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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 1999.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3674 94-1672743
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(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
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2200 MISSION COLLEGE BOULEVARD, SANTA CLARA, CALIFORNIA 95052
(408) 765-8080
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
F. THOMAS DUNLAP, ESQ.
INTEL CORPORATION
2200 MISSION COLLEGE BOULEVARD, SANTA CLARA, CALIFORNIA 95052
(408) 765-8080
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
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KENNETH R. LAMB GILLES S. ATTIA
PETER T. HEILMANN KEVIN A. COYLE
GIBSON, DUNN & CRUTCHER LLP GRAHAM & JAMES LLP
ONE MONTGOMERY STREET, TELESIS TOWER 400 CAPITOL MALL, SUITE 2400
SAN FRANCISCO, CALIFORNIA 94104 SACRAMENTO, CALIFORNIA 95814
(415) 393-8200 (916) 441-6700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the effective date of this Registration Statement
and the satisfaction
or waiver of all other conditions to the Merger described in the proxy
statement/prospectus.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE PRICE(1)(2) REGISTRATION FEE(2)(3)
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Common Stock, par value
$.001 per share........ 44,282,563 $56.03 $2,481,265,270 $689,791.75
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(1) The number of shares to be registered pursuant to this Registration
Statement is based upon the aggregate number of shares of Level One
Communications, Incorporated common stock, par value $.001 per share ("LOC
Common Stock") currently outstanding, and the number of shares of LOC Common
Stock issuable upon exercise of options and warrants to acquire shares of
LOC Common Stock currently outstanding, shares of LOC Common Stock issuable
upon conversion of LOC's convertible subordinated debt, and shares of LOC
Common Stock issuable to other third parties, multiplied by an exchange
ratio of 0.86 shares of common stock, par value $.001 per share, of the
Registrant.
(2) The registration fee was computed pursuant to Rules 457(f) and 457(c) under
the Securities Act of 1933, as amended, based on the average of the high and
low sales prices of LOC Common Stock, as reported by The Nasdaq Stock Market
on June 29, 1999.
(3) $429,374.95 of the registration fee was previously paid with the filing by
Level One Communications, Incorporated of preliminary proxy solicitation
materials under Section 14(g) and Rule 0-11 of the Securities Exchange Act
of 1934, as amended. Such fee has been credited against the registration fee
payable hereunder pursuant to Rule 457(b) under the Securities Act of 1933.
Accordingly, a registration fee of $260,416.80 is being paid herewith.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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LOGO
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 9, 1999
TO THE STOCKHOLDERS OF
LEVEL ONE COMMUNICATIONS, INCORPORATED:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Level One
Communications Incorporated, a Delaware corporation, will be held on August 9,
1999, at 9:00 a.m., local time, at 9800 Old Placerville Road, Sacramento,
California for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and
Plan of Merger, dated as of March 4, 1999, by and among Level One, Intel
Corporation, a Delaware corporation, and a wholly-owned Delaware subsidiary
of Intel that provides for, among other things, a merger that will result
in Level One's becoming a wholly-owned subsidiary of Intel and Level One
stockholders' becoming Intel stockholders. In the merger, each share of
Level One common stock will be converted into 0.86 shares of Intel common
stock. This conversion amount has been adjusted to take into account the
effect of Intel's two for one stock split paid on April 11, 1999.
2. To consider and vote upon the postponement or adjournment of the
special meeting in order to solicit additional votes to approve the merger
agreement if the secretary of the special meeting determines that there are
not sufficient votes to approve the merger agreement.
The close of business on July 7, 1999 has been fixed as the record date for
determining those stockholders entitled to vote at the special meeting and any
adjournments or postponements of the special meeting. Therefore, only
stockholders of record on July 7, 1999 are entitled to notice of, and to vote
at, the special meeting and any adjournments or postponements of the special
meeting.
By Order of the Board of Directors
LOGO
John Kehoe
Secretary
July 9, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY CARD.
THE MERGER AGREEMENT MUST BE APPROVED BY THE HOLDERS OF A MAJORITY OF THE
OUTSTANDING SHARES OF LEVEL ONE COMMON STOCK. YOUR VOTE ON THIS MATTER IS VERY
IMPORTANT. WE URGE YOU TO REVIEW CAREFULLY THE ENCLOSED MATERIAL AND TO RETURN
YOUR PROXY CARD PROMPTLY.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
ADOPTION OF THE MERGER AGREEMENT.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PRELIMINARY COPY
LOGO LOGO
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PROXY STATEMENT PROSPECTUS
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Intel Corporation and Level One Communications, Incorporated have entered
into an agreement that provides for a merger, as a result of which Level One
will become a wholly-owned subsidiary of Intel. In the merger, Level One
stockholders will receive 0.86 shares of Intel common stock for each of their
shares of Level One common stock. This conversion amount has been adjusted to
take into account the effect of Intel's two for one stock split paid on April
11, 1999. Intel will issue at least 33.7 million shares of its common stock, but
may issue as many as 39.9 million shares if all vested Level One options and
warrants are exercised and Level One's convertible debt is converted prior to
the merger.
This proxy statement/prospectus is being furnished to Level One
stockholders in connection with the solicitation by Level One's board of
directors of proxies for use at the special meeting of stockholders to be held
at 9800 Old Placerville Road, Sacramento, California, at 9:00 a.m., local time,
on August 9, 1999. At this meeting, Level One stockholders will vote on the
proposed merger. This proxy statement/prospectus also constitutes the prospectus
of Intel with respect to the shares of Intel common stock to be issued to Level
One stockholders in the merger.
Share Information:
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Intel ("INTC")......................... The Nasdaq Stock Market closing price
on July 6, 1999: $63.875
Level One ("LEVL")..................... The Nasdaq Stock Market closing price
on July 6, 1999: $53.188
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All information concerning Intel in this proxy statement/prospectus has
been furnished by Intel, and all information concerning Level One in this proxy
statement/prospectus has been furnished by Level One. Level One stockholders are
encouraged to read this proxy statement/prospectus carefully and understand it
before they vote.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN RISKS
THAT YOU SHOULD CONSIDER IN DETERMINING HOW TO VOTE ON THE PROPOSED MERGER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SECURITIES TO BE ISSUED IN THIS TRANSACTION OR
DETERMINED THAT THIS PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT/PROSPECTUS IS DATED JULY 7, 1999, AND IS FIRST BEING
MAILED TO LEVEL ONE STOCKHOLDERS ON OR ABOUT JULY 9, 1999.
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TABLE OF CONTENTS
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SUMMARY..................................................... 1
RISK FACTORS................................................ 13
Risk Factors Relating to the Merger....................... 13
Risk Factors Relating to Intel............................ 15
Risk Factors Relating to Level One........................ 23
LEVEL ONE SPECIAL MEETING................................... 26
General................................................... 26
Matters to be Considered.................................. 26
Proxies................................................... 26
Solicitation of Proxies................................... 26
Record Date and Voting Rights............................. 26
Recommendation of Level One Board......................... 27
THE MERGER.................................................. 28
Background of the Merger.................................. 28
Intel's Reasons for the Merger............................ 32
Recommendation of the Level One Board of Directors and
Level One's Reasons for the Merger..................... 33
Interests of Level One's Management in the Merger and
Potential Conflicts of Interests....................... 36
Opinion of Level One's Financial Advisor.................. 39
The Merger................................................ 48
Closing................................................... 48
Conversion of Level One Stock; Treatment of Level One
Stock Options, Warrants and Convertible Subordinated
Notes.................................................. 49
Exchange of Certificates; Fractional Shares............... 49
Representations and Warranties............................ 50
Conduct of Business Before the Merger..................... 51
Conditions to Completing the Merger....................... 55
Regulatory and Other Approvals Required for the Merger.... 56
Extension, Waiver and Amendment of the Merger Agreement... 57
Termination of the Merger Agreement....................... 57
Material Federal Income Tax Consequences.................. 60
Accounting Treatment...................................... 62
Employee Benefits and Plans............................... 62
Option Agreement.......................................... 62
Restrictions on Resales by Affiliates..................... 64
MANAGEMENT AFTER THE MERGER................................. 65
PRICE RANGE OF COMMON STOCK................................. 66
INFORMATION ABOUT INTEL CORPORATION......................... 68
General................................................... 68
Management and Additional Information..................... 69
INFORMATION ABOUT LEVEL ONE COMMUNICATIONS.................. 70
General................................................... 70
Management and Additional Information..................... 71
INTEL CAPITAL STOCK AND COMPARISON OF STOCKHOLDER RIGHTS.... 72
Description of Intel Capital Stock........................ 72
Comparison of Rights of Intel Stockholders and Level One
Stockholders........................................... 72
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DISSENTERS' APPRAISAL RIGHTS................................ 76
LEGAL MATTERS............................................... 76
EXPERTS..................................................... 76
STOCKHOLDER PROPOSALS....................................... 76
OTHER MATTERS............................................... 76
WHERE YOU CAN FIND MORE INFORMATION......................... 77
APPENDICES
APPENDIX A -- MERGER AGREEMENT
APPENDIX B -- OPTION AGREEMENT
APPENDIX C -- OPINION OF LEHMAN BROTHERS
APPENDIX D -- FORM OF PROXY CARD
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ii
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SUMMARY
This brief summary highlights selected information from the proxy
statement/prospectus. It does not contain all of the information that is
important to you. We urge you to carefully read the entire proxy
statement/prospectus and the other documents to which this proxy
statement/prospectus refers to fully understand our proposed merger. See "Where
You Can Find More Information."
THE MERGER (PAGE 28)
We have attached the merger agreement to this document as Appendix A.
Please read the merger agreement. It is the legal document that governs the
merger.
PARTIES TO THE MERGER (PAGES 68 AND 70)
INTEL CORPORATION
2200 Mission College Boulevard
Santa Clara, California 95052
(408) 765-8080
Intel, the world's largest chip maker, is also a leading manufacturer of
computer, networking and communications products. Intel designs, develops,
manufactures and markets computer components and related products.
Intel's major products include micro-processors, chipsets, embedded
processors and microcontrollers, flash memory products, graphics products,
network and communications products, systems management software, conferencing
products and digital imaging products. For more information about Intel's
products, see "Information about Intel Corporation." Intel sells its products
to:
- original equipment manufacturers of computer systems and peripherals;
- personal computer users; and
- other manufacturers, including makers of a wide range of industrial and
telecommunications equipment.
Intel had approximately 64,500 employees at December 26, 1998, and 1998 net
revenues of $26,273 million. Intel is headquartered in Santa Clara, California.
LEVEL ONE COMMUNICATIONS, INCORPORATED
9750 Goethe Road
Sacramento, California 95827
(916) 855-5000
Level One designs and sells semiconductor chips. Its products are described
as application specific standard integrated circuits, or "ASSPs." Its products
are used for high-speed analog and digital signal transmission and to build and
connect networks to systems that transport information within an office or
around the world. Its products are used to produce systems for local area
networks, called LANs, wide area networks, called WANs, and public telephone
transmission networks. LANs, WANs and telephone transmission networks enable you
to use intranets and the Internet. Level One combines its strengths as an
industry leader in analog and digital circuit design with its communications
systems expertise to produce solutions with increased functionality.
Level One had 821 employees at December 27, 1998, and 1998 revenues of $263
million. Level One's principal executive offices are located in Sacramento,
California.
EFFECT AND TIMING OF THE MERGER
We propose that Intel and Level One combine by way of a merger as a result
of which each of you will become Intel stockholders. We expect to complete the
merger no later than August 10, 1999, although the agreement does not expire
until December 31, 1999. We also expect that the merger will close within two
business days after the special meeting if Level One stockholders approve the
merger.
EXCHANGE OF SHARES (PAGE 49)
When the merger occurs, each of your shares of Level One common stock will
auto-
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matically become the right to receive from Intel 0.86 shares of Intel common
stock.
You will have to surrender your Level One common stock certificates to
receive new certificates representing Intel common stock. You do not need to do
this, however, until you receive written instructions after we have completed
the merger.
LEVEL ONE STOCK OPTIONS, WARRANTS AND CONVERTIBLE SUBORDINATED NOTES (PAGE 49)
In the merger, each stock option and warrant to buy Level One common stock
will become an option or warrant, as applicable, to buy Intel common stock.
However, each option and warrant will continue to be governed by the terms of
the Level One stock option plan or other agreement under which it was issued.
The number of shares of Intel common stock subject to each new stock option or
warrant, as well as the exercise price of that stock option or warrant, will be
adjusted to reflect the merger exchange ratio applicable to the Level One common
stock.
In addition, Intel will assume all obligations under Level One's
convertible subordinated notes and will provide for the conversion rights to
which the subordinated noteholders are entitled.
MANAGEMENT AFTER THE MERGER (PAGE 65)
There will be no change in the current management of Intel as a result of
the merger. Dr. Robert S. Pepper, Level One's president and CEO, will join Intel
as vice president of Intel's Network Communications Group and will be general
manager of the Level One Communications division.
Dr. Pepper, who is also a director of Level One, and John Kehoe, Level
One's CFO, have signed employment agreements providing for them to remain with
Level One, as part of Intel, following the merger.
THE LEVEL ONE STOCKHOLDERS MEETING (PAGE 26)
At the Level One stockholders meeting, you will be asked to:
1. approve an agreement that provides for a merger in which Level One will
become a wholly-owned subsidiary of Intel; and
2. vote on the postponement or adjournment of the meeting to solicit
additional votes to approve the merger agreement, if the secretary of
the meeting decides that there are not enough votes to approve the
merger agreement.
RECORD DATE AND THE VOTE REQUIRED (PAGE 26)
You can vote at the special meeting if you owned Level One common stock at
the close of business on July 7, 1999, the record date for the meeting. You can
cast one vote for each share of Level One common stock you owned at that time.
To adopt the merger agreement, the holders of a majority of shares of Level One
common stock allowed to vote at the meeting must vote in favor of it. As of the
record date, Level One's directors and executive officers beneficially owned
about 3,140,000 shares of Level One common stock entitling them to exercise
about 7.83% of the voting power of the Level One common stock entitled to vote
at the special meeting. Intel's directors, executive officers and affiliates
owned no shares of Level One common stock as of the record date.
You may vote your shares in person by attending the meeting or by mailing
us your proxy if you are unable or do not wish to attend. You may revoke your
proxy at any time before we take a vote at the meeting by sending a written
notice revoking the proxy or a later-dated proxy to the secretary of Level One,
or by attending the meeting and voting in person.
OUR REASONS FOR THE MERGER (PAGES 32 AND 33)
Intel and Level One are proposing to merge because they believe that the
merger will
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significantly benefit their respective stockholders and customers.
Intel believes that a combination with Level One will:
- extend its strength in networking and communications; and
- provide Intel with the necessary building blocks to supply semiconductor
chips to meet the rapidly growing networking and communications demands
created by the Internet and electronic commerce.
Level One believes that a merger with Intel will:
- increase value for its stockholders, employees and customers;
- allow Level One to continue pursuing its business strategy by delivering
on its vision of highly integrated communications systems on
semiconductor chips;
- provide its stockholders with an attractive price for their Level One
shares while enabling them to share in Intel's growth over the long term;
and
- make Level One's technology available to a larger customer base through
Intel's distribution system and sales force.
The discussion of our reasons for the merger includes forward-looking
statements about possible or assumed future results of our operations and the
performance of the combined company after the merger. For a discussion of
factors that could affect these future results, see "Forward-Looking Statements
May Prove Inaccurate" on page 6.
LEVEL ONE BOARD'S RECOMMENDATION TO STOCKHOLDERS (PAGE 33)
The Level One board of directors believes that the merger is advisable,
fair to you and in your best interests, and unanimously recommends that you vote
"FOR" approval of the merger agreement.
OPINION OF LEVEL ONE'S FINANCIAL ADVISOR (PAGE 39)
Lehman Brothers has delivered its written opinion to Level One's board of
directors that, as of March 4, 1999, based upon and subject to the factors and
assumptions described in the opinion, the exchange ratio was fair, from a
financial point of view, to the Level One stockholders. We have attached a copy
of Lehman Brothers' opinion as Appendix C. You may read the opinion for a
description of the assumptions made, matters considered and limitations of the
review undertaken by Lehman Brothers in providing its opinion.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGES 66 AND 67)
Intel common stock is traded on The Nasdaq Stock Market. On March 3, 1999,
the last trading day before we announced the merger, Intel common stock closed
at $57.34 per share adjusted for Intel's two for one stock split paid on April
11, 1999. Level One common stock is traded on The Nasdaq Stock Market. On March
3, 1999, Level One common stock closed at $32.38 per share.
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 55)
Whether we complete the merger depends on a number of conditions being
satisfied in addition to Level One stockholders' approval of the merger
agreement.
However, either Intel or Level One may choose to complete the merger even
though one or more of these conditions has not been satisfied, as long as the
law allows them to do so. We cannot be certain when, or if, the conditions to
the merger will be satisfied or waived, or that the merger will be completed.
WAIVER AND AMENDMENT (PAGE 57)
We may jointly amend the merger agreement, and each of us may waive our
right to require the other to adhere to the terms and conditions of the merger
agreement. However, we may not do so after Level One stockholders
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approve the merger, if the amendment or waiver reduces or changes the
consideration that they will receive, unless the stockholders approve the
amendment or waiver.
TERMINATION OF THE MERGER AGREEMENT (PAGE 57)
We can agree at any time prior to completing the merger to terminate the
merger agreement. Also, either of us can decide, without the other's consent, to
terminate the merger agreement if the merger has not been completed by December
31, 1999, the other company has breached the merger agreement or for other
reasons.
TERMINATION OF THE MERGER AGREEMENT IN CONNECTION WITH AN UNSOLICITED
ACQUISITION PROPOSAL (PAGE 57)
Level One may engage in negotiations regarding an unsolicited proposal from
a potential acquiror other than Intel if the board decides, based upon advice
from its financial advisor, that the potential acquiror is capable of
consummating a superior proposal. Level One may also provide the other potential
acquiror with the type of due diligence information that it provided to Intel.
Level One may terminate the merger agreement if, after Level One's board of
directors has received an unsolicited proposal from a potential acquiror other
than Intel, the board decides in good faith, based upon advice from legal
counsel, that it must withdraw its recommendation of the merger with Intel in
order to comply with its fiduciary duties under Delaware law. Under these
circumstances, however, Level One's board of directors must give Intel a chance
to at least match the potential acquiror's proposal. Intel may terminate the
merger agreement if Level One's board of directors withdraws or adversely
modifies its recommendation that Level One stockholders approve the merger with
Intel or recommends that Level One stockholders approve another competing
transaction.
LIQUIDATED DAMAGES AND PAYMENT OF EXPENSES IF THE MERGER AGREEMENT IS TERMINATED
(PAGE 58)
Level One has agreed to pay Intel liquidated damages of $75 million if the
merger agreement is terminated because Level One decides not to complete the
merger, generally where there is another offer for Level One outstanding, or
Level One has breached the merger agreement and later agrees to be acquired by
another company.
Upon termination of the merger agreement under circumstances more fully
described in "The Merger -- Termination of the Merger Agreement," each of us has
agreed to reimburse the other for its costs and expenses related to the merger
in the amount of $3 million. Otherwise, whether or not the merger is completed,
we will each pay our own fees and expenses.
OPTION AGREEMENT (PAGE 62 AND APPENDIX B)
Level One has entered into a stock option agreement granting Intel an
option to purchase 7,798,546 shares of Level One common stock under certain
circumstances. The total number of shares that Intel may purchase if it
exercises the option represents 16.6% of the shares of Level One common stock
outstanding on March 4, 1999, assuming the option had been exercised, or 19.9%
before the exercise.
Intel may not exercise its option unless certain events occur. These events
generally are business combinations or acquisition transactions relating to
Level One and certain related events, other than the merger we are proposing,
such as a merger or the sale of a substantial amount of assets or stock to a
company other than Intel. Level One has advised Intel that no event has occurred
as of this date that would allow Intel to exercise its option.
The exercise price of the option is $50 per share. Under certain
circumstances, Intel may require Level One to repurchase the option and Level
One may require Intel to sell to Level One any shares of Level One common stock
received by Intel upon its exercise of the option.
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<PAGE> 10
Intel may not receive total value in excess of $100 million from the option
and Level One's payment of liquidated damages upon termination of the merger
agreement as described above.
We entered into the option agreement so that, if a third party submitted a
successful proposal to acquire Level One, Intel would be compensated for its
efforts, expenses and lost business opportunities incurred as a result of its
attempted acquisition of Level One.
INTEREST OF LEVEL ONE'S OFFICERS IN THE MERGER THAT DIFFER FROM YOUR INTEREST
(PAGE 36)
Some of Level One's officers have interests in the merger that differ from,
or are in addition to, their interests as stockholders of Level One. Level One's
directors and eight executive officers will receive an aggregate of 315,594
shares of Intel common stock and options to purchase an additional 2,022,771
shares of Intel common stock in exchange for the shares of Level One common
stock and/or options to purchase shares of Level One common stock presently
owned by these executive officers and directors. These additional interests
exist because of employment and related agreements that these officers have
entered into with Level One and Intel, and rights that these officers have or
will have under some of the benefit plans maintained by Level One and Intel.
These agreements and plans will provide the Level One officers with severance
benefits if their employment with Level One is terminated after the merger
occurs or after Level One is acquired by anyone else.
If the employment of the eight most highly compensated officers of Level
One (excluding Dr. Pepper and Mr. Kehoe) were terminated after the merger, the
maximum aggregate amount payable to them would be approximately $3.1 million. In
addition, after the merger, Intel will continue the indemnification arrangements
for directors and officers of Level One and its subsidiaries in effect prior to
the merger. Also, Level One will generally maintain a policy of directors' and
officers' liability insurance for six years after the merger for the benefit of
those persons who were directors or officers covered by liability insurance
immediately before the merger occurs.
Details about the interests of some of Level One's directors and executive
officers are described under "The Merger -- Interests of Level One's Management
in the Merger and Potential Conflicts of Interests."
The members of Level One's board of directors knew about these interests,
and considered them, when they approved the merger agreement.
DISSENTERS' APPRAISAL RIGHTS (PAGE 76)
Delaware law does not provide you with dissenters' appraisal rights in the
merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO LEVEL ONE STOCKHOLDERS (PAGE 60)
We expect that, for United States federal income tax purposes, your
exchange of shares of Level One common stock for shares of Intel common stock
generally will not cause you to recognize any gain or loss. You will, however,
be taxed on any gain in connection with any cash you receive instead of
fractional shares.
THIS TAX TREATMENT MAY NOT APPLY TO EVERY LEVEL ONE STOCKHOLDER.
DETERMINING THE ACTUAL TAX CONSEQUENCES OF THE MERGER TO YOU MAY BE COMPLICATED.
THEY WILL DEPEND ON YOUR SPECIFIC SITUATION AND ON VARIABLES NOT WITHIN OUR
CONTROL. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE
MERGER'S TAX CONSEQUENCES TO YOU.
ACCOUNTING TREATMENT (PAGE 62)
We will account for the merger using the purchase accounting method. This
means that, for accounting and financial reporting purposes, Intel will make a
determination of the fair value of Level One's assets and liabilities in order
to allocate the purchase price to the assets acquired and the liabilities
assumed.
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MATERIAL DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS (PAGE 72)
The rights of Intel stockholders are governed by Delaware law and Intel's
certificate of incorporation and bylaws. The rights of Level One stockholders
are also governed by Delaware law and Level One's certificate of incorporation
and by-laws. If we complete the merger, you will become a stockholder of Intel,
and your rights will be governed by Delaware law and by Intel's certificate of
incorporation and bylaws.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
We have each made forward-looking statements in this proxy
statement/prospectus and in other documents to which we refer you that are
subject to risks and uncertainties. These forward-looking statements include
information about possible or assumed future results of our operations or the
performance of Intel and Level One after the merger is completed. When we use
any of the words "believes," "expects," "anticipates," "intends," "estimates" or
similar expressions, we are making forward-looking statements. Many possible
events or factors could affect the actual financial results and performance of
each of our companies after the merger, and these factors or events could cause
those results or performance to differ materially from those expressed in our
forward-looking statements. These possible events or factors include the
following:
- we could lose customers as a result of the merger;
- our revenues after the merger may be lower than we currently expect;
- we may have more difficulty integrating our businesses or our other
acquired businesses than we currently expect;
- competition among companies in Intel's and Level One's industries may
increase or a significant new competitor may emerge;
- technology-related changes, including "year 2000" data systems
compliance, may be harder for either of us to make or more expensive than
we currently expect, or we may not be able to make them as fast as our
competitors;
- actions taken or failed to be taken by our third party suppliers or
service providers;
- third parties may infringe our proprietary intellectual property rights
or patents;
- litigation involving matters such as intellectual property, antitrust and
consumer issues may adversely affect our business;
- general economic conditions in the U.S. or abroad may change or be worse
than we currently expect;
- legislative or regulatory changes may adversely affect our business; and
- changes may occur in the securities markets.
6
<PAGE> 12
UNAUDITED COMPARATIVE PER COMMON SHARE DATA
The following table shows information about our historical income per
common share and book value per share, and similar information reflecting the
completion of our proposed merger, which we refer to as "pro forma" information.
The unaudited pro forma information is presented as if the merger was completed
as of the beginning of each period for income statement purposes and on March
27, 1999 for balance sheet purposes.
We used an exchange ratio of 0.86 shares of Intel common stock for each
share of Level One common stock, in computing the pro forma combined and
equivalent pro forma combined per share data, after adjusting for Intel's two
for one stock split paid on April 11, 1999. All Intel historical and pro forma
combined per share results reflect the effects of this stock split.
The combined pro forma information in the following table and the table on
page 12 was prepared using a number of assumptions. We assumed the value of
Intel shares to be issued for outstanding Level One shares to be $1.9 billion,
based on 39.1 million Level One shares outstanding and the conversion value of a
Level One share at the time of the merger agreement. We increased this by
approximately $290 million for the value of all outstanding Level One options
and warrants, giving a total purchase price of $2.2 billion.
The allocation of the purchase price will be finalized following receipt of
the closing balance sheet of Level One. Based on an analysis of fair value, the
excess of the purchase price over the net assets on Level One's balance sheet
will then be allocated to tangible assets, liabilities, identifiable intangible
assets and goodwill. Intel is currently gathering the data necessary for
determining the value of identifiable intangible assets, including in-process
research and development. For both in-process and developed technology, Intel's
data gathering efforts are focused on identifying the historical and forecasted
revenues and costs as well as the stage of completion or remaining product life
by individual project or product.
Intel will acquire Level One's technology in the merger. The principal
products that use Level One's technology relate to communications integrated
circuit technology and semiconductor components that provide connections for
high speed telecommunications and networking applications. Level One's products
are used for high-speed analog and digital signal transmission and to connect
networks to systems that transport information, such as public telephone
transmission networks. The principal technology projects under development by
Level One mainly represent two categories. The first is improvements to and
newer generations of current products and technologies, which use higher levels
of integration and lower cost chips. The second category is new architectures,
technologies and products that have the ability to more easily combine voice and
data networks while incorporating more data handling capability in a given time
frame. A portion of the purchase price will be allocated to developed and
in-process technologies upon completion of the valuation analysis. See
"Information About Level One Communications" on page 70 for more information
about Level One's products.
We assumed the total amount of goodwill and other intangible assets to be
$1.9 billion and to have an average useful life of five years. Because the
valuation analysis has not been completed, the actual amount of goodwill and
other intangible assets, and the related average useful life could vary from
these assumptions. We expect the actual amount of goodwill and other intangible
assets to be between $1.8 billion and $2.0 billion.
A projected $220 million non-recurring write-off of acquired in-process
research and development is not included as an adjustment in the calculation of
pro forma net income. At the date of the acquisition, we expect that the
technological feasibility of the acquired technology relating to this write-off
will not have been established and that the technology will have no future
alternative uses. For purposes of the pro forma balance sheet information, this
charge has been deducted from stockholders' equity. Because the valuation
analysis has not been completed, the actual amount of the
7
<PAGE> 13
charge for in-process research and development could vary from this estimate.
However, we expect the actual amount to be between $110 million and $330
million.
Shares for calculating pro forma basic earnings per share were determined
by adding the 33.7 million shares assumed issued for Level One shares
outstanding to Intel's 3,324 million weighted average shares outstanding, for a
total of 3,358 million shares. Shares for pro forma diluted earnings per share
added 154 million shares for Intel's stock options and warrants, 3 million
shares for Level One's stock options and warrants and 4 million shares for Level
One's convertible debt, for a total of 3,519 million shares. Shares for
calculating pro forma book value per share used Intel's ending shares
outstanding of 3,319 million and added the 33.7 million shares issued for the
Level One shares outstanding.
The pro forma net income data include an adjustment of approximately $97
million in the quarter ended March 27, 1999 and $387 million for the year ended
December 26, 1998 for amortization related to goodwill and other intangible
assets resulting from the merger. Net income has also been adjusted for
approximately $5 million for the quarter ended March 27, 1999 and $19 million
for the year ended December 26, 1998 for amortization of premium on Level One's
convertible debt.
The information in the following tables is based on, and should be read
together with, the historical financial information that we have presented in
our prior Securities and Exchange Commission filings. We have incorporated the
historical financial information into this document by reference. See "Where You
Can Find More Information" on page 77.
8
<PAGE> 14
UNAUDITED COMPARATIVE PER COMMON SHARE DATA
OF INTEL AND LEVEL ONE
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE FISCAL YEAR ENDED
MARCH 27, 1999 DECEMBER 26, 1998
--------------------- -------------------------
<S> <C> <C>
HISTORICAL INTEL
Net income per common share -- basic............. $ 0.60 $ 1.82
Net income per common share -- diluted........... $ 0.57 $ 1.73
Dividends declared per share..................... $0.050 $0.050
Book value per common share at period end........ $ 7.45
PRO FORMA COMBINED PER INTEL SHARE
Net income per common share -- basic............. $ 0.57 $ 1.70
Net income per common share -- diluted........... $ 0.54 $ 1.60
Dividends declared per share(1).................. $0.050 $0.050
Book value per common share at period end........ $ 7.97
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE FISCAL YEAR ENDED
MARCH 28, 1999 DECEMBER 27, 1998
--------------------- -------------------------
<S> <C> <C>
HISTORICAL LEVEL ONE
Net income per common share -- basic............. $ 0.32 $ 0.62
Net income per common share -- diluted........... $ 0.28 $ 0.57
Book value per common share at period end........ $ 4.65
EQUIVALENT PRO FORMA COMBINED PER LEVEL ONE SHARE(2)
Net income per common share -- basic............. $ 0.49 $ 1.46
Net income per common share -- diluted........... $ 0.46 $ 1.38
Dividends declared per share(1).................. $0.043 $0.043
Book value per common share at period end........ $ 6.85
</TABLE>
- -------------------------
(1) Pro forma dividends declared per share represent historical dividends
declared by Intel.
(2) Equivalent pro forma Level One combined per share data are computed by
multiplying the Intel pro forma combined data by the assumed exchange ratio
of 0.86.
9
<PAGE> 15
SELECTED FINANCIAL DATA
The following tables show summarized historical financial data for each of
us and also show similar pro forma information reflecting the completion of our
proposed merger. Per share data have been adjusted for stock splits through
April 1999.
This pro forma information, while helpful in illustrating the financial
characteristics of the combined company under one set of assumptions, does not
attempt to predict or suggest future results. It also does not necessarily
reflect what the historical results of the combined company would have been had
Intel and Level One actually been combined during the periods presented.
The information in the following tables is based on historical financial
information that we have presented in our prior Securities and Exchange
Commission filings. Intel's historical financial statements for the five years
ended December 26, 1998 were audited by Ernst & Young LLP, independent auditors,
and Level One's historical financial statements for the five years ended
December 27, 1998 were audited by Arthur Andersen LLP, independent public
accountants. The interim information for the first quarter of 1999 is based on
unaudited financial statements of Intel and Level One for that quarter. You
should read all of the summary financial information we provide in the following
tables in connection with this historical financial information.
This historical financial information has also been incorporated into this
document by reference. See "Where You Can Find More Information" on page 77.
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF INTEL AND LEVEL ONE
INTEL CORPORATION
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED FOR THE FISCAL YEARS ENDED
----------------------- ------------------------------------------------------------------------
MARCH 27, MARCH 28, DECEMBER 26, DECEMBER 27, DECEMBER 28, DECEMBER 30, DECEMBER 31,
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ------------ ------------ ------------ ------------ ------------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA
Net revenues......... $ 7,103 $ 6,001 $26,273 $25,070 $20,847 $16,202 $11,521
Cost of sales........ $ 2,912 $ 2,749 $12,144 $ 9,945 $ 9,164 $ 7,811 $ 5,576
Research and
development........ $ 663 $ 760 $ 2,674 $ 2,347 $ 1,808 $ 1,296 $ 1,111
Operating income..... $ 2,637 $ 1,781 $ 8,379 $ 9,887 $ 7,553 $ 5,252 $ 3,387
Net income........... $ 1,999 $ 1,273 $ 6,068 $ 6,945 $ 5,157 $ 3,566 $ 2,288
PER COMMON SHARE DATA
Earnings
Basic.............. $ 0.60 $ 0.39 $ 1.82 $ 2.12 $ 1.57 $ 1.08 $ 0.69
Diluted............ $ 0.57 $ 0.36 $ 1.73 $ 1.93 $ 1.45 $ 1.01 $ 0.65
Dividends declared... $ 0.050 $ 0.015 $ 0.050 $ 0.058 $ 0.048 $ 0.038 $ 0.029
BALANCE SHEET DATA
At period end:
Total assets....... $33,093 $31,471 $28,880 $23,735 $17,504 $13,816
Long-term debt and
put warrants..... $ 699 $ 903 $ 2,489 $ 1,003 $ 1,125 $ 1,136
Stockholders'
equity........... $24,726 $23,377 $19,295 $16,872 $12,140 $ 9,267
</TABLE>
10
<PAGE> 16
LEVEL ONE COMMUNICATIONS, INCORPORATED
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED FOR THE FISCAL YEARS ENDED
----------------------- ------------------------------------------------------------------------
MARCH 28, MARCH 29, DECEMBER 27, DECEMBER 28, DECEMBER 29, DECEMBER 30, DECEMBER 31,
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ------------ ------------ ------------ ------------ ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA
Revenues............. $ 84,286 $ 56,630 $262,988 $156,500 $111,987 $ 78,018 $46,825
Cost of sales........ 34,718 23,526 109,656 65,583 48,477 33,300 18,785
-------- -------- -------- -------- -------- -------- -------
Gross margin......... 49,568 33,104 153,332 90,917 63,510 44,718 28,040
Operating expenses:
Research and
development(1)... 17,185 12,553 55,459 37,757 26,923 17,963 9,956
Sales and
marketing........ 11,341 9,414 39,504 26,532 17,154 11,414 6,772
General and
administrative(2).. 4,211 4,166 22,113 12,507 7,487 5,839 3,424
-------- -------- -------- -------- -------- -------- -------
Total operating
expenses......... 32,737 26,133 117,076 76,796 51,564 35,216 20,152
Operating income..... 16,831 6,971 36,256 14,121 11,946 9,502 7,888
Net interest and
other income(3).... 1,509 458 3,311 1,882 2,261 2,071 1,440
Provision for income
taxes(4)........... 6,052 3,700 16,652 9,450 6,374 1,442 1,323
-------- -------- -------- -------- -------- -------- -------
Net income........... $ 12,288 $ 3,729 $ 22,915 $ 6,553 $ 7,833 $ 10,131 $ 8,005
======== ======== ======== ======== ======== ======== =======
PER COMMON SHARE DATA
Earnings
Basic.............. $ 0.32 $ 0.10 $ 0.62 $ 0.19 $ 0.25 $ 0.35 $ 0.31
Diluted............ $ 0.28 $ 0.10 $ 0.57 $ 0.18 $ 0.24 $ 0.33 $ 0.29
BALANCE SHEET DATA
At period end:
Total assets....... $338,165 $326,290 $283,762 $115,732 $101,834 $71,628
Long-term
obligations (less
current
portion)......... $116,124 $116,681 $117,474 $ 3,829 $ 4,463 $ 361
Stockholders'
equity........... $181,862 $163,192 $118,302 $ 96,374 $ 79,558 $63,309
</TABLE>
- -------------------------
(1) Includes one-time charges for research and development relating to
acquisitions in 1996 of $2.5 million and in 1995 of $750 thousand.
(2) Includes one-time transaction charges of $3.6 million relating to
acquisitions in 1998.
(3) Includes a one-time gain of $675 thousand relating to the sale of a portion
of a minority interest investment in 1996.
(4) Includes a one-time gain on adjustment of deferred tax valuation reserve of
$2.5 million in 1995.
11
<PAGE> 17
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA OF INTEL AND LEVEL ONE
The following unaudited selected pro forma financial data combine Intel's
historical results with Level One's for the quarter ended March 27, 1999 and the
fiscal year ended December 26, 1998, giving effect to the merger as if it had
occurred as of the beginning of each period for income statement purposes and on
March 27, 1999 for balance sheet purposes.
See the narrative under "-- Unaudited Comparative Per Common Share Data" on
page 7 for a discussion of significant assumptions and other information related
to the selected pro forma financial data. For more information relating to Intel
and Level One see "Where You Can Find More Information" on page 77.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE FISCAL YEAR ENDED
MARCH 27, 1999(5) DECEMBER 26, 1998(5)
--------------------- -------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF INCOME DATA
Net revenues................................... $ 7,187 $26,536
Cost of sales.................................. $ 3,044 $12,641
Research and development....................... $ 680 $ 2,729
Operating income............................... $ 2,557 $ 8,028
Net income..................................... $ 1,919 $ 5,723
PER COMMON SHARE DATA
Earnings:
Basic.......................................... $ 0.57 $ 1.70
Diluted........................................ $ 0.54 $ 1.60
Dividends declared(1)............................ $ 0.050 $ 0.050
BALANCE SHEET DATA
At period end:
Total assets(2)................................ $35,368
Long-term debt(3).............................. $ 911
Stockholders' equity(4)........................ $26,721
</TABLE>
- -------------------------
(1) Pro forma dividends declared per share represent historical dividends
declared by Intel.
(2) Total assets have been adjusted for assumed goodwill and other intangible
assets related to the merger of $1.9 billion.
(3) Long-term debt has been adjusted by $97 million to restate the Level One
convertible debt to its fair value based on the conversion ratio and the
value of Level One shares assumed in the merger.
(4) Stockholders' equity has been adjusted for the assumed $220 million
non-recurring write-off of in-process research and development.
(5) The pro forma income statement data has been presented using Intel's fiscal
periods, combining the income statements of Level One for the quarter ended
March 28, 1999 and the fiscal year ended December 27, 1998.
12
<PAGE> 18
RISK FACTORS
Level One stockholders should carefully consider the following risk
factors, together with the other information included and incorporated by
reference in this proxy statement/prospectus, in deciding whether to vote to
approve the merger.
RISK FACTORS RELATING TO THE MERGER
CHANGES IN THE MARKET VALUE OF INTEL COMMON STOCK COULD ADVERSELY AFFECT
THE VALUE OF THE CONSIDERATION THAT YOU ARE RECEIVING FOR YOUR LEVEL ONE
COMMON STOCK.
There will be no adjustment to the exchange ratio of 0.86 shares for
changes in the market price of either Level One common stock or Intel common
stock, and Level One is not permitted to "walk away" from the merger or
resolicit the vote of its stockholders solely because of changes in the market
price of Intel common stock. Accordingly, the specific dollar value of Intel
common stock to be received by you upon completion of the merger will depend on
the market value of Intel common stock at the time of completion of the merger.
INTEL AND LEVEL ONE COULD LOSE CUSTOMERS AS A RESULT OF THE MERGER OR THE
ANNOUNCEMENT OF THE MERGER, WHICH WOULD CAUSE A DECREASE IN REVENUE.
We cannot assure you that customers of Intel and Level One will continue
their current buying patterns without regard to the merger. Certain of Level
One's customers may cancel or defer orders for Level One's products as a result
of the announcement of the merger. We believe these cancellations or deferrals
may occur because those Level One customers who are also Intel customers may do
so in order to maintain diversity of suppliers, some Level One customers may
view competition with Intel differently from competition with Level One, or some
Level One customers might be concerned about our ability to integrate our
operations. See "-- We may not successfully integrate our business operations or
our management may be distracted by the integration process." Any such delay or
cancellations could have an adverse effect on Level One's or, after the closing
of the merger, Intel's business, financial condition and results of operations.
Any significant delay or reduction in orders for Intel's or Level One's products
could have an adverse effect on Intel's or Level One's business, financial
condition and results of operations. These effects may occur with respect to
each company during the period prior to the consummation of the merger or
following the merger.
LEVEL ONE STOCKHOLDERS MAY EXPERIENCE LOWER RETURNS ON THEIR INVESTMENT
AFTER THE MERGER.
Level One stockholders may receive a lower return on their investment after
the merger than if the merger does not occur. A lower return could occur, for
example, if Intel does not achieve the anticipated operating and strategic
benefits of the merger or if Intel does not otherwise achieve its business
objectives and the market price for Intel's stock is adversely affected. Also,
the issuance of Intel common stock in the merger will result in dilution and
this could hurt its market price.
THE IRS MAY CHALLENGE THE TAX-FREE NATURE OF THE MERGER, AND IF THIS
CHALLENGE WERE SUCCESSFUL YOU COULD BE REQUIRED TO PAY INCOME TAX ON ANY
GAIN REALIZED IN THE MERGER.
Intel and Level One will not seek a ruling from the Internal Revenue
Service that the merger generally will be tax-free to Level One stockholders.
Therefore, there is a risk that the Internal Revenue Service may later challenge
the tax-free nature of the merger. If it does, Level One stockholders may be
required to pay tax on any gain realized in the merger. See "The Merger --
Material Federal Income Tax Consequences."
13
<PAGE> 19
LEVEL ONE'S DIRECTORS AND OFFICERS HAVE CONFLICTS OF INTEREST THAT COULD
HAVE INFLUENCED THEIR DECISION TO RECOMMEND THE MERGER TO LEVEL ONE
STOCKHOLDERS.
In considering the recommendation of the Level One board of directors to
approve the merger, Level One stockholders should recognize that some of Level
One's directors and officers have conflicts of interest because of employment
arrangements, potential severance benefits and other reasons. These reasons are
described under the headings "The Merger -- Interests of Level One's Management
in the Merger and Potential Conflicts of Interests" and "Management After the
Merger."
WE MAY NOT SUCCESSFULLY INTEGRATE OUR BUSINESS OPERATIONS, OR OUR
MANAGEMENT MAY BE DISTRACTED BY THE INTEGRATION PROCESS.
Integrating the operations of Level One with those of Intel after the
merger may be difficult and time consuming. The integration of our combined
operations may temporarily distract management from the day-to-day business of
the combined company after the merger. Intel and Level One may fail to manage
this integration effectively or to achieve any of the anticipated benefits that
both companies hope will result from the merger. After the merger has been
completed, Intel may integrate, among other things, the following business
operations of Level One into Intel:
- product and service offerings;
- product development, sales and marketing;
- research and development;
- administrative and customer service functions; and
- management information systems.
INTEL EXPECTS TO INCUR POTENTIALLY SIGNIFICANT INTEGRATION COSTS IN
CONNECTION WITH THE MERGER, WHICH COULD NEGATIVELY AFFECT INTEL'S EARNINGS.
Intel expects to incur costs from integrating Level One's operations with
those of Intel. These costs may be substantial and may include:
- costs for employee redeployment, relocation or severance;
- conversion of information systems;
- reorganization or closures of facilities; and
- relocation or disposition of excess equipment.
Intel cannot determine the amount of these costs at this time. Intel
expects to charge these costs to operations in the quarter in which the merger
is completed and in subsequent quarters as decisions are made and costs are
incurred. This will increase Intel's operating costs and expenses and decrease
Intel's operating income for those quarters.
INTEL COULD LOSE KEY LEVEL ONE PERSONNEL WHO ARE NECESSARY TO ACHIEVE THE
BENEFITS THAT INTEL AND LEVEL ONE EXPECT TO REALIZE FROM THE MERGER.
The merger could lead to the loss of key Level One personnel even though
some of them have signed employment and related agreements providing for them to
remain with Level One after the merger. Level One's contribution to the combined
company's success will depend in part on the
14
<PAGE> 20
continued service of key groups of Level One personnel. If one or more of Level
One's senior management, engineers or manufacturing, sales or customer support
personnel leaves after we complete the merger, Level One's business could be
seriously harmed, and Intel may not be able to achieve the benefits that it
expects to realize from the Merger.
THE FAILURE TO SATISFY CONDITIONS TO OUR COMPLETION OF THE MERGER OTHER
THAN THE APPROVAL OF LEVEL ONE'S STOCKHOLDERS COULD JEOPARDIZE THE MERGER.
FAILURE TO COMPLETE THE MERGER COULD BE COSTLY TO LEVEL ONE AND ITS
STOCKHOLDERS.
Even if Level One's stockholders approve the merger, the merger may not
close if any of the following occurs:
- Level One experiences any material and adverse change in its business
since the time Level One and Intel signed the merger agreement;
- Either Intel or Level One has materially breached any of its
representations, warranties or covenants made in the merger agreement; or
- There is imposed a law, regulation or court order which prohibits the
merger.
If the merger is not completed:
- Level One may be required to pay Intel an expense reimbursement of $3
million and, if an acquisition or other similar transaction involving
Level One occurs, pay Intel liquidated damages of $75 million;
- If an acquisition or other similar transaction involving Level One
occurs, Intel's option to purchase up to 7,798,546 shares of Level One
common stock may become exercisable;
- The price of Level One common stock may decline, assuming that current
market prices reflect a market assumption that the merger will be
completed; and
- Level One must still pay its costs related to the merger, such as legal,
accounting and financial advisory fees.
RISK FACTORS RELATING TO INTEL
A variety of factors may cause significant quarterly and annual
fluctuations in Intel's business, results of operations and financial condition.
Many of these factors are beyond Intel's control including business cycles and
seasonal trends of the computing, semiconductor and related industries.
VOLATILITY IN THE PRICE OF INTEL COMMON STOCK COULD NEGATIVELY AFFECT THE
VALUE OF THE SHARES YOU RECEIVE IN THE MERGER.
The price of Intel's common stock has experienced significant volatility
and could experience significant volatility in the future for the following
reasons, among others:
- variations between Intel's actual or anticipated financial results and
the published expectations of analysts;
- speculation in the press or analyst community;
- general conditions in the computing and semiconductor industries; or
- general economic and political conditions.
In addition, the stock market has experienced extreme price and volume
fluctuations that have affected the market price of many technology companies in
particular, and these fluctuations have often been unrelated to the operating
performance of these companies.
15
<PAGE> 21
Intel cannot give you any assurance that the foregoing factors will not
adversely affect the market price of Intel's common stock in the future.
SUBSTANTIAL AND ONGOING COMPETITION IN THE SEMICONDUCTOR INDUSTRY REQUIRES
THAT INTEL CONSTANTLY CREATE NEW PRODUCTS, IMPROVE ITS EXISTING PRODUCTS
AND SELL ITS PRODUCTS AT COMPETITIVE PRICES.
Intel's financial results are substantially dependent upon sales of its
microprocessors and other semiconductor components. Competitive pressures within
the semiconductor industry could cause a significant decrease in Intel's sales
of these products and could force Intel to sell its products at significantly
lower prices, each of which could have a material, negative impact on Intel's
earnings and results of operations. Many companies compete with Intel and are
engaged in the same basic fields of activity. Intel expects that the level of
this competition will increase in the future from large, established
semiconductor and related product companies, as well as from emerging companies
serving specialized market segments that Intel either serves or plans to enter.
Intel cannot assure you that it will compete successfully with these
competitors.
Some of Intel's competitors have developed and marketed software compatible
products that are intended to compete in the market segments for entry level and
high performance desktop computers, workstations and servers. Intel also faces
competition from rival microprocessor architectures. Intel's continued success
depends on its ability to identify new product opportunities and stay ahead of
its competitors so that such competitor's products will not render Intel's
products obsolete or noncompetitive. In addition, Intel will have to achieve
sufficient cost reductions on existing products because prices decline rapidly
in the semiconductor industry as unit volume grows, competition develops and
production experience is accumulated. Intel's revenues and margins could be
adversely affected and Intel may lose business opportunities if Intel is unable
to match price declines or the technological, product, applications support,
software or manufacturing advances of its competitors.
The market for microprocessors has become increasingly segmented by price.
Intel's strategy has been to introduce ever higher performance microprocessors
tailored for the different segments of the worldwide computing market, using a
tiered brand approach. If consumer demand or end user requirements change,
Intel's sales could shift away from higher margin products, and this could
negatively affect its results of operations and financial condition.
THE COMPUTING INDUSTRY MUST CONTINUE TO BE CHARACTERIZED BY RAPID
TECHNOLOGICAL CHANGE FOR INTEL'S NEW PRODUCTS TO GENERATE SUFFICIENT DEMAND
TO ENABLE INTEL TO ACHIEVE A COMPETITIVE RATE OF RETURN ON ITS CAPITAL
INVESTMENTS.
Intel's success depends on its continued ability to create faster and
better products than its competitors and the ability of the computing industry
to develop new or improved products that are able to utilize Intel's most
current innovations and enhancements. If the demand does not continue to grow
and move rapidly toward higher performance products in the various market
segments, Intel's revenues and gross margin may decrease, Intel's capacity may
be under-utilized and capital spending may be slowed. Intel cannot assure you
that the computing industry will develop to the extent or in the time frames
anticipated by Intel.
THE LOSS OF OR SIGNIFICANT CURTAILMENT OF PURCHASES BY ANY OF INTEL'S
LARGEST CUSTOMERS WOULD LIKELY HAVE AN ADVERSE IMPACT ON INTEL'S REVENUE
AND EARNINGS.
While Intel generates revenues from more than a thousand customers
worldwide, the loss of or significant curtailment of purchases by one or more of
its largest customers, including curtailments due to a change in the sourcing
policies or practices of these customers, would likely adversely affect
16
<PAGE> 22
Intel's earnings and revenues. In 1998, Intel's sales to Compaq Computer
Corporation represented 13% of total revenues and its sales to Dell Computer
Corporation represented 11% of total revenues. No other customer accounted for
more than 10% of total revenues. Sales to Intel's five largest customers
accounted for approximately 42% of total revenues during 1998.
PRODUCTS THAT CONTAIN, OR ARE RUMORED TO CONTAIN, DESIGN DEFECTS OR ERRATA
COULD IMPOSE SIGNIFICANT COSTS ON OR OTHERWISE ADVERSELY AFFECT INTEL.
Because the design and production process for semiconductors is highly
complex, Intel has in the past and may again produce products whose design
deviates from published specifications. Such products are said to contain
"errata." In addition, one or more of Intel's products may be found to contain
production defects after Intel has already shipped such products. These
production defects could be caused by either raw materials or errors in the
production process. If errata or production defects are discovered after Intel
has already shipped one or more of its products in volume, Intel could be
adversely affected in one or more of the following ways:
- Replacements, recalls or software patches could impose substantial costs
on Intel. A software patch may cure the defects but still impedes the
performance of the defective product.
- Rumors, false or otherwise, may be circulated by the press and other
media which could cause a decrease in sales of Intel's products.
- Customers or end users may file suits or assert other legal claims
against Intel alleging damages caused by defective products or errata. If
Intel does not successfully defend such suits, it could be required to
pay substantial damages. Even if Intel prevails in suits filed by
customers or end users, Intel may be required to expend significant funds
in defense.
INTEL MAY BE UNSUCCESSFUL IN ASSERTING, DEFENDING OR LICENSING INTELLECTUAL
PROPERTY RIGHTS, AND SUCH EFFORTS MAY BE TIME CONSUMING, MAY IMPOSE
SIGNIFICANT COSTS ON INTEL, OR MAY CAUSE INTEL TO BE ENJOINED FROM USING
CERTAIN INTELLECTUAL PROPERTY.
In the semiconductor industry, competitors often assert intellectual
property infringement claims against one another. If Intel is notified that it
is infringing the intellectual property rights of others, Intel may seek to
obtain a license under the third party's intellectual property rights or resort
to litigation to defend itself against such claims. Intel cannot assure you that
all necessary licenses can be obtained on satisfactory terms or at all, and any
such litigation could be extremely expensive and time-consuming and could result
in significant damages being awarded to the other party. Injunctive relief could
also be awarded that may prohibit Intel from using certain intellectual
property. Any such result could seriously harm Intel's business or results of
operations.
The success of Intel's business depends in part upon its ability to
successfully defend its intellectual property. Although Intel attempts to
protect its intellectual property rights through patents, copyrights, trade
secrets, trademarks and other measures, Intel cannot assure you that Intel will
be able to protect its technology or other intellectual property adequately or
that competitors will not be able to develop similar technology independently.
Intel also cannot assure you that any patent applications that it may file will
be issued or that foreign intellectual property laws will protect Intel's
intellectual property rights.
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INTEL'S CURRENT AND FUTURE LITIGATION INCLUDING MATTERS OTHER THAN
INTELLECTUAL PROPERTY MAY IMPOSE SIGNIFICANT COSTS ON INTEL OR SUBJECT
INTEL TO INJUNCTIVE RELIEF.
Intel is and in the future may be involved in litigation involving
antitrust, consumer and other laws. The expense of litigating, fees and damages
imposed on Intel and injunctive relief ordered as a result of litigation matters
could all have a material negative affect on Intel's business, results of
operations and financial condition.
EXCESS OR INSUFFICIENT INVENTORIES MAY ADVERSELY IMPACT INTEL'S REVENUES
AND EARNINGS DUE TO EITHER INCREASED INVENTORY COSTS OR LOST CUSTOMERS.
If Intel produces excess or insufficient inventories because it does not
accurately anticipate customer demand, Intel's results of operations could be
adversely impacted due to either increased inventory costs or lost customers.
Intel cannot assure you that the industry projections for future growth upon
which Intel is basing its manufacturing capacity strategy will prove to be
accurate. Most of Intel's customers place orders that may be canceled or
rescheduled without any or without a significant penalty. In addition, Intel's
inventory risk increases during periods of strong demand and/or restricted
semiconductor capacity because, based on Intel's past experience, customers
often over-order to assure adequate supply and then, in some cases, cancel or
postpone orders without notice or significant penalty if other product becomes
available or if end user demand changes. Component shortages from the suppliers
for Intel's customers could also cause those customers to cancel or delay plans
to incorporate Intel's products into the design of target products, resulting in
the cancellation or delay of orders for Intel's products. Conversely, Intel's
results of operations may also be affected if Intel does not add capacity fast
enough to meet market demand.
INTEL'S RELIANCE ON THIRD-PARTY SUPPLIERS MAY RESULT IN INCREASED COSTS OR
DELAYS IF ITS SUPPLIERS FAIL TO DELIVER SUPPLIES AND SERVICES AS EXPECTED.
Intel depends on third parties to provide it with certain critical supplies
and services. If Intel's suppliers fail to deliver supplies and services as
expected by Intel, Intel may suffer manufacturing delays, which could have a
negative impact upon Intel's sales. Intel does not maintain the capability to
replace most third-party supplies with internal production. Increased demand for
Intel's products could result in increased costs or production delays if Intel
is unable to obtain necessary supplies from its third-party suppliers. Supply
agreements cannot eliminate these risks since Intel's suppliers may not be able
to meet increased demand because of their own capacity limitations. In addition,
Intel cannot eliminate these risks simply by increasing its inventories because
Intel is in an industry characterized by rapid technological change, so higher
levels of raw materials and finished goods increases the risks of inventory
obsolescence.
INTEL'S FAILURE TO FREQUENTLY TRANSFORM ITS MANUFACTURING OPERATIONS AND
MANUFACTURING INTERRUPTIONS OR DELAYS COULD CAUSE INTEL TO FAIL TO MEET
CUSTOMER DEMAND FOR ITS PRODUCTS.
Because product cycles are short in the market segments in which it
competes, Intel's success depends on its ability to frequently transform its
manufacturing operations to meet the rapidly changing demands of its customers.
If Intel is unable to execute such manufacturing transitions, including the
current shift to the Pentium(R) III and to the 0.18 micron process technology,
Intel's business, results of operations and financial condition could be
negatively affected.
In addition, Intel could be subject to interruptions of its manufacturing
operations as a result of a labor dispute, equipment failure, natural disaster,
infrastructure failure, political instability or other cause. Such interruptions
may make it impossible for Intel to manufacture a sufficient number of
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products to meet customer demand. Normal manufacturing risks include, for
example, errors and interruptions in the fabrication process arising from
equipment failure or poor performance, delays in deliveries of raw materials and
components by suppliers, and defects in raw materials, all of which can affect
manufacturing yields.
DUE TO INTEL'S ORDER REVISION AND CANCELLATION POLICIES INTEL MAY BE UNABLE
TO SELL PRODUCTS ON WHICH IT SPENT SIGNIFICANT RESOURCES OR MAY HAVE TO DO
SO AT SIGNIFICANTLY LOWER PRICES.
Because of the nature of Intel's sales and distribution arrangements, Intel
must commit resources to the production of products without having received firm
advance purchase commitments from customers. Any inability to sell products to
which it had devoted significant resources or any unexpected significant decline
in the price of Intel's products could have a material negative effect on
Intel's revenues. Intel's products are sold or licensed through its own sales
offices and through industrial and retail distributors and representatives.
Sales made through each of these channels generally do not require that
customers, distributors or representatives make advance purchase commitments,
or, if they do make advance commitments, they are able to avoid such commitments
for contractual or legal reasons.
INTEL'S SIGNIFICANT INTERNATIONAL MANUFACTURING OPERATIONS AND SALES
SUBJECT IT TO RISKS ASSOCIATED WITH RAPID AND UNEXPECTED LEGAL, POLITICAL,
ECONOMIC, SOCIAL, REGULATORY AND OTHER CHANGES OUTSIDE OF THE UNITED
STATES.
The global reach of Intel's business causes it to be subject to unexpected,
uncontrollable and rapidly changing events and circumstances in addition to
those experienced in United States locations. Negative changes in the following
factors, among others, could have a negative impact on Intel's business and
results of operations:
- effects of exposure to currency other than United States dollars, due to
non-U.S. operations and non-U.S. customers, subjects Intel to factors
such as currency controls and fluctuations in foreign currency exchange
rates
- inability of non-US infrastructure providers to support demanding
manufacturing requirements
- differing foreign technical standards
- regulatory, social, political, labor or economic conditions in a specific
country or region
- trade protection laws, policies and measures and other regulatory
requirements affecting trade and investment, including loss or
modification of exemptions for taxes and tariffs, and import and export
license requirements
- exposure to different legal standards, particularly with respect to
intellectual property
- the availability and costs of air and other transportation between
Intel's foreign facilities and the United States
In particular, certain Asian countries have recently experienced
significant economic difficulties, including currency devaluation and
instability, business failures and a generally depressed business climate,
particularly in the semiconductor industry. In view of Intel's significant
manufacturing facilities in Asia and historical sales to Asian customers, the
Asian economic crisis could adversely affect Intel's business and results of
operations.
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INTEL'S CONTINUED GROWTH DEPENDS UPON ITS ABILITY TO RETAIN AND ATTRACT A
SUFFICIENT NUMBER OF QUALIFIED EMPLOYEES.
Intel believes that its future growth and success will depend upon its
ability to retain and motivate key members of its employee team and to attract,
train and retain new engineering, manufacturing, sales and management personnel
in the future. Intel cannot assure you that it will be able to attract and
retain the necessary personnel to manage its operations effectively. Intel faces
intense competition both within and outside of the semiconductor industry to
attract and retain a limited pool of talented employees at all levels. Such
persons include both US and non-US citizens at domestic and foreign locations.
The employment of non-citizens may be restricted by applicable law in the US and
elsewhere.
INTEL'S RECENT AND FUTURE ACQUISITIONS AND TRANSACTIONS MAY NOT BE
SUCCESSFUL.
Intel expects to continue to make acquisitions of, and investments in,
businesses that offer complementary products, services and technologies, augment
its market segment coverage, or enhance its technological capabilities. Intel
may also enter into strategic alliances or joint ventures to achieve these
goals. Intel cannot assure you that it will be able to locate suitable
acquisition, investment, alliance, or joint venture opportunities or that it
will be able to consummate any such transactions or relationships on terms and
conditions acceptable to Intel, or that such transactions or relationships will
be successful.
Any transactions or relationships will be accompanied by the risks commonly
encountered with those matters. Risks that could have a material adverse affect
on Intel's business, results of operations or financial condition include, among
other things:
- the difficulty of assimilating the operations and personnel of the
acquired businesses;
- the potential disruption of Intel's ongoing business;
- the distraction of management from Intel's business;
- the inability of management to maximize the financial and strategic
position of Intel;
- the maintenance of uniform standards, controls, procedures and policies;
- the impairment of relationships with employees and clients as a result
of any integration of new management personnel;
- risk of entering market segments in which Intel has no or limited direct
prior experience and where competitors in such market segments have
stronger market segment positions; or
- the potential loss of key employees of an acquired company.
Neither Intel's employees nor those of the companies it has acquired are
normally hired under employment agreements that require either party to maintain
their employment for any specific period of time. The high demand for numerous
categories of employees in high-technology industries provides employees with
opportunities to leave Intel or the acquired companies on short notice. Intel
has had to deal with employee attrition and other of the above-mentioned risks
in each of its previous acquisitions, although they did not have a material
adverse effect on Intel. With regard to future acquisitions, it is nevertheless
possible that these factors could have a material adverse effect on Intel's
business, results of operations or financial condition. See "Information about
Intel Corporation."
Consideration paid for future acquisitions, if any, could be in the form of
cash, stock, rights to purchase stock or a combination. Future acquisitions by
Intel could result in potentially dilutive issuances of equity securities, large
one-time write-offs, the incurrence of debt and contingent
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liabilities or amortization expenses related to goodwill and other intangible
assets, any of which could materially adversely affect Intel's results of
operations or the price of Intel's common stock.
THE FAILURE OF INTEL'S KEY SUPPLIERS AND OTHERS TO BE YEAR 2000 COMPLIANT
AND INTEL'S FAILURE TO ADEQUATELY DEVELOP AND IMPLEMENT YEAR 2000
CONTINGENCY PLANS COULD CAUSE INTEL TO EXPERIENCE MANUFACTURING
INTERRUPTIONS OR DELAYS THAT COULD ADVERSELY IMPACT INTEL'S BUSINESS,
FINANCIAL CONDITION OR RESULTS OF OPERATIONS.
Intel cannot give you any assurance that the failure to ensure year 2000
capability by a supplier, customer, another third party or Intel would not have
a material adverse effect on its financial condition or overall trends in
results of operations.
Because Intel does not have control over the year 2000 readiness of its
suppliers and other third parties, Intel believes it is subject to risks
relating to infrastructure, telecommunications, transportation supply channels
and critical suppliers of materials. If Intel's suppliers are not year 2000
capable, Intel could experience manufacturing interruptions or shutdowns,
decreased yields, quality inconsistencies, delayed or inaccurate product
testing, delivery delays, or service interruptions. Intel is working with its
suppliers to determine the extent to which they are year 2000 capable and is
developing contingency plans for those who are not making sufficient progress,
but Intel cannot assure you that these contingency plans will adequately address
the year 2000 problem.
Year 2000 issues, either real or imagined, could adversely affect customer
order patterns. Although Intel is developing contingency plans to address
possible changes in customer order patterns due to year 2000 issues, the lack of
readiness of customers to deal with year 2000 issues is beyond Intel's control
and may adversely affect customers' operations and their ability to order and
pay for products. Intel does not believe it is legally responsible for costs
incurred by customers related to ensuring their year 2000 capability, except as
specifically provided for in a "Year 2000 Capable" limited warranty on certain
products, but Intel cannot assure you that customers will not assert claims
based on lack of year 2000 compliance.
Intel's failure to correctly identify and effectively remediate significant
year 2000 risks with its own internal systems could have an adverse impact on
its business operations. Intel is developing contingency plans and will continue
to do so during the remainder of 1999, but Intel cannot assure you that these
contingency plans will adequately address the year 2000 problem.
A SIGNIFICANT NATURAL DISASTER COULD TEMPORARILY AFFECT INTEL'S BUSINESS AND
RESULTS OF OPERATIONS BECAUSE MANY OF INTEL'S FACILITIES ARE LOCATED IN
GEOGRAPHIC REGIONS THAT HAVE HISTORICALLY BEEN SUBJECT TO NATURAL DISASTERS.
Intel's corporate headquarters, a portion of its manufacturing facilities,
assembly and research and development activities, and certain other critical
business operations are located near major earthquake fault lines. In addition,
many other personal computer component makers and many of Intel's customers are
also located near these same earthquake fault lines. In addition, many of
Intel's other facilities, both domestic and international, are located in areas
which have historically been the subject of natural disasters. A significant
natural disaster, such as an earthquake, could have a material adverse impact on
Intel's business and operating results.
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COMPLIANCE WITH CURRENT OR INCREASED ENVIRONMENTAL REGULATIONS COULD IMPOSE
SIGNIFICANT BURDENS ON INTEL, WHICH COULD HAVE AN ADVERSE IMPACT ON INTEL'S
EARNINGS, OPERATING RESULTS AND FINANCIAL CONDITION.
Intel uses a number of hazardous substances to produce its semiconductor
products. Intel's failure to comply with present or future governmental
regulations related to the use, storage, handling, discharge or disposal of
toxic, volatile or otherwise hazardous chemicals used in the manufacturing
process described below could result in suspension of manufacturing operations
and fines being imposed on Intel. Intel may also be required to alter its
manufacturing processes or even cease operations in certain locations, which
would result in significant costs for Intel. Governmental regulations could also
require that Intel incur expensive remediation costs or other expenses to comply
with environmental regulations. Any failure by Intel to control the use,
disposal or storage of, or adequately restrict the discharge of, hazardous
substances, could subject Intel to future liabilities and could otherwise
adversely affect Intel. Liability for cleanup under the Comprehensive
Environmental Response, Compensation and Liability Act is joint and several.
Consequently if other parties that share responsibility with Intel for
contamination at any site are unable to pay for their share of any damages or
remediation, Intel may be held liable to pay for some or all of their share.
In the process of manufacturing integrated circuits, many layers are added
to the surface of a silicon wafer in a particular sequence and pattern to form
the circuit. At specific points in the sequence, surface materials are removed
by polishing, grinding, stripping/etching or cleaning. Many of the materials
used in the process are considered to be hazardous. Materials used in forming
layers on the wafer include organic polymer, solid arsenic, and alloys of
aluminum, copper and silicon. Gases are also used including nitrogen, argon,
helium, phosphine, diborane, dichlorosilane, ammonia and boron trichloride.
Typical solvents for stripping and cleaning include isopropyl alcohol, ethylene
glycol and N-methyl-2-pyrollidone. Stripping, cleaning and developing materials
include sulfuric acid, hydrofluoric acid, sodium hydroxide, hydrogen peroxide,
hexamethyldisilazane, nitric acid and hydrochloric acid.
INCREASED REGULATION OF THE INTERNET OR CHANGES IN THE INTERPRETATION OF
EXISTING LAWS COULD HAVE AN ADVERSE IMPACT ON INTEL BECAUSE DECREASED
INTERNET USE COULD RESULT IN A DECREASED DEMAND FOR INTEL'S PRODUCTS.
Increased regulation of the Internet could cause the growth of the Internet
to decrease or increase the costs of doing business on the Internet, either of
which may result in decreased demand for Intel's products. Decreased demand for
Intel's products would have an adverse effect on Intel's business, results from
operations and financial condition. There are currently few laws or regulations
that apply directly to access or commerce on the Internet. However, due to the
Internet's increasing popularity and use, laws and regulations may be adopted at
the international, non-United States, federal, state and local levels with
respect to the Internet, covering a range of issues. The adoption of any future
laws or regulations might decrease the Internet's growth or impose taxes or
otherwise increase costs for companies doing business on the Internet. In
addition, applicability to the Internet of existing laws or regulations
governing issues such as property ownership, copyrights and other intellectual
property issues, taxation, libel, obscenity and personal property is uncertain.
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RISK FACTORS RELATING TO LEVEL ONE
LEVEL ONE'S RELIANCE ON THIRD PARTIES TO MANUFACTURE, ASSEMBLE AND TEST ITS
PRODUCTS MAY RESULT IN INCREASED COSTS OR DELAYS.
Because Level One does not manufacture the silicon wafers used for its
products, Level One depends on its wafer suppliers to produce wafers in
sufficient quantities to meet customer demand at acceptable yields and at
competitive prices. Level One also depends on wafer suppliers to assemble, test
and deliver wafers on time. In 1994 and 1995, Level One's wafer suppliers
reduced shipments without prior notice, which resulted in increased costs and
delays that required Level One to transfer the production of some products to a
new supplier. Supply agreements with wafer suppliers cannot eliminate this risk
since Level One's suppliers may not be able to produce enough wafers to meet
increased demand because of their own capacity limitations.
IN ORDER TO COMPETE EFFECTIVELY IN THE SEMICONDUCTOR INDUSTRY, LEVEL ONE
NEEDS TO CONTINUALLY DEVELOP NEW PRODUCTS THAT GAIN MARKET ACCEPTANCE.
In the semiconductor industry, price competition is intense and product
life cycles are short. As a result, the average selling price for Level One's
products decreases rapidly as new or competing products are introduced. To
compensate, Level One relies on obtaining yield improvements to reduce
manufacturing costs and on introducing new products which incorporate advanced
features that result in higher average selling prices. To the extent that Level
One does not successfully develop and timely introduce new products that achieve
market acceptance, or to the extent that Level One does not achieve sufficient
cost reductions on existing products to maintain margins, Level One may be
adversely impacted. To be successful, Level One must identify new product
opportunities, stay ahead of its competitors so that their products will not
render Level One's products obsolete or noncompetitive, and gain market
acceptance of its products with target customers. Because of the increasing
complexity of Level One's new products, Level One could experience delays in
completing development and introduction of new products that could adversely
impact its anticipated market share for new products. Level One may be adversely
affected by a failure in any of these areas.
LEVEL ONE'S RECENT ACQUISITIONS PLACE A STRAIN ON LEVEL ONE'S MANAGEMENT
AND PERSONNEL RESOURCES.
In July 1998, Level One acquired Acclaim Communications, Inc. In late
November 1998, Level One acquired Jato Technologies, Inc. In order to
successfully integrate these two newly acquired businesses and successfully
manage Level One's existing business, Level One will need to expand and refine
its management and personnel resources. Level One will also need to
significantly increase its development, testing, quality control, marketing,
logistics and service capabilities. If Level One does not effectively expand and
deploy its resources to meet these needs, Level One's business may be adversely
impacted.
ASSERTING AND DEFENDING INTELLECTUAL PROPERTY RIGHTS MAY IMPACT LEVEL ONE'S
RESULTS OF OPERATIONS REGARDLESS OF SUCCESS.
In the semiconductor industry, competitors often assert intellectual
property infringement claims against one another. The success of Level One's
business depends on its ability to successfully defend its intellectual
property. This litigation may have a material impact on Level One's financial
condition regardless of whether or not Level One is successful. There is no
assurance that Level One will be successful in defending or asserting its
intellectual property rights.
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EXCESS OR INSUFFICIENT INVENTORIES MAY ADVERSELY IMPACT LEVEL ONE'S
REVENUES AND EARNINGS.
If Level One produces excess or insufficient product inventories because it
does not accurately anticipate customer demand, Level One's revenues and
earnings could be materially adversely impacted. This may happen for three
reasons. First, some of Level One's customers place orders with long lead-times
that may be canceled or rescheduled without significant penalty. Second, Level
One's inventory risk increases during periods of strong demand and/or restricted
semiconductor capacity because, based on Level One's past experience, customers
often over-order to assure adequate supply and then may cancel or postpone
orders without notice or significant penalty if other product becomes available.
Third, component shortages from Level One's customers' suppliers could cause
those customers to cancel or delay plans to incorporate Level One's products
into the design of target products, resulting in the cancellation or delay of
orders for Level One's products.
THE COMPLETION OF LEVEL ONE'S 4% CONVERTIBLE NOTE OFFERING HAS INCREASED
LEVEL ONE'S INTEREST EXPENSE AND MAY LIMIT LEVEL ONE'S ABILITY TO OBTAIN
ADDITIONAL FINANCING FOR WORKING CAPITAL, ACQUISITIONS OR OTHER PURPOSES.
Level One incurred approximately $115 million in additional debt as a
result of its issuance in September 1997 of 4% Convertible Subordinated Notes
due 2004. These notes increased Level One's ratio of long-term debt to total
capitalization from 3.0% at June 29, 1997, to 41.7% at December 27, 1998. This
increased leverage has increased Level One's interest expense substantially.
This increased leverage could adversely affect Level One's ability to obtain
additional financing for working capital, acquisitions or other purposes and
could make Level One more vulnerable to economic downturns and competitive
pressures. This increased leverage could also affect Level One's liquidity, as a
substantial portion of available cash from operations may have to be applied to
meet debt service requirements and, in the event of a cash shortfall, Level One
could be forced to reduce other expenditures and/or forego potential
acquisitions to be able to meet such requirements.
THE FAILURE OF LEVEL ONE'S KEY SUPPLIERS TO BE YEAR 2000 COMPLIANT AND
LEVEL ONE'S FAILURE TO DEVELOP YEAR 2000 CONTINGENCY PLANS COULD CAUSE
LEVEL ONE TO EXPERIENCE MANUFACTURING INTERRUPTIONS OR DELAYS THAT COULD
ADVERSELY IMPACT LEVEL ONE'S BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS.
Level One is currently in the process of determining whether there are any
critical areas in its business that are not Year 2000 compliant. Level One has
begun a comprehensive project to prepare its computer systems for the Year 2000.
Level One presently estimates that the total cost of addressing its Year 2000
problems will be approximately $500,000, of which approximately 48% has been
expended to date. This cost estimate was derived utilizing numerous assumptions,
including the assumption that Level One has already identified its most
significant Year 2000 problems and that the assessment, remediation and
contingency plans of its third party suppliers will be fulfilled in a timely
manner without significant additional cost to Level One. Level One believes that
there is a remote possibility of an adverse impact on its business due to
problems with its internal systems or products. Level One's products have no
date specific functions or date dependencies and will operate according to
published specifications through the Year 2000 and dates into the 21st century.
As part of its Year 2000 assessment, Level One is contacting key suppliers of
products and services to determine whether such suppliers' operations, products
and services are Year 2000 capable and/or to monitor their progress toward Year
2000 compliance. If Level One's suppliers are not Year 2000 compliant, Level One
could experience manufacturing interruptions or shutdowns, decreased yields,
quality inconsistencies, delayed or inaccurate product testing, delivery delays,
or service interruptions. It is possible that one or more of these problems
could have a material adverse effect on Level One's business, financial
condition, or results of operations. There is also a risk because Level One has
not
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yet fully developed Year 2000 contingency plans to address any failure of Level
One's Year 2000 assessment to identify and remediate significant Year 2000 risks
to its business operations. Development of contingency plans is in progress and
will continue during calendar year 1999. Such plans include or could include
accelerating replacement of affected equipment or software, using back-up
equipment and software, developing temporary manual procedures to compensate for
system deficiencies, and identifying Year 2000 capable suppliers and service
providers. There can be no assurance that any such contingency plans would
adequately address the Year 2000 problem. The failure to develop a successful
contingency plan could result in significant delays and inefficiency in Level
One's business which could have a material adverse effect on Level One's
business, financial condition and results of operations.
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LEVEL ONE SPECIAL MEETING
GENERAL
This proxy statement/prospectus is first being mailed to the record holders
of Level One common stock around July 9, 1999. Also enclosed is a notice of the
special meeting of Level One stockholders and a form of proxy that the Level One
board of directors is soliciting for use at the special meeting and at any
adjournments or postponements thereof. The special meeting will be held on
August 9, 1999, 9:00 a.m., local time, at 9800 Old Placerville Road,
Sacramento,, California.
MATTERS TO BE CONSIDERED
The purpose of the special meeting is to vote on the merger agreement.
Level One stockholders may also be asked to vote upon a proposal to adjourn or
postpone the special meeting to allow additional time for the solicitation of
additional votes to approve the merger agreement if the secretary of the meeting
determines that there are not sufficient votes to approve the merger agreement.
PROXIES
Level One stockholders should fill out and send back the accompanying form
of proxy if they will be unable to attend the special meeting in person. Level
One stockholders may revoke their proxies at any time before the proxies are
exercised by giving the secretary of Level One written notice of revocation,
properly executed proxies of a later date or by attending the special meeting
and voting in person. Written notices of revocation and other communications
with respect to the revocation of Level One proxies should be addressed to Level
One Communications, Incorporated, 9750 Goethe Road, Sacramento, California
95827, Attention: John Kehoe. All shares represented by valid proxies received
and not revoked before they are exercised will be voted in the manner specified
in the proxies. If no specification is made, the proxies will be voted in favor
of the merger agreement. No proxy that is voted against the merger agreement
will be voted in favor of any adjournment or postponement of the special meeting
for the purpose of soliciting additional proxies. However, if a stockholder
abstains from voting on the adoption of the merger agreement and makes no
specification on an adjournment or postponement for the purpose of soliciting
additional proxies, then the proxy will be voted for the adjournment or
postponement.
SOLICITATION OF PROXIES
Level One will pay the entire cost of soliciting proxies. In addition to
soliciting proxies by mail, Level One will request banks, brokers and other
record holders to send proxies and proxy material to the beneficial owners of
Level One stock and obtain their voting instructions, if necessary. Level One
will reimburse these record holders for their reasonable expenses in performing
these tasks. Level One has also made arrangements with Corporate Investor
Communications to assist in soliciting proxies from banks, brokers and nominees
and has agreed to pay Corporate Investor Communications approximately $7,000
plus expenses for its services. If necessary, Level One may also use several of
its regular employees, who will not be specially compensated, to solicit proxies
from Level One stockholders, either personally or by telephone, letter or other
means.
RECORD DATE AND VOTING RIGHTS
The Level One board of directors has fixed July 7, 1999 as the record date
for determining the Level One stockholders entitled to notice of and to vote at
the Level One special meeting. Therefore,
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only stockholders of record at the close of business on the record date will
receive notice of, and be able to vote at, the Level One special meeting. At the
close of business on the record date, there were 39,443,081 shares of Level One
common stock outstanding held by about 435 record holders in addition to
approximately 15,400 holders who do not hold shares in their own names. A
majority of these shares must be present at the special meeting, either in
person or by proxy, in order for there to be a quorum at the special meeting.
There must be a quorum in order for the vote on the merger agreement to occur.
Each share of outstanding Level One common stock entitles its holder to one
vote.
Shares of Level One common stock present in person at the Level One special
meeting but not voting, and shares for which Level One has received proxies but
with respect to which holders of these shares have abstained, will be counted as
present at the special meeting for purposes of determining whether or not a
quorum exists. Brokers who hold shares in nominee or "street" name for customers
who are the beneficial owners of the shares may not give a proxy to vote shares
held for these customers on the matters to be voted on at the special meeting
without specific instructions from them. However, broker non-votes will be
counted for purposes of determining whether a quorum exists.
Under Delaware law and Level One's certificate of incorporation, holders of
a majority of the outstanding shares of Level One common stock entitled to vote
at the Level One special meeting must vote for the merger agreement in order for
it to be adopted by Level One.
Because approval of the merger agreement requires the affirmative vote of
holders of a majority of the outstanding shares of Level One common stock
entitled to vote at the special meeting, abstentions and broker non-votes will
have the same effect as votes against approving the merger agreement. Therefore,
the Level One board of directors urges stockholders to complete, date and sign
the accompanying proxy and return it promptly in the enclosed, postage-paid
envelope.
As of the record date, Level One's directors and executive officers
beneficially owned about 3,140,000 shares of Level One common stock, entitling
them to exercise about 7.83% of the voting power of the Level One common stock
entitled to vote at the special meeting. Level One expects that each of these
directors and/or executive officers will vote his or her shares for the merger
agreement.
More information about the beneficial ownership of Level One common stock
by those who own more than 5% of the stock, and more detailed information about
the beneficial ownership of Level One common stock by directors and executive
officers of Level One, can be found in Level One's annual report on Form 10-K
for the year ended December 27, 1998. See "Where You Can Find More Information."
RECOMMENDATION OF LEVEL ONE BOARD
The Level One board has unanimously approved the merger agreement and the
proposed merger and other transactions described in the merger agreement. The
Level One board believes that the merger agreement is in the best interests of
Level One and its stockholders and recommends that Level One stockholders vote
"FOR" the merger agreement. See "The Merger -- Recommendation of the Level One
Board of Directors and Level One's Reasons for the Merger."
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THE MERGER
The following summary of the material terms and provisions of the merger
agreement and the option agreement is qualified by reference to the merger
agreement and the option agreement. The merger agreement is attached as Appendix
A and the option agreement is attached as Appendix B to this proxy
statement/prospectus, each of which is incorporated herein by reference. This
section of the proxy statement/prospectus describes the most significant aspects
of the merger, including the principal provisions of the merger agreement and
the option agreement between Level One and Intel.
BACKGROUND OF THE MERGER
As a regular part of its business plan Level One has from time to time
considered opportunities for expanding and strengthening its technology,
products, research and development capabilities and distribution channels,
including strategic acquisitions, business combinations, investments, licensing
and development agreements and joint ventures. Until recently, Level One has
focused on independent growth and establishment of market segment share and has
not seriously considered being acquired by a larger company. On December 9,
1998, however, during a dinner meeting called by Mark Christensen, Vice
President and General Manager, Network Communications Group of Intel, to discuss
with Robert S. Pepper, Ph.D., Chairman and Chief Executive Officer of Level One
and Greg Lang, Vice President, Network Interface Division of Intel, the current
status of various programs underway between Level One and Intel, Mr. Christensen
suggested that Level One consider entering into discussions regarding a possible
combination of Intel and Level One. Earlier that day, Mr. Christensen had met
with Leslie Vadasz, Senior Vice President of Intel and Arvind Sodhani, Vice
President and Treasurer of Intel to discuss the possible concept of acquiring
Level One.
Since August 1995, Level One has sold various products to Intel, including
repeaters. In mid-1998, Intel and Level One began discussing Level One's second
generation 8-port repeater product. There were also discussions about a new
Level One's transceiver product, which ultimately led to a memorandum of
understanding between Level One and Intel that was announced in September 1998.
In connection with that business relationship, Level One and Intel executed a
corporate non-disclosure agreement on August 18, 1995, as amended from time to
time, pursuant to which all of these discussions were conducted. For a more
detailed description of Level One's products see "Information about Level One
Communications."
On December 18, 1998, during a scheduled internal meeting at Intel
involving Mr. Vadasz, Mr. Sodhani, Craig Barrett, Chief Executive Officer of
Intel, Andy Grove, Chairman of Intel, Andy Bryant, Chief Financial Officer of
Intel and Mr. Christensen, agreement was reached to continue exploratory
acquisition discussions with Level One.
On December 29, 1998, Mr. Vadasz called Dr. Pepper to inquire about Level
One's interest in pursuing acquisition discussions. During that conversation,
both Dr. Pepper and Mr. Vadasz discussed the strategic fit both perceived in
such a combination. Dr. Pepper indicated to Mr. Vadasz that Level One was
willing to explore further discussions with Intel.
On January 14, 1999, Dr. Pepper, John Kehoe, Senior Vice President and
Chief Financial Officer of Level One, Michael Wodopian, Vice President, Business
Development of Level One, Mr. Christensen (by video teleconference), Guy
Anthony, Assistant Treasurer of Intel, Mr. Sodhani, Mr. Vadasz, Kirby Dyess,
Vice President, Business Development of Intel, Keith Larson, Manager, Business
Development of Intel, and Mr. Lang met at Intel's facility in Santa Clara,
California. At the meeting, Level One's executives made a presentation regarding
Level One's business and its product strategy.
On January 18, 1999, during a conference call with Mr. Kehoe, Messrs.
Anthony and Sodhani proposed a possible cash acquisition of Level One for a
premium of approximately 27% over the
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38 5/8 price of Level One on that date, and the assumption of all outstanding
Level One options. Mr. Kehoe responded that Level One preferred a tax-free
reorganization in which Level One stockholders would have a continuing stock
ownership interest in Intel. Mr. Kehoe agreed to report the proposal to the
board of directors of Level One. Mr. Sodhani indicated that Intel had never done
a stock transaction and that the Intel board of directors preferred an all cash
transaction.
On January 19, 1999, during a scheduled internal meeting at Intel involving
Mr. Vadasz, Mr. Sodhani, Dr. Barrett, Dr. Grove, Mr. Bryant, Mr. Christensen,
Mr. Anthony, Ms. Dyess and Suzan A. Miller, in-house senior legal counsel of
Intel, the status of negotiations was discussed and a decision was reached to
seek Intel board of directors approval for an acquisition.
On January 19, 1999, during a conference call with Messrs. Sodhani and
Anthony, Mr. Kehoe indicated that Level One would be willing to accept a price
in the high $50's to low $60's. Messrs. Sodhani and Anthony responded that Intel
would not be able to structure a transaction at such a price level.
On January 21, 1999, at a regularly scheduled meeting, Level One's board,
among other things, discussed the status of the proposed transaction with Intel.
Members of the board discussed the strategic advantages to Level One that would
result from a merger with Intel. Dr. Pepper presented to the board a summary of
all discussions with Intel, and the board provided Dr. Pepper some guidance
about the circumstances under which Level One should continue discussions. Among
the considerations were that the transaction be structured as an all-stock
tax-free transaction in order to enable Level One stockholders to continue their
ownership interest in the venture, albeit with a much smaller percentage, but in
a much larger enterprise, which has significant liquidity. Following that
discussion, Graham & James LLP, outside legal counsel to Level One, made a
detailed presentation about the fiduciary obligations of the directors. Based on
that information, the board directed Dr. Pepper to contact Mr. Vadasz to
continue discussions. Concurrently, Mr. Vadasz called Dr. Pepper and suggested a
meeting between Dr. Pepper and Dr. Barrett to discuss the strategic advantages
of a combination.
On January 26, 1999, Dr. Pepper met with Dr. Barrett at Intel's facility in
Santa Clara, California. During the meeting, they were joined by Dr. Grove. The
parties agreed there could be a strategic fit of Level One with Intel's Network
Communications Group.
On January 27, 1999 Intel's board was given a presentation by Intel
management proposing an acquisition of Level One. The board approved a
resolution authorizing an acquisition within specified parameters, including a
deal structure involving either cash or Intel stock and the assumption of
outstanding options, warrants, convertible debt and other rights to acquire
Level One common stock.
On January 28, 1999, Mr. Sodhani called Mr. Kehoe to confirm that the Intel
board of directors had decided, in principle, to pursue a potential merger with
Level One and was willing to consider an all-stock tax-free merger.
On February 3, 1999, Level One's board held a telephonic meeting after
which the board instructed Dr. Pepper to engage Lehman Brothers as Level One's
financial advisor with respect to the proposed transaction. On February 5, 1999,
an engagement agreement was entered into between Level One and Lehman Brothers.
On February 10, 1999, Dr. Pepper and Messrs. Kehoe and Wodopian met with
representatives of Lehman Brothers and Graham & James LLP to discuss various
aspects of the proposed transaction, including the strategic aspects of the
transaction, the proposed structure, valuation issues and timing concerns. A
portion of the discussion also focused on a due diligence request received from
Intel. After this meeting, the parties held a conference call with Mr. Sodhani,
Ms. Miller and Mr. Anthony
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to introduce Lehman Brothers and Graham & James and discuss organizational and
timing matters. Subsequently, Lehman Brothers had a telephone conversation with
Mr. Sodhani to discuss the proposed terms of the transaction.
On February 16, 1999, Level One held a telephonic board meeting to discuss
the transaction. During this call, Lehman Brothers and Dr. Pepper advised the
Level One board of the status of price negotiations with Intel, whose
representatives had indicated that Intel's board would not consider an exchange
ratio that valued the Level One shares at a price per share above the mid $50's.
Following Lehman Brothers' and Dr. Pepper's report, the board discussed the
advantages and disadvantages of suspending the discussions with Intel. Among
other things, the board considered Intel's price indication in light of their
preliminary expectations in mid-January of a price in the high $50's to low
$60's, when Level One's stock was trading at over $40 per share, and the $34 per
share price at which Level One's stock was trading on February 16, 1999. After
an extensive discussion, the board determined to continue the discussions with
Intel and instructed Dr. Pepper and Mr. Kehoe accordingly.
On February 18, 1999, Dr. Pepper, Messrs. Kehoe, Wodopian, Sodhani,
Anthony, Larson, and Christensen and Ms. Dyess, met at the offices of Gibson,
Dunn & Crutcher LLP, outside corporate counsel to Intel, in San Francisco to
discuss principal synergies and potential hurdles in connection with the merger,
including the synergies discussed below in the section titled "-- Recommendation
of the Level One Board of Directors and Level One's Reasons for the Merger."
Following this meeting Dr. Pepper reported on the status of the transaction to
several Level One board members individually. On February 22, 1999, Mr. Vadasz
called Dr. Pepper to discuss the status of the negotiations and to ascertain
whether an agreement could be reached. Dr. Pepper reported that members of the
Level One board were enthusiastic about the strategic advantages in the merger
and, given the decline in Level One's stock price from as high as $41 3/8 on
January 20 to $31 13/16 on February 17, may be willing to accept a price in the
mid $50's. On February 23, 1999, Dr. Pepper and Mr. Kehoe met at Lehman
Brothers' offices in San Francisco to discuss the status of the transaction and
had a telephonic negotiation session with Mr. Sodhani. After an extensive
discussion, the parties adjourned for the evening.
On February 24, 1999, the directors of Level One conducted a telephonic
board meeting. Also in attendance were representatives of Graham & James and
Lehman Brothers. Dr. Pepper reported that, after extensive negotiations, subject
to due diligence review, Intel was prepared to consider an exchange ratio
without any collar that implied a price of $54 per share of Level One at that
time. It was proposed that the exchange ratio be fixed using the closing Intel
price on the trading day prior to the day on which the definitive merger
agreement was executed, subject to renegotiation or termination until the
agreement was actually signed. The board noted Level One's closing stock price
activity since the February 16, 1999 meeting, which included a drop to as low as
$31 3/8 on February 19, 1999 and a closing price of $33 5/8 on February 23,
1999. The board also noted that the price of Level One's stock dropped relative
to the price of Intel's stock, which remained in the mid-to low $60's, as
adjusted for Intel's stock split. After an extensive discussion and
presentations by Lehman Brothers, the board voted to proceed with the
negotiation of a possible transaction valued at $54, subject to acceptable terms
in the merger agreement and a due diligence review of Intel.
Later on February 24, 1999, representatives from Level One, Intel, Lehman
Brothers, Gibson, Dunn & Crutcher and Graham & James held a telephonic meeting
to discuss organizational matters, the due diligence process, the external
communications program and the merger agreement with the goal of moving forward
as expeditiously as possible to complete due diligence and execute a definitive
merger agreement. On February 25 and 26, 1999, representatives from Level One,
Intel, Lehman Brothers, Gibson, Dunn & Crutcher and Graham & James held
additional telephonic meetings to discuss the due diligence process, external
communications and the draft merger agreement. On
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February 27 and 28, 1999, representatives from Level One, Intel, Lehman
Brothers, Gibson, Dunn & Crutcher and Graham & James met at Graham & James'
offices in Sacramento, California to conduct due diligence regarding each party
and negotiate the terms of the merger agreement.
Also on February 27, 1999, Level One held a telephonic board meeting to
discuss the potential transaction. At that meeting, Graham & James made a
presentation on the significant terms and conditions of the draft merger
agreement and reviewed the board's fiduciary duties with respect to considering
an acquisition transaction and the proposed terms of the draft merger agreement.
Representatives of Lehman Brothers discussed with the board certain valuation
metrics applicable to the proposed transaction, such as the comparable company
analysis, the comparable transactions analysis, the premiums paid analysis, the
historical exchange ratio analysis, the contribution analysis and the pro forma
merger analysis, all of which are discussed below in the section titled
"-- Opinion of Level One's Financial Advisor." Representatives of Lehman
Brothers also discussed the possibility of other potential acquirers and the
likelihood that any other company would under the circumstances be interested in
an acquisition of Level One. The Level One board, management and financial and
legal advisors then engaged in an extensive discussion of the various advantages
and disadvantages of a potential acquisition by Intel, an acquisition by another
company or a strategy of remaining independent. Management reported that while
Level One has, from time to time, considered all manner of strategic
acquisitions, business combinations, investments and joint ventures, they have
not received any offers or serious expressions of interest from any party other
than Intel. The board then discussed the possibility of seeking other offers and
concluded that since the likelihood of finding an additional acceptable suitor
was low, the risks associated with the delay in seeking an additional suitor and
the potential detrimental effect on the proposed acquisition by Intel of such a
delay outweighed the possible benefits of seeking an additional suitor. The
board also considered the approximately 60% premium, based on the $33 1/2
closing price of Level One stock on February 26, to be paid for Level One shares
being discussed by Level One and Intel. The board therefore elected not to
conduct a formal "market check."
The board then discussed the alternative of remaining independent. Members
of management and the board believed that while Level One was capable of
achieving its long-term goals as a stand-alone entity, if appropriate terms
could be reached, Level One stockholders would benefit from becoming part of a
much larger, more diversified, well-known and historically well-managed company.
The board then discussed a number of matters relating to the terms of the
proposed merger, including the proposed exchange ratio, the conditions to
closing, the ability to consider competing proposals, the proposed stock option
agreement and termination provisions. The Level One board then instructed
management to continue discussions with respect to the proposed merger and
provided management with a negotiating framework with respect to the terms of
the proposed merger.
On March 1, 1999, representatives of Level One, Intel and Lehman Brothers
and their respective counsel met at the offices of Gibson, Dunn & Crutcher in
San Francisco, California to negotiate the terms of the merger agreement, while
separate teams from Level One, Intel, Lehman Brothers, Graham & James and
Gibson, Dunn & Crutcher met at Graham & James' offices in Sacramento to continue
due diligence. Later on March 1, 1999, the Level One board held a telephonic
board meeting that was attended by representatives of Lehman Brothers and Graham
& James. At this meeting, Graham & James reviewed the latest terms of the draft
merger agreement, copies of which had previously been delivered to each board
member. Representatives of Lehman Brothers then made a presentation to the Level
One board regarding the terms, structure and valuation aspects of the proposed
merger. This presentation included a discussion of the several analyses of the
terms of the merger described under "-- Opinion of Level One's Financial
Advisor."
On March 2, 1999, the Intel transaction team reviewed the status of
negotiations and due diligence with Dr. Barrett and Messrs. Vadasz, Sodhani and
Christensen.
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On March 3, 1999, Level One held a board meeting at which all of its
directors were present either in person, via video conference or telephonically.
Graham & James updated the board on the status of the merger agreement, copies
of which had been previously distributed to each board member. Representatives
of Lehman Brothers updated the board on the status of the exchange ratio
negotiations. The board engaged in an extensive discussion of the perceived
advantages and disadvantages of the proposed merger, including the factors
discussed under "-- Recommendation of the Level One Board of Directors and Level
One's Reasons for the Merger." After discussion, the board approved an exchange
ratio of 0.47, which would have been 0.94 after adjustment for Intel's two for
one stock split paid on April 11, 1999, and instructed management to continue to
negotiate the terms of the merger agreement.
On March 4, 1999, the market price of the Level One common stock declined
from $32 3/8 on March 3 to below $30, closing at $27 1/8 per share. Intel's
common stock, which had closed at $114 11/16 on March 3, ended March 4 at
$113 3/8 per share, which equate to stock prices of $57 11/32 and $56 11/16
respectively after giving effect to Intel's two for one stock split paid on
April 11, 1999. Accordingly, Intel re-evaluated the exchange ratio and proposed
that it be adjusted down to 0.43, which, after adjustment for Intel's two for
one stock split paid April 11, 1999, represented an exchange ratio of 0.86.
Representatives of Level One, Intel and Lehman Brothers met to discuss the
effect of the stock price on the proposed exchange ratio. Following such
discussions, Level One held another telephonic board meeting at which
management, Graham & James and Lehman Brothers updated the board on the revised
exchange ratio proposal from Intel and the terms of the merger agreement. The
board then discussed the opinion of Lehman Brothers that as of March 4, 1999,
from a financial point of view, the revised exchange ratio was fair to Level
One's stockholders and noted that the premium of approximately $21.63
represented by the 0.43 exchange ratio as of March 4 was substantially the same
as the premium of approximately $21.53 represented by the 0.47 exchange ratio as
of March 3. The Board also considered the various factors set forth under
"-- Recommendation of the Level One Board of Directors and Level One's Reasons
for the Merger." After further discussion the board voted unanimously to
authorize a reduction in the exchange ratio to 0.43 and approved the final terms
of the merger agreement, the stock option agreement and the exhibits thereto.
Following this meeting, the parties finalized the merger agreement, the
stock option agreement and all exhibits. Level One, Intel and Intel's subsidiary
then executed the merger agreement and the stock option agreement and publicly
announced the execution after the close of the market on March 4, 1999.
INTEL'S REASONS FOR THE MERGER
Intel's strategic intent is to grow a multi-billion dollar business and
become one of the leading wireline data communications semiconductor chip
suppliers through internal development, strategic acquisitions and alliances.
Intel's board of directors unanimously approved the merger and determined that
the merger would provide Intel with a strategic presence in wireline data
communications semiconductor chips and that Level One's leadership in key market
segments would complement Intel's leadership in client networking solutions. In
approving the merger Intel's board considered the following benefits:
- The merger complements Intel's core strengths in semiconductor chips,
network client connections and original equipment manufacturing sales
capability.
- The merger will position Intel to serve the growing wireline
communications semiconductor chip market segment with a broad sales
channel, compelling technology and cost effective product integration,
manufacturing and packaging.
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- Level One is a leader in the market segments they serve and will bring
Intel a strong marketing and engineering capability in the local area
network and wide area network system semiconductor chip market segments.
- Level One's sales channel provides opportunities for increased sales of
complementary Intel product lines.
The above discussion of reasons for the merger includes forward-looking
statements about possible or assumed future results of operations of the
combined company and the performance of the combined company after the merger.
Future results and performance are subject to risks and uncertainties, which
could cause such results and performance to differ materially from those
expressed in these statements. For a discussion of these risks and
uncertainties, and other factors that could affect future results and
performance, see "Risk Factors."
RECOMMENDATION OF THE LEVEL ONE BOARD OF DIRECTORS AND LEVEL ONE'S REASONS FOR
THE MERGER
The Level One board of directors believes that the merger is advisable and
fair to and in the best interests of Level One and Level One's stockholders.
Accordingly, the Level One board of directors has unanimously approved the
merger agreement and unanimously recommends that Level One stockholders vote for
the adoption of the merger agreement and the transactions contemplated by that
agreement, including the merger.
The Level One board of directors has approved the merger primarily because
it believes that the combined company, as compared to Level One on its own, will
provide significantly greater opportunities to expand the nature and scope of
Level One's products and technologies, which will in turn benefit Level One
stockholders. The Level One board of directors believes that the merger provides
Level One with the resources necessary to use its technological advantages to
move into rapidly expanding market segments and allows it the opportunity to
increase internal research and development while continuing its strategy of
acquiring technologies. The merger will also provide Level One with a vastly
increased distribution system and sales force, permitting more rapid
introduction of new products to the market and will significantly improve its
ability to meet customer demand for communications integrated circuits in local
area networks and wide area networks as these two areas converge as well as in
public telephone transmission networks.
The Level One board of directors believes that because of the advantages
and synergies described above the merger will also increase value for Level One
stockholders, as well as provide a more stable platform for Level One's
employees and customers. While the merger will result in Level One stockholders
not being able to benefit directly from the expected benefits to Level One's
business effected by the merger, the Level One board of directors believes that
the merger will yield for Level One stockholders an attractive exchange ratio
for their shares of Level One common stock, while enabling them to continue to
share in Level One's growth over the long term as part of a much larger and
highly successful company with a highly liquid trading market. The board
believes the liquidity provided by the market for Intel common stock will
substantially reduce the risk associated with an investment in a smaller company
such as Level One.
The above discussion of reasons for the merger includes forward-looking
statements about possible or assumed future results of operations of the
combined company and the performance of the combined company after the merger.
Future results and performance are subject to risks and uncertainties, which
could cause such results and performance to differ materially from those
expressed in these statements. For a discussion of these risks and
uncertainties, and other factors that could affect future results and
performance, see "Risk Factors."
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In reaching its decision to approve the merger agreement and the option
agreement, the Level One board of directors consulted with Level One's
management, as well as with its financial and legal advisors, and considered a
number of factors, including the following:
- The Level One board of directors reviewed various historical information
concerning Level One's and Intel's respective businesses, financial
performances and conditions, operations, technologies, management teams
and competitive positions. The Level One board of directors considered
available information on Intel including its public reports for its most
recently completed fiscal year and subsequent fiscal quarters as filed
with the Securities and Exchange Commission. In addition, the board of
directors instructed management and Lehman Brothers to conduct additional
due diligence on Intel's financial condition and prospects and the
results of that due diligence were reported to the board of directors.
The board of directors concentrated particularly on the two companies'
financial condition, results of operations, business and prospects before
and after giving effect to the merger. In particular, the Level One board
of directors noted that both companies had significant revenue and
operating profit growth over recent years and are leaders in their
respective market segments. Based in part upon these factors, the Level
One board of directors believes that a merger with Intel would be
advisable and fair to and in the best interests of Level One and Level
One's stockholders.
- The Level One board of directors examined current financial market
conditions and historical market prices, volatility and trading
information with respect to Level One common stock and Intel common
stock. In particular, the board noted the recent fluctuations in Level
One's stock price, from lows such as $16 3/8 as recently as October 8,
1998, to a recent high of $41 3/8 on January 20, 1999. While Intel's
stock is also subject to fluctuations, they are not as significant on a
percentage basis as Level One's stock. In addition, the board noted that
Intel's daily trading volume reported by The Nasdaq Stock Market averaged
approximately 17 million shares over the three months prior to March
1999, which equates to a volume of 34 million shares after giving effect
to Intel's two for one stock split paid on April 11, 1999, while Level
One's averaged approximately 900,000 shares over the same time period.
- The Level One board of directors compared the consideration to be
received by Level One stockholders in the merger with the consideration
received in various comparable merger transactions. The details of this
comparison are set forth below under "-- Opinion of Level One's Financial
Advisor." Based on this comparison, the Level One board of directors
believes that an exchange ratio of 0.86 shares of Intel common stock for
each share of Level One common stock falls within the range of what is
reasonable and fair for Level One's stockholders.
- The Level One board of directors viewed the terms of the merger agreement
and option agreement, including but not limited to the parties'
representations, warranties and covenants, the conditions to their
respective obligations and the termination provisions, as reasonable in
light of the entire transaction. The Level One board of directors also
considered the terms of the proposed merger agreement regarding Level
One's rights to consider and negotiate other acquisition proposals in
certain circumstances, as well as the possible effects of the option
agreement and the provisions regarding liquidated damages. The Level One
board of directors considered that the provisions in these agreements for
the benefit of Level One reasonably protected the interests of Level One
stockholders, and those for the benefit of Intel did not present any
significant reasons not to proceed with the transaction considering all
of the circumstances.
- The Level One board considered favorably the detailed financial analyses
and pro forma and other information relating to the two companies
presented by Lehman Brothers, including Lehman Brothers' opinion that the
0.86 exchange ratio was fair to the Level One stockholders
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from a financial point of view. The Level One board viewed the analyses
and opinion of an independent, internationally recognized financial
advisor such as Lehman Brothers to be important factors in reaching a
determination that the transaction should be approved.
- The Level One board of directors considered the anticipated impact of the
proposed transaction on the combined company's future performance,
financial and otherwise. In this regard, the Level One board of directors
expected that the combined company might be able to realize synergies in
their combined manufacturing, purchasing and sales and administrative
operations. Potential synergies considered by the Level One board
included expanded sales and marketing capabilities, increased purchasing
power for raw materials and other resources, increased product
development capabilities and increased access to manufacturing
technologies and capabilities. The Level One board of directors also
evaluated the potential for any cost savings. The Level One board of
directors also noted favorably that the former Level One stockholders, as
stockholders of Intel, would share the benefits of any of these
synergies.
- The Level One board considered the merger's impact on Level One's
customers and employees. Generally, the Level One board viewed the impact
on employees as positive, in that they would become part of a world
renowned leader in computer chip design and manufacturing and a highly
successful company that has substantially greater resources than Level
One. The Level One board also generally viewed the impact on Level One's
customers as positive, in that they would also have the benefits of an
industry leader standing behind Level One's product lines and knowing
that Level One will likely have the resources to continue to develop the
faster and more efficient chips demanded by its customers. At the same
time, however, the Level One board noted that the transaction could
create some transitional dislocation and uncertainty, such as the
possible loss of jobs or relocation of employees as is typical in similar
transactions.
- The Level One board received reports from Level One's management and its
financial advisor as to the results of their due diligence investigation
of Intel, which consisted of a review of publicly available information
and research analyst reports and a conference call with members of Intel
management. Such reports indicated no significant issues that would
preclude the Level One board's approval of the merger.
- The Level One board of directors also identified and considered a variety
of potentially negative factors in its deliberations concerning the
merger, including, but not limited to:
- the challenges of integrating a business such as Level One with a
company such as Intel and the attendant risk that the potential
benefits sought in the merger might not be fully realized;
- the possibility that the merger might not be consummated and the
effect of public announcement of the merger on:
1. Level One's sales, operating results and stock price;
2. Level One's ability to attract and retain key management, sales
and marketing and technical personnel; and
3. the progress of potential and actual technology development
projects with third parties who may view working with Intel
differently than working with Level One.
- the possibility of substantial charges to be incurred in connection
with the merger, including costs of integrating the businesses and
transaction expenses arising from the merger;
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- the risk that despite the efforts of the combined company, key
technical and management personnel might not remain employed by the
combined company;
- the interests of certain officers and directors of Level One in the
merger, including the matters described under "-- Interests of Level
One's Management in the Merger and Potential Conflicts of Interests;"
- the effect on the ability of Level One to consider competing offers
prior to consummation of the merger, including the effect of the
covenant to not solicit other bidders and the liquidated damages
provisions in the merger agreement;
- the effect of the option agreement on Level One's capital structure
and the fact that by entering into the option agreement Level One
would likely be precluded from being acquired in a
pooling-of-interests transaction;
- risks associated with fluctuations in Intel's stock price prior to
closing of the merger; and
- various other risks.
The Level One board also considered what alternatives existed to the
merger, including reviewing the prospects for Level One as an independent
company. In light of the factors described above, the Level One board determined
that the value and benefits available to Level One stockholders from the merger
exceeded the potential they might realize from Level One's continuing as an
independent company.
The Level One board also considered the potential that another third party
might be willing to enter into a strategic relationship with or acquire Level
One. The Level One board did not, however, view this as likely, given that there
are a limited number of suitable candidates and, except for Intel, none had made
any substantive proposal for a relationship or acquisition, despite
opportunities to do so. In this light, the Level One board of directors also
evaluated Intel's requirement before entering into any agreement that Level One
agree to the provisions of the merger agreement limiting Level One's rights to
consider and negotiate acquisition proposals with others. It appeared unlikely
to the Level One board that Level One would be able to enter into a transaction
with Intel without these provisions. In such case, the Level One stockholders
would not realize any of the value or benefits offered by the Intel merger.
The above discussion of the information and factors considered by the Level
One board of directors is not intended to be exhaustive but includes all
material factors considered by it. In reaching its determination to approve and
recommend the merger, the Level One board of directors did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have given differing weights to different factors. The Level One board of
directors is unanimous in its recommendation that Level One stockholders vote
for approval and adoption of the merger agreement. For a discussion of the
interests of certain executive officers and directors of Level One in the
merger, see "-- Interests of Level One's Management in the Merger and Potential
Conflicts of Interests."
INTERESTS OF LEVEL ONE'S MANAGEMENT IN THE MERGER AND POTENTIAL CONFLICTS OF
INTERESTS
Some members of Level One's management have interests in the merger that
are in addition to their interests as Level One stockholders generally. The
Level One board was aware of these interests and considered them in approving
the merger agreement.
The directors, officers and principal stockholders of Level One and their
associates may have had in the past, and may have in the future, transactions in
the ordinary course of business with Intel.
36
<PAGE> 42
Any of these transactions were, and are expected to be, on substantially the
same terms as those between Intel and others for similar transactions.
Employment Agreements. At the time it entered into the merger agreement,
Intel also entered into employment agreements with Dr. Robert Pepper and John
Kehoe. Dr. Pepper's employment agreement provides that his employment with Level
One will continue following the closing of the merger. During his employment,
Dr. Pepper will be entitled to a specified annual base salary of at least
$440,000 and an incentive bonus which for 1999 could be at least $660,000. In
addition to his cash compensation, it will be recommended to Intel's board of
directors that Dr. Pepper receive options to purchase 50,000 shares of Intel
common stock. If Intel or Level One terminates Dr. Pepper's employment for
reasons other than cause before October 9, 2003, or if Dr. Pepper retires after
June 26, 2000, Intel or Level One will hire him as a consultant until December
31, 2003. While he is a consultant, all of Dr. Pepper's Level One stock options
will continue to vest. After June 26, 2000, Dr. Pepper may choose to become a
part-time employee of Intel or Level One. If he becomes a part-time employee,
his Level One stock options will continue to vest and his rights under Intel's
or Level One's benefit plans will be governed by the terms of those plans.
Mr. Kehoe's agreement provides that his employment with Level One will
continue for a period of 18 months following the closing of the merger. During
his employment, Mr. Kehoe will be entitled to a specified annual base salary of
at least $252,000 and an incentive bonus which for 1999 could be at least
$201,000. At the end of Mr. Kehoe's employment term, Intel or Level One will
hire him as a consultant until December 31, 2002. If Mr. Kehoe becomes a
consultant under the terms of his employment agreement, he will receive a fee of
$6,000 per year and his Level One stock options will continue to vest.
In addition, both Dr. Pepper and Mr. Kehoe will enter into Intel's standard
employee confidentiality agreement.
Agreement Regarding Key Level One Employees. Also at the time they entered
into the merger agreement, Intel, Intel's subsidiary and Level One entered into
an agreement regarding key Level One management employees. The Level One
employees are:
- George Papa, Vice President, Worldwide Sales;
- Daniel Koellen, Vice President, Quality and Reliability;
- Mike Ricci, Vice President, Telecom;
- Mike Wodopian, Vice President, Business Development and Strategic
Planning;
- David McKinnon, Vice President, Networking;
- Walter Thirion, Vice President, Strategic Technology Development;
- Hiroshi Takatori, Fellow; and
- David Bridgeford, Controller.
Under the agreement, each of these employees will receive stock options to
purchase 20,000 shares of Intel common stock. The agreement also provides that
if their employment is terminated for reasons other than cause within 18 months
following the closing of the merger, they will receive continued payments of
their base salary for the period up to the end of the 18 months plus six months.
The maximum aggregate amount payable to the management employees is
approximately $3.1 million. In addition, their Level One stock options will be
converted into Intel stock options and will continue to vest.
Indemnification; Directors' and Officers' Insurance. The merger agreement
provides that, after the merger, Intel will, as permitted by law, indemnify
persons who were Level One's directors or
37
<PAGE> 43
officers before the merger who suffer liabilities or losses from any threatened
or actual claim or proceeding based on the merger agreement or on the fact that
the person was a Level One director or officer. The merger agreement further
provides that Intel will cause the Level One officers and directors immediately
prior to the merger to be covered by Level One's directors' and officers'
liability insurance policy or a similar policy for six years after the merger.
In addition, Intel has agreed to honor Level One's agreements and charter
provisions to indemnify its officers and directors in effect on March 4, 1999.
Consideration to be Received by Level One Management in the Merger. On the
closing, the following executive officers and directors of Level One will
receive, in exchange for their shares of Level One common stock and/or options
to purchase shares of Level One common stock, the shares of Intel common stock
or options to purchase shares of Intel common stock as set forth below, based on
stock and option ownership as of July 1, 1999:
<TABLE>
<CAPTION>
INTEL INTEL
NAME AND TITLE SHARES OPTIONS
- ------------------------------------------------------------ ------------ -------------
<S> <C> <C>
Robert S. Pepper, Ph.D. .................................... 142,543 1,016,348
President and Chief Executive Officer
and Chairman of the Board of Directors
John Kehoe.................................................. -- 290,035
Senior Vice President, Chief
Financial Officer and Secretary
George A. Papa.............................................. 4,167 166,840
Vice President, Worldwide Sales
Michael A. Ricci............................................ -- 103,028
Vice President, Telecom
David T. McKinnon........................................... 386 94,600
Vice President, Networking
Michael R. Wodopian......................................... -- 85,570
Vice President, Business Development
and Strategic Planning
Daniel S. Koellen........................................... 13,414 202,809
Vice President, Quality and
Reliability
Lee Harrison................................................ 96 63,541
Vice President, Operations
Thomas J. Connors........................................... 69,660 --
Director
Martin Jurick............................................... 19,350 --
Director
Henry Kressel, Ph.D. ....................................... 24,225 --
Director
Joseph P. Landy............................................. 41,753 --
Director
</TABLE>
38
<PAGE> 44
OPINION OF LEVEL ONE'S FINANCIAL ADVISOR
For purposes of the following discussion, all per share amounts and
exchange ratios are expressed without giving effect to Intel's previously
announced two for one stock split which was paid on April 11, 1999.
General. Lehman Brothers has acted as financial advisor to Level One in
connection with the merger. On March 4, 1999, Lehman Brothers rendered its
opinion to the Level One board of directors that as of such date, from a
financial point of view, the exchange ratio of 0.43 shares of Intel common stock
for every one share of Level One common stock to be offered to Level One's
stockholders in the merger was fair to such stockholders. The 0.43 exchange
ratio would equate to a 0.86 exchange ratio after giving effect to Intel's two
for one stock split paid April 11, 1999.
THE FULL TEXT OF THE LEHMAN BROTHERS OPINION DATED MARCH 4, 1999 IS
INCLUDED AS APPENDIX C TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED
HEREIN BY REFERENCE. THE SUMMARY OF THE LEHMAN BROTHERS OPINION SET FORTH IN
THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF LEHMAN BROTHERS' OPINION. HOLDERS OF LEVEL ONE COMMON STOCK MAY
READ THE LEHMAN BROTHERS OPINION FOR THE PROCEDURES FOLLOWED, FACTORS
CONSIDERED, ASSUMPTIONS MADE AND QUALIFICATIONS AND LIMITATIONS OF THE REVIEW
UNDERTAKEN BY LEHMAN BROTHERS IN CONNECTION WITH ITS OPINION.
LEVEL ONE IMPOSED NO LIMITATIONS ON THE SCOPE OF LEHMAN BROTHERS'
INVESTIGATION OR THE PROCEDURES TO BE FOLLOWED BY LEHMAN BROTHERS IN RENDERING
ITS OPINION, EXCEPT THAT LEVEL ONE DID NOT AUTHORIZE LEHMAN BROTHERS TO SOLICIT,
AND LEHMAN BROTHERS DID NOT SOLICIT, ANY INDICATIONS OF INTEREST FROM ANY THIRD
PARTY WITH RESPECT TO THE PURCHASE OF ALL OR A PART OF LEVEL ONE'S BUSINESS. IN
ADDITION, LEHMAN BROTHERS DID NOT HAVE ANY ACCESS TO ANY FINANCIAL FORECASTS OR
PROJECTIONS PREPARED BY THE MANAGEMENT OF INTEL AS TO THE FUTURE FINANCIAL
PERFORMANCE OF INTEL.
LEHMAN BROTHERS' ADVISORY SERVICES AND OPINION WERE PROVIDED FOR THE
INFORMATION AND ASSISTANCE OF THE LEVEL ONE BOARD OF DIRECTORS IN CONNECTION
WITH ITS CONSIDERATION OF THE MERGER. LEHMAN BROTHERS' OPINION IS NOT A
RECOMMENDATION TO ANY STOCKHOLDER OF LEVEL ONE AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE WITH RESPECT TO THE MERGER. LEHMAN BROTHERS' OPINION DOES NOT ADDRESS LEVEL
ONE'S UNDERLYING BUSINESS DECISION TO PROCEED WITH OR EFFECT THE MERGER.
In arriving at its opinion, Lehman Brothers reviewed and analyzed:
- the merger agreement and the specific terms of the merger;
- publicly available information concerning Level One and Intel that it
believed to be relevant to its analysis;
- financial and operating information with respect to the business,
operations and prospects of Level One furnished to it by Level One;
- publicly available estimates of the future financial performances of
Level One and Intel prepared by third party research analysts;
- a trading history of Level One's common stock from January 1, 1994 to the
present and a comparison of that trading history with those of other
companies that it deemed relevant;
- a trading history of Intel's common stock from January 1, 1994 to the
present and a comparison of that trading history with those of other
companies that it deemed relevant;
- a comparison of the historical financial results and present financial
condition of Level One with those of other companies that it deemed
relevant;
39
<PAGE> 45
- a comparison of the historical financial results and present financial
condition of Intel with those of other companies that it deemed relevant;
- a comparison of the financial terms of the merger with the financial
terms of certain other transactions that it deemed relevant; and
- the potential pro forma financial effects of the merger on Intel and a
comparison of the relative contributions of Level One and Intel to the
combined company following consummation of the merger.
In addition, Lehman Brothers had discussions with the management of Level
One and Intel concerning their respective businesses, operations, assets,
financial conditions and prospects and undertook such other studies, analyses
and investigations as Lehman Brothers deemed appropriate, all as summarized
below.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information. Lehman Brothers also relied upon the assurances of the managements
of Level One and Intel that they are not aware of any facts or circumstances
that would make the information relied upon by Lehman Brothers inaccurate or
misleading. Upon advice of Level One, Lehman Brothers assumed that the financial
projections of Level One were reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of Level One as to
the future financial performance of Level One. Lehman Brothers also considered
publicly available estimates of the future financial performance of Level One
prepared by third party research analysts. For purposes of its analysis, with
the consent of Level One, Lehman Brothers assumed that Level One will perform in
a range between the projections prepared by management and the estimates of
third party research analysts. In arriving at its opinion, with the consent of
Level One, Lehman Brothers was not provided with and did not have any access to
any financial forecasts or projections prepared by the management of Intel as to
the future financial performance of Intel, and accordingly, upon advice of
Intel, Lehman Brothers assumed that the publicly available estimates of research
analysts are a reasonable basis upon which to evaluate and analyze the future
financial performance of Intel, and Lehman Brothers relied upon such estimates
in performing its analysis. Lehman Brothers did not conduct a physical
inspection of the properties and facilities of Level One or Intel. Lehman
Brothers also did not make or obtain any evaluations or appraisals of the assets
or liabilities of Level One. Upon advice of Level One and its legal and
accounting advisors, Lehman Brothers assumed that the merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, and therefore as a tax-free transaction to the stockholders of Level One.
Lehman Brothers' opinion was necessarily based upon market, economic and other
conditions as they existed on, and could be evaluated as of, March 4, 1999.
In arriving at its opinion, Lehman Brothers did not ascribe a specific
range of value to Level One or Intel, but rather made its determination as to
the fairness, from a financial point of view, of the exchange ratio to be
offered to Level One's stockholders in the merger on the basis of financial and
comparative analyses described below. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial and comparative analysis and the application of those methods to
the particular circumstances, and therefore, such an opinion is not readily
susceptible to summary description. Furthermore, Lehman Brothers did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Lehman Brothers believes that its analyses
must be considered as a whole and that considering any portion of such analyses
and factors, without considering all analyses and factors as a whole, could
create a misleading or incomplete view of the process underlying its opinion. In
its analyses, Lehman Brothers
40
<PAGE> 46
made numerous assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond the control
of Level One and Intel. Any estimates contained in these analyses were not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
The following is a summary of the material financial analyses used by
Lehman Brothers in connection with rendering its opinion to the Level One board
of directors. Certain of the summaries of the financial and comparative analyses
include information presented in tabular format. In order to fully understand
the methodologies used by Lehman Brothers and the results of its financial and
comparative analyses, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial and comparative analyses. Accordingly, the information presented in
the tables and described below must be considered as a whole. Considering any
portion of such analyses and of the factors considered, without considering all
analyses and factors as a whole, could create a misleading or incomplete view of
the process underlying Lehman Brothers' opinion.
Comparable Company Analysis. Using publicly available information, Lehman
Brothers compared selected financial data of Level One with similar data of
selected companies engaged in businesses considered by Lehman Brothers to be
comparable to that of Level One. Specifically, Lehman Brothers included in its
review two groups of communications semiconductor companies. Due to the
uniqueness of Level One's business, both groups of companies were considered by
Lehman Brothers to be comparable to the business of Level One and therefore were
relevant in performing its analysis. The first group consisted of leadership
communications semiconductor companies, including:
- Broadcom Corporation;
- PMC-Sierra Inc.; and
- Vitesse Semiconductor Corporation.
The second group consisted of general communications semiconductor
companies, including:
- Anadigics, Inc.;
- Applied Micro Circuits Corporation;
- DSP Communications, Inc.;
- Galileo Technology Ltd.;
- MMC Networks, Inc.;
- RF Micro Devices, Inc.;
- Transwitch Corporation; and
- TriQuint Semiconductor, Inc.
For each of Level One, the leadership communications semiconductor
companies and the general communications semiconductor companies, Lehman
Brothers calculated the ratio of market price to the mean earnings per share
estimates for calendar years 1999 and 2000 reported by First Call, which is a
service widely used by the investment community to gather earnings estimates
from various research analysts. Lehman Brothers also calculated the ratio of the
transaction price to the mean
41
<PAGE> 47
First Call earnings per share estimates and earnings per share estimates
prepared by Level One management for calendar years 1999 and 2000. Lehman
Brothers arrived at the transaction price by multiplying Intel's intraday price
on March 4, 1999 by the 0.43 shares of Intel common stock, or 0.86 shares after
giving effect to Intel's stock split paid April 11, 1999, and used $116.25 as
the intraday price of Intel as of the time on March 4, 1999 that the merger was
agreed to between Level One and Intel. In addition, in performing its analysis,
Lehman Brothers used for Level One both the March 3, 1999 closing price of
$32.38 and the intraday price of $27.25 as of the time on March 4, 1999 that the
merger was agreed to between Level One and Intel.
<TABLE>
<CAPTION>
PROJECTED EPS
MULTIPLES:
-----------------
CY 1999 CY 2000
------- -------
<S> <C> <C>
COMPARABLE COMPANY MULTIPLES:
(as of 3/3/99)
Level One Based on 3/4/99 Intraday Price.................... 22.7x 17.9x
Level One Based on Transaction Price:
Based on First Call Estimates............................. 41.0x 32.3x
Based on Management Estimates............................. 35.2x 28.2x
Level One Based on 3/3/99 Closing Price..................... 26.5x 20.9x
Median of Leadership Communications Semiconductor Cos....... 46.7x 35.3x
Median of General Communications Semiconductor Cos.......... 30.4x 22.6x
</TABLE>
Lehman Brothers also compared selected financial data of Intel with similar
data of selected companies engaged in businesses considered by Lehman Brothers
to be comparable to that of Intel. Specifically, Lehman Brothers included in its
review the following broadline semiconductor companies:
- Advanced Micro Devices, Inc.;
- STMicroelectronics N.V.; and
- Texas Instruments Incorporated.
For each of Intel and the broadline semiconductor companies, Lehman
Brothers calculated the ratio of market price to the mean First Call earnings
per share estimates for calendar years 1999 and 2000.
<TABLE>
<CAPTION>
PROJECTED EPS
MULTIPLES:
-----------------
CY 1999 CY 2000
------- -------
<S> <C> <C>
COMPARABLE COMPANY MULTIPLES:
(as of 3/3/99)
Intel Corporation........................................... 24.5x 21.0x
Median of Broadline Semiconductor Cos....................... 31.0x 18.4x
</TABLE>
Because of the inherent differences between the businesses, operations,
financial conditions and prospects of Level One and Intel and the businesses,
operations, financial conditions and prospects of the companies included in
their comparable company groups, Lehman Brothers believed that it was
inappropriate to rely solely on the quantitative results of the analysis, and
accordingly, also made qualitative judgments concerning differences between the
financial and operating characteristics of Level One, Intel and the companies in
their respective comparable company groups that would affect the public trading
values of Level One, Intel and such comparable companies. In particular, Lehman
Brothers considered markets served, rates of growth and profitability of Level
One and each of the
42
<PAGE> 48
companies in the comparable company groups. Lehman Brothers concluded that such
analysis was supportive of its opinion as to the fairness of the exchange ratio
to be offered to Level One's stockholders in the merger.
Premiums Paid Analysis. Using publicly available information, Lehman
Brothers reviewed the premiums paid, or proposed to be paid, in the case of
transactions pending as of the date of the Lehman Brothers opinion, in selected
acquisitions in the technology sector having transaction values between $1
billion and $5 billion since January 1, 1995. The technology transactions
included the following transactions:
- the acquisition of GeoCities by Yahoo! Inc.;
- the acquisition of The Learning Company, Inc. by Mattel, Inc.;
- the acquisition of Netscape Communications Corporation by America Online,
Inc.;
- the acquisition of Boole & Babbage, Inc. by BMC Software, Inc.;
- the acquisition of Berg Electronics Corp. by Framatome Connectors
International S.A.;
- the acquisition of PMT Services, Inc. by NOVA Corporation;
- the acquisition of DSC Communications Corporation by Alcatel Alsthom;
- the acquisition of Yurie Systems, Inc. by Lucent Technologies Inc.;
- the acquisition of Tracor, Inc. by The General Electric Company, plc;
- the acquisition of Network General Corporation by McAfee Associates,
Inc.;
- the acquisition of CompuServe Corporation (H&R Block, Inc.) by WorldCom,
Inc.;
- the acquisition of Octel Communications Corporation by Lucent
Technologies Inc.;
- the acquisition of Tandem Computers Incorporated by Compaq Computer
Corporation;
- the acquisition of Keystone International, Inc. by Tyco International
Ltd.;
- the acquisition of Logicon, Inc. by Northrop Grumman Corporation;
- the acquisition of VeriFone, Inc. by Hewlett-Packard Company;
- the acquisition of Cascade Communications Corp. by Ascend Communications,
Inc.;
- the acquisition of Tencor Instruments by KLA Instruments Corporation;
- the acquisition of Cheyenne Software, Inc. by Computer Associates
International, Inc.;
- the acquisition of UUNet Technologies, Inc. by MFS Communications
Company, Inc.;
- the acquisition of The Continuum Company, Inc. by Computer Sciences
Corporation;
- the acquisition of StrataCom, Inc. by Cisco Systems, Inc.;
- the acquisition of Teledyne, Inc. by Allegheny Ludlum Corporation;
- the acquisition of Davidson & Associates, Inc. by CUC International Inc.;
- the acquisition of Conner Peripherals, Inc. by Seagate Technology, Inc.;
43
<PAGE> 49
- the acquisition of Lotus Development Corporation by International
Business Machines Corporation;
- the acquisition of Legent Corporation by Computer Associates
International, Inc.; and
- the acquisition of E-Systems, Inc. by Raytheon Company.
Lehman Brothers also reviewed the premiums paid in selected acquisitions in
the semiconductor sector since January 1, 1987. The semiconductor transactions
included the following transactions:
- the acquisition of Quality Semiconductor, Inc. by IDT Corporation;
- the acquisition of Information Storage Devices, Inc. by Winbond
Electronics Corporation;
- the acquisition of Benchmarq Microelectronics, Inc. by Unitrode
Corporation;
- the acquisition of Amati Communications Corporation by Texas Instruments
Incorporated;
- the acquisition of Cyrix Corporation by National Semiconductor
Corporation;
- the acquisition of Chips and Technologies, Inc. by Intel;
- the acquisition of Zilog, Inc. by the Texas Pacific Group, Inc.;
- the acquisition of Brooktree Corporation by Rockwell International
Corporation;
- the acquisition of Orbit Semiconductor, Inc. by The DII Group, Inc.;
- the acquisition of NexGen, Inc. by Advanced Micro Devices, Inc.;
- the acquisition of M/A-COM, Inc. by AMP Incorporated;
- the acquisition of MIPS Computer Systems, Inc. by Silicon Graphics, Inc.;
- the acquisition of Avantek, Inc. by Hewlett-Packard Company;
- the acquisition of Silicon Systems Inc. by TDK Corp.; and
- the acquisition of Monolithic Memories, Inc. by Advanced Micro Devices,
Inc.
Lehman Brothers calculated the premium per share paid by the acquiror
compared to the share price of the target company prevailing one month and one
day prior to the announcement of the transaction. Lehman Brothers also
calculated the premium per share paid by the acquiror compared to the highest
and lowest share price of the target company prevailing during the 52-week
period prior to the announcement of the transaction. Lehman Brothers compared
the premiums paid in the technology sector transactions and the semiconductor
sector transactions to the premium to be paid by Intel for Level One in the
merger. Lehman Brothers concluded that such analysis was supportive
44
<PAGE> 50
of its opinion as to the fairness of the exchange ratio to be offered to Level
One's stockholders in the merger.
<TABLE>
<CAPTION>
52-WEEK
--------------
1-MONTH 1-DAY HIGH LOW
------- ----- ----- -----
<S> <C> <C> <C> <C>
TRANSACTION PREMIUMS:
Intel/Level One merger (based on 3/4/99 intraday 37.7% 80.1% 20.8% 205.3%
prices)............................................
Technology Deals (median)............................ 59.2% 38.5% 14.1% 117.0%
% of technology deals at lower premium than the 21.4% 82.1% 60.7% 89.3%
merger.............................................
Semiconductor Deals (median)......................... 36.2% 31.0% (24.9)% 90.5%
% of semiconductor deals at lower premium than the 50.0% 93.8% 81.3% 93.8%
merger.............................................
</TABLE>
Comparable Transactions Analysis. The comparable transactions analysis
provides a market benchmark based on the consideration paid in selected
comparable transactions. For this analysis, Lehman Brothers reviewed publicly
available information to determine the purchase prices and multiples paid in
certain transactions that were publicly announced since January 1, 1995 in the
semiconductor sector involving target companies which were similar to Level One
in terms of business mix, product portfolio and/or markets served. The
comparable transactions included:
- the acquisition of Symbios, Inc. (Hyundai Electronics Industries) by LSI
Logic Corporation;
- the acquisition of Benchmarq Microelectronics, Inc. by Unitrode
Corporation;
- the acquisition of Plessey Semiconductors Group (The General Electric
Company, plc.) by Mitel Corporation;
- the acquisition of Raytheon Electronics Semiconductor by Fairchild
Semiconductor Corporation;
- the acquisition of Amati Communications Corporation by Texas Instruments
Incorporated;
- the acquisition of Cyrix Corporation by National Semiconductor
Corporation;
- the acquisition of Chips and Technologies, Inc. by Intel;
- the acquisition of Zilog, Inc. by the Texas Pacific Group, Inc.;
- the acquisition of Brooktree Corporation by Rockwell International
Corporation;
- the acquisition of Orbit Semiconductor, Inc. by The DII Group, Inc.;
- the acquisition of Silicon Systems Inc. (TDK Corp.) by Texas Instruments
Incorporated;
- the acquisition of NexGen, Inc. by Advanced Micro Devices, Inc.; and
- the acquisition of M/A-COM, Inc. by AMP Incorporated.
Lehman Brothers calculated the enterprise value of the relevant
transactions which is calculated as the consideration offered for the common
equity and short- and long-term debt, and subtracting the acquired company's
cash and cash equivalents. Lehman Brothers then divided the enterprise value of
the relevant transactions by the latest twelve months', or LTM, revenue of the
acquired business. Lehman Brothers also divided the consideration offered for
common equity by the LTM net income and the publicly available next projected
calendar year EPS of the acquired business (Forward EPS).
45
<PAGE> 51
The following table presents the LTM revenue, LTM net income and forward EPS
multiples for the comparable transactions.
<TABLE>
<CAPTION>
TRANSACTION VALUE
AS A MULTIPLE OF
--------------------------- ENTERPRISE VALUE
LTM FORWARD AS A MULTIPLE OF
NI EPS LTM REV.
----------------- ------- ----------------
<S> <C> <C> <C>
COMPARABLE TRANSACTIONS ANALYSIS:
Intel/Level One merger (based on Intel
3/4/99 intraday price)................. 94.3x 41.0x 8.65x
Median for Comparable Transactions....... 19.4x 26.1x 1.76x
</TABLE>
Because the reasons for and the circumstances surrounding each of the
transactions analyzed were so diverse and because of the inherent differences in
the businesses, operations, financial conditions and prospects of Level One and
the businesses, operations, and financial conditions of the companies included
in the comparable transactions group, Lehman Brothers believed that a purely
quantitative comparable transaction analysis would not be particularly
meaningful in the context of the merger. Lehman Brothers believed that the
appropriate use of a comparable transaction analysis in this instance would
involve qualitative judgments concerning the differences between the
characteristics of these transactions and the merger which would affect the
acquisition values of the acquired companies and Level One. In particular,
Lehman Brothers considered markets served, rates of growth and profitability of
Level One and each of the acquired companies as well as business and market
conditions existing at the time of the merger as compared to those existing when
these transactions were executed. Lehman Brothers concluded that such analysis
was supportive of its opinion as to the fairness of the exchange ratio to be
offered to Level One's stockholders in the merger.
Stock Trading History. Lehman Brothers considered various historical data
concerning the history of the trading prices for Level One common stock, an
index of the stock prices of the leadership communications semiconductor
companies, an index of the stock prices of the general communications
semiconductor companies, the Nasdaq composite index and the Philadelphia
Semiconductor Index (SOX) for the period from January 1, 1994 to March 3, 1999.
<TABLE>
<CAPTION>
PERCENT CHANGE
---------------------------------------------------
1/1/94 - 3/3/99 1/1/96 - 3/3/99 1/1/98 - 3/3/99
--------------- --------------- ---------------
<S> <C> <C> <C>
STOCK PRICE PERFORMANCE:
Level One.................................... +201% +305% +72%
Leadership Comm. Semiconductor Cos........... +1930% +437% +121%
General Comm. Semiconductor Cos.............. +275% +282% +167%
Nasdaq....................................... +192% +115% +44%
SOX.......................................... +154% +76% +34%
</TABLE>
46
<PAGE> 52
Lehman Brothers also considered various historical data concerning the
history of the trading prices for Intel common stock, an index of the stock
prices of the broadline semiconductor companies and the Nasdaq composite index
for the period from January 1, 1994 to March 3, 1999.
<TABLE>
<CAPTION>
PERCENT CHANGE
---------------------------------------------------
1/1/94 - 3/3/99 1/1/96 - 3/3/99 1/1/98 - 3/3/99
--------------- --------------- ---------------
<S> <C> <C> <C>
STOCK PRICE PERFORMANCE:
Intel........................................ +640% +304% +63%
Broadline Semiconductor Cos.................. +422% +196% +81%
Nasdaq....................................... +192% +115% +44%
</TABLE>
Historical Exchange Ratio Analysis. Lehman Brothers compared the exchange
ratio in the merger to the average exchange ratio obtained by dividing the price
of Level One common stock into the price of Intel common stock over historical
periods. The historical periods included (1) 1-month, 3-months, 6-months and
12-months prior to announcement of the merger and (2) the period from January 1,
1996 through March 3, 1999 and the period from January 1, 1994 through March 3,
1999. Lehman Brothers concluded that such analysis was supportive of its opinion
as to the fairness of the exchange ratio to be offered to Level One's
stockholders in the merger.
<TABLE>
<CAPTION>
HISTORICAL MERGER EXCHANGE
EXCHANGE RATIO PREMIUM
RATIO (BASED ON 0.4300)
---------- -----------------
<S> <C> <C>
PREMIUM TO AVERAGE EXCHANGE RATIO:
1-Month Average.............................. 0.2669 61.1%
3-Months Average............................. 0.2830 51.9%
6-Months Average............................. 0.2723 57.9%
12-Months Average............................. 0.2999 43.4%
1/1/96 -- 3/3/99 Average...................... 0.2824 52.3%
1/1/94 -- 3/3/99 Average...................... 0.3461 24.2%
</TABLE>
Contribution Analysis. Lehman Brothers utilized publicly available
historical financial data regarding Level One and Intel and estimates for the
future financial performance of Level One and Intel to calculate the relative
contributions of Level One and Intel to the pro forma combined company with
respect to revenues, operating income and net income for the calendar years
1997, 1998, 1999 and 2000, where operating income is defined as income before
interest and taxes. Lehman Brothers calculated the contributions based on third
party research analyst estimates and Level One management estimates for the
future financial performance of Level One and based on third party analyst
estimates for the future financial performance of Intel. Lehman Brothers also
reviewed the pro forma ownership of the combined company on a diluted basis.
Lehman Brothers concluded that such analysis was supportive of its opinion as to
the fairness of the exchange ratio to be offered to Level One's stockholders in
the merger.
<TABLE>
<CAPTION>
CY 1999 CY 2000
--------------------- ---------------------
MGMT. RESEARCH MGMT. RESEARCH
CY 1997 CY 1998 ESTIMATES ESTIMATES ESTIMATES ESTIMATES
------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
LEVEL ONE CONTRIBUTION:
Revenues.......................... 0.62% 0.99% 1.35% 1.24% 1.80% 1.49%
Operating Income.................. 0.14% 0.46% 0.75% 0.63% 0.80% 0.73%
Net Income........................ 0.09% 0.37% 0.74% 0.63% 0.78% 0.72%
PRO FORMA OWNERSHIP BASED ON EXCHANGE RATIO:
Level One......................... 1.12%
Intel............................. 98.88%
</TABLE>
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<PAGE> 53
Pro Forma Merger Analysis. Lehman Brothers analyzed the pro forma impact of
the merger on Intel's earnings per share based on management and third party
research analysts' financial projections for Level One and third party research
analysts' financial projections for Intel. In connection with these analyses,
Lehman Brothers assumed the merger would be treated under the purchase
accounting method. Lehman Brothers concluded that the merger would be
approximately 2% dilutive to Intel's earnings in 1999 and 2000. Lehman Brothers
concluded that such analysis was supportive of its opinion as to the fairness of
the exchange ratio to be offered to Level One's stockholders in the merger.
Lehman Brothers' Engagement. Lehman Brothers is an internationally
recognized investment banking firm and, as part of its investment banking
activities, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
The Level One board of directors selected Lehman Brothers because of its
expertise, reputation and familiarity with Level One and the semiconductor
industry generally and because its investment banking professionals have
substantial experience in transactions comparable to the merger.
As compensation for its services in connection with the merger, Level One
has agreed to pay Lehman Brothers:
- a retainer fee of $150,000;
- an opinion fee of $1,250,000; and
- a fee upon consummation of the merger of approximately $7.4 million,
against which the retainer fee and the opinion fee would be credited.
In addition, Level One has agreed to reimburse Lehman Brothers for
reasonable out-of-pocket expenses incurred in connection with the merger and to
indemnify Lehman Brothers for certain liabilities that may arise out of its
engagement by Level One and the rendering of Lehman Brothers' opinion.
In the ordinary course of its business, Lehman Brothers actively trades in
the equity or debt securities of Level One and Intel for its own account and for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
THE MERGER
Once the conditions to completing the merger contained in the merger
agreement have been satisfied or waived, the merger will be completed in
accordance with Delaware law.
CLOSING
The closing date of the merger will be a date specified by Intel and Level
One but will be no later than two business days after the satisfaction or waiver
of the latest to occur of the conditions precedent to the merger in the merger
agreement. Intel and Level One anticipate that the merger will close no later
than August 10, 1999. However, a delay in obtaining any required governmental
approval may delay closing the merger. We cannot assure you if or when these
approvals will be obtained or that the merger will, in fact, be completed. If
the merger does not occur on or before December 31, 1999, either Intel or Level
One may terminate the merger agreement and its obligations to consummate the
merger unless the failure to complete the merger by that date is due to the
failure of the party seeking to terminate the merger agreement to perform or
observe its
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<PAGE> 54
obligations in the merger agreement. See "-- Conditions to Completing the
Merger" and "-- Regulatory and Other Approvals Required for the Merger."
CONVERSION OF LEVEL ONE STOCK; TREATMENT OF LEVEL ONE STOCK OPTIONS, WARRANTS
AND CONVERTIBLE SUBORDINATED NOTES
In the merger, each Level One stockholder will receive 0.86 shares of Intel
common stock for each of their shares of Level One common stock.
Each stock option, whether vested or unvested, to acquire Level One common
stock granted under Level One's stock option and incentive plans, which we refer
to as the Level One stock plans, other than options held by Level One's outside
directors, and each warrant or other right to acquire Level One common stock,
outstanding and unexercised immediately prior to the merger will be converted
automatically in the merger into a stock option, warrant or other right,
respectively, to purchase Intel common stock. In each case, the number of shares
of Intel common stock subject to the new Intel options, warrants or other rights
will be equal to 0.86 shares of Intel common stock for each share of Level One
common stock that the holder of the Level One option, warrant or other right
would have been entitled to receive had the holder exercised the option, warrant
or other right, in full immediately before the merger. The terms of each new
Intel option, warrant or other right will be substantially the same as the
corresponding Level One option, warrant or other right. In any event, options
that are incentive stock options under the Internal Revenue Code will be
adjusted as provided by the Internal Revenue Code.
Soon after the merger occurs, Intel will deliver to the holders of Level
One options, warrants and other rights notices that describe these holders'
rights under the Level One stock plans, warrants and other rights, as
applicable, and confirmation that the terms of the agreements evidencing the
grants of the options, warrants or other rights continue subject to adjustments
giving effect to stock splits or similar adjustments.
In addition, Intel will assume all obligations under Level One's
convertible subordinated notes and will provide for the conversion rights to
which the subordinated noteholders are entitled.
EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
Following the merger, Intel will deliver to its designated exchange agent
certificates representing the shares of Intel common stock, and cash instead of
any fractional shares that would otherwise be issued to Level One stockholders
under the merger agreement, in exchange for the outstanding shares of Level One
common stock.
Within two business days after the merger becomes effective, the exchange
agent will mail to Level One stockholders a transmittal letter. The transmittal
letter will contain instructions with respect to the surrender of certificates
representing Level One common stock.
PLEASE DO NOT RETURN LEVEL ONE COMMON STOCK CERTIFICATES WITH THE ENCLOSED
PROXY AND DO NOT FORWARD YOUR CERTIFICATES TO THE EXCHANGE AGENT UNLESS AND
UNTIL YOU RECEIVE A LETTER OF TRANSMITTAL FOLLOWING THE MERGER.
Upon surrender of the certificates representing Level One common stock
after the merger accompanied by a completed letter of transmittal, you will be
issued a certificate representing the shares of Intel common stock issued to you
in the merger and you will be paid cash instead of any fractional shares of
Intel common stock you would otherwise receive. The amount of cash you receive
instead of a fractional share will be equal to the fraction of an Intel share
you would otherwise receive multiplied by $57.34, which was the closing price of
Intel common stock, as adjusted for
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stock splits, as reported on The Nasdaq Stock Market the day before the merger
agreement was signed.
Intel will pay you dividends or other distributions declared on Intel
common stock only after the merger has occurred and after you have surrendered
your certificates representing Level One common stock.
If a certificate for Level One common stock has been lost, stolen or
destroyed, the exchange agent will issue your shares of Intel common stock and
any cash instead of a fractional share only after you have delivered an
affidavit as to such loss, theft or destruction and as to your ownership of the
certificate. Intel or the exchange agent may require you to post bond in such
amount as Intel or the exchange agent may determine is necessary as indemnity
against any claim that may be made against Intel with respect to the lost,
stolen or destroyed certificate.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties by Intel and
Level One. These include:
- due organization, existence, good standing and qualification to do
business and, in the case of Level One, its subsidiaries and its equity
investments.
- capitalization and, in the case of Level One, the capitalization of its
subsidiaries.
- corporate power and authority to enter into the merger agreement and
perform its obligations under the merger agreement and, in the case of
Level One, the stock option agreement.
- proper execution, delivery and enforceability of the merger agreement
and, in the case of Level One, the stock option agreement.
- compliance of the merger agreement with each party's charter documents,
material agreements and applicable law.
- governmental and third-party approvals.
- each party's financial statements and filings with the Securities and
Exchange Commission.
- broker's fees arising from the merger.
- absence of undisclosed significant and negative changes in its business.
- absence of material legal proceedings and injunctions.
- accuracy of the information about each party furnished to the other
and/or included in this proxy statement/prospectus.
- each party's and Level One's subsidiaries' compliance with applicable
law.
- tax treatment of the merger.
- absence of undisclosed liabilities and, in the case of Level One,
undisclosed liabilities of its subsidiaries.
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The merger agreement contains additional representations and warranties of
Level One. These include its:
- unanimous approval of the merger and the stock option agreement by Level
One's board of directors.
- absence of material environmental liabilities.
- payment of taxes and filing of tax returns.
- employee benefit plans, labor, employment and related matters.
- absence of existing defaults under its charter documents, material
agreements and applicable law.
- insurance.
- certain business practices.
- intellectual property.
- product warranties and guaranties.
- customers and suppliers.
- "Year 2000" compliance.
- foundry and manufacturing agreements.
CONDUCT OF BUSINESS BEFORE THE MERGER
Each of Intel and Level One has agreed to do certain things before the
merger occurs. These include Level One and its subsidiaries each:
- conducting its business in the ordinary course.
- using reasonable effort to preserve intact its business organization and
advantageous business relationships.
- retaining the services of its current officers and employees.
Intel and Level One have also agreed to:
- cooperate with each other and use all reasonable efforts to make all
filings, and to obtain consents and approvals of all third parties and
governmental authorities, necessary to complete the merger, and to comply
with the terms and conditions of all these consents and approvals.
- furnish to the other party all information about itself and its
subsidiaries as the other party reasonably requests.
- use all reasonable efforts to take all actions to comply promptly with
legal requirements imposed on it and to complete the merger.
- not issue any press release or make any other public statements without
the prior approval of the other party.
- promptly tell the other party about any events or circumstances that
would cause any representations or warranties to not be true or any
obligations not to have been fulfilled.
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Intel has also agreed to use all reasonable efforts to list its shares to
be issued in the merger on the Nasdaq National Market. Subject to the merger
agreement, Intel has agreed to use all reasonable efforts to cause the merger to
occur as soon as practicable after Level One stockholders approve the merger.
Unless the merger agreement permits, Level One has agreed for itself and on
behalf of its subsidiaries not to:
- amend its charter documents.
- issue or agree to issue any stock of any class or any other securities or
equity equivalents, except for shares of Level One common stock issued
under options granted prior to the date of the merger and grants of
options in the ordinary course of its business consistent with past
practice.
- split, combine or reclassify any shares of its capital stock.
- declare or pay any dividend or other payment of any kind in respect of
its capital stock.
- acquire any of its or its subsidiaries' securities.
- reduce the conversion price of its outstanding convertible, subordinated
notes.
- adopt a plan of complete or partial liquidation, dissolution, merger or
other reorganization other than the merger with Intel.
- alter any subsidiary's corporate structure or ownership.
- incur or assume any debt, except under existing lines of credit in the
ordinary course of business or change the terms of any existing debt.
- become responsible for the obligations of any other person except for
obligations of Level One's subsidiaries incurred in the ordinary course
of business.
- make any loans to or investments in any other person, except its
subsidiaries or for customary loans or advances to employees in the
ordinary course of business consistent with its past practices.
- encumber its capital stock.
- mortgage or pledge any of its material assets or create or permit any
material lien on these assets.
- except as required by law, enter into, adopt, modify or terminate any
employee compensation, benefit or similar plan or increase in any
compensation or fringe benefits.
- grant any severance or termination pay, except as required by law or by
any written agreements existing on March 4, 1999.
- voluntarily accelerate the vesting of any stock options.
- acquire, license, sell or dispose of any assets in any single transaction
or series of related transactions having a fair market value in excess of
$500,000 in the aggregate, except for sales of its products and licenses
of its software in the ordinary course of business consistent with its
past practices.
- enter into any exclusive license, distribution, marketing, sales or other
agreements.
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- enter into a development services or similar agreement with Thinkit
Technologies, Inc.
- sell or dispose of any intellectual property.
- except as required as a result of a change in law or in generally
accepted accounting principles, materially change any of its accounting
principles, practices or methods.
- revalue in any material respect any of its assets other than in the
ordinary course of business.
- acquire any other business or entity.
- enter into any material agreement other than in the ordinary course of
business consistent with its past practices.
- modify or waive any right under its important contracts.
- modify its standard product warranty terms or modify any existing product
warranties in any significant and negative manner.
- authorize any new or additional capital expenditure(s) in excess of
$1,000,000 in any calendar quarter, except as required pursuant to
existing customer contracts or which were provided for in Level One's
capital budget which was provided to Intel on March 4, 1999.
- authorize any new or additional manufacturing capacity expenditure or
expenditures for any manufacturing capacity contracts or arrangements.
- make any material tax election or settle or compromise any material
income tax liability.
- permit any material insurance policy naming it as a beneficiary or loss
payable to expire, be canceled or be terminated, except if a comparable
insurance policy is obtained and in effect.
- fail to file any tax returns when due or fail to cause such tax returns
when filed to be complete and accurate in all material respects.
- fail to pay any taxes or other material debts when due.
- settle or compromise any legal proceeding that relates to the merger
agreement, involves more than $1,000,000 or would otherwise be material
to Level One, or relates to any intellectual property matters.
- take or fail to take any action that could reasonably be expected to
limit the use of any net operating losses, built-in losses, tax credits
or other similar items.
- take or fail to take any action that could reasonably be expected to
cause any transaction intended by Level One or its subsidiaries to be a
reorganization under Section 368(a) under the Internal Revenue Code to
fail to qualify as such a reorganization.
- agree to take any of the actions described above.
Level One has also agreed to use all reasonable efforts not to do anything
that would make any of its representations or warranties contained in the merger
agreement untrue.
The merger agreement restricts Level One's ability to discuss or negotiate
proposals for certain significant transactions with anyone other than Intel.
These provisions require Level One not to have or continue discussions with
anyone else for any third party acquisition.
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We use the term third party acquisition to mean any of the following:
- an acquisition of Level One by anyone other than Intel.
- the acquisition of any significant portion of Level One's assets, other
than the sale of its products in the ordinary course of business
consistent with its past practices.
- an acquisition of 15% or more of the outstanding shares of Level One
common stock.
- Level One's adoption of a plan of liquidation or declaration or payment
of an extraordinary dividend.
- Level One's repurchase of more than 10% of its outstanding shares.
- Level One's acquisition of any interest or investment in any business
whose annual revenue, net income or assets is equal to or greater than
10% of the annual revenue, net income or assets of Level One.
Level One has agreed that it will:
- not encourage, solicit or participate in discussions with or provide any
non-public information to anyone except Intel concerning any third party
acquisition. However, the merger agreement does not prohibit the Level
One board of directors from taking and disclosing to Level One
stockholders a position contemplated by Rules 14d-9 and 14e-2 under the
Securities Exchange Act of 1934 with regard to a tender or exchange offer
made by someone other than Intel. In addition, if the Level One board
determines in its good faith judgment, after consultation with and based
upon the advice of legal counsel, that its fiduciary duties require it to
do so, the Level One board may participate in discussions with a third
party regarding any unsolicited bona fide proposal or offer, but only for
so long as such discussions are likely to lead to an offer:
1. to acquire, solely for cash and/or securities, all of the shares of
Level One common stock then outstanding, or all or substantially all
of Level One's assets;
2. that is fully financed or is financeable and contains terms that the
Level One board of directors by a majority vote determines in good
faith, based on the written advice of Level One's financial advisor
or another financial advisor of nationally recognized reputation, to
be more favorable to Level One stockholders than the merger with
Intel after taking into account all aspects of the transaction;
3. that the Level One board by a majority vote determines in its good
faith judgment based on consultation with the company financial
adviser or another financial advisor of nationally recognized
reputation and its legal or other advisers to be reasonably capable
of being completed after taking into account all aspects of the
transaction; and
4. that does not contain a right of first refusal or right of first
offer with respect to any proposal that Intel may make.
We sometimes refer to an offer that has all of these characteristics as
a superior proposal.
- notify Intel if Level One receives any communication regarding a third
party acquisition.
- provide a copy of any written agreements, proposals, or other materials
Level One receives about a third party acquisition.
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<PAGE> 60
- advise Intel from time to time of the status and any significant
developments that Level One has knowledge of concerning any third party
acquisition.
Except as described below, the Level One board of directors may not
withdraw or modify its recommendation of the merger with Intel. Level One also
may not approve, recommend, cause or permit Level One to enter into any
agreement or obligation relating to any third party acquisition. However, if the
Level One board determines in its good faith judgment, after consultation with
and based upon the advice of legal counsel, that its fiduciary duties require it
to do so, the Level One board may withdraw its recommendation of the merger or
approve or recommend any superior proposal. The Level One board of directors may
do so only after providing written notice to Intel advising Intel that the Level
One board of directors has received a superior proposal. This notice must
specify the significant terms and conditions and identify the person making the
superior proposal. Intel will then have five business days to make a counter
offer, which must be accepted if the Level One board of directors by a majority
vote determines in good faith, based on the written advice of a financial
advisor of nationally recognized reputation, that Intel's counter offer is at
least as favorable to Level One stockholders as the superior proposal. If Intel
fails to make this counter offer, Level One may enter into an agreement with
respect to the superior proposal only if the merger agreement is concurrently
terminated in accordance with its terms and Level One has paid all of the $75
million liquidated damages and $3 million of expense reimbursement due to Intel
under the merger agreement, as described below under "-- Termination of the
Merger Agreement -- Liquidated Damages and Expenses".
Level One also has agreed that it will:
- provide Intel with reasonable access to Level One's employees to, among
other things, deliver offers of continued employment and provide
information to the employees about Intel.
- provide Intel with reasonable access to Level One's books and records,
offices and facilities.
- take all necessary action to amend, merge, freeze or terminate all of its
compensation and benefit plans as requested in writing by Intel.
- provide Intel periodic financial information.
Intel and Level One have agreed that they each will take all necessary
action to ensure that the corporation surviving the merger will assume all
obligations under Level One's subordinated notes and will have provided for the
conversion rights to which the subordinated noteholders are entitled.
Intel has agreed that it will be responsible for obtaining any immigration
approvals required for employees transferred from Level One to Intel to become
employed at Intel.
CONDITIONS TO COMPLETING THE MERGER
Neither of Intel or Level One must complete the merger unless:
- Level One stockholders have approved the merger agreement.
- no law or order by any United States federal or state court or
governmental authority prohibits, enjoins or restricts the merger.
- Intel and Level One have received all governmental approvals or other
requirements necessary to complete the merger and generally operate Level
One's business after the merger as it was operated prior to the merger.
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- the registration statement containing this proxy statement/prospectus has
become effective and is not subject to any stop order or proceedings
seeking a stop order by the Securities and Exchange Commission.
Level One will not be required to complete the merger unless:
- except for insignificant defects, Intel's representations and warranties
in the merger agreement are true on the closing date of the merger.
- Intel has performed each of its agreements to be performed before the
merger.
- the Intel common stock issuable to Level One stockholders in the merger
will be listed on the Nasdaq National Market.
- Level One has received an opinion from its or Intel's tax counsel stating
that generally the merger will be tax-free to Level One, Intel and Level
One stockholders for federal income tax purposes.
- Level One has received an opinion from Intel's legal counsel relating to
certain legal matters.
Intel will not be required to complete the merger unless:
- except for insignificant defects, Level One's representations and
warranties contained in the merger agreement are true on the closing date
of the merger.
- Level One has performed each of its agreements to be performed before the
merger.
- there have been no significant and negative events regarding Level One or
its subsidiaries.
- Intel has received the opinion of its or Level One's tax counsel stating
that generally the merger will be tax-free for federal income tax
purposes.
- Intel has received letters from Level One's directors and executive
officers relating to the disposition of the Intel common stock received
by them in the Merger.
- Intel has received the opinion of legal counsel to Level One relating to
certain legal matters.
All of the conditions to completing the merger are waivable. If the
condition in respect of either party's receipt of a tax opinion confirming that
the merger is a tax-free reorganization is waived and the change in tax
consequences is material, or if any other material condition is waived, Level
One will resolicit its stockholders' approval and will recirculate the proxy
statement/prospectus to its stockholders. Intel and Level One cannot assure you
that all of the conditions to completing the merger will be satisfied or waived.
REGULATORY AND OTHER APPROVALS REQUIRED FOR THE MERGER
General. Intel and Level One have agreed to use all reasonable efforts to
do all things reasonably necessary under applicable laws to complete the merger.
These things include:
- obtaining consents of all third parties and governmental authorities
necessary or advisable to complete the merger.
- contesting any legal action designed to prevent the merger.
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act, and the
U.S. Federal Trade Commission's rules, Intel and Level One may not complete the
merger until we have filed the required notifications with the Federal Trade
Commission or the Antitrust Division of the
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<PAGE> 62
U.S. Department of Justice, and have waited a specified period of time. On March
24 and March 26, 1999, Level One and Intel filed the notifications required
under the Hart-Scott-Rodino Act, as well as certain information required to be
given to the Federal Trade Commission and the Department of Justice. On April
25, 1999, the Hart-Scott-Rodino waiting period expired without a request for
additional documents or information. However, at any time before or after the
merger, and even if the Hart-Scott-Rodino Act waiting period has expired, the
Department of Justice, the Federal Trade Commission or any state or foreign
governmental authority could take action under the antitrust laws as it deems
necessary in the public interest. This action could include seeking to enjoin
the merger or seeking Intel's divestiture of Level One or Intel's divestiture of
its or Level One's businesses. Private parties may also seek to take legal
action under the antitrust laws under certain circumstances.
Based on information available to them, Intel and Level One believe that
the merger will comply with all significant federal, state and foreign antitrust
laws. However, we cannot assure you that there will not be a challenge to the
merger on antitrust grounds or that, if this kind of challenge were made, we
would prevail.
Intel and Level One are not aware of any other significant regulatory
approvals or actions that are required for the merger. If any additional
governmental approvals or actions are required, we intend to try to get them. We
cannot assure you, however, that we will be able to obtain any additional
approvals or actions.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
Extension and Waiver. At any time prior to the merger, Intel and Level One
may agree to:
- Extend the time for the performance of any of the obligations or other
acts of the other party.
- Waive any inaccuracies in the other's representations and warranties.
- Waive the other's compliance with any of the agreements or conditions in
the merger agreement.
Amendment. The merger agreement may be changed by us at any time before or
after Level One stockholders approve the merger. However, any change which by
law requires the approval of Level One stockholders will require their
subsequent approval to be effective.
TERMINATION OF THE MERGER AGREEMENT
Termination. The merger agreement may be terminated and the merger
abandoned at any time prior to the completion of the merger, before or after it
has been approved by Level One stockholders. This termination may occur in the
following ways:
- Intel and Level One agree to terminate it.
- Intel or Level One decides to terminate it because:
1. any state or federal court or other governmental authority has issued
a non-appealable, final ruling prohibiting the merger; or
2. the merger is not completed by December 31, 1999, unless the failure
to complete it by that date is due to the failure of the party
seeking to terminate the merger agreement to perform its agreements
in the merger agreement.
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- Level One decides to terminate it because:
1. Intel's representations or warranties in the merger agreement are
untrue such that the conditions to Level One's obligation to complete
the merger could not be satisfied by December 31, 1999, so long as
Level One has not seriously breached its own obligations under the
merger agreement;
2. Intel failed to perform its agreements in the merger agreement, and
this failure substantially adversely affects Intel or the ability of
Intel or Level One to complete the merger, so long as Level One has
not seriously breached its own obligations in the merger agreement;
3. Level One has failed to obtain its stockholders' approval of the
merger agreement; or
4. The Level One board has received a superior proposal and responded in
a way that permitted termination of the merger agreement, including
the payment of liquidated damages and expenses to Intel.
- Intel decides to terminate it because:
1. Level One's representations or warranties in the merger agreement are
untrue such that the conditions to Intel's obligation to complete the
merger could not be satisfied by December 31, 1999, so long as Intel
has not seriously breached its own obligations in the merger
agreement;
2. Level One has failed to perform its agreements in the merger
agreement, and this failure substantially adversely affects Level One
or the ability of Intel or Level One to complete the merger, so long
as Intel has not seriously breached its own obligations in the merger
agreement;
3. the Level One board has recommended a superior proposal to its
stockholders;
4. the Level One board has withdrawn or negatively modified its
recommendation of the merger with Intel;
5. Level One has stopped using all reasonable efforts to hold a
stockholders' meeting to vote on the merger with Intel; or
6. Level One convened a meeting of the Level One stockholders to vote on
the merger but did not obtain their approval of the merger.
Effect of Termination. Even after the merger agreement has been terminated,
its confidentiality and fees and expenses provisions will remain in effect.
Also, termination will not relieve either party from liability for any breach by
it of the merger agreement before it was terminated.
Liquidated Damages and Expenses. Level One has agreed to pay Intel $75
million as liquidated damages if the merger agreement is terminated as follows:
- It is terminated by Level One because the Level One board of directors
received a superior proposal and responded in a way that permitted its
termination.
- It is terminated by Intel because the Level One board recommended that
stockholders approve a superior proposal.
- It is terminated by Intel because:
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- Level One significantly breached its representations, warranties or
agreements;
- the Level One board withdrew or negatively modified its recommendation
of the merger with Intel; or
- Level One stops using all reasonable efforts to convene a stockholders
meeting to approve the merger with Intel and, within a year after
termination, Level One enters into another agreement for the sale of a
substantial interest in Level One or its business or such a sale
otherwise occurs.
- It is terminated by either Intel or Level One because Level One held a
stockholders meeting and failed to obtain the required vote for the
merger and, within one year of the stockholder's meeting, Level One
enters into another agreement for the sale of a substantial interest in
Level One or its business or such a sale otherwise occurs.
In addition, Level One has agreed to pay Intel $3.0 million as
reimbursement of its fees and expenses if the merger agreement is terminated as
follows:
- It is terminated by Level One for either of the following reasons:
1. Level One held a stockholders meeting to vote on the merger but did
not obtain stockholder approval.
2. The Level One board of directors received a superior proposal and
responded in a way that permitted its termination.
- It is terminated by Intel for any of the following reasons:
1. Level One's representations or warranties in the merger agreement are
untrue such that the conditions to Intel's obligation to complete the
merger could not be satisfied by December 31, 1999 so long as Intel
has not seriously breached its own obligations under the merger
agreement.
2. Level One failed to perform its agreements in the merger agreement,
and this failure substantially adversely affects Level One or delays
the merger so long as Intel has not seriously breached its own
obligations under the merger agreement.
3. The Level One board of directors recommended that stockholders
approve a superior proposal.
4. The Level One board withdrew or negatively modified its
recommendation of the merger.
5. Level One stopped using all reasonable efforts to hold a
stockholders' meeting to vote on the merger.
6. Level One held a stockholders meeting to vote on the merger but did
not obtain stockholder approval.
Further, Intel has agreed to pay Level One $3.0 million as reimbursement of
its fees and expenses if the merger agreement is terminated by Level One
because:
- Intel's representations or warranties in the merger agreement are untrue
such that the conditions to Level One's obligation to complete the merger
could not be satisfied by December 31, 1999, so long as Level One has not
seriously breached its own obligations in the merger agreement.
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- Intel failed to perform its agreements in the merger agreement, and this
failure adversely effects Intel or the merger, so long as Level One has
not seriously breached its own obligations in the merger agreement.
Except as described above, whether or not the merger occurs, we have agreed
to pay our own fees and expenses incurred in connection with the merger
agreement.
If the merger agreement is terminated in a manner obligating Level One to
pay Intel the $75 million liquidated damages, Intel will have the right to
exercise its option to purchase up to 7,798,546 shares of Level One common
stock. See "-- Option Agreement."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses the material federal income tax
considerations of the merger that are generally applicable to Level One
stockholders exchanging their Level One common stock for Intel common stock. The
following discussion does not deal with all federal income tax considerations
that may be relevant to particular Level One stockholders in light of their
particular circumstances, such as stockholders who are dealers in securities,
banks, insurance companies, foreign persons, or tax-exempt organizations. This
discussion also does not apply to stockholders who are subject to alternative
minimum tax, hold their shares as part of a hedge, straddle or other risk
reduction transaction or acquired their Level One common stock through stock
option or stock purchase programs or otherwise as compensation. In addition, it
does not address the tax consequences of the merger under foreign, state or
local tax laws or other tax consequences of transactions completed before or
after the merger, such as the exercise of options or rights to purchase Level
One common stock in anticipation of the merger.
LEVEL ONE STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES TO THEM OF THE MERGER BASED ON THEIR OWN
CIRCUMSTANCES, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER.
The following discussion is based on the Internal Revenue Code, applicable
Treasury Regulations, judicial decisions and administrative rulings and
practice, all as of the date of this proxy statement/prospectus, all of which
are subject to change. Any such changes could be applied retroactively and could
affect the accuracy of the statements and conclusions in this discussion and the
tax consequences of the merger to Intel, Level One and/or their stockholders.
Neither Intel nor Level One has requested or will request a ruling from the
Internal Revenue Service with regard to any of the tax consequences of the
merger. Gibson, Dunn & Crutcher LLP, counsel to Intel, has rendered an opinion
to Intel and Graham & James LLP, counsel to Level One, has rendered an opinion
to Level One that:
- the merger will constitute a reorganization under Section 368(a) of the
Internal Revenue Code.
- each of Intel and Level One will be a party to the reorganization within
the meaning of Section 368(b) of the Internal Revenue Code.
As a condition to the merger, each counsel must render opinions at the
closing of the merger to the effect of the points listed above. Opinions of
counsel are not binding on the Internal Revenue Service or the courts.
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The opinions that have been rendered and the opinions to be rendered at the
closing of the merger are and will be conditioned upon the following
assumptions:
- the truth and accuracy of the statements, covenants, representations and
warranties in the merger agreement, in the representations received from
Intel and Level One to support the opinions, and in other documents
related to Intel and Level One relied upon by such counsel for those
opinions.
- the performance of all covenants contained in the merger agreement and
the tax representations without waiver or breach of any material
provision thereof.
- the accuracy of any representation or statement made "to the best of
knowledge" or similarly qualified without such qualification.
- the reporting of the merger as a reorganization under Section 368(a) of
the Internal Revenue Code by Intel and Level One in their respective
federal income tax returns.
- other customary assumptions as to the accuracy and authenticity of
documents provided to such counsel.
If the merger constitutes a reorganization within the meaning of Section
368(a) of the Internal Revenue Code as discussed above, and subject to the
limitations and qualifications referred to in this discussion, in the opinion of
Gibson, Dunn & Crutcher and Graham & James the following U.S. federal income tax
consequences will result from the merger:
- No gain or loss will be recognized by a Level One stockholder upon the
receipt of Intel common stock solely in exchange for Level One common
stock in the merger, except for gain arising from the receipt of cash in
lieu of fractional shares as discussed below.
- The aggregate tax basis of the Intel common stock received by a Level One
stockholder in the merger, including any fractional share of Intel common
stock for which cash is received, will be the same as the aggregate tax
basis of the Level One common stock exchanged for the Intel stock.
- The holding period of the Intel common stock received by each Level One
stockholder in the merger will include the period for which the Level One
common stock exchanged therefor was considered to be held, provided that
such Level One common stock was held as a capital asset at the time of
the merger.
- A Level One stockholder receiving cash instead of a fractional share of
Intel common stock will generally recognize gain or loss equal to the
difference between the amount of cash received and the stockholder's
basis in the fractional share.
- Neither Intel nor Level One will recognize gain or loss solely as a
result of the merger.
If the Internal Revenue Service determines successfully that the merger is
not a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code, Level One stockholders must recognize gain or loss with respect to
each share of Level One common stock surrendered equal to the difference between
the tax basis in the share and the fair market value of the Intel common stock
received in exchange for the Level One share. In such event, a Level One
stockholder's aggregate basis in the Intel common stock received would equal its
fair market value, and the stockholder's holding period for the stock would
begin the day after the merger.
Payments in respect of Level One common stock or a fractional share of
Intel common stock may be subject to information reporting to the Internal
Revenue Service and to a 31% backup
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withholding tax. Backup withholding will not apply to a payment to a stockholder
who completes and signs the substitute Form W-9 that will be included as part of
the transmittal letter, or otherwise proves to Intel and its exchange agent that
it is exempt from backup withholding.
ACCOUNTING TREATMENT
Intel will account for the merger as a "purchase" transaction for
accounting and financial reporting purposes, in accordance with generally
accepted accounting principles. Accordingly, Intel will make a determination of
the fair value of Level One's assets and liabilities in order to allocate the
purchase price to the assets acquired and the liabilities assumed. For
accounting purposes, the purchase price of the merger is estimated to be $2.2
billion. For this purchase price calculation, we used an Intel stock price of
$57.21, which is the average of Intel's stock price for five days around the
agreement date of March 4, 1999, as adjusted for stock splits. We based it on
39.1 million Level One shares outstanding which will be exchanged for 33.7
million Intel shares at the ratio of 0.86. We also included approximately $290
million for the value of employee stock options outstanding and warrants
outstanding. In connection with the merger, we anticipate that Intel will take a
one-time charge consisting of a write-off of in-process research and
development, estimated to be approximately $220 million. The purchase price
allocation will be determined, and the one-time charge for the write-off of
in-process research and development will be finalized, when additional
information concerning asset and liability valuation is obtained and analyzed.
EMPLOYEE BENEFITS AND PLANS
After the merger, the employee benefit plans, arrangements and agreements
of Level One existing on the date of the merger agreement, will remain in effect
with respect to Level One employees covered by these plans when the merger
occurs unless Intel modifies, freezes or terminates any of these Level One
benefit plans or requests Level One to do so. Level One employees who become
participants in Intel's compensation and benefit plans will be given credit for
service performed for Level One in most cases, but will not be given such credit
with respect to eligibility for sabbaticals, participation in Intel's stock
option plans and benefit accruals under some of Intel's employee benefit plans.
OPTION AGREEMENT
Intel and Level One have also entered into an option agreement that permits
Intel to purchase up to 7,798,546 shares of Level One common stock at a cash
exercise price of $50 per share. The total number of shares issuable upon
exercise of the option represents 16.6% of the Level One common stock
outstanding on March 4, 1999, assuming exercise of the option, or 19.9% of Level
One common stock outstanding on that date, not counting the shares received by
Intel.
We entered into the option agreement so that, if a third party submitted a
successful proposal to acquire Level One, Intel would be compensated for its
efforts, expenses and lost business opportunities incurred as a result of its
attempted acquisition of Level One.
Intel may exercise the option, in whole or in part, if the merger agreement
is terminated in a manner obligating Level One to pay Intel the $75 million
liquidated damages. See "-- Termination of the Merger Agreement -- Liquidated
Damages and Expenses." Intel may exercise the option until the 12 month
anniversary of the date on which the merger agreement has been terminated.
However, Intel may not exercise the option if it has willfully and significantly
breached the merger agreement.
If before the option expires any third party acquires or agrees to acquire
50% or more of the outstanding shares of Level One common stock, or Level One
enters into an agreement with any
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person other than Intel providing for an acquisition of Level One or any
significant part of its assets, then Intel, instead of exercising the option,
will have the right to receive in cancellation of the option cash equal to:
1. the excess of the greater of:
- the market value of a share of Level One common stock on the day
preceding exercise
- the highest price per share paid in connection with a third party
acquisition not involving Level One's assets, or
- the fair market value equivalent of a share of Level One common stock
in connection with a third party acquisition of Level One assets,
over $50
2. multiplied by 7,798,546, the number of Level One shares covered by the
option
The economic benefit that Intel may derive under the option agreement is
limited to $25 million. The option may not be exercised for a number of Level
One shares as would, at exercise, result in Intel's receiving a total value
exceeding this amount. Any amount Intel receives in excess of that amount must
be paid to Level One.
As of the date of this proxy statement/prospectus, Level One has informed
Intel that no event triggering Intel's ability to exercise the option has
occurred.
Level One is obligated to issue its shares upon exercise of the option only
if there is no legal or regulatory restriction on the exercise, all applicable
waiting periods under applicable laws have expired, and Intel's representations
and warranties in the option agreement are substantially correct.
Level One may require Intel to sell to Level One any of these shares still
held by Intel at any time during the period that begins on April 4, 2000 and
ends 19 months after the exercise in which Intel acquired its Level One shares
if:
- Intel has acquired Level One shares upon exercise of the option;
- no third party has acquired or agreed to acquire 50% or more of the
outstanding shares of Level One common stock; and
- Level One has not entered into an agreement with any person other than
Intel providing for an acquisition of Level One or any significant part
of its assets on or before March 4, 2000.
The per share purchase price will be the exercise price of the option, less any
dividends paid on the option shares to be repurchased by Level One.
Intel may request that Level One register under the Securities Act of 1933
the offering and sale of the Level One shares that have been acquired by or are
issuable to Intel upon exercise of the option, if requested by Intel within two
years after an event permitting exercise of the option. Any registration request
must be for at least 20% of the option shares or, if for less than 20% of the
originally issuable option shares, all of Intel's remaining option shares. Intel
may make up to two demands for registration. Intel's registration rights
terminate when Intel becomes entitled to sell all of its option shares under
Rule 144(k) of the Securities Act of 1933. In lieu of filing a registration
statement, Level One may purchase the option shares directly from Intel. Level
One may include any other securities in any registration demanded by Intel only
with Intel's consent. Level One will use all reasonable efforts to cause each
registration statement to become effective and remain so for 90 days and to
obtain all consents or waivers required from third parties. Level One's
obligation to file a
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registration statement and to maintain its effectiveness may be suspended for up
to 90 days if the Level One board of directors determines this registration
would seriously and negatively affect Level One, or financial statements
required to be included in the registration statement are not yet available. If
Level One proposes to register the offering and sale of Level One common stock
for cash for itself or any other Level One stockholder in an underwriting, it
will generally allow Intel to participate in the registration so long as Intel
agrees to participate in the underwriting.
The expenses of preparing and filing any registration statement for these
Level One shares and any sale covered by it will generally be paid by Level One,
except for underwriting discounts or commissions or brokers' fees, and the fees
and disbursements of Intel's counsel.
For each registration of option shares, Level One and Intel have agreed to
customary indemnification provisions for losses and liabilities under the
Securities Act and otherwise. However, Intel will not be required to indemnify
Level One beyond Intel's proceeds from the offering of its option shares.
Upon the issuance of option shares, Level One will promptly list the shares
on Nasdaq or on any other exchange on which Level One common stock is then
listed.
Because the rights and obligations of Intel and Level One under the option
agreement are subject to compliance with the Hart-Scott-Rodino Act, Intel
included in its merger notifications filed with the Department of Justice and
Federal Trade Commission a description of its rights under the option agreement.
See "-- Regulatory and Other Approvals Required for the Merger."
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Intel common stock issuable to Level One stockholders in the
merger and upon exercise of outstanding Level One stock options or warrants
after the merger have been registered under the Securities Act. Therefore, these
shares of Intel common stock may be traded freely and without restriction by
those Level One stockholders and holders of Level One stock options or warrants
who are not "affiliates" of Level One as defined under the Securities Act. An
"affiliate" of Level One is a person who controls, is controlled by, or is under
common control with, Level One. Any subsequent transfer of these shares by a
person who is an affiliate of Level One at the time the merger is voted on by
the Level One stockholders will require one of the following:
- further registration of these shares under the Securities Act;
- compliance with Rule 145 under the Securities Act; or
- the availability of another exemption from registration under the
Securities Act.
These restrictions are expected to apply to Level One's directors and
executive officers and the holders of 10% or more of its outstanding shares of
common stock. Intel will give stop transfer instructions to its transfer agent
and legend certificates representing the Intel common stock to be received by
affiliated persons.
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MANAGEMENT AFTER THE MERGER
BOARDS OF DIRECTORS
The Intel board of directors will not change as a result of the merger.
Immediately after the merger, the Level One board of directors will consist of
two directors selected by Intel.
MANAGEMENT
The composition of Intel's management will not change as a result of the
merger except that Dr. Pepper will join Intel as vice president of Intel's
Network Communications Group and will be general manager of the Level One
Communications division, which will be a subsidiary of Intel following the
merger. It is expected that after the merger, Dr. Pepper and Mr. Kehoe will also
remain with Level One with responsibilities comparable to those of their current
positions as specified in their employment agreements with Intel.
Other key staff positions within Level One post-merger have not been
finally determined. From time to time prior to the merger, decisions may be made
with respect to the management and operations of Level One post-merger,
including its other officers and managers.
Information about the current Intel directors and executive officers is set
forth or incorporated by reference into Intel's annual report on Form 10-K for
the year ended December 26, 1998. Information about the current Level One
directors and executive officers can be found in Level One's annual report on
Form 10-K for the year ended December 27, 1998. Intel's and Level One's annual
reports on Form 10-K are incorporated by reference into this proxy
statement/prospectus. See "Where You Can Find More Information."
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PRICE RANGE OF COMMON STOCK
INTEL. Intel common stock is listed on The Nasdaq Stock Market under the
symbol "INTC" and also trades on The Swiss Exchange. The following table shows,
for the periods indicated, the high and low reported closing sale prices per
share of Intel common stock on The Nasdaq Stock Market, as well as quarterly
dividends declared per share of Intel common stock. Share prices and dividends
per share have been restated for the effect of the two for one stock split paid
on April 11, 1999.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
--------------- CASH
HIGH LOW DIVIDEND/SHARE
------ ------ --------------
<S> <C> <C> <C>
1996
First Quarter............................ $15.25 $12.50 $0.0100
Second Quarter........................... $19.22 $14.22 $0.0125
Third Quarter............................ $24.34 $17.25 $0.0125
Fourth Quarter........................... $34.38 $23.86 $0.0125
1997
First Quarter............................ $41.19 $32.59 $0.0125
Second Quarter........................... $42.33 $32.63 $0.0150
Third Quarter............................ $50.25 $34.77 $0.0150
Fourth Quarter........................... $47.69 $34.56 $0.0150
1998
First Quarter............................ $47.09 $35.13 $0.0150
Second Quarter........................... $42.41 $32.97 --
Third Quarter............................ $45.72 $35.59 $0.0350
Fourth Quarter........................... $62.50 $39.22 --
1999
First Quarter............................ $70.47 $54.53 $0.0500
Second Quarter........................... $66.06 $50.50 --
Third Quarter (through July 6, 1999)..... $63.88 $57.00
</TABLE>
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LEVEL ONE. Level One common stock is listed on The Nasdaq Stock Market
under the symbol "LEVL." The following table shows the high and low closing
sales prices for Level One common stock for the periods indicated, as reported
on The Nasdaq Stock Market. Level One has never declared or paid any cash
dividends on its common stock, and does not plan on declaring any dividends in
the near future.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
---------------
HIGH LOW
------ ------
<S> <C> <C>
1996
First Quarter......................................... $16.11 $ 7.44
Second Quarter........................................ $13.56 $ 8.56
Third Quarter......................................... $12.61 $ 7.22
Fourth Quarter........................................ $16.67 $11.92
1997
First Quarter......................................... $16.33 $12.67
Second Quarter........................................ $17.78 $ 9.78
Third Quarter......................................... $26.25 $16.33
Fourth Quarter........................................ $31.33 $17.25
1998
First Quarter......................................... $29.95 $18.45
Second Quarter........................................ $32.88 $20.00
Third Quarter......................................... $30.06 $17.44
Fourth Quarter........................................ $36.20 $16.38
1999
First Quarter......................................... $48.69 $27.13
Second Quarter........................................ $53.75 $41.38
Third Quarter (through July 6, 1999).................. $53.19 $47.19
</TABLE>
The merger agreement prohibits Level One from paying cash dividends on
Level One common stock before the merger. See "The Merger -- Conduct of Business
Before the Merger."
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INFORMATION ABOUT INTEL CORPORATION
GENERAL
Intel, the world's largest semiconductor chip maker, is also a leading
manufacturer of computer, networking and communications products. Intel designs,
develops, manufactures and markets computer components and related products.
Intel's principal components consist of integrated circuits used to process
information. Integrated circuits are silicon chips, known as semiconductors,
etched with interconnected electronic switches.
Intel is organized into the following four operating segments according to
its various product lines:
- Intel Architecture Business Group -- microprocessors, motherboards and
related board-level products, including chipsets and graphics chips.
- Computing Enhancement Group -- embedded processors and microcontrollers
and flash memory products.
- Network Communications Group -- network and communications products.
- New Business Group -- Internet data services and other new business
opportunities.
Intel's major products include microprocessors, chipsets, embedded
processors and microcontrollers, flash memory products, graphics products,
network and communications products, systems management software, conferencing
products and digital imaging products. Intel sells its products throughout the
world to:
- original equipment manufacturers, or OEMs, of computer systems and
peripherals;
- PC users, who buy Intel's PC enhancements, business communications
products and networking products through resellers, and retail and
industrial distributors; and
- other manufacturers, including makers of a wide range of industrial and
telecommunications equipment.
A microprocessor is the central processing unit of a computer system. It
processes system data and controls other devices in the system, acting as the
brains of a computer. Intel's microprocessors include the Pentium(R) family of
microprocessors and microprocessors based on the P6 microarchitecture, including
the Pentium(R) II, the Pentium(R) III, the Pentium(R) II Xeon(TM) and the
Pentium(R) III Xeon(TM) processors. In 1998, Intel launched the Celeron(TM)
processor, which is based on the same P6 microarchitecture upon which the
Pentium(R) II processor is based, but offers a cost-effective solution for PC
manufacturers designing PC systems for the "value PC" market segment, which are
systems costing less than $1,000. Intel's continued developments in the area of
semiconductor design and manufacturing have made it possible to produce smaller,
faster microprocessors that consume less power and cost less to manufacture. In
1998, Intel completed the conversion of microprocessor manufacturing to the
0.25-micron process technology. One micron equals one millionth of a meter. The
Merced processor, the first member of Intel's new family of 64-bit
microprocessors is expected to be available to OEMs in sample volumes in 1999
and initial production volumes in mid-2000. The Merced processor will extend the
Intel architecture with new levels of performance and features for the server
and workstation market segments, while still running the software that currently
operates on 32-bit Intel processor-based machines. Although a 64-bit
microprocessor is more complex than a 32-bit microprocessor, it handles twice as
much data during the same time period. Sales of microprocessors based on the P6
microarchitecture and related board-
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level products comprised a majority of Intel's revenues and a substantial
majority of its gross margin during 1998.
Intel's other products complement its microprocessor lines. Intel's
chipsets perform essential logic functions surrounding the central processing
unit and support and extend the graphics, video and other capabilities of many
Intel processor-based systems. Intel provides embedded products such as
microprocessors, microcontrollers and memory components to a wide range of
manufacturers who use the embedded products in a variety of consumer and
industrial applications including cellular phones and automotive systems.
Network and communications products sold through resellers, OEMs and retail
outlets enhance the capabilities and ease of use of PC systems and networks.
Flash memory provides easily reprogrammable memory for cellular phones,
computers and other systems. Flash memory retains information when the power is
off. Graphics controllers provide enhanced graphics, full motion video and other
advanced display capabilities for notebook computers.
On May 31, 1999, Intel entered into a definitive agreement to acquire
Dialogic Corporation in a cash tender offer valued at approximately $780
million. The tender offer period expired on July 2, 1999. As of July 2, 1999,
94% of Dialogic's shares had been tendered. Intel expects to close the
acquisition on or about July 8, 1999. The acquisition is aimed at expanding
Intel's standard high-volume server business in the networking and
telecommunications market segment. Dialogic designs, manufactures and markets
computer hardware and software enabling technology for computer telephony
systems. Computer telephony is a term used to encompass a wide variety of
technologies and applications that use the information processing capabilities
of a computer, often a server, to add intelligence to telephone functions and to
combine these functions with data processing. Dialogic's products are used in
voice, fax, data, voice recognition, speech synthesis and call center management
computer telephony applications. Dialogic's products are sold globally to
original equipment manufacturers, value-added resellers, systems integrators,
applications developers and service providers through both a direct sales force
and distributors. Dialogic also licenses the use of various stand alone software
products. Dialogic also provides various products which include third party
provided technology embedded in Dialogic's products.
As of December 26, 1998, Intel employed approximately 64,500 people
worldwide.
Intel was incorporated in California in 1968 and reincorporated in Delaware
in 1989.
Intel's principal executive offices are located at 2200 Mission College
Boulevard, Santa Clara, California 95052, and its telephone number is (408)
765-8080.
MANAGEMENT AND ADDITIONAL INFORMATION
Information relating to executive compensation, various benefit plans,
including stock option plans, voting securities and the principal holders
thereof, relationships and related transactions between Intel and its management
or major stockholders and other related matters as to Intel is incorporated by
reference or set forth in Intel's annual report on Form 10-K for the year ended
December 26, 1998, incorporated into this proxy statement/prospectus by
reference. Level One stockholders desiring copies of such documents may contact
Intel at its address or telephone number indicated under "Where You Can Find
More Information."
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INFORMATION ABOUT LEVEL ONE COMMUNICATIONS
GENERAL
Level One is a leader in communications integrated circuit technology, and
provides silicon connectivity solutions for high-speed telecommunications and
networking applications. Its products are used for high-speed analog and digital
signal transmission and to build and connect networks to systems that transport
information within an office or around the world. Its products are used to
produce systems for local area networks, called LANs, wide area networks, called
WANs, and public telephone transmission networks. LANs, WANs and telephone
transmission networks enable you to use intranets, the Internet and the World
Wide Web. Level One combines its strengths in analog and digital circuit design
with its communications systems expertise to produce mixed-signal solutions with
increased functionality and greater reliability. This results in lower total
system cost.
Level One's advanced products are key components for digitized voice, data
and multimedia networks, linking homes and businesses across the nation and
around the world. In North America today, there are approximately 1.3 billion
miles of copper phone wire in place. The creation of access technologies is
critical to the exploitation of these copper lines for transmission of high
speed digital signals required by today's networking and telecommunications
needs. Level One leverages the installed base of copper wire by developing and
offering integrated circuits that facilitate the implementation of a growing
number of advanced interactive, multimedia, and enterprise networking
applications. These include:
- videoconferencing;
- advanced faxing capabilities;
- telecommuting;
- image retrieval;
- teleconferencing;
- wide area connectivity;
- leased line backup;
- file transfer;
- PC access;
- remote LAN; and
- computer-aided design, engineering and manufacturing.
Simultaneously, Level One has initiated programs to provide solutions that
serve the growing needs of the future mixed-media, coaxial cable, fiber and
wireless environments.
Level One develops and sells products to meet the needs of the
communications connectivity market which includes the networking market and the
telecommunications market. Level One's networking products address the rapid
evolution of the LAN networking connectivity markets. For these markets, Level
One produces a variety of products:
- Transceivers, which are communications devices capable of both
transmitting and receiving, for Ethernet and Fast Ethernet applications.
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- Ethernet repeaters having four ports on a single integrated circuit.
- Managed Ethernet repeaters.
- Integrated transceiver solutions.
The term "Ethernet" refers to a local network used to transfer information
at 10 million bits per second. Fast Ethernet transfers information at 100
million bits per second. Level One's telecommunications products service the
growing demand for high-speed digital transmission. These products include data
pumps and fully integrated transceivers that transport high-speed data in
internationally standardized formats and rates to meet the long and short
distance information transmission requirement of its customers.
During 1995, Level One acquired San Francisco Telecom of San Francisco,
California, a design firm specializing in system and IC level designs related to
specialized fiber optic transmissions, cable modems, and wireless applications.
Level One also made an investment in Maker Communications of Waltham,
Massachusetts, which specializes in very high speed cell asynchronous transfer
mode processing. In December 1996, Level One acquired Silicon Design Experts,
Inc. This strategic technology acquisition enhanced Level One's mixed-signal
connectivity expertise with the addition of world class, customizable digital
signal processing technology, tools and cores immediately applicable for
accelerated development of 1 gigabit Ethernet and other high speed digital
signal processing-based communications applications.
As of December 27, 1998, Level One had 821 employees.
Level One was incorporated in California in November 1985 and
reincorporated in Delaware in December 1998.
Level One's principal executive offices are located at 9750 Goethe Road,
Sacramento, California 95827, and its telephone number is (916) 855-5000.
MANAGEMENT AND ADDITIONAL INFORMATION
Information relating to executive compensation, various benefit plans,
including stock option plans, voting securities and the principal holders
thereof, relationships and related transactions between Level One and its
management or major stockholders and other related matters as to Level One is
incorporated by reference or set forth in Level One's annual report on Form 10-K
for the year ended December 27, 1998, incorporated into this proxy
statement/prospectus by reference. Level One stockholders desiring copies of
such documents may contact Level One at its address or telephone number
indicated under "Where You Can Find More Information."
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INTEL CAPITAL STOCK AND COMPARISON OF STOCKHOLDER RIGHTS
When Intel and Level One complete the merger, Level One stockholders will
become Intel stockholders.
The following is a description of the Intel common stock to be issued in
the merger and a summary of the significant differences between the rights of
holders of Intel common stock and Level One common stock.
DESCRIPTION OF INTEL CAPITAL STOCK
INTEL COMMON STOCK. As of February 26, 1999, there were approximately
1,666,235,000 shares of Intel common stock outstanding held of record by
approximately 216,000 persons, which would have been 3,324,700,000 shares if
Intel's previously announced stock split had occurred prior to that date.
Holders of Intel common stock are entitled to one vote per share on all matters
to be voted upon by Intel stockholders. Intel stockholders may not cumulate
votes for the election of directors. Intel common stockholders are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Intel board of directors out of funds legally available for dividend
payments. In the event of a liquidation, dissolution or winding up of Intel,
Intel common stockholders are entitled to share ratably in all assets remaining
after payment of liabilities. The Intel common stock has no preemptive or
conversion rights or other subscription rights nor do redemption or sinking fund
provisions apply to the Intel common stock. All outstanding shares of Intel
common stock are fully paid and non-assessable, and the shares of Intel common
stock to be outstanding after the merger will be fully paid and non-assessable.
Harris Trust and Savings Bank is the transfer agent and registrar for the Intel
common stock. Harris Trust's address is 311 West Monroe, P.O. Box A3504,
Chicago, Illinois 60690.
INTEL PREFERRED STOCK. The Intel board of directors may issue up to
50,000,000 shares of Intel preferred stock in one or more series and, subject to
Delaware law, may:
- fix the descriptions, powers, preferences, rights, qualifications,
limitations and restrictions of any series, and
- specify the number of shares of any series.
As of the date of this proxy statement/prospectus, no shares of Intel
preferred stock were outstanding. Although Intel presently does not intend to do
so, its board may issue without stockholder approval Intel preferred stock with
voting and conversion rights which could negatively affect the voting power or
other rights of the Intel common stockholders. The issuance of Intel preferred
stock may delay or prevent a change in control of Intel.
COMPARISON OF RIGHTS OF INTEL STOCKHOLDERS AND LEVEL ONE STOCKHOLDERS
The rights of holders of Intel common stock are governed by Delaware law,
Intel's restated certificate of incorporation and Intel's bylaws, while the
rights of Level One stockholders are governed by Delaware law, Level One's
certificate of incorporation and Level One's by-laws. In most respects, the
rights of Level One stockholders are similar to those of Intel stockholders. The
following discussion summarizes the significant differences between the
companies' charter documents. This summary is not a complete discussion of, and
is qualified by reference to, Intel's restated certificate of incorporation,
Intel's bylaws, Level One's certificate of incorporation, Level One's by-laws
and Delaware law.
CAPITAL STOCK. Intel's restated certificate of incorporation provides that
Intel's authorized capital stock consists of 4,500,000,000 shares of common
stock and 50,000,000 shares of preferred stock.
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Level One's certificate of incorporation provides that Level One's
authorized capital stock consists of 236,250,000 shares of common stock, $0.001
par value, and 10,000,000 shares of preferred stock, $0.001 par value. As of
March 1, 1999, there were 38,992,734 shares of Level One common stock
outstanding held by approximately 397 record holders. As of March 1, 1999, there
were no shares of Level One preferred stock outstanding.
DIRECTORS. Intel's bylaws provide for the Intel board of directors to
consist of twelve members. Board vacancies may be filled by the affirmative vote
of a majority of the remaining directors.
Level One's by-laws provide for the Level One board of directors to consist
of seven members. Board vacancies may be filled by the affirmative vote of a
majority of the remaining directors.
STOCKHOLDER PROPOSALS. The Intel bylaws provide that in order to properly
bring nominations for the election of directors or other business before a
stockholder meeting, a stockholder must give timely notice in writing of his or
her intent to bring the nomination or business before the meeting, and the
business must be a proper subject for stockholder action under Delaware law. To
be timely, the stockholder's notice must be delivered to the secretary of Intel
not less than 45 days nor more than 120 days before the anniversary of the date
on which Intel mailed its proxy materials for the previous year's annual meeting
of Intel stockholders. However, if the date of the meeting is set more than 30
days before or after the anniversary of the previous year's annual meeting, to
be timely, the stockholder's notice must be delivered not less than the later of
60 days before the meeting or 10 days after the date of the meeting is first
publicly announced. The stockholder notice must set forth:
- if the stockholder intends to make nominations, any information regarding
each nominee as would be required to be included in a proxy statement
under the proxy rules of the Securities and Exchange Commission,
including the written consent of each nominee to being named in the proxy
statement as a nominee and to serving as a director if elected,
- a brief description of the business to be brought before the meeting, the
reasons for conducting the business at the meeting and any material
interest of the stockholder or the beneficial owners, if any, on whose
behalf the proposal is made in the business,
- the name and address of the stockholder who seeks to bring the action and
the beneficial owners, if any, on whose behalf the nomination or proposal
is made, and
- the class and number of shares of Intel stock owned beneficially and of
record by the stockholder who seeks to bring the action and the
beneficial owners, if any, on whose behalf the nomination or proposal is
made.
The Level One by-laws provide that in order to properly bring nominations
for the election of directors or other business before a stockholder meeting, a
stockholder must give timely notice in writing of his or her intent to bring the
nomination or business before the meeting. To be timely, the stockholder's
notice must be delivered to or mailed and received by the secretary of Level One
not less than 120 days before the anniversary of the date on which Level One
mailed its proxy materials for the previous year's annual meeting of Level One
stockholders. However, if the date of the meeting is set more than 30 days
before or after the date contemplated at the time of the previous year's annual
meeting or if no annual meeting was held the previous year, to be timely, the
stockholder's notice must be received a reasonable time before a solicitation is
made. The stockholder notice must set forth:
- the name and address of the stockholder who intends to make nominations
or propose the business and of each nominee,
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<PAGE> 79
- if the stockholder intends to make nominations, of whether the
stockholder intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice,
- if the stockholder intends to make nominations, a description of all
arrangements or understandings between the stockholder and each nominee
and any other persons under which the nominations will be made,
- other information regarding each nominee or each matter of business to be
proposed by the stockholder as would be required to be included in a
proxy statement under the proxy rules of the Securities and Exchange
Commission had the nominee been nominated or the matter proposed by the
Level One board of directors, and
- the consent of each nominee to serve as a director of Level One if so
elected.
STOCKHOLDER APPROVAL OF CERTAIN TRANSACTIONS. Intel's certificate of
incorporation provides that Intel may not consummate significant business
transactions unless the transactions are first approved by holders of at least
66 2/3 percent of the combined voting power of the outstanding shares of Intel
stock entitled to vote generally in the election of directors. These
transactions include transactions with interested stockholders of Intel,
specifically:
- any merger or consolidation of Intel or any of its material subsidiaries
with or into any corporation which is an interested stockholder or
becomes an interested stockholder after the merger or consolidation,
- any sale, license, lease, exchange, mortgage, pledge, transfer or other
disposition of any of Intel's material assets to any interested
stockholder, and
- any issuance or transfer by Intel or any of its subsidiaries of any
securities of Intel or any of its subsidiaries to any interested
stockholder in exchange for cash, securities or other property having an
aggregate fair market value of $20 million or more.
An interested stockholder is any person or entity who:
- beneficially owns shares of Intel stock representing at least five
percent of the total voting power of all outstanding Intel stock entitled
to vote in the election of Intel directors or
- acts with any other person as a group to acquire, hold or dispose of
Intel securities and the group beneficially owns at least five percent of
the total voting power of all outstanding Intel stock entitled to vote in
the election of Intel directors.
Affiliates and associates of interested stockholders are themselves interested
stockholders. Intel, its subsidiaries or any employee benefit plan of Intel or
any of its subsidiaries are not considered interested stockholders.
Other transactions requiring the approval described above include:
- the adoption of any plan or proposal for the liquidation or dissolution
of Intel or any of its material subsidiaries, and
- any reclassification of any Intel securities, any recapitalization of
Intel, any merger or consolidation of Intel with or into any of its
subsidiaries or any other transaction which results in either:
1. an increase in the proportionate number of shares of any Intel
security or any securities of its subsidiaries beneficially owned by
any interested stockholder or
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2. the Intel stockholders ceasing to be stockholders of a corporation
with rights similar to Intel stockholders' rights with respect to
significant business transactions.
However, none of the above transactions will require approval of holders of
at least 66 2/3 percent of the combined voting power of the outstanding shares
of Intel stock entitled to vote generally in the election of directors if the
transaction has been approved by a majority of the disinterested Intel
directors, except in the case of licenses which may be approved by a committee
of the board, or if the transaction meets the following criteria:
- Intel stockholders must receive consideration from the transaction, the
fair market value of which is at least equal to the higher of, as
adjusted to reflect any stock dividend, stock split, reverse stock split,
combination of shares, recapitalization, reorganization or similar event:
1. the highest per share price paid by the interested stockholder
involved in the transaction, including any brokerage commissions,
transfer taxes, soliciting dealers' fees and other expenses, for any
shares of Intel stock acquired during the five-year period before the
consummation of the transaction, and
2. the fair market value per share of Intel stock held by the interested
stockholder on the date the interested stockholder first became an
interested stockholder, the date the transaction was publicly
announced, or the date the transaction was consummated, whichever
date yields the highest value;
- if the interested stockholder involved in the transaction paid cash in
order to acquire shares or any interest in shares of Intel stock within
the two-year period before the transaction was publicly announced, Intel
stockholders must have the option to receive payment in cash for their
shares as the consideration in the transaction, unless applicable law
requires otherwise;
- between the date the interested stockholder involved in the transaction
first became an interested stockholder and the date the transaction was
consummated:
1. except as approved by a majority of the disinterested Intel
directors, Intel has not failed to declare or pay any dividend at the
regular date, if Intel had previously paid regular dividends;
2. except as approved by a majority of the disinterested Intel
directors, Intel has not reduced the annual rate of dividends paid on
Intel stock;
3. Intel has increased the annual rate of dividends as necessary to
reflect any reclassification, including any reverse stock split or
combination of shares, recapitalization, reorganization or any
similar transaction, unless a majority of the disinterested Intel
directors approves the failure to increase the annual rate; and
4. the interested stockholder did not become the beneficial owner of any
additional shares of Intel stock except as part of the transaction
whereby the interested stockholder became an interested stockholder;
- after the date the interested stockholder involved in the transaction
first became an interested stockholder, the interested stockholder did
not receive the benefit, directly or indirectly, of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or
other tax advantages provided by Intel;
- Intel has mailed a proxy or information statement describing the proposed
transaction and complying with the requirements of the Securities
Exchange Act of 1934 to Intel stockholders at least 30 days before the
consummation of the transaction; and
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- in the proxy or information statement, the disinterested Intel directors
have been provided a reasonable opportunity to state their views about
the transaction and to include an opinion of an independent investment
banking or appraisal firm selected by the disinterested Intel directors
regarding the transaction.
DISSENTERS' APPRAISAL RIGHTS
Level One stockholders will not be entitled to dissenters' appraisal rights
under Delaware law or any other statute in connection with the merger.
LEGAL MATTERS
The validity of the Intel common stock to be issued in connection with the
merger has been passed upon by Gibson, Dunn & Crutcher LLP, San Francisco,
California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedules of Intel included in its annual report on
Form 10-K for the year ended December 26, 1998, as set forth in their report,
which is incorporated by reference in this proxy statement/ prospectus and
elsewhere in the registration statement. These financial statements and
schedules are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
The consolidated financial statements and schedules of Level One and its
subsidiaries incorporated by reference in this proxy statement/prospectus to the
Level One report on Form 10-K for the year ended December 27, 1998 have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving such
reports.
STOCKHOLDER PROPOSALS
Level One will hold a 1999 annual meeting of stockholders only if the
merger does not occur before the time of the meeting. In the event that the
meeting is held, the secretary of Level One must receive any proposals of Level
One stockholders intended to be presented at the 1999 annual meeting by no later
than April 13, 1999 in order for the proposals to be considered for inclusion in
the Level One proxy materials relating to the meeting.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the Level One board of
directors and the Intel board of directors know of no matters that will be
presented for consideration at the Level One special meeting other than as
described in this proxy statement/prospectus. If any other matters shall
properly come before the Level One special meeting or any adjournment or
postponement of the special meeting and be voted upon, the enclosed proxies will
be deemed to confer discretionary authority on the individuals named as proxies
therein to vote the shares represented by such proxies as to any such matters.
The individuals named as proxies intend to vote or not to vote in accordance
with the recommendation of the management of Level One.
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WHERE YOU CAN FIND MORE INFORMATION
Intel has filed with the Securities and Exchange Commission a registration
statement under the Securities Act that registers the distribution to Level One
stockholders of the shares of Intel common stock to be issued in connection with
the merger. The registration statement, including the attached exhibits and
schedules, contains additional relevant information about Intel and Intel common
stock. The rules and regulations of the Securities and Exchange Commission allow
us to omit certain information included in the registration statement from this
proxy statement/prospectus.
In addition, Intel and Level One file reports, proxy statements and other
information with the Securities and Exchange Commission under the Exchange Act.
You may read and copy this information at the Securities and Exchange
Commission's Public Reference Room, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling 1-800-SEC-0330.
You may also obtain copies of this information by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
The Securities and Exchange Commission also maintains an Internet site that
contains reports, proxy statements and other information about issuers, like
Intel and Level One, who file electronically with the Securities and Exchange
Commission. The address of that site is http://www.sec.gov.
The Securities and Exchange Commission allows Intel and Level One to
incorporate by reference information into this proxy statement/prospectus. This
means that the companies can disclose important information to you by referring
you to another document filed separately with the Securities and Exchange
Commission. The information incorporated by reference is considered to be a part
of this proxy statement/prospectus, except for any information that is
superseded by information that is included directly in this document.
This proxy statement/prospectus incorporates by reference the documents
listed below that Intel and Level One have previously filed with the Securities
and Exchange Commission. They contain important information about our companies
and their financial condition.
<TABLE>
<CAPTION>
INTEL SEC FILINGS PERIOD
----------------- ------
<S> <C>
Annual report on Form 10-K.............................. Year ended December 26, 1998
Annual report to stockholders........................... Year ended December 26, 1998
The description of Intel common stock set forth in the
Intel's Registration Statement on Form 8-B (File No.
000-06217)............................................ Filed: May 3, 1989
Current reports on Form 8-K............................. Filed: January 14, 1999
March 12, 1999
April 14, 1999
Quarterly report on Form 10-Q........................... Quarter ended March 27, 1999
</TABLE>
<TABLE>
<CAPTION>
LEVEL ONE SEC FILINGS PERIOD
--------------------- ------
<S> <C>
Annual report on Form 10-K.............................. Year ended December 27, 1998
The description of Level One common stock set forth in
Level One's registration statement on Form 8-A (File
No. 0-22068).......................................... Filed: July 9, 1993
Current reports on Form 8-K............................. Filed: February 3, 1999
March 8, 1999
Quarterly report on Form 10-Q........................... Quarter ended March 28, 1999
</TABLE>
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Intel and Level One incorporate by reference additional documents that
either company may file with the Securities and Exchange Commission between the
date of this proxy statement/prospectus and the date of the Level One special
meeting. These documents include periodic reports, such as annual reports on
Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as
well as proxy statements.
Intel has supplied all information contained or incorporated by reference
in this proxy statement/prospectus relating to Intel, as well as all pro forma
financial information, and Level One has supplied all such information relating
to Level One.
You can obtain any of the documents incorporated by reference in this
document through Intel or Level One, as the case may be, or from the Securities
and Exchange Commission through the Securities and Exchange Commission's web
site at the address described above. Documents incorporated by reference are
available from the companies without charge, excluding any exhibits to those
documents unless the exhibit is specifically incorporated by reference as an
exhibit in this proxy statement/prospectus. You can obtain documents
incorporated by reference in this proxy statement/ prospectus by requesting them
in writing or by telephone from the appropriate company at the following
addresses:
INTEL
Harris Trust & Savings Bank
311 West Monroe
P.O. Box A3504
Chicago, Illinois 60690-3504
Telephone: (800) 298-0146 (U.S. and Canada)
(312) 360-5123 (worldwide)
LEVEL ONE
Investor Relations
Level One Communications, Incorporated
9750 Goethe Road
Sacramento, California 95827
Telephone: (916) 854-1138
If you would like to request documents, please do so by August 2, 1999 to
receive them before the Level One special meeting. If you request any
incorporated documents from us, we will mail them to you by first class mail, or
another equally prompt means, within one business day after we receive your
request.
We have not authorized anyone to give any information or make any
representation about the merger or our companies that is different from, or in
addition to, that contained in this proxy statement/prospectus or in any of the
materials that we have incorporated into this document. Therefore, if anyone
does give you information of this sort, you should not rely on it. If you are in
a jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
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APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 4, 1999
AMONG
INTEL CORPORATION,
LEVEL ONE COMMUNICATIONS, INCORPORATED
AND
INTEL RSW CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 85
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 THE MERGER......................................................... A-1
Section 1.1. The Merger.................................................. A-1
Section 1.2. Effective Time.............................................. A-1
Section 1.3. Closing of the Merger....................................... A-1
Section 1.4. Effects of the Merger....................................... A-1
Section 1.5. Certificate of Incorporation and Bylaws..................... A-2
Section 1.6. Directors................................................... A-2
Section 1.7. Officers.................................................... A-2
Section 1.8. Conversion of Shares........................................ A-2
Section 1.9. Dissenters' Rights.......................................... A-2
Section 1.10. Exchange of Certificates.................................... A-2
Section 1.11. Stock Options............................................... A-4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................... A-5
Section 2.1. Organization and Qualification; Subsidiaries; Investments... A-5
Section 2.2. Capitalization of the Company and its Subsidiaries.......... A-6
Section 2.3. Authority Relative to this Agreement; Recommendation........ A-7
Section 2.4. SEC Reports; Financial Statements........................... A-8
Section 2.5. Information Supplied........................................ A-8
Section 2.6. Consents and Approvals; No Violations....................... A-9
Section 2.7. No Default.................................................. A-9
Section 2.8. No Undisclosed Liabilities; Absence of Changes.............. A-9
Section 2.9. Litigation.................................................. A-10
Section 2.10. Compliance with Applicable Law.............................. A-11
Section 2.11. Employee Benefits........................................... A-11
Section 2.12. Labor and Employment Matters................................ A-14
Section 2.13. Environmental Laws and Regulations.......................... A-15
Section 2.14. Taxes....................................................... A-16
Section 2.15. Intellectual Property....................................... A-17
Section 2.16. Insurance................................................... A-21
Section 2.17. Certain Business Practices.................................. A-22
Section 2.18. Product Warranties.......................................... A-22
Section 2.19. Suppliers and Customers..................................... A-22
Section 2.20. Vote Required............................................... A-22
Section 2.21. Tax Treatment............................................... A-22
Section 2.22. Affiliates.................................................. A-22
Section 2.23. Opinion of Financial Adviser................................ A-22
Section 2.24. Brokers..................................................... A-23
Section 2.25. Representations Complete.................................... A-23
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION...........
A-23
Section 3.1. Organization................................................ A-23
Section 3.2. Capitalization of Parent and its Subsidiaries............... A-24
Section 3.3. Authority Relative to this Agreement........................ A-24
Section 3.4. SEC Reports; Financial Statements........................... A-24
Section 3.5. Information Supplied........................................ A-25
Section 3.6. Consents and Approvals; No Violations....................... A-25
Section 3.7. Litigation.................................................. A-25
Section 3.8. Tax Treatment............................................... A-25
Section 3.9. Brokers..................................................... A-26
</TABLE>
A-i
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 3.10. No Prior Activities......................................... A-26
Section 3.11. No Undisclosed Liabilities; Absence of Changes.............. A-26
Section 3.12. Compliance with Applicable Law.............................. A-26
Section 3.13. Representations Complete.................................... A-26
ARTICLE 4 COVENANTS.......................................................... A-26
Section 4.1. Conduct of Business of the Company.......................... A-26
Section 4.2. Preparation of S-4 and the Proxy Statement.................. A-29
Section 4.3. No Solicitation or Negotiation.............................. A-29
Section 4.4. Comfort Letters............................................. A-31
Section 4.5. Meeting of Stockholders..................................... A-31
Section 4.6. Nasdaq National Market...................................... A-32
Section 4.7. Access to Information....................................... A-32
Section 4.8. Certain Filings; Reasonable Efforts......................... A-33
Section 4.9. Public Announcements........................................ A-33
Section 4.10. Indemnification and Directors' and Officers' Insurance...... A-33
Section 4.11. Notification of Certain Matters............................. A-35
Section 4.12. Affiliates; Tax-Free Reorganization......................... A-35
Section 4.13. Additions to and Modification of Company Disclosure
Schedule.................................................... A-35
Section 4.14. Access to Company Employees................................. A-36
Section 4.15. Company Compensation and Benefit Plans...................... A-36
Section 4.16. Convertible Subordinated Notes.............................. A-36
Section 4.17. Immigration, Visas.......................................... A-36
ARTICLE 5 CONDITIONS TO CONSUMMATION OF THE MERGER........................... A-36
Section 5.1. Conditions to Each Party's Obligations to Effect the
Merger...................................................... A-36
Section 5.2. Conditions to the Obligations of the Company................ A-37
Section 5.3. Conditions to the Obligations of Parent and Acquisition..... A-37
ARTICLE 6 TERMINATION; AMENDMENT; WAIVER..................................... A-38
Section 6.1. Termination................................................. A-38
Section 6.2. Effect of Termination....................................... A-39
Section 6.3. Fees and Expenses........................................... A-39
Section 6.4. Amendment................................................... A-40
Section 6.5. Extension; Waiver........................................... A-40
ARTICLE 7 MISCELLANEOUS...................................................... A-40
Section 7.1. Nonsurvival of Representations and Warranties............... A-40
Section 7.2. Entire Agreement; Assignment................................ A-41
Section 7.3. Service Credit.............................................. A-41
Section 7.4. Validity.................................................... A-41
Section 7.5. Notices..................................................... A-41
Section 7.6. Governing Law and Venue; Waiver of Jury Trial............... A-42
Section 7.7. Descriptive Headings........................................ A-43
Section 7.8. Parties in Interest......................................... A-43
Section 7.9. Certain Definitions......................................... A-43
Section 7.10. Personal Liability.......................................... A-44
Section 7.11. Specific Performance........................................ A-45
Section 7.12. Counterparts................................................ A-45
</TABLE>
A-ii
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TABLE OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A...................... Form of Affiliate Agreement
Form of Representations Relating to Tax Matters of the
Exhibit B-1.................... Company
Form of Representations Relating to Tax Matters of Parent
Exhibit B-2.................... and Acquisition
Matters to be Covered by Opinion of Legal Counsel to the
Exhibit C...................... Company
Matters to be Covered by Opinion of Legal Counsel to Parent
Exhibit D...................... and Acquisition
Exhibit E...................... Form of Certificate of Merger
</TABLE>
TABLE OF CONTENTS
TO
COMPANY DISCLOSURE SCHEDULE
[THE COMPANY AGREES TO FURNISH SUPPLEMENTALLY TO THE SECURITIES AND EXCHANGE
COMMISSION COPIES OF ANY OF THE FOLLOWING OMITTED SCHEDULES UPON REQUEST OF THE
COMMISSION]
<TABLE>
<S> <C>
Section 2.1(a)............................................. Subsidiaries
Section 2.1(b)............................................. Good Standing
Section 2.1(c)............................................. Equity Investments
Section 2.2................................................ Warrants
Section 2.6................................................ Consents and Approval
Section 2.7................................................ Defaults
Undisclosed Liabilities; Absence of
Section 2.8................................................ Changes
Section 2.9................................................ Litigation
Section 2.11(a)............................................ Employee Plans
Section 2.11(b)............................................ Employment and Related Agreements
Employee Benefits Affected by this
Section 2.11(c)............................................ Transaction
Section 2.11(d)............................................ Employee Benefits to Former Employees
Section 2.11(e)............................................ Employee Matters
Section 2.11(f)............................................ Lawsuits
Section 2.11(h)............................................ Reportable Events/Prohibited Transactions
Section 2.11(i)............................................ Outstanding Options
Section 2.11(k)............................................ Compensation and Benefit Plan Events
Section 2.11(l)............................................ Foreign Plans
Section 2.11(m)............................................ Post Effective Time Amendments
Section 2.11(p)............................................ Limitations on Amendments and Terminations
Section 2.12............................................... Labor and Employment Matters
Section 2.13............................................... Environmental Laws and Regulations
Section 2.14(b)............................................ Delinquent or Inaccurate Tax Returns
Section 2.14(c)............................................ All Taxes Paid
Section 2.14(d)............................................ Tax Claims
Section 2.14(e)............................................ Excess Parachute Payments
Section 2.15............................................... Copyrights
Section 2.15(b)............................................ Trademarks
Section 2.15(c)............................................ Patents
Section 2.15(e)(1)......................................... Inbound License Agreements
Section 2.15(e)(2)......................................... Outbound License Agreements
Section 2.15(h)............................................ Infringement
Section 2.15(i)............................................ Pending or Threatened Infringement Claims
</TABLE>
A-iii
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<TABLE>
<S> <C>
Section 2.15(j)............................................ Infringement Matters
Section 2.15(k)............................................ Existing Software Products
Section 2.15(l)............................................ Non Company Intellectual Property Rights
Existing and Currently Manufactured
Section 2.15(m)............................................ Software
Section 2.15(o)............................................ Year 2000 Compliance
Section 2.15(p)............................................ Foundry Relationships
Section 2.16............................................... Insurance
Section 2.18............................................... Product Warranties
Section 2.19............................................... Suppliers and Customers
Section 2.22............................................... Affiliates
Section 4.1................................................ Conduct of Business
Section 5.3(i)............................................. Third Party Consents
</TABLE>
A-iv
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of March 4,
1999, is by and among Level One Communications, Incorporated, a Delaware
corporation (the "Company"), Intel Corporation, a Delaware corporation
("Parent"), and Intel RSW Corporation, a Delaware corporation and a wholly owned
subsidiary of Parent ("Acquisition"). Capitalized terms not otherwise defined
herein shall have the meanings ascribed to such terms in Section 7.9 of this
Agreement.
WHEREAS, the Boards of Directors of the Company, Parent and Acquisition
have each (i) determined that the Merger (as defined below) is advisable and
fair and in the best interests of their respective stockholders and (ii)
approved the Merger upon the terms and subject to the conditions set forth in
this Agreement; and
WHEREAS, for Federal income tax purposes it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Acquisition hereby
agree as follows:
ARTICLE 1
THE MERGER
Section 1.1. The Merger. At the Effective Time (as defined below) and upon
the terms and subject to the conditions of this Agreement and in accordance with
the Delaware General Corporation Law (the "DGCL"), Acquisition shall be merged
with and into the Company (the "Merger"). Following the Merger, the Company
shall continue as the surviving corporation (the "Surviving Corporation") and
the separate corporate existence of Acquisition shall cease. The Merger is
intended to qualify as a tax-free reorganization under Section 368(a) of the
Code. Parent, as the sole stockholder of Acquisition, hereby approves the Merger
and this Agreement.
Section 1.2. Effective Time. Subject to the terms and conditions set forth
in this Agreement, on the Closing Date (as defined in Section 1.3), (a) a
Certificate of Merger substantially in the form of Exhibit E (the "Certificate
of Merger") shall be duly executed and acknowledged by Acquisition and the
Company and thereafter delivered for filing to the Secretary of State of the
State of Delaware for filing pursuant to Section 251 of the DGCL and (b) the
parties shall make such other filings with the Secretary of State of the State
of Delaware as shall be necessary to effect the Merger. The Merger shall become
effective at such time as a properly executed copy of the Certificate of Merger
is duly filed with the Secretary of State of the State of Delaware in accordance
with Section 251 of the DGCL, or such later time as Parent and the Company may
agree upon and as may be set forth in the Certificate of Merger (the time the
Merger becomes effective being referred to herein as the "Effective Time").
Section 1.3. Closing of the Merger. The closing of the Merger (the
"Closing") will take place at a time and on a date (the "Closing Date") to be
specified by the parties, which shall be no later than the second business day
after satisfaction (or waiver) of the latest to occur of the conditions set
forth in Article 5, at the offices of Gibson, Dunn & Crutcher LLP, One
Montgomery Street, San Francisco, California 94104, unless another time, date or
place is agreed to in writing by the parties hereto.
Section 1.4. Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing and subject
thereto, at the Effective Time, all the
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properties, rights, privileges, powers and franchises of the Company and
Acquisition shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Acquisition shall become the debts, liabilities
and duties of the Surviving Corporation.
Section 1.5. Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of Acquisition in effect at the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until amended in
accordance with Applicable Law. The bylaws of Acquisition in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with Applicable Law.
Section 1.6. Directors. The directors of Acquisition at the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold office
in accordance with the Certificate of Incorporation and bylaws of the Surviving
Corporation until such director's successor is duly elected or appointed and
qualified.
Section 1.7. Officers. The officers of Acquisition at the Effective Time
shall be the initial officers of the Surviving Corporation, each to hold office
in accordance with the Certificate of Incorporation and bylaws of the Surviving
Corporation until such officer's successor is duly elected or appointed and
qualified.
Section 1.8. Conversion of Shares.
(a) At the Effective Time, each share of common stock of the Company
(individually a "Share" and collectively the "Shares") issued and outstanding
immediately prior to the Effective Time (other than (i) Shares held in the
Company's treasury or by any of the Company's subsidiaries and (ii) Shares held
by Parent, Acquisition or any other subsidiary of Parent) shall, by virtue of
the Merger and without any action on the part of Acquisition, the Company or the
holder thereof, be converted into and shall become a number of fully paid and
nonassessable shares of common stock, par value $.01 per share, of Parent
("Parent Common Stock") equal to the Exchange Ratio (as defined below) (the
"Merger Consideration"). Notwithstanding the foregoing, if, between the date of
this Agreement and the Effective Time, the outstanding shares of Parent Common
Stock or the Shares shall have been changed into a different number of shares or
a different class by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
then the Exchange Ratio shall be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares.
(b) The "Exchange Ratio" shall be 0.43.
(c) At the Effective Time, each outstanding share of the common stock of
Acquisition shall be converted into one share of common stock of the Surviving
Corporation.
(d) At the Effective Time, each Share held in the treasury of the Company
and each Share held by Parent, Acquisition or any subsidiary of Parent,
Acquisition or the Company immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of Acquisition, the
Company or the holder thereof, be canceled, retired and cease to exist, and no
shares of Parent Common Stock shall be delivered with respect thereto.
Section 1.9. Dissenters' Rights. In accordance with Section 262 of the
DGCL, the holders of the Shares shall not be entitled to dissenters' or
appraisal rights.
Section 1.10. Exchange of Certificates.
(a) From time to time following the Effective Time, as required by
subsections (b) and (c) below, Parent shall deliver to its transfer agent, or a
depository or trust institution of recognized standing selected by Parent and
Acquisition (the "Exchange Agent") for the benefit of the holders of Shares for
exchange in accordance with this Article I: (i) certificates representing the
appropriate
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number of shares of Parent Common Stock issuable pursuant to Section 1.8; and
(ii) cash to be paid in lieu of fractional shares of Parent Common Stock (such
shares of Parent Common Stock and such cash are hereinafter referred to as the
"Exchange Fund"), in exchange for outstanding Shares.
(b) Not later than two (2) business days after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time represented
outstanding Shares (the "Certificates") and whose shares were converted into the
right to receive shares of Parent Common Stock pursuant to Section 1.8: (i) a
letter of transmittal (which shall specify that delivery shall be effected and
risk of loss and title to the Certificates shall pass only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Parent Common Stock and, if applicable,
cash to be paid for fractional shares of Parent Common Stock. Upon surrender of
a Certificate for cancellation to the Exchange Agent together with such letter
of transmittal duly executed, the holder of such Certificate shall be issued a
certificate representing that number of whole shares of Parent Common Stock and,
if applicable, a check representing the cash consideration to which such holder
is entitled on account of a fractional share of Parent Common Stock that such
holder has the right to receive pursuant to the provisions of this Article I,
and the Certificate so surrendered shall forthwith be canceled. In the event of
a transfer of ownership of Shares that is not registered in the transfer records
of the Company, a certificate representing the proper number of shares of Parent
Common Stock and a check representing the amount of consideration payable in
lieu of fractional shares shall be issued to a transferee if the Certificate
representing such Shares is presented to the Exchange Agent accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 1.10, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of Parent Common Stock and cash in
lieu of any fractional shares of Parent Common Stock as contemplated by this
Section 1.10.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 1.10(f), until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of Applicable Law, following
surrender of any such Certificate there shall be paid to the record holder of
the certificates representing whole shares of Parent Common Stock issued in
exchange therefor without interest (i) the amount of any cash payable in lieu of
a fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 1.10(f) and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such number of whole shares of Parent Common Stock and (ii) at the appropriate
payment date the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Parent Common Stock.
(d) In the event that any Certificate for Shares shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange therefor upon
the making of an affidavit of that fact by the holder thereof such shares of
Parent Common Stock and cash in lieu of fractional shares, if any, as may be
required pursuant to this Agreement; provided, however, that Parent or the
Exchange Agent may, in its discretion, require the delivery of a suitable bond
or indemnity.
(e) All shares of Parent Common Stock issued upon the surrender for
exchange of Shares in accordance with the terms hereof (including any cash paid
pursuant to Section 1.10(c) or 1.10(f))
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shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Shares; subject, however, to the Surviving Corporation's
obligation to pay any dividends or make any other distributions with a record
date prior to the date hereof that remain unpaid at the Effective Time, and
there shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the Shares that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Article I.
(f) No fractions of a share of Parent Common Stock shall be issued in the
Merger but in lieu thereof each holder of Shares otherwise entitled to a
fraction of a share of Parent Common Stock shall upon surrender of his or her
Certificate or Certificates be entitled to receive an amount of cash (without
interest) determined by multiplying the closing price for Parent Common Stock as
reported on the Nasdaq National Market on the business day immediately preceding
the date hereof by the fractional share interest to which such holder would
otherwise be entitled. The parties acknowledge that payment of the cash
consideration in lieu of issuing fractional shares was not separately bargained
for consideration, but merely represents a mechanical rounding off for purposes
of simplifying the corporate and accounting complexities that would otherwise be
caused by the issuance of fractional shares.
(g) Any portion of the Exchange Fund that remains undistributed to the
stockholders of the Company upon the expiration of one (1) year after the
Effective Time shall be delivered to Parent upon demand and any stockholders of
the Company who have not theretofore complied with this Article 1 shall
thereafter look only to Parent as general creditors for payment of their claim
for Parent Common Stock and cash in lieu of fractional shares, as the case may
be, and any applicable dividends or distributions with respect to Parent Common
Stock.
(h) Neither Parent nor the Company shall be liable to any holder of Shares
or Parent Common Stock for such shares (or dividends or distributions with
respect thereto) or cash from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar Applicable
Law.
Section 1.11. Stock Options.
(a) At the Effective Time, each outstanding option, warrant or other right
to purchase Shares (a "Company Stock Option" or collectively "Company Stock
Options") issued pursuant to the Level One Communications, Incorporated 1993
Stock Option Plan, the Level One Communications, Incorporated 1985 Stock Option,
Nonqualified Stock Option and Restricted Stock Purchase Plan, the Jato
Technologies, Inc. 1997 Stock Option Plan, the San Francisco Telecom Stock
Option Plan and the Acclaim Communications 1996 Stock Incentive Plan, as amended
July 14, 1997, or other agreement or arrangement other than options held by the
Company's outside directors, whether vested or unvested, shall be converted as
of the Effective Time into an option, warrant or right, as applicable, to
purchase shares of Parent Common Stock in accordance with the terms of this
Section 1.11. All plans or agreements described above pursuant to which any
Company Stock Option has been issued or may be issued other than outstanding
warrants or rights are referred to collectively as the "Company Plans." Each
Company Stock Option shall be deemed to constitute an option to acquire, on the
same terms and conditions as were applicable under such Company Stock Option, a
number of shares of Parent Common Stock equal to the number of shares of Parent
Common Stock that the holder of such Company Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such option
or warrant, whether or not vested, in full immediately prior to the Effective
Time rounded to the nearest whole share at a price per share equal to (x) the
aggregate exercise price for the Shares otherwise purchasable pursuant to such
Company Stock Option divided by (y) the product of (i) the number of Shares
otherwise purchasable pursuant to such Company Stock Option, multiplied by (ii)
the Exchange Ratio; provided, however, that in the
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case of any option to which Section 421 of the Code applies by reason of its
qualification under Sections 422 through 424 of the Code, the option price, the
number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in order to comply
with Section 424(a) of the Code.
(b) As soon as practicable after the Effective Time, Parent shall deliver
to the holders of Company Stock Options appropriate notices setting forth such
holders' rights pursuant to the Company Plan and that the agreements evidencing
the grants of such Options shall continue in effect on the same terms and
conditions (subject to the adjustments required by this Section 1.11 after
giving effect to the Merger). Parent shall comply with the terms of the Company
Plans and ensure, to the extent required by and subject to the provisions of
such Plans, that Company Stock Options that qualified as incentive stock options
prior to the Effective Time continue to qualify as incentive stock options of
Parent after the Effective Time.
(c) At or before the Effective Time, Parent shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of Parent Common
Stock for delivery upon exercise of Company Stock Options assumed in accordance
with this Section 1.11. Not later than five (5) business days after the
Effective Time, Parent shall, if no registration statement is in effect covering
such Parent shares, file a registration statement on Form S-8 (or any successor
or other appropriate forms) with respect to the shares of Parent Common Stock
subject to any Company Stock Options held by persons who are directors, officers
or employees of the Company or its subsidiaries and shall use all commercially
reasonable efforts to maintain the effectiveness of such registration statement
or registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.
(d) At or before the Effective Time, the Company shall cause to be
effected, in a manner reasonably satisfactory to Parent, amendments to the
Company Plans to give effect to the foregoing provisions of this Section 1.11.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Acquisition, subject to the exceptions set forth in the Disclosure Schedule (the
"Company Disclosure Schedule") delivered by the Company to Parent in accordance
with Section 4.13 (which exceptions shall specifically identify a Section,
Subsection or clause of a single Section or Subsection hereof, as applicable, to
which such exception relates) that:
Section 2.1. Organization and Qualification; Subsidiaries; Investments.
(a) Section 2.1(a) of the Company Disclosure Schedule sets forth a true and
complete list of all the Company's directly or indirectly owned subsidiaries and
branch offices, together with the jurisdiction of incorporation of each
subsidiary and the percentage of each subsidiary's outstanding capital stock or
other equity interests owned by the Company or another subsidiary of the
Company. Each of the Company and its subsidiaries is duly organized, validly
existing and, except as set forth in Section 2.1 of the Company Disclosure
Schedule, in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite power and authority to own,
lease and operate its properties and to carry on its businesses as now being
conducted. The Company has heretofore delivered to Acquisition or Parent
accurate and complete copies of the Certificate of Incorporation and bylaws (or
similar governing documents), as currently in full force and effect, of the
Company and each of its subsidiaries. Section 2.1(a) of the Company Disclosure
Schedule specifically identifies each subsidiary of the Company that contains
any material assets or through which the Company conducts any material
operations. Except as set forth in Section 2.1(a) of the Company Disclosure
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Schedule, the Company has no operating subsidiaries other than those
incorporated in a state of the United States.
(b) Except as set forth in Section 2.1(b) of the Company Disclosure
Schedule, each of the Company and its subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except in such jurisdictions
where the failure to be so duly qualified or licensed and in good standing would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. When used in connection with the Company or its subsidiaries, the term
"Material Adverse Effect on the Company" means any circumstance, change in, or
effect on the Company and its subsidiaries, taken as a whole, that is, or is
reasonably likely in the future to be, materially adverse to the operations,
financial condition, earnings or results of operations, or the business
(financial or otherwise), of the Company and its subsidiaries, taken as a whole,
provided that none of the following shall be deemed, either alone or in
combination, to constitute a Material Adverse Effect on the Company; (i) a
change in the market price or trading volume of the Company Common Stock, (ii) a
failure by the Company to meet internal earnings or revenue projections or the
revenue or earnings predictions of equity analysts as reflected in the First
Call consensus estimate, or any other revenue or earnings predictions or
expectations, for any period ending (or for which earnings are released) on or
after the date of this Agreement and prior to the Effective Date, provided
further that this Section 2.1(b)(ii) shall not exclude any underlying change,
effect, event, occurrence, state of facts or developments which resulted in such
failure to meet such estimates, predictions or expectations, (iii) conditions
affecting the semi-conductor industry as a whole or the U.S. economy as a whole,
or (iv) any disruption of customer or supplier relationships arising primarily
out of or resulting primarily from actions contemplated by the parties in
connection with the announcement of this Agreement and the transactions
contemplated hereby, to the extent so attributable.
(c) Section 2.1(c) of the Company Disclosure Schedule sets forth a true and
complete list of each equity investment in an amount of Three Hundred Thousand
Dollars ($300,000) or more or that represents a five percent (5%) or greater
ownership interest in the subject of such investment made by the Company or any
of its subsidiaries in any person other than the Company's subsidiaries ("Other
Interests"). Except as described in Section 2.1(c) of the Company Disclosure
Schedule, the Other Interests are owned by the Company, by one or more of the
Company's subsidiaries or by the Company and one or more of its subsidiaries, in
each case free and clear of all Liens (as defined below).
Section 2.2. Capitalization of the Company and its Subsidiaries.
(a) The authorized capital stock of the Company consists of Two Hundred
Thirty-Six Million Two Hundred Fifty Thousand (236,250,000) Shares, of which, as
of March 1, 1999, 38,992,734 Shares were issued and outstanding and Ten Million
(10,000,000) shares of preferred stock, no shares of which are outstanding. All
of the outstanding Shares have been validly issued and are fully paid,
nonassessable and free of preemptive rights. As of March 1, 1999, approximately
7,430,200 Shares were reserved for issuance and, as of March 1, 1999,
approximately 6,770,200 were issuable upon or otherwise deliverable in
connection with the exercise of outstanding Company Stock Options issued
pursuant to the Company Plans. Between March 1, 1999 and the date hereof, no
shares of the Company's capital stock have been issued other than pursuant to
Company Stock Options already in existence on such first date, and between March
1, 1999 and the date hereof, no stock options have been granted. Except as set
forth above and for the Company's 4% Convertible Subordinated Notes due 2004
(the "Subordinated Notes") issued pursuant to the Indenture dated as of August
15, 1997, by and between the Company and State Street Bank and Trust Company of
California, N.A. (the "Indenture"), as of the date hereof, there are outstanding
(i) no shares of
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capital stock or other voting securities of the Company, (ii) no securities of
the Company or any of its subsidiaries convertible into or exchangeable or
exercisable for shares of capital stock or other securities of the Company,
(iii) no options, preemptive or other rights to acquire from the Company or any
of its subsidiaries, and, except as described in the Company SEC Reports (as
defined below), no obligations of the Company or any of its subsidiaries to
issue, any capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or other securities of the Company
and (iv) no equity equivalent interests in the ownership or earnings of the
Company or its subsidiaries or other similar rights (collectively "Company
Securities"). Except as set forth in Section 2.2(a) of the Company Disclosure
Schedule, as of the date hereof, there are no outstanding rights or obligations
of the Company or any of its subsidiaries to repurchase, redeem or otherwise
acquire any Company Securities. There are no stockholder agreements, voting
trusts or other agreements or understandings to which the Company is a party or
by which it is bound relating to the voting or registration of any shares of
capital stock of the Company. The Company has not voluntarily accelerated the
vesting of any Company Stock Options as a result of the Merger or any other
change in control of the Company.
(b) All of the outstanding capital stock of the Company's subsidiaries
owned by the Company is owned, directly or indirectly, free and clear of any
Lien or any other limitation or restriction (including any restriction on the
right to vote or sell the same except as may be provided as a matter of
Applicable Law). Except as set forth in Section 2.2(b) of the Company Disclosure
Schedule, there are no (i) securities of the Company or any of its subsidiaries
convertible into or exchangeable or exercisable for, (ii) options or (iii) other
rights to acquire from the Company or any of its subsidiaries any capital stock
or other ownership interests in or any other securities of any subsidiary of the
Company, and there exists no other contract, understanding, arrangement or
obligation (whether or not contingent) providing for the issuance or sale,
directly or indirectly, of any such capital stock. There are no outstanding
contractual obligations of the Company or its subsidiaries to repurchase, redeem
or otherwise acquire any outstanding shares of capital stock or other ownership
interests in any subsidiary of the Company. For purposes of this Agreement,
"Lien" means, with respect to any asset (including any security), any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such asset; provided, however, that the term "Lien" shall not include (i)
statutory liens for Taxes that are not yet due and payable or are being
contested in good faith by appropriate proceedings and are disclosed in Section
2.14 of the Company Disclosure Schedule or that are otherwise not material, (ii)
statutory or common law liens to secure obligations to landlords, lessors or
renters under leases or rental agreements confined to the premises rented, (iii)
deposits or pledges made in connection with, or to secure payment of, workers'
compensation, unemployment insurance, old age pension or other social security
programs mandated under Applicable Laws, (iv) statutory or common law liens in
favor of carriers, warehousemen, mechanics and materialmen, to secure claims for
labor, materials or supplies and other like liens, and (v) restrictions on
transfer of securities imposed by applicable state and federal securities laws.
(c) The Shares constitute the only class of equity securities of the
Company or its subsidiaries registered or required to be registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Section 2.3. Authority Relative to this Agreement; Recommendation.
(a) The Company has all necessary corporate power and authority to execute
and deliver this Agreement and the Stock Option Agreement, to perform its
obligations under this Agreement and the Stock Option Agreement, and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the Stock Option Agreement, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Board of Directors of the Company (the "Company Board"), and
no other corporate proceedings on
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the part of the Company are necessary to authorize this Agreement or the Stock
Option Agreement, or to consummate the transactions contemplated hereby or
thereby, except the approval of this Agreement by the holders of a majority of
the outstanding Shares. This Agreement and the Stock Option Agreement have been
duly and validly executed and delivered by the Company and constitute the valid,
legal and binding agreements of the Company, enforceable against the Company in
accordance with their terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally or to general principles of equity.
(b) Without limiting the generality of the foregoing, the Board of
Directors of the Company has unanimously (1) approved this Agreement, the Stock
Option Agreement, the Merger and the other transactions contemplated hereby, (2)
resolved to recommend approval and adoption of this Agreement, the Merger and
the other transactions contemplated hereby by the Company's stockholders, and
(3) has not withdrawn or modified such approval or resolution to recommend
(except as otherwise permitted in this Agreement).
Section 2.4. SEC Reports; Financial Statements.
(a) The Company has filed all required forms, reports and documents
("Company SEC Reports") with the Securities and Exchange Commission (the "SEC")
since January 1, 1997, each of which complied at the time of filing in all
material respects with all applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the Exchange Act, each law as in
effect on the dates such forms, reports and documents were filed. None of such
Company SEC Reports, including any financial statements or schedules included or
incorporated by reference therein, contained when filed any untrue statement of
a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein in light of the circumstances under which they were made not misleading,
except to the extent superseded by a Company SEC Report filed subsequently and
prior to the date hereof. The audited consolidated financial statements of the
Company included in the Company SEC Reports fairly present, in conformity in all
material respects with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of the Company and its consolidated subsidiaries
as of the dates thereof and their consolidated results of operations and changes
in financial position for the periods then ended. Notwithstanding the foregoing,
the Company shall not be deemed to be in breach of any of the representations or
warranties in this Section 2.4(a) as a result of any changes to the Company SEC
Reports that the Company may make in response to comments received from the SEC
on the S-4 or the Proxy Statement (each as defined below).
(b) The Company has heretofore made, and hereafter will make, available to
Acquisition or Parent a complete and correct copy of any amendments or
modifications that are required to be filed with the SEC but have not yet been
filed with the SEC to agreements, documents or other instruments that previously
had been filed by the Company with the SEC pursuant to the Exchange Act.
Section 2.5. Information Supplied. None of the information supplied or to
be supplied by the Company in writing for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of shares of Parent Common Stock in
the Merger (the "S-4") will, at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) the proxy statement relating to the
meeting of the Company's stockholders to be held in connection with the Merger
(the "Proxy Statement") will, at the date mailed to stockholders of the Company
and at the time of the meeting of stockholders of the Company to be held in
connection with the Merger, contain any
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untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein in
light of the circumstances under which they are made not misleading. The Proxy
Statement insofar as it relates to the meeting of the Company's stockholders to
vote on the Merger will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
Notwithstanding the foregoing, the Company makes no representation, warranty or
covenant with respect to any information supplied or required to be supplied by
Parent or Acquisition that is contained in or omitted from any of the foregoing
documents.
Section 2.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under
applicable requirements of the Securities Act, the Exchange Act, state
securities or blue sky laws, and the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), any filings under similar merger
notification laws or regulations of foreign Governmental Entities and the filing
and recordation of the Certificate of Merger as required by the DGCL, no
material filing with or notice to and no material permit, authorization, consent
or approval of any United States (federal, state or local) or foreign court or
tribunal, or administrative, governmental or regulatory body, agency or
authority (a "Governmental Entity") is necessary for the execution and delivery
by the Company of this Agreement or the Stock Option Agreement or the
consummation by the Company of the transactions contemplated hereby or thereby.
Neither the execution, delivery and performance of this Agreement or the Stock
Option Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby or thereby will (i) conflict with or result in
any breach of any provision of the respective Certificate of Incorporation or
bylaws (or similar governing documents) of the Company or any of its
subsidiaries, (ii) except as set forth in Section 2.6 of the Company Disclosure
Schedule, result in a violation or breach of or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration or Lien) under any of the
terms, conditions or provisions of any material note, bond, mortgage, indenture,
lease, license, contract (including any material Supply Contract), agreement or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which any of them or any of their respective properties or
assets are bound or (iii) except as set forth in Section 2.6 of the Company
Disclosure Schedule, violate any material order, writ, injunction, decree, law,
statute, rule or regulation applicable to the Company or any of its subsidiaries
or any of their respective properties or assets.
Section 2.7. No Default. Except as set forth in Section 2.7 of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries is in
breach, default or violation (and no event has occurred that with notice or the
lapse of time or both would constitute a breach, default or violation) of any
term, condition or provision of (i) its Certificate of Incorporation or bylaws
(or similar governing documents), (ii) any material note, bond, mortgage,
indenture, lease, license, contract (including any material Supply Contract),
agreement or other instrument or obligation to which the Company or any of its
subsidiaries is now a party or by which it or any of its properties or assets
are bound or (iii) any material order, writ, injunction, decree, law, statute,
rule or regulation applicable to the Company or any of its subsidiaries or any
of its properties or assets.
Section 2.8. No Undisclosed Liabilities; Absence of Changes. Except as and
to the extent publicly disclosed by the Company in the Company SEC Reports or as
set forth in Section 2.8 of the Company Disclosure Schedule, neither the Company
nor any of its subsidiaries has any material liabilities or obligations of any
nature, whether or not accrued, contingent or otherwise, that would be required
by generally accepted accounting principles to be reflected on a consolidated
balance sheet of the Company (including the notes thereto). Except as publicly
disclosed by the Company in the Company SEC Reports or as set forth in Section
2.8 of the Company Disclosure Schedule, since September 30, 1998, there have
been no events, changes or effects with respect to the Company or its
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subsidiaries that, individually or in the aggregate, have had or reasonably
would be expected to have had a Material Adverse Effect on the Company. Without
limiting the generality of the foregoing, except as and to the extent publicly
disclosed by the Company in the Company SEC Reports or as set forth in Section
2.8 of the Company Disclosure Schedule, since September 30, 1998, the Company
and its subsidiaries have conducted their respective businesses in all material
respects only in, and have not engaged in any material transaction other than
according to, the ordinary and usual course of such businesses consistent with
past practices, and there has not been any (i) material adverse change in the
financial condition, properties, business or results of operations of the
Company and its subsidiaries; (ii) material damage, destruction or other
casualty loss with respect to any material asset or property owned, leased or
otherwise used by the Company or any of its subsidiaries, not covered by
insurance; (iii) declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of the Company or any of its
subsidiaries (other than wholly-owned subsidiaries) or any repurchase,
redemption or other acquisition by the Company or any of its subsidiaries of any
outstanding shares of capital stock or other securities of, or other ownership
interests in, the Company or any of its subsidiaries; (iv) amendment of any
material term of any outstanding security of the Company or any of its
subsidiaries; (v) incurrence, assumption or guarantee by the Company or any of
its subsidiaries of any indebtedness for borrowed money other than in the
ordinary course of business and in amounts and on terms consistent with past
practices; (vi) creation or assumption by the Company or any of its subsidiaries
of any Lien on any material asset other than in the ordinary course of business
consistent with past practices; (vii) loan, advance or capital contributions
made by the Company or any of its subsidiaries to, or investment in, any person
other than (x) loans or advances to employees in connection with
business-related travel, (y) loans made to employees consistent with past
practices that are not in the aggregate in excess of Fifty Thousand Dollars
($50,000), and (z) loans, advances or capital contributions to or investments in
wholly-owned subsidiaries, and in each case made in the ordinary course of
business consistent with past practices; (viii) material transaction or
commitment made, or any material contract or agreement entered into, by the
Company or any of its subsidiaries relating to its material assets or business
(including the acquisition (by sale, license or otherwise) or disposition (by
sale, license or otherwise) of any material assets) or any relinquishment by the
Company or any of its subsidiaries of any contract, agreement or other right, in
any such case, material to the Company and its subsidiaries, taken as a whole,
other than transactions and commitments in the ordinary course of business
consistent with past practices and those contemplated by this Agreement; (ix)
labor dispute, other than routine individual grievances, or any activity or
proceeding by a labor union or representative thereof to organize any employees
of the Company or any of its subsidiaries, or any lockouts, strikes, slowdowns,
work stoppages or threats thereof by or with respect to such employees; (x) any
exclusive license, distribution, marketing, sales or other agreement entered
into or any agreement to enter into any exclusive license, distribution,
marketing, sales or other agreement; (xi) "development services" or other
similar agreement with Thinkit Technologies, Inc.; or (xii) change by the
Company or any of its subsidiaries in its accounting principles, practices or
methods. Since September 30, 1998, except as disclosed in the Company SEC
Reports filed prior to the date hereof or increases in the ordinary course of
business consistent with past practices, there has not been any material
increase in the compensation payable or that could become payable by the Company
or any of its subsidiaries to (a) officers of the Company or any of its
subsidiaries or (b) any employee of the Company or any of its subsidiaries whose
annual cash compensation is One Hundred Thousand Dollars ($100,000) or more.
Section 2.9. Litigation. Except as publicly disclosed by the Company in the
Company SEC Reports or as set forth in Section 2.9 of the Company Disclosure
Schedule, there is no suit, claim, action, arbitration, proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company or any of its subsidiaries or any of their respective properties or
assets before any Governmental Entity or brought by any person that is material
or would reasonably
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be expected to prevent or delay the consummation of the transactions
contemplated by this Agreement beyond the Final Date. Except as publicly
disclosed by the Company in the Company SEC Reports, neither the Company nor any
of its subsidiaries is subject to any outstanding order, writ, injunction or
decree that would reasonably be expected to be material or would reasonably be
expected to prevent or delay the consummation of the transactions contemplated
hereby.
Section 2.10. Compliance with Applicable Law. Except as publicly disclosed
by the Company in the Company SEC Reports, the Company and its subsidiaries hold
all material permits, licenses, variances, exemptions, orders and approvals of
all Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Company Permits"). Except as publicly disclosed by the Company
in the Company SEC Reports, the Company and its subsidiaries are in material
compliance with the terms of the Company Permits. Except as publicly disclosed
by the Company in the Company SEC Reports, the businesses of the Company and its
subsidiaries have been and are being conducted in material compliance with all
material Applicable Laws. Except as publicly disclosed by the Company in the
Company SEC Reports, no investigation or review by any Governmental Entity with
respect to the Company or any of its subsidiaries is pending or, to the
knowledge of the Company, threatened, nor, to the knowledge of the Company, has
any Governmental Entity indicated an intention to conduct the same.
Section 2.11. Employee Benefits.
(a) For purposes of this Agreement, "Compensation and Benefit Plans" means,
collectively, each written bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock, stock option, employment, termination, severance,
compensation, medical, health, or other plan, agreement, policy or arrangement,
that covers employees or directors of the Company or any of its subsidiaries, or
pursuant to which former employees or directors of the Company or any of its
subsidiaries are entitled to current or future benefits. To the knowledge of the
Company, there are no oral Compensation and Benefit Plans to which the Company
is a party. The Company has made available to Parent copies of all "employee
pension benefit plans" (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) (sometimes referred to herein
as "Pension Plans"), "employee welfare benefit plans" (as defined in Section
3(l) of ERISA) and all other Compensation and Benefit Plans maintained, or
contributed to, by the Company or of its subsidiaries or any person or entity
that, together with the Company and its subsidiaries, is treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code (the Company and each
such other person or entity, a "Commonly Controlled Entity") for the benefit of
any current employees, officers or directors of the Company or any of its
subsidiaries. The Company has also made available to Parent true, complete and
correct copies of (1) the most recent annual report on Form 5500 filed with the
Internal Revenue Service with respect to each Compensation and Benefit Plan (if
any such report was required), (2) the most recent summary plan description for
each Compensation and Benefit Plan for which such summary plan description is
required and (3) each trust agreement and group annuity contract related to any
Compensation and Benefit Plan. Each Compensation and Benefit Plan has been
administered in accordance with its terms. Each of Company's subsidiaries and
all the Compensation and Benefit Plans are all in compliance with applicable
provisions of ERISA and the Code.
(b) Except as otherwise provided in Section 2.11(b) of the Company
Disclosure Schedule, the Company and its subsidiaries have performed in all
material respects their obligations under each Compensation and Benefit Plan;
each Compensation and Benefit Plan and each trust or other funding medium, if
any, established in connection therewith has at all times been established,
maintained and operated in material compliance with its terms and the
requirements prescribed by Applicable Law, including, without limitation, ERISA
and the Code.
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(c) With respect to those Pension Plans that are intended to be qualified
under Section 401(a) of the Code, such Pension Plans have been the subject of
determination letters from the Internal Revenue Service to the effect that such
Pension Plans are qualified and exempt from Federal income taxes under Sections
401(a) and 501(a), respectively, of the Code, and no such determination letter
has been revoked nor has any event occurred since the date of its most recent
determination letter or application therefor that would materially adversely
affect its qualification or materially increase its costs.
(d) Except as otherwise provided Section 2.11(d) of the Company Disclosure
Schedule, with respect to each Pension Plan currently or formerly maintained by
the Company or any entity which is under "common control" with the Company
(within the meaning of Section 4001 of ERISA) which is subject to Title IV of
ERISA, neither Company or its subsidiaries has incurred, nor do any of them
reasonably expect to incur, any liability to the Pension Plan or to the Pension
Benefit Guaranty Corporation ("PBGC") in connection with any Pension Plan,
including, without limitation, any liability under Section 4069 of ERISA or any
penalty imposed under Section 4071 of ERISA, or ceased operations at any
facility or withdrawn from any Pension Plan in a manner which could subject it
to liability under Section 4062, 4063 or 4064 of ERISA, or knows of any facts or
circumstances that might give rise to any liability of the Company and its
subsidiaries to the Pension Plan or to the PBGC under Title IV of ERISA that
could reasonably be anticipated to result in any claims being made against
Parent, the Company or its subsidiaries by the PBGC subsequent to the Closing
Date.
(e) At all times on and after the effective date of ERISA, neither Company
nor any of its subsidiaries nor any entity which is under "common control" with
the Company (within the meaning of Section 4001 of ERISA) has maintained,
contributed to or otherwise had any obligation with respect to any
"multiemployer plan" (as defined in Section 3(37) of ERISA).
(f) Except as disclosed in Section 2.11(f) of the Company Disclosure
Schedule, there are no suits, actions, disputes, claims (other than routine
claims for benefits), arbitrations, administrative or other proceedings pending
to the knowledge of Company, threatened, anticipated or expected to be asserted
with respect to any Compensation and Benefits Plan or any related trust or other
funding medium thereunder or with respect to Company or its subsidiaries, as the
sponsor or fiduciary thereof or with respect to any other fiduciary thereof.
(g) No Compensation and Benefit Plan maintained by Company or its
subsidiaries or any related trust or other funding medium thereunder or any
fiduciary thereof is, to the knowledge of Company, the subject of a material
audit, investigation or examination by an governmental or quasi-governmental
agency.
(h) Except as provided in Section 2.11(h) of the Company Disclosure
Schedule, (1) no "reportable event" (as such term is used in Section 4043 of
ERISA), "accumulated funding deficiency" (as such terms is used in Section 412
or 4971 of the Code or Section 302 of ERISA), application for or receipt of a
waiver from the IRS of any minimum funding requirement under Section 412 of the
Code or "prohibited transaction" (as such term is used in Section 4975 of the
Code and/or Section 406 of ERISA), has occurred with respect to any Compensation
and Benefit Plan established or maintained by Company or its subsidiaries
primarily for the benefit of participants employed within the United States; (2)
neither Company nor its subsidiaries has any commitment, intention or
understanding to create, terminate or adopt any Compensation and Benefit Plan
that would result in any additional liability to Parent, the Company or its
subsidiaries; and (3) since the beginning of the current fiscal year of any
Compensation and Benefit Plan, no event had occurred and no condition or
circumstance has existed that could result in a material increase in the
benefits under or the expense of maintaining such Compensation and Benefit Plan
maintained by Company, and its
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subsidiaries from the level of benefits or expense incurred for the most
recently completed fiscal year of such Compensation and Benefit Plan.
(i) Section 2.11(i) of the Company Disclosure Schedule lists all
outstanding Stock Options as of March 1, 1999, identifying for each such option:
(1) the number of shares issuable, (2) the number of vested shares, (3) the date
of expiration and (4) the exercise price.
(j) All contributions required to be made under the terms of any
Compensation and Benefit Plan as of the date hereof have been timely made.
(k) Except as provided by this Agreement or in Section 2.11(k) of the
Company Disclosure Schedule, the execution of, and performance of the
transactions contemplated by, this Agreement will not (either along with or upon
the occurrence of any additional or subsequent events) constitute an event under
any Compensation and Benefit Plan or agreement that will or may reasonably be
expected to result in any payment (whether severance pay or otherwise),
acceleration, vesting or increase in benefits with respect to any employee,
former employee or director of the Company, or its subsidiaries, whether or not
any such payment would be an "excess parachute payment" (within the meaning of
Section 280G of the Code).
(l) With respect to each Compensation and Benefit Plan required to be
maintained or contributed to by the law or applicable custom or rule of the
relevant jurisdiction outside of the United States (the "Foreign Plans"), are
listed on Section 2.11(l) of the Company Disclosure Schedule. As regards each
such Foreign Plan:
(i) Each of the Foreign Plans is in compliance in all material
respects with the provisions of the laws of each jurisdiction in which each
such Foreign Plan is maintained, to the extent those laws are applicable to
the Foreign Plans;
(ii) All contributions to, and payments from, the Foreign Plans which
may have been required to be made in accordance with the terms of any such
Foreign Plan, and, when applicable, the law of the jurisdiction in which
such Foreign Plan is maintained, have been timely made or shall be made by
the Effective Date. All such contributions to the Foreign Plans, and all
payments under the Foreign Plans, for any period ending before the Closing
Date that are not yet, but will be, required to be made, are reflected as
an accrued liability on the Balance Sheet, or disclosed to Parent within 15
days following the date hereof in Section 2.11(d)(ii) of the Company
Disclosure Schedule;
(iii) All material reports, returns and similar documents, if any,
with respect to any Foreign Plan required to be filed with any governmental
body or distributed to any Foreign Plan participant have been duly and
timely filed or distributed or will be filed or distributed by the Closing
Date, and all of the Foreign Plans have obtained from the governmental body
having jurisdiction with respect to such plans any required determinations,
if any, that such Foreign Plans are in compliance with the laws of the
relevant jurisdiction if such determinations are required in order to give
effect to the Foreign Plan;
(iv) Each of the Foreign Plans has been administered at all times, and
in all material respects, in accordance with its terms. To the knowledge of
Company, there are no pending investigations by any governmental body
involving the Foreign Plans, and no pending claims (except for claims for
benefits payable in the normal operation of the Foreign Plans), suits or
proceedings against any Foreign Plan or asserting any rights or claims to
benefits under any Foreign Plan; and
(v) The consummation of the transactions contemplated by this
Agreement will not by itself create or otherwise result in any material
liability with respect to any Foreign Plan other than the triggering of
payment to participants.
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(m) Each Compensation and Benefit Plan complies in all material respects
with all applicable requirements of (i) the Age Discrimination in Employment Act
of 1967, as amended, and the regulations thereunder and (ii) Title VII of the
Civil Rights Act of 1964, as amended, and the regulations thereunder and all
other applicable laws. All amendments and actions required to bring each of the
Compensation and Benefit Plans into conformity with all of the applicable
provisions of ERISA and other applicable laws have been made or taken except to
the extent that such amendments or actions are not required by law to be made or
taken until a date after the Effective Time and are disclosed Section 2.11(m) of
the Company Disclosure Schedule or will be provided to Parent within fourteen
(14) days of the date hereof.
(n) Each group medical plan sponsored by the Company or its subsidiaries
materially complies with the Medicare Secondary Payor Provisions of Section
1826(b) of the Social Security Act, and the regulations promulgated thereunder.
(o) Neither Company nor its subsidiaries is, nor do any of them expect to
be, subject to (1) a security interest pursuant to Section 412(f) of the Code or
(2) a lien pursuant to Section 412(n) of the Code or Section 4068 or 302(f) of
ERISA.
(p) Except as set forth on Section 2.11(p) of the Company Disclosure
Schedule, Parent, the Company and its subsidiaries may terminate or amend any
Compensation and Benefit Plan maintained by the Company or its subsidiaries or
may cease contributions to any such Compensation and Benefit Plans without
incurring any material liability other than a benefit liability accrued in
accordance with the terms of such Compensation and Benefit Plan immediately
prior to such amendment, termination or ceasing of contributions.
(q) Neither the Company nor its subsidiaries maintained any Compensation
and Benefit Plan which is a "group health plan" (as such term is defined in
Section 5000(b)(1) of the Code) that has not been administered and operated in
all respects in compliance with the applicable requirements of Section 601 of
ERISA and section 4980B(b) of the Code and the Company and its subsidiaries are
not subject to any liability, including without limitation, additional
contributions, fines, penalties or loss of tax deduction as a result of such
administration and operation.
(r) Neither the Company nor its subsidiaries has incurred, nor does the
Company reasonably expect either it or any subsidiary to incur, any liability
for any tax imposed under Sections 4971 through 4980B of the Code or civil
liability under Section 501(i) or (1) of ERISA;
(s) Neither the Company nor its subsidiaries has incurred any liability for
any tax, excise tax, penalty or fee with respect to any Compensation and Benefit
Plan, including, but not limited to, taxes arising under Section 4971, 4977,
4978, 4878B, 4979, 4980 or 4980B of the Code, and no event has occurred and no
circumstance has existed that could give rise to any such liability.
(t) Except as provided in Section 2.11(t) of the Company Disclosure
Schedule, no insurance policy nor any other contract or agreement affecting any
Compensation and Benefit Plan requires or permits a retroactive increase in
premiums or payments due thereunder.
Section 2.12. Labor and Employment Matters. Except as set forth on Section
2.12 of the Company Disclosure Schedule:
(a) No collective bargaining agreement exists that is binding on the
Company or any of its subsidiaries, and the Company has not been officially
apprised that any petition has been filed or proceeding instituted by an
employee or group of employees of the Company, or any of its subsidiaries,
with the National Labor Relations Board seeking recognition of a bargaining
representative.
(b) (i) To the Company's knowledge, there is no labor strike, dispute,
slow down or stoppage pending or threatened against the Company or any of
its subsidiaries; and
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(ii) Neither the Company nor any of its subsidiaries has received
any demand letters, civil rights charges, suits or drafts of suits with
respect to claims made by any of their respective employees.
(c) All individuals who are performing consulting or other services
for the Company or any of its subsidiaries are or were correctly classified
by the Company as either "independent contractors" or "employees" as the
case may be, and, at the Closing Date, will qualify for such
classification.
(d) Section 2.12(d) of the Company Disclosure Schedule, which has been
delivered supplementally to Parent by the Company on the date hereof,
contains a preliminary list of the name of each officer, employee and
consultant of the Company or any of the Company's subsidiaries, together
with such person's position or function, annual base salary or wages and
any incentives or bonus arrangement with respect to such person, and within
twenty-one (21) days of the date hereof, the Company will deliver
supplementally to Parent a final list of the name of each officer, employee
and consultant of the Company or any of the Company's subsidiaries,
together with such person's position or function, annual base salary or
wages and any incentives or bonus arrangement with respect to such person.
As of the date hereof, the Company has not received any information that
would lead it to believe that any such person will or may cease to be
engaged by the Company or such subsidiary for any reason, including because
of the consummation of the transactions contemplated by this Agreement.
(e) The Company and each of its subsidiaries is in compliance in all
material respects with all applicable foreign, federal, state and local
laws, rules and regulations respecting employment, employment practices,
terms and conditions of employment and wages and hours, in each case, with
respect to employees.
(f) The Company and each of its subsidiaries has in all material
respects withheld and reported all amounts required by law or by agreement
to be withheld and reported with respect to wages, salaries and other
payments to employees.
(g) To the knowledge of the Company, there are no pending or
threatened claims or actions against the Company or any of its subsidiaries
under any worker's compensation policy or long-term disability policy.
Section 2.13. Environmental Laws and Regulations.
(a) The term "Environmental Laws" means any applicable federal, state,
local or foreign law, statute, treaty, ordinance, rule, regulation, policy,
permit, consent, approval, license, judgment, order, decree or injunction
relating to: (a) Releases (as defined in 42 U.S.C. sec. 9601(22)) or threatened
Releases of Hazardous Material (as hereinafter defined) into the environment,
(b) the generation, treatment, storage, disposal, use, handling, manufacturing,
transportation or shipment of Hazardous Material, (c) the health or safety of
employees in the workplace, (d) protecting or restoring natural resources or (e)
the environment. The term "Hazardous Material" means (1) hazardous substances
(as defined in 42 U.S.C. sec. 9601(14)), including "hazardous waste" as defined
in 42 U.S.C. sec. 6903, (2) petroleum, including crude oil and any fractions
thereof, (3) natural gas, synthetic gas and any mixtures thereof, (4) asbestos
and/or asbestos containing materials, (5) PCBs or materials containing PCBs, (6)
any material regulated as a medical waste, (7) lead containing paint, (8)
radioactive materials and (9) "Hazardous Substance" or "Hazardous Material" as
those terms are defined in any indemnification provision in any contract, lease,
or agreement to which the Company or any of its subsidiaries is a party.
(b) During the period of ownership or operation by the Company and its
subsidiaries of any of their current or previously owned or leased properties,
there have been no Releases of Hazardous
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Material by the Company or any of its subsidiaries in, on, under or affecting
such properties or any surrounding site, and neither the Company nor any of its
subsidiaries has disposed of any Hazardous Material in a manner that has led, or
could reasonably be anticipated to lead to a Release, except in each case for
those which, individually or in the aggregate, would not have a Material Adverse
Effect on the Company. There have been no Releases of Hazardous Material by the
Company or any of its subsidiaries in, on, under or affecting their current or
previously owned or leased properties or any surrounding site at times outside
of such periods of ownership, operation or lease, except in each case for those
which, individually on in the aggregate, would not have a Material Adverse
Effect on the Company. Since January 1, 1995, the Company and its subsidiaries
have not received any written notice of, or entered into any order, settlement
or decree relating to: (a) any violation of any Environmental Laws or the
institution or pendency of any suit, action, claim, proceeding or investigation
by any Governmental Entity or any third party in connection with any alleged
violation of Environmental Laws or (b) the response to or remediation of
Hazardous Material at or arising from any of the Company's properties or any
subsidiary's properties. There have been no violations of any Environmental Laws
by the Company or any subsidiary which violations, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on the
Company.
(c) There are no past or present events, conditions, circumstances,
activities, practices, incidents, actions, omissions or plans that constitute a
violation by the Company or any of the Company's subsidiaries of, or are
reasonably likely to prevent or interfere with the Company's or any of the
Company's subsidiaries' future compliance with, any Environmental Laws, other
than any of the foregoing that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Company.
Section 2.14. Taxes.
(a) Definitions. For purposes of this Agreement:
(i) the term "Tax" (including "Taxes") means (A) all federal, state,
local, foreign and other net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other
taxes, fees, assessments or charges of any kind whatsoever, together with
any interest and any penalties, additions to tax or additional amounts with
respect thereto, (B) any liability for payment of amounts described in
clause (A) whether as a result of transferee liability, of being a member
of an affiliated, consolidated, combined or unitary group for any period,
or otherwise through operation of law, and (C) any liability for the
payment of amounts described in clauses (A) or (B) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other person; and
(ii) the term "Tax Return" means any return, declaration, report,
statement, information statement and other document filed or required to be
filed with respect to Taxes.
(b) Except as set forth in Section 2.14(b) of the Company Disclosure
Schedule, the Company and its subsidiaries have duly and timely filed all Tax
Returns required to be filed; and such Tax Returns are complete and accurate and
correctly reflect the Tax liability required to be reported thereon. Such Tax
Returns do not contain a disclosure statement under Section 6662 of the Code (or
any predecessor provision or comparable provision of state, local or foreign
law).
(c) Except as set forth in Section 2.14(c) of the Company Disclosure
Schedule, the Company and its subsidiaries have paid or adequately provided in
the financial statements included in the SEC Reports for all Taxes (whether or
not shown on any Tax Return) accrued through the date of such Company SEC
Reports; all Taxes the Company and its subsidiaries accrued following the end of
the most recent period covered by the Company SEC Report have been accrued in
the ordinary course of
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business of the Company and each such subsidiary and have been paid when due in
the ordinary course of business; and no material election has been made with
respect to Taxes of the Company or its subsidiaries in any Tax Returns that have
not been provided to Parent.
(d) Except as set forth in Section 2.14(d) of the Company Disclosure
Schedule, no material claim for assessment or collection of Taxes is presently
being asserted against the Company or its subsidiaries and neither the Company
nor any of its subsidiaries is a party to any pending action, proceeding, or
investigation by any governmental taxing authority nor does the Company have
knowledge of any such threatened action, proceeding or investigation.
(e) Except as set forth in Section 2.14(e) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to any
agreement, contract, arrangement or plan that has resulted or would result,
individually or in the aggregate, in connection with this Agreement or any
change of control of the Company or any of its subsidiaries, in the payment of
any "excess parachute payments" within the meaning of Section 280G of the Code.
(f) Except as set forth in Section 2.14(f) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to or bound
by any obligation under any Tax sharing, Tax allocation, Tax indemnity or
similar agreement or arrangement.
(g) Except as set forth in Section 2.14(g) of the Company Disclosure
Schedule, there is currently no limitation on the utilization of net operating
losses, built-in losses, tax credits or other similar items of the Company or
its subsidiaries under Section 382, 383, 384 or 1502 of the Code and the
Treasury Regulations thereunder.
(h) Except as set forth in Section 2.14(h) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries has agreed to, or is
required to make, any adjustment under Section 481 of the Code by reason of a
change in accounting method.
(i) Neither the Company nor any of its subsidiaries are "consenting
corporations" within the meaning of Section 341(f)(1) of the Code.
Section 2.15. Intellectual Property.
(a) Section 2.15(a) of the Company Disclosure Schedule sets forth, for the
Intellectual Property owned, in whole or in part, including jointly with others,
by the Company or any of its subsidiaries, a complete and accurate list of all
United States and foreign (a) patents and patent applications; (b) Trademark
registrations and applications and material unregistered Trademarks; and (c)
copyright registrations and applications, indicating for each, the applicable
jurisdiction, registration number (or application number) and date issued (or
date filed). For purposes of this Agreement, "Intellectual Property" means:
trademarks and service marks (whether register or unregistered), trade names,
designs and general intangibles of like nature, together with all goodwill
related to the foregoing (collectively, "Trademarks"); patents (including any
continuations, continuations in part, renewals and applications for any of the
foregoing) (collectively "Patents"); copyrights (including any registrations and
applications therefor and whether registered or unregistered) (collectively
"Copyrights"); computer software; databases; works of authorship; mask works;
trade secrets and other confidential information, know-how, proprietary
processes, formulae, algorithms, models, user interfaces, customer lists,
inventions, discoveries, concepts, ideas, techniques, methods, source codes,
object codes, methodologies and, with respect to all of the foregoing, related
confidential data or information (collectively, "Trade Secrets").
(b) Trademarks.
(i) All Trademark registrations are currently in compliance in all material
respects with all legal requirements (including the timely post-registration
filing of affidavits of use and incontestability and renewal applications) other
than any requirement that, if not satisfied, would not result in a
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cancellation of any such registration or otherwise materially affect the
priority and enforceability of the Trademark in question.
(ii) No registered Trademark has been within the last three (3) years or is
now involved in any opposition or cancellation proceeding in the United States
Patent and Trademark Office. To the Company's knowledge, no such action has been
threatened in writing within the one (1)-year period prior to the date of this
Agreement.
(iii) To the knowledge of the Company, there has been no prior use of any
material Trademark by any third party that confer upon said third party superior
rights in any such Trademark.
(iv) All material Trademarks registered in the United States have been in
continuous use by the Company or its subsidiaries.
(v) The Company and its subsidiaries have adequately policed the Trademarks
against third party infringement, and the material Trademarks registered in the
United States have been continuously used in the form appearing in, and in
connection with the goods and services listed in, their respective registration
certificates or renewal certificates, as the case may be.
(c) Patents.
(i) All Patents are currently in compliance with legal requirements
(including payment of filing, examination, and maintenance fees and proofs of
working or use) other than any requirement that, if not satisfied, would not
result in a revocation or otherwise materially affect the enforceability of the
Patent in question.
(ii) No Patent has been or is now involved in any interference, reissue,
reexamination or opposing proceeding in the United States Patent and Trademark
Office. To the Company's knowledge, no such action has been threatened in
writing within the one (1)-year period prior to the date of this Agreement.
(iii) There is no patent or, to the Company's knowledge, patent application
of any person that conflicts in any material respect with any Patent or
invalidates any claim the Company, or any of the Company's subsidiaries, has in
any Patent.
(d) Trade Secrets.
(i) The Company and each of its subsidiaries has taken reasonable steps in
accordance with normal industry practice to protect their respective rights in
its Trade Secrets.
(ii) Without limiting the generality of Section 2.15(d)(i) and except as
would not be materially adverse to the Company or its business, the Company and
each subsidiary enforces a policy of requiring each relevant employee,
consultant and contractor to execute proprietary information, confidentiality
and assignment agreements substantially in the Company's standard forms that
assign to the Company all rights to any Intellectual Property rights relating to
the Company's business that are developed by the employee, consultant or
contractor, as applicable, in the course of his or her activities for the
Company or are developed during working hours or using Company resources and
that otherwise appropriately protect the Intellectual Property of the Company
and its subsidiaries, and, except under confidentiality obligations, there has
been no disclosure by the Company or any subsidiary of material confidential
information or Trade Secrets.
(e) License Agreements.
Section 2.15(e)(1) of the Company Disclosure Schedule sets forth a complete
and accurate list of all license agreements granting to the Company or any of
its subsidiaries any material right to use or practice any rights under any
Intellectual Property other than software commercially available on reasonable
terms to any person for a license fee of no more than One Hundred Thousand
Dollars
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($100,000) or otherwise material to the Company (collectively, the "Inbound
License Agreements"), indicating for each the title and the parties thereto.
Section 2.15(e)(2) of the Company Disclosure Schedule sets forth a complete and
accurate list of all license agreements under which the Company or any of its
subsidiaries licenses software or grants other rights in to use or practice any
rights under any Intellectual Property, excluding licenses with customers that
in the twelve-month period prior to the date hereof have purchased or licensed
products for which the total payments to the Company and its subsidiaries did
not exceed One Hundred Thousand Dollars ($100,000) or otherwise material to the
Company (collectively, the "Outbound License Agreements"), indicating for each
the title and the parties thereto. There is no material outstanding or, to the
Company's knowledge, threatened dispute or disagreement with respect to any
Inbound License Agreement or any Outbound License Agreement.
(f) Ownership; Sufficiency of IP Assets. The Company or one of its
subsidiaries owns or possesses adequate licenses or other rights to use, free
and clear of Liens, orders and arbitration awards, all of its Intellectual
Property material to its business. The Intellectual Property identified in
Section 2.15(a) of the Company Disclosure Schedule, together with the Company's
and its subsidiaries' unregistered copyrights and the Company's and such
subsidiaries' rights under the licenses granted to the Company or any of its
subsidiaries under the Inbound License Agreements, constitute all the material
Intellectual Property rights used in the operation of the Company's and its
subsidiaries' businesses as they are currently conducted and are all the
Intellectual Property rights necessary to operate such businesses after the
Effective Time in substantially the same manner as such businesses have been
operated by the Company prior thereto.
(g) Protection of IP. The Company has taken reasonable steps to protect the
Intellectual Property of the Company and its subsidiaries.
(h) No Infringement by the Company. Except as set forth on Schedule 2.15(c)
of the Company Disclosure Schedule, the products used, manufactured, marketed,
sold or licensed by the Company and its subsidiaries, and all Intellectual
Property used in the conduct of the Company's and its subsidiaries' businesses
as currently conducted, do not, or with respect to any Trademark, or patent
application, to the knowledge of the Company, do not infringe upon, violate or
constitute the unauthorized use of any valid and enforceable rights owned or
controlled by any third party, including any Intellectual Property of any third
party.
(i) No Pending or Threatened Infringement Claims. Except and to the extent
publicly disclosed in the Company SEC Reports, no litigation is now or, within
the three (3) years prior to the date of this Agreement, was pending and, to the
Company's knowledge, no notice or other claim in writing has been received by
the Company within the one (1) year prior to the date of this Agreement, (A)
alleging that the Company any of its subsidiaries has engaged in any activity or
conduct that infringes upon, violates or constitutes the unauthorized use of the
Intellectual Property rights of any third party or (B) challenging the
ownership, use, validity or enforceability of any Intellectual Property owned or
exclusively licensed by or to the Company. Except as specifically disclosed in
one or more Sections of the Company Disclosure Schedule pursuant to this Section
2.15, no Intellectual Property (a) that is owned by the Company or any of its
subsidiaries or the subject of an Inbound License Agreement, is subject to any
outstanding order, judgment, decree, stipulation or agreement restricting the
use thereof by the Company or any such subsidiary, except as may be provided in
an Inbound License Agreement, or (b) that is the subject of an Outbound License
Agreement, is subject to any outstanding order, judgment, decree, stipulation or
agreement restricting the sale, transfer, assignment or licensing thereof by the
Company or any of its subsidiaries to any person.
(j) No Infringement by Third Parties. Except as and to the extent publicly
disclosed in the Company SEC Reports or as set forth in Section 2.15(j) of the
Company Disclosure Schedule, to the knowledge of the Company, no third party is
misappropriating, infringing, diluting or violating any
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Intellectual Property owned or exclusively licensed by the Company or any of its
subsidiaries, and no such claims have been brought against any third party by
the Company or any of its subsidiaries.
(k) Assignment; Change of Control. Except as set forth in Section 2.14(k)
to the Company Disclosure Schedule, the execution, delivery and performance by
the Company of this Agreement, and the consummation of the transactions
contemplated hereby, will not result in the loss or impairment of, or give rise
to any right of any third party to terminate, any of the Company's or any of its
subsidiaries' rights to own any of its Intellectual Property or their respective
rights under any Inbound License Agreement or Outbound License Agreement, nor
require the consent of any Governmental Authority or third party in respect of
any such Intellectual Property.
(l) Software. The Software owned or purported to be owned by the Company or
any of its subsidiaries, was either (i) developed by employees of the Company or
any of its subsidiaries within the scope of their employment; (ii) developed by
independent contractors who have assigned their rights to the Company or any of
its subsidiaries pursuant to written agreements; or (iii) otherwise acquired by
the Company or a subsidiary from a third party. Except as set forth in Section
2.15(l) of the Company Disclosure Schedule, the Software does not contain any
programming code, documentation or other materials or development environments
that embody Intellectual Property rights of any person other than the Company or
any of its subsidiaries, except for such materials or development environments
obtained by the Company or any of its subsidiaries from other persons who make
such materials or development environments generally available to all interested
purchasers or end-users on standard commercial terms. For purposes of this
Section 2.15(l), "Software" means any and all (i) computer programs, including
any and all software implementations of algorithms, models and methodologies,
whether in source code or object code, (ii) databases and compilations,
including any and all data and collections of data, whether machine readable or
otherwise, (iii) descriptions, schematics, flow-charts and other work product
used to design, plan, organize and develop any of the foregoing, and (iv) all
documentation, including user manuals and training materials, relating to any of
the foregoing.
(m) Performance of Existing Software Products. The Company's and its
subsidiaries' existing and currently manufactured and marketed Software products
listed and described on Section 2.15(m) of the Company Disclosure Schedule
perform in all material respects, free of significant bugs, viruses or
programming errors, the functions described in any agreed specifications or end
user documentation or other information provided to customers of the Company or
its subsidiaries on which such customers relied when licensing or otherwise
acquiring such products.
(n) Documentation. The Company and its subsidiaries have taken all actions
customary in the software industry to document the Software and its operation,
such that the materials comprising the Software, including the source code and
documentation, have been written in a clear and professional manner so that they
may be understood, modified and maintained in an efficient manner by reasonably
competent programmers.
(o) Year 2000 Compliance.
(i) Except as set forth in Section 2.15(o) of the Company Disclosure
Schedule, all of the Company's and its subsidiaries' material products
(including products currently under development) will record, store, process and
calculate and present calendar dates falling on and after December 31, 1998, and
will calculate any information dependent on or relating to such dates in the
same manner and with the same functionality, data integrity and performance as
the products record, store, process, calculate and present calendar dates on or
before December 31, 1998, or calculate any information dependent on or relating
to such dates (collectively "Year 2000 Compliant"). Except as set forth in
Section 2.15(o) of the Company Disclosure Schedule, (A) all of the Company's and
its subsidiaries' material products will lose no significant functionality with
respect to the introduction of records
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containing dates falling on or after December 31, 1998; and (B) all of the
Company's and its subsidiaries' internal computer systems comprised of software,
hardware, databases or embedded control systems (microprocessor controlled,
robotic or other device) related to the Company's and its subsidiaries'
businesses (collectively, a "Business System"), that constitutes any material
part of, or is used in connection with the use, operation or enjoyment of, any
material tangible or intangible asset or real property of the Company and its
subsidiaries, including its accounting systems, are Year 2000 Compliant. Except
as set forth on Section 2.15(o) of the Company Disclosure Schedule, the current
versions of the Company's and its subsidiaries' software and all other
Intellectual Property may be used prior to, during and after December 31, 1998,
such that such Software and Intellectual Property will operate prior to, during
and after such time period without error caused by date data that represents or
references different centuries or more than one century.
(ii) The Company's material products and the conduct of the Company's
business with its material customers and suppliers will not be materially
adversely affected by the advent of the year 2000, the advent of the
twenty-first century or the transition from the twentieth century through the
year 2000 and into the twenty-first century. Except as set forth on Section
2.15(o) of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries is reasonably likely to incur material expenses arising from or
relating to the failure of any of its Business Systems or any products
(including all products sold on or prior to the date hereof) as a result of the
advent of the year 2000, the advent of the twenty-first century or the
transition from the twentieth century through the year 2000.
(p) Foundry Relationships. Section 2.15(p) of the Company Disclosure
Schedule sets forth a complete and correct description of each and every (1)
foundry relationship, wafer manufacturing and fabricating agreement,
understanding or commitment, and (2) integrated circuit die or device purchase,
supply or service agreement, understanding or commitment, used by or in
connection with the Company's business, in whole or in part, whether written or
oral ("Supply Contracts"). The Company has delivered to Parent a correct and
complete copy or oral summary of each Supply Contract. There are no fees,
penalties, price uplifts, shortfall payments, bill backs or other amounts
outstanding under such Supply Contracts. The quantities available for purchase
under each such written Supply Contract are as stated on the face of such Supply
Contract and are either summarized in Section 2.15(p) of the Company Disclosure
Schedule or will be provided to Parent within twenty-one (21) days of the date
hereof. Each manufacturing or service site that requires qualification under the
terms of a Supply Contract is qualified, and no unresolved differences with
respect to product or process specifications remains outstanding. All
manufacturing or service terms and conditions are as they appear to be on the
face of the Supply Contracts. The Company has not received any written or oral
notice from the other party to any Supply Contract, or from any other supplier
to the Company, to the effect that such party will not accept purchase orders
from the Company on such terms, conditions and quantities consistent with past
practices. Prices required to be paid for products or services under such Supply
Contract are either summarized on Section 2.15(p) of the Disclosure Schedule or
will be provided to Parent within twenty-one (21) days of the date hereof. No
condition exists that permit a termination or a material change of such Supply
Contracts by the other party under such Supply Contract. Either section 2.15(p)
of the Company Disclosure Schedule sets forth information regarding wafer starts
and products in production as of the date hereof or such information will be
provided to Parent within twenty-one (21) days of the date hereof. Schedule
2.15(p) of the Company Disclosure Schedule sets forth manufacturing information
since January 1, 1998 regarding yields under the Supply Contracts or such
information will be provided to Parent within twenty-one (21) days of the date
hereof.
Section 2.16. Insurance. Each of the Company and its subsidiaries maintains
insurance policies (the "Insurance Policies") against all risks of a character
and in such amounts as are customarily insured against by similarly situated
companies in the same or similar businesses. Each material
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Insurance Policy is in full force and effect and is valid, outstanding and
enforceable, and all premiums due thereon have been paid in full. Except as set
forth in Section 2.16 of the Company Disclosure Schedule, none of the material
Insurance Policies will terminate or lapse (or be affected in any other
materially adverse manner) by reason of the transactions contemplated by this
Agreement. Each of the Company and its subsidiaries has complied in all material
respects with the provisions of each Insurance Policy under which it is the
insured party. No insurer under any Insurance Policy has canceled or generally
disclaimed liability under any such policy or, to the Company's knowledge,
indicated any intent to do so or not to renew any such policy. All material
claims of which the Company has knowledge under the Insurance Policies have been
filed in a timely fashion.
Section 2.17. Certain Business Practices. None of the Company, any of its
subsidiaries or any directors or officers or, to the Company's knowledge, agents
or employees of the Company or any of its subsidiaries has (i) used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to political activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns or violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended, or (iii) made any other unlawful payment.
Section 2.18. Product Warranties. Section 2.18 of the Company Disclosure
Schedule sets forth complete and accurate copies of the forms of written
warranties and guaranties by the Company or any of its subsidiaries currently in
effect with respect to its products. There have not been any material deviations
from such warranties and guaranties, and neither the Company, any of its
subsidiaries nor any of their respective salesmen, employees, distributors and
agents is authorized to undertake obligations to any customer or to other third
parties materially in excess of such warranties or guaranties. Neither the
Company nor any of its subsidiaries has made any material oral warranty or
guaranty with respect to its products not described on such schedule.
Section 2.19. Suppliers and Customers. The documents and information
supplied by the Company to Parent or any of its representatives with respect to
relationships and volumes of business done with its significant suppliers and
customers are accurate in all material respects. During the last twelve (12)
months, neither the Company nor any of its subsidiaries has received notices of
termination or written threats of termination from any of the ten (10) largest
suppliers or the Twenty-Five (25) largest customers of the Company and its
subsidiaries.
Section 2.20. Vote Required. The affirmative vote of the holders of a
majority of the outstanding Shares is the only vote of the holders of any class
or series of the Company's capital stock necessary to approve and adopt this
Agreement.
Section 2.21. Tax Treatment. Neither the Company (including any of its
subsidiaries) nor any of its affiliates has taken or agreed to take action that
would prevent the Merger from constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code.
Section 2.22. Affiliates. Except for the directors and executive officers
of the Company, each of whom is listed in Section 2.22 of the Company Disclosure
Schedule, there are no persons who, to the knowledge of the Company, may be
deemed to be affiliates of the Company under Rule 145 of the Securities Act
("Company Affiliates").
Section 2.23. Opinion of Financial Adviser. Lehman Brothers Inc. (the
"Company Financial Adviser") has delivered to the Company Board its written
opinion dated the date of this Agreement to the effect that as of such date the
Merger Consideration is fair, from a financial point of view, to the holders of
Shares. Such opinion has not been withdrawn, revoked or modified. A true and
complete copy of such opinion has been delivered to Parent.
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Section 2.24. Brokers. No broker, finder or investment banker (other than
the Company Financial Adviser, a true and correct copy of whose engagement
agreement has been provided to Parent) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company.
Section 2.25. Representations Complete. None of the representations or
warranties made by the Company in this Agreement or any statement made in any
Schedule or certificate furnished by the Company pursuant to this Agreement, or
furnished in or in connection with documents mailed or delivered to the
stockholders in connection with soliciting their proxy or consent to this
Agreement and the Merger, contains or will contain at the Effective Time, any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
PARENT AND ACQUISITION
Parent and Acquisition hereby jointly and severally represent and warrant
to the Company as follows:
Section 3.1. Organization.
(a) Each of Parent and Acquisition is duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Parent has heretofore made available to the
Company accurate and complete copies of the Certificates of Incorporation and
bylaws as currently in full force and effect, of Parent and Acquisition.
(b) Each of Parent and Acquisition is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions where
the failure to be so duly qualified or licensed and in good standing would not
have a Material Adverse Effect on Parent. When used in connection with Parent or
Acquisition the term "Material Adverse Effect on Parent" means any circumstance,
change in, or effect on Parent and its subsidiaries, taken as a whole, that is,
or is reasonably likely in the future to be, materially adverse to the
operations, financial condition, assets, earnings, or results of operations, or
the business (financial or otherwise) of Parent and its subsidiaries, taken as a
whole, provided that none of the following shall be deemed, either alone or in
combination, to constitute a Material Adverse Effect on the Parent; (i) a change
in the market price or trading volume of the Parent Common Stock, (ii) a failure
by the Parent to meet internal earnings or revenue projections or the revenue or
earnings predictions of equity analysts as reflected in the First Call consensus
estimate, or any other revenue or earnings predictions or expectations, for any
period ending (or for which earnings are released) on or after the date of this
Agreement and prior to the Effective Date, provided further that this Section
3.1(b)(ii) shall not exclude any underlying change, effect, event, occurrence,
state of facts or developments which resulted in such failure to meet such
estimates, predictions or expectations, (iii) conditions affecting the
semi-conductor industry as a whole or the U.S. economy as a whole, or (iv) any
disruption of customer or supplier relationships arising primarily out of or
resulting primarily from actions contemplated by the parties in connection with
or resulting primarily from actions contemplated by the parties in connection
with, or which is primarily attributable to, the
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announcement of this Agreement and the transactions contemplated hereby, to the
extent so attributable.
Section 3.2. Capitalization of Parent and its Subsidiaries.
(a) The authorized capital stock of Parent consists of Four Billion, Five
Hundred Million (4,500,000,000) shares of Parent Common Stock, of which, as of
February 19, 1999, approximately One Billion, Six Hundred Sixty One Million
(1,661,000,000) shares of Parent Common Stock were issued and outstanding. All
of the outstanding shares of Parent Common Stock have been validly issued and
are fully paid, nonassessable and free of preemptive rights. As of February 19,
1999, approximately Three Hundred Twenty Two Million (322,000,000) shares of
Parent Common Stock were available for issuance under Parent's option plans, of
which approximately One Hundred Fifty One Million (151,000,000) were issuable
upon or otherwise deliverable in connection with the exercise of options
outstanding on such date. Between February 19, 1999 and the date hereof, no
shares of Parent's capital stock have been issued other than pursuant to stock
options and warrants already in existence on such date and except for grants of
stock options to employees, officers and directors in the ordinary course of
business consistent with past practice. The amounts set forth above do not
reflect the special stock distribution announced by Parent on January 28, 1999,
pursuant to which each stockholder of record on March 23, 1999 will receive one
share of Parent Common Stock for each share of Parent Common Stock held on such
record date, which special stock distribution will be payable on April 11, 1999.
(b) The Parent Common Stock constitutes the only class of equity securities
of Parent or any of its subsidiaries registered or required to be registered
under the Exchange Act.
Section 3.3. Authority Relative to this Agreement. Each of Parent and
Acquisition has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the boards of directors of Parent and
Acquisition and by Parent as the sole stockholder of Acquisition, and no other
corporate proceedings on the part of Parent or Acquisition are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by each of
Parent and Acquisition and constitutes, assuming the due authorization,
execution and delivery hereof by the Company, a valid, legal and binding
agreement of each of Parent and Acquisition enforceable against each of Parent
and Acquisition in accordance with its terms, subject to any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally or to general
principles of equity.
Section 3.4. SEC Reports; Financial Statements. Parent has filed all
required forms, reports and documents ("Parent SEC Reports") with the SEC since
January 1, 1997, each of which, complied at the time of filing in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act, each law as in effect on the dates such forms, reports and documents were
filed. None of such Parent SEC Reports, including any financial statements or
schedules included or incorporated by reference therein, contained when filed
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in order
to make the statements therein in light of the circumstances under which they
were made not misleading, except to the extent superseded by a Parent SEC Report
filed subsequently and prior to the date hereof. The audited consolidated
financial statements of Parent included in the Parent SEC Reports fairly present
in conformity in all material respects with generally accepted accounting
principles applied on a consistent basis (except as may be indicated in the
notes thereto) the consolidated financial position of Parent and its
consolidated subsidiaries as of the dates thereof and their consolidated results
of operations and changes in financial position for the
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periods then ended. Notwithstanding the foregoing, Parent shall not be deemed to
be in breach of any of the representations or warranties in this Section 3.4 as
a result of any changes to the Parent SEC Reports that Parent may make in
response to comments received from the SEC on the S-4 or the Proxy Statement.
Section 3.5. Information Supplied. None of the information supplied or to
be supplied by Parent or Acquisition in writing for inclusion or incorporation
by reference to (i) the S-4 will at the time the S-4 is filed with the SEC and
at the time it becomes effective under the Securities Act contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) the Proxy Statement will at the date mailed to stockholders and at the
times of the meeting or meetings of stockholders of the Company to be held in
connection with the Merger contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein in light of the circumstances under which
they are made not misleading. The S-4 will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
thereunder. Notwithstanding the foregoing, Parent makes no representation,
warranty or covenant with respect to any information supplied or required to be
supplied by the Company that is contained in or omitted from any of the
foregoing documents.
Section 3.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under and
other applicable requirements of the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, and any filings under similar merger
notification laws or regulations of foreign Governmental Entities and the filing
and recordation of the Certificate of Merger as required by the DGCL, no
material filing with or notice to, and no material permit, authorization,
consent or approval of any Governmental Entity is necessary for the execution
and delivery by Parent or Acquisition of this Agreement or the consummation by
Parent or Acquisition of the transactions contemplated hereby. Neither the
execution, delivery and performance of this Agreement by Parent or Acquisition
nor the consummation by Parent or Acquisition of the transactions contemplated
hereby will (i) conflict with or result in any breach of any provision of the
respective Certificates of Incorporation or bylaws (or similar governing
documents) of Parent or Acquisition, (ii) result in a violation or breach of or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration
or Lien) under any of the terms, conditions or provisions of any material note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent or Acquisition or any of Parent's other
subsidiaries is a party or by which any of them or any of their respective
properties or assets are bound or (iii) violate any material order, writ,
injunction, decree, law, statute, rule or regulation applicable to Parent or
Acquisition or any of Parent's other subsidiaries or any of their respective
properties or assets.
Section 3.7. Litigation. There is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of Parent threatened, against Parent
or any of its subsidiaries or any of their respective properties or assets
before any Governmental Entity that could reasonably be expected to prevent or
delay the consummation of the transactions contemplated by this Agreement beyond
the Final Date. Neither Parent nor any of its subsidiaries is subject to any
outstanding order, writ, injunction or decree that could reasonably be expected
to prevent or delay the consummation of the transactions contemplated hereby.
Section 3.8. Tax Treatment. Neither Parent, Acquisition nor, to the
knowledge of Parent, any of its affiliates has taken, proposes to take, or has
agreed to take any action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a) of the Code.
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Section 3.9. Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Acquisition.
Section 3.10. No Prior Activities. Except for obligations incurred in
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby,
Acquisition has neither incurred any obligation or liability nor engaged in any
business or activity of any type or kind or entered into any agreement or
arrangement with any person.
Section 3.11. No Undisclosed Liabilities; Absence of Changes. Except as and
to the extent publicly disclosed by Parent in the Parent SEC Reports, neither
Parent nor any of its subsidiaries has any material liabilities or obligations
of any nature, whether or not accrued, contingent or otherwise, that would be
required by generally accepted accounting principles to be reflected on a
consolidated balance sheet of Parent (including the notes thereto). There have
been no events, changes or effects with respect to Parent or its subsidiaries
that have had a Material Adverse Effect on Parent that have not been publicly
disclosed by Parent in the Parent SEC Reports.
Section 3.12. Compliance with Applicable Law. Except as publicly disclosed
by Parent in the Parent SEC Reports, to the knowledge of Parent, Parent and its
subsidiaries hold all material permits, licenses, variances, exemptions, orders
and approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "Parent Permits"). Except as publicly disclosed
by Parent in the Parent SEC Reports, Parent and its subsidiaries are in material
compliance with the terms of Parent Permits. Except as publicly disclosed by
Parent in the Parent SEC Reports, to the knowledge of Parent, the businesses of
Parent and its subsidiaries have been and are being conducted in material
compliance with all material Applicable Laws. Except as publicly disclosed by
Parent in the Parent SEC Reports, no investigation or review by any Governmental
Entity with respect to Parent or any of its subsidiaries is pending or, to the
knowledge of Parent, threatened, nor, to the knowledge of Parent, has any
Governmental Entity indicated an intention to conduct the same.
Section 3.13 Representations Complete. None of the representations or
warranties made by Parent in this Agreement or any statement made in any
Schedule or certificate furnished by Parent pursuant to this Agreement, or
furnished in or in connection with documents mailed or delivered to the
stockholders of the Company in connection with soliciting their proxy or consent
to this Agreement and the Merger, contains or will contain at the Effective
Time, any untrue statement of a material fact, or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE 4
COVENANTS
Section 4.1. Conduct of Business of the Company. Except as contemplated by
this Agreement or as described in Section 4.1 of the Company Disclosure
Schedule, during the period from the date hereof to the Effective Time, the
Company will and will cause each of its subsidiaries to conduct its operations
in the ordinary course of business consistent with past practice and, to the
extent consistent therewith, with no less diligence and effort than would be
applied in the absence of this Agreement, use commercially reasonable efforts to
preserve intact its current business organizations, keep available the service
of its current officers and employees and preserve its relationships with
customers, suppliers, distributors, lessors, creditors, employees, contractors
and others having business dealings with it with the intention that its goodwill
and ongoing businesses shall be unimpaired at the Effective Time. Without
limiting the generality of the foregoing, except as otherwise expressly
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provided in this Agreement and except as described in Section 4.1 of the Company
Disclosure Schedule, prior to the Effective Time, neither the Company nor any of
its subsidiaries will, without the prior written consent of Parent:
(a) amend its Certificate of Incorporation or bylaws (or other similar
governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other debt or equity securities or
equity equivalents (including any stock options or stock appreciation
rights) except for the issuance and sale of Shares pursuant to options
granted under the Company Plans prior to the date hereof and except for
grants of options in the ordinary course of the Company's business
consistent with past practices;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, make any other actual, constructive or deemed distribution
in respect of its capital stock or otherwise make any payments to
stockholders in their capacity as such, or redeem or otherwise acquire any
of its securities or any securities of any of its subsidiaries except as
may be required under the Indenture, any Company Option or any other
agreement set forth in Section 4.1(c) of the Company Disclosure Schedule,
provided that the Company shall not reduce, or agree to reduce, the
conversion price of the Subordinated Notes;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries (other than the
Merger);
(e) alter through merger, liquidation, reorganization, restructuring
or any other fashion the corporate structure of any subsidiary;
(f) (i) incur or assume any long-term or short-term debt or issue any
debt securities in each case, except for borrowings under existing lines of
credit in the ordinary course of business, or modify or agree to any
amendment of the terms of any of the foregoing (including the Subordinated
Notes); (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person except for obligations of subsidiaries of
the Company incurred in the ordinary course of business; (iii) make any
loans, advances or capital contributions to or investments in any other
person (other than to subsidiaries of the Company or customary loans or
advances to employees in each case in the ordinary course of business
consistent with past practice); (iv) pledge or otherwise encumber shares of
capital stock of the Company or any of its subsidiaries; or (v) mortgage or
pledge any of its material assets, tangible or intangible, or create or
suffer to exist any material Lien thereupon;
(g) except as may be required by Applicable Law, enter into, adopt or
amend or terminate any bonus, special remuneration, compensation,
severance, stock option, stock purchase agreement, retirement, health,
life, or disability insurance, severance or other employee benefit plan
agreement, trust, fund or other arrangement for the benefit or welfare of
any director, officer, employee or consultant in any manner or increase in
any manner the compensation or fringe benefits of any director, officer or
employee or pay any benefit not required by any plan and arrangement as in
effect as of the date hereof (including the granting of stock appreciation
rights or performance units);
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(h) grant any severance or termination pay to any director, officer,
employee or consultant, except payments made pursuant to written agreements
outstanding on the date hereof, the terms of which are in all material
respects completely and correctly disclosed on Schedule 4.1(j) or as
required by applicable federal, state or local law or regulations;
(i) exercise its discretion or otherwise voluntarily accelerate the
vesting of any Company Stock Option as a result of the Merger, any other
change of control of the Company (as defined in the Company Plans) or
otherwise.
(j) (1) acquire, sell, lease, license, transfer or otherwise dispose
of any material assets in any single transaction or series of related
transactions (including in any transaction or series of related
transactions having a fair market value in excess of Five Hundred Thousand
Dollars ($500,000) in the aggregate), other than sales of its products and
licenses of software in the ordinary course of business consistent with
past practices, (2) enter into any exclusive license, distribution,
marketing, sales or other agreement, (3) enter into a "development
services" or other similar agreement with Thinkit Technologies, Inc., or
(4) sell, transfer or otherwise dispose of any Intellectual Property;
(k) except as may be required as a result of a change in law or in
generally accepted accounting principles, materially change any of the
accounting principles, practices or methods used by it;
(l) revalue in any material respect any of its assets, including
writing down the value of inventory or writing-off notes or accounts
receivable, other than in the ordinary course of business;
(m) (i) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other entity or division thereof or
any equity interest therein; (ii) enter into any contract or agreement that
would be material to the Company and its subsidiaries, taken as a whole;
(iii) amend, modify or waive any right under any material contract of the
Company or any of its subsidiaries; (iv) modify its standard warranty terms
for its products or amend or modify any product warranties in effect as of
the date hereof in any material manner that is adverse to the Company or
any of its subsidiaries; (v) authorize any additional or new capital
expenditure or expenditures in excess of One Million Dollars ($1,000,000)
in the aggregate in any calendar quarter, if any such expenditure or
expenditures are not listed in the capital budget attached as Section
4.1(m)(v) of the Company Disclosure Schedule; provided that nothing in the
foregoing clause (v) shall limit any capital expenditure required pursuant
to existing customer contracts; or (vi) authorize any new or additional
manufacturing capacity expenditure or expenditures for any manufacturing
capacity contracts or arrangements;
(n) make any material tax election or settle or compromise any
material income tax liability or permit any material insurance policy
naming it as a beneficiary or loss-payable to expire, or to be canceled or
terminated, unless a comparable insurance policy reasonably acceptable to
Parent is obtained and in effect;
(o) fail to file any Tax Returns when due (or, alternatively, fail to
file for available extensions) or fail to cause such Tax Returns when filed
to be complete and accurate in all material respects;
(p) fail to pay any Taxes or other material debts when due;
(q) settle or compromise any pending or threatened suit, action or
claim that (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which would involves more than One Million
Dollars ($1,000,000) or that would otherwise be material to the Company or
relates to any Intellectual Property matters;
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(r) take any action or fail to take any action that could reasonably
be expected to (i) limit the utilization of any of the net operating
losses, built-in losses, tax credits or other similar items of the Company
or its subsidiaries under Section 382, 383, 384 or 1502 of the Code and the
Treasury Regulations thereunder, or (ii) cause any transaction in which the
Company or any of its subsidiaries was a party that was intended to be
treated as a reorganization under Section 368(a) of the Code to fail to
qualify as a reorganization under Section 368(a) of the Code; or
(s) take or agree in writing or otherwise to take any of the actions
described in Sections 4.1(a) through 4.1(q) (and it shall use all
reasonable efforts not to take any action that would make any of the
representations or warranties of the Company contained in this Agreement
(including the exhibits hereto) untrue or incorrect).
Section 4.2. Preparation of S-4 and the Proxy Statement. The Company and
Parent shall diligently work together and promptly prepare and file with the SEC
the Proxy Statement and the S-4, respectively. Each of Parent and the Company
shall use all reasonable efforts to have the S-4 declared effective under the
Securities Act as promptly as practicable after such filing. Parent shall also
take any action (other than qualifying to do business in any jurisdiction in
which it is now not so qualified) required to be taken under any applicable
state securities laws in connection with the issuance of Parent Common Stock in
the Merger and upon the exercise of Company Stock Options, and the Company shall
furnish all information concerning the Company and the holders of Shares as may
be reasonably requested in connection with any such action.
Section 4.3. No Solicitation or Negotiation.
(a) The Company, its affiliates (as reasonably determined by the Company)
and their respective officers and other employees with managerial
responsibilities, directors, representatives (including the Financial Advisor or
any other investment banker and any attorneys and accountants) and agents shall
immediately cease any discussions or negotiations with any parties with respect
to any Third Party Acquisition (as defined below). The Company also agrees
promptly to request each person that has heretofore executed a confidentiality
agreement in connection with its consideration of acquiring (whether by merger,
acquisition of stock or assets or otherwise) the Company or any of its
subsidiaries, if any, to return all confidential information heretofore
furnished to such person by or on behalf of the Company or any of its
subsidiaries. Neither the Company nor any of its affiliates shall, nor shall the
Company authorize or permit any of its or their respective officers, directors,
employees, representatives or agents to, directly or indirectly, encourage,
solicit, participate in or initiate discussions or negotiations with or provide
any non-public information to any person or group (other than Parent and
Acquisition or any designees of Parent and Acquisition) concerning any Third
Party Acquisition; provided, however, that if the Board of Directors of the
Company determines in good faith, after consultation with legal counsel, that it
is necessary to do so in order to comply with its fiduciary duties to the
Company's stockholders under the DGCL, the Company may, in response to a
proposal or offer for a Third Party Acquisition which was not solicited and
which the Board of Directors of the Company determines, based on consultation
with the Company Financial Advisor, is from a Third Party that is capable of
consummating a Superior Proposal and only for so long as the Board of Directors
so determines that its actions are likely to lead to a Superior Proposal, (i)
furnish information only of the type and scope with respect to the Company that
the Company provided to Parent prior to the date hereof to any such person
pursuant to a customary confidentiality agreement as was executed by Parent
prior to the execution of this Agreement and (ii) participate in the discussions
and negotiations regarding such proposal or offer; provided, further, that
nothing herein shall prevent the Company Board from taking and disclosing to the
Company's stockholders a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to any tender or exchange offer.
The Company shall promptly (and in any event within one business day
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after becoming aware thereof) (1) notify the Parent in the event it receives any
proposal or inquiry concerning a Third Party Acquisition, including the terms
and conditions thereof and the identity of the party submitting such proposal,
and any request for confidential information is requested in connection with a
potential Third Party Acquisition, (2) provide a copy of any written agreements,
proposals or other materials the Company receives from any such person or group
(or its representatives), and (3) advise Parent from time to time of the status
and promptly following any material developments the Company has knowledge of
concerning the same.
(b) Except as set forth in this Section 4.3(b), the Company Board shall not
withdraw or modify its recommendation of the transactions contemplated hereby or
approve or recommend, or cause or permit the Company to enter into any agreement
or obligation with respect to, any Third Party Acquisition. Notwithstanding the
foregoing, if the Company Board by a majority vote determines in its good faith
judgment, after consultation with and based upon the advice of legal counsel,
that it is required to do so in order to comply with its fiduciary duties, the
Company Board may withdraw its recommendation of the transactions contemplated
hereby or approve or recommend a Superior Proposal (as defined in subsection (c)
below), but in each case only (i) after providing written notice to Parent (a
"Notice of Superior Proposal") advising Parent that the Company Board has
received a Superior Proposal, specifying the material terms and conditions of
such Superior Proposal and identifying the person making such Superior Proposal
and (ii) if Parent does not, within five (5) business days of Parent's receipt
of the Notice of Superior Proposal, make an offer that the Company Board by a
majority vote determines in its good faith judgment (based on the written advice
of a financial advisor of nationally recognized reputation) to be at least as
favorable to the Company's stockholders as such Superior Proposal; provided,
however, that the Company shall not be entitled to enter into any binding
agreement with respect to a Superior Proposal (other than any confidentiality
agreement entered into in accordance with clause (i) of Section 4.3(a)) unless
concurrently therewith this Agreement is terminated by its terms pursuant to
Section 6.1 and the Company pays all amounts due to Parent pursuant to Section
6.3. Any disclosure that the Company Board may be compelled to make with respect
to the receipt of a proposal for a Third Party Acquisition or otherwise in order
to comply with its fiduciary duties or Rule 14d-9 or 14e-2 will not constitute a
violation of this Agreement, provided that such disclosure states that no action
will be taken by the Company Board in violation of this Section 4.3(b).
(c) For the purposes of this Agreement, "Third Party Acquisition" means the
occurrence of any of the following events: (i) the acquisition of the Company by
merger or otherwise by any person (which includes a "person" as such term is
defined in Section 13(d)(3) of the Exchange Act) other than Parent, Acquisition
or any affiliate thereof (a "Third Party"); (ii) the acquisition by a Third
Party of any material portion (which shall include fifteen percent (15%) or
more) of the assets of the Company and its subsidiaries taken as a whole, other
than the sale of its products in the ordinary course of business consistent with
past practices; (iii) the acquisition by a Third Party of fifteen percent (15%)
or more of the outstanding Shares; (iv) the adoption by the Company of a plan of
liquidation or the declaration or payment of an extraordinary dividend; (v) the
repurchase by the Company or any of its subsidiaries of more than ten percent
(10%) of the outstanding Shares; or (vi) the acquisition (or any group of
acquisitions) by the Company or any of its subsidiaries by merger, purchase of
stock or assets, joint venture or otherwise of a direct or indirect ownership
interest or investment in any business (or businesses) whose annual revenues,
net income or assets is equal or greater than ten percent (10%) of the annual
revenues, net income or assets of the Company. For purposes of this Agreement, a
"Superior Proposal" means any bona fide proposal (1) to acquire, directly or
indirectly, for consideration consisting solely of cash and/or securities, all
of the Shares then outstanding, or all or substantially all the assets, of the
Company, (2) that is fully financed or is financeable and contains terms and
conditions that the Company Board by a majority vote determines in its good
faith judgment (based on the written advice of the Company Financial
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Advisor or another financial advisor of nationally recognized reputation) to be
more favorable to the Company's stockholders than the Merger, taking into
account all aspects of the transactions including taxation, form of
consideration, conditions to closing and strategic synergies, (3) that the
Company Board by a majority vote determines in its good faith judgment
(following and based on consultation with the Financial Adviser or another
financial advisor of nationally recognized reputation and its legal and other
advisors) to be reasonably capable of being completed (taking into account all
legal, financial, regulatory and other aspects of the proposal and the person
making the proposal), and (4) that does not contain a "right of first refusal"
or "right of first offer" with respect to any proposal that Parent may make.
Section 4.4. Comfort Letters.
(a) The Company shall use all reasonable efforts to cause Arthur Andersen
LLP to deliver a letter dated not more than five days prior to the date on which
the S-4 shall become effective and addressed to itself and Parent and their
respective Boards of Directors in form and substance reasonably satisfactory to
Parent and customary in scope and substance for agreed-upon procedures letters
delivered by independent public accountants in connection with registration
statements and proxy statements similar to the S-4 and the Proxy Statement.
(b) Parent shall use all reasonable efforts to cause Ernst & Young LLP to
deliver a letter dated not more than five (5) days prior to the date of the S-4
shall become effective and addressed to itself and the Company and their
respective Boards of Directors in form and substance reasonably satisfactory to
the Company and customary in scope and substance for agreed-upon procedures
letters delivered by independent accountants in connection with registration
statements and proxy statements similar to the S-4 and the Proxy Statement.
Section 4.5. Meeting of Stockholders. The Company shall take all actions
necessary in accordance with the DGCL and its Certificate of Incorporation and
bylaws to duly call, give notice of, convene and hold a meeting of its
stockholders as promptly as practicable to consider and vote upon the adoption
and approval of this Agreement and the transactions contemplated hereby (the
"Meeting"). The stockholder vote required for the adoption and approval of the
transactions contemplated by this Agreement shall be the vote required by the
DGCL and the Company's Certificate of Incorporation and bylaws. The Company
will, through the Company Board, recommend to its stockholders approval of such
matters subject to the provisions of Section 4.3(b). The Company and the Parent
shall promptly prepare and file with the SEC the Proxy Statement and the S-4 for
the solicitation of a vote of the holders of Shares approving the Merger, which,
subject to the provisions of Section 4.3(b), shall include the recommendation of
the Company Board that stockholders of the Company vote in favor of the approval
and adoption of this Agreement and the written opinion of the Company Financial
Advisor that the consideration to be received by the stockholders of the Company
pursuant to the Merger is fair to such stockholders from a financial point of
view. The Company shall use all reasonable efforts to have the Proxy Statement
cleared by the SEC as promptly as practicable after such filing, and promptly
thereafter mail the Proxy Statement to the stockholders of the Company. Whenever
any event occurs which is required to be set forth in an amendment or supplement
to the S-4 and/or the Proxy Statement, the Company or Parent, as the case may
be, will promptly inform the other of such occurrence and cooperate in filing
with the SEC or its staff or any other government officials, and/or mailing to
stockholders of the Company, such amendment or supplement. Notwithstanding
anything to the contrary contained in this Agreement, the Company may adjourn or
postpone (i) the Meeting to the extent necessary to ensure that any necessary
supplement or amendment to this S-4 and/or the Proxy Statement is provided to
the Company's stockholders in advance of a vote on the Merger and this Agreement
or (ii) the time for which the Meeting is originally scheduled (as set forth in
the S-4 and the Proxy Statement), if there are insufficient Shares represented,
either in person or by proxy, to constitute a quorum necessary to
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conduct the business of the Meeting. Parent shall use all reasonable efforts to
obtain all necessary state securities law or "blue sky" permits and approvals
required in connection with the Merger and to consummate the other transactions
contemplated by this Agreement and will pay all expenses incident thereto,
provided that the Company shall cooperate with Parent in obtaining such permits
and approvals as reasonably requested.
Section 4.6. Nasdaq National Market. Parent shall use all reasonable
efforts to cause the shares of Parent Common Stock to be issued in the Merger
and the shares of Parent Common Stock to be reserved for issuance upon exercise
of Company Stock Options to be approved for listing on the Nasdaq National
Market, subject to official notice of issuance, prior to the Effective Time.
Section 4.7. Access to Information.
(a) Between the date hereof and the Effective Time, the Company will give
Parent and its authorized representatives reasonable access during normal
business hours to all employees, plants, offices, warehouses and other
facilities, to all books and records and all personnel files of current
employees of the Company and its subsidiaries as Parent may reasonably require,
and will cause its officers and those of its subsidiaries to furnish Parent with
such financial and operating data and other information with respect to the
business and properties of the Company and its subsidiaries as Parent may from
time to time reasonably request. Notwithstanding the foregoing, access to the
Company's personnel files shall be only permitted to persons from Parent's
Network Communications Group and Parent's other employees for which access is
reasonably necessary to facilitate the consummation of the Merger and the
transactions contemplated thereby. Without limiting any of Parent's other
confidentiality obligations, Parent shall maintain all information contained in
the Company's personnel files in strictest confidence, will not use such
information in violation of any applicable laws, and shall not disclose such
information to any third party whatsoever without the prior written consent of
the Company and the applicable employee or employees. Between the date hereof
and the Effective Time, Parent shall make available to the Company, as
reasonably requested by the Company, a designated officer of Parent to answer
questions and make available such information regarding Parent and its
subsidiaries as is reasonably requested by the Company taking into account the
nature of the transactions contemplated by this Agreement.
(b) Between the date hereof and the Effective Time, the Company shall
furnish to Parent (1) within two (2) business days following preparation thereof
(and in any event within twenty (20) business days after the end of each fiscal
quarter) an unaudited balance sheet as of the end of such quarter and the
related statements of earnings, stockholders' equity (deficit) and cash flows
for the quarter then ended, and (3) within two (2) business days following
preparation thereof (and in any event within ninety (90) calendar days after the
end of each fiscal year) an audited balance sheet as of the end of such year and
the related statements of earnings, stockholders' equity (deficit) and cash
flows, all of such financial statements referred to in clauses (1), (2) and (3)
to prepared in accordance with generally accepted accounting principles in
conformity with the practices consistently applied by the Company with respect
to such financial statements. All the foregoing shall be in accordance with the
books and records of the Company and shall fairly present its financial position
(taking into account the differences between the monthly, quarterly and annual
financial statements prepared by the Company in conformity with its past
practices) as of the last day of the period then ended.
(c) Parent shall, promptly upon the Company's request, furnish to the
Company a complete and correct copy of any Parent SEC Report filed with the SEC
after the date hereof.
(d) Each of the parties hereto will hold, and will cause its consultants
and advisers to hold, in confidence all documents and information furnished to
it by or on behalf of another party to this Agreement in connection with the
transactions contemplated by this Agreement pursuant to the terms
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of that certain Corporate Nondisclosure Agreement Number 76308 entered into
between the Company and Parent dated as of August 18, 1995, and amended as of
January 25, 1999 and as of February 27, 1999.
Section 4.8. Certain Filings; Reasonable Efforts.
(a) Subject to the terms and conditions herein provided, including Section
4.3(b), each of the parties hereto agrees to use all reasonable efforts to take
or cause to be taken all action and to do or cause to be done all things
reasonably necessary, proper or advisable under Applicable Law to consummate and
make effective the transactions contemplated by this Agreement, including using
all reasonable efforts to do the following, (i) cooperate in the preparation and
filing of the Proxy Statement and the S-4 and any amendments thereto, any
filings that may be required under the HSR Act and any filings under similar
merger notification laws or regulations of foreign Governmental Entities; (ii)
obtain consents of all third parties and Governmental Entities necessary,
proper, advisable or reasonably requested by Parent or the Company, for the
consummation of the transactions contemplated by this Agreement; (iii) contest
any legal proceeding relating to the Merger; and (iv) execute any additional
instruments necessary to consummate the transactions contemplated hereby.
Subject to the terms and conditions of this Agreement, Parent and Acquisition
agree to use all reasonable efforts to cause the Effective Time to occur as soon
as practicable after the Company stockholder vote with respect to the Merger.
The Company agrees to use all reasonable efforts to encourage its employees to
accept any offers of employment extended by Parent. If at any time after the
Effective Time any further action is necessary to carry out the purposes of this
Agreement the proper officers and directors of each party hereto shall take all
such necessary action.
(b) Parent and the Company will consult and cooperate with one another, and
consider in good faith the views of one another, in connection with any
analyses, appearances, presentations, letters, white papers, memoranda, briefs,
arguments, opinions or proposals made or submitted by or on behalf of any party
hereto in connection with proceedings under or relating to the HSR Act or any
other foreign, federal, or state antitrust, competition, or fair trade law. In
this regard but without limitation, each party hereto shall promptly inform the
other of any material communication between such party and the Federal Trade
Commission, the Antitrust Division of the United States Department of Justice,
or any other federal, foreign or state antitrust or competition Governmental
Entity regarding the transactions contemplated herein. Nothing in the Agreement,
however, shall require or be construed to require any party hereto to sell or
divest any assets or business or to restrict any business operations in order to
obtain the consent or successful termination of any review of any such
Governmental Entity regarding the transactions contemplated hereby.
Section 4.9. Public Announcements. Neither Parent, Acquisition nor the
Company shall issue any press release or otherwise make any public statements
with respect to the transactions contemplated by this Agreement, including the
Merger, or any Third Party Acquisition, without the prior consent of Parent and
Acquisition (in the case of the Company) or the Company (in the case of Parent
or Acquisition, which consent may be unreasonably withheld), except (i) as may
be required by Applicable Law, or by the rules and regulations of, or pursuant
to any agreement with, the Nasdaq National Market, or (ii) following a change,
if any, of the Company Board's recommendation of the Merger (in accordance with
Section 4.3(b)). The first public announcement of this Agreement and the Merger
shall be a joint press release agreed upon by Parent, Acquisition and the
Company.
Section 4.10. Indemnification and Directors' and Officers' Insurance.
(a) After the Effective Time, the Company shall indemnify and hold harmless
(and shall also advance expenses as incurred to the fullest extent permitted
under Applicable Law to), to the extent not covered by insurance, each person
who is now or has been prior to the date hereof or who
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becomes prior to the Effective Time an officer or director of the Company or any
of the Company's subsidiaries (the "Indemnified Persons") against (i) all
losses, claims, damages, costs, expenses (including counsel fees and expenses),
settlement, payments or liabilities arising out of or in connection with any
claim, demand, action, suit, proceeding or investigation based in whole or in
part on or arising in whole or in part out of the fact that such person is or
was an officer or director of the Company or any of its subsidiaries, whether or
not pertaining to any matter existing or occurring at or prior to the Effective
Time and whether or not asserted or claimed prior to or at or after the
Effective Time ("Indemnified Liabilities"); and (ii) all Indemnified Liabilities
based in whole or in part on or arising in whole or in part out of or pertaining
to this Agreement or the transactions contemplated hereby, in each case to the
fullest extent required or permitted under Applicable Law. Nothing contained
herein shall make Parent, Acquisition, the Company or the Surviving Corporation,
an insurer, a co-insurer or an excess insurer in respect of any insurance
policies which may provide coverage for Indemnified Liabilities, nor shall this
Section 4.10 relieve the obligations of any insurer in respect thereto. The
parties hereto intend, to the extent not prohibited by Applicable Law, that the
indemnification provided for in this Section 4.10 shall apply without limitation
to negligent acts or omissions by an Indemnified Person. Each Indemnified Person
is intended to be a third party beneficiary of this Section 4.10 and may
specifically enforce its terms. This Section 4.10 shall not limit or otherwise
adversely affect any rights any Indemnified Person may have under any agreement
with the Company or under the Company's Certificate of Incorporation or bylaws
as presently in effect.
(b) From and after the Effective Time, the Parent shall cause the Surviving
Corporation to fulfill and honor in all respects the obligations of the Company
pursuant to any indemnification agreements between the Company and its directors
and officers as of or prior to the date hereof (or indemnification agreements in
the Company's customary form for directors joining the Company's Board of
Directors prior to the Effective Time) and any indemnification provisions under
the Company's certificate of incorporation or bylaws as in effect immediately
prior to the Effective Time. In the event that the Surviving Corporation or any
of its successors or assigns (i) consolidates with or merges into any other
person and is not the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all of
its properties and assets to any person, then, and in each such case, Parent
shall cause proper provision to be made so that the successors and assigns of
the Surviving Corporation assume the obligations set forth in this Section 4.10.
(c) For a period of six years after the Effective Time, Parent will
maintain or cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those persons who, as of
immediately prior to the Effective Time, are covered by the Company's directors'
and officers' liability insurance policy (the "Insured Parties") on terms no
less favorable to the Insured Parties than those of the Company's present
directors' and officers' liability insurance policy; provided, however, that in
no event will Parent or the Company be required to expend in excess of 200% of
the annual premium currently paid by the Company for such coverage (or such
coverage as is available for 200% of such annual premium); provided further,
that, in lieu of maintaining such existing insurance as provided above, Parent,
at its election, may cause coverage to be provided under any policy maintained
for the benefit of Parent or any of its subsidiaries, so long as the terms are
not materially less advantageous to the intended beneficiaries thereof than such
existing insurance.
(d) Neither Parent nor any of its Affiliates shall be obligated to
guarantee the payment or performance of the Company's obligations under Clauses
(a) or (b) of this Section 4.10 so long as the Company honors such obligations
to the extent of its net worth at the Effective Time, and neither Parent nor any
such Affiliate shall have any liability or obligation to any Indemnified Person
arising from the Company's breach of, or inability to perform its obligations
under, such Clauses in excess of
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the difference between the net worth of the Company at the Effective Time and
the aggregate of all amounts paid by the Company in satisfaction of such
obligations. The provisions of this Section 4.10 are intended to be for the
benefit of, and will be enforceable by, each person entitled to indemnification
hereunder and the heirs and representatives of such person. Parent will not
permit the Company to merge or consolidate with any other Person unless the
Company will ensure that the surviving or resulting entity assumes the
obligations imposed by this Section 4.10.
Section 4.11. Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence
of which has caused or would be likely to cause any representation or warranty
contained in this Agreement by such first party to be untrue or inaccurate such
that the conditions in Section 5.2(a) or 5.3(a) would not be satisfied at or
prior to the Effective Time and (ii) any material failure by such first party to
comply with or satisfy in any material respect any covenant condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 4.11 shall not cure
such breach or non-compliance or limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
Section 4.12. Affiliates; Tax-Free Reorganization.
(a) The Company shall use all reasonable efforts to obtain from all Company
Affiliates and from any person who may be deemed to have become a Company
Affiliate, after the date of this Agreement and on or prior to the Effective
Time, a letter agreement substantially in the form of Exhibit A hereto as soon
as practicable.
(b) Parent shall not be required to maintain the effectiveness of the S-4
for the purpose of resale of shares of Parent Common Stock by stockholders of
the Company who may be affiliates of the Company or Parent pursuant to Rule 145
under the Securities Act.
(c) The Company, on the one hand, and Parent and Acquisition, on the other
hand, shall execute and deliver to legal counsel to the Company and Parent
certificates substantially in the form attached hereto as Exhibits B-1 and B-2,
respectively, at such time or times as reasonably requested by such legal
counsel in connection with its delivery of an opinion with respect to the
transactions contemplated hereby and the Company and Parent shall each provide a
copy thereof to the other parties hereto. Prior to the Effective Time, none of
the Company, Parent or Acquisition shall take or cause to be taken any action
that would cause to be untrue (or fail to take or cause not to be taken any
action that would cause to be untrue) any of the representations in Exhibits B-1
or B-2.
Section 4.13. Additions to and Modification of Company Disclosure
Schedule. Concurrently with the execution and delivery of this Agreement, the
Company has delivered a Company Disclosure Schedule that includes all of the
information required by the relevant provisions of this Agreement. In addition,
the Company shall deliver to Parent and Acquisition such additions to or
modifications of any Sections of the Company Disclosure Schedule necessary to
make the information set forth therein true, accurate and complete in all
material respects as soon as practicable after such information is available to
the Company after the date of execution and delivery of this Agreement;
provided, however, that such disclosure shall not be deemed to constitute an
exception to its representations and warranties under Article 2, nor limit the
rights and remedies of Parent and Acquisition under this Agreement for any
breach by the Company of such representation and warranties; provided, further,
that failure to comply with the disclosure obligations required hereunder shall
not be deemed to constitute a failure of the conditions set forth in Sections
5.2(b) or 5.3(b) unless the information to be disclosed would constitute a
breach of representations or warranties that would cause a failure of the
conditions set forth in Section 5.2(a) or 5.3(a) as the case may be.
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Section 4.14. Access to Company Employees. The Company agrees to provide
Parent with, and to cause each of its subsidiaries to provide Parent with,
reasonable access to its employees during normal working hours following the
date of this Agreement, to among other things, deliver offers of continued
employment and to provide information to such employees about Parent. All
communications by Parent with Company employees shall be conducted in a manner
that does not disrupt or interfere with the Company's efficient and orderly
operation of its business.
Section 4.15. Company Compensation and Benefit Plans. The Company agrees to
take all actions necessary to amend, merge, freeze or terminate all compensation
and benefit plans, effective at the Closing Date, as requested in writing by
Parent.
Section 4.16. Convertible Subordinated Notes. Parent, Acquisition and the
Company shall take all necessary actions to ensure that the Surviving
Corporation shall (i) assume the due and punctual payment of the principal of,
premium, if any, and interest (including liquidated damages, if any) on all the
Subordinated Notes and the performance or observance of every covenant of the
Indenture on the part of the Company to be performed or observed, and (ii) have
provided for the applicable conversion rights set forth in Section 15.6 of the
Indenture and the repurchase rights set forth in Article XVI of the Indenture.
Without limiting the foregoing, the Company shall take no actions that would
result in an event of default under the Indenture.
Section 4.17. Immigration, Visas. Parent shall be responsible for obtaining
any required visas or other immigration approvals to allow Transferred Employees
(defined below) to become employed by Parent at whatever location is specified
by Parent.
ARTICLE 5
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 5.1. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the stockholders of the Company;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States federal or state court or United States federal or state
Governmental Entity that prohibits, restrains, enjoins or restricts the
consummation of the Merger;
(c) any waiting period applicable to the Merger under the HSR Act
shall have terminated or expired;
(d) any governmental or regulatory notices, approvals or other
requirements necessary to consummate the transactions contemplated hereby
and to operate the Business after the Effective Time in all material
respects as it was operated prior thereto (other than under the HSR Act)
shall have been given, obtained or complied with, as applicable; and
(e) the S-4 shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop
order, and Parent shall have received all state securities laws or "blue
sky" permits and authorizations necessary to issue shares of Parent Common
Stock in exchange for Shares in the Merger.
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Section 5.2. Conditions to the Obligations of the Company. The obligation
of the Company to effect the Merger is subject to the satisfaction at or prior
to the Effective Time of the following conditions:
(a) the representations and warranties of Parent and Acquisition
contained in this Agreement shall be true and correct (except to the extent
that the aggregate of all breaches thereof would not have a Material
Adverse Effect on Parent) at and as of the Effective Time with the same
effect as if made at and as of the Effective Time (except to the extent
such representations specifically relate to an earlier date, in which case
such representations shall be true and correct as of such earlier date, and
in any event, subject to the foregoing Material Adverse Effect
qualification) and, at the Closing, Parent and Acquisition shall have
delivered to the Company a certificate to that effect, executed by two (2)
executive officers of Parent and Acquisition;
(b) each of the covenants and obligations of Parent and Acquisition to
be performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or
before the Effective Time and, at the Closing, Parent and Acquisition shall
have delivered to the Company a certificate to that effect, executed by two
(2) executive officers of Parent and Acquisition;
(c) the shares of Parent Common Stock issuable to the Company's
stockholders pursuant to this Agreement and such other shares required to
be reserved for issuance in connection with the Merger shall have been
approved for quotation on the Nasdaq National Market, upon official notice
of issuance;
(d) the Company shall have received the opinion of tax counsel to the
Company or tax counsel to Parent to the effect that (i) the Merger will be
treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and (ii) each of Parent, Acquisition
and the Company will be a party to the reorganization within the meaning of
Section 368(b) of the Code, which opinion may rely on the representations
set forth in Exhibits B-1 and B-2 and such other representations as such
counsel reasonably deems appropriate and such opinion shall not have been
withdrawn or modified in any material respect; and
(e) the Company shall have received the opinion of legal counsel to
Parent and Acquisition as to the matters set forth in Exhibit D.
Section 5.3. Conditions to the Obligations of Parent and Acquisition. The
respective obligations of Parent and Acquisition to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) the representations and warranties of the Company contained in
this Agreement (other than those contained in Section 2.24) shall be true
and correct (except to the extent that the aggregate of all breaches
thereof would not have a Material Adverse Effect on the Company) at and as
of the Effective Time with the same effect as if made at and as of the
Effective Time (except to the extent such representations specifically
relate to an earlier date, in which case such representations shall be true
and correct as of such earlier date, and in any event, subject to the
foregoing Material Adverse Effect qualification) and the representations
and warranties of the Company contained in Section 2.24 shall be true and
correct in all respects at and as of the Effective Time, and, at the
Closing, the Company shall have delivered to Parent and Acquisition a
certificate to that effect, executed by two (2) executive officers of the
Company;
(b) each of the covenants and obligations of the Company to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or
before the Effective Time and, at the Closing, the Company shall have
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delivered to Parent and Acquisition a certificate to that effect, executed
by two (2) executive officers of the Company;
(c) Parent shall have received from each affiliate of the Company
referred to in Sections 2.21 and 4.12(a) an executed copy of the letter
attached hereto as Exhibit A;
(d) there shall have been no events, changes or effects, individually
or in the aggregate, with respect to the Company or its subsidiaries
having, or that would reasonably be expected to have, a Material Adverse
Effect on the Company;
(e) Parent shall have received the opinion of tax counsel to Parent or
tax counsel to the Company to the effect that (i) the Merger will be
treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and (ii) each of Parent, Acquisition
and the Company will be a party to the reorganization within the meaning of
Section 368(b) of the Code, which opinion may rely on the representations
set forth in Exhibits B-1 and B-2 and such other representations as such
counsel reasonably deems appropriate, and such opinion shall not have been
withdrawn or modified in any material respect; and
(f) Parent shall have received the opinion of legal counsel to the
Company as to the matters set forth in Exhibit C.
ARTICLE 6
TERMINATION; AMENDMENT; WAIVER
Section 6.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time whether before or after
approval and adoption of this Agreement by the Company's stockholders:
(a) by mutual written consent of Parent, Acquisition and the Company;
(b) by Parent and Acquisition or the Company if (i) any court of
competent jurisdiction in the United States or other United States federal
or state Governmental Entity shall have issued a final order, decree or
ruling, or taken any other final action, restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action is or shall have become nonappealable or (ii) the Merger has not
been consummated by December 31, 1999 (the "Final Date"); provided that no
party may terminate this Agreement pursuant to this clause (ii) if such
party's failure to fulfill any of its obligations under this Agreement
shall have been a principal reason that the Effective Time shall not have
occurred on or before said date;
(c) by the Company if (i) there shall have been a breach of any
representations or warranties on the part of Parent or Acquisition set
forth in this Agreement or if any representations or warranties of Parent
or Acquisition shall have become untrue, such that the conditions set forth
in Section 5.2(a) would be incapable of being satisfied by the Final Date,
provided that the Company has not breached any of its obligations hereunder
in any material respect; (ii) there shall have been a breach by Parent or
Acquisition of any of their respective covenants or agreements hereunder
having a Material Adverse Effect on Parent or materially adversely
affecting (or materially delaying) the ability of Parent, Acquisition or
the Company to consummate the Merger, and Parent or Acquisition, as the
case may be, has not cured such breach within fifteen (15) business days
after notice by the Company thereof, provided that the Company has not
breached any of its obligations hereunder in any material respect; (iii)
the Company shall have convened a meeting of its stockholders to vote upon
the Merger in accordance with this Agreement and shall have failed to
obtain the requisite vote of its stockholders at such meeting (including
any adjournments thereof); or (iv) the Company Board
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has received a Superior Proposal, has complied with the provisions of
Section 4.3(b), and has made the payment called for by Section 6.3(a); or
(d) by Parent and Acquisition if (i) there shall have been a breach of
any representations or warranties on the part of the Company set forth in
this Agreement or if any representations or warranties of the Company shall
have become untrue, such that the conditions set forth in Section 5.3(a)
would be incapable of being satisfied by the Final Date, provided that
neither Parent nor Acquisition has breached any of their respective
obligations hereunder in any material respect; (ii) there shall have been a
breach by the Company of one or more of its covenants or agreements
hereunder having a Material Adverse Effect on the Company (or, in the case
of Section 4.3, any material breach thereof) or materially adversely
affecting (or materially delaying) the ability of Parent, Acquisition or
the Company to consummate the Merger, and the Company has not cured such
breach within fifteen (15) business days after notice by Parent or
Acquisition thereof, provided that neither Parent nor Acquisition has
breached any of their respective obligations hereunder in any material
respect; (iii) the Company Board shall have recommended to the Company's
stockholders a Superior Proposal; (iv) the Company Board shall have
withdrawn or adversely modified its approval or recommendation of this
Agreement or the Merger; (v) the Company shall have ceased using all
reasonable efforts to call, give notice of, or convene or hold a
stockholders' meeting to vote on the Merger as promptly as practicable
after the date hereof or shall have adopted a resolution not to effect any
of the foregoing; or (vi) the Company shall have convened a meeting of its
stockholders to vote upon the Merger and shall have failed to obtain the
requisite vote of its stockholders at such meeting (including any
adjournments thereof).
Section 6.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect without any liability on the part of
any party hereto or its affiliates, directors, officers or stockholders other
than the provisions of this Section 6.2 and Sections 4.7(d) and 6.3 hereof.
Nothing contained in this Section 6.2 shall relieve any party from liability for
any breach of this Agreement prior to such termination.
Section 6.3. Fees and Expenses.
(a) In the event that this Agreement shall be terminated pursuant to:
(i) Section 6.1(c)(iv) or 6.1(d)(iii);
(ii) Section 6.1(d)(i), (ii), (iv) or (v) and within twelve (12)
months thereafter the Company enters into an agreement with respect to a
Company Acquisition or a Company Acquisition occurs involving any Third
Party (or any affiliate thereof); or
(iii) Section 6.1(c)(iii) or 6.1(d)(vi) and within twelve (12) months
following the stockholders' meeting referred to in either such clause, the
Company enters into an agreement with respect to a Company Acquisition or a
Company Acquisition occurs involving any Third Party (or an affiliate
thereof);
Parent and Acquisition would suffer direct and substantial damages, which
damages cannot be determined with reasonable certainty. To compensate Parent and
Acquisition for such damages the Company shall pay to Parent the amount of
Seventy-Five Million Dollars ($75,000,000) as liquidated damages immediately
upon the occurrence of the event described in this Section 6.3(a) giving rise to
such damages. It is specifically agreed that the amount to be paid pursuant to
this Section 6.3(a) represents liquidated damages and not a penalty.
(b) Upon the termination of this Agreement pursuant to Section 6.1(c)(iii)
or (iv), or Section 6.1(d)(i), (ii), (iii), (iv), (v) or (vi), in addition to
any other remedies that Parent,
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Acquisition or their affiliates may have as a result of such termination
(including pursuant to Section 6.3(a)), the Company shall pay to Parent the
amount of Three Million Dollars ($3,000,000) as reimbursement for the costs,
fees and expenses incurred by any of them or on their behalf in connection with
this Agreement, the Merger and the consummation of all transactions contemplated
by this Agreement (including fees payable to investment bankers, counsel to any
of the foregoing and accountants).
(c) Upon the termination of this Agreement pursuant to Section 6.1(c)(i) or
(ii), in addition to any other remedies that the Company or its affiliates may
have as a result of such termination, Parent shall pay to the Company the amount
of Three Million Dollars ($3,000,000) as reimbursement for the costs, fees and
expenses incurred by any of them or on their behalf in connection with this
Agreement, the Merger and the consummation of all transactions contemplated by
this Agreement (including fees payable to investment bankers, counsel to any of
the foregoing and accountants).
(d) Except as specifically provided in this Section 6.3, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby.
(e) Each of the Company, Parent and Acquisition acknowledge that the
agreements contained in this Article 6 (including this Section 6.3) are an
integral part of the transactions contemplated by this Agreement and that,
without these agreements, Company, Parent and Acquisition would not enter into
this Agreement. Accordingly, if the Company fails promptly to pay the amounts
required pursuant to Section 6.3 when due (including circumstances where, in
order to obtain such payment Parent or Acquisition commences a suit that results
in a final nonappealable judgment against the Company for such amounts), the
Company shall pay to Parent or Acquisition (i) their costs and expenses
(including attorneys' fees) in connection with such suit and (ii) interest on
the amount that was determined to be due and payable hereunder at the rate
announced by Chase Manhattan Bank as its "reference rate" in effect on the date
such payment was required to be made.
Section 6.4. Amendment. This Agreement may be amended by action taken by
the Company, Parent and Acquisition at any time before or after approval of the
Merger by the stockholders of the Company but after any such approval no
amendment shall be made that requires the approval of such stockholders under
Applicable Law without such approval. This Agreement (including, subject to
Section 4.14, the Company Disclosure Schedule) may be amended only by an
instrument in writing signed on behalf of the parties hereto.
Section 6.5. Extension; Waiver. At any time prior to the Effective Time,
each party hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument, in writing, signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE 7
MISCELLANEOUS
Section 7.1. Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement. This Section 7.1 shall not
limit any covenant or agreement of the parties hereto that by its terms requires
performance after the Effective Time.
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Section 7.2. Entire Agreement; Assignment. This Agreement (including the
Company Disclosure Schedule) (a) constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
other prior and contemporaneous agreements and understandings both written and
oral between the parties with respect to the subject matter hereof and (b) shall
not be assigned by operation of law or otherwise; provided, however, that
Acquisition may assign any or all of its rights and obligations under this
Agreement to any wholly owned subsidiary of Parent, but no such assignment shall
relieve Acquisition of its obligations hereunder if such assignee does not
perform such obligations.
Section 7.3. Service Credit.
(a) To the extent that any employees which accept offers of continued
employment become participants in any of Parent's Compensation and Benefits
Plans, they shall be given credit for service performed for the Company
("Service Credit") for purposes of the following Parent benefits:
(i) 401(k)/Profit Sharing Plan (participation and vesting only, not
benefit accrual);
(ii) Vacation;
(iii) Short Term Disability Plan;
(iv) Service Awards;
(v) Service component of any retirement definition (early retirement,
rule of 75);
(vi) Defined Benefit Plan (participation and vesting only);
(vii) Supplemental Employee Medical Account Plan ("SERMA")
(participation only).
(b) Transferred Employees shall not be given Service Credit for the
following Parent benefits:
(i) Sabbatical;
(ii) Parent Stock Option Plan (acceleration of vesting upon
retirement);
(iii) Benefit accrual under Parent's Defined Benefit Plan;
(iv) Benefit accrual under Parent's SERMA;
(v) Benefit accrual under Parent's 401(k)/Profit Sharing Plan.
With respect to the foregoing Parent benefits, service credit shall be
counted as of the Effective Time.
Section 7.4. Validity. If any provision of this Agreement or the
application thereof to any person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby and to
such end the provisions of this Agreement are agreed to be severable.
Section 7.5. Notices. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the addresses set forth below or to such other address as the party
to whom notice is to be given may have furnished to the other parties hereto in
writing in accordance herewith. Any such notice or communication shall be deemed
to have been delivered and received (A) in the case of personal delivery, on the
date of such delivery, (B) in the case of telecopier, on the date sent if
confirmation of receipt is received and such notice is also promptly mailed by
registered or certified mail (return receipt requested), (C) in the case of a
nationally-recognized overnight courier in circumstances under which such
courier guarantees next business day delivery, on
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the next business day after the date when sent and (D) in the case of mailing,
on the third business day following that on which the piece of mail containing
such communication is posted:
if to Parent or Acquisition:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, California 95052
Telecopier: (408) 765-1859
Attention: General Counsel
and
Intel Corporation
2200 Mission College Blvd.
Santa Clara, California 95052
Telecopier: (408) 765-6038
Attention: Treasurer
with a copy to:
Gibson, Dunn & Crutcher LLP
One Montgomery Street
Telesis Tower
San Francisco, California 94104
Telecopier: (415) 986-5309
Attention: Kenneth R. Lamb
if to the Company to:
Level One Communications Incorporated
9750 Goethe Road
Sacramento, California 95827
Telecopier: 916-854-1103
Attention: Dr. Robert S. Pepper
with a copy to:
Graham & James LLP
400 Capitol Mall, Suite 2400
Sacramento, California 95814
Telecopier: (916) 441-6700
Attention: Gilles S. Attia, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 7.6. Governing Law and Venue; Waiver of Jury Trial.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL
BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The
parties hereby irrevocably submit to the jurisdiction of the courts of the State
of Delaware and the Federal courts of the United States of America located in
the State of Delaware solely in respect of the interpretation and enforcement of
the provisions of this Agreement and of the documents referred to in this
Agreement, and in respect of the transactions contemplated hereby, and hereby
waive, and agree not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof or of any such document, that it is
not subject thereto or that such action, suit or proceeding may not be brought
or is not
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maintainable in said courts or that the venue thereof may not be appropriate or
that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a Delaware State
or Federal court. The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 7.5 or in such other
manner as may be permitted by Applicable Law, shall be valid and sufficient
service thereof.
(b) The parties agree that irreparable damage would occur and that the
parties would not have any adequate remedy at law in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any Federal court located in the State of Delaware or in Delaware
state court, this being in addition to any other remedy to which they are
entitled at law or in equity.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND
CERTIFICATIONS IN THIS SECTION 7.6.
Section 7.7. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
Section 7.8. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns and, except as expressly provided herein, including in
Sections 1.11(c), 4.11 and 7.2, nothing in this Agreement is intended to or
shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement nor shall any such person
be entitled to assert any claim hereunder. In no event shall this Agreement
constitute a third party beneficiary contract.
Section 7.9. Certain Definitions. For the purposes of this Agreement the
term:
(a) "affiliate" means (except as otherwise provided in Sections 2.21
and 4.13) a person that, directly or indirectly, through one or more
intermediaries controls, is controlled by or is under common control with
the first-mentioned person;
(b) "Applicable Law" means, with respect to any person, any domestic
or foreign, federal, state or local statute, law, ordinance, rule,
regulation, order, writ, injunction, judgment, decree or other requirement
of any Governmental Entity existing as of the date hereof or as of the
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Effective Time applicable to such Person or any of its respective
properties, assets, officers, directors, employees, consultants or agents.
(c) "business day" means any day other than a day on which the Nasdaq
National Market is closed;
(d) "capital stock" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof;
(e) "Company Acquisition" means the occurrence of any of the following
events: (i) the acquisition by a Third Party of fifty percent (50%) or more
of the assets of the Company and its subsidiaries taken as a whole; (ii)
the acquisition by a Third Party of fifty percent (50%) or more of the
outstanding Shares or any securities convertible into or exchangeable for
Shares that would constitute fifty percent (50%) or more of the outstanding
Shares upon such conversion or exchange, or any combination of the
foregoing; or (iii) the acquisition by the Company of the assets or stock
of a Third Party if, as a result of which the outstanding shares of the
Company immediately prior thereto are increased by one hundred percent
(100%) or more, or (iv) the merger, consolidation or business combination
of the Company with or into a Third Party, where, following such merger,
consolidation or business combination, the stockholders of the Company
prior to such transaction do not hold, immediately after such transaction,
securities of the surviving entity constituting more than fifty percent
(50%) of the total voting power of the surviving entity.
(f) "knowledge" or "known" means, with respect to any fact,
circumstance, event or other matter in question, the knowledge of such
fact, circumstance, event or other matter of any executive officer of the
Company or Parent, as the case may be, and, in addition, with respect to
the Company, the persons listed on Section 7.9(f) of the Company Disclosure
Schedule. Any such individual will be deemed to have knowledge of a
particular fact, circumstance, event or other matter if (1) such individual
has actual knowledge of such fact, circumstance, event or other matter, or
(2) such fact, circumstance, event or other matter is reflected in one or
more documents (including e-mails sent to such individual) in, or that have
been in, such individual's files.
(g) "include" or "including" means "include, without limitation" or
"including, without limitation," as the case may be, and the language
following "include" or "including" shall not be deemed to set forth an
exhaustive list.
(h) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
legal entity including any Governmental Entity;
(i) "Stock Option Agreement" means that certain Stock Option Agreement
of even date herewith between the Company and Parent; and
(j) "subsidiary" or "subsidiaries" of the Company, Parent, the
Surviving Corporation or any other person means any corporation,
partnership, limited liability company, association, trust, unincorporated
association or other legal entity of which the Company, Parent, the
Surviving Corporation or any such other person, as the case may be (either
alone or through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the capital stock the holders of which are
generally entitled to vote for the election of the board of directors or
other governing body of such corporation or other legal entity.
Section 7.10. Personal Liability. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect stockholder of the
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Company or Parent or Acquisition or any officer, director, employee, agent,
representative or investor of any party hereto.
Section 7.11. Specific Performance. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties, for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder; provided, however, that if a party
hereto is entitled to receive any payment or reimbursement of expenses pursuant
to Section 6.3(a), (b) or (c) it shall not be entitled to specific performance
to compel the consummation of the Merger.
Section 7.12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
INTEL CORPORATION
By: /s/ ARVIND SODHANI
-----------------------------------------
Name: Arvind Sodhani
Title: Vice President and Treasurer
Date: March 4, 1999
LEVEL ONE COMMUNICATIONS, INCORPORATED
By: /s/ DR. ROBERT S. PEPPER
-----------------------------------------
Name: Dr. Robert S. Pepper
Title: President & Chief Executive Officer
Date: March 4, 1999
INTEL RSW CORPORATION
By: /s/ SUZAN A. MILLER
-----------------------------------------
Name: Suzan A. Miller
Title: President
Date: March 4, 1999
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER BY AND AMONG INTEL CORPORATION,
LEVEL ONE COMMUNICATIONS, INCORPORATED AND INTEL RSW CORPORATION]
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APPENDIX B
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of March 4, 1999, is by and between
Intel Corporation, a Delaware corporation ("Grantee"), and Level One
Communications, Incorporated, a Delaware corporation ("Issuer").
RECITALS
A. Grantee, Intel RSW Corporation ("Acquisition") and Issuer are
simultaneously entering into an Agreement and Plan of Merger (the "Merger
Agreement") which provides, among other things, that upon the terms and subject
to the conditions thereof, Acquisition will be merged with and into Issuer (the
"Merger").
B. As a condition to its willingness to enter into the Merger Agreement,
Grantee has required that Issuer agree, and Issuer has agreed, to enter into
this Stock Option Agreement, which provides, among other things, that Issuer
grant to Grantee an option to purchase shares of Issuer's Common Stock ("Issuer
Common Stock"), upon the terms and subject to the conditions provided for
herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained in this Stock Option Agreement and the Merger Agreement,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions of this Stock
Option Agreement, Issuer hereby grants to Grantee an irrevocable option (the
"Option") to purchase up to 7,798,546 shares of Issuer Common Stock (the "Option
Shares"), in the manner set forth below, at an exercise price of $50 per share
of Issuer Common Stock, subject to adjustment as provided below (the "Option
Price"). Capitalized terms used herein but not defined herein shall have the
meanings set forth in the Merger Agreement.
2. EXERCISE OF OPTION.
(a) Subject to the satisfaction or waiver of the conditions set forth in
Section 9 of this Stock Option Agreement, prior to the termination of this Stock
Option Agreement in accordance with its terms, Grantee may exercise the Option,
in whole or in part, at any time or from time to time on or after the occurrence
of a Triggering Event (as defined below). The Option shall terminate and not be
exercisable at any time following the Expiration Date (as defined in Section
11). The term "Triggering Event" means the time immediately prior to the
occurrence of any of the events (or series of events) specified in Section
6.3(a) of the Merger Agreement giving rise to the obligation of the Company to
pay the fee specified in Section 6.3(a). Notwithstanding the foregoing, the
Option will not be exercisable if Grantee has materially breached the Merger
Agreement and such breach remains uncured at the time of exercise.
(b) In the event Grantee wishes to exercise the Option at such time as the
Option is exercisable and has not terminated, Grantee shall deliver written
notice (the "Exercise Notice") to Issuer specifying its intention to exercise
the Option, the total number of Option Shares it wishes to purchase and a date
and time for the closing of such purchase (a "Closing") not less than one (1)
nor more than thirty (30) business days after the later of (i) the date such
Exercise Notice is given and (ii) the expiration or termination of any
applicable waiting period under the HSR Act. If prior to the Expiration Date (as
defined in Section 11 below) any person or group (other than Grantee and its
affiliates) shall have acquired fifty percent (50%) or more of the then
outstanding shares of Issuer Common Stock (a "Share Acquisition"), or Issuer
shall have entered into a written definitive agreement with any person or group
(other than Grantee and its affiliates) providing for a Company Acquisition (as
defined below), then Grantee, in lieu of exercising the Option, shall have
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the right at any time thereafter (for so long as the Option is exercisable under
Section 2(a) hereof) to request in writing that Issuer pay, and promptly (but in
any event not more than five (5) business days) after the giving by Grantee of
such request, Issuer shall pay to Grantee, in cancellation of the Option, an
amount in cash (the "Cancellation Amount") equal to the lesser of:
(i) (1) the excess over the Option Price of the greater of (A) the
last sale price of a share of Issuer Common Stock as reported on the Nasdaq
National Market on the last trading day prior to the date of the Exercise
Notice, and (B) (I) the highest price per share of Issuer Common Stock
offered to be paid or paid by any such person or group pursuant to or in
connection with such Share Acquisition or Company Acquisition or (II) if
such Company Acquisition consists of a purchase and sale of assets, the sum
of (a) the aggregate consideration offered to be paid or paid in any
transaction or proposed transaction in connection with a Company
Acquisition and (b) the amount of cash to be received by the Company upon
the exercise or conversion of outstanding in-the-money options, warrants,
rights or convertible securities, divided by the sum of (y) the number of
shares of Issuer Common Stock then outstanding and (z) the number of shares
issuable upon exercise or conversion of outstanding in-the-money options,
warrants, rights or convertible securities, multiplied by (2) the number of
Option Shares then covered by the Option or
(ii) Twenty-Five Million Dollars ($25,000,000).
If all or a portion of the price per share of Issuer Common Stock offered,
paid or payable or the aggregate consideration offered, paid or payable for the
stock or assets of Issuer, each as contemplated by the preceding sentence,
consists of noncash consideration, such price or aggregate consideration shall
be the cash consideration, if any, plus the fair market value of the non-cash
consideration as determined jointly by the investment bankers of Issuer and the
investment bankers of Grantee.
(c) Notwithstanding anything to the contrary herein, if Grantee (including
any of its affiliates) receives proceeds in connection with any sale or other
disposition of Option Shares (or any rights thereto or thereof), together with
any proceeds in connection with any dividends or distributions received by
Grantee on any Option Shares, in an aggregate amount that exceeds the sum of (x)
Twenty-Five Million Dollars ($25,000,000), plus (y) the Option Price multiplied
by the number of Option Shares purchased hereunder, then all proceeds to Grantee
or its affiliates in excess of such sum shall be remitted to Issuer promptly
following receipt.
(d) As used herein, "Company Acquisition" means the occurrence of any of
the following events: (i) the acquisition by a Third Party of fifty percent
(50%) or more of the assets of the Issuer and its subsidiaries taken as a whole;
(ii) the acquisition by a Third Party of fifty percent (50%) or more of the
outstanding Shares or any securities convertible into or exchangeable for Shares
that would constitute fifty percent (50%) or more of the outstanding Shares upon
such conversion or exchange, or any combination of the foregoing; or (iii) the
acquisition by the Issuer of the assets or stock of a Third Party if, as a
result of which the outstanding shares of the Issuer immediately prior thereto
are increased by one hundred percent (100%) or more, or (iv) the merger,
consolidation or business combination of the Issuer with or into a Third Party,
where, following such merger, consolidation or business combination, the
stockholders of the Issuer (other than the Third Party or its affiliates) prior
to such transaction do not hold, immediately after such transaction, securities
of the surviving entity constituting more than fifty percent (50%) of the total
voting power of the surviving entity.
3. PAYMENT OF OPTION PRICE AND DELIVERY OF CERTIFICATE. Any Closings under
Section 2 of this Stock Option Agreement shall be held at the principal
executive offices of Issuer, or at such other place as Issuer and Grantee may
agree. At any Closing hereunder,
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(a) Grantee or its designee will make payment to Issuer of the aggregate price
for the Option Shares being so purchased by delivery of a certified check,
official bank check or wire transfer of funds pursuant to Issuer's instructions
payable to Issuer in an amount equal to the product obtained by multiplying the
Option Price by the number of Option Shares to be purchased, and (b) upon
receipt of such payment Issuer will deliver to Grantee or its designee a
certificate or certificates representing the number of validly issued, fully
paid and non-assessable Option Shares so purchased, in the denominations and
registered in such names designated to Issuer in writing by Grantee.
4. REGISTRATION AND LISTING OF OPTION SHARES.
(a) Grantee may, by written notice (a "Registration Notice"), request at
any time or from time to time within two (2) years following a Triggering Event
(the "Registration Period"), in order to permit the sale or other disposition of
the Option Shares that have been acquired by or are issuable to Grantee upon
exercise of the Option ("Registrable Securities"), that Issuer register under
the Securities Act of 1933, as amended (the "Act"), the offering, sale and
delivery, or other disposition, of the Registrable Securities. In connection
with any such sale or other disposition, Grantee shall use all reasonable
efforts to prevent any person or group from purchasing through such offering
shares of Issuer Common Stock representing more than five percent (5%) of the
outstanding Common Stock of Issuer on a fully diluted basis at the time of such
request. Any such Registration Notice must relate to a number of Registrable
Securities equal to at least twenty percent (20%) of the Option Shares, unless
the remaining number of Registrable Securities is less than such amount, in
which case Grantee shall be entitled to exercise its rights hereunder but only
for all of the remaining Registrable Securities (a "Permitted Offering").
Grantee's rights hereunder shall terminate at such time as Grantee shall be
entitled to sell all of the remaining Registrable Securities pursuant to Rule
144(k) under the Act. The Registration Notice shall include a certificate
executed by Grantee and its proposed managing underwriter, which underwriter
shall be an investment banking firm of nationally recognized standing reasonably
acceptable to Issuer (the "Manager"), stating that (i) Grantee and the Manager
have a good faith intention to commence a Permitted Offering and (ii) the
Manager in good faith believes that, based on the then prevailing market
conditions, it will be able to sell the Registrable Securities at a per share
price equal to at least 80% of the per share average of the closing sale prices
of Issuer's Common Stock on the Nasdaq National Market for the twenty trading
days immediately preceding the date of the Registration Notice. Issuer shall
thereupon have the option exercisable by written notice delivered to Grantee
within ten business days after the receipt of the Registration Notice,
irrevocably to agree to purchase all or any part of the Registrable Securities
for cash at a price (the "Option Price") equal to the product of (i) the number
of Registrable Securities so purchased and (ii) the per share average of the
closing sale prices of Issuer's Common Stock on the Nasdaq National Market for
the twenty trading days immediately preceding the date of the Registration
Notice. Any such purchase of Registrable Securities by Issuer hereunder shall
take place at a closing to be held at the principal executive offices of Issuer
or its counsel at any reasonable date and time designated by Issuer in such
notice within 10 business days after delivery of such notice. The payment for
the shares to be purchased shall be made by delivery at the time of such closing
of the Option Price in immediately available funds. If Issuer does not elect to
exercise its option to purchase pursuant to the foregoing with respect to all
Registrable Securities, Issuer shall use reasonable efforts to effect, as
promptly as practicable, the registration under the Act of the unpurchased
Registrable Securities requested to be registered in the Registration Notice,
and Issuer will use all reasonable efforts to qualify any Registrable Securities
Grantee desires to sell or otherwise dispose of under applicable state
securities or "blue sky" laws; provided, however, that Issuer shall not be
required to qualify to do business or consent to general service of process in
any jurisdiction by reason of this provision. Without Grantee's prior written
consent, no other securities may be included in any such registration. Issuer
will use all reasonable efforts to cause each such registration statement to
become effective, to obtain all consents or waivers of other parties that
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are required therefor and to keep such registration statement effective for a
period of ninety (90) days from the day such registration statement first
becomes effective. The obligations of Issuer hereunder to file a registration
statement and to maintain its effectiveness may be suspended for one or more
periods not exceeding ninety (90) days in any six (6) month period if the Board
of Directors of Issuer shall have determined in good faith that the filing of
such registration statement or the maintenance of its effectiveness would
require disclosure of nonpublic information that would materially and adversely
affect Issuer, or Issuer is required under the Act to include audited financial
statements for any period in such registration statement and such financial
statements are not yet available for inclusion in such registration statement.
Grantee shall be entitled to make up to two (2) requests under this Section
4(a). For purposes of determining whether the two (2) requests have been made
under this Section 4(a), only requests relating to a registration statement that
has become effective under the Act will be counted.
(b) If, during the Registration Period, Issuer shall propose to register
under the Act the offering, sale and delivery of Issuer's Common Stock for cash
for its own account or for any other stockholder of Issuer pursuant to a firm
underwriting, it will, in addition to Issuer's other obligations under this
Section 4, allow Grantee the right to participate in such registration so long
as Grantee participates in such underwriting; provided, however, that, if the
managing underwriter of such offering advises Issuer in writing that in its
opinion the number of shares of Issuer's Common Stock requested to be included
in such registration exceeds the number that it would be in the best interests
of Issuer to sell in such offering, Issuer will, after fully including therein
all shares of Issuer Common Stock to be sold by Issuer, include the shares of
Issuer Common Stock requested to be included therein by Grantee pro rata (based
on the number of shares of Issuer Common Stock requested to be included therein)
with the shares of Issuer Common Stock requested to be included therein by
persons other than Issuer and persons to whom Issuer owes a contractual
obligation (other than any director, officer or employee of Issuer to the extent
any such person is not currently owed such contractual obligation).
(c) The expenses associated with the preparation and filing of any
registration statement pursuant to this Section 4 and any sale covered thereby
(including any fees related to blue sky qualifications and filing fees in
respect of SEC or the National Association of Securities Dealers, Inc.)
("Registration Expenses") will be paid by Issuer, except for underwriting
discounts or commissions or brokers' fees in respect of shares of Issuer's
Common Stock to be sold by Grantee and the fees and disbursements of Grantee's
counsel; provided, however, that Issuer will not be required to pay for any
Registration Expenses with respect to such registration if the registration
request is subsequently withdrawn at the request of Grantee unless Grantee
agrees to forfeit its right to request one registration; provided further,
however, that, if at the time of such withdrawal Grantee has learned of a
material adverse change in the results of operations, condition, business or
prospects of Issuer not known to Grantee at the time of the request and has
withdrawn the request within a reasonable period of time following disclosure by
Issuer to Grantee of such material adverse change, then Grantee shall not be
required to pay any of such expenses and shall not forfeit such right to request
one registration. Grantee will provide all information reasonably requested by
Issuer for inclusion in any registration statement to filed hereunder.
(d) In connection with each registration under this Section 4, Issuer shall
indemnify and hold Grantee, its underwriters and each of their respective
affiliates harmless against any and all losses, claims, damage, liabilities and
expenses (including, without limitation, investigation expenses and fees and
disbursements of counsel and accountants), joint or several, to which Grantee,
its underwriters and each of their respective affiliates may become subject,
under the Act or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
registration statement (including any prospectus therein), or any amendment or
supplement thereto, or arise out
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of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, other than such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) that arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
written information furnished by Grantee to Issuer expressly for use in such
registration statement.
(e) In connection with any registration statement pursuant to this Section
4, Grantee agrees to furnish Issuer with such information concerning itself and
the proposed sale or distribution as shall reasonably be required in order to
ensure compliance with the requirements of the Act and shall provide
representations and warranties customary for selling shareholders who are
unaffiliated with the issuer. In addition, Grantee shall indemnify and hold
Issuer, its underwriters and each of their respective affiliates harmless
against any and all losses, claims, damages, liabilities and expenses
(including, without limitation, investigation expenses and fees and disbursement
of counsel and accountants), joint or several, to which Issuer, its underwriters
and each of their respective affiliates may become subject under the Act or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in written information
furnished by Grantee to Issuer expressly for use in such registration statement;
provided, however, that in no event shall any indemnification amount contributed
by Grantee hereunder exceed the proceeds of the offering received by Grantee.
(f) Upon the issuance of Option Shares hereunder, Issuer will use
reasonable efforts to promptly list such Option Shares with such national or
other exchange on which the shares of Issuer Common Stock are at the time
listed.
5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has requisite
power and authority to enter into and perform its obligations under this
Stock Option Agreement.
(b) The execution and delivery of this Stock Option Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Issuer and no other
corporate proceedings on the part of Issuer are necessary to authorized
this Stock Option Agreement or to consummate the transactions contemplated
hereby. The Board of Directors of Issuer has duly approved the issuance and
sale of the Option Shares, upon the terms and subject to the conditions
contained in this Stock Option Agreement, and the consummation of the
transactions contemplated hereby. This Stock Option Agreement has been duly
and validly executed and delivered by Issuer and, assuming this Stock
Option Agreement has been duly and validly authorized, executed and
delivered by Grantee, constitutes a valid and binding obligation of Issuer
enforceable against Issuer in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to creditors' rights generally; the availability of
injunctive relief and other equitable remedies; and limitations imposed by
law on indemnification for liability under federal securities laws.
(c) Issuer has taken all necessary action to authorize and reserve for
issuance and to permit it to issue, and at all times from the date of this
Stock Option Agreement through the date of expiration of the Option will
have reserved for issuance upon exercise of the Option, a sufficient number
of authorized shares of Issuer Common Stock for issuance upon exercise of
the Option, each of which, upon issuance pursuant to this Stock Option
Agreement and when paid for as provided herein, will be validly issued,
fully paid and nonassessable, and shall be delivered free
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and clear of all claims, liens, charges, encumbrances and security
interests (other than those imposed by Grantee, its affiliates or by
applicable law).
(d) The execution, delivery and performance of this Stock Option
Agreement by Issuer and the consummation by it of the transactions
contemplated hereby except as required by the HSR Act and any material
foreign competition authorities (if applicable), and, with respect to
Section 4 hereof, compliance with the provisions of the Act and any
applicable state securities laws, do not require the consent, waiver,
approval, license or authorization of or result in the acceleration of any
obligation under, or constitute a default under, any term, condition or
provision of the Certificate of Incorporation or bylaws, or any indenture,
mortgage, lien, lease, agreement, contract, instrument, order, judgment,
ordinance, regulation or decree or any restriction to which Issuer or any
property of Issuer or its subsidiaries is bound, except where failure to
obtain such consents, waivers, approvals, licenses or authorizations or
where such acceleration or defaults could not, individually or in the
aggregate, reasonably be expected to adversely affect Grantee's rights
hereunder or to have a Material Adverse Effect on Issuer.
6. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby represents and
warrants to Issuer that:
(a) Grantee is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has the
requisite power and authority to enter into and perform its obligations
under this Stock Option Agreement.
(b) The execution and delivery of this Stock Option Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Grantee and no other
corporate proceedings on the part of Grantee are necessary to authorize
this Stock Option Agreement or to consummate the transactions contemplated
hereby. This Stock Option Agreement has been duly and validly executed and
delivered by Grantee and, assuming this Stock Option Agreement has been
duly executed and delivered by Issuer, constitutes a valid and binding
obligation of Grantee enforceable against Grantee in accordance with its
terms.
(c) Grantee is acquiring the Option and it will acquire the Option
Shares issuable upon the exercise thereof for its own account and not with
a view to the distribution or resale thereof in any manner not in
accordance with applicable law.
7. COVENANTS OF GRANTEE. Grantee agrees not to transfer or otherwise
dispose of the Option or the Option Shares, or any interest therein, except that
Grantee may transfer or dispose of the Option Shares so long as such transaction
is in compliance with the Act and any applicable state securities law. Grantee
further agrees to the placement of the following legend on the certificates)
representing the Option Shares (in addition to any legend required under
applicable state securities laws) and any legend referring to the provisions of
Section 12 hereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE STATE LAW GOVERNING THE OFFER AND SALE OF SECURITIES. NO
TRANSFER OR OTHER DISPOSITION OF THESE SHARES, OR OF ANY INTEREST THEREIN,
MAY BE MADE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND SUCH OTHER STATE LAWS OR PURSUANT TO EXEMPTIONS FROM
REGISTRATION UNDER THE ACT, SUCH OTHER STATE LAWS, AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER."
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8. HSR COMPLIANCE EFFORTS. Grantee and Issuer shall take, or cause to be
taken, all reasonable action to consummate and make effective the transactions
contemplated by this Stock Option Agreement, including, without limitation,
reasonable efforts to obtain any necessary consents of third parties and
governmental agencies and the filing by Grantee and Issuer promptly of any
required HSR Act notification forms and the documents required to comply with
the HSR Act.
9. CERTAIN CONDITIONS. The obligation of Issuer to issue Option Shares
under this Stock Option Agreement upon exercise of the Option shall be subject
to the satisfaction or waiver of the following conditions:
(a) any waiting periods applicable to the acquisition of the Option
Shares by Grantee pursuant to this Stock Option Agreement under the HSR Act
and any material foreign competition laws shall have expired or been
terminated;
(b) the representations and warranties of Grantee made in Section 6 of
this Stock Option Agreement shall be true and correct in all material
respects as of the date of the closing for the issuance of such Option
Shares; and
(b) no statute, rule or regulation shall be in effect, and no order,
decree or injunction entered by any court of competent jurisdiction or
governmental, regulatory or administrative agency or commission in the
United States shall be in effect that prohibits the exercise of the Option
or acquisition or issuance of Option Shares pursuant to this Stock Option
Agreement.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any change
in the number of issued and outstanding shares of Issuer Common Stock by reason
of any stock dividend, stock split, recapitalization, merger, rights offering,
share exchange or other change in the corporate or capital structure of Issuer,
Grantee shall receive, upon exercise of the Option, the stock or other
securities, cash or property to which Grantee would have been entitled if
Grantee had exercised the Option and had been a holder of record of shares of
Issuer Common Stock on the record date fixed for determination of holders of
shares of Issuer Common Stock entitled to receive such stock or other
securities, cash or property at the same aggregate price as the aggregate Option
Price of the Option Shares.
11. EXPIRATION. The Option shall expire at the earlier of (y) the Effective
Time (as defined in the Merger Agreement) and (z) 5:00 p.m., California time, on
the day that is the one year anniversary of the date on which the Merger
Agreement has been terminated in accordance with the terms thereof (such
expiration date is referred to as the "Expiration Date").
12. ISSUER CALL. If Grantee has acquired Option Shares pursuant to exercise
of the Option (the date of any closing relating to any such exercise herein
referred to as an "Exercise Date") and no Company Acquisition with respect to
Issuer has been consummated at any time after the date of this Agreement and
prior to one year following the date hereof (and Issuer has not entered into a
definitive agreement or letter of intent with respect to such a Company
Acquisition which agreement or letter of intent remains in effect at the end of
such year), then, at any time after the date thirteen (13) months following the
date hereof and prior to nineteen (19) months following such Exercise Date,
Issuer may require Grantee, upon delivery to Grantee of written notice, to sell
to Issuer any Option Shares held by Grantee as of the date that is ten (10)
business days after the date of such notice, up to a number of shares equal to
the number of Option Shares acquired by Grantee pursuant to exercise of the
Option in connection with such Exercise Date. The per share purchase price for
such sale (the "Issuer Call Price") shall be equal to the Option Price less any
dividends paid on the Option Shares to be purchased by Issuer pursuant to this
Section 12. The closing at any sale of Option Shares pursuant to this Section 12
shall take place at the principal offices of Issuer at a time and on a date
designated by Issuer in the aforementioned notice to Grantee, which date shall
be no
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more than twenty (20) and no less than twelve (12) business days from the date
of such notice. The Issuer Call Price shall be paid in immediately available
funds.
13. GENERAL PROVISIONS.
(a) Survival. All of the representations, warranties and covenants
contained herein shall survive a Closing and shall be deemed to have been made
as of the date hereof and as of the date of each Closing except for the
representations and warranties in Section 5(d) hereof which shall be deemed to
have been made only as of the date hereof.
(b) Further Assurances. If Grantee exercises the Option, or any portion
thereof, in accordance with the terms of this Stock Option Agreement, Issuer and
Grantee will execute and deliver all such further documents and instruments and
use all reasonable efforts to take all such further action as may be necessary
in order to consummate the transactions contemplated thereby.
(c) Severability. It is the desire and intent of the parties that the
provisions of this Stock Option Agreement be enforced to the fullest extent
permissible under the law and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, in the event that any provision of
this Stock Option Agreement would be held in any jurisdiction to be invalid,
prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Stock Option Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not be invalid,
prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Stock Option Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
(d) Assignment; Transfer of Stock Option. This Stock Option Agreement shall
be binding on and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, that Issuer and
Grantee, without the prior written consent of the other party, shall not be
entitled to assign or otherwise transfer any of its rights or obligations
hereunder and any such attempted assignment or transfer shall be void; provided,
further, that Grantee shall be entitled to assign or transfer this Stock Option
Agreement or any rights hereunder to any wholly-owned subsidiary of Grantee so
long as such wholly-owned subsidiary agrees in writing to be bound by the terms
and provisions hereof.
(e) Specific Performance. The parties agree and acknowledge that in the
event of a breach of any provision of this Stock Option Agreement, the aggrieved
party would be without an adequate remedy at law. The parties therefore agree
that in the event of a breach of any provision of this Stock Option Agreement,
the aggrieved party may elect to institute and prosecute proceedings in any
court of competent jurisdiction to enforce specific performance or to enjoin the
continuing breach of such provisions, as well as to obtain damages for breach of
this Stock Option Agreement. By seeking or obtaining any such relief, the
aggrieved party will not be precluded from seeking or obtaining any other relief
to which it may be entitled.
(f) Amendments. This Stock Option Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement executed by Grantee and Issuer.
(g) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to be
sufficient if contained in a written instrument and shall be deemed given if
delivered personally, telecopied, sent by nationally-recognized, overnight
courier or
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<PAGE> 143
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the other party at the following addresses (or such other address
for a party as shall be specified by like notice):
If to Grantee:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, California 95052
Telecopier: (408) 765-1859
Attention: General Counsel
and
Intel Corporation
2200 Mission College Blvd.
Santa Clara, California 95052
Telecopier: (408) 765-6038
Attention: Treasurer
with a copy to:
Gibson, Dunn & Crutcher LLP
One Montgomery Street
Telesis Tower
San Francisco, California
94104
Telecopier: (415) 374-8427
Attention: Kenneth R. Lamb
If to Issuer:
Level One Communications,
Incorporated
9750 Goethe Road
Sacramento, California 95827
Telecopier: 916-854-1103
Attention: Dr. Robert S. Pepper
with a copy to:
Graham & James LLP
400 Capitol Mall, Suite 2400
Sacramento, California 95814
Telecopier: (916) 558-6700
Attention: Gilles S. Attia
(h) Headings. The headings contained in this Stock Option Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Stock Option Agreement.
(i) Counterparts. This Stock Option Agreement may be executed in one or
more counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(j) Governing Law/Jurisdiction/Venue. Governing Law and Venue; Waiver of
Jury Trial.
(1) THIS STOCK OPTION AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED
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<PAGE> 144
BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE
CONFLICT OF LAW PRINCIPLES THEREOF. The parties hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the Federal courts of
the United States of America located in the State of Delaware solely in respect
of the interpretation and enforcement of the provisions of this Stock Option
Agreement and of the documents referred to in this Stock Option Agreement, and
in respect of the transactions contemplated hereby, and hereby waive, and agree
not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Stock Option Agreement or any such document may not be enforced in
or by such courts, and the parties hereto irrevocably agree that all claims with
respect to such action or proceeding shall be heard and determined in such a
Delaware State or Federal court. The parties hereby consent to and grant any
such court jurisdiction over the person of such parties and over the subject
matter of such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section
12(g) or in such other manner as may be permitted by Applicable Law, shall be
valid and sufficient service thereof.
(2) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS STOCK OPTION AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS STOCK OPTION AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS
AND CERTIFICATIONS IN THIS SECTION 12(i).
(k) Entire Agreement. This Stock Option Agreement and the Merger Agreement,
and any documents and instruments referred to herein and therein, constitute the
entire agreement between the parties hereto and thereto with respect to the
subject matter hereof and thereof and supersede all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and thereof. Nothing in this Stock Option Agreement shall
be construed to give any person other than the parties to this Stock Option
Agreement or their respective successors or permitted assigns any legal or
equitable right, remedy or claim under or in respect of this Stock Option
Agreement or any provision contained herein.
(l) Expenses. Except as otherwise provided in this Stock Option Agreement,
each party shall pay its own expenses incurred in connection with this Stock
Option Agreement and the transactions contemplated hereby.
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<PAGE> 145
IN WITNESS WHEREOF, the parties have caused this Stock Option Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
INTEL CORPORATION
By: /s/ ARVIND SODHANI
-----------------------------------------
Name: Arvind Sodhani
Title: Vice President and Treasurer
Date: March 4, 1999
LEVEL ONE COMMUNICATIONS, INCORPORATED
By: /s/ DR. ROBERT S. PEPPER
-----------------------------------------
Name: Dr. Robert S. Pepper
Title: President & Chief Executive
Officer
Date: March 4, 1999
[SIGNATURE PAGE TO INTEL CORPORATION/LEVEL ONE COMMUNICATIONS, INCORPORATED
STOCK OPTION AGREEMENT]
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APPENDIX C
LEHMAN BROTHERS
March 4, 1999
Board of Directors
Level One Communications, Incorporated
9750 Goethe Road
Sacramento, CA 95827
Members of the Board:
We understand that Level One Communications, Incorporated ("Level One" or
the "Company") has entered into an agreement with Intel Corporation ("Intel")
pursuant to which a wholly-owned subsidiary of Intel will be merged with Level
One and all outstanding shares of common stock of Level One will be exchanged
for shares of common stock of Intel at an exchange ratio of 0.43 shares of Intel
common stock for each share of Level One common stock (the "Exchange Ratio")
(the "Proposed Transaction"). In addition, all outstanding options to purchase
shares of common stock of Level One will be exchanged for options to purchase
shares of common stock of Intel at the Exchange Ratio and Intel will assume the
Convertible Subordinated Notes due 2004 of Level One which will be convertible
into shares of Intel common stock at the Exchange Ratio. The terms and
conditions of the Proposed Transaction are set forth in more detail in the
Agreement and Plan of Merger dated March 4, 1999 between Level One and Intel
(the "Agreement").
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company's stockholders of the Exchange Ratio to be offered to such stockholders
in the Proposed Transaction. We have not been requested to opine as to, and our
opinion does not in any manner address, the Company's underlying business
decision to proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) publicly available
information concerning the Company and Intel that we believe to be relevant to
our analysis, (3) financial and operating information with respect to the
business, operations and prospects of the Company furnished to us by the
Company, (4) publicly available estimates of the future financial performances
of the Company and Intel prepared by third party research analysts, (5) a
trading history of the Company's common stock from January 1, 1994 to the
present and a comparison of that trading history with those of other companies
that we deemed relevant, (6) a trading history of Intel's common stock from
January 1, 1994 to the present and a comparison of that trading history with
those of other companies that we deemed relevant, (7) a comparison of the
historical financial results and present financial condition of the Company with
those of other companies that we deemed relevant, (8) a comparison of the
historical financial results and present financial condition of Intel with those
of other companies that we deemed relevant, (9) a comparison of the financial
terms of the Proposed Transaction with the financial terms of certain other
transactions that we deemed relevant, (10) the potential pro forma financial
effects of the Proposed Transaction on Intel and a comparison of the relative
contributions of Level One and Intel to the combined company following
consummation of the Proposed Transaction. In addition, we have had discussions
with the management of the Company and Intel concerning their respective
businesses, operations, assets, financial conditions and prospects and have
undertaken such other studies, analyses and investigations as we deemed
appropriate.
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<PAGE> 147
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of the managements of the Company and
Intel that they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of the Company, upon advice of the Company we have assumed that such projections
have been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company. We also have considered publicly available
estimates of the future financial performance of the Company prepared by third
party research analysts. For purposes of our analysis, with the consent of the
Company, we have assumed that the Company will perform in a range between the
projections prepared by management and the estimates of third party research
analysts. In arriving at our opinion, with the consent of the Company, we were
not provided with and did not have any access to any financial forecasts or
projections prepared by the management of Intel as to the future financial
performance of Intel, and accordingly, upon advice of Intel, we have assumed
that the publicly available estimates of research analysts are a reasonable
basis upon which to evaluate and analyze the future financial performance of
Intel and we have relied upon such estimates in performing our analysis. We also
have not conducted a physical inspection of the properties and facilities of the
Company or Intel and have not made or obtained any evaluations or appraisals of
the assets or liabilities of the Company. In addition, you have not authorized
us to solicit, and we have not solicited, any indications of interest from any
third party with respect to the purchase of all or a part of the Company's
business. Upon advice of the Company and its legal and accounting advisors, we
have assumed that the Proposed Transaction will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended, and therefore as a tax-free transaction to the stockholders of the
Company. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Exchange Ratio to be
offered to the Company's stockholders in the Proposed Transaction is fair to
such stockholders.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. In the ordinary course of our business, we actively
trade in the debt and equity securities of the Company and Intel for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
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APPENDIX D
LEVEL ONE COMMUNICATIONS, INCORPORATED
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF STOCKHOLDERS
August 9, 1999
The undersigned stockholder of Level One Communications, Incorporated, a
Delaware corporation (the "Company") acknowledges receipt of the Notice of
Special Meeting of Stockholders and Proxy Statement/Prospectus relating to the
Company's combination with Intel Corporation through the merger of Intel RSW
Corporation, with and into the Company, pursuant to an Agreement and Plan of
Merger, dated as of March 4, 1999, and the transactions contemplated thereby and
the undersigned revokes all other proxies and appoints Dr. Robert S. Pepper,
John Kehoe and Joseph P. Landy, and each of them, the attorneys and proxies for
the undersigned each with full power of substitution to attend and act for the
undersigned at the Company's Special Meeting of Stockholders and at any
adjournments or postponements thereof in connection therewith to vote and
represent all of the shares of the Company's Common Stock which the undersigned
would be entitled to vote.
1. To adopt the Merger Agreement and to approve the transactions
contemplated by the Merger Agreement.
2. To approve the postponement or adjournment of the Special Meeting to
solicit additional votes to approve the Merger Agreement.
(change of address/comments)
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
(If you have written in the above
spaces please mark the corresponding
box on the reverse side of this card.)
This card provides voting instructions as applicable to the appointed
proxies for shares held of record by the undersigned. If registrations are not
identical you may receive more than one set of proxy materials. Please sign date
and return all cards you receive.
THIS PROXY WILL BE VOTED AS DIRECTED ON THE REVERSE SIDE. IN THE ABSENCE OF
ANY DIRECTION THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
SEE REVERSE SIDE
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<PAGE> 149
DETACH & RETURN PROXY CARD; RETAIN ADMISSION CARD
ADMISSION CARD
SPECIAL MEETING OF STOCKHOLDERS
AUGUST 9, 1999
9:00 A.M.
9800 OLD PLACERVILLE ROAD
SACRAMENTO, CALIFORNIA 95827
Presentation of this card is required for admission to the Special Meeting
PLEASE PRESENT THIS CARD TO THE LEVEL ONE REPRESENTATIVE
AT THE ENTRANCE TO THE SPECIAL MEETING
LEVEL ONE COMMUNICATIONS, INCORPORATED
NAME:
ADDRESS:
-------------------------------------------------------------------------------
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE MERGER AGREEMENT
AND APPROVAL OF THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
1. Adoption of the Merger Agreement and approval of the transactions
contemplated by the Merger Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of the adjournment or postponement of the Special Meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Please check this box if you plan to attend the special meeting. [ ]
Change of Address/ Comments [ ]
Signature(s) Date
NOTE: Please sign exactly as name appears above. Joint owners should each sign.
Fiduciaries should add their full title to their signature. Corporations should
sign in full corporate name by an authorized officer. Partnerships should sign
in partnership name by an authorized person.
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<PAGE> 150
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify any of its directors or officers who was or is a party or is
threatened to be made a party to any third party proceeding by reason of the
fact that such person is or was a director or officer of the corporation,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that such person's conduct was
unlawful. In a derivative action, i.e., one by or in the right of a corporation,
the corporation is permitted to indemnify any of its directors or officers
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made if such person shall have been
adjudged liable to the corporation, unless and only to the extent that the court
in which such action or suit was brought shall determine upon application that
such person is fairly and reasonably entitled to indemnity for such expenses
despite such adjudication of liability.
Article 9 of the Registrant's currently effective Certificate of
Incorporation eliminates to the fullest extent permitted by the Delaware
statutory and decisional law the personal liability of its directors for
monetary damages for breach of fiduciary duty as a director. Article 9 further
prohibits any repeal or modification of Article 9 which would adversely affect
any right or protection of any director at the time of such repeal modification.
In addition, as permitted by Section 145 of the Delaware General Corporation
Law, the Bylaws of the Registrant provide that: (a) the Registrant is required
to indemnify its directors, officers and employees, and persons serving in such
capacities in other business enterprises (including, for example, subsidiaries
of the Registrant) at the Registrant's request, to the fullest extent permitted
by Delaware law; (b) the Registrant is required to advance expenses, as
incurred, to such directors and officers in connection with defending a
proceeding on the condition that the Registrant shall first have received an
undertaking by or on behalf of such directors or officer to repay the amount
advanced if it is ultimately determined that such director or officer is not
entitled to be indemnified by the Registrant; (c) the rights conferred in the
Bylaws are not exclusive and the Registrant is authorized to enter into
indemnification agreements with such directors, officers and employees; (d) the
Registrant may purchase and maintain insurance to protect itself and its
directors and officers; and (e) the Registrant may not retroactively amend the
Bylaws indemnification provision in a way that is adverse to such directors,
officers and employees.
The Registrant also maintains director and officer liability insurance. The
indemnification provision in the Bylaws may be sufficiently broad to permit
indemnification of the Registrant's officers and directors for liability arising
under the Securities Act.
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<PAGE> 151
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of March 4, 1999 among
the Registrant, Level One Communications, Incorporated and
Intel RSW Corporation (included as Appendix A to the
prospectus/proxy statement included as a part of this
Registration Statement. The Disclosure Schedules relating to
the Merger Agreement have been omitted but will be provided
to the Commission upon its request pursuant to Item
601(b)(2) of Regulation S-K).
2.2 Stock Option Agreement between the Registrant and Level One
Communications, Incorporated dated March 4, 1999 (included
as Appendix B to the prospectus/proxy statement included as
a part of this Registration Statement).
3.1 Intel Corporation Restated Certificate of Incorporation
dated May 11, 1993 and Certificate of Amendment to the
Restated Certificate of Incorporation dated June 2, 1997
(incorporated by reference to Exhibit 3.1 of Registrant's
Form 10-K as filed on March 27, 1998).
3.2 Intel Corporation Bylaws as amended (incorporated by
reference to Exhibit 3.1 of Registrant's Form 10-Q for the
quarter ended September 26, 1998 as filed on November 10,
1998).
4.1 Specimen Certificate of the Registrant's Common Stock
(incorporated by reference to Exhibit 4.1 to Registrant's
Registration Statement on Form 8-B (file number 000-06217)
as filed on May 3, 1989).
4.2 Agreement to Provide Instruments Defining the Rights of
Security Holders (incorporated by reference to Exhibit 4.1
of Registrant's Form 10-K as filed on March 28, 1986).
5.1 Opinion of Gibson, Dunn & Crutcher LLP.
8.1 Opinion of Gibson, Dunn & Crutcher LLP as to tax matters.
8.2 Opinion of Graham & James LLP as to tax matters.
10.1 Intel Corporation 1984 Stock Option Plan as amended and
restated, effective July 16, 1997 (incorporated by reference
to Exhibit 10.l of Registrant's Form 10-Q for the quarter
ended June 27, 1998 as filed on August 11, 1998).
10.2 Intel Corporation 1988 Executive Long Term Stock Option Plan
as amended and restated, effective July 16, 1997
(incorporated by reference to Exhibit 10.2 of Registrant's
Form 10-Q for the quarter ended June 27, 1998 as filed on
August 11, 1998).
10.3 Intel Corporation Executive Officer Bonus Plan as amended
and restated effective January 1, 1995 (incorporated by
reference to Exhibit 10.7 of Registrant's Form 10-Q for the
quarter ended April 5, 1995 as filed on May 16, 1995).
10.4 Intel Corporation Sheltered Employee Retirement Plan Plus,
as amended and restated effective July 15, 1996
(incorporated by reference to Exhibit 4.1.1 of Registrant's
Post-Effective Amendment No. 1 to Registration Statement on
Form S-8 as filed on July 17, 1996).
10.5 Intel Corporation Special Deferred Compensation Plan
(incorporated by reference to Exhibit 4.1 of Registrant's
Registration Statement on Form S-8 as filed on February 2,
1998).
10.6 Intel Corporation Deferral Plan for Outside Directors
(incorporated by reference to Exhibit 10.6 of Registrant's
Form 10-K as filed on March 26, 1999).
</TABLE>
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<PAGE> 152
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
21 Intel Subsidiaries (incorporated by reference to Exhibit 21
of Registrant's Form 10-K as filed on March 26, 1999).
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2 Consent of Arthur Andersen LLP, independent public
accountants.
23.3 Consent of Lehman Brothers.
23.4 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
5.1 and Exhibit 8.1).
23.5 Consent of Graham & James LLP (included in Exhibit 8.2).
24.1 Power of Attorney (see the signature page to this
Registration Statement).
99 Form of Proxy for holders of Level One Communications,
Incorporated common stock (included as Appendix D to the
proxy statement/prospectus included as part of this
Registration Statement).
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(d) (1) That for purposes of determining any liability under the
Securities Act of 1933 each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and where applicable each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement
II-3
<PAGE> 153
relating to the securities offered therein and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(2) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) such reoffering prospectus
will contain the information called for by the applicable registration
form with respect to reofferings by persons who may be deemed
underwriters in addition to the information called for by the other
items of the applicable form.
(3) That every prospectus (i) that is filed pursuant to paragraph
(2) immediately preceding or (ii) that purports to meet the requirements
of Section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415 will be
filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective and that for purposes of
determining any liability under the Securities Act of 1933 each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(e) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report,
to security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of Regulation
S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the
latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(f) To respond to requests for information that is incorporated by
reference into the proxy statement/prospectus pursuant to Item 4, 10(b), 11
or 13 of this Form within one business day of receipt of such request and
to send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) To supply by means of a post-effective amendment all information
concerning a transaction and the company being acquired involved therein
that was not the subject of and included in the registration statement when
it became effective.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 154
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED IN THE CITY OF SANTA CLARA,
STATE OF CALIFORNIA, ON JULY 7, 1999.
INTEL CORPORATION
By: /s/ F. THOMAS DUNLAP, JR.
------------------------------------
F. Thomas Dunlap, Jr.
Vice President and Secretary
POWER OF ATTORNEY
Each person whose individual signature appears below hereby constitutes and
appoints Andy D. Bryant, F. Thomas Dunlap, Jr. and Arvind Sodhani and each of
them severally, as his or her true and lawful attorney-in-fact with full power
of substitution to execute in the name and on behalf of such person,
individually and in each capacity stated below, and to file, any and all
amendments to this Registration Statement, including any and all post-effective
amendments.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES INDICATED BELOW ON THE 7TH DAY OF JULY 1999.
<TABLE>
<S> <C>
/s/ CRAIG R. BARRETT
- -------------------------------------------- --------------------------------------------
Craig R. Barrett Gordon E. Moore
President, Chief Executive Officer and Chairman Emeritus of the Board and Director
Director, Principal Executive Officer
- -------------------------------------------- --------------------------------------------
John P. Browne David S. Pottruck
Director Director
/s/ ANDY D. BRYANT /s/ JANE E. SHAW
- -------------------------------------------- --------------------------------------------
Andy D. Bryant Jane E. Shaw
Senior Vice President, Chief Financial Director
Officer and Principal Accounting Officer
/s/ WINSTON H. CHEN /s/ LESLIE L. VADASZ
- -------------------------------------------- --------------------------------------------
Winston H. Chen Leslie L. Vadasz
Director Senior Vice President and Director
/s/ ANDREW S. GROVE /s/ DAVID B. YOFFIE
- -------------------------------------------- --------------------------------------------
Andrew S. Grove David B. Yoffie
Chairman of the Board and Director Director
/s/ CHARLES E. YOUNG
- -------------------------------------------- --------------------------------------------
D. James Guzy Charles E. Young
Director Director
</TABLE>
II-5
<PAGE> 1
Exhibit 5.1
[GIBSON, DUNN & CRUTCHER LLP LETTERHEAD]
July 7, 1999
C 42376-00232
Intel Corporation
2200 Mission College Boulevard
Santa Clara, California 95052
Re: Registration Statement on Form S-4 of Intel Corporation
Ladies and Gentlemen:
We refer to the registration statement on Form S-4 filed on the date
hereof, including amendments and exhibits thereto (the "Registration
Statement") filed today by Intel Corporation, a Delaware corporation (the
"Corporation"), under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the issuance by the Corporation of up to an aggregate of
44,282,563 shares (the "Shares") of its common stock, par value $.001 per share
("Common Stock"), upon consummation of the proposed merger of Intel RSW
Corporation, a wholly-owned subsidiary of the Corporation, with and into Level
One Communications, Incorporated (the "Merger").
We have examined the originals or certified copies of such corporate
records, certificates of officers of the Corporation and/or public officials and
such other documents, and have made such other factual and legal
investigations, as we have deemed relevant and necessary as the basis for the
opinions set forth below. In such examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, the conformity to original documents submitted to us as conformed or
photostatic copies and the authenticity of the originals of such copies.
Based on our examination described above, subject to the assumptions
stated above and relying on the statements of fact contained in the documents
that we have examined, we are of the opinion that (i) the issuance by the
Corporation of the Shares in connection with the Merger
<PAGE> 2
Intel Corporation
July 7, 1999
Page 2
has been duly authorized and (ii) when issued as described in the Registration
Statement, the Shares will be legally and validly issued, fully paid and
non-assessable shares of Common Stock.
We are admitted to practice in the State of California and are not
admitted to practice in the State of Delaware. However, for the limited purpose
of our above opinions, we are generally familiar with the law of the State of
Delaware as presently in effect and have made such inquiries as we consider
necessary to render these opinions with respect to a Delaware corporation. This
opinion is limited to the law of the State of California, United States
federal law and, to the limited extent set forth above, the law of the State of
Delaware as such laws presently exist and to the facts as they presently exist.
We express no opinion with respect to the effect or applicability of the laws
of any other jurisdiction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the captions
"Background of the Merger," "Material Federal Income Tax Consequences," and
"Legal Matters" in the Proxy Statement/Prospectus which forms a part of the
Registration Statement filed on the date hereof. In giving this consent, we do
not admit that we are within the category of persons whose consent is required
under Section 7 of the Securities Act or the General Rules and Regulations of
the Securities and Exchange Commission.
Very truly yours,
/s/ Gibson, Dunn & Crutcher LLP
GIBSON, DUNN & CRUTCHER LLP
<PAGE> 1
EXHIBIT 8.1
[Gibson, Dunn & Crutcher LLP Letterhead]
July 7, 1999
(213) 229-7000 C 42376-00232
Intel Corporation
2200 Mission College Blvd.
Santa Clara, California 95052
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel for Intel Corporation, a Delaware corporation
("Intel"), in connection with the preparation and execution of the Agreement and
Plan of Merger dated as of March 4, 1999, (the "Merger Agreement") by and among
Intel, Level One Communications, Incorporated ("Level One"), and Intel RSW
Corporation, a wholly-owned subsidiary of Intel incorporated in Delaware
("Merger Sub"). Pursuant to the Merger Agreement, Merger Sub will merge with and
into Level One (the "Merger"), and Level One will become a wholly-owned
subsidiary of Intel. All section references, unless otherwise indicated, are to
the Internal Revenue Code of 1986, as amended (the "Code").
<PAGE> 2
Intel Corporation
July 7, 1999
Page 2
You have requested our opinion regarding certain United States federal
income tax consequences of the Merger and the accuracy of the discussion under
the caption "The Merger -- Material Federal Income Tax Consequences" in the
Prospectus (as hereinafter defined). In delivering this opinion, we have
reviewed and relied upon (without any independent investigation) the facts,
statements, descriptions and representations set forth in the Registration
Statement on Form S-4 filed with the Securities and Exchange Commission (which
contains a prospectus and proxy statement of Intel and Level One (the
"Prospectus")) (the "Registration Statement") and such other documents
pertaining to the Merger as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have also assumed (without
any independent investigation):
1. The truth and accuracy of the statements, covenants, representations
and warranties contained in the Merger Agreement, in the representations
received from Intel, Merger Sub and Level One (the "Tax Representation Letters")
and in all other instruments and documents related to the formation,
organization and operation of Intel, Merger Sub and Level One;
2. The authenticity of original documents submitted to us, the conformity
to the originals of documents submitted to us as copies, and the due and valid
execution and delivery of all such documents where due execution and delivery
are a prerequisite to the effectiveness thereof;
3. The performance of all covenants contained in the Merger Agreement and
the Tax Representation Letters without waiver or breach of any material
provision thereof;
4. The accuracy of any representation or statement made "to the best of
knowledge" or similarly qualified without such qualification; and
5. The reporting of the Merger as a reorganization, within the meaning of
Section 368(a) of the Code, by Intel and Level One in their respective federal
income returns.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein and in the
Registration Statement, if the Merger is consummated in accordance with the
Merger Agreement (and without any waiver, breach or amendment of any of the
provisions thereof) and the statements set forth in the Registration Statement
and the Tax Representation Letters are true and correct as of the effective time
of the Merger, then for federal income tax purposes we are of the opinion that:
<PAGE> 3
Intel Corporation
July 7, 1999
Page 3
(i) The Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code, and each of Intel, Level One and Merger
Sub will be a party to a reorganization within the meaning of Section 368(b) of
the Code;
(ii) No gain or loss will be recognized by a Level One stockholder
upon the receipt of Intel common stock solely in exchange for Level One common
stock in the Merger, except for gain arising from the receipt of cash in lieu of
fractional shares;
(iii) The aggregate tax basis of the Intel common stock received by a
Level One stockholder in the Merger, including any fractional share of Intel
common stock for which cash is received, will be the same as the aggregate tax
basis of the Level One common stock exchanged for the Intel stock;
(iv) The holding period of the Intel common stock received by Level
One stockholder in the Merger will include the period for which the Level One
common stock exchanged therefor was considered to be held, provided that such
Level One common stock was held as a capital asset at the time of the Merger;
(v) A Level One stockholder receiving cash instead of a fractional
share of Intel common stock will generally recognize gain or loss equal to the
difference between the amount of cash received and the stockholder's basis in
the fractional share; and
(vi) Neither Intel nor Level One will recognize gain or loss solely
as a result of the Merger.
This opinion represents and is based upon our best judgment regarding the
application of federal income tax laws arising under the Code, existing judicial
decisions, administrative regulations and published rulings and procedures. Our
opinion is not binding upon the Internal Revenue Service or the courts, and
there is no assurance that the Internal Revenue Service will not successfully
asset a contrary position. Furthermore, no assurance can be given that future
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, we undertake no responsibility to advise you of any
new developments in the application or interpretation of the federal income tax
laws.
This opinion addresses only the matters described above, and does not
address any other federal, state, local or foreign tax consequences that may
result from the Merger or any other transaction (including any transaction
undertaken in connection with the Merger).
<PAGE> 4
Intel Corporation
July 7, 1999
Page 4
No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any transaction whatsoever, including
the Merger, if any of the transactions described in the Merger Agreement are not
consummated in accordance with the terms of such Merger Agreement and without
waiver or breach of any material provision thereof or if any of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "The Merger
- -- Material Federal Income Tax Consequences." In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Gibson, Dunn & Crutcher LLP
Gibson, Dunn & Crutcher LLP
PSI/psi
<PAGE> 1
Exhibit 8.2
[GRAHAM & JAMES LLP LETTERHEAD]
July 7, 1999
Level One Communications, Incorporated (916) 658-6700
9750 Goethe Road
Sacramento, CA 95827
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel for Level One Communications, Incorporated, a Delaware
corporation ("Level One"), in connection with the preparation and execution of
the Agreement and Plan of Merger dated as of March 4, 1999, (the "Merger
Agreement") by and among Intel Corporation, a Delaware Corporation ("Intel"),
Level One and Intel RSW Corporation, a wholly owned subsidiary of Intel
incorporated in Delaware ("Merger Sub"). Pursuant to the Merger Agreement,
Merger Sub will merge with and into Level One (the "Merger"), and Level One
will become a wholly owned subsidiary of Intel. All section references, unless
otherwise indicated, are to be the Internal Revenue Code of 1986, as amended
(the "Code").
You have requested our opinion regarding certain United States federal income
tax consequences of the Merger and the accuracy of the discussion under the
caption "The Merger -- Material Federal Income Tax Consequences" in the
Prospectus (as hereinafter defined). In delivering this opinion, we have
reviewed and relied upon (without any independent investigation) the facts,
statements, descriptions and representations set forth in the Registration
Statement on Form S-4 filed with the Securities and Exchange Commission (which
contains a prospectus and proxy statement of Intel and Level one (the
"Prospectus") (the "Registration Statement") and such other documents
pertaining to the Merger as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have also assumed (without any
independent investigation):
1. The truth and accuracy of the statements, covenants, representations
and warranties contained in the Merger Agreement, in the
<PAGE> 2
Level One Communications, Incorporated
July 7, 1999
Page 2
representations received from Intel, Merger Sub and Level One (the "Tax
Representation Letters") and in all other instruments and documents related to
the formation, organization and operation of Intel, Merger Sub and Level One;
2. The authenticity of original documents submitted to us, the
conformity to the originals of documents submitted to us as copies, and the due
and valid execution and delivery of all such documents where due execution and
delivery are a prerequisite to the effectiveness thereof;
3. The performance of all covenants contained in the Merger Agreement
and the Tax Representation Letters without waiver or breach of any material
provision thereof;
4. The accuracy of any representation or statement made "to the best of
knowledge" or similarly qualified without such qualification; and
5. The reporting of the Merger as a reorganization, within the meaning
of Section 368(a) of the Code, by Intel and Level One in their respective
federal income returns.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein and in the
Registration Statement, if the Merger is consummated in accordance with the
Merger Agreement (and without any waiver, breach or amendment of any of the
provisions thereof) and the statements set forth in the Registration Statement
and the Tax Representation Letters are true and correct as of the effective
time of the Merger, then for federal income tax purposes we are of the opinion
that:
(i) The Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code, and each of Intel, Level One and Merger
Sub will be a party to a reorganization within the meaning of Section 368(b) of
the Code;
(ii) No gain or loss will be recognized by a Level One
stockholder upon the receipt of Intel common stock solely in exchange for Level
One common stock in the Merger, except for gain arising from the receipt of
cash in lieu of fractional shares;
(iii) The aggregate tax basis of the Intel common stock received
by a Level One stockholder in the Merger, including any fractional share of
Intel common stock for which cash is received, will be the same as the aggregate
tax basis of the Level One common stock exchanged for the Intel stock;
<PAGE> 3
Level One Communications, Incorporated
July 7, 1999
Page 3
(iv) The holding period of the Intel common stock received by
each Level One stockholder in the Merger will include the period for which the
Level One common stock exchanged therefor was considered to be held, provided
that such Level One common stock was held as a capital asset at the time of the
Merger;
(v) A Level One stockholder receiving cash instead of a
fractional share of Intel common stock will generally recognize gain or loss
equal to the difference between the amount of cash received and the
stockholder's basis in the fractional share; and
(vi) Neither Intel nor Level One will recognize gain or loss
solely as a result of the Merger.
This opinion represents and is based upon our best judgment regarding the
application of federal income tax arising under the Code, existing judicial
decisions, administrative regulations and published rulings and procedures.
Our opinion is not binding upon the Internal Revenue Service or the courts, and
there is no assurance that the Internal Revenue Service will not successfully
assert a contrary position. Furthermore, no assurance can be given that future
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, we undertake no responsibility to advise you of any
new developments in the application or interpretation of the federal income tax
laws.
This opinion addresses only the matters described above, and does not address
any other federal, state, local or foreign tax consequences that may result from
the Merger or any other transaction (including any transaction undertaken in
connection with the Merger).
No opinion is expressed as to any transaction other than the Merger as described
in the Merger Agreement or to any transaction whatsoever, including the Merger,
if any of the transactions described in the Merger Agreement are not
consummated in accordance with the terms of such Merger Agreement and without
waiver or breach of any material provision thereof or if any of the
representations, warranties, statements and assumptions upon which we relied
are not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have
relief to issue this opinion is incorrect, our opinion might be adversely
affected and may not be relied upon.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "The Merger
- -- Material Federal Income Tax Consequences." In giving such consent, we do not
thereby
<PAGE> 4
Level One Communications, Incorporated
July 7, 1999
Page 4
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Graham & James LLP
GRAHAM & JAMES LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" in the Registration Statement (Form S-4) and related
Proxy Statement/Prospectus of Level One Communications, Incorporated for the
registration of Intel Corporation common stock and to the incorporation by
reference therein of our report dated January 11, 1999, with respect to the
consolidated financial statements and schedule of Intel Corporation included in
and/or incorporated by reference in its Annual Report (Form 10-K) for the year
ended December 26, 1998, filed with the Securities and Exchange Commission and
in its Annual Report to Stockholders.
/s/ Ernst & Young LLP
San Jose, California
July 6, 1999
<PAGE> 1
EXHIBIT 23.2
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-4 and related Proxy
Statement/Prospectus of Level One Communications, Incorporated of our report
dated February 26, 1999 (except with respect to certain information contained in
Note 15 for which the date is March 4, 1999) included in Level One
Communications, Incorporated's Form 10-K for the year ended December 27, 1998.
We also consent to the reference to our Firm under the heading "Selected
Financial Data" and to all other references to our Firm included in this
Registration Statement.
/s/ Arthur Andersen LLP
Sacramento, California
July 6, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF LEHMAN BROTHERS
We hereby consent to the use of our opinion letter dated March 4, 1999 to
the Board of Directors of level One Communications, Incorporated (the
"Company") attached as Appendix C to the Company's Joint Proxy Statement/
Prospectus on Form S-4 (the "Prospectus") and to the references to our firm in
the Prospectus under the headings "Background of the Merger," "Recommendation
of the Level One Board of Directors and Level One's Reasons for the Merger" and
"Opinion of Level One's Financial Advisor." In giving such consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder and we do not
thereby admit that we are experts with respect to any part of the Registration
Statement under the meaning of the term "expert" as used in the Securities Act.
LEHMAN BROTHERS INC.
By: /s/ KYLE T. RYLAND
------------------------------
Kyle T. Ryland
Senior Vice President
New York, New York
July 7, 1999
