<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1995
REGISTRATION NO. 33-62023
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ICOT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3698 94-1675494
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of classification code number) identification number)
incorporation or
organization)
</TABLE>
3801 ZANKER ROAD, SAN JOSE, CALIFORNIA 95150 (408) 433-3300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
AAMER LATIF
ICOT CORPORATION
P.O. BOX 5143
3801 ZANKER ROAD
SAN JOSE, CALIFORNIA 95150
(408) 433-3300
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
with copies of all orders, notices and communications to:
<TABLE>
<S> <C>
Sarah A. O'Dowd Eric J. Lapp
Stephen C. Ferruolo William R. Schreiber
Heller Ehrman White & McAuliffe Gray Cary Ware & Freidenrich
525 University Avenue 400 Hamilton Avenue
Palo Alto, California 94301 Palo Alto, California 94301
(415) 324-7000 (415) 328-6561
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ICOT CORPORATION
CROSS-REFERENCE SHEET BETWEEN ITEMS IN
FORM S-4 AND PROSPECTUS PURSUANT TO
ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NO. FORM S-4 CAPTION HEADING IN PROSPECTUS
- ---------- --------------------------------------------- -------------------------------------------------------
<S> <C> <C>
Item 1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus...... Outside Front Cover Page of Prospectus/Proxy Statement
Item 2. Inside Front and Outside Back Cover Pages of
Prospectus.................................. Available Information; Table of Contents
Item 3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............... Summary; Risk Factors; The Merger and Related
Transactions
Item 4. Terms of the Transaction..................... Summary; Introduction; The Merger and Related
Transactions; Terms of the Merger; Description of ICOT
Capital Stock
Item 5. Pro Forma Financial Information.............. Summary; Pro Forma Combined Condensed Financial
Statements
Item 6. Material Contracts with the Company Being
Acquired.................................... The Merger and Related Transactions
Item 7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................. Inapplicable
Item 8. Interests of Named Experts and Counsel....... Experts; Legal Matters
Item 9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. Inapplicable
Item 10. Information with Respect to S-3
Registrants................................. Inapplicable
Item 11. Incorporation of Certain Information by
Reference................................... Inapplicable
Item 12. Information with Respect to S-2 or S-3
Registrants................................. Inapplicable
Item 13. Incorporation of Certain Information by
Reference................................... Inapplicable
Item 14. Information with Respect to Registrants Other
than S-2 or S-3 Registrants................. Summary; Price Range of Common Stock; ICOT Selected
Consolidated Financial Data; Voting and Proxies;
Information Concerning ICOT; ICOT Management's
Discussion and Analysis of Financial Condition and
Results of Operations; ICOT Consolidated Financial
Statements
Item 15. Information with Respect to S-3 Companies.... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. FORM S-4 CAPTION HEADING IN PROSPECTUS
- ---------- --------------------------------------------- -------------------------------------------------------
Item 16. Information with Respect to S-2 or S-3
Companies................................... Inapplicable
<S> <C> <C>
Item 17. Information with Respect to Companies Other
than S-2 or S-3 Companies................... Summary; Amati Selected Financial Data; Voting and
Proxies; Amati Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Information Concerning Amati; Amati Financial
Statements
Item 18. Information if Proxies, Consents or
Authorizations are to be Solicited.......... Summary; Voting and Proxies; Terms of the Merger;
Information Concerning ICOT; Information Concerning
Amati; Additional Matters for Consideration of ICOT
Stockholders
Item 19. Information if Proxies, Consents or
Authorizations are not to be Solicited, or
in an Exchange Offer........................ Inapplicable
</TABLE>
<PAGE>
PRELIMINARY COPY -- FOR INFORMATION OF
SECURITIES AND EXCHANGE COMMISSION ONLY
ICOT CORPORATION
P.O. BOX 5143
3801 ZANKER ROAD
SAN JOSE, CA 95150
October , 1995
Dear Stockholder:
A Special Meeting of Stockholders (the "Meeting") of ICOT Corporation
("ICOT") will be held at the principal executive offices of ICOT at 3801 Zanker
Road, San Jose, California, on November 6, 1995, at 1:30 p.m., local time.
At the Meeting, you will be asked to consider and vote upon the approval of
an Amended and Restated Agreement and Plan of Reorganization and Merger, as
amended, and related Agreement of Merger (collectively the "Merger Agreement")
providing for the merger (the "Merger") of Amati Communications Corporation
("Amati") into a wholly-owned subsidiary of ICOT. Assuming Amati's satisfaction
of the Adjustment Condition (as defined in the Prospectus/Proxy Statement), ICOT
will issue or reserve for issuance to holders of Amati securities a total of
6,788,924 shares of ICOT Common Stock, and, as a result of the Merger, on a
fully diluted basis the former Amati securities holders will hold 35% of the
total outstanding common stock equivalents of ICOT and the former ICOT
securities holders will hold 65% of the outstanding common stock equivalents of
ICOT. In addition, following the Merger, ICOT will issue options (the
"Performance Options") to purchase 1,616,411 shares of ICOT Common Stock to key
employees of Amati. If approved by the stockholders of ICOT and the shareholders
of Amati, the Merger is expected to be consummated on or about November 10,
1995. THE MERGER CAN BE COMPLETED ONLY IF THE ICOT STOCKHOLDERS APPROVE THE
INCREASE IN THE AUTHORIZED NUMBER OF SHARES OF ICOT COMMON STOCK AND THE
INCREASE IN THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE ICOT 1990
STOCK OPTION PLAN, EACH OF WHICH IS BEING PROPOSED TO THE STOCKHOLDERS AT THE
MEETING.
After careful consideration, your Board of Directors has unanimously
approved the Merger Agreement described in the attached material and the
transactions contemplated thereby and has concluded that they are fair to and in
the best interests of ICOT and its stockholders. Your Board of Directors
unanimously recommends a vote in favor of the Merger.
At the Meeting, you will also be asked to approve amendments to ICOT's
Certificate of Incorporation to change the name of ICOT to "Amati Communications
Corporation" and to increase the number of authorized shares of Common Stock
from 20,000,000 to 45,000,000 shares. In addition, at the Meeting you will be
asked to approve amendments to the ICOT 1990 Stock Option Plan to increase the
number of shares available for issuance under the ICOT 1990 Stock Option Plan by
2,600,000 shares and to limit the number of shares that may be granted to any
participant in any one-year period to 1,000,000 shares. The increases in the
authorized number of shares of Common Stock and in the shares available under
the 1990 Stock Option Plan are necessary in order to complete the Merger. Your
Board of Directors unanimously recommends a vote in favor of these amendments.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Prospectus/Proxy Statement relating to the actions to
be taken by ICOT stockholders at the Meeting and a proxy card. The
Prospectus/Proxy Statement more fully describes the proposed merger and includes
information about ICOT and Amati and about certain other matters for
consideration at the Meeting.
All stockholders are cordially invited to attend the Meeting in person.
However, whether or not you plan to attend the Meeting, please complete, sign,
date and return your proxy in the enclosed envelope. If you attend the Meeting,
you may vote in person if you wish, even though you have previously returned
your proxy. It is important that your shares be represented and voted at the
Meeting.
<PAGE>
Sincerely,
Aamer Latif
CHAIRMAN OF THE BOARD
<PAGE>
ICOT CORPORATION
P.O. BOX 5143
3801 ZANKER ROAD
SAN JOSE, CA 95150
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of ICOT Corporation:
A Special Meeting of Stockholders of ICOT Corporation, a Delaware
corporation ("ICOT"), will be held at 1:30 p.m. on November 6, 1995 at the
principal executive offices of ICOT, 3801 Zanker Road, San Jose, California, for
the following purposes:
1. To approve an Amended and Restated Agreement and Plan of
Reorganization and Merger dated as of August 3, 1995, as amended, and
related Agreement of Merger, among ICOT, IA Acquisition Corporation, a
California corporation and a wholly-owned subsidiary of ICOT ("IAAC"), and
Amati Communications Corporation, a California corporation ("Amati"),
pursuant to which Amati will be merged into IAAC (the "Merger"). As a result
of the Merger and assuming Amati's satisfaction of the Adjustment Condition
(as defined in the Prospectus/Proxy Statement), on a fully-diluted basis,
the former Amati securities holders will hold 35% of the total outstanding
common stock equivalents of ICOT and the former ICOT securities holders will
hold 65% of the outstanding common stock equivalents of ICOT. In addition,
after the Merger, ICOT will grant key employees of Amati options (the
"Performance Options") to purchase 1,616,411 shares of ICOT Common Stock.
2. To approve, subject to approval of the Merger, an amendment to
ICOT's Certificate of Incorporation to change the name of the corporation to
"Amati Communications Corporation."
3. To approve, subject to approval of the Merger, an amendment to
ICOT's Certificate of Incorporation to increase the authorized number of
shares of Common Stock from 20,000,000 to 45,000,000 shares. AN INCREASE IN
THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK IS NECESSARY IN ORDER TO
COMPLETE THE MERGER.
4. To approve amendments to the ICOT 1990 Stock Option Plan (the
"Plan") to increase the number of shares available for issuance under the
Plan by 2,600,000 shares and to limit the number of shares that may be
granted to any participant in any one-year period to 1,000,000 shares. AN
INCREASE IN THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE PLAN IS
NECESSARY IN ORDER TO COMPLETE THE MERGER.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the
Prospectus/Proxy Statement accompanying this Notice.
Only stockholders of record of ICOT Common Stock at the close of business on
September 29, 1995 are entitled to notice of and to vote at the meeting or any
adjournment thereof. Approval of the Merger and of each of the proposed
amendments to the Certificate of Incorporation will require the affirmative vote
of the holders of a majority of the shares of ICOT Common Stock outstanding on
the record date.
BY ORDER OF THE
BOARD OF DIRECTORS
Terry Medel
SECRETARY
San Jose, California
October , 1995
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, YOU ARE URGED TO
FILL IN, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME BEFORE IT IS VOTED.
<PAGE>
PRELIMINARY COPY -- FOR INFORMATION OF
SECURITIES AND EXCHANGE COMMISSION ONLY
AMATI COMMUNICATIONS CORPORATION
1975 EL CAMINO REAL WEST
MOUNTAIN VIEW, CALIFORNIA 94040
October , 1995
Dear Shareholder:
A Special Meeting of Shareholders (the "Meeting") of Amati Communications
Corporation ("Amati") will be held at Amati's principal executive offices, 1975
El Camino Real West, Mountain View, California, on October 27, 1995, at 10:00
a.m., local time.
At the Meeting, you will be asked to consider and vote upon the approval of
an Amended and Restated Agreement and Plan of Reorganization, as amended, and
Merger and related Agreement of Merger (collectively, the "Merger Agreement")
providing for the merger (the "Merger") of Amati into a wholly-owned subsidiary
of ICOT Corporation ("ICOT"). On consummation of the Merger, each outstanding
share of Amati Common Stock and Series A Preferred Stock will be converted into
shares of ICOT Common Stock at the exchange ratio (the "Applicable Ratio").
Assuming that all holders of outstanding Amati bridge loans accept the Offer to
Note Holders (as defined in the Prospectus/Proxy Statement), the Applicable
Ratio is expected to be 4.6126 shares of ICOT Common Stock for each share of
Amati Common Stock and Amati Series A Preferred Stock. ICOT will also assume all
outstanding options of Amati and issue substitute warrants for all outstanding
warrants of Amati, all on the basis of the Applicable Ratio. 1,050,000 of the
shares of ICOT Common Stock to be issued in the Merger, allocated pro rata from
the shares to be issued to each holder of Amati Common Stock (including holders
of options or warrants who exercise prior to or as of the effective date of the
Merger) and Series A Preferred Stock, will be held in escrow for a period of one
year following the Merger to indemnify ICOT against damages and expenses from
any breach of the representations and warranties and covenants of Amati
contained in the Merger Agreement.
After the Merger, ICOT will grant key employees of Amati options (the
"Performance Options") to purchase 1,616,411 shares of ICOT Common Stock. If
approved by the shareholders of Amati and stockholders of ICOT, the Merger is
expected to be consummated on or about November 10, 1995. After the Merger, ICOT
will change its name to "Amati Communications Corporation."
After careful consideration, your Board of Directors has unanimously
approved the Merger Agreement described in the attached material and the
transactions contemplated thereby and has concluded that they are fair to and in
the best interests of Amati and its shareholders. Your Board of Directors
unanimously recommends a vote in favor of the Merger.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Prospectus/Proxy Statement relating to the actions to
be taken by Amati shareholders at the Meeting, and a proxy card. The
Prospectus/Proxy Statement more fully describes the proposed Merger and includes
information about Amati and ICOT.
All shareholders are cordially invited to attend the Meeting in person. If
you attend the Meeting, you may vote in person if you wish, even though you have
previously returned your proxy. Whether or not you plan to attend the Meeting,
it is important that your shares be represented and voted at the Meeting,
regardless of the number you hold. Therefore, please complete, sign, date and
return your proxy in the enclosed envelope.
Sincerely,
James F. Gibbons
CHAIRMAN OF THE BOARD
<PAGE>
PRELIMINARY COPY -- FOR INFORMATION OF
SECURITIES AND EXCHANGE COMMISSION ONLY
AMATI COMMUNICATIONS CORPORATION
1975 EL CAMINO REAL WEST
MOUNTAIN VIEW, CALIFORNIA 94040
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Amati Communications Corporation:
A Special Meeting of Shareholders of Amati Communications Corporation, a
California corporation ("Amati"), will be held at 10:00 a.m., on October 27,
1995, at the principal executive offices of Amati at 1975 El Camino Real West,
Mountain View, California 94040 for the following purposes:
1. To approve an Amended and Restated Agreement and Plan of
Reorganization and Merger dated as of August 3, 1995, as amended, and
related Agreement of Merger, among ICOT Corporation, a Delaware corporation
("ICOT"), IA Acquisition Corporation, a California corporation and a
wholly-owned subsidiary of ICOT ("IAAC"), and Amati, pursuant to which Amati
will be merged into IAAC (the "Merger"). In the Merger each outstanding
share of Amati Common Stock and Series A Preferred Stock (other than shares,
if any, as to which dissenters' rights have been exercised pursuant to
California law) will be converted into shares of ICOT Common Stock at the
exchange ratio (the "Applicable Ratio"). Assuming that all holders of
outstanding Amati bridge loans accept the Offer to Note Holders (as defined
in the Prospectus/Proxy Statement), the Applicable Ratio is expected to be
4.6126 shares of ICOT Common Stock for each share of Amati Common Stock and
Amati Series A Preferred Stock. ICOT will also assume all outstanding
options of Amati and issue substitute warrants for all outstanding warrants
of Amati, all on the basis of the Applicable Ratio. 1,050,000 of the shares
of ICOT Common Stock to be issued in the Merger, allocated pro rata from the
shares to be issued to each holder of Amati Common Stock (including holders
of options or warrants who exercise prior to or as of the effective date of
the Merger) and Series A Preferred Stock, will be held in escrow for a
period of one year following the Merger to indemnify ICOT against damages
and expenses from any breach of the representations and warranties and
covenants of Amati contained in the Merger Agreement. After the Merger, ICOT
will grant key employees of Amati options (the "Performance Options") to
purchase 1,616,411 shares of ICOT Common Stock.
2. To transact such other business as may properly come before the
meeting or an adjournment thereof.
The foregoing items of business are more fully described in the
Prospectus/Proxy Statement accompanying this Notice.
Only shareholders of record at the close of business on August 30, 1995 are
entitled to notice of and to vote at the meeting or any adjournment thereof.
Approval of the merger will require the affirmative vote of the holders of a
majority of the shares of Amati Common Stock outstanding on the record date and
of a majority of the shares of Amati Series A Preferred Stock outstanding on the
record date, each voting as a separate class.
BY ORDER OF THE
BOARD OF DIRECTORS
John M. Cioffi
SECRETARY
Mountain View, California
October , 1995
<PAGE>
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, YOU ARE URGED TO
FILL IN, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.
YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME BEFORE IT IS VOTED.
<PAGE>
PRELIMINARY COPY -- FOR INFORMATION OF
SECURITIES AND EXCHANGE COMMISSION ONLY
AMATI COMMUNICATIONS CORPORATION
1975 EL CAMINO REAL WEST
MOUNTAIN VIEW, CALIFORNIA 94040
NOTICE TO HOLDERS OF AMATI FAIR VALUE WARRANTS
October , 1995
Dear Warrant Holder:
A Special Meeting of the Shareholders of Amati Communications Corporation
("Amati") will be held on October 27, 1995, for the purpose of approving an
Amended and Restated Agreement and Plan of Reorganization and Merger, as amended
(the "Agreement of Reorganization") and related Agreement of Merger
(collectively, the "Merger Agreement") providing for the merger (the "Merger")
of Amati into a wholly-owned subsidiary of ICOT Corporation ("ICOT").
If the Merger is approved by the shareholders, each outstanding share of
Amati Common Stock and Series A Preferred Stock will be converted into shares of
ICOT Common Stock. ICOT will also assume all outstanding options of Amati, issue
substitute warrants for all outstanding warrants of Amati, and grant key
employees of Amati options to purchase shares of ICOT Common Stock. 1,050,000 of
the shares of ICOT Common Stock to be issued in the Merger, allocated pro rata
from the shares to be issued to each holder of Amati Common Stock (including
holders of options or warrants who exercise prior to or as of the effective date
of the Merger) and Series A Preferred Stock, will be held in escrow for a period
of one year following the Merger to indemnify ICOT against damages and expenses
from any breach of the representations and warranties and covenants of Amati
contained in the Merger Agreement.
The foregoing items of business are more fully described in the
Prospectus/Proxy Statement accompanying this notice.
The purpose of this letter is to explain to you the consequences of the
Merger on you as a holder of a warrant to purchase Amati Series B Preferred
Stock at fair market value (a "Fair Value Warrant").
Each Fair Value Warrant provides that it shall be exercisable for that
number of shares of Amati Series B Preferred Stock equal to the aggregate
exercise price of the Fair Value Warrant divided by the purchase price of the
Amati Series B Preferred Stock issued at the first closing of any such sale of
Series B Preferred Stock. Section 4 of each Fair Value Warrant provides for the
issuance of, upon any consolidation or merger of Amati with any other
corporation, substitute warrants for the shares which would have been issuable
in exchange for the shares then subject to the Fair Value Warrant, as if the
holder had been the owner of such shares on the applicable record date.
Accordingly, pursuant to the Merger Agreement, for each Fair Value Warrant
outstanding at the effective time of the Merger, ICOT will issue a substitute
warrant (a "Substitute Warrant") exercisable for the number of shares of ICOT
Common Stock determined by dividing the aggregate exercise price of the Fair
Value Warrant by $4.926, the average closing price of ICOT Common Stock on the
Nasdaq National Market on the five (5) trading days preceding the August 30,
1995 record date. The Substitute Warrant will have an exercise price of $4.926
per share. The terms and conditions of the Substitute Warrant will otherwise be
the same as those of the Fair Value Warrant being replaced. THE SUBSTITUTE
WARRANT WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND THE HOLDER THEREOF WILL NOT HAVE ANY RIGHT TO REGISTER
THE SUBSTITUTE WARRANT OR THE SHARES TO BE RECEIVED UPON EXERCISE THEREOF.
The exchange of unexercised Fair Value Warrants for Substitute Warrants in
the Merger will result in taxable gain or loss to the holders of the Fair Value
Warrants at the effective date of the Merger (the "Effective Date"). Such gain
or loss will be measured by the difference between the fair market value of the
Substitute Warrants and the holder's basis, if any, in the Fair Value Warrants
with respect to which the Substitute Warrants are received. Such gain or loss
will be capital gain or loss if the Amati stock for which the Fair Value
Warrants were exercisable would have been a capital asset of the holder of the
Fair Value Warrants and will be long-term if the Fair Value Warrants have been
held for more than a year at the Effective Date of the Merger.
A Fair Value Warrant may be exercised in whole or in part prior to the
closing of the Merger (the "Closing") by surrendering the warrant at the
principal office of Amati, accompanied by payment in full, in cash or by check
payable to the order of Amati Communications Corporation, of the purchase price,
AT ANY TIME BEFORE 5:00 P.M., CALIFORNIA LOCAL TIME, ON NOVEMBER 3, 1995. Upon
such exercise, immediately prior to the Closing you will receive shares of Amati
Common Stock at an exercise price per share equal to $4.926 divided by the
Applicable Ratio (as defined in the Prospectus/Proxy Statement), which shares
will be converted in the Merger into shares of ICOT Common Stock at the
Applicable Ratio. Unless you specify otherwise, such exercise shall be
conditioned upon the consummation of the Merger. THE SHARES OF ICOT COMMON STOCK
ISSUED IN THE MERGER WILL BE REGISTERED UNDER THE SECURITIES ACT AND WILL BE
SUBJECT TO THE ESCROW.
<PAGE>
Sincerely,
James F. Gibbons
CHAIRMAN OF THE BOARD
<PAGE>
PRELIMINARY COPY -- FOR INFORMATION OF
SECURITIES AND EXCHANGE COMMISSION ONLY
AMATI COMMUNICATIONS CORPORATION
1975 EL CAMINO REAL WEST
MOUNTAIN VIEW, CALIFORNIA 94040
NOTICE TO HOLDERS OF AMATI $6.00 WARRANTS
October , 1995
Dear Warrant Holder:
A Special Meeting of the Shareholders of Amati Communications Corporation
("Amati") will be held on October 27, 1995, for the purpose of approving an
Amended and Restated Agreement and Plan of Reorganization and Merger, as amended
(the "Agreement of Reorganization") and related Agreement of Merger
(collectively, the "Merger Agreement") providing for the merger (the "Merger")
of Amati into a wholly-owned subsidiary of ICOT Corporation ("ICOT").
If the Merger is approved by the shareholders, each outstanding share of
Amati Common Stock and Series A Preferred Stock will be converted into shares of
ICOT Common Stock. ICOT will also assume all outstanding options of Amati, issue
substitute warrants for all outstanding warrants of Amati, and grant key
employees of Amati options to purchase shares of ICOT Common Stock. 1,050,000 of
the shares of ICOT Common Stock to be issued in the Merger, allocated pro rata
from the shares to be issued to each holder of Amati Common Stock (including
holders of options or warrants who exercise prior to or as of the effective date
of the Merger) and Series A Preferred Stock, will be held in escrow for a period
of one year following the Merger to indemnify ICOT against damages and expenses
from any breach of the representations and warranties and covenants of Amati
contained in the Merger Agreement.
The foregoing items of business are more fully described in the
Prospectus/Proxy Statement accompanying this notice.
The purpose of this letter is to explain to you the consequences of the
Merger on you as a holder of a warrant to purchase Amati Series B Preferred
Stock at an exercise price of $6.00 per share (a "$6 Warrant").
Each $6 Warrant provides that it shall be exercisable for that number of
shares of Amati Series B Preferred Stock equal to the aggregate exercise price
of the $6 Warrant divided by $6. Section 5 of each $6 Warrant provides for the
issuance of, upon any consolidation or merger of Amati with any other
corporation, substitute warrants for the shares which would have been issuable
in exchange for the shares then subject to the $6 Warrant, as if the holder had
been the owner of such shares on the applicable record date. Accordingly,
pursuant to the Merger Agreement, for each $6 Warrant outstanding at the
effective time of the Merger, ICOT will issue a substitute warrant (a
"Substitute Warrant") exercisable for the number of shares of ICOT Common Stock
determined by multiplying the number of shares of Amati subject to such warrant
at the effective time of the Merger by the Applicable Ratio (as defined in the
Prospectus/Proxy Statement) at an exercise price for each share of ICOT Common
Stock equal to the quotient obtained by dividing the $6 exercise price by the
Applicable Ratio, which exercise price per share shall be rounded up to the
nearest two place decimal. The terms and conditions of the Substitute Warrant
will otherwise be the same as those of the $6 Warrant being replaced. THE
SUBSTITUTE WARRANT WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THE HOLDER THEREOF WILL NOT HAVE ANY RIGHT
TO REGISTER THE SUBSTITUTE WARRANT OR THE SHARES TO BE RECEIVED UPON EXERCISE
THEREOF.
The exchange of unexercised $6 Warrants for Substitute Warrants in the
Merger will result in taxable gain or loss to the holders of the $6 Warrants at
the effective date of the Merger. Such gain or loss will be measured by the
difference between the fair market value of the Substitute Warrants and the
holder's basis, if any, in the $6 Warrants with respect to which the Substitute
Warrants are received. Such gain or loss will be capital gain or loss if the
Amati stock for which the $6 Warrants were exercisable would have been a capital
asset of the holder of the $6 Warrants and will be long-term if the $6 Warrants
have been held for more than a year at the Effective Date of the Merger.
A $6 Warrant may be exercised in whole or in part prior to the closing of
the Merger by surrendering the warrant at the principal office of Amati,
accompanied by payment in full, in cash or by check payable to the order of
Amati Communications Corporation, of the purchase price, AT ANY TIME BEFORE 5:00
P.M., CALIFORNIA LOCAL TIME, ON NOVEMBER 3, 1995. Unless you specify otherwise,
such exercise shall be conditioned upon the consummation of the Merger. THE
SHARES OF ICOT COMMON STOCK ISSUED IN THE MERGER WILL BE REGISTERED UNDER THE
SECURITIES ACT AND WILL BE SUBJECT TO THE ESCROW.
<PAGE>
Sincerely,
James F. Gibbons
CHAIRMAN OF THE BOARD
<PAGE>
PRELIMINARY COPY -- FOR INFORMATION OF
SECURITIES AND EXCHANGE COMMISSION ONLY
AMATI COMMUNICATIONS CORPORATION
1975 EL CAMINO REAL WEST
MOUNTAIN VIEW, CALIFORNIA 94040
NOTICE TO HOLDERS OF AMATI $9.00 WARRANTS
October , 1995
Dear Warrant Holder:
A Special Meeting of the Shareholders of Amati Communications Corporation
("Amati") will be held on October 27, 1995, for the purpose of approving an
Amended and Restated Agreement and Plan of Reorganization and Merger, as amended
(the "Agreement of Reorganization") and related Agreement of Merger
(collectively, the "Merger Agreement") providing for the merger (the "Merger")
of Amati into a wholly-owned subsidiary of ICOT Corporation ("ICOT").
If the Merger is approved by the shareholders, each outstanding share of
Amati Common Stock and Series A Preferred Stock will be converted into shares of
ICOT Common Stock. ICOT will also assume all outstanding options of Amati, issue
substitute warrants for all outstanding warrants of Amati, and grant key
employees of Amati options to purchase shares of ICOT Common Stock. 1,050,000 of
the shares of ICOT Common Stock to be issued in the Merger, allocated pro rata
from the shares to be issued to each holder of Amati Common Stock (including
holders of options or warrants who exercise prior to or as of the effective date
of the Merger) and Series A Preferred Stock, will be held in escrow for a period
of one year following the Merger to indemnify ICOT against damages and expenses
from any breach of the representations and warranties and covenants of Amati
contained in the Merger Agreement.
The foregoing items of business are more fully described in the
Prospectus/Proxy Statement accompanying this notice.
The purpose of this letter is to explain to you the consequences of the
Merger on you as a holder of a warrant to purchase Amati Series B Preferred
Stock at an exercise price of $9.00 per share (a "$9 Warrant").
Each $9 Warrant provides that it shall be exercisable for that number of
shares of Amati Series B Preferred Stock equal to the aggregate exercise price
of the $9 Warrant divided by $9. Section 5 of each $9 Warrant provides for the
issuance of, upon any consolidation or merger of Amati with any other
corporation, substitute warrants for the shares which would have been issuable
in exchange for the shares then subject to the $9 Warrant, as if the holder had
been the owner of such shares on the applicable record date. Accordingly,
pursuant to the Merger Agreement, for each $9 Warrant outstanding at the
effective time of the Merger, ICOT will issue a substitute warrant (a
"Substitute Warrant") exercisable for the number of shares of ICOT Common Stock
determined by multiplying the number of shares of Amati subject to such warrant
at the effective time of the Merger by the Applicable Ratio (as defined in the
Prospectus/Proxy Statement) at an exercise price for each share of ICOT Common
Stock equal to the quotient obtained by dividing the $9 exercise price by the
Applicable Ratio, which exercise price per share shall be rounded up to the
nearest two place decimal. The terms and conditions of the Substitute Warrant
will otherwise be the same as those of the $9 Warrant being replaced. THE
SUBSTITUTE WARRANT WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THE HOLDER THEREOF WILL NOT HAVE ANY RIGHT
TO REGISTER THE SUBSTITUTE WARRANT OR THE SHARES TO BE RECEIVED UPON EXERCISE
THEREOF.
The exchange of unexercised $9 Warrants for Substitute Warrants in the
Merger will result in taxable gain or loss to the holders of the $9 Warrants at
the effective date of the Merger. Such gain or loss will be measured by the
difference between the fair market value of the Substitute Warrants and the
holder's basis, if any, in the $9 Warrants with respect to which the Substitute
Warrants are received. Such gain or loss will be capital gain or loss if the
Amati stock for which the $9 Warrants were exercisable would have been a capital
asset of the holder of the $9 Warrants and will be long-term if the $9 Warrants
have been held for more than a year at the Effective Date of the Merger.
A $9 Warrant may be exercised in whole or in part prior to the closing of
the Merger by surrendering the warrant at the principal office of Amati,
accompanied by payment in full, in cash or by check payable to the order of
Amati Communications Corporation, of the purchase price, AT ANY TIME BEFORE 5:00
P.M., CALIFORNIA LOCAL TIME, ON NOVEMBER 3, 1995. Unless you specify otherwise,
such exercise shall be conditioned upon the consummation of the Merger. THE
SHARES OF ICOT COMMON STOCK ISSUED IN THE MERGER WILL BE REGISTERED UNDER THE
SECURITIES ACT AND WILL BE SUBJECT TO THE ESCROW.
<PAGE>
Sincerely,
James F. Gibbons
CHAIRMAN OF THE BOARD
PRELIMINARY COPY -- FOR INFORMATION OF
SECURITIES AND EXCHANGE COMMISSION ONLY
AMATI COMMUNICATIONS CORPORATION
1575 EL CAMINO REAL WEST
MOUNTAIN VIEW, CALIFORNIA 94040
NOTICE TO HOLDERS OF AMATI NOTES
October , 1995
Dear Note Holder:
A Special Meeting of Shareholders of Amati Communications Corporation
("Amati") will be held on October 27, 1995, for the purpose of approving an
Amended and Restated Agreement and Plan of Reorganization, as amended (the
"Agreement of Reorganization") and related Agreement of Merger (collectively,
the "Merger Agreement") providing for the merger (the "Merger") of Amati into a
wholly-owned subsidiary of ICOT Corporation ("ICOT").
If the Merger is approved by the shareholders, each outstanding share of
Amati Common Stock and Series A Preferred Stock will be converted into shares of
ICOT Common Stock. ICOT will also assume all outstanding options of Amati, issue
substitute warrants for all outstanding warrants of Amati, and grant key
employees of Amati options to purchase shares of ICOT Common Stock. 1,050,000 of
the shares of ICOT Common Stock to be issued in the Merger, allocated pro rata
from the shares to be issued to each holder of Amati Common Stock (including
holders of options or warrants who exercise prior to or as of the effective date
of the Merger) and Series A Preferred Stock, will be held in escrow for a period
of one year following the Merger to indemnify ICOT against damages and expenses
from any breach of the representations and warranties and covenants of Amati
contained in the Merger Agreement.
The foregoing items of business are more fully described in the
Prospectus/Proxy Statement accompanying this notice.
In order to improve the cash position of the combined company as of the
closing of the Merger (the "Closing"), and also to meet a condition set forth in
the Agreement of Reorganization, Amati would like to induce holders of Amati
notes currently outstanding in the aggregate principal amount of $745,000 (the
"Outstanding Amati Notes") to extend the due dates of their notes. Holders of
Outstanding Amati Notes who agree to extend the payment of the principal and
interest on their notes until January 31, 1997 are being offered the opportunity
to exercise their corresponding Amati warrants, effective as of the Closing, at
a reduced exercise price per share. If you accept this offer you will receive
upon exercise of your warrant, effective as of the Closing, the number of shares
of ICOT Common Stock determined by dividing the aggregate purchase price of such
warrants by $1.50, at an exercise price of $1.50 per share, payable in cash. THE
SHARES OF ICOT COMMON STOCK ISSUED AT THE CLOSING WILL BE REGISTERED UNDER THE
SECURITIES ACT, AS AMENDED (THE "SECURITIES ACT") AND WILL BE SUBJECT TO THE
ESCROW DESCRIBED IN THE PROSPECTUS/PROXY STATEMENT.
Federal income tax treatment of holders who accept Amati's inducement offer
and exercise their warrants upon consummation of the Merger is unclear. Among
other possibilities, it is possible that the Internal Revenue Service would view
the making and acceptance of the inducement offer as a taxable exchange of the
affected warrants, with the result that the holder would have a taxable gain or
loss in the amount of the difference between (i) the value of the ICOT shares
received in the Merger with respect to the exercise of the warrants and (ii) the
sum of the holder's basis in the warrant and the warrant exercise price. Another
possibility is that the making and acceptance of the inducement offer would not
be taxable to the holder and that exercise of the warrant in the Merger would
not result in taxable gain or loss to the holder. Due to uncertainties in the
federal income tax laws, which treatment would pertain cannot be predicted with
certainty. It is also likely that the extension of the due date of an
Outstanding Amati Note would be treated as an exchange of a new debt instrument
for the existing debt instrument, potentially taxable to the holder to the
extent the value of the Outstanding Amati Note at the time of the exchange
exceeds the holder's basis in such Note.
An Outstanding Amati Note may be extended and corresponding warrant may be
exercised for ICOT Common Stock by delivering the note and the warrant to the
principal office of Amati, accompanied by payment in full, in cash or by check
payable to the order of Amati Communications Corporation, of the exercise price,
AT ANY TIME BEFORE 5:00 P.M., CALIFORNIA LOCAL TIME, ON NOVEMBER 3, 1995. Such
exercise shall be conditioned upon the consummation of the Merger.
Sincerely,
<PAGE>
James F. Gibbons
CHAIRMAN OF THE BOARD
<PAGE>
ICOT CORPORATION AMATI COMMUNICATIONS CORPORATION
PROSPECTUS/PROXY STATEMENT
ICOT CORPORATION ("ICOT") has filed a Registration Statement on Form S-4
(the "Registration Statement") with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the
"Securities Act") for the registration of 6,788,924 shares of its authorized but
unissued Common Stock, $.20 par value per share ("ICOT Common Stock"), to be
issued in connection with the merger (the "Merger") of AMATI COMMUNICATIONS
CORPORATION ("Amati") with a wholly-owned subsidiary of ICOT. As a result of the
Merger, Amati will be merged into a wholly-owned subsidiary of ICOT and each
outstanding share of Amati Common Stock, no par value ("Amati Common Stock"),
and each share of Amati Series A Preferred Stock, no par value ("Amati Series A
Preferred Stock" and, together with the Amati Common Stock, the "Amati Voting
Stock"), will be converted into the number of shares of ICOT Common Stock equal
to the Applicable Ratio (as defined below). ICOT will also assume outstanding
Amati stock options and issue substitute warrants for outstanding Amati
warrants, all on the basis of the Applicable Ratio. Assuming that the Adjustment
Condition (as defined below) is satisfied, ICOT will issue or reserve for
issuance to the holders of Amati Common Stock, Amati Series A Preferred Stock,
Amati options and Amati warrants 6,788,924 shares of ICOT Common Stock, and,
after the Merger, on a fully-diluted basis, former Amati securities holders will
hold 35% of the total outstanding common stock equivalents of ICOT and the
former ICOT securities holders will hold 65% of the outstanding common stock
equivalents of ICOT. See "Terms of the Merger -- Manner and Basis of Converting
Shares," "Terms of the Merger -- Adjustment Condition," "Terms of the Merger --
Amati Stock Options" and "Terms of the Merger -- Substitution of Warrants." In
addition, following the Merger, ICOT will issue options (the "Performance
Options") to purchase 1,616,411 shares of ICOT Common Stock to key employees of
Amati. See "Terms of the Merger -- Performance Options." 1,050,000 of the shares
of ICOT Common Stock to be issued in the Merger, allocated pro rata from the
shares to be issued to each holder of Amati Common Stock (including holders of
options or warrants who exercise prior to or as of the effective date of the
Merger) and Series A Preferred Stock, will be held in escrow for a period of one
year following the Merger to indemnify ICOT against damages and expenses from
any breach of the representations and warranties and covenants of Amati
contained in the Merger Agreement. See "Terms of the Merger -- Escrow of
Shares." If approved by ICOT stockholders and Amati shareholders, the Merger is
expected to be consummated as soon as practicable after the Special Meeting of
Stockholders of ICOT and the Special Meeting of Shareholders of Amati. After the
Merger, the name of ICOT will be changed to "Amati Communications Corporation."
Holders of Amati Voting Stock may, under certain circumstances and by
following prescribed statutory procedures, exercise dissenters' rights to
receive cash for their shares. See "Terms of the Merger -- Dissenters' Rights."
This Prospectus/Proxy Statement constitutes: (a) the Proxy Statement of ICOT
relating to the solicitation of proxies by the Board of Directors of ICOT for
use at the Special Meeting of Stockholders of ICOT scheduled to be held on
November 6, 1995, at which the Merger and several related proposals will be
presented to the ICOT stockholders; (b) the Proxy Statement of Amati relating to
the solicitation of proxies by the Board of Directors of Amati for use at the
Special Meeting of Shareholders of Amati to be held on October 27, 1995; and (c)
the Prospectus of ICOT for the related issuance of ICOT Common Stock filed as
part of the Registration Statement. All information herein with respect to ICOT
has been furnished by ICOT, and all information herein with respect to Amati has
been furnished by Amati.
--------------------------
THE MERGER INVOLVES CERTAIN RISKS TO HOLDERS OF ICOT AND AMATI SECURITIES.
SEE "RISK FACTORS" ON PAGES 13-18.
--------------------------
THE SECURITIES OF ICOT TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS
OCTOBER , 1995
<PAGE>
AVAILABLE INFORMATION
ICOT has filed with the Commission a Registration Statement under the
Securities Act on Form S-4 (together with all amendments and exhibits thereto)
with respect to the Common Stock offered hereby. This Prospectus/Proxy Statement
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto, certain parts of which have been omitted
in accordance with the rules and regulations of the Securities and Exchange
Commission. For such information, reference is made to the Registration
Statement and the exhibits and schedules thereto. In addition, ICOT is subject
to the information requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith is required to file
periodic reports, proxy statements and other information with the Commission.
Copies of such materials may be obtained from the Commission at prescribed rates
by addressing written requests for such copies to the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Registration Statement and such reports, proxy statements and other information
can also be inspected and copied at the Commission's public reference facilities
referred to above and at the Commission's Regional Offices at Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661 and 7 World
Trade Center, Suite 1300, New York, New York 10008. This material may also be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
INFORMATION PROVIDED BY ICOT AND AMATI
Information in this Prospectus/Proxy concerning ICOT has been furnished by
ICOT and has not been independently verified or investigated by Amati.
Information in this Prospectus/Proxy concerning Amati has been furnished by
Amati and has not been independently verified or investigated by ICOT.
------------------------
ICOT-Registered Trademark- and OmniPath-Registered Trademark- are trademarks
of ICOT Corporation. Ethernet-Registered Trademark- is a trademark of Xerox
Corporation. Windows-Registered Trademark- is a trademark of Microsoft
Corporation.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THESE MATTERS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY ICOT OR AMATI. NEITHER THE DELIVERY HEREOF NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS HEREIN SET
FORTH SINCE THE DATE HEREOF. THIS PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY
THIS PROSPECTUS/PROXY STATEMENT OR A SOLICITATION OF A PROXY IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY............................................................... 1
The Companies....................................................... 1
Meetings of Stockholders of ICOT and Shareholders of Amati.......... 1
The Merger.......................................................... 3
GLOSSARY OF TECHNICAL TERMS........................................... 12
RISK FACTORS.......................................................... 13
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA...................... 19
COMPARATIVE PER SHARE DATA............................................ 22
PRICE RANGE OF COMMON STOCK........................................... 23
INTRODUCTION.......................................................... 24
VOTING AND PROXIES.................................................... 25
Date, Time and Place of Meetings.................................... 25
Record Date and Outstanding Shares.................................. 25
Voting of Proxies................................................... 25
Vote Required....................................................... 25
Solicitation of Proxies and Expenses................................ 26
THE MERGER AND RELATED TRANSACTIONS................................... 26
Background to the Merger............................................ 26
Reasons for the Merger.............................................. 27
Business After the Merger........................................... 29
Management After the Merger......................................... 29
Voting Agreements................................................... 29
Irrevocable Proxies................................................. 30
TERMS OF THE MERGER................................................... 30
Effective Date of the Merger........................................ 30
Manner and Basis of Converting Shares............................... 30
Escrow of Shares.................................................... 31
Applicable Ratio and Adjustments to Applicable Ratio................ 31
Adjustment Condition................................................ 31
Offer to Note Holders............................................... 32
Exchange of Certificates............................................ 33
Amati Stock Options................................................. 33
Substitution of Warrants............................................ 33
Performance Options................................................. 34
Conduct of Business Prior to the Merger............................. 34
ICOT Loans to Amati................................................. 35
Amati Warrant to ICOT............................................... 35
Conditions to the Merger............................................ 35
Termination or Amendment of Agreement of Reorganization............. 36
Certain Federal Income Tax Matters.................................. 36
Affiliates' Restrictions on Sale of ICOT Common Stock............... 38
Governmental and Regulatory Approvals............................... 39
Merger Expenses..................................................... 39
Dissenters' Rights.................................................. 39
AMATI SELECTED FINANCIAL DATA......................................... 41
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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AMATI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION................................................. 42
<S> <C>
ICOT SELECTED CONSOLIDATED FINANCIAL DATA............................. 45
ICOT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................ 46
INFORMATION CONCERNING AMATI.......................................... 51
Background.......................................................... 51
Products and Markets................................................ 51
Technology.......................................................... 53
Contract Development................................................ 54
Relationship with Motorola.......................................... 55
Customers........................................................... 55
Competition......................................................... 56
Sales, Marketing, Customer Support.................................. 56
Manufacturing....................................................... 56
Research and Development............................................ 57
Patents and Other Intellectual Property............................. 57
Employees........................................................... 57
Facilities.......................................................... 58
Executive Officers and Directors.................................... 58
Principal Shareholders.............................................. 59
Description of Amati Warrants....................................... 60
INFORMATION CONCERNING ICOT........................................... 62
Products and Customers.............................................. 62
Service............................................................. 63
Manufacturing....................................................... 63
Marketing........................................................... 63
Backlog............................................................. 63
Research and Development............................................ 63
Competition......................................................... 64
Patents, Trademarks, Licenses....................................... 64
Employees........................................................... 65
Properties.......................................................... 65
Legal Proceedings................................................... 65
Executive Officers and Directors.................................... 66
Board Compensation.................................................. 66
Executive Compensation.............................................. 67
Certain Relationships and Related Transactions...................... 68
Security Ownership of Certain Beneficial Owners and Management...... 68
ADDITIONAL MATTERS FOR CONSIDERATION OF ICOT STOCKHOLDERS............. 70
Additional Proposal 1 -- Amendment to ICOT's Certificate of
Incorporation to Change the Name of ICOT... 70
Additional Proposal 2 -- Amendment to ICOT's Certificate of
Incorporation to Increase Authorized
Shares..................................... 70
Additional Proposal 3 -- Amendments to the ICOT 1990 Stock Option
Plan....................................... 71
Other Business...................................................... 75
ASSUMPTION OF THE AMATI STOCK OPTION PLAN............................. 76
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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DESCRIPTION OF ICOT CAPITAL STOCK..................................... 79
<S> <C>
ICOT Common Stock................................................... 79
ICOT Preferred Stock................................................ 79
Comparison of Rights of Holders of ICOT and Amati Stock............. 79
Transfer Agent and Registrar........................................ 88
LEGAL MATTERS......................................................... 88
EXPERTS............................................................... 88
INDEX TO FINANCIAL STATEMENTS......................................... F-1
APPENDIX A
Amended and Restated Agreement and Plan of Reorganization and Merger
among ICOT, Amati and IAAC and Amendment thereto..................... A-1
APPENDIX B
Agreement of Merger among ICOT, Amati and IAAC....................... B-1
APPENDIX C
Section 1300 ET SEQ. of the California Corporations Code............. C-1
</TABLE>
iii
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Prospectus/ Proxy Statement. This summary does not contain a complete
statement of all material features of the proposals to be voted on and is
qualified in its entirety by the more detailed information appearing elsewhere
in this Prospectus/Proxy Statement and in the Appendices. The Merger involves
certain risks to holders of ICOT and Amati securities. See "Risk Factors."
THE COMPANIES
<TABLE>
<S> <C>
ICOT.............................. ICOT Corporation, a Delaware corporation ("ICOT"),
develops, manufactures, markets and services network
connectivity products for sale to end-users and Original
Equipment Manufacturers ("OEM"). ICOT's principal
executive offices are located at 3801 Zanker Road, San
Jose, California 95150 and its telephone number at that
address is (408) 433-3300. See "Information Concerning
ICOT."
Amati............................. Amati Communications Corporation, a California
corporation ("Amati"), a development stage company,
develops telecommunications transmission products
utilizing Discrete Multi-Tone ("DMT") technology to
provide high speed digital video, voice and data
transmission over unconditioned copper wire or coaxial
cable. In 1993, Amati's DMT technology was selected as
the American National Standards Institute ("ANSI")
standard for Asymmetric Digital Subscriber Line ("ADSL")
transmission and, as a result, is recognized as the
United States standard for ADSL. Amati's principal
executive offices are located at 1975 El Camino Real
West, Mountain View, California 94040, and its telephone
number at that address is (415) 903-2350. See
"Information Concerning Amati."
</TABLE>
MEETINGS OF STOCKHOLDERS OF ICOT AND SHAREHOLDERS OF AMATI
<TABLE>
<S> <C>
Time, Date, Place and Purpose..... A Special Meeting of Stockholders of ICOT (the "ICOT
Meeting") will be held on November 6, 1995 at 1:30 p.m.,
local time, at ICOT's principal executive offices, 3801
Zanker Road, San Jose, California.
A Special Meeting of Shareholders of Amati (the "Amati
Meeting") will be held on October 27, 1995, at 10:00
a.m., local time, at Amati's principal executive
offices, 1975 El Camino Real West, Mountain View,
California.
At the ICOT Meeting, ICOT stockholders will be asked to
consider and vote upon proposals to:
(i) approve the Amended and Restated Agreement and Plan
of Reorganization and Merger (the "Agreement of
Reorganization") dated as of August 3, 1995 as amended
by the Amendment thereto dated October 6, 1995 (copies
of which are attached hereto as APPENDIX A), and the
related
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Agreement of Merger (a copy of which is attached hereto
as APPENDIX B) (collectively, the "Merger Agreement")
among Amati, ICOT and a wholly-owned subsidiary of ICOT;
(ii) approve, subject to approval of the Merger
Agreement, an amendment to ICOT's Certificate of
Incorporation to change the name of the corporation to
"Amati Communications Corporation;"
(iii) approve, subject to approval of the Merger
Agreement, an amendment to ICOT's Certificate of
Incorporation to increase the authorized number of
shares of ICOT Common Stock from 20,000,000 to
45,000,000 shares; and
(iv) approve amendments to the ICOT 1990 Stock Option
Plan to increase the shares available for issuance
thereunder by 2,600,000 shares and to limit the number
of shares that may be granted to any participant in any
one-year period to 1,000,000 shares.
The Merger can be completed only if the ICOT
stockholders vote to approve proposals (i), (iii) and
(iv) above, even though ICOT stockholders will vote upon
each of these items separately. If ICOT stockholders
fail to approve any one of these proposals, the Merger
cannot be consummated. Approval of proposal (ii) is not
required to complete the Merger. However, the ICOT Board
of Directors unanimously recommends a vote in favor of
each of the proposals.
See "The Merger and Related Transactions" and
"Additional Matters for Consideration of ICOT
Stockholders."
At the Amati Meeting, Amati shareholders will be asked
to consider and vote upon the Merger Agreement. See "The
Merger and Related Transactions."
Record Dates; Vote Required;
Voting Agreements; Irrevocable
Proxies.......................... The record date for stockholders of ICOT entitled to
vote upon the Merger is September 29, 1995. The record
date for shareholders of Amati entitled to vote upon the
Merger is August 30, 1995. Under applicable law,
approval of the Merger requires the affirmative vote of
the holders of a majority of the outstanding shares
entitled to vote of (i) the ICOT Common Stock, (ii) the
Amati Common Stock and (iii) the Amati Series A
Preferred Stock. The presence, either in person or by
properly executed proxy, at the ICOT Meeting and at the
Amati Meeting (the "Meetings") of the holders of a
majority of the outstanding shares entitled to vote at
each Meeting is necessary to constitute a quorum at such
Meeting.
The directors of ICOT, who, as of September 29, 1995, in
the aggregate beneficially own 621,600 shares of the
issued and outstanding ICOT Common Stock (5.15%), have
agreed to vote in favor of the Merger. See "The Merger
and Related Transactions -- Voting Agreements." Certain
affiliates of Amati who, as of August 30, 1995, in the
aggregate
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
beneficially own 494,083 shares of the issued and
outstanding Amati Common Stock (91.5%), and 250,000
shares of the issued and outstanding Amati Series A
Preferred Stock (76.9%), have given ICOT irrevocable
proxies (the "Irrevocable Proxies"), in consideration of
certain loans to Amati, which proxies ICOT intends to
vote in favor of the Merger. See "The Merger and Related
Transactions -- Irrevocable Proxies." The Merger and the
Merger Agreement must be approved by the ICOT
stockholders and Amati shareholders. Each party's
obligation to consummate the Merger is subject to a
number of conditions, including that ICOT's obligation
to consummate the Merger is conditioned on the approval
of the Merger Agreement by holders of at least 95% of
the outstanding Amati Voting Stock. See "Terms of the
Merger -- Conditions to the Merger."
</TABLE>
THE MERGER
<TABLE>
<S> <C>
Effect of Merger; Name and Symbol
Change........................... If approved by the stockholders of ICOT and the
shareholders of Amati and if all the other closing
conditions are met:
Amati will be merged into IA Acquisition Corporation, a
California corporation and a wholly-owned subsidiary of
ICOT ("IAAC").
The name of ICOT will be changed to "Amati
Communications Corporation" and the trading symbol for
the ICOT Common Stock will become "AMTX." See
"Additional Matters for Consideration of ICOT
Stockholders."
Effective Date of the Merger...... The Merger will be effective when the Agreement of
Merger is filed with the California Secretary of State
(the "Effective Date of the Merger"). The Effective Date
of the Merger is currently expected to be on or about
November 10, 1995, subject to approval of the Merger at
the Meetings, and further subject to the satisfaction or
waiver of the conditions precedent to the Merger set
forth in the Agreement of Reorganization. See "Terms of
the Merger -- Effective Date of the Merger" and "Terms
of the Merger -- Conditions to the Merger."
Reasons for the Merger............ The Boards of both ICOT and Amati believe that the
Merger is desirable for both companies because the
product development efforts of Amati and ICOT are
synergistic, and there is an opportunity to benefit from
economies of scale afforded by the Merger. In addition,
the Merger gives ICOT the opportunity to participate in
an emerging market with a new technology, and gives
Amati better access to capital and an opportunity for
liquidity for its shareholders. See "The Merger and
Related Transactions -- Reasons for the Merger."
Terms of the Merger............... As a result of the Merger, on a fully-diluted basis and
subject to satisfaction of the Adjustment Condition (as
defined
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
below), the former Amati securities holders will hold
35% of the total outstanding common stock equivalents of
ICOT and the former ICOT securities holders will hold
65% of the total outstanding common stock equivalents of
ICOT. Subject to the Adjustment Condition, a total of
6,788,924 common equivalent shares of ICOT Common Stock
will be issued in conversion of outstanding shares of
Amati Common Stock and Series A Preferred Stock or
reserved for issuance upon exercise of Amati employee
stock options and Substitute Warrants (as defined
below). In addition, 1,616,411 shares of ICOT Common
Stock will be reserved for issuance upon exercise of
options (the "Performance Options") to be granted to key
Amati employees after the Merger.
APPLICABLE RATIO. The exchange ratio (the "Applicable
Ratio") at which each outstanding share of Amati Voting
Stock (other than shares, if any, as to which
dissenters' rights have been exercised pursuant to
California law) will be converted into ICOT Common Stock
is expected to be 4.6126 shares of ICOT Common Stock per
share of Amati Voting Stock.
ADJUSTMENTS TO APPLICABLE RATIO. Amati has agreed to
use its best efforts to obtain $838,000 in new financing
for Amati prior to the consummation of the Merger. This
requirement is called the "Adjustment Condition." Amati
may obtain such financing in a variety of ways. Amati is
seeking to satisfy the Adjustment Condition through an
offer (the "Offer to Note Holders") to holders of
outstanding bridge loans in the aggregate principal
amount of $745,000 (the "Outstanding Amati Notes"). If
the Offer to Note Holders is not accepted by all holders
of Outstanding Amati Notes, the Applicable Ratio will be
adjusted.
OFFER TO NOTE HOLDERS. In order to improve the cash
position of the combined company as of the closing of
the Merger (the "Closing"), and as a means of meeting
the Adjustment Condition, Amati would like to induce the
holders of the Outstanding Amati Notes to extend the due
date of their notes. Accordingly, holders of Outstanding
Amati Notes who agree to extend payment of the principal
and interest on their notes until January 31, 1997 are
being offered the opportunity to exercise their
corresponding Amati Warrants (as defined below)
effective as of the Closing at a reduced price per
share. If this offer is accepted, a Note Holder will
receive upon exercise of an Amati Warrant, effective as
of the Closing, the number of shares of ICOT Common
Stock determined by dividing the aggregate purchase
price of such warrant by $1.50, at an exercise price of
$1.50 per share, payable in cash. THE SHARES OF ICOT
COMMON STOCK ISSUED AT THE CLOSING TO SUCH HOLDERS WILL
BE REGISTERED UNDER THE SECURITIES ACT AND WILL BE
SUBJECT TO THE ESCROW.
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AMATI COMMON STOCK AND SERIES A PREFERRED STOCK. In the
Merger, each share of Amati Common Stock and Series A
Preferred Stock (other than shares, if any, as to which
dissenters' rights have been exercised pursuant to
California law) shall be converted into the number of
shares of ICOT Common Stock equal to the Applicable
Ratio.
AMATI OPTIONS. From and after the time of the Merger,
each option to acquire Amati Common Stock issued under
Amati's 1992 Stock Option Plan shall entitle the holder
thereof to receive upon exercise that number of shares
of ICOT Common Stock determined by multiplying the
number of shares of Amati Common Stock covered thereby
by the Applicable Ratio, which number of shares shall be
rounded down to the nearest whole share, at an exercise
price for each full share of ICOT Common Stock equal to
the exercise price per share of Amati Common Stock
divided by the Applicable Ratio, which exercise price
per share shall be rounded up to the nearest two-place
decimal.
AMATI WARRANTS. In the Merger, each outstanding Amati
Warrant which has not been exercised prior to or
effective as of the Closing will be exchanged for a
warrant to purchase shares of ICOT Common Stock (each a
"Substitute Warrant"). For each Amati warrant having an
exercise price per share of $6.00 or $9.00 (each a
"Dollar Value Warrant"), ICOT will issue a Substitute
Warrant exercisable for the number of shares of ICOT
Common Stock determined by multiplying the number of
shares of Amati Common Stock issuable upon the exercise
of such Dollar Value Warrant by the Applicable Ratio,
rounded down to the nearest whole share, at an exercise
price for each full share of ICOT Common Stock equal to
the exercise price per share of Amati Common Stock
divided by the Applicable Ratio, rounded up to the
nearest two-place decimal. For each other outstanding
Amati warrant (each a "Fair Value Warrant" and, together
with the Dollar Value Warrants, the "Amati Warrants"),
ICOT will issue a Substitute Warrant exercisable for the
number of shares of ICOT Common Stock determined by
dividing the aggregate exercise price of the Fair Value
Warrant by $4.926 at an exercise price of $4.926 for
each full share of ICOT Common Stock.
REGISTRATION. IF AMATI WARRANTS ARE EXERCISED PRIOR TO
OR EFFECTIVE AS OF THE CLOSING, THE WARRANT HOLDERS WILL
RECEIVE SHARES OF ICOT COMMON STOCK THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT. IF AMATI WARRANTS
ARE NOT EXERCISED PRIOR TO OR EFFECTIVE AS OF THE
CLOSING, THE WARRANT HOLDERS WILL RECEIVE SUBSTITUTE
WARRANTS THAT WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT, AND
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WARRANT HOLDERS WILL NOT HAVE ANY RIGHT TO REGISTER THE
SUBSTITUTE WARRANTS OR THE SHARES TO BE RECEIVED UPON
EXERCISE THEREOF.
See "Terms of the Merger -- Manner and Basis of
Converting Shares," "Terms of the Merger -- Applicable
Ratio and Adjustments to Applicable Ratio," "Terms of
the Merger -- Adjustment Condition," "Terms of the
Merger -- Offer to Note Holders," "Terms of the Merger
-- Amati Stock Options," and "Terms of the Merger --
Substitution of Warrants."
Escrow............................ 1,050,000 of the shares of ICOT Common Stock to be
issued in the Merger will be delivered to an escrow
established with Chemical Trust Company of California
("Chemical Trust"). Such shares will be allocated pro
rata from the shares of ICOT Common Stock issued to each
holder of Amati Voting Stock (including holders of Amati
Warrants who exercise their warrants prior to or
effective as of the Closing) and will be held in escrow
for a period of one year following the Merger to
indemnify ICOT against damages and expenses arising from
any breach of the representations, warranties and
covenants of Amati contained in the Agreement of
Reorganization. John Bingham, Frank Kocsis, Kathy Ku and
James Ottinger have been selected to act as
representatives of the Amati shareholders in connection
with the escrow. See "Terms of the Merger -- Escrow of
Shares."
Grant of Performance Options to
Amati Employees.................. ICOT has agreed to issue, within one month of the
Closing, options to purchase 1,616,411 shares of ICOT
Common Stock under the ICOT 1990 Stock Option Plan (the
"Performance Options") to certain key employees of
Amati, provided that they are then employed by ICOT and
have exercised the Amati Options granted to them prior
to 1995. The Performance Options shall vest on the
fourth anniversary of the grant date; provided, however,
such options shall become immediately exercisable upon
certification that net Amati product revenues for the
period from July 1, 1995 through June 30, 1996 have
exceeded $8,000,000. The Performance Options shall be
granted at fair market value and be exercisable for at
least six months from the vesting date. See "Terms of
the Merger -- Performance Options."
Recommendations of the Boards of
ICOT and Amati................... The Board of Directors of each company has unanimously
approved the Merger Agreement and the transactions
contemplated thereby. THE BOARD OF EACH COMPANY
UNANIMOUSLY RECOMMENDS APPROVAL OF THE MERGER BY THE
STOCKHOLDERS OR SHAREHOLDERS OF SUCH COMPANY. For a
discussion of the reasons favoring a merger of the two
companies considered by each company's Board of
Directors in approving the Merger Agreement, see "The
Merger and Related Transactions -- Reasons for the
Merger."
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The Board of Directors and
Management of The Combined
Company Following the Merger..... After the Merger, the Board of Directors of the combined
company will consist of five members, who will be:
Arnold N. Silverman, Aamer Latif and Donald L. Lucas,
each of whom is presently a director of ICOT and Amati,
and Dr. James F. Gibbons and Dr. John M. Cioffi, each of
whom is presently a director of Amati (see "Information
Concerning ICOT -- Executive Officers and Directors" and
"Information Concerning Amati -- Executive Officers and
Directors"). Mr. Latif, President, Chief Executive
Officer and Chief Financial Officer of ICOT, who
currently also serves as President and Chief Executive
Officer of Amati, will serve as acting President, Chief
Executive Officer and Chief Financial Officer of the
combined company; Dr. Cioffi, currently Vice President,
Engineering and Chief Technical Officer of Amati, will
be appointed Vice President, Engineering and Chief
Technical Officer of the combined company; Joseph F.
Grady, currently Vice President, Worldwide Sales, of
Amati, will be appointed Vice President, Worldwide Sales
of the combined company; and Terry Medel, who currently
serves as Treasurer, Secretary and Controller of ICOT,
will serve in such capacities and as principal
accounting officer of the combined company. The Amati
Board is actively seeking a new Chief Executive Officer
for the combined company. Because Amati is a development
stage company, and because the businesses of Amati and
ICOT must be integrated after the Merger, the ultimate
management structure of the combined company is subject
to change. See "The Merger and Related Transactions --
Management After the Merger."
Amendments to ICOT Certificate of
Incorporation and 1990 Stock
Option Plan...................... In connection with the Merger, stockholders of ICOT are
being asked to approve amendments to the Certificate of
Incorporation of ICOT to (i) change the name of the
corporation to Amati Communications Corporation and (ii)
increase the authorized number of shares of ICOT Common
Stock from 20,000,000 to 45,000,000 shares. In addition,
stockholders of ICOT are being asked to approve
amendments to the ICOT 1990 Stock Option Plan to (i)
increase the number of shares available for issuance
thereunder by 2,600,000 shares and (ii) limit the number
of shares that may be granted to any participant in any
one-year period to 1,000,000 shares. Approval of each
amendment requires the affirmative vote of the holders
of a majority of the outstanding shares entitled to vote
of ICOT Common Stock. The increase in the authorized
shares of ICOT Common Stock is necessary to effect the
Merger. See "Additional Matters for Consideration of
ICOT Stockholders."
Exchange of Shares................ At the Effective Date of the Merger, each issued and
outstanding share of Amati Common Stock and Series A
Preferred Stock (other than shares, if any, as to which
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dissenters' rights have been exercised pursuant to
California law) automatically will be converted into
ICOT Common Stock based on the Applicable Ratio.
Exchange of certificates evidencing shares of Amati
Common Stock and Amati Series A Preferred Stock for
certificates evidencing shares of ICOT Common Stock will
be made upon surrender of the former to Chemical Mellon
Shareholder Services Company of California, as exchange
agent ("Chemical Mellon"). CERTIFICATES SHOULD NOT BE
SURRENDERED FOR EXCHANGE PRIOR TO CONSUMMATION OF THE
MERGER. Promptly after the Effective Date of the Merger,
Amati shareholders will be provided with a letter of
transmittal and related materials needed to exchange
their certificates. See "Terms of the Merger -- Manner
and Basis of Converting Shares" and "Terms of the Merger
-- Exchange of Certificates."
Conditions to the Merger.......... Notwithstanding approval of the Merger by the
stockholders of ICOT and the shareholders of Amati, the
consummation of the Merger is subject to a number of
conditions which, if not fulfilled or waived, permit
termination of the Agreement of Reorganization.
Each party's obligation to consummate the Merger is
conditioned on, among other things, the accuracy of the
other party's representations and warranties, the other
party's performance of its covenants, the absence of any
litigation adverse to the completion of the merger,
legal opinions (including opinions to the effect that
the Merger will constitute a tax free reorganization to
the Amati shareholders for federal income tax purposes),
and the approval of the increases in authorized capital
stock and in the shares authorized for issuance under
the ICOT 1990 Stock Option Plan by the ICOT
stockholders.
ICOT's obligation to consummate the Merger is further
conditioned on (i) the compliance of the issuance of
ICOT Common Stock and Substitute Warrants in the Merger
with federal and state securities laws; (ii) the
approval of the Merger by holders of at least 95% of the
Amati Voting Stock; (ii) that certain Amati agreements
be in full force in effect; (iv) that a key person life
insurance policy on the life of Dr. Cioffi be in effect;
and (v) that the Irrevocable Proxies be in full force
and effect. Amati's obligation to consummate the Merger
is further conditioned upon (i) the appointment of Dr.
Gibbons and Dr. Cioffi to the ICOT Board of Directors;
and (ii) that the Voting Agreements be in full force and
effect.
At any time on or prior to the Effective Date of the
Merger, to the extend legally allowed, either ICOT or
Amati, without approval of the stockholders of such
company, may waive compliance with any of the agreements
or conditions contained in the Merger Agreement for the
benefit of such company.
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See "Terms of the Merger -- Conditions to the Merger."
Termination or Amendment.......... The Agreement of Reorganization may also be terminated
by at any time prior to the Effective Date of the
Merger, without regard to whether stockholder approval
of the Merger has been obtained (i) by mutual consent of
ICOT and Amati, or (ii) by either ICOT or Amati if any
of the conditions precedent to the obligation of such
party have not been fulfilled by November 30, 1995 or on
the happening of a material breach by the other party.
The Agreement of Reorganization may be amended by the
parties thereto at any time before or after approval of
the Merger by the ICOT stockholders or Amati's
shareholders, except that, after such approval has been
obtained, no amendment may be made that by law requires
further approval of the ICOT stockholders or Amati
shareholders unless such approval is obtained.
See "Terms of the Merger -- Termination or Amendment of
Agreement of Reorganization."
ICOT Loans to Amati............... As of August 4, 1995, ICOT had provided Amati with loans
in an aggregate principal amount of $2,971,900 to pay
the principal and interest due under certain bridge
notes and certain accounts payable and to fund Amati's
operations. Pursuant to the Agreement of Reorganization,
ICOT has agreed to provide an additional loan to Amati
to cover reasonable operating expenses as approved by
ICOT, in such amount to bring the aggregate principal
amount outstanding under the loans up to $5,000,000.
These loans are evidenced by a senior secured promissory
note (the "New Amati Note") due and payable at the
earlier of November 30, 1995 or a material breach by
Amati of the Agreement of Reorganization. See "Terms of
the Merger -- ICOT Loans to Amati."
Irrevocable Proxies............... In consideration of continuation of the existing loans
and providing the additional loan to Amati, ICOT has
received irrevocable proxies from certain affiliates of
Amati (the "Irrevocable Proxies"). See "Terms of the
Merger -- Irrevocable Proxies."
Amati Warrant to ICOT............. Amati has issued to ICOT a warrant exercisable for 65%
of the common stock equivalents of Amati for the
aggregate exercise price of $5,000,000, payable in cash
or by cancellation of the New Amati Note (the "New Amati
Warrant"). The New Amati Warrant is exercisable any time
prior to or on November 30, 1996, in the event that the
Merger does not occur for any reason prior to November
30, 1995. See "Terms of the Merger -- Amati Warrant to
ICOT."
Governmental and Regulatory
Approvals........................ ICOT and Amati are aware of no governmental or
regulatory approvals required for consummation of the
Merger, other
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than compliance with federal and applicable state
securities laws and the filing and recording of the
Agreement of Merger as required under California law.
Affiliate's Agreement............. Pursuant to the Agreement of Reorganization, each Amati
affiliate is required to execute an agreement (the
"Affiliate's Agreement") providing that such person
shall not offer or sell or otherwise dispose of any of
the ICOT Common Stock issued to such person in the
Merger in violation of Rule 145 of the Securities Act.
In addition, the Affiliate's Agreements will provide
that each affiliate shall not, without the written
permission of ICOT, sell or otherwise dispose of any
ICOT Common Stock issued to him in the Merger until 90
days after the consummation of the Merger nor more than
25% of such ICOT Common Stock before the first
anniversary of such date. Dr. Cioffi has entered into an
Affiliate's Agreement providing that he shall not,
without the written permission of ICOT, sell or
otherwise dispose of more than 25% of the ICOT common
stock equivalents issued to him before the first
anniversary of such date nor more than 50% of such ICOT
common stock equivalents before the second anniversary
of such date. See "Terms of the Merger -- Affiliates'
Restrictions on Sale of ICOT Stock."
Certain Federal Income Tax
Consequences..................... The Merger is intended to be a tax-free reorganization
for federal income tax purposes, and consummation of the
Merger is conditioned upon receipt of opinions of
counsel to ICOT and Amati relating to certain tax
matters. If the Merger is a tax-free reorganization,
shareholders of Amati will recognize no gain or loss for
federal income tax purposes as a result of their
exchange of Amati Voting Stock for ICOT Common Stock in
the Merger, except to the extent that they exercise
dissenters' rights or receive cash in lieu of fractional
shares. However, the exchange of unexercised Amati
Warrants for Substitute Warrants in the Merger will
result in taxable gain or loss to the holders of the
Amati Warrants at the Effective Date of the Merger. The
federal income tax treatment of holders of Outstanding
Amati Notes who accept the Offer to Note Holders is
unclear. See "Terms of the Merger -- Certain Federal
Income Tax Matters."
Dissenters' Rights................ Amati shareholders are entitled to certain rights under
California law to receive cash for their shares provided
that they follow certain prescribed statutory
procedures. The failure of a dissenting shareholder to
follow the appropriate procedure may result in the
termination or waiver of such rights. See "Terms of the
Merger -- Dissenters' Rights."
Certain Effects of the Merger on
ICOT............................. After the Merger, two of the five members of the ICOT
Board of Directors will be former Amati directors. In
addition, former Amati shareholders will beneficially
own approximately 35% of the outstanding ICOT common
stock equivalents, and, because ICOT's Certificate of
Incorporation
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provides for cumulative voting in the election of
directors, these former Amati shareholders, assuming all
6,788,924 shares of ICOT Common Stock are issued and
outstanding and still held by these persons, will have
the ability to elect two directors. See "Risk Factors --
Share Ownership of ICOT by Amati Shareholders" and
"Description of ICOT Capital Stock -- Comparison of the
Rights of Holders of ICOT and Amati Stock -- Cumulative
Voting."
Certain Effects of the Merger on
the Rights of Amati
Shareholders..................... The internal affairs of Amati are currently governed by
Amati's Articles of Incorporation and Amati's Bylaws,
which are governed by California law. Upon consummation
of the Merger, the shareholders of Amati will become
stockholders of ICOT and their rights will be governed
by ICOT's Certificate of Incorporation and Bylaws, which
are governed by Delaware law. See "Description of ICOT's
Capital Stock."
Risk Factors...................... Amati is a development stage company, and the combined
company is not expected to operate profitably in the
foreseeable future. The Merger, which is expected to be
completed in November 1995, will be accounted for as a
purchase and will result in the immediate write-off of
substantially all of the intangible assets acquired.
There are also other significant risks associated with
the Merger. See "Risk Factors."
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GLOSSARY OF TECHNICAL TERMS
APPLICATION PROGRAM INTERFACE (API): A software term used where proprietary
application programs have to talk to communications software, or conform to
protocols from another vendor's product.
APPLICATION-SPECIFIC INTEGRATED CIRCUIT (ASIC): Computer chips developed
for specific functions.
ASYMMETRIC DIGITAL SUBSCRIBER LINE (ADSL): A telecommunications line that
is capable of transmitting digital video, voice and data asymmetrically (i.e.,
at a different rate in each direction) from the central office of a local
telephone company to a subscriber's home over standard copper twisted-pair
wiring.
BIT: The fundamental unit of information.
DISCRETE MULTI-TONE (DMT): A multicarrier modulation line code technology
for transmission data that optimizes the available bandwidth in presence of
various type of noise on any type of media.
FIBER-IN-THE-LOOP (FITL): Refers to the various type of fiber-based local
loop architectures.
FIBER-TO-THE-CURB: A fiber-based local loop architecture where fiber from
the central office of a phone company terminates close to customer premises,
supporting four to sixteen homes.
HIGH BIT RATE DIGITAL SUBSCRIBER LINE (HDSL): A telecommunication
architecture that provides for transmission of digital video, voice and data
symmetrically on one or two twisted pair phone lines from the central office of
a phone company to a subscriber home or business.
HYBRID FIBER-COAXIAL (HFC): A telecommunications cable system combining the
use of fiber optic cable and coaxial cable technology.
INTEGRATED SERVICES DIGITAL NETWORK (ISDN): A dial-up digital
telecommunications line for data and voice that is often used to connect
branches or remote sites and home workers to central operations.
LOCAL AREA NETWORK (LAN): A collection of computers and other devices (such
as printers) connected to each other by wire (coaxial cable or fiber optics) or
radio frequency devices, which usually cover a small geographical area.
SYSTEMS NETWORK ARCHITECTURE (SNA): A proprietary network that links IBM
and non-IBM devices together.
TRANSCEIVER: Transmitter and receiver; a device that both transmits and
receives data, providing the electrical and physical interface to a network
cable.
VERY HIGH-SPEED DIGITAL SUBSCRIBER LINE (VDSL): A telecommunication
architecture that provides for transmission of digital video, voice and data
asymmetrically on twisted pair phone line from fiber-based pedestals, situated
in neighborhoods, to a subscriber's home.
VERY-LARGE-SCALE INTEGRATION (VLSI): A chip technology with a large number
of logic gates per chip.
WIDE AREA NETWORK (WAN): Communications network that covers large
geographical areas to connect computers and other devices and provides for voice
services.
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RISK FACTORS
The following factors, among others, should be carefully considered in
evaluating the Merger and in evaluating the respective and combined businesses
of ICOT and Amati before voting with respect to the matters to be considered at
the Meetings:
NEGATIVE EFFECT ON EARNINGS; DEVELOPMENT STAGE COMPANY. Amati is a
development stage company, and the combined company is not expected to operate
profitably in the foreseeable future. The Merger, which is expected to be
completed in October 1995, will be accounted for as a purchase and will result
in the immediate write-off of substantially all of the intangible assets
acquired. Amati has not yet generated significant revenues. Any long-term
viability, profitability and growth from Amati's technology will depend upon
successful commercialization of products resulting from its research and product
development activities. Extensive additional research and development will be
required prior to commercialization of Amati products. There can be no assurance
that the combined company will be able to develop commercially viable products
from the Amati technology, generate significant revenues and/or achieve
profitability.
NEED FOR ADDITIONAL CAPITAL. Amati is a development stage company which to
date has depended on outside funding, including development contract revenues,
and which has actively been seeking additional capital to meet its current
obligations and to provide for continued product development. Its markets are
embryonic and continuing investment will be required to provide the opportunity
to participate in the digital video access market, if it develops. In spring
1995, delays in product development and initial shipments of Amati's Overture 4
products resulted in a shortage of capital that caused Amati to further delay
shipments of prototypes for field trials. Amati was also forced to defer the
development of other prototype products. ICOT anticipates that the combined
company's available cash reserves and funds from operations, collaborative
research and development agreements, licensing agreements and investment income
should be adequate to satisfy capital requirements of the combined company
through the 1996 fiscal year under currently projected revenues and levels of
spending. However, the combined company's future capital requirements will
depend on many factors, including sales levels, progress in research and
development programs, the establishment of collaborative agreements, and costs
of manufacturing and commercialization activities. The combined company intends
to seek a line of credit. It is likely that the combined company will seek
additional funding through collaborative agreements or through public or private
sales of its securities prior to the commercialization of the Amati products.
There can be no assurance that a line of credit or additional funding will be
available on acceptable terms, if at all. If adequate funds are not available,
the combined company could be required to curtail significantly or defer,
temporarily or permanently, one or more of its research and development programs
or to obtain funds through arrangements that may require the combined company to
relinquish certain technology or product rights.
MARKET FOR AMATI ADSL PRODUCTS STILL UNDER DEVELOPMENT; PRINCIPAL ADSL
MARKET OUTSIDE THE UNITED STATES. ADSL was developed to transmit digital video
over copper wires. Although the current infrastructure in the local distribution
networks of telephone companies is based on copper wire, there can be no
assurance that telephone companies will pursue the deployment of ADSL systems to
allow the transmission of digital video, data and voice or, if deployment
occurs, as to the volume and timing of such deployment. Telephone companies are
generally cautious in deploying new technologies. Significant deployment may be
prevented or delayed by a number of factors, including cost, regulatory
barriers, lack of programming content, lack of consumer demand and the
availability of alternative technologies. Access systems with high performance
broadband capability, such as Amati's ADSL system, would be attractive to
telephone companies only to the extent that the telephone companies plan to
offer video-on-demand services which utilize the full features of a high
performance local distribution network. Substantial amounts of time, effort and
money will be required to develop such programming content. There can be no
assurance that sufficient programming content for video-on-demand services will
be developed to justify deploying digital video transmission systems, or that
programming content will be both attractive to consumers and offered at prices
that will create a mass market. If such products are developed, and there is
demand for them,
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there can be no assurance that telephone companies will select ADSL over
competing technologies, such as fiber-to-the-curb, hybrid fiber-coaxial ("HFC"),
and wireless communications. Fiber-to-the-curb, HFC and wireless systems have
greater bandwidth than the ADSL products being developed by Amati. Because
foreign telephone companies currently face less competition from cable companies
than telephone companies face in the United States, Amati believes that its
principal markets for ADSL will be outside the United States.
PRICE COMPETITIVENESS OF ADSL PRODUCTS. Amati believes that in order to
design and manufacture commercially acceptable products, cost improvements
beyond those available with current technology will be necessary. The future
success of the combined company will depend, in part, upon its ability to
develop ADSL products that compete effectively on the basis of price and
performance. Current prices are significantly higher than those that Amati
believes would be necessary for mass deployment of ADSL products. There can be
no assurance that the combined company will be successful in developing ADSL
products that can be sold at prices low enough to be viable in the market.
RAPID TECHNOLOGICAL CHANGE; COMPETITION. The combined company will be
engaged in evolving fields in which technological developments are likely to
continue at a rapid pace. Competition from existing companies, including major
communications companies, is expected to increase. Most of the combined
company's competitors are more established, benefit from greater market
recognition and have greater financial, technical, production and marketing
resources than the combined company. Some competitors are developing alternate
access technologies, such as HFC, fiber-to-the-curb and wireless systems, that
may prove technologically superior or more cost effective than Amati's
technology. There can be no assurance that developments by others will not
render the combined company's products or technologies obsolete or
noncompetitive or that the combined company will be able to keep pace with new
technological developments. Additionally, Amati is aware of other entities with
development efforts underway with DMT technology for the ADSL marketplace. These
include: ORCKIT Communications Ltd. ("ORCKIT"), Pairgain Technologies, Inc.
("Pairgain"), Aware Inc./Analog Devices Inc. ("Aware/Analog"), ECI Telecom Ltd.
("ECI"), LM Ericsson ("Ericsson"), and Alcatel Network Systems, Inc.
("Alcatel"). Further, other companies are addressing the ADSL market with
alternate technologies. For example, AT&T has developed a carrierless AM/PM
("CAP") technology for ADSL transmission. Even though AT&T's technology was not
selected as the ANSI standard, AT&T has greater resources than the combined
company will have, has successfully competed against Amati for telephone company
trials in the past, and is expected to continue to be a formidable competitor.
Because Amati's DMT technology was selected as the ANSI standard for the ADSL
specification, Amati is required to license its DMT technology for ADSL on a
fair and reasonable basis to all third parties who request a license. Motorola
Inc. ("Motorola") has taken a nonexclusive license to Amati's DMT technology for
ADSL, and other companies may choose to do so. Licensees may become competitors
of Amati. Further, Amati expects Motorola to use the Amati technology to develop
and sell a custom single chip that complies with the ANSI standard for ADSL.
Amati expects Motorola's customers to become competitors of Amati.
COMPETITION FOR VDSL STANDARDS. Amati expects to apply its DMT technology
to the development of Very High-Speed Digital Subscriber Lines ("VDSL") products
for the transmission of digital video service in connection with a fiber-optic
backbone to cover the distance from this platform or node to subscribers' homes
over copper wire or coaxial cable. ANSI has not yet awarded the standard for
VDSL technology, and the competition for the ANSI standard for VDSL is expected
to be intense. AT&T, as well as other companies with greater resources than the
combined company, are expected to compete for these standards. There is no
assurance that the combined company's DMT technology will be successful in
obtaining the ANSI VDSL standard.
DEPENDENCE ON COMPLEMENTARY PRODUCTS. Widespread use of ADSL and VDSL
products for digital video service will depend on the commercial availability of
other products and components, including the video content, digital switches,
video servers, encode/decode equipment, and set-top boxes in subscribers' homes.
There can be no assurance that other suppliers will develop and market
14
<PAGE>
these complementary components effectively or that these components, when
combined with the combined company's ADSL and VDSL products, will be a
cost-effective means of transmitting video-on-demand or video dialtone.
DEPENDENCE ON LARGE CUSTOMERS AND SYSTEMS INTEGRATORS. Amati typically
expects to sell its products to large telecommunications service companies, such
as AT&T, Northern Telecom Limited ("Northern Telecom"), Alcatel, Philips N.V.
("Philips"), Siemens AG ("Siemens"), NEC Corporation ("NEC"), Italtel S.p.A.
("Italtel"), Fujitsu Limited ("Fujitsu"), DSC Communications Corporation
("DSC"), Ericsson, Samsung Group ("Samsung") and Reliance Com/Tec Corporation
("Reliance Com/Tec"), which serve as integrators for the various component
systems that make up a video-on-demand or multimedia system. These systems
integrators in turn sell the systems to telephone companies for distribution to
their subscribers. Amati is largely dependent on these systems integrators for
the introduction of its products to field trials. There can be no assurance that
systems integrators will select Amati products for field trials or, if they do
initially select the Amati products, that they will continue to use the Amati
products even if they successfully perform in the trials. In addition, telephone
companies are generally reluctant to deploy new technologies available only from
a single source, especially when the supplier is as relatively small as the
combined company, and often require the availability of alternative sources
before deploying a new technology. This reluctance may put the combined company
at a competitive disadvantage relative to some of its competitors. Further,
acceptance of the combined company's products by these customers may require the
combined company to relinquish rights to its technology or products. There can
be no assurance, however, that even if the combined company were to relinquish
such rights to its technology or products, telephone companies would deploy the
combined company's ADSL or VDSL products.
ICOT CUSTOMER CONCENTRATION; RELIANCE ON SALES TO IBM. ICOT's marketing
strategy has included the development of OEM relationships with several
manufacturers, including International Business Machines Corporation ("IBM").
Sales to IBM accounted for approximately 83%, 62%, 65% and 81% of ICOT's net
sales in fiscal 1992, 1993, 1994 and the nine months ended April 29, 1995,
respectively. ICOT expects that IBM will continue to account for a significant
portion of ICOT's future sales, although IBM is not obligated to purchase any
specified amount of products or to provide ICOT with binding forecasts of
product purchases for any period. Furthermore, since IBM considers product sales
and market data confidential, ICOT has very little ability to forecast future
demand. There can be no assurance that IBM will continue to distribute and
support ICOT's products. ICOT's principal contract with IBM expires in December
1996. Further, IBM may terminate its agreements with ICOT upon 30 days' notice
without a significant penalty. Upon termination of these agreements, ICOT has
continuing obligations to provide certain products and technical support for a
period of years, at a price then to be negotiated. Should IBM choose to promote
products competitive with ICOT's product or terminate its relationship with
ICOT, ICOT's business could be materially and adversely affected. Any
development that would result in a substantial decrease or delay in sales to
IBM, including actions by competitors or technological changes, could have a
material adverse effect on the combined company's business and results of
operations.
DIFFICULTIES AND COSTS OF INTEGRATION. The anticipated benefits of the
Merger will not be achieved unless ICOT and Amati are successfully combined in a
smooth and timely manner. The transition to a combined company will require
substantial attention from management. As a result of the Merger, the combined
company expects to incur certain charges related to the integration of the
businesses. The transaction costs of the Merger through the closing, including
the fees of attorneys and accountants, are expected to be approximately
$800,000.
NEED TO HIRE AND RETAIN KEY PERSONNEL; MANAGEMENT STRUCTURE SUBJECT TO
CHANGE. Both ICOT and Amati are dependent upon the efforts and abilities of a
number of their current key personnel, including Amati's Vice President of
Engineering and Chief Technical Officer, Dr. John M. Cioffi, a full-time tenured
faculty member at Stanford University, who will serve as the chief technical
officer of the combined company. The loss of the services of any of the combined
company's key employees would have a material adverse effect on the combined
company. The combined company's success will also
15
<PAGE>
depend in large part upon its ability to attract and retain highly-skilled
technical, managerial, sales and marketing personnel. The Amati Board is
actively seeking a new Chief Executive Officer for the combined company.
Following the Merger, the combined company will need to hire additional
technical personnel in order to achieve commercialization of Amati's products.
If the combined company is unable to hire the necessary personnel, the
development of commercially viable products would likely be delayed or
prevented. Competition for highly skilled technical, managerial, sales and
marketing personnel is intense. There can be no assurance that the combined
company will be successful in retaining its key personnel and in attracting and
retaining the personnel it requires. Because Amati is a development stage
company, and because the businesses of Amati and ICOT must be integrated after
the Merger, the ultimate management structure of the combined company is subject
to change.
INTERNATIONAL BUSINESS. The combined company expects that sales outside of
the United States will represent a significant portion of its future sales,
especially of Amati's ADSL products. Operations outside of the United States are
subject to various risks, including exposure to currency fluctuations, the
imposition of governmental controls, the need to comply with a wide variety of
foreign and United States export laws, political and economic instability, trade
restrictions, changes in tariffs and taxes, and longer payment cycles typically
associated with international sales. Although the combined company expects that
its international sales activities for Amati products will primarily be handled
by collaborative partners with their own established distribution networks,
these overseas activities will be subject to the difficulties of managing
overseas operations and representatives. In addition, although the combined
company will endeavor to meet technical standards established by foreign
standard setting organizations, there can be no assurance that the combined
company will be able to meet these standards or to comply with changes in
foreign standards in the future. The inability of the combined company to design
products to comply with foreign standards or any significant or prolonged delay
in the combined company's international sales could have a material adverse
effect on the combined company's future business and results of operations.
REGULATORY MATTERS. Telephone companies, which constitute the initial
primary market for Amati's products, are subject to extensive regulation by both
the federal and state governments in the United States and by foreign
governments. Many of these regulations have the effect of limiting the economic
incentive of telephone companies to deploy new technologies. Restrictions on
telephone companies may materially and adversely affect the telephone companies'
demand for the products of the combined company. Cable television companies,
which may become a future market for the combined company, are also subject to
extensive governmental regulations that may discourage them from deploying the
combined company's products. There is legislation pending in Congress that would
alter the regulations on telephone companies and cable companies in the United
States, and there can be no assurance that such legislation will not adversely
affect the commercialization of the combined company's products. In addition,
both in the United States and abroad, rates for telecommunications services are
governed by tariffs of licensed carriers that are subject to regulatory
approval. These tariffs also could have a material and adverse effect on the
demand for the combined company's products.
DEPENDENCE ON SUPPLIERS AND THIRD-PARTY MANUFACTURERS. Certain key
components in the combined company's products, such as integrated circuits, are
currently available only from single sources. Neither ICOT nor Amati has
long-term supply contracts with its sole source vendors and both purchase these
components on a purchase order basis. In addition, certain components and
subassemblies for the companies' products have long lead times. While the
companies seek to accurately forecast their requirements, inaccuracies in their
forecasts could result in shortages or oversupplies of these components. The
inability to obtain sufficient quantities of sole source components or
subassemblies as required, or to develop alternative sources as required in the
future, or inaccuracies in forecasts for long lead time components or
subassemblies could result in delays or reductions in product shipments or
product redesigns which would materially and adversely affect the combined
16
<PAGE>
company's business, operating results and financial condition. In addition,
increases in the prices of components for which the combined company does not
have alternate sources could materially and adversely affect the combined
company's operating results.
The combined company intends to outsource its manufacturing operations to
independent third party manufacturers. There are risks associated with the use
of independent manufacturers, including unavailability of or delays in obtaining
adequate supplies of products and reduced control of manufacturing quality and
production costs. There can be no assurance that the combined company's third
party manufacturers will provide adequate supplies of quality products on a
timely basis. The inability to obtain such products on a timely basis would have
a material adverse effect on the combined company's business, operating results
and financial condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY. The combined company's success and
ability to compete will be dependent in part upon its proprietary technology.
The combined company will rely on a combination of patents, copyrights, trade
secrets and non-disclosure agreements to protect its proprietary technology.
Amati currently owns or has exclusive rights under 4 United States patents and
has applied for an additional 10 United States patents and the corresponding
patent cooperation treaties applications ("PCTs") in certain foreign countries.
There can be no assurance that patents will be issued with respect to pending or
future patent applications or that any patents owned or licensed by Amati will
be upheld as valid or will prevent the development of competitive products. ICOT
and Amati generally enter into confidentiality and invention assignment
agreements with their employees and consultants and limit access to the
distribution of their software, documentation and other proprietary information.
There can be no assurance that the steps taken by the companies in this regard
will be adequate to prevent misappropriation of their technologies or that
competitors will not independently develop technologies that are substantially
equivalent or superior to the companies' technologies. In addition, the laws of
some foreign countries do not protect the companies' proprietary rights to the
same extent as do the laws of the United States. The companies are also subject
to the risk of adverse claims and litigation alleging infringement of the
intellectual property rights of others. There can be no assurance that third
parties will not assert infringement claims in the future with respect to any
current or future products or that any such claims will not require the
companies to enter into license arrangements or result in protracted and costly
litigation, regardless of the merits of such claims. No assurance can be given
that any necessary licenses will be available or that, if available, such
licenses can be obtained on commercially reasonable terms.
COMPETITION IN ICOT'S PC TO MAINFRAME CONNECTIVITY BUSINESS. The PC to
Mainframe Connectivity market is highly competitive and is characterized by
rapid advances in technology which frequently result in the introduction of new
products with improved performance characteristics, thereby subjecting ICOT's
products to the risk of technological obsolescence. ICOT's ability to compete is
dependent on several factors, including: reliability, product performance,
quality, features, distribution channels, name awareness, customer support,
product development capabilities, and the ability to meet delivery schedules.
ICOT competes, directly or indirectly, with a broad range of companies, many of
whom have significantly greater financial and other resources. In addition, ICOT
is only competing for a limited and declining segment of the PC-Connectivity
market, which is itself declining and expected to continue to decline. ICOT
expects revenues from its PC-Connectivity business to continue to decline.
ICOT'S RSI LAWSUIT. ICOT is a defendant in a suit brought in November 1993
alleging repetitive stress injuries ("RSI") resulting from the use of ICOT's
products and claiming $1 million in compensatory and $10 million in punitive
damages. While ICOT believes that the claim is without merit and has tendered
defense of the suit to its insurance carriers, there can be no assurance that
the suit will not have a material adverse effect on the financial position or
results of operations of the combined company.
POSSIBLE VOLATILITY OF STOCK PRICES; SHARES ELIGIBLE FOR FUTURE SALE. The
market price of ICOT Common Stock has been highly volatile, especially during
the past two quarters. See "Price Range of
17
<PAGE>
Common Stock." Upon completion of the Merger, the market price is likely to
continue to be volatile. As a result of this transaction, ICOT will issue or
reserve for issuance a total of 8,405,335 additional shares of ICOT Common
Stock. Persons who are affiliates of Amati and are presently holders of
approximately 544,083 shares of the 865,083 outstanding shares of Amati Voting
Stock have agreed that they will not sell or otherwise transfer any ICOT Common
Stock received by them in the Merger within 90 days of the Effective Time, and
thereafter, without the written consent of ICOT, that they will not sell or
otherwise transfer more than 25% of such ICOT Common Stock within one year of
the Effective Time; and Dr. Cioffi, who presently holds 200,000 shares of Amati
Common Stock and Amati Options to purchase 150,000 shares of Amati Common Stock,
has agreed, without the written consent of ICOT, not to sell or otherwise
transfer more than 25% of his ICOT common stock equivalents within one year of
the Effective Time or more than 50% of his ICOT common stock equivalents within
two years of the Effective Time. In addition, such shares will be subject to
resale restrictions imposed by Rule 145. See "Terms of the Merger -- Affiliates'
Restrictions on Sale of Stock." Additionally, based on the trading history of
its stock, ICOT believes factors such as announcements of new products by ICOT
or its competitors, sales of stock into the market by existing holders,
quarterly fluctuations in ICOT's financial results and general conditions in the
communications market have caused and are likely to continue to cause the market
price of the ICOT Common Stock to fluctuate substantially. In addition,
technology company stocks have experienced extreme price and volume fluctuations
that often have been unrelated to the operating performance of such companies.
Because the market price of ICOT Common Stock is subject to fluctuation, the
market value of the shares of ICOT Common Stock that the Amati shareholders will
receive in the Merger may increase or decrease prior to the Merger.
SHARE OWNERSHIP OF ICOT BY AMATI SHAREHOLDERS. Upon the closing of the
Merger, the former security holders of Amati as a group will beneficially own
approximately 35% of the outstanding ICOT common stock equivalents (including
all options and warrants). John M. Cioffi will own approximately 8.6% of the
outstanding ICOT common stock equivalents (including all options and warrants)
and will be the largest stockholder of ICOT. See "Information Concerning Amati
- -- Principal Shareholders." After the Merger, Dr. Cioffi will be granted
Performance Options exercisable (subject to vesting) for an additional 808,205
shares of ICOT Common Stock. See "Terms of the Merger -- Performance Options."
Accordingly, the former shareholders of Amati as a group, and Dr. Cioffi in
particular, will be in a position to have a significant influence on corporate
matters which require the vote of ICOT stockholders. Because ICOT's Certificate
of Incorporation provides for cumulative voting in the election of directors,
the former Amati shareholders, assuming all 6,788,924 shares of ICOT Common
Stock are issued and outstanding and still held by these persons, will have the
ability to elect two directors. See "Description of ICOT Capital Stock --
Comparison of the Rights of Holders of ICOT and Amati Stock -- Cumulative
Voting."
18
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical statements of operations data set forth
below of Amati for each of the three years in the period ended December 31,
1994, and the balance sheet data at December 31, 1993 and 1994 have been derived
from, and are qualified by reference to, the financial statements of Amati,
which have been audited by Ernst & Young LLP, independent auditors, and are
included elsewhere in this Prospectus/Proxy Statement. The Amati selected
historical statements of operations data for the period from inception (December
31, 1991) to June 30, 1995, and for the six months ended June 30, 1994 and 1995,
and the selected historical balance sheet data of Amati as of June 30, 1995, are
derived from unaudited financial statements which have been prepared on the same
basis as the audited financial statements and, in the opinion of Amati's
managment, include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation thereof. Operating results for the interim
period are not necessarily indicative of the results of Amati that may be
expected for the entire year ended December 31, 1995. The selected historical
consolidated statements of operations data set forth below for ICOT for each of
the three years in the period ended July 30, 1994, and the historical
consolidated balance sheet data of ICOT at July 31, 1993 and July 30, 1994, have
been derived from, and are qualified by reference to, the consolidated financial
statements of ICOT, audited by Arthur Andersen LLP, independent public
accountants, and included elsewhere in this Prospectus/Proxy Statement. The ICOT
selected historical consolidated statements of operations data for the years
ended July 28, 1990 and July 27, 1991 and the selected historical consolidated
balance sheet data of ICOT at July 28, 1990, July 27, 1991 and July 25, 1992 are
derived from audited financial statements not included herein. The ICOT selected
historical consolidated statements of operations data for the nine months ended
April 30, 1994 and April 29, 1995, and the selected historical balance sheet
data of ICOT at April 29, 1995, are derived from unaudited financial statements
which have been prepared on the same basis as the audited financial statements
and, in the opinion of ICOT, reflect all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation thereof. Operating
results for the interim period are not necessarily indicative of the results of
ICOT that may be expected for the entire year ended July 29, 1995. The selected
pro forma combined financial data of Amati and ICOT are derived from the
unaudited pro forma combined condensed financial statements included elsewhere
herein and should be read in conjunction with such pro forma statements and
notes thereto. For pro forma purposes, ICOT's consolidated statements of
operations for the fiscal year ended July 30, 1994 and the nine months ended
April 29, 1995 have been combined with the statements of operations of Amati for
the comparable twelve month and nine month periods, respectively. In addition,
ICOT's consolidated balance sheet as of April 29, 1995 has been combined with
Amati's balance sheet as of June 30, 1995. The pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results and financial position that would have occurred if the
Merger had been consummated, nor is it necessarily indicative of future
operating results or financial position.
19
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ICOT CORPORATION
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
----------------------------------------------------- -------------------------
JULY 28, JULY 27, JULY 25, JULY 31, JULY 30, APRIL 30, APRIL 29,
1990 1991 1992 1993 1994 1994 1995
--------- --------- --------- --------- --------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Consolidated Statements of
Operations Data:
Net sales............................ $ 14,344 $ 15,630 $ 26,324 $ 12,307 $ 8,236 $ 5,837 $ 8,737
Gross margin......................... $ 6,304 $ 7,197 $ 13,653 $ 4,685 $ 3,808 $ 2,878 $ 3,676
Income (loss) from operations........ $ (1,707) $ (4,722) $ 2,931 $ (6,221) $ 318 $ 192 $ 820
Net income (loss).................... $ (698) $ (660) $ 3,133 $ (5,963) $ 503 $ 326 $ 960
Net income (loss) per share.......... $ (.05) $ (.05) $ .23 $ (.46) $ .04 $ .03 $ .08
Weighted average common and common
equivalent shares outstanding....... 12,725 12,750 13,471 12,897 12,319 12,428 11,595
<CAPTION>
JULY 28, JULY 27, JULY 25, JULY 31, JULY 30,
1990 1991 1992 1993 1994
--------- --------- --------- --------- ---------
APRIL 29,
1995
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Consolidated Balance Sheet
Data:
Working capital...................... $ 5,082 $ 12,237 $ 13,653 $ 8,590 $ 7,292 $ 8,272
Total assets......................... 17,612 18,997 21,101 12,936 11,391 10,730
Long-term debt, excluding current
portion............................. 849 2,132 1,566 1,099 428 295
Total stockholders' equity........... 12,777 12,117 15,493 9,239 8,792 9,191
</TABLE>
AMATI COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31 --------------------
------------------------------- JUNE 30, JUNE 30,
1992 1993 1994 1994 1995
--------- --------- --------- --------- ---------
PERIOD FROM INCEPTION
(DECEMBER 31, 1991)
TO
JUNE 30, 1995
---------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Historical Statements of Operations
Data:
Total Revenues..................... $ 1,825 $ 4,285 $ 4,861 $ 11,119 $ 4,283 $ 148
Gross profit....................... 1,136 2,143 2,535 5,966 2,507 148
Operating (loss) income............ (455) (964) (736) (5,674) 1,323 (3,518)
Net (loss) income.................. (466) (989) 965 6,353 1,313 3,933
Net (loss) income per share........ 1.95 (3.20) (2.24) (17.57) 2.67 (7.80)
Weighted number of common shares
and common share equivalents...... 238 309 430 362 492 504
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1992 1993 1994
--------- --------- --------- JUNE 30,
1995
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Historical Balance Sheet Data:
Working capital........................ $ (636) $ (1,564) $ (2,298) $ (5,567)
Total assets........................... 409 1,419 1,118 304
Total shareholders' deficit............ (474) (1,444) (1,981) (5,331)
</TABLE>
20
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
JULY 30, NINE MONTHS ENDED
1994 (1) APRIL 29, 1995 (1)
--------------- ------------------
<S> <C> <C>
Pro forma combined statements of operations data: (2)
Net sales................................................................. $ 14,588 $ 9,454
Loss from operations...................................................... (1,374) (3,246)
Net loss.................................................................. (1,380) (3,303)
Net loss per share........................................................ (.09) (.21)
<CAPTION>
APRIL 29, 1995 (1)
------------------
<S> <C> <C>
Pro forma combined balance sheets data: (2)
Working capital........................................................... $ 435
Total assets.............................................................. 6,779
Long-term debt, excluding current portion................................. 295
Shareholders' equity...................................................... 1,577
<FN>
- ------------------------
(1) The unaudited pro forma combined statements of operations data give effect
to the Merger as if it occurred on August 1, 1993, and the pro forma
combined balance sheet data gives effect to the Merger as if it occurred on
April 29, 1995. The Merger, which is expected to be completed in October
1995, will be accounted for as a purchase and will result in the immediate
write-off of approximately $33.4 million of research and development in
process. The pro forma combined statements of operations do not include the
effect of the write-off of research and development in process as it is a
non-recurring charge directly attributable to the Merger. See "ICOT Manage-
ment's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 2 of Notes to Pro Forma Combined Condensed Financial
Statements.
(2) The unaudited pro forma combined statements of operations do not reflect
the estimated merger costs of $800,000, but the effect of these estimated
costs is included in the pro forma combined balance sheet data as of April
29, 1995. See further discussion at Note 1 of Notes to Pro Forma Combined
Condensed Financial Statements.
</TABLE>
21
<PAGE>
COMPARATIVE PER SHARE DATA
The following tabulation reflects: (a) the historical net income per share
of ICOT Common Stock in comparison with the pro forma combined unaudited net
loss per share after giving effect to the proposed Merger on a "purchase"
accounting method with Amati; and (b) the historical net loss per share of Amati
Common Stock in comparison with the pro forma unaudited net loss attributable to
the assumed Applicable Ratio of 4.6126 per share of ICOT Common Stock which will
be received for each share of Amati Voting Stock. The information presented in
this tabulation should be read in conjunction with the pro forma combined
condensed financial statements and the separate financial statements of the
respective companies and the notes thereto appearing elsewhere herein. The
unaudited pro forma combined condensed financial data are not necessarily
indicative of the operating results that would have been achieved had the
transaction been in effect as of the beginning of the periods presented and
should not be construed as representative of future operations. Neither ICOT nor
Amati has ever declared or paid cash dividends on its shares of capital stock.
The combined company does not expect to pay dividends for the foreseeable
future.
<TABLE>
<CAPTION>
YEAR ENDED JULY NINE MONTHS ENDED
30, 1994 APRIL 29, 1995
----------------- -------------------
<S> <C> <C>
Historical -- ICOT
Net income per share.................................................... $ .04 $ .08
Book value per share (1)................................................ $ .74 $ .80
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------------
<S> <C> <C>
Historical -- Amati
Net loss per share...................................................... $ (2.24) $ (7.80)
Book value per share (1)................................................ $ (4.10) $ (9.87)
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JULY 30, 1994 APRIL 29, 1995
----------------- -------------------
<S> <C> <C>
Pro Forma Combined
Net loss per share (2).................................................. $ (.09) $ (.21)
Book value per share (1)................................................ N/A $ .10
</TABLE>
- ------------------------
(1) Historical book value per share is computed by dividing total stockholders'
equity by the number of shares of common stock outstanding at the end of the
period. Pro forma book value per share is computed by dividing pro forma
combined stockholders' equity by the pro forma number of shares of ICOT
Common Stock.
(2) The calculation of weighted average common shares outstanding used in the
computation of pro forma combined net loss per share assumes an exchange
ratio of 4.6126 shares of ICOT Common Stock for each share of Amati Common
Stock and 4.6126 shares of ICOT Common Stock for each share of Amati Series
A Preferred Stock. Common equivalent shares consisting of shares issuable
upon the exercise of stock options and warrants have been excluded from the
calculation of weighted average common shares as their effect would be
anti-dilutive.
22
<PAGE>
PRICE RANGE OF COMMON STOCK
ICOT Common Stock, $.20 par value, is currently traded on the Nasdaq
National Market ("NNM") under the symbol "ICOT." If ICOT's stockholders approve
the amendment to the Certificate of Incorporation to change the name of the
corporation to "Amati Communications Corporation," the NNM trading symbol will
become AMTX.
As of September 29, 1995, the number of stockholders of record of ICOT's
Common Stock was approximately 1,751.
The high and low closing sales prices as reported on the NNM during the
periods indicated are set forth below:
<TABLE>
<CAPTION>
FISCAL 1996 LOW HIGH
- ------------------------------------------------------------------ --------- ---------
<S> <C> <C>
First Quarter (through October 5, 1995)........................... $ 2.50 $ 6.56
<CAPTION>
FISCAL 1995 LOW HIGH
- ------------------------------------------------------------------ --------- ---------
<S> <C> <C>
First Quarter..................................................... $ 0.88 $ 1.25
Second Quarter.................................................... 0.63 1.06
Third Quarter..................................................... 0.69 1.56
Fourth Quarter.................................................... 1.13 3.38
<CAPTION>
FISCAL 1994 LOW HIGH
- ------------------------------------------------------------------ --------- ---------
<S> <C> <C>
First Quarter..................................................... $ 0.94 $ 1.38
Second Quarter.................................................... 1.06 1.50
Third Quarter..................................................... 1.13 2.13
Fourth Quarter.................................................... 0.75 1.38
<CAPTION>
FISCAL 1993 LOW HIGH
- ------------------------------------------------------------------ --------- ---------
<S> <C> <C>
First Quarter..................................................... $ 0.94 $ 2.88
Second Quarter.................................................... 0.94 2.13
Third Quarter..................................................... 0.91 1.63
Fourth Quarter.................................................... 1.00 1.63
</TABLE>
On March 20, 1995, the last trading day prior to the first public
announcement by ICOT and Amati concerning the proposed merger, the closing price
of the ICOT Common Stock reported on the NNM was $1.31 per share. On October 5,
1995, the closing price of ICOT Common Stock as reported on the NNM was $4.625
per share.
There is no public market for the Amati Voting Stock. As of August 30, 1995,
there were 16 stockholders of record of Amati Voting Stock.
Amati has never paid cash dividends on its Common Stock or Series A
Preferred Stock. ICOT has not paid cash dividends on its Common Stock. Following
the Merger, ICOT does not plan to pay dividends on its Common Stock in the
foreseeable future.
23
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INTRODUCTION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by ICOT and Amati of proxies to be voted at the ICOT Meeting, which
will be held on November 6, 1995 and the Amati Meeting, which will be held on
October 27, 1995.
The principal purpose of the Meetings is to consider and vote upon a
proposal to approve the Merger Agreement among ICOT, Amati and IAAC. At the ICOT
Meeting, ICOT stockholders of record also will be asked to approve amendments to
ICOT's Certificate of Incorporation to change the name of the corporation to
"Amati Communications Corporation" and to increase the authorized number of
shares of Common Stock from 20,000,000 to 45,000,000, and amendments to the ICOT
1990 Stock Option Plan to increase the number of shares available thereunder by
2,600,000 shares and to limit the number of shares that may be granted to any
participant in any one-year period to 1,000,000 shares. See "Information
Concerning ICOT -- Additional Matters for Consideration of ICOT Stockholders."
The stockholders of ICOT and the shareholders of Amati may also be asked at
their respective Meetings to transact such other business as may properly come
before the meeting or any adjournments thereof.
Pursuant to the Merger Agreement, Amati will be merged into IAAC. On
consummation of the Merger, each outstanding share of Amati Common Stock and
Series A Preferred Stock (other than shares, if any, as to which dissenters'
rights have been exercised pursuant to California law) will be converted into
shares of ICOT Common Stock equal to the Applicable Ratio. ICOT will also assume
the Amati Options and issue Substitute Warrants for the outstanding Amati
Warrants, all on the basis of the Applicable Ratio. Assuming that the Adjustment
Condition is satisfied, ICOT will issue or reserve for issuance to the holders
of Amati Common Stock, Amati Series A Preferred Stock, Amati options and Amati
warrants a total of 6,788,924 shares of ICOT Common Stock, and, after the
Merger, on a fully-diluted basis, former Amati securities holders will hold 35%
of the total outstanding common stock equivalents of ICOT and former ICOT
securities holders will hold 65% of the outstanding common stock equivalents of
ICOT. See "Terms of the Merger -- Manner and Basis of Converting Shares," "Terms
of the Merger -- Applicable Ratio and Adjustments to Applicable Ratio," "Terms
of the Merger -- Adjustment Condition," "Terms of the Merger -- Offer to Note
Holders," "Terms of the Merger -- Amati Stock Options" and "Terms of the Merger
- -- Substitution of Warrants." In addition, following the Merger, ICOT will issue
options (the "Performance Options") to purchase 1,616,411 shares of ICOT Common
Stock to key employees of Amati. See "Terms of the Merger -- Performance
Options." 1,050,000 shares of ICOT Common Stock to be issued in the Merger,
allocated pro rata from the shares to be issued to each holder of Amati Voting
Stock (including holders of Amati Warrants or Amati Options who exercise prior
to or as of the Closing), will be delivered to an escrow to secure the
indemnification obligations of Amati shareholders under the Agreement of
Reorganization. See "Terms of the Merger -- Escrow of Shares," and "Terms of the
Merger -- Exchange of Certificates." Holders of Amati Voting Stock who do not
vote their shares in favor of the Merger Agreement may, under certain
circumstances and by following prescribed statutory procedures, have the right
to require such shares to be purchased for cash. See "Terms of the Merger --
Dissenters' Rights."
THE BOARD OF DIRECTORS OF EACH COMPANY HAS UNANIMOUSLY CONCLUDED THAT THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO AND IN
THE BEST INTERESTS OF SUCH COMPANY AND ITS STOCKHOLDERS. THE BOARD OF DIRECTORS
OF EACH COMPANY UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF SUCH COMPANY VOTE IN
FAVOR OF THE MERGER AGREEMENT.
The principal executive offices of ICOT are located at 3801 Zanker Road, San
Jose, California 95150, and its telephone number at that address is (408)
433-3300. The principal executive offices of Amati are located at 1975 El Camino
Real West, Mountain View, California 94040, and its telephone number at that
address is (415) 903-2350.
This Prospectus/Proxy Statement is being mailed to stockholders of ICOT and
Amati on or about October , 1995.
24
<PAGE>
VOTING AND PROXIES
DATE, TIME AND PLACE OF MEETINGS
The ICOT Meeting will be held at ICOT's principal executive offices, 3801
Zanker Road, San Jose, California on November 6, 1995 at 1:30 p.m., local time.
The Amati Meeting will be held at Amati's principal executive offices, 1975
El Camino Real West, Mountain View, California, on October 27, 1995, at 10:00
a.m., local time.
RECORD DATE AND OUTSTANDING SHARES
ICOT
Stockholders of record of ICOT Common Stock at the close of business on
September 29, 1995 (the "ICOT Record Date") are entitled to notice of and to
vote at the ICOT Meeting. At the ICOT Record Date, approximately 1,751 ICOT
stockholders were holders of record and 12,064,602 shares of ICOT Common Stock
were issued and outstanding. Except for stockholders identified under
"Information Concerning ICOT -- Security Ownership of Certain Beneficial Owners
and Management," there were no persons known to the management of ICOT to be the
beneficial owners of more than 5% of the outstanding ICOT Common Stock.
AMATI
Shareholders of record of Amati Stock at the close of business on August 30,
1995 (the "Amati Record Date") are entitled to notice of and to vote at the
Amati Meeting. At the Amati Record Date, there were 16 Amati shareholders of
record, and approximately 540,083 shares of Amati Common Stock and 325,000
shares of Amati Series A Preferred Stock (convertible into a total of 325,000
shares of Common Stock for a total of 865,083 shares of Amati Voting Stock)
issued and outstanding. Except for the shareholders identified under
"Information Concerning Amati -- Principal Shareholders," there were no persons
known to the management of Amati to be the beneficial owners of more than 5% of
the outstanding Amati Voting Stock.
VOTING OF PROXIES
All properly executed proxies that are not revoked will be voted at the
Meetings in accordance with the instructions contained therein. Proxies
containing no instructions regarding the proposals specified in the form of
proxy will be voted for approval of the Merger Agreement in accordance with the
recommendation of the Boards of Directors of ICOT and Amati and, in case of
ICOT, for approval of the other proposals described under the captions
"Additional Matters for Consideration of ICOT Stockholders." If any other
matters are properly brought before the Meetings and submitted to a vote, all
proxies will be voted in accordance with the judgment of the persons voting the
proxies. Any stockholder signing a proxy has the power to revoke it prior to the
respective Meeting or at the respective Meeting prior to the vote pursuant to
the proxy. A proxy may be revoked by a subsequent proxy that is signed by the
stockholder and presented at the Meeting or by attendance at the Meeting and
casting a vote.
VOTE REQUIRED
Under Delaware law, approval of the Merger requires the affirmative vote of
the holders of a majority of the outstanding shares entitled to vote of ICOT
Common Stock. The affirmative vote of the holders of a majority of the
outstanding shares entitled to vote of ICOT Common Stock will also be required
to approve the additional matters submitted for consideration of the ICOT
stockholders, including increasing the authorized number of ICOT Common Stock,
which is required to effect the Merger. See "Additional Matters for
Consideration of ICOT Stockholders." Under California law, approval of the
Merger requires the affirmative vote of the holders of the majority of the
outstanding shares of Amati Common Stock and of the Amati Series A Preferred
Stock, voting as separate classes. Directors beneficially owning, as of
September 29, 1995, 621,600 shares of ICOT Common Stock, or 5.15% of the issued
and outstanding shares, have agreed to vote in favor of the Merger. Directors
and affiliates beneficially owning, as of August 30, 1995, 494,083 shares or
91.5% of the issued and
25
<PAGE>
outstanding shares of Amati Common Stock and 250,000 shares or 76.9% of the
issued and outstanding shares of Amati Series A Preferred Stock have granted
ICOT irrevocable proxies. See "The Merger and Related Transactions -- Voting
Agreements" and "The Merger and Related Transactions -- Irrevocable Proxies."
Consummation of the Merger is subject to approval of the ICOT stockholders and
the Amati shareholders and of a number of other conditions. See "Terms of the
Merger -- Conditions to the Merger."
Approval of other matters at the ICOT Meeting will require approvals as
described under the heading "Additional Matters for Consideration of ICOT
Stockholders."
SOLICITATION OF PROXIES AND EXPENSES
Each of ICOT and Amati will bear the cost of the solicitation of proxies
from its respective stockholders. In addition to solicitation by mail, the
directors, officers and employees of ICOT and Amati may solicit proxies from
stockholders by telephone, telegram, letter or in person. Arrangements will also
be made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation material to the beneficial owners of stock held
of record by ICOT's stockholders, and ICOT will reimburse such custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection therewith. ICOT may engage a proxy solicitation firm to solicit
proxies and distribute materials to brokerage houses, banks, custodians and
other nominee holders. ICOT will bear the entire cost of the fee payable to any
such proxy solicitation firm.
THE MERGER AND RELATED TRANSACTIONS
BACKGROUND TO THE MERGER
Over the period from July to September 1994, ICOT's management conducted a
series of planning sessions to address the future direction of the company. The
ICOT Board evaluated the alternatives of in-house development versus acquiring
technology through a merger and decided to search for a merger candidate that
had leading-edge technology. From July 1994 through January 1995, ICOT undertook
such a search. During the same time, Amati was seeking financing through a
private investment and not a merger.
In January 1995, ICOT approached Amati to open discussions with Amati to
determine if Amati would qualify as a merger candidate. Although Amati was
relatively far along with discussions with several venture capital groups, the
proposed financing plans from venture capital sources suggested a basic
recapitalization of Amati and included substantial dilution to the existing
Amati shareholders. Thus Amati felt it would be appropriate to consider
alternatives and entered into discussions with ICOT.
A series of discussions ensued between the companies. By mid-February, the
parties had agreed on several key points. First, the parties agreed that the
VLSI chip products (engines) being developed by Amati could be utilized in
conjunction with data communication products developed by ICOT, and that this
could enhance and expand the market potential for products from both
organizations. Second, ICOT and Amati agreed that there were significant
potential savings in combining their engineering services, manufacturing,
finance, and human resources functions. Third, the two companies decided to
explore potential business arrangements, including a possible business
combination, and agreed to execute more detailed management due diligence
investigations. Finally, ICOT and Amati agreed that if a reasonable evaluation
range could be established, the management teams would report the results back
to their respective boards for consideration. Over the next two weeks, the
parties held joint management meetings to discuss sales, engineering and finance
functions of both companies and to explore the potential synergies and the other
benefits of a business combination. During that time, the parties also began
conducting their respective due diligence investigations.
In early March, the companies discussed a proposed ownership split providing
for ICOT security holders to retain approximately 55% of the combined company
and Amati security holders to receive approximately 45% of the combined company.
On March 20, 1995, Amati and ICOT executed a non-
26
<PAGE>
binding letter of intent evidencing their intention to negotiate a definitive
agreement providing for that ownership split. The letter of intent was subject
to a number of conditions, including completion of detailed legal and financial
due diligence by each company and their advisors. On March 21, 1995, Amati and
ICOT made a public announcement of the letter of intent.
Both companies continued their financial and operational due diligence and
also conducted detailed legal due diligence. The two companies executed an
Agreement and Plan of Reorganization and Merger on May 15, 1995 (the "Earlier
Agreement"). A public announcement of the execution of the Earlier Agreement was
made on May 16, 1995.
On June 7, 1995, Amati informed ICOT of developments that would negatively
affect Amati's operating cash by approximately $1,000,000 for the remainder of
1995 and that a lack of capital was causing Amati to delay shipments and miss
commitments with its key customers. During June and July, the companies
discussed conditions whereby ICOT would be willing to advance additional funds
to Amati prior to a merger and negotiated changes to the ownership split. During
that period, ICOT also conducted additional financial and operational due
diligence on Amati. In early August, ICOT agreed to lend Amati up to $1,600,000
in additional funds, contingent upon ICOT's gaining control of the Amati Board
and ICOT's receiving irrevocable proxies from certain Amati affiliates. The
companies also agreed to revised terms for the Merger which provide for Amati
securities holders to receive approximately 35% of the combined company in the
Merger and key Amati employees to receive options after the Merger for an
additional 1,616,411 shares of ICOT Common Stock. A restated and amended
Agreement of Reorganization, incorporating these new terms, was executed by the
parties on August 4, 1995. A public announcement of the new Agreement was made
on August 7, 1995.
REASONS FOR THE MERGER
The ICOT and Amati Boards believe that the following benefits are reasons
for ICOT stockholders and the Amati shareholders to vote FOR approval and
adoption of the Merger Agreement and approval of the Merger.
- The product development efforts of Amati and ICOT are synergistic. The
Amati development effort has been focused on transceivers utilizing its
DMT technology. Amati must have the capability to interface its
transmission products to various networks and to provide development
services in such areas as backplane design, network management interfaces
and other mechanical design activities. ICOT engineers apply transmission
technology in networking system level products. The combined technical
resources of the combined company should provide an efficient capability
to enter the market with system level products.
- There is an opportunity to benefit from the economies of scale afforded by
the Merger. Financial benefits will be derived from reducing expenses
resulting from the combination of operational functions such as
manufacturing management, engineering services, finance, and human
resources.
The ICOT Board believes that the following benefits are additional reasons
for ICOT stockholders to vote FOR approval and adoption of the Merger Agreement
and approval of the Merger.
- The ICOT Board desired to obtain new technology for business growth and to
lessen dependence on IBM. The ICOT Board considered the alternatives for
obtaining new technology, evaluating in-house development versus acquiring
technology through a merger. The Board believes that the merger with Amati
provides ICOT with a better opportunity than in-house development would
provide to work with a leading-edge technology and to develop and bring to
market new products in an emerging marketplace.
- The Merger provides ICOT with access to Amati's emerging DMT technology.
Amati's DMT technology was selected as the ANSI standard, and as a result
is recognized as the United States standard, for ADSL. ICOT considered
this a very important achievement for Amati's DMT technology and also
considered Motorola's contract with Amati to be an endorsement of Amati's
DMT technology.
27
<PAGE>
- ICOT management views the Merger as a long-term opportunity to increase
company revenues by providing products for the evolving multimedia market.
- The Merger will enable ICOT stockholders to participate in the
opportunities for growth of the combined company after the Merger.
Prior to June 7, 1995 the ICOT Board concluded that the Merger as then
proposed was fair to the ICOT stockholders because, although not quantifiable,
the benefits to ICOT stockholders noted above would significantly add to the
value of ICOT by enhancing its future prospects, notwithstanding the risks
associated with the Merger. This conclusion was based on the information about
Amati obtained in due diligence, the Board members' experience in making
investments in development stage companies, and the Board's business judgment.
The ICOT Board did not believe that a cap on the number of shares of ICOT Common
to be issued in the Merger was appropriate because it believed that any increase
in the value of ICOT Common after announcement of the Merger would be due either
to general increases in the stock market or to the market's assessment of the
value of the Merger to ICOT. After Amati informed ICOT of negative developments
on June 7, 1995, the ICOT Board concluded that the adjusted terms negotiated
with Amati were fair to the ICOT stockhoders based on the factors noted above in
light of the new information.
The Amati Board believes that the following benefits are additional reasons
for Amati shareholders to vote FOR approval and adoption of the Merger Agreement
and approval of the Merger.
- Amati is a development stage company which to date has depended on outside
funding, including development contract revenues, and which has actively
been seeking additional capital to meet its current obligations and to
provide for continued product development. Its markets are embryonic and
continuing investment will be required to provide the opportunity to
participate in the digital video access market, if it develops. ICOT
brings cash for immediate investment in Amati's operations and through its
access to public markets gives the combined company more alternatives for
raising capital in the future than Amati would have as a private company.
Amati had been seeking financing through traditional venture capital
sources. The Merger provides short-term financing with less dilution to
the present shareholders of Amati. By obtaining 35% of the combined
company on a common equivalent basis, Amati security holders will retain a
long-term opportunity to benefit from future development of Amati's
technology and commercialization of its products.
- The Merger provides an opportunity for Amati security holders to achieve
liquidity over time.
- ICOT brings a developed infrastructure in the areas of manufacturing,
engineering services and finance.
- The proposed management structure of the combined company will give former
Amati officers and directors a fair opportunity to assist in the
management of the combined company.
- Key Amati employees will receive options for 1,616,411 shares of ICOT
Common Stock.
- The Merger will be a tax free transaction for Amati shareholders.
The Amati Board considered the above factors in light of its knowledge of
the business of Amati and the information regarding ICOT presented by Amati's
management. In applying its business judgment, the Amati Board did not assign a
relative weight to any of the factors considered. However the Amati Board did
place an emphasis on the value of the ICOT stock to be received by the Amati
shareholders, making the Applicable Ratio fair to the Amati shareholders from a
financial point of view. The value of such stock at the time of signing the
letter of intent exceeded valuations placed on Amati by venture capital
investors in negotiations taking place just prior to Amati's negotiations with
ICOT. The Amati Board believed that ICOT's stock, which had been trading at or
around $1.00 per shares as the two companies considered merging, had good
potential for appreciation following the merger of the two companies. In June
1995, when the two companies amended the Earlier Agreement
28
<PAGE>
and reduced the percentage of the combined company to be held by former Amati
equity holders from 45% to 35%, the Amati Board continued to believe the
proposed merger was fair to the shareholders of Amati. At the time of such
amendment, the price of ICOT's stock had risen to more than $3.00, substantially
increasing the value of the ICOT stock to be received by Amati shareholders at
the revised Applicable Ratio.
BUSINESS AFTER THE MERGER
After the Merger, the combined company will continue to market ICOT's
products, primarily to the OEM market. The combined company intends to focus
primarily on the development of Amati's DMT technology to provide high speed
digital video, voice and data transmission over copper and cable media.
The development plan for commercializing Amati's DMT technology has several
steps, beginning with two prototype products for the ADSL market, Overture 4 and
Overture 8. Amati began shipping Overture 4 for beta testing in summer 1995.
First customer shipments of Overture 8 for field trial are scheduled for fiscal
1996. These prototypes will incorporate custom semiconductors designed by the
combined company's microelectronics group and will not be suitable for mass
market deployment. Amati currently plans to introduce a version of Overture 8
with a custom chip suitable for mass market deployment in 1997. Amati's first
VDSL product, Piccolo, is not expected to be available for mass market
deployment until late 1997 at the earliest. These statements are forward looking
statements, and actual development may vary substantially from this plan. See
"Information Concerning Amati -- Products and Markets" and the "Risk Factors"
referred to in that Section.
MANAGEMENT AFTER THE MERGER
DIRECTORS
Following the Merger, the Board of Directors of the combined company will
consist of Arnold N. Silverman, Aamer Latif and Donald L. Lucas, each of whom is
presently a director of ICOT and, since August 4, 1995, also of Amati, and James
F. Gibbons and John M. Cioffi, each of whom is presently a director of Amati.
All such directors will serve until their successors have been duly elected and
qualified or otherwise as provided by law. If the Merger is approved, it is
expected that the ICOT Board will increase the size of the Board to five
members, William D. Witter will resign from the Board, and ICOT will appoint Dr.
Gibbons and Dr. Cioffi to fill the vacancies. As a result of this process, a
vote in favor of the Merger will, in effect, be a vote in favor of electing Dr.
Gibbons and Dr. Cioffi as directors of ICOT. See "Information Concerning ICOT --
Executive Officers and Directors" and "Information Concerning Amati -- Executive
Officers and Directors."
OFFICERS
Mr. Latif will serve as acting President, Chief Executive Officer and Chief
Financial Officer, and Terry Medel as Treasurer, Secretary and Controller of the
combined company. The Amati Board is actively seeking a new Chief Executive
Officer for the combined company. In addition, Dr. Cioffi will be appointed Vice
President of Engineering and Chief Technical Officer, and Joseph H. Grady, Vice
President of Worldwide Sales. The Amati Board is seeking additional executive
officers with relevant industry experience, and the combined company may appoint
additional executive officers after the Merger. Because Amati is a development
stage company, and because the businesses of Amati and ICOT must be integrated
after the Merger, the ultimate management structure of the combined company is
subject to change. Dr. Cioffi has entered into an employment agreement with
Amati which will be assumed by the combined company. See "Information Concerning
ICOT -- Executive Officers and Directors" and "Information Concerning Amati --
Executive Officers and Directors."
VOTING AGREEMENTS
In connection with the execution of the Merger Agreement, each of the
directors of ICOT has agreed to vote all shares of ICOT Common Stock held by him
in favor of the Merger Agreement and the Merger. Such agreement is not intended
to prohibit any stockholder who is also a director of ICOT from acting in
accordance with the stockholder's respective fiduciary duty as a director of
ICOT.
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<PAGE>
IRREVOCABLE PROXIES
In consideration of the continuation of existing loans and the providing of
an additional loan to Amati, ICOT has received Irrevocable Proxies from the
following affiliates of Amati: James F. Gibbons, John M. Cioffi, James F.
Ottinger, Ronald K. Maxwell, Stanford University and University Ventures II. The
Irrevocable Proxies appoint ICOT, as proxyholder, to attend and vote all shares
of Amati capital stock which such persons own or control, beneficially or
otherwise, including any shares acquired during the term of the proxies through
the exercise of Amati Options or Amati Warrants, at any and all meetings of the
shareholders of Amati, and any adjournments thereof, held on or after the date,
and prior to the termination of, such proxies and to execute any and all written
consents of shareholders of the corporation executed on or after the date of the
giving of the proxies and prior to the termination of the proxies, with the same
effect as if such persons had personally attended the meeting or had personally
voted the shares or had personally signed the written consent. However, under
the terms of the Irrevocable Proxies, the right to vote on the following matters
has been expressly reserved by the shareholders: (1) any merger or other
reorganization, as defined in Section 181 of the California Corporations Code,
of Amati or the sale of all or substantially all of Amati's assets, in which
ICOT is, directly or indirectly, the acquiring party, other than the Merger as
defined in Merger Agreement; (2) any merger or other reorganization, as defined
in Section 181 of the California Corporations Code, of Amati, or the sale of all
or substantially all of Amati's assets, if in such transaction the value of
Amati (in the case of a noncash transaction, as determined in good faith by the
Board of Directors of Amati) is less than $10 million; (3) any dissolution and
liquidation of Amati; and (4) any amendment to the articles of Amati to change
the rights, preferences, privileges or restrictions of the Amati Series A
Preferred Stock.
TERMS OF THE MERGER
The detailed terms of, and conditions to, the Merger are contained in the
Amended and Restated Agreement of Reorganization and the Agreement of Merger,
copies of which are attached to this Prospectus/Proxy Statement as APPENDIX A
and APPENDIX B, respectively, and incorporated herein by reference. The
statements made in this Prospectus/Proxy Statement with respect to the terms of
the Merger and related transactions are qualified in their entirety by the text
of those Agreements, collectively referred to herein as the "Merger Agreement."
EFFECTIVE DATE OF THE MERGER
The Merger Agreement provides for the Merger of Amati into IAAC, a
wholly-owned subsidiary of ICOT.
The Merger will be effective when the Agreement of Merger is filed with the
Secretary of State of the State of California in accordance with California law.
See "Terms of the Merger -- Conditions to the Merger." It is anticipated that,
if the Merger is approved at the Amati Meeting and at the ICOT Meeting and all
other conditions to the Merger have been fulfilled or waived, the Agreement of
Merger will be filed on or about November 10, 1995.
MANNER AND BASIS OF CONVERTING SHARES
As of the Effective Date of the Merger, each issued and outstanding share of
Amati Common Stock and Series A Preferred Stock (other than shares, if any, as
to which dissenters' rights have been exercised pursuant to California law) will
be converted into the number of shares of ICOT Common Stock equal to the
Applicable Ratio.
No fractional shares of ICOT Common Stock will be issued in connection with
the Merger. In lieu of fractional shares, each Amati shareholder who otherwise
would be entitled to a fractional share will receive cash equal to the per share
market value of ICOT Common Stock, based on the closing price of ICOT Common
Stock on the NNM on the trading day immediately prior to the Effective Date of
the Merger, multiplied by the fraction of a share of ICOT Common Stock to which
the shareholder would otherwise be entitled.
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<PAGE>
ESCROW OF SHARES
Under the terms of the Merger Agreement, 1,050,000 shares of ICOT Common
Stock otherwise issuable in the Merger, allocated pro rata among the holders of
Amati Common Stock (including holders of Amati Warrants who exercise their
warrants prior to or effective as of the Closing) and Amati Series A Preferred
Stock, will be held in an escrow for a period of one year following the Merger
to indemnify ICOT against damages and expenses arising from breaches of the
representations, warranties and covenants of Amati contained in the Agreement of
Reorganization. Such indemnification will only cover damages and expenses in
excess of $90,000 in the aggregate. One year after the Effective Date of the
Merger, all shares then remaining in the escrow not subject to a claim for
indemnification by ICOT, will be distributed pro rata to former Amati
shareholders according to the number of shares of Amati Voting Stock held by
them at the time Effective Time of the Merger.
John Bingham, Frank Kocsis, Kathy Ku and James Ottinger have been selected
to act as representatives of the Amati shareholders in connection with the
escrow. By their approval of the Merger Agreement and Merger, the Amati
shareholders shall be authorizing these four persons to represent them with
respect to all matters related to the escrow and the indemnification obligations
under the Agreement of Reorganization.
APPLICABLE RATIO AND ADJUSTMENTS TO APPLICABLE RATIO
The Applicable Ratio is expected to be 4.6126 shares of ICOT Common Stock
per share of Amati Voting Stock. This assumes that (i) no Amati shareholders
exercise dissenters' rights and (ii) all holders of Outstanding Amati Notes
accept the Offer to Note Holders. See "-- Offer to Note Holders."
The Applicable Ratio equals a fraction, the numerator of which is equal to
(x) 6,788,924 less (y) the aggregate number of shares of ICOT Common Stock that
are issuable upon exercise of the Substitute Warrants being issued in exchange
for Fair Value Warrants, (z) less the aggregate number of shares of ICOT Common
Stock, if any, being issued to satisfy the Adjustment Condition (which will be
496,667 shares if all holders of Outstanding Amati Notes accept the Offer to
Note Holders), and the denominator of which is the fully diluted number of Amati
common stock equivalents at the Closing (excluding common stock equivalents
covered by the Fair Value Warrants outstanding at the Closing); provided,
however, that the fraction will be adjusted if the Adjustment Condition is not
met.
If the Offer to Note Holders is not accepted by all holders of Outstanding
Amati Notes, but is accepted to the extent necessary to satisfy the Adjustment
Condition, then the Applicable Ratio will be increased accordingly, but the
combined company will be in a less favorable cash position than it will be in if
the offer is fully accepted. If the Offer to Note Holders is not accepted to the
extent necessary to satisfy the Adjustment Condition, then Amati must use its
best efforts to satisfy the Adjustment Condition in some other manner. See
"Adjustment Condition." If the Adjustment Condition is not satisfied, then the
Applicable Ratio will be adjusted by reducing the numerator thereof by the whole
number closest to a fraction the numerator of which is the shortfall by which
the Adjustment Condition is not satisfied and the denominator of which is 75% of
the average of the closing prices of ICOT Common Stock on the NNM over the five
trading days ending three trading days before the date of this Prospectus/Proxy
Statement.
Based on the closing sale price of ICOT Common Stock on August 30, 1995, if
the Applicable Ratio is 4.6126, each share of Amati Voting Stock will have a
market value of approximately $19.60.
ADJUSTMENT CONDITION
Pursuant to the Merger Agreement, Amati has agreed to use its best efforts
to obtain $838,000 in new financing for Amati prior to the consummation of the
Merger. This requirement is called the "Adjustment Condition." Amati may obtain
such financing by a combination of the following: (a) by extending the due dates
of the Outstanding Amati Notes to at least January 31, 1997 (in which event
financing shall be deemed to have been obtained in the principal amount of the
Outstanding Amati Notes so extended); (b) by obtaining new notes on comparable
terms to the Outstanding Amati Notes with due dates not earlier than January 31,
1997 (in which event financing shall be deemed to have
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been obtained in the principal amount of such new notes); or (c) by providing
for the issuance at Closing of shares of ICOT Common Stock (i) in exchange for
cancellation of accounts payable of Amati (in which event financing shall be
deemed to have been obtained in the amount of the accounts payable canceled),
(ii) by the exercise of Amati Warrants (in which event financing shall be deemed
to have been obtained in the amount of the exercise price), or (iii) for
cancellation of Outstanding Amati Notes together with the related Amati Warrants
(in which event financing shall be deemed to have been obtained in the principal
amount of the Outstanding Amati Notes canceled). The terms for issuance of ICOT
Common Stock pursuant to clause (c) were established by the Amati Board as
constituted prior to the execution of the Agreement of Reorganization and may
involve discounts to either the purchase price of the ICOT Common Stock or the
exercise price of the Amati Warrants. ICOT has agreed to issue at the Closing
the ICOT Common Stock issuable pursuant to clause (c). The Amati Board as
constituted prior to execution of the Agreement of Reorganization appointed Drs.
Gibbons and Cioffi to determine how, within the specified ways, Amati will seek
to satisfy the Adjustment Condition. Amati is seeking to satisfy the Adjustment
Condition through the Offer to Note Holders. See "-- Offer to Note Holders." If
the Offer to Note Holders is not accepted to the extent necessary to satisfy the
Adjustment Condition, Amati may use best efforts to satisfy the Adjustment
Condition in some other way, as decided by Drs. Gibbons and Cioffi.
OFFER TO NOTE HOLDERS
In order to improve the cash condition of the combined company as of the
Closing, and as a means of meeting the Adjustment Condition, Amati would like to
induce holders of Outstanding Amati Notes to extend the due dates of their
notes. By means of the Notice to Holders being mailed to such holders with this
Prospectus/Proxy Statement, Holders of Outstanding Amati Notes who agree to
extend payment of the principal and interest on their Outstanding Amati Notes
until January 31, 1997 are being offered the opportunity to exercise their
corresponding Amati Warrrants effective as of the Closing at a reduced price per
share. If the offer is accepted, a holder will receive upon exercise of an Amati
Warrant, effective as of the Closing, the number of shares of ICOT Common Stock
determined by dividing the aggregate exercise price of such Amati Warrant by
$1.50, at an exercise price of $1.50 per share, payable in cash.
An Outstanding Amati Note may be extended and the corresponding Amati
Warrant may be exercised for ICOT Common Stock by delivering the note and the
warrant to the principal office of Amati, accompanied by payment in full, in
cash or by check payable to the order of Amati Communications Corporation, of
the exercise price, AT ANY TIME BEFORE 5:00 P.M., CALIFORNIA LOCAL TIME, ON
NOVEMBER 3, 1995. As soon as practicable after the Effective Date, ICOT will
issue a new promissory note identical to such Outstanding Amati Note but with a
due date of January 31, 1997. THE SHARES OF ICOT COMMON STOCK ISSUED AT THE
CLOSING WILL BE REGISTERED UNDER THE SECURITIES ACT AND WILL BE SUBJECT TO THE
ESCROW.
The federal income tax treatment of holders of Outstanding Amati Notes who
accept the Offer to Note Holders is unclear. See "Certain Federal Income Tax
Matters."
As of August 31, 1995, the aggregate principal amount of the Outstanding
Amati Notes was $745,000 and the aggregate purchase price of the corresponding
Amati Warrants was $745,000. If all holders of Amati Outstanding Notes accept
the offer to extend the due date of their notes and exercise their warrants for
ICOT Common Stock, 496,667 shares of ICOT Common Stock will be issued to them
(subject to the escrow requirement) at the Closing. Amati believes that the
extension of the Outstanding Amati Notes and the improvement in the cash
position that will result from the exercise of the corresponding Amati Warrants
will be advantageous to the combined company and, accordingly, to all Amati
securities holders.
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EXCHANGE OF CERTIFICATES
Promptly after the Effective Date of the Merger, ICOT will cause to be
mailed or otherwise delivered to each Amati shareholder of record a letter of
transmittal with instructions to be used by such shareholder in surrendering
certificates that, prior to the Merger, represented shares of Amati Voting
Stock.
Upon surrender of an Amati stock certificate, together with a duly executed
letter of transmittal, ICOT and Chemical Mellon, ICOT's transfer agent, will
arrange for the holder of such certificate to receive in exchange therefor
certificates evidencing the number of shares of ICOT Common Stock to which such
holder of Amati Voting Stock is entitled based on the Applicable Ratio, less the
number of shares which have been delivered to the escrow on behalf of such
holder (and cash for any fractional share). In the event there has been a
transfer of ownership of shares of Amati Voting Stock that is not reflected on
the transfer records of Amati, ICOT Common Stock may be delivered to a
transferee if the certificate representing such Amati Voting Stock is presented
to ICOT, together with the related letter of transmittal, and accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid.
One year after the Effective Date of the Merger, all the shares then
remaining in escrow not subject to a claim for indemnification by ICOT shall be
released to the former Amati shareholders pro rata according to the number of
shares of Amati Voting Stock held by them at the Effective Date of the Merger.
Until an Amati stock certificate has been surrendered to ICOT, each such
certificate shall be deemed at any time after the Effective Date of the Merger
to represent the right to receive, upon such surrender, certificates for such
number of shares of ICOT Common Stock to which the shareholder is entitled under
the Merger Agreement. After the Effective Date of the Merger, there will be no
further registration of transfers of Amati Voting Stock.
AMATI SHAREHOLDERS SHOULD NOT SURRENDER THEIR CERTIFICATES FOR EXCHANGE
PRIOR TO APPROVAL OF THE MERGER BY THE ICOT STOCKHOLDERS AND AMATI SHAREHOLDERS.
AMATI STOCK OPTIONS
As of August 30, 1995, 580,000 shares of Amati Common Stock were reserved
for issuance pursuant to Amati's 1992 Stock Option Plan (the "Amati Option
Plan") of which options to purchase a total of 364,700 shares of Amati Common
Stock were outstanding. The terms of the Amati Option Plan allow outstanding
options to be assumed by a successor company in a transaction such as the
Merger. See "Assumption of the Amati Stock Option Plan." Amati does not intend
to issue additional options prior to the consummation of the Merger.
The Amati Option Plan and all outstanding and unexercised options to acquire
Amati Common Stock (the "Amati Options") thereunder will be assumed by ICOT upon
consummation of the Merger. Each such Amati Option will become exercisable for a
number of shares of ICOT Common Stock equal to the number of shares of Amati
Common Stock issuable upon exercise of the Amati Option immediately prior to the
Merger multiplied by the Applicable Ratio at an exercise price per share equal
to the original exercise price per share divided by the Applicable Ratio and
will otherwise have the same exercise period and other terms and conditions.
Those Amati incentive stock options that are assumed by ICOT in connection with
the Merger are, pursuant to Section 424(a) of the Internal Revenue Code of 1986
(the "Code"), expected to continue to qualify as incentive stock options as
defined in Section 422 of the Code to the extent that they were incentive stock
options prior to the Merger.
SUBSTITUTION OF WARRANTS
For each Dollar Value Warrant outstanding as of the Effective Date of the
Merger, ICOT will issue a Substitute Warrant exercisable for a number of shares
of ICOT Common Stock determined by multiplying the number of shares of Amati
Common Stock issuable upon the exercise of such Dollar Value Warrant by the
Applicable Ratio, at an exercise price for each full share of ICOT Common Stock
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equal to the exercise price per share of Amati Common Stock divided by the
Applicable Ratio. For each outstanding Fair Value Warrant, ICOT will issue a
Substitute Warrant exercisable for the number of shares of ICOT Common Stock
determined by dividing the aggregate purchase price by $4.926 at an exercise
price of $4.926 for each full share of ICOT Common Stock. The Substitute
Warrants have the same terms and conditions as the Amati Warrants they are
replacing. See "Information Concerning Amati -- Description of Amati Warrants."
If AMATI WARRANTS ARE EXERCISED PRIOR TO OR EFFECTIVE AS OF THE CLOSING, THE
WARRANT HOLDERS WILL RECEIVE SHARES OF ICOT COMMON STOCK THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT. THE SUBSTITUTE WARRANTS WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT, AND THE HOLDERS THEREOF WILL NOT HAVE ANY
RIGHT TO REGISTER THE SUBSTITUTE WARRANTS OR THE SHARES TO BE RECEIVED UPON
EXERCISE THEREOF.
The exchange of unexercised Amati Warrants for Substitute Warrants in the
Merger will result in a taxable gain or loss to the holders at the Effective
Date. See "Certain Federal Income Tax Matters."
As soon as practicable after the Effective Date, ICOT shall make available
for exchange a Substitute Warrant for each outstanding Amati Warrant, whereupon
such Amati Warrant shall be canceled. ICOT shall mail to each holder of record
of an Amati Warrant that has not been exercised at the Closing, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Substitute Warrant shall pass, only upon delivery to ICOT
of the Amati Warrant being exchanged and shall have such other provisions as
ICOT may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Amati Warrant in exchange for a Substitute Warrant. Upon
surrender to ICOT of an Amati Warrant for cancellation, together with such
letter of transmittal, duly executed, the holder of such Amati Warrant shall be
entitled to receive in exchange therefor a Substitute Warrant. The Amati Warrant
so surrendered shall forthwith be canceled. Until an Amati Warrant is
surrendered to ICOT, each such Amati Warrant shall be deemed at any time after
the Effective Date to represent only the right to receive upon such surrender a
Substitute Warrant.
PERFORMANCE OPTIONS
ICOT has agreed to issue, within one month after the Closing, options to
purchase 1,616,411 shares of ICOT Common Stock under the ICOT 1990 Stock Option
Plan to certain employees of Amati, provided that the employee is then employed
by ICOT and has exercised the Amati Options granted to him or her prior to
January 1, 1995. The Performance Options shall be granted at fair market value
and be exercisable for at least six months from the vesting date. Except as set
forth below, these Performance Options shall vest on the fourth anniversary of
the grant date.
Vesting of the Performance Options shall be accelerated if net revenues from
sales of Amati products and license revenues (other that advance royalties) from
Amati technology between July 1, 1995 and June 30, 1996, ("Amati Product
Revenues") exceed $8,000,000. ICOT shall instruct Arthur Andersen LLP to conduct
an audit of the Amati Product Revenues and deliver an audited statement of Amati
Product Revenues no later than the time of delivery to ICOT of audited financial
statements of ICOT's 1996 fiscal year. The date of delivery of such audited
statement of Amati Product Revenues shall be deemed to be the date to which
vesting of the Performance Options will be accelerated, if appropriate.
Notwithstanding the condition for accelerated vesting of the Performance
Options, pursuant to the Merger Agreement, the management of Amati prior to the
Merger is required to operate Amati in accordance with its business judgment
considering the long-term interests of Amati, assuming that the Merger will
occur, and the management of ICOT after the Merger is required to operate ICOT
in accordance with its business judgment considering the interests of ICOT and
all of its stockholders, in each case without regard to the vesting of the
Performance Options.
CONDUCT OF BUSINESS PRIOR TO THE MERGER
Under the Agreement of Reorganization, ICOT and Amati have agreed that,
until the Effective Date of the Merger, each company will carry on its business
in the ordinary and usual course, use its
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best efforts to carry on and preserve its business and its relationships with
customers, suppliers, employees and others in substantially the same manner as
it has prior to the Agreement of Reorganization, and will not, without the prior
written consent of the other party, enter into certain specified transactions
outside the ordinary course of business.
Each company also has agreed to advise the other of any event that would
render any representation or warranty contained in the Merger Agreement untrue
or inaccurate and of any material adverse change in the company's business. Each
company further has agreed to advise the other of any material action, suit,
proceeding or investigation initiated by or against it, or known by the company
to be threatened against it and to use its best efforts to obtain all
authorizations, approvals and consents necessary for the consummation of the
Merger.
In addition, each company has agreed to provide the other company (including
accounting, legal and investment banking representatives) with access to its
offices and senior employees for the purpose of due diligence.
ICOT LOANS TO AMATI
In March 1995, ICOT provided Amati with an unrestricted working capital loan
in the principal amount of $750,000 and, in May 1995, agreed to provide an
additional loan, up to a maximum principal amount of $2,650,000, to pay the
principal and interest due under certain bridge loans payable by Amati, to pay
Amati accounts payable in the amount of approximately $150,000 and to fund up to
$150,000 in engineering services to be provided to Amati by ICOT. These loans
were evidenced by senior secured promissory notes (the "Amati Senior Secured
Notes") in the principal amounts of $750,000 and up to $2,650,000, which bore
interest at 7.91% and 9.0%, respectively, and which were due and payable at the
earliest of March 21, 1996, a material breach by Amati of the Earlier Agreement,
the closing of an Amati financing, the merger of Amati with or into another
company, or the acquisition of all or a substantial part of the assets of Amati.
As security for the Amati Senior Secured Notes, Amati and ICOT entered into a
Security Agreement dated May 15, 1995 (the "Security Agreement"), giving ICOT a
security interest in all of the assets and properties, tangible and intangible,
of Amati, including, without limitation, its technology. Upon the execution of
the Agreement of Reorganization on August 4, 1995, the outstanding principal and
interest due on the Amati Senior Secured Notes was $3,022,800.
Pursuant to the Agreement of Reorganization, ICOT has agreed to make
additional funds available to Amati up to such amount as to bring the total
amount of ICOT loans outstanding to Amati (including the principal and interest
on the Amati Senior Secured Notes) to $5,000,000, which funds are to be provided
to Amati as necessary to cover reasonable operating expenses, as approved by
ICOT. Upon execution of the Agreement of Reorganization, ICOT canceled the Amati
Senior Secured Notes in exchange for a secured note having a maximum principal
amount of $5,000,000 (the "New Amati Note"). The New Amati Note, which bears
interest at the lowest rate required to avoid the computation of interest under
federal and state income tax laws or regulations, is due and payable on the
earlier of November 30, 1995 or a material breach by Amati of the Agreement of
Reorganization. ICOT and Amati also amended the Security Agreement to cover the
New Amati Note.
AMATI WARRANT TO ICOT
In consideration of execution of the Agreement of Reorganization, and in
exchange for the option and warrant granted to ICOT under the Earlier Agreement,
Amati has issued to ICOT a warrant exercisable for 65% of the common stock
equivalents of Amati at an aggregate purchase price of $5,000,000, payable in
cash or by cancellation of the New Amati Note (the "New Amati Warrant"). The New
Amati Warrant is exercisable any time prior to or on November 30, 1996 in the
event that the Merger does not occur for any reason prior to November 30, 1995.
CONDITIONS TO THE MERGER
In addition to the approval by the stockholders of ICOT and shareholders of
Amati of the principal terms of the Merger Agreement, the obligations of ICOT
and Amati to consummate the
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Merger are subject to the satisfaction of a number of conditions, including: (a)
ICOT's notification to the NNM of the proposed issuance of the shares of ICOT
Common Stock pursuant to the Merger and upon exercise of Amati Options assumed
by ICOT pursuant to the Merger and upon exercise of the Substitute Warrants; (b)
the accuracy of the representations and warranties made in the Merger Agreement;
(c) the performance of the covenants contained in the Merger Agreement; (d) the
absence of any threatened or pending litigation or proceeding which could, in
the reasonable discretion of ICOT or Amati, render completion of the Merger
inadvisable or impractical; (e) the receipt by each company of a certificate
signed by an officer of the other company certifying to the fulfillment of
certain conditions to the Merger; (f) the receipt by ICOT and Amati of any
permits or authorizations that may be required by regulatory authorities; (g)
the receipt of legal opinions and other documents; (h) the approval of the
increases in authorized capital and in the shares authorized for issuance under
the ICOT 1990 Stock Option Plan by the ICOT stockholders; (i) the issuance of
ICOT Common Stock and the Substitute Warrants in the Merger complies with
federal and state securities laws; (j) the approval of the Merger Agreement by
the holders of at least 95% of the outstanding Amati Voting Stock; (k) that
certain Amati agreements are in full force and effect at the Effective Date; (l)
a key person life insurance policy on the life of Dr. Cioffi be in effect; (m)
that the Irrevocable Proxies be in full force and effect; (n) that Dr. Gibbons
and Dr. Cioffi be appointed to the ICOT Board of Directors; and (o) that the
Voting Agreements be in full force and effect. Conditions (i), (j), (k), (l) and
(m) apply only to ICOT's obligation to consummate the Merger. Conditions (n) and
(o) apply only to Amati's obligation to consummate the Merger. Consummation of
the Merger will also require that ICOT stockholders approve the increase in the
authorized number of shares of ICOT Common Stock.
At any time on or prior to the Effective Date of the Merger, to the extent
legally allowed, either of ICOT or Amati, by action taken by its Board of
Directors, and without approval of the stockholders of such company, may waive
compliance with any of the agreements or conditions contained in the Merger
Agreement for the benefit of such company.
TERMINATION OR AMENDMENT OF AGREEMENT OF REORGANIZATION
The Agreement of Reorganization may be terminated at any time prior to the
Effective Date of the Merger, without regard to whether stockholder approval of
the Merger has been obtained: (a) by mutual consent of ICOT and Amati; or (b) by
either ICOT or Amati if any of the conditions precedent to the obligations of
such party have not been fulfilled by November 30, 1995 or on the happening of a
material breach by the other party. See "Terms of the Merger -- Conditions to
the Merger."
The Agreement of Reorganization may be amended by the parties thereto at any
time before or after the approval of the Merger by the ICOT stockholders or
Amati's shareholders, except that, after such approval has been obtained, no
amendment may be made that by law requires the further approval of the ICOT
stockholders or the Amati shareholders unless such approval is obtained.
CERTAIN FEDERAL INCOME TAX MATTERS
Set forth below is a discussion of certain federal income tax consequences,
under the Internal Revenue Code of 1986, as amended (the "Code"), to ICOT,
Amati, Amati shareholders who receive ICOT Common Stock in exchange for Amati
Voting Stock as a result of the Merger or who receive payment for their shares
upon exercise of their dissenters' rights or payment for fractional shares, and
Amati Warrant holders who receive Substitute Warrants and holders of Outstanding
Amati Notes who exercise their warrants effective as of the Closing for ICOT
Common Stock. This discussion is based upon current provisions of the Code,
applicable Treasury Regulations, judicial authority, and current administrative
rulings and pronouncements of the Internal Revenue Service (the "Service"), any
of which may be changed with retroactive effect. Any such change could affect
this discussion of federal income tax matters. This discussion does not address
all aspects of federal taxation that may be relevant to particular Amati
securities holders, nor the effects of state, local or foreign income taxation.
In addition, the following discussion generally does not address the tax
consequences of transactions effectuated prior to or after the Merger (whether
or not such transactions are in connection with the Merger) including, without
limitation, the exercise of options to purchase Amati capital
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stock, the conversion of Amati Series A Preferred Stock to Amati Common Stock in
anticipation of the Merger, or the forfeiture to ICOT of shares held in escrow
to provide indemnification to ICOT under the Merger Agreement.
AMATI SECURITIES HOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER AND RELATED
TRANSACTIONS, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN
TAX LAWS.
Neither ICOT nor Amati has requested a ruling from the Service in connection
with the Merger. As a condition to consummation of the Merger, ICOT and Amati
will each receive from its respective counsel an opinion to the effect that the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Code. An opinion represents only the best judgment of tax counsel. Neither
the description of the tax consequences set forth below nor such opinions will
be binding on the Service, and the Service may adopt a position contrary to that
described below.
CONSEQUENCES TO ICOT AND AMATI
The Merger is intended to constitute a reorganization under Section 368(a)
of the Code if carried out in the manner set forth in the Merger Agreement. By
reason of the Merger constituting a "reorganization," no gain or loss will be
recognized by ICOT, IAAC or Amati on account of the Merger.
CONSEQUENCES TO AMATI SHAREHOLDERS
By virtue of the qualification of the Merger as a "reorganization" under the
Code, no gain or loss will be recognized by the Amati shareholders upon the
receipt in the Merger of ICOT Common Stock in exchange for their shares of Amati
Voting Stock.
The aggregate tax basis of the ICOT Common Stock received by each Amati
shareholder (including any fractional share not received and any ICOT Common
Stock held in escrow), will be the same as the aggregate tax basis of the Amati
Voting Stock surrendered in exchange therefor.
The holding period for each share of ICOT Common Stock received by each
shareholder of Amati in exchange for Amati Voting Stock will include the period
for which such shareholder held the Amati Voting Stock exchanged therefor,
provided such shareholder's Amati Voting Stock is held as a capital asset at the
Effective Date of the Merger.
Shareholders of Amati who exercise dissenters' rights with respect to their
shares of Amati Voting Stock and who receive payment for such shares in cash
(see "Terms of the Merger -- Dissenters' Rights"), will generally recognize
capital gain or capital loss measured by the difference between the amount of
cash received and the shareholder's basis in such shares, provided that such
shares are a capital asset in the hands of such shareholder at the Effective
Date of the Merger. Such gain or loss will be "long-term" gain or loss if the
shares have a holding period of more than one year on the date of disposition.
An Amati shareholder who receives a cash payment in lieu of a fractional
share of ICOT Common Stock will be treated as if the fractional share were
distributed in the Merger and then redeemed by ICOT, and will recognize capital
gain or capital loss measured by the difference between the amount of cash
received and the shareholder's basis in the fractional share (which will be a
pro rata portion of the shareholder's basis in the Amati Voting Stock
surrendered in the Merger), provided such shareholder's Amati Voting Stock is
held as a capital asset at the Effective Date of the Merger.
CONSEQUENCES TO AMATI WARRANT HOLDERS
The exchange of unexercised Amati Warrants for Substitute Warrants in the
Merger will result in taxable gain or loss to the holders of the Amati Warrants
at the Effective Date of the Merger. Such gain or loss will be measured by the
difference between the fair market value of the Substitute Warrants and the
holder's basis, if any, in the Amati Warrants with respect to which the
Substitute Warrants are received. Neither Amati nor ICOT expresses any opinion
regarding the fair market value of the Substitute Warrants. Such gain or loss
will be capital gain or loss if the Amati stock for which the
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Amati Warrants were exercisable would have been a capital asset of the holder of
the Amati Warrants and will be long-term if the Amati Warrants have been held
for more than a year at the Effective Date of the Merger.
CONSEQUENCES TO HOLDERS OF OUTSTANDING AMATI NOTES
Federal income tax treatment of holders of Outstanding Amati Notes who
accept Amati's inducement offer to extend their notes and exercise their
warrants effective as of the Merger is unclear. Among other possibilities, it is
possible that the Service would view the making and acceptance of the inducement
offer as a taxable exchange of the affected warrants, with the result that the
holder would have a taxable gain or loss in the amount of the difference between
(i) the value of the ICOT shares received in the Merger with respect to the
exercise of the warrants and (ii) the sum of the holder's basis in the warrant
and the warrant exercise price. Another possibility is that the making and
acceptance of the inducement offer would not be taxable to the holder and that
exercise of the warrant in the Merger would not result in taxable gain or loss
to the holder. Due to uncertainties in the federal income tax laws, which
treatment would pertain cannot be predicted with certainty. It is also likely
that the extension of the due date of an Outstanding Amati Note would be treated
as an exchange of a new debt instrument for the existing debt instrument,
potentially taxable to the holder to the extent the value of the Outstanding
Amati Note at the time of the exchange exceeds the holder's basis in such Note.
LIMITATIONS ON DESCRIPTION
The description of the tax consequences set forth above is subject to
certain assumptions and qualifications and is based on the truth and accuracy of
the representations of the parties in the Merger Agreement and in representation
letters to be delivered by the officers and directors of ICOT and Amati and by
certain stockholders of Amati. Of particular importance is the assumption that
the Merger will satisfy the "continuity of interest" requirement.
In order for the continuity of interest requirement to be met, Amati
shareholders must not, pursuant to a plan or intent existing at or prior to the
Effective Date of the Merger, dispose of an amount of ICOT Voting Stock to be
received in the Merger (including dispositions through the exercise of
dissenters' rights and, under certain circumstances, pre-merger dispositions of
Amati Voting Stock) such that the Amati shareholders do not retain a meaningful,
continuing equity ownership in ICOT. Generally, so long as holders of Amati
Voting Stock do not plan to dispose of in excess of 50 percent of the ICOT
Common Stock to be received as described above (the "50 Percent Test"), such
requirement will be satisfied. For purposes of the 50 Percent Test, Amati stock
received in contemplation of the Merger, perhaps including Amati stock received
or deemed received upon exercise of Amati Warrants, will be treated as disposed
of stock. Management of Amati has no knowledge of a plan or intention that would
result in the 50 Percent Test not being satisfied. Furthermore, affiliates of
Amati are restricted from selling the ICOT Voting Stock to be issued to them in
the Merger pursuant to the Affiliates Agreements described below under
"Affiliates' Restrictions on Sale of ICOT Stock."
A successful challenge by the Service to the status of the Merger as a
"reorganization" would result in an Amati shareholder recognizing gain or loss
with respect to each share of Amati Voting Stock surrendered equal to the
difference between such shareholder's basis in such share and the fair market
value of the ICOT Common Stock received in exchange therefor. In such event, an
Amati shareholder's aggregate basis in the shares of ICOT Common Stock received
in the exchange would equal the fair market value of such shares and the
shareholder's holding period for such shares would not include the period during
which the shareholder held Amati Voting Stock.
AFFILIATES' RESTRICTIONS ON SALE OF ICOT COMMON STOCK
The shares of ICOT Common Stock to be issued in the Merger have been
registered under the Securities Act by a Registration Statement on Form S-4,
thereby allowing such securities to be traded without restriction by any former
holder of Amati Voting Stock: (i) who is not deemed to be an "affiliate" of
Amati prior to the consummation of the Merger, as "affiliate" is defined for
purposes of
38
<PAGE>
Rule 145 under the Securities Act; and (ii) who does not become an "affiliate"
of ICOT after the Merger. Amati shareholders who may be deemed affiliates of
Amati will be so advised by Amati prior to the Merger.
The Agreement of Reorganization requires Amati to cause each Amati
shareholder who is an affiliate to agree not to make any public sale of any ICOT
Common Stock received upon consummation of the Merger except in compliance with
Rule 145 under the Securities Act or otherwise in compliance with the Securities
Act. In general, Rule 145, as currently in effect, imposes restrictions on the
manner in which such affiliates may make resales of ICOT Common Stock and also
on the quantity of resales that such stockholders, and others with whom they may
act in concert, may make within any three-month period for a period of two years
after consummation of the Merger.
In addition, the Affiliate's Agreements will provide that each affiliate
shall not, without the written permission of ICOT, sell or otherwise dispose of
any ICOT Common Stock issued to him until 90 days after the consummation of the
Merger nor more than 25% of the ICOT Common Stock issued to him before the first
anniversary of such date. Dr. Cioffi has signed an Affiliate's Agreement
providing that he shall not, without the written permission of ICOT, sell or
otherwise dispose of more than 25% of the ICOT common stock equivalents issued
to him before the first anniversary of such date nor more than 50% of such ICOT
common stock equivalents before the second anniversary of such date. ICOT shall
be entitled to place legends on the certificates evidencing any ICOT Common
Stock received by such Amati affiliates pursuant to the terms of the Merger
Agreement, and to issue stop transfer instructions to the transfer agent for
ICOT Common Stock, consistent with the terms of the Affiliate's Agreements.
GOVERNMENTAL AND REGULATORY APPROVALS
ICOT and Amati are aware of no governmental or regulatory approvals required
for consummation of the Merger, other than compliance with applicable securities
and "blue sky" laws of various states and the filing and recording of the
Agreement of Merger required under California law.
MERGER EXPENSES
Whether or not the Merger is consummated, ICOT and Amati will be responsible
for their own costs and expenses incurred in connection with the Merger and the
transactions contemplated thereby, except that if the Merger is consummated, any
such expenses which are then unpaid will be the responsibility of the combined
company.
DISSENTERS' RIGHTS
ICOT STOCKHOLDERS
Under the Delaware General Corporation Law, holders of ICOT Common Stock are
not entitled to demand appraisal of, or payment for, their shares as a result of
the Merger or the issuance of shares of ICOT Common Stock in connection with the
Merger.
AMATI SHAREHOLDERS
If the Merger is consummated, any holder of shares of Amati Common Stock or
Series A Preferred Stock, which were outstanding on the Amati Record Date for
the Meeting, who does not vote such shares in favor of the Merger and who fully
complies with all applicable provisions of Chapter 13 of the California
Corporations Code (the "Corporations Code"), is entitled to require Amati to
purchase such shares (any and all of such shares being referred to in this
Prospectus/Proxy Statement as "Dissenting Shares") for cash at their "fair
market value" as of the day preceding the first announcement of the terms of the
proposed Merger, excluding any appreciation or depreciation in consequence of
the proposed Merger. The terms of the proposed Merger were first publicly
announced on March 21, 1995.
Dissenters' rights are exercisable only by the holder of record, not by a
beneficial owner who does not hold the shares of record.
AN AMATI SHAREHOLDER WHO WISHES TO DEMAND THAT AMATI PURCHASE ALL OR A
PORTION OF HIS SHARES FOR CASH AT SUCH VALUE MUST DO ALL OF THE FOLLOWING WITH
RESPECT TO SUCH SHARES:
39
<PAGE>
1. Vote such shares against the Merger or abstain from voting such shares
on the Merger;
2. Make a written demand on Amati for the purchase of such shares and for
the payment in cash of the fair market value of such shares. Such demand
will not be effective unless it is RECEIVED by Amati within 30 days after
the date on which notice of approval of the Merger is MAILED to such
shareholder by Amati.
3. Submit to Amati, within 30 days after the date on which notice of
approval of the Merger is mailed to such shareholder by Amati, the stock
certificates representing the shares which such shareholder demands that
Amati purchase. Amati will endorse such certificates to indicate that
they represent Dissenting Shares.
The written demand and the stock certificates should be delivered or
addressed to Amati at 1975 El Camino Real West, Mountain View,
California 94040, Attention: John M. Cioffi, Secretary.
The required written demand (the second-numbered requirements above) must
state: The number of shares held of record which the shareholder demands be
purchased and the amount that such shareholder claims to be the fair market
value of such shares as of March 20, 1995. The statement of fair market value
will constitute an offer by the shareholder to sell such shares at the price set
forth in the statement. Thereafter, the shareholder may withdraw a demand for
payment only if the company consents to such withdrawal.
If the company and such shareholder agree that the shareholder has properly
exercised dissenters' rights in accordance with Chapter 13 of the Corporations
Code, and agree upon the relevant fair market value of the Dissenting Shares,
then the company, upon timely surrender of the certificates representing such
shares as set forth above, will make payment of the agreed upon amount (plus
interest at the legal rate from the date of such agreement) within 30 days after
such agreement (or within 30 days after the Effective Date of the Merger, if
later). If the company denies that such shareholder has properly exercised
dissenters' rights, or the company and such shareholder fail to agree on the
relevant fair market value of such shares, such shareholder may, within six
months after the date on which the notice of shareholder approval is mailed to
such shareholder, but not thereafter, file a complaint in the Superior Court for
the County of Santa Clara, State of California, requesting the purchase of and
payment for such shares or to determine their fair market value or both. The
cost of any such action would be assessed or apportioned as the court considered
equitable. However, if the court were to determine that the fair market value
exceeded the price offered to the shareholder, then the company would be
required to pay costs (including, in the court's discretion, attorneys' fees,
fees of expert witnesses and interest at the legal rate, if the fair market
value were determined to exceed the price offered by the company by at least
25%).
In the event that the aggregate number of shares held by Amati shareholders
which vote in favor of the Merger is less than 95%, ICOT has the right under the
Merger Agreement not to proceed with the Merger. See "Terms of the Merger --
Conditions to the Merger."
THE FOREGOING IS MERELY A SUMMARY AND DOES NOT PURPORT TO BE A COMPLETE
STATEMENT OF THE RIGHTS OF DISSENTING SHAREHOLDERS. IT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE APPLICABLE STATUTORY PROVISIONS OF CHAPTER 13 OF
THE CORPORATIONS CODE WHICH ARE SET FORTH IN FULL IN APPENDIX C TO THIS
PROSPECTUS/PROXY STATEMENT.
40
<PAGE>
AMATI SELECTED FINANCIAL DATA
The following selected statements of operations data for each of the three
years in the period ended December 31, 1994 and the balance sheet data at
December 31, 1993 and December 31, 1994 have been derived from, and are
qualified by reference to, the financial statements of Amati audited by Ernst &
Young LLP, independent auditors, included elsewhere in this Prospectus/Proxy
Statement. The balance sheet data at December 31, 1992 is derived from audited
financial statements not included herein. The financial data for the six months
ended June 30, 1994 and for the six months ended and as of June 30, 1995 are
derived from and are qualified by reference to the unaudited financial
statements for and as of such dates, included elsewhere in this Prospectus/Proxy
Statement. Such unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of Amati, include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation thereof. Operating results for the interim period are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1995.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31 PERIOD FROM INCEPTION ----------------------
------------------------------- (DECEMBER 31, 1991) JUNE 30, JUNE 30,
1992 1993 1994 TO 1994 1995
--------- --------- --------- JUNE 30, 1995 ----------- ---------
---------------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Selected Income Statement Data:
Revenues.............................. $ 1,825 $ 4,285 $ 4,861 $ 11,119 $ 4,283 $ 148
Gross profit.......................... 1,136 2,143 2,538 5,966 2,507 148
Operating (loss) income............... (455) (964) (736) (5,674) 1,323 (3,518)
Net (loss) income..................... (466) (989) 965 6,353 1,313 3,933
Net (loss) income per share........... (1.95) (3.20) (2.24) (17.57) 2.67 (7.80)
Weighted number of common shares and
common share equivalents............. 238 309 430 362 492 504
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1992 1993 1994
--------- --------- --------- JUNE 30,
1995
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Working capital......................... $ (636) $ (1,564) $ (2,298) $ (5,567)
Total assets............................ 409 1,419 1,118 304
Total shareholders' deficit............. (474) (1,444) 1,981 (5,331)
</TABLE>
41
<PAGE>
AMATI MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Amati was incorporated December 31, 1991. Its principal offices are located
at 1975 El Camino Real West, Mountain View, CA 94040.
Amati, a development stage company, develops telecommunications transmission
products utilizing Amati's DMT modulation technology to provide high speed
video, voice and digital data transmission over unconditioned copper wires or
coaxial cable.
Amati has been a development stage company since its inception. Funding of
its operations has come mainly from cash flow provided from development
contracts, sales of prototypes, and bridge loans.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1994
For the first six months of fiscal 1995, net sales of prototypes were down
to $20,000 compared to $2,653,300 for the same period in 1994. This decrease was
due to the elimination of manufacturing prototypes and the redirection of
resources and efforts to the next generation product. Contract revenues were
$128,200 for the six months ended June 30, 1995, compared to $1,629,600 for the
same period in 1994. This was mainly due to the termination of research and
development contracts with Northern Telecom in 1994.
Research and development expenses increased 818% to $2,260,300 for the six
months ended June 30, 1995, compared to $246,200 for the same period in 1994.
The increase was mainly due to the redirection of resources to new products, the
cost of prototyping components, non-recurring engineering charges, the addition
of three full-time engineers and three part-time engineers, and hiring of
consultants in connection with the development of new products.
General and administrative expenses increased 50% to $1,406,000 for the six
months ended June 30, 1995, compared to $937,700 for the same period in 1994.
This increase was due primarily to a one time charge of $375,000 for 75,000
shares of Series A Preferred Stock, valued at $5.00 per share, granted to
Northern Telecom in exchange for the execution and delivery of certain patent
and technology ownership and license agreements. Also charged to expense during
this period was $170,000 for 28,333 shares of Common Stock, valued at $6.00 per
share, issued to investors in consideration for consulting services and in
waiver of claims of royalty payments.
Interest expense increased to $414,700 for the six months ended June 30,
1995, compared to $10,400 for the same period in 1994. This was due to higher
bridge loan borrowing of $3,495,500 as of June 30, 1995, compared to $950,000 as
of June 30, 1994 and amortization of deferred interest charge for the issuance
of stock warrants.
FISCAL 1994 AND FISCAL 1993
Sales of prototypes increased 209% to $2,977,600 in 1994 from $963,700 for
1993. Contract revenues decreased 43% to $1,883,600 in 1994 from $3,320,900 for
1993. The growth in sales is attributable to the manufacturing and sale of
prototypes, mainly to Northern Telecom, for laboratory trials in several
countries. The decrease in contract revenues were due to the completion of
contracts with AT&T and ECI in 1993.
Research and development expenses decreased 7% to $2,199,400 in 1994 from
$2,356,200 in 1993, due primarily to the termination of some consulting
resources, no longer needed because of the completion of the AT&T and ECI
contracts.
General and administrative expenses increased 43% to $1,075,100 in 1994 from
$751,100 in 1993. The increase was attributable to the hiring of a President,
Vice President of Sales, and a Controller, as well as the increased use of legal
assistance in the negotiation of contracts.
42
<PAGE>
Interest expense increased to $228,700 in 1994 from $24,900 in 1993. This
was directly attributable to the increased bridge loan borrowing of $2,030,900
as of the end of 1994 compared to $950,000 as of the end of 1993 and
amortization of deferred interest charge for the issuance of stock warrants.
As of December 31, 1994, Amati had federal and state net operating loss
carryforwards of approximately $2,100,000 and $800,000, respectively. Amati also
had federal and state research and development carryforwards of approximately
$300,000 and $100,000, respectively. The net operating loss and credit
carryforwards will expire at various dates beginning in 1997 through 2009, if
not utilized.
The utilization of the net operating losses and credits is subject to a
substantial annual limitation due to the "change of ownership" provisions of the
Code and similar state provisions. The annual limitation may result in the
expiration of net operating losses and credits before utilization.
FISCAL 1993 AND FISCAL 1992
Amati began operations in 1992 and had no sales in that year. Sales of
prototypes in 1993 were $963,700. Contract revenues increased 82% to $3,320,900
in 1993 from $1,825,200 in 1992. The increase was attributable to the signing of
research and development contracts with Northern Telecom, AT&T, and ECI.
Research and development expenses increased 109% to $2,356,200 in 1993 from
$1,129,100 in 1992, due primarily to the addition of four full-time engineers,
the purchase of equipment.
General and administrative expenses increased 62% to $751,100 in 1993 from
$462,400 in 1992. The increase was due to the addition of personnel and the
increased use of outside services such as accounting and legal.
Interest expense increased 135% to $24,900 in 1993 from $10,600 in 1992,
primarily the result of the bridge loans borrowed in the fourth quarter of 1993.
In October 1993, Amati received $950,000 in bridge loans from several investors,
to finance its working capital requirements. The majority of expenditures were
for the purchase of computers and laboratory equipment.
LIQUIDITY AND CAPITAL RESOURCES
Amati has funded its operations through cash flow provided from operations,
primarily research and development contracts, and private financing, since its
inception. From October 1993 through June 1995, Amati has relied heavily upon
private financing, which provided a total of $5,028,400, to supplement cash flow
provided from operations. Proceeds were used primarily for working capital and
to repay $1,285,900 of bridge loans that had reached maturity.
Amati is still in the development stage and has incurred losses from
inception. Amati has an accumulated deficit of $2,320,100 and $5,952,900 and
negative working capital of $2,598,300 and $5,566,900 at December 31, 1994 and
June 30, 1995, respectively.
ICOT LOANS TO AMATI
In March 1995, ICOT provided Amati with an unrestricted working capital loan
in the principal amount of $750,000 and, in May 1995, agreed to provide an
additional loan, up to a maximum principal amount of $2,650,000, to pay the
principal and interest due under the matured bridge loans, to pay Amati accounts
payable in the amount of approximately $150,000 and to fund up to $150,000 in
engineering services to be provided to Amati by ICOT. These loans were evidenced
by the Amati Senior Secured Notes. As security for the Amati Senior Secured
Notes, Amati and ICOT entered into the Security Agreement.
Pursuant to the Agreement of Reorganization, ICOT has agreed to make
additional funds available to Amati up to such amount as to bring the total
amount of ICOT loans outstanding to Amati (including the principal and interest
on the Amati Senior Secured Notes) to $5,000,000, which funds are to be provided
to Amati as necessary to cover reasonable operating expenses, as approved by
ICOT. Upon the execution of the Agreement of Reorganization, ICOT canceled the
Amati Senior Secured
43
<PAGE>
Notes in exchange for the New Amati Note. The New Amati Note, which bears
interest at the lowest rate required to avoid the computation of interest under
federal and state income tax laws or regulations, is due and payable on the
earlier of November 30, 1995 or a material breach by Amati of the Agreement of
Reorganization. ICOT and Amati also amended the Security Agreement to cover the
New Amati Note.
AS OF JUNE 30, 1995
Amati had cash of $9,600 compared to $144,800 as of December 31, 1994.
Cash used for operating activities resulted primarily from $3,632,800 net
operating loss incurred in the first six months of fiscal 1995, offset by an
increase in accounts payable of $548,500 and $656,800 increase in deferred
revenues.
Cash used for investing activities of $21,600 related primarily to the
purchase of two personal computers and a Sunsparc workstation for the
engineering department.
Cash provided by financing activities as of June 30, 1995 was primarily due
to loans of $2,750,500 from ICOT. These advances were used to pay off
convertible notes of $1,285,900 and to fund operations.
In the event that the Merger is not consummated, management believes that
Amati does not have sufficient liquidity to fund current operations, and as
such, will need to raise additional equity capital to fund the working capital
and other cash flow requirements for the future.
44
<PAGE>
ICOT SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statements of operations data for each
of the three years in the period ended July 30, 1994 and the consolidated
balance sheet data at July 31, 1993 and July 30, 1994 have been derived from,
and are qualified by reference to, the consolidated financial statements of ICOT
audited by Arthur Andersen LLP, independent public accountants, included
elsewhere in this Prospectus/Proxy Statement. The consolidated statements of
operations data for the years ended July 28, 1990 and July 27, 1991 and the
consolidated balance sheets data at July 28, 1990, July 27, 1991 and July 25,
1992 are derived from audited financial statements not included herein. The
consolidated financial data for the nine months ended April 30, 1994 and for the
nine months and as of April 29, 1995 are derived from and are qualified by
reference to the unaudited consolidated financial statements for and as of such
dates, included elsewhere in this Prospectus/Proxy Statement. Such unaudited
financial statements have been prepared on the same basis as the audited
financial statements and, in the opinion of ICOT, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
thereof. Operating results for the interim period are not necessarily indicative
of the results that may be expected for the entire year ending July 29, 1995.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
----------------------------------------------------- ----------------------
JULY 28, JULY 27, JULY 25, JULY 31, JULY 30, APRIL 30, APRIL 29,
1990 1991 1992 1993 1994 1994 1995
--------- --------- --------- --------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net Sales.................................. $ 14,344 $ 15,630 $ 26,324 $ 12,307 $ 8,236 $ 5,837 $ 8,737
Income (loss) before income taxes.......... (698) (660) 3,398 (5,963) 530 348 1,011
Provision for income taxes................. -- -- 265 -- 27 22 51
--------- --------- --------- --------- --------- ----------- ---------
Net income (loss).......................... $ (698) $ (660) $ 3,133 $ (5,963) $ 503 $ 326 $ 960
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
Net income (loss) per share................ $(.05) $(.05) $.23 $(.46) $.04 $.03 $.08
--------- --------- --- --------- --- --- ---------
--------- --------- --- --------- --- --- ---------
<CAPTION>
JULY 28, JULY 27, JULY 25, JULY 31, JULY 30, APRIL 29,
1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Current assets............................. $ 9,068 $ 16,985 $ 17,695 $ 11,188 $ 9,463 $ 9,516
Current liabilities........................ 3,986 4,748 4,042 2,598 2,171 1,244
Working capital............................ 5,082 12,237 13,653 8,590 7,292 8,272
Total assets............................... 17,612 18,997 21,101 12,936 11,391 10,730
Long-term liabilities...................... 849 2,132 1,566 1,099 428 295
Stockholder's equity....................... 12,777 12,117 15,493 9,239 8,792 9,191
</TABLE>
45
<PAGE>
ICOT MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ICOT operates a one-segment business which develops, manufactures, markets
and services network connectivity products for sales to OEMs and end-users.
These products are used primarily in two applications:
- IBM compatible personal computers ("PC") to IBM mainframe connectivity
applications in Local Area Networks ("LAN").
- Bridge products for interconnecting Token-Ring LANs, Token-Ring and
Ethernet LANs, and Token-Ring LANs over the Wide Area Networks ("WAN").
During fiscal 1993, ICOT implemented a strategic restructuring program. To
achieve a more focused product and marketing strategy, ICOT decided to market
its PC to Mainframe Connectivity products only to OEMs, Application Program
Interface ("API") and strategic end-user market segments of the Windows and Disk
Operating Systems ("DOS") Connectivity markets. As a result of this change in
product and marketing strategy, ICOT streamlined and downsized its operations by
reducing its workforce, consolidating certain facilities, disposing of excess
equipment and writing off capitalized software development costs. These costs
are reflected in ICOT's consolidated statements of operations as a restructuring
charge in fiscal 1993 and are further discussed in Notes 1 and 2 of Notes to
Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated as a percentage of net sales:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
---------------------------------------- --------------------------
JULY 25, JULY 31, JULY 30, APRIL 30, APRIL 29,
1992 1993 1994 1994 1995
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales............................................. 100% 100% 100% 100% 100%
Cost of Sales......................................... 48 62 54 51 58
--- --- --- --- ---
Gross margin.......................................... 52 38 46 49 42
Operating Expenses:
Research and development............................ 10 21 17 19 15
Marketing and sales................................. 19 27 11 11 9
General and administrative.......................... 12 17 14 16 9
Restructuring charge................................ -- 23 -- -- --
--- --- --- --- ---
Total operating expenses.......................... 41 88 42 46 33
--- --- --- --- ---
Income (loss) from operations......................... 11 (50) 4 3 9
Other Income.......................................... 2 2 2 3 2
--- --- --- --- ---
Income (loss) before income taxes..................... 13 (48) 6 6 11
Provision for income taxes............................ 1 -- -- -- 1
--- --- --- --- ---
Net Income (Loss)..................................... 12% (48)% 6% 6% 10%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
NINE MONTHS ENDED APRIL 29, 1995 AND APRIL 30, 1994
For the first nine months of fiscal 1995, net sales increased 50% to
$8,737,000 compared to sales of $5,837,000 for the comparable fiscal 1994
nine-month period. The increase is a result of shipments to ICOT's largest OEM
customer, IBM, of products introduced into the market in fiscal 1994. In
addition, royalty revenues were recognized in fiscal 1995 from another new
product developed by ICOT and released by IBM in July 1994.
46
<PAGE>
Sales to IBM accounted for 81% of ICOT's revenue in the nine months ended
April 29, 1995, compared with 63% for the comparable period of fiscal 1994, due
to royalties and the introduction of new products. Sales to IBM continue to
account for a substantial portion of ICOT's revenues and, consequently, ICOT's
business continues to be volatile due to its dependence on a dominant customer.
Because IBM has the exclusive responsibility for marketing and selling of the
products that ICOT develops for IBM, ICOT's profitability can be significantly
affected by IBM's success in the marketplace.
PC to Mainframe Connectivity sales of $1,642,000 in the first nine months of
fiscal 1995 represent a decline of 25% from $2,189,000, when compared with the
same period of the prior fiscal year due to decreased royalties received from an
OEM customer and to a general decline in ICOT's connectivity market share.
Gross margins as a percent of sales were 42% for the first nine months of
fiscal 1995 compared with 49% for the same period of fiscal 1994. The decrease
in margins was primarily attributable to product mix resulting from shipment of
new products with lower margins in the current fiscal year. Amortization of
capitalized software costs charged to cost of sales were $249,000 in the first
nine months of fiscal 1995. There was no amortization expense in the comparable
period of the prior fiscal year.
Net research and development expenses increased 19% to $1,281,000 in the
first nine months of fiscal 1995 compared to the same period of fiscal 1994.
Research and development expenses are net of software development costs
capitalized in accordance with Statement of Financial Accounting Standards
("SFAS") No. 86 and of funded development costs. During fiscal 1995 there was no
capitalization of software development costs, resulting in higher expenses for
the nine-month period. Software development costs capitalized in the comparable
period of the prior fiscal year were $390,000. Funded development costs in the
first nine months of fiscal 1995 were $470,000 compared with $395,000 in the
comparable period of fiscal 1994. ICOT believes that research and development is
a key element in its ability to compete and will continue to make investments in
product development and its support of product reliability.
Marketing and sales expenses were higher by $101,000 or 15% for the first
nine months of the current fiscal year compared to the comparable period of
fiscal 1994, due to ICOT's participation in trade shows and sales promotion
related to the PC-Connectivity business and the hiring of additional in-house
sales personnel.
General and administrative expenses decreased $134,000 or 14% for the first
nine months of fiscal 1995 when compared with the same period of fiscal 1994.
Lower occupancy costs, combined with reduced legal, audit and other professional
fees, contributed to the reduced spending levels.
Interest income increased to $198,000 for the first nine months of fiscal
1995 when compared with the same period of fiscal 1994. This increase is
primarily due to higher interest yields on short-term investments.
The provision for income taxes in the first nine months of fiscal 1995 was
$51,000 compared to $22,000 for the comparable nine-month period of fiscal 1994.
This provision was a result of net operating profit after benefit of Federal net
operating loss carryforwards.
FISCAL YEAR 1994 AND FISCAL YEAR 1993
Total net sales in fiscal 1994 decreased 33% to $8,236,000 from $12,307,000
in fiscal 1993. The sales decline resulted primarily from a decrease in
shipments of OEM products to ICOT's largest customer, IBM. Sales to IBM
accounted for 65% of ICOT's revenue in fiscal 1994 compared to 62% in fiscal
1993. Sales to IBM are uncertain due to the transition to new products.
Shipments to IBM are determined only by IBM and can result in revenue
fluctuations. IBM can cancel its agreement with ICOT at any time without penalty
upon 30 days' notice. In fiscal 1994, ICOT completed the development of the next
generation of LAN products which IBM launched into the market. In addition, IBM
47
<PAGE>
also released another new product in July 1994 which was developed by ICOT.
Future sales volumes are likely to fluctuate due to changes resulting from the
development of new products and/or manufacturing agreements under contract with
IBM.
PC to Mainframe Connectivity sales in fiscal 1994 were $2,857,000 compared
to sales of $4,632,000 in fiscal 1993. The prior fiscal year's sales included a
single large order received in the second fiscal quarter. During the third
quarter of fiscal 1994, several basic enhancements to "OmniPath for Windows"
products were completed.
Gross margin as a percent of sales increased to 46% in fiscal 1994 from 38%
in fiscal 1993. Improved margins were primarily attributable to product mix and
favorable manufacturing variances that have resulted from downsizing of
operations. Furthermore, since all capitalized software costs related to the PC
Connectivity business of $1,454,000 were written off in the prior year in
connection with ICOT's restructuring, there was no amortization expense charged
to cost of sales in the 1994 fiscal period. The amortization of these costs
charged to costs of sales was $692,000 in fiscal 1993.
Net research and development expense decreased to $1,429,000 (17% of sales)
in fiscal 1994 from $2,533,000 (21% of sales) in fiscal 1993. The decrease in
research and development costs resulted primarily from reduced staffing,
consulting, recruiting and relocation expenses associated with the
PC-Connectivity business which is now focused on a new market sub-segment.
Research and development expenses are net of software development costs
capitalized in accordance with SFAS No. 86 and of funded development costs. In
fiscal 1994 and 1993 capitalized software costs totaled $455,000 and $733,000,
respectively, and funded development costs totaled $549,000 and $903,000,
respectively. During the 1994 fiscal year, there was no amortization of
capitalized software development costs. In the fourth quarter of fiscal 1993,
all capitalized software development costs associated with ICOT's
PC-Connectivity products of $1,454,000 were written off as part of ICOT's
restructuring program, as further discussed in Notes 1 and 2 of Notes to
Consolidated Financial Statements.
Marketing and sales expenses in fiscal 1994 decreased to $884,000 (11% of
sales) from $3,365,000 (27% of sales) in fiscal 1993. Expenses were higher in
fiscal 1993 due to a larger staff of marketing and sales personnel, ICOT's
participation at trade shows, media advertising and sales promotion for the
"OMNIPath for Windows" product. The late fiscal 1993 restructuring of ICOT's
business resulted in significant reductions in marketing and sales expense
levels.
General and administrative expenses decreased to $1,177,000 (14% of sales)
in fiscal 1994, from $2,137,000 (17% of sales) in fiscal 1993. Staff reductions,
combined with reduced legal, audit and professional fees contributed to lower
spending levels. In line with the changes in business focus, $1,417,000 was
included in the restructuring charge in fiscal 1993 to provide for employee
termination costs, excess equipment and idle facilities.
Interest income decreased in fiscal 1994 by $58,000 due to a lower
investment base, offset by higher interest rates on short-term investments.
The provision for income taxes in fiscal 1994 of $27,000 was the result of
net operating profit after benefit of federal net operating loss carryforwards.
Fiscal 1994 tax provisions were required for federal alternative minimum tax and
California state taxes due to California's deferral of loss carryforwards. There
was no provision for income taxes in fiscal 1993 due to losses incurred. In
February 1992, the Financial Accounting Standards Board issued SFAS No. 109,
"Accounting for Income Taxes." ICOT adopted the provisions of SFAS No. 109 in
fiscal year 1994. The adoption of SFAS No. 109 did not have a material impact on
the prior year or current year financial statements.
FISCAL YEAR 1993 AND FISCAL YEAR 1992
Total net sales in fiscal 1993 decreased 53% to $12,307,000 from sales of
$26,324,000 in fiscal 1992. This was primarily attributable to a decline in IBM
shipments to $7,675,000 in fiscal 1993, from $21,760,000 in the prior year.
Sales to IBM accounted for 62% of ICOT's revenue in fiscal 1993 compared to 83%
in fiscal 1992. Sales of PC to Mainframe Connectivity products in fiscal 1993
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improved to $4,632,000 from $4,564,000 as a result of a single large order
received in the second quarter. In the third quarter of fiscal 1993, ICOT
restructured its PC to Mainframe Connectivity business to focus on OEM, API, and
strategic end-user market segments of the Windows and DOS Connectivity market.
Gross margin as a percent of sales decreased to 38% in fiscal 1993 from 52%
in fiscal 1992, resulting from lower sales volume and unfavorable manufacturing
variances.
Net research and development expenses increased to $2,533,000 (21% of net
sales) in fiscal 1993 from $2,406,000 (9% of net sales) in fiscal 1992. Research
and development expenses are net of software development costs capitalized in
accordance with SFAS No. 86 and of funded development costs. In fiscal 1993 and
1992 capitalized software costs totaled $733,000 and $1,509,000, respectively,
and funded development costs totaled $903,000 and $553,000, respectively. The
amortization of capitalized software development costs charged to cost of sales
in fiscal 1993 and 1992 was $692,000 and $426,000, respectively.
In the fourth quarter of fiscal 1993, all capitalized software development
costs associated with ICOT's PC-Connectivity products of $1,454,000 were written
off as part of ICOT's restructuring program, as further discussed in Notes 1 and
2 of Notes to Consolidated Financial Statements. Offsetting the decrease in
research and development expense that resulted from ICOT's decision to change
its marketing strategy is an increase in engineering staff dedicated to OEM
projects. This engineering group has increased in size from the prior year to
accommodate the requirements relative to development projects under contract
with an OEM customer. Consequently, ICOT incurred higher research and
development costs in fiscal 1993 compared to fiscal 1992.
Marketing and sales expenses in fiscal 1993 decreased to $3,365,000 (27% of
sales) from $5,040,000 (19% of sales) in fiscal 1992. Expenses were lower in
fiscal 1993 as a result of the restructuring of ICOT's PC Connectivity business.
The reduction in expense was partially offset by media advertising,
participation at trade shows, and sales and marketing support of the new
"OmniPATH for Windows" product.
General and administrative expenses decreased to $2,137,000 (17% of sales)
from $3,276,000 (12% of sales) in fiscal 1993 and fiscal 1992, respectively.
Staffing reductions, combined with lower employee incentive provisions and lower
legal expenses were the primary contributing factors to the expense reductions.
In line with the change in business focus, $1,417,000 was included in the
restructuring charge recorded in fiscal year 1993 to provide for employee
termination costs, excess equipment and idle facilities.
Interest income decreased by $214,000 in fiscal 1993 due to declining
interest rates earned on investments and a lower investment base. In the first
quarter of fiscal 1995, ICOT adopted the provision of SFAS No. 115 "Accounting
For Certain Investments in Debt and Equity Investments." The adoption of SFAS
No. 115 did not have a material impact on ICOT's financial statements.
There was no provision for income taxes in fiscal 1993 due to losses
incurred. The provision for income taxes in fiscal 1992 of $265,000 was the
result of net operating profit after benefit of federal net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
ICOT had cash and short term investments of $5,290,000 as of April 29, 1995,
compared to $6,037,000 as of July 30, 1994. Such amount was subsequently reduced
to $3,582,000 as of August 4, 1995, primarily as a result of loans to Amati
discussed below.
Cash provided by operating activities of $501,000 resulted primarily from
$960,000 net operating profit realized in the first nine months of fiscal 1995,
offset by a decrease in accrued expenses of $667,000.
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Cash provided by investing activities of $412,000 related primarily to the
liquidation of $6,885,000 of short-term investments upon their maturity, offset
by the purchase of $5,862,000 of short-term investments. There were no
capitalized software costs in the current fiscal year. In the same period of
fiscal 1994, $390,000 was used for capitalization of internal software
development costs. ICOT has no material commitments for capital expenditures.
Cash used for financing activities in fiscal 1995 of $637,000 was primarily
due to ICOT's repurchase of 537,347 shares of ICOT Common Stock for $563,000 and
payments of capital lease equipment of $76,000, offset by proceeds from the
exercise of stock options of $2,000. The stock repurchases have been
discontinued and ICOT does not expect to continue to repurchase any additional
ICOT Common Stock.
Currently, ICOT does not have a bank line of credit. Establishment of a
credit line is under way following a review of cash requirements for the
combined business operations of ICOT and Amati.
Under the terms of the Merger Agreement, upon consummation of the Merger, on
a fully-diluted basis the securities holders of Amati will acquire approximately
35% of the fully diluted shares of ICOT. Following the Merger, options covering
an additional 1,616,411 shares of ICOT Common Stock will be issued to key
employees of Amati. Amati is a development stage company, and the combined
company is not expected to operate profitably in the forseeable future. See Note
2 of Notes to Pro Forma Combined Condensed Financial Statements.
Pursuant to the Merger Agreement, ICOT agreed to lend Amati up to $5,000,000
in exchange for the New Amati Note. The outstanding aggregate principal amount
under the New Amati Note as of August 4, 1995 was $2,971,900.
ICOT anticipates that the combined company's available cash reserves and
funds from operations, along with its collaborative research and development
agreements, licensing agreements and investment income should be adequate to
satisfy capital requirements of the combined company through the 1996 fiscal
year under currently projected revenues and levels of spending. ICOT's future
capital requirements will depend on many factors, including sales levels,
progress in research and development programs, the establishment of
collaborative agreements, and costs of manufacturing facilities and
commercialization activities. It is likely that the combined company will seek
additional funding through collaborative agreements or through public or private
sales of its securities prior the commercialization of the Amati products.
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INFORMATION CONCERNING AMATI
BACKGROUND
Amati, a development stage company, develops telecommunications transmission
products utilizing Amati's DMT modulation technology to provide high speed
digital video, voice and data transmission over unconditioned copper wires or
coaxial cable. See "Risk Factors -- Negative Effect on Earnings; Development
Stage Company."
The initial research on the DMT technology was accomplished by Professor
John M. Cioffi at Stanford University. Beginning in 1987, Dr. Cioffi and his
graduate students evolved the concept of utilizing DMT technology to transmit
millions of bits per second of digital codes and multimedia signals over
ordinary telephone lines. See "Technology" below. The conclusion of this
research resulted in three patents which are owned by Stanford University. Amati
holds an exclusive worldwide royalty-bearing license to these Stanford patents.
Amati has developed the DMT technology primarily for ADSL applications.
Amati developed a prototype system in 1992 with funding from Northern Telecom to
participate in the competition for the ANSI standard for the ADSL transmission
specification. In 1993, Amati's DMT technology was selected by ANSI and, as a
result, is recognized as the United States standard for ADSL transmission. In
cooperation with ANSI, the European Telecommunications Standards Institute
("ETSI") has provided an information annex that makes the appropriate data rate
changes for European ADSL service. Amati expects the award of the ANSI and ETSI
standards to increase the market potential for its ADSL products. Because
Amati's DMT technology was selected as the standard for ADSL, Amati is required
to license such technology on a fair and reasonable basis to third parties who
request it. Motorola has entered into a license for Amati's DMT technology for
ADSL. See "Relationship with Motorola" below.
Amati was incorporated in California in 1991 and commenced operations in
1992. Its principal offices are located at 1975 El Camino Real West, Mountain
View, California 94040 and its telephone number is (415) 903-2350.
PRODUCTS AND MARKETS
Amati is currently developing products to provide high speed digital video,
voice and data transmission over copper and coaxial cable media. The following
discussion of Amati products and markets contains forward looking statements.
Actual results may vary substantially from current expectations for a variety of
reasons, including those cited in the "Risk Factors" referenced below.
ADSL (ASYMMETRIC DIGITAL SUBSCRIBER LINE)
In the late 1980s, Bellcore, the research entity jointly created and funded
by the seven Regional Bell Operating Companies for the development of new
technologies, developed the parameters for ADSL as a high-quality, low-cost
method for transmitting digital video from the central office of the local
telephone company to a subscriber's home over ordinary copper twisted-pair wire.
The term "asymmetric" refers to the fact that there is a different data rate in
each direction (bi-directional) of the transmission. The ANSI standard for ADSL
sets the data rate at approximately 6 Mbps from the central office to the
subscriber's home and approximately 600 Kbps from the subscriber's home to the
central office over 24 and 26 gauge copper twisted-pair wire for a distance of
at least two miles. The practical implementation of ADSL products will allow the
simultaneous transmission of video, data and voice over the same copper wire
that is currently installed in most homes in the United States and other
developed countries.
ADSL is intended for video dialtone services. The potential demand for ADSL
is being driven primarily by the threat to the telephone companies of increased
competition as a result of deregulation, and their desire to provide video
services utilizing their existing copper wire plant without having to invest
heavily in more expensive access technologies, such as fiber-optic systems.
Telephone companies are currently performing technical and market trials of
various video and multimedia
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systems. ADSL has the potential of providing telephone companies with a
technology that will enable them to compete cost-effectively with their main
competitors for video services, the interexchange carriers and cable companies.
There are several access transmission technologies that can deliver digital
services to a subscriber's home. The most effective technology, laying
fiber-optic cable to each home, is not practical from both cost and
time-to-implement perspectives. Therefore, the telephone companies are reviewing
interim strategies such as ADSL, HFC, fiber-to-the-curb and certain wireless
strategies. Amati believes that each technology has its merits and will get
deployed where most effective. Amati believes ADSL is the most effective
technology where homes are widely dispersed or where the "take rates" of the
services are low (which is expected as new video services are introduced). ADSL
provides the additional advantages of utilizing the existing copper plant, which
avoids trenching streets and subscribers' properties to lay new coaxial or fiber
optic cables. In addition, ADSL can be deployed easily on a home-by-home basis.
However, ADSL has the disadvantage relative to fiber-to-the-curb and HFC of
offering fewer simultaneous channels, although telephone office switches may be
able to offer a large menu of offerings with ADSL. See "Risk Factors -- Market
for Amati ADSL Products Still Under Development; Principal ADSL Markets Outside
the United States" and "Risk Factors -- Rapid Technological Change;
Competition."
In order to implement an ADSL video service, there are a number of key
components in addition to the transmission equipment that must co-exist in a
cost effective manner, including the video content, a digital switch, a video
server, encode/decode equipment and a set top box in the subscriber's home.
Amati's ability to effectively market ADSL will depend, among other factors, on
the development and successful marketing of these components and systems by
other suppliers. See "Risk Factors -- Dependence on Complementary Products."
Amati's first ADSL product was called Prelude. Prelude was completed in 1992
and utilized in the various competitions for the ANSI standard, which was
awarded to Amati's DMT technology. This prototype was developed by Amati
engineers with funding by Northern Telecom to prove that a 6 Mbps data rate was
possible over copper wire and to participate in the ANSI standards competition.
Prelude was produced using discrete (off-the-shelf) components. Prelude was
utilized by telephone companies in 15 countries throughout the world to evaluate
the potential of ADSL, primarily in laboratory trials.
Amati has recently announced its Overture series of transceivers. The first
to be introduced is the Overture 4, a prototype which Amati began shipping for
trials in summer 1995. Amati considers the Overture 4 to be a prototype because
it does not have a low enough cost or low enough power consumption for mass
deployment. The Overture 4, which does not meet the ANSI standard of 6 Mbps for
downstream transmission, can operate at data rates of 1.5, 2, 3, or 4 Mbps in
the downstream (central office to the home) direction and up to 64 Kbps in the
upstream direction. The components of Overture 4 will be entirely discrete (off
the shelf). Amati currently expects Overture 4 to participate in field trials in
five countries in 1995.
The Overture 8 will be Amati's first product utilizing custom semiconductors
designed by its own microelectronics group. Overture 8 has two components
developed utilizing standard ASIC design systems. Amati believes Overture 8 to
be important to the market because it will have the capability to support the
requirements delineated in the ANSI standard, including four downstream channels
and three upstream channels. The downstream data rates using the Overture 8 can
be as high as 8 Mbps or can be in various multiples such as four 2 Mbps
channels; the upstream data can be channelized in order to support such services
as ISDN or video conferencing. The cost and power consumption of the initial
version of Overture 8 may preclude it from being acceptable for mass deployment;
however, Amati expects it to be the most advanced ADSL product on the market
when introduced. First customer shipments of Overture 8 for field trial are
scheduled for fiscal 1996. Amati currently plans to
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introduce a new version of the Overture 8 in 1997 utilizing a custom chip that
will be compatible with mass market deployment requirements. See "Risk Factors
- -- Price Competitiveness of ADSL Products."
VDSL (VERY HIGH-SPEED DIGITAL SUBSCRIBER LINE)
Telephone companies have been placing fiber optic cables into communities
and are expected to continue to do so at an increasing rate. Today it is not
economically feasible to take the fiber directly to homes and telephone
companies are not likely to do so for the foreseeable future. Access
technologies such as fiber-to-the-curb and fiber-in-the-loop are strategies that
allow telephone companies to run the fiber to some platform or node in the
community and service homes requiring high bandwidth services directly over
copper wire or coaxial cable. The concept of transmitting at such high data
rates over thousands of feet of copper wire is just now becoming a reality. VDSL
is used in conjunction with a fiber-optic backbone to cover the "last mile" as
efficiently as possible. The VDSL market thus requires DMT products that have
higher data rates (25 Mbps to 52 Mbps) over shorter distances (typically 500 to
3,000 feet) than ADSL products.
Amati believes that its DMT technology is superior to other available
modulation technologies for this application and is designing VDSL products
using its microelectronics capability. As with ADSL, VDSL products will be
asymmetric and carry video, voice and data simultaneously. Amati's Piccolo VDSL
product is expected to operate symmetrically at speeds of up to 25 Mbps. Amati's
VDSL products are expected to be introduced in 1997 and will be competing for
the ANSI standard for VDSL transmission, which has not yet been awarded. There
can be no assurance that Amati's DMT technology will be awarded with the
standard. See "Risk Factors -- Competition for VDSL Standards."
Amati's digital VDSL chip is being designed for utilization in cable as well
as copper transmissions. Amati's management has been very active in the cable
standards activities in an attempt to attain the endorsement for DMT through the
IEEE 802.14 committee, which has authority over the upstream cable standards.
Amati believes DMT has the unique capability of optimizing the upstream data
rate relative to other technologies available. However, there can be no
assurance that Amati will win this endorsement. See "Risk Factors -- Competition
for VDSL Standards." As the cable market migrates from analog systems to digital
with interactive requirements, Amati believes that a large opportunity for
DMT-based systems will exist. As for ADSL products, in order to implement a
video service over VDSL products, other key components, not supplied by Amati,
including video content, a digital switch, a video server, encode/decode
equipment and a set top box in the subscriber's home, will be required to
co-exist in a cost effective manner. See "Risk Factors -- Dependence on
Complementary Products."
HDSL (HIGH BIT RATE DIGITAL SUBSCRIBER LINE)
In contrast to ADSL, HDSL transmission is symmetrical, I.E., the data rate
is the same in both directions. Amati's DMT technology is equally efficient in a
symmetrical or an asymmetrical architecture. Amati sees the HDSL market as a
longer range potential opportunity for its DMT technology and may produce
products for this market in the future.
TECHNOLOGY
Amati's core technology is DMT, a multicarrier modulation technology. The
concept of multicarrier transmissions is over 30 years old; however, research on
the Amati DMT technology has been accomplished during the past 8 years.
Amati has an exclusive, worldwide royalty-bearing license rights to the DMT
patents owned by Stanford University. Since its inception, Amati has filed a
number of patent applications to protect its intellectual property. See "Patents
and Other Intellectual Property." Amati considers itself to be the leader in the
development of DMT technology.
The purpose of a modulation technology is to transmit a signal over a given
medium as efficiently as possible. This requires minimizing errors in
transmission by avoiding the noise accompanying the chosen medium. In the case
of DMT, the available bandwidth is divided into carriers that reside at
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different frequencies. The carriers are measured for their ability to send data
with the bits of information assigned to the carriers based upon their capacity.
Carriers with higher capacity are assigned more bits, while carriers unable to
carry data are turned off. In the case of an ADSL system, the available
bandwidth is 1.1 megahertz (MHz), with 256 carriers each being 4 kilohertz (kHz)
wide.
A DMT system has a transceiver at each end of the line. In the case of ADSL,
there is one transceiver in the telephone company's central office called the
ATU-C (ADSL Transmission Unit-Central office) and one in the subscriber's home
called the ATU-R (ADSL Transmission Unit-Remote). When DMT initializes the ATU-C
by transmitting 256 4 kHz carriers downstream to the ATU-R, the ATU-R measures
the quality of each of the carriers and then decides whether a carrier has
sufficient quality to be used for further transmission and, if so, how much data
this carrier should carry relative to the other carriers that are used. This
information is then passed back to the ATU-C via a control channel where the
bits are assigned to the carriers. The system is very adaptive as it will change
the bit assignments should the line characteristics change during transmission.
This procedure maximizes performance by minimizing the probability of bit errors
in transmission. Bit errors are typically caused by interference such as AM
radio stations, open-circuited branched telephone lines called bridge taps and
crosstalk from other wires. The system simply assigns fewer or no bits to
carriers at frequencies where the interference occurs.
The initial development of DMT was directed toward transmitting digital
video signals over ordinary copper twisted-pair wires. Amati has found that DMT
works as well on other media, including coaxial cable and wireless transmission.
Amati believes that, in order to design and manufacture commercially
acceptable products, cost and performance improvements beyond what is available
with current technology will be necessary. Accordingly, Amati has assembled a
microelectronics team that is designing custom integrated semiconductor circuits
utilizing standard ASIC design systems and certain technologies beyond ASIC.
Amati intends to continue to invest in and expand this activity. See "Risk
Factors -- Need For Additional Capital," "Risk Factors -- Rapid Technological
Change; Competition," and "Risk Factors -- Price Competitiveness of ADSL
Products."
CONTRACT DEVELOPMENT
For 1992 to 1994, Amati engaged in three major contract development
projects. These were important because they allowed Amati to advance the DMT
technology in new areas and provided approximately $7 million funding during
those years.
NORTHERN TELECOM
From 1992 through May 1994, Northern Telecom supported Amati through two
research and development agreements. The total funding was in excess of $5
million and directed toward developing and manufacturing a product with which to
attain the ANSI standard for ADSL. The resulting product, Prelude, demonstrated
the capabilities of DMT and was awarded the standard. During this time, Northern
Telecom controlled sales and marketing, and Amati sold over $3 million of
Preludes to Northern Telecom for resale to telephone companies in 15 countries
worldwide. In 1995, as part of a settlement, Northern Telecom was issued 75,000
shares of Amati's Series A Preferred Stock and Amati received control of all
intellectual property generated during the project, subject to a non-exclusive,
royalty free license to Northern Telecom. Four patent applications co-owned by
Northern Telecom and Amati have been filed as a result of the project.
ECI
Amati, using its DMT technology, developed board level transceivers capable
of transmitting and receiving in each direction (symmetrical) at 2.048 Mbps for
ECI. The development-only contract spanned 1992 and 1993 and provided Amati
approximately $1 million in contract revenue. ECI is currently marketing the
resulting transceivers in Europe under a royalty-bearing license from Amati.
Royalty payments to date under the ECI license have been approximately $28,000.
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AT&T
In June 1993, Amati entered into a contract to develop a wireless Digital
Audio Broadcasting (DAB) system, which combines AT&T's audio
compression/decompression technology and Amati's DMT technology. Five such DAB
transceiver systems were developed under the contract and delivered to AT&T in
early 1994. Amati received $250,000 for this project and has done no further
work in this area. AT&T is currently marketing these DAB systems. If these
marketing efforts are successful, Amati expects to enter into a royalty-bearing
license agreement with AT&T for the DAB products.
RELATIONSHIP WITH MOTOROLA
In March 1995, Amati entered into a nonexclusive agreement with Motorola
pursuant to which Amati licenses certain patents to Motorola to design a fully
integrated single chip solution for the ADSL market. This license is restricted
to substantial compliance with the ANSI standard (T1.413). Under the license,
Motorola will pay Amati a royalty on net sales of the chips, including a prepaid
royalty. Amati expects Motorola's customers to become competitors with system
level DMT products. Motorola has agreed to give Amati most favored customer
pricing and availability, in addition to assistance in marketing. Amati plans to
use the Motorola chip as the basis of the second generation Overture 8 that
Amati expects to introduce in calendar 1997. See "Risk Factors -- Rapid
Technological Change; Competition" and "Risk Factors -- Price Competitiveness of
ADSL Products."
CUSTOMERS
The ADSL market is dominated by telephone companies, which own the
transmission lines. Amati typically expects to sell its transceiver products to
large telecommunications service companies that will serve as integrators for
the various component systems which make up a video-on-demand or multimedia
system. The integrators will in turn sell these systems to telephone companies
for distribution to their subscribers. Typical large telecommunications service
companies include Northern Telecom, Alcatel, Philips, Siemens, NEC, Italtel,
IBM, Fujitsu, DSC, Ericsson, Samsung, Reliance Com/Tec and AT&T. Telephone
companies are generally cautious in deploying new technologies available only
from a single source, especially when the supplier is as relatively small as
Amati, and often require the availability of alternative sources before
deploying a new technology. See "Risk Factors -- Market for Amati ADSL Products
Still Under Development; Principal ADSL Markets Outside the United States." The
VDSL market will have the same customer and telecommunication supplier groups as
ADSL. See "Risk Factors -- Dependence on Large Customers and Systems
Integrators" and "Risk Factors -- Competition for VDSL Standard."
In 1993 and early 1994, Amati's Prelude transceivers were utilized in
limited technical trials by telephone companies in Germany, England, France,
Italy, Spain, The Netherlands, Switzerland, Norway, Sweden, Finland, Israel,
Australia, Korea, and Canada, as well as by the following Regional Bell
Operating Companies: Bell Atlantic Corporation, Bell South Corporation, NYNEX
Corporation, Pacific Bell, and U.S. West, Inc. The trials were primarily
laboratory trials conducted to determine the technical feasibility of providing
video service over copper wire. While these trials confirmed the technical
feasibility of Amati's transceivers, the high cost of the transceivers and lack
of infrastructure to provide switched video services prevented any follow-on
business from the trials.
The next phase of deployment is market trials where the telephone companies
will try to determine the content requirements, pricing and the estimated number
of subscribers that will take the service. Market trials can vary in size from
several hundred to several thousand lines. Amati expects to participate in
market trials in more than five countries in 1995. Amati has also bid on other
trials where the selection of the vendors has not been concluded. There is no
assurance that Amati can continue to participate in further trials without
additional competition. See "Risk Factors -- Rapid Technological Change;
Competition."
In spring 1995, delays in product development and initial shipments of
Amati's Overture 4 products resulted in a shortage of capital that caused Amati
to further delay shipments of prototypes
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for field trials. Amati was also forced to defer the development of other
prototype products. See "Risk Factors -- Negative Effect on Earnings;
Development Stage Company" and "Risk Factors -- Need for Additional Capital."
COMPETITION
Telephone company trials have demonstrated the feasibility of Amati's ADSL
products. Two basic ADSL technologies have participated in these trials: Amati's
DMT multicarrier technology and AT&T single carrier CAP technology. DMT and CAP
have been rivals since the ANSI standards competition in 1993, which was won by
Amati's DMT technology. Amati believes that its DMT technology is less complex
and more cost effective than a single carrier technology, such as CAP. The CAP
technology has competed at all trials using transceivers developed from AT&T's
proprietary chipset by Westell, Inc., a private company located in Illinois. The
trials to date have been run at data rates of 1.5 Mbps and 2 Mbps, the speeds of
AT&T's CAP products. Amati believes that as products capable of data rates of 6
Mbps and 8 Mbps become available later this year, trials will be conducted at
those speeds. As the difference between DMT and CAP becomes greater at higher
data rates, Amati believes that most of the competition at the higher speeds
will come from new competitors using DMT technology.
Amati has licensed Motorola to develop a standard compliant single chip
solution for the ADSL market. Subject to paying a royalty to Amati on net sales,
Motorola has the non-exclusive right to sell this chip. Amati also has the right
to buy the Motorola chip at the most favored customer price. Amati expects
Motorola's customers to become competitors with system level DMT products.
Additionally, Amati is aware of other entities with development efforts underway
with DMT technology for the ADSL marketplace. These include: ORCKIT, Pairgain,
Aware/Analog, ECI, Ericsson and Alcatel. See "Risk Factors -- Rapid
Technological Change; Competition."
To date, there have not been any products introduced in the marketplace that
have a cost structure satisfactory for a mass deployment to customers. In order
to design and manufacture commercially viable products, a substantial investment
in custom integrated semiconductors must be made. Amati believes that after 1997
requirements for this technology will likely be in the millions of lines and
competition will be primarily on the basis of price. Those suppliers not making
such investments will not be able to compete effectively. See "Risk Factors --
Rapid Technological Change; Competition" and "Risk Factors -- Price
Competitiveness of ADSL Products."
SALES, MARKETING AND CUSTOMER SUPPORT
Amati established its sales operation in August 1994 and covers both
domestic and international markets from its headquarters in Mountain View,
California. Amati's strategy is to sell to the worldwide base of telephone
companies through large telecommunication suppliers which will integrate its
product into larger systems for their customers. See "Risk Factors -- Dependence
on Large Customers and Systems Integrators." This type of OEM selling does not
require Amati to maintain a large sales force. Amati presently has one person in
sales and expects to increase its sales force to three including one in Europe
by the middle of 1996. See "Risk Factors -- Key Personnel" and "Risk Factors --
International Business."
Amati also supports its customers from its headquarters in Mountain View,
California. Presently, Amati has one person in support and intends to add two
additional persons, including one in Europe.
MANUFACTURING
Amati's experience in manufacturing has been limited to approximately 200
Prelude prototype systems, which were assembled by subcontractors. The Overture
4 is currently entering production, and Amati intends to outsource the assembly
and testing of this product. Amati will maintain responsibility for product
quality and reliability through incoming inspection of components, auditing at
subcontractors' facilities and final shipping inspection of all products.
Several components included in Amati's systems are obtained from a single
source or limited group of suppliers and cannot be provided internally. Those
parts subject to single or limited source
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<PAGE>
supply routinely are monitored by management and Amati endeavors to ensure that
adequate supplies are available to maintain manufacturing schedules, should
supply for any part be interrupted. See "Risk Factors -- Dependence on Suppliers
and Third Party Manufacturers."
RESEARCH AND DEVELOPMENT
Amati believes that it has a technological leadership position in DMT
modulation technology. Amati's future success is largely dependent on its
ability to maintain this position through the development of new products that
meet a wide range of customer needs. Accordingly, Amati intends to continue to
make substantial investments in research and development. There can be no
assurance, however, that Amati's future development efforts will result in
commercially successful products, or that Amati's products will not be rendered
obsolete by changing technology, new industry standards or new product
announcements by others. See "Risk Factors -- Rapid Technological Change;
Competition."
Amati has organized its research and development efforts into three main
groups: microelectronics, software development and hardware development.
Currently, the microelectronics group efforts are primarily focused on efforts
for the ADSL and VDSL markets; the software group is focused primarily on the
development of firmware for products such as Overture 4; and the hardware group
performs analog and digital design activities.
During 1992, 1993 and 1994, research and development expenses were
approximately $1.8 million, $3.2 million and $3.1 million, respectively, and
Amati expects to spend approximately $5.0 million on research and development in
1995. All Amati's research and development expenses are charged to operations as
incurred.
PATENTS AND OTHER INTELLECTUAL PROPERTY
Amati has a policy of seeking patents when appropriate on inventions
concerning new products and improvements as part of its on-going research and
development applications. Amati classifies its patents as follows:
- Group I -- Consists of 3 patent applications and 1 patent co-owned with
Northern Telecom that are necessary for conformance to the
ANSI standard for ADSL. Amati has informally agreed with the
ANSI standards body to license these patents to third parties
on fair and equitable terms.
- Group II -- Consists of the 2 patents issued to Stanford University in
1993 and 1994 and 1 patent application filed by Stanford
University, all of which have been exclusively licensed to
Amati, and 1 patent application filed by Amati in 1995. These
patents are not necessary for conformance to the ANSI
standard for ADSL; however, they make ADSL transceivers more
efficient.
- Group III -- Consists of 1 patent owned by Amati and 5 patent applications
filed by Amati, all of which are more general to Amati's DMT
technology.
Amati also relies on a combination of technical leadership, trade secrets,
copyrights, trademarks and non-disclosure agreements to establish and protect
its proprietary rights in its products. See "Risk Factors -- Dependence or
Proprietary Technology."
EMPLOYEES
As of July 31, 1995, Amati employed 24 full-time employees, including 4 in
manufacturing, 2 in sales and customer support, 15 in engineering and 3 in
finance and administration. Six members of Amati's engineering staff hold
doctoral degrees. Amati also employs a number of consultants who are primarily
used in engineering. None of Amati's employees is represented by a labor union
and Amati has experienced no work stoppages. Amati considers its relationship
with its employees to be good. In May 1995, Amati entered into an employment
agreement with Dr. Cioffi, its founder, Vice President, Engineering and Chief
Technical Officer. The agreement provides for Dr. Cioffi to be employed by Amati
until October 1998, while continuing his obligations as a full-time tenured
faculty member at
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<PAGE>
Stanford University. Stanford University limits the amount of time its faculty
can spend on outside activities. Competition for technical personnel in Amati's
industry is intense. Amati believes that its future success will depend in part
on its continued ability to hire, assimilate and retain qualified personnel. See
"Risk Factors -- Key Personnel."
FACILITIES
Amati's facilities are in an approximately 9,500 square foot leased office
facility in Mountain View, California. The lease expires in April 1997, and
Amati currently pays approximately $13,500 per month. Amati believes that its
facilities, combined with the ICOT facilities, are adequate for its current and
anticipated needs.
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of Amati:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH AMATI
- ------------------------- --- ---------------------------------------------------------------------------
<S> <C> <C>
Dr. James F. Gibbons 63 Chairman of the Board
Aamer Latif 37 Chief Executive Officer, President, Chief Financial Officer and Director
Dr. John M. Cioffi 38 Vice President of Engineering, Chief Technical Officer and Director
Joseph H. Grady, Jr. 48 Vice President of Worldwide Sales
Alan D. Hagedorn 47 Vice President of Manufacturing
Arnold N. Silverman 56 Director
Donald L. Lucas 65 Director
</TABLE>
DR. JAMES F. GIBBONS has served as the Chairman of the Board of Directors of
Amati since 1992. Dr. Gibbons is a Professor of Electrical Engineering and has
served as the Dean of the School of Engineering at Stanford University since
1984. Dr. Gibbons currently serves on the Board of Directors of Lockheed
Corporation, Raychem Corporation, Centigram Communications Corporation, El Paso
Natural Gas Co. and Cisco Systems Inc.
AAMER LATIF was appointed Chief Executive Officer, Chief Financial Officer
and President of Amati and elected to the Amati Board effective August 4, 1995.
Mr. Latif has been President, Chief Executive Officer, Chief Financial Officer
and a Director of ICOT since May 1993; he was elected Chairman of ICOT in July
1995. Prior to 1993 Mr. Latif served in various executive positions with ICOT
since 1980, most recently as Vice President, Engineering. See "The Merger and
Related Transactions -- Background to the Merger" and "Information Concerning
ICOT -- Executive Officers and Directors."
DR. JOHN M. CIOFFI is the founder of Amati and has served as Vice President
of Engineering, Chief Technical Officer and Director since 1991. Dr. Cioffi has
also been a Professor of Electrical Engineering at Stanford University since
1986. Dr. Cioffi sits on the technical boards of C-Cube Microsystems, Inc., and
Wireless Access Inc. and has served on the technical staffs of Bell Laboratories
Inc. and IBM's Almaden Research Laboratories.
JOSEPH H. GRADY, JR. has served as Amati's Vice President of Worldwide Sales
since August 1994. Previously, Mr. Grady served as Assistant Vice President of
Sales of Newbridge Networks Corporation from 1992 to 1994. Mr. Grady served as
Manager of Distribution Sales and Development for Octel Communications Corp.
from 1991 to 1992. Mr. Grady also served as Vice President of Telephone Company
Sales for Racal Data Communications Inc. from 1985 to 1991.
ALAN D. HAGEDORN joined Amati in 1995 as Vice President of Manufacturing.
Mr. Hagedorn previously served as Vice President of Manufacturing and Director
of Materials for Network Computing Devices Inc. from 1988 to 1995.
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<PAGE>
ARNOLD N. SILVERMAN was elected to the Amati Board effective August 4, 1995.
Mr. Silverman also serves as a director of ICOT. Mr. Silverman served as ICOT's
President and Chief Executive Officer from 1979 until July 1989 and as Chairman
of the Board from 1979 until July 1995. He is also a director of Business
Objects, S.A. See "The Merger and Related Transactions -- Background to the
Merger" and "Information Concerning ICOT -- Executive Officers and Directors."
DONALD L. LUCAS was elected to the Amati Board effective August 4, 1995. Mr.
Lucas, a venture capitalist, has been a director of ICOT since 1968. He is also
a director of Cadence Design Systems, Inc., Delphi Information Systems, Inc.,
Kahler Corporation, Oracle Corp., Macromedia, Inc., Quantum Health Resources,
Inc., Racotek, Inc., Transcend Services, Inc., and Tricord Systems, Inc. See
"The Merger and Related Transactions -- Background to the Merger" and
"Information Concerning -- ICOT Executive Officers and Directors."
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Amati Voting Stock as of the August 30, 1995 record date for Amati
shareholders entitled to vote in the Merger and the beneficial ownership of ICOT
Common Stock such shares will represent after the Merger (i) by each person who
is known by Amati to own beneficially more than 5% of the outstanding shares of
Amati Common Stock and Amati Series A Preferred Stock, (ii) by each director and
executive officer of Amati, and (iii) by all directors and executive officers of
Amati as a group. Except as otherwise indicated and subject to community
property laws where applicable, Amati believes that the beneficial owners of the
securities listed below, based on information furnished by such owners, have
sole investment and voting power with respect to the Amati Voting Stock shown as
being beneficially owned by them. The number of shares of Amati Voting Stock and
calculation of percent ownership of Amati Voting Stock takes into account (x)
those shares underlying stock options that are exercisable within 60 days of
August 30, 1995 and (y) those shares issuable upon exercise of Amati Warrants,
assuming such warrants are exercised prior to the consummation of the Merger
pursuant to the terms of the Merger Agreement.
<TABLE>
<CAPTION>
SHARES OF AMATI COMMON STOCK SHARES OF ICOT COMMON STOCK
BENEFICIALLY OWNED PRIOR TO BENEFICIALLY OWNED AFTER
MERGER MERGER (1)
NAME AND ADDRESS OF ---------------------------- ----------------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
James F. Gibbons (2)......................... 71,453 12.4% 329,584 2.0%
Aamer Latif.................................. -- -- 105,000 *
John M. Cioffi (3)........................... 350,000 50.7% 1,619,410 9.6%
Joseph H. Grady, Jr. (4)..................... 45,000 7.7% 207,567 1.2%
Alan D. Hagedorn (5)......................... 24,300 4.3% 112,086 *
Arnold N. Silverman.......................... -- -- 320,200 1.9%
Donald L. Lucas.............................. -- -- 189,000 1.1%
All directors and executive officers as a
group (7 persons).......................... 490,753(6) 61.8% 2,877,847(7) 16.0%
Ronald K. Maxwell............................ 163,750 30.3% 755,313 4.6%
1057 University Avenue
Palo Alto, California 94301
James F. Ottinger (8)........................ 80,000 14.8% 369,008 2.2%
16203 Greenwood Road
Monte Sereno, California 95030
University Ventures II (9)................... 28,900 5.2% 133,304 *
a California Limited Partnership
545 Middlefield Road, Suite 180
Menlo Park, California 94025
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SHARES OF AMATI SERIES A
SHARES OF ICOT COMMON STOCK
PREFERRED STOCK BENEFICIALLY BENEFICIALLY OWNED AFTER
OWNED PRIOR TO MERGER MERGER (1)
NAME AND ADDRESS OF ---------------------------- ----------------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------- --------------- ----------- --------------- -----------
University Ventures II (10).................. 125,000 38.5% 576,575 3.5%
<S> <C> <C> <C> <C>
545 Middlefield Road, Suite 180
Menlo Park, California 94025
Stanford University.......................... 125,000 38.5% 576,575 3.5%
900 Welch Road, Suite 350
Palo Alto, California 94304-1850
Northern Telecom Limited..................... 75,000 23.1% 345,945 2.1%
2920 Matheson Boulevard East
Mississauga, Ontario, Canada, LRW 4M7
<FN>
- ------------------------
* Less than 1%.
(1) Assumes that 16,551,551 shares of ICOT Common Stock will be outstanding
immediately after the Merger, including issuance of 4,486,949 shares of
ICOT Common Stock in the Merger, that all holders of Outstanding Amati
Notes accept the Offer to Note Holders and that the Applicable Ratio is
4.6126.
(2) Includes 20,000 shares issuable upon exercise of outstanding options. Also
includes 14,453 shares issuable upon exercise of an Amati Fair Value
Warrant assuming Dr. Gibbons accepts the Offer to Note Holders and an
Applicable Ratio of 4.6126.
(3) Includes 150,000 shares issuable upon exercise of outstanding options. Does
not include options covering 808,205 shares of ICOT Common Stock to be
issued after the Merger. See "Terms of the Merger -- Performance Options."
(4) Consists of 45,000 shares issuable upon exercise of outstanding options.
Does not include options covering 142,244 shares of ICOT Common Stock to be
issued after the Merger. See "Terms of the Merger -- Performance Options."
(5) Consists of 24,300 shares issuable upon exercise of outstanding options.
Does not include options covering 61,424 shares of ICOT Common Stock to be
issued after the Merger. See "Terms of the Merger -- Performance Options."
(6) Includes 239,300 shares issuable upon exercise of outstanding stock options
and 14,453 shares issuable upon exercise of Amati Warrants.
(7) Includes 1,342,495 shares issuable upon the exercise of outstanding options
and 66,667 shares issuable upon exercise of Amati Warrants, assuming
applicable ratio of 4.6126.
(8) Shares are held by the Ottinger Family Trust, of which Mr. Ottinger is a
Co-Trustee.
(9) Includes 15,567 shares issuable upon exercise of an Amati Dollar Value
Warrant.
(10) Aggregate beneficial ownership of ICOT Common Stock by University Ventures
II after the Merger will be 709,879 shares and 4.3%
</TABLE>
DESCRIPTION OF AMATI WARRANTS
As of the date of this Proxy Statement/Prospectus, there are outstanding
Amati Warrants to purchase Amati Series B Preferred Stock, were such securities
to be issued, at an aggregate exercise price of $2,150,899.56.
60
<PAGE>
FAIR VALUE WARRANTS. There are outstanding Fair Value Warrants with an
aggregate exercise price of $950,000. Each Fair Value Warrant is exercisable for
that number of shares of Amati Series B Preferred Stock equal to the aggregate
purchase price of the Fair Value Warrant divided by the purchase price of the
Amati Series B Preferred Stock issued at the first closing of such sale of
Series B Preferred Stock. The Fair Value Warrants may be exercised at any time
on or after the first closing of the sale of Amati Series B Preferred Stock, and
before October 22, 1996. Each Fair Value Warrant also provides that, in the
event of any consolidation or merger of Amati with any other corporation,
adequate provision shall be made by Amati so that there shall remain and be
substituted, under the Fair Value Warrant, the shares, securities, or assets
which would have been issuable or payable in respect to or in exchange for the
shares then subject to the Fair Value Warrant, as if the warrant holder had been
the owner of such shares on the applicable record date.
DOLLAR VALUE WARRANTS. There are outstanding Dollar Value Warrants to
purchase 40,132 shares of Amati Series B Preferred Stock at an exercise price of
$6.00 per share and to purchase 106,679 shares of Amati Series B Preferred Stock
at an exercise price of $9.00 per share. Each Dollar Value Warrant is
exercisable for that number of shares of Amati Series B Preferred Stock equal to
the aggregate exercise price of the warrant divided by the applicable exercise
price per share. The Dollar Value Warrants may be exercised at any time before
July 31, 1999. Each Dollar Value Warrant also provides that, in the event of any
consolidation or merger of Amati with any other corporation, adequate provision
shall be made by Amati so that there shall remain and be substituted, under the
Dollar Value Warrant, the shares, securities, or assets which would have been
issuable or payable in respect to or in exchange for the shares then subject to
the Dollar Value Warrant, as if the warrant holder had been the owner of such
shares on the applicable record date.
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<PAGE>
INFORMATION CONCERNING ICOT
PRODUCTS AND CUSTOMERS
ICOT operates a one-segment business for which it develops, manufactures,
markets and services network connectivity products for sales primarily to OEMs.
These products are used primarily in two applications:
- IBM compatible PCs to IBM mainframe connectivity applications in LANs.
- Bridge products for interconnecting Token-Ring LANs, Token-Ring and
Ethernet LANs, and Token-Ring LANs over WANs.
ICOT's products are mainly used by large companies with mainframes and
significant PC network applications such as insurance, transportation, financial
service, manufacturing, banking, and brokerage companies.
ICOT's PC to Mainframe Connectivity products consist of 3270 emulation
products which are DOS and Microsoft Windows based software and microcomputer
boards (with extensive firmware) that reside in an IBM or IBM compatible PC, and
enable the PC to communicate, access and transfer data through Systems Network
Architecture ("SNA") to IBM or IBM compatible mainframes. ICOT sells single user
and LAN gateway versions of all its products. LAN gateways allow multiple PC
users, attached directly to Token-Ring, Ethernet and other LANs, to access SNA
networks through one shared link.
ICOT markets its PC to Mainframe Connectivity products to selected niche
markets: OEMs, API and strategic end-user market segments of the Windows and DOS
Connectivity markets. ICOT's connectivity market share and revenues have been
declining over the past three years and are expected to continue to decline.
ICOT has looked for opportunities, principally OEM arrangements, to leverage
its investment in technology and penetrate new market segments not directly
available to it. ICOT has, therefore, sought to form relationships with
companies that have established market positions but lack some of the
communications products and technology required to complete their product
offering. ICOT markets its technology to OEMs in several ways: allowing OEMs to
relabel standard ICOT products, licensing software source code technology,
customizing ICOT products to the OEM's needs, or fully developing and
manufacturing a new product based on an OEM specification.
During the past several years, ICOT has undertaken several projects where
ICOT has designed, developed and manufactured custom communications products for
IBM. Pursuant to its principal agreement with IBM, ICOT furnishes engineering,
manufacturing, and assembly services for the manufacture of LAN bridge products,
in accordance with IBM specifications and upon receipt of purchase orders for
the products. The LAN bridge products were upgraded during fiscal 1994 and
shipping of the new family of LAN bridge products commenced in January 1994. The
new family of products, while priced lower, has more features and options, and
offers significantly higher performance than the earlier bridge products. The
principal agreement with IBM, amended in December 1993, has been extended until
December 1996.
Under the terms of a second agreement, ICOT provides development and support
services to IBM for a custom product. IBM launched this product in the United
States and Canada in July 1994. The product is currently being launched in a
number of European and Asian countries. ICOT will receive royalty payments from
IBM on sales of the product to end-customers.
During the first nine months of fiscal 1995, sales to IBM accounted for
approximately 81% of ICOT's revenues. Since IBM considers product sales and
market data confidential, ICOT has very little ability to anticipate future
demands. ICOT is highly dependent on sales to IBM and expects that quarterly and
annual results could be volatile due to its dependence on this dominant
customer. IBM may terminate its agreements with ICOT upon 30 days' notice
without a significant penalty. Upon
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<PAGE>
termination of the agreements, ICOT has continuing obligations to provide
certain products and technical support for a period of years, at a price then to
be negotiated. See "Risk Factors -- ICOT Customer Concentration; Reliance on
Sales to IBM."
SERVICE
In the network connectivity business, ICOT offers a 90-day warranty and
post-warranty support programs. Hardware products are typically serviced on a
factory repair basis. Software support is usually handled by phone consultation
or, less often, by an on-site visit by a systems engineer.
MANUFACTURING
ICOT's products are assembled at its San Jose, California facility, where
test, quality assurance, and material control activities are performed. ICOT has
the capacity to increase its output without further expansion of its physical
plant and warehousing facilities.
Electronic and mechanical components, subassemblies and supplies are bought
from many independent suppliers. Although most components, subassemblies and
supplies are bought from single vendors, management believes that, with a few
exceptions, at least one alternative source of supply is available at comparable
cost for each component in its product lines. A few components are consigned by
IBM and there is no alternative source of supply for these components. See "Risk
Factors -- Dependence on Suppliers and Third-Party Manufacturers."
MARKETING
In the PC to Mainframe Connectivity market, ICOT sells to end-users,
independent software vendors, OEMs, and through a small network of resellers.
Export sales in fiscal 1992, 1993 and 1994 and in the first nine months of
fiscal 1995 were 6%, 1%, 2% and 1%, respectively, of total net sales. Export
sales are shipments to locations outside the United States, primarily Western
Europe and Canada. These sales are subject to certain controls and restrictions,
but ICOT has not experienced any material difficulties related to these sales.
See "Risk Factors -- International Business."
BACKLOG
As of the end of fiscal 1993 and 1994, ICOT's backlog was approximately
$1,632,000 and $2,601,000, respectively. April 29, 1995 backlog was
approximately $3,044,000, including $3,042,000 of orders from IBM, compared to
an April 30, 1994 backlog of approximately $1,286,000, including $1,267,000 of
orders from IBM.
RESEARCH AND DEVELOPMENT
Net research and development expenses totaled $2,406,000 (10% of net sales)
in fiscal 1992, $2,533,000 (21% of net sales) in fiscal 1993, $1,429,000 (17% of
net sales) in fiscal 1994, and $1,281,000 (15% of net sales) in the first nine
months of fiscal 1995, compared to $1,078,000 (19% of net sales) in the first
nine months of fiscal 1994. These amounts are net of software development costs
capitalized in accordance with SFAS No. 86 and of funded development costs. In
fiscal 1992, 1993 and 1994 capitalized software development costs totaled
$1,509,000, $733,000 and $455,000, respectively. The amount of funded
development costs totaled $553,000, $903,000, and $549,000, respectively. During
the 1995 fiscal year, there was no amortization of capitalized software
development costs because there were no capitalized software projects available
for general release. The amortization of capitalized software development costs
charged to cost of sales in fiscal 1992 and 1993 was $426,000 and $692,000,
respectively.
In the fourth quarter of fiscal 1993, capitalized software development costs
associated with ICOT's PC-Connectivity products of $1,454,000 were written off
as part of ICOT's restructuring program, as further discussed in Notes 1 and 2
of Notes to Consolidated Financial Statements. As of July 30, 1994, there are no
unamortized capitalized software development costs related to the PC to
Mainframe Connectivity business included in ICOT's Consolidated Balance Sheets.
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<PAGE>
ICOT had 12 full-time employees engaged in research and development
activities as of August 15, 1995. ICOT's research and development efforts are
expended on the enhancement of existing products and for the development of new
products in order to meet rapidly changing customer requirements.
Significant expenditures include the following:
- Adaptation/portation/new code generation for new operating systems at the
PC and network operating system level.
- Development of OEM products to customer specifications.
- Improved reliability of existing products through extensive in-house
testing of products. ICOT Token-Ring has a full in-house test facility
including a mainframe with extensive testing software, multiple LANs with
multiple PCs, local attach, Token-Ring attach, and remote dial-in
capability, a mainframe emulator, protocol analyzers, IBM controllers,
terminals and printers and many other test tools which it uses to simulate
customers' complex multivendor, multiproduct environments.
ICOT believes that research and development is a key element in its ability
to compete in the PC to Mainframe Connectivity and OEM markets and will,
accordingly, continue to make investments in new product development and
maintenance of product reliability.
COMPETITION
The PC to Mainframe Connectivity market is highly competitive and is
characterized by rapid advances in technology which frequently result in the
introduction of new products with improved performance characteristics, thereby
subjecting ICOT's products to the risk of technological obsolescence. ICOT's
ability to compete is dependent on several factors, including: reliability,
product performance, quality, features, distribution channels, name awareness,
customer support, product development capabilities, and the ability to meet
delivery schedules. ICOT competes, directly or indirectly, with a broad range of
companies, many of whom have significantly greater financial and other
resources. In addition, ICOT is only competing for a limited and declining
segment of the PC-Connectivity market, which is itself declining.
Many companies compete in the PC to Mainframe Connectivity market, including
IBM, Attachmate Corporation, Eicon Group, Inc., Network Software Associates
Inc., Wall Data Incorporated, and Novell Inc. Products and policies of these
companies can adversely affect ICOT's competitive position. A large number of
ICOT's products interact with IBM equipment and support IBM protocols. Thus, the
development of new protocols, equipment or communications systems by IBM could
adversely affect ICOT's PC to Mainframe Connectivity competitiveness. See "Risk
Factors -- Competition in ICOT's PC to Mainframe Connectivity Business."
PATENTS, TRADEMARKS AND LICENSES
ICOT principally relies on its technological and engineering resources to
develop its business in an industry where technology changes very fast. ICOT
does, however, consider the use of trademarks, copyrights and license agreements
as a means to protect its proprietary technology and, therefore, ICOT intends to
seek and maintain protection where appropriate. See "Risk Factors -- Dependence
on Proprietary Technology."
ICOT holds one United States patent expiring in the year 2000 and one
Canadian patent expiring in the year 2001; these patents cover an apparatus for
interconnecting data communications and data terminal equipment which is no
longer an integral part of its product architecture. ICOT also has several
trademark registrations, including "ICOT" and "OmniPath" and has copyrights in
its software and related documentation, including product manuals.
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<PAGE>
ICOT is a licensee under three OEM software source code licenses that are
used in connection with the development, maintenance, enhancement, and support
of various PC to Mainframe Connectivity products. These licenses pertain to
peripheral products which ICOT remarkets to complement or add features to its
core product line. The loss of any one license would not have a material effect
on revenues. At least one, and usually several, alternative sources are
available for the equivalent technology represented by these licenses.
EMPLOYEES
As of August 15, 1995, ICOT had 34 full-time employees, of whom 11 were
engaged in manufacturing, 12 were engaged in research and development, 2 were
engaged in marketing and sales and 9 held general and administrative positions.
All employees are based in the United States. None of its employees is subject
to a collective bargaining agreement, and there have been no work stoppages due
to labor difficulties. ICOT believes that its employee relations are
satisfactory.
PROPERTIES
ICOT's headquarters and manufacturing facility is located in San Jose,
California. In May 1994, a mutual release of the rental obligation expiring on
December 1, 1995, was executed for this two-story building consisting of
approximately 47,500 square feet. Concurrently, a new lease was signed for only
a single-story premise of approximately 23,300 square feet of this building.
This new lease expires on July 23, 1999.
The leased facility located at Meadow Vista, California, consisting of
approximately 3,000 square feet, is used for research and development. The lease
on this building expires on February 29, 1996.
In addition, ICOT has a lease for approximately 21,000 square feet of space
in Natick, Massachusetts. This lease was assumed in connection with an
acquisition in January 1988 and expires on December 31, 1995. This space is no
longer being used by ICOT and related rent and operating cost obligations are
fully reserved through the end of the lease period, net of future sublease
income. As of April 29, 1995, all of the excess space at this facility was
subleased for the remaining term of the lease.
ICOT's wholly-owned subsidiary, ICOT International Limited, now dormant,
leases approximately a 6,400 square foot building located in Wokingham, England.
During the fourth quarter of fiscal 1993, in line with ICOT's restructuring of
its PC to Mainframe Connectivity business, ICOT International Limited closed its
operations in the United Kingdom. The lease on this facility expires on
September 29, 2010. During the fiscal year, ICOT subleased this facility through
September 1995. Income from this sublease is less than ICOT's rental obligation.
ICOT has recorded a liability of $294,000 to cover partial rental obligations
related to this facility net of anticipated future sublease income.
ICOT believes that its current facilities are adequate to conduct current
operations and that its facilities and Amati's are adequate for the operations
of the combined company.
LEGAL PROCEEDINGS
In November 1993, an action was brought against ICOT for damages related to
the use of ICOT's products. The plaintiff filed a suit claiming repetitive
stress injuries resulting from the use of ICOT's product in the course of
employment with American Airlines from the period May 1981 through July 1991.
The plaintiff alleges damages in the amount of $1 million and punitive damages
of $10 million. ICOT believes that the claim is without merit and has tendered
defense of this action to its insurance carriers. In the opinion of management,
the outcome of this litigation will not have a material adverse effect on ICOT's
financial position or its results of operations. See "Risk Factors -- ICOT's RSI
Lawsuit." ICOT is not involved in any other litigation.
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EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of ICOT and their ages as of the date
of this Prospectus/Proxy Statement are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- ----------------------------------------
<S> <C> <C>
Aamer Latif 37 President, Chief Executive Officer,
Chief Financial Officer and Chairman
David J. Bivolcic 38 Senior Vice President
Teresita O. Medel 48 Secretary, Controller and Treasurer
Donald L. Lucas 65 Director
Arnold N. Silverman 56 Director
William D. Witter 65 Director
</TABLE>
Mr. Latif was elected President, Chief Executive Officer, Chief Financial
Officer and a Director of ICOT in May 1993; he was elected Chairman in July
1995. Prior to 1993 Mr. Latif served in various executive positions with ICOT
since 1980, most recently as Vice President, Engineering. Mr. Latif was
appointed Chief Executive Officer and President of Amati and elected to the
Amati Board effective August 4, 1995. See "The Merger and Related Transactions
- -- Background to the Merger" and "Information Concerning Amati -- Executive
Officers and Directors."
Mr. Bivolcic was elected Senior Vice President of ICOT in May 1993. Prior to
that, he served as Vice President, Operations since December 1989.
Ms. Medel was elected Secretary of ICOT in December 1994. She has served as
Controller and Treasurer of ICOT since July 1993. Prior to 1993, she served as
ICOT's Accounting Manager since 1979.
Mr. Lucas, a venture capitalist, has been a Director of ICOT since 1968. He
is also a director of Cadence Design Systems, Inc., Delphi Information Systems,
Inc., Kahler Corporation, Oracle Corp., Macromedia, Inc., Quantum Health
Resources, Inc., Racotek, Inc., Transcend Services, Inc., and Tricord Systems,
Inc. Mr. Lucas was elected to the Amati Board effective August 4, 1995. See "The
Merger and Related Transactions -- Background to the Merger" and "Information
Concerning Amati -- Executive Officers and Directors."
Mr. Silverman served as ICOT's President and Chief Executive Officer from
1979 until July 1989 and as Chairman of the Board from 1979 until July 1995. He
is also a director of Business Objects, S.A. Mr. Silverman was elected to the
Amati Board effective August 4, 1995. See "The Merger and Related Transactions
- -- Background to the Merger" and "Information Concerning Amati -- Executive
Officers and Directors."
Mr. Witter has been a Director of ICOT since 1968. He has been President of
the William D. Witter, Inc. Investment Counseling Firm since its inception in
1977. He is also a director of Transnational Industries, Inc.
BOARD COMPENSATION
Each director who was not also an officer or employee of ICOT received a fee
of $2,000 per quarter in fiscal 1994. In addition, each such director received a
fee of $2,000 for each Board meeting attended and $2,000 for each Audit
Committee meeting attended during fiscal 1994. ICOT has a policy of reimbursing
directors for reasonable travel and related expenses incurred in attending Board
and Committee meetings. Donald L. Lucas, a director of ICOT, did not receive any
of the aforementioned payments; however, Mr. Lucas in fiscal 1994 received
$25,200 in consulting fees for services rendered to ICOT.
66
<PAGE>
Directors who are not employees of ICOT or any affiliate of ICOT are
eligible to participate in ICOT's 1990 Non-Employee Directors' Stock Option
Plan. Pursuant to such plan, during fiscal 1994 each non-employee Director
received an option for 10,000 shares on September 1, 1993 at an exercise price
of $1.13 per share. Grants are automatically made annually under this plan.
EXECUTIVE COMPENSATION
The following table shows, as to the Chief Executive Officer and each of the
other Executive Officers of ICOT whose salary and bonus exceeded $100,000,
certain information concerning compensation paid during the fiscal years ended
July 30, 1994 and July 31, 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS ALL OTHER
--------------------- ------------- COMPENSATION
BONUS OPTIONS/ -------------
NAME AND PRINCIPAL POSITION YEAR SALARY ($) EARNED ($) SARS (#) ($)
- ------------------------------- --------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Aamer Latif 1994 150,000 75,000 0 198(1)
CEO, President and CFO 1993 127,357 0 140,000 198(1)
Arnold N. Silverman 1994 112,085 0 0 7,350(2)
Chairman 1993 128,000 0 20,000 6,864(2)
David J. Bivolcic 1994 120,000 50,000 0 198(1)
Senior Vice President 1993 109,687 0 60,000 198(1)
<FN>
- ------------------------
(1) Consists of $198 paid by ICOT for the premium on life insurance for Messrs.
Latif and Bivolcic.
(2) Includes $1,350 in 1994 and $864 in 1993 paid by ICOT for the premium on
life insurance for Mr. Silverman. $6,000 was paid by ICOT to cover the cost
of preparing Mr. Silverman's income tax returns for years 1993 and 1992.
This benefit has been discontinued.
</TABLE>
No options were granted to the executive officers named in the Summary
Compensation Table during fiscal 1994.
The following table sets forth certain information regarding options
exercised during the 1994 fiscal year and held at the end of such year by the
Executive Officers named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
FISCAL YEAR 1994
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT FY-END (#) FY-END ($)
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) UNEXERCISABLE UNEXERCISABLE
- ------------------------------- --------------- ------------------- -------------
<S> <C> <C> <C>
Aamer Latif 0 164,250/101,250 10,000/0
Arnold N. Silverman 0 146,250/ 26,250 0/0
David J. Bivolcic 0 67,250/ 43,250 2,500/0
</TABLE>
On July 30, 1994 the closing price for ICOT's Common Stock as reported on
Nasdaq National Market was $1.00.
67
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Aamer Latif has entered into a severance agreement with ICOT (the "Severance
Agreement") pursuant to which Mr. Latif will be eligible to receive his salary
and benefits for 24 months if his employment with ICOT is terminated within six
months of the Merger. Pursuant to the Severance Agreement, the options granted
to Mr. Latif under ICOT's 1981 Incentive and Supplemental Stock Option Plans may
be canceled and replaced with options, having the same exercise prices,
expiration dates and vesting schedules as the options replaced, granted under
ICOT's 1990 Stock Option Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of ICOT Common Stock as of September 29, 1995 and the beneficial
ownership such shares will represent after the Merger (i) by each person who is
known by ICOT to own beneficially more than 5% of the outstanding shares of ICOT
Common Stock, (ii) by each director and executive officer of ICOT, and (iii) by
all directors and executive officers of ICOT as a group. Except as otherwise
indicated and subject to community property laws where applicable, ICOT believes
that the beneficial owners of the securities listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
the Common Stock shown as being beneficially owned by them. The number of shares
of ICOT Common Stock and calculation of percent ownership takes into account
those shares underlying stock options that are exercisable within 60 days of
September 29, 1995.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP
SHARES BENEFICIALLY AFTER
OWNED PRIOR TO MERGER MERGER (1)
---------------------- ----------
NAME OF BENEFICIAL OWNER NUMBER PERCENT PERCENT
- -------------------------------------------- ----------- --------- ----------
<S> <C> <C> <C>
Aamer Latif (2) 105,000 * *
David J. Bivolcic (3) 5,000 * *
Teresita O. Medel 0 * *
Donald L. Lucas (4) 189,000 1.6% 1.1%
Arnold N. Silverman (5) 320,200 2.6% 1.9%
William D. Witter (6) 295,100 2.4% 1.8%
All directors and executive officers, 914,300 7.4% 5.4%
as a group (6 persons) (7)
The TCW Group, Inc. (8) 770,000 6.4% 4.6%
865 Figueroa Street
Los Angeles, CA 90017
Dimensional Fund Advisors, Inc. (9) 707,800 5.9% 4.3%
1299 Ocean Avenue
Santa Monica, CA 90401
<FN>
- ------------------------
* Less than one percent.
(1) Assumes that 16,551,551 shares of ICOT Common Stock will be outstanding
immediately after the Merger, including issuance of 4,486,949 shares of
ICOT Common Stock in the Merger, that all holders of Outstanding Amati
Notes accept the Offer to Note Holders and that the Applicable Ratio is
4.6126.
(2) Consists of 105,000 shares issuable upon exercise of outstanding options.
(3) Consists of 5,000 shares issuable upon exercise of outstanding options.
</TABLE>
68
<PAGE>
<TABLE>
<S> <C>
(4) Includes 123,000 shares that are held in a joint trust with Mr. Lucas' wife
and 15,000 shares which are held in a profit sharing trust for his benefit.
As trustee of the joint trusts, Mr. Lucas holds voting and investment power
with respect to such shares. Also includes 17,500 shares issuable upon
exercise of outstanding options.
(5) Does not include 700 shares held by Mr. Silverman's wife who has sole
voting and investment power with respect to such shares. Includes 115,200
shares issuable upon exercise of outstanding options.
(6) Includes 100,000 shares held by the William D. Witter Inc. Profit Sharing
Plan. Mr. Witter holds shared voting and investment power with respect to
such shares. Also includes 50,000 shares issuable upon exercise of
outstanding options.
(7) Includes 292,700 shares issuable upon exercise of outstanding options.
(8) Based on Schedule 13G dated January 26, 1995 filed with the Commission.
(9) Based on Schedule 13G dated January 31, 1995 filed with the Commission.
</TABLE>
69
<PAGE>
ADDITIONAL MATTERS FOR CONSIDERATION
OF ICOT STOCKHOLDERS
In addition to the consideration of the Merger proposal, the stockholders of
ICOT will be asked to consider and vote upon the following matters at the ICOT
Meeting.
ADDITIONAL PROPOSAL 1 -- AMENDMENT TO ICOT'S CERTIFICATE OF INCORPORATION TO
CHANGE THE NAME OF ICOT
Subject to approval of the Merger, Article First of the Certificate of
Incorporation of ICOT is proposed to be amended to change the name of the
corporation to "Amati Communications Corporation."
The ICOT Board believes that such change will reflect Amati's important
contribution to the combined company and the focus of the combined company on
developing Amati's DMT technology.
VOTE REQUIRED
The approval of the amendment to the Certificate of Incorporation of ICOT
requires the affirmative vote of the holders of a majority of the outstanding
shares of ICOT Common Stock. Consequently, abstentions will have the effect of a
vote against the proposed amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
ICOT'S CERTIFICATE OF INCORPORATION.
ADDITIONAL PROPOSAL 2 -- AMENDMENT TO ICOT'S CERTIFICATE OF INCORPORATION TO
INCREASE AUTHORIZED SHARES
Subject to approval of the Merger, Article Fourth of the Certificate of
Incorporation of ICOT is proposed to be amended to increase the number of
authorized shares of ICOT Common Stock from 20,000,000 to 45,000,000 shares.
As of September 29, 1995, ICOT had outstanding 12,064,602 shares of Common
Stock and outstanding options to purchase 543,400 shares of Common Stock. In
connection with the Merger, 6,788,924 shares of ICOT Common Stock will be issued
or reserved for issuance pursuant to the exercise of options or warrants. In
addition, ICOT has agreed to grant 1,616,411 Performance Options within one
month of the Closing. The increase of 25,000,000 authorized shares is to enable
ICOT to complete the Merger, as well as to provide ICOT with a number of
additional authorized but unissued shares of Common Stock after consummation of
the Merger.
The ICOT Board believes that it is desirable for ICOT to have additional
authorized but unissued shares of ICOT Common Stock to provide flexibility to
act promptly with respect to acquisitions, public and private financing, stock
dividends and for other appropriate purposes. Other than for issuances on
exercise of options or the Substitute Warrants, ICOT has no specific plans for
additional issuances of Common Stock after the Merger. Nonetheless, approval of
the increase now will eliminate any delays and the expense which otherwise would
be incurred if stockholder approval were required to increase the authorized
number of shares of ICOT Common Stock for possible future transactions involving
the issuance of additional shares. However, the rules of the National
Association of Securities Dealers, Inc. governing corporations with securities
listed on the NNM would still require stockholder approval by a majority of the
total votes cast in person or by proxy prior to the issuance of designated
securities (1) where the issuance would result in a change of control of the
issuer, (2) in connection with the acquisition of the stock or assets of another
company if an affiliate of the issuer has certain interlocking interests with
the company to be acquired or where the issuer issues more than 20% of its
currently outstanding shares or (3) in connection with a transaction other than
a public offering involving the sale or issuance of more than 20% of the common
stock or voting power outstanding before the issuance.
The additional shares of ICOT Common Stock may be issued, subject to certain
exceptions, by ICOT's Board of Directors at such times, in such amounts and upon
such terms as the ICOT Board may determine without further approval of the
stockholders. Any such issuance could reduce the current stockholder's
proportionate interests in ICOT or dilute the stock ownership of persons seeking
to obtain control of ICOT, depending on the number of shares issued and the
purpose, terms
70
<PAGE>
and conditions of the issuance. Stockholders have no preemptive rights to
subscribe to additional shares when issued. Even if the amendment is approved by
the ICOT stockholders at the ICOT meeting, the amendment will not become
effective unless the Merger Agreement also is approved.
APPROVAL OF THIS PROPOSAL IS NECESSARY TO CONSUMMATE THE MERGER.
VOTE REQUIRED
The approval of the amendment to the Certificate of Incorporation of ICOT
requires the affirmative vote of the holders of a majority of the outstanding
shares of ICOT Common Stock. Consequently, abstentions will have the effect of a
vote against the proposed amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
ICOT'S CERTIFICATE OF INCORPORATION.
ADDITIONAL PROPOSAL 3 -- AMENDMENTS TO ICOT 1990 STOCK OPTION PLAN
BACKGROUND
Pursuant to the Merger Agreement, ICOT has agreed to grant Performance
Options to purchase 1,616,411 shares of ICOT Common Stock to key employees of
Amati. The ICOT Board believes that the ability to grant stock options will be
crucial to recruit and retain the highly qualified management and technical
staff that will be needed for the combined company. The ICOT Board is
recommending approval of amendments to the ICOT 1990 Stock Option Plan to
increase the number of shares available for issuance under the Plan by 2,600,000
and to limit the number of shares of Common Stock with respect to which an
option grant may be made to any participant during any one-year period to
1,000,000 shares.
SHARE INCREASE
The 1990 Stock Option Plan was amended in 1993 to increase the number of
shares reserved for issuance thereunder to a total of 900,000. Currently, only
383,825 shares remain available for grant. Without the approval of the amendment
to the 1990 Stock Option Plan increasing the authorized shares by 2,600,000
shares, ICOT would be unable to issue the Performance Options to the Amati
employees, which is required to consummate the Merger, and to make future grants
to employees and new hires, which would disadvantage ICOT in its recruitment and
retention of employees.
LIMIT ON NUMBER OF SHARES
Section 162(m) of the Code, enacted in August 1993, limits the deductibility
by public companies of compensation in excess of $1 million per year (subject to
some exemptions) paid to certain executive officers (generally, the CEO and the
four most highly compensated executive officers). As the limit applies in the
year in which the compensation is paid, it could apply to income derived from
the exercise of certain stock options, measured by the spread between the
exercise price and the fair market value at the time the option is exercised.
Options granted prior to February 17, 1993 are not subject to the deduction
limitation under this law.
"Performance based" compensation is excluded from compensation counted
toward the $1 million deduction limit if certain conditions are met.
Compensation resulting from the exercise of stock options will be treated as
"performance based" and excluded from the limit on deductibility if, among other
things, the plan under which the options are granted specifies limits on the
number of shares issuable to any participant under the plan and these limits are
approved by the issuer's stockholders.
In order to exclude from the $1 million deduction limit compensation
resulting from the exercise of options granted under the 1990 Stock Option Plan,
the Board of Directors adopted, subject to stockholder approval, an amendment to
the plan to limit the number of shares with respect to which options may be
granted to no more than 1,000,000 shares to any one participant in any one-year
period.
71
<PAGE>
DESCRIPTION OF PLAN
GENERAL. The 1990 Stock Option Plan provides for the grant of both
incentive and nonstatutory stock options. Incentive stock options granted under
the 1990 Stock Option Plan are intended to qualify as "incentive stock options"
within the meaning of Section 422A of the Code. Nonstatutory stock options
granted under the 1990 Stock Option Plan are intended not to qualify as
incentive stock options under the Code. See "Federal Income Tax Information"
below for a discussion of the tax treatment of incentive and nonstatutory stock
options.
PURPOSE. The 1990 Stock Option Plan was adopted to provide a means by which
selected employees (including employee directors) of and consultants to ICOT and
its affiliates could be given an opportunity to purchase stock in ICOT, to
assist in retaining the services of persons employed by or serving as
consultants to ICOT, to secure and retain the services of new employees and
consultants and to provide incentives for such persons to exert maximum efforts
for the success of ICOT.
ADMINISTRATION. The 1990 Stock Option Plan is administered by the ICOT
Board of Directors. The Board has the power to construe and interpret the 1990
Stock Option Plan and, subject to the provisions of the 1990 Stock Option Plan,
to determine the persons to whom and the dates on which options will be granted,
the number of shares to be subject to each option, the time or times during the
term of each option within which all or a portion of such option may be
exercised, the exercise price, the type of consideration and other terms of the
option. The Board of Directors is authorized to delegate administration of the
1990 Stock Option Plan to a committee composed of members of the Board.
ELIGIBILITY. Incentive stock options may be granted under the 1990 Stock
Option Plan only to selected employees (including officers and directors) of
ICOT and its affiliates. Selected employees (including officers and directors)
and consultants are eligible to receive nonstatutory stock options under the
1990 Stock Option Plan. Directors who are not salaried employees of ICOT or any
affiliate of ICOT are not eligible to participate in the 1990 Stock Option Plan.
Directors must be expressly declared eligible to participate in the 1990 Stock
Option Plan by the board or the committee if administration of the Plan has been
delegated to a committee.
No incentive stock option may be granted under the 1990 Stock Option Plan to
any person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of ICOT or any
affiliate of ICOT, unless the option exercise price is at least 110% of the fair
market value of the stock subject to the option on the date of grant, and the
term of the option does not exceed five years from the date of grant. For
incentive stock options granted under the 1990 Stock Option Plan, the aggregate
fair market value, determined at the time of grant, of the shares of Common
Stock with respect to which all incentive stock options granted after 1986 are
exercisable for the first time by an optionee during any calendar year (under
all such plans of ICOT and its affiliates) may not exceed $100,000.
TERMS AND CONDITIONS OF OPTIONS. The following is a description of the
permissible terms of options under the 1990 Stock Option Plan. Individual option
grants may be more restrictive as to any or all of the permissible terms
described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the 1990 Stock Option Plan may not be less than the fair market value of
the Common Stock subject to the option on the date of the option grant, and in
some cases (see "Eligibility" above), may not be less than 110% of such fair
market value. The exercise price of nonstatutory options under the 1990 Stock
Option Plan may not be less than the fair market value of ICOT Common Stock
subject to the option on the date of the option grant.
The exercise price of options granted under the 1990 Stock Option Plan must
be paid either: (i) in cash at the time the option is exercised; or (ii) at the
discretion of the Board, (a) by delivery of other ICOT Common Stock, (b)
pursuant to a deferred payment arrangement or (c) in any other form of legal
consideration acceptable to the Board.
72
<PAGE>
OPTION EXERCISE. Options granted under the 1990 Stock Option Plan may
become exercisable in cumulative increments ("vest") as determined by the Board.
The Board has the power to accelerate the time during which an option may be
exercised. In addition, options granted under the 1990 Stock Option Plan may
permit exercise prior to vesting, but in such event the optionee may be required
to enter into an early exercise stock purchase agreement that allows ICOT to
repurchase shares not yet vested at their exercise price should the optionee
leave the employ of ICOT before vesting. To the extent provided by the terms of
an option, an optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such option by a cash payment upon
exercise, by authorizing ICOT to withhold a portion of the stock otherwise
issuable to the optionee, by delivering already-owned stock of ICOT or by a
combination of these means.
TERM. The maximum term of options under the 1990 Stock Option Plan is ten
years, except that in certain cases (see "Eligibility" above), the maximum term
is five years. Options under the 1990 Stock Option Plan terminate three months
after termination of the optionee's employment or relationship as a consultant
or director with ICOT or any affiliate of ICOT, unless (a) such termination is
due to such person's permanent and total disability (as defined in the Code), in
which case the option may, but need not, provide that it may be exercised at any
time within one year of such termination; (b) the optionee dies while in the
employ of or while serving as a consultant of ICOT or any affiliate of ICOT, or
within three months after termination of such relationship, in which case the
option may, but need not, provide that it may be exercised (to the extent the
option was exercisable at the time of the optionee's death) within eighteen
months of the optionee's death by the person or persons to whom the rights to
such option pass by will or by the laws of descent and distribution; or (c) the
option by its terms specifically provides otherwise. Individual options by their
terms may provide for exercise within a shorter or longer period of time
following termination of employment or the consulting relationship. The option
term may also be extended in the event that exercise of the option within these
periods is prohibited for specified reasons.
ADJUSTMENT PROVISIONS. If there is any change in the stock subject to the
1990 Stock Option Plan or subject to any option granted under the 1990 Stock
Option Plan (through merger, consolidation, reorganization, recapitalization,
stock dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), the 1990 Stock Option Plan and options outstanding
thereunder will be appropriately adjusted as to the class and the maximum number
of shares subject to such plan and the class, number of shares and price per
share of stock subject to such outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS. The 1990 Stock Option Plan provides
that, in the event of a dissolution or liquidation of ICOT, a specified type of
merger or other corporate reorganization, then, at the sole discretion of the
Board, exercised with respect to each individual option, and to the extent
permitted by law, either (i) any outstanding options under the 1990 Stock Option
Plan shall terminate, in which event the Board may, but is not required to
accelerate vesting with respect to options held by persons then performing
services as employees or as consultants for ICOT, as the case may be, (ii) any
surviving corporation may assume such options or substitute similar options for
those outstanding under such plan, or (iii) such outstanding options may
continue in full force and effect.
DURATION, AMENDMENT AND TERMINATION. The Board may suspend or terminate the
1990 Stock Option Plan without stockholder approval or ratification at any time
or from time to time. Unless sooner terminated, the 1990 Stock Option Plan will
terminate on September 18, 2000.
The Board may also amend the 1990 Stock Option Plan at any time or from time
to time. However, no amendment will be effective unless approved by the
stockholders of ICOT within twelve months before or after its adoption by the
Board if the amendment would: (i) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the Plan to satisfy Section 422A(b) of the Code, if applicable, or
Rule 16b-3 ("Rule 16b-3") under the Exchange Act; (ii) increase the number of
shares reserved for issuance upon exercise of
73
<PAGE>
options; or (iii) change any other provision of the Plan in any other way if
such modification requires stockholder approval in order to comply with Rule
16b-3 or satisfy the requirements of Section 422A(b) of the Code.
RESTRICTIONS ON TRANSFER. Under the 1990 Stock Option Plan an option may
not be transferred by the optionee otherwise than by will or by the laws of
descent and distribution. During the lifetime of an optionee, an option may be
exercised only by the optionee. In addition, shares subject to repurchase by
ICOT under an early exercise stock purchase agreement may be subject to
restrictions on transfer which the Board deems appropriate.
FEDERAL INCOME TAX CONSEQUENCES. The following is only a summary as to the
United States federal income tax consequences under current law with respect to
participation in the 1990 Stock Option Plan and does not attempt to describe all
possible federal or other tax consequences of such participation.
INCENTIVE STOCK OPTIONS. Incentive stock options under the 1990 Stock
Option Plan are intended to be eligible for the favorable federal income tax
treatment accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
ICOT by reason of the grant or exercise of an incentive stock option. However,
the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for more than two years from the date on which the option is granted and
more than one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (i) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(ii) the optionee's actual gain if any, on the purchase and sale. The optionee's
additional gain or any loss upon the disqualifying disposition will be a capital
gain or loss which will be long-term or short-term depending on whether the
stock was held for more than one year. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, ICOT will be entitled (subject to the requirement of
reasonableness and perhaps, in the future, the satisfaction of a withholding
obligation) to a corresponding business expense deduction in the tax year in
which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
1990 Stock Option Plan generally have the following federal income tax
consequences:
There are no tax consequences to the optionee or ICOT by reason of the grant
of a nonstatutory stock option. Upon exercise of a nonstatutory stock option,
the optionee normally will recognize taxable ordinary income equal to the excess
of the stock's fair market value on the date of exercise over the option
exercise price. Generally, with respect to employees, ICOT is required to
withhold from regular wages or supplemental wage payments an amount based on the
ordinary income recognized. Subject to the requirement of reasonableness and the
satisfaction of any withholding obligation, ICOT will be entitled to a business
expense deduction equal to the taxable ordinary income realized by the optionee.
Upon disposition of the stock, the optionee will recognize a capital gain OR
loss equal to the difference between the selling price and the sum of the amount
paid for such stock plus any amount recognized as ordinary income upon exercise
of the option. Such gain or loss will be long or short-term depending on whether
the stock was held for more than one year. Slightly different rules apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
74
<PAGE>
The following table sets forth the number of options granted during the 1995
fiscal year to (i) the Chief Executive Officer and two other Executive Officers
whose salary and bonus for fiscal 1995 exceeded $100,000, (ii) all Executive
Officers of ICOT as a group, (iii) all Directors who are not Executive Officers
of ICOT as a group, and (iv) all employees who are not Executive Officers of
ICOT as a group:
PLAN BENEFITS
1990 STOCK OPTION PLAN
<TABLE>
<CAPTION>
AVERAGE
NUMBER OF EXERCISE
NAME AND POSITION OPTIONS (1) PRICE
- ------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Aamer Latif ................................................. 0 --
CEO, President and CFO
Arnold N. Silverman ......................................... 100,000 $ 2.03
Chairman
David J. Bivolcic ........................................... 0 --
Senior Vice President
Executive Officers as a Group (4 persons).................... 100,000 $ 2.03
Non-Executive Director Group (2)............................. 0 --
Non-Executive Officer Employee Group......................... 40,000 $ 1.19
<FN>
- ------------------------
(1) All options granted at fair market value as of date of grant.
(2) Members of the Board of Directors are ineligible to participate in the 1990
Stock Option Plan, unless they are also employees of ICOT.
</TABLE>
APPROVAL OF THIS PROPOSAL IS NECESSARY TO CONSUMMATE THE MERGER
VOTE REQUIRED
The approval of the amendments to the 1990 Stock Option Plan of ICOT
requires the affirmative vote of the holders of a majority of the outstanding
shares of ICOT Common Stock. Consequently, abstentions will have the effect of a
vote against the proposed amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENTS TO
THE ICOT 1990 STOCK OPTION PLAN.
OTHER BUSINESS
ICOT's Board of Directors presently does not intend to bring any other
business before the ICOT Meeting and, so far as is known to ICOT's Board of
Directors, no matters are to be brought before the ICOT Meeting except as
specified in the notice of the ICOT Meeting. As to any business that may
properly come before the ICOT Meeting or any adjournment thereof, however, it is
intended that proxies, in the form enclosed, will be voted in the respect
thereof, in accordance with the judgment of the persons voting such proxies.
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ASSUMPTION OF THE AMATI STOCK OPTION PLAN
In connection with the Merger, ICOT will assume the Amati Stock Option Plan
and all outstanding and unexercised Amati Options thereunder. Assumption of the
Amati Stock Option Plan is subject to consummation of the Merger.
The following is a summary of the principal provisions of the Amati Stock
Option Plan.
The Amati Communications Corporation 1992 Stock Option Plan (the "Option
Plan") was adopted by the Amati Board of Directors in February 1992 and approved
by the Amati shareholders in April 1993. It has been amended subsequently from
time to time.
GENERAL. The Option Plan provides for the grant to employees of incentive
stock options within the meaning of Section 422 of the Code, and the grant to
employees and consultants of nonstatutory stock options. Currently, a maximum of
580,000 of the authorized but unissued shares of Amati Common Stock may be
issued upon the exercise of options granted pursuant to the Option Plan. In the
event of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification, or like change in the capital structure of Amati,
appropriate adjustments will be made to the shares subject to the Option Plan
and to outstanding options. To the extent any outstanding option under the
Option Plan expires or terminates prior to exercise in full or if shares issued
upon exercise of an option are repurchased by Amati, the shares of Amati Common
Stock for which such option is not exercised or the repurchased shares are
returned to the Option Plan and become available for future grant.
ADMINISTRATION. The Option Plan is administered by the Board or a duly
appointed committee of the Board. Subject to the provisions of the Option Plan,
the Board or the committee determines the persons to whom options are to be
granted, the number of shares to be covered by each option, whether an option is
to be an incentive stock option or a nonstatutory stock option, the terms of
vesting and exercisability of each option, the type of consideration to be paid
to Amati upon exercise of an option, the term of each option, and all other
terms and conditions of the options. The Board or committee interprets the
Option Plan and options granted under the Option Plan, and all determinations of
the Board or committee are final and binding on all persons having an interest
in the Option Plan or any option.
ELIGIBILITY. All employees (including officers and directors who are also
employees), consultants, advisors or other independent contractors of Amati or
of any present or future parent or subsidiary corporations of Amati are eligible
to participate in the Option Plan. As of July 31, 1995, Amati had approximately
25 employees, including 4 executive officers, and approximately 6 consultants,
advisors and other independent contractors. Only employees may be granted
incentive stock options. Consultants, advisors, and other independent
contractors may only be granted nonstatutory stock options.
TERMS AND CONDITIONS OF OPTIONS. Each option granted under the Option Plan
is evidenced by a written agreement between Amati and the optionee specifying
the number of shares subject to the option and the other terms and conditions of
the option, consistent with the requirements of the Option Plan. The per share
exercise price of an incentive stock option must equal at least the fair market
value of a share of Amati's Common Stock on the date of grant. The per share
exercise price of a nonstatutory stock option may be no less than 85% of the
fair market value of a share of the Common Stock on the date of grant. The per
share exercise price of any option granted to a person who at the time of grant
owns stock representing more than 10% of the total combined voting power of all
classes of stock of Amati or any parent or subsidiary corporation of Amati must
be at least 110% of the fair market value of a share of Amati's Common Stock on
the date of grant, and the term of any such option cannot exceed five years.
Generally, options may be exercised by payment of the exercise price in
cash, by check, or in cash equivalent, by tender of shares of Amati's Common
Stock owned by the optionee having a fair market value not less than the
exercise price, by the assignment of the proceeds of a sale of some or all of
the shares of Amati Common Stock being acquired upon the exercise of the option,
by the optionee's
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recourse promissory note in the form specified by Amati with terms in accordance
with the provisions of the Plan, or by any combination of these. However, the
Board or committee may restrict the forms of payment permitted in connection
with any option grant or may grant options permitting payment of the exercise
price with a recourse promissory note.
Options granted under the Option Plan will become exercisable and vested at
such times as specified by the Board or committee. Generally, options granted
under the Option Plan are exercisable on and after the date of grant, subject to
the right of Amati to reacquire at the optionee's exercise price any unvested
shares held by the optionee upon termination of employment or service with Amati
or if the optionee attempts to transfer any unvested shares. Shares subject to
options generally vest in installments subject to the optionee's continued
employment or service. The maximum term of options granted under the Option Plan
is ten years. Options are nontransferable by the optionee other than by will or
by the laws of descent and distribution, and are exercisable during the
optionee's lifetime only by the optionee.
TRANSFER OF CONTROL. A "Transfer of Control" will be deemed to occur upon
any of the following events in which the shareholders of Amati do not retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of Amati or its successor: (i) the direct or indirect sale or
exchange by the shareholders of Amati of all or substantially all of the stock
of Amati, (ii) a merger in which Amati is a party, or (iii) the sale, exchange
or transfer of all or substantially all of the assets of Amati. If a Transfer of
Control occurs, the Board may arrange with the surviving, continuing, successor,
or purchasing corporation or parent corporation thereof (the "Acquiring
Corporation") to either assume outstanding options or substitute options for the
Acquiring Corporation's stock for the outstanding options. Any options which are
neither assumed or substituted for by the Acquiring Corporation nor exercised as
of the date of the Transfer of Control will terminate effective as of such date.
TERMINATION OR AMENDMENT. Unless sooner terminated, no options may be
granted under the Option Plan after February 1, 2002. The Board or committee may
terminate or amend the Option Plan at any time, but, without stockholder
approval, the Board may not amend the Option Plan to increase the total number
of shares of Amati Common Stock reserved for issuance thereunder, change the
class of persons eligible to receive incentive stock options, or expand the
class of persons eligible to receive nonstatutory stock options. No amendment
may adversely affect an outstanding option without the consent of the optionee,
unless the amendment is intended to preserve the option's status as an incentive
stock option.
As of August 30, 1995, Amati had outstanding options to purchase an
aggregate of 364,700 shares at a weighted average exercise price of $3.4235 per
share. The exercise price of all options granted under the Option Plan has been
at least equal to the fair market value per share of Amati Common Stock on the
date of grant as determined in good faith by the Board of Directors. As of
August 30, 1995, options to purchase 107,750 shares of Common Stock granted
pursuant to the Option Plan had been exercised, and there were 107,550 shares of
Amati Common Stock available for future grants under the Option Plan.
FEDERAL INCOME TAX CONSEQUENCES. The following is only a summary as to the
United States federal income tax consequences under current law with respect to
participation in the Option Plan and does not attempt to describe all possible
federal or other tax consequences of such participation.
INCENTIVE STOCK OPTIONS. Options designated as incentive stock options are
intended to fall within the provisions of Section 422 of the Code. An optionee
recognizes no taxable income for regular income tax purposes as the result of
the grant or exercise of such an option.
For optionees who do not dispose of their shares for two years following the
date the option was granted nor within one year following the exercise of the
option, the gain on sale of the shares (which is the difference between the sale
price and the purchase price of the shares) will be taxed as long-term capital
gain. If an optionee satisfies such holding periods upon a sale of the shares,
Amati will not be
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entitled to any deduction for federal income tax purposes. If an optionee
disposes of shares within two years after the date of grant or within one year
from the date of exercise (a "disqualifying disposition"), the difference
between the fair market value of the shares on the determination date (see
discussion under "Nonstatutory Stock Options" below) and the option exercise
price (not to exceed the gain realized on the sale if the disposition is a
transaction with respect to which a loss, if sustained, would be recognized)
will be taxed as ordinary income at the time of disposition. Any gain in excess
of that amount will be a capital gain. If a loss is recognized, there will be no
ordinary income, and such loss will be a capital loss. A capital gain or loss
will be long-term if the optionee's holding period is more than 12 months. Any
ordinary income recognized by the optionee upon the disposition of the shares
should be deductible by Amati for federal income tax purposes, except to the
extent such deduction is limited by Section 162(m) of the Code.
The difference between the option exercise price and the fair market value
of the shares on the determination date of an incentive stock option (see
discussion under "Nonstatutory Stock Options" below) is an adjustment in
computing the optionee's alternative minimum taxable income and may be subject
to an alternative minimum tax which is paid if such tax exceeds the regular tax
for the year. Special rules may apply with respect to certain subsequent sales
of the shares in a disqualifying disposition, certain basis adjustments for
purposes of computing the alternative minimum taxable income on a subsequent
sale of the shares and certain tax credits which may arise with respect to
optionees subject to the alternative minimum tax.
NONSTATUTORY STOCK OPTIONS. Options not designated as incentive stock
options will be nonstatutory stock options. Nonstatutory stock options have no
special tax status. An optionee generally recognizes no taxable income as the
result of the grant of such an option.
Upon exercise of a nonstatutory stock option, the optionee normally
recognizes ordinary income in the amount of the difference between the option
exercise price and the fair market value of the shares on the determination date
(as defined below). If the optionee is an employee, such ordinary income
generally is subject to withholding of income and employment taxes. The
"determination date" is the date on which the option is exercised unless the
shares are not vested and/or the sale of the shares at a profit would subject
the optionee to suit under Section 16(b) of the Exchange Act, in which case the
determination date is the later of (i) the date on which the shares vest, or
(ii) the date the sale of the shares at a profit would no longer subject the
optionee to suit under Section 16(b) of the Exchange Act. Section 16(b) of the
Exchange Act generally is applicable only to officers, directors and beneficial
owners of more than 10% of the Common Stock of a public company. If the
determination date is after the exercise date, the optionee may elect, pursuant
to Section 83(b) of the Code, to have the exercise date be the determination
date by filing an election with the Internal Revenue Service not later than 30
days after the date the option is exercised. Upon the sale of stock acquired by
the exercise of a nonstatutory stock option, any gain or loss, based on the
difference between the sale price and the fair market value on the date of
recognition of income, will be taxed as capital gain or loss. A capital gain or
loss will be long-term if the optionee's holding period is more than 12 months.
No tax deduction is available to Amati with respect to the grant of a
nonstatutory option or the sale of the stock acquired pursuant to such grant.
Amati should be entitled to a deduction equal to the amount of ordinary income
recognized by the optionee as a result of the exercise of a nonstatutory option,
except to the extent such deduction is limited by Section 162(m) of the Code, as
described above.
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DESCRIPTION OF ICOT CAPITAL STOCK
As of the date of this Proxy Statement/Prospectus, the authorized capital
stock of ICOT consists of 20,000,000 shares of Common Stock, $.20 par value
("ICOT Common Stock"), and 5,000 shares of Preferred Stock, $100 par value
("ICOT Preferred Stock"). If the proposed amendments to ICOT's Certificate of
Incorporation are approved by ICOT's stockholders, the authorized ICOT Common
Stock will be increased to 45,000,000 shares at the time of the Merger. See
"Additional Matters for Consideration of ICOT Stockholders."
ICOT COMMON STOCK
As of the record date of the ICOT Meeting, there were 12,064,602 shares of
ICOT Common Stock outstanding held of record by 1,751 stockholders. Holders of
shares of ICOT Common Stock are entitled to one vote per share on all matters to
be voted on by stockholders, except that holders may cumulate their votes in the
election of directors. Subject to preferences that may be applicable to any
outstanding ICOT Preferred Stock, holders of ICOT Common Stock are entitled to
receive ratably such dividends as may be declared by the Board of Directors in
its discretion from funds legally available therefor. In the event of a
liquidation, dissolution, or winding up of ICOT, holders of ICOT Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any outstanding ICOT Preferred
Stock. Holders of ICOT Common Stock have no preemptive rights and have no rights
to convert their Common Stock into any other securities. The outstanding shares
of ICOT Common Stock are fully paid and nonassessable.
ICOT PREFERRED STOCK
The Board of Directors has the authority to issue up to 5,000 shares of ICOT
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without any further vote or action by the shareholders. The issuance of ICOT
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of ICOT or making removal of management more difficult without
further action by the shareholders and could adversely affect the rights and
powers, including voting rights, of the holders of ICOT Common Stock. This could
have the effect of decreasing the market price of the ICOT Common Stock. ICOT
has no present plans to issue any shares of ICOT Preferred Stock.
COMPARISON OF RIGHTS OF HOLDERS OF ICOT AND AMATI STOCK
Amati is incorporated in the state of California and is subject to the
provisions of the California General Corporation Law (the "CGCL"). ICOT is
incorporated in the state of Delaware and is subject to the provisions of the
Delaware General Corporation Law (the "DGCL"). Following the Merger, Amati, as a
wholly-owned subsidiary of ICOT, will continue to be governed by the CGCL and
Amati's Articles of Incorporation, as amended (the "Amati Charter") and Bylaws.
Following the Merger, ICOT will continue to be governed by the DGCL and ICOT
Certificate of Incorporation, as amended (the "ICOT Charter") and Bylaws.
Shareholders of Amati, however, will hold ICOT Common Stock rather than Amati
Voting Stock, and, therefore, the rights, of such shareholders will be governed
by the DGCL and the ICOT Charter and Bylaws following the Merger.
The following is a summary comparison of certain differences affecting
stockholder rights in the provisions of the CGCL and the DGCL and the charter
documents and bylaws of Amati and ICOT. This summary does not purport to be a
complete discussion of, and is qualified in its entirety by reference to, the
corporate statutes of California and Delaware, and the corporate charters and
bylaws of Amati and ICOT.
CUMULATIVE VOTING
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number of
directors to be elected. A shareholder may then cast all such votes for a single
candidate or may allocate them among as many candidates as the
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shareholder may choose. Without cumulative voting, the holders of a majority of
the shares present at an annual meeting or any special meeting held to elect
directors would have the power to elect all the directors to be elected at that
meeting, and no person could be elected without the support of holders of a
majority of the shares voting at such meeting.
Under the CGCL, cumulative voting in the election of directors is a right
available to all shareholders of California corporations unless the corporation
is "listed" and that corporation's articles of incorporation specifically
eliminate cumulative voting. A "listed" corporation is defined under the CGCL as
a corporation with (i) securities listed on the New York or American Stock
Exchange or (ii) securities designated as a Nasdaq National Market security if
the corporation has at least 800 holders of equity securities. Currently, Amati
shareholders possess cumulative voting because Amati is not a "listed"
corporation, the Amati Charter does not eliminate cumulative voting and the
Amati Bylaws retain that right for Amati shareholders.
Under the DGCL, cumulative voting in the election of directors is not
mandatory and is not available to stockholders unless it is provided for in the
corporation's certificate of incorporation. The ICOT Charter provides for
cumulative voting for the election of directors. Amati shareholders therefore
will retain their right to cumulative voting which they held prior to the
Merger.
STOCKHOLDER POWER TO CALL SPECIAL STOCKHOLDERS MEETING
Under the CGCL, a special meeting of shareholders may be called by the board
of directors, the chairman of the board, the president or the holders of shares
entitled to cast not less than 10% of the votes at such meeting and such persons
as may be provided in the articles of incorporation or bylaws.
Under the DGCL, a special meeting of stockholders may be called by the board
of directors or any other person specified in the certificate of incorporation
or bylaws. ICOT's Bylaws provide that the President, the Board of Directors or
the stockholders holding in the aggregate one-fifth of the voting power of all
stockholders may call special meetings.
Therefore, after the Merger, only the President, the Board of Directors or
the stockholders holding in the aggregate one-fifth of the voting power of all
stockholders will be authorized to call special meetings of stockholders.
DISSOLUTION
Under the CGCL, shareholders holding 50% or more of the total voting power
may authorize a corporation's dissolution, with or without the approval of the
corporation's board of directors. This right may not be modified by the articles
of incorporation.
Under the DGCL, unless the board of directors approves the proposal to
dissolve, the dissolution must be approved by stockholders holding 100% of the
total voting power of the corporation. Only if the dissolution is initiated by
the board of directors may it be approved by a simple majority of the
corporation's stockholders. Furthermore, the DGCL allows a Delaware corporation
to include in its certificate of incorporation a supermajority voting
requirement in connection with such board-initiated dissolutions. ICOT's Charter
contains no such supermajority voting requirement. Thus, a majority of shares
voting at a meeting at which a quorum is present would be sufficient to approve
a dissolution of ICOT that had previously been approved by its Board of
Directors.
SIZE OF BOARD OF DIRECTORS
Under the CGCL, the board of directors may in general fix the exact number
of directors within a stated range set forth in the corporation's articles of
incorporation or bylaws, or such number may be fixed in the articles or bylaws.
A change in the stated range or fixed number of directors must be approved by
the shareholders. Amati's Bylaws currently fix the number of directors at
between three and five.
Under the DGCL, the number of directors may be stated in the certificate of
incorporation or the bylaws, or may be determined in the manner provided in the
bylaws. Since the ICOT Bylaws can be
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amended by either the board of directors or a majority of the stockholders (see
discussion below under "AMENDMENT OR REPEAL OF RIGHTS"), either the board or the
stockholders will be able to change the number of directors of ICOT. In
contrast, Amati's board of directors currently cannot alter the number of
directors without shareholder approval.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one with respect to which a certain number of the
directors, but not necessarily all, are elected on a rotating basis each year.
Under the CGCL, directors must generally be elected annually; however a
"listed" corporation (as described above) is permitted to amend its articles of
incorporation or bylaws to provide for a classified board. Under the CGCL, a
classified board divided into two classes of directors must be comprised of no
fewer than six directors and one-half of the directors must be elected at each
annual meeting of shareholders, and a classified board divided into three
classes must be comprised of no fewer than nine directors and one-third of the
directors must be elected at each annual meeting of shareholders. The Amati
Charter does not provide for a classified board.
Under the DGCL, the certificate of incorporation or bylaws may provide for
the division of directors into two or three classes and specify the term of
office of each class. The ICOT Charter and Bylaws currently do not provide for a
classified board.
REMOVAL OF DIRECTORS
Under the CGCL, a director may be removed without cause by shareholder vote,
provided that the shares voted against such removal would not be sufficient to
elect the director under cumulative voting rules. Since cumulative voting
enables a minority of shareholders to elect some directors, removal of an Amati
director by shareholders can in some cases be blocked by a minority of
shareholders.
In addition to removal by the shareholders, a director may be removed for
cause in California (i) by order of a court, sought by shareholders holding at
least 10% of the outstanding shares of any class, if a director commits
fraudulent or dishonest acts or gross abuse of authority or discretion or (ii)
by the board, if a director has been declared of unsound mind by order of court
or has been convicted of a felony.
Under the DGCL, a director of a corporation that does not have a classified
board of directors may be removed with or without cause by stockholder vote,
provided that, in the case of a corporation having cumulative voting, if less
than the entire board is to be removed, the shares voted against such removal
would not be sufficient to elect the director under cumulative voting rules at
an election of the board of directors. A director of a corporation with a
classified board of directors can be removed only for cause unless the
certificate of incorporation otherwise provides. Since there is no controlling
definition of "cause" under Delaware law, the resolution of any dispute as to
what constitutes "cause" may become a matter for determination by the courts.
ICOT's Charter and Bylaws do not provide for a classified board of
directors. ICOT's Bylaws do provide for directors to be removed, with or without
cause, at a special meeting of the stockholders called for that purpose.
Therefore, after the Merger, former Amati shareholders will still be entitled to
remove a director with or without cause by a majority shareholder vote, but
minority shareholders who could previously have blocked the removal of directors
in some cases because of cumulative voting will continue to have this power.
VOTING REQUIREMENTS
Unless otherwise specified in a California corporation's articles of
incorporation, under the CGCL an amendment to the articles of incorporation
requires the affirmative vote of a majority of the outstanding shares entitled
to vote thereon. Holders of the outstanding shares of a class are entitled to
vote as a class if the proposed amendment would (i) increase or decrease the
aggregate number of authorized shares of such class, (ii) effect an exchange,
reclassification or cancellation of all or part of
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the shares of such class, other than a stock split, (iii) effect an exchange, or
create a right of exchange, of all or part of the shares of another class into
the shares of such class, (iv) change the rights, preferences, privileges or
restrictions of the shares of such class, (v) create a new class of shares
having rights, preferences or privileges prior to the shares of such class, or
increase the rights, preferences or privileges or the number of authorized
shares having rights, preferences or privileges prior to the shares of such
class, (vi) in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions or
authorize the board of directors to do so, and (vii) cancel or otherwise affect
dividends on the shares of such class which have accrued but have not been paid.
The Amati Charter currently provides that amendments that would (1) alter or
change any of the powers preferences, privileges or rights of the Series A
Preferred Stock; or (2) increase the authorized number of shares of Series A
Preferred Stock; or (3) amend the provisions regarding changes affecting Series
A Preferred Stock must be approved by the holders of at least a majority of the
total number of shares of Series A Preferred Stock outstanding.
Under the DGCL, a corporation with stock outstanding or subscribed
ordinarily may amend its charter provided that the amendment is advised by the
board of directors and approved by affirmative vote of a majority of all the
votes entitled to be cast. Holders of a class of stock may vote as a class if
the amendment would increase or decrease the number of authorized shares of such
class or the par value of shares of such class, or would alter the preferences,
powers, or special rights of any class so as to affect them adversely.
The ICOT Charter does not provide for any supermajority requirements or any
special voting rights for any class of stock. Therefore, Amati shareholders who
are currently entitled to vote as a class on certain changes under the CGCL or
the Amati Charter may no longer be entitled to do so in all cases after the
Merger (including in the case of mergers and other business combinations, as
discussed below).
BUSINESS COMBINATIONS/REORGANIZATIONS
Under the CGCL, a merger, consolidation or sale of all or substantially all
of a corporation's assets generally must be approved by the corporation's board
of directors and a majority of the outstanding shares entitled to vote. In
addition, the CGCL requires such transactions, among others, to be approved by a
majority of the outstanding shares of each class of stock (without regard to
limitations on voting rights). Shareholder approval is not required for a
corporation that will own (or whose shareholders will own) equity securities
other than warrants possessing more than 5/6 voting power of the combined
corporation (on an as-converted basis), provided no change that would otherwise
require shareholder approval is made to the corporation's articles of
incorporation.
Under the DGCL, a merger, consolidation or sale of all or substantially all
of a corporation's assets generally must be approved by a majority of the
corporation's board of directors and a majority of all the votes entitled to be
cast on the matter. Stockholder approval is not required for a corporation whose
certificate of incorporation will be unchanged by the merger if its common stock
(or securities convertible into common stock) to be issued in the merger does
not exceed 20% of the common stock outstanding prior to the merger.
As noted above, the ICOT Charter does not provide for any supermajority or
class voting, and Delaware law requires a class vote only with respect to a
class of stock that will be adversely affected by a transaction. Therefore,
Amati shareholders, who currently are entitled to vote on a class-by-class basis
with respect to business combinations may not always be entitled to do so as
ICOT stockholders.
In addition to the foregoing, the CGCL provides that, except where the
fairness of the terms and conditions of the transaction has been approved by the
California Commissioner of Corporations and except in a "short-form" merger (the
merger of a parent corporation with a subsidiary in which the parent owns at
least 90% of the outstanding shares of each class of the subsidiary's stock), if
the surviving corporation or its parent corporation owns, directly or
indirectly, shares of the target corporation representing more than 50% of the
voting power of the target corporation prior to the
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merger, the nonredeemable common stock of a target corporation may be converted
only into nonredeemable common stock of the surviving corporation or its parent
corporation, unless all of the shareholders of the class consent. The effect of
this provision is to prohibit a cash-out merger of minority shareholders, except
where the majority shareholder already owns 90% or more of the voting power of
the target corporation and could, therefore, effect a short form merger to
accomplish such a cash-out of minority shareholders.
In addition, the CGCL requires that in connection with certain transactions
between a corporation whose shares are held of record by 100 or more persons and
an "interested party," such interested party must deliver a written opinion as
to the fairness of the consideration to the shareholders of the corporation. An
"interested party" for purposes of this CGCL provision means a person who is a
party to the transaction and (i) directly or indirectly controls the
corporation, (ii) is an officer or director of the corporation, or (iii) is an
entity in which a material financial interest is held by any director or
executive officer of the corporation. The DGCL does not contain comparable
provisions.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
Section 203 of the DGCL ("Section 203") prohibits a Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
three years following the date that such person becomes an interested
stockholder. With certain exceptions, an interested stockholder is a person or
group who or which owns 15% or more of the corporation's outstanding voting
stock (including any rights to acquire stock pursuant to an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion or
exchange rights, and stock with respect to which the person has voting rights
only), or is an affiliate or associate of the corporation which was the owner of
15% or more of such voting stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a
subsidiary equal to ten percent or more of the aggregate market value of the
corporation's consolidated assets or its outstanding stock; the issuance or
transfer by the corporation or a subsidiary of stock of the corporation or such
subsidiary to the interested stockholder (except for transfers in a conversion
or exchange or a pro rata distribution or certain other transactions, none of
which increase the interested stockholder's proportionate ownership of any class
or series of the corporation's or such subsidiary's stock); or receipt by the
interested stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (a) prior to the date on which such stockholder becomes an
interested stockholder the board of directors approves either the business
combination of the transaction which resulted in the person becoming an
interested stockholder; (b) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
an interested stockholder (excluding from the 85% calculation shares owned by
directors who are also officers of the target corporation and shares held by
employee stock plans which do not permit employees to decide confidentially
whether to accept a tender or exchange offer); or (c) on or after the date such
person becomes an interested stockholder, the board approves the business
combination and it is also approved at a stockholder meeting by 66 2/3% of the
voting stock not owned by the interested stockholder.
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, are quoted on an
interdealer quotation system such as the Nasdaq National Market (as is ICOT) or
are held of record by more than 2,000 shareholders. A Delaware corporation may
elect not to be governed by Section 203 by an amendment to its charter or to the
bylaws, which amendment must be approved by majority stockholder vote. ICOT has
not done so and is, therefore, governed by Section 203.
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<PAGE>
Section 203 has been challenged in lawsuits arising out of ongoing takeover
disputes, and it is not yet clear whether and to what extent its
constitutionality will be upheld by the courts. Although the United States
District Court for the District of Delaware has consistently upheld the
constitutionality of Section 203, the Delaware Supreme Court has not yet
considered the issue. Section 203 may discourage certain potential acquirors
unwilling to comply with its provisions.
RIGHTS OF DISSENTING SHAREHOLDERS
Under both California and Delaware law, a shareholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to receive cash equal to the fair market value of the
shares held by such shareholder (as determined by a court of competent
jurisdiction or by agreement of the shareholder and the corporation) in lieu of
the consideration such shareholder would otherwise receive in the transaction.
The laws of California and Delaware differ with respect to the circumstances
under which dissenters' rights of appraisal are available. Delaware law does not
require dissenters' rights with respect to (a) a sale of assets, (b) a merger by
a corporation, if the shares of which are either listed on a national securities
exchange or held by more than 2,000 shareholders of record or if stockholders
receive shares of the surviving corporation or of a listed or widely-held
corporation, or (c) a merger in which the corporation is the surviving
corporation, provided that no vote of its stockholders is required to approve
the merger.
California law does, in general, afford dissenters' rights in a
sale-of-assets reorganization, and the exclusions from dissenters' rights in
mergers are somewhat different from those in Delaware. For example, in the case
of a corporation whose shares are listed on a national securities exchange,
dissenters' rights would nevertheless be available in certain transactions for
any shares with respect to which there are certain restrictions on transfer and
for any class with respect to which 5% or more of such class claims dissenters'
rights. Also, under California law, shareholders of a corporation involved in a
reorganization are not entitled to dissenters' rights if the corporation, or its
shareholders immediately before the reorganization, or both, will own more than
five-sixths of the voting power of the surviving or acquiring corporation or its
parent entity.
INSPECTION OF SHAREHOLDERS LIST
California law provides for an absolute right of inspection of a
shareholders' list for persons holding 5% or more of the corporation's voting
shares or persons holding 1% or more of such shares who have filed a Schedule
14B with the Commission relating to the election of directors. Generally, a
Schedule 14B must be filed by any shareholder engaged in the solicitation of
proxies, as such terms are defined in the federal securities law, in connection
with a contested election of directors. Delaware law gives any stockholder of
record the right to inspect the stockholders' list for a purpose reasonably
related to such person's interest as a stockholder and, during the ten days
preceding a stockholders' meeting, for any purpose germane to that meeting.
Delaware law contains no provision comparable to the absolute right of
inspection provided by California law to certain shareholders, and no such right
is granted under ICOT's Charter or Bylaws. However, under California law,
California rules with respect to the inspection of shareholders' lists apply to
any corporation such as ICOT that, although incorporated outside California, has
its principal executive offices in California or customarily holds meetings of
its Board of Directors in California. Lack of access to stockholder records,
even though unrelated to the stockholder's interest as a stockholder, could
result in impairment of the stockholder's ability to coordinate opposition to
management proposals, including proposals with respect to a change in control of
the corporation.
DIVIDENDS
Under the CGCL, any distributions (including dividends and repurchases of
shares) generally are limited either to retained earnings or to an amount that
would leave the corporation with tangible assets in an amount equal to at least
125% of its tangible liabilities and with current assets in an amount at least
equal to its current liabilities (or 125% of its current liabilities if the
average pre-tax and pre-interest earnings for the preceding two fiscal years
were less than the average interest
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<PAGE>
expenses for such years). Such limitations are applied on a consolidated basis
and are based upon the book value of assets determined in accordance with
generally accepted accounting principles then applicable.
Delaware law permits the payment of dividends out of surplus or, if there is
no surplus, out of net profits for the current and preceding fiscal years
(provided that the amount of capital of the corporation is not less than the
aggregate amount of the capital represented by the issued and outstanding stock
of all classes having a preference upon the distribution of assets). In
addition, Delaware law generally provides that a corporation may redeem or
repurchase its own shares only if such redemption or repurchase would not impair
the capital of the corporation. The ability of a Delaware corporation to pay
dividends on, or redeem or to make repurchases or redemptions of, its shares is
dependent on the financial status of the corporation standing alone and not on a
consolidated basis. In determining the amount of surplus of a Delaware
corporation, the assets of the corporation, including stock of subsidiaries
owned by the corporation, must be valued at their fair market value as
determined by the board of directors, without regard to their historical value.
While the Amati Charter currently contains provisions for the preference and
amount of dividend to holders of Amati Series A Preferred Stock, the ICOT
Charter does not currently contain restrictions or preferences on the
declaration or payment of dividends. Because all Amati shareholders will hold
ICOT Common Stock, those who currently benefit from dividend preferences will
cease to enjoy such preferences.
AMENDMENT OR REPEAL OF RIGHTS
The provisions of the CGCL and the DGCL applicable to the amendment of the
articles or certificate of incorporation are discussed above under "Voting
Requirements".
Under the CGCL, a corporation's bylaws may be adopted, amended or repealed
either by the board of directors or the shareholders of the corporation. Amati's
Bylaws provide that the Bylaws may be changed either by the vote of the holders
of a majority of the outstanding shares entitled to vote or by Amati's board of
directors, except that a bylaw amendment changing the authorized number of
directors may be adopted by the Amati board only if the Bylaws permit an
indefinite number of directors and the amendment changes the authorized number
of directors within the limits specified in the Bylaws.
Under the DGCL, the power to amend the bylaws of a corporation is vested in
the shareholders, except to the extent that the certificate of incorporation
also vests it in the board of directors. The ICOT Bylaws provide that the bylaws
may be amended by the board of directors as well as by the shareholders.
PREEMPTIVE RIGHTS
Preemptive rights are sometimes given to a corporation's existing
shareholders and permit them to maintain their percentage of ownership in the
corporation, by enabling them to buy a portion of any newly-issued shares.
Shareholders of a California corporation have such preemptive rights as may be
provided in the corporation's articles of incorporation. The Amati Charter
currently does not provide for preemptive rights.
Under the DGCL, unless the corporation's charter provides otherwise or with
certain types of stock issuances and sales, a stockholder does not have
preemptive rights. The ICOT Charter does not provide for preemptive rights.
TRANSACTIONS INVOLVING OFFICERS OR DIRECTORS
Under both California and Delaware law, certain contracts or transactions in
which one or more of a corporation's directors has an interest are not void or
voidable because of such interest provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. With certain exceptions, the conditions are
similar under California and Delaware law, (a) either the stockholders or the
board of directors must approve any
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<PAGE>
such contract or transaction in good faith after full disclosure of the material
facts, and in the case of board approval the contract or transaction must also
be "just and reasonable" (in California) or "fair" (in Delaware) to the
corporation, or (b) the contract or transaction must have been just and
reasonable or fair as to the corporation at the time it was approved. In the
latter case, California law explicitly places the burden of proof on the
interested director. Under California law, if shareholder approval is sought,
the interested director is not entitled to vote his shares at a shareholder
meeting with respect to any action regarding such contract or transaction. If
board approval is sought, the contract or transaction must be approved by a
majority vote of a quorum of the directors, without counting the vote of any
interested directors (except that interested directors may be counted for
purposes of establishing a quorum). Under Delaware law, if board approval is
sought, the contract or transaction must be approved by a majority of the
disinterested directors (even though less than a majority of a quorum).
Therefore, certain transactions that the board of directors of Amati might not
be able to approve because of the number of interested directors, could be
approved by a majority of the disinterested directors of the ICOT, although less
than a majority of a quorum.
Under the CGCL, any loan or guaranty to or for the benefit of a director or
officer of the corporation or its subsidiaries requires approval of the
shareholders unless such loan or guaranty is provided for under a plan approved
by shareholders owning a majority of the outstanding shares of the corporation.
However, the CGCL permits shareholders of a corporation with 100 or more
shareholders of record to approve a bylaw authorizing the board of directors
alone to approve a loan or guaranty to or on behalf of an officer (whether or
not a director) if the board determines that such a loan or guaranty may
reasonably be expected to benefit the corporation. The Amati Bylaws do not
contain such a provision. Under Delaware law, a corporation may make loans to,
guarantee the obligations of or otherwise assist its officers (or other
employees) when such action, in the judgment of directors, may reasonably be
expected to benefit the corporation. Therefore, Amati shareholders will no
longer be entitled to approve loans to officers and directors after the Merger.
LIMITATION OF LIABILITY OF DIRECTORS
Both the CGCL and the DGCL state expressly that the indemnification provided
for therein shall not be deemed exclusive of any other rights under any other
bylaw, agreement, vote of stockholders or disinterested directors, or otherwise
and provide that expenses may be advanced to officers and directors in a
specific case upon receipt of an undertaking to repay such amount if it is
ultimately determined that such indemnified party is not entitled to be
indemnified. In addition, California and Delaware permit the determination as to
whether an officer or director has met the applicable standard of conduct to be
made in certain circumstances by independent legal counsel.
California law was recently amended to permit indemnification of officers
and directors to an extent which is generally coextensive with that permitted
under the Delaware law. Prior to the recent amendment, the California law did
not permit indemnification in any manner inconsistent with the statutory
indemnification provisions.
The Amati Charter and Bylaws provide that Amati must indemnify directors of
Amati to the fullest extent permitted by California law. Pursuant to its
Charter, ICOT is similarly required to indemnify directors for breach of
fiduciary duty as a director to the full extent permitted by the DGCL.
In 1986, the Delaware legislature enacted amendments to the Delaware law to
permit Delaware corporations to provide directors additional protection from
personal liability. Article ELEVENTH of ICOT's Charter gives effect to the
amendments to Delaware law and is intended to give to ICOT's directors the full
protection against personal liability that is permitted under the amended law.
Delaware law provides that the board of directors has the ultimate
responsibility for managing the business and affairs of a corporation. In
discharging this function, the law holds directors to fiduciary duties of care
and loyalty to the corporation and its stockholders. The Delaware Supreme Court
has held that the duty of care requires the exercise of an informed business
judgment. An
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informed business judgment means that directors have informed themselves of all
material information reasonably available to them. Having become so informed,
they then must act with requisite care in the discharge of their duties.
Liability of directors of a Delaware corporation to the corporation or its
stockholders for breach of the duty of care in some circumstances requires a
finding by a court that the directors were grossly negligent. ICOT's Charter
does not change the standard of care required of directors. However, as
authorized by statute, it eliminates the monetary liability of each director of
ICOT for breach of his or her fiduciary duties, subject to the exceptions set
forth in Delaware law. Therefore, a stockholder will be able to prosecute an
action against a director for monetary damages only if he or she can show a
breach of the duty of loyalty, a failure to act in good faith, intentional
misconduct, a knowing violation of law, an improper personal benefit, or an
illegal dividend or stock repurchase. Stockholders will surrender any cause of
action for "negligence" or "gross negligence" in satisfying the duty of care,
including negligence or gross negligent conduct in the context of a takeover
proposal of ICOT.
Directors also have a duty of loyalty to the corporation and its
stockholders. The duty of loyalty requires that, in making a business decision,
directors act in good faith and in the honest belief that the action taken was
in the best interests of the corporation. The ICOT Charter does not insulate
directors of ICOT from liability for breach of their duty of loyalty, nor will
it limit the liability of directors for claims arising under the federal
securities laws. ICOT's Charter does not limit or eliminate the right of the
ICOT or any stockholder to seek an injunction or other non-monetary relief in
the event of a breach of a director's duty of care, although, in certain
situations equitable remedies may not be as effective as monetary damages, and
third parties, such as creditors of ICOT, will not be precluded by such
provision from pursuing any claims they might have. Furthermore, ICOT's Charter
will have no effect on currently pending or prior litigation involving Amati and
its directors or on any liability by virtue of any act or omission by a director
that occurred prior to the Merger. Amati is not aware of any prior or pending
litigation that would have been or would be impacted by ICOT's Charter.
After the Merger is effected, directors will continue to be relieved of
liability with respect to the foregoing actions to the extent such actions were
based on breach of their fiduciary duty of care. This may reduce the likelihood
of derivative litigation against directors and discourage or deter stockholders
or management from bringing a lawsuit against directors for breaches of their
fiduciary duties, even though such action, if successful, might otherwise have
benefitted ICOT and its stockholders.
PREFERRED STOCK
The Amati Charter authorizes the corporation to issue Amati Series A
Preferred Stock. The Amati Board may alter the rights, preferences, privileges
and restrictions granted to or imposed upon Amati Series A Preferred Stock,
subject to certain protective provisions.
The ICOT Charter provides that the ICOT Board without further action by the
holders of capital stock at the time outstanding, shall have the power to fix
the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or conditions of
redemption of such ICOT Preferred Stock as the Board shall determine to issue.
It is not possible to state the actual effect of the authorization and issuance
of a series of preferred stock upon the rights of holders of ICOT Common Stock
until the ICOT Board of Directors determines the specific terms, rights and
preferences of a series of preferred stock. Such effects, however, might
include, among other things, restricting dividends on ICOT Common Stock and
diluting the voting power of the ICOT Common Stock. In addition, under certain
circumstances, the issuance of preferred stock may render more difficult or tend
to discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of ICOT's securities or the removal of incumbent
management. ICOT has no present intention to issue shares of ICOT Preferred
Stock.
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Each share of Amati Series A Preferred Stock will be converted upon
consummation of the Merger into the number of shares of ICOT Common Stock equal
to the Applicable Ratio. The Amati Series A Preferred Stock will therefore, as a
result of the Merger, lose certain rights, preferences and privileges pertaining
to such Preferred Stock as set forth in the Amati Charter.
SHAREHOLDER DERIVATIVE SUITS
California law provides that a shareholder who brings a derivative action on
behalf of the corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met. Under Delaware
law, a stockholder may only bring a derivative action on behalf of the
corporation if the stockholder was a stockholder of the corporation at the time
of the transaction in question or his or her stock thereafter was received by
him or her by operation of law. California law also provides that the
corporation or the defendant in a derivative suit may make a motion to the court
for an order requiring the plaintiff shareholder to furnish a security bond.
Delaware law does not have a similar bonding requirement.
TRANSFER AGENT AND REGISTRAR
Chemical Mellon Shareholder Services Company of California acts as the
transfer agent and registrar for the ICOT Common Stock.
LEGAL MATTERS
The validity of the ICOT Common Stock issuable pursuant to the Merger and
certain other legal matters relating thereto will be passed upon for ICOT by
Heller Ehrman White & McAuliffe, Palo Alto, California. Gray Cary Ware &
Freidenrich, Palo Alto, California is acting as counsel for Amati in connection
with certain legal matters relating to the Merger and the transactions
contemplated thereby.
EXPERTS
The audited financial statements and schedules of ICOT at July 31, 1993 and
July 30, 1994 and for each of the three years in the period ended July 30, 1994
included in this Prospectus/Proxy Statement and elsewhere in the Registration
Statement 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.
The financial statements of Amati at December 31, 1993 and 1994 and for the
three years ended in the period ended December 31, 1994, included in this
Prospectus/Proxy Statement of Amati have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
88
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ICOT CORPORATION:
Report of Independent Public Accountants................................................................. F-2
Consolidated Balance Sheets.............................................................................. F-3
Consolidated Statements of Operations.................................................................... F-4
Consolidated Statements of Stockholders' Equity.......................................................... F-5
Consolidated Statements of Cash Flows.................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
AMATI COMMUNICATIONS CORPORATION:
Report of Independent Public Auditors.................................................................... F-17
Balance Sheets........................................................................................... F-18
Statements of Operations................................................................................. F-19
Statements of Shareholders' Deficit...................................................................... F-20
Statements of Cash Flows................................................................................. F-21
Notes to Financial Statements............................................................................ F-22
ICOT CORPORATION AND AMATI COMMUNICATIONS CORPORATION -- PRO FORMA:
Preamble................................................................................................. P-1
Pro Forma Combined Condensed Balance Sheet............................................................... P-2
Pro Forma Combined Condensed Statement of Operations..................................................... P-3
Pro Forma Combined Condensed Statement of Operations..................................................... P-4
Notes to Pro Forma Combined Condensed Financial Statements............................................... P-5
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ICOT Corporation:
We have audited the accompanying consolidated balance sheets of ICOT
Corporation (a Delaware corporation) and subsidiaries as of July 31, 1993 and
July 30, 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended July 30, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ICOT Corporation and
subsidiaries as of July 31, 1993 and July 30, 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
July 30, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
August 25, 1994
(Except for Note 11,
as to which the date
is August 4, 1995)
F-2
<PAGE>
ICOT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JULY 31, JULY 30,
1993 1994
--------- --------- APRIL 29,
1995
------------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents......................................................... $ 8,800 $ 645 $ 921
Short-term investments............................................................ -- 5,392 4,369
Accounts receivable, less allowance of $32, $25 and $21 in 1993, 1994 and 1995,
respectively..................................................................... 966 1,405 1,628
Inventories:
Finished goods.................................................................. 278 64 2
Work in process................................................................. 278 477 632
Purchased parts................................................................. 304 854 427
--------- --------- ------------
860 1,395 1,061
Advances to Amati................................................................. -- -- 550
Other current assets.............................................................. 562 626 987
--------- --------- ------------
Total current assets.......................................................... 11,188 9,463 9,516
--------- --------- ------------
Equipment and Leasehold Improvements, at cost:
Machinery and equipment........................................................... 3,619 2,784 505
Furniture and fixtures............................................................ 574 221 190
Leasehold improvements............................................................ 662 537 2,796
--------- --------- ------------
4,855 3,542 3,491
Less: Accumulated depreciation and amortization..................................... (3,647) (2,609) (2,830)
--------- --------- ------------
Equipment and leasehold improvements, net..................................... 1,208 933 661
Other assets........................................................................ 540 995 553
--------- --------- ------------
Total Assets.................................................................. $ 12,936 $ 11,391 $ 10,730
--------- --------- ------------
--------- --------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capitalized lease obligations............................... $ 102 $ 82 $ 15
Trade accounts payable............................................................ 109 265 136
Accrued expenses.................................................................. 2,387 1,824 1,093
--------- --------- ------------
Total current liabilities..................................................... 2,598 2,171 1,244
--------- --------- ------------
Long-term Liabilities:
Capitalized lease obligations, less current maturities............................ 97 10 1
Obligations under lease commitments............................................... 1,002 418 294
--------- --------- ------------
Total long-term liabilities................................................... 1,099 428 295
--------- --------- ------------
Commitments (Note 8)................................................................ -- -- --
Stockholders' Equity:
Preferred stock-par value $100 per share
Authorized -- 5,000 shares
Outstanding -- none............................................................. -- -- --
Common stock-par value $.20 per share
Authorized -- 20,000,000 shares
Outstanding -- 12,739,058, 11,956,189 and 11,421,827 shares in 1993, 1994 and
1995, respectively............................................................. 2,548 2,391 2,285
Additional paid-in capital........................................................ 34,442 33,649 33,194
Accumulated deficit............................................................... (27,751) (27,248) (26,288)
--------- --------- ------------
Total stockholders' equity.................................................... 9,239 8,792 9,191
--------- --------- ------------
Total Liabilities and Stockholders' Equity.................................... $ 12,936 $ 11,391 $ 10,730
--------- --------- ------------
--------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
ICOT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------- ----------------------
JULY 25, JULY 31, JULY 30, APRIL 30, APRIL 29,
1992 1993 1994 1994 1995
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales............................................ $ 26,324 $ 12,307 $ 8,236 $ 5,837 $ 8,737
Cost of Sales........................................ 12,671 7,622 4,428 2,959 5,061
--------- --------- --------- ----------- ---------
Gross margin....................................... 13,653 4,685 3,808 2,878 3,676
--------- --------- --------- ----------- ---------
Operating Expenses:
Research and development........................... 2,406 2,533 1,429 1,078 1,281
Marketing and sales................................ 5,040 3,365 884 659 760
General and administrative......................... 3,276 2,137 1,177 949 815
Restructuring charge............................... -- 2,871 -- -- --
--------- --------- --------- ----------- ---------
Total operating expenses......................... 10,722 10,906 3,490 2,686 2,856
--------- --------- --------- ----------- ---------
Income (loss) from operations...................... 2,931 (6,221) 318 192 820
--------- --------- --------- ----------- ---------
Other Income (Expense):
Interest income.................................... 505 291 233 173 198
Interest expense................................... (38) (33) (21) (17) (7)
--------- --------- --------- ----------- ---------
Total other income............................... 467 258 212 156 191
--------- --------- --------- ----------- ---------
Income (loss) before provision for income taxes.... 3,398 (5,963) 530 348 1,011
Provision for income taxes......................... 265 -- 27 22 51
--------- --------- --------- ----------- ---------
Net income (loss).................................. $ 3,133 $ (5,963) $ 503 $ 326 $ 960
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Net income (loss) per share........................ $ .23 $ (.46) $ .04 $ .03 $ .08
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Weighted Average Number of Common Shares and Common
Share Equivalents................................... 13,471 12,897 12,319 12,428 11,595
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
ICOT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance, July 27, 1991................................. 12,750 $ 2,550 $ 34,488 $ (24,921) $ 12,117
Exercise of employee stock options................... 177 35 208 -- 243
Net income........................................... -- -- -- 3,133 3,133
--------- --------- ----------- ------------ ---------
Balance, July 25, 1992................................. 12,927 2,585 34,696 (21,788) 15,493
Exercise of employee stock options................... 68 14 42 -- 56
Stock repurchase..................................... (256) (51) (296) -- (347)
Net loss............................................. -- -- -- (5,963) (5,963)
--------- --------- ----------- ------------ ---------
Balance, July 31, 1993................................. 12,739 2,548 34,442 (27,751) 9,239
Exercise of employee stock options................... 76 15 50 -- 65
Stock repurchase..................................... (859) (172) (843) -- (1,015)
Net income........................................... -- -- -- 503 503
--------- --------- ----------- ------------ ---------
Balance, July 30, 1994................................. 11,956 2,391 33,649 (27,248) 8,792
Exercise of employee stock options................... 3 1 1 -- 2
Stock repurchase..................................... (537) (107) (456) -- (563)
Net income........................................... -- -- -- 960 960
--------- --------- ----------- ------------ ---------
Balance, April 29, 1995 (Unaudited).................... 11,422 $ 2,285 $ 33,194 $ (26,288) $ 9,191
--------- --------- ----------- ------------ ---------
--------- --------- ----------- ------------ ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
ICOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
-------------------------------- --------------------
JULY 25, JULY 31, JULY 30, APRIL 30, APRIL 29,
1992 1993 1994 1994 1995
--------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss).................................... $ 3,133 $ (5,963) $ 503 $ 326 $ 960
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization...................... 883 1,162 400 316 539
Provision for bad debts............................ 16 30 -- -- --
Loss on retirement of capital equipment............ 2 126 126 57 43
Restructuring charge............................... -- 2,871 -- -- --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable....... 924 1,186 (439) (290) (223)
Decrease (increase) in inventories............... (268) 1,252 (535) (1,216) 334
Decrease (increase) in other current assets...... (30) (53) (64) 119 (361)
Decrease in trade accounts payable and accrued
expenses........................................ (710) (2,522) (407) (111) (667)
Decrease in other long-term liabilities.......... (513) (749) (584) (339) (124)
--------- --------- ---------- --------- ---------
Net cash provided by (used for) operating activities... 3,437 (2,660) (1,000) (1,138) 501
--------- --------- ---------- --------- ---------
Cash Flows from Investing Activities:
Advances to Amati.................................... -- -- -- -- (550)
Capital expenditures................................. (734) (319) (251) (77) (61)
Purchased/capitalized software development costs..... (1,509) (733) (455) (390) --
Purchase of short-term investments................... -- -- (13,218) (5,432) (5,862)
Proceeds from maturity of investments................ -- -- 7,826 1,793 6,885
--------- --------- ---------- --------- ---------
Net cash provided by (used for) investing activities... (2,243) (1,052) (6,098) (4,106) 412
--------- --------- ---------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from the exercise of stock options.......... 243 56 65 65 2
Payments on capital lease obligations................ (85) (89) (107) (78) (76)
Stock repurchases.................................... -- (347) (1,015) (947) (563)
--------- --------- ---------- --------- ---------
Net cash provided by (used for) financing activities... 158 (380) (1,057) (960) (637)
--------- --------- ---------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents... 1,352 (4,092) (8,155) (6,204) 276
Cash and Cash Equivalents at Beginning of Period....... 11,540 12,892 8,800 8,800 645
--------- --------- ---------- --------- ---------
Cash and Cash Equivalents at End of Period............. $ 12,892 $ 8,800 $ 645 $ 2,596 $ 921
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE NINE MONTHS ENDED APRIL 30, 1994
AND APRIL 29, 1995 IS UNAUDITED)
NOTE 1 -- OPERATIONS OF THE COMPANY
BUSINESS
The Company designs, manufactures, markets and services a broad range of
network connectivity products for IBM and IBM-compatible PC-to-Mainframe
Connectivity and related OEM markets. The Company's products are mainly used by
large companies with mainframes and significant PC network applications such as
insurance, transportation, financial service, manufacturing, banking and
brokerage companies.
RESTRUCTURING CHARGE
During fiscal 1993, the Company implemented a strategic restructuring
program. To achieve a more focused product and marketing strategy, the Company
decided to market its PC to Mainframe Connectivity products only to OEMs, API
and strategic End User market segments of the Windows and DOS Connectivity
market. As a result of this change in product and marketing strategy, the
Company streamlined and downsized its operations by reducing its workforce,
consolidating certain facilities, disposing of excess equipment and writing off
capitalized software development costs. These costs are reflected in the
Company's Consolidated Statements of Operations as a restructuring charge of
$2,871,000 in fiscal 1993.
A summary of the restructuring charge is presented below:
<TABLE>
<S> <C>
Write-off of capitalized software development costs.................... $1,454,000
Reduction in workforce................................................. 798,000
Disposition of excess equipment........................................ 316,000
Closing of excess facility............................................. 303,000
----------
Total restructuring charge......................................... $2,871,000
----------
----------
</TABLE>
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of ICOT
Corporation and its wholly-owned subsidiary, ICOT International, Ltd. (the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market,
and include materials, labor and manufacturing overhead. Inventory is valued at
currently adjusted standards which approximate actual costs on a first-in,
first-out basis.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the related assets as follows:
<TABLE>
<S> <C>
Machinery and equipment....................................... 5 years
Furniture and fixtures........................................ 5 years
Shorter of lease
Leasehold improvements........................................ term or useful life
</TABLE>
F-7
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE NINE MONTHS ENDED APRIL 30, 1994
AND APRIL 29, 1995 IS UNAUDITED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards No. 86 ("SFAS 86"). The
capitalization of these costs begins when technological feasibility of the
related product has been achieved which has been defined as the point in time
that the Company has developed a beta version of the software product.
Capitalization ends when the product is available for general release to
customers. Amortization is computed on an individual product basis and is the
greater of (a) the ratio of current gross revenues for a product to the total
current and anticipated future gross revenues for that product or (b) the
straight-line method over the estimated economic life of the product. Currently
the Company is using an estimated economic life of three years for all
capitalized software costs.
During fiscal 1995 there was no capitalization of software development costs
as the criteria for capitalization had not been met. Capitalized software costs
totaled $1,509,000, $733,000 and $455,000 for fiscal 1992, 1993 and 1994,
respectively, and $390,000 for the nine months ended April 30, 1994. In fiscal
1994, there was no amortization of capitalized software development costs
because none of the capitalized software projects were available for general
release. The amortization of capitalized software development costs charged to
cost of sales in fiscal 1992 and 1993 was $426,000 and $692,000, respectively,
and $249,000 for the nine months ended April 29, 1995.
In the fourth quarter of fiscal 1993, all capitalized software development
costs associated with the Company's PC-Connectivity products of $1,454,000 were
written off as part of the Company's restructuring program.
Capitalized software development costs related to its OEM market business,
shown in other assets in the accompanying Consolidated Balance Sheets, were
$540,000 and $995,000 as of July 31, 1993 and July 30, 1994, respectively, and
$553,000 as of April 29, 1995.
ACCRUED EXPENSES
Accrued expenses include the following:
<TABLE>
<CAPTION>
JULY 31, JULY 30, APRIL 29,
1993 1994 1995
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued employee compensation.................................. $ 325 $ 333 $ 268
Deferred income................................................ 286 401 188
Facilities reserve............................................. 377 299 201
Restructuring reserve.......................................... 1,023 530 2
Other.......................................................... 376 261 434
--------- --------- -----------
$ 2,387 $ 1,824 $ 1,093
--------- --------- -----------
--------- --------- -----------
</TABLE>
The portion of the restructuring and facilities reserve that will not be
paid within the next twelve months is included in long-term liabilities as
obligations under lease commitments in the amount of $892,000 and $418,000 for
fiscal year 1993 and 1994, respectively, and $294,000 as of April 29, 1995.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
Company adopted the provisions of this statement in fiscal year 1994. The
adoption of this statement did not have a material impact on the prior year or
current year financial statements.
F-8
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE NINE MONTHS ENDED APRIL 30, 1994
AND APRIL 29, 1995 IS UNAUDITED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue from product sales upon shipment to the
customer. Revenues from maintenance and extended warranty agreements are
recognized ratably over the term of the agreement. The Company also licenses
products to OEMs and recognizes royalties as specified in the license agreement
when shipment of the licensed product by the OEM is reported to the Company.
Service maintenance, warranty and royalty revenues each accounted for less than
10% of the Company's total revenues.
The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' Statement of Position ("SOP") 91-1, "Software
Revenue Recognition." The SOP requires, among other things, that the sales value
of post contract customer support which is included as part of an initial
warranty period, must be deferred and amortized over the warranty period.
Deferred revenues related to post contract customer support were $147,000 and
$63,000 for fiscal years 1993 and 1994, respectively, and $61,000 as of April
29, 1995. These costs are included in accrued expenses in the Company's
Consolidated Balance Sheets.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For purposes of the statements of cash flows, cash and cash equivalents are
defined as cash in banks and highly liquid investments with original maturity
dates of three months or less.
Cash paid for interest was $38,000, $33,000, and $21,000 for the fiscal
years 1992, 1993 and 1994, respectively, and $17,000 and $7,000 for the nine
months ended April 30, 1994 and April 29, 1995, respectively. Cash paid for
income taxes was $9,000, $17,000, and $34,000 for fiscal years 1992, 1993 and
1994, respectively, and $20,000 and $15,000 for the nine months ended April 30,
1994 and April 29, 1995, respectively.
ADOPTION OF SFAS NO. 115
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," as of the beginning of its 1995 fiscal year. SFAS No. 115
establishes standards for financial accounting and reporting for investments in
equity securities that have readily determinable fair values and for all
investments in debt securities whereby each investment is classified into one of
three categories: held-to-maturity, available-for-sale or trading securities.
During fiscal 1995, the Company did not have any equity securities and debt
securities, which consist of treasury bills with contractual maturities of less
than twelve months, were classified as "held to maturity." At April 29, 1995,
the difference between the cost and fair market value of these securities was
insignificant and the adoption of SFAS No. 115 did not have a material impact on
the Company's financial statements.
UNAUDITED INTERIM FINANCIAL STATEMENT DATA
The unaudited financial statements for the nine months ended April 30, 1994
and April 29, 1995 have been prepared on the same basis as the audited financial
statements, and in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
thereof. Operating results for the interim period are not necessarily indicative
of the results that may be expected for the entire fiscal year.
NOTE 3 -- BUSINESS SEGMENT AND MAJOR CUSTOMERS
The Company operates a one-segment business in which it designs,
manufactures and markets data communications equipment and provides technical
support and maintenance services related thereto. Sales to IBM in terms of net
sales accounted for 83%, 62% and 65% in fiscal 1992, 1993 and
F-9
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE NINE MONTHS ENDED APRIL 30, 1994
AND APRIL 29, 1995 IS UNAUDITED)
NOTE 3 -- BUSINESS SEGMENT AND MAJOR CUSTOMERS (CONTINUED)
1994, respectively, and 63% and 81% for the nine months ending April 30, 1994
and April 29, 1995, respectively. The Company has a concentration of accounts
receivable with IBM of $1,120,000 as of July 30, 1994 and $1,298,000 as of April
29, 1995. Export sales in terms of net sales accounted for 6%, 1% and 2% in
fiscal 1992, 1993 and 1994, respectively, and 1% for the nine months ending
April 30, 1994 and April 29, 1995. Export sales are shipments to locations
outside the United States, primarily to Western Europe and Canada.
FUNDED DEVELOPMENT AGREEMENTS
The Company enters into certain funded development arrangements with OEMs.
Costs under these arrangements are deferred until the related development
revenues are recognized. Revenues under these agreements are generally
recognized when certain contractual milestones are met. Total revenues
recognized under these agreements were $1,185,000, $834,000 and $555,000 in
fiscal 1992, 1993 and 1994, respectively, and $465,000 and $42,000 for the nine
month periods ended April 30, 1994 and April 29, 1995, respectively.
NOTE 4 -- CAPITALIZED LEASE OBLIGATIONS
Future minimum lease payments under capitalized lease obligations were as
follows:
<TABLE>
<CAPTION>
JULY 30, APRIL 29,
FISCAL YEAR 1994 1995
- -------------------------------------------------------------------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C>
1995...................................................................... $ 89 $ 17
1996...................................................................... 10 --
--- ---
Total minimum lease payments.............................................. 99 17
Less: Amounts representing interest (9% - 18%)............................ (7) (1)
--- ---
Present value of net minimum lease payments............................... 92 16
Less: Current maturities.................................................. (82) (15)
--- ---
Long-term maturities...................................................... $ 10 $ 1
--- ---
--- ---
</TABLE>
Machinery and equipment at July 30, 1994 and April 29, 1995 included
approximately $399,000 and $62,000, respectively, of equipment under capital
leases. Accumulated depreciation for such equipment approximated $313,000 and
$47,000 at July 30, 1994 and April 29, 1995, respectively. The Company has no
material commitments for capital expenditures as of April 29, 1995.
NOTE 5 -- STOCK OPTION PLANS
The Company has three employees and one non-employee Directors stock option
plans. The option price in each plan may not be less than 100% of the fair
market value of the stock on the date of grant. Employee stock options generally
become exercisable at the rate of 25% after six months from the date of grant
and 25% per year thereafter, at the discretion of the Board of Directors.
An Incentive Stock Option Plan and a Supplemental Stock Option Plan were
adopted by the Company in 1981. Total shares authorized under the Incentive
Stock Option Plan and the Supplemental Stock Option Plan were 875,000 shares and
1,025,000 shares, respectively. As of April 29, 1995, options for 581,875 shares
have been granted and were exercisable, and there are no options available for
future grant under these plans. Both plans expired in October 1991. The options
that have been granted under these plans will expire ten years after grant.
The Company adopted a 1990 Stock Option Plan on September 14, 1990, approved
by the stockholders on December 14, 1990. There are 900,000 shares authorized
under the 1990 Stock
F-10
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE NINE MONTHS ENDED APRIL 30, 1994
AND APRIL 29, 1995 IS UNAUDITED)
NOTE 5 -- STOCK OPTION PLANS (CONTINUED)
Option Plan. As of April 29, 1995, options for 412,300 shares have been granted,
262,475 shares were exercisable and 487,700 shares were available for future
grant under this plan. The maximum term of options granted under the plan is ten
years.
The Company adopted a 1990 Non-Employee Directors' Stock Option Plan on
September 14, 1990 for 395,000 shares, approved by the Stockholders on December
14, 1990. On the date the plan was adopted, each non-employee Director was
granted 25,000 shares of common stock of the Company. Each person who is elected
for the first time to be a non-employee Director will automatically be granted
an option to purchase 25,000 shares of the Company's common stock. The options
for 25,000 shares are immediately exercisable. On December 2, 1993, the plan was
amended to reflect a decrease in the plan of 150,000 shares leaving 245,000
shares reserved for grant under this plan. As of April 29, 1995, options for
97,500 shares have been granted, 67,500 shares were exercisable and 90,000
shares were available for future grants under this plan.
On September 1 of each year commencing September 1, 1991, an option to
purchase 10,000 shares of the Company's common stock shall automatically be
granted to each non-employee Director. The options for 10,000 shares become
exercisable at the rate of 25% after six months from the date of grant and 25%
per year at the end of every subsequent one year period. The options will expire
ten years after grant.
OPTION EXCHANGE PROGRAM
On September 16, 1991 the Board of Directors authorized the grant of new
options to purchase common stock under the Incentive Plan or the Supplemental
Plan with an exercise price of $1.00 per share to employees, including executive
officers, who executed agreements to cancel their existing options under the
Incentive Plan and Supplemental Plan on the basis of one new share for each two
existing shares exchanged, subject to a new two year vesting period. In return
for the benefit of receiving options of a like kind but with an exercise price
of $1.00 per share (the fair market value on the date of grant), the new options
are subject to two year vesting. The option exchange program expired on October
21, 1991 and all options not exchanged remain outstanding and are fully vested.
F-11
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE NINE MONTHS ENDED APRIL 30, 1994
AND APRIL 29, 1995 IS UNAUDITED)
NOTE 5 -- STOCK OPTION PLANS (CONTINUED)
Stock option activity under the plans was as follows:
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
----------- ---------------
<S> <C> <C>
Balance, July 27, 1991.............................................. 1,484,150
Granted............................................................. 961,225 $ 1.00 - $3.25
Exercised........................................................... (177,250) $ 0.69 - $3.75
Canceled............................................................ (822,025) $ 0.56 - $9.00
-----------
Balance, July 25, 1992.............................................. 1,446,100
Granted............................................................. 613,500 $ 1.13 - $2.13
Exercised........................................................... (67,950) $ 0.31 - $1.00
Canceled............................................................ (586,175) $ 0.31 - $3.75
-----------
Balance, July 31, 1993.............................................. 1,405,475
Granted............................................................. 20,000 $ 1.13 - $1.13
Exercised........................................................... (76,250) $ 0.75 - $1.06
Canceled............................................................ (253,950) $ 1.00 - $3.25
-----------
Balance, July 30, 1994.............................................. 1,095,275
Granted............................................................. 60,000 $ 1.19 - $1.19
Exercised........................................................... (3,000) $ 0.75 - $0.75
Canceled............................................................ (60,600) $ 0.75 - $1.88
-----------
Balance, April 29, 1995............................................. 1,091,675
-----------
-----------
</TABLE>
On April 29, 1995, there were 1,091,675 shares of common stock reserved for
options outstanding and 577,700 shares of common stock reserved for future
grants under all stock option plans.
NOTE 6 -- INCOME TAXES
As of April 29, 1995, the Company's tax net operating loss carryforwards for
federal tax purposes were approximately $22,870,000. The 1986 Tax Reform Act
contains provisions which limit the amount of net operating loss carryforwards
which may be utilized in any given fiscal year when a significant change in
ownership interest occurs. These carryforwards expire in various amounts through
the year 2009.
The Company has an additional $2,234,000 of net operating loss carryforwards
which were acquired in connection with a fiscal 1988 acquisition. The change in
ownership of the company acquired will affect the availability and timing of the
amount of prior losses to be used to offset taxable income in future years.
These carryforwards expire in various amounts through the year 2005.
The United States Tax Reform Act of 1986 contains provisions that may limit
the net operating loss carryforwards and research and development credits
available to be used in any given year should certain events occur, including a
significant change in ownership. Management of the Company believes, however,
that such a limitation will not have a significant impact on the overall
utilization of its net operating loss carryforwards.
As of April 29, 1995, the Company also has available net operating loss
carryforwards of approximately $4,825,000 to offset future California state
taxable income. These carryforwards expire in various amounts through the years
1995-2000. The Company also has certain tax credit carryforwards of $1,189,000
which expire in various amounts through the year 2009.
F-12
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE NINE MONTHS ENDED APRIL 30, 1994
AND APRIL 29, 1995 IS UNAUDITED)
NOTE 6 -- INCOME TAXES (CONTINUED)
There was no significant provision or benefit for income taxes in fiscal
1993 due to losses incurred. The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
--------------------------------- ------------------------
JULY 25, JULY 31, JULY 30, APRIL 30, APRIL 29,
1992 1993 1994 1994 1995
--------- --------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income (loss) before provision for income taxes:
Domestic.................................................. $ 4,538 $ (5,333) $ 530 $ 348 $ 1,011
Foreign................................................... (1,140) (630) -- -- --
--------- --------- ----- ----- -----------
Income (loss) before provision for income taxes........... $ 3,398 $ (5,963) $ 530 $ 348 $ 1,011
--------- --------- ----- ----- -----------
--------- --------- ----- ----- -----------
Provision for income taxes:
Current federal........................................... $ 30 $ -- $ 11 $ 9 $ 21
Current state............................................. 235 -- 16 13 30
--------- --------- ----- ----- -----------
Total provision for income taxes.......................... $ 265 $ -- $ 27 $ 22 $ 51
--------- --------- ----- ----- -----------
--------- --------- ----- ----- -----------
</TABLE>
The provision for income taxes differs from the amounts obtained by applying
the Federal statutory rate to income before taxes as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
---------------------------------------- -------------
JULY 25, JULY 31, JULY 30, APRIL 30,
1992 1993 1994 1994
------------ ------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Statutory federal income tax rate............................... 34% -- % 34% 34%
State income tax rate, net of federal benefit................... 7 -- 7 7
Previous losses not benefitted.................................. (33) -- (36) (35)
-- -- --
---
Income tax rate................................................. 8% -- % 5% 6%
-- -- --
-- -- --
---
---
<CAPTION>
APRIL 29,
1995
-------------
<S> <C>
Statutory federal income tax rate............................... 34%
State income tax rate, net of federal benefit................... 7
Previous losses not benefitted.................................. (36)
--
Income tax rate................................................. 5%
--
--
</TABLE>
The major components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
JULY 31, JULY 30, APRIL 29,
1993 1994 1995
----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Cumulative temporary differences........................... $ 2,496 $ 379 $ 471
Tax credits................................................ -- 1,192 1,189
Net operating loss......................................... 7,634 8,426 8,070
Restructure reserve........................................ 1,105 507 199
----------- ----------- ---------
Total assets............................................. 11,235 10,504 9,929
Valuation allowance........................................ (10,996) (10,117) (9,692)
----------- ----------- ---------
Net deferred income tax asset.............................. 239 387 237
----------- ----------- ---------
Deferred tax liabilities:
Capitalized software expenditures.......................... 239 387 237
----------- ----------- ---------
Total liabilities........................................ 239 387 237
----------- ----------- ---------
Total net deferred tax assets................................ $ -- $ -- $ --
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
F-13
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE NINE MONTHS ENDED APRIL 30, 1994
AND APRIL 29, 1995 IS UNAUDITED)
NOTE 7 -- NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of
shares outstanding of common stock and common stock equivalents (when dilutive)
using the treasury stock method. No common stock equivalents have been included
in 1993 because the effect would be to decrease the loss per share.
NOTE 8 -- LEASE COMMITMENTS
Approximate future minimum rental commitments under all noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -------------------------------------------------------------------- AS OF
JULY 30, 1994
--------------
(IN THOUSANDS)
<S> <C>
1995................................................................ $ 843
1996................................................................ 501
1997................................................................ 273
1998................................................................ 273
1999................................................................ 273
Thereafter.......................................................... 895
-------
3,058
Less Sublease Income................................................ (425)
-------
$ 2,633
-------
-------
</TABLE>
Total rent expense for all operating leases amounted to approximately
$1,365,000, $1,308,000, and $1,128,000 in fiscal 1992, 1993 and 1994,
respectively, and $865,000 and $719,000 for the nine months ended April 30, 1994
and April 29, 1995, respectively. Rent expense in fiscal 1992, 1993 and 1994 is
before sublease income of $77,000, $183,000, and $231,000, respectively, and
$149,000 and $193,000 for the nine months ending April 30, 1994 and April 29,
1995, respectively.
The Company's corporate headquarters is located in San Jose, California. In
May 1994, a mutual release of the rental obligation expiring on December 1, 1995
was executed for this two-story building consisting of approximately 47,500
square feet. Concurrently, a new lease was signed for only a single-story
premise of approximately 23,300 square feet of this building. This lease expires
on July 23, 1999.
The Company has a lease obligation on a research and development facility of
approximately 3,000 square feet located in Meadow Vista, California. The lease
expires on August 31, 1995.
The Company has a lease obligation through December 31, 1995 on a facility
in Natick, Massachusetts consisting of approximately 21,000 square feet. The
lease obligation on this facility was assumed in connection with a prior
business acquisition. Subsequently, due to consolidation of operations in
connection with the Company's restructuring program in fiscal 1993, this
location has become excess to the Company's current and anticipated future
requirements. As of April 29, 1995, all of the excess space at this facility was
subleased through the end of the lease period. Accordingly, the Company has
accrued all future rental obligations net of sublease income for the remaining
term of the lease.
The Company has a lease obligation through September 29, 2010 for its
wholly-owned subsidiary in the United Kingdom on a building of approximately
6,400 square feet located in Wokingham, England. In line with the Company's
restructuring program, ICOT International Limited closed its operations in the
fourth quarter of fiscal 1993. During the first quarter of fiscal 1995, the
Company
F-14
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE NINE MONTHS ENDED APRIL 30, 1994
AND APRIL 29, 1995 IS UNAUDITED)
NOTE 8 -- LEASE COMMITMENTS (CONTINUED)
subleased this facility for a portion of the lease term. This sublease expires
September 1995. Accordingly, the Company has accrued $294,000 to cover partial
rental obligations related to this facility net of anticipated future sublease
income.
NOTE 9 -- LITIGATION
In November 1993, an action was brought against the Company for damages
related to the use of the Company's products. The plaintiff filed a suit
claiming repetitive stress injuries resulting from the use of the Company's
product in the course of employment with American Airlines from the period May
1981 through July 1991. The plaintiff alleges damages in the amount of $1
million and punitive damages of $10 million. The Company believes that the claim
is without merit and has tendered defense of this action to its insurance
carriers. In the opinion of management, the outcome of this litigation will not
have a material adverse effect on the Company's financial position or its
results of operations. The Company is not involved in any other litigation.
NOTE 10 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly information for fiscal 1993, 1994 and 1995.
<TABLE>
<CAPTION>
FISCAL 1993
<S> <C> <C> <C> <C>
OCTOBER 24, JANUARY 30, JULY 31,
QUARTER ENDED 1992 1993 MAY 1, 1993 1993
- -------------------------------------------------------- ----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net Sales............................................... $ 3,002 $ 3,628 $ 3,131 $ 2,546
Gross Profit............................................ 844 1,540 1,382 919
Net Loss................................................ $ (1,998) $ (1,521) $ (148) $ (2,296)
Net Loss Per Share...................................... $ (0.15) $ (0.12) $ (0.01) $ (0.18)
<CAPTION>
FISCAL 1994
OCTOBER 30, JANUARY 29, APRIL 30, JULY 30,
QUARTER ENDED 1993 1994 1994 1994
- -------------------------------------------------------- ----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales............................................... $ 1,955 $ 2,012 $ 1,870 $ 2,400
Gross Profit............................................ 904 1,085 888 931
Net Income.............................................. $ 47 $ 122 $ 157 $ 177
Net Income Per Share.................................... $ 0.00 $ 0.01 $ 0.01 $ 0.01
<CAPTION>
FISCAL 1995
OCTOBER 29, JANUARY 28, APRIL 29,
QUARTER ENDED 1994 1995 1995
- -------------------------------------------------------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales............................................... $ 3,063 $ 2,638 $ 3,036
Gross Profit............................................ 1,315 1,192 1,169
Net Income.............................................. $ 212 $ 307 $ 441
Net Income Per Share.................................... $ 0.02 $ 0.03 $ 0.04
</TABLE>
NOTE 11 -- ACQUISITION OF AMATI
On August 4, 1995, the Company signed a revised definitive agreement to
merge with Amati Communications Corporation ("Amati"), a privately held Mountain
View, California based company, subject to the approval of the stockholders of
both companies and registration of the ICOT shares to be issued in the merger.
Amati is a development stage company that develops telecommunications
transmission products utilizing Discrete Multi-tone ("DMT") technology to
provide high speed digital video, voice and data transmission over unconditioned
copper wire or coaxial cable . The merger is
F-15
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE NINE MONTHS ENDED APRIL 30, 1994
AND APRIL 29, 1995 IS UNAUDITED)
NOTE 11 -- ACQUISITION OF AMATI (CONTINUED)
expected to be completed in October 1995. Under the terms of the agreement,
after the merger, the shareholders, warrant and option holders of Amati will
acquire shares, warrants and options totaling 35% of the fully diluted shares of
ICOT.
Pursuant to the merger, ICOT agreed to lend Amati $5,000,000 secured by
Amati's assets due and payable on November 30, 1995. The outstanding aggregate
principal amount under the Amati Senior Secured Notes as of August 4, 1995 was
$2,971,900 ($550,000 as of April 29, 1995). Interest under the note accrues at
7.91% on the first $750,000 of the principal amount and at 9% on the remaining
$2,221,900 of the principal balance.
The acquisition will be accounted for by the purchase method of accounting,
and accordingly, the purchase price will be allocated to the assets acquired and
the specific liabilities assumed based on the estimated fair values at the date
of acquisition.
F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC AUDITORS
The Board of Directors and Shareholders
To Amati Communications Corporation:
We have audited the accompanying balance sheets of Amati Communications
Corporation (a development stage company) as of December 31, 1994 and 1993, and
the related statements of operations, shareholders' deficit, and cash flows for
each of the three years in the period ended December 31, 1994 and for the period
from incorporation (December 31, 1991) to December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Amati Communications
Corporation (a development stage company) as of December 31, 1994 and 1993, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1994 and for the period from incorporation
(December 31, 1991) to December 31, 1994, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that Amati
Communications Corporation will continue as a going concern. As more fully
described in Note 1, the Company has incurred losses since inception, has
negative working capital, and will need to obtain additional funds to sustain
operations in 1995, which raises substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
funds are also described in Note 1. The 1994 financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Palo Alto, California
April 14, 1995,
except for Note 11,
as to which the date is
August 4, 1995
F-17
<PAGE>
AMATI COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1993
JUNE 30, 1995 -------------- --------------
--------------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents....................................... $ 9,600 $ 144,800 $ 545,800
Accounts receivable............................................. 20,100 276,000 222,000
Inventories..................................................... -- 12,000 489,100
Prepaid expenses................................................ 37,900 67,700 42,400
Deferred Interest Charge........................................ -- 300,000 --
-------------- -------------- --------------
Total current assets........................................ 67,600 800,500 1,299,300
Property and equipment............................................ 474,100 452,500 181,050
Accumulated depreciation.......................................... 252,500 186,200 63,750
-------------- -------------- --------------
221,600 266,300 117,300
Restricted cash and other assets.................................. 14,400 51,100 2,600
-------------- -------------- --------------
Total Assets................................................ $ 303,600 $ 1,117,900 $ 1,419,200
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................ $ 1,193,900 $ 645,400 $ 772,900
Accrued payroll and related expenses............................ 95,700 113,000 85,000
Other accrued liabilities....................................... 73,200 185,500 64,700
Accrued royalties payable....................................... 10,700 12,100 175,800
Deferred revenue................................................ 656,800 783,600
Accrued interest payable........................................ 108,700 111,900 --
Notes payable to related party.................................. -- -- 31,500
Convertible notes payable....................................... 645,000 1,790,800 950,000
Convertible notes payable to related parties.................... 100,000 240,100 --
Notes to ICOT................................................... 2,750,500 -- --
-------------- -------------- --------------
Total current liabilities................................... 5,634,500 3,098,800 2,863,500
Commitments and contingencies
Shareholders' Deficit:
Preferred stock, no par value:
Authorized, issued and outstanding -- 250,000 shares in 1994
and 1993 and 325,000 shares at June 30, 1995................. 375,000 -- --
Liquidation preference of $1.00 per share -- --
Common stock, no par value:
Authorized shares -- 2,000,000
Issued and outstanding shares -- 482,750 in 1994, 443,750 in
1993 and 540,083 at June 30, 1995............................ 247,000 39,200 10,900
Deficit accumulated during the development stage................ (5,952,900) 2,020,100 (1,455,200)
-------------- -------------- --------------
Total shareholders' deficit................................. (5,330,900) (1,980,900) (1,444,300)
-------------- -------------- --------------
Total liabilities and shareholders' deficit................. $ 303,600 $ 1,117,900 $ 1,419,200
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes.
F-18
<PAGE>
AMATI COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31, 1991 SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, (DATE OF JUNE 30,
---------------------------------- INCORPORATION) -----------------------
1994 1993 1992 TO DECEMBER 31, 1994 1995 1994
---------- ---------- ---------- --------------------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Development revenues.............. $1,883,600 $3,320,900 $1,825,200 $ 7,029,700 $ 128,200 $1,629,600
Product revenues.................. 2,977,600 963,700 -- 3,941,300 20,000 2,653,300
---------- ---------- ---------- --------------------- ----------- ----------
Total revenues................ 4,861,200 4,284,600 1,825,200 10,971,000 148,200 4,282,900
Cost and expenses:
Cost of development revenues.... 873,000 835,000 689,000 2,397,000 -- 755,000
Cost of product revenues........ 1,449,900 1,306,700 -- 2,756,600 -- 1,020,900
Research and development........ 2,199,400 2,356,200 1,129,100 5,684,700 2,260,300 246,200
General and administrative...... 1,075,100 751,100 462,400 2,288,600 1,406,000 937,700
---------- ---------- ---------- --------------------- ----------- ----------
Total costs and expenses...... 5,597,400 5,249,000 2,280,500 13,126,900 3,666,300 2,959,800
---------- ---------- ---------- --------------------- ----------- ----------
Operating (loss) income........... (736,200) (964,400) (455,300) (2,155,900) (3,518,100) 1,323,100
Interest expense and other, net... 228,700 24,900 10,600 264,200 414,700 10,400
---------- ---------- ---------- --------------------- ----------- ----------
Net (loss) income............. $ (964,900) $ (989,300) $ (465,900) $ (2,420,100) $(3,932,300) $1,312,700
---------- ---------- ---------- --------------------- ----------- ----------
---------- ---------- ---------- --------------------- ----------- ----------
Net (loss) income per share....... $ (2.24) $ (3.20) $ (1.95) $ (7.59) $ (7.80) $ 2.67
---------- ---------- ---------- --------------------- ----------- ----------
---------- ---------- ---------- --------------------- ----------- ----------
Weighted number of common shares
and common share equivalents..... 430,000 309,000 238,000 319,000 504,400 491,600
---------- ---------- ---------- --------------------- ----------- ----------
---------- ---------- ---------- --------------------- ----------- ----------
<CAPTION>
DECEMBER 31,
1991
(DATE OF
INCORPORATION)
TO JUNE 30,
1995
---------------
(UNAUDITED)
<S> <C>
Development revenues.............. $ 7,157,900
Product revenues.................. 3,961,300
---------------
Total revenues................ 11,119,200
Cost and expenses:
Cost of development revenues.... 3,152,000
Cost of product revenues........ 2,756,600
Research and development........ 7,945,000
General and administrative...... 3,694,600
---------------
Total costs and expenses...... 16,793,200
---------------
Operating (loss) income........... (5,674,000)
Interest expense and other, net... 678,900
---------------
Net (loss) income............. $ (6,352,900)
---------------
---------------
Net (loss) income per share....... $ (17.57)
---------------
---------------
Weighted number of common shares
and common share equivalents..... 361,500
---------------
---------------
</TABLE>
See accompanying notes
F-19
<PAGE>
AMATI COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE
PREFERRED STOCK COMMON STOCK TOTAL
-------------------- -------------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT DEFICIT
--------- --------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock at inception for cash at
$0.025 per share..................................... -- $ -- 130,000 $ 3,300 $ -- $ 3,300
Issuance of common stock at inception in exchange for
technology rights in February 1992................... -- -- 130,000 -- -- --
Issuance of Series A preferred stock in exchange for
technology license in January 1992................... 250,000 -- -- -- -- --
Net loss.............................................. -- -- -- -- (465,900) (465,900)
--------- --------- --------- --------- ------------ -------------
Balance at December 31, 1992.......................... 250,000 -- 260,000 3,300 (465,900) (462,600)
Issuance of common stock for cash at $0.05 per share
in October 1993...................................... 105,000 5,200 5,200
Exercise of options to purchase common stock for cash
at $0.03 per share in October and November 1993...... -- -- 78,750 2,400 -- 2,400
Net loss.............................................. -- -- -- -- (989,300) (989,300)
--------- --------- --------- --------- ------------ -------------
Balance at December 31, 1993.......................... 250,000 -- 443,750 10,900 (1,455,200) (1,444,300)
Repurchase common stock for cash at $0.05 per share in
February 1994........................................ -- -- (93,000) (4,700) -- (4,700)
Issuance of common stock for cash at $0.25 per share
in June and July 1994................................ -- -- 132,000 33,000 -- 33,000
Issuance of preferred warrants with debt.............. -- -- -- -- 900,000 400,000
Net loss.............................................. -- -- -- -- (964,900) (964,900)
--------- --------- --------- --------- ------------ -------------
Balance at December 31, 1994.......................... 250,000 -- 482,750 39,200 (2,020,100) (1,980,900)
Issuance of Common Stock for services and waiver of
royalty claims (unaudited)........................... 28,333 206,250 -- 206,250
Exercise of options to purchase common stock
(unaudited).......................................... -- -- 29,000 1,550 -- 1,550
Issuance of preferred stock in exchange for technology
rights in March 1995 (unaudited)..................... 75,000 375,000 -- -- -- 375,000
Net loss (unaudited).................................. -- -- -- -- (3,932,800) (3,932,800)
--------- --------- --------- --------- ------------ -------------
Balance at June 30, 1995 (unaudited).................. 325,000 $ 375,000 540,083 $ 247,000 $(5,952,900) $(5,330,900)
--------- --------- --------- --------- ------------ -------------
--------- --------- --------- --------- ------------ -------------
</TABLE>
See accompanying notes.
F-20
<PAGE>
AMATI COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, 1991 SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, (DATE OF JUNE 30,
--------------------------------- INCORPORATION) TO -------------------------
1994 1993 1992 DECEMBER 31, 1994 1995 1994
----------- --------- --------- ----------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net (loss) Income...................... $ (964,900) $(989,300) $(465,900) $ (2,420,100) $(3,932,800) $ 1,312,700
Adjustment to reconcile net loss to net
cash provided by (used in) operations
Depreciation and amortization........ 222,400 88,800 18,200 329,400 366,300 72,400
Issuance of preferred stock in
exchange of technology rights....... -- -- -- 375,000
(Increase) decrease in assets:
Accounts receivable................ (54,000) (31,200) (190,800) (276,000) 255,900 (367,800)
Inventories........................ 477,100 (489,100) -- (12,000) 12,000 470,300
Prepaid expenses................... (25,300) (37,600) (7,400) (70,300) 29,800 (141,200)
Restricted cash and other assets..... (48,500) -- -- (48,500) 36,700 0
Increase (decrease) in liabilities:
Accounts payable................... (127,500) 340,400 432,500 645,400 548,500 (363,900)
Accrued payroll & related
expenses.......................... 28,000 33,800 51,200 113,000 (17,300) 15,700
Deferred revenue................... (783,600) 583,600 200,000 -- 656,800 (783,600)
Other accrued liabilities.......... 232,700 29,100 35,600 297,400 (115,500) (47,800)
Accrued royalties.................. (163,700) 114,700 61,200 12,200 (1,400) (78,000)
----------- --------- --------- ----------------- ----------- ------------
Net cash provided by (used in)
operating activities.................. (1,207,300) (356,800) 134,600 (1,429,500) (1,786,000) 88,800
----------- --------- --------- ----------------- ----------- ------------
Investing activities:
Capital expenditures................... (271,400) (138,700) (85,700) (495,800) (21,600) (187,500)
----------- --------- --------- ----------------- ----------- ------------
Net cash used in investing
activities............................ (271,400) (138,700) (85,700) (495,800) (21,600) (187,500)
----------- --------- --------- ----------------- ----------- ------------
Financing Activities:
Convertible notes payable.............. 840,800 950,000 -- 1,790,800 (1,145,800) 0
Convertible notes payable to related
parties............................... 240,100 -- -- 240,100 (140,100) 0
Notes payable to related party......... (31,500) 31,500 -- -- -- (31,500)
ICOT note.............................. -- -- -- 2,750,500
Net proceeds from sale and repurchase
of common stock....................... 28,300 7,600 3,300 39,200 207,800 26,500
----------- --------- --------- ----------------- ----------- ------------
Net cash provided by financing
activities............................ 1,077,700 989,100 3,300 2,070,100 1,672,400 (5,000)
----------- --------- --------- ----------------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents...................... (401,000) 493,600 52,200 144,800 (135,200) (103,700)
Cash and cash equivalents at beginning
of period............................. 545,800 52,200 -- -- 144,800 545,800
----------- --------- --------- ----------------- ----------- ------------
Cash and cash equivalents at end of
period................................ $ 144,800 $ 545,800 $ 52,200 $ 144,800 $ 9,600 $ 442,100
----------- --------- --------- ----------------- ----------- ------------
----------- --------- --------- ----------------- ----------- ------------
<CAPTION>
DECEMBER 31, 1991
(DATE OF
INCORPORATION) TO
JUNE 30, 1995
-----------------
(UNAUDITED)
<S> <C>
Operating activities:
Net (loss) Income...................... $ (6,352,900)
Adjustment to reconcile net loss to net
cash provided by (used in) operations
Depreciation and amortization........ 695,700
Issuance of preferred stock in
exchange of technology rights....... 375,000
(Increase) decrease in assets:
Accounts receivable................ (20,100)
Inventories........................ --
Prepaid expenses................... (40,500)
Restricted cash and other assets..... (11,800)
Increase (decrease) in liabilities:
Accounts payable................... 1,193,900
Accrued payroll & related
expenses.......................... 95,700
Deferred revenue................... 656,800
Other accrued liabilities.......... 181,900
Accrued royalties.................. 10,800
-----------------
Net cash provided by (used in)
operating activities.................. (3,215,500)
-----------------
Investing activities:
Capital expenditures................... (517,400)
-----------------
Net cash used in investing
activities............................ (517,400)
-----------------
Financing Activities:
Convertible notes payable.............. 645,000
Convertible notes payable to related
parties............................... 100,000
Notes payable to related party......... --
ICOT note.............................. 2,750,500
Net proceeds from sale and repurchase
of common stock....................... 247,000
-----------------
Net cash provided by financing
activities............................ 3,742,500
-----------------
Net increase (decrease) in cash and
cash equivalents...................... 9,600
Cash and cash equivalents at beginning
of period............................. --
-----------------
Cash and cash equivalents at end of
period................................ $ 9,600
-----------------
-----------------
</TABLE>
See accompanying notes.
F-21
<PAGE>
AMATI COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995
AND JUNE 30, 1994 IS UNAUDITED)
NOTE 1 -- BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Amati Communications Corporation (Amati or the Company) was incorporated on
December 31, 1991 in the state of California. To date, the Company has been
primarily supported through a series of research and development contracts,
which resulted in the Company making technical breakthroughs and having its
technology selected as the U.S. standard for the Asymmetric Digital Subscriber
Line (ADSL) marketplace. The Company's business is characterized by the
development and sale of prototype transceiver systems that are used in video
on-demand technical and market trials of telephone companies around the world.
The Company is considered to be in the development stage. The trial phase of the
market is not expected to be completed until 1997. In the meantime, the Company
is investing the proceeds from the sale of prototypes into the development of
custom integrated circuits to ensure competitive products at the time of
commercialization of the concept.
The accompanying financial statements have been prepared on a going concern
basis.
The Company has incurred losses from inception and has an accumulated
deficit of $2,320,100 and $5,952,900 and negative working capital of $2,598,300
and $5,566,900 at December 31, 1994 and June 30, 1995, respectively.
Management believes that it will be able to obtain additional funds as a
result of executing a merger agreement with ICOT Corporation (ICOT) in San Jose,
California. If the Company is unable to execute the plan for a merger with ICOT,
there would be substantial doubt about the Company's ability to continue as a
going concern.
UNAUDITED INTERIM FINANCIAL STATEMENT DATA
The unaudited financial statements for the six months ended June 30, 1994
and for the six months ended and as of June 30, 1995 have been prepared on the
same basis as the audited financial statements, and in the opinion of
management, include all adjustments consisting of normal recurring adjustments
necessary for a fair presentation thereof. Operating results for the interim
period are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 1995.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid interest bearing deposits with
original maturities of less than 90 days and insignificant interest rate risk to
be cash equivalents. The Company invests its excess cash in money market
accounts, which bear minimal risk and are available on demand. At December 31,
1994 the Company had $35,300 invested in certificates of deposit, which are
included in cash and cash equivalents. At December 31, 1994 the estimated fair
value of these investments approximated cost, and the amount of gross unrealized
gains were insignificant. The effect of Statement of Financial Accounting
Standards No. 115 is insignificant.
INVENTORIES
Inventories are stated at the lower of cost or market, using standard cost,
which approximates actual cost on a first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives ranging
from three to five years.
F-22
<PAGE>
AMATI COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995
AND JUNE 30, 1994 IS UNAUDITED)
NOTE 1 -- BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue from product sales, primarily prototype transceiver systems, is
recognized at the time of shipment. Nonrefundable payments are recognized as
revenue from research, technology and license agreements when the Company has
satisfied each related milestones, and no further obligation to perform related
to the specific milestones exist.
NOTE 2 -- RESTRICTED CASH
As of December 31, 1994, the Company has restricted cash of $36,300 held by
a trustee to collateralize a vendor supply agreement. In February 1995, the
Company defaulted under terms of the vendor agreement, and the cash held by the
trustee was forfeited to the vendor.
NOTE 3 -- INVENTORIES
Inventories consist of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------
1995 1994 1993
--------- --------- -----------
<S> <C> <C> <C>
Raw materials....................................................... $ -- $ 12,000 $ 271,300
Work-in-process..................................................... -- -- 160,700
Finished goods...................................................... -- -- 57,100
--------- --------- -----------
$ -- $ 12,000 $ 489,100
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Machinery and equipment.......................................... $ 216,800 $ 201,000 $ 65,950
Computer equipment and software.................................. 256,000 250,100 113,700
Furniture and fixtures........................................... 1,300 1,400 1,400
----------- ----------- -----------
474,100 452,500 181,050
Less accumulated depreciation and amortization................... 252,500 186,200 63,750
----------- ----------- -----------
Property and equipment, net...................................... $ 221,600 $ 266,300 $ 117,300
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE 5 -- OPERATING LEASE COMMITMENTS
The Company leases its facilities under an agreement that provides for
scheduled rent increases and expires in 1997. The Company is recognizing rental
expense on a straight-line basis over the lease term. The Company also leases
certain equipment under operating leases. Rental expense was approximately
$238,000, $190,000, $82,000 and $118,000 in 1994, 1993, and 1992, and the six
months ended June 30, 1995, respectively. Minimum future rental commitments
under operating leases at December 31, 1994 are $191,300, $179,100, and $51,900
in fiscal 1995, 1996, and 1997, respectively.
NOTE 6 -- LICENSE AGREEMENTS
Upon its formation in January 1992, the Company entered into license
agreements (the "Original Agreements") with Stanford University and University
Ventures II, a California limited investment partnership, whereby it was granted
exclusive worldwide rights to core technology and was required to further
develop commercial applications and licensed products in the field of use to
maintain these
F-23
<PAGE>
AMATI COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995
AND JUNE 30, 1994 IS UNAUDITED)
NOTE 6 -- LICENSE AGREEMENTS (CONTINUED)
agreements. In exchange for the Original Agreements, the Company agreed to issue
125,000 shares of Series A convertible preferred stock to each licensor and pay
certain royalties on revenues generated from the licensed technology. Both
agreements contained antidilution provisions in the event the Company raised
capital from the sale of stock. The term of the agreements extends to the last
expiration date of the licensed patents. The Company accounted for the license
agreements as a transfer of nonmonetary assets from its founders and recorded
the license at the transferor's historical cost basis of zero. On May 1, 1994,
the Stanford University agreement was revised to include a one-time fee of
$250,000 and an annual license maintenance fee of $25,000. The revised agreement
provides for Stanford University to receive higher royalties on the Company's
revenues and provides that Stanford University's ownership in the Company will
not be diluted below 3% without a right of first refusal to participate in
future stock issuances, except in an initial public offering. The Company may
terminate the agreement if Amati fails to remedy any conditions causing default,
breach, or incorrect reporting under the terms and conditions of the license
agreement within thirty days.
NOTE 7 -- RESEARCH AND DEVELOPMENT AND LICENSE AGREEMENTS
In April 1992, the Company entered into a research and development agreement
with Northern Telecom Ltd. (NT) to further develop ADSL access technology. Under
the terms of the agreement, Amati recognized revenue of approximately
$3,939,000, $3,923,000, and $875,000 in fiscal 1994, 1993, and 1992,
respectively, for accomplishing certain milestones, including the delivery of
nonproduction ADSL prototype units. Amati granted NT certain rights and
interests in the design of ADSL units developed under this agreement. As of
December 1994, Amati has no future obligations under the agreement.
As a result of a change in the direction by NT of certain ADSL related
business units and a dispute as to the extent of the rights and interests that
NT was entitled to under the research and development agreement, NT and the
Company entered into a January 1995 Patent and Technology Ownership and License
Agreement whereby NT assigned all rights and interests in the technology and
related patents developed under the research and development agreement to Amati.
Simultaneously, Amati has granted NT a nonexclusive, nonassignable,
nontransferable license to use the essential technology necessary to
manufacture, use, lease, or sell products that comply with the ADSL standard. NT
will pay Amati a royalty of 2% based on net sales of certain products by NT or
any of its subsidiaries. In March 1995, Amati issued NT 75,000 shares of Series
A Preferred Stock, fair market value determined by the Board of Directors to be
$5.00 per share, in exchange for the execution and delivery of the Patent and
Technology Ownership and License Agreement. The Company expensed $375,000 in the
six month period ended June 30, 1995 as the recovery of this amount was not
reasonably assured.
NOTE 8 -- SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Each share of Series A Preferred Stock is, at the option of the holder,
convertible into shares of common stock on a one-for-one basis, subject to
certain adjustments for dilution, if any, resulting from future stock issuance.
Additionally, the preferred shares automatically convert into common stock
concurrent with closing of an underwritten public offering of common stock under
the Securities Act of 1933 in which the Company receives at least $5,000,000 in
gross proceeds and the price per share is at least $5.00 (subject to adjustment
for a recapitalization or certain other stock adjustments).
F-24
<PAGE>
AMATI COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995
AND JUNE 30, 1994 IS UNAUDITED)
NOTE 8 -- SHAREHOLDERS' EQUITY (CONTINUED)
Series A Preferred shareholders are entitled to annual noncumulative
dividends at an annual rate of $.05 per share, before and in preference to any
dividends paid in common stock, when and as declared by the Board of Directors.
No dividends have been declared.
The Series A Preferred shareholders are entitled to receive, upon
liquidation or merger, a distribution of $1.00 per share plus all declared but
unpaid dividends. Thereafter, the remaining assets and funds, if any, shall be
distributed among the shareholders of the issued and outstanding common stock.
If, upon liquidation, the assets and funds distributed among the Series A
Preferred shareholders are insufficient to permit the entitled payment, the
entire assets and funds of the Company legally available for distribution shall
be distributed to Series A Preferred shareholders in proportion to the number of
preferred shares held.
The Series A preferred shareholders have voting rights equal to the common
shares they would own upon conversion.
STOCK OPTIONS
The Company has adopted a stock option plan (the "Plan") for employees,
directors and consultants of the Company. Options, granted under the Plan may be
incentive stock options or nonqualified stock options, determined at the Board
of Director's discretion. The options are generally granted at an exercise price
of not less the fair value per share on the date of grant, as determined by the
Board of Directors, and become exercisable pursuant to the applicable terms of
the grant. The term of any option may not be greater than ten years from the
date of grant.
Information with respect to the incentive stock option plan is summarized as
follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------------------------
AVAILABLE AGGREGATE
FOR NUMBER OF EXERCISE
GRANT SHARES PRICE PER SHARE PRICE
---------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
Authorized on November 1, 1992.......................... 180,000 -- $-- $ --
Granted............................................... (152,000) 152,000 $0.025-$0.10 5,750
Balance at December 31, 1992............................ 28,000 152,000 $-- 5,750
Granted............................................... (10,000) 10,000 $0.025 1,688
Exercised............................................. -- (78,750) $0.03 (2,363)
Canceled.............................................. 11,250 (11,250) $0.03 (338)
---------- ---------- --------------- -------------
Balance at December 31, 1993............................ 29,250 72,000 $-- 4,737
Additional shares authorized.......................... 400,000 -- $-- --
Granted............................................... (112,600) 112,600 $0.25 28,150
Canceled.............................................. 38,125 (38,125) $0.025-$0.25 (8,938)
---------- ---------- --------------- -------------
Balance at December 31, 1994............................ 354,775 146,475 $-- $ 23,949
Granted............................................... (291,600) 291,600 $0.25-$6.00 1,634,600
Exercised............................................. -- (29,000) $0.025-$0.25 (1,550)
Balance at June 30, 1995................................ 63,175 409,075 $0.25-$6.00 $ 1,656,999
---------- ---------- --------------- -------------
---------- ---------- --------------- -------------
</TABLE>
Options vest over a period of one and one-half to four years. At December
31, 1994, 43,500 shares were vested and not yet exercised under the plan. At
June 30, 1995, 409,075 shares granted under the plan were exercisable at prices
ranging from $0.025 to $6.00 per share.
F-25
<PAGE>
AMATI COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995
AND JUNE 30, 1994 IS UNAUDITED)
NOTE 8 -- SHAREHOLDERS' EQUITY (CONTINUED)
COMMON STOCK RESERVED FOR ISSUANCE
The Company has reserved shares of common stock for the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
------------ ---------
<S> <C> <C>
Exercise under the stock option plan.......................................... 501,250 481,750
Conversion of Series A preferred stock........................................ 250,000 325,000
Exercise of outstanding warrants to purchase common stock..................... 133,494 133,494
------------ ---------
884,744 940,244
------------ ---------
------------ ---------
</TABLE>
The Company has issued 120,588 shares of common stock that are subject to
repurchase as of December 31, 1994.
NOTE 9 -- CONVERTIBLE NOTES PAYABLE AND WARRANTS
In October 1993, the Company issued convertible notes payable (the 1993
notes) in the amount of $950,000, bearing interest at 8% per annum. The 1993
notes were due and payable on September 30, 1994. On December 9th, the note
holders agreed to extend the payment due date to May 1, 1995. As of December 31,
1994, the 1993 notes were in default and payable upon demand. In accordance with
the extension agreement, upon default, the Company is required to secure the
1993 notes by all assets of the Company, including its intellectual property,
and will make all necessary filings to perfect the security interest of the note
holders. In lieu of the current plans for a merger with ICOT (SEE NOTE 1), the
note holders have not initiated or enforced the default provisions. In addition,
$525,000 of the 1993 notes were repaid as of June 30, 1995 and $425,000 remains
outstanding as of that date.
As part of the consideration for the 1993 notes and the note extension
agreement, the Company issued stock purchase warrants to the note holders,
exercisable for the number of shares of Series B preferred stock equal to 75% of
the outstanding notes divided by the actual purchase price of the Series B
preferred stock, when and if issued. The purchase price upon the exercise of the
warrants will be the Series B preferred stock price when and if issued. The
warrants are exercisable at any time before October 26, 1996. The value of these
warrants is not considered material. The Company recorded additional interest
expense charges of $25,000 in 1994 and $50,000 in the six months ended June 30,
1995 related to the value of the warrants issued.
In August through December 1994, the Company issued convertible note payable
(the 1994 notes) in the amount of $1,081,000, bearing interest at 12% per annum,
with interest payable each quarter the notes are outstanding. The 1994 notes are
due and payable upon demand after six months from the effective date of the
respective agreements and no later than one year from the same date. The note
holders may, at their option, convert any amount of unpaid principal and
interest into Series B preferred stock. The conversion price shall be the price
per share of the Series B preferred stock, when and if issued. In addition,
$881,000 of the 1994 Notes were repaid as of June 30, 1995, and $300,000 remains
outstanding as of that date.
In connection with the 1994 note, the Company issued stock purchase warrants
to each note holder, exercisable in total for 120,111 shares, which is the
number of shares of common stock equal to $1,081,000 divided by actual purchase
price of Series B as and if issued. The purchase price upon exercise of the
warrants will be the Series B preferred stock price. The warrants may be
exercised in whole or in part on July 31, 1999. In accordance with the terms of
the stock purchase warrant agreements, if a loan default to the 1994 notes
exists on or before May 31, 1995, the purchase price of
F-26
<PAGE>
AMATI COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995
AND JUNE 30, 1994 IS UNAUDITED)
NOTE 9 -- CONVERTIBLE NOTES PAYABLE AND WARRANTS (CONTINUED)
the stock purchase warrants shall be adjusted to $6.00 per common share. The
loan default exists if the Company has not cured such breach within thirty days
of written notification. The Company has received a written notice of default
for approximately $240,790 of warrants that were amended to be exercised at a
purchase price of $6.00 per share or 40,137 shares. The Company recorded
additional interest charges of $750,000 in 1994 and $250,000 in the six months
ended June 30, 1995 related to the value of the warrants issued.
NOTE 10 -- INCOME TAXES
As of December 31, 1994, the Company had federal and state net operating
loss carryforwards of approximately $2,100,000 and $800,000, respectively. The
Company also had federal and state research and development tax credit
carryforwards of approximately $300,000 and $100,000, respectively. The net
operating loss and credit carryforwards will expire at various dates beginning
in 1997 through 2009, if not utilized.
The utilization of the net operating losses and credits is subject to a
substantial annual limitation due to the "change of ownership" provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
As of December 31, 1994 and 1993, the Company had deferred tax assets of
approximately $1,300,000 and $700,000, respectively. The deferred tax asset has
been fully offset by a valuation allowance. The net valuation allowance
increased by $600,000 during the year ended December 31, 1994. Deferred tax
assets relate primarily to net operating loss carryforwards, research credits,
and certain accrued expenses and reserve that are not currently deductible for
income tax purposes.
NOTE 11 -- SUBSEQUENT EVENT
On August 4, 1995, the Company signed a revised definitive agreement to
merge with ICOT Corporation. Under the terms of the revised agreement, the
securities holders of Amati will acquire in the merger 35% of the fully diluted
common equivalent shares of ICOT. In addition, following the closing of the
merger, ICOT will issue options covering 5% of its fully diluted common
equivalent shares to key employees of Amati. Consummation of the merger remains
subject to the approval of stockholders of both companies.
Under the terms of the revised agreement, ICOT has agreed to loan to Amati
up to $5,000,000 secured by Amati's assets, due and payable on November 30,
1995. As of August 4, 1995, amount advanced to the Company was $2,971,900, of
which the first $750,000 bears interest at 7.91% and the remaining $2,221,900
bears interest at 9% at an interest rate of 7.91% on the first $750,000 and 9%
on the balance.
F-27
<PAGE>
ICOT CORPORATION AND AMATI COMMUNICATIONS CORPORATION
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined financial statements give effect
to the proposed acquisition of Amati by ICOT under the purchase method of
accounting as defined in APB Opinion No. 16. The pro forma combined balance
sheet assumes that the merger took place on April 29, 1995 and combines ICOT's
April 29, 1995 balance sheet with Amati's June 30, 1995 balance sheet. The pro
forma combined statement of operations for the fiscal year ended July 30, 1994
assumes that the merger took place as of the beginning of fiscal 1994, and
combines ICOT's statement of operations for its fiscal year ended July 30, 1994
with Amati's operating results for the comparable twelve month period. The pro
forma combined statement of operations for the nine month period ended April 29,
1995 also assumes that the merger took place at the beginning of fiscal 1994,
and combines the financial statements of ICOT for the nine month period ended
April 29, 1995 with Amati's operating results for the comparable nine month
period. The pro forma combined statements of operations do not include the
effect of any nonrecurring charges directly attributable to the merger.
The purchase price allocation reflected in the accompanying pro forma
combined financial statements has been prepared on an estimated basis, and is
based upon an estimated fair market value of ICOT's common stock of $4.25 per
share. The effects resulting from any differences in the final allocation of the
purchase price are not expected to have a material effect on ICOT's financial
statements. However, changes in the fair market value of ICOT's common stock
through the date of consummation of the Merger will affect the purchase price to
be allocated.
The accompanying pro forma combined financial statements should be read in
conjunction with the historical financial statements and related notes thereto
for both ICOT and Amati, which are included elsewhere in the Prospectus/Proxy
Statement.
P-1
<PAGE>
ICOT CORPORATION AND AMATI COMMUNICATIONS CORPORATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
ICOT AT AMATI AT ---------------------------- PRO FORMA
4/29/95 6/30/95 DR. CR. COMBINED
---------- ---------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents........................... $ 921 $ 10 745(i) (81)(h) $ 1,595
Short-term investments.............................. 4,369 -- (4,369)(h) --
Accounts receivable................................. 1,628 20 1,648
Inventories......................................... 1,061 -- 1,061
Other current assets................................ 1,537 51 (550)(h) 1,038
---------- ---------- ----------
Total current assets.............................. 9,516 81 5,342
Property and equipment, net........................... 661 222 883
Research and development in process................... -- -- 33,398(g) (33,398)(g) --
Other assets.......................................... 553 1 554
---------- ---------- ----------
Total assets...................................... $ 10,730 $ 304 $ 6,779
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of capitalized lease
obligations........................................ $ 15 $ -- $ 15
Trade accounts payable.............................. 136 1,194 1,330
Accrued expenses.................................... 1,093 945 21(a) (800)(f) 2,817
Convertible notes payable........................... -- 645 645
Convertible notes payable to related parties........ -- 2,851 2,751(a) 100
---------- ---------- ----------
Total current liabilities......................... 1,244 5,635 4,907
Long-Term Liabilities:
Capitalized lease obligations, less current
maturities......................................... 1 -- 1
Obligations under lease commitments................. 294 -- 294
---------- ---------- ----------
Total liabilities................................. 1,539 5,635 5,202
---------- ---------- ----------
Stockholders' Equity (Deficit):
Preferred Stock --
Outstanding -- 325,000 Amati shares at June 30,
1995 and no shares pro forma....................... -- 375 375(e) --
Common Stock --
Outstanding -- 11,421,827 ICOT shares at April 29,
1995, 540,083 Amati shares at June 30, 1995 and
18,210,751 shares pro forma........................ 35,479 247 247(e) (25,784)(e) 61,263
Accumulated deficit................................. (26,288) (5,953) 27,445(e) (59,686)
---------- ---------- ----------
Total Stockholders' equity (deficit).............. 9,191 (5,331) 1,577
---------- ---------- ----------
Total Liabilities and Stockholders' Equity
(Deficit)........................................ $ 10,730 $ 304 $ 6,779
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
P-2
<PAGE>
ICOT CORPORATION AND AMATI COMMUNICATIONS CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED APRIL 29, 1995
---------------------------------------------------
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
ICOT AMATI ADJUSTMENTS COMBINED
--------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Net Sales........................................................ $ 8,737 $ 717 $ 9,454
Cost of Sales.................................................... 5,061 565 5,626
--------- ----------- -----------
Gross margin................................................... 3,676 152 3,828
--------- ----------- -----------
Operating Expenses:
Research and development....................................... 1,281 3,395 4,676
Marketing and sales............................................ 760 198 958
General and administrative..................................... 815 625 1,440
--------- ----------- -----------
Total operating expenses....................................... 2,856 4,218 7,074
--------- ----------- -----------
Income (loss) from operations................................ 820 (4,066) (3,246)
--------- ----------- -----------
Other Income (Expense):
Interest income................................................ 198 2 150(b) 50
Interest expense............................................... (7) (157) (57)(a) (107)
--------- ----------- -----------
Total other income............................................. 191 (155) (57)
--------- ----------- -----------
Income (loss) before income taxes.............................. 1,011 (4,221) (3,303)
Provision for income taxes..................................... 51 -- (51)(c) --
--------- ----------- -----------
Net income (loss)............................................ $ 960 $ (4,221) $ (3,303)
--------- ----------- -----------
--------- ----------- -----------
Net income (loss) per share...................................... $ .08 $ (8.72) $ (.21)
--------- ----------- -----------
--------- ----------- -----------
Weighted Average Number of Common Shares and Common Share
Equivalents..................................................... 11,595 484 15,554
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
P-3
<PAGE>
ICOT CORPORATION AND AMATI COMMUNICATIONS CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 30, 1994
---------------------------------------------------
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
ICOT AMATI ADJUSTMENTS COMBINED
--------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Net sales........................................................ $ 8,236 $ 6,352 $ 14,588
Cost of sales.................................................... 4,428 3,116 7,544
--------- ----------- -----------
Gross margin................................................... 3,808 3,236 7,044
--------- ----------- -----------
Operating Expenses:
Research and development....................................... 1,429 2,132 3,561
Marketing and sales............................................ 884 37 921
General and administrative..................................... 1,177 2,759 3,936
--------- ----------- -----------
Total operating expenses..................................... 3,490 4,928 8,418
--------- ----------- -----------
Income (loss) from operations.................................. 318 (1,692) (1,374)
--------- ----------- -----------
Other Income (Expense):
Interest income................................................ 233 3 200(b) 36
Interest expense............................................... (21) (21) (42)
--------- ----------- -----------
Total other income........................................... 212 (18) (6)
--------- ----------- -----------
Income (loss) before income taxes.............................. 530 (1,710) (1,380)
Provision for income taxes..................................... 27 -- (27)(c) --
--------- ----------- -----------
Net Income (loss).............................................. $ 503 $ (1,710) $ (1,380)
--------- ----------- -----------
--------- ----------- -----------
Net Income (loss) per share.................................... $ .04 $ (4.57) $ (.09)
--------- ----------- -----------
--------- ----------- -----------
Weighted Average Number of Common Shares and Common Share
Equivalents..................................................... 12,319 374 16,220
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
P-4
<PAGE>
ICOT CORPORATION AND AMATI COMMUNICATIONS CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- PRO FORMA ADJUSTMENTS
Certain pro forma adjustments have been made to the accompanying pro forma
combined condensed balance sheet and statements of operations as described
below:
(a) Eliminates shareholder notes payable, advances from ICOT and the related
interest expense, and accrued interest for advances from ICOT that will be
cancelled as of the date of the merger.
(b) Reflects the reduction of interest income of ICOT as a result of the use of
$5,000,000 cash as part of the purchase price of Amati.
(c) Reflects the reduction of the income tax provision recorded by ICOT due to
the losses incurred by Amati during the pro forma periods.
(d) The calculation of weighted average common and common equivalent shares
assumes an exchange ratio of 4.6126 shares of ICOT common stock for each
share of Amati common stock and 4.6126 shares of ICOT common stock for each
share of Amati Series A preferred stock. Common equivalent shares consist of
dilutive shares issuable upon the exercise of stock options and warrants,
and have been excluded from the calculation when their effect would be
anti-dilutive.
(e) Reflects the issuance of (i) 4.0 million shares of ICOT common stock in
exchange for all shares of Amati common stock and Amati Series A preferred
stock based upon an exchange ratio of 4.6126 shares of ICOT common stock for
each share of Amati common stock and 4.612 shares of ICOT common stock for
each share of Amati Series A preferred stock at an estimated fair market
value of $4.25 per share of ICOT common stock, and (ii) the issuance of ICOT
stock options and warrants for the purchase of 2.8 million shares of ICOT
common stock in exchange for all outstanding Amati stock options and
warrants. Also reflects the elimination of Amati's equity accounts.
(f) Total registration costs associated with the Merger are estimated to be
approximately $800,000. Registration costs to be incurred by ICOT and Amati
in connection with the Merger include legal, accounting and other related
fees, and have been reflected in the accompanying pro forma balance sheet as
accrued liabilities.
(g) Reflects the acquisition of intangible assets consisting of research and
development in process of approximately $33.4 million. The effect of the
charge related to research and development in process has not been reflected
in the pro forma statements of operations as it is a nonrecurring charge
directly attributable to the merger. See Note 2 below for discussion of the
purchase price allocation.
(h) Reflects the elimination of $5.0 million of advances from ICOT to Amati that
have been included in the purchase price (see Note 2). There were no other
intercompany transactions between ICOT and Amati.
(i) Reflects the proceeds from the exercise of Amati warrants contemplated in
the Adjustment Condition discussed on page 28 of this Prospectus/Proxy
Statement. Does not reflect the amount Amati will record as a deferred
interest charge for the underlying value of the warrants. This deferred
charge will be amortized over the debt extension period.
NOTE 2 -- PURCHASE PRICE ALLOCATION
ICOT estimates that the purchase price for the acquisition will be
approximately $31.6 million, based upon an assumed fair market value of ICOT
common stock of $4.25 per share on the date of the Merger, and the issuance of
2.5 million shares of ICOT common stock in exchange for all shares of Amati
common stock, 1.5 million shares of ICOT common stock in exchange for all shares
of Amati
P-5
<PAGE>
ICOT CORPORATION AND AMATI COMMUNICATIONS CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2 -- PURCHASE PRICE ALLOCATION (CONTINUED)
Series A Preferred Stock, 1.1 million warrants for the purchase of ICOT common
stock in exchange for all Amati warrants for the purchase of Amati preferred
stock, and 1.7 million stock options for the purchase of ICOT common stock in
exchange for all Amati stock options for the purchase of Amati common stock. The
estimated purchase price also includes registration costs of $800,000 and
$5,000,000 of total estimated advances from ICOT to Amati prior to completion of
the Merger net of the estimated proceeds of $3.1 million from the assumed
exercise of Amati options and warrants subsequent to the date of acquisition.
Based upon the balance sheet of Amati as of June 30, 1995, after giving
effect to the Adjustment Condition discussed on page 28 of this Prospectus/Proxy
Statement, ICOT estimates that it will receive approximately $1.1 million of
tangible assets, $2.9 million of liabilities and intangible assets of $33.4
million. In connection with the estimated purchase price allocation, ICOT
received an appraisal of the intangible assets which indicates that
substantially all of the acquired intangible assets consist of research and
development in process. In the opinion of management and the appraiser, the
acquired research and development in process has not yet reached technological
feasibility and has no alternative future uses and, accordingly, will be charged
to expense by the combined company upon the commencement of combined operations.
P-6
<PAGE>
APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER
AMONG
ICOT CORPORATION,
AMATI COMMUNICATIONS CORPORATION
AND
IA ACQUISITION CORPORATION
---------------------
AUGUST 3, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................................................... A-1
1.1 Additional Funds............................................................................ A-1
1.2 Adjustment Condition........................................................................ A-1
1.3 Affiliates Agreement........................................................................ A-1
1.4 Amati Common................................................................................ A-1
1.5 Amati Notes................................................................................. A-1
1.6 Amati Options............................................................................... A-1
1.7 Amati Plan.................................................................................. A-1
1.8 Amati Product Revenues...................................................................... A-1
1.9 Amati Unvested Shares....................................................................... A-1
1.10 Applicable Ratio............................................................................ A-2
1.11 Amati Warrants.............................................................................. A-2
1.12 Balance Sheet............................................................................... A-2
1.13 Balance Sheet Date.......................................................................... A-2
1.14 Certificate................................................................................. A-2
1.15 Certificate Regarding Warrants.............................................................. A-2
1.16 Closing..................................................................................... A-2
1.17 Closing Date................................................................................ A-2
1.18 Code........................................................................................ A-2
1.19 Common Stock Equivalents.................................................................... A-2
1.20 Contract.................................................................................... A-2
1.21 Corporations Code........................................................................... A-2
1.22 Delaware GCL................................................................................ A-2
1.23 Dissenting Amati Shares..................................................................... A-2
1.24 Earlier Agreement........................................................................... A-2
1.25 Earn-Out Condition.......................................................................... A-2
1.26 Escrow Agreement............................................................................ A-2
1.27 Escrow Holder............................................................................... A-2
1.28 Exchange Act................................................................................ A-2
1.29 Exchange Agent.............................................................................. A-2
1.30 Holders..................................................................................... A-3
1.31 IAAC Common................................................................................. A-3
1.32 ICOT Common................................................................................. A-3
1.33 Irrevocable Proxies......................................................................... A-3
1.34 Merger...................................................................................... A-3
1.35 Merger Agreement............................................................................ A-3
1.36 Merger Effective Time....................................................................... A-3
1.37 New Amati Financing Amount.................................................................. A-3
1.38 New Amati Note.............................................................................. A-3
1.39 New Amati Warrant........................................................................... A-3
1.40 1933 Act.................................................................................... A-3
1.41 Officer-Certified Disclosure Statement...................................................... A-3
1.42 Amati Performance Options................................................................... A-3
</TABLE>
A-i
<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
1.43 Proxy Statement............................................................................. A-3
1.44 Ratio Calculation Date...................................................................... A-3
1.45 S-4......................................................................................... A-3
1.46 SEC......................................................................................... A-3
1.47 $750,000 Note............................................................................... A-3
1.48 Shareholder Representatives................................................................. A-3
1.49 Subsidiary.................................................................................. A-3
1.50 Substitute Warrant.......................................................................... A-4
1.51 $2,650,000 Note............................................................................. A-4
1.52 Voting Agreement............................................................................ A-4
ARTICLE II MERGER, CLOSING AND CONVERSION OF SHARES...................................................... A-4
2.1 Merger...................................................................................... A-4
2.2 Closing..................................................................................... A-4
2.3 Conversion of Shares........................................................................ A-4
2.4 Amati Options............................................................................... A-4
2.5 Amati Warrants.............................................................................. A-5
2.6 Applicable Ratio............................................................................ A-5
2.7 Escrow...................................................................................... A-6
2.8 Exchange of Stock Certificates; Warrants.................................................... A-6
2.9 Dissenting Amati Shares..................................................................... A-8
2.10 Registration on Form S-4.................................................................... A-8
2.11 Tax Free Reorganization..................................................................... A-8
ARTICLE III MUTUAL REPRESENTATIONS AND WARRANTIES........................................................ A-8
3.1 Organization and Authority.................................................................. A-8
3.2 Authority Relating to this Agreement; No Violation of Other Instruments..................... A-9
3.3 Compliance with Law......................................................................... A-9
3.4 Investments in Others....................................................................... A-9
3.5 Tax Returns and Payments.................................................................... A-10
3.6 Absence of Certain Changes or Events........................................................ A-10
3.7 Inventories................................................................................. A-11
3.8 Accounts Receivable......................................................................... A-11
3.9 Personal Property........................................................................... A-11
3.10 Real Property............................................................................... A-11
3.11 Patents, Trademarks, Trade Names and Copyrights............................................. A-12
3.12 Warranties.................................................................................. A-12
3.13 Litigation.................................................................................. A-12
3.14 Protection of Intangible Property........................................................... A-12
3.15 Personnel................................................................................... A-12
3.16 Certain Payments............................................................................ A-13
3.17 Brokers and Finders......................................................................... A-13
3.18 Order Backlog............................................................................... A-13
3.19 Contracts................................................................................... A-13
</TABLE>
A-ii
<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
3.20 Shareholders and Employees.................................................................. A-13
3.21 Absence of Environmental Liabilities........................................................ A-14
3.22 Power of Attorney; Suretyships.............................................................. A-14
3.23 Business Practices.......................................................................... A-14
3.24 Proxy Statement and S-4..................................................................... A-14
3.25 Accuracy of Documents and Information....................................................... A-15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AMATI....................................................... A-15
4.1 Capitalization.............................................................................. A-15
4.2 Financial Statements........................................................................ A-16
4.3 Absence of Undisclosed Liabilities.......................................................... A-16
4.4 Credit Cards................................................................................ A-16
4.5 Compliance With Law......................................................................... A-16
4.6 Taxes....................................................................................... A-16
4.7 Patents, Trademarks and Trade Names......................................................... A-17
4.8 Employees................................................................................... A-17
4.9 Insurance................................................................................... A-17
4.10 Bank Accounts............................................................................... A-17
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ICOT AND IAAC................................................ A-17
5.1 Capitalization.............................................................................. A-17
5.2 Financial Statements........................................................................ A-17
5.3 Absence of Undisclosed Liabilities.......................................................... A-18
5.4 Shares...................................................................................... A-18
5.5 Exchange Act Reports........................................................................ A-18
5.6 Activities of IAAC.......................................................................... A-18
5.7 Patents, Trademarks and Trade Names......................................................... A-18
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF ICOT AND IAAC................................................ A-18
6.1 Representations and Warranties True at Closing.............................................. A-18
6.2 Covenants Performed......................................................................... A-18
6.3 Certificate................................................................................. A-18
6.4 Shareholder Approval........................................................................ A-18
6.5 Dissenting Amati Shares..................................................................... A-19
6.6 Opinion of Counsel to Amati................................................................. A-19
6.7 Tax-Free Reorganization..................................................................... A-19
6.8 Nasdaq Notification......................................................................... A-19
6.9 Affiliates Agreements....................................................................... A-19
6.10 Employment Agreement with Dr. Cioffi........................................................ A-19
6.11 Securities Law Compliance................................................................... A-19
6.12 Certain Agreements.......................................................................... A-19
6.13 Irrevocable Proxies......................................................................... A-19
6.14 Resignation of ICOT Director................................................................ A-19
6.15 Merger Agreement............................................................................ A-19
</TABLE>
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TABLE OF CONTENTS (CONTINUED)
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6.16 Material Changes in the Business of Amati Between the Date of this Agreement and the A-19
Closing....................................................................................
6.17 No Action to Prevent Completion............................................................. A-19
6.18 Consents.................................................................................... A-20
6.19 Removal of Restriction on Transfer.......................................................... A-20
6.20 Credit Cards................................................................................ A-20
6.21 Escrow Agreement............................................................................ A-20
6.22 Key Person Insurance........................................................................ A-20
6.23 Documentation............................................................................... A-20
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF AMATI....................................................... A-20
7.1 Representations and Warranties True at Closing.............................................. A-20
7.2 Covenants Performed......................................................................... A-20
7.3 Certificate................................................................................. A-20
7.4 Shareholder Approval........................................................................ A-20
7.5 Opinion of Counsel to ICOT.................................................................. A-20
7.6 Tax-Free Reorganization..................................................................... A-20
7.7 Nasdaq Notification......................................................................... A-21
7.8 Board of Directors.......................................................................... A-21
7.9 Voting Agreements........................................................................... A-21
7.10 Merger Agreement............................................................................ A-21
7.11 Material Changes in the Business of ICOT Between the Date of this Agreement and the A-21
Closing....................................................................................
7.12 No Action to Prevent Completion............................................................. A-21
7.13 Consents.................................................................................... A-21
7.14 Documentation............................................................................... A-21
7.15 ICOT Officers............................................................................... A-21
ARTICLE VIII PRE-CLOSING COVENANTS....................................................................... A-21
8.1 Advice of Changes........................................................................... A-21
8.2 Maintenance of Business..................................................................... A-22
8.3 Conduct of Business......................................................................... A-22
8.4 Shareholder Meetings........................................................................ A-23
8.5 Proxy Statement............................................................................. A-23
8.6 Regulatory Approvals........................................................................ A-23
8.7 Necessary Consents.......................................................................... A-24
8.8 Litigation.................................................................................. A-24
8.9 Due Diligence............................................................................... A-24
8.10 Satisfaction of Conditions Precedent........................................................ A-24
8.11 Affiliates.................................................................................. A-24
8.12 Regarding Tax Matters....................................................................... A-24
8.13 Notification of Customers, Suppliers and Employees.......................................... A-24
8.14 Additional Funds to Amati; New Amati Note................................................... A-24
8.15 New Amati Warrant........................................................................... A-25
</TABLE>
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TABLE OF CONTENTS (CONTINUED)
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8.16 New Amati Financing......................................................................... A-25
8.17 Amati Board and Management.................................................................. A-25
8.18 Issuance of Amati Options and Shares Prior to Merger........................................ A-25
ARTICLE IX CONFIDENTIALITY COVENANT AND ANNOUNCEMENTS.................................................... A-25
9.1 Confidentiality............................................................................. A-25
9.2 Announcements............................................................................... A-26
ARTICLE X INDEMNIFICATION................................................................................ A-26
10.1 Indemnification Relating to Agreement....................................................... A-26
10.2 Indemnification Relating to S-4 and Proxy Statement......................................... A-26
10.3 Indemnification by ICOT Relating to S-4 and Proxy Statement................................. A-26
10.4 Escrow...................................................................................... A-27
10.5 Limitation on Indemnification............................................................... A-27
ARTICLE XI TERMINATION................................................................................... A-27
11.1 Termination by Mutual Agreement............................................................. A-27
11.2 Termination by ICOT......................................................................... A-27
11.3 Termination by Amati........................................................................ A-27
11.4 Effect of Termination....................................................................... A-27
ARTICLE XII MISCELLANEOUS................................................................................ A-27
12.1 Expenses.................................................................................... A-27
12.2 Amendment................................................................................... A-27
12.3 Entire Agreement............................................................................ A-27
12.4 Governing Law............................................................................... A-28
12.5 Headings.................................................................................... A-28
12.6 Mutual Contribution......................................................................... A-28
12.7 Notices..................................................................................... A-28
12.8 Severability................................................................................ A-29
12.9 Survival of Representation and Warranties................................................... A-29
12.10 Waiver...................................................................................... A-29
12.11 Assignment.................................................................................. A-29
12.12 Counterparts................................................................................ A-29
12.13 Voting Agreements........................................................................... A-29
12.14 Irrevocable Proxy........................................................................... A-29
12.15 Performance Options......................................................................... A-29
</TABLE>
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<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER
AMONG ICOT CORPORATION, AMATI COMMUNICATIONS CORPORATION
AND IA ACQUISITION CORPORATION
This Amended and Restated Agreement and Plan of Reorganization and Merger
("Agreement") is made as of August 3, 1995 among ICOT Corporation, a Delaware
corporation ("ICOT"), IA Acquisition Corporation, a California corporation and
wholly-owned subsidiary of ICOT ("IAAC"), and Amati Communications Corporation,
a California corporation ("Amati").
BACKGROUND
A. The parties desire that IAAC shall be merged with and into Amati; that
Amati shall be the surviving corporation and shall become a wholly-owned
subsidiary of ICOT; and that each share of the Common Stock, no par value, and
of the Series A Preferred Stock, no par value, of Amati which is outstanding
immediately prior to the effective time of the merger, other than those shares
which become "dissenting shares" within the meaning of Section 1300(b) of the
California Corporations Code shall be converted, as set forth in this Agreement,
into shares of Common Stock, $.20 par value, of ICOT.
B. The parties intend that the merger constitute a "reorganization" under
Section 368(a)(1)(A), of the Internal Revenue Code of 1986, as amended.
In consideration of the mutual premises and agreements set forth herein, THE
PARTIES AGREE AS FOLLOWS:
ARTICLE I
DEFINITIONS
The terms defined in this Article I shall, for purposes of this Agreement,
have the meanings specified in this Article I unless the context expressly or by
necessary implication otherwise requires:
1.1 ADDITIONAL FUNDS. "Additional Funds" shall have the meaning set forth
in Section 8.14 of this Agreement.
1.2 ADJUSTMENT CONDITION. "Adjustment Condition" shall have the meaning
set forth in Section 8.16 of this Agreement.
1.3 AFFILIATES AGREEMENT. "Affiliates Agreement" shall have the meaning
set forth in Section 8.11 of this Agreement.
1.4 AMATI COMMON. "Amati Common" shall mean the Common Stock, no par
value, of Amati.
1.5 AMATI NOTES. "Amati Notes" shall have the meaning set forth in Section
4.1 of this Agreement.
1.6 AMATI OPTIONS. "Amati Options" shall have the meaning set forth in
Section 2.4 of this Agreement.
1.7 AMATI PLAN. "Amati Plan" shall have the meaning set forth in Section
2.4 of this Agreement.
1.8 AMATI PRODUCT REVENUES. "Amati Product Revenues" shall mean the net
revenues from sales of Amati products and license revenues (other than advance
royalties) from Amati technology for the period from July 1, 1995 through June
30, 1996 as determined by Arthur Andersen LLP, which such determination shall be
final and binding on the parties.
1.9 AMATI UNVESTED SHARES. "Amati Unvested Shares" shall have the meaning
set forth in Section 4.1 of this Agreement.
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1.10 APPLICABLE RATIO. "Applicable Ratio" shall mean the exchange ratio at
which each outstanding share of Amati Common Stock and Amati Series A Preferred
Stock (other than Dissenting Amati Shares) shall be converted at the Effective
Time. The Applicable Ratio shall be calculated by the parties on the Ratio
Calculation Date in accordance with Section 2.6 (a) and shall be adjusted as of
the Closing Date in accordance with Section 2.6(b).
1.11 AMATI WARRANTS. "Amati Warrants" shall have the meaning set forth in
Section 4.1 of this Agreement, and shall include the "$6 WARRANTS," the "$9
WARRANTS" and the "FAIR VALUE WARRANTS," as defined in Section 4.1.
1.12 BALANCE SHEET. "Balance Sheet" shall have the meaning set forth in
Section 3.6 of this Agreement.
1.13 BALANCE SHEET DATE. "Balance Sheet Date" shall have the meaning set
forth in Section 3.6 of this Agreement.
1.14 CERTIFICATE. "Certificate" shall have the meaning set forth in
Section 2.8.3 of this Agreement.
1.15 CERTIFICATE REGARDING WARRANTS. "Certificate Regarding Warrants"
shall have the meaning set forth in Section 2.5(c) of this Agreement.
1.16 CLOSING. "Closing" shall mean the delivery by the parties hereto of
the various documents contemplated by this Agreement or otherwise required in
order to consummate the Merger.
1.17 CLOSING DATE. "Closing Date" shall have the meaning set forth in
Section 2.2 of this Agreement.
1.18 CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.19 COMMON STOCK EQUIVALENTS. "Common Stock Equivalents" shall mean
common stock and all securities convertible into or exercisable for common
stock.
1.20 CONTRACT. "Contract" shall have the meaning set forth in Section 3.19
of this Agreement.
1.21 CORPORATIONS CODE. "Corporations Code" shall mean the California
Corporations Code.
1.22 DELAWARE GCL. "Delaware GCL" shall mean the General Corporation Law
of Delaware.
1.23 DISSENTING AMATI SHARES. "Dissenting Amati Shares" shall mean all
shares, if any, of the outstanding capital stock of Amati for which dissenters'
rights shall be perfected under Section 1300 ET SEQ. of the Corporations Code.
1.24 EARLIER AGREEMENT. "Earlier Agreement" shall mean the Agreement and
Plan of Reorganization and Merger among ICOT, Amati and IAAC dated May 15, 1995,
which is being amended and restated by this Agreement.
1.25 EARN-OUT CONDITION. "Earn-Out Condition" shall have the meaning set
forth in Section 12.15(b) of this Agreement.
1.26 ESCROW AGREEMENT. "Escrow Agreement" shall mean the Agreement
relating to an escrow of certain shares of ICOT Common pursuant to Section 2.7
of this Agreement, in the form attached to this Agreement as EXHIBIT A.
1.27 ESCROW HOLDER. "Escrow Holder" shall mean Chemical Trust of
California.
1.28 EXCHANGE ACT. "Exchange Act" shall mean the Securities and Exchange
Act of 1934, as amended.
1.29 EXCHANGE AGENT. "Exchange Agent" shall have the meaning set forth in
Section 2.8.1 of this Agreement.
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1.30 HOLDERS. "Holders" shall mean holders of Amati Common and Amati
Series A Preferred Stock immediately prior to the Merger Effective Time.
1.31 IAAC COMMON. "IAAC Common" shall mean the Common Stock, no par value,
of IAAC.
1.32 ICOT COMMON. "ICOT Common" shall mean the Common Stock, $.20 par
value, of ICOT.
1.33 IRREVOCABLE PROXIES. "Irrevocable Proxies" shall have the meaning set
forth in Section 12.14 of this Agreement.
1.34 MERGER. "Merger" shall mean the merger of IAAC with and into Amati in
accordance with this Agreement, the Merger Agreement and applicable law.
1.35 MERGER AGREEMENT. "Merger Agreement" shall mean the agreement of
merger among ICOT, Amati and IAAC, together with the related officers'
certificates required by Section 1103 of the Corporations Code, in the form
attached to this Agreement as EXHIBIT B.
1.36 MERGER EFFECTIVE TIME. "Merger Effective Time" shall mean the time
when the Merger Agreement is filed with the Secretary of State of the State of
California and the Merger becomes effective.
1.37 NEW AMATI FINANCING AMOUNT. "New Amati Financing Amount" shall have
the meaning set forth in Section 8.16 of this Agreement.
1.38 NEW AMATI NOTE. "New Amati Note" shall have the meaning set forth in
Section 8.14 of this Agreement.
1.39 NEW AMATI WARRANT. "New Amati Warrant shall have the meaning set
forth in Section 8.15 of this Agreement.
1.40 1933 ACT. "1933 Act" shall mean the Securities Act of 1933, as
amended, and the rules, regulations and forms thereunder.
1.41 OFFICER-CERTIFIED DISCLOSURE STATEMENT. "Officer-Certified Disclosure
Statement" shall have the meaning set forth in the first paragraph of Article
III of this Agreement.
1.42 AMATI PERFORMANCE OPTIONS. "Amati Performance Options" shall have the
meaning set forth in Section 8.3.14 of this Agreement.
1.43 PROXY STATEMENT. "Proxy Statement" shall mean the Joint Proxy
Statement to be mailed to the stockholders of ICOT and the shareholders of Amati
in connection with the Merger.
1.44 RATIO CALCULATION DATE. "Ratio Calculation Date" shall mean August
30, 1995, which date shall also be the record date for the special meeting of
Amati shareholders to approve the Merger.
1.45 S-4. "S-4" shall mean the Registration Statement on Form S-4 to be
filed by ICOT with the SEC in connection with the issuance of ICOT Common Stock
pursuant to the Merger.
1.46 SEC. "SEC" shall mean the Securities and Exchange Commission.
1.47 $750,000 NOTE. "$750,000 Note" shall have the meaning set forth in
Section 8.14 of this Agreement.
1.48 SHAREHOLDER REPRESENTATIVES. "Shareholder Representatives" shall mean
the four persons selected by the Board of Directors of Amati and authorized by
this Agreement to act as representatives of the shareholders of Amati under the
Escrow Agreement, and any substitute representatives selected in accordance with
the Escrow Agreement.
1.49 SUBSIDIARY. "Subsidiary" shall mean, with respect to a particular
party hereto, any corporation or other organization, whether incorporated or
unincorporated, of which at least a majority of the securities or interests
having by the terms thereof ordinary voting power to elect a
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majority of the board of directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned by such party or by one or more Subsidiaries, or by such party and one or
more Subsidiaries.
1.50 SUBSTITUTE WARRANT. "Substitute Warrant" shall have the meaning set
forth in Section 2.5(a) of this Agreement.
1.51 $2,650,000 NOTE. "$2,650,000 Note" shall have the meaning set forth
in Section 8.14 of this Agreement.
1.52 VOTING AGREEMENT. "Voting Agreement" shall have the meaning set forth
in Section 12.13 of this Agreement.
ARTICLE II
MERGER, CLOSING AND CONVERSION OF SHARES
2.1 MERGER. Subject to and in accordance with the terms and conditions of
this Agreement and the Merger Agreement, ICOT, IAAC and Amati shall execute and
file the Merger Agreement with the Secretary of State of the State of
California, whereupon IAAC shall be merged with and into Amati pursuant to
Sections 1100 ET SEQ. of the Corporations Code.
2.2 CLOSING. The Closing shall take place at the offices of Heller Ehrman
White & McAuliffe, 525 University Avenue, Palo Alto, California 94301, on
, 1995 at 10:00 a.m., or at such other day and time as ICOT, IAAC
and Amati shall agree (the "Closing Date") after all of the conditions to the
parties' obligations to consummate the Merger set forth in Articles VI and VII
of this Agreement have been satisfied or waived.
2.3 CONVERSION OF SHARES.
(a) In accordance with the Merger Agreement, each share of IAAC Common
issued and outstanding immediately prior to the Effective Time shall by virtue
of the Merger and without any action on the part of the holder thereof, be
converted at and as of the Effective Date, into one share of Amati Common.
(b) In accordance with the Merger Agreement, each share of Amati Common and
Amati Series A Preferred Stock issued and outstanding immediately prior to the
Merger Effective Time (except those shares of Amati Common and Amati Series A
Preferred Stock which are Dissenting Amati Shares and whose holder and Amati do
not thereafter agree in writing should not be treated as Dissenting Amati
Shares), shall, by virtue of the Merger and without any action on the part of
the holder thereof be converted, at and as of the Merger Effective Time, into
the number of shares of ICOT Common equal to the Applicable Ratio. Holders of
Amati Common and Amati Series A Preferred Stock shall receive only whole shares
of ICOT Common at the Merger Effective Time; in lieu of any fractional share of
ICOT Common, Holders shall receive in cash the fair market value of such
fractional share valuing ICOT Common at the average of the high and low prices
of the ICOT Common on the Nasdaq National Market on the trading day immediately
preceding the Closing Date, as reported in THE WALL STREET JOURNAL.
2.4 AMATI OPTIONS. At the Merger Effective Time, each outstanding option
to purchase Amati Common ("Amati Option") issued under the Amati's 1992 Stock
Option Plan (the "Amati Plan") shall thereafter entitle the holder thereof to
receive, that upon exercise thereof the number of shares of ICOT Common
determined by multiplying the shares of Amati Common subject to such Amati
Option at the Merger Effective Time by the Applicable Ratio, at an exercise
price for each full share of ICOT Common equal to the quotient obtained by
dividing the exercise price per share of Amati Common by the Applicable Ratio,
which exercise price per share shall be rounded up to the nearest two-place
decimal. The number of shares of ICOT Common that may be purchased by a holder
on the exercise of any Amati Option shall not include any fractional share of
ICOT Common but shall be rounded down to the next lower whole share of ICOT
Common. ICOT shall assume in full such Amati
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Options and all of the Amati's other rights and obligations under the Amati Plan
as provided herein. Section 4.1 of the Officer-Certified Disclosure Statement of
Amati contains a list summarizing all Amati Options, including the term and the
exercise price of each. The assumption of an Amati Option by ICOT shall not
terminate or modify (except as required hereunder) any right of first refusal,
right of repurchase, vesting schedule, or other restriction on transferability
relating to the Amati Option. Continuous employment with Amati shall be credited
to an optionee for purposes of determining the number of shares subject to
exercise, vesting or repurchase after the Merger Effective Time. After such
assumption, ICOT shall issue, upon any partial or total exercise of any Amati
Option, in lieu of shares of Amati Common, the number of shares of ICOT Common
to which the holder of the Amati Option is entitled pursuant to this Agreement.
The assumption by ICOT of Amati Options shall not give the holders of such Amati
Options any additional benefits which they did not have immediately prior to the
Merger Effective Time. Nothing contained in this Section 2.4 shall require ICOT
to offer or sell shares of ICOT Common upon the exercise of Amati Options
assumed by ICOT if, in the reasonable judgment of ICOT or its counsel, such
offer or sale would not be in accordance with the applicable federal or state
securities laws. ICOT shall file with the SEC within 45 days following the
Merger Effective Time a registration statement on Form S-8 under the 1933 Act
covering the shares of ICOT Common to be issued upon exercise of Amati Options
assumed by ICOT. ICOT shall use its best efforts to qualify as soon as
practicable after the Merger Effective Time under applicable state securities
laws the issuance of such shares of ICOT Common issuable upon exercise of such
Amati Options.
2.5 AMATI WARRANTS.
(a) In the Merger, each Amati Warrant which has not been exercised at or
prior to the Merger Effective Time shall be exchanged for a warrant to purchase
shares of ICOT Common in the form attached as Exhibit 2.5 (each, a "Substitute
Warrant"). ICOT shall not be required to offer or sell shares of ICOT Common
upon the exercise of Substitute Warrants if, in the reasonable judgment of ICOT
based upon advice of counsel, such offer or sale would not be in accordance with
applicable federal or state securities laws.
(b) The Substitute Warrant issued in exchange for each $6 Warrant and $9
Warrant shall be exercisable for a number of shares of ICOT Common determined by
multiplying the number of Amati Common subject to such Amati Warrant at the
Merger Effective Time by the Applicable Ratio, at an exercise price for each
full share of ICOT Common equal to the quotient obtained by dividing the
exercise price per share of Amati Common by the Applicable Ratio, which exercise
price per share shall be rounded up to the nearest two-place decimal.
(c) On the Ratio Calculation Date, Amati shall deliver to ICOT a certificate
signed by the Chairman and Secretary of Amati showing the number of shares of
ICOT Common to be issuable under the Substitute Warrant for each Fair Value
Warrant and the exercise price per share of ICOT Common issuable under such Fair
Value Warrant (the "Certificate Regarding Warrants"). ICOT understands that
Amati will calculate the number of shares to be issuable under the Substitute
Warrant and exercise price per share of ICOT Common issuable under such Fair
Value Warrant on the basis of the average of the closing prices of ICOT Common
on the Nasdaq National Market, as reported in THE WALL STREET JOURNAL, over the
five trading days preceding the Ratio Calculation Date; and Amati represents and
warrants that this method of calculation satisfies the terms of the Fair Value
Warrants.
(d) The number of shares of ICOT Common that may be purchased by a holder on
the exercise of any Substitute Warrant shall not include any fractional share of
ICOT Common but shall be rounded down to the next lower whole share of ICOT
Common.
2.6 APPLICABLE RATIO.
(a) The Applicable Ratio shall be determined at the Ratio Calculation Date,
and (subject to adjustment as of the Closing as described in paragraph (b)
below) shall equal the quotient obtained by dividing (i) 6,788,924 less the
aggregate number of shares of ICOT Common that are issuable upon
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exercise of the Substitute Warrants being issued in exchange for Fair Value
Warrants, by (ii) the fully diluted number of shares of Amati Common Stock
Equivalents outstanding as of the Ratio Calculation Date (including outstanding
shares of Amati Common, Amati Series A Preferred Stock, Amati Options, $6
Warrants and $9 Warrants, but excluding Fair Value Warrants).
(b) The Applicable Ratio shall be recalculated as of the Closing using the
denominator specified in paragraph (a) above, but using a numerator equal to (i)
6,788,924 less (ii) the aggregate number of shares of ICOT Common that are
issuable upon exercise of the Substitute Warrants being issued in exchange for
Fair Value Warrants, (iii) less the aggregate number of shares of ICOT Common,
if any, being issued pursuant to clause (c) of Section 8.16, and less (iv) the
whole number closest to a fraction the numerator of which is (x) $838,000 less
(y) the amount of financing obtained pursuant to Section 8.16, but not more than
$838,000, and the denominator of which is 75% of the average of the closing
prices of ICOT Common on the Nasdaq National Market, as reported in THE WALL
STREET JOURNAL, over the five trading days ending three trading days before the
date of the Proxy Statement.
2.7 ESCROW.
(a) In order to provide indemnification in accordance with Article X of this
Agreement and with the Escrow Agreement, at the Merger Effective Time or as soon
thereafter as possible, a stock certificate representing 1,050,000 shares ICOT
Common shall be delivered to the Escrow Holder. Such shares shall be allocated
pro rata (rounded down to the nearest whole share) from the whole shares of ICOT
Common issued to each Holder in conversion of Amati Common or Amati Series A
Preferred Stock pursuant to Section 2.3.
(b) The Shareholder Representatives have been selected by the Board of
Directors of Amati and, in the event of inability or unwillingness prior to the
execution of the Escrow Agreement of any such person to act as a Shareholder
Representative, a substitute Shareholder Representative shall be similarly
selected. All Shareholder Representatives are authorized by this Agreement, as a
specific term and condition of the Merger, to act hereunder and under the Escrow
Agreement with the powers and authority provided for herein and therein, as
representatives of the Holders and their successors. Approval of this Agreement
and the Merger at the special shareholders meeting of Amati relating to this
Agreement and the Merger shall constitute approval of the terms and conditions
of the Escrow Agreement and ratification of the selection of the Shareholder
Representatives and of their authority to act hereunder and under the Escrow
Agreement on behalf of the Holders and their successors.
(c) Any rights of the Holders to receive any shares placed in such escrow
shall in no circumstances be sold, assigned or otherwise transferred by them
other than by will or pursuant to the laws of descent and distribution. Any
dividends or other distributions paid in respect of the shares of ICOT Common
deposited with the Escrow Holder in accordance with this Section 2.7, except for
cash dividends, shall be paid to the Escrow Holder in accordance with the terms
of the Escrow Agreement. All certificates representing securities delivered to
the Escrow Holder shall be accompanied by separate stock powers endorsed in
blank by a Shareholder Representative on behalf of the Holders. Subject to the
Escrow Agreement, holders of ICOT Common shall retain their voting rights with
respect to securities deposited with the Escrow Holder in accordance with this
Section 2.7. Holders of ICOT Common may not assign their rights to the property
which is held in the escrow account pursuant to the Escrow Agreement.
2.8 EXCHANGE OF STOCK CERTIFICATES; WARRANTS.
2.8.1 Prior to the Closing Date, ICOT shall appoint Chemical Mellon
Shareholders Services, or such other bank or trust company selected by ICOT
as Amati may approve, to act as exchange agent (the "Exchange Agent") for
the ICOT Common to be issued in the Merger.
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2.8.2 Promptly after the Closing Date, but in no event later than three
business days thereafter, the Exchange Agent shall make available for
exchange in accordance with this Section 2.8, the shares of ICOT Common
issuable at the Merger Effective Time pursuant to Section 2.3 in conversion
of outstanding shares of Amati Common or Amati Series A Preferred Stock,
subject to the issuance of a pro rata number of shares into escrow pursuant
to Section 2.7.
2.8.3 As soon as practicable after the Closing Date, the Exchange Agent
shall mail to each holder of record of a stock certificate that, immediately
prior to the Closing Date, represented outstanding shares of Amati Common or
Amati Series A Preferred Stock (a "Certificate") whose shares are being
converted into ICOT Common pursuant to Section 2.3, (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 ICOT may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for
certificates evidencing ICOT Common. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by ICOT, together with such letter of transmittal, duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor (subject to Section 2.7) the number of shares of ICOT
Common to which the holder of Amati Common or Amati Series A Preferred Stock
is entitled pursuant to Section 2.3 hereof and is represented by the
Certificate so surrendered. The Certificate so surrendered shall forthwith
be canceled. In the event of a transfer of ownership of Amati Common or
Amati Series A Preferred Stock that is not registered in the transfer
records of Amati, or its transfer agent, ICOT Common may be delivered to a
transferee if the Certificate representing such Amati Common or Series A
Preferred Stock is presented to the Exchange Agent and accompanied by all
documents required to evidence and effect such transfer and to evidence that
any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.8.3, each Certificate shall be deemed at any
time after the Closing Date to represent the right to receive upon such
surrender such whole number of shares of ICOT Common as provided by Section
2.3 and the provisions of the Delaware GCL.
2.8.4 No dividends or distributions payable to holders of record of
ICOT Common after the Merger Effective Time, or cash payable in lieu of
fractional shares, shall be paid to the holder of any unsurrendered
Certificate until the holder of the Certificate shall surrender such
Certificate.
2.8.5 All ICOT Common delivered upon the surrender for exchange of
shares of Amati Common or Amati Series A Preferred Stock in accordance with
the terms hereof shall be deemed to have been delivered in full satisfaction
of all rights pertaining to such shares of Amati Common or Series A
Preferred Stock. There shall be no further registration of transfers on the
stock transfer books of Amati or its transfer agent of the shares of Amati
Common or Series A Preferred Stock that were outstanding immediately prior
to the Merger Effective Time. If, after the Closing Date, Certificates are
presented for any reason, they shall be canceled and exchanged as provided
in this Section 2.8.7.
2.8.6 As soon as practicable after the Closing Date, ICOT shall make
available for exchange in accordance with this Section 2.8, a Substitute
Warrant for each Amati Warrant that has not been exercised prior to the
Merger Effective Time, whereupon such Amati Warrant shall be canceled. ICOT
shall mail to each holder of record of an Amati Warrant that has not been
exercised prior to the Merger Effective Time, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Substitute Warrant shall pass, only upon delivery to ICOT of
the Amati Warrant being exchanged and shall have such other provisions as
ICOT may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Amati Warrant in exchange for a Substitute Warrant. Upon
surrender to ICOT of an Amati Warrant for cancellation, together with such
letter of transmittal, duly executed, the holder of such Amati Warrant shall
be entitled to receive in exchange therefor a Substitute Warrant as
specified in Section 2.5. The Amati Warrant so surrendered shall forthwith
be canceled. Until surrendered as
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contemplated by this Section 2.8.6, each Amati Warrant shall be deemed at
any time after the Closing to represent only the right to receive upon such
surrender a Substitute Warrant as provided by Section 2.5.
2.9 DISSENTING AMATI SHARES. Holders of Dissenting Amati Shares shall have
those rights, but only those rights, of holders of "dissenting shares" under
Section 1300 ET SEQ. of the Corporations Code. Amati shall give ICOT prompt
notice of any demand, purported demand or other communication received by Amati
with respect to any Dissenting Amati Shares or shares claimed to be Dissenting
Amati Shares, and ICOT shall have the right to participate in all negotiations
and proceedings with respect to such shares. Amati agrees that, without the
prior written consent of ICOT, it shall not voluntarily make any payment with
respect to, or settle or offer to settle, any demand or purported demand
respecting such shares.
2.10 REGISTRATION ON FORM S-4. As promptly as practicable after the date
hereof, ICOT and Amati shall prepare and file with the SEC the Proxy Statement
and any other documents required by the Exchange Act in connection with the
Merger, and ICOT shall prepare and file with the SEC a registration statement on
Form S-4 and any other documents required by the 1933 Act in connection with the
Merger (including, without limitation the filing of Forms 8-K and 10-C by ICOT
when appropriate). Each of ICOT and Amati shall use its best efforts to have the
Form S-4 declared effective under the 1933 Act as promptly as practicable after
such filing. ICOT shall also take any action required to be taken under any
applicable state securities or "blue sky" laws in connection with the issuance
of the ICOT Common in the Merger. Amati shall furnish to ICOT all information
concerning Amati and the holders of Amati Common as may be reasonably requested
in connection with any action contemplated by this Section 2.11. ICOT Common
issuable upon exercise of Substitute Warrants shall not be registered.
2.11 TAX FREE REORGANIZATION. The parties intend to adopt this Agreement
as a tax free plan of reorganization and to consummate the Merger in accordance
with the provisions of Section 368(a)(1)(A) of the Code.
ARTICLE III
MUTUAL REPRESENTATIONS AND WARRANTIES
Each of ICOT and Amati is a "Company" for the purposes of this Article III.
IAAC is a "Company" for the purposes of Sections 3.1 and 3.2. Any disclosure
delivered by one Company to another party hereto pursuant to this Article shall
have been delivered on or prior to the date hereof and certified by an officer
of the delivering Company as true, accurate and complete, shall specifically
refer to this Agreement and shall identify the Section of this Agreement
requiring the delivery of such disclosure (each such disclosure being referred
to herein as an "Officer-Certified Disclosure Statement"). Except as set forth
in an Officer-Certified Disclosure Statement of such Company, ICOT (and, for
purposes of Section 3.1 and 3.2, IAAC) hereby represents and warrants to Amati
and Amati hereby represents and warrants to ICOT and IAAC that:
3.1 ORGANIZATION AND AUTHORITY. The Company and each of its Subsidiaries:
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation; (ii) has all necessary
corporate power to own and lease its properties, to carry on its business as now
being conducted and to enter into and perform this Agreement and all agreements
to which the Company is or will be a party that are exhibits to this Agreement;
and (iii) is qualified to do business in all jurisdictions in which the failure
to so qualify would have a material adverse effect on its business or financial
condition. The Company has made available to the other party for inspection
complete and correct copies of its Certificate or Articles of Incorporation, as
amended, and Bylaws as in effect on the date hereof and a record of any and all
proceedings and actions at all meetings of, or taken by written consent by, its
Board of Directors and shareholders, since inception, in each case, certified as
true, complete and correct copies by the Company's Secretary.
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3.2 AUTHORITY RELATING TO THIS AGREEMENT; NO VIOLATION OF OTHER
INSTRUMENTS.
3.2.1 The execution and delivery of this Agreement and all agreements
to which the Company is or will be a party that are exhibits to this
Agreement and the performance hereunder and thereunder by the Company have
been duly authorized by all necessary corporate action on the part of the
Company other than shareholder approval as contemplated by Sections 6.4 and
7.4 hereof, and, assuming execution of this Agreement and such other
agreements by each of the other parties thereto, this Agreement and such
other agreements will constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms,
subject as to enforcement: (i) to bankruptcy, insolvency, reorganization,
arrangement, moratorium and other laws of general applicability relating to
or affecting creditors' rights; and (ii) to general principles of equity,
whether such enforcement is considered in a proceeding in equity or at law.
3.2.2 Neither the execution of this Agreement or any other agreement to
which the Company is or will be a party that is an exhibit to this Agreement
nor the performance of any of them by the Company will: (i) conflict with or
result in any breach or violation of the terms of any decree, judgment,
order, law or regulation of any court or other governmental body now in
effect applicable to the Company; (ii) conflict with, or result in, with or
without the passage of time or the giving of notice, any breach of any of
the terms, conditions and provisions of, or constitute a default under or
otherwise give another party the right to terminate, or result in the
creation of any lien, charge, or encumbrance upon any of the assets or
properties of the Company pursuant to, any indenture, mortgage, lease,
agreement or other instrument to which the Company is a party or by which it
or any of its assets or properties are bound, including all Contracts (as
defined in Section 3.19); (iii) permit the acceleration of the maturity of
any material indebtedness of the Company or of any other person secured by
the assets or properties of the Company; or (iv) violate or conflict with
any provision of the Company's Certificate or Articles of Incorporation,
Bylaws, or similar organizational instruments.
3.2.3 Except as contemplated in Sections 2.4, 2.10, 5.4, 6.4, 6.18, 7.7
and 7.13 of this Agreement, no consent from any third party and no consent,
approval or authorization of, or declaration, filing or registration with,
any government or regulatory authority is required to be made or obtained by
the Company in order to permit the execution, delivery or performance of
this Agreement or any other agreement to which the Company is or will be a
party that is an exhibit to this Agreement by the Company, or the
consummation of the transactions contemplated by this Agreement and such
other agreements.
3.3 COMPLIANCE WITH LAW. The Company holds, all licenses, permits and
authorizations necessary for the lawful conduct of the Company's business
wherever conducted pursuant to all applicable statutes, laws, ordinances, rules
and regulations of all governmental bodies, agencies and subdivisions having,
asserting or claiming jurisdiction over the Company or over any part of the
Company's operations, and the Company knows of no violation thereof. The Company
is not in violation of any decree, judgment, order, law or regulation of any
court or other governmental body (including without limitation, applicable
environmental protection legislation and regulations, equal employment and civil
rights regulations, wages, hours and the payment of social security taxes and
occupational health and safety legislation), which violation could have a
material adverse effect on the condition, financial or otherwise, assets,
liabilities, business or results of operations of the Company.
3.4 INVESTMENTS IN OTHERS. Section 3.4 of the Officer-Certified Disclosure
Statement of the Company contains a list of each corporation, association,
partnership, joint venture or other entity in which the Company, directly or
indirectly, owns an equity interest and sets forth the Company's percentage
interest by voting rights and by profits, in each such entity. Except for the
entities identified in such list, the Company does not conduct any part of its
business operations through any Subsidiaries or through any other entity in
which the Company has an equity investment.
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3.5 TAX RETURNS AND PAYMENTS. All tax returns and reports with respect to
the Company required by law to be filed under the laws of any jurisdiction,
domestic or foreign, have been duly and timely filed and all taxes, fees or
other governmental charges of any nature which were required to have been paid
have been paid or provided for. The Company has no knowledge of any actual or
threatened assessment of deficiency or additional tax or other governmental
charge or a basis for such a claim against the Company. The Company has no
knowledge of any tax audit of the Company by any taxing or other authority in
connection with any of its fiscal years; the Company has no knowledge of any
such audit currently pending or threatened, and there are no tax liens on any of
the properties of the Company.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date (the "Balance
Sheet Date") of the most recent balance sheet delivered by the Company pursuant
to Section 4.2 or 5.2, as the case may be (the "Balance Sheet"), except as
contemplated by this Agreement, there have been no material changes in the
condition, financial or otherwise, assets, liabilities, business or the results
of operations of the Company, other than changes in the ordinary course of
business which in the aggregate have not been materially adverse. Without
limiting the foregoing, including the materiality standard, since the Balance
Sheet Date, except as contemplated by this Agreement:
(i) the Company has not entered into any transaction other than in the
ordinary course of business;
(ii) there have been no material losses or damage to any of the assets
or properties of the Company due to fire or other casualty, whether or not
insured;
(iii) there has been no increase or decrease in the rates of direct
compensation payable or to become payable by the Company to any employee,
agent or consultant (other than routine increases made in the ordinary
course of business or pursuant to a collective bargaining agreement), or any
bonus, percentage compensation, service award or other like benefit,
granted, made or accrued to or to the credit of any such employee, agent or
consultant, or any material welfare, pension, retirement or similar payment
or arrangement made or agreed to be made by the Company (other than such
events occurring pursuant to any previously existing benefit plan or
collective bargaining agreement);
(iv) the Company has not executed, created, amended or terminated any
contract except in the ordinary course of business;
(v) the Company has not declared or paid any dividend or made any
distribution on its capital stock, nor redeemed, purchased or otherwise
acquired any of its capital stock, nor issued any capital stock, other than
under its stock incentive plans identified in Section 4.1 or 5.1;
(vi) the Company has not received notice that there has been a
cancellation of an order for its products or a loss of a customer of the
Company, the cancellation or loss of which would materially adversely affect
the condition, financial or otherwise, assets, liabilities, business or
results of operations of the Company;
(vii) there has been no resignation or termination of employment of any
officer or key employee of the Company and the Company does not know of the
impending resignation or termination of employment of any officer or key
employee of the Company;
(viii) there has been no material change in the contingent obligations of
the Company by way of guaranty, endorsement, indemnity, warranty or
otherwise;
(ix) there have been no loans made by the Company to its employees,
officers or directors, other than travel advances and other advances made in
the ordinary course of business;
(x) to the best of the Company's knowledge there has been no waiver or
compromise by the Company of a material right or of a material debt owed to
it;
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(xi) the Company has not made or agreed to make any disbursements or
payments of any kind to any member or members of its Board of Directors,
other than travel advances made in the ordinary course of business;
(xii) there have been no capital expenditures by the Company exceeding
Fifty Thousand Dollars ($50,000) in the aggregate;
(xiii) there has been no change in accounting methods or practices
(including without limitation, any change in depreciation or amortization
policies or rates) by the Company;
(xiv) there has been no revaluation by the Company of any of the assets or
properties of the Company;
(xv) there has been no sale or transfer of any of the assets or
properties of the Company, except in the ordinary course of business;
(xvi) there has been no loan by the Company to any person or entity;
(xvii) there has been no commencement or notice of threat of commencement
of any governmental proceeding against or investigation of the Company or
its affairs;
(xviii) there has been no revocation of license or right to do business
granted to the Company;
(xix) the Company has not paid any obligation or liability (fixed,
contingent or otherwise) or discharged or satisfied any lien, or settled any
liability, claim, dispute, proceeding, suit or appeal pending or threatened
against it, except for current liabilities incurred in the ordinary course
of business; and
(xx) there has been no agreement or commitment by the Company to do or
perform any of the acts described in this Section 3.6.
3.7 INVENTORIES. The inventories shown on the Balance Sheet of the Company
are of a quantity and quality useable and saleable in accordance with good
business practices and represent a distribution of the types of inventories
utilized in the business of the Company in accordance with good business
practices. Additions and deletions from the inventories since the Balance Sheet
Date have been in the ordinary course of business. The amounts shown for
inventories on the Balance Sheet of the Company have been determined in
accordance with generally accepted accounting principles on a first-in,
first-out basis and are stated at lower of cost or market. All of the
inventories currently held by the Company were produced in compliance with all
applicable requirements of Sections 6, 7 and 12 of the Fair Labor Standards Act,
as amended, and the regulations and orders issued under Section 14 thereof by
the United States Department of Labor.
3.8 ACCOUNTS RECEIVABLE. The accounts receivable of the Company shown on
the Balance Sheet as of the Balance Sheet Date, or thereafter acquired by the
Company prior to the date hereof, have been and are (as the case may be)
collectible within one hundred twenty (120) days from the date of Closing in
amounts not less than the aggregate amounts thereof carried on the books of the
Company reduced by the reserves for discounts and bad debts taken on the Balance
Sheet.
3.9 PERSONAL PROPERTY. The Company has good title, free and clear of all
title defects, objections and liens, including without limitation, leases,
chattel mortgages, conditional sales contracts, collateral security arrangements
and other title or interest-retaining arrangements, to all of its machinery,
equipment, furniture, inventory and other personal property. All of the leases
to personal property utilized in the business of the Company are valid and
enforceable against the Company and are not in default by the Company, or, to
the knowledge of the Company, are any of the other parties thereto in default
thereof.
3.10 REAL PROPERTY. The Company does not own any real property. Section
3.10 of the Officer-Certified Disclosure Statement of the Company contains a
list of all leases for real property to which the Company is a party, the square
footage leased with respect to each lease and the expiration date of
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each lease. All such leases are valid and enforceable and are not in default.
The real property owned, leased or occupied by the Company, the improvements
located thereon, and the furniture, fixtures and equipment relating thereto
(including plumbing, heating, air conditioning and electrical systems), conform
to any and all applicable health, fire, safety, zoning, land use and building
laws, ordinances and regulations. There are no outstanding contracts made by the
Company for any improvements made to the real property owned, leased or occupied
by the Company that have not been paid for.
3.11 PATENTS, TRADEMARKS, TRADE NAMES AND COPYRIGHTS. All patents,
trademarks, trade names, copyrights, processes, designs, formulas, inventions,
trade secrets, know-how, technology or other proprietary rights which are
necessary to the conduct of the Company's business are owned or are useable by
the Company. The conduct of any business conducted by the Company does not
infringe any patent, trademark, trade name, copyright, trade secret, or other
proprietary right of any other person. No litigation is pending or, to the
knowledge of the Company, has been threatened against the Company or any
officer, director, shareholder, employee or agent of the Company, for the
infringement of any patents, trademarks or trade names of any other party or for
the misuse or misappropriation of any trade secret, know-how or other
proprietary right owned by any other party nor, to the best knowledge of the
Company, does any basis exist for such litigation. To the best of the Company's
knowledge, there has been no infringement or unauthorized use by any other party
of any patent, trademark, trade name, copyright, process, design, formula,
invention, trade secret, know-how, technology or other proprietary right
belonging to the Company.
3.12 WARRANTIES. The Company has made no warranties or guarantees relating
to its products other than as implied or required by law. Section 3.12 of the
Officer-Certified Disclosure Statement of the Company contains a list of all
warranty and indemnification obligations of the Company relating to patents and
other proprietary rights.
3.13 LITIGATION. Neither the Company nor any officer or director of the
Company is a party to any pending or, to the Company's knowledge, threatened
action, suit, proceeding or investigation, at law or in equity or otherwise in,
for or by any court or other governmental body which could have a material
adverse effect on: (i) the condition, financial or otherwise, assets or
properties of the Company, liabilities, business or results of operations of the
Company; or (ii) the transactions contemplated by this Agreement; nor, to the
Company's knowledge, does any basis exist for any such action, suit, proceeding
or investigation. The Company is not and has not been subject to any pending or,
to its knowledge, threatened product liability claim; nor to its knowledge does
any basis exist for any such claim. The Company is not subject to any decree,
judgment, order, law or regulation of any court or other governmental body which
could have a material adverse effect on the condition, financial or otherwise,
assets, liabilities, business or results of operations of the Company or which
could prevent the transactions contemplated by this Agreement.
3.14 PROTECTION OF INTANGIBLE PROPERTY. To the knowledge of the Company,
each employee and consultant who has worked on or contributed to the development
of the Company's technology, trade secrets and other proprietary rights,
including without limitation, the Company's software, firmware or hardware, has
executed a proprietary rights and information agreement in the form attached to
the Officer-Certified Disclosure Statement. The Company acknowledges that it has
conducted review of its records relating to all Company employees and
consultants as the basis for making the representation in the preceding
sentence. The Company's source codes and trade secrets have not been used,
distributed or otherwise commercially exploited under circumstances which have
caused, or with the passage of time could cause, the loss of copyright or trade
secret status.
3.15 PERSONNEL. Section 3.15 of the Officer-Certified Disclosure Statement
of the Company contains a list of: (i) all employment, bonus, profit sharing,
percentage compensation, employee benefit plans, incentive plans, pension or
retirement plans, stock purchase and stock option plans, oral or written
contracts or agreements with directors, officers, employees or unions, or
consulting agreements, to which the Company is a party or is subject as of the
date of this Agreement; and (ii) all group insurance programs in effect for
employees of the Company. The Company is not in default with
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respect to any of the obligations so listed. The Company has delivered complete
and correct copies of all such obligations (to the extent they are in writing or
written descriptions to the extent they are oral) to the other Company. The
Company has no union contracts or collective bargaining agreements with, or any
other obligations to, employee organizations or groups relating to the Company's
business, nor is the Company currently engaged in any labor negotiations except
in minor grievances not involving any employee organization or group, nor, to
the knowledge of the Company, is the Company the subject of any union
organization affecting its business. There is no pending or, to the Company's
knowledge, threatened labor dispute, strike or work stoppage affecting the
Company's business. All plans described in Section 3.15 of the Officer-Certified
Disclosure Statement are in full compliance with applicable provisions of the
Employees Retirement Income Security Act of 1974 ("ERISA") and regulations
issued under ERISA, and there is no unfunded liability with respect to such
plans. Section 3.15 of the Officer-Certified Disclosure Statement also lists the
amount payable to employees of the Company under other fringe benefit plans.
3.16 CERTAIN PAYMENTS. To the knowledge of the Company, neither the
Company, nor any shareholder, director, officer, employee or agent of the
Company, has made or caused to be made, directly or indirectly, the payment of
any consideration whatsoever to any public official, candidate for public
office, political party, or other third person in connection with the business
or operations of the Company, or pertaining to the Company's relations with any
customer, supplier, or creditor, in contravention of the law of any applicable
jurisdiction.
3.17 BROKERS AND FINDERS. Neither the Company nor any shareholder,
director, officer, employee or agent of the Company has retained any broker,
finder or investment banker in connection with the transactions contemplated by
this Agreement. The Company will indemnify and hold the other Company harmless
against all claims for brokers', finders' or investment bankers' fees made or
asserted by any party claiming to have been employed by the Company or any
shareholder, director, officer, employee or agent of the Company and all costs
and expenses (including the reasonable fees of counsel) of investigating and
defending such claims.
3.18 ORDER BACKLOG. Section 3.18 of the Officer-Certified Disclosure
Statement of the Company contains a list of the aggregate backlog of orders for
the Company's products as of The Balance Sheet Date. All such orders have been
or will be filled by the Company in the ordinary course of business, and the
Company knows of no reason why any customer placing any such order may refuse
delivery of the ordered products or fail timely to pay for such products in
accordance with the terms of such orders.
3.19 CONTRACTS. Section 3.19 of the Officer-Certified Disclosure Statement
lists all oral or written agreements, notes, instruments, or contracts to which
the Company is a party or by which its assets or properties may be bound which
involve the payment or receipt of more than $10,000 in the case of Amati or
$100,000 in the case of ICOT (in either case, on an annual basis), or have a
term of more than one year, or involve intellectual property, or which are
employment or consulting agreements (the "Contracts"). The Company is not in
default in performance of its obligations under any such Contracts and there is
no event or condition that, with the giving of notice or the passage of time,
would constitute such a default. The Company has no knowledge of any violation
of any Contract by any other party thereto and has no knowledge of any intent by
any other party to a Contract not to perform its obligations under such
Contract.
3.20 SHAREHOLDERS AND EMPLOYEES. Except as set forth in Section 3.20 of
the Officer-Certificate Disclosure Statement, none of the shareholders,
directors or management personnel of the Company is presently a party to any
transaction with the Company, including without limitation, any contract,
agreement or other arrangement: (i) providing for the furnishing of services to
or by; (ii) providing for rental of real or personal property to or from; or
(iii) otherwise requiring payments to or from any shareholder, director or
management personnel, or any member of the family of any shareholder,
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director or management personnel or any corporation, trust or other entity in
which any shareholder, director or management personnel has a substantial
interest or is an officer, director, investor or partner.
3.21 ABSENCE OF ENVIRONMENTAL LIABILITIES. To the knowledge of the
Company, neither the Company nor the real property owned, leased or occupied by
the Company is in violation of any applicable federal, state or local law,
ordinance, regulation or order relating to industrial hygiene, worker safety,
public health and safety, environmental protection, or Hazardous Materials (as
defined below) on, under or about such real property, including the soil and
ground water underlying such real property. No current use of or condition at
the real property owned, leased or occupied by the Company constitutes a public
or private nuisance. Any handling, transportation, storage, treatment or use of
Hazardous Material (as defined below) that has occurred on the real property
owned, leased or occupied by the Company during the Company's ownership,
tenancy, or occupancy and prior to the Closing Date has been and will be as of
the Closing Date in compliance with all applicable laws, ordinances, regulations
and orders relating to Hazardous Material. As used herein, the term "Hazardous
Material" means any substance, material or waste which is or becomes regulated
as "hazardous" or "toxic" by any local government authority, the State of
California, any other state or the United States Government, including without
limitation, any material or substance which is: (1) petroleum; (2) asbestos; (3)
defined as a 'hazardous substance' under Section 25316 of the California Health
and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous
Substance Account Act) and any regulations applicable thereunder; (4) listed as
a chemical known to the State of California to cause cancer or reproductive
toxicity pursuant to Section 25249.8 of the California Health and Safety Code,
Division 20, Chapter 6.6 (Safe Drinking Water and Toxic Enforcement Act of 1986)
and any regulations applicable thereunder; or (5) defined as a 'hazardous
substance' under Section 101 or Section 102 of the Comprehensive Environmental
Response Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., as
amended ("CERCLA"), and any regulations applicable thereunder. To the knowledge
of the Company, the real property owned, leased or occupied by the Company,
including without limitation, the soil and groundwater on or under such real
property, is free of any significant release of any Hazardous Material. No
notification of release of Hazardous Material pursuant to CERCLA or the federal
Clean Water Act, or any state or local environmental law or regulatory
requirement has been received by the Company as to any of such real property. To
the knowledge of the Company, no Hazardous Material generated by the Company or
any of its affiliates in operating the Company's business have ever been sent
directly or indirectly to any site listed or formally proposed for listing on
the National Priority List promulgated pursuant to CERCLA or to any site listed
on any state list of hazardous substances sites requiring investigation or
clean-up, nor has the Company arranged for the transportation, treatment, or
disposal at any site of any Hazardous Material. The Company has not received
from any governmental authority or third party any requests for information,
notices of claim, demand letters, or other notification that, in connection with
the conduct of its business, it is or may be potentially responsible with
respect to any investigation or clean-up of Hazardous Material at any site.
3.22 POWER OF ATTORNEY; SURETYSHIPS. The Company has no power of attorney
outstanding, nor has any obligation or liability, either actual, accrued,
accruing or contingent, as guarantor, surety, cosigner, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any other person,
corporation, partnership, joint venture, association, organization or other
entity.
3.23 BUSINESS PRACTICES. The Company has not made, offered or agreed to
offer anything of value to any government official, political party or candidate
for government office nor has it taken any action which would cause it to be in
violation of the Foreign Corrupt Practices Act of 1977.
3.24 PROXY STATEMENT AND S-4. None of the information relating to the
Company and its Subsidiaries or their respective officers and directors supplied
by the Company for inclusion or incorporation by reference in the Proxy
Statement or the S-4 will, in the case of the Proxy Statement or any amendments
or supplements thereto, at the time of the mailing of the Proxy Statement and
any amendments or supplements thereto, and at the time of the meeting of
shareholders of the Company
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to vote upon this Agreement, the Merger and related transactions, or, in the
case of the S-4, at the time it becomes effective under the 1933 Act and at the
Merger Effective Time, 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 Proxy Statement, insofar as it relates to the
Company, will comply as to form in all material respects with the provisions of
the Exchange Act. If at any time prior to the Merger Effective Time any event
with respect to the Company, its officers or directors should occur which is or
is required to be described in an amendment or a supplement to the Proxy
Statement or the S-4, such event shall be so described and such description in
such amendment or supplement of such information will not contain any statement
which, at the time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact or omit to state any
material fact required to be stated therein or in the Proxy Statement or the S-4
or necessary to make the statements therein or in the S-4 or Proxy Statement not
false or misleading.
3.25 ACCURACY OF DOCUMENTS AND INFORMATION. The copies of all instruments,
agreements, other documents and written information set forth as, or referenced
in, Schedules or Exhibits to this Agreement or specifically required to be
furnished pursuant to this Agreement by the Company to the other Company,
including, without limitation, the Officer-Certified Disclosure Statement of the
Company, are and will be complete and correct in all material respects. All
information in the Officer-Certified Disclosure Statement of the Company is as
of the date hereof or such earlier date as is specified therein, which in no
case is before March 31, 1995, and there have been no material changes in the
information set forth therein between the date so specified and the date of this
Agreement. No representations or warranties made by the Company in this
Agreement, nor any document, written information, statement, financial
statement, certificate, Schedule or Exhibit furnished directly to the other
Company pursuant to this Agreement or in the Officer-Certified Disclosure
Statement of the Company contains any untrue statement of a material fact, or
omits to state a material fact necessary to make the statements or facts
contained herein not misleading. There is no fact which materially and adversely
affects the Company, its financial position, assets, liabilities, business or
results of operations known to the Company which has not been expressly and
fully set forth in the S-4, the Proxy Statement, this Agreement or the Exhibits
and Schedules hereto or in the Officer-Certified Disclosure Statement of the
Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AMATI
Amati hereby represents and warrants to ICOT and IAAC that, except as set
forth in the Officer-Certified Disclosure Statement of Amati:
4.1 CAPITALIZATION. The authorized capital stock of Amati is 1,000,000
shares of Preferred Stock, of which 325,000 shares have been designated Series A
Preferred Stock, 325,000 shares of which are issued and outstanding, and
2,000,000 shares of Common Stock, of which 540,083 shares are issued and
outstanding. 7,064 shares of Common Stock are subject to a right of repurchase
by Amati at the purchase price (the "Amati Unvested Shares"). The outstanding
shares of Series A Preferred Stock of Amati are convertible into 325,000 shares
of Amati Common. All such issued and outstanding shares have been duly
authorized and validly issued, and are fully paid and non-assessable. Amati has
outstanding options to purchase 364,700 shares of Amati Common. As of May 15,
1995, Amati had outstanding convertible notes with the aggregate outstanding
principal of $2,150,899.56, which were convertible into Series B Preferred Stock
in the event Amati issues such stock (the "Amati Notes"). Amati Notes having an
aggregate principal of $750,000 remain outstanding as of the date of this
Agreement. Amati also has outstanding warrants to purchase shares of Amati
Series B Preferred Stock or Amati Common for a total exercise price of
$2,150,899.56 (the "Amati Warrants"). Of the Amati Warrants, warrants having a
total exercise price of $240,792.56 are exercisable at $6.00 per share of Amati
Common (the "$6 Warrants"), warrants having a total exercise price of $960,107
are exercisable at $9.00 per share of Amati Common (the "$9 Warrants"), and
warrants having a total
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exercise price of $950,000 are exercisable at a price determined in accordance
with the provisions of Section 2.5(c) (the "Fair Value Warrants"). Section 4.1
of the Officer-Certified Disclosure Statement contains a true and complete list
of each Amati Warrant, including the term thereof, the name of the holder of
each thereof, whether each such warrant is a $6 Warrant, a $9 Warrant or a Fair
Value Warrant, and in the case of the $6 Warrants and the $9 Warrants, the
number of shares of Amati Common issuable upon exercise of each thereof. Copies
of each of the Amati Notes and Amati Warrants have been provided to ICOT. Except
as set forth in the preceding sentences, there are no outstanding warrants,
options, agreements, convertible or exchangeable securities or other commitments
pursuant to which Amati is or may become obligated to issue, sell, purchase,
retire or redeem any shares of capital stock or other securities. A list of all
of the holders of securities of Amati, with the number of securities owned by
each as of the date hereof, is contained in Section 4.1 of the Officer-Certified
Disclosure Statement of Amati. When delivered in accordance with Section 2.5,
the Certificate Regarding Warrants shall be deemed to be part of Section 4.1 of
the Officer-Certified Disclosure Statement. Amati represents and warrants that
delivery of the Substitute Warrants pursuant to Section 2.5 of this Agreement
will fully satisfy the obligations of Amati and ICOT with respect to the Amati
Warrants that have not been exercised prior to the Closing. Amati further
represents and warrants that the holders of the Amati Notes that have been paid
since May 15, 1995 have no rights to receive securities of Amati or of ICOT in
or after the Merger pursuant to such paid Amati Notes. Amati further represents
and warrants that the ICOT Common issued pursuant to this Agreement and the
Merger Agreement will be fairly distributed to Amati securities holders.
4.2 FINANCIAL STATEMENTS. Amati has delivered the following consolidated
financial statements of Amati (the "Amati Financial Statements") to ICOT:
(i) Unaudited Balance Sheet of Amati as of March 31, 1995;
(ii) Unaudited Statement of Income of Amati for the period ended March
31, 1995; and
(iii) Audited Balance Sheets of Amati dated as of December 31, 1993 and
1994, together with audited Statements of Operations and Cash Flows for the
three fiscal years ended December 31, 1992, 1993 and 1994.
The Amati Financial Statements together with the notes thereto are in accordance
with the books and records of Amati, fairly present the financial position of
Amati and the results of operations and cash flows of Amati as at and for the
periods indicated, and have been prepared in accordance with generally accepted
accounting principles consistently applied.
4.3 ABSENCE OF UNDISCLOSED LIABILITIES. As of March 31, 1995 Amati had no
indebtedness or liability (absolute or contingent) which is not shown or
provided for in full on the Balance Sheet dated March 31, 1995 included in Amati
Financial Statements. Except as set forth in the Balance Sheet dated March 31,
1995 included in the Amati Financial Statements, Amati does not have outstanding
on the date hereof, nor will it have outstanding on the Closing Date, any
indebtedness or liability (absolute or contingent) other than those incurred
since March 31, 1995 in the ordinary course of business.
4.4 CREDIT CARDS. All Amati credit cards and the names of the people
holding such Amati cards are identified in Section 4.4 of the Officer-Certified
Disclosure Statement of Amati.
4.5 COMPLIANCE WITH LAW. Section 4.5 of the Officer-Certified Disclosure
Statement of Amati contains a true and complete list of all licenses, permits
and authorizations necessary for the lawful conduct of Amati's business wherever
conducted pursuant to all applicable statutes, laws, ordinances, rules and
regulations of all governmental bodies, agencies and subdivisions having,
asserting or claiming jurisdiction over Amati or over any part of the Amati's
operations.
4.6 TAXES. Section 4.6 of the Officer-Certified Disclosure Statement of
Amati contains a true and complete list of all types of taxes paid or required
to be paid by Amati.
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4.7 PATENTS, TRADEMARKS AND TRADE NAMES. Section 4.7 of the
Officer-Certified Disclosure Statement of Amati sets forth a list of all
patents, patent applications, trademarks, registered and unregistered, and trade
names, registered and unregistered, of Amati.
4.8 EMPLOYEES. Section 4.8 of the Officer-Certified Disclosure Statement
of Amati contains a list of the names, current salary rates, bonuses paid during
the last fiscal year, and accrued vacation and sick leave for all the employees
of Amati.
4.9 INSURANCE. Section 4.9 of the Officer-Certified Disclosure Statement
of Amati contains a list of all insurance policies and bonds in force with
respect to Amati showing for each such policy or bond: (i) the owner; (ii) the
coverage of such policy or bond; (iii) the amount of premium properly allocable
to such policy or bond; (iv) the name of the insurer; and (v) the termination
date of the policy or bond. Copies of all such insurance policies and bonds have
been furnished to ICOT. All such insurance policies and bonds are in full force
and effect.
4.10 BANK ACCOUNTS. Section 4.10 of the Officer-Certified Disclosure
Statement of Amati contains a list of all bank accounts of Amati, identifying
the name of the bank, the account number, and the authorized signatories to the
account.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ICOT AND IAAC
ICOT and IAAC hereby represent and warrant to Amati that, except as set
forth in the Officer-Certified Disclosure Statement of ICOT and IAAC:
5.1 CAPITALIZATION.
(a) The authorized capital stock of ICOT is 5,000 shares of Preferred Stock,
none of which are issued and outstanding, and 20,000,000 shares of ICOT Common,
of which 11,569,077 shares are issued and outstanding. All such issued and
outstanding shares have been duly authorized and validly issued, and are fully
paid and non-assessable. ICOT has reserved 3,045,000 shares of ICOT Common for
issuance under its Incentive Stock Option Plan, Supplemental Stock Option Plan,
1990 Stock Option Plan and Non-Employee Directors' Stock Option Plan, under
which options to purchase 1,038,925 shares of ICOT Common are outstanding.
Except as set forth in the preceding sentence, there are no outstanding
warrants, options, agreements, convertible or exchangeable securities or other
commitments pursuant to which ICOT is or may become obligated to issue, sell,
purchase, retire or redeem any shares of capital stock or other securities.
(b) The authorized capital stock of IAAC is 1,000,000 shares of IAAC Common,
of which 1,000 shares are issued and outstanding. All such issued and
outstanding shares have been duly authorized, and validly issued, are fully paid
and non-assessable, and are held by ICOT. There are no outstanding warrants,
options, agreements, convertible or exchangeable securities or other commitments
pursuant to which IAAC is or may become obligated to issue, sell, purchase,
retire or redeem any shares of stock or other securities.
5.2 FINANCIAL STATEMENTS. ICOT has delivered the following audited
consolidated financial statements of ICOT (the "ICOT Financial Statements") to
Amati:
(i) Unaudited Balance Sheet of ICOT as of April 29, 1995;
(ii) Unaudited Statement of Income of ICOT for the nine months ended
April 29, 1995;
(iii) Audited Balance Sheets of ICOT dated as of July 30, 1993 and 1994,
together with Statements of Operations and Cash Flows during the three
fiscal years ended July 30, 1992, 1993 and 1994.
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The ICOT Financial Statements together with the notes thereto are in accordance
with the books and records of ICOT, fairly present the financial position of
ICOT and the results of operations and cash flows of ICOT as at and for the
periods indicated, and have been prepared in accordance with generally accepted
accounting principles consistently applied.
5.3 ABSENCE OF UNDISCLOSED LIABILITIES. As of April 29, 1995, ICOT had no
indebtedness or liability (absolute or contingent) which is not shown or
provided for in full on the Balance Sheet dated April 29, 1995 included in the
ICOT Financial Statements. Except as set forth in the Balance Sheet dated April
29, 1995 included in the ICOT Financial Statements, ICOT does not have
outstanding on the date hereof, nor will it have outstanding on the Closing
Date, any indebtedness or liability (absolute or contingent) other than those
incurred since April 29, 1995 in the ordinary course of business.
5.4 SHARES ISSUED IN CONNECTION WITH THE MERGER. ICOT is requesting in the
Proxy Statement consent of its stockholders to increase its authorized capital,
and such increase is necessary to complete the Merger. The shares of ICOT Common
to be issued to the Holders pursuant to the Merger, when issued in accordance
with this Agreement and the Merger Agreement, will be duly authorized, validly
issued, fully paid and non-assessable. The shares of ICOT Common to be issued to
the holders of Amati Options upon exercise of Amati Options after the Merger,
when issued upon exercise of Amati Options in accordance with this Agreement,
the Merger Agreement, and the Amati Plan, will be duly authorized, validly
issued, fully paid and non-assessable. The shares of ICOT Common to be issued to
the holders of Substitute Warrants upon exercise of the Substitute Warrants
after the Merger, when issued upon exercise of Substitute Warrants in accordance
with this Agreement and the Merger Agreement, will be duly authorized, validly
issued, fully paid and non-assessable.
5.5 EXCHANGE ACT REPORTS. Since January 1, 1990, ICOT has filed within the
time period permitted all reports required to be filed under the Exchange Act.
Copies of all such reports filed since January 1, 1992 have been provided to
counsel to Amati.
5.6 ACTIVITIES OF IAAC. IAAC was formed for the purpose of participating
in the Merger as contemplated in this Agreement. IAAC has carried on no
business.
5.7 PATENTS, TRADEMARKS AND TRADE NAMES. Section 5.7 of the
Officer-Certified Disclosure Statement of ICOT sets forth a list of all patents,
patent applications, trademarks, registered and unregistered, and trade names,
registered and unregistered, of ICOT.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF ICOT AND IAAC
The obligations of ICOT and IAAC to consummate the Merger are subject to the
fulfillment, at or before the Closing of all the following conditions, any one
or more of which may be waived by ICOT.
6.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations
and warranties of Amati contained in this Agreement shall be deemed to have been
made again at and as of the Closing with respect to the stated facts (including
the update of the Officer-Certified Disclosure Statement of Amati referred to in
Section 8.1 of this Agreement) then existing and shall be true in all material
respects.
6.2 COVENANTS PERFORMED. All of the obligations of Amati to be performed
at or before the Closing pursuant to the terms of this Agreement shall have been
duly performed by Amati.
6.3 CERTIFICATE. At the Closing, ICOT shall have received a certificate
signed by an officer of Amati to the effect that the conditions set forth in
Sections 6.1 and 6.2 have been satisfied.
6.4 SHAREHOLDER APPROVAL. This Agreement and the Merger Agreement shall
have been duly approved by the shareholders of Amati and ICOT, and the increases
in authorized capital necessary to
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complete the Merger, as described in Section 5.4, and in the number of shares
authorized for issuance under the ICOT 1990 Stock Option Plan, as required to
grant the Performance Options, shall have been duly approved by the stockholders
of ICOT.
6.5 DISSENTING AMATI SHARES. At least ninety-five percent (95%) of the
outstanding shares of Amati Common and of the Amati Series A Preferred shall
have approved this Agreement and the Merger Agreement.
6.6 OPINION OF COUNSEL TO AMATI. Gray Cary Ware & Freidenrich, counsel to
Amati, shall have issued an opinion in favor of ICOT in a form mutually agreed
to by counsel to ICOT and counsel to Amati.
6.7 TAX-FREE REORGANIZATION. ICOT shall have received the opinion of its
counsel to the effect that the Merger will constitute a tax-free reorganization
within the meaning of Section 368(a) of the Code, which opinion shall be
substantially similar to the opinion delivered to Amati pursuant to Section 7.6.
In preparing the tax opinion, counsel may rely upon (and to the extent
reasonably required, the parties shall make and use their best efforts to cause
their directors and shareholders to make) reasonable representations relating
thereto.
6.8 NASDAQ NOTIFICATION. ICOT shall have notified the Nasdaq National
Market of the proposed issuance of ICOT Common pursuant to the Merger and upon
exercise of the Amati Options assumed by ICOT pursuant to the Merger and upon
exercise of the Substitute Warrants.
6.9 AFFILIATES AGREEMENTS. Each Amati "affiliate" (as such term is defined
in Section 8.11) shall have executed and delivered an Affiliates Agreement to
ICOT.
6.10 EMPLOYMENT AGREEMENT WITH DR. CIOFFI. The employment agreement
entered into between Amati and John M. Cioffi dated May 5, 1995 shall remain in
full force and effect and shall have been assigned to ICOT effective at the
Merger Effective Time.
6.11 SECURITIES LAW COMPLIANCE. ICOT shall be satisfied that the issuance
of the ICOT Common and the Substitute Warrants in connection with the Merger
complies with federal and state securities laws.
6.12 CERTAIN AGREEMENTS. Each of (a) the Patent and Technology Ownership
and License Agreement by and between Amati and Northern Telecom Limited dated as
of January 1, 1995, (b) the Acknowledgement Agreement by and between Amati and
the Board of Directors of the Leland Stanford Junior University ("Stanford")
dated May 4, 1995, and (c) the Waiver and Acknowledgement by and between Amati
and University Ventures II dated May 1, 1995, shall remain in full force and
effect and, if affected by this Agreement, shall have been reconfirmed by the
parties thereto.
6.13 IRREVOCABLE PROXIES. The Irrevocable Proxies shall remain in full
force and effect as of the Closing Date.
6.14 RESIGNATION OF ICOT DIRECTOR. ICOT shall have received the
resignation of William D. Witter from the Board of Directors, effective as of
the Merger Effective Time.
6.15 MERGER AGREEMENT. The Merger Agreement shall have been filed with the
Secretary of State of the State of California.
6.16 MATERIAL CHANGES IN THE BUSINESS OF AMATI BETWEEN THE DATE OF THIS
AGREEMENT AND THE CLOSING. There shall have been no material adverse change in
the financial position, results of operations, assets, liabilities or business
of Amati between the date of this Agreement and the Closing.
6.17 NO ACTION TO PREVENT COMPLETION. ICOT shall not have determined, in
the reasonable exercise of its discretion, that the transactions contemplated by
this Agreement have become inadvisable or impractical by reason of the
institution or threat of institution of litigation or other proceedings with
respect to or affecting the transactions contemplated by this Agreement.
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6.18 CONSENTS. Each of ICOT and Amati shall have received in writing all
consents, approvals, and waivers required in connection with the Merger (a) from
parties to the agreements, indentures, mortgages, franchises, licenses, permits,
leases, and other instruments set forth in Section 6.18 of the Officer-Certified
Disclosure Statement of ICOT and Amati, respectively, and (b) from all
governmental authorities.
6.19 REMOVAL OF RESTRICTION ON TRANSFER. Amati shall have received an
order from the Commissioner of Corporations of the State of California removing
the restriction on transfer imposed pursuant to Section 260.141.10 of Title 10
of the California Code of Regulations with respect to those shares of Amati
Common subject to such restriction.
6.20 CREDIT CARDS. To the extent that ICOT shall have so requested prior
to the Merger Effective Time, the credit cards listed or required to be listed
on Section 4.4 of the Officer-Certified Disclosure Statement of Amati shall have
been delivered to ICOT.
6.21 ESCROW AGREEMENT. The Escrow Agreement shall have been executed by
the Shareholder Representatives and the Escrow Holder.
6.22 KEY PERSON INSURANCE. A key person life insurance policy on the life
of John M. Cioffi in a mutually agreed to amount of between $3,000,000 and
$5,000,000, with proceeds payable to ICOT, shall be in effect.
6.23 DOCUMENTATION. All actions, proceedings, instruments, resolutions,
certificates, and documents reasonably requested by ICOT to be executed and
delivered to ICOT in order to carry out this Agreement and to consummate the
Merger, and all of the relevant legal matters, shall be reasonably satisfactory
to ICOT and its counsel.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF AMATI
The obligations of Amati to consummate the Merger are subject to the
fulfillment, at or before the Closing, of all of the following conditions, any
one or more of which may be waived by Amati:
7.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations
and warranties of ICOT and IAAC contained in this Agreement shall be deemed to
have been made again at and as of the Closing with respect to the stated facts
(including the update of the Officer-Certified Disclosure Statement of ICOT and
IAAC referred to in Section 8.1 of this Agreement) then existing and shall be
true in all material respects.
7.2 COVENANTS PERFORMED. All of the obligations of ICOT and IAAC to be
performed at or before the Closing pursuant to the terms of this Agreement shall
have been duly performed by such parties.
7.3 CERTIFICATE. At the Closing, Amati shall have received a certificate
signed by the President of each of ICOT and IAAC to the effect that the
conditions set forth in Sections 7.1 and 7.2 have been satisfied.
7.4 SHAREHOLDER APPROVAL. This Agreement and the Merger Agreement shall
have been duly approved by the stockholders of ICOT and Amati, and the increases
in authorized capital necessary to complete the Merger, as described in Section
5.4, and in the number of shares authorized for issuance under the ICOT 1990
Stock Option Plan, as required to grant the Performance Options, shall have been
duly approved by the stockholders of ICOT.
7.5 OPINION OF COUNSEL TO ICOT. Heller Ehrman White & McAuliffe, counsel
to ICOT, shall have issued an opinion in favor of Amati in the form mutually
agreeable to counsel to Amati and counsel to ICOT.
7.6 TAX-FREE REORGANIZATION. Amati shall have received the opinion of its
counsel to the effect that the Merger will constitute a tax-free reorganization
within the meaning of Section 368(a) of the
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Code, which opinion shall be substantially similar to the opinion delivered to
ICOT pursuant to Section 6.7. In preparing the tax opinion, counsel may rely
upon (and to the extent reasonably required, the parties shall make and use
their best efforts to cause their directors and shareholders to make) reasonable
representations relating thereto.
7.7 NASDAQ NOTIFICATION. ICOT shall have notified the Nasdaq National
Market of the proposed issuance of ICOT Common pursuant to the Merger and upon
exercise of the Amati Options assumed by ICOT pursuant to the Merger and upon
exercise of the Substitute Warrants.
7.8 BOARD OF DIRECTORS. Dr. James F. Gibbons and Dr. John Cioffi shall
have been appointed to the Board of Directors of ICOT, effective as of the
Merger Effective Time.
7.9 VOTING AGREEMENTS. The Voting Agreements shall remain in full force as
of the Closing Date and there shall be no amendment or other modification to
such agreements to which ICOT, Amati and all parties thereto shall not have
consented in writing.
7.10 MERGER AGREEMENT. The Merger Agreement shall have been filed with the
Secretary of State of the State of California.
7.11 MATERIAL CHANGES IN THE BUSINESS OF ICOT BETWEEN THE DATE OF THIS
AGREEMENT AND THE CLOSING. There shall have been no material adverse change in
the financial position, results of operations, assets, liabilities or business
of ICOT between the date of this Agreement and the Closing.
7.12 NO ACTION TO PREVENT COMPLETION. Amati shall not have determined, in
the reasonable exercise of its discretion, that the transactions contemplated by
this Agreement have become inadvisable or impractical by reason of the
institution or threat of institution of litigation or other proceedings with
respect to or affecting the transactions contemplated by this Agreement.
7.13 CONSENTS. Each of ICOT and Amati shall have received in writing all
consents, approvals, and waivers required in connection with the Merger (a) from
parties to the agreements, indentures, mortgages, franchises, licenses, permits,
leases, and other instruments set forth in Section 6.18 of the Officer-Certified
Disclosure Statement of ICOT and Amati, respectively, and (b) from all
governmental authorities.
7.14 DOCUMENTATION. All actions, proceedings, instruments, resolutions,
certificates, and documents reasonably requested by Amati to be executed and
delivered to Amati in order to carry out this Agreement and to consummate the
Merger, and all of the relevant legal matters, shall be reasonably satisfactory
to Amati and its counsel.
7.15 ICOT OFFICERS. ICOT shall have authorized the appointment of John M.
Cioffi as Vice President, Engineering, effective as of the Merger Effective
Time.
ARTICLE VIII
PRE-CLOSING COVENANTS
During the period from the date of this Agreement until the Merger Effective
Time, ICOT and Amati (each sometimes referred to as a "Company" for the purposes
of this Article VIII) each covenants and agrees as follows:
8.1 ADVICE OF CHANGES. Each Company will promptly advise the other Company
in writing (i) of any event occurring subsequent to the date of this Agreement
that would render any representation or warranty of such Company contained in
this Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect and (ii) of any material adverse
change in such Company's business, taken as a whole. Not less than three (3)
days before the Closing, each Company shall deliver to the other Company an
update of the Officer-Certified Disclosure Statement previously delivered by
such Company, showing any changes which have occurred with
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respect to the information contained therein since it was originally issued and
containing a description of any representation or warranty in this Agreement
which is no longer true as of such date. Such update shall be certified by an
officer of such Company.
8.2 MAINTENANCE OF BUSINESS. Each Company will use its best efforts to
carry on and preserve its business and its relationships with customers,
suppliers, employees and others in substantially the same manner as it has prior
to the date hereof. If either Company becomes aware of a deterioration in the
relationship with any customer, supplier or key employee, it will promptly bring
such information to the attention of the other Company in writing and, if
requested by the other Company, will exert its best efforts to restore the
relationship.
8.3 CONDUCT OF BUSINESS. Each Company will continue to conduct its
business and maintain its business relationships in the ordinary and usual
course and will not, without the prior written consent of the other Company:
8.3.1 borrow any money, except as set forth on the Officer-Certified
Disclosure Statement of the Company;
8.3.2 incur any liability except for those that may be incurred (i) in
the ordinary course of business, consistent with past practice, and are not
material in amount, (ii) in connection with the performance or consummation
of this Agreement, or (iii) with respect to capital expenditures set forth
on the Officer-Certified Disclosure Statement of the Company;
8.3.3 encumber or permit to be encumbered any of its assets except in
the ordinary course of its business consistent with past practice;
8.3.4 dispose of any of its assets, except inventory in the ordinary
course of business, consistent with past practice;
8.3.5 enter into any material lease or contract for the purchase or
sale of any property, real or personal, except in the ordinary course of
business, consistent with past practice;
8.3.6 fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained to the
date of this Agreement, subject only to ordinary wear and tear;
8.3.7 pay any bonus, increased salary, or special remuneration to any
officer, employee (other than those paid in the ordinary course of business,
consistent with past practice) or consultant or enter into any new
employment or consulting agreement with any such person, except in the
ordinary course of business consistent with past practice or as expressly
contemplated by this Agreement;
8.3.8 change accounting methods;
8.3.9 declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire any
of its capital stock (except pursuant to employee stock repurchase
agreements upon termination of an employee consistent with its past
practice);
8.3.10 amend or terminate any contract, agreement or license to which
it is a party except those amended or terminated in the ordinary course of
business consistent with past practice, and which are not material in
amount;
8.3.11 loan any amount to any person or entity, other than advances for
travel and expenses which are incurred in the ordinary course of business
consistent with past practice, not material in amount and documented by
receipts for the claimed amounts;
8.3.12 guarantee or act as a surety for any obligation except for the
endorsement of checks and other negotiable instruments in the ordinary
course of business, consistent with past practice, which are not material in
amount;
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8.3.13 waive or release any material right or claim except in the
ordinary course of business, consistent with past practice;
8.3.14 issue or sell any shares of its capital stock of any class
(except upon the conversion of outstanding preferred stock or the exercise
of an option or warrant currently outstanding, as disclosed in Section 4.1
or 5.1, as the case may be, or granted in accordance with this Section
8.3.14; provided, however, that Amati shall not issue shares upon exercise
of a Fair Value Warrant after the Ratio Calculation Date other than at the
exercise price set forth in the Certificate Regarding Warrants), or any
other of its securities, or issue or create any warrants, obligations,
subscriptions, options (except Amati shall grant immediately prior to the
Closing performance-based options to selected employees of Amati convertible
securities, or other commitments to issue shares of capital stock without
the prior consent of the other Company, which consent shall not be withheld
unreasonably, or as expressly contemplated by Section 8.16 of this
Agreement;
8.3.15 accelerate the vesting of any outstanding options;
8.3.16 split or combine the outstanding shares of its capital stock of
any class or enter into any recapitalization affecting the number of
outstanding shares of its capital stock of any class or affecting any other
of its securities;
8.3.17 merge, consolidate or reorganize with, or acquire any entity,
except for the Merger;
8.3.18 amend its Certificate or Articles of Incorporation or Bylaws,
except as expressly contemplated by this Agreement or the Merger Agreement
or an amendment to the Certificate of Incorporation of ICOT to increase the
authorized number of shares of ICOT Common;
8.3.19 license any of its technology or intellectual property, except
under non-exclusive hardware or software licenses granted to consumers or
end-users in the ordinary course of business; or
8.3.20 agree to do any of the things described in the preceding clauses
8.3.1 through 8.3.19.
8.4 SHAREHOLDER MEETINGS. Each Company will use its best efforts to hold a
special meeting of its shareholders at the earliest practicable date to submit
this Agreement and related matters for their consideration and approval, which
approval shall be recommended by each Company's Board of Directors and
management, subject to the fiduciary obligations of its directors and officers.
8.5 PROXY STATEMENT. Each Company will send to its shareholders, for the
purpose of considering and voting upon the Merger, the Proxy Statement
satisfying all requirements of applicable state and federal laws; provided,
however, that each Company shall be solely responsible for any statement,
information or omission in the Proxy Statement relating to it or its affiliates.
In addition, each Company shall promptly provide to the other Company all
information relating to its respective business or operations necessary for
inclusion in the Proxy Statement and or S-4 to satisfy all requirements of
applicable state and federal securities laws. Neither Company shall provide to
its shareholders or publish any material that violates the 1933 Act or Exchange
Act with respect to the transactions contemplated hereby.
8.6 REGULATORY APPROVALS. Prior to the Closing, each Company shall execute
and file, or join in the execution and filing, of any application or other
document that may be necessary in order to obtain the authorization, approval or
consent of any governmental body, federal, state, local or foreign which may be
reasonably required, or which the other Company may reasonably request, in
connection with the consummation of the transactions contemplated by this
Agreement. Each Company shall use its best efforts to obtain all such
authorizations, approvals and consents.
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8.7 NECESSARY CONSENTS. Prior to the Closing, each Company will use its
best efforts to obtain such written consents and take such other actions as may
be necessary or appropriate in addition to those set forth in Section 8.6 to
allow the consummation of the transactions contemplated hereby and to allow such
Company to carry on its business after the Closing.
8.8 LITIGATION. Prior to the Closing, each Company will notify the other
Company in writing promptly after learning of any material actions, suits,
proceedings or investigations by or before any court, board or governmental
agency, initiated by or against it, or known by it to be threatened against it.
8.9 DUE DILIGENCE. Until the Closing, each Company shall provide the other
Company (including accounting, legal, and investment banking representatives)
with access to its offices and its senior employees for the purpose of due
diligence, in accordance with procedures established by the parties to minimize
disruptions of their businesses.
8.10 SATISFACTION OF CONDITIONS PRECEDENT. Subject to the fiduciary
obligations of its directors and officers, each Company will use its best
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Section 6 and 7, and each Company will use its best efforts to
cause the transactions contemplated by this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby.
8.11 AFFILIATES. Amati shall cause each of its "affiliates," within the
meaning of Rule 145 of the 1933 Act ("Rule 145"), and each person who becomes an
affiliate prior to the Closing (including without limitation through the
exercise of an Amati Warrant) to deliver to ICOT, on or prior to the mailing of
the Proxy Statement (or prior to the Closing if such person is not an affiliate
at the time of such mailing), a written agreement (the "Affiliates Agreement"),
in form reasonably satisfactory to counsel to both parties, providing that such
person shall not offer or sell or otherwise dispose of any of the ICOT Common
issued to such person in the Merger in violation of the 1933 Act, including the
applicable provisions and limitations of Rule 145. In addition, the Affiliates
Agreements shall provide that such person shall not sell or otherwise dispose of
(a) any ICOT Common issued to such person until 90 days after the Closing Date
and either (b) more than 25% of the ICOT Common issued to such person before the
first anniversary of the Closing Date or (c) more than 25% of the ICOT Common
issued to such person before the first anniversary of the Closing Date and more
than 50% of the ICOT Common issued to such person before the second anniversary
of the Closing Date, in either case, unless such sale or disposition in approved
in writing by ICOT. ICOT shall be entitled to place legends on the certificates
evidencing any ICOT Common received by such Amati affiliates pursuant to the
terms of this Agreement and the Merger Agreement, and to issue stop transfer
instructions to the transfer agent for ICOT Common, consistent with the terms of
the Affiliates Agreements.
8.12 REGARDING TAX MATTERS. Each Company, and its officers, directors, and
shareholders, will take such actions and make such filings and representations
as are reasonably requested by the other Company or its counsel to have the
Merger constitute a tax-free reorganization within the meaning of Section 368(a)
of the Code.
8.13 NOTIFICATION OF CUSTOMERS, SUPPLIERS AND EMPLOYEES. Prior to the
Closing, Amati will notify each customer, supplier of products and employee who
is material to Amati's business of the basic facts relating to the transactions
contemplated by this Agreement, and Amati will use its best efforts to keep and
maintain the existing favorable business relationship with each of such
customers, suppliers and employees.
8.14 ADDITIONAL FUNDS TO AMATI; NEW AMATI NOTE. Pursuant to the Earlier
Agreement, ICOT agreed to provide Amati with loans up to the aggregate principal
amount of $3,400,000 to pay the holders of Amati Notes and certain accounts
payable and to fund Amati's operations, which loans are evidenced by a secured
promissory note in the principal amount of $750,000 dated March 21, 1995 (the
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"$750,000 Note") and a secured promissory note in the principal amount of
$2,650,000 dated May 15, 1995 (the "$2,650,000 Note"). In consideration of the
Irrevocable Proxies, ICOT shall make available additional funds (the "Additional
Funds") to Amati up to such amount as to bring the total amount of ICOT loans
outstanding to Amati (including the principal and interest then accrued on the
$750,000 Note and $2,650,000 Note) to $5,000,000, ICOT shall cancel the $750,000
Note and $2,650,000 Note, and Amati shall issue to ICOT a secured note in the
form of EXHIBIT 8.14 having a maximum principal amount of $5,000,000 and due and
payable on November 30, 1995 (the "New Amati Note"). The Additional Funds shall
be provided to Amati as necessary to cover reasonable operating expenses, as
approved by ICOT.
8.15 NEW AMATI WARRANT. In consideration of execution of this Agreement,
and in exchange for the option and warrant granted to ICOT under Sections 8.9(b)
and 8.9(d), respectively, of the Earlier Agreement, Amati shall issue to ICOT, a
warrant in the form attached to this Agreement as EXHIBIT 8.15 (the "New Amati
Warrant"). The New Amati Warrant shall be exercisable at any time prior to or on
October 31, 1996, in the event that the Merger does not occur for any reason
prior to or on October 31, 1995. Amati agrees at all times prior to November 1,
1996 to reserve and have available for issuance a number of securities
sufficient for issuance upon exercise of the Amati Warrants.
8.16 NEW AMATI FINANCING. Prior to the Closing, Amati shall use its best
efforts to obtain $838,000 in new financing for Amati. This requirement is
called the "Adjustment Condition." Amati may obtain such financing by a
combination of the following: (a) by extending the due dates of Amati Notes to
at least January 31, 1997 (in which event financing shall be deemed to have been
obtained in the principal amount of the Amati Notes so extended); (b) by
obtaining new notes on comparable terms to the Amati Notes with due dates not
earlier than January 31, 1997, (in which event financing shall be deemed to have
been obtained in the principal amount of such notes); or (c) by providing for
the issuance at Closing of shares of ICOT Common (i) in exchange for
cancellation of accounts payable of Amati (in which event financing shall be
deemed to have been obtained in the amount of the accounts payable canceled),
(ii) by the exercise of Amati Warrants (in which event financing shall be deemed
to have been obtained in the amount of the exercise price), or (iii) for
cancellation of Amati Notes together with the related Amati Warrants (in which
event financing shall be deemed to have been obtained in the principal amount of
the Amati Notes canceled). The terms for issuance of ICOT Common pursuant to
clause (c) shall be as set forth in EXHIBIT 8.16 hereto, and Amati represents
and warrants that these terms were established by the Amati Board as constituted
prior to the execution of this Agreement. ICOT agrees to issue at the Closing
the ICOT Common issuable pursuant to clause (c) of this Section 8.16; provided,
however, that ICOT shall not be required to issue such shares if, in the
reasonable judgment of ICOT based upon advice of counsel, such offer or sale
would not be in accordance with applicable federal or state securities laws.
8.17 AMATI BOARD AND MANAGEMENT. Simultaneously with the execution hereof,
Amati shall cause the Board of Directors of Amati to consist of Dr. James F.
Gibbons, Dr. John M. Cioffi and Messrs. Latif, Lucas and Silverman, and the
Amati Board of Directors will appoint Mr. Latif to serve as Chief Executive
Officer.
8.18 ISSUANCE OF AMATI OPTIONS AND SHARES PRIOR TO MERGER. Notwithstanding
Section 8.3.14, Amati shall not issue any options or shares to officers,
directors or employees of Amati prior to the Merger Effective Date and ICOT
shall instruct Messrs. Latif, Lucas and Silverman not to vote to approve any
such issuance as directors of Amati, unless the issuance is approved by Drs.
Gibbons and Cioffi and consented to by Mr. Kocsis.
ARTICLE IX
CONFIDENTIALITY COVENANT AND ANNOUNCEMENTS
9.1 CONFIDENTIALITY. No party to this Agreement shall use or disclose any
non-public information obtained from another party for any purpose unrelated to
the Merger, and, if this Agreement is
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terminated for any reason whatsoever, each party shall return to the other all
originals and copies of all documents and papers containing technical,
financial, and other information furnished to such party pursuant to this
Agreement or during the negotiations which preceded this Agreement, and shall
neither use nor disclose any such information except to the extent that such
information is available to the public, is rightfully obtained from third
parties or is independently developed.
9.2 ANNOUNCEMENTS. No party to this Agreement shall issue a press release
or other public communication relating to this Agreement, the Merger Agreement
or the Merger without the prior approval of the other party. Notwithstanding the
foregoing, ICOT may make such announcements regarding the Merger as, in the
judgment of its management after consultation with legal counsel, are necessary
to comply with securities laws or Nasdaq regulations, provided that ICOT shall
use all reasonable efforts to allow Amati to review such announcements prior to
issuance.
ARTICLE X
INDEMNIFICATION
10.1 INDEMNIFICATION RELATING TO AGREEMENT. To the extent and in the
manner set forth in the Escrow Agreement, Amati agrees, and by approval of this
Agreement and the Merger at the special shareholders' meeting of Amati, the
shareholders of Amati agree, that the amounts deposited in escrow pursuant to
Section 2.7(a) of this Agreement shall be used to defend, indemnify and hold
ICOT harmless from and against, and to reimburse ICOT with respect to, any and
all losses, damages, liabilities, claims, judgments, settlements, costs and
expenses (including reasonable attorneys' fees) of every nature incurred by ICOT
by reason of or arising out of or in connection with (i) any breach by Amati of
any representation or warranty of Amati contained in this Agreement or in any
certificate or other document delivered to ICOT pursuant to the provisions of
this Agreement, including, without limitation, the Officer-Certified Disclosure
Statement of Amati, or (ii) the failure, partial or total, of Amati to perform
any agreement or covenant required by this Agreement to be performed by it. It
is expressly agreed that a diminution in the value of the business of Amati by
reason of any of the foregoing shall be deemed a "loss" for purposes of this
Article X.
10.2 INDEMNIFICATION RELATING TO S-4 AND PROXY STATEMENT. To the extent
and in the manner set forth in the Escrow Agreement, Amati agrees, and by
approval of this Agreement and the Merger at the special shareholders' meeting
of Amati, the shareholders of Amati agree, that the amounts deposited in escrow
pursuant to Section 2.7(a) of this Agreement shall be used to defend, indemnify
and hold harmless ICOT, its officers, directors and agents, its attorneys and
accountants, and each person who controls ICOT within the meaning of the 1933
Act, from and against any losses, damages, liabilities, claims, judgments,
settlements, costs and expenses (including reasonable attorneys' fees) of every
nature, insofar as such losses, damages, liabilities, claims, judgments,
settlements, costs and expenses are incurred by reason of or arise out of or in
connection with any untrue statement or alleged untrue statement of any material
fact contained in the S-4 or in the Proxy Statement or in any amendment or
supplement to any of them, or are incurred by reason of or arise out of or in
connection with the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading, insofar
as such statement or omission relates to Amati and is based on information
furnished by Amati.
10.3 INDEMNIFICATION BY ICOT RELATING TO S-4 AND PROXY STATEMENT. ICOT
shall defend, indemnify and hold harmless the officers, directors and agents of
Amati, Amati's attorneys and accountants, and each person who controls Amati
within the meaning of the 1933 Act, from and against any losses, damages,
liabilities, claims, judgments, settlements, costs and expenses (including
reasonable attorneys' fees) of every nature, insofar as such losses, damages,
liabilities, claims, judgments, settlements, costs and expenses are incurred by
reason of or arise out of or in connection with any untrue statement or alleged
untrue statement of any material fact contained in the S-4 or in the Proxy
Statement or in any amendment or supplement to any of them, or are incurred by
reason of or arise
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out of or in connection with the omission or alleged omission to state therein a
material fact declared to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
insofar as such statement or omission relates to ICOT and is based on
information furnished by ICOT.
10.4 ESCROW. The shares of ICOT Common to be deposited in escrow in
accordance with Section 2.7(a) of this Agreement shall constitute an absolute
limit on the obligation of Amati or its shareholders to indemnify and hold ICOT
harmless under this Article X.
10.5 LIMITATION ON INDEMNIFICATION. Neither party shall be liable for
indemnification under this Article X unless the aggregate amount of all such
liabilities exceeds $90,000, in which case the liability for indemnification
under this Article X shall include only such amounts in excess of $90,000.
ARTICLE XI
TERMINATION
11.1 TERMINATION BY MUTUAL AGREEMENT. This Agreement may be terminated at
any time prior to the Merger Effective Time by the unanimous consent of ICOT and
Amati, even if and after the shareholders of Amati and/or ICOT have approved
this Agreement and the Merger Agreement.
11.2 TERMINATION BY ICOT. This Agreement may be terminated by ICOT alone,
by means of written notice to Amati, if (a) Amati fails to perform any material
covenant of Amati contained in this Agreement, (b) on or before 45 days after
the Shareholders of Amati approve the Merger, any of the conditions set forth in
Article VI of this Agreement shall not have been satisfied by Amati or waived by
ICOT, (c) the Merger Effective Time does not occur by October 31, 1995.
11.3 TERMINATION BY AMATI. This Agreement may be terminated by Amati
alone, by means of written notice to ICOT, if (a) ICOT fails to perform any
material covenant of ICOT contained in this Agreement, (b) on or before 45 days
after the stockholders of ICOT approve the Merger, any of the conditions set
forth in Article VII of this Agreement shall not have been satisfied by ICOT or
waived by Amati, or (c) the Merger Effective Time does not occur by October 31,
1995.
11.4 EFFECT OF TERMINATION. The provisions of Article IX, this Section
11.4, and Article XII shall survive termination of this Agreement. Further, the
liability of any party for breach of any representation, warranty, covenant, or
agreement of such party set forth in this Agreement occurring prior to the
termination of this Agreement shall survive termination of this Agreement.
ARTICLE XII
MISCELLANEOUS
12.1 EXPENSES. Each of ICOT and Amati shall pay its own costs and
expenses, including legal, accounting and investment banking fees and expenses,
relating to this Agreement, the negotiations leading up to this Agreement and
the transactions contemplated by this Agreement. ICOT represents and warrants
that it has not used any broker, finder or investment banker in connection with
the Merger. Amati represents and warrants that it has not used any broker,
finder or investment banker in connection with the Merger.
12.2 AMENDMENT. This Agreement shall not be amended except by a writing
duly executed by both parties.
12.3 ENTIRE AGREEMENT. This Agreement, including the Exhibit, Schedules,
and other documents delivered pursuant to this Agreement, contains all the terms
and conditions agreed upon by the parties relating to the subject matter of this
Agreement and supersedes all prior agreements, negotiations, correspondence,
undertakings, and communications of the parties, whether oral or written,
respecting that subject matter, except the nondisclosure agreement between Amati
and ICOT dated March 8, 1995, which remains in full force and effect.
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12.4 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of this State of California as applied to agreements
entered into by California residents and entirely to be performed within
California, except insofar as matters relating to ICOT are governed by the
Delaware GCL.
12.5 HEADINGS. The headings contained in this Agreement are intended for
convenience and shall not be used to determine the rights of the parties.
12.6 MUTUAL CONTRIBUTION. The parties to this Agreement and their counsel
have mutually contributed to its drafting.
12.7 NOTICES. All notices, requests, demands, and other communications
made in connection with this Agreement shall be in writing and shall be deemed
to have been duly given on the date of delivery if delivered by hand delivery or
by facsimile to the persons identified below or five days after mailing if
mailed by certified or registered mail postage prepaid return receipt requested
addressed as follows:
If to ICOT:
ICOT Corporation
P.O. Box 5143
3801 Zanker Road
San Jose, California 95150
Attention: President
Facsimile: (408) 433-0260
Confirmation Number: (408) 433-3300
With a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301
Attention: SAO File 16199-0012
Facsimile: (415) 324-0638
Confirmation Number: (415) 324-7000
If to Amati:
Amati Communications Corporation
1975 El Camino Real West
Mountain View, California 94040
Attention: Secretary
Facsimile: (415) 903-2350
Confirmation Number: (415) 903-2375
With a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Attention: Eric Lapp, Esq.
Facsimile: (415) 327-3699
Confirmation Number: (415) 328-6561
Such addresses may be changed, from time to time by means of a notice given
in the matter provided in this Section 12.7.
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12.8 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
In any event, all other provisions of this Agreement shall be deemed valid and
enforceable to the full extent.
12.9 SURVIVAL OF REPRESENTATION AND WARRANTIES. All representations and
warranties contained in this Agreement, including the Exhibits, Schedules and
other documents delivered pursuant to this Agreement shall survive until the
first anniversary of the Merger Effective Time.
12.10 WAIVER. Waiver of any term or condition of this Agreement by any
party shall not be construed as a waiver of a subsequent breach or failure of
the same term or condition, or a waiver of any other term or condition in this
Agreement.
12.11 ASSIGNMENT. Neither party may assign, by operation of law or
otherwise, all or any portion of its rights or duties under this Agreement
without the prior written consent of the other party, which consent may be
withheld in the absolute discretion of the party asked to give consent.
12.12 COUNTERPARTS. This Agreement may be signed in counterparts with the
same effect as if the signatures to each party were upon a single instrument.
All counterparts shall be deemed an original of this Agreement.
12.13 VOTING AGREEMENTS. Each director of ICOT shall enter into a Voting
Agreement in the form attached hereto as EXHIBIT 12.13, pursuant to which he
shall agree to vote all the shares of ICOT Common held by him or any affiliate
of such director in favor of the Merger (the "Voting Agreements").
12.14 IRREVOCABLE PROXY. ICOT shall receive an irrevocable proxy in the
form attached hereto as EXHIBIT 12.14 from James F. Gibbons, John M. Cioffi,
James F. Ottinger, Ronald K. Maxwell, Stanford and University Ventures II (the
"Irrevocable Proxies") in consideration of the continuation of the amounts
outstanding under the $750,000 Note and the $2,650,000 Note and the lending of
the Additional Funds.
12.15 PERFORMANCE OPTIONS.
(a) ICOT agrees to issue, within one month of the Closing, options to
purchase 1,616,411 shares of ICOT Common under the ICOT 1990 Stock Option Plan
(the "Performance Options") to certain employees of Amati as set forth in
EXHIBIT 12.15 hereof, provided that they are then employed by ICOT and have
exercised the Amati Options granted to them prior to 1995. The Performance
Options shall be granted at fair market value. Subject to Section 12.15(b), the
Performance Options shall vest on the fourth anniversary of the grant date and
shall be exercisable for at least six months from the vesting date.
(b) If Amati Product Revenues exceed $8,000,000, Amati shall be deemed to
have satisfied the condition (the "Earn-Out Condition") entitling holders of
Performance Options to accelerated vesting of such options; if the Amati Product
Revenues are less than or equal to $8,000,000, the Earn-Out Condition shall be
deemed to be unsatisfied. ICOT shall instruct Arthur Andersen LLP to conduct an
audit of the Amati Product Revenues and deliver an audited statement of Amati
Product Revenues no later than the time of delivery to ICOT of audited financial
statements of ICOT's 1996 fiscal year. The date of delivery of such audited
statement of Amati Product Revenues shall be deemed to be the date that
satisfaction of the Earn-Out Condition is determined.
(c) Notwithstanding this Section 12.15, the management of Amati prior to the
Merger shall operate Amati in accordance with its business judgment considering
the long-term interests of Amati, assuming that the Merger will occur, and the
management of ICOT after the Merger shall operate ICOT in accordance with its
business judgment considering the interests of ICOT and all of its stockholders,
in each case without regard to whether the Earn-Out Condition will be satisfied.
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IN WITNESS WHEREOF, ICOT, Amati and IAAC have executed this Agreement as of
the date first above written.
ICOT CORPORATION
By: Aamer Latif 8/4/95
--------------------------------------
Title: Chief Executive Officer
AMATI COMMUNICATIONS CORPORATION
By: John M. Cioffi 8/4/95
--------------------------------------
Title: VP, Engineering & Secretary
IA ACQUISITION CORPORATION
By: Aamer Latif 8/4/95
--------------------------------------
Title: Chief Executive Officer
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EXHIBIT A
FORM OF ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Escrow Agreement") is made as of October , 1995
among ICOT Corporation, a Delaware corporation ("ICOT"), John Bingham, Frank
Kocsis, Kathy Ku and James Ottinger and (the "Representatives"); and Chemical
Trust Company of California, a California corporation ("Escrow Holder").
BACKGROUND
A. Pursuant to an Amended and Restated Agreement and Plan of Reorganization
and Merger (the "Agreement") dated as of August 3, 1995 among ICOT, IA
Acquisition Corporation, a California corporation and a wholly-owned subsidiary
of ICOT ("IAAC"), and Amati Communications Corporation, a California corporation
(the "Company"), IAAC will be merged with and into the Company and the Company
will be the surviving corporation and become a wholly-owned subsidiary of ICOT
(the "Merger").
B. This Escrow Agreement is being entered into pursuant to Section 2.7 and
Article X of the Agreement. Execution and delivery of this Escrow Agreement is a
condition to the obligations of the parties to the Agreement to consummate the
Merger.
C. As set forth in Section 2.7 of the Agreement, by their approval of the
Agreement and the Merger, the holders of shares of the common stock and
preferred stock of the Company have authorized the Representatives to act as the
representatives of those persons who, immediately prior to the effective time of
the Merger, are holders (the "Former Shareholders") of shares of the common
stock and preferred stock of the Company (other than holders of "dissenting
shares" within the meaning of Section 1300(b) of the California Corporations
Code) under this Escrow Agreement with the powers and authority provided herein
and with the power and authority to bond such Former Shareholders.
D. Pursuant to the Agreement, the shares of the common stock and preferred
stock of the Company that are outstanding immediately prior to the effective
time of the Merger, other than dissenting shares, will be converted into shares
of the common stock of ICOT.
E. Section 2.7 of the Agreement provides that at the effective time of the
Merger, 1,050,000 of the shares of the common stock of ICOT issued in the Merger
shall be delivered on behalf of the Former Shareholders to the Escrow Holder in
order to secure the indemnification obligations of the Company set forth in
Article X of the Agreement.
THE PARTIES AGREE AS FOLLOWS:
ARTICLE I
DEFINITIONS
Unless otherwise defined herein, capitalized terms used herein shall have
the meanings set forth in the Agreement. In addition, for the purposes of this
Escrow Agreement, the following terms shall have the following meanings:
1.1 CLAIM CERTIFICATE. "Claim Certificate" shall mean a certificate signed
by an officer of ICOT stating (i) that an Indemnified Person has incurred or
reasonably believes it may in the future incur the amount of Damages specified
in such Claim Certificate, (ii) in reasonable detail, the facts alleged as the
basis for such claim and the section or sections of the Agreement alleged to
have been violated, and (iii) the number of Escrowed Shares to which ICOT
believes the Indemnified Person is entitled with respect to such Damages.
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1.2 DAMAGES. "Damages" shall mean any and all losses, damages,
liabilities, claims, judgments, settlements, costs and expenses (including
reasonable attorneys' fees) of the type referred to in Article X of the
Agreement.
1.3 ESCROW FUND. "Escrow Fund" shall mean the Escrowed Shares then held by
the Escrow Holder.
1.4 ESCROWED SHARE. An "Escrowed Share" shall mean a share of ICOT Common
delivered to the Escrow Holder by the Exchange Agent on behalf of the Former
Shareholders in accordance with Section 2.6 of the Agreement, together with any
and all other shares of ICOT Common, other securities of ICOT or any other
issuer, other property or cash received or receivable in respect of such share
of ICOT Common, including, without limitation, any and all securities, property
or cash to be issued or distributed in connection with any recapitalization,
reclassification, split-up, merger, consolidation, exchange, stock dividend,
stock split or similar event declared or effected with respect to shares of ICOT
Common.
1.5 INDEMNIFIED PERSON. "Indemnified Person" shall mean ICOT and any other
entity or person who is a beneficiary of the indemnification obligations of the
Company contained in Section 10.1 or 10.2 of the Agreement.
1.6 VALUE. "Value," when used with respect to an Escrowed Share, shall
mean the average closing price of the ICOT common stock on the Nasdaq National
Market for a period of 10 trading days before the date of a Claim Certificate as
adjusted for stock splits, stock dividends, recapitalizations and the like.
ARTICLE II
CREATION OF ESCROW
2.1 PURPOSE. This Escrow Agreement is being executed and delivered, and
the deposit of the Escrow Fund hereunder is being made, for the purpose of
securing the indemnification obligations of the Company and the Former
Shareholders set forth in Article X of the Agreement.
2.2 CREATION OF ESCROW FUND. At or promptly after the Effective Time, the
Representatives shall instruct the Exchange Agent to deposit with the Escrow
Holder certificates representing those shares of ICOT Common required to be so
deposited under Section 2.7 of the Agreement. ICOT and the Former Shareholders
agree that any other securities, property or cash which thereafter are to become
part of the Escrow Fund as provided in Section 1.4 of this Escrow Agreement,
shall be promptly deposited with the Escrow Holder upon receipt by or on behalf
of the Former Shareholders, and receipt by the Escrow Holder on behalf of the
Former Shareholders shall be deemed receipt by the Former Shareholders.
Certificates representing securities deposited in the Escrow Fund shall be
accompanied by separate stock powers endorsed in blank, with signatures
guaranteed by medallion stamp, by the Representatives on behalf of the Former
Shareholders.
2.3 VOTING RIGHTS. The Former Shareholders shall retain their voting
rights with respect to securities held by the Escrow Holder unless and until
such securities are delivered by the Escrow Holder to ICOT in accordance with
this Agreement.
ARTICLE III
CLAIMS
3.1 PAYMENT AFTER DELIVERY OF CLAIM CERTIFICATE. If ICOT gives the Escrow
Holder and the Representatives a Claim Certificate, then, as soon as practicable
but not earlier than 30 days after the giving of such Claim Certificate, the
Escrow Holder, subject to the requirements of Section 3.2 hereof,
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<PAGE>
shall deliver to ICOT, from the Escrow Fund, on behalf of the Indemnified Person
that number of Escrowed Shares having a Value (to the extent the Escrow Fund is
sufficient for such purpose) equal to the Damages specified in such Claim
Certificate.
3.2 DISPUTES RESPECTING CLAIMS. Unless, within 30 days after the giving of
any Claim Certificate by ICOT, ICOT and the Escrow Holder receive a written
notice signed by at least three of the Representatives stating that the
Representatives question the accuracy of a matter asserted in such Claim
Certificate, such Claim Certificate shall constitute full authority to the
Escrow Holder to take the action provided for in Section 3.1 and shall be
conclusive and binding on all parties hereto and on the Former Shareholders. If,
however, the Representatives timely give such a notice, the Escrow Holder shall
not make any distribution to ICOT of that portion of the Escrow Fund which the
Representatives assert in their notice should not be so distributed until (i)
the Escrow Holder receives the written consent of at least three of the
Representatives and ICOT to such distribution or (ii) there is a final decision
of a court of competent jurisdiction or of an arbitrator in an action between
ICOT and the Representatives with respect to the disputed amount. For this
purpose, a final decision shall mean the final judgment of any court of
competent jurisdiction from which no appeal is then allowed or a final decision
of an arbitrator under an arrangement providing for no appeal of such decision.
The reasonable expenses, including attorneys' fees, of all of the parties to any
such lawsuit or proceeding shall be reasonably apportioned among them, taking
into consideration the outcome of the lawsuit or proceeding and the
reasonableness of the conduct of each such party in connection with the dispute
over the disposition of that portion of the Escrow Fund which was in
controversy, in light of the facts known to such party at the time such party
engaged in such conduct. Any and all amounts payable to ICOT or any other
Indemnified Person pursuant to the preceding sentence shall be paid out of the
Escrow Fund as though it were an item of Damages.
3.3 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS. No later than 30 days after
receipt by ICOT of a written notice of any action, suit or proceeding commenced
against ICOT or the Company which might be a basis for indemnification under
Article X of the Agreement, ICOT will give the Representatives written notice
thereof and will afford them an opportunity to defend such action, suit or
proceeding on behalf of the Former Shareholders, at the expense of the
Representatives or the Former Shareholders, provided that ICOT may participate
in the control of such defense.
ARTICLE IV
DISTRIBUTION OF ESCROW FUND
4.1 DISTRIBUTION OF UNDISPUTED AMOUNTS. Subject to Section 4.2 hereof, on
the date one year after the date of this Escrow Agreement (the "Escrow
Termination Date") the Escrow Holder shall promptly distribute the entire
remaining Escrow Fund to the Representatives for the benefit of the Former
Shareholders, or to the Former Shareholders if and as the Representatives and
ICOT shall direct, pro rata according to the number of shares of Company Common
held by the Former Shareholders at the Effective Time.
4.2 DISTRIBUTION OF DISPUTED AMOUNTS. Notwithstanding the provisions of
Section 4.1 hereof, if, prior to the Escrow Termination Date, ICOT shall have
given a Claim Certificate to the Representatives and the Escrow Holder and a
dispute, in accordance with Section 3.2 hereof, respecting that Claim
Certificate or the subject matter of such Claim Certificate has not yet been
resolved in accordance with Section 3.2, then the Escrow Holder shall continue
to hold that portion of the Escrow Fund which is the subject of such dispute.
Any portion of the Escrow Fund so withheld shall continue to be held by the
Escrow Holder until it receives authorization to distribute the portion of the
Escrow Fund so withheld in accordance with the second sentence of Section 3.2.
4.3 INCONSISTENT DIRECTIONS. In the event the Escrow Holder receives any
inconsistent directions from the parties hereto, it shall notify the parties of
such inconsistency and, if the inconsistency
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<PAGE>
is not resolved by the parties within 30 days of such notice, the Escrow Holder
shall have the right to petition a court, or if an arbitration proceeding is
pending pursuant to Section 7.6 request the arbitrator, to resolve the
differences between such parties.
ARTICLE V
ESCROW HOLDER
5.1 LIMITATION OF LIABILITY. It is agreed that the duties of the Escrow
Holder are limited to those herein specifically provided and are ministerial in
nature. It is further agreed that the Escrow Holder shall incur no liability
whatever except by reason of its willful misconduct or gross negligence. The
Escrow Holder shall be under no obligation in respect of the Escrow Fund other
than faithfully to follow the instructions herein contained or delivered to the
Escrow Holder in accordance with this Escrow Agreement. The Escrow Holder may
consult with counsel and shall be fully protected in any action taken in good
faith in accordance with the advice of such counsel. It shall not be required to
institute legal proceedings of any kind. It shall have no responsibility for the
genuineness or validity of any document or other item deposited with it, and it
shall be fully protected in acting in accordance with this Escrow Agreement upon
any written instructions given to it and believed by it to have been duly
executed by ICOT or by the Representatives, as the case may be, in accordance
herewith. Anything in this agreement to the contrary notwithstanding, in no
event shall the Escrow Holder be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if the Escrow Holder has been advised of the likelihood of such
loss or damage and regardless of the form of action.
5.2 COMPENSATION; REIMBURSEMENT. ICOT agrees to pay the Escrow Holder
reasonable compensation for its services hereunder for so long as the Escrow
Holder holds all or any portion of the Escrow Fund. Such compensation shall be
set forth in Exhibit A hereto. ICOT will pay or reimburse the Escrow Holder upon
its request for all reasonable expenses, disbursements and advances reasonably
incurred or made by the Escrow Holder in accordance with any of the provisions
of this Escrow Agreement (including the reasonable compensation and the expenses
and disbursements of its counsel and of all persons not regularly in its employ)
except any such expense, disbursement or advance as may arise from its gross
negligence or willful misconduct.
5.3 INDEMNIFICATION. ICOT and the Representatives, jointly and severally,
agree to indemnify the Escrow Holder in any capacity under this Escrow Agreement
and its agents, and to hold them harmless against, any loss, liability or
expense incurred without gross negligence or willful misconduct on the part of
the Escrow Holder or such agent, as the case may be, and arising out of or in
connection with the acceptance or administration of this escrow; provided,
further, that the Representatives' indemnification obligation shall be limited
to the Escrowed Shares.
5.4 RESIGNATION. The Escrow Holder, or any successor to it hereafter
appointed, may at any time resign by giving notice in writing to ICOT and the
Representatives and, upon the appointment of a successor Escrow Holder as
hereinafter provided, shall be discharged from any further duties hereunder. In
the event of such resignation, a successor Escrow Holder, which shall be a bank
or trust company organized under the laws of the United States of America, shall
be appointed by ICOT, subject to the approval of the Representatives, which
approval shall not be unreasonably withheld. Any such successor Escrow Holder
shall deliver to ICOT and the Representatives a written instrument accepting
such appointment hereunder, and thereupon it shall succeed to all of the
unaccrued rights and duties of the Escrow Holder hereunder and shall be entitled
to receive all of the then remaining Escrow Fund.
5.5 SUCCESSION BY MERGER, ETC. Any corporation or other entity into which
the Escrow Holder may be merged or converted or with which it may be
consolidated, or any corporation or other entity resulting from any merger,
conversion or consolidation to which the Escrow Holder shall be a party, or
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<PAGE>
any corporation or other entity succeeding to all or substantially all of the
escrow business of the Escrow Holder, shall be the successor to the Escrow
Holder hereunder without the execution or filing of any paper of any further act
on the part of any of the parties hereto.
ARTICLE VI
REPRESENTATIVES
6.1 ACTION BY REPRESENTATIVES. The Representatives shall have full power
and authority to represent all Former Shareholders with respect to all matters
arising under this Escrow Agreement and with respect to the obligations set
forth in Article X of the Agreement. All action taken by at least three of the
Representatives hereunder shall be binding upon the Former Shareholders as if
expressly confirmed and ratified in writing by each of them. Without limiting
the generality of the foregoing, the Representatives shall have full power and
authority on behalf of all of the Former Shareholders to interpret all the terms
and provisions of this Escrow Agreement, to give all approvals and take any
other actions with respect to the Former Shareholders in connection with the
subject matter of this Agreement and to consent to any amendment hereof. All
action to be taken by the Representatives hereunder shall be taken by, or at the
written direction of, no fewer than three of the four Representatives (whether
or not all of the Representatives have been consulted), and any action so taken
shall be conclusive and binding upon all of the Former Shareholders. ICOT and
the Escrow Holder may deal solely with and rely solely upon the Representatives
as the representatives of all the Former Shareholders.
6.2 SUCCESSOR REPRESENTATIVES. In case of the resignation, death or
inability to act of any of the Representatives, a successor or successors shall
be named by the remaining Representatives, or, if there be no remaining
Representatives or if any such vacancy shall not be filled within 30 days, by
the Escrow Holder; but at no time shall a majority of the Representatives or
successor Representatives, while acting as such, be a director or executive
officer of ICOT. Each such successor Representative shall have all of the power,
authority, rights and privileges hereby conferred upon an original
Representative, and the term "Representative" as used herein shall be deemed to
include each such successor Representative.
6.3 LIMITATION OF LIABILITY. The Representatives shall incur no liability
to the Former Shareholders except by reason of their willful misconduct or gross
negligence.
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<PAGE>
ARTICLE VII
MISCELLANEOUS
7.1 NOTICES. Except as expressly provided in this Escrow Agreement, all
notices (including any Claim Certificate) given in connection with this Escrow
Agreement shall be deemed to have been duly given on the date of delivery if
personally delivered, or three days after mailing if mailed by certified or
registered mail, return receipt requested, addressed as follows:
IF TO ICOT:
ICOT Corporation
3801 Zanker Road
San Jose, California 95150-5143
Attention: President
WITH A COPY TO:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301
Attention: SAO File 16199-0012
IF TO THE REPRESENTATIVES:
To such address or addresses as they shall specify in writing to
the other parties to this Agreement in the manner provided in this
Section 7.1.
WITH A COPY TO:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Attention: Eric Lapp, Esq.
IF TO THE ESCROW HOLDER:
Chemical Trust Company of California
50 California Street, 10th Floor
San Francisco, California 94111
Attention: Corporate Trust Department
Such addresses may be changed from time to time by means of a notice given in
the manner provided in this Section 7.1.
7.2 SUCCESSORS AND ASSIGNS. Except as set forth in Section 5.4, neither
the Escrow Holder nor the Representatives may assign, by operation of law or
otherwise, all or any portion of its or their rights, obligations or liabilities
under this Escrow Agreement without the prior written consent of ICOT, which
consent may be withheld in the absolute discretion of ICOT. Any attempted
assignment in violation of this Section 7.2 shall be voidable. This Escrow
Agreement and all action taken hereunder in accordance with its terms shall be
binding upon and inure to the benefit of ICOT and the other Indemnified Persons
and their respective successors, assigns, heirs, executors, administrators and
legal representatives, the Former Shareholders and their respective successors,
assigns, heirs, executors, administrators and legal representatives, the Escrow
Holder and its successors and the Representatives and their successors, assigns,
heirs, executors, administrators and legal representatives.
7.3 HEADINGS. The headings contained in this Escrow Agreement are intended
principally for convenience and shall not, by themselves, determine the rights
of the parties to this Escrow Agreement.
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<PAGE>
7.4 WAIVER; AMENDMENT. Waiver of any term or condition of this Escrow
Agreement by any party shall not be construed as a waiver of a subsequent breach
or failure of the same term or condition, or a waiver of any other term or
condition of this Escrow Agreement. Amendment of this Escrow Agreement shall
require the written consent of ICOT, the Escrow Holder and no fewer than three
of the Shareholder Representatives. This Escrow Agreement shall not be amended
to add any duties or obligations to those of the Escrow Holder without the prior
written consent of the Escrow Holder in each instance.
7.5 GOVERNING LAW. This Escrow Agreement shall be governed by, and
construed in accordance with, the laws of the State of California as applied to
agreements entered into and entirely to be performed within the state.
7.6 ARBITRATION. The parties hereto agree that if any Claim for Damages is
made under this Escrow Agreement and such Claim does not involve any party other
than the parties to this Agreement, then such Claim shall be submitted to
binding arbitration in accordance with the rules of the American Arbitration
Association with such arbitration to be held in San Francisco, California. The
results, determination, finding, judgment or award rendered through such
arbitration, shall be final and binding on each of the parties hereto and not
subject to appeal.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to
be signed the day and year first above written.
ICOT: ICOT CORPORATION
By: __________________________________
Name: ________________________________
Title: _______________________________
REPRESENTATIVES: ______________________________________
John Bingham
______________________________________
Frank Kocsis
______________________________________
Kathy Ku
______________________________________
James Ottinger
ESCROW HOLDER:
CHEMICAL TRUST COMPANY OF CALIFORNIA
By: __________________________________
Name: ________________________________
Title: _______________________________
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<PAGE>
EXHIBIT 2.5
FORM OF SUBSTITUTE STOCK PURCHASE WARRANT
ICOT Corporation (the "Company"), a California Corporation, hereby certifies
that, in exchange for a Stock Purchase Warrant of Amati Communications
Corporation ("Amati") and pursuant to the Amended and Restated Agreement and
Plan of Reorganization and Merger among the Company, Amati and IA Acquisition
Corporation dated as of August 3, 1995, (the "Holder") is
entitled, subject to the terms set forth below, to purchase from the Company
fully paid and nonassessable shares of the Common Stock of ICOT
Corporation (the "Shares") at the purchase price of $ per share (the
"Purchase Price"). Both the Purchase Price and such number of Shares are subject
to adjustments as described below.
THE SECURITY EVIDENCED BY THIS WARRANT OR THE SECURITIES TO BE PURCHASED
UNDER THIS WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENT UNDER SUCH ACT.
1. EXERCISE. Subject to the restrictions herein, this Warrant may be
exercised in whole or part by the Holder at any time before 5 p.m., California
local time, on by the surrender of this Warrant, together with the
Notice of Exercise attached hereto as ATTACHMENT 1, duly completed and executed
at the principal office of the Company, accompanied by payment in cash or by
check in full with respect to the Shares being purchased. This Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
date of its surrender for exercise as provided above.
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as
practicable after the exercise of this Warrant, and in any event within thirty
(30) days thereafter, the Company at its expense (including the payment by it of
any applicable issue taxes) will cause to be issued in the name of, and
delivered to, the Holder hereof, or as such Holder (upon payment of such Holder
of any applicable transfer taxes) may direct, (i) a certificate or certificates
for the number of Shares to which such Holder shall be entitled upon such
exercise and (ii) if this Warrant is not exercised in full, a warrant containing
terms identical to herein, provided the number of Shares subject to this Warrant
shall be reduced by the number of Shares exercised by delivery of the Notice of
Exercise pursuant to Section 1.
3. ADJUSTMENT PROVISIONS. If there is any capital reorganization or
reclassification of the stock of the Company or any consolidation or merger of
the Company with any other corporation or corporations, or the sale or
distribution of all or substantially all of the Company's property and assets,
adequate provision shall be made by the Company so that there shall remain and
be substituted under this Warrant the shares, securities, or assets which would
have been issuable or payable in respect to or in exchange for the shares then
subject to this Warrant, as if the Holder had been the owner of such shares on
the applicable record date. Any securities so substituted under this Warrant
shall be subject to adjustment as provided in this paragraph in the same manner
and to the same effect as the shares subject to this Warrant.
4. NOTICES OF RECORD DATE, ETC. In the event of any taking by the Company
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend at the same rate as the rate of the last cash dividend
theretofore paid) or other distribution (the "Distribution") the Company will
mail or cause to be mailed to the Holder of the Warrant a notice specifying the
date of any such Distribution and stating the amount and character of such
Distribution. Such notice shall be mailed at least ten (10) days prior to the
date therein specified.
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<PAGE>
5. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new warrant of like tenor.
6. NEGOTIABILITY, ETC. This Warrant may be transferred in whole or in part
by the Holder and the terms hereof shall be binding upon the executors,
administrators, heirs and assigns of the Holder.
7. NOTICES, ETC. All notices and other communications shall be mailed by
first class mail, postage prepaid, at such address as may have been furnished in
writing by the receiving party.
8. GOVERNING LAW, HEADINGS. This Warrant is being delivered in the State
of California and shall be construed and enforced in accordance with and
governed by the laws of such State. The headings of this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof.
9. CONVERSION OF WARRANT.
A. RIGHT TO CONVERT. In addition to, and without limiting, the other
rights of the Holder hereunder, the Holder shall have the right (the
"Conversion Right") to convert this Warrant or any part hereof into Shares
at any time and from time to time during the term hereof. Upon exercise of
the Conversion Right with respect to a particular number of Shares (the
"Converted Shares"), the Company shall deliver to the Holder, without
payment by the Holder of any Purchase Price or any cash or other
consideration, that number of Shares computed using the following formula.
<TABLE>
<C> <S>
X =B-A
Y
Where: X = The number of Shares to be issued to the Holder.
Y = The Fair Market Value of one Share as of the Conversion Date. The Fair Market Value shall be the
average closing price of the Company's Common Stock on the five trading days prior to the Conversion
Date.
B = The Aggregate Fair Market Value (I.E., Fair Market Value X Converted Shares).
A = The Aggregate Purchase Price (I.E., Purchase Price X Converted Shares).
</TABLE>
(b) METHOD OF EXERCISE. The Conversion Right may be exercised by the
Holder by the surrender of this Warrant at the Company's principal office,
together with a written statement (the "Conversion Statement") specifying
that the Holder intends to exercise the Conversion Right and indicating the
number of Shares to be acquired upon exercise of the Conversion Right. Such
conversion shall be effective upon the Company's receipt of this Warrant,
together with the Conversion Statement, or on such later date as is
specified in the Conversion Statement (the "Conversion Date"). Certificates
for the Shares so acquired shall be delivered to the Holder within a
reasonable time, not exceeding thirty (30) days after the Conversion Date.
If applicable, the Company shall, upon surrender of this Warrant for
cancellation, deliver a new Warrant evidencing the rights of the Holder to
purchase the balance of the Shares which Holder is entitled to purchase
hereunder. The issuance of Shares upon exercise of this Warrant shall be
made without charge to the Holder for any issuance tax with respect thereto
or any other cost incurred by the Company in connection with the conversion
of this Warrant and the related issuance of Shares.
Dated: ________, 1995 ICOT CORPORATION
By: __________________________________
Its: _________________________________
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<PAGE>
ATTACHMENT 1
NOTICE OF EXERCISE
TO: ICOT CORPORATION
P.O. Box 5143
3801 Zanker Road
San Jose, CA 95150
1. The undersigned hereby elects to acquire shares of the Common
Stock of ICOT Corporation, pursuant to the terms of the attached Warrant, by
exercise or conversion of shares and tenders herewith payment of the
purchase price in full, together with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
__________________________________
(Name)
__________________________________
(Address)
______________________________________ ______________________________________
(Date) (Name of Warrant Holder)
By: ________________________________
Title: _____________________________
(Name of purchaser, and title and
signature of authorized person)
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<PAGE>
EXHIBIT 12.13
VOTING AGREEMENT
Voting Agreement dated as of August , 1995, by in favor
of ICOT Corporation, a Delaware corporation ("ICOT"), IA Acquisition
Corporation, a California corporation ("IAAC"), and Amati Communications
Corporation, a California corporation ("Amati").
THE UNDERSIGNED AGREES AS FOLLOWS:
1. VOTING OF SHARES. To induce ICOT, IAAC and Amati to enter into the
attached Amended and Restated Agreement and Plan of Reorganization and Merger
dated August 3, 1995, to effect the merger described therein, the undersigned
shareholder of ICOT agrees to vote all shares of capital stock of ICOT which
such holder owns or controls, beneficially or otherwise, in favor of the merger
described therein if such merger is presented to the shareholders of ICOT on or
before October 31, 1995 for approval. This Voting Agreement is executed by the
undersigned solely in the undersigned's capacity as a shareholder of ICOT and
shall not affect the duties of the undersigned as a director of ICOT.
2. BENEFIT OF AGREEMENT. This Voting Agreement is for the benefit of ICOT,
IAAC and Amati and may be enforced by any person benefitted hereby.
3. ENFORCEMENT OF AGREEMENT. This Voting Agreement may be enforced by
specific performance. If the undersigned fails to comply with the provisions of
this Voting Agreement, the undersigned shall pay the reasonable legal fees and
expenses incurred by any person benefitted by this Voting Agreement in enforcing
this Voting Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Voting Agreement as of
the day and year noted above.
______________________________________
Signature
______________________________________
Print name of shareholder
A-41
<PAGE>
EXHIBIT 12.14
IRREVOCABLE PROXY
The undersigned shareholder of Amati Communications Corporation, a
California corporation ("Amati"), who owns or controls, beneficially or
otherwise, the number and description of securities of Amati set forth below,
hereby revokes all previous proxies and appoints ICOT Corporation, a Delaware
corporation ("ICOT"), as proxyholder to attend and vote all shares of Amati
capital stock which the undersigned owns or controls, beneficially or otherwise,
including any shares acquired during the term of this proxy through the exercise
of options or warrants, at any and all meetings of the shareholders of the
corporation, and any adjournments thereof, held on or after the date of the
giving of this proxy and prior to the termination of this proxy and to execute
any and all written consents of shareholders of the corporation executed on or
after the date of the giving of this proxy and prior to the termination of this
proxy, with the same effect as if the undersigned had personally attended the
meeting or had personally voted the shares or had personally signed the written
consent; provided, however, that the undersigned expressly reserves the right to
vote on the following matters: (1) the merger or other reorganization, as
defined in Section 181 of the California Corporations Code, of Amati or the sale
of all or substantially all of Amati's assets for other consideration, in which
ICOT is, directly or indirectly, the acquiring party, other than the Merger as
defined in the Amended and Restated Agreement and Plan of Reorganization and
Merger among ICOT, Amati and IA Acquisition Corporation dated August 3, 1995;
(2) the merger or other reorganization, as defined in Section 181 of the
California Corporations Code, of Amati, or the sale of all or substantially all
of Amati's assets for other consideration, if in such transaction the value of
Amati (in the case of a noncash transaction, as determined in good faith by the
Board of Directors of Amati) is less than $10 million; (3) the dissolution and
liquidation of Amati; and (4) any amendment to the articles of Amati to change
the rights, preferences, privileges or restrictions of the Amati Series A
Preferred Stock.
The undersigned authorizes and directs the proxyholder to file this proxy
appointment with the secretary of Amati and authorizes the proxyholder to
substitute another person as proxyholder and to file the substitution instrument
with the secretary of Amati.
This proxy is given in consideration for (a) the continuation of loans in
the aggregate principal amount of $3,400,000 and (b) the extension of an
additional loan in the aggregate principal amount of up to $1,600,000, provided
by ICOT to Amati as evidenced by the Senior Secured Promissory Note in the
aggregate principal amount of $5,000,000 dated August , 1995, and is
irrevocable pursuant to paragraph (3) of subdivision (e) of Section 705 of the
Code until its termination on July 31, 1996.
IN WITNESS WHEREOF, the undersigned has executed this Irrevocable Proxy as
of the day and year noted above.
______________________________________
Signature
______________________________________
Print name of shareholder
Dated: August , 1995
Number and description of Amati securities beneficially or otherwise owned by
the undersigned:
____ shares of Common Stock
____ shares of Series A Preferred Stock
Options to purchase ____ shares of Common Stock
Warrants in aggregate principal amount of $________
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<PAGE>
AMENDMENT TO AMENDED AND RESTATED AGREEMENT
AND PLAN OF REORGANIZATION AND MERGER
This Amendment to the Amended and Restated Agreement and Plan of
Reorganization and Merger ("Amendment") is made as of October 6, 1995 among ICOT
Corporation, a Delaware corporation ("ICOT"), IA Acquisition Corporation, a
California corporation and wholly-owned subsidiary of ICOT ("IAAC"), and Amati
Communications Corporation, a California corporation ("Amati").
BACKGROUND
A. The parties to this Amendment are parties to the Amended and Restated
Agreement and Plan of Reorganization and Merger dated as of August 3, 1995 (the
"Agreement"); and
B. The parties desire to amend the Agreement in certain respects, including
to reverse the direction of the Merger such that IAAC will be the surviving
corporation.
In consideration of the mutual premises and agreements set forth herein, THE
PARTIES AGREE AS FOLLOWS:
ARTICLE 1
DEFINITIONS
Capitalized terms used herein without definition have the meanings assigned
in the Agreement.
ARTICLE II
AMENDMENTS TO AGREEMENT
The Agreement is amended as follows:
2.1 Section 1.34 is amended to read as follows:
MERGER. "Merger" shall mean the merger of Amati with and into IAAC in
accordance with this Agreement, the Merger Agreement and applicable law.
2.2 Section 2.1 is amended by replacing the words "whereupon IAAC shall be
merger with and into Amati" with the words "whereupon Amati shall be merged with
and into IAAC."
2.3 Section 2.3 is amended by deleting paragraph (a) thereof.
2.4 Section 8.15 is amended by replacing the date "October 31, 1995"
referred to therein with the date "November 30, 1995," the date "October 31,
1996" referred to therein with the date "November 30, 1996," and the date
"November 1, 1996" referred to therein with the date "December 1, 1996," and
Exhibit 8.15 is revised accordingly.
2.5 Section 11.1 is amended by replacing the date "October 31, 1995"
referred to therein with the date "November 30, 1995."
2.6 Section 11.2 is amended by replacing the date "October 31, 1995"
referred to therein with the date "November 30, 1995."
2.7 Exhibit B, the Merger Agreement, is replaced by the Exhibit B attached
hereto.
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<PAGE>
ARTICLE III
NO OTHER CHANGES; COUNTERPARTS
3.1 Except as expressly set forth herein, the Agreement remains in full
force and effect in accordance with its terms.
3.2 This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and each
fully executed counterpart shall be deemed an original.
IN WITNESS WHEREOF, ICOT, Amati and IAAC have executed this Amendment as of
the date first above written.
ICOT CORPORATION
By: Terry Medel_______________________
Title: Secretary______________________
AMATI COMMUNICATIONS CORPORATION
By: Lalo Valdez_______________________
Title: Chief Financial Officer________
IA ACQUISITION CORPORATION
By: Terry Medel_______________________
Title: Secretary______________________
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<PAGE>
APPENDIX B
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Agreement of Merger") is made as of November ,
1995, by and among ICOT Corporation, a Delaware corporation ("ICOT"), IA
Acquisition Corporation, a California corporation and wholly-owned subsidiary of
ICOT (the "Company"), and Amati Communications Corporation, a California
corporation ("Amati").
BACKGROUND
The parties desire that Amati be merged with and into the Company (the
"Merger"), and that the Company be the surviving corporation pursuant to the
terms and conditions of this Agreement of Merger.
THE PARTIES AGREE AS FOLLOWS:
1. THE MERGER. Upon the filing (the "Effective Time") of this Agreement of
Merger and the related officers' certificates with the Secretary of State of the
State of California in accordance with the California Corporations Code, Amati
shall be merged with and into the Company. The Company shall be the surviving
corporation.
2. CONVERSION OF OUTSTANDING SHARES OF AMATI COMMON. Subject to Section 4
of this Agreement of Merger, each share of Common Stock, no par value, of Amati
("Amati Common") outstanding immediately prior to the Effective Time, other than
shares which become "dissenting shares" within the meaning of Section 1300(b) of
the California Corporations Code, shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted at and as of the
Effective Time into shares of ICOT Common Stock, $.20 par value, of ICOT
("ICOT Common"). Holders of shares of Amati Common which become dissenting
shares shall have all rights, but no other rights, of holders of dissenting
shares under Sections 1300 ET SEQ. of the California Corporations Code.
3. CONVERSION OF OUTSTANDING SHARES OF AMATI PREFERRED. Subject to Section
4 of this Agreement of Merger, each share of Series A Preferred Stock of Amati
("Amati Preferred") outstanding immediately prior to the Effective Time, other
than shares which become "dissenting shares" within the meaning of Section
1300(b) of the California Corporations Code, shall, by virtue of the Merger and
without any action on the part of the holder thereof be converted at and as of
the Effective Time into shares of ICOT Common. Holders of shares of Amati
Preferred which become dissenting shares shall have all rights, but no other
rights, of holders of dissenting shares under Sections 1300 ET SEQ. of the
California Corporations Code.
4. FRACTIONAL SHARES. Holders of Amati Common and Amati Preferred shall
receive only whole shares of ICOT Common; in lieu of any fractional share of
ICOT Common, holders shall receive in cash the fair market value of such
fractional share valuing ICOT Common at the average of the high and low prices
of the ICOT Common on the Nasdaq National Market on the trading day immediately
preceding the Effective Time as listed in THE WALL STREET JOURNAL.
5. CONVERSION OF AMATI OPTIONS. At the Effective Time, each of the
outstanding options to purchase Amati Common ("Amati Option") issued under the
Amati 1992 Stock Option Plan (the "Amati Plan") shall thereafter entitle the
holder thereof to receive, upon exercise thereof, that number of shares of ICOT
Common determined by multiplying the shares of Amati Common subject to such
Company Option at the Effective Time by , at an exercise price for each
full share of ICOT Common equal to the exercise price per share of Amati Common
divided by , which exercise price per share shall be rounded up to the
nearest two-place decimal. The number of shares of ICOT Common that may be
purchased by a holder on the exercise of any Amati Option shall not include any
fractional share of ICOT Common but shall be rounded down to the next lower
whole share of ICOT Common. ICOT shall assume in full such Amati Options and all
of Amati's other rights
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and obligations under the Amati Plan. Continuous employment with Amati shall be
credited to an optionee for purposes of determining the number of shares subject
to exercise, vesting or repurchase after the Effective Time.
6. AMATI WARRANTS. At the Effective Time, each of the outstanding warrants
(the "Amati Warrants") to purchase Amati Common or Series B Preferred Stock of
Amati (in the event that such series had been authorized by Amati) shall be
exchanged for a warrant to purchase shares of ICOT Common (a "Substitute
Warrant"). Those Amati Warrants exercisable at the exercise price of $9 or $6
per share (the "Exercise Price") will be exchanged for a Substitute Warrant
exercisable for that number of shares of ICOT Common determined by multiplying
the shares of Amati Common subject to such Amati Warrant at the Effective Time
by , at an exercise price for each full share of ICOT Common equal to
the Exercise Price divided by , which exercise price per share shall be
rounded up to the nearest two-place decimal. Those Amati Warrants exercisable at
fair market value will be exchanged for a Substitute Warrant exercisable for
that number of shares of ICOT Common determined by dividing the aggregate
purchase price of the Amati Warrant by at an exercise price for each
full share of ICOT Common equal to . The number of shares of ICOT Common
that may be purchased by a holder on the exercise of a Substitute Warrant shall
not include any fractional share of ICOT Common but shall be rounded down to the
next lower whole share of ICOT Common.
7. OTHER EFFECTS OF THE MERGER. The other effects of the Merger shall be
as prescribed by law.
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IN WITNESS WHEREOF, ICOT, the Company and Amati have executed this Agreement
of Merger as of the first date written above.
ICOT CORPORATION
By: __________________________________
Aamer Latif, President
By: __________________________________
Terry Medel, Secretary
IA ACQUISITION CORPORATION
By: __________________________________
Aamer Latif, President
By: __________________________________
Terry Medel, Secretary
AMATI COMMUNICATIONS CORPORATION
By: __________________________________
James F. Gibbons, Chairman
By: __________________________________
John M. Cioffi, Secretary
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<PAGE>
OFFICERS' CERTIFICATE OF APPROVAL OF
AGREEMENT OF MERGER
Aamer Latif and Terry Medel certify as follows:
1. We are the President and the Secretary, respectively, of ICOT
Corporation, a Delaware corporation (the "Corporation").
2. The Agreement of Merger by and among the Corporation, IAAC and Amati,
dated October , 1995 to which this Certificate is attached (the "Agreement of
Merger"), was duly approved by the board of directors and the stockholders of
the Corporation.
3. The Corporation has one class of shares outstanding, Common Stock. The
total number of outstanding shares of the Corporation entitled to vote on the
Agreement of Merger was . The percentage vote required was the
affirmative vote of a majority of the outstanding shares of Common Stock. The
Agreement of Merger was approved by shares of the Corporation's Common
Stock, which equaled or exceeded the vote required.
We further declare under penalty of perjury that the matters set forth in
this Certificate are true and correct of our own knowledge. Executed at San
Jose, California on November , 1995.
______________________________________
Aamer Latif, President
______________________________________
Terry Medel, Secretary
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<PAGE>
OFFICERS' CERTIFICATE OF APPROVAL OF
AGREEMENT OF MERGER
James F. Gibbons and John M. Cioffi certify as follows:
1. We are the President and the Secretary, respectively, of Amati
Communications Corporation, a California corporation (the "Corporation").
2. The Agreement of Merger by and among ICOT, IAAC and the Corporation,
dated October , 1995 to which this Certificate is attached (the "Agreement of
Merger"), was duly approved by the board of directors and the shareholders of
the Corporation.
3. The Corporation has two classes of shares outstanding, Common Stock and
Series A Preferred Stock ("Preferred Stock"). The total number of outstanding
shares of the Corporation entitled to vote on the Agreement of Merger was
shares of Common Stock and shares of Preferred Stock. The
percentage vote required was the affirmative vote of a majority of the
outstanding shares of the Corporation's Common Stock entitled to vote and the
outstanding shares of the Corporation's Preferred Stock entitled to vote, voting
on an as converted basis together with the Common Stock. The Agreement of Merger
was approved by the vote of of the outstanding shares of Common Stock
and of the outstanding shares of Preferred Stock, which equaled or
exceeded the vote required.
We further declare under penalty of perjury that the matters set forth in
this Certificate are true and correct of our own knowledge. Executed at Mountain
View, California on November , 1995.
______________________________________
James F. Gibbons, Chairman
______________________________________
John M. Cioffi, Secretary
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<PAGE>
OFFICERS' CERTIFICATE OF APPROVAL OF
AGREEMENT OF MERGER
Aamer Latif and Terry Medel certify as follows:
1. We are the President and the Secretary, respectively, of IA Acquisition
Corporation, a California corporation (the "Corporation").
2. The Agreement of Merger by and among ICOT, Amati, and the Corporation
dated October , 1995 to which this Certificate is attached (the "Agreement of
Merger"), was duly approved by the board of directors and the shareholders of
the Corporation.
3. The Corporation has one class of shares outstanding, Common Stock. The
total number of outstanding shares of the Corporation entitled to vote on the
Agreement of Merger was 1,000 shares of Common Stock. The percentage vote
required was the affirmative vote of a majority of the outstanding shares of the
Corporation's Common Stock entitled to vote. The Agreement of Merger was
approved by the vote of all of the shares of the Corporation's Common Stock,
which equaled or exceeded the vote required.
We further declare under penalty of perjury that the matters set forth in
this Certificate are true and correct of our own knowledge. Executed at San
Jose, California on November , 1995.
______________________________________
Aamer Latif, President
______________________________________
Terry Medel, Secretary
B-6
<PAGE>
APPENDIX C
DISSENTERS' RIGHTS
Full text of Chapter 13 of the California Corporations Code
SECTION 1300. RIGHT TO REQUIRE PURCHASE -- "DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) of Section 1201, each shareholder of the corporation entitled to vote on the
transaction and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation in which the
shareholder holds shares to purchase for cash at their fair market value the
shares owned by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split or share
dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (i) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(ii) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to any
class of shares described in clause (i) or (ii) if demands for payment are
filed with respect to 5 percent or more of the outstanding shares of that
class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (i) were not voted
in favor of the reorganization or, (ii) if described in clause (i) or (ii)
of paragraph (1) (without regard to the provisos in that paragraph), were
voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that clause (i)
rather than clause (ii) of this paragraph applies in any case where the
approval required by Section 1201 is sought by written consent rather than
at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
SECTION 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires
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to exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. AGREED PRICE -- TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SECTION 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint
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in the superior court of the proper county praying the court to determine
whether the shares are dissenting shares or the fair market value of the
dissenting shares or both or may intervene in any action pending on such a
complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. APPRAISERS' REPORT -- PAYMENT -- COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certified securities, only upon
the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
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SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorney's fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Section 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization
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or short-form merger set aside or rescinded, the shareholder shall not
thereafter have any right to demand payment of cash for the shareholder's shares
pursuant to this chapter. The court in any action attacking the validity of the
reorganization or short-form merger or to have the reorganization or short-form
merger set aside or rescinded shall not restrain or enjoin the consummation of
the transaction except upon 10 days' prior notice to the corporation and upon a
determination by the court that clearly no other remedy will adequately protect
the complaining shareholder or the class of shareholders of which such
shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ICOT CORPORATION
PROXY
FOR SPECIAL MEETING OF STOCKHOLDERS
NOVEMBER 6, 1995
The undersigned hereby appoints AAMER LATIF and TERRY MEDEL, and
each of them, with full power of substitution, as proxies of the undersigned
to represent and vote all shares of the stock of ICOT Corporation (the
"Company") which the undersigned is entitled to vote at the Special Meeting
of Stockholders of the Company to be held at ICOT Corporation, 3801 Zanker
Road, San Jose, California, on November 6, 1995, at 1:30 p.m., local time,
and at any continuation or adjournment thereof, with all powers which the
undersigned would possess if personally present, upon such business as may
properly come before the meeting, including the following items:
- --------------------------------------------------
COMMENTS/ADDRESS CHANGE: |
PLEASE MARK COMMENT/ADDRESS BOX ON REVERSE SIDE |
|
|
|
|
|
| (Continued and to be
| signed on other side)
|
|
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FOLD AND DETACH HERE
<PAGE>
I plan to attend the meeting.
--------
1. To approve an Amended and Restated Agreement and Plan of Reorganization
and Merger dated as of August 3, 1995, as amended, and related Agreement
of Merger, among the Company, IA Acquisition Corporation, a California
corporation and a wholly-owned subsidiary of the Company ("IAAC"), and Amati
Communications Corporation, a California corporation ("Amati"), pursuant to
which Amati will be merged with IAAC (the "Merger") and become a wholly-owned
subsidiary of the Company.
FOR AGAINST ABSTAIN
----- ----- -----
2. To approve, subject to approval of the Merger, an amendment to the
Companys Certificate of Incorporation to change the name of the Company to
"Amati Communications Corporation."
FOR AGAINST ABSTAIN
----- ----- -----
3. To approve, subject to approval of the Merger, an amendment to the
Companys Certificate of Incorporation to increase the authorized number of
shares of Common Stock.
FOR AGAINST ABSTAIN
----- ----- -----
4. To approve amendments to the Companys 1990 Stock Option Plan to increase
the number of shares available for issuance thereunder and to limit the
number of shares that may be granted to any participant in any one-year
period.
FOR AGAINST ABSTAIN
----- ----- -----
5. To vote at their discretion on such other matters as may come before the
meeting or any adjournment thereof.
FOR AGAINST ABSTAIN
----- ----- -----
This proxy when properly executed will be voted in the manner directed
herein by the undersigned.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH PROPOSAL AND SHARES
WILL BE SO VOTED UNLESS OTHERWISE INDICATED.
The majority of said proxies who shall be present and shall act at the
meeting (or if only one shall be present and act, then that one) shall have
and exercise all of the power of the said proxies hereunder.
The undersigned hereby acknowledges receipt of (a) Notice of the Special
Meeting of Stockholders of the Company to be held November 6, 1995 and (b)
the accompanying Prospectus/Proxy Statement.
Please sign below exactly as your name appears to the left. When shares
are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give title as such. If a
corporation, please sign in full corporate name by authorized officer. If a
partnership, please sign in partnership name by authorized person.
Date
-----------------------------------------------------------------------
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Signature(s)
PLEASE MARK DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated Certificate of Incorporation of the registrant provides that a
director of the Registrant, to the full extent permitted by the Delaware General
Corporation Law, shall not be liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director.
Article IX of the Registrant's Bylaws provides for the indemnification of
officers, directors, employees and agents of the Registrant. The Bylaws provide
that the Registrant shall indemnify its directors, officers, employees and
agents against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by them in connection with any threatened,
pending, or completed action, suit or proceeding (other than an action by or in
the right of the corporation), if they acted in good faith and in a manner they
reasonably believe to be in or not opposed to the best interest of the
corporation and had no reasonable cause to believe the conduct was unlawful. In
relation to a proceeding by or in the right of the Registrant, a director,
officer, employee or agent shall be indemnified against expenses actually and
reasonably incurred in connection with the defense or settlement of such
proceeding if the director, officer, employee or agent acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his or
her duty to the corporation unless and only to the extent that the Delaware
Court of Chancery shall determine that such person is fairly and reasonably
entitled to indemnity. The Bylaws also provide that expenses incurred by a
director, officer, employee or agent may be advanced by the registrant upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount unless it shall ultimately be determined that he or
she is entitled to be indemnified by the registrant as authorized in the Bylaws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
2.1 The Amended and Restated Agreement and Plan of Reorganization and Merger among
Registrant, Amati Communications Corporation and IA Acquisition Corporation,
dated August 3, 1995 and the Amendment thereto dated October 6, 1995 are
attached as Appendix A and the Agreement of Merger is attached as Appendix B
to the Prospectus/Proxy Statement included in this Registration Statement
3.1(1) Copy of Registrant's Restated Certificate of Incorporation
3.2(2) Copy of Registrant's Bylaws
5.1 Opinion of Heller Ehrman White & McAuliffe as to legality of securities being
issued**
8.1 Opinion of Heller Ehrman White & McAuliffe regarding tax matters
8.2 Opinion of Gray Cary Ware & Freidenrich regarding tax matters
10.1(3) 1981 Incentive Stock Option Plan as amended through October 12, 1987
10.2(3) 1981 Supplemental Stock Option Plan as amended through October 12, 1987
10.3(4) Lease dated August 27, 1985 between Registrant and Zanker/North Pointe
Associates with respect to Registrant's facilities at 3801 and 3811 Zanker
Road, San Jose, California
10.4(5) 1985 Directors' Stock Option Plan as amended through December 11, 1987
10.5(1) Lease amendment dated September 19, 1990 between Registrant and Zanker/North
Pointe Associates with respect to Registrant's facilities at 3801 Zanker Road,
San Jose, California
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
10.6(1) 1990 Stock Option Plan adopted September 14, 1990
10.7(1) 1990 Non-Employee Directors' Stock Option Plan adopted September 14, 1990
10.8(6) Manufacturing Agreement dated October 9, 1989 between Registrant and
International Business Machines Corporation
10.9(7) Lease dated February 10, 1994 between Registrant and Zanker/North Pointe
Associates with respect to Registrant's facilities at 3801 Zanker Road, San
Jose, California
10.10 Security Agreement between Registrant and Amati Communications Corporation
dated May 15, 1995**
10.11 Amendment No. 1 to Security Agreement between Registrant and Amati
Communications Corporation dated August 4, 1995**
10.12 Senior Secured Promissory Note of Amati Communications Corporation dated August
4, 1995 in the principal amount of $5,000,000**
10.13 Stock Purchase Warrant of Amati Communications Corporation dated August 4,
1995**
21.1 Subsidiaries of the Registrant**
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Heller Ehrman White & McAuliffe (included in Exhibit 8.1)
23.4 Consent of Gray Cary Ware & Freidenrich (included in Exhibit 8.2)
24.1 Power of Attorney -- See Page II-4
(b) Financial Statement Schedule
Report of Independent Public Accountants on Schedule
Schedule II Valuation and qualifying accounts
<FN>
- ------------------------
(1) Incorporated by reference to exhibits to Registrant's Form 10-K Annual
Report for its fiscal year ended July 28, 1990.
(2) Incorporated by reference to exhibits to Registrant's Form 10-K Annual
Report for its fiscal year ended July 29, 1989.
(3) Incorporated by reference to exhibits to Registrant's Form 10-K Annual
Report for its fiscal year ended August 1, 1987.
(4) Incorporated by reference to exhibits to Registrant's Form 10-K Annual
Report for its fiscal year ended August 3, 1985.
(5) Incorporated by reference to exhibits to Registrant's Form S-8 Registration
Statement File No. 33-21103.
(6) Incorporated by reference to exhibits to Registrant's Form 10-K Annual
Report for its fiscal year ended July 27, 1991.
(7) Incorporated by reference to exhibits to Registrant's Form 10-K Annual
Report for its fiscal year ended July 30, 1994.
** Previously filed.
</TABLE>
II-2
<PAGE>
ITEM 22. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act 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;
(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.
(2) 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
B. The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the
Registrant undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
The Registrant undertakes that every prospectus: (i) that is filed pursuant
to the immediately preceding paragraph; or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act 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, as amended, 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. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, 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 Act 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 of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
D. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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. The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
F. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ICOT Corporation
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Jose, State of California, on
October 6, 1995.
ICOT Corporation
By: /S/ AAMER LATIF
-----------------------------------
Aamer Latif
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Arnold Silverman and Aamer Latif, or either of
them, with the power of substitution, his attorney in fact, to sign any
amendments to this Registration Statement (including post-effective amendments),
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE CAPACITY DATE
- ---------------------------------- ----------------------- ------------------
Director, President,
Chief Executive
Officer, Chief
/S/ AAMER LATIF Financial Officer
- --------------------------------- (Principal Executive October 6, 1995
Aamer Latif Officer) (Principal
Financial Officer) and
Chairman
Treasurer, Secretary
* and Corporation
- --------------------------------- Controller (Principal October 6, 1995
Terry Medel Accounting Officer)
*
- --------------------------------- Director October 6, 1995
Donald L. Lucas
*
- --------------------------------- Director October 6, 1995
Arnold N. Silverman
- --------------------------------- Director
William D. Witter
/S/ AAMER LATIF
- ---------------------------------
*Aamer Latif October 6, 1995
(ATTORNEY-IN-FACT)
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
TO ICOT CORPORATION:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of ICOT Corporation, included in this
registration statement and have issued our report thereon dated August 25, 1994.
Our audit was made for the purposes of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index above is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
San Jose, California
August 25, 1994
S-1
<PAGE>
SCHEDULE II
ICOT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS & OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended July 30, 1994............................ $ 32 $ -- $ -- $ (7)(1) $ 25
Year ended July 31, 1993............................ $ 34 $ 30 $ (29) $ (3)(1) $ 32
Year ended July 25, 1992............................ $ 479 $ 16 $ (20) $ (441)(1) $ 34
Accrued Restructuring Charge:
Year ended July 30, 1994............................ $ 1,381 $ -- $ -- $ (540)(2) $ 841
Year ended July 31, 1993............................ $ -- $ 2,871 $ -- $ (1,490)(2) $ 1,381
</TABLE>
- ------------------------
Notes: (1) Uncollectible accounts written off
(2) Usage
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- --------- -----
<S> <C> <C>
2.1 The Amended and Restated Agreement and Plan of Reorganization and Merger among Registrant,
Amati Communications Corporation and IA Acquisition Corporation dated August 3, 1995 and
the Amendment thereto dated October 6, 1995 are attached as Appendix A and the Agreement of
Merger is attached as Appendix B to the Prospectus/Proxy Statement included in this
Registration Statement
3.1(1) Copy of Registrant's Restated Certificate of Incorporation
3.2(2) Copy of Registrant's Bylaws
5.1 Opinion of Heller Ehrman White & McAuliffe as to legality of securities being issued**
8.1 Opinion of Heller Ehrman White & McAuliffe regarding tax matters
8.2 Opinion of Gray Cary Ware & Freidenrich regarding tax matters
10.1(3) 1981 Incentive Stock Option Plan as amended through October 12, 1987
10.2(3) 1981 Supplemental Stock Option Plan as amended through October 12, 1987
10.3(4) Lease dated August 27, 1985 between Registrant and Zanker/North Pointe Associates with
respect to Registrant's facilities at 3801 and 3811 Zanker Road, San Jose, California
10.4(5) 1985 Directors' Stock Option Plan as amended through December 11, 1987
10.5(1) Lease amendment dated September 19, 1990 between Registrant and Zanker/ North Pointe
Associates with respect to Registrant's facilities at 3801 Zanker Road, San Jose,
California
10.6(1) 1990 Stock Option Plan adopted September 14, 1990
10.7(1) 1990 Non-Employee Directors' Stock Option Plan adopted September 14, 1990
10.8(6) Manufacturing Agreement dated October 9, 1989 between Registrant and International Business
Machines Corporation
10.9(7) Lease dated February 10, 1994 between Registrant and Zanker/North Pointe Associates with
respect to Registrant's facilities at 3801 Zanker Road, San Jose, California
10.10 Security Agreement between Registrant and Amati Communications Corporation dated May 15,
1995**
10.11 Amendment No. 1 to Security Agreement between Registrant and Amati Communications
Corporation dated August 4, 1995**
10.12 Senior Secured Promissory Note of Amati Communications Corporation dated August 4, 1995 in
the principal amount of $5,000,000**
10.13 Stock Purchase Warrant of Amati Communications Corporation dated August 4, 1995**
21.1 Subsidiaries of the Registrant**
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Heller Ehrman White & McAuliffe (included in Exhibit 8.1)
23.4 Consent of Gray Cary Ware & Freidenrich (included in Exhibit 8.2)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
24.1 Power of Attorney -- See Page II-4
(b) Financial Statement Schedule
Report of Independent Public Accountants on Schedule
Schedule II Valuation and qualifying accounts
<FN>
- ------------------------
(1) Incorporated by reference to exhibits to Registrant's Form 10-K Annual
Report for its fiscal year ended July 28, 1990.
(2) Incorporated by reference to exhibits to Registrant's Form 10-K Annual
Report for its fiscal year ended July 29, 1989.
(3) Incorporated by reference to exhibits to Registrant's Form 10-K Annual
Report for its fiscal year ended August 1, 1987.
(4) Incorporated by reference to exhibits to Registrant's Form 10-K Annual
Report for its fiscal year ended August 3, 1985.
(5) Incorporated by reference to exhibits to Registrant's Form S-8 Registration
Statement File No. 33-21103.
(6) Incorporated by reference to exhibits to Registrant's Form 10-K Annual
Report for its fiscal year ended July 27, 1991.
(7) Incorporated by reference to exhibits to Registrant's Form 10-K Annual
Report for its fiscal year ended July 30, 1994.
** Previously Filed.
</TABLE>
<PAGE>
EXHIBIT 8.1
[LETTERHEAD]
October 6, 1995
ICOT Corporation
3801 Zanker Road
San Jose, California 95150
Merger Pursuant to the Amended and Restated Agreement and
Plan of Reorganization and Merger, dated as of August 3, 1995,
as amended, by and among ICOT Corporation, a Delaware
corporation, IA Acquisition Corporation, a California
corporation, and Amati Communications Corporation, a
California corporation
--------------------------------------------------------------
Ladies and Gentlemen:
This opinion is being delivered to you in connection
with the filing of a registration statement on Form S-4 of a
joint proxy statement/prospectus and pursuant to Section 6.7 of
the Amended and Restated Agreement and Plan of Reorganization and
Merger (the "Agreement"), dated as of August 3, 1995, by and
among ICOT Corporation, a Delaware corporation ("ICOT"), IA
Acquisition Corporation, a California corporation ("Sub"), and
Amati Communications Corporation, a California corporation
("Amati"), pursuant to which Amati will merge with and into Sub,
a wholly owned subsidiary of ICOT (the "Merger").
Except as otherwise provided, capitalized terms
referred to herein have the meanings set forth in the Agreement.
All section references, unless otherwise indicated, are to the
Internal Revenue Code of 1986, as amended (the "Code").
We have acted as legal counsel to ICOT in connection
with the Merger. As such, and for the purpose of rendering this
opinion, we have examined (or will examine on or prior to the
Effective Time) and are relying (or will rely) upon (without any
independent investigation or review thereof), the truth and
accuracy, at all relevant times, of the statements, covenants,
representations, and warranties contained in the following
documents (including all schedules and exhibits thereto):
<PAGE>
ICOT Corporation
October 6, 1995 Page 2
1. The Agreement;
2. Amendment No. 1 to the Registration Statement on
Form S-4 (File No. 33-62023) filed by ICOT on September 6, 1995,
and Amendment No. 2 to such Registration Statement filed by ICOT
on October 6, 1995, for the purpose of registering the ICOT
Common Stock to be used in connection with the Merger under the
Securities Act of 1933, as amended (collectively, the
"Registration Statement");
3. Representations made by ICOT and Sub in a letter
to us for our use in rendering this opinion;
4. Representations made by Amati to us for our use in
rendering this opinion;
5. Representations made to us by certain shareholders
of Amati for our use in rendering this opinion; and
6. Such other instruments and documents related to
the formation, organization and operation of ICOT, Amati, and Sub
or to the consummation of the Merger and the transactions
contemplated thereby as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have
assumed or obtained representations (and are relying thereon,
without any independent investigation or review thereof) that:
1. Original documents (including signatures) are
authentic, documents submitted to us as copies conform to the
original documents, and there has been (or will be by the
Effective Time) due execution and delivery of all documents whose
due execution and delivery are prerequisites to the effectiveness
thereof;
2. The Merger will be effective under the laws of the
State of California;
3. The shareholders of Amati do not, and will not on
or before the Effective Time, have an existing plan or intent to
dispose of an amount of ICOT Common Stock to be received in the
Merger (or to dispose of Amati capital stock in anticipation of
the Merger) such that the shareholders of Amati will not receive
and retain a meaningful continuing equity ownership in ICOT that
is sufficient to satisfy the continuity of interest requirement
as specified in Treasury Regulations Section 1.368-1(b) and as
<PAGE>
ICOT Corporation
October 6, 1995 Page 3
interpreted in certain Internal Revenue Service rulings and
federal judicial decisions;
4. After the Merger, Sub will hold "substantially
all" of Amati's properties within the meaning of Section
368(a)(2)(D) of the Code and the regulations promulgated
thereunder;
5. To the extent any expenses relating to the Merger
(or the "plan of reorganization" within the meaning of Treasury
Regulations Section 1.368-1(c) with respect to the Merger) are
funded directly or indirectly by a party other than the incurring
party, such expenses will be within the guidelines established in
Revenue Ruling 73-54, 1973-1 C.B. 187; and any expenses paid on
behalf of Amati shareholders will not exceed one percent of the
total consideration that will be issued in the Merger to Amati
shareholders in exchange for their shares of Amati stock;
6. No Amati shareholder guaranteed any Amati
indebtedness outstanding during the period ending at the
Effective Time and beginning with the commencement of
negotiations (whether formal or informal) regarding the Merger,
and at all relevant times, including as of the Effective Time,
(i) no outstanding indebtedness of Amati, ICOT, or Sub has or
will represent equity for tax purposes; (ii) no outstanding
equity of Amati, ICOT, or Sub has or will represent indebtedness
for tax purposes; and (iii) no outstanding security, instrument,
agreement, or arrangement that provides for, contains or
represents either a right to acquire Amati stock or to share in
the appreciation thereof constitutes or will constitute "stock"
for purposes of Section 368(c) of the Code;
7. An opinion of counsel to Amati, Gray Cary Ware &
Freidenrich, which opinion is substantially similar to this
opinion, has been delivered to Amati pursuant to Section 7.6 of
the Agreement and has not been withdrawn; and
8. Any representation or statement made "to the
knowledge of" or otherwise similarly qualified is correct without
such qualification. As to all matters in which a signatory has
represented that such signatory either is not a party to, does
not have, or is not aware of, any plan, intention, understanding,
or agreement, there is in fact no such plan, intention,
understanding, or agreement.
<PAGE>
ICOT Corporation
October 6, 1995 Page 4
Based on our examination of the foregoing items and
subject to the assumptions, exceptions, limitations, and
qualifications set forth herein, we are of the opinion that, for
federal income tax purposes, the Merger will be a
"reorganization" as defined in Section 368(a) of the Code.
In addition to the assumptions set forth above, this
opinion is subject to the exceptions, limitations and
qualifications set forth below.
1. This opinion addresses only the classification of
the Merger as a reorganization under Section 368(a) of the Code
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).
2. No opinion is expressed as to (i) any transaction
other than the Merger as described in the Agreement (including
without limitation any transaction in which the Amati capital
stock that was exchanged in the Merger was acquired by the
exchanging shareholder) or (ii) any transaction whatsoever
(including the Merger) if all the transactions described in the
Agreement are not consummated in accordance with the terms of the
Agreement and without waiver or breach of any material provision
thereof, or if any of the representations, warranties,
statements, and assumptions upon which we have 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.
3. This opinion letter 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 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.
<PAGE>
ICOT Corporation
October 6, 1995 Page 5
4. This opinion is intended solely for the benefit of
you and your shareholders; it may not be relied upon for any
other purpose or by any other person or entity, and may not be
made available to any other person or entity without our prior
written consent. We hereby consent, however, to the use of this
opinion as an exhibit to the Registration Statement and further
consent to the use of our name whenever appearing in the
Registration Statement, including the Prospectus/Proxy Statement
constituting a part thereof, and any amendments thereto.
Very truly yours,
Heller Ehrman White & McAuliffe
<PAGE>
EXHIBIT 8.2
GRAY CARY WARE & FREIDENRICH
[LETTERHEAD]
October 6, 1995
Amati Communications Corporation
1875 El Camino Real West
Mountain View, CA 94040
Re: Merger pursuant to the Amended and Restated Agreement and Plan of
Reorganization and Merger (the "Agreement"), dated as of August 3,
1995, as amended by and among ICOT Corporation, a Delaware
corporation ("ICOT"), IA Acquisition Corporation, a California
corporation ("Sub"), and Amati Communications Corporation, a
California corporation ("Amati")
Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement on Form S-4 of a joint proxy statement/prospectus and
pursuant to Section 7.6 of the Agreement, pursuant to which Amati will merge
with and into Sub, a wholly-owned subsidiary of ICOT (the "Merger").
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Agreement. All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the "Code").
We have acted as legal counsel to Amati in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined (or will
examine on or prior to the Effective Time) and are relying (or will rely) upon
(without any independent investigation or review thereof), the truth and
accuracy, at all relevant times, of the statements, covenants, representations
and warranties contained in the following documents (including all schedules and
exhibits thereto):
1. The Agreement (including Exhibits);
2. Amendment No. 1 to the Registration Statement on Form S-4 (File No.
33-62023) filed by ICOT on September 6, 1995, and Amendment No. 2 to such
Registration Statement to be filed by ICOT on October 10, 1995, for the
purpose of registering the ICOT Common Stock to be issued in connection with
the Merger under the Securities Act of 1933, as amended (collectively, the
"Registration Statement");
3. Representations made by ICOT and Sub in a letter to us for our use
in rendering this opinion;
4. Representations made by Amati to us for our use in rendering this
opinion;
5. Representations made to us by certain shareholders of Amati in
"Affiliate's Agreements"; and
6. Such other instruments and documents related to the formation,
organization and operation of ICOT, Amati and Sub or to the consummation of
the Merger and the transactions contemplated thereby as we have deemed
necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has
been (or will be by the Effective Time) due execution and delivery of all
documents where due execution and delivery are prerequisites to
effectiveness thereof;
<PAGE>
2. The Merger will be effective under the laws of the State of
California;
3. The shareholders of Amati do not, and will not on or before the
Effective Time, have an existing plan or intent to dispose of an amount of
ICOT Common Stock to be received in the Merger (or to dispose of Amati
capital stock in anticipation of the Merger) such that the shareholders of
Amati will not receive and retain a meaningful continuing equity ownership
in ICOT that is sufficient to satisfy the continuity of interest requirement
as specified in Treas. Reg. Section 1.368-1(b) and as interpreted in certain
Internal Revenue Service rulings and federal judicial decisions;
4. After the Merger, Sub will hold "substantially all" of Amati's
properties within the meaning of Section 368(a)(2)(D) of the Code;
5. To the extent any expenses relating to the Merger (or the "plan of
reorganization" within the meaning of Treas. Reg Section 1.368-1(c) with
respect to the Merger) are funded directly or indirectly by a party other
than the incurring party, such expenses will be within the guidelines
established in Revenue Ruling 73-54, 1973-1 C.B. 187; and any expenses paid
on behalf of Amati shareholders will not exceed one percent (1%) of the
total consideration that will be issued in the Merger to Amati shareholders
in exchange for their shares of Amati stock;
6. No Amati shareholder guaranteed any Amati indebtedness outstanding
during the period ending at the Effective Time and beginning with the
commencement of negotiations (whether formal or informal) regarding the
Merger, and at all relevant times, including as of the Effective Time, (i)
no outstanding indebtedness of Amati, ICOT or Sub has or will represent
equity for tax purposes; (ii) no outstanding equity of Amati, ICOT or Sub
has or will represent indebtedness for tax purposes and (iii) no outstanding
security, instrument, agreement or arrangement that provides for, contains
or represents either a right to acquire Amati stock or to share in the
appreciation thereof constitutes or will constitute "stock" for purposes of
Section 368(c) of the Code;
7. Heller Ehrman White & McAuliffe, as counsel to ICOT, has delivered
to ICOT and not withdrawn an opinion, pursuant to Section 6.7 of the
Agreement, to the effect that the Merger will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Code, which
opinion is substantially similar to this opinion; and
8. Any representation or statement made "to the knowledge of" or
otherwise similarly qualified is correct without such qualification. As to
all matters in which a signatory has represented that such signatory either
is not a party to, does not have, or is not aware of, any plan, intention,
understanding or agreement, there is in fact no such plan, intention,
understanding or agreement.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that, for federal income tax purposes, the Merger will be a
"reorganization" as defined in Section 368(a) of the Code.
In addition to the assumptions set forth above, this opinion is subject to
the exceptions, limitations and qualifications set forth below:
1. This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code 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). In particular, we express no opinion regarding the
tax consequences of the Merger as applied to holders of options, warrants for
Amati stock, or promissory notes, or that may be relevant to particular classes
of Amati shareholders such as dealers in securities, corporate shareholder
subject to the alternative minimum tax, foreign persons, and holders of shares
acquired upon exercise of stock options or in other compensatory transactions.
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2. No opinion is expressed as to (i) any transaction other than the Merger
as described in the Agreement (including without limitation any transaction in
which the Amati capital stock that was exchanged in the Merger was acquired by
the exchanging shareholder) or (ii) any transaction whatsoever (including the
Merger) if all the transactions described in the Agreement are not consummated
in accordance with the terms of the 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 option is
incorrect, our opinion might be adversely affected and may not be relied upon.
3. This opinion letter 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 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.
4. This opinion is intended solely for the benefit of you and your
shareholders; it may not be relied upon for any other purpose or by any other
person or entity, and may not be made available to any other person or entity
without our prior written consent. We hereby consent, however, to the use of
this opinion as an exhibit to the Registration Statement and further consent to
the use of our name whenever appearing in the Registration Statement, including
the Prospectus/Proxy Statement constituting a part thereof, and any amendments
thereto.
Very truly yours,
GRAY CARY WARE & FREIDENRICH
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
San Jose, California
October 6, 1995
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EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated April 14, 1995, except for Note 11, as to which the
date is August 4, 1995, with respect to the financial statements of Amati
Communications Corporation included in this Registration Statement and related
Prospectus of ICOT Corporation for the registration of 6,788,924 shares of its
common stock.
ERNST & YOUNG LLP
San Jose, California
October 6, 1995
