GROUP. NextLevel Systems shall cause all the directors and all employees of the
NextLevel Systems Group to resign, effective as of the close of business on the
Distribution Date, from all boards of directors or similar governing bodies of
each member of the GS Group or the CommScope Group on which they serve, and from
all positions as officers or employees of any member of the GS Group or the
CommScope Group, except as otherwise set forth in the Registration Statements or
mutually agreed to in writing on or prior to the Distribution Date by NextLevel
Systems, on the one hand, and, as applicable, CommScope and/or GI, on the other
hand.
(c) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE COMMSCOPE
GROUP. CommScope shall cause all the directors and all employees of the
CommScope Group to resign, effective as of the close of business on the
Distribution Date, from all boards of directors or similar governing bodies of
each member of the GS Group or the NextLevel Systems Group on which they serve,
and from all positions as officers or employees of any member of the GS Group or
the NextLevel Systems Group, except as otherwise set forth in the Registration
Statements or mutually agreed to in writing on or prior to the Distribution Date
by CommScope, on the one hand, and, as applicable, NextLevel Systems and/or GI,
on the other hand.
F-15 (Annex)
<PAGE>
SECTION 2.14. TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTIONS; TRANSFERS
DEEMED EFFECTIVE AS OF THE DISTRIBUTION DATE. To the extent that any transfers
contemplated by this ARTICLE II shall not have been consummated on or prior to
the Distribution Date, the parties hereto shall cooperate (and shall cause each
of their respective Affiliates and each member of their respective Groups over
which they have direct or indirect control to cooperate) to effect such
transfers as promptly following the Distribution Date as shall be practicable.
Nothing herein shall be deemed to require the transfer of any assets or the
assumption of any Liabilities which by their terms or operation of Law cannot be
transferred or assumed; PROVIDED, HOWEVER, that the parties hereto shall
cooperate (and shall cause each of their respective Affiliates and each member
of their respective Groups over which they have direct or indirect control to
cooperate) to seek to obtain any necessary consents or approvals for the
transfer of all assets and Liabilities contemplated to be transferred pursuant
to this ARTICLE II. If any such transfer of assets or Liabilities has not been
consummated, from and after the Distribution Date the party retaining such asset
or Liability (or, as applicable, such other member or members of such party's
Group) shall hold such asset in trust for the use and benefit of the party
entitled thereto (at the expense of the party entitled thereto) or retain such
Liability for the account of the party by whom such Liability is to be assumed
pursuant hereto, as the case may be, and take such other action as may be
reasonably requested by the party to whom such asset is to be transferred, or by
whom such Liability is to be assumed, as the case may be, in order to place such
party, insofar as is reasonably possible, in the same position as would have
existed had such asset or Liability been transferred or assumed as contemplated
hereby. As and when any such asset or Liability becomes transferable or
assumable, such transfer shall be effected forthwith. As of the Distribution
Date, each party hereto (or, if applicable, such other members of such party's
Group) shall be deemed to have acquired (or, as applicable, retained) complete
and sole beneficial ownership over all the assets, together with all rights,
powers and privileges incident thereto, and shall be deemed to have assumed in
accordance with the terms of this Agreement all the Liabilities, and all duties,
obligations and responsibilities incident thereto, which such party (or any
other member of such party's Group) is entitled to acquire or required to assume
pursuant to the terms of this Agreement.
SECTION 2.15. ANCILLARY AGREEMENTS. On or prior to the Distribution Date,
each of GI, NextLevel Systems and CommScope shall enter into, and/or where
applicable shall cause such other members of their respective Groups to enter
into, (a) the Ancillary Agreements, and (b) any other agreements in respect of
the Corporate Restructuring Transactions and the Distributions as are reasonably
necessary or appropriate in connection with the transactions contemplated hereby
and thereby.
ARTICLE III
THE DISTRIBUTIONS
SECTION 3.01. GI ACTION PRIOR TO THE DISTRIBUTIONS. Prior to the
Distributions, subject to the terms and conditions set forth herein, GI shall
take, or cause to be taken, the following actions in connection with the
Distributions.
(a) MAILING OF PROXY STATEMENT. GI shall, as soon as practicable after the
Registration Statements shall have been declared effective under the Securities
Act and the Exchange Act, cause the Proxy Statement to be mailed to the GI
stockholders.
(b) NOTICE TO NYSE. GI shall, to the extent possible, give the NYSE not
less than ten days advance notice of the Distribution Record Date in compliance
with Rule 10b-17 under the Exchange Act.
(c) GI NOTES. GI shall call for redemption, and redeem, all the
outstanding GI Notes.
(d) NLC AGREEMENT. GI and the Employees named in the NLC Agreement shall
enter into the NLC Agreement.
F-16 (Annex)
<PAGE>
SECTION 3.02. THE DISTRIBUTIONS.
(a) DUTIES AND OBLIGATIONS OF GI. Subject to the conditions contained
herein, on the Distribution Date, but effective immediately following the close
of business on the Distribution Date, GI shall:
(i) deliver to the Agent the share certificates representing the
NextLevel Systems Common Shares and CommScope Common Shares issued to GI,
pursuant to SECTION 2.02, endorsed by GI in blank, for the benefit of the GI
Holders; and
(ii) instruct the Agent to distribute, as soon as practicable following
consummation of the Distributions, to the GI Holders the following:
(A) one share of NextLevel Systems Common Stock for every one share
of GI Common Stock;
(B) one share of CommScope Common Stock for every [ ] shares of GI
Common Stock; and
(C) cash, if applicable, in lieu of fractional shares obtained in
the manner provided in SECTION 3.03.
(b) DUTIES AND RESPONSIBILITIES OF NEXTLEVEL SYSTEMS AND
COMMSCOPE. NextLevel Systems and CommScope shall provide, or cause to be
provided, to the Agent sufficient certificates representing NextLevel Systems
Common Stock and CommScope Common Stock, respectively, in such denominations as
the Agent may request in order to effect the Distributions. All shares of
NextLevel Systems Common Stock issued pursuant to the NextLevel Systems
Distribution will be validly issued, fully paid and nonassessable and free of
any preemptive (or similar) rights. All shares of CommScope Common Stock issued
pursuant to the CommScope Distribution will be validly issued, fully paid and
nonassessable and free of any preemptive (or similar) rights.
SECTION 3.03. FRACTIONAL SHARES.
(a) NO FRACTIONAL SHARES. Notwithstanding anything herein to the contrary,
no fractional shares of NextLevel Systems Common Stock or CommScope Common Stock
shall be issued in connection with the Distributions, and any such fractional
share interests to which a GI Holder would otherwise be entitled will not
entitle such GI Holder to vote or to any rights of a stockholder of NextLevel
Systems Company or CommScope, as the case may be. In lieu of any such fractional
shares, each GI Holder who, but for the provisions of this Section, would be
entitled to receive a fractional share interest of NextLevel Systems Common
Stock or CommScope Common Stock pursuant to the Distributions shall be paid
cash, without any interest thereon, as hereinafter provided. GI shall instruct
the Agent to determine the number of whole shares and fractional shares of
NextLevel Systems Common Stock and CommScope Common Stock allocable to each GI
Holder, to aggregate all such fractional shares into whole shares, to sell the
whole shares obtained thereby in the open market at the then prevailing prices
on behalf of GI Holders who otherwise would be entitled to receive fractional
share interests and to distribute to each such GI Holder his, her or its ratable
share of the total proceeds of such sale, after making appropriate deductions of
the amount required for federal income tax withholding purposes and after
deducting any applicable transfer taxes. All brokers' fees and commissions
incurred in connection with such sales shall be paid by GI.
(b) UNCLAIMED STOCK OR CASH. Any NextLevel Systems Common Stock, CommScope
Common Stock or cash in lieu of fractional shares and dividends or distributions
with respect to NextLevel Systems Common Stock or CommScope Common Stock that
remain unclaimed by any GI Holder 180 days after the Distribution Date shall be
returned to GS and any such GI Holders shall look only to GS for the NextLevel
Systems Common Stock, CommScope Common Stock, cash, if any, in lieu of
fractional share interests and any such dividends or distributions to which they
are entitled, subject in each case to applicable escheat or other abandoned
property laws.
F-17 (Annex)
<PAGE>
(c) BENEFICIAL OWNERS. Solely for purposes of computing fractional share
interests pursuant to SECTION 3.03(A), the beneficial owner of shares of GI
Common Stock held of record in the name of a nominee will be treated as the
holder of record of such shares.
ARTICLE IV
CONDITIONS TO THE DISTRIBUTIONS
SECTION 4.01. CONDITIONS PRECEDENT TO THE DISTRIBUTIONS. The obligation of
GI to cause the Distributions to be consummated shall be subject, at the option
of GI, to the fulfillment or (other than in the case of paragraph (j) below)
waiver, of each of the following conditions.
(a) DECLARATION OF DISTRIBUTIONS AND ESTABLISHMENT OF DISTRIBUTION
DATE. The Board of Directors of GI shall have, in its sole discretion and
subject to and in accordance with the applicable rules of the NYSE and
provisions of the DGCL, declared the Distributions and established the
Distribution Record Date, the Distribution Date, the date on which NextLevel
Systems Common Shares, CommScope Common Shares and any cash in lieu of
fractional shares shall be mailed to the GI Holders and all appropriate
procedures in connection with the Distributions to the extent not provided for
herein.
(b) TAX SHARING AGREEMENT. GS, NextLevel Systems and CommScope shall have
executed and delivered the Tax Sharing Agreement and such agreement shall be in
full force and effect.
(c) EMPLOYEE BENEFITS ALLOCATION AGREEMENT. GS, NextLevel Systems and
CommScope shall have executed and delivered the Employee Benefits Agreement and
such agreement shall be in full force and effect.
(d) TRANSITION SERVICES AGREEMENTS. GS, NextLevel Systems and CommScope
shall have executed and delivered one or more Transition Services Agreements and
such agreements shall be in full force and effect.
(e) INSURANCE AGREEMENT. GS, NextLevel Systems and CommScope shall have
executed and delivered the Insurance Agreement and such agreement shall be in
full force and effect.
(f) TRADEMARK LICENSE AGREEMENT. GS, NextLevel Systems and CommScope shall
have executed and delivered the Trademark License Agreement and such agreement
shall be in full force and effect.
(g) DEBT AND CASH ALLOCATION AGREEMENT. GS, NextLevel Systems and
CommScope shall have executed and delivered the Debt and Cash Allocation
Agreement and such agreement shall be in full force and effect.
(h) EFFECTIVE DATE OF REGISTRATION STATEMENTS. The Registration Statements
shall have been declared effective by order of the Commission and no stop order
shall have been entered, and no proceeding for that purpose shall have been
initiated or threatened by the Commission with respect thereto.
(i) NYSE LISTING. The NextLevel Systems Common Shares and the CommScope
Common Shares shall have been approved for listing on the NYSE, subject to
official notice of issuance and the common stock of General Semiconductor shall
have been approved for listing on the NYSE, subject to the consummation of the
Distribution.
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(j) TAX RULING. GI shall have received rulings from the Internal Revenue
Service reasonably acceptable to GI, which rulings shall be in full force and
effect as of the Distribution Date, to the effect that:
(i) The NextLevel Systems Distribution as contemplated hereunder will be
tax-free for federal income tax purposes to GI and to the stockholders of
GI;
(ii) The CommScope Distribution as contemplated hereunder will be
tax-free for federal income tax purposes to GI and to the stockholders of
GI;
(iii) The aggregate basis of the GS Common Stock, the NextLevel Systems
Common Stock and the CommScope Common Stock in the hands of the GI Holders
immediately after the Distributions will be the same as the aggregate basis
of the GI Common Stock held immediately before the Distributions in
proportion to the fair market value of each; and
(iv) The holding period of the NextLevel Systems Common Stock and the
CommScope Common Stock received by the GI Holders will include the holding
period of the GI Common Stock with respect to which the Distributions will
be made; PROVIDED, HOWEVER, that such GI Holder held the GI Common Stock as
a capital asset on the Distribution Date.
(k) PRE-DISTRIBUTION TRANSACTIONS. Each of the transactions and other
matters contemplated by ARTICLE II and SECTION 3.01 (including without
limitation each of the distributions, transfers, conveyances, contributions,
assignments or other transactions included in, or otherwise necessary to
consummate, the Corporate Restructuring Transactions) shall have been fully
effected, consummated and accomplished.
(l) COVENANTS. The covenants contained in ARTICLE V of this Agreement that
are required to be performed on or before the Distribution Date shall have been
fully performed.
(m) NO PROHIBITIONS. Consummation of the transactions contemplated hereby
shall not be prohibited by Law and no Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and which
materially restricts, prevents or prohibits consummation of the Distributions or
any transaction contemplated by this Agreement, it being understood that the
parties hereto hereby agree to use their reasonable best efforts to cause any
such decree, judgment, injunction or other order to be vacated or lifted as
promptly as possible.
(n) CONSENTS. GI, NextLevel Systems and CommScope and the other members of
their respective Groups shall have obtained all Consents, the failure of which
to obtain would, in the determination of the Board of Directors of GI, have a
material adverse effect on the GS Group, the NextLevel Systems Group or the
CommScope Group, each taken as a whole, and such Consents shall be in full force
and effect.
(o) STOCKHOLDER APPROVAL. The Distributions shall have been approved by
the requisite vote of the holders of the outstanding GI Common Stock in
accordance with the DGCL and the provisions of GI's Certificate of
Incorporation.
(p) SOLVENCY OPINION. Marshall & Stevens Incorporated, or another
independent appraisal firm acceptable to GI, shall have delivered, immediately
prior to the declaration of the Distributions, its opinion to the Board of
Directors of GI confirming the solvency of GI before consummation of the
Distributions and of each of GS, NextLevel Systems and CommScope after
consummation of the Distributions, and such opinion shall not have been
withdrawn or rescinded.
SECTION 4.02. NO CONSTRAINT. Notwithstanding the provisions of SECTION 4.01,
the fulfillment or waiver of any or all of the conditions precedent to the
Distributions set forth therein shall not:
(a) create any obligation on the part of GI or any other party hereto to
effect the Distributions;
(b) in any way limit GI's right and power under SECTION 8.11 to
terminate this Agreement and the process leading to the Distributions and to
abandon the Distributions; or
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(c) alter the consequences of any such termination under SECTION 8.11
from those specified in such Section.
SECTION 4.03. DEFERRAL OF DISTRIBUTION DATE. If the Distribution Date shall
have been established by the Board of Directors of GI but all the conditions
precedent to the Distributions set forth in this Agreement have not theretofore
been fulfilled or waived, or GI does not reasonably anticipate that they will be
fulfilled or waived, on or prior to the date established as the Distribution
Date, GI may, by resolution of its Board of Directors (or a committee thereof,
so authorized), defer the Distribution Date to a later date.
SECTION 4.04. PUBLIC NOTICE OF DEFERRED DISTRIBUTION DATE. If the Board of
Directors (or a committee thereof, so authorized) of GI shall defer the
Distribution Date in accordance with SECTION 4.03 and public announcement of the
prior Distribution Date has theretofore been made, GI shall promptly thereafter
issue a public announcement with respect to such deferment and shall take such
other actions as may be deemed necessary or desirable with respect to the
dissemination of such information.
ARTICLE V
COVENANTS
SECTION 5.01. FURTHER ASSURANCES. Each of GI, NextLevel Systems and
CommScope shall use all reasonable efforts to:
(a) take or cause to be taken all actions, and to do or cause to be done
all things reasonably necessary, proper or advisable under applicable Law
and agreements or otherwise to consummate and make effective the
transactions contemplated hereby, including without limitation using
commercially reasonable efforts to obtain any Consents from, enter into any
amendatory agreements with and make any applications, registrations or
filings with, any third Person or any Governmental Authority necessary or
desirable in order to consummate the transactions contemplated hereby or to
carry out the purposes of this Agreement; and
(b) execute and deliver such further instruments and documents and take
such other actions as the other party may reasonably request in order to
consummate the transactions contemplated hereby and effectuate the purposes
of this Agreement.
SECTION 5.02. GENERAL INSTRUMENT NAME AND AFFILIATIONS.
(a) As of the Distribution Date, the GS Group shall transfer and assign to
NextLevel Systems all right, title and interest in and to the GI Trademarks.
NextLevel Systems shall grant to each of GS and CommScope a transition license
pursuant to the Trademark License Agreement, to use the GI Trademarks for the
limited uses described therein for a transitional period after the Distribution
Date. As of the close of business on the Distribution Date, GI shall change its
corporate name to "General Semiconductor, Inc."
(b) After the Distribution Date, no party hereto shall represent or permit
to be represented to any third Person that it or any member of its Group has a
business affiliation with any other party hereto or any member of such other
party's Group, except as expressly permitted by any of the Ancillary Agreements.
SECTION 5.03. ASSUMPTION AND SATISFACTION OF LIABILITIES. Except as
otherwise specifically set forth in any Ancillary Agreement, from and after the
Distribution Date:
(a) GS shall, and shall cause each of the other members of the GS Group
over which it has direct or indirect control to, assume, pay, perform and
discharge all GS Liabilities in accordance with their terms, when
determinable, and otherwise as determined in accordance with the practice of
the parties prior to the Distributions;
(b) NextLevel Systems shall, and shall cause each of the other members
of the NextLevel Systems Group over which it has direct or indirect control
to, assume, pay, perform and discharge all
F-20 (Annex)
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NextLevel Systems Liabilities in accordance with their terms, when
determinable, and otherwise as determined in accordance with the practice of
the parties prior to the Distributions; and
(c) CommScope shall, and shall cause each of the other members of the
CommScope Group over which it has direct or indirect control to, assume,
pay, perform and discharge all CommScope Liabilities in accordance with
their terms, when determinable, and otherwise as determined in accordance
with the practice of the parties prior to the Distributions.
SECTION 5.04. NO REPRESENTATIONS OR WARRANTIES; CONSENTS.
(a) GENERAL. Each of the parties hereto understands and agrees that no
party hereto is, in this Agreement or in any other agreement or document
contemplated by this Agreement (including the Ancillary Agreements) or
otherwise, making any representation or warranty whatsoever, including without
limitation, any representation or warranty:
(i) as to the value or freedom from encumbrance of, or any other matter
concerning, any assets of such party; or
(ii) as to the legal sufficiency to convey title to any asset as of the
execution, delivery and filing of this Agreement or any Ancillary Agreement,
including without limitation any Conveyancing and Assumption Instrument.
Each of the parties hereto confirms that it is not relying on any representation
or warranty made by any other party hereto or any other Person in connection
with entering into this Agreement.
(b) DISCLAIMER OF MERCHANTABILITY OR FITNESS OF ASSETS. Each party hereto
further understands and agrees that there are no warranties, express or implied,
as to the merchantability or fitness of any of the assets either transferred to
or retained by the GS Group, the NextLevel Systems Group or the CommScope Group,
as the case may be, pursuant to Corporate Restructuring Transactions and the
other terms and provisions of this Agreement, any Conveyancing and Assumption
Instrument or any Ancillary Agreement, and all such assets which are so
transferred will be transferred on an "AS IS, WHERE IS" basis, and the party to
which any such assets are transferred hereunder, or which retains assets
hereunder, shall bear the economic and legal risk that any conveyances of such
assets shall prove to be insufficient or that the title of such party or any
other member of its respective Group to any such assets shall be other than good
and marketable and free from encumbrances.
(c) ACKNOWLEDGMENT OF DISCLOSURE AND WAIVER. Each of NextLevel Systems and
CommScope acknowledges, for itself and on behalf of each other member of its
respective Group, that:
(i) GI has disclosed, and NextLevel Systems and CommScope have knowledge
of, all matters pertaining to the assets and properties to be conveyed to
NextLevel Systems, CommScope or any member of their respective Group
pursuant to the Corporate Restructuring Transactions or otherwise pursuant
to the other terms of this Agreement to the same extent that GI has
knowledge of such matters; and
(ii) such knowledge constitutes notice and disclosure of such matters.
Each of NextLevel Systems and CommScope waives, to the fullest extent permitted
by Law, for itself and for each other member of its respective Group, any and
all claims or causes of action which any of them may have arising out of such
matters or the failure of any Conveyancing and Assumption Instrument to describe
or refer to, or provide notice of, any such matters.
(d) NO REPRESENTATIONS OR WARRANTIES REGARDING CONSENTS. Each of the
parties hereto understands and agrees that no party hereto is, in this Agreement
or any Ancillary Agreement or in any other agreement or document contemplated by
this Agreement or any Ancillary Agreement or otherwise, representing or
warranting in any way that the obtaining of any Consents, the execution and
delivery of any amendatory agreements and the making of any filings or
applications contemplated by this Agreement will satisfy the provisions of any
or all applicable agreements or the requirements of any or all applicable Law.
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Each of the parties hereto further agrees and understands that the party to
which any assets are transferred as contemplated by the Corporate Restructuring
Transactions or the other provisions of this Agreement shall bear the economic
and legal risk that any necessary Consents are not obtained, that any necessary
amendatory agreements are not executed and delivered or that any requirements of
Laws are not complied with.
(e) COVENANT TO USE REASONABLE EFFORTS TO OBTAIN CONSENTS. Notwithstanding
the provisions of SECTION 5.04(D), each of the parties hereto shall (and shall
cause each other member of its respective Group over which it has direct or
indirect control to) use commercially reasonable efforts to obtain all Consents,
to enter into all amendatory agreements and to make all filings and applications
which may be reasonably required for the consummation of the transactions
contemplated by this Agreement and shall take all such further reasonable
actions as shall be reasonably necessary to preserve for each of the GS Group,
the NextLevel Systems Group and the CommScope Group, to the greatest extent
feasible, the economic and operational benefits of the allocation of assets and
Liabilities contemplated by this Agreement. In case at any time after the
Distribution Date any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall take all such necessary or desirable action.
SECTION 5.05. REMOVAL OF CERTAIN GUARANTEES.
(a) REMOVAL OF GI AND GS GROUP AS GUARANTOR OF NEXTLEVEL SYSTEMS AND
COMMSCOPE LIABILITIES. Except as otherwise contemplated in the Corporate
Restructuring Transactions or otherwise specified in any Ancillary Agreement or
SCHEDULE 5.05 hereto, each of GI, NextLevel Systems and CommScope shall use its
commercially reasonable efforts to have, on or prior to the Distribution Date,
or as soon as practicable thereafter, GI and any other member of the GS Group
removed as a guarantor of, or obligor under or for, any NextLevel Systems
Liability or CommScope Liability.
(b) REMOVAL OF NEXTLEVEL SYSTEMS GROUP AS GUARANTOR OF GS AND COMMSCOPE
LIABILITIES. Except as otherwise contemplated in the Corporate Restructuring
Transactions or otherwise specified in any Ancillary Agreement or SCHEDULE 5.05
hereto, each of GI, NextLevel Systems and CommScope shall use its commercially
reasonable efforts to have, on or prior to the Distribution Date, or as soon as
practicable thereafter, NextLevel Systems and any other member of the NextLevel
Systems Group removed as a guarantor of, or obligor under or for, any GS
Liability or CommScope Liability.
(c) REMOVAL OF COMMSCOPE GROUP AS GUARANTOR OF GS AND NEXTLEVEL SYSTEMS
LIABILITIES. Except as otherwise contemplated in the Corporate Restructuring
Transactions or otherwise specified in any Ancillary Agreement or SCHEDULE 5.05
hereto, each of GI, NextLevel Systems and CommScope shall use their commercially
reasonable efforts to have, on or prior to the Distribution Date, or as soon as
practicable thereafter, CommScope and any other member of the CommScope Group
removed as a guarantor of, or obligor under or for, any GS Liability or
NextLevel Systems Liability.
(d) INDEMNIFICATION RELATING TO GUARANTEES. If (a) GI, NextLevel Systems
or CommScope, as the case may be, is unable to be removed as a guarantor or
obligor as set forth in Section 5.05(A), 5.05(B) or 5.05(C), or (b) Liabilities
arise from and after the Distribution Date but before a guarantor or obligor
with reference to any such Liability is removed pursuant to SECTION 5.05(A),
5.05(B) or 5.05(C), then such guarantor or obligor shall be indemnified for all
Liabilities incurred by it in its capacity as guarantor or obligor by (i) GS
with respect to any GS Liabilities, (ii) NextLevel Systems with respect to any
NextLevel Systems Liabilities, and (iii) CommScope with respect to any CommScope
Liabilities.
SECTION 5.06. PUBLIC ANNOUNCEMENTS. Each party hereto shall consult with
each other before issuing any press release or otherwise issuing any other
similar written public statement with respect to this Agreement or the
Distributions and shall not issue any such press release or make any such public
statement without the prior consent of each other party, which shall not be
unreasonably withheld; PROVIDED, HOWEVER, that a party may, without the prior
consent of any other party, issue such press release or other similar written
public statement as may be required by law or any listing agreement with a
national
F-22 (Annex)
<PAGE>
securities exchange to which any party hereto (or any member of such party's
Group) is a party if it has used all reasonable efforts to consult with such
other party and to obtain such party's consent but has been unable to do so in a
timely manner.
SECTION 5.07. INTERCOMPANY AGREEMENTS. Effective as of the consummation of
the Distributions, each of NextLevel Systems, CommScope and GS shall (and shall
cause each other member of its respective Group over which it has direct or
indirect control) to terminate each and every agreement between it and any
member of any of the other Groups other than this Agreement, any of the
Ancillary Agreements and any of the agreements referred to in SECTION 2.05(F);
PROVIDED, HOWEVER, that such termination shall not have any effect whatsoever on
any of its rights and/or obligations that accrued or were incurred prior to the
Distribution Date (subject to the terms of SECTION 2.12).
SECTION 5.08. TAX MATTERS. Each of GI, NextLevel Systems and CommScope
intends the Distributions to be treated as tax-free distributions under Section
355 of the Code and each such party shall use its reasonable best efforts to
cause the Distributions to so qualify. Each of the parties hereto further
understands and agrees that the rights, obligations and responsibilities of the
parties hereto with respect to tax matters will be governed by the Tax Sharing
Agreement to the extent therein provided.
SECTION 5.09. NONDISCLOSURE AGREEMENTS.
(a) Each of NextLevel Systems and CommScope agrees to be bound by and
subject to the terms and provisions of each of the Nondisclosure Agreements for
the same period of time and to the same extent as GI and GI Delaware.
(b) GI shall not, and shall cause GI Delaware not to, amend, supplement,
terminate or waive any provisions of the Nondisclosure Agreements (i) that
relate to the CommScope Business without the prior written consent of CommScope,
or (ii) that relate to the NextLevel Systems Business without the prior written
consent of NextLevel Systems.
SECTION 5.10. CERTAIN LEGAL PROCEEDINGS.
(a) Effective as of the Distribution Date, NextLevel Systems shall assume,
on behalf of GI, complete control of the defense of, and shall assume (either
directly or through an indemnification arrangement) any and all liabilities in
connection with, each of the Securities Litigation and the BKP Litigation and
such other legal proceedings as are set forth in SCHEDULE 5.10.
(b) Effective as of the Distribution Date, (i) NextLevel Systems shall
assume complete control of the defense of, and any and all liabilities in
connection with, the DSC Litigation and (ii) GI will assign to NextLevel Systems
all of its rights and obligations under the Indemnification Agreements (or, if
such assignment cannot be effected, NextLevel Systems shall indemnify GI in
respect of its obligations thereunder).
(c) On or prior to the Distribution Date, each of NextLevel Systems and
CommScope shall enter into agreements with each current or former director of GI
who is named as a party to the Securities Litigation to the effect that (i)
NextLevel Systems shall satisfy any indemnity obligations of GS to such persons
if, and to the extent that, GS fails to do so and (ii) CommScope shall satisfy
any indemnity obligations of GS to such person if, and to the extent that, both
GS and NextLevel Systems fail to do so. This provision is not intended to
enlarge the rights of any of such persons under their existing indemnification
arrangements with GI.
ARTICLE VI
ACCESS TO INFORMATION; CONFIDENTIALITY
SECTION 6.01. PROVISION, TRANSFER AND DELIVERY OF APPLICABLE CORPORATE
RECORDS.
Except as otherwise provided in any Ancillary Agreement:
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(a) PROVISION, TRANSFER AND DELIVERY OF NEXTLEVEL SYSTEMS RECORDS. Each of
GS and CommScope shall (and shall cause each other member of its respective
Group over which it has direct or indirect control to) arrange as soon as
practicable following the Distribution Date for the transportation (at NextLevel
Systems' cost) to NextLevel Systems of the Books and Records in its possession
that relate primarily to the NextLevel Systems Business or are necessary to
operate the NextLevel Systems Business (collectively, the "NEXTLEVEL SYSTEMS
RECORDS"), except to the extent such items are already in the possession of any
member of the NextLevel Systems Group. The NextLevel Systems Records shall be
the property of NextLevel Systems, but shall be available to each of GS and
CommScope for review and duplication, at its cost, pursuant to the terms of this
Agreement.
(b) PROVISION, TRANSFER AND DELIVERY OF COMMSCOPE RECORDS. Each of GS and
NextLevel Systems shall (and shall cause each other member of its respective
Group over which it has direct or indirect control to) arrange as soon as
practicable following the Distribution Date for the transportation (at
CommScope's cost) to CommScope of the Books and Records in its possession that
relate primarily to the CommScope Business or are necessary to operate the
CommScope Business (collectively, the "COMMSCOPE RECORDS"), except to the extent
such items are already in the possession of any member of the CommScope Group.
The CommScope Records shall be the property of CommScope, but shall be available
to each of GS and NextLevel Systems for review and duplication, at its cost,
pursuant to the terms of this Agreement.
(c) PROVISION, TRANSFER AND DELIVERY OF GS RECORDS. Each of NextLevel
Systems and CommScope shall (and shall cause each other member of its respective
Group over which it has direct or indirect control to) arrange as soon as
practicable following the Distribution Date for the transportation (at GS's
cost) to GS of the Books and Records in its possession that relate primarily to
the GS Business or are necessary to operate the GS Business (collectively, the
"GS RECORDS"), except to the extent such items are already in the possession of
any member of the GS Group. The GS Records shall be the property of GS, but
shall be available to each of NextLevel Systems and CommScope for review and
duplication, at its cost, pursuant to the terms of this Agreement.
SECTION 6.02. ACCESS TO INFORMATION.
(a) ACCESS TO BOOKS AND RECORDS. Unless otherwise contemplated by SECTION
6.06, from and after the Distribution Date, each of GS, NextLevel Systems and
CommScope shall (and shall cause each of the other members of its respective
Group over which it has direct or indirect control to) afford to each other
party and its authorized accountants, counsel and other designated
representatives reasonable access and duplicating rights (all such duplicating
costs to be borne by the requesting party) during normal business hours, subject
to appropriate restrictions for classified, privileged or confidential
information, to the personnel, properties, Books and Records and other data and
information of such party and each other member of such party's Group relating
to operations prior to the Distributions insofar as such access is reasonably
required by the other requesting party for the conduct of the requesting party's
business (but not for competitive purposes).
(b) PROVISION OF POST-DISTRIBUTION COMMISSION FILINGS. For a period of two
years following the Distribution Date, each of GS, NextLevel Systems and
CommScope shall (and shall cause each of the other members of its respective
Group over which it has direct or indirect control to) provide to the others,
promptly following such time at which such documents are filed with the
Commission, all documents (other than documents or portions thereof for which
confidential treatment has been granted or a request for confidential treatment
is pending) filed by it and by each other member of such party's Group with the
Commission pursuant to the Securities Act or the periodic and interim reporting
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder.
SECTION 6.03. REIMBURSEMENT; OTHER MATTERS. Except to the extent otherwise
contemplated hereby or by any Ancillary Agreement, a party providing Books and
Records or access to information to any other party (or such party's
representatives) under this ARTICLE VI shall be entitled to receive from such
other
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party, upon the presentation of invoices therefor, payments for such amounts,
relating to supplies, disbursements and other out-of-pocket expenses, as may be
reasonably incurred in providing such Books and Records or access to
information.
SECTION 6.04. CONFIDENTIALITY.
(a) GENERAL RESTRICTION ON DISCLOSURE. Each of GS, NextLevel Systems and
CommScope shall hold and shall cause each other member of its respective Group
over which it has direct or indirect control to hold, and shall cause the
consultants, advisors and other representatives of its and any other member of
its respective Group over which it has direct or indirect control to hold, in
strict confidence, all information concerning each other party hereto and the
other members of such other party's Group in its possession, custody or control
to the extent such information either:
(i) relates to the period up to the Distribution Date;
(ii) relates to any Ancillary Agreement; or
(iii) is obtained in the course of performing services for the other
party pursuant to any Ancillary Agreement,
and each party hereto shall not (and shall cause each other member of its
respective Group over which it has direct or indirect control not to) otherwise
release or disclose such information to any other Person, except its auditors,
attorneys, financial advisors, bankers and other consultants and advisors,
without the prior written consent of the other affected party or parties, unless
compelled to disclose such information by judicial or administrative process or
unless such disclosure is required by Law and such party has used commercially
reasonable efforts to consult with the other affected party or parties prior to
such disclosure.
(b) EXCEPTIONS TO CONFIDENTIAL TREATMENT. Anything herein to the contrary
notwithstanding, no party hereto shall be prohibited from using or permitting
the use of, or required to hold in confidence, any information to the extent
that (i) such information has been or is in the public domain through no fault
of such party, (ii) such information was used or held for use in such party's
business prior to the Distribution Date, (iii) such information is, after the
Distribution Date, lawfully acquired from other sources by such party, (iv) this
Agreement, any Ancillary Agreement or any other agreement entered into pursuant
hereto permits the use or disclosure of such information by such party, or (v)
such information is necessary for such party to investigate, evaluate, defend or
prosecute any claim or Action involving any other party to this Agreement.
SECTION 6.05. WITNESS SERVICES. At all times from and after the Distribution
Date, each of GS, NextLevel Systems and CommScope shall use its reasonable
efforts to make available to each other party hereto, upon reasonable written
request, the officers, directors, employees and agents of each member of its
respective Group for fact finding, consultation or interviews and as witnesses
to the extent that:
(a) such Persons may reasonably be required in connection with the
prosecution or defense of any Action or the investigation of any claim which
involves the interests of the requesting party or any member of its
respective Group; and
(b) there is no conflict in the Action between the requesting party or
any member of its respective Group and the party to which a request is made
pursuant to this Section or any member of such party's Group.
Except as otherwise agreed by the parties, a party providing witness
services to any other party under this Section shall be entitled to receive from
the recipient of such services, upon the presentation of invoices therefor,
payments for such amounts, relating to supplies, disbursements and other
out-of-pocket expenses (but not salary expenses) and direct and indirect costs
of employees who participate in fact finding, consultation or interviews or are
witnesses, as are actually and reasonably incurred in providing such fact
finding, consulting, interviews or witness services by the party providing such
services.
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SECTION 6.06. RETENTION OF RECORDS. Except when a longer period is required
by Law or is specifically provided for herein or in any Ancillary Agreement,
each party hereto shall cause the members of its Group over which it has direct
or indirect control, to retain, for a period of at least seven years following
the Distribution Date, all material information (including without limitation
all material Books and Records) relating to such Group and its operations prior
to the Distribution Date. Notwithstanding the foregoing, any party hereto may
offer in writing to deliver to the other parties all or a portion of such
information as it relates to members of the offering party's Group and, if such
offer is accepted in writing within 90 days after receipt thereof, the offering
party shall promptly arrange for the delivery of such information (or copies
thereof) to each accepting party (at the expense of such accepting party). If
such offer is not so accepted, the offered information may be destroyed or
otherwise disposed of by the offering party at any time thereafter.
SECTION 6.07. PRIVILEGED MATTERS.
(a) PRIVILEGED INFORMATION. Each of the parties hereto shall, and shall
cause the members of its Group over which it has direct or indirect control to,
use its reasonable efforts to maintain, preserve, protect and assert all
privileges including without limitation all privileges arising under or relating
to the attorney-client relationship (including, but not limited to, the
attorney-client and attorney work product privileges) that relate directly or
indirectly to the business of any member of any other Group for any period prior
to the Distribution Date ("PRIVILEGE" or "PRIVILEGES"). GS shall be entitled in
perpetuity to require the assertion or to decide whether to consent to the
waiver of any and all Privileges which relate to the GS Business or to GS
Liabilities, NextLevel Systems shall be entitled in perpetuity to require the
assertion or to decide whether to consent to the waiver of all Privileges which
relate to the NextLevel Systems Business or to NextLevel Systems Liabilities and
CommScope shall be entitled in perpetuity to require the assertion or to decide
whether to consent to the waiver of all Privileges which relate to the CommScope
Business or to CommScope Liabilities. Each of the parties hereto shall use the
same degree of care as it would use with respect to itself so as not to waive,
or permit any member of its Group over which it has direct or indirect control
to waive, any such Privilege that could be asserted under applicable Law without
the prior written consent of the other party or parties having the right to
assert or waive such Privilege pursuant to this Section.
(b) COMPELLED DISCLOSURE. To the extent that a party hereto is compelled
by judicial or administrative process to disclose any information under
circumstances in which any Privilege would be available ("PRIVILEGED
INFORMATION"), such party agrees to assert such Privilege in good faith prior to
making such disclosure. Each of the parties shall consult with each relevant
other party upon receipt by a party or any member of its Group of any subpoena,
discovery or other request that calls for production or disclosure of Privileged
Information, or if a party or any member of its Group obtains knowledge that any
current or former employee of such party or any member of its Group has received
any subpoena, discovery or other request which calls for the production or
disclosure of Privileged Information, including without limitation regarding
whether any Privilege is available. Each party shall cooperate with each such
other relevant party and its counsel participating in any hearing or other
proceeding in respect of such disclosure and assertion of Privilege. Nothing in
this Section requires any party to subject itself to sanctions in connection
with any compelled disclosure. Notwithstanding the foregoing, each party will be
permitted to disclose Privileged Information in any proceeding in which such
party is in an adversarial position to any other party to this Agreement.
(c) NO WAIVER. The parties hereto understand and agree that the transfer
of any Books and Records or other information between any members of the GI
Group, the NextLevel Systems Group, or the CommScope Group shall be made in
reliance on the agreements of GI, NextLevel Systems and CommScope, as set forth
in SECTION 6.04 and this Section, to maintain the confidentiality of Privileged
Information and to assert and maintain all applicable Privileges. The Books and
Records being transferred pursuant to SECTION 6.01, the access to information
being granted pursuant to SECTION 6.02, the agreement to provide witnesses and
individuals pursuant to SECTION 6.05 and the transfer of Privileged Information
to
F-26 (Annex)
<PAGE>
either party pursuant to this Agreement shall not be deemed a waiver of any
Privilege that has been or may be asserted under this Section or otherwise.
Nothing in this Agreement shall operate to reduce, minimize or condition the
rights granted to each party in, or the obligations imposed upon each party by,
this Section.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. INDEMNIFICATION BY GS. Except as otherwise specifically set
forth in any provision of this Agreement or of any Ancillary Agreement, GS
shall, to the fullest extent permitted by law, indemnify, defend and hold
harmless the NextLevel Systems Indemnitees and the CommScope Indemnitees from
and against any and all Indemnifiable Losses of the NextLevel Systems
Indemnitees and the CommScope Indemnitees, respectively, arising out of, by
reason of or otherwise in connection with either (a) the GS Liabilities, or (b)
the breach by GS of any provision of this Agreement or any Ancillary Agreement.
SECTION 7.02. INDEMNIFICATION BY NEXTLEVEL SYSTEMS. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, NextLevel Systems shall, to the fullest extent permitted by law,
indemnify, defend and hold harmless the GS Indemnitees and the CommScope
Indemnitees from and against any and all Indemnifiable Losses of the GS
Indemnitees and the CommScope Indemnitees, respectively, arising out of, by
reason of or otherwise in connection with either (a) the NextLevel Systems
Liabilities, or (b) the breach by NextLevel Systems of any provision of this
Agreement or any Ancillary Agreement.
SECTION 7.03. INDEMNIFICATION BY COMMSCOPE. Except as otherwise specifically
set forth in any provision of this Agreement or of any Ancillary Agreement,
CommScope shall, to the fullest extent permitted by law, indemnify, defend and
hold harmless the GS Indemnitees and the NextLevel Systems Indemnitees from and
against any and all Indemnifiable Losses of the GS Indemnitees and the NextLevel
Systems Indemnitees, respectively, arising out of, by reason of or otherwise in
connection with either (a) the CommScope Liabilities, or (b) the breach by
CommScope of any provision of this Agreement or any Ancillary Agreement.
SECTION 7.04. LIMITATIONS ON INDEMNIFICATION OBLIGATIONS.
(a) REDUCTIONS FOR INSURANCE PROCEEDS AND OTHER RECOVERIES. The amount
that any party (an "INDEMNIFYING PARTY") is or may be required to pay to any
other Person (an "INDEMNITEE") pursuant to SECTION 7.01, 7.02 or 7.03, as
applicable, shall be reduced (retroactively or prospectively) by any Insurance
Proceeds or other amounts actually recovered from third parties by or on behalf
of such Indemnitee in respect of the related Indemnifiable Losses. The existence
of a claim by an Indemnitee for insurance or against a third party in respect of
any Indemnifiable Loss shall not, however, delay any payment pursuant to the
indemnification provisions contained herein and otherwise determined to be due
and owing by an Indemnifying Party. Rather the Indemnifying Party shall make
payment in full of such amount so determined to be due and owing by it against
an assignment by the Indemnitee to the Indemnifying Party of the entire claim of
the Indemnitee for such insurance or against such third party. Notwithstanding
any other provisions of this Agreement, it is the intention of the parties
hereto that no insurer or any other third party shall be (i) entitled to a
benefit it would not be entitled to receive in the absence of the foregoing
indemnification provisions, or (ii) relieved of the responsibility to pay any
claims for which it is obligated. If an Indemnitee shall have received the
payment required by this Agreement from an Indemnifying Party in respect of any
Indemnifiable Losses and shall subsequently actually receive Insurance Proceeds
or other amounts in respect of such Indemnifiable Losses, then such Indemnitee
shall hold such Insurance Proceeds in trust for the benefit of such Indemnifying
Party and shall pay to such Indemnifying Party a sum equal to the amount of such
Insurance Proceeds or other amounts actually received, up to the aggregate
amount of any payments received from such Indemnifying Party pursuant to this
Agreement in respect of such Indemnifiable Losses.
F-27 (Annex)
<PAGE>
(b) FOREIGN CURRENCY ADJUSTMENTS. In the event that any indemnification
payment required to be made hereunder or under any Ancillary Agreement shall be
denominated in a currency other than U.S. Dollars, the amount of such payment
shall be translated into U.S. Dollars using the foreign exchange rate for such
currency determined in accordance with the following rules:
(i) with respect to any Indemnifiable Losses arising from the payment by
a financial institution under a guarantee, comfort letter, letter of credit,
foreign exchange contract or similar instrument, the foreign exchange rate
for such currency shall be determined as of the date on which such financial
institution shall have been reimbursed;
(ii) with respect to any Indemnifiable Losses covered by insurance, the
foreign exchange rate for such currency shall be the foreign exchange rate
employed by the insurance company providing such insurance in settling such
Indemnifiable Losses with the Indemnifying Party; and
(iii) with respect to any Indemnifiable Losses not covered by either
clause (i) or (ii) above, the foreign exchange rate for such currency shall
be determined as of the date that notice of the claim with respect to such
Indemnifiable Losses shall be given to the Indemnitee.
SECTION 7.05. PROCEDURES FOR INDEMNIFICATION. Except as otherwise
specifically provided in any Ancillary Agreement:
(a) NOTICE OF THIRD PARTY CLAIMS. If a claim or demand is made against an
Indemnitee by any Person who is not a member of the GS Group, NextLevel Systems
Group or CommScope Group (a "THIRD PARTY CLAIM") as to which such Indemnitee is
entitled to indemnification pursuant to this Agreement, such Indemnitee shall
notify the Indemnifying Party in writing, and in reasonable detail, of the Third
Party Claim promptly (and in any event within fifteen business days or such
shorter time as is required and feasible under the circumstances) after receipt
by such Indemnitee of written notice of the Third Party Claim; PROVIDED,
HOWEVER, that failure to give such notification shall not affect the
Indemnitee's right to indemnification hereunder except to the extent the
Indemnifying Party shall have been actually prejudiced as a result of such
failure (except that the Indemnifying Party shall not be liable for any expenses
incurred during the period in which the Indemnitee failed to give such notice).
Thereafter, the Indemnitee shall deliver to the Indemnifying Party, promptly
(and in any event within ten business days) after the Indemnitee's receipt
thereof, copies of all notices and documents (including court papers) received
by the Indemnitee relating to the Third Party Claim.
(b) NOTICE OF EXISTING THIRD PARTY CLAIMS. In addition to the notification
requests of SECTION 7.05(A), Indemnitee shall notify the Indemnifying Party in
writing, and in reasonable detail, on or prior to the Distribution Date,
concerning all existing Third Party Claims that relate in any way to the
business of such Indemnifying Party prior to the Distribution Date where such
Indemnifying Party could be named a party thereto; or where there is a
reasonable likelihood that based on the outcome of such Third Party Claim the
reputation of the Indemnifying Party could be adversely affected, or such
Indemnifying Party's ability to conduct its business or to take certain actions
with respect thereto could be impaired as a result of any injunctive relief
sought, or such Indemnifying Party shall be liable for the payment of monetary
damages.
(c) LEGAL DEFENSE OF THIRD PARTY CLAIMS. If a Third Party Claim is made
against an Indemnitee, the Indemnifying Party shall be entitled to participate
in the defense thereof and, if it so chooses, to assume the defense thereof with
counsel selected by the Indemnifying Party, which counsel shall be reasonably
satisfactory to the Indemnitee. Should the Indemnifying Party so elect to assume
the defense of a Third Party Claim, the Indemnifying Party shall not be liable
to the Indemnitee for legal or other expenses subsequently incurred by the
Indemnitee in connection with the defense thereof. If the Indemnifying Party
assumes such defense, the Indemnitee shall have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the Indemnifying Party, it being understood that the
Indemnifying Party shall control such defense. The Indemnifying Party shall be
liable for the reasonable fees and expenses of counsel employed by the
Indemnitee for any period during
F-28 (Annex)
<PAGE>
which the Indemnifying Party has failed to assume the defense of the Third Party
Claim (other than any period attributable to the Indemnitee's failure to give
prompt notice of the Third Party Claim as provided above). If the Indemnifying
Party so elects to assume the defense of any Third Party Claim, all of the
Indemnitees shall cooperate with the Indemnifying Party in the defense or
prosecution thereof.
(d) THIRD PARTY CLAIMS IN RESPECT OF MULTIPLE INDEMNIFYING PARTIES. If a
Third Party Claim which affects more than one party to this Agreement or any
Ancillary Agreement is made against an Indemnitee, such Indemnitee shall notify
the Indemnifying Parties in writing, and in reasonable detail, of the Third
Party Claim promptly (and in any event within fifteen business days) after
receipt by such Indemnitee of written notice of the Third Party Claim; PROVIDED,
HOWEVER, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent an Indemnifying Party
shall have been actually prejudiced as a result of such failure (except that the
Indemnifying Parties shall not be liable for any expenses incurred during the
period in which the Indemnitee failed to give such notice). Thereafter, the
Indemnitee shall deliver to the Indemnifying Parties, promptly (and in any event
within ten business days) after the Indemnitee's receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnitee
relating to the Third Party Claim.
Each Indemnifying Party shall be entitled to participate in the defense of
such Third Party Claim subject to the following provisions of this paragraph.
Without limiting the terms of SECTION 7.01, 7.02 or 7.03, the Indemnitee and
Indemnifying Parties shall use commercially reasonable efforts to agree as soon
as reasonably practicable upon a party (the "MANAGING PARTY") which shall have
management and administrative responsibility in respect of the Third Party Claim
against the Indemnitee. Such management and administrative responsibility shall
entail the defense of such Third Party Claim, negotiation with claimants and
potential claimants (subject to the limitations in the following paragraph) and
other reasonably related activities. If the Indemnifying Parties acknowledge in
writing their respective obligations to indemnify the Indemnitee for the Third
Party Claim to the extent contemplated by this Agreement, and an Indemnifying
Party is selected as the Managing Party, such Indemnifying Party may assume the
defense thereof with counsel selected by such Indemnifying Party; PROVIDED that
such counsel is not reasonably objected to by the Indemnitee or any other
Indemnifying Party. If there is a Managing Party and such party conducts the
defense of the Third Party Claim, the legal or other expenses in respect of such
Third Party Claim incurred by or on behalf of any Person other than such
Managing Party shall not be Indemnifiable Losses for purposes of this Agreement;
PROVIDED, HOWEVER, the Indemnifying Parties shall be liable for reasonable fees
and expenses of counsel employed by the Indemnitee for any period during which
an Indemnifying Party, in its capacity as Managing Party, has failed to assume
the defense thereof (other than any period attributable to the Indemnitee's
failure to give prompt notice of such Third Party Claim as provided above), but
only to the extent contemplated by the final paragraph of this Section. If there
is a Managing Party and such party conducts the defense of the Third Party
Claim, the Managing Party shall control the defense of such Third Party Claim,
although the Indemnitee (if not the Managing Party) shall have the right to
participate in such defense and to employ counsel, at its own expense, separate
from the counsel employed by the Managing Party. All of the Indemnitees and each
Indemnifying Party shall cooperate with any Managing Party and each other in the
defense or prosecution of such Third Party Claim.
Legal and other expenses incurred in connection with each such Third Party
Claim which are Indemnifiable Losses shall be shared ratably by the Indemnifying
Parties.
(e) Notwithstanding SECTIONS 7.05(C) and 7.05(D):
(i) the Indemnifying Party shall not be entitled to assume the defense
of any Third Party Claim (and shall be liable to the Indemnitee for the
reasonable fees and expenses of counsel incurred by the Indemnitee in
defending such Third Party Claim) if the Third Party Claim seeks an order,
injunction or other equitable relief or relief for other than money damages
against the Indemnitee which the Indemnitee reasonably determines, after
conferring with its counsel, cannot be separated from any related claim for
money damages and is materially prejudicial to the Indemnitee's business;
PROVIDED,
F-29 (Annex)
<PAGE>
HOWEVER, that if such equitable relief or other relief portion of the Third
Party Claim can be so separated from that for money damages, the
Indemnifying Party shall be entitled to assume the defense of the portion
relating to money damages.
(ii) an Indemnifying Party shall not be entitled to assume the defense
of any Third Party Claim (and shall be liable for the reasonable fees and
expenses of counsel incurred by the Indemnitee in defending such Third Party
Claim) if, in the Indemnitee's reasonable judgment, a conflict of interest
between such Indemnitee and such Indemnifying Party exists, in respect of
such Third Party Claim; and
(iii) if at any time after assuming the defense of a Third Party Claim an
Indemnifying Party shall fail to prosecute or withdraw from the defense of
such Third Party Claim, the Indemnitee shall be entitled to resume the
defense thereof and the Indemnifying Party shall be liable for the
reasonable fees and expenses of counsel incurred by the Indemnitee in such
defense.
(f) SETTLEMENT OF THIRD PARTY CLAIMS. Except as otherwise provided below
in this Section, or as otherwise specifically provided in any Ancillary
Agreement, unless and until the Indemnifying Party has failed to assume the
defense of any Third Party Claim a reasonable time after having been given the
opportunity to do so, then:
(i) in no event will the Indemnitee admit any liability with respect to,
or settle, compromise or discharge, any Third Party Claim without the
Indemnifying Party's prior written consent; PROVIDED, HOWEVER, that the
Indemnitee shall have the right to settle, compromise or discharge such
Third Party Claim without the consent of the Indemnifying Party if the
Indemnitee releases the Indemnifying Party from its indemnification
obligation hereunder with respect to such Third Party Claim and such
settlement, compromise or discharge would not otherwise adversely affect the
Indemnifying Party; and
(ii) the Indemnitee shall agree to any settlement, compromise or
discharge of a Third Party Claim that the Indemnifying Party may recommend,
PROVIDED that (A) the Indemnifying Party pays, or furnishes reasonable
assurance that it will pay, the full amount of the liability in connection
with such Third Party Claim, (B) the Indemnitee is released completely in
connection with such Third Party Claim, and (C) such settlement, compromise
or discharge would not otherwise adversely affect the Indemnitee; PROVIDED,
HOWEVER, that the Indemnitee may refuse to agree to any such settlement,
compromise or discharge if the Indemnitee agrees, and furnishes reasonable
assurances that the Indemnifying Party's indemnification obligation with
respect to such Third Party Claim shall not exceed the amount that would be
required to be paid by or on behalf of the Indemnifying Party in connection
with such settlement, compromise or discharge. If the Indemnifying Party has
not assumed the defense of a Third Party Claim then in no event shall the
Indemnitee settle, compromise or discharge such Third Party Claim without
providing prior written notice to the Indemnifying Party, which shall have
the option within 15 business days following receipt of such notice to:
(A) approve and agree to pay the settlement;
(B) approve the amount of the settlement, reserving the right to
contest the Indemnitee's right to indemnity pursuant to this Agreement;
(C) disapprove the settlement and assume in writing all past and
future responsibility for such Third Party Claim (including all of
Indemnitee's prior expenditures in connection therewith and furnishes
reasonable assurance that it will discharge such responsibility); or
(D) disapprove the settlement and continue to refrain from
participation in the defense of such Third Party Claim, in which event
the Indemnifying Party shall have no further right to contest the amount
or reasonableness of the settlement if the Indemnitee elects to proceed
therewith.
F-30 (Annex)
<PAGE>
In the event the Indemnifying Party does not respond to such written notice
from the Indemnitee within such 15 business-day period, the Indemnifying Party
shall be deemed to have elected option (D).
(g) OTHER CLAIMS. Any claim on account of an Indemnifiable Loss which does
not result from a Third Party Claim shall be asserted by written notice given by
the Indemnitee to the applicable Indemnifying Party. Such Indemnifying Party
shall have a period of 15 business days after the receipt of such notice within
which to respond thereto. If such Indemnifying Party does not respond within
such 15 business-day period, such Indemnifying Party shall be deemed to have
refused to accept responsibility to make payment. If such Indemnifying Party
does not respond within such 15 business-day period or rejects such claim in
whole or in part, such Indemnitee shall be free to pursue such remedies as may
be available to such party under this Agreement.
SECTION 7.06. INDEMNIFICATION PAYMENTS. Indemnification required by this
ARTICLE VII shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or loss,
liability, claim, damage or expense is incurred.
SECTION 7.07. OTHER ADJUSTMENTS.
(a) ADJUSTMENTS FOR TAXES. The amount of any Indemnifiable Loss shall be:
(i) increased to take into account any net Tax cost actually incurred by
the Indemnitee arising from any payments received from the Indemnifying
Party (grossed up for such increase); and
(ii) reduced to take account of any net Tax benefit actually realized by
the Indemnitee arising from the incurrence or payment of any such
Indemnifiable Loss.
In computing the amount of such Tax cost or Tax benefit, the Indemnitee shall be
deemed to recognize all other items of income, gain, loss, deduction or credit
before recognizing any item arising from the receipt of any payment with respect
to an Indemnifiable Loss or the incurrence or payment of any Indemnifiable Loss.
(b) REDUCTIONS FOR SUBSEQUENT RECOVERIES OR OTHER EVENTS. In addition to
any adjustments required pursuant to SECTION 7.04 or SECTION 7.07(A), if the
amount of any Indemnifiable Losses shall, at any time subsequent to any
indemnification payment made by the Indemnifying Party pursuant to this ARTICLE
VII, be reduced by recovery, settlement or otherwise, the amount of such
reduction, less any expenses incurred in connection therewith, shall promptly be
repaid by the Indemnitee to the Indemnifying Party, up to the aggregate amount
of any payments received from such Indemnifying Party pursuant to this Agreement
in respect of such Indemnifiable Losses.
SECTION 7.08. OBLIGATIONS ABSOLUTE. The foregoing contractual obligations of
indemnification set forth in this ARTICLE VII shall:
(i) apply to any and all Third Party Claims that allege that any
Indemnitee is independently, directly, vicariously or jointly and severally
liable to such third party;
(ii) to the extent permitted by applicable law, apply even if the
Indemnitee is negligent or otherwise culpable or at fault or liable under
any doctrine of strict liability; and
(iii) be in addition to any liability or obligation that an Indemnifying
Party may have other than pursuant to this Agreement.
SECTION 7.09. SURVIVAL OF INDEMNITIES. The obligations of GS, NextLevel
Systems and CommScope under this ARTICLE VII shall survive the sale or other
transfer by any of them of any assets or businesses or the assignment by any of
them of any Liabilities, with respect to any Indemnifiable Loss of any
Indemnitee related to such assets, businesses or Liabilities.
F-31 (Annex)
<PAGE>
SECTION 7.10. REMEDIES CUMULATIVE. The remedies provided in this ARTICLE VII
shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any and all other remedies against any
Indemnifying Party.
SECTION 7.11. COOPERATION OF THE PARTIES WITH RESPECT TO ACTIONS AND THIRD
PARTY CLAIMS.
(a) IDENTIFICATION OF PARTY IN INTEREST. Any party to this Agreement that
has responsibility for an Action or Third Party Claim shall identify itself as
the true party in interest with respect to such Action or Third Party Claim and
shall use its commercially reasonable efforts to obtain the dismissal of any
other party to this Agreement from such Action or Third Party Claim.
(b) DISPUTES REGARDING RESPONSIBILITY FOR ACTIONS AND THIRD PARTY
CLAIMS. If there is uncertainty or disagreement concerning which party to this
Agreement has responsibility for any Action or Third Party Claim, the following
procedure shall be followed in an effort to reach agreement concerning
responsibility for such Action or Third Party Claim:
(i) The parties in disagreement over the responsibility for an Action or
Third Party Claim shall exchange brief written statements setting forth
their position concerning which party has responsibility for the Action or
Third Party Claim in accordance with the provisions of this ARTICLE VII.
These statements shall be exchanged within ten days of a party putting
another party on written notice that the other party is or may be
responsible for the Action or Third Party Claim.
(ii) If within ten days of the exchange of the written statement of each
party's position agreement is not reached on responsibility for the Action
or Third Party Claim, the General Counsel for each of the parties in
disagreement over responsibility for the Action or Third Party Claim shall
speak either by telephone or in person to attempt to reach agreement on
responsibility for the Action or Third Party Claim.
(c) EFFECT OF FAILURE TO FOLLOW PROCEDURE. Failure to follow the procedure
set forth in SECTION 7.11(B) shall not affect the rights and responsibilities of
the parties as established by the other provisions of this ARTICLE VII.
(d) EXCHANGE OF INFORMATION. In connection with the handling of current or
future Actions or Third Party Claims, the parties may determine that it is in
their mutual interest to exchange privileged or confidential information. If so,
the parties agree to discuss whether it is in their mutual interest to enter
into a joint defense agreement or information exchange agreement to maintain the
confidentiality of their communications and to permit them to maintain the
confidentiality of proprietary information or information that is otherwise
confidential or subject to an applicable privilege, including but not limited to
the attorney-client, work product, executive, deliberative process, or
self-evaluation privileges.
SECTION 7.12. CONTRIBUTION. To the extent that any indemnification provided
for under SECTION 7.01, 7.02 or 7.03 is unavailable to an Indemnified Party or
is insufficient in respect of any the Indemnifiable Losses of such Indemnified
Party then the Indemnifying Party under such Section, in lieu of indemnifying
such Indemnified Party thereunder, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Indemnifiable Losses (a)
in such proportion as is appropriate to reflect the relative value of the
business owned or held by the Indemnifying Party immediately after giving effect
to the Distributions on the one hand and the Indemnified Party on the other hand
from the transaction or other matter which resulted in the Indemnifiable Losses,
or (b) if the allocation provided by clause (a) above is not permitted by
applicable Law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (a) above but also the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
hand in connection with the action, inaction, statements or omissions that
resulted in such Indemnifiable Losses as well as any other relevant equitable
considerations.
F-32 (Annex)
<PAGE>
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including
the Exhibits and Schedules hereto, and the Ancillary Agreements shall constitute
the entire agreement and understanding among the parties with respect to the
subject matter hereof and shall supersede all prior agreements and undertakings
with respect to such subject matter. In the event of any inconsistency between
this Agreement and any Schedule or Exhibit hereto, the Schedule or Exhibit, as
the case may be, shall prevail. Notwithstanding any other provisions in this
Agreement to the contrary, in the event and to the extent that there shall be a
conflict between the provisions of this Agreement and the provisions of any
Ancillary Agreement, such Ancillary Agreement shall control.
SECTION 8.02. ANCILLARY AGREEMENTS. This Agreement is not intended to
address, and should not be interpreted to address, the matters specifically and
expressly covered by the Ancillary Agreements.
SECTION 8.03. COUNTERPARTS. This Agreement may be executed with counterpart
signature pages or in one or more counterparts, all of which shall be one and
the same Agreement, and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to all the parties hereto.
SECTION 8.04. SURVIVAL OF AGREEMENTS. Except as otherwise expressly provided
herein, all covenants and agreements of the parties contained in this Agreement
shall survive the Distribution Date.
SECTION 8.05. RESPONSIBILITY FOR EXPENSES.
(a) EXPENSES INCURRED ON OR PRIOR TO DISTRIBUTION DATE. Subject to the
provisions of SECTION 8.05(C) and except as otherwise set forth in this
Agreement or any Ancillary Agreement, all costs and expenses incurred on or
prior to the Distribution Date (whether or not paid on or prior to the
Distribution Date) in connection with the preparation, execution, delivery and
implementation of this Agreement and any Ancillary Agreement, the Registration
Statements, the Proxy Statement and the Distribution, and the consummation of
the transactions contemplated hereby and thereby shall be charged to and paid by
GI; PROVIDED, HOWEVER, that each of NextLevel Systems and CommScope shall be
solely responsible and liable for any expenses, fees, or other costs that it
separately and directly incurs in connection with any of the transactions
contemplated under this Agreement or any of the Ancillary Agreements.
(b) EXPENSES INCURRED OR ACCRUED AFTER DISTRIBUTION DATE. Subject to the
provisions of Section 8.05(c) and except as otherwise set forth in this
Agreement or any Ancillary Agreement, each party shall bear its own costs and
expenses first incurred or accrued after the Distribution Date.
(c) ENVIRONMENTAL EXPENSES. Notwithstanding the provisions of SECTION
8.05(A) and SECTION 8.05(B), expenses and other costs incurred in connection
with compliance with any Environmental Laws applicable to the transactions
contemplated hereby shall be paid by the party that after the Distribution Date
will, or that this Agreement contemplates will, own the assets or operate the
business subject to such Environmental Laws.
SECTION 8.06. NOTICES. All notices, consents, requests, waivers or other
communications required or permitted under this Agreement (each a "NOTICE")
shall be in writing and shall be sufficiently given (a) if hand delivered or
sent by telecopy, (b) if sent by nationally recognized overnight courier, or (c)
if sent by
F-33 (Annex)
<PAGE>
registered or certified mail, postage prepaid, return receipt requested, and in
each case addressed as follows:
<TABLE>
<S> <C>
If to GI, at: PRIOR TO THE DISTRIBUTION DATE:
General Instrument Corporation
8770 Bryn Mawr Avenue
Chicago, Illinois 60631
Attn: General Counsel
AFTER THE DISTRIBUTION DATE:
General Semiconductor, Inc.
10 Melville Park Road
Melville, New York 11747-3113
Attn: General Counsel
If to NextLevel Systems, at: NextLevel Systems, Inc.
8770 Bryn Mawr Avenue
Chicago, Illinois 60631
Attn: General Counsel
If to CommScope, at: CommScope, Inc.
1375 Lenoir-Rhyne Boulevard
Hickory, North Carolina 28601
Attn: General Counsel
</TABLE>
or such other address as shall be furnished by any of the Parties in a Notice.
Any Notice shall be deemed given upon receipt.
SECTION 8.07. WAIVERS. The failure of any party hereto to require strict
performance by any other party of any provision in this Agreement will not waive
or diminish that party's right to demand strict performance thereafter of that
or any other provision hereof.
SECTION 8.08. AMENDMENTS. Subject to the terms of SECTION 8.11, this
Agreement may be amended, supplemented or waived only by a subsequent writing
signed by all of the parties hereto.
SECTION 8.09. ASSIGNMENT. This Agreement shall be assignable in whole in
connection with a merger or consolidation or the sale of all or substantially
all the assets of a party hereto so long as the resulting, surviving or
transferee entity assumes all the obligations of the relevant party hereto by
operation of law or pursuant to an agreement in form and substance reasonably
satisfactory to the other parties to this Agreement. Otherwise this Agreement
shall not be assignable, in whole or in part, directly or indirectly, by any
party hereto without the prior written consent of the others, and any attempt to
assign any rights or obligations arising under this Agreement without such
consent shall be void.
SECTION 8.10. SUCCESSORS AND ASSIGNS. All terms and conditions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the successors and permitted assigns of the parties hereto.
SECTION 8.11. TERMINATION. This Agreement may be terminated and the
Distributions may be amended, modified or abandoned at any time prior to the
Distributions by and in the sole discretion of GI without the approval of
NextLevel Systems or CommScope or the stockholders of GI. After the
Distributions, this Agreement may not be terminated except by an agreement in
writing signed by all the parties hereto.
F-34 (Annex)
<PAGE>
SECTION 8.12. NO THIRD PARTY BENEFICIARIES. Except as provided in SECTION
5.10 and ARTICLE VII (relating to Indemnitees), this Agreement is solely for the
benefit of the parties hereto and the members of their respective Groups and
Affiliates, after giving effect to the Distributions, and should not be deemed
to confer upon third parties any remedy, claim, liability, right of
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
SECTION 8.13. ATTORNEY FEES. A party in breach of this Agreement shall, on
demand, indemnify and hold harmless the other parties hereto for and against all
out-of-pocket expenses, including, without limitation, reasonable legal fees,
incurred by such other party by reason of the enforcement and protection of its
rights under this Agreement. The payment of such expenses is in addition to any
other relief to which such other party may be entitled hereunder or otherwise.
SECTION 8.14. EXHIBITS AND SCHEDULES. The Exhibits and Schedules attached
hereto shall be construed with and as an integral part of this Agreement to the
same extent as if the same had been set forth verbatim herein.
SECTION 8.15. SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges
that there is no adequate remedy at law for the failure by such parties to
comply with the provisions of this Agreement and that such failure would cause
immediate harm that would not be adequately compensable in damages. Accordingly,
each of the parties hereto agrees that their agreements contained herein may be
specifically enforced without the requirement of posting a bond or other
security, in addition to all other remedies available to the parties hereto
under this Agreement.
SECTION 8.16. GOVERNING LAW. THIS AGREEMENT AND THE ANCILLARY AGREEMENTS
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREUNDER.
SECTION 8.17. SEVERABILITY. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and in no way be affected,
impaired or invalidated thereby, so long as the economic or legal substance of
the transaction contemplated hereby is not affected in any manner adverse to any
party.
SECTION 8.18. SUBSIDIARIES. Each of the parties hereto shall cause to be
performed, and hereby guarantee the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such party
which is contemplated to be a Subsidiary of such party on and after the
Distribution Date.
SECTION 8.19. TITLE AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement or of any
Ancillary Agreement.
SECTION 8.20. CONSENT TO JURISDICTION. Without limiting the provisions of
ARTICLE IX hereof, each of the parties irrevocably submits to the exclusive
jurisdiction of (a) the United States District Court for the Southern District
of New York and (b) in the circumstance set forth in the next sentence, the
Supreme Court of the State of New York, for the purposes of any suit, action or
other proceeding arising out of this Agreement or of any Ancillary Agreement or
any transaction contemplated hereby or thereby. Each of the parties agrees to
commence any action, suit or proceeding relating hereto only in the United
States District Court for the Southern District of New York or, if such suit,
action or other proceeding may not be brought in such court for jurisdictional
reasons, in the Supreme Court of the State of New York, New York County, and in
no other forum. Each of the parties further agrees that service of any process,
summons, notice or document by U.S. registered mail to such party's respective
address set forth above shall be effective
F-35 (Annex)
<PAGE>
service of process for any action, suit or proceeding in the forum provided for
herein with respect to any matters to which it has submitted to jurisdiction in
this Section. Each of the parties irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby in (i) the United
States District Court for the Southern District of New York, or (ii) in the
circumstances set forth in the second sentence hereof, the Supreme Court of the
State of New York, 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.
ARTICLE IX
DISPUTE RESOLUTION
SECTION 9.01. MEDIATION. In the event of a controversy, dispute or claim
arising out of, in connection with, or in relation to the interpretation,
performance, nonperformance, validity or breach of this Agreement or of any
Ancillary Agreements or otherwise arising out of, or in any way related to this
Agreement or any Ancillary Agreements or any transaction contemplated hereby or
thereby, including, without limitation, any claim based on contract, tort,
statute or constitution (collectively, "AGREEMENT DISPUTES"), the general
counsels (or other chief legal officers) of the relevant parties shall negotiate
in good faith for a reasonable period of time to settle such Agreement Dispute.
SECTION 9.02. ARBITRATION. If after the reasonable period of time provided
for in SECTION 9.01, the relevant general counsels (or other chief legal
officers) are unable to settle an Agreement Dispute such Agreement Dispute shall
be settled by arbitration administered by the American Arbitration Association
in accordance with its applicable Rules for Commercial Arbitration and judgment
on the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. Any such arbitration shall be commenced and all the
proceedings thereof conducted in New York City. If any such arbitration requires
the consent of a non-party to this Agreement to submit to arbitration, the party
initiating the arbitration shall use reasonable efforts to procure such consent.
If such consent cannot be procured, the initiating party shall nevertheless be
bound to proceed against all other parties herein solely by arbitration pursuant
to this Section, and shall (unless otherwise agreed by all parties herein who
may be affected by such Agreement Dispute) be bound by SECTION 8.20 with respect
to claims arising out of any Agreement Disputes against a non-party to this
Agreement which is amenable to, or consents to, jurisdiction in the forum set
forth in SECTION 8.20.
F-36 (Annex)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
GENERAL INSTRUMENT CORPORATION
By
------------------------------------
Name:
Title:
NEXTLEVEL SYSTEMS, INC.
By
------------------------------------
Name:
Title:
COMMSCOPE, INC.
By
------------------------------------
Name:
Title:
F-37 (Annex)
<PAGE>
ANNEX G
[To be filed by Amendment]
<PAGE>
PROXY
GENERAL INSTRUMENT CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE COMBINED ANNUAL AND SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ___________, 1997
The undersigned hereby appoints and
and each or either of them his attorneys and agents, with full power of
substitution to vote as Proxy for the undersigned as herein stated at the
Combined Annual and Special Meeting of Stockholders of General Instrument
Corporation (the "Company") to be held at [location] on ___________, 1997 at
[time] and at any adjournment thereof, according to the number of votes the
undersigned would be entitled to vote if personally present, on the proposals
set forth below and in accordance with their discretion on any other matters
that may properly come before the meeting or any adjournments thereof. The
undersigned hereby acknowledges receipt of the Notice and Proxy Statement, dated
_________, 1997 If this proxy is returned without direction being given, this
proxy will be voted FOR Proposals One through Five.
---------------
(IMPORTANT -- TO BE SIGNED AND DATED ON REVERSE SIDE) SEE REVERSE
SIDE
---------------
<PAGE>
|X| Please mark votes as
in this example.
DISTRIBUTION PROPOSALS:
Proposals One, Two and Three constitute the "Distribution Proposals."
The effectiveness of Proposals Two and Three are conditioned upon the
approval of Proposal One. Accordingly, failure of the stockholders to approve
Proposal One will mean that the Company's Certificate of Incorporation will
not be amended to change the name of the Company and that the for
reverse stock split will not be effected. The Company after the Distribution
is referred to herein as "General Semiconductor" and the Company's common
stock after the Distribution is referred to herein as the "General
Semiconductor Common Stock."
The Board of Directors recommends that stockholders vote FOR each of the
Distribution Proposals.
1. PROPOSAL ONE: Approval of (i) the internal stock and asset transfers
intended to allocate the assets and liabilities relating to (a) the
manufacture and sale of broadband communications products used in the
cable television, satellite and telecommunication industries to the
Company's indirect wholly owned subsidiary, NextLevel Systems, Inc., a
Delaware corporation ("NextLevel Systems"), (b) the manufacture and sale
of coaxial, fiber optic and other electronic cable used in the cable
television, satellite and other industries to the Company's indirect
wholly owned subsidiary, CommScope, Inc., a Delaware corporation
("CommScope") and (c) the manufacture and sale of discrete power
rectifiers and transient voltage suppression components used in
telecommunications, automotive and consumer electronic products to General
Semiconductor, (ii) a special dividend, consisting of the distribution
(the "Distribution") to the holders of the Company's outstanding shares of
common stock, par value $.01 per share, of the outstanding shares
of common stock, par value $.01 per share, of NextLevel Systems, and the
outstanding shares of common stock, par value $.01 per share, of
CommScope, on the basis described in the Proxy Statement and (iii) the
Distribution Agreement, dated as of _________, 1997, among the Company,
NextLevel Systems and CommScope, as the same may be amended, supplemented
or modified from time to time.
FOR |_| AGAINST |_| ABSTAIN |_|
2. PROPOSAL TWO: Approval of an amendment to the Certificate of
Incorporation of the Company to change the name of the Company to
General Semiconductor, Inc. after the Distribution.
FOR |_| AGAINST |_| ABSTAIN |_|
3. PROPOSAL THREE: Approval of an amendment to the Certificate of
Incorporation of the Company to effect a ______ for ______ reverse stock
split of the General Semiconductor Common Stock immediately following
the Distribution (if approved, each ______ shares of General Semiconductor
Common Stock will be converted into ______share of General Semiconductor
Common Stock).
FOR |_| AGAINST |_| ABSTAIN |_|
<PAGE>
ANNUAL MEETING PROPOSALS:
Proposals Four and Five constitute the "Annual Meeting Proposals." The
effectiveness of the Annual Meeting Proposals is not conditioned on the approval
of the Distribution Proposals.
The Board of Directors recommends that stockholders vote FOR both of the
Annual Meeting Proposals.
4. PROPOSAL FOUR: Approval of an amendment to the Certificate of
Incorporation of the Company to declassify the Board of Directors and
to provide for the annual election of all directors.
FOR |_| AGAINST |_| ABSTAIN |_|
5. PROPOSAL FIVE: The election of Lynn Forester, Nicholas C. Forstmann,
Richard S. Friedland and J. Tracy O'Rourke as Class II directors for
three year terms expiring at the 2000 Annual Meeting of Stockholders.
If the stockholders do not approve Proposal One, but do approve Proposal
Four eliminating the classification of the Company's Board of Directors,
proxies will be voted to elect the four nominees for Class II Director listed
below, but all of the directors are expected to be nominated for re-election at
(or resign as of) the Company's 1998 Annual Meeting of Stockholders. If the
stockholders do not approve Proposal Four, proxies will be voted to elect the
four nominees for Class II Director listed below, and the Class I, Class II and
Class III Directors of the Company will continue to have three year terms.
FOR all nominees listed below |_| WITHHOLD AUTHORITY |_|
(except as marked to the contrary) to vote for all nominees
listed below
Nominees: Lynn Forester, Nicholas C. Forstmann, Richard S. Friedland
and J. Tracy O'Rourke.
(INSTRUCTION: To withhold your vote for any individual nominee, strike a
line through the nominee's name.)
PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as your name appears. If
acting as attorney, executor, administrator,
trustee, guardian, etc., you should so
indicate when signing. If a corporation,
please sign the full corporate name by
President or other duly authorized officer.
If a partnership, please sign in full
partnership name by authorized person. If
shares are held jointly, both parties must
sign and date.
Signature(s):__________ Date:_________ Signature(s):__________ Date:_________
