<PAGE> 1
SCHEDULE 14C
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF THE SECURITIES
EXCHANGE ACT OF 1934
Check the appropriate box:
[ ] Preliminary Information Statement [ ] Confidential, for Use of
the Commission Only (as
permitted by Rule
14c-5(d)(2))
[X] Definitive Information Statement
AMATI COMMUNICATIONS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Payment of filing fee (Check the appropriate box):
[ ] No Fee required
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
COMMON STOCK, PAR VALUE $0.20 PER SHARE
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
4,478,597 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rules 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
$20.00 per share of Common Stock
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$89,571,940.00
- --------------------------------------------------------------------------------
(5) Total fee paid:
$17,914.39
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$99,940.21
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
SCHEDULE 14D-1
- --------------------------------------------------------------------------------
(3) Filing Party:
Texas Instruments Incorporated
DSL Acquisition Corporation
- --------------------------------------------------------------------------------
(4) Date Filed:
November 25, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
AMATI COMMUNICATIONS CORPORATION
2043 SAMARITAN DRIVE
SAN JOSE, CALIFORNIA 95124
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 27, 1998
To the Stockholders of
Amati Communications Corporation:
A Special Meeting of Stockholders (the "Special Meeting") of Amati
Communications Corporation, a Delaware corporation (the "Company"), will be held
on February 27, 1998 at 10:00 a.m. (local time) at 100 Crescent Court, Suite
1300, Dallas, Texas, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of November 19, 1997 (the "Merger
Agreement"), between the Company, DSL Acquisition Corporation, a Delaware
corporation ("Purchaser"), and Texas Instruments Incorporated, a Delaware
corporation ("Parent"), in connection with the proposed merger (the
"Merger") of Purchaser with and into the Company. As a result of the
Merger, the Company will become a wholly-owned subsidiary of Parent and
each issued and outstanding share of the Company's common stock, par value
$0.20 per share (a "Share") (other than those Shares owned by Parent,
Purchaser or any other wholly-owned subsidiary of Parent, or by
stockholders who have validly perfected their appraisal rights under
Delaware law) will be converted into the right to receive $20.00, in cash,
without interest. The Merger and the Merger Agreement are more fully
described in the attached Information Statement which forms a part of this
notice.
2. To transact such other business as may properly come before the
meeting.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
On November 18, 1997, the Board of Directors of the Company determined that
the Merger Agreement and the transactions contemplated thereby, including the
Offer (as defined below) and the Merger, are fair to and in the best interests
of the stockholders of the Company, and approved the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger.
The Merger is the second step of a two-step transaction pursuant to which
Parent, as the owner of all of the capital stock of Purchaser, will acquire the
entire equity interest in the Company. The first step was a tender offer for the
outstanding Shares at $20.00 per Share net to the seller in cash (the "Offer").
Purchaser acquired 15,290,381 Shares upon the consummation of the Offer on
December 24, 1997, representing approximately 77.0% of the issued and
outstanding Shares.
As a result of the consummation of the Offer, Purchaser has the right to
vote a sufficient number of outstanding Shares at the Special Meeting to approve
and adopt the Merger Agreement without the affirmative vote of any other holder
of Shares, thereby assuring such approval and adoption. Pursuant to the Merger
Agreement, Purchaser is obligated to vote the Shares owned by it in favor of
approving and adopting the Merger Agreement. THE COMPANY CURRENTLY ANTICIPATES
THAT THE MERGER WILL BE CONSUMMATED ON FEBRUARY 27, 1998, OR AS PROMPTLY AS
PRACTICABLE THEREAFTER.
Under Delaware law, holders of Shares who do not vote to approve the Merger
Agreement and who otherwise strictly comply with applicable requirements of
Section 262 ("Section 262") of the General Corporation Law of the State of
Delaware may dissent from the Merger and demand payment in cash from the Company
of the fair value of their Shares. This notice constitutes notice of appraisal
rights to holders of Shares pursuant to Section 262. Holders of Shares who wish
to assert appraisal rights, if available, should comply with the procedures set
forth in Section 262 (a copy of which is attached as Annex II to the enclosed
Information Statement). Appraisal rights under Section 262 are also discussed in
the Information Statement under the heading "Appraisal Rights."
By Order of the Board of Directors,
TERESITA MEDEL
Secretary
February 6, 1998
San Jose, California
<PAGE> 3
AMATI COMMUNICATIONS CORPORATION
2043 SAMARITAN DRIVE
SAN JOSE, CALIFORNIA 95124
---------------------
INFORMATION STATEMENT
---------------------
FEBRUARY 6, 1998
This Information Statement is being furnished by the Board of Directors
(hereinafter the "Board" or "Board of Directors") of Amati Communications
Corporation, a Delaware corporation (the "Company"), to the holders of the
outstanding shares of common stock, par value $0.20 per share (the "Shares"), of
the Company, in connection with the proposed merger (the "Merger") of DSL
Acquisition Corporation, a Delaware corporation ("Purchaser"), with and into the
Company pursuant to an Agreement and Plan of Merger, dated as of November 19,
1997 (the "Merger Agreement"), by and among the Company, Purchaser, and Texas
Instruments Incorporated, a Delaware corporation ("Parent"), a copy of which is
attached hereto as Annex I. As a result of the Merger, the Company will become a
wholly-owned subsidiary of Parent and each issued and outstanding Share (other
than those Shares owned by Parent, Purchaser or any other wholly-owned
subsidiary of Parent, or by stockholders who have validly perfected their
appraisal rights under Delaware law) will be converted into the right to receive
$20.00, in cash, without interest (the "Merger Consideration").
The Merger is the second step of a two-step transaction pursuant to which
Parent, as the owner of all of the capital stock of Purchaser, will acquire the
entire equity interest in the Company. The first step was a tender offer for the
outstanding Shares at $20.00 per Share net to the seller in cash (the "Offer").
Purchaser acquired 15,290,381 Shares upon the consummation of the Offer on
December 24, 1997, representing approximately 77.0% of the issued and
outstanding Shares.
This Information Statement accompanies a Notice of Special Meeting of
Stockholders (the "Special Meeting") of the Company to be held on February 27,
1998, at which time the Company's stockholders will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement and such other
business as may properly come before the meeting.
As a result of the consummation of Offer, Purchaser has the right to vote a
sufficient number of outstanding Shares at the Special Meeting to approve and
adopt the Merger Agreement without the affirmative vote of any other holder of
Shares, thereby assuring such approval and adoption. Pursuant to the Merger
Agreement, Purchaser is obligated to vote the Shares owned by it in favor of
approving and adopting the Merger Agreement. THE COMPANY CURRENTLY ANTICIPATES
THAT THE MERGER WILL BE CONSUMMATED ON FEBRUARY 27, 1998, OR AS PROMPTLY AS
PRACTICABLE THEREAFTER.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
This Information Statement is first being mailed to stockholders on or
about February 6, 1998.
This Information Statement is dated February 6, 1998.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary..................................................... 1
General; Special Meeting of Stockholders; Required Vote..... 5
Payment for Shares.......................................... 6
Appraisal Rights............................................ 7
The Merger.................................................. 8
The Merger Agreement........................................ 16
Financial Arrangements...................................... 23
Business.................................................... 25
Selected Financial Data..................................... 33
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 34
Certain Projections......................................... 39
Principal Stockholders and Stock Ownership of Management.... 41
Available Information....................................... 42
Index to Financial Statements............................... F-1
Annex I -- Agreement and Plan of Merger................... I-1
Annex II -- Section 262 of the General Corporation Law of
the State of Delaware..................................... II-1
Annex III -- Opinion of Deutsche Morgan Grenfell Inc........ III-1
</TABLE>
i
<PAGE> 5
SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. Reference is made to, and this summary is qualified
in its entirety by, the more detailed information contained, or incorporated by
reference, in this Information Statement and the Annexes hereto. Unless
otherwise defined herein, capitalized terms used in this summary have the
respective meanings ascribed to them elsewhere in this Information Statement.
STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THIS INFORMATION STATEMENT
AND THE ANNEXES HERETO IN THEIR ENTIRETY. WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
THE COMPANIES
The Company. The Company is a leading developer of advanced transmission
equipment utilizing Discrete Multi-tone ("DMT") technology for the Asymmetrical
Digital Subscriber Line ("ADSL") and Very high-speed Digital Subscriber Line
("VDSL") markets. The Company holds DMT, ADSL and VDSL patents and has entered
into agreements covering its technology with companies like Alcatel, Analog
Devices, Inc., Motorola, NEC, Northern Telecom, Siemens and Parent. The
Company's DMT/ADSL products were recently selected by British Columbia
Telephone, Canada for a proposed roll-out of the first standards based
commercial ADSL services for transmitting high-speed data over existing copper
phone lines, making internet access, interactive services, broadcast quality
video and video-on-demand realizable to subscribers. The Company is also a
provider of network connectivity systems for the internetworking and Original
Equipment Manufacturer markets. The Company's principal executive offices are
located at 2043 Samaritan Drive, San Jose, California, 95124. The telephone
number of the Company at such offices is 408-879-2000.
Purchaser. The Purchaser is a newly incorporated Delaware corporation and a
direct wholly-owned subsidiary of Parent. To date the Purchaser has not
conducted any business other than in connection with the Offer and the Merger.
The principal executive offices of the Purchaser are located at 13500 North
Central Expressway, P. O. Box 655474, Dallas, Texas 75265-5474. The telephone
number of Purchaser at such offices is (972) 995-2551.
Parent. Parent is a global semiconductor company and the world's leading
designer and supplier of digital signal processing solutions, the engines
driving the digitization of electronics. Headquartered in Dallas, Texas,
Parent's businesses also include calculators, productivity products, controls
and sensors, metallurgical materials and digital light processing technologies.
Parent has manufacturing or sales operations in more than 25 countries. The
principal executive offices of Parent are located at 13500 North Central
Expressway, P. O. Box 655474, Dallas, Texas 75265-5474. The telephone number of
Parent at such offices is (972) 995-2551.
GENERAL
This Information Statement is being delivered in connection with the merger
of Purchaser into the Company pursuant to the Merger Agreement. As a result of
the Merger, the Company will become a wholly-owned subsidiary of Parent, each
issued and outstanding Share (other than Shares owned by Parent, Purchaser or
any other wholly-owned subsidiary of Parent, or by stockholders who have validly
perfected their appraisal rights under Delaware law) will be converted into the
right to receive the Merger Consideration (i.e., $20.00 in cash), and the equity
interest of all pre-Merger stockholders in the Company will be terminated.
The Merger is the second step of a two-step transaction pursuant to which
Parent, as the owner of all of the capital stock of Purchaser, will acquire the
entire equity interest in the Company. The first step was the Offer. Purchaser
acquired 15,290,381 Shares upon the consummation of the Offer on December 24,
1997, representing approximately 77.0% of the issued and outstanding Shares.
Pursuant to the Merger Agreement, and effective upon the consummation of
the Offer, three of the five members of the Board of Directors of the Company
resigned as directors and three persons designated by Parent were appointed as
members of such Board of Directors.
1
<PAGE> 6
SPECIAL MEETING OF STOCKHOLDERS; REQUIRED VOTE
A Special Meeting of Stockholders will be held on February 27, 1998, at
10:00 a.m. (local time) at 100 Crescent Court, Suite 1300, Dallas, Texas 75201.
At the Special Meeting, stockholders will be asked to consider and vote upon a
proposal to approve and adopt the Merger Agreement and such other proposals as
may be properly brought before the Special Meeting.
Under Delaware law and the Company's amended and restated certificate of
incorporation, the affirmative vote of a majority of the issued and outstanding
Shares is required to approve and adopt the Merger Agreement at the Special
Meeting. Only holders of record of Shares at the close of business on February
4, 1998 (the "Record Date") are entitled to notice of and to vote at the Special
Meeting. At such date there were 19,857,322 Shares outstanding, each of which
will be entitled to one vote on each matter to be acted upon or which may
properly come before the Special Meeting.
As a result of the Offer, Purchaser was the holder of record of 15,290,381
Shares on the Record Date, constituting approximately 77.0% of the 19,857,322
Shares issued and outstanding on the Record Date. Pursuant to the terms of the
Merger Agreement, Purchaser is obligated to vote all such Shares in favor of
approving and adopting the Merger Agreement, which under Delaware law and the
Company's amended and restated certificate of incorporation will be a sufficient
number of Shares to approve and adopt the Merger Agreement without the
affirmative vote of any other holder of Shares, thereby assuring such approval
and adoption.
PAYMENT OF SHARES
Upon consummation of the Merger, the Company will make available to
ChaseMellon Shareholder Services, L.L.C., as paying agent (the "Paying Agent")
for the holders of record of Shares, as needed, the aggregate amount of cash to
be paid in respect of the Shares converted into the right to receive the Merger
Consideration pursuant to the Merger. Holders of record should use the Letter of
Transmittal to be provided under separate cover to effect the surrender of
certificates evidencing Shares in exchange for the Merger Consideration. All
certificates so surrendered will be cancelled. Upon consummation of the Merger
and surrender of a certificate evidencing Shares, together with a duly executed
Letter of Transmittal, the holder thereof will receive the Merger Consideration.
Any cash held by the Paying Agent that remains unclaimed by stockholders for one
year after the effective time of the Merger will be returned to the Company, as
the surviving corporation (the "Surviving Corporation") in the Merger, upon
demand and thereafter stockholders may look, subject to applicable abandoned
property, escheat and other similar laws, only to the Company for payment
thereof.
A Letter of Transmittal will be sent to all stockholders of the Company
under separate cover. The Letter of Transmittal will advise such holder of the
terms of the Merger and the procedures for surrendering to the Paying Agent
certificates evidencing Shares in exchange for the Merger Consideration. See
"Payment for Shares."
APPRAISAL RIGHTS
Under Delaware law, holders of Shares who do not vote to approve the Merger
and who otherwise strictly comply with applicable requirements of the General
Corporation Law of the State of Delaware may dissent from the Merger and demand
payment in cash from the Company of the fair value of their Shares. See
"Appraisal Rights."
2
<PAGE> 7
THE MERGER
Background of the Merger. For a description of the events leading up to the
approval of the Merger Agreement by the Board of Directors of the Company, see
"The Merger -- Background of the Offer and the Merger."
Approval of the Board of Directors. On November 18, 1997, the Board of
Directors of the Company determined that the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, are fair
to and in the best interests of the stockholders of the Company, and approved
the Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger. See "The Merger -- Background of the Offer and the
Merger."
Interests of Certain Persons in the Merger. Prior to commencement of the
Offer, Parent entered into a retention agreement, dated as of November 19, 1997,
with James E. Steenbergen, the Company's Chief Executive Officer, President and
Chief Financial Officer. See "The Merger -- Interests of Certain Persons in the
Merger -- Steenbergen Retention Agreement." In addition, Parent entered into
similar retention agreements on such date with Mr. Ronald Carlini, the Company's
Vice President of Corporate Development, and Mr. James D. Hood, the Company's
Vice President of Engineering. See "The Merger -- Interests of Certain Persons
in the Merger -- Other Retention Agreements."
Opinion of Financial Advisor. Deutsche Morgan Grenfell Inc. ("DMG"), the
Company's financial advisor, has delivered to the Company its written opinion
that, as of November 19, 1997, the cash consideration to be received by the
stockholders of the Company pursuant to the Offer and the Merger is fair for
such stockholders (other than Parent and its affiliates) from a financial point
of view. DMG was not requested to, and has not, updated its opinion. The
complete opinion of DMG which sets forth the assumptions made, matters
considered and limits of its review, is attached to this Information Statement
as Annex III and should be read in its entirety. See "The Merger -- Opinion of
Financial Advisor."
Purpose of the Merger. The purpose of the Merger is to enable Parent,
through Purchaser, to acquire the remaining equity interest in the Company not
currently owned by Purchaser.
Conditions to the Merger. The Merger is subject to the satisfaction of
certain conditions. See "The Merger Agreement -- Conditions to the Merger."
Assuming the satisfaction of such conditions, it is expected that the Merger
will be consummated on February 27, 1998, or as promptly as practicable
thereafter.
Regulatory Matters. The waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), expired on
December 5, 1997. The Company is not aware of any federal, state or foreign
regulatory requirements that remain to be complied with in order to consummate
the Merger. See "The Merger -- Regulatory Matters."
Federal Income Tax Consequences of the Merger. The receipt of cash pursuant
to the Merger Agreement or the exercise of appraisal rights will be a taxable
transaction for federal income tax purposes. See "The Merger -- Certain Federal
Income Tax Consequences of the Merger." Stockholders are urged to consult their
own tax advisors as to the particular tax consequences of the Merger to them,
including the applicability and the effect of federal, state, local, foreign and
other tax laws.
3
<PAGE> 8
SELECTED FINANCIAL INFORMATION OF THE COMPANY
The selected financial information of the Company set forth below has been
derived from the audited financial statements and other financial information of
the Company. Such information should be read in conjunction with the audited
financial statements and other financial information of the Company included
elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
----------------------------------------------------- ---------------------------
JULY 31, JULY 30, JULY 29, JULY 27, AUGUST 2, NOVEMBER 2, NOVEMBER 1,
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- --------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net Sales.................. $12,307 $ 8,236 $12,040 $ 12,085 $ 13,200 $4,513 $ 4,702
Income (Loss) before Income
Taxes.................... (5,963) 530 1,933 (34,035) (12,243) (746) (4,442)
Provision for Income
Taxes.................... -- 27 97 43 -- -- --
------- ------- ------- -------- -------- ------ -------
Net Income (Loss).......... $(5,963) $ 503 $ 1,836 $(34,078) $(12,243) $ (746) $(4,442)
Net Income (Loss) Per
Share.................... (.46) .04 .16 (2.21) (.66) (.04) (.23)
SELECTED BALANCE SHEET DATA:
Current Assets............. $11,188 $ 9,463 $ 7,793 $ 5,182 $ 9,282 -- $ 9,611
Current Liabilities........ 2,598 2,171 1,591 2,467 5,517 -- 10,206
Working Capital............ 8,590 7,292 6,202 2,715 3,765 -- (595)
Total Assets............... 12,936 11,391 12,111 6,241 15,083 -- 15,579
Long-term Liabilities...... 1,099 428 294 2,094 4,540 -- 4,587
Stockholders' Equity....... 9,239 8,792 10,226 1,680 5,026 -- 786
OTHER DATA:
Book Value Per Share....... -- -- -- -- .26 -- .04
</TABLE>
MARKET PRICES AND DIVIDENDS
The Shares are listed on The Nasdaq Stock Market ("Nasdaq") under the
symbol "AMTX". The following table sets forth, for the quarters indicated, the
high and low sales price per Share on Nasdaq. All prices set forth below are as
reported in published financial sources:
<TABLE>
<CAPTION>
MARKET PRICE
------------------
HIGH LOW
------- -------
<S> <C> <C>
1996
Quarter ended March 31, 1996.............................. $ 9.500 $ 5.125
Quarter ended June 30, 1996............................... 36.500 8.375
Quarter ended September 30, 1996.......................... 25.375 9.375
Quarter ended December 31, 1996........................... 25.125 12.625
1997
Quarter ended March 31, 1997.............................. 16.125 9.375
Quarter ended June 30, 1997............................... 15.500 7.125
Quarter ended September 30, 1997.......................... 19.250 10.250
Quarter ended December 31, 1997........................... 19.813 10.750
1998
Quarter ended March 31, 1998 (through February 5, 1998)... 20.063 19.625
</TABLE>
On November 18, 1997, the last full trading day prior to the public
announcement of the terms of the Merger Agreement, the reported closing sales
price per Share on Nasdaq was $15.188. On November 24, 1997, the last full
trading day prior to the commencement of the Offer, the reported closing sales
price per Share on Nasdaq was $19.75. On February 5, 1998, the last full trading
day prior to the commencement of mailing of this Information Statement, the
reported closing sales price per Share on Nasdaq was $19.813.
The Company has not paid cash dividends on the Shares. The Merger Agreement
prohibited the Company from declaring or paying any dividends until such time as
the directors designated by Parent have been elected to, and shall constitute a
majority of, the Board of Directors, which occurred on December 24, 1997.
4
<PAGE> 9
GENERAL; SPECIAL MEETING OF STOCKHOLDERS; REQUIRED VOTE
This Information Statement is being delivered in connection with the merger
of Purchaser into the Company pursuant to the Merger Agreement. As a result of
the Merger, the Company will become a wholly-owned subsidiary of Parent, each
issued and outstanding Share (other than Shares owned by Parent, Purchaser or
any other wholly-owned subsidiary of Parent, or by stockholders who have validly
perfected their appraisal rights under Delaware law) will be converted into the
right to receive the Merger Consideration (i.e., $20.00 in cash), and the equity
interest of all pre-Merger stockholders in the Company will be terminated.
The Merger is the second step of a two-step transaction pursuant to which
Parent, as the owner of all of the capital stock of Purchaser, will acquire the
entire equity interest in the Company. The first step was the Offer. Purchaser
acquired 15,290,381 Shares upon the consummation of the Offer on December 24,
1997, representing approximately 77.0% of the issued and outstanding Shares.
Pursuant to the Merger Agreement, and effective upon the consummation of
the Offer, three of the five members of the Board of Directors of the Company
resigned as directors and three persons designated by Parent were appointed as
members of such Board of Directors.
The Special Meeting will be held on February 27, 1998, at 10:00 a.m. (local
time) at 100 Crescent Court, Suite 1300, Dallas, Texas 75201. At the Special
Meeting, stockholders will be asked to consider and vote upon a proposal to
approve and adopt the Merger Agreement and such other proposals as may be
properly brought before the Special Meeting.
Under Delaware law and the Company's amended and restated certificate of
incorporation, the affirmative vote of a majority of the issued and outstanding
Shares is required to approve and adopt the Merger Agreement at the Special
Meeting. Only holders of record of Shares at the close of business on the Record
Date are entitled to notice of and to vote at the Special Meeting. At such date
there were 19,857,322 Shares outstanding, each of which will be entitled to one
vote on each matter to be acted upon or which may properly come before the
Special Meeting.
As a result of the Offer, Purchaser was the holder of record of 15,290,381
Shares on the Record Date, constituting approximately 77.0% of the 19,857,322
Shares outstanding on the Record Date. Pursuant to the terms of the Merger
Agreement, Purchaser is obligated to vote all such Shares in favor of approving
and adopting the Merger Agreement, which under Delaware law and the Company's
amended and restated certificate of incorporation will be a sufficient number of
Shares to approve and adopt the Merger Agreement without the affirmative vote of
any other holder of Shares, thereby assuring such approval and adoption. THE
COMPANY CURRENTLY ANTICIPATES THAT THE MERGER WILL BE CONSUMMATED ON FEBRUARY
27, 1998, OR AS PROMPTLY AS PRACTICABLE THEREAFTER.
The Merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware in accordance with the
General Corporation Law of the State of Delaware. As used in this Information
Statement, "Effective Time" means the effective time of the Merger under the
General Corporation Law of the State of Delaware.
5
<PAGE> 10
PAYMENT FOR SHARES
General. Upon consummation of the Merger, the Company will make available
to the Paying Agent for the holders of record of Shares, as needed, the
aggregate amount of cash to be paid in respect of the portions of Shares
converted into cash pursuant to the Merger. Holders of record should use a
Letter of Transmittal to effect the surrender of certificates evidencing Shares
in exchange for the Merger Consideration. All certificates so surrendered will
be cancelled. Upon consummation of the Merger and surrender of certificates
evidencing Shares, together with a duly executed Letter of Transmittal, the
holder of record thereof will receive in exchange for each Share surrendered the
Merger Consideration. Any cash held by the Paying Agent that remains unclaimed
by stockholders for one year after the Effective Time will be returned to the
Surviving Corporation upon demand and thereafter stockholders may look, subject
to applicable abandoned property, escheat and other similar laws, only to the
Surviving Corporation for payment thereof.
Letter of Transmittal. A Letter of Transmittal will be sent to all
stockholders of the Company under separate cover. The Letter of Transmittal will
advise such holder of the terms of the Merger and the procedures for
surrendering to the Paying Agent certificates evidencing Shares in exchange for
cash.
Valid Surrender of Shares. For Shares to be validly surrendered pursuant to
the Merger, a Letter of Transmittal (or a manually signed facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
must be received by ChaseMellon Shareholder Services, L.L.C., as the paying
agent (the "Paying Agent"), at one of its addresses set forth in the Letter of
Transmittal and either (i) certificates representing Shares must be received by
the Paying Agent or (ii) such Shares must be delivered by book-entry transfer.
Book-Entry Transfer. The Paying Agent will establish an account with
respect to the Shares at The Depository Trust Company and the Philadelphia
Depository Trust Company (each, a "Book-Entry Transfer Facility" and,
collectively, the "Book-Entry Transfer Facilities") for purposes of the Merger.
Any financial institution that is a participant in any of the Book-Entry
Transfer Facilities' systems may make book-entry delivery of Shares by causing a
Book-Entry Transfer Facility to transfer such Shares into the Paying Agent's
account at such Book-Entry Transfer Facility in accordance with that Book-Entry
Transfer Facility's procedure for such transfer.
Signature Guarantee. Signatures on Letters of Transmittal must be
guaranteed by a member firm of a registered national securities exchange
(registered under Section 6 of the Exchange Act) or of the National Association
of Securities Dealers, Inc. (the "NASD"), or by a commercial bank or trust
company having an office or correspondent in the United States or by any other
"Eligible Guarantor Institution" (as defined in Rule 17Ad-15 under the Exchange
Act) (each of the foregoing constituting an "Eligible Institution"), unless the
Shares delivered therewith are delivered (i) by a registered holder of Shares
who has not completed either the box entitled "Special Delivery Instructions" or
the box entitled "Special Payment Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. If the certificates
representing Shares are registered in the name of a person other than the signer
of the Letter of Transmittal or if payment is to be made to a person other than
the registered holder, then the certificates representing Shares must be
endorsed or accompanied by appropriate stock powers, in each case signed exactly
as the name or names of the registered holder or holders appear on the
certificates, with the signatures on the certificates or stock powers guaranteed
as described above and as provided in the Letter of Transmittal.
THE METHOD OF DELIVERY OF CERTIFICATES FOR SHARES, THE LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE
STOCKHOLDER. IF DELIVERY IS MADE BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
Backup Federal Income Tax Withholding. To prevent backup federal income tax
withholding of 31% of the aggregate Merger Consideration payable to a
stockholder, such stockholder must provide the Paying Agent with his correct
taxpayer identification number and certify that he is not subject to backup
federal income tax withholding by completing the substitute Form W-9 included in
the Letter of Transmittal.
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APPRAISAL RIGHTS
Stockholders of the Company are entitled to appraisal rights under Section
262 of the General Corporation Law of the State of Delaware ("Section 262") as
to Shares owned by them. Set forth below is a summary description of Section
262. Section 262 is reprinted in its entirety as Annex II to this Information
Statement. All references in Section 262 and in this summary to a "stockholder"
are to the record holder of the Shares as to which appraisal rights are
asserted. A person having a beneficial interest in Shares that are held of
record in the name of another person, such as a broker or nominee, must act
promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect whatever appraisal rights the
beneficial owner may have.
THE FOLLOWING SUMMARY IS NOT A COMPLETE STATEMENT OF THE LAW RELATING TO
APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ANNEX II. THIS
SUMMARY AND ANNEX II SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO WISHES TO
EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO
BECAUSE FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH HEREIN AND
THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
In accordance with Section 262, any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of this Information
Statement, demand in writing from the Company the appraisal of the fair value of
such stockholder's Shares. Such demand must reasonably inform the Company of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of the fair value of such stockholder's Shares. Any stockholder
(other than a record owner who is acting as a nominee holder for different
beneficial owners) seeking to exercise appraisal rights for a portion, but not
all, of such stockholder's Shares should consult with legal counsel before
taking any such action. The Company believes that Delaware law has not clearly
addressed the ability of such a stockholder to exercise appraisal rights with
respect to a portion, but not all, of such stockholder's Shares. Stockholders
should be aware of the risk that should a stockholder seek to exercise appraisal
rights with respect to a portion, but not all, of such stockholder's Shares, the
Company may assert that by doing so such stockholder has waived such
stockholder's appraisal rights and a Delaware court may find that such
stockholder has so waived such stockholder's appraisal rights. A stockholder who
elects to exercise appraisal rights must mail or deliver such stockholder's
written demand to the President of the Company at 2043 Samaritan Drive, San
Jose, California 95124.
A demand for appraisal must be executed by or for the stockholder of
record, fully and correctly, as such stockholder's name appears on the
certificate or certificates representing his Shares. If the Shares are owned of
record in a fiduciary capacity, such as by a trustee, guardian, or custodian,
such demand must be executed by the fiduciary. If the Shares are owned of record
by more than one person, as in a joint tenancy or tenancy in common, such demand
must be executed by all joint owners. An authorized agent, including an agent
for two or more joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner and
expressly disclose the fact that, in exercising the demand, such person is
acting as agent for the record owner.
A record owner, such as a broker, who holds Shares as a nominee for others,
may exercise appraisal rights with respect to the Shares held for all or less
than all beneficial owners of Shares as to which such person is the record
owner. In such case, the written demand must set forth the number of Shares
covered by such demand. Where the number of Shares is not expressly stated, the
demand will be presumed to cover all Shares outstanding in the name of such
record owner. Beneficial owners who are not record owners and who intend to
exercise appraisal rights should instruct the record owner to comply strictly
with the statutory requirements with respect to the exercise of appraisal
rights.
Within 120 days after the Effective Time, either the Surviving Corporation
or any stockholder who has complied with the required conditions of Section 262
may file a petition in the Delaware Court of Chancery (the "Delaware Chancery
Court") demanding a determination of the fair value of the Shares of the
dissenting stockholders. If a petition for an appraisal is timely filed, after a
hearing on such petition, the Delaware Chancery Court will determine which
stockholders are entitled to appraisal rights and will appraise the Shares
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formerly owned by such stockholders, determining the fair value of such Shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Delaware Chancery Court is to take into account all relevant factors.
Stockholders considering seeking appraisal should note that the "fair
value" of their Shares determined under Section 262 could be more than, the same
as or less than $20.00 per Share, and that opinions of investment banking firms
as to fairness, from a financial point of view, are not opinions as to fair
value under Section 262. The cost of the appraisal proceeding may be determined
by the Delaware Chancery Court and taxed against the parties as the Delaware
Chancery Court deems equitable in the circumstances. Upon application of a
dissenting stockholder, the Delaware Chancery Court may order that all or a
portion of the expenses incurred by any dissenting stockholder in connection
with the appraisal proceeding, including without limitation, reasonable
attorneys' fees and the fees and expenses of experts, be charged pro rata
against the value of all Shares entitled to appraisal.
From and after the Effective Time, no stockholder who has duly demanded
appraisal in compliance with Section 262 will be entitled to vote for any
purpose the Shares subject to such demand or to receive payment of dividends or
other distributions on such Shares, except for dividends or distributions
payable to stockholders of record at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder shall
have the right to withdraw such stockholder's demand for appraisal and to accept
the terms offered in the Merger Agreement; after this period, a stockholder may
withdraw such stockholder's demand for appraisal only with the consent of the
Surviving Corporation. If no petition for appraisal is filed with the Delaware
Chancery Court within 120 days after the Effective Time, stockholders' rights to
appraisal shall cease, and all stockholders who had previously demanded
appraisal shall thereafter be entitled to receive the Merger Consideration in
cash, without interest thereon, upon surrender of the certificates that formerly
represented their Shares. Inasmuch as the Company has no obligation to file such
a petition, and has no present intention to do so, any stockholder who desires
such a petition to be filed is advised to file it on a timely basis. However, no
petition timely filed in the Delaware Chancery Court demanding appraisal shall
be dismissed as to any stockholder without the approval of the Delaware Chancery
Court, and such approval may be conditioned upon such terms as the Delaware
Chancery Court deems just.
THE MERGER
BACKGROUND OF THE OFFER AND THE MERGER
In October 1996, Parent and the Company entered into a Cooperative
Development and Product Sale Agreement pursuant to which the Company agreed to
develop and sell to Parent certain software to be incorporated into Parent's
digital signal processing products. Pursuant to such agreement, the Company
granted to Parent certain licenses to use, copy, sell and manufacture certain of
the Company's intellectual property included in the software to be developed by
the Company. Such agreement was not related to the subsequent contacts between
Parent and the Company in connection with the Offer and the Merger.
Set forth below is a description of the background of the Offer and the
Merger, including a brief description of the material contacts between Parent
and its affiliates and the Company and its affiliates regarding the transactions
described herein. Until the consummation of the Offer, the Board of Directors of
the Company consisted of the following individuals: Dr. James Gibbons, Donald L.
Lucas, James E. Steenbergen, Dr. John Cioffi and Aamer Latif.
In May 1997, the Company's Board of Directors began to consider possible
strategic transactions involving the Company, including the possibility of an
acquisition by a larger company. The Board of Directors determined to retain an
independent financial advisor to investigate possible business combinations and
strategic alternatives and to advise the Board of Directors with respect
thereto. The Board authorized a committee composed of its outside directors to
select a financial advisor.
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In June 1997, this committee selected DMG to be retained as the Company's
financial advisor. Thereafter, DMG contacted over fifteen companies, including
Parent, to determine interest in a possible business combination or other
transaction with the Company. The companies included a large number of domestic
and international semiconductor, telephone equipment and data communications
equipment manufacturers.
Effective as of July 22, 1997, the Company and Parent entered into the
Confidentiality Agreement for the purpose of investigating and further
discussing a possible business combination. The Company also entered into
similar confidentiality agreements with four other parties, including Westell
Technologies, Inc. ("Westell"), for the same purpose. In addition, DMG and the
Company made management presentations to six possible transaction candidates,
including Parent and Westell. Following these presentations and further
discussions, only Parent and Westell indicated interest in a business
combination with the Company. During September 1997, Parent conducted a due
diligence review of the Company, while Westell, but not Parent, had active and
continuous negotiations with the Company regarding an acquisition proposal.
These negotiations culminated in the execution of the Agreement and Plan of
Merger among the Company, Westell and Kappa Acquisition Corp., a wholly-owned
subsidiary of Westell, dated September 30, 1997 (the "Westell Merger
Agreement"), pursuant to which the stockholders of the Company would receive
Class A Common Stock of Westell in exchange for their Shares based on a
conversion ratio of 0.9 shares of Westell Class A Common Stock for each Share of
Company Common Stock (the "Westell Ratio"). One day before those negotiations
were finalized, Parent submitted a preliminary written proposal regarding an
acquisition of the Company. Due to Westell's requirement that the Westell Merger
Agreement be executed prior to October 1, 1997, or its offer would be withdrawn,
and the preliminary and conditional nature of Parent's proposal, the Board of
Directors decided to proceed with the execution of the Westell Merger Agreement.
Execution of the Westell Merger Agreement was publicly announced on October 1,
1997.
On November 4, 1997, the Company received a letter from Parent proposing a
cash tender offer to purchase all of the outstanding Shares for $18 per share.
On November 4, and again on November 6, the Board of Directors met to discuss
this proposal. After consultation with DMG and the Company's legal counsel, the
Board of Directors determined that this proposal constituted a "Superior
Proposal" as defined in the provision of the Westell Merger Agreement relating
to the Company's right to negotiate with an alternate bidder, and determined to
enter into negotiations with Parent.
On November 5, 1997, representatives of the Company informed Westell and
its representatives of the proposal made by Parent and initiated discussions
with representatives of Westell to determine whether, in light of the Parent
proposal, Westell was prepared to improve its offer.
On November 7, 1997, the Company and its representatives initiated
negotiations with Parent and its representatives regarding the Parent proposal,
and Parent began to conduct an additional due diligence review of the Company,
by, among other things, holding discussions with certain of the Company's
executives and representatives. As a result of these negotiations, on November
12, 1997, Parent increased its proposal to $20 per share, eliminated or modified
certain conditions and advised the Company that it had completed its due
diligence review. The Board of Directors met to consider the increased proposal
by Parent and to review the terms of the proposed Merger Agreement.
On November 13, 1997, the Company notified Westell that it had determined
to accept the Offer and to terminate the Westell Merger Agreement in accordance
with its terms, which required the Company to provide at least three business
days notice of termination to Westell and pay to Westell a fee of approximately
$14.8 million (the "Termination Fee").
On November 18, 1997, the Board of Directors again met to consider and
review the terms of the proposed Merger Agreement. At the meeting DMG made a
presentation to the Board of Directors and delivered its oral opinion,
subsequently confirmed in writing (the "Fairness Opinion"), that as of such
date, the $20 per share cash consideration proposed to be received by the
stockholders of the Company pursuant to the Offer and the Merger was fair to
such stockholders (other than Parent and its affiliates) from a financial point
of view. The full text of the Fairness Opinion is attached as Annex III to this
Information Statement. STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN ITS
ENTIRETY. After discussion
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(which, among other things, took note of information the Company's advisors had
received that Westell was unlikely to make any proposal to improve the terms of
the Westell Merger Agreement), the Board of Directors unanimously approved the
Merger Agreement and the transactions contemplated thereby and unanimously
recommended that stockholders of the Company accept the Offer and tender their
shares.
On November 19, 1997, subsequent to the expiration of the three business
day notice period required by the Westell Merger Agreement, the Company arranged
to pay to Westell the Breakup Fee and the amounts outstanding under the Westell
loan agreement with the proceeds received from Parent, effecting the termination
of the Westell Merger Agreement. See "Financial Arrangements -- The Commitment
and the Loans." Effective November 19, 1997, the Company, Parent and Purchaser
executed and delivered the Merger Agreement. On November 19, 1997, Parent and
the Company issued a press release announcing the execution of the Merger
Agreement.
In arriving at its decision regarding its recommendation set forth above,
the Board of Directors considered (among other things) the following:
- The opinion of DMG, dated November 18, 1997, to the effect that, as of
the date of the Fairness Opinion, the $20 per Share cash consideration to
be received by the stockholders of the Company pursuant to the Offer and
the Merger was fair to such stockholders (other than Parent and its
affiliates) from a financial point of view.
- The determination that the Offer and the Merger were superior to the
transaction contemplated by the Westell Merger Agreement insofar as the
$20 per Share price was payable in cash, compared with the consideration
offered by Westell in the form of Westell Class A Common Stock, and
represented a premium of approximately 25% over the effective price per
Share being offered under the Westell Merger Agreement (based on the
closing price per share of the Westell Class A Common Stock on the Nasdaq
National Market on November 18, 1997).
- The determination that the Offer and the Merger presented less risk to
the stockholders of the Company than the merger contemplated by the
Westell Merger Agreement insofar as, under the latter agreement, the
Westell Ratio was fixed and not subject to adjustment in the event of any
increase or decrease in the market price of the Westell Class A Common
Stock, resulting in possible fluctuations in the value of the
consideration to be received by the Company's stockholders under the
Westell Merger Agreement.
- The determination that the $20 per Share cash consideration offered fair
value to the Company's stockholders for their Common Stock and exceeded
the market price that the Company's stockholders could reasonably expect
to realize in the foreseeable future, taking into account the following
factors: (a) information presented to the Board of Directors relating to
the recent financial condition and results of operations of the Company
and management's evaluation of the Company's prospects, as well as the
Board of Directors' general familiarity with the Company's business,
operations, financial condition and earnings on both an historical and a
prospective basis; (b) the relationship of the $20 per Share price to the
historical market prices for Company Common Stock, including that the $20
per Share represented a premium of approximately 31% over the closing
price of the Company Common Stock on the Nasdaq National Market on
November 18, the day on which the Board of Directors approved the Merger
Agreement; (c) the vigorous arms-length nature of the negotiations that
resulted in Parent offering the $20 per Share price in the Offer and the
Merger, and (d) the results of the process undertaken by DMG to approach
and contact potential transaction candidates and the fact that, despite
these contacts, only Westell and Parent had made written proposals
regarding a business combination prior to the public announcement of the
Westell Merger Agreement and that, since the public announcement of the
Westell Merger Agreement on October 1, 1997, no unsolicited expressions
of interest had been received by the Company or DMG from any other third
party.
- The fact that, even though the Company encouraged Westell to improve its
proposal for acquiring the Shares in light of the Offer, Westell declined
to do so on November 18, 1997.
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- The terms and conditions of the Parent Merger Agreement, including the
amount and form of the consideration being offered to the Company's
stockholders, the conditions to the Purchaser's obligations to consummate
the Offer and the Merger, which the Board of Directors believes provides
greater, or no less, certainty to the Company's stockholders than the
Westell Merger Agreement, and Parent's agreement to loan funds to the
Company for the Company's payment of the Westell Termination Fee and
repayment of amounts loaned to the Company by Westell in connection with
the execution of the Westell Merger Agreement.
The foregoing discussion of factors considered by the Board of Directors is
not intended to be exhaustive. It summarizes all material factors considered.
The Board of Directors did not assign any relative or specific weights to the
foregoing factors, nor did it specifically characterize any factor as positive
or negative (except as described above), and individual directors may have given
differing weights to differing factors and may have viewed certain factors more
positively or negatively than others. Throughout its deliberations, the Board of
Directors received the advice of its financial and legal advisors. The Board of
Directors viewed its recommendation as being based upon the totality of the
information presented and considered by them.
On November 25, 1997, Purchaser commenced the Offer. The Offer expired at
12:00 midnight, New York City time, on December 23, 1997. Following the
expiration of the Offer, Purchaser accepted for payment 15,290,381 Shares
(approximately 77.0% of the issued and outstanding Shares) validly tendered and
not withdrawn pursuant to the Offer, which number gives effect to the failure of
a number of Shares to be delivered in accordance with guaranteed delivery
procedures. On December 24, 1997, the resignations of three of five existing
directors of the Company became effective and three persons designated by
Purchaser were elected to the Board of Directors.
OPINION OF FINANCIAL ADVISOR
The Company retained DMG to act as financial adviser to the Company for the
purpose of evaluating the fairness, from a financial point of view, of the cash
consideration to be received by the Company's stockholders pursuant to the Offer
and the Merger. DMG had previously been retained by the Company to provide
similar financial advisory services in connection with the Westell Merger
Agreement. As compensation for DMG's services as financial adviser, the Company
has agreed to pay DMG a retainer of $50,000 and a transaction fee of
approximately $7.5 million upon consummation of the Merger, against which the
retainer would be credited. In addition, the Company has agreed to reimburse DMG
for its reasonable out-of-pocket expenses (including fees and expenses of its
legal counsel) incurred in connection with its engagement, and to indemnify DMG
and certain related persons against certain liabilities and expenses arising out
of or in conjunction with its rendering of services under its engagement,
including certain liabilities under the federal securities laws.
At the meeting of the Company's Board on November 18, 1997, DMG rendered
its oral opinion, subsequently confirmed in writing on November 19, 1997 (the
"DMG Opinion"), that, as of such date, based upon and subject to the various
considerations set forth in the DMG Opinion, the cash consideration to be
received by the holders of the Company's Common Stock (other than Parent and its
affiliates) in the Offer and the Merger is fair from a financial point of view
to such holders. DMG has consented to the inclusion of the DMG Opinion as Annex
III to this Information Statement.
THE FULL TEXT OF THE DMG OPINION, WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND LIMITATIONS ON
THE SCOPE OF THE REVIEW UNDERTAKEN BY DMG IN RENDERING THE DMG OPINION, IS
ATTACHED AS ANNEX III HERETO AND IS INCORPORATED HEREIN BY REFERENCE. THE
COMPANY'S STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE DMG OPINION CAREFULLY
AND IN ITS ENTIRETY. THE DMG OPINION ADDRESSES ONLY THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW TO THE HOLDERS OF THE COMPANY'S COMMON STOCK (OTHER THAN
PARENT AND ITS AFFILIATES) AS OF THE DATE OF THE DMG OPINION OF THE CASH
CONSIDERATION TO BE RECEIVED BY SUCH HOLDERS IN THE OFFER AND THE MERGER, AND
DOES NOT
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CONSTITUTE A RECOMMENDATION TO THE STOCKHOLDERS OF THE COMPANY AS TO WHETHER OR
NOT TO TENDER SHARES OF THE COMPANY'S COMMON STOCK PURSUANT TO THE OFFER OR AS
TO HOW SUCH HOLDER SHOULD VOTE WITH RESPECT TO THE MERGER. THE SUMMARY OF THE
DMG OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE DMG OPINION.
In rendering the DMG Opinion, DMG, among other things: (i) analyzed certain
publicly available financial statements and other information of the Company and
Parent, respectively; (ii) analyzed certain internal financial statements and
other financial and operating data concerning the Company prepared by the
management of the Company; (iii) analyzed certain financial projections relating
to the Company prepared by the management of the Company; (iv) discussed the
past and current operations and financial condition and the prospects of the
Company with senior executives of the Company; (v) reviewed the reported prices
and trading activity for the Company's Common Stock; (vi) compared the financial
performance of the Company and the prices and trading activity of the Company's
Common Stock with that of certain other comparable publicly-traded companies and
their securities; (vii) reviewed the financial terms, to the extent publicly
available, of certain comparable merger and acquisition transactions; (viii)
participated in discussions and negotiations among representatives of the
Company and Parent and their respective financial and legal advisors; (ix)
reviewed the Merger Agreement and certain related agreements; and (x) performed
such other analyses and considered such other factors as DMG deemed appropriate.
In rendering the DMG Opinion, DMG assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of the DMG Opinion. DMG assumed that the
financial projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of the Company. DMG has not made any independent valuation or appraisal of the
assets, liabilities or technology of the Company nor has DMG been furnished with
any such appraisals. DMG has assumed that the Offer and the Merger will each be
consummated in accordance with the terms set forth in the Merger Agreement. The
DMG Opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to DMG as of, the date of the DMG
Opinion.
The following is a summary of the analysis performed by DMG in preparation
of the DMG Opinion.
Comparative Stock Price Performance: As part of its analysis, DMG reviewed
the recent stock price performance of the Company and compared such performance
with that of other companies involved in the data networking and
telecommunications equipment industries. DMG observed that during the period
from January 1, 1997, to November 17, 1997, the market price of the Company's
Common Stock increased 24.8% compared with increases of 7.4% for Aware, Inc.
("Aware"), 89.7% for Orckit Communications, Ltd. ("Orckit") and 25.0% for the
NASDAQ composite and decreases of 16.4% for Westell Technologies, Inc.
("Westell") and 19.7% for Pairgain Technologies, Inc. ("Pairgain"). DMG noted
that over such period, the Company's Common Stock had underperformed relative to
the common stock of Orckit, performed comparably to the NASDAQ composite and
outperformed Pairgain, Westell and Aware. DMG also observed that during the
period from October 1, 1997 (the date of the announcement of the proposed
transaction between Westell and the Company), to November 17, 1997, the market
price of the Company's Common Stock decreased by 14.4%, compared with decreases
of 17.5% for Westell, 22.0% for Aware, 14.1% for Pairgain, 0.7% for Orckit and
4.5% for the NASDAQ composite. DMG noted that over such period the Company's
Common Stock had underperformed relative to the common stock of Orckit and the
NASDAQ composite, performed comparably to the common stock of Pairgain and
outperformed relative to the common stock of Westell and Aware.
Peer Group Comparison: DMG compared certain information relating to the
Company with a group of companies involved in the digital subscriber line
industry including Westell, Orckit and Aware; the data networking industry
including Cisco Systems, Inc., 3Com Corporation, Newbridge Networks Corporation,
Ascend Communications, Inc., Bay Networks, Inc., Cabletron Systems, Inc., Fore
Systems, Inc., Xylan Corporation and Madge Networks, N.V. (together, the "Data
Networking Companies"); the telecom switching industry including Lucent
Technologies, Inc., Ericsson LM, Siemens AG, Northern Telecom, Ltd.,
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Alcatel Alsthom, SA and Nokia Corporation (together, the "Telecom Switching
Companies"); and the telecom equipment industry including Tellabs, Inc., ADC
Telecommunications, Ciena Corporation, DSC Communications Corporation, Advanced
Fibre Communications, Inc., Pairgain and Adtran, Inc. (together, the "Telecom
Equipment Companies"). Such information included, among other things, market
valuation, stock price as a multiple of earnings per share and aggregate market
capitalization as a multiple of revenues. The multiples are based on a
compilation of publicly available information and consensus forecasts by
securities research analysts. In particular, such comparison showed that as of
November 17, 1997, the Company traded at 25.1 times last twelve months' ("LTM")
revenue and 20.2 times projected calendar year 1998 revenue. Westell traded at
11.3 times LTM revenue and 7.3 times projected calendar year 1998 revenue;
Orckit traded at 10.9 times LTM revenue and 8.1 times projected calendar year
1998 revenue; Aware traded at 25.4 times LTM revenue and 20.4 times projected
calendar year 1998 revenue; the Data Networking Companies traded at a median of
3.7 times LTM revenue, 2.5 times projected calendar year 1998 revenue and 41.5
times projected calendar year 1998 earnings; the Telecom Switching Companies
traded at a median of 1.3 times LTM revenue, 1.3 times projected calendar year
1998 revenue and 30.6 times projected calendar year 1998 earnings; and the
Telecom Equipment Companies traded at a median of 5.8 times LTM revenue, 4.6
times projected calendar year 1998 revenue and 38.3 times projected calendar
year 1998 earnings. DMG noted that as a multiple of both LTM and projected
calendar year 1998 revenue, the Company traded at a premium to Westell, Orckit,
the Data Networking Companies, the Telecom Switching Companies and the Telecom
Equipment Companies and traded comparably to Aware.
Selected Precedent Transactions: DMG reviewed 90 acquisition transactions
involving companies in the data networking industry. DMG observed for the 55 of
such transactions for which such information was publicly available the median
of the range of multiples of aggregate value to LTM revenue and operating income
was 4.0 times and 27.9 times, respectively, and the median price to earnings
multiple was 28.3 times estimated next twelve months' earnings. DMG also
observed that for this group of transactions, the median of the share price paid
in such acquisitions expressed as a premium over the trading price of the stock
of the acquired companies on the day prior to announcement was 28.2% DMG
compared these multiples to the multiples of the aggregate Offer value to LTM
revenue of 33.9 times and to the Company's estimated next twelve months' revenue
of 11.2 times. DMG also compared the median premium paid in these transactions
to the premium implied by the Offer to the price of the Company's Common Stock
on November 18, 1997 of 31.7%.
Terminal Value Analysis: DMG performed an analysis of the present value per
share of the implied future trading prices of the Company's Common Stock for the
Company on a stand alone basis. Such analysis was based on a range of revenue
and earnings estimates for the Company for the fiscal year ending July 31, 1999
using management and publicly available securities analyst estimates and for the
fiscal year ending July 31, 2000 based on assumed growth rates of 0%, 25% and
30%. The analysis was also based on an illustrative range of one-year forward
revenue multiples of 2, 3, 4 and 5 times and one-year forward price earnings
multiples of 30, 35, 40, 45 and 50 times. Equivalent share prices were then
computed for the Company one year and two years from the date of the analysis
which were then discounted back to the present at illustrative discount rates of
20% and 30%. Based on the information described above, this analysis resulted in
a present value per share to holders of the Company's Common Stock ranging from
$3.51 to $13.20, based on the fiscal year ending July 31, 1999 earnings
estimates and $4.50 to $16.50, based on the fiscal year ending July 31, 2000
earnings estimates, and $4.84 to $21.41, based on the fiscal year ending July
31, 1999 revenue estimates and $6.14 to $26.71, based on the fiscal year ending
July 31, 2000 revenue estimates.
In connection with the preparation of the DMG Opinion, DMG performed a
variety of financial and comparative analyses. While the foregoing summary
describes all material analyses performed by DMG, it does not purport to be a
complete description of the analyses performed by DMG in arriving at the DMG
Opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. DMG believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
analyses and factors, could create a misleading view of the processes underlying
the DMG Opinion. In performing its analyses, DMG made numerous assumptions with
respect to industry performance, general business and
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economic conditions and other matters, many of which are beyond the control of
the Company. Any estimates contained therein are not necessarily indicative of
future results or actual values, which may be significantly more or less
favorable than those suggested by such estimates. Furthermore, the analyses
performed by DMG are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. In addition, analyses relating to the value of businesses or
assets do not purport to be appraisals or to necessarily reflect the prices at
which businesses or assets may actually be sold. The analyses performed were
prepared solely as part of DMG's analysis of whether the cash consideration to
be received by the holders of the Company's Common Stock (other than Parent and
its affiliates) pursuant to the Offer and the Merger is fair from a financial
point of view to such holders and were provided to the Board of Directors of the
Company in connection with the delivery of the DMG Opinion.
DMG is an internationally recognized investment banking and advisory firm.
DMG, as part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the ordinary course of its
business, DMG may actively trade the securities and loans of the Company and
Parent for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities
and loans.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Information with respect to certain contracts, agreements, arrangements or
understandings between the Parent and certain of the Company's executive
officers, directors or affiliates is set forth below.
Steenbergen Retention Agreement. Prior to the commencement of the Offer,
Parent entered into a retention agreement, dated as of November 19, 1997, with
James E. Steenbergen, the Company's Chief Executive Officer, President and Chief
Financial Officer (the "Retention Agreement"). The following summary of the
Retention Agreement is qualified in its entirety by reference to the Retention
Agreement, a copy of which has been filed as an exhibit to the Company's
Schedule 14D-9 filed with the Commission. See "Available Information." Under the
Retention Agreement, Parent agreed that in the event the Company or Parent
terminates without cause Mr. Steenbergen's full-time employment with the Company
or Parent following the Merger, then Parent will retain Mr. Steenbergen as an
employee on an approved leave of absence until such time as all of his options
to purchase common stock of the Company that were granted prior to the Merger
(and which will be converted into options to purchase stock of Parent) become
fully exercisable. In addition, under the Retention Agreement Mr. Steenbergen
has agreed to certain non-competition and non-solicitation covenants in favor of
Parent.
Other Retention Agreements. Parent entered into similar retention
agreements with Mr. Ronald Carlini, the Company's Vice President of Corporate
Development, and Mr. James D. Hood, the Company's Vice President of Engineering.
A copy of those agreements have been filed as an exhibit to the Company's
Schedule 14D-9 filed with the Commission. See "Available Information."
Consulting Agreement. At the time of the commencement of the Offer, Parent
was in discussions with Dr. John Cioffi, the Company's Chief Technical Officer,
regarding the terms of a proposed consulting agreement. Since such time, Parent
and Dr. Cioffi have mutually determined that, in lieu of entering into such
proposed consulting agreement, Dr. Cioffi's existing employment arrangements
with the Company would be continued.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of the material federal income tax consequences
of the Merger to stockholders of the Company whose Shares are converted into the
right to receive the Merger Consideration in the Merger (as well as any cash
amounts received by dissenting stockholders pursuant to the exercise of
appraisal rights). The discussion applies only to stockholders of the Company
holding Shares as capital assets, and may not apply to stockholders who received
their Shares pursuant to the exercise of employee stock options or otherwise as
compensation, or who are not citizens or residents of the United States.
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The federal income tax consequences set forth below are included for
general informational purposes only and are based upon present law. Because
individual circumstances may differ, each stockholder should consult such
stockholder's own tax advisor to determine the applicability of the rules
discussed below to such stockholder and the particular tax effects of the
Merger, including the application and effect of state, local and foreign tax
laws.
Receipt of the Merger Consideration. The receipt by a stockholder of the
Merger Consideration (including any cash amounts received by dissenting
stockholders pursuant to the exercise of appraisal rights) in exchange for
Shares will be a taxable transaction for federal income tax purposes. In
general, for federal income tax purposes, a stockholder will recognize gain or
loss equal to the difference between such stockholder's adjusted tax basis in
the Shares exchanged for cash in the Merger and the amount realized in such
exchange (i.e., generally the amount of cash received therefor). Such gain or
loss will be capital gain or loss. In the case of non-corporate taxpayers, any
such capital gain will be long-term capital gain and subject to a maximum
federal income tax rate of 20% if the stockholder's holding period in the Shares
at the Effective Time of the Merger is greater than eighteen months; if such
holding period is more than one year but not more than eighteen months, then any
such capital gain will be mid-term capital gain and will be subject to a maximum
federal income tax rate of 28%. Dissenting stockholders who do not receive cash
in the taxable year in which the Effective Time of the Merger occurs (i.e., the
year of the sale of Shares) are urged to consult their own tax advisors
regarding the amount of their "amount realized" (and resulting amount of gain
recognized) in such taxable year and the potential application (if at all) of
the "open transaction doctrine" pending the determination of the amount of cash
to which dissenting stockholders are entitled.
Backup Withholding. Payments in connection with the Merger may be subject
to "backup withholding" at a 31% rate. Backup withholding generally applies if
the stockholder (a) fails to furnish his social security number or other
taxpayer identification number ("TIN"), (b) furnishes an incorrect TIN, (c)
fails properly to report interest or dividends, or (d) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN provided is his correct number and that he is not subject
to backup withholding. Any amounts withheld from a payment to a stockholder
under the backup withholding rules will be allowed as a credit against such
stockholder's federal income tax liability, provided that the required
information is provided to the Internal Revenue Service. Certain persons
generally are exempt from backup withholding, including corporations and
financial institutions. Certain penalties apply for failure to furnish correct
information and for failure to include the reportable payments in income. Each
stockholder should consult with such stockholder's own tax advisor as to such
stockholder's qualification for exemption from withholding and the procedure for
obtaining such exemption.
REGULATORY MATTERS
The waiting period under the HSR Act expired on December 5, 1997. The
Company is not aware of any federal, state or foreign regulatory requirements
that remain to be complied with in order to consummate the Merger.
The Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice frequently scrutinize the legality under the U.S.
antitrust laws of transactions such as Purchaser's acquisition of the Company.
At any time, the Antitrust Division or the FTC could take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the consummation of the Merger or seeking the
divestiture of Shares acquired by Purchaser or the divestiture of substantial
assets of Parent or its subsidiaries, or the Company or its subsidiaries.
Private parties may also bring legal action under certain circumstances. There
can be no assurance that a challenge to the Merger on antitrust grounds will not
be made or, if such a challenge is made, of the result thereof.
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THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement, a
copy of which is attached as Annex I to this Information Statement and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Merger Agreement. Capitalized terms used and not otherwise
defined herein have the meaning ascribed to them in the Merger Agreement.
DIRECTORS
The Merger Agreement provides that promptly upon Parent's purchase of and
payment for Shares which represent at least a majority of the outstanding Shares
(on a fully diluted basis), Parent shall be entitled to designate a number of
directors, rounded up to the next whole number, on the Company Board, subject to
compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, equal to the product of the total number of directors on the Company
Board (giving effect to the directors elected pursuant to this sentence)
multiplied by the percentage that the aggregate number of Shares beneficially
owned by the Purchaser, Parent and any of their affiliates (including Shares
accepted for payment) bears to the total number of Shares then outstanding. The
Company shall, upon request of the Purchaser, on the date of such request,
either increase the size of the Company Board or secure the resignations of such
number of its incumbent directors as is necessary to enable Parent's designees
to be elected to the Company Board, and shall cause Parent's designees to be so
elected. Notwithstanding the foregoing, until the Effective Time, the Company
shall retain as members of the Company Board at least two directors who were
directors of the Company on the date of the Merger Agreement; provided, that
subsequent to the purchase of and payment for Shares pursuant to the Offer,
Parent shall always have its designees represent at least a majority of the
entire Company Board. Pursuant to the Merger Agreement, and effective upon the
consummation of the Offer, three of the five members of the Board of Directors
of the Company resigned as directors and three persons designated by Parent were
appointed as members of such Board of Directors.
The Merger Agreement also provides that from and after the time, if any,
that Parent's designees constitute a majority of the Company Board, any
amendment of the Merger Agreement, any termination of the Merger Agreement by
the Company, any extension of time for performance of any of the obligations of
Parent or the Purchaser under the Merger Agreement, and any waiver of any
condition or any of the Company's rights under the Merger Agreement or other
action by the Company in connection with the rights of the Company under the
Merger Agreement may be effected only by the action of a majority of the
directors of the Company then in office who were directors on the date of the
Merger Agreement, which action shall be deemed to constitute the action of the
full Company Board; provided, that if there are no such directors, such actions
may be effected by unanimous vote of the entire Company Board.
THE MERGER
The Merger Agreement provides that, subject to the terms and conditions
thereof, the Purchaser will be merged with and into the Company, with the
Company continuing as the Surviving Corporation and a direct wholly owned
subsidiary of Parent. At the Effective Time, by virtue of the Merger and without
any action on the part of the holders of any shares, each issued and outstanding
share (other than Shares owned by Parent, the Purchaser or any other
wholly-owned subsidiary of Parent, which shall be cancelled, and Shares held by
stockholders who have demanded and perfected dissenters' rights under the
General Corporation Law of the State of Delaware (the "DGCL")) shall be
converted into the right to receive the Merger Consideration (i.e. $20.00),
without interest. Each issued and outstanding share of common stock, par value
$0.01 per share, of the Purchaser shall be converted into and become one fully
paid and non-assessable share of common stock of the Surviving Corporation. The
Merger Agreement also provides that (i) the directors of the Purchaser
immediately prior to the Effective Time will be the initial directors of the
Surviving Corporation and the officers of the Company immediately prior to the
Effective Time will be the initial officers of the Surviving Corporation; (ii)
the Certificate of Incorporation of the Company shall be the Certificate of
Incorporation of the Surviving Corporation; and (iii) the By-laws of the Company
(the "By-laws") will be the initial By-laws of the Surviving Corporation.
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TREATMENT OF OPTIONS AND WARRANTS
The Merger Agreement provides that the options to purchase Shares under the
Company's 1981 Stock Option Plan, 1981 Supplemental Stock Option Plan, 1990
Stock Option Plan, Old Amati 1992 Stock Option Plan, 1990 Non-Employee
Directors' Stock Option Plan and 1996 Stock Option Plan (the "Option Plans")
shall, pursuant to the terms of such Option Plans, not automatically vest as a
consequence of the transactions contemplated by the Merger Agreement and that
the Company Board shall not exercise any discretionary authority to vest such
options in connection with the Transactions contemplated by the Merger
Agreement. Notwithstanding the foregoing, options ("Director Options") granted
to non-employee directors under the 1990 Non-Employee Directors' Stock Option
Plan shall vest immediately prior to the Effective Time pursuant to their terms
and Director Options granted under any of the other Option Plans shall vest
immediately prior to the Effective Time by action of the Company Board. At the
Effective Time, each outstanding Director Option shall be converted into the
right to receive cash in an amount equal to the product of (i) the number of
Shares subject to such Director Option and (ii) the excess of (A) the Merger
Consideration over (B) the per share exercise price of such Director Option.
Holders of outstanding options (other than Director Options) that are
vested at the Effective Time shall be given the opportunity to make an
irrevocable election, on a grant by grant basis to be effective immediately
following the Effective Time, to receive in exchange for the cancellation of
each such vested option either (i) cash in an amount equal to the product of (a)
the number of Shares subject to such option and (b) the excess of (1) the Merger
Consideration over (2) the per share exercise price of such option or (ii) a
substitute option to purchase Parent common stock (a "Substitute Option") (a)
which will be exercisable for a number of shares of Parent's common stock equal
to (1) the number of Shares subject to the option multiplied by (2) the ratio
obtained by dividing the Merger Consideration by the average closing price per
share of Parent's common stock on the New York Stock Exchange for the five
consecutive trading days ending immediately prior to the closing date of the
Merger (the "Option Ratio"), rounded down to the next whole number of shares,
(b) the exercise price for which shall equal the exercise price for the Shares
otherwise purchasable pursuant to the option divided by the Option Ratio,
rounded to the nearest hundredth of a cent, and (c) which shall be subject to
substantially the same terms and conditions as applicable to the option.
Holders of outstanding options (other than Director Options) that are not
vested as of the Effective Time shall, at the Effective Time, receive in
substitution and cancellation for each such nonvested option a Substitute
Option, which Substitute Option shall be subject to the same vesting schedule as
applicable to the option.
As of the Effective Time, by virtue of the merger and without any action on
the part of the holders thereof, each unexpired and unexercised warrant to
purchase Shares shall be converted into the right to receive an amount in cash
equal to the product of (i) the number of Shares subject to such warrant and
(ii) the excess of (a) the Merger Consideration over (b) the per share exercise
price of such warrant, upon surrender of the certificate representing such
warrant; provided, that any warrant as to which the per share exercise price is
equal to or greater than the Merger Consideration shall be cancelled and
terminated as of the Effective Time without payment of any consideration
thereof.
STOCKHOLDERS' MEETING
Pursuant to the Merger Agreement, if the Company owns less than 90% of the
Shares following the purchase of Shares by the Purchaser pursuant to the Offer,
the Company shall, in accordance with applicable law, duly call, give notice of,
convene and hold a special meeting of its stockholders as soon as practicable
following the acceptance for payment and purchase of Shares by the Purchaser
pursuant to the Offer for the purpose of considering and taking action upon the
Merger Agreement. In accordance with this provision, the Company has called the
Special Meeting.
The Merger Agreement also provides that the Company shall, in accordance
with applicable law, prepare and file with the Commission a preliminary proxy or
information statement relating to the Merger and the Merger Agreement, obtain
and furnish the information required to be included by the Commission in the
Proxy Statement (as hereinafter defined) and, after consultation with Parent,
respond promptly to any
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comments made by the Commission with respect to the preliminary proxy or
information statement and cause a definitive proxy or information statement (the
"Proxy Statement") to be mailed to its stockholders and obtain the necessary
adoption of the Merger Agreement by its stockholders. The Merger Agreement also
provides that the Company shall, subject to the fiduciary obligations of the
Company Board under applicable law as advised by the Company's outside counsel,
include in the Proxy Statement the recommendation of the Company Board that
stockholders of the Company vote in favor of the approval of the adoption of the
Merger Agreement. In the event that the Purchaser shall acquire at least 90% of
the outstanding shares of each class of capital stock of the Company, pursuant
to the Offer or otherwise, the parties shall take all necessary and appropriate
action to cause the Merger to become effective as soon as practicable after such
acquisition, without a meeting of the Company's stockholders in accordance with
Section 253 of the DGCL.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties of the Company
with respect to, among other things (i) organization and good standing,
certificate of incorporation, by-laws and minute books, (ii) capitalization
(including the ownership of subsidiaries), (iii) authority of the Company,
validity of the Merger Agreement and Company action, (iv) consents and approvals
and absence of violations, (v) Commission reports and financial statements, (vi)
no undisclosed liabilities, (vii) absence of certain changes (including material
adverse changes), (viii) certain contracts (including material agreements), (ix)
employee benefit plans and ERISA, (x) litigation, (xi) permits, absence of
defaults and compliance with applicable laws, (xii) taxes, (xiii) certain
property, (xiv) intellectual property, (xv) environmental matters, (xvi)
employee and labor matters, (xvii) information in tender offer documents,
(xviii) brokers and finders, (xix) insurance and (xx) opinion of financial
advisor.
The Merger Agreement contains joint and several representations and
warranties of Parent and the Purchaser with respect to, among other things (i)
organization and good standing, (ii) authority of Parent, validity of the Merger
Agreement and necessary action, (iii) consents and approvals and absence of
violations, (iv) Commission reports and financial statements, (v) information in
the tender offer documents and the proxy statement pertaining to the Merger,
(vi) sufficiency of funds, (vii) Share ownership and (viii) the Purchaser's
operations.
INTERIM OPERATIONS
In the Merger Agreement, the Company has agreed that, among other things,
between the date of the Merger Agreement and prior to the time the Purchaser's
designees have been elected to, and constitute a majority of, the Company Board,
unless Parent otherwise agrees in writing and except as otherwise contemplated
by the Merger Agreement, (i) the business of the Company and its subsidiaries
shall be conducted only in the ordinary course of business and, to the extent
consistent therewith, each of the Company and its subsidiaries shall use its
reasonable best efforts to preserve in all material respects its business
organization intact and maintain its existing relations with customers,
suppliers, employees and business associates; (ii) neither the Company nor any
of its subsidiaries shall, directly or indirectly, amend its certificate of
incorporation or bylaws or similar organizational documents or split, combine or
reclassify its outstanding capital stock; (iii) neither the Company nor any of
its subsidiaries shall (a) declare, set aside or pay any dividend or other
distribution (whether payable in cash, stock or property) with respect to its
capital stock (other than dividends from any subsidiary of the Company to the
Company or any other subsidiary of the Company); (b) issue or sell any
additional shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of the Company or its subsidiaries, other
than issuances pursuant to the exercise of options and warrants of the Company
outstanding on the date of the Merger Agreement; (c) sell, lease or dispose of
any assets or properties, other than in the ordinary course of business; (d)
incur or modify any material debt, other than in the ordinary course of business
consistent with past practice; (e) license or sublicense any asset or property
of the Company or any of its subsidiaries except in the ordinary course of
business consistent with past practice on a basis that results in a positive
current royalty net of any royalties due by the Company or any of its
subsidiaries on account of sales by the licensee or sublicensee; or (f) redeem,
purchase or otherwise acquire,
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directly or indirectly, any of its or its subsidiaries' capital stock; (iv)
neither the Company nor any of its subsidiaries shall enter into, adopt or
materially amend or terminate any employee benefit plans, amend any employment
or severance agreement or increase in any manner the compensation or other
benefits of its officers or directors or increase in any manner the compensation
of any other employees (except for normal increases in the ordinary course of
business); (v) neither the Company nor any of its subsidiaries shall (a) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the material obligations of any other person
(other than subsidiaries of the Company), except pursuant to contractual
indemnification agreements entered into in the ordinary course of business; (b)
make any loans, advances or capital contributions to, or investments in, any
other person (other than to subsidiaries of the Company and payroll, travel and
similar advances made in the ordinary course of business); or (c) make capital
expenditures other than pursuant to the Company's current capital expenditure
budget; (vi) neither the Company nor any of its subsidiaries shall change any of
the accounting methods used by it unless required by generally accepted
accounting principles or applicable law, (vii) the Company shall not settle or
compromise any claim (including arbitration) or litigation involving payments by
the Company in excess of $250,000 individually which are not subject to
insurance reimbursement without the prior written consent of Parent, which
consent shall not be unreasonably withheld; (viii) the Company shall not amend,
modify or terminate in any material respect or enter into any new agreement
material to the business of the Company without the prior written consent of
Parent, which consent shall not be unreasonably withheld; or (ix) neither the
Company nor any of its subsidiaries shall authorize or enter into an agreement
to do any of the foregoing.
APPROVALS AND CONSENTS; COOPERATION; NOTIFICATION
Parent, the Purchaser and the Company have agreed to use their respective
reasonable best efforts, and cooperate with each other, to (i) determine as
promptly as practicable all governmental and third party authorizations,
approvals, consent or waivers, including pursuant to the HSR Act, advisable (in
Parent's and Purchaser's discretion) or required in order to consummate the
transactions contemplated by the Merger Agreement, including the Offer and the
Merger, and (ii) obtain such authorizations, approvals, consents or waivers as
promptly as practicable. The Company, Parent and the Purchaser have agreed to
take all actions necessary to file as soon as practicable all notifications,
filings and other documents required to obtain all governmental authorizations,
approvals, consents or waivers, including under the HSR Act, and to respond as
promptly as practicable to any inquiries received from the Federal Trade
Commission, the Antitrust Division of the Department of Justice and any other
governmental entity for additional information or documentation and to respond
as promptly as practicable to all inquiries and requests received from any
governmental entity in connection therewith. The Company is required to give
prompt notice to Parent of (i) the occurrence of any event, condition or
development material to the Company and its subsidiaries, taken as a whole, and
(ii) any notice from any Person claiming its consent is required in connection
with the transactions contemplated by this Agreement. Each of the Company and
Parent have agreed to give prompt notice to the other of the occurrence or
failure to occur of an event that would, or, with the lapse of time would cause
any condition to the consummation of the Offer or the Merger not to be
satisfied.
EMPLOYEE BENEFITS
Parent and the Purchaser have agreed that the Surviving Corporation and its
subsidiaries and successors shall provide those persons who, immediately prior
to the Effective Time, were employees of the Company or its subsidiaries
("Retained Employees") with employee plans and programs that provide benefits
that are no less favorable in the aggregate than those provided to such Retained
Employees immediately prior to the date of the Merger Agreement. With respect to
such employee programs provided by the Surviving Corporation and its
subsidiaries and successors, service accrued by such Retained Employees during
employment with the Company and its subsidiaries prior to the Effective Time
shall be recognized for all purposes, except to the extent necessary to prevent
duplication of benefits. Parent and the Purchaser have also agreed to honor, and
cause the Surviving Corporation to honor, without modification, all employment
and severance agreements and arrangements, as amended through the date of the
Merger Agreement, with respect to employees and former employees of the Company
disclosed to Parent and the Purchaser pursuant to the Merger Agreement.
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Parent and the Company have agreed that prior to the Effective Time, they shall
reasonably cooperate to develop and adopt an employee retention plan for key
employees of the Company, which plan shall be subject to Parent's approval.
NO SOLICITATION
Pursuant to the Merger Agreement, the Company has agreed that it and its
subsidiaries shall not (and shall use their best efforts to cause their
respective officers, directors, employees and investment bankers, attorneys or
other agents retained by or acting on behalf of the Company or any of its
subsidiaries not to), (i) initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any proposal that constitutes or is
reasonably likely to lead to any Acquisition Proposal (as defined below); (ii)
engage in negotiations or discussions (other than to advise as to the existence
of the restrictions described in this paragraph) with, or furnish any
information or data to, any third party relating to an Acquisition Proposal; or
(iii) enter into any agreement with respect to any Acquisition Proposal or
approve any Acquisition Proposal. Notwithstanding the foregoing or anything to
the contrary in the Merger Agreement, the Company and the Company Board may
participate in discussions or negotiations (including, as a part thereof, making
any counterproposal) with or furnish information to any third party making an
unsolicited Acquisition Proposal (a "Potential Acquiror") or approve an
unsolicited Acquisition Proposal if the Company Board is advised by its
financial advisor that such Potential Acquiror has the financial wherewithal to
be reasonably capable of consummating such an Acquisition Proposal, and the
Company Board determines in good faith (i) after receiving advice from its
financial advisor, that such third party has submitted to the Company an
Acquisition Proposal which is a Superior Proposal (as defined below), and (ii)
based upon advice of outside legal counsel, that the failure to participate in
such discussions or negotiations or to furnish such information or approve an
Acquisition Proposal would violate the Company Board's fiduciary duties under
applicable law.
"Acquisition Proposal" means any bona fide proposal, whether in writing or
otherwise, made by a third party to acquire beneficial ownership (as defined
under Rule 13d-3 of the Exchange Act) of all or a material portion of the assets
of, or any material equity interest in, the Company or its material subsidiaries
pursuant to a merger, consolidation or other business combination, sale of
shares of capital stock, sale of assets, tender offer or exchange offer or
similar transaction involving the Company or its material subsidiaries including
any single or multi-step transaction or series of related transactions which is
structured to permit such third party to acquire beneficial ownership of any
material portion of the assets of, or any material portion of the equity
interest in, the Company or its material subsidiaries. "Superior Proposal" means
any bona fide proposal to acquire, directly or indirectly, for consideration
consisting of cash and/or securities, more than a majority of the Shares then
outstanding or all or substantially all the assets of the Company, and otherwise
on terms which the Company Board determines in good faith to be more favorable
to the Company and its stockholders than the Offer and the Merger (based on
advice of the Company's financial advisor that the value of the consideration
provided for in such proposal is superior to the value of the consideration
provided for in the Offer and the Merger), for which financing, to the extent
required, is then committed or which, in the good faith reasonable judgment of
the Company Board, after receiving advice from its financial advisor, is
reasonably capable of being financed by such third party.
The Merger Agreement also provides that the Company shall (i) in the event
the Company shall determine to provide any information as described above or
shall receive any Acquisition Proposal, promptly inform Parent in writing as to
the fact that information is to be provided and shall furnish to Parent the
identity of the recipient of such information and/or the Potential Acquiror and
the terms of such Acquisition Proposal, except, in either case, to the extent
that the Company Board determines in good faith, based upon the advice of
outside legal counsel that any such action would violate the Company Board's
fiduciary duties under, or otherwise violate, applicable law. The Company has
agreed that any non-public information furnished to a Potential Acquiror will be
pursuant to a confidentiality agreement containing confidentiality and
standstill provisions substantially similar to the confidentiality and
standstill provisions of the Confidentiality Agreement entered into between the
Company and Parent, a copy of which has been filed with the Commission as an
exhibit to the Company's Schedule 14D-1. See "Available Information."
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Pursuant to the Merger Agreement, the Company has agreed that the Company
Board shall not (i) withdraw or modify, or propose to withdraw or modify, in any
manner adverse to Parent, its approval or recommendation of the Merger
Agreement, the Offer or the Merger or (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal unless, in each case, the Company
Board determines in good faith, after receiving advice from its financial
advisor, that such Acquisition Proposal is a Superior Proposal and, based upon
advice of its outside legal counsel, that the failure to take such action would
violate its fiduciary duties under applicable law.
INDEMNIFICATION
The Company shall, and from and after the consummation of the Offer, Parent
and the Surviving Corporation shall jointly and severally, indemnify, defend and
hold harmless the present and former directors and officers of the Company and
its subsidiaries (the "Indemnified Parties") from and against all losses,
expenses, claims, damages or liabilities arising out of the transactions
contemplated by the Merger Agreement to the fullest extent permitted or required
under applicable law. All rights to indemnification existing in favor of the
directors and officers of the Company as provided in the Company's certificate
of incorporation or by-laws, as in effect as of the date of the Merger
Agreement, with respect to matters occurring through the Effective Time, shall
survive the Merger and shall not be amended, repealed or otherwise modified for
a period of six years after the consummation of the Offer in any manner that
would adversely affect the rights of the individuals who at or prior to the
consummation of the Offer were directors or officers of the Company with respect
to occurrences at or prior to the consummation of the Offer and Parent shall
cause the Surviving Corporation to honor all such rights to indemnification.
SHAREHOLDER LITIGATION
The Merger Agreement provides that in connection with any litigation which
may be brought against the Company or its directors relating to the transactions
contemplated thereby, the Company will keep Parent, and any counsel which Parent
may retain at its own expense, informed of the course of such litigation, to the
extent Parent is not otherwise a party thereto. The Company has also agreed that
it will consult with Parent prior to entering into any settlement or compromise
of any such shareholder litigation and will not enter into any such settlement
or compromise without Parent's prior written consent, which consent shall not be
unreasonably withheld.
FURTHER ASSURANCES
Pursuant to the Merger Agreement, each of the parties has agreed to use its
respective reasonable best efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by the Merger Agreement, including the Offer and the
Merger.
CONDITIONS TO THE MERGER
The Merger Agreement provides that the respective obligations of each party
to effect the Merger shall be subject to the satisfaction, at or prior to the
Effective Time, of the following conditions: (i) the Merger Agreement shall have
been adopted by the requisite vote of the Company's stockholders if required by
applicable law and the Company's certificate of incorporation; (ii) any waiting
period applicable to the Merger under the HSR Act shall have expired or been
terminated; (iii) no statute, rule, regulation, order, decree or injunction
shall have been enacted, promulgated or issued by any Governmental Entity or
court which prohibits consummation of the Merger; and (iv) Parent, the Purchaser
or their affiliates shall have purchased Shares pursuant to the Offer.
The Merger Agreement provides that the obligation of the Company to effect
the Merger is further subject to the conditions that the representations and
warranties of Parent and the Purchaser shall be true and accurate and that each
of Parent and the Purchaser shall have performed in all material respects all of
the respective obligations required under the Merger Agreement to be performed
by Parent or the Purchaser, as
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the case may be, at or prior to the Effective Time. The Merger Agreement also
provides that the obligations of Parent and the Purchaser to effect the Merger
are further subject to the conditions that the Company's representations and
warranties shall be true and accurate in all material respects as of the
Effective Time as if made at and as of such time, and that the Company shall
have performed in all material respects all of the respective obligations
required under the Merger Agreement to be performed by the Company at or prior
to the Effective Time. The conditions described in the two preceding sentences
shall cease to be conditions if the Purchaser shall have accepted for payment
and paid for Shares validly tendered pursuant to the Offer.
TERMINATION
The Merger Agreement provides that it may be terminated and the Merger
abandoned at any time prior to the Effective Time: (i) by mutual consent of
Parent, the Purchaser and the Company; (ii) by either the Company, on the one
hand, or Parent and the Purchaser, on the other hand, (a) if the Shares shall
not have been purchased pursuant to the Offer on or prior to February 23, 1998,
which date may be extended by Parent, in its sole discretion, for up to an
additional thirty days; provided, however, that a party may not terminate the
Merger Agreement pursuant to this clause (a) if such party's failure to fulfill
any obligation under the Merger Agreement was the cause of, or resulted in, the
failure of Parent or the Purchaser to purchase the Shares on or prior to such
date or (b) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement or prohibiting
Parent to acquire or hold or exercise rights of ownership of the Shares, and
such order, decree, ruling or other action shall have become final and
nonappealable; (iii) by the Company (a) if prior to the purchase of the Shares
pursuant to the Offer, either (1) a third party shall have made an Acquisition
Proposal that the Company Board determines in good faith, after consultation
with its financial advisor, is a Superior Proposal and the Company shall have
concurrently executed a definitive agreement with such third party in respect of
such Superior Proposal, or (2) the Company Board shall have withdrawn, or
modified or changed in any manner adverse to Parent or the Purchaser its
approval or recommendation of the Offer, the Merger Agreement or the Merger (or
the Company Board resolved to do any of the foregoing), (b) if Parent or the
Purchaser shall have terminated the Offer, or the Offer shall have expired,
without Parent or the Purchaser purchasing any Shares pursuant thereto;
provided, that, the Company may not terminate the Merger Agreement pursuant to
the provisions described in this clause (b) if the Company is in willful breach
of the Merger Agreement, or (c) if, due to an occurrence that if occurring after
the commencement of the Offer would result in a failure to satisfy any of the
conditions to completion of the Offer, Parent or the Purchaser shall have failed
to commence the Offer on or prior to five business days following the date of
the initial public announcement of the Offer, provided, that, the Company may
not terminate the Merger Agreement pursuant to the provision described in this
clause (c) if the Company is in willful breach of the Merger Agreement; or (iv)
by Parent and the Purchaser (a) if, prior to the purchase of Shares pursuant to
the Offer, the Company Board shall have withdrawn, modified or changed in a
manner adverse to Parent or the Purchaser its approval or recommendation of the
Offer, the Merger Agreement or the Merger or shall have recommended an
Acquisition Proposal or shall have executed an agreement in principle or
definitive agreement relating to an Acquisition Proposal or similar business
combination with a person or entity other than Parent, the Purchaser or their
affiliates (or the Company Board resolves to do any of the foregoing) or (b) if,
due to an occurrence that if occurring after the commencement of the Offer would
result in a failure to satisfy any of the conditions to completion of the Offer,
Parent or the Purchaser shall have failed to commence the Offer on or prior to
five business days following the date of the initial public announcement of the
Offer; provided, that, Parent may not terminate the Merger Agreement pursuant to
the provision described in this clause (b) if Parent or the Purchaser is in
willful breach of the Merger Agreement.
TERMINATION FEE
The Company has agreed to pay to Parent a termination fee of $8 million if
the Merger Agreement is terminated by the Company pursuant to the provisions
described in clause (iii)(a) under "Termination" above, or by Parent and the
Purchaser pursuant to the provisions described above in clause (iv)(a) under
"Termination" above.
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AMENDMENT
Subject to applicable law, the Merger Agreement may be amended, modified
and supplemented in any and all respects, whether before or after any vote of
the stockholders of the Company, by written agreement of the parties thereto, by
action taken by their Board of Directors at any time prior to the date of
closing with respect to any of the terms contained therein, provided, however,
that after the approval of the Merger Agreement by the stockholders of the
Company, no such amendment, modification or supplement shall reduce or change
the Merger Consideration or adversely affect the rights of the Company's
stockholders under the Merger Agreement without the approval of such
stockholders.
FINANCIAL ARRANGEMENTS
The following is a summary of the Loan and Security Agreement, dated as of
November 19, 1997, by and between the Company, as Borrower, and Parent, as
Lender (the "Loan Agreement"), and the First Amendment to Loan and Security
Agreement, dated as of January 13, 1998, by and between the Company, as
Borrower, and Parent, as Lender. This summary is qualified in its entirety by
reference to the Loan Agreement, a copy of which has been filed with the
Commission as an exhibit to the Company's Schedule 14D-9 relating to the Offer.
See "Available Information."
THE COMMITMENT AND THE LOANS
Subject to the terms and conditions of the Loan Agreement and in reliance
on the representations and warranties of the Company set forth therein, Parent
has agreed to make (i) a term loan (the "Term Loan") to the Company in the
amount of $14,774,000 and (ii) revolving loans (each individually, a "Revolving
Loan" and collectively, the "Revolving Loans," and together with the Term Loan,
the "Loans") to the Company from time-to-time in an aggregate amount not to
exceed at any time $5,000,000. The Revolving Loan was amended as of January 13,
1998 to provide for an additional $5,000,000 of availability under the Revolving
Loans. Accordingly, the Revolving Loan amount cannot exceed at any time
$10,000,000. The Term Loan was funded on November 19, 1997 in a single advance.
All proceeds of the Term Loan were used to pay to Westell the termination fee
required to be paid to it pursuant to the Westell Merger Agreement. A Revolving
Loan in the amount of $3,989,000 was funded on November 19, 1997. As required
pursuant to the Loan Agreement, $3,557,000 of the Revolving Loan proceeds were
used by the Company to pay in full all amounts outstanding under the Company's
Loan and Security Agreement, dated as of September 30, 1997, between the Company
and Westell. The balance of the Revolving Loan proceeds were used by the Company
to pay in full all amounts outstanding to Silicon Valley Bank ("SVB") under the
Loan and Security Agreement, dated as of April 25, 1997, between the Company and
SVB. Subsequently, the entire amount of availability under the Revolving Loans
was drawn by the Company and used for working capital purposes. The total amount
outstanding under the Revolving Loans as of January 13, 1998 was $10,000,000
plus accrued and unpaid interest.
INTEREST RATE
The interest rate applicable to the Loans is the Prime Rate (as hereinafter
defined) plus two percent (2%). Interest is payable monthly in arrears. Upon and
during the continuance of an event of default under the Loan Agreement, the Term
Loan and the Revolving Loans shall bear interest at a rate that is three percent
(3%) in excess of the rate otherwise applicable at such time.
PREPAYMENTS; REPAYMENTS
The Company may prepay the loans in whole or in part in increments of
$100,000 at its option. The Company will be required to prepay the Loans as
follows: (i) in full, immediately upon termination of the Merger Agreement for
any of the reasons described in clauses (iii)(a) or (iv) under "Merger
Agreement -- Termination" above, (ii) in full, within 180 days after the
termination of the Merger Agreement for any of the reasons described under
"Merger Agreement -- Termination" above (other than those described in clauses
(iii)(a) or (iv) of such section) and (iii) if at any time the Revolving Loans
exceed $10,000,000 in an amount
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equal to the excess. The Loans shall otherwise be payable in full on September
30, 1999, the termination date of the Loan Agreement.
FORGIVENESS
Notwithstanding anything to the contrary in the Loan Agreement, Parent has
agreed to forgive the repayment of the Term Loan in the event that the Merger
Agreement is terminated, except if the Merger Agreement is terminated (i) for
any of the reasons described in clauses (iii)(a) or (iv)(a) under "Merger
Agreement -- Termination" above, (ii) for any of the reasons described in
clauses (ii)(a), (iii)(b), (iii)(c) or (iv)(b) under "Merger
Agreement -- Termination" above and at the time of such termination the Company
is in breach of any of the conditions described in paragraphs (b), (c) or (e) in
Section 14 of the Offer to Purchase, a copy of which has been filed with the
Commission as an exhibit to the Company's Schedule 14D-1, see "Available
Information," or (iii) in accordance with its terms and within six month after
such termination, the Company or its stockholders consummate a transaction or
enter into a definitive agreement with respect to an Acquisition Proposal that
was pending at the time of such termination.
SECURITY
The Revolving Loans are secured by liens on and security interests in
substantially all of the Company's personal property, including, without
limitation, its inventory, equipment, accounts receivable, general intangibles,
patents, trademarks, copyrights, computer hardware and software, and the
proceeds thereof. The Term Loan is an unsecured obligation of the Company.
REPRESENTATIONS AND WARRANTIES
In addition to the Company's representations and warranties in the Merger
Agreement, which are incorporated by reference into the Loan Agreement, the
Company has made representations and warranties with respect to (i) the location
of the collateral securing the Revolving Loans, (ii) the absence of other liens
(other than certain permitted liens), (iii) the possession and control of its
equipment and inventory, (iv) the delivery of instruments and chattel paper and
(v) the absence of defaults or events of default.
COVENANTS
So long as any of Parent's lending commitments under the Loan Agreement
remain in effect and until all of the Company's liabilities under the Loan
Agreement have been irrevocably paid in full, the Company will be required to
perform or comply with certain covenants, including, without limitation,
covenants relating to (i) limitations on indebtedness, (ii) limitations on
liens, (iii) notice and information delivery requirements, (iv) the payment of
taxes and claims, (v) the maintenance of assets and properties, (vi) the
maintenance of insurance policies, (vii) compliance with laws and (viii) reports
to other creditors. In addition, certain covenants set forth in the Merger
Agreement are incorporated by reference into the Loan Agreement.
EVENTS OF DEFAULT
The Loan Agreement contains customary events of default including, without
limitation, (i) the failure to pay principal or interest on the Loans when due,
(ii) any representation or warranty proving to have been false when made, (iii)
the failure to comply with any other term, covenant or agreement of the Loan
Agreement (subject, in certain instances, to a grace period of ten days), (iv)
defaults with respect to certain other indebtedness, (v) bankruptcy and
insolvency and (vi) the failure of the Loan Agreement or any collateral
documents to remain in full force and effect and to create a valid and perfected
first priority security interest in the collateral securing the Revolving Loans.
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BUSINESS
Incorporated under the laws of the state of Delaware in 1968 as Microform
Data Systems, Inc., the Company changed its name to ICOT Corporation in 1980. On
November 28, 1995, ICOT Corporation, based in San Jose, California and Amati
Communications Corporation ("Old Amati"), a privately held Mountain View,
California based company completed a merger by which Old Amati became a
wholly-owned subsidiary of the Company. Effective as of the merger, the
Company's name was changed to Amati Communications Corporation, and its common
stock began trading on Nasdaq under the symbol "AMTX". To accommodate its recent
growth and to consolidate facilities of the merged entities, the Company moved
to a new office in September 1996. The Company's principal offices are now
located at 2043 Samaritan Drive, San Jose, California, 95124 and its telephone
number is (408) 879-2000, fax number is (408) 879-2900 and World Wide Web site
is at: http//www.amati.com.
The Company is a leading developer of advanced transmission equipment
utilizing DMT technology for ADSL and VDSL markets. The Company holds DMT, ADSL
and VDSL patents and has entered into agreements covering its technology, with
companies like Alcatel, Analog Devices, Inc., Motorola, NEC, Northern Telecom,
Siemens and Parent. The Company's DMT/ADSL products were recently selected by
British Columbia Telephone ("BC Tel"), Canada for a proposed roll-out of the
first standards based commercial ADSL services for transmitting high-speed data
over existing copper phone lines, making internet access, interactive services,
broadcast quality video and video-on-demand realizable to subscribers.
The Company is also a provider of network connectivity systems for the
internetworking and Original Equipment Manufacturers ("OEM") markets. These
products are used primarily in two applications:
- International Business Machines Corporation ("IBM") compatible personal
computers ("PCs") to IBM mainframe connectivity applications in Local
Area Networks ("LANs").
- Bridge products for interconnecting Token-Ring LANs, Token-Ring and
Ethernet LANs, and Token-Ring LANs over Wide Area Networks ("WANs").
PRODUCTS AND MARKETS
The Company is currently developing products to provide high speed digital
video, voice and data transmission over copper phone lines utilizing DMT
modulation technology. See "Technology" referenced below. Beginning in 1987, Dr.
John Cioffi, who undertook initial research on DMT technology, and his graduate
students developed the concept of utilizing DMT technology to transmit large
amounts of digital code and multimedia signals over ordinary telephone lines.
This research resulted in three patents, owned by Stanford University, to which
the Company holds an exclusive worldwide royalty-bearing license.
The Company has developed the DMT technology primarily for ADSL
applications. In 1992, a prototype system was developed with funding from
Northern Telecom to participate in the competition for the American National
Standards Institute ("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. The Company believes the award of the ANSI and ETSI
standards will increase the market potential for the Company's products. Because
Amati's DMT technology was selected as the standard for ADSL, it is required to
license such technology on a fair and reasonable basis to third parties who
request it.
TECHNOLOGY
The Company's core technology is DMT, a multicarrier modulation technology.
The concept of multicarrier transmission is over 30 years old; however, research
on the Company's DMT technology has been accomplished during the past 8 years.
The Company has exclusive, worldwide royalty-bearing license rights to the DMT
patents owned by Stanford University; since the Company's inception, it has
filed numerous additional patent applications to protect its intellectual
property. The Company considers itself to be the leader in the development of
DMT technology.
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The purpose of 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
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), consisting of 256 carriers of 4 kilohertz
(kHz) bandwidth each.
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 to be
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 error 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. DMT is also effective
over other media, including coaxial cable and wireless transmission. The Company
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, it has assembled a
microelectronics team that is designing custom integrated semiconductor circuits
utilizing standard Application Specific Integrated Circuit ("ASIC") design
systems and certain technologies beyond ASIC.
ADSL (ASYMMETRICAL DIGITAL SUBSCRIBER LINE)
In the late 1980's, Bellcore, the research entity jointly created and
funded by 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 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 up to two miles. The
practical implementation of ADSL products will allow the simultaneous
transmission of video, data and voice over the type of copper wire that is
currently installed in most homes in the United States and other developed
countries.
ADSL is intended for data dialtone services, such as internet access, as
well as 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 high speed data transmission
and 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 data, video and multimedia systems. ADSL has the potential of
providing telephone companies with a technology that will enable them to compete
cost-effectively with their main competitors, the interexchange carriers and
cable companies, for high speed internet access and video services.
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 as a near-term solution from
both cost and time-to-implement perspectives. Therefore, the telephone companies
are reviewing interim strategies such as ADSL, Hybrid Fiber Coax ("HFC"),
fiber-to-the-curb and certain wireless solutions. The
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Company 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 data and video services are introduced). ADSL provides the additional
advantages of utilizing the existing copper plant, which avoids trenching
streets and subscriber's 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
increase the menu of offerings with ADSL.
The Company'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 the Company's DMT technology. This prototype was developed by
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 has been
utilized by telephone companies in 15 countries throughout the world to evaluate
the potential of ADSL, primarily in laboratory trials.
In November 1995, the Company began shipping the Overture series of
transceivers. The Overture 4 is a prototype that does not have a low enough cost
or power consumption for mass deployment and its components are entirely
discrete (off-the-shelf). It 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, and thus does not meet the ANSI standard for
transmission rates. The Overture 4 is currently participating in field trials,
but is being phased out in favor of the next series called Overture 8.
In March 1996, the Company delivered the Overture 8, a transceiver
characterized by a high bandwidth as defined by the ANSI standards. Currently
installed in a trial of broadcast video in Australia, the Overture 8 is the
first product utilizing custom semiconductors designed by the Company's own
microelectronics group. Overture 8 has two components developed utilizing ASIC
design techniques. The Company believes Overture 8 will be important to the
market because it has the capability to support the requirements delineated in
the ANSI standard, including four downstream channels and three upstream
channels. The downstream data rates using Overture 8 can be as high as 8 Mbps in
various multiples, such as four 2 Mbps channels, and can be channelized in order
to support such services as video conferencing.
In June 1996, a new version of the Overture 8 ADSL/DMT Modem specifically
designed to meet system needs for Internet access was announced. Key to the new
design is the core ADSL/DMT technology that enables Internet access at data
rates as high as 8 Mbps downstream and 640 Kbps upstream, 60 times faster than
basic rate ISDN and up to 250 times faster than many dial-up modems. The new
Overture 8 ADSL /DMT Modem for Internet Access adds direct Ethernet
connectivity, using 10BaseT, to both subscriber and central office units. This
is the first 8 Mbps ADSL modem with Ethernet available commercially. Moreover,
as with all standard ADSL/DMT modems, the new Overture 8 provides the high-speed
data transmission over standard phone lines while still permitting voice traffic
on the same connection. The Company's ADSL products continue to participate
successfully in labs and field trials in both international and domestic
markets. The international trials include services being offered by Post
Telephone and Telegraph ("PTT")'s in Europe and Asia-Pacific, with companies
such as Italtel, Tadiran and Samsung. Other trials include broadcast video
installed in Australia and data/video applications in France. In the US, the
company has provided equipment in GTE-Microsoft's Internet access trials and in
NEC-MCI's video broadcast system trials.
In January 1997, the first in a line of products developed by the Company
called the Allegro Access Concentrator, a platform for high density installation
of the Overture 8 DMT modem technology, was shipped to France. This shelf
version uses the Overture 8 modem and offers high-speed concentration of
packet-based information or video data streams and multiplexing of multiple data
channels per ADSL modem connection.
In April 1997, the Company shipped its next generation of Overture 8
products, the Model 810, which delivers speeds up to 8 Mbps downstream and 640
Kbps upstream. Its advanced, low power design consumes less than 7W and adjusts
power consumption to line lengths and traffic conditions. This model is designed
to be used as a plug-in for the Allegro Access Concentrator or as a stand-alone
unit for the subscriber.
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Another product introduced by the Company is the ADSL View SNMP Manager, a
Graphical User Interface ("GUI") based element manager that permits central site
administration and management of the Company's ADSL network. This Windows-based
view manager can speed service delivery by simplifying provisioning,
reconfiguration and management.
Before the end of fiscal 1997, the Company was selected to provide
equipment to BC Tel, Canada's second largest telecommunications company, for its
first commercial, standards-based ADSL services. These ADSL/DMT products will be
used in the central switching office and by customers and will enable BC Tel to
initially offer services such as high-speed Internet access and high-speed
corporate LAN access to its customers.
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. It is currently not
economically feasible to take the fiber directly to homes and telephone
companies are not expected to do so in 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 link 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.
The Company believes that 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
asymmetrical and are intended to carry video, voice and data simultaneously. The
Company's next VDSL product, called the Piccolo, is expected to operate
asymmetrically at speeds of up to 25 Mbps. These products are expected to be
introduced in 1998 and to compete for the ANSI standard for VDSL transmission,
which has not yet been awarded.
The Company's digital VDSL chip is being designed for utilization in cable
as well as copper transmissions. Management has been very involved in cable
standards activities in an attempt to obtain the endorsement for DMT through the
Institute of Electrical and Electronic Engineers ("IEEE") 802.14 committee,
which has authority over the upstream cable standards. DMT has the unique
capability of optimizing the upstream data rate relative to other technologies
available, although there can be no assurance the Company will win this
endorsement. As the cable market migrates from analog systems to digital with
interactive requirements, a large opportunity for DMT-based systems will exist.
As is true for ADSL products, in order to implement a video service over VDSL
products, other key components, not supplied by the Company, 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.
During fiscal year 1997, the Company reached an agreement with NEC
Corporation to jointly develop the VDSL transceiver offering higher speeds for
shorter subscriber loops. Under this agreement, the Company will provide
DMT/VDSL technology to NEC, which will design and then produce a digital chip
set expected to offer excellent performance including long transmission
distances, robustness against noise, crosstalk environment, and low power
consumption while still offering a cost effective solution. Development efforts
in conjunction with this technology are ongoing.
IBM PRODUCTS
During the past several years, the Company has undertaken several projects
in which it has designed, developed and manufactured custom communications
products for IBM. Pursuant to its principal agreement with IBM, the Company
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. This manufacturing agreement with IBM, amended
in December 1993, has been extended to December 1998. Under the terms of a
second agreement, the Company provided development and support
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services to IBM for a custom product. IBM shipped this product in the United
States and Canada in July 1994 and in a number of European and Asian countries
thereafter. In fiscal years 1996 and 1997, the Company received royalty payments
from IBM on sales of this product to end-customers.
Fiscal 1997 sales to IBM accounted for approximately 51% of the Company's
revenues. Since IBM considers product sales and market data confidential, the
Company has very little ability to anticipate future demands. The Company 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 the Company upon 30 days' notice without a
significant penalty. Upon termination of the agreements, the Company has
continuing obligations to provide certain products and technical support for a
period of years, at a price then to be negotiated.
CONNECTIVITY PRODUCTS
The Company's PC to Mainframe Connectivity products consist of 3270
emulation products which are Disk Operating System ("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 Networks Architecture ("SNA") to IBM or IBM
compatible mainframes. The Company 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. The Company markets its PC to Mainframe Connectivity products to selected
niche markets: OEMs, Application Program Interface ("API") and strategic
end-user market segments of the Windows and DOS Connectivity markets. The
Company's connectivity market share and revenues have been declining in recent
years and are expected to continue to decline.
SALES, MARKETING, SERVICE
With its DMT products, the Company's strategy is to sell to telephone
companies worldwide through large telecommunication suppliers who will integrate
the Company's products into larger systems for their customers. This type of OEM
selling does not require a large sales force. In the PC to Mainframe
Connectivity market, the Company sells to end-users, independent software
vendors, OEM's and through a small network of resellers. In the network
connectivity business, the Company 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. The Company employs five persons in
sales, six in customer support, and three in marketing.
Export sales of connectivity products in fiscal 1995, 1996, and 1997
represent 1-2% of total net sales, for each such year, primarily to Western
Europe and Canada. Shipments of the Overture series of transceivers for use in
field trials, primarily to the countries of Germany, Netherlands, France,
Finland and Canada accounted for 11% of total net revenues in fiscal 1997. These
sales are subject to certain controls and restrictions, but the Company has not
experienced any material difficulties related to these sales.
BACKLOG
As of the end of fiscal 1996 and 1997, the Company's backlog was
approximately $2,961,000 and $2,362,000, respectively. The Company anticipates
that all of its current backlog will be filled within the 1998 fiscal year.
MANUFACTURING
Most of the Company's products are assembled at its San Jose, California
facility, where testing, quality assurance and material control activities are
performed. The Company has the capacity to increase its output without further
expansion of its physical plant and warehousing facilities. The Overture series
of transceivers is currently in production, and assembly and testing of this
product is being outsourced. Product quality and reliability is maintained at
vendors' sites through auditing at subcontractors' facilities and inspection of
incoming components.
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Electronic and mechanical components, subassemblies and supplies are
purchased from many independent suppliers. Although the Company purchases most
of a given component, subassembly or supply from a single vendor, 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 from IBM and there is no alternative source of supply
for these components.
RESEARCH AND DEVELOPMENT
The Company believes that it has a technological leadership position in DMT
modulation technology. Future success, however, 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, the Company intends to
continue to make substantial investments in research and development. There can
be no assurance that future development efforts will result in commercially
successful products, or that these products will not be rendered obsolete by
changing technology, new industry standards or new product announcements by
others.
The Company had 48 full-time employees engaged in research and development
activities as of August 2, 1997. Its 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. These efforts
are organized into three main groups: VLSI, ADSL and VDSL development.
Currently, the VLSI group is focused on efforts for the ADSL and VDSL markets.
Significant activities include the following:
- Development of system level ADSL and VDSL products.
- Development of OEM ADSL and VDSL modules.
- Reducing the cost, power and size of ADSL and VDSL modules and products.
Net research and development expenses totaled $1,595,000 (13% of net sales)
in fiscal 1995, $3,837,000 (32% of net sales) in fiscal 1996 and $8,335,000 (63%
of net sales) in fiscal 1997. Increasing research and development costs in
fiscal 1996 and 1997 are primarily due to the hiring of additional engineers and
introduction of the Company's next generation of the Overture series of ADSL/DMT
modems, access system shelf products, the Allegro access concentrator and the
Model 810. All related research and development expenses are charged to
operations as incurred. Engineering expenses are net of software development
costs capitalized in accordance with Statement of Financial Accounting Standards
("SFAS") No. 86 and of IBM-funded development costs. There was no capitalization
of software development costs in 1995, 1996 and 1997. The amount of funded
development costs totaled $637,000, $589,000 and $494,000, respectively, for
fiscal 1995, 1996 and 1997. The amortization of capitalized software development
costs charged to cost of sales was $310,000 in fiscal 1995, and $246,000 in
fiscal 1996 and 1997.
COMPETITION
Telephone company trials have demonstrated the feasibility of ADSL
products. Two basic ADSL technologies have participated in these trials: the
Company's DMT multicarrier technology and the single Carrier-less
Amplitude/Phase modulation ("CAP") technology developed by AT&T Microelectronics
Division and sold to Globespan. DMT and CAP have been rival technologies since
the ANSI standards competition in 1993, which was won by the Company's DMT
technology. The Company believes that its DMT technology is less complex and
more cost effective than a single carrier technology, such as CAP. The trials to
date have been run at data rates of 1.5 Mbps and 2 Mbps, the speeds of
Globespan's CAP products. The Company believes that as products capable of data
rates of 6 Mbps and 8 Mbps become increasingly available, trials will be
conducted at those speeds. As the performance differences between DMT and CAP
become greater at higher data rates, the Company believes that most of the
competition at the higher speeds will come from other competitors using DMT
technology.
The Company has entered into agreements with Motorola Corporation and
Parent to develop a standards compliant chip solution for the ADSL market. The
Company has also licensed its technology to Alcatel and
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<PAGE> 35
Analog Devices, Inc. who have developed or are developing integrated circuits.
The Company has the right to buy the Motorola chip and the Parent chipset at
most favored customer prices. The Company expects customers of these companies
to become competitors with system level DMT products. Other entities with
development efforts underway with DMT technology for the ADSL marketplace
include ORCKIT, Pairgain, ECI, Ericsson and Aware.
To date, the Company is not aware of any ADSL products introduced in the
marketplace that have a cost, power and size structure satisfactory for a mass
deployment to customers. In order to design and manufacture commercially viable
product in this market, a substantial investment in custom integrated
semiconductors must be made. Those suppliers not making such investments will
not be able to compete effectively.
The PC to Mainframe Connectivity market is highly competitive and is
characterized by rapid advances in technology which result in the frequent
introduction of new products with improved performance characteristics, thereby
subjecting the Company's products to the risk of technological obsolescence. The
Company'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. The Company competes, directly or indirectly, with a
broad range of companies, many of whom have significantly greater financial and
other resources. In addition, the Company is competing for a limited and
declining segment of the PC- Connectivity market, which market is itself
declining.
Many companies compete in the PC to Mainframe Connectivity market,
including IBM, Attachmate Corporation, Eicon Group, Inc., Network Software
Associates, Wall Data Incorporated, and Novell Inc. Products and policies of
these companies can adversely affect the Company's competitive position. A large
number of the Company's products interact with IBM equipment and support IBM
protocols. Thus, the development of new products, equipment or communications
systems by IBM could adversely affect its PC to Mainframe Connectivity
competitiveness.
PATENTS, TRADEMARKS
The Company has a policy of seeking patents when appropriate on inventions
concerning new products and improvements as part of its on-going research and
development activities. The Company has a total of 27 patents issued or filed.
The Company principally relies on its technological and engineering
resources to develop its business in an industry where technology changes very
fast. It does, however, consider the use of trademarks, copyrights, license
agreements and non-disclosure agreements as a means to protect its proprietary
technology and, therefore, it intends to seek and maintain protection where
appropriate.
The Company also has several registered trademarks, including "ICOT" and
"OmniPATH" and has copyrights in its software and related documentation, and 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 the Company re-markets to complement or add features
to its core product line.
EMPLOYEES
As of August 2, 1997, the Company had 101 full-time employees, of whom 22
were engaged in manufacturing, 48 in research and development, 14 in marketing
and sales and 17 in general and administrative positions.
Thirteen members of the Company's engineering staff hold doctoral degrees.
The Company also employs a number of consultants who are primarily used in
engineering. Competition for technical personnel in this technology is intense.
In May 1995, the Company entered into an employment agreement with Dr. John
Cioffi, its founder and Chief Technical Officer. The agreement provides for Dr.
Cioffi to be employed by the
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Company until October 1998, while continuing his obligations as a full-time
tenured faculty member at Stanford University. Stanford University limits the
amount of time its faculty can spend on outside activities.
All employees of the Company are based in the United States. None of its
employees are subject to a collective bargaining agreement, and there have been
no work stoppages due to labor difficulties. The Company believes that its
employee relations are good.
PROPERTIES
The Company's corporate headquarters and manufacturing facility is located
in San Jose, California. In 1996, the Company moved its corporate, engineering
and manufacturing operations to an approximately 48,700 square foot facility to
consolidate its operations and accommodate its recent growth. The lease for this
facility commenced on July 15, 1996 and expires on July 31, 2001.
The Company's lease for its prior facility in North San Jose expires on
July 23, 1999, and has been subleased for the remaining term of the lease.
Related rent and operating cost obligations are covered in full by sublease
income.
The Company's wholly owned subsidiary, ICOT International Limited, now
dormant, leases an approximately 6,400 square foot building located in
Wokingham, England. ICOT International Limited ceased its operations in the
United Kingdom in fiscal 1993 as part of the Company's restructuring of its
connectivity business. The lease on the Wokingham facility expires on September
29, 2010. The Company has subleased this facility through December 1998, but
income from this sublease is less than its rental obligations. The Company has
recorded a liability of $454,000, net of anticipated future sublease income, to
cover partial rental obligations related to this facility. The Company believes
that its current facilities are adequate to conduct operations, and that its
facilities are adequate for the future growth of the Company.
LEGAL PROCEEDINGS
In November 1993, an action was brought against the Company for damages
related to the use of one of the Company's products. The plaintiff filed a suit
claiming repetitive stress injuries resulting from the use of the Company's
products in the course of employment with American Airlines during the period
from May 1981 through July 1991. The plaintiff alleges damages in the amount of
$1 million and has requested 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.
Following public announcement of the execution of the Westell Merger
Agreement, the first of three substantially similar actions was filed in the
Court of Chancery of the State of Delaware in and for New Castle County against
the Company, Westell and the directors of the Company. Styled Chopp v. Gibbons,
et. al., C.A. No. 15971-NC, Kinney v. Gibbons, et. al., C.A. No. 15977-NC; and
Mendel v. Gibbons, C.A. No. 15973-NC, the actions, pleaded as putative class
actions on behalf of a purported class of Company stockholders, allege, among
other things, that the directors of the Company breached their fiduciary duties
in connection with approving the Westell Merger Agreement. The actions seek,
among other things, to enjoin the transactions contemplated by the Merger
Agreement and damages. A Memorandum of Understanding settling this matter was
entered into on December 12, 1997.
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SELECTED FINANCIAL DATA
The selected financial information of the Company set forth below has been
derived from the audited financial statements and other financial information of
the Company. Such information should be read in conjunction with the audited
financial statements and other financial information of the Company included
elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
----------------------------------------------------- -------------------------
JULY 31, JULY 30, JULY 29, JULY 27, AUGUST 2, NOVEMBER 2, NOVEMBER 1,
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net Sales..................... $12,307 $ 8,236 $12,040 $ 12,085 $ 13,200 $4,513 $ 4,702
Income (Loss) before Income
Taxes....................... (5,963) 530 1,933 (34,035) (12,243) (746) (4,442)
Provision for Income Taxes.... -- 27 97 43 -- -- --
------- ------- ------- -------- -------- ------ -------
Net Income (Loss)............. $(5,963) $ 503 $ 1,836 $(34,078) $(12,243) $ (746) $(4,442)
Net Income (Loss)
Per Share................... (.46) .04 .16 (2.21) (.66) (.04) (.23)
SELECTED BALANCE SHEET DATA:
Current Assets................ $11,188 $ 9,463 $ 7,793 $ 5,182 $ 9,282 -- $ 9,611
Current Liabilities........... 2,598 2,171 1,591 2,467 5,517 -- 10,206
Working Capital............... 8,590 7,292 6,202 2,715 3,765 -- (595)
Total Assets.................. 12,936 11,391 12,111 6,241 15,083 -- 15,579
Long-term Liabilities......... 1,099 428 294 2,094 4,540 -- 4,587
Stockholders' Equity.......... 9,239 8,792 10,226 1,680 5,026 -- 786
OTHER DATA:
Book Value Per Share.......... -- -- -- -- .26 -- .04
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
To the extent that the information presented in this Information Statement
discusses financial projections, information or expectations about the Company's
products or markets, or otherwise makes statements about future events, such
statements are forward-looking and are subject to a number of risks and
uncertainties that could cause actual results to differ materially from the
statements made. These include, among others, successful and timely development
and acceptance of new products, the availability of sufficient funding to
complete development of new products and other factors described below. In
addition, such risks and uncertainties also include the matters identified under
the heading "Risk Factors" below.
OVERVIEW
On November 28, 1995, ICOT Corporation, based in San Jose, California, and
Amati Communications Corporation ("Old Amati"), a privately held Mountain View,
California based company, completed a merger by which Old Amati became a
wholly-owned subsidiary of ICOT Corporation. Effective as of the merger, the
name of the surviving company was changed to Amati Communications Corporation
and its common stock began trading on Nasdaq on November 29, 1995. In September
1996, the combined company moved to a new 48,700 square foot building in San
Jose, California to accommodate its growth and consolidate engineering and
manufacturing in a single facility.
HIGHLIGHTS OF FISCAL YEAR 1997
- Announced a joint development agreement with NEC Corporation to provide
DMT/VDSL technology in the design and production of a digital chip set
for high-speed over fiber networks.
- Participated in the France Telecom trial to deliver the first broadcast
video service and internet mid-band services with the new Overture 8
ADSL/DMT Modem Design.
- Announced an alliance with Parent to jointly develop and market DMT
technology for ADSL modems based on Parent's TMS 320 Digital Signal
Processors ("DSP").
- Introduced the Allegro, the first in the line of products developed by
the Company and the world's first ADSL Access Concentrator designed to
enable the installation of multiple modems and control via a single
mechanical configuration, saving space, consolidating power and providing
easy maintenance.
- Announced a program to integrate Sourcecom's BANC 6000 with the Company's
Allegro to provide an integrated DSLAM and networking platform for high
speed access networks using standard DMT-based ADSL technology.
- Licensed Euristix RACEMAN EMSY Element Management System technology to
provide visibility, status monitoring, basic alarm management, and basic
performance for the Allegro -- all in a Windows based graphical user
interface (GUI).
- Announced a strategic development partnership with Siemens AG, a leader
in Asynchronous Transfer Mode (ATM) technology aimed at high speed
connection of ATM to ADSL transmission lines.
- Provided modems at GTE -- Microsoft, high speed Internet access and NEC
America-MCI broadcast video trials utilizing DMT/ADSL technology.
- Supplied ADSL equipment to BC TEL, Canada's second largest
telecommunication company, the Company's first commercial service using
DMT products.
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RESULTS OF OPERATIONS
First Fiscal Quarter 1998 vs. First Fiscal Quarter 1997
Total net sales in the first quarter of 1998 increased 4% to $4,702,000
from sales of $4,513,000 in the first quarter of the prior fiscal year. Revenues
recognized during both fiscal quarters include revenues recorded under the
Company's previously announced joint development agreement with NEC Japan. VDSL
development efforts in conjunction with NEC Japan are ongoing. Sales to IBM
accounted for 32% of the Company's revenue in the first quarter of fiscal 1998
compared with 44% for the comparable period of fiscal 1997. In February 1997,
the Company signed an extended contract with IBM for the development and
manufacture of its next generation internetworking products. The Company expects
that IBM will continue to account for a substantial portion of the Company's
revenues until development and commercialization of its ADSL products are
completed.
In June 1997, the Company was selected to provide equipment to BC Tel,
Canada's second largest telecommunications company, for its first commercial,
standards-based ADSL services. These ADSL/DMT products will be used in the
central switching office and by customers and will enable BC Tel to initially
offer services such as high-speed Internet access and high-speed corporate LAN
access to its customers. Sales of the ADSL/DMT products in the first quarter of
1998 were $1,722,000 compared with $240,000 for the first quarter of the prior
fiscal year.
PC to Mainframe Connectivity sales of $120,000 for the first quarter of
fiscal 1998 represents a decrease of 60% when compared with the same period of
the prior fiscal year due to a general decline in the Company's connectivity
market share. The PC to Mainframe Connectivity market is highly competitive and
is characterized by rapid advances in technology, thereby subjecting the
Company's products to risk of technological obsolescence. The Company competes
directly or indirectly with a broad range of companies, many of whom have
significantly greater resources. In addition, the Company is competing for a
limited segment of a declining market.
Gross margin as a percent of sales was less than 1% for the first quarter
of fiscal 1998 compared with 54% for the same period of fiscal 1997. Margins
were lower as a result of product volume mix represented by shipments of ADSL
products in its early stage of development comprising 37% of sales in the
current fiscal quarter compared to 6% of sales in the first quarter of the prior
fiscal year.
Net research and development expenses increased 33% to $2,323,000 in the
first quarter of fiscal 1998 when compared to the same period of fiscal 1997
largely because of the addition of engineers and the introduction of the
Company's new ADSL/DMT modems, access system shelf products and access
concentrators, and outside design work to support the VDSL standards.
Marketing and sales expenses increased by $486,000 or 87% in the first
quarter of fiscal 1998 when compared with the same period of the prior fiscal
year. This is primarily due to an increase in staffing and overseas travel in
conjunction with the Overture series representation in field trials
internationally and outside service and consultants expenses. Sales, market and
customer support operations of the Company's ADSL products, which cover both
domestic and international markets, are handled by fourteen individuals. The
Company's strategy is to sell to telephone companies worldwide through large
telecommunication suppliers who will integrate the Company's products into
larger systems for their customers.
General and administrative expenses increased by $185,000 or 26% in the
first quarter of fiscal 1998 when compared with the same period of the prior
fiscal year. This is primarily due to patent and legal expenses and higher
depreciation and amortization expenses related to equipment and leasehold
expenditures with the move to a larger facility.
Interest income increased to $15,000 in the three-month period of fiscal
1998 compared to $1,000 in the same period of fiscal 1997 due to higher cash
balances for investment purposes.
There were no provisions for income taxes for the first quarter of both
fiscal years.
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Fiscal Year 1997 vs. Fiscal Year 1996
Total net sales in fiscal 1997 increased 9% to $13,200,000 from sales of
$12,085,000 in the previous fiscal year. Revenues recognized during the current
fiscal quarter include revenues recorded under the Company's previously
announced joint development agreement with NEC Japan. Sales to IBM accounted for
51% of the Company's revenue in fiscal 1997 compared with 69% in fiscal 1996. In
February 1997, the Company signed an extended contract with IBM for the
development and manufacture of its next generation internetworking products. The
Company expects that IBM will continue to account for a substantial portion of
the Company's revenues until development and commercialization of its ADSL and
VDSL products are completed.
In the third quarter of fiscal 1996, the Company first delivered the
Overture 8, which is characterized by a high bandwidth as defined by the ANSI
standards. The Company's ADSL products continue to participate successfully in
labs and field trials in both international and domestic markets. The
international trials include services being offered by Post Telephone and
Telegraph ("PTT")'s in Europe and Asia-Pacific, with companies such as Philips,
Italtel, Tadiran and Samsung. Other trials include broadcast video installed in
Australia and data/video applications in France. In the US, the Company has
provided equipment in GTE's Internet access and remote office connectivity
trials in Washington and Texas. Sales of the Overture series were $1,892,000 and
$1,818,000 in fiscal 1997 and 1996, respectively. In addition, contract revenues
of $3,710,000 in fiscal 1997 and $148,000 in fiscal 1996 were also realized from
customization of products.
In January 1997, the first in a line of products developed by the Company
called the Allegro Access Concentrator, a platform for high density installation
of the Overture 8 DMT modem technology, was shipped to France. This shelf
version uses the Overture 8 modem and offers high-speed concentration of packet
based information or video data streams and multiplexing of multiple data
channels per ADSL modem connection. During the third quarter of fiscal 1997, the
Company introduced its next generation of Overture 8 products, the Model 810,
which delivers speeds up to 8 Mbps downstream and 640 Kbps upstream. Its
advanced, low power design consumes less than 7W and adjusts power consumption
to line lengths and traffic conditions. This model is designed to be used as a
plug-in for the Allegro Access Concentrator or as a stand-alone unit for the
subscriber.
Before the end of fiscal 1997, the Company was selected to provide
equipment to BC Tel, Canada's second largest telecommunications company, for its
first commercial, standards-based ADSL services. These ADSL/DMT products will be
used in the central switching office and by customers and will enable BC Tel to
initially offer services such as high-speed Internet access and high-speed
corporate LAN access to its customers. In the Company's VDSL technology,
development efforts in conjunction with NEC Japan are ongoing.
PC to Mainframe Connectivity sales of $864,000 in fiscal 1997 represent a
decline of 53% when compared with the prior fiscal year due to a general decline
in the Company's connectivity market share. 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 the Company's products
to risk of technological obsolescence. The Company competes directly or
indirectly with a broad range of companies, many of whom have significantly
greater resources. In addition, the Company is competing for a limited segment
of a declining market.
Gross margin as a percent of sales was 28% for fiscal 1997 compared with
39% for fiscal 1996. The decrease in margin was primarily attributable to
product mix. Amortization of capitalized software costs charged to cost of sales
was $246,000 in fiscal 1997 and 1996.
Net research and development expenses increased 117% to $8,335,000 in
fiscal 1997 when compared to fiscal 1996 largely because of the addition of
engineers and other new employees and the introduction of the Company's new
family of Overture 8 ADSL/DMT modems, access system shelf products and access
concentrators. Maintaining the Company's technology position is largely
dependent on the Company's ability to develop new products that meet a wide
range of customer needs. Research and development efforts for the DMT technology
are grouped into three areas: VLSI, ADSL and VDSL development. All research and
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<PAGE> 41
development expenses related to the DMT technology are charged to operations as
incurred. Total engineering expenses are net of funded development costs from
IBM. Funded development costs were $494,000 and $589,000 for fiscal 1997 and
1996, respectively. The Company considers research and development a key element
in its ability to compete and will continue to make investments in product
development to provide high-speed solutions for the future.
Marketing and sales expenses increased by $1,915,000 or 201% in fiscal 1997
when compared with the prior fiscal year. This is primarily due to an increase
in staffing and overseas travel in conjunction with the Overture series
representation in field trials internationally and participation in domestic
trade shows and product promotion. Sales, marketing and customer support
operations of the Company's ADSL products, which cover both domestic and
international markets, is handled by fourteen individuals. The Company's
strategy is to sell to telephone companies worldwide through large
telecommunication suppliers who will integrate the Company's products into
larger systems for their customers. This type of OEM selling does not require a
large sales force.
General and administrative expenses increased by $1,960,000 or 78% in
fiscal 1997 when compared with the prior fiscal year. This is primarily due to
occupancy costs related to the move to a larger facility, patent and legal
expenses, and additional corporate staffing.
Interest income decreased to $116,000 in fiscal 1997 compared to $168,000
in fiscal 1996 due to lower cash balances for investment purposes.
There were no provisions for income taxes for fiscal 1997 compared to
$43,000 for fiscal 1996. Tax provisions for fiscal 1996 were required for
Federal alternative minimum tax and California state taxes due to limitations on
the use of California's loss carryforwards. The Company has provided a valuation
allowance against the deferred tax asset attributable to the net operating
losses due to uncertainties regarding the realization of these assets.
Fiscal Year 1996 vs. Fiscal Year 1995
Total net sales in fiscal 1996 rose slightly to $12,085,000 from sales in
the previous fiscal year of $12,040,000. Sales to IBM accounted for 69% of the
Company's revenue in fiscal 1996 compared with 83% in fiscal 1995. Royalty
revenues during fiscal year 1996 of $875,000 continue to be derived from a
product developed by the Company for IBM in fiscal 1994. Although dependence on
one dominant customer has been reduced since the merger, the Company expects
that IBM will continue to account for a substantial portion of the Company's
revenues until the Company completes development and commercialization of its
ADSL products. IBM is not obligated to purchase any specified amounts of
products or to provide binding forecasts of product purchases for any period.
Since IBM considers product sales and market data confidential, the Company has
very little ability to forecast future demand. Furthermore, since IBM has the
exclusive responsibility for marketing and selling the products that the Company
develops, results of operations can be significantly affected by IBM's success
in the marketplace.
In November 1995, the Company began shipping its Overture series of
transceivers. The Overture 4 is a prototype that does not have a low enough cost
or power consumption for mass deployment and its components are entirely
discrete (off the shelf). This product is to be phased out in favor of the next
series of transceiver, called Overture 8. In the third quarter of fiscal 1996,
the Company delivered the Overture 8, which is characterized by a high bandwidth
as defined by the ANSI standards. This product is currently installed in its
first field trial of broadcast video in Australia. Sales in fiscal 1996 of
Overture 4 and Overture 8 series field trials were $999,000 and $819,000,
respectively. In addition, contract revenues of $148,000 from customization of
products were also realized in fiscal 1996.
PC to Mainframe Connectivity sales of $1,822,000 in fiscal 1996 represents
a decline of 14% when compared with the same period of the prior fiscal year due
to a general decline in the Company's connectivity market share. 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 the
Company's products to risk of technological obsolescence. The
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Company competes directly or indirectly with a broad range of companies, many of
whom have significantly greater resources. In addition, the Company is competing
for a limited and declining segment of the market.
Gross margins as a percent of sales were 39% in fiscal 1996 compared with
44% for the same period of fiscal 1995. The decline in margin was primarily
attributable to product mix resulting from shipment of new products to IBM and
costs to complete test trials of the Overture series of transceivers.
Amortization of capitalized software costs charged to cost of sales were
$246,000 in fiscal 1996 and $310,000 in fiscal 1995.
Net research and development expenses increased 141% to $3,837,000 in
fiscal 1996 when compared to the same period of fiscal 1995 largely because of
the addition of fifteen Old Amati engineers and the hiring of 20 new employees.
Higher costs in fiscal 1996 are primarily due to the introduction of the
Company's new family of Overture 8 ADSL/DMT modems and Overture 8 Access System
shelf products. From the technology acquired in the merger, the Company believes
it has a technological leadership position in DMT modulation. Maintaining this
position is largely dependent on the Company's ability to develop new products
that meet a wide range of customer needs. Research and development efforts for
the DMT technology are grouped into three areas: the microelectronics group
which is primarily focused on ADSL and VDSL markets; the software group, which
is primarily focused on the development of firmware for the Overture series; and
the hardware group, which is primarily focused on analog and digital design
activities. All research and development expenses related to this technology are
charged to operations as incurred. Expenses are net of funded development costs
from IBM. Funded development costs for fiscal 1996 were $589,000 compared to
$637,000 in fiscal 1995. The Company considers research and development a key
element in its ability to compete and will continue to make investments in
product development and support for IBM.
Marketing and sales expenses rose to $953,000 in fiscal 1996 compared to
$861,000 in fiscal 1995 due to an increase in overseas travel in conjunction
with Overture series participation in field trials internationally. Sales,
marketing and customer support operations of the acquired business, which cover
both domestic and international markets, is handled by five individuals. The
Company's strategy is to sell to telephone companies worldwide through large
telecommunication suppliers who will integrate the Company's products into
larger systems for their customers. This type of OEM selling does not require a
large sales force.
General and administrative expenses increased to $2,519,000 in fiscal 1996
as compared to $1,229,000 in fiscal 1995. This is primarily due to patent
expenses, additional corporate staffing, and occupancy costs associated with the
merger.
Interest income decreased to $168,000 in fiscal 1996 compared to $301,000
in the same period of fiscal 1995 due to maturities of held-to-maturity
investments.
The provision for income taxes in fiscal 1996 was $43,000 compared to
$97,000 in fiscal 1995. Tax provisions were required for Federal alternative
minimum tax and California state taxes due to limitations on the use of
California's loss carryforwards. The Company has provided a valuation allowance
against the deferred tax asset attributable to the net operating losses due to
uncertainties regarding the realization of these assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and short-term investments of $2,553,000 as of
November 1, 1997, compared to $1,500,000 as of August 2, 1997. During the fiscal
quarter ended November 1, 1997, cash used for operating activities of $4,094,000
related primarily to the net loss incurred during the period. Cash used for
investment activities of $408,000 was primarily for leasehold improvements and
capital equipment purchases associated with the move to a larger facility. Cash
provided by financing activities of $5,555,000 resulted primarily from the
completion of an equity financing transaction with an investors group, discussed
below, and proceeds from the Westell loan.
The Company had cash and short term investments of $1,500,000 as of August
2, 1997 compared to $886,000 as of July 27, 1996. During the fiscal year ended
August 2, 1997, cash used for operating activities of $9,927,000 related
primarily to the net loss incurred during the period. Cash used for investing
activities of $3,178,000 was primarily for leasehold improvements associated
with the move to a larger facility to
38
<PAGE> 43
consolidate the Company's operations, and the purchase of short-term investments
as offset by the proceeds from sale of held-to-maturity investments. Cash
provided by financing activities of $13,010,000 resulted primarily from the
completion of an equity financing transaction with an investor group, discussed
below, and proceeds from the exercise of stock options and warrants.
In October 1996, the Company entered into an Investment Agreement (the
"Investment Agreement") with Quantum Industrial Partners LDC, S-C Phoenix
Holdings, L.L.C., Winston Partners, L.P., Winston Partners II LDC and Winston
Partners II L.L.C. (collectively, the "Investors") which provided to the Company
up to $15 million in equity financing in exchange for the issuance of Company
Common Stock and warrants (the "Warrants") to purchase up to 600,000 shares of
Company Common Stock. The Warrants were issued on October 3, 1996 and are
exercisable at any time between December 17, 1996 and December 17, 2001.
Warrants to purchase up to 300,000 shares of Common Stock are exercisable at
$17.45 per share; Warrants to purchase the other 300,000 shares are exercisable
at $25 per share.
As of August 2, 1997, the Company has received $12,500,000 pursuant to this
Investment Agreement and recorded a Stock Subscription Receivable of $2,500,000.
On August 7, 1997, the Company received the final $2,500,000 in equity
financing. In exchange for the $15,000,000 investment in the Company, the
Investors received an aggregate of 1,242,915 shares of the Company's Common
Stock.
On September 30, 1997, the Company and Westell entered into the Westell
Merger Agreement. Subsequent to the end of the first fiscal quarter 1998, the
Company terminated the Westell Merger Agreement with Westell, paying a $14.8
million termination fee. On November 19, 1997, the Company, in connection with
such termination, entered into the Merger Agreement with Parent providing for
the Offer and the Merger.
On November 19, 1997, and in connection with the execution of the Merger
Agreement, the Company entered into the Loan Agreement with Parent. Under the
provisions of the Loan Agreement, Parent agreed to grant a term loan in the
amount of $14,774,000 and a Revolving Loan in the amount of $5,000,000 to the
Company evidenced by promissory notes due September 30, 1999 with interest at
the rate of prime plus 2%. Proceeds from these borrowings were used to repay in
full all amounts owing to Westell under the Loan and Security Agreement dated
September 30, 1997, all amounts owing to the Silicon Valley Bank under its
revolving line of credit agreement, and to pay the above referenced termination
fee to Westell and working capital requirements. Subsequent to the end of the
first fiscal quarter 1998, Parent and the Company amended the Loan Agreement to
provide for an additional $5,000,000 of availability under the Revolving Loans
to fund additional working capital requirements. The total amount outstanding as
of January 13, 1998 was $24,774,000 plus accrued and unpaid interest.
The Company's ability to meet its 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.
CERTAIN PROJECTIONS
During the course of the discussions between Parent and the Company that
led to the execution of the Merger Agreement, the Company provided Parent with
certain information about the Company and its financial performance which is not
publicly available. The information provided included projected financial
information for fiscal years ending August 1998 and August 1999 (the
"Projections"). The Projections were prepared by the Company's management for
internal planning and budgeting purposes only and not with a view to
publication. The Projections included estimates of (i) net sales of $40.6
million and $113.2 million for the Company's fiscal years ended August 1998 and
August 1999, respectively, and (ii) a net loss of $8.7 million and net income of
$10.5 million for the company's fiscal years ended August 1998 and August 1999,
respectively. None of the assumptions underlying the Projections give effect to
the Offer, the Merger or the potential combined operations of the Company and
Parent after the consummation of such transactions.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR
COMPLIANCE WITH PUBLISHED GUIDELINES OF THE COMMISSION REGARDING PRO-
39
<PAGE> 44
JECTIONS OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS AND ARE INCLUDED IN THIS INFORMATION STATEMENT ONLY BECAUSE
SUCH INFORMATION WAS PROVIDED TO PARENT. NONE OF PARENT, THE PURCHASER, THE
COMPANY OR ANY PARTY TO WHOM THE PROJECTIONS WERE PROVIDED ASSUMES ANY
RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF
SUCH INFORMATION. WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THESE PROJECTIONS
ARE BASED UPON NUMEROUS ASSUMPTIONS RELATING TO COMMERCIAL ACCEPTANCE OF THE
COMPANY'S PRODUCTS AND TECHNOLOGY, INDUSTRY PERFORMANCE, GENERAL BUSINESS AND
ECONOMIC CONDITIONS, THE BUSINESS OF THE COMPANY AND OTHER MATTERS, ALL OF WHICH
MAY NOT BE REALIZED AND ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES AND
CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. THERE CAN BE
NO ASSURANCE THAT THE PROJECTIONS WILL BE REALIZED, AND ACTUAL RESULTS MAY VARY
MATERIALLY FROM THOSE SHOWN. THE PROJECTIONS HAVE NOT BEEN EXAMINED OR COMPILED
BY THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS. FOR THESE REASONS, AS WELL AS
THE BASES ON WHICH SUCH PROJECTIONS WERE COMPILED, THERE CAN BE NO ASSURANCE
THAT SUCH PROJECTIONS WILL BE REALIZED, OR THAT ACTUAL RESULTS WILL NOT BE
MATERIALLY HIGHER OR LOWER THAN THOSE ESTIMATED. THE INCLUSION OF SUCH
PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS AN INDICATION THAT PARENT, THE
PURCHASER, THE COMPANY OR ANY OTHER PARTY WHO RECEIVED SUCH INFORMATION
CONSIDERS IT AN ACCURATE PREDICTION OF FUTURE EVENTS. PARENT DID AN INDEPENDENT
ASSESSMENT OF THE COMPANY'S VALUE AND DID NOT RELY TO ANY MATERIAL DEGREE UPON
THE PROJECTIONS. NONE OF THE COMPANY, PARENT, THE PURCHASER OR ANY OTHER PARTY
INTENDS PUBLICLY TO UPDATE OR OTHERWISE PUBLICLY REVISE THE PROJECTIONS SET
FORTH ABOVE EVEN IF EXPERIENCE OR FUTURE CHANGES MAKE IT CLEAR THAT THE
PROJECTIONS WILL NOT BE REALIZED.
40
<PAGE> 45
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of the Company's Common
Stock beneficially owned as of February 4, 1998, by (i) each stockholder known
to the Company to be a beneficial owner of more than 5% of the Shares, (ii) each
director of the Company prior to the consummation of the Offer, (iii) the Chief
Executive Officer of the Company and the other four most highly compensated
executive officers of the Company as of February 4, 1998 whose total annual
compensation for the year ended August 2, 1997 exceeded $100,000, and (iv) all
executive officers and directors as a group. Except as otherwise indicated, each
of the listed persons or entities has sole voting and investment power with
respect to the shares listed as beneficially owned by them, subject to community
property laws, where applicable.
<TABLE>
<CAPTION>
PERCENT
NAME AND AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1) OF CLASS
----------------------------------------------------- --------
<S> <C> <C>
DSL Acquisition Corporation................................. 15,290,381(2) 77.0
13500 North Central Expressway
P.O. Box 655474
Dallas, Texas 75265-5474
Dr. John Cioffi............................................. 677,383(3) 3.3
Dr. James Gibbons........................................... 243,492(4) 1.2
Donald L. Lucas............................................. 97,216(5) *
Aamer Latif................................................. 95,000(6) *
James Steenbergen........................................... 237,500(7) 1.2
Christopher Barnes.......................................... 40,000(8) *
Benjamin Berry.............................................. 90,000(9) *
David Bivolcic.............................................. 40,000(10) *
James Hood.................................................. 80,000(11) *
George Barber(12)........................................... -- --
Marvin S. Self(12).......................................... -- --
Gregory L. Waters(12)....................................... -- --
All directors and executive officers, as a group (12
persons).................................................. 1,875,431(13) 8.6
</TABLE>
- ---------------
* Less than 1%.
(1) Based upon information supplied or confirmed by officers, directors and the
principal stockholders. The percentage of class assumes the exercise of all
options and warrants held by the named individual that are exercisable on
February 4, 1998, or within sixty days thereafter, but not the exercise of
any other options or warrants that are outstanding.
(2) DSL Acquisition Corporation, which is referred to throughout this
Information Statement as "Purchaser," is a wholly-owned subsidiary of
Parent. See "Summary -- The Companies." Accordingly, Parent is deemed to
beneficially own the Shares owned by Purchaser.
(3) Includes 677,383 shares that are deemed beneficially owned by Dr. Cioffi by
virtue of options held by him that are exercisable within 60 days of
February 4, 1998.
(4) Includes 243,492 shares that are deemed beneficially owned by Dr. Gibbons
by virtue of options held by him that are exercisable within 60 days of
February 4, 1998.
(5) Includes 72,500 shares that are deemed beneficially owned by Mr. Lucas by
virtue of options held by him that are exercisable within 60 days of
February 4, 1998. Also includes 24,716 shares that are held in a living
trust for Mr. Lucas and his wife. As trustee of the joint trusts, Mr. Lucas
holds voting and investment power with respect to such shares.
(6) Includes 95,000 shares that are deemed beneficially owned by Mr. Latif by
virtue of options held by him that are exercisable within 60 days of
February 4, 1998.
(7) Includes 237,500 shares that are deemed beneficially owned by Mr.
Steenbergen by virtue of options held by him that are exercisable within 60
days of February 4, 1998.
41
<PAGE> 46
(8) Includes 40,000 shares that are beneficially owned by Mr. Barnes that are
exercisable within 60 days of February 4, 1998.
(9) Includes 90,000 shares that are deemed beneficially owned by Mr. Berry by
virtue of options held by him that are exercisable within 60 days of
February 4, 1998.
(10) Includes 40,000 shares that are deemed beneficially owned by Mr. Bivolcic
by virtue of options held by him that are exercisable within 60 days of
February 4, 1998.
(11) Includes 80,000 shares that are deemed beneficially owned by Mr. Hood by
virtue of options held by him that are exercisable within 60 days of
February 4, 1998.
(12) Until consummation of the Offer, the Board of Directors of the Company
consisted of the following five individuals: Dr. James Gibbons, Donald L.
Lucas, James E. Steenbergen, Dr. John Cioffi and Aamer Latif. Pursuant to
the Merger Agreement and upon consummation of the Offer, (i) Dr. Gibbons,
James Steenbergen and Dr. Cioffi tendered their resignations as directors
of the Company and (ii) Parent designated George Barber, Marvin S. Self and
Gregory L. Waters to be appointed as directors of the Company. Accordingly,
upon the consummation of the Offer, the three designees of Parent became
directors of the Company.
(13) In addition to the shares identified in footnotes (3) through (11) above,
also includes 171,122 shares that are deemed beneficially owned by virtue
of options that are exercisable within 60 days of February 4, 1998.
AVAILABLE INFORMATION
The Company is subject to the information filing requirements of the
Exchange Act and in accordance therewith files reports, proxy and information
statements and other information with the Securities and Exchange Commission
(the "Commission"). The Tender Offer Statement on Schedule 14D-1 filed by
Purchaser and the Solicitation/Recommendation Statement on Schedule 14D-9 filed
by the Company, each in connection with the Offer, and the respective exhibits
thereto, as well as such reports, proxy and information statements and other
information filed by the Company with the Commission may be inspected and copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices at Seven World Trade Center, 13th Floor, New York, New York
10007 and at the Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2551. Copies of such material can also be obtained
from the principal office of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission also
maintains an internet website at http://www.sec.gov that contains reports, proxy
statements and other information.
Statements contained in this Information Statement or in any document
incorporated in this Information Statement by reference as to the contents of
any contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an annex to this Information Statement or such other
document, each such statement being qualified in all respects by such reference.
All information relating to Purchaser in this Information Statement has been
provided to the Company by Purchaser.
42
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of July 27, 1996 and August
2, 1997................................................... F-3
Consolidated Statements of Operations for the years ended
July 29, 1995, July 27, 1996 and August 2, 1997........... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended July 30, 1994, July 29, 1995, July 27,
1996 and August 2, 1997................................... F-5
Consolidated Statements of Cash Flows for the years ended
July 29, 1995, July 27, 1996 and August 2, 1997........... F-6
Notes to Consolidated Financial Statements.................. F-7
Consolidated Condensed Balance Sheets as of November 1, 1997
and August 2, 1997 (unaudited)............................ F-18
Consolidated Condensed Statements of Operations for the
three months ended November 1, 1997 and November 2, 1996
(unaudited)............................................... F-19
Consolidated Condensed Statements of Cash Flows for the
three months ended November 1, 1997 and November 2, 1996
(unaudited)............................................... F-20
Notes to Consolidated Condensed Financial Statements
(unaudited)............................................... F-21
</TABLE>
F-1
<PAGE> 48
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Amati Communications Corporation:
We have audited the accompanying consolidated balance sheets of Amati
Communications Corporation (a Delaware corporation) and subsidiaries as of
August 2, 1997 and July 27, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years
ended August 2, 1997, July 27, 1996, and July 29, 1995. 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 and subsidiaries as of August 2, 1997 and July 27, 1996, and the
results of their operations and their cash flows for each of the three years
ended August 2, 1997, July 27, 1996, and July 29, 1995 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
September 30, 1997
F-2
<PAGE> 49
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JULY 27, AUGUST 2,
1996 1997
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 886 $ 791
Short-term investments.................................... -- 709
Accounts receivable, less allowance of $30 in 1996 and
1997................................................... 1,524 1,369
Stock subscriptions receivable............................ -- 2,500
Inventories:
Finished goods....................................... 1 448
Work in process...................................... 890 1,783
Purchased parts...................................... 725 824
-------- --------
1,616 3,055
Other current assets...................................... 1,156 858
-------- --------
Total current assets.............................. 5,182 9,282
-------- --------
Equipment and leasehold improvements, at cost:
Machinery and equipment................................... 3,436 7,366
Furniture and fixtures.................................... 187 161
Leasehold improvements.................................... 532 1,862
-------- --------
4,155 9,389
Less: Accumulated depreciation and amortization............. (3,096) (3,588)
-------- --------
Equipment and leasehold improvements, net................. 1,059 5,801
-------- --------
TOTAL ASSETS...................................... $ 6,241 $ 15,083
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capitalized lease obligations....... $ -- $ 728
Trade accounts payable.................................... 486 2,499
Accrued expenses.......................................... 1,429 1,714
Deferred revenue.......................................... 157 148
Notes payable -- bank..................................... -- 428
Notes payable -- other.................................... 395 --
-------- --------
Total current liabilities......................... 2 ,467 5,517
-------- --------
Long-term liabilities:
Long term portion of deferred revenue..................... 1,800 2,000
Capitalized lease obligations, less current maturities.... -- 2,086
Obligations under lease commitments....................... 294 454
-------- --------
Total long-term liabilities....................... 2,094 4,540
-------- --------
Commitments (Note 9)
Stockholders' equity:
Preferred stock -- par value $100 per share
Authorized -- 5,000 shares Outstanding -- none......... -- --
Common stock -- par value $.20 per share
Authorized -- 45,000,000 shares
Outstanding -- 17,692,802 shares in 1996 and 19,692,895
shares in 1997......................................... 3,539 3,939
Additional paid-in capital................................ 57,631 72,820
Accumulated deficit....................................... (59,490) (71,733)
-------- --------
Total Stockholders' equity........................ 1,680 5,026
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 6,241 $ 15,083
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 50
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------
JULY 29, JULY 27, AUGUST 2,
1995 1996 1997
-------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net sales................................................... $12,040 $ 12,085 $ 13,200
Cost of sales............................................... 6,716 7,404 9,554
------- -------- --------
Gross margin.............................................. 5,324 4,681 3,646
------- -------- --------
Operating expenses:
Research and development.................................. 1,595 3,837 8,335
Marketing and sales....................................... 861 953 2,868
General and administrative................................ 1,229 2,519 4,479
Write off of acquired in-process research and
development............................................ -- 31,554 --
------- -------- --------
Total operating expenses.......................... 3,685 38,863 15,682
------- -------- --------
Income (loss) from operations............................. 1,639 (34,182) (12,036)
------- -------- --------
Other income (expense):
Interest income........................................... 301 168 116
Interest expense.......................................... (7) (21) (323)
------- -------- --------
Total other income (expense)...................... 294 147 (207)
------- -------- --------
Income (loss) before provision for income taxes............. 1,933 (34,035) (12,243)
Provision for income taxes................................ 97 43 --
------- -------- --------
NET INCOME (LOSS)........................................... $ 1,836 $(34,078) $(12,243)
======= ======== ========
NET INCOME (LOSS) PER SHARE................................. $ .16 $ (2.21) $ (.66)
======= ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE
EQUIVALENTS............................................... 11,491 15,448 18,641
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 51
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 2, 1997
<TABLE>
<CAPTION>
COMMON STOCK
--------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, July 30, 1994...................... 11,956 $2,391 $33,649 $(27,248) $ 8,792
Exercise of employee stock options........ 150 30 132 -- 162
Stock repurchase.......................... (537) (107) (457) -- (564)
Net income................................ -- -- -- 1,836 1,836
------ ------ ------- -------- --------
Balance, July 29, 1995...................... 11,569 $2,314 $33,324 $(25,412) $ 10,226
Exercise of employee stock options........ 1,238 248 1,327 -- 1,575
Exercise of warrants from merger.......... 231 46 (46) -- --
Issuance of shares from merger............ 4,655 931 23,026 -- 23,957
Net loss.................................. -- -- -- (34,078) (34,078)
------ ------ ------- -------- --------
Balance, July 27, 1996...................... 17,693 $3,539 $57,631 $(59,490) $ 1,680
Exercise of employee stock options........ 596 119 725 -- 844
Exercise of warrants from merger.......... 161 32 (7) -- 25
Equity financing, net of offering costs of
$280................................... 1,243 249 14,471 -- 14,720
Net loss............................... -- -- -- (12,243) (12,243)
------ ------ ------- -------- --------
Balance, August 2, 1997..................... 19,693 $3,939 $72,820 $(71,733) $ 5,026
====== ====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 52
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------
JULY 29, JULY 27, AUGUST 2,
1995 1996 1997
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)........................................... $ 1,836 $(34,078) $(12,243)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization.......................... 678 846 1,422
Provision for bad debts................................ -- 20 --
Loss on retirement of capital equipment................ 41 153 63
Write off of in-process research and development....... -- 31,554 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable............. (528) 1,340 155
Increase in inventories................................ (33) (189) (1,439)
Decrease (increase) in other assets.................... (316) (194) 62
Increase (decrease) in accounts payable & accrued
expenses............................................. (315) (599) 2,288
Decrease in other liabilities.......................... (124) -- (235)
------- -------- --------
Total adjustments................................. (597) 32,931 2,316
------- -------- --------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES........ 1,239 (1,147) (9,927)
------- -------- --------
Cash Flows from Investing Activities:
Advances to Old Amati and acquisition costs............... (3,240) (2,266) --
Capital expenditures...................................... (61) (757) (2,469)
Purchase of short-term investments........................ (5,862) -- (3,893)
Proceeds from sale of investments......................... 8,829 2,425 3,184
------- -------- --------
NET CASH USED FOR INVESTING ACTIVITIES...................... (334) (598) (3,178)
------- -------- --------
Cash Flows from Financing Activities:
Equity financing, net of offering costs of $280........... -- -- 12,220
Proceeds from the exercise of stock options............... 162 1,575 844
Proceeds from the exercise of treasury warrants........... -- -- 25
Borrowings -- bank line of credit......................... -- -- 428
Payments on capital lease obligation...................... (82) (10) (507)
Stock repurchase.......................................... (564) -- --
------- -------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES........ (484) 1,565 13,010
------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 421 (180) (95)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 645 1,066 886
------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 1,066 $ 886 $ 791
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 53
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 2, 1997
NOTE 1. OPERATIONS, LIQUIDITY AND PROPOSED MERGER OF THE COMPANY
OPERATIONS
Amati Communications Corporation ("Amati" or the "Company") is a leading
developer of advanced transmission equipment utilizing Discrete Multi-tone
("DMT") technology for the Asymmetrical Digital Subscriber Line ("ADSL"), Very
high-speed Digital Subscriber Line ("VDSL") and cable modem markets. The Company
is the holder of the ADSL/DMT patents and has licensed the technology to
companies such as Motorola, NEC, Nortel and Analog Devices, Inc. The Company is
also a provider of network connectivity systems for the internetworking and OEM
marketplaces, which include local area network gateways, client-based
workstation software and network data communications interfaces. The Company is
subject to a number of risks, including dependence on key employees for
technology development and support, dependence on a few significant customers,
potential competition from larger more established companies, and its ability to
obtain adequate financing to support its growth.
On November 28, 1995, the Company and Amati Communications Corporation
("Old Amati"), a privately held Mountain View, California based company
completed a merger (the "Merger") by which Old Amati became a wholly-owned
subsidiary of the Company. Effective as of the Merger, the Company's name was
changed to Amati Communications Corporation and its common stock began trading
on the Nasdaq National Market under the symbol "AMTX".
LIQUIDITY
In October 1996, the Company entered into an Investment Agreement (the
"Investment Agreement") with Quantum Industrial Partners LDC, S-C Phoenix
Holdings, L.L.C., Winston Partners, L.P., Winston Partners II LDC and Winston
Partners II L.L.C. (collectively, the "Investors") which provided to the Company
$15 million in equity financing in exchange for the issuance of Company's Common
Stock and warrants (the "Warrants") to purchase up to 600,000 shares of
Company's Common Stock. The Warrants were issued on October 3, 1996 and are
exercisable at any time between December 17, 1996 and December 17, 2001.
Warrants to purchase up to 300,000 shares are exercisable at $17.45 per share;
Warrants to purchase the other 300,000 shares are exercisable at $25 per share.
As of August 2, 1997, the Company has received $12,500,000 pursuant to this
Investment Agreement and recorded a Stock Subscription Receivable of $2,500,000.
In exchange for the $15,000,000 investment in the Company, the Investors
received an aggregate of 1,242,915 shares of the Company's Common Stock. The
Warrants and Common Stock issued in connection with the Investment Agreement
were exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to the exemption under Section 4(2) of
the Securities Act. The resale of the shares of Common Stock issued to the
Investors, and the 600,000 shares of Common Stock issuable on exercise of the
Warrants, has been registered by the Company on behalf of the Investors. On
August 7, 1997, the Company received the final $2,500,000 take down in equity
financing.
The Company's ability to meet its 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. While the Company
anticipates that the funding available under the line of credit, capital lease
line and a loan agreement entered into with Westell Technologies, Inc. (further
discussed) will be sufficient to meet its capital requirements through the
fiscal year, the Company may require funding in addition to that available under
these agreements, and may seek additional funding through collaborative
agreements or through public or private sale of securities prior to the
commercialization of its ADSL products.
F-7
<PAGE> 54
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPOSED MERGER
On September 30, 1997, the Company and Westell Technologies, Inc. entered
into an Agreement and Plan of Merger whereby Amati will become a wholly owned
subsidiary of Westell Technologies, Inc. Westell Technologies, Inc.,
headquartered in Aurora, Illinois, is a holding company for Westell, Inc., a
world-wide manufacturer of XDSL systems, Conference Plus, Inc., a multi-point
telecommunications service bureau specializing in conferencing, and Westell
World Wide Services, Inc., a service provider of engineering, installation and
network management. Pursuant to the Agreement and Plan of Merger, and subject to
the approval of the transaction by the respective stockholders of both
companies, holders of outstanding Amati Common Stock will receive in exchange
for each share of Amati Common Stock, 0.9 shares of Westell Class A Common
Stock.
Pursuant to the Agreement and Plan of Merger with Westell Technologies,
Inc. dated September 30, 1997 and under the provisions of a Loan and Security
Agreement, Westell Technologies, Inc. can extend financing to the Company of up
to $5,000,000 secured by a promissory note due on or before September 30, 1999
with interest payable at the following rates: prime plus 2% for the first $1
million and prime plus 2 1/2% for all borrowings in excess of $1 million.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. 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. Machinery and equipment
and furniture and fixtures generally have lives ranging from 3 to 5 years.
Leasehold improvements are depreciated over the shorter of the lease term or the
useful life.
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.
In fiscal 1995, 1996 and 1997, there was no capitalization of software
development costs as the criteria for capitalization had not been met.
Amortization of capitalized software development costs charged to cost of sales
was $310,000 in fiscal 1995 and $246,000 in fiscal 1996 and 1997.
F-8
<PAGE> 55
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCRUED EXPENSES
Accrued expenses include the following:
<TABLE>
<CAPTION>
JULY 27, AUGUST 2,
1996 1997
-------- ---------
<S> <C> <C>
Accrued employee compensation............................... $ 793 $1,035
636 679
------ ------
Other....................................................... $1,429 $1,714
====== ======
</TABLE>
REVENUE RECOGNITION
The Company generally recognizes revenue from product sales upon shipment
to the customer. Revenues from software and engineering development services are
recognized as the Company performs the services in accordance with contract
terms. 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 support revenues accounted for less than 1% of the
Company's total revenues.
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.
Capital lease obligations of $3,307,000 were incurred in fiscal 1997 when
the Company entered into equipment and furniture capital leases. Cash paid for
interest was $7,000, $56,000 and $317,000 for the fiscal years 1995, 1996 and
1997, respectively. Cash paid for income taxes were $20,000, $73,000 and $46,000
for fiscal years 1995, 1996 and 1997, respectively.
SHORT TERM INVESTMENTS
In accordance with SFAS No. 115, the Company has classified all of its
marketable debt securities as held-to-maturity, and has accounted for these
investments at amortized cost. Accordingly, no adjustment for unrealized holding
gains or losses has been reflected in the Company's financial statements. At
August 2, 1997, the Company's held-to-maturity securities of $709,000 consisted
of certificates of deposits with contractual maturities of less than twelve
months and the carrying amount of these investments approximated market value.
These funds, in the form of standby letters of credit, are restricted as a
compensating balance for capital lease not under the lease line.
FUNDED DEVELOPMENT AGREEMENTS
The Company has entered into certain funded development arrangements with
IBM. These arrangement typically provide funding to the Company to develop on a
best efforts basis certain products or product enhancements which IBM is
interested in reselling to its customers. Under these arrangements, the Company
retains the rights to manufacture the developed products and IBM purchases the
manufactured products from the Company for distribution to IBM's customers. The
arrangements typically include a minimum purchase commitment by IBM if the
development is successful. Costs under these agreements 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 $276,000, $419,000 and $341,000 in fiscal
1995, 1996 and 1997, respectively.
F-9
<PAGE> 56
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
LONG-LIVED ASSETS
Effective July 28, 1996, the Company adopted Statement of financial
Accounting Standards No. 121 ("SFAS No. 121"), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The adoption of
SFAS No. 121 did not have a material impact on the results of operations or the
financial position of the Company.
STOCK COMPENSATION
Effective July 28, 1996, the Company adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), Accounting
for Stock-Based Compensation. In accordance with the provisions of SFAS No. 123,
the Company applies APB Opinion 25 and related interpretations in accounting for
its stock option plans. Note 6 of these Consolidated Financial Statements
contains a summary of the pro forma effects on reported net income and earnings
per share for fiscal 1997 and 1996 based on the fair value of the options
granted at grant date as prescribed by SFAS No. 123.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), Reporting
Comprehensive Income, which becomes effective for fiscal years beginning after
December 15, 1997. The adoption of SFAS No. 130 is not expected to have a
material impact on the results of operations or the financial position of the
Company.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS No. 131"), Disclosures About Segments of an Enterprise
and Related Information, which becomes effective for fiscal years beginning
after December 15, 1997. The Company has yet to determine the impact, if any, of
adoption of this new pronouncement.
RECLASSIFICATION
Prior years' amounts in the Consolidated Financial Statements have been
reclassified where necessary to conform to the fiscal 1997 presentation.
NOTE 3. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments which may potentially subject the Company to a
concentration of credit risk principally consist of accounts receivable. The
Company generally does not require collateral on accounts receivable as the
majority of the Company's customers are large, well established companies.
Sales of the Overture 4 and Overture 8 series of ADSL transceivers were
$999,000 and $819,000, respectively, in fiscal 1996 and $12,000 and $1,880,000,
respectively, in fiscal 1997. In the Company's VDSL technology, revenues
recognized during the current fiscal year of $3,500,000 related primarily to
contract revenues under a joint development agreement with NEC Japan.
The Company also designs, manufactures and markets data communications
equipment and provides technical support and maintenance services related
thereto. Sales to IBM as a percent of net sales were 83%, 69% and 51% in fiscal
1995, 1996 and 1997, respectively. The Company has a concentration of accounts
F-10
<PAGE> 57
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
receivable with IBM of $600,000 as of August 2, 1997. In February 1997, the
Company signed an extended contract with IBM for the development and manufacture
of its next generation internetworking products. The Company expects that IBM
will continue to account for a substantial portion of its revenues until
development and commercialization of its ADSL products are completed.
Export sales of connectivity products, primarily to Western Europe and
Canada in fiscal 1995, 1996 and 1997, represented 1-2% of total net sales.
Shipments of the Overture series of transceivers primarily to the countries of
Germany, Netherlands, France, Finland and Canada accounted for 11% of total
revenues in fiscal 1997.
NOTE 4. LICENSE AGREEMENTS
The Company has certain 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 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 revenue generated from the licensed technology. Both Original Agreements
contained anti-dilution provisions in the event the Company raised capital from
the sale of stock. The term of the Original Agreements extends to the last
expiration date of the licensed patents. The Company accounted for the license
agreements as a transfer of non-monetary assets from its founders and recorded
the license at the transferor's historical cost basis of zero. On May 1, 1994,
the Original Agreement with Stanford University was revised to include a
one-time fee of $250,000 and an annual license maintenance fee of $25,000. The
revised Original Agreements provide for Stanford University to receive higher
royalties on the Company's revenues. Stanford University may terminate the
agreement if the Company fails to remedy any conditions causing default, breach
or incorrect reporting under the terms and conditions of the license agreement
within thirty days.
NOTE 5. NOTES PAYABLE
The Company had notes payable in the amount of $395,000 at July 27, 1996.
All outstanding notes of $395,000 plus interest of $103,000 were paid on January
31, 1997.
The Company has a revolving line of credit agreement with a bank which
expires on April 25, 1998. The agreement provides for borrowings up to
$2,000,000 at the bank's prime rate plus .75% (9.25 % at August 2, 1997).
The line of credit is collateralized by the accounts receivable of the Company.
As of August 2, 1997, borrowings under this agreement were $428,000. Borrowings
under this agreement are subject to certain debt covenants. At August 2, 1997,
the Company was out of compliance with certain of these covenants relating to
quick ratios and debt to net worth ratios. Acknowledging however, that with the
$2,500,000 of cash received on August 7, 1997 from stock subscriptions
receivable shown on the balance sheet as of fiscal 1997 year-end the Company
will be in compliance, the bank waived all financial covenants in default. In
addition, the Company has a capital lease line of $1,700,000 which was fully
utilized as of August 2, 1997.
NOTE 6. STOCK OPTION PLANS
The Company has four employees' and one non-employee Directors' stock
option plans. The exercise price of options granted under any plan may not be
less than 100% of the fair market value of the stock on the date of grant.
An Incentive Stock Option Plan and a Supplemental Stock Option Plan were
adopted by the Company in 1981. Total shares authorized for issuance pursuant to
the Incentive Stock Option Plan and the Supplemental
F-11
<PAGE> 58
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Option Plan were 875,000 shares and 1,025,000 shares, respectively. As of
August 2, 1997, options to purchase up to 30,000 shares have been granted
pursuant to these plans and remain exercisable, and there are no options
available for future grant under these plans. Employee stock options issued
under this plan become exercisable at the rate of 25% after six months from the
date of grant and 25% per year thereafter, unless determined otherwise by the
Board of Directors at the time of grant. Both plans expired in October 1991. The
options that have been granted under these plans expire ten years after grant.
The Board of Directors adopted the 1990 Stock Option Plan on September 14,
1990, and it was approved by the Company's stockholders on December 14, 1990.
The Company is authorized to issue options to purchase up to 900,000 shares of
Company Common Stock pursuant to the 1990 Stock Option Plan. At a special
meeting of the Company's stockholders held on November 10, 1995, the
stockholders approved an amendment to the Company's 1990 Stock Option Plan to
increase the number of shares available for issuance pursuant to this plan in
conjunction with the Agreement of Merger dated August 3, 1995. The Company may
now issue options to purchase an aggregate of up to 3,500,000 shares pursuant to
the amended 1990 Stock Option Plan. As of August 2, 1997, options to purchase up
to 2,946,686 shares have been granted pursuant to this plan, of which options to
purchase up to 1,011,057 shares were exercisable on such date and 3,664 shares
were available for future grant under this plan. Employee stock options issued
pursuant to this plan become exercisable at the rate of 25% one year from the
date of the Merger and 25% per year thereafter. The maximum term of options
granted under this plan is ten years.
The Old Amati 1992 Stock Option Plan and all outstanding and unexercised
options issued pursuant thereto were assumed by the Company upon consummation of
the merger, as approved by the stockholders of the Company on November 20, 1995.
The Company is authorized to grant options of 1,591,234 shares of Company Common
Stock pursuant to this plan. As of August 2, 1997, options to purchase up to
743,051 shares of Company Common Stock have been granted, pursuant to this plan,
including options to purchase up to 317,405 shares which were exercisable as of
such date. There are no shares available for future grants under this plan.
Employee stock options under this plan become exercisable at the rate of 25% one
year from the date of grant and with respect to 1/48 of the number of shares
subject to such option each month thereafter.
On July 12, 1996, the Company adopted the 1996 Stock Option Plan, and
authorized 1,000,000 shares of Company Common Stock. As of August 2, 1997,
options to purchase up to 950,000 shares have been granted, of which options to
purchase up to 314,125 shares were exercisable as of such date and 50,000 shares
were available for future grants under this plan.
The Company adopted a 1990 Non-Employee Directors' Stock Option Plan on
September 14, 1990, which was approved by the Company's stockholders on December
14, 1990. The Company is authorized to issue options to purchase up to an
aggregate of 395,000 shares of the Company's Common Stock pursuant to this plan.
On the date the plan was adopted, each non-employee Director then in office was
granted an option to purchase up to 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 pursuant to this plan, which options will be
immediately exercisable. On December 2, 1993, the plan was amended to reduce by
150,000 shares the number of shares available for issuance pursuant to the plan,
leaving 245,000 shares available for grant under this plan. As of August 2,
1997, options to purchase up to 102,500 shares have been granted pursuant to
this plan, of which options to purchase up to 80,000 shares were exercisable as
of such date and 25,000 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 are automatically granted to each
non-employee Director then in office. Beginning with grants made to each
continuing non-employee Director in office on September 1, 1996, each person
shall receive an option to purchase up to 20,000 shares of the Company's Common
Stock. Grants are automatically made annually under this plan. These options
become exercisable at the rate of 25% after six months from the date of grant
and 25% per year thereafter. These options expire ten years after grant.
F-12
<PAGE> 59
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with the disclosure requirements of SFAS No. 123, if the
Company had elected to recognize compensation cost based on the fair value of
the options granted at grant date as prescribed, income and earnings per share
would have been reduced to the pro forma amounts indicated in the table below.
The pro forma effect on net income for fiscal 1996 and 1997 is not
representative of the pro forma effect on net income in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to fiscal 1996.
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net loss -- as reported..................................... $34,078 $12,243
Net loss -- pro forma....................................... $37,116 $18,336
Loss per share -- as reported............................... $ 2.21 $ .66
Loss per share -- pro forma................................. $ 2.40 $ .98
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<S> <C>
Expected dividend yield..................................... 0.0%
Expected stock volatility................................... 112.28%
Risk-free interest rate..................................... 5.62 - 6.52%
Expected life of options from grant date.................... 4 years
</TABLE>
The weighted average fair value of options granted during 1996 and 1997
were $5.39 and $11.55 per share, respectively.
Stock option activity under these plans was as follows:
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
----------- -------------
<S> <C> <C>
Balance, July 30, 1994.................................... 1,095,275
Granted................................................... 160,000 $1.19 - $2.03
Exercised................................................. (150,250) $0.75 - $1.53
Canceled.................................................. (66,100) $0.75 - $1.88
----------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE
--------------
<S> <C> <C>
Balance, July 29, 1995..................................... 1,038,925 $ 1.09
Granted.................................................... 4,876,145 $ 6.61
Exercised.................................................. (1,238,077) $ 6.64
Canceled................................................... (28,444) $ 1.09
----------
Balance, July 27, 1996..................................... 4,648,549 $ 5.67
Granted.................................................... 765,250 $15.06
Exercised.................................................. (594,836) $ 5.36
Canceled................................................... (46,726) $ 6.57
----------
Balance, August 2, 1997.................................... 4,772,237 $ 6.40
==========
</TABLE>
F-13
<PAGE> 60
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about fixed stock options
outstanding at August 2, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------------
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.01 - $ 1.22...... 248,890 6.15 $ 0.52 161,041 $ 0.69
$ 1.28 - $ 4.19...... 678,912 7.20 $ 1.40 403,602 $ 1.39
$ 4.25 - $ 4.94...... 2,026,735 8.33 $ 4.77 587,520 $ 4.66
$ 6.63 - $10.75...... 1,186,325 8.62 $ 8.43 458,075 $ 7.91
$10.88 - $24.75...... 631,375 9.09 $15.54 108,813 $15.81
--------- ------ ------- --------- -------
$ 0.01 - $24.75...... 4,772,237 8.23 $ 6.40 1,719,051 $ 5.09
========= ====== ======= ========= =======
</TABLE>
On August 2, 1997, there were 4,772,237 shares of Company Common Stock
reserved for issuance upon the exercise of outstanding options and 78,664 shares
of Common Stock reserved for future grants under all stock option plans.
NOTE 7. INCOME TAXES
As of August 2, 1997, the Company's tax net operating loss carryforwards
for federal tax purposes were approximately $45,066,000. The United States Tax
Reform Act of 1986 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 fiscal 2012. The Company also has certain tax credit
carryforwards of $1,650,000 which expire in various amounts through the year
2012. 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.
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 acquired company 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.
As of August 2, 1997, the Company also has net operating loss carryforwards
of approximately $10,000,000 available to offset future California state taxable
income. These carryforwards expire in various amounts through the year 2002. The
Company also has certain California tax credit carryforwards of $330,000.
The provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
JULY 29, JULY 27, AUGUST 2,
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Provision for income taxes:
Current federal....................................... $39 $17 $--
Current state......................................... 58 26 --
--- --- ---
Total provision for income taxes.............. $97 $43 $--
=== === ===
</TABLE>
F-14
<PAGE> 61
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the Company's effective income tax rate and the
Federal statutory rate is as follows:
<TABLE>
<CAPTION>
JULY 29, JULY 27, AUGUST 2,
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Statutory federal income tax rate....................... 34% (34)% (34)%
State income tax rate, net of federal benefit........... 7 7 (6)
Change in valuation allowance........................... (36) 32 40
--- --- ---
Income tax rate......................................... 5% 5% --
=== === ===
</TABLE>
The major components of the net deferred tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
JULY 27, AUGUST 2,
1996 1997
-------- ----------
<S> <C> <C>
Deferred tax assets:
Cumulative temporary differences.......................... $ 1,468 $ 3,056
Tax credits............................................... 1,395 1,839
Net operating loss carryforwards.......................... 9,496 16,693
Other accruals............................................ 118 --
-------- --------
Total assets...................................... 12,477 21,588
Valuation allowance....................................... (12,392) (21,427)
-------- --------
Net deferred income tax asset............................. 85 161
Less deferred tax liabilities:
Capitalized software expenditures......................... 85 161
-------- --------
Total liabilities................................. 85 161
======== ========
Total net deferred tax assets..................... $ 0 $ 0
======== ========
</TABLE>
NOTE 8. 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 1996 and 1997 because the effect would be to decrease the loss per share.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share", which simplifies the
standards for computing earnings per share previously found in Accounting
Principles Board Opinion No. 15 ("APB No. 15"). SFAS No. 128 replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share, which excludes dilution. SFAS No. 128 also requires dual presentation
of basic and diluted earnings per share on the face of the income statement for
all entities with complex capital structures and requires a reconciliation.
Diluted earnings per share is computed similarly to fully diluted earnings per
share pursuant to APB No. 15. SFAS No. 128 must be adopted for financial
statements issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. SFAS No. 128 requires restatement
of all prior period earnings per share presented. The Company does not
anticipate that SFAS No. 128 will have a material impact on its earnings per
share calculation.
F-15
<PAGE> 62
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. LEASE COMMITMENTS
Future minimum lease payments under capital leases, together with the
present value of those payments and the aggregate annual rental commitments
under non-cancelable operating leases as of August 2, 1997, are shown as
follows:
<TABLE>
<CAPTION>
OPERATING LEASES
----------------------
RENTALS
RECEIVABLE
CAPITAL RENTAL UNDER
FISCAL YEAR LEASES PAYMENTS SUBLEASES
----------- ------- -------- ----------
<S> <C> <C> <C>
1998.................................................. $1,019 $1,027 $258
1999.................................................. 1,019 1,033 252
2000.................................................. 866 862 --
2001.................................................. 433 886 --
2002.................................................. 88 97 --
Thereafter............................................ -- 621 --
------ ------ ----
Total minimum lease payments........................ $3,425 $4,526 $510
====== ====
Less amount representing interest................... (611)
------
Present value of future minimum lease payments...... $2,814
======
</TABLE>
Total rent expense for all operating leases amounted to approximately
$1,038,000, $971,000 and $1,623,000 in fiscal 1995, 1996 and 1997, respectively.
Rent expense in fiscal 1995, 1996 and 1997 is before sublease income of
$297,000, $137,000 and $333,000.
NOTE 10. 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 seeks 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.
NOTE 11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly information is for the years ended July 27, 1996 and August 2,
1997.
<TABLE>
<CAPTION>
FISCAL 1996 OCTOBER 28, JANUARY 27, APRIL 27, JULY 27,
QUARTER ENDED 1995 1996 1996 1996
------------- ----------- ----------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales................................ $3,354 $ 2,524 $3,756 $ 2,451
Gross Profit............................. $1,514 $ 978 $1,576 $ 613
Net Income (Loss)........................ $ 816 $(32,199) $ (498) $(2,197)
Net Income (Loss) Per Share.............. $ 0.07 $ (2.12) $(0.03) $ (0.13)
</TABLE>
F-16
<PAGE> 63
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FISCAL 1997 NOVEMBER 2, FEBRUARY 1, MAY 3, AUGUST 2,
QUARTER ENDED 1996 1997 1997 1997
------------- ----------- ----------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales................................. $4,513 $ 3,012 $ 3,663 $ 2,012
Gross Profit.............................. $2,426 $ 899 $ 1,621 $(1,300)
Net Loss.................................. $ (746) $(2,786) $(2,293) $(6,418)
Net Loss Per Share........................ $(0.04) $ (0.15) $ (0.12) $( 0.33)
</TABLE>
NOTE 12. ACQUISITION OF OLD AMATI
On November 28, 1995, the Company acquired all of the outstanding shares of
Amati Communications Corporation ("Old Amati") for approximately $29.5 million.
The purchase price consisted of the issuance of 2.6 million shares of the
Company's Common Stock in exchange for all shares of Old Amati common stock, 1.5
million shares of the Company's Common Stock in exchange for all shares of Old
Amati Series A preferred stock, Warrants for the purchase of up to 1.1 million
shares of the Company's Common Stock in exchange for all Old Amati warrants, and
options to purchase up to 1.6 million shares of the Company's Common Stock in
exchange for all options to purchase Old Amati common stock. The purchase price
also includes registration and other acquisition costs of $0.8 million, total
cash advances to Old Amati prior to the merger of $5.6 million and is net of the
estimated proceeds from the assumed exercise of Old Amati options and warrants
of $3.3 million.
The transaction was accounted for using the purchase method of accounting.
The Company allocated the purchase price to the net assets based upon their
estimated fair values. The fair values of tangible assets acquired and
liabilities assumed were $1.2 million and $3.2 million, respectively. The
balance of the purchase price, $31.6 million, was charged to earnings to
write-off in-process research and development that had not reached technological
feasibility and had no alternative future uses.
The following table reflects unaudited pro forma combined results of
operations of the Company and Old Amati on the basis that the acquisition had
taken place and the related charge, noted above, was recorded at the beginning
of the fiscal year of the period presented:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
--------------------------
JULY 29, JULY 27,
1995 1996
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Revenues.................................................... $ 13,092 $ 13,512
Net Loss.................................................... $(35,666) $(36,527)
Net Loss per Share.......................................... $ (2.21) $ (2.15)
Number of shares used in computation........................ 16,146 17,008
</TABLE>
In management's opinion, the unaudited pro-forma combined results of
operations are not necessarily indicative of the actual results that would have
occurred had the acquisition been consummated at the beginning of 1996 or of
future operations of the combined companies under the ownership and management
of the Company.
F-17
<PAGE> 64
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 1, AUGUST 2,
1997 1997
----------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,844 $ 791
Short term investments.................................... 709 709
Accounts receivable, less allowance of $30 in 1998 and
1997................................................... 3,166 1,369
Stock subscriptions receivable............................ -- 2,500
Inventories............................................... 2,810 3,055
Other current assets...................................... 1,082 858
------- -------
Total current assets.............................. 9,611 9,282
Equipment and leasehold improvements -- net................. 5,968 5,801
------- -------
TOTAL ASSETS...................................... $15,579 $15,083
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable -- bank..................................... $ 428 $ 428
Accounts payable and accrued expenses..................... 4,838 3,326
Accrued employee compensation............................. 1,121 1,035
Bridge loan payable....................................... 3,050 --
Current maturities of capitalized lease obligations....... 769 728
------- -------
Total current liabilities......................... 10,206 5,517
------- -------
Long-term liabilities:
Long term portion of deferred revenue..................... 2,100 2,000
Capitalized lease obligations, net of current
maturities............................................. 2,033 2,086
Obligations under lease commitments....................... 454 454
------- -------
Total long-term liabilities....................... 4,587 4,540
------- -------
Stockholders' equity........................................ 786 5,026
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $15,579 $15,083
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-18
<PAGE> 65
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
NOVEMBER 1, NOVEMBER 2,
1997 1996
----------- -----------
<S> <C> <C>
Net sales................................................... $ 4,702 $ 4,513
Cost of sales............................................... 4,678 2,087
------- -------
Gross margin.............................................. 24 2,426
------- -------
Operating expenses:
Research and development.................................. 2,323 1,751
Marketing and sales....................................... 1,043 557
General and administrative................................ 905 720
Other..................................................... 105 128
------- -------
Total operating expenses.......................... 4,376 3,156
------- -------
Loss from operations.............................. (4,352) (730)
------- -------
Other income (expense):
Interest income........................................... 15 1
Interest expense.......................................... (105) (17)
------- -------
Total other income (expense)...................... (90) (16)
------- -------
NET LOSS.......................................... $(4,442) $ (746)
======= =======
NET LOSS PER SHARE................................ $ (0.23) $ (0.04)
======= =======
Weighted Average Number of Common Shares and Common Share
Equivalents............................................... 19,727 17,719
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-19
<PAGE> 66
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
NOVEMBER 1, NOVEMBER 2,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
NET LOSS.................................................. $(4,442) $ (746)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization.......................... 425 164
Loss on retirement of capital equipment................ -- 51
Increase in accounts receivable........................ (1,797) (2,683)
Decrease (increase) in inventories..................... 245 (233)
Increase in other assets............................... (224) (52)
Increase in accounts payable, accrued expenses and
employee compensation................................. 1,699 2,063
------- -------
NET CASH USED FOR OPERATING ACTIVITIES............ (4,094) (1,436)
------- -------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements....... (408) (1,415)
------- -------
NET CASH USED FOR INVESTING ACTIVITIES............ (408) (1,415)
------- -------
Cash flows from financing activities:
Payments on capital lease obligations.................. (197) --
Proceeds from bridge loan.............................. 3,050 --
Proceeds from equity financing, net of issuance
costs................................................. 2,464 5,000
Proceeds from exercise of stock options/warrants....... 238 72
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 5,555 5,072
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 1,053 2,221
BEGINNING BALANCE -- CASH AND CASH EQUIVALENTS.............. 791 886
------- -------
ENDING BALANCE -- CASH AND CASH EQUIVALENTS................. $ 1,844 $ 3,107
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for interest.................. $ 94 $ 55
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-20
<PAGE> 67
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOVEMBER 1, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the rules and regulations of the Securities and
Exchange Commission and do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring entries) considered necessary for a fair presentation have been
included. For further information, refer to the financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended August 2, 1997. The results for the period are not necessarily indicative
of results for the full fiscal year.
NOTE B -- NET LOSS PER SHARE
Net loss per share is based on the weighted average number of shares
outstanding of common stock. No common stock equivalents have been included in
fiscal years 1998 and 1997 because the effect would decrease the loss per share.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which
simplifies the standards for computing earnings per share previously found in
Accounting Principles Board Opinion ("APB") No. 15. SFAS No. 128 replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share, which excludes dilution. SFAS No. 128 also requires dual presentation
of basic and diluted earnings per share on the face of the income statement for
all entities with complex capital structures and requires reconciliation.
Diluted earnings per share are computed similarly to fully diluted earnings per
share pursuant to APBO No. 15. SFAS No. 128 must be adopted for financial
statements issued for periods ending after December 15, 1997, including interim
periods, earlier application is not permitted. SFAS No. 128 requires restatement
of all prior period earnings per share presented. The Company does not
anticipate that SFAS No. 128 will have a material impact on its earnings per
share calculation.
NOTE C -- INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and are comprised of the following:
<TABLE>
<CAPTION>
NOVEMBER 1, AUGUST 2,
1997 1997
----------- ---------
<S> <C> <C>
Finished goods.............................................. $ 137 $ 448
Work in process............................................. 1,710 1,783
Purchased and service parts................................. 963 824
------ ------
$2,810 $3,055
====== ======
</TABLE>
NOTE D -- PROPOSED MERGER
On September 30, 1997, the Company and Westell Technologies, Inc. entered
into a proposed merger wherein Amati would have become a wholly owned subsidiary
of Westell Technologies, Inc.
Holders of outstanding Amati Common Stock were to receive in exchange for
each share, 0.9 shares of Westell Class A Common Stock. Under the provisions of
a Loan and Security Agreement dated September 30, 1997, Westell Technologies,
Inc. could extend financing to the Company of up to $5,000,000 secured by a
promissory note due on or before September 30, 1999 with interest payable at the
following rates: prime plus 2% for the first $1 million and prime plus 2 1/2%
for all borrowings in excess of $1 million. As of November 1, 1997, $3,050,000
was outstanding under the Westell Loan, subsequently increased to $3,550,000.
F-21
<PAGE> 68
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Following the end of the current fiscal quarter, the Company terminated the
agreement with Westell Technologies, Inc. paying a $14.8 million fee in
connection with such termination. On November 19, 1997 the Company entered into
an Agreement and Plan of Merger with Texas Instruments, Incorporated ("TI")
providing for an all-cash tender offer for all outstanding shares of the
Company's Common Stock at $20 per share to commence on November 25, 1997 and end
on December 23, 1997, unless extended. Following completion of the tender offer,
and upon consummation of a merger with a wholly owned subsidiary of TI, the
Company will become a wholly owned subsidiary of TI.
Under the provisions of a Loan and Security Agreement dated November 19,
1997, Texas Instruments agreed to grant a term loan in the amount of $14,774,000
and a revolving loan in the amount of $5,000,000 to the Company secured by a
promissory note due September 30, 1999 with interest at the rate of prime plus
2%. As of December 5, 1997, $18,763,000 was outstanding under the TI loan.
Proceeds from these borrowings were used to repay in full all amounts owing to
Westell under the Loan and Security Agreement dated September 30, 1997, all
amounts owing to the Silicon Valley Bank under its revolving line of credit
agreement, and to pay the fee to Westell Technologies, Inc.
F-22
<PAGE> 69
ANNEX I
AGREEMENT AND PLAN OF MERGER
<PAGE> 70
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TEXAS INSTRUMENTS INCORPORATED
DSL ACQUISITION CORPORATION
AND
AMATI COMMUNICATIONS CORPORATION
NOVEMBER 19, 1997
I-1
<PAGE> 71
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer................................................... I-4
Section 1.2 Company Actions............................................. I-5
Section 1.3 Directors................................................... I-6
Section 1.4 The Merger.................................................. I-7
Section 1.5 Effective Time.............................................. I-7
Section 1.6 Closing..................................................... I-7
Section 1.7 Directors and Officers of the Surviving Corporation......... I-7
Section 1.8 Stockholders' Meeting....................................... I-7
Section 1.9 Merger Without Meeting of Stockholders...................... I-8
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock................................. I-8
Section 2.2 Exchange of Certificates.................................... I-8
Section 2.3 Dissenting Shares........................................... I-9
Section 2.4 Company Option Plans........................................ I-9
Section 2.5 Company Warrants............................................ I-10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization; Subsidiaries.................................. I-11
Section 3.2 Capitalization.............................................. I-11
Section 3.3 Authorization; Validity of Agreement; Company Action........ I-12
Section 3.4 Consents and Approvals; No Violations....................... I-13
Section 3.5 SEC Reports and Financial Statements........................ I-13
Section 3.6 No Undisclosed Liabilities.................................. I-13
Section 3.7 Absence of Certain Changes.................................. I-14
Section 3.8 Contracts................................................... I-14
Section 3.9 Employee Benefit Plans; ERISA............................... I-15
Section 3.10 Litigation.................................................. I-16
Section 3.11 Permits; No Default; Compliance with Applicable Laws........ I-16
Section 3.12 Taxes....................................................... I-17
Section 3.13 Certain Property............................................ I-17
Section 3.14 Intellectual Property....................................... I-18
Section 3.15 Environmental Matters....................................... I-19
Section 3.16 Employee and Labor Matters.................................. I-19
Section 3.17 Information in Offer Documents.............................. I-19
Section 3.18 Brokers or Finders.......................................... I-19
Section 3.19 Insurance................................................... I-20
Section 3.20 Opinion of Financial Advisor................................ I-20
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
Section 4.1 Organization................................................ I-20
Section 4.2 Authorization; Validity of Agreement; Necessary Action...... I-20
Section 4.3 Consents and Approvals; No Violations....................... I-20
Section 4.4 SEC Reports and Financial Statements........................ I-21
Section 4.5 Information in Offer Documents; Proxy Statement............. I-21
</TABLE>
I-2
<PAGE> 72
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 4.6 Sufficient Funds............................................ I-21
Section 4.7 Share Ownership............................................. I-21
Section 4.8 Purchaser's Operations...................................... I-21
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company........................... I-22
Section 5.2 Access to Information....................................... I-23
Section 5.3 Employee Benefits........................................... I-23
Section 5.4 No Solicitation............................................. I-23
Section 5.5 Publicity................................................... I-24
Section 5.6 Indemnification............................................. I-24
Section 5.7 Approvals and Consents; Cooperation; Notification........... I-25
Section 5.8 Further Assurances.......................................... I-25
Section 5.9 Taxes....................................................... I-25
Section 5.10 Shareholder Litigation...................................... I-25
Section 5.11 Loan and Security Agreement................................. I-25
ARTICLE VI
CONDITIONS
Conditions to Each Party's Obligation to Effect the
Section 6.1 Merger...................................................... I-26
Conditions to the Obligations of the Company to Effect the
Section 6.2 Merger...................................................... I-26
Conditions to the Obligations of Parent and the Purchaser to
Section 6.3 Effect the Merger........................................... I-26
Section 6.4 Exception................................................... I-26
ARTICLE VII
TERMINATION
Section 7.1 Termination................................................. I-27
Section 7.2 Effect of Termination....................................... I-28
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Amendment and Modification.................................. I-28
Section 8.2 Nonsurvival of Representations and Warranties............... I-28
Section 8.3 Notices..................................................... I-28
Section 8.4 Interpretation.............................................. I-29
Section 8.5 Counterparts................................................ I-30
Section 8.6 Entire Agreement; Third Party Beneficiaries................. I-30
Section 8.7 Severability................................................ I-30
Section 8.8 Governing Law............................................... I-30
Section 8.9 Specific Performance........................................ I-30
Section 8.10 Assignment.................................................. I-30
Section 8.11 Expenses.................................................... I-30
Section 8.12 Headings.................................................... I-30
Section 8.13 Waivers..................................................... I-30
Section 8.14 Disclosure Letter........................................... I-30
</TABLE>
ANNEX A
CONDITIONS TO THE OFFER
I-3
<PAGE> 73
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 19, 1997 (this
"Agreement"), by and among TEXAS INSTRUMENTS INCORPORATED, a Delaware
corporation ("Parent"), DSL ACQUISITION CORPORATION, a Delaware corporation and
a wholly-owned subsidiary of Parent (the "Purchaser"), and AMATI COMMUNICATIONS
CORPORATION, a Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, the Purchaser and the Company
have approved, and deem it advisable and in the best interests of their
respective stockholders to consummate, the acquisition of the Company by Parent
and the Purchaser upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements set forth herein, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer. (a) As promptly as practicable (but in no event
later than five business days from the public announcement of the execution
hereof), the Purchaser shall commence (within the meaning of Rule 14d-2 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), an offer
(the "Offer") to purchase for cash any and all of the issued and outstanding
shares of Common Stock, par value $0.20 per share (referred to herein as either
the "Shares" or "Company Common Stock"), of the Company at a price of $20.00 per
Share, net to the seller in cash (such price, or such higher price per Share as
may be paid in the Offer, being referred to herein as the "Offer Price"). The
Purchaser shall, on the terms and subject to the prior satisfaction or waiver of
the conditions of the Offer, accept for payment and pay for Shares tendered as
soon as it is legally permitted to do so under applicable law; provided that, if
the number of Shares that have been physically tendered and not withdrawn are
more than 80% but less than 90% of the outstanding Shares determined on a fully
diluted basis, the Purchaser may extend the Offer for up to five business days
and thereafter on a day-to-day basis for up to an additional five business days
from the date that all conditions to the Offer shall first have been satisfied
or waived. The obligations of the Purchaser to accept for payment and to pay for
any and all Shares validly tendered on or prior to the expiration of the Offer
and not withdrawn shall be subject only to there being validly tendered and not
withdrawn prior to the expiration of the Offer, that number of Shares which,
together with any Shares beneficially owned by Parent or the Purchaser,
represent at least a majority of the Shares outstanding on a fully diluted basis
(the "Minimum Condition") and the other conditions set forth in Annex A hereto.
The Offer shall be made by means of an offer to purchase (the "Offer to
Purchase") containing the terms set forth in this Agreement, the Minimum
Condition and the other conditions set forth in Annex A hereto. The Purchaser
shall not amend or waive the Minimum Condition and shall not decrease the Offer
Price or decrease the number of Shares sought, or amend any other term or
condition of the Offer in any manner adverse to the holders of the Shares or
extend the expiration date of the Offer without the prior written consent of the
Company (such consent to be authorized by the Board of Directors of the Company
or a duly authorized committee thereof). Notwithstanding the foregoing, the
Purchaser shall, and Parent agrees to cause the Purchaser to, extend the Offer
from time to time until February 23, 1998 if, and to the extent that, at the
initial expiration date of the Offer, or any extension thereof, all conditions
to the Offer have not been satisfied or waived. In addition, the Offer Price may
be increased and the Offer may be extended to the extent required by law in
connection with such increase, in each case without the consent of the Company.
(b) As soon as practicable on the date the Offer is commenced, Parent and
the Purchaser shall file with the United States Securities and Exchange
Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1 with respect
to the Offer (together with all amendments and supplements thereto and including
the exhibits thereto, the "Schedule 14D-1"). The Schedule 14D-1 will include, as
exhibits, the Offer to Purchase and a form of letter of transmittal and summary
advertisement (collectively, together with any amendments
I-4
<PAGE> 74
and supplements thereto, the "Offer Documents"). The Offer Documents will comply
in all material respects with the provisions of applicable federal securities
laws and, on the date filed with the SEC and on the date first published, sent
or given to the Company's stockholders, shall not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by Parent or the Purchaser with respect to information
supplied by the Company in writing for inclusion in the Offer Documents. Each of
Parent and the Purchaser further agrees to take all steps necessary to cause the
Offer Documents to be filed with the SEC and to be disseminated to holders of
Shares, in each case as and to the extent required by applicable federal
securities laws. Each of Parent and the Purchaser, on the one hand, and the
Company, on the other hand, agrees promptly to correct any information provided
by it for use in the Offer Documents if and to the extent that it shall have
become false and misleading in any material respect and the Purchaser further
agrees to take all steps necessary to cause the Offer Documents as so corrected
to be filed with the SEC and to be disseminated to holders of Shares, in each
case as and to the extent required by applicable federal securities laws. The
Company and its counsel shall be given a reasonable opportunity to review the
initial Schedule 14D-1 before it is filed with the SEC. In addition, Parent and
the Purchaser agree to provide the Company and its counsel in writing with any
comments or other communications that Parent, the Purchaser or their counsel may
receive from time to time from the SEC or its staff with respect to the Offer
Documents promptly after the receipt of such comments or other communications.
Section 1.2 Company Actions.
(a) The Company hereby approves of and consents to the Offer and
represents that the Board of Directors, at a meeting duly called and held,
has (i) approved this Agreement and the transactions contemplated hereby,
including the Offer and the Merger (as defined in Section 1.4), which
approvals constitute approval of this Agreement, the Offer and the Merger
for purposes of Section 203 of the General Corporation Law of the State of
Delaware (the "DGCL"), and (ii) resolved to recommend that the stockholders
of the Company accept the Offer, tender their Shares thereunder to the
Purchaser and approve and adopt this Agreement and the Merger, which
recommendation shall not be withdrawn, modified or amended except as
permitted by Section 5.4(b) hereof.
(b) The Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto and including the exhibits thereto, the "Schedule 14D-9") which
shall, subject to the fiduciary duties of the Company's directors under
applicable law and to the provisions of this Agreement, contain the
recommendation referred to in clause (ii) of Section 1.2(a) hereof. The
Company will use its reasonable best efforts to cause the Schedule 14D-9 to
be filed on the same date that the Schedule 14D-1 is filed; provided,
however, that in any event the Schedule 14D-9 will be filed no later than
ten business days following the commencement of the Offer. The Schedule
14D-9 will comply in all material respects with the provisions of
applicable federal securities laws and, on the date filed with the SEC and
on the date first published, sent or given to the Company's shareholders,
shall not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except that no representation is made by the
Company with respect to information supplied by Parent or the Purchaser in
writing for inclusion in the Offer Documents. The Company further agrees to
take all steps necessary to cause the Schedule 14D-9 to be filed with the
SEC and to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws. Each of the Company,
on the one hand, and Parent and the Purchaser, on the other hand, agrees
promptly to correct any information provided by it for use in the Schedule
14D-9 if and to the extent that it shall have become false and misleading
in any material respect and the Company further agrees to take all steps
necessary to cause the Schedule 14D-9 as so corrected to be filed with the
SEC and to be disseminated to holders of the Shares, in each case as and to
the extent required by applicable federal securities laws. Parent and its
counsel shall be given a reasonable opportunity to review the initial
Schedule 14D-9 before it is filed with the SEC. In addition, the Company
agrees to provide Parent, the Purchaser and their counsel in writing with
any comments or
I-5
<PAGE> 75
other communications that the Company or its counsel may receive from time
to time from the SEC or its staff with respect to the Schedule 14D-9
promptly after the receipt of such comments or other communications.
(c) In connection with the Offer, the Company will promptly furnish or
cause to be furnished to the Purchaser mailing labels, security position
listings and any available listing or computer file containing the names
and addresses of the record holders of the Shares as of a recent date
(which shall in no event be more than ten days prior to the date hereof),
and shall furnish the Purchaser with such additional information (including
updated lists of holders of Shares and their addresses, mailing labels and
lists of security positions) and such other assistance as the Purchaser or
its agents may reasonably request in communicating the Offer to the record
and beneficial shareholders of the Company. Except for such steps as are
necessary to disseminate the Offer Documents, Parent and the Purchaser
shall hold in confidence the information contained in any of such labels
and lists and the additional information referred to in the preceding
sentence, will use such information only in connection with the Offer, and,
if this Agreement is terminated, will upon request of the Company deliver
or cause to be delivered to the Company all copies of such information then
in its possession or the possession of its agents or representatives.
Section 1.3 Directors.
(a) Promptly upon the purchase of and payment for Shares by Parent or
any of its subsidiaries which represent at least a majority of the
outstanding shares of Company Common Stock (on a fully diluted basis),
Parent shall be entitled to designate such number of directors, rounded up
to the next whole number, on the Board of Directors of the Company as is
equal to the product of the total number of directors on such Board (giving
effect to the directors designated by Parent pursuant to this sentence)
multiplied by the percentage that the aggregate number of Shares
beneficially owned by the Purchaser, Parent and any of their affiliates
(including Shares accepted for payment) bears to the total number of shares
of Company Common Stock then outstanding. The Company shall, upon request
of the Purchaser, on the date of such request, either increase the size of
its Board of Directors or secure the resignations of such number of its
incumbent directors as is necessary to enable Parent's designees to be so
elected to the Company's Board, and shall cause Parent's designees to be so
elected as either may be necessary to comply with the preceding sentence.
Notwithstanding the foregoing, until the Effective Time (as defined in
Section 1.5 hereof), the Company shall retain as members of its Board of
Directors at least two directors who are directors of the Company on the
date hereof; provided, that subsequent to the purchase of and payment for
Shares pursuant to the Offer, Parent shall always have its designees
represent at least a majority of the entire Board of Directors. The
Company's obligations under this Section 1.3(a) shall be subject to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The
Company shall promptly take all actions required pursuant to such Section
14(f) and Rule 14f-1 in order to fulfill its obligations under this Section
1.3(a), including mailing to stockholders the information required by such
Section 14(f) and Rule 14f-1 as is necessary to enable Parent's designees
to be elected to the Company's Board of Directors. Parent or the Purchaser
will supply the Company any information with respect to either of them and
their nominees, officers, directors and affiliates required by such Section
14(f) and Rule 14f-1.
(b) From and after the time, if any, that Parent's designees
constitute a majority of the Company's Board of Directors, any amendment of
this Agreement, any termination of this Agreement by the Company, any
extension of time for performance of any of the obligations of Parent or
the Purchaser hereunder, any waiver of any condition or any of the
Company's rights hereunder or other action by the Company in connection
with the rights of the Company hereunder may be effected only by the action
of a majority of the directors of the Company then in office who were
directors of the Company on the date hereof, which action shall be deemed
to constitute the action of the full Board of Directors; provided, that if
there shall be no such directors, such actions may be effected by unanimous
vote of the entire Board of Directors of the Company.
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Section 1.4 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.5 hereof), the Company
and the Purchaser shall consummate a merger (the "Merger") pursuant to which (a)
the Purchaser shall be merged with and into the Company and the separate
corporate existence of the Purchaser shall thereupon cease, (b) the Company
shall be the successor or surviving corporation in the Merger (the "Surviving
Corporation") and shall continue to be organized under the laws of the State of
Delaware, and (c) the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger. Pursuant to the Merger, (x) the Certificate of Incorporation of
the Company, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation, and (y) the
By-laws of the Company, as in effect immediately prior to the Effective Time,
shall be the By-laws of the Surviving Corporation until thereafter amended as
provided by law, the Certificate of Incorporation and such Bylaws. The Merger
shall have the effects set forth in the DGCL.
Section 1.5 Effective Time. On the date of the Closing (as defined in
Section 1.6 hereof) (or on such other date as the parties may agree), the
parties shall file a certificate of merger or other appropriate document (in any
such case, the "Certificate of Merger") executed in accordance with the relevant
provisions of the DGCL, and shall make all other filings, recordings and
publications required by the DGCL with respect to the Merger. The Merger shall
become effective on the date specified in the Certificate of Merger (the time
the Merger becomes effective is hereinafter referred to as the "Effective
Time").
Section 1.6 Closing. The closing of the Merger (the "Closing") will take
place at 11:00 a.m. on a date to be specified by the parties, which shall be no
later than the second business day after satisfaction or waiver of all of the
conditions set forth in Article VI hereof (the "Closing Date"), at the offices
of Weil, Gotshal & Manges LLP, 100 Crescent Court, Suite 1300, Dallas, Texas
75201, unless another date or place is agreed to in writing by the parties
hereto.
Section 1.7 Directors and Officers of the Surviving Corporation. The
directors of the Purchaser immediately prior to the Effective Time shall, from
and after the Effective Time, be the directors of the Surviving Corporation
until their successors shall have been duly elected or appointed or qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and By-laws. The officers
of the Company immediately prior to the Effective Time shall, from and after the
Effective Time, be the officers of the Surviving Corporation until their
successors shall have been duly elected or appointed or qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and By-laws.
Section 1.8 Stockholders' Meeting.
(a) If the Purchaser owns less than 90% of the Shares following the
purchase of Shares by the Purchaser pursuant to the Offer, the Company,
acting through its Board of Directors, shall, in accordance with applicable
law:
(i) duly call, give notice of, convene and hold a special meeting
of its stockholders (the "Special Meeting") as soon as practicable
following the acceptance for payment and purchase of Shares by the
Purchaser pursuant to the Offer for the purpose of considering and
taking action upon this Agreement;
(ii) prepare and file with the SEC a preliminary proxy or
information statement relating to the Merger and this Agreement, obtain
and furnish the information required to be included by the SEC in the
Proxy Statement (as hereinafter defined) and, after consultation with
Parent, respond promptly to any comments made by the SEC with respect to
the preliminary proxy or information statement and cause a definitive
proxy or information statement (the "Proxy Statement") to be mailed to
its stockholders and use its best efforts to obtain the necessary
adoption of this Agreement by its stockholders; and
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(iii) subject to the fiduciary obligations of the Board under
applicable law as advised by the Company's outside counsel, include in
the Proxy Statement the recommendation of the Board that stockholders of
the Company vote in favor of the adoption of this Agreement.
(b) Parent agrees that it will provide the Company with the
information concerning Parent and the Purchaser required to be included in
the Proxy Statement and will vote, or cause to be voted, all of the Shares
then owned by Parent, the Purchaser or any of its other subsidiaries and
affiliates in favor of the approval of the Merger and the adoption of this
Agreement.
Section 1.9 Merger Without Meeting of Stockholders. Notwithstanding
Section 1.8 hereof, in the event that the Purchaser shall acquire at least 90%
of the outstanding shares of each class of capital stock of the Company,
pursuant to the Offer or otherwise, the parties hereto agree to take all
necessary and appropriate action to cause the Merger to become effective as soon
as practicable after such acquisition, without a meeting of stockholders of the
Company.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
shares of Company Common Stock or common stock of the Purchaser (the "Purchaser
Common Stock"):
(a) Each issued and outstanding share of the Purchaser Common Stock
shall be converted into and become one fully paid and nonassessable share
of common stock of the Surviving Corporation.
(b) Any shares of Company Common Stock owned by Parent, the Purchaser
or any other wholly owned Subsidiary (as defined in Section 3.1 hereof) of
Parent shall be cancelled and retired and shall cease to exist and no
consideration shall be delivered in exchange therefor.
(c) Each issued and outstanding share of Company Common Stock (other
than Shares to be cancelled in accordance with Section 2.1(b) hereof and
any Dissenting Shares (if applicable and as defined in Section 2.3
hereof)), shall be converted into the right to receive the Offer Price,
payable to the holder thereof, without interest (the "Merger
Consideration"), upon surrender of the certificate formerly representing
such share of Company Common Stock in the manner provided in Section 2.2
hereof. All such shares of Company Common Stock, when so converted, shall
no longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist, and each holder of a certificate representing any
such shares shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration therefor upon the surrender of
such certificate in accordance with Section 2.2 hereof, without interest,
or to perfect any rights of appraisal as a holder of Dissenting Shares (as
hereinafter defined) that such holder may have pursuant to Section 262 of
the DGCL.
Section 2.2 Exchange of Certificates.
(a) Parent shall designate a bank or trust company, or an affiliate
thereof, of nationally recognized standing to act as agent for the holders
of shares of Company Common Stock in connection with the Merger (the
"Paying Agent") to receive the funds to which holders of shares of Company
Common Stock shall become entitled pursuant to Section 2.1(c) hereof. Prior
to the Effective Time, Parent shall take all steps necessary to deposit or
cause to be deposited with the Paying Agent such funds for timely payment
hereunder. Such funds shall be invested by the Paying Agent as directed by
Parent or the Surviving Corporation.
(b) As soon as reasonably practicable after the Effective Time but in
no event more than three business days thereafter, the Paying Agent shall
mail to each holder of record of a certificate or certificates, which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Certificates"), whose shares were converted
pursuant to Section 2.1 hereto into the
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right to receive the Merger Consideration (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 Paying Agent and shall be in such form and have such
other provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for payment of the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor the Merger Consideration for each
share of Company Common Stock formerly represented by such Certificate and
the Certificate so surrendered shall forthwith be cancelled. If payment of
the Merger Consideration is to be made to a person other than the person in
whose name the surrendered Certificate is registered, it shall be a
condition of payment that the Certificate so surrendered shall be properly
endorsed or shall be otherwise in proper form for transfer and that the
person requesting such payment shall have paid any transfer and other taxes
required by reason of the payment of the Merger Consideration to a person
other than the registered holder of the Certificate surrendered or shall
have established to the satisfaction of the Surviving Corporation that such
tax either has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive the
Merger Consideration in cash as contemplated by this Section 2.2.
(c) At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company.
From and after the Effective Time, the holders of Certificates evidencing
ownership of shares of Company Common Stock outstanding immediately prior
to the Effective Time shall cease to have any rights with respect to such
Shares, except as otherwise provided for herein or by applicable law. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged as
provided in this Article II.
(d) At any time following one year after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds (including any interest received with respect
thereto) which had been made available to the Paying Agent and which have
not been disbursed to holders of Certificates, and thereafter such holders
shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) only as general
creditors thereof with respect to the Merger Consideration payable upon due
surrender of their Certificates, without any interest thereon.
Notwithstanding the foregoing, neither the Surviving Corporation nor the
Paying Agent shall be liable to any holder of a Certificate for Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
Section 2.3 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, Shares outstanding immediately prior to the Effective Time and
held by a holder who has not voted in favor of the Merger or consented thereto
in writing and who has demanded appraisal for such Shares in accordance with the
DGCL ("Dissenting Shares") shall not be converted into a right to receive the
Merger Consideration, unless and until such holder fails to perfect or withdraws
or otherwise loses his or her right to appraisal. A holder of Dissenting Shares
shall be entitled to receive payment of the appraised value of such Shares held
by him or her in accordance with the provisions of Section 262 of the DGCL,
unless, after the Effective Time, such holder fails to perfect or withdraws or
loses his or her right to appraisal, in which case such Shares shall be treated
as if they had been converted as of the Effective Time into a right to receive
the Merger Consideration, without interest thereon.
Section 2.4 Company Option Plans.
(a) The options (the "Options") to purchase shares of Company Common
Stock outstanding under the Company's 1981 Stock Option Plan, 1981
Supplemental Stock Option Plan, 1990 Stock Option Plan, Old Amati 1992
Stock Option Plan, 1990 Non-Employee Directors' Stock Option Plan and 1996
Stock Option Plan (the "Option Plans") shall, pursuant to the terms of such
Option Plans, not automatically vest as a consequence of the transactions
contemplated hereby nor shall the Board of Directors of the
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Company exercise any discretionary authority to vest such Options in
connection with the transactions contemplated hereby; provided, that
notwithstanding the foregoing, Options (the "Director Options") granted to
non-employee directors of the Company pursuant to any of the Option Plans
shall be treated in the manner contemplated by Section 2.4(d).
(b) The holders of outstanding Options (other than Director Options)
that are vested as of the Effective Time shall be given the opportunity to
make an irrevocable election, on a grant by grant basis to be effective
immediately following the Effective Time, to receive in exchange for the
cancellation of each such vested Option either:
(i) cash in the amount equal to the product of (A) the number of
shares of Company Common Stock subject to such Option and (B) the excess
of (1) the Merger Consideration over (2) the per share exercise price of
such Option; or
(ii) a substitute option to purchase Parent common stock (a
"Substitute Option") on the following terms:
(A) the Substitute Option will be exercisable for a number of
shares of Parent common stock equal to (1) the number of shares of
Company Common Stock subject to the Option multiplied by (2) the
Option Ratio (as defined below), rounded down to the next whole
number of shares;
(B) the exercise price for the Substitute Option shall equal the
exercise price for the shares of Company Common Stock otherwise
purchasable pursuant to such Option divided by the Option Ratio,
rounded to the nearest hundredth of a cent; and
(C) shall otherwise be subject to substantially the same terms
and conditions as applicable to the Option.
For purposes of this Section 2.4, "Option Ratio" shall mean the Offer
Price divided by the average closing price per share of Parent common
stock on the New York Stock Exchange for the five consecutive trading
days ending immediately prior to the Closing Date.
(c) The holders of outstanding Options (other than Director Options)
that are not vested as of the Effective Time shall, at the Effective Time,
receive in substitution and cancellation for each such nonvested Option a
Substitute Option, which Substitute Option shall be subject to the same
vesting schedule as applicable to the Option.
(d) Each of the outstanding Director Options granted pursuant to (i)
the 1990 Non-Employee Directors Stock Option Plan shall, in accordance with
the terms thereof, be vested immediately prior to the Effective Time and
(ii) any other Option Plan shall, in accordance with the discretionary
authority granted to the Board of Directors of the Company under the
applicable Option Plan, be vested immediately prior to the Effective Time
by action of the Board of Directors of the Company. Each outstanding
Director Option shall, at the Effective Time, be converted into the right
to receive in cash an amount equal to the product of (i) the number of
shares of Company Common Stock subject to such Director Option and (ii) the
excess of (A) the Merger Consideration over (B) the per share exercise
price of such Director Option.
(e) As soon as practicable after the Effective Time and in no event
more than three (3) business days thereafter, to the extent necessary to
provide for registration of shares of Parent common stock subject to such
Substitute Options, Parent shall file a registration statement on Form S-8
(or any successor form) with respect to such shares of Parent common stock
and shall use its reasonable best efforts to maintain such registration
statement, including the current status of any related prospectus or
prospectuses, for so long as the Substitute Options remain outstanding.
Section 2.5 Company Warrants. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holders thereof, each unexpired
and unexercised warrant ("Warrant") to purchase shares of Company Common Stock
shall be converted into the right to receive an amount in cash equal to the
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product of (a) the number of shares of Company Common Stock subject to such
Warrant and (b) the excess of the (i) Merger Consideration over (ii) the per
share exercise price of such Warrant, upon surrender of the certificate formerly
representing such Warrant; provided, that any Warrant as to which the per share
exercise price is equal to or greater than the Merger Consideration shall be
cancelled and terminated as of the Effective Time without payment of any
consideration therefor.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise disclosed to Parent and Purchaser in a letter delivered
to it at or prior to the execution hereof (the "Company Disclosure Letter"), the
Company represents and warrants to Parent and Purchaser as follows:
Section 3.1 Organization; Subsidiaries. (a) Each of the Company and its
Subsidiaries (as hereinafter defined) is a corporation or other entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where failure to be
in good standing would not have a Company Material Adverse Effect (as
hereinafter defined). Each of the Company and its Subsidiaries is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so duly qualified and in
good standing would not have a Company Material Adverse Effect. As used in this
Agreement, the word "Subsidiary" means, with respect to any party, any
corporation, partnership or other entity or organization, whether incorporated
or unincorporated, of which (i) such party or any other Subsidiary of such party
is a general partner (excluding such partnerships where such party or any
Subsidiary of such party do not have a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries. As used in this Agreement, "Company Material
Adverse Effect" means any change in or effect on the business of the Company and
its Subsidiaries that is materially adverse to the business, financial
condition, assets or results of operations of the Company and its Subsidiaries
taken as a whole except for any events, changes or effects substantially
resulting from (i) any material and adverse change in the financial markets;
(ii) any political, economic or financial conditions affecting the industry or
business generally; or (iii) the announcement of the transactions contemplated
by this Agreement. Section 3.1 of the Company Disclosure Letter sets forth a
complete and correct list of all of the Company's Subsidiaries and their
respective jurisdictions of incorporation or organization. Except as set forth
in Section 3.1 of the Company Disclosure Letter, neither the Company nor any
Company Subsidiary holds any interest in a partnership or joint venture of any
kind.
(b) The Company has heretofore delivered to Parent a complete and correct
copy of each of its Certificate of Incorporation and By-Laws, as currently in
effect, and has heretofore made available to Parent a complete and correct copy
of the charter and by-laws of each of its Subsidiaries, as currently in effect.
In all material respects, the minute books of the Company and the Company
Subsidiaries through November 1, 1997 contain accurate records of all meetings
and accurately reflect all other actions taken by the stockholders, the Boards
of Directors and all committees of the Boards of Directors of the Company and
the Company Subsidiaries since July 30, 1995. Complete and accurate copies of
all such minute books (except for the portions relating to deliberations
regarding the Merger or the proposed acquisition of the Company by Westell
Technologies, Inc. ("Westell"), which were redacted, or otherwise redacted on
the basis of statutory or common law privilege), and of the stock register of
the Company and each Company Subsidiary have been made available by the Company
to Parent.
Section 3.2 Capitalization. (a) As of the date hereof, the authorized
capital stock of the Company consists of 45,000,000 shares of Company Common
Stock and 5,000 shares of preferred stock, par value $100.00 per share (the
"Company Preferred Stock"). As of October 31, 1997, (i) 19,768,978 shares of
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Company Common Stock were issued and outstanding, (ii) 4,885,599 shares of
Company Common Stock were reserved for issuance upon exercise of Options granted
pursuant to the Option Plans, (iii) 630,476 shares of the Company Common Stock
were reserved for issuance upon exercise of the Warrants, (iv) no shares of
Company Common Stock were issued and held in the treasury of the Company and (v)
there were no shares of Company Preferred Stock issued and outstanding. All the
outstanding shares of the Company's capital stock are duly authorized, validly
issued, fully paid, non-assessable and free of preemptive rights. Since October
31, 1997, no additional shares of capital stock or securities convertible into
or exchangeable for such capital stock, have been issued other than any shares
of Company Common Stock issued upon exercise of the Warrants or Options granted
under the Option Plans, and no shares of Company Preferred Stock have been
issued. Section 3.2 of the Company Disclosure Letter identifies (i) the holders
of each of the Options, (ii) the number of Options vested for each holder, (iii)
the Option Plan under which each Option was issued, and (iv) the exercise price
of each of the Options. All shares of Company Common Stock subject to issuance
as aforesaid, upon issuance prior to the Effective Time on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. Except as provided in Section 2.4(d), no vesting of the
Options or the Warrants shall accelerate by virtue of the transactions
contemplated by this Agreement and the Board of Directors of the Company has not
accelerated any of the Options or Warrants. None of the Options are "incentive
stock options" within the meaning of Section 422 of the Code. Except for shares
of Company Common Stock issuable upon exercise of the Options or the Warrants
described in Section 3.2 of the Company Disclosure Letter or as otherwise set
forth in Section 3.2 of the Company Disclosure Letter, there are no (i) options,
warrants, calls, subscriptions or other rights, convertible securities,
agreements or commitments of any character obligating the Company or any Company
Subsidiary to issue, transfer or sell any shares of capital stock or other
equity interest in, the Company or any Company Subsidiary or securities
convertible into or exchangeable for such shares or equity interests, (ii)
outstanding contractual obligations or commitments of any character of the
Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any
capital stock of the Company or any Company Subsidiary, (iii) outstanding
contractual obligations or commitments of any character restricting the transfer
of, or requiring the registration for sale of, any capital stock of the Company
or any Company Subsidiary, (iv) outstanding contractual obligations or
commitments of any character granting any preemptive or antidilutive right with
respect to, any capital stock of the Company or any Company Subsidiary or (v)
voting trusts or similar agreements to which the Company or any Company
Subsidiary is a party with respect to the voting of the capital stock of the
Company or any Company Subsidiary. Except as set forth in Section 3.3 of the
Company Disclosure Letter, there are no outstanding contractual obligations of
the Company or any Company Subsidiary to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
Company Subsidiary or any other person, other than guarantees by the Company of
any indebtedness of any Company Subsidiary.
(b) Each outstanding share of capital stock of each Company Subsidiary is
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. Except as disclosed in Section 3.2(b) of the Company
Disclosure Letter, all of the outstanding shares of capital stock of each of
Company Subsidiary are owned of record and beneficially, directly or indirectly,
by the Company, free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on the
Company's or such other Company Subsidiary's voting rights, charges and other
encumbrances of any nature whatsoever, except where failure to own such shares
free and clear would not, individually or in the aggregate, have a Company
Material Adverse Effect.
Section 3.3 Authorization; Validity of Agreement; Company Action. The
Company has full corporate power and authority to execute and deliver this
Agreement and, subject to obtaining the necessary approval of its stockholders,
to consummate the transactions contemplated hereby. The execution, delivery and
performance by the Company of this Agreement, and the consummation by it of the
transactions contemplated hereby, have been duly authorized by its Board of
Directors and, except for those actions contemplated by Section 1.2(a) hereof
and obtaining the approval of its stockholders as contemplated by Section 1.8
hereof, no other corporate action on the part of the Company is necessary to
authorize the execution and delivery by the Company of this Agreement and the
consummation by it of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by the Company and, subject to approval and
adoption of
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this Agreement by the Company's stockholders (and assuming due and valid
authorization, execution and delivery hereof by Parent and the Purchaser) is a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws, now or hereafter in effect, affecting creditors' rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
Section 3.4 Consents and Approvals; No Violations. Except as disclosed in
Section 3.4 of the Company Disclosure Letter and except for (a) filings pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (b) applicable requirements under the Exchange Act, (c) the filing
of the Certificate of Merger, (d) applicable requirements under "takeover" or
"blue sky" laws of various states, or (e) matters specifically described in this
Agreement, neither the execution, delivery or performance of this Agreement by
the Company nor the consummation by the Company of the transactions contemplated
hereby will (i) violate any provision of the Certificate of Incorporation or
By-Laws of the Company or the charter or by-laws of any of its Subsidiaries,
(ii) result in a violation or breach of, or result in any loss of benefit or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation, acceleration or
modification) under, any of the terms, conditions or provisions of any material
note, bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which the Company or any of its Subsidiaries is a
party or by which any of them or any of their properties or assets may be bound
(the "Material Agreements"), (iii) violate any order, writ, judgment, injunction
or decree applicable to the Company, any of its Subsidiaries or any of their
properties or assets, (iv) violate any law, statute, rule or regulation
applicable to the Company, any of its Subsidiaries or any of their properties or
assets, or (v) require on the part of the Company or any of its Subsidiaries any
filing or registration with, notification to, or authorization, consent or
approval of, any court, legislative, executive or regulatory authority or agency
(a "Governmental Entity"); except in the case of clauses (ii), (iv) or (v) for
such violations, breaches or defaults which, or filings, registrations,
notifications, authorizations, consents or approvals the failure of which to
obtain, would not have a Company Material Adverse Effect or would not materially
adversely affect the ability of the Company to consummate the transactions
contemplated by this Agreement.
Section 3.5 SEC Reports and Financial Statements. The Company has filed
all reports required to be filed by it with the SEC pursuant to the Exchange Act
and the Securities Act of 1933, as amended (the "Securities Act"), since July
30, 1995 (as such documents have been amended since the date of their filing,
collectively, the "Company SEC Documents"). The Company SEC Documents (a) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (b) as of their respective filing dates,
or if amended, as of the date of the last such amendment, did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Each of the
historical consolidated balance sheets (including the related notes) included in
the Company SEC Documents fairly presents in all material respects the financial
position of the Company and its consolidated Subsidiaries as of the date
thereof, and the other related historical statements (including the related
notes) included in the Company SEC Documents fairly present in all material
respects the results of operations and cash flows of the Company and its
consolidated Subsidiaries for the respective periods or as of the respective
dates set forth therein. Each of the historical consolidated balance sheets and
historical statements of operations and cash flow (including the related notes)
included in the Company SEC Documents has been prepared in all material respects
in accordance with United States generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved, except as
otherwise noted therein and, in the case of unaudited interim financial
statements, subject to normal year-end adjustments and except as permitted by
Form 10-Q of the SEC. The books and records of the Company and its Subsidiaries
have been, and are being, maintained in accordance with GAAP and any other
applicable legal and accounting requirements.
Section 3.6 No Undisclosed Liabilities. Except (a) for liabilities and
obligations incurred in the ordinary course of business consistent with past
practices since August 2, 1997, (b) for liabilities and
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obligations disclosed in the Company SEC Documents filed prior to the date
hereof, (c) for liabilities and obligations incurred in connection with the
Offer and the Merger or otherwise as contemplated by this Agreement and (d) as
disclosed in Section 3.6 of the Company Disclosure Letter, since August 2, 1997,
neither the Company nor any of its Subsidiaries has incurred any material
liabilities or obligations that would be required to be reflected or reserved
against in a consolidated balance sheet of the Company and its consolidated
Subsidiaries prepared in accordance with GAAP as applied in preparing the
consolidated balance sheet of the Company and its consolidated Subsidiaries as
of August 2, 1997.
Section 3.7 Absence of Certain Changes. Except as (a) disclosed in the
Company SEC Documents filed prior to the date hereof, (b) disclosed in Section
3.7 of the Company Disclosure Letter, (c) contemplated by this Agreement or (d)
occurring pursuant to the express terms of that certain Agreement and Plan of
Merger dated as of September 30, 1997, among Westell, Kappa Acquisition Corp., a
Delaware corporation, and the Company, since August 2, 1997, the Company has
conducted its business in the ordinary and usual course and there has not been:
(i) any transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary
course of business) which, alone or in the aggregate, has had or would have
a Company Material Adverse Effect;
(ii) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of the
Company or any repurchase, redemption or other acquisition by the Company
or any of its Subsidiaries of any outstanding shares of capital stock or
other securities of, or other ownership interests in, the Company or such
Subsidiary;
(iii) any amendment of any material term of any outstanding security
of the Company or any of its Subsidiaries;
(iv) any acquisition, sale or transfer of any material assets of the
Company or any of its Subsidiaries;
(v) any material contract entered into by the Company or any of its
Subsidiaries or any material amendment or termination of, or default under,
any Material Agreement;
(vi) any making of any loan, advance or capital contributions to or
investment in any Person other than loans, advances or capital
contributions to or investments in wholly-owned Subsidiaries of the Company
made in the ordinary course of business and payroll, travel and similar
advances made in the ordinary course of business;
(vii) any change in any method of accounting or accounting practice by
the Company or any of its Subsidiaries, except as required by GAAP; or
(viii) any entering into of any severance, termination pay,
employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or
employee of the Company or any of its Subsidiaries, increase in benefits
payable under any existing severance or termination pay policies or
employment agreements or increase in compensation, bonus or other benefits
payable to directors, officers or employees of the Company or any of its
Subsidiaries, other than in the ordinary course of business.
Section 3.8 Contracts. Except as disclosed in or attached as exhibits to
the Company SEC Documents or as disclosed in Section 3.8 of the Company
Disclosure Letter, neither the Company nor any of the Company Subsidiaries is a
party to or bound by any contract, arrangement, commitment or understanding
(whether written or oral) (i) as of the date hereof, which requires expenditures
in excess of $1,000,000 or which requires annual expenditures in excess of
$500,000 and is not cancelable within one year by the Company, that has not been
filed or incorporated by reference in the Company SEC Documents, (ii) which
contains any material non-compete provisions with respect to any line of
business or geographic area in which business is conducted with respect to the
Company or any of the Company Subsidiaries or which restricts the conduct of any
line of business by the Company or any of the Company Subsidiaries or any
geographic area in
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which the Company or any of the Company Subsidiaries may conduct business, in
each case in any material respect, (iii) which are terminable by the other party
thereto which if so terminated would result in a Company Material Adverse
Effect, or (iv) which would prohibit or materially delay the consummation of the
transactions contemplated by this Agreement. The Company has previously made
available to Parent true and correct copies of all such agreements and of all
employment and deferred compensation agreements with directors, officers and
employees, and material agreements with consultants, which are in writing and to
which the Company or any of the Company Subsidiaries is a party. Each Material
Agreement is valid and binding on the Company or any of the Company
Subsidiaries, as applicable, and in full force and effect, and the Company and
each of the Company Subsidiaries have in all material respects performed all
obligations required to be performed by them to date under each Material
Agreement, except where such noncompliance, individually or in the aggregate,
would not have a Company Material Adverse Effect. Neither the Company nor any
Company Subsidiary knows of, or has received notice of, any violation or default
under (nor does there exist any condition which with the passage of time or the
giving of notice would cause such a violation of or default under) any Material
Agreement or any other loan or credit agreement, note, bond, mortgage, indenture
or lease, or any other contract, agreement, arrangement or understanding to
which it is a party or by which it or any of its properties or assets is bound,
except for violations or defaults that would not, individually or in the
aggregate, result in a Company Material Adverse Effect. Set forth in Section 3.8
of the Company Disclosure Letter is a description, including amounts as of the
date hereof, of all indebtedness of the Company and the Company Subsidiaries
other than trade payables and accruals. Section 3.8 of the Company Disclosure
Letter sets forth a list of each contract, agreement or other instrument or
obligation between the Company or any of its affiliates, on the one hand, and
Westell or any of its affiliates, on the other hand. Section 3.8 of the Company
Disclosure Letter also sets forth a summary of all DMT licenses in which the
Company is a licensee identifying (i) the parties, (ii) the royalties and basis
thereof receivable by the Company as a licensor, (iii) the royalties and basis
thereof payable by the Company to third parties in respect of any sales by the
licensee, (iv) whether for each license, on a current basis, the amounts
receivable by the Company under (ii) above exceed the amounts payable by the
Company under subsection (iii) above and (v) amounts which would be owing to
licensors with respect to a sale by the Company of products incorporating
licensed products purchased from sublicensees.
Section 3.9 Employee Benefit Plans; ERISA.
(a) Section 3.9(a) of the Company Disclosure Letter lists (i) all
"employee benefit plans", as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all stock
option, stock award, stock purchase or other equity-based compensation,
bonus or other incentive compensation, severance, tuition assistance,
salary continuation, and vacation plans, policies or agreements, written or
unwritten, under which the Company or any of its Subsidiaries has any
obligation or liability (collectively, "Benefit Plans") and (ii) all
employment and consulting agreements with current or former officers,
employers, consultants, advisors or directors of the Company or any of its
Subsidiaries (collectively, "Benefit Arrangements").
(b) With respect to each Benefit Plan and Benefit Arrangement, a
complete and correct copy of each of the following documents (if
applicable) has been made available to Purchaser: (i) the most recent plan
and related trust documents, and all amendments thereto; (ii) the most
recent summary plan description, and all related summaries of material
modifications; (iii) the most recent Form 5500 (including schedules); (iv)
the most recent IRS determination letter; and (v) the most recent actuarial
reports (including for purposes of Financial Accounting Standards Board
report nos. 87, 106 and 112).
(c) Except as set forth in Section 3.9(c) of the Company Disclosure
Letter, with respect to each Benefit Plan: (i) if intended to qualify under
section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the rules and regulations promulgated thereunder, such plan
has received a determination letter from the Internal Revenue Service
stating that it so qualifies and that its trust is exempt from taxation
under section 501(a) of the Code and nothing has occurred to the knowledge
of the Company since the date of such determination that could adversely
affect such qualification or exempt status; (ii) such plan has been
administered in accordance with its terms and applicable law, except for
such non-compliance which would not have, individually or in the aggregate,
a Company Material
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Adverse Effect; (iii) no disputes are pending, or, to the knowledge of the
Company, threatened that, individually or in the aggregate, would have a
Company Material Adverse Effect; and (iv) all contributions required to be
made to such plan as of the date hereof (taking into account any extensions
for the making of such contributions) have been made in full.
(d) No Benefit Plan is subject to Title IV of ERISA or section 412 of
the Code. None of the Benefit Plans is a plan described in Section 3(37),
4063 or 4064 of ERISA.
(e) Except as set forth in Section 3.9(e) of the Company Disclosure
Letter, no liability relating to any Benefit Plan has been or is expected
to be incurred by the Company or any Subsidiary of the Company (either
directly or indirectly, including as a result of an indemnification
obligation) under or pursuant to Part 4 of Title I of ERISA or Title IV of
ERISA or the penalty or the excise tax provisions of the Code, which would
have a Company Material Adverse Effect.
(f) Except as set forth in Section 3.9(f) of the Company Disclosure
Letter, no employee or former employee of the Company or any of its
Subsidiaries will become entitled to any bonus, retirement, severance, job
security or similar or enhanced benefit (including acceleration of vesting,
time of payment, or exercise of a stock option or an incentive award) as a
result of the transactions contemplated hereby.
Section 3.10 Litigation. Except as disclosed in Section 3.10 of the
Company Disclosure Letter or as disclosed in the Company SEC Documents filed
prior to the date hereof, there is no action, suit, proceeding, audit or
investigation pending or, to the best knowledge of the Company, action, suit,
proceeding, audit or investigation threatened, involving the Company or any of
its Subsidiaries, by or before any court, governmental or regulatory authority
or by any third party that could prevent, enjoin, or materially alter or delay
any of the transactions contemplated by this Agreement or that, if adversely
determined, would have a Company Material Adverse Effect. Except as disclosed in
Section 3.10 of the Company Disclosure Letter or as disclosed in the Company SEC
Documents filed prior to the date hereof, neither the Company nor any of its
Subsidiaries is subject to any outstanding order, writ, injunction or decree
which has had or, insofar as can be reasonably foreseen, individually or in the
aggregate, would have a Company Material Adverse Effect.
Section 3.11 Permits; No Default; Compliance with Applicable Laws. Each of
the Company and the Company Subsidiaries is in possession of all franchises,
grants, authorizations, licenses, permits, easements, variances, exceptions,
consents, certificates, approvals, clearances and orders of any Governmental
Entity necessary for the Company or any Company Subsidiary to own, lease and
operate its properties or to carry on their respective businesses substantially
in the manner described in the Company SEC Documents and as it is now being
conducted (the "Company Permit"), and all such Company Permits are valid, and in
full force and effect, except where the failure to have, or the suspension or
cancellation of, any of the Company Permits would neither, individually or in
the aggregate, (a) have a Company Material Adverse Effect nor (b) materially
adversely affect the ability of the Company to consummate the transactions
contemplated by this Agreement, and no suspension or cancellation of any of the
Company Permits is pending or, to the knowledge of the Company, threatened,
except where the failure to have, or the suspension or cancellation of, any of
the Company Permits would neither, individually or in the aggregate, (x) have a
Company Material Adverse Effect nor (y) materially adversely affect the ability
of the Company to consummate the transactions contemplated by this Agreement.
The business of the Company and each of its Subsidiaries is not in default or
violation of any term, condition or provision of (i) its respective certificate
of incorporation or by-laws, (ii) any Material Agreement or (iii) any statute,
law, rule, regulation, judgment, decree, order, permit, license or other
governmental authorization or approval (including any Company Permit) applicable
to the Company or any of its Subsidiaries or by which any property, asset or
operation of the Company or any of its Subsidiaries is bound or affected,
including, laws, rules and regulations relating to the environment, occupational
health and safety, employee benefits, wages, workplace safety, equal employment
opportunity and race, religious or sex discrimination, excluding from clauses
(ii) and (iii) defaults or violations which would not have a Company Material
Adverse Effect.
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Section 3.12 Taxes. Except as disclosed in Section 3.12 of the Company
Disclosure Letter:
(a) All material Tax Returns required to be filed by or with respect
to the Company and each of its Subsidiaries have been filed. The Company
and each of its Subsidiaries has paid (or there has been paid on its
behalf) all material Taxes that are due, except for Taxes being contested
in good faith by appropriate proceedings and for which adequate reserves
have been established in the Company's financial statements (as of the date
thereof).
(b) There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to the collection or assessment
of material Taxes due from the Company or any of its Subsidiaries for any
taxable period. No audit or other proceeding by any court, governmental or
regulatory authority, or similar person is pending or, to the knowledge of
the Company, threatened in regard to any material Taxes due from or with
respect to the Company or any of the Subsidiaries. Neither the Company nor
any Subsidiary of the Company has received written notice that any
assessment of material Taxes is proposed against the Company or any of its
Subsidiaries.
(c) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to the payment
of any amount that would not be deductible by the Company or any of its
Subsidiaries by reason of Section 280G of the Code in connection with the
transactions contemplated by this Agreement.
(d) There are no Tax liens upon any property or assets of the Company
or any of the Company Subsidiaries except liens for current Taxes not yet
due and except for liens which have not had and are not reasonably likely
to have a Company Material Adverse Effect.
(e) Neither the Company nor any of its Subsidiaries has been required
to include in income any adjustment pursuant to Section 481 of the Code by
reason of a voluntary change in accounting method initiated by the Company
or any of its Subsidiaries, and the IRS has not initiated or proposed any
such adjustment or change in accounting method, in either case which
adjustment or change has had or is reasonably likely to have a Company
Material Adverse Effect.
(f) Except as set forth in the financial statements described in
Section 3.5, neither the Company nor any of its Subsidiaries has entered
into a transaction which is being accounted for under the installment
method of Section 453 of the Code, which would be reasonably likely to have
a Company Material Adverse Effect. No compensation paid or payable by the
Company is subject to Section 162(m) of the Code.
(g) The term "Taxes" shall mean all taxes, charges, fees, levies, or
other similar assessments or liabilities imposed by the United States of
America, or by any state, local, or foreign government, or any subdivision,
agency, or other similar person of the United States or any such
government, including without limitation (i) income, gross receipts, ad
valorem, premium, excise, real property, personal property, sales, use,
transfer, withholding, employment, payroll, and franchise taxes; and (ii)
any interest, penalties or additions to taxes resulting from, attributable
to, or incurred in connection with any Tax or any contest, dispute, or
refund thereof. The term "Tax Returns" shall mean any report, return, or
statement required to be supplied to a taxing authority in connection with
Taxes.
Section 3.13 Certain Property. The Company and its Subsidiaries, as the
case may be, have good and marketable title in fee simple to all of their
respective real property and good title to all of their respective leasehold
interests and other properties, as reflected in the most recent balance sheet
included in the Company SEC Documents, except for properties and assets that
have been disposed of in the ordinary course of business since the date of such
balance sheet, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever, except (i) the lien for current taxes,
payments of which are not yet delinquent, (ii) such imperfections in title and
easements and encumbrances, if any, as are not substantial in character, amount
or extent and do not materially detract from the value, or interfere with the
present use of the property subject thereto or affected thereby, or otherwise
materially impair the Company's business operations (in the manner presently
carried on by the Company) or (iii) as disclosed in the Company SEC Documents,
and
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except for such matters, which individually or in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. All leases
under which the Company leases any real or personal property are in good
standing, valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing default or event which with
notice or lapse of time or both would become a default which could reasonably be
expected to have a Company Material Adverse Effect. Section 3.13 of the Company
Disclosure Letter sets forth all liens and security interests granted by the
Company or any of the Company Subsidiaries to third parties.
Section 3.14 Intellectual Property.
(a) The Company has previously given to Parent detailed information
(including, where applicable, federal registration numbers and dates of
registrations or applications for registration) concerning the following:
(i) all of the Company's and the Company Subsidiaries' trademarks,
trademark rights, service marks, trade names, and other trade rights,
indicating which are registered and which are not, including all pending
applications for any registrations thereof, and all patents, patent rights
and copyrights used or proposed to be used by the Company in its business
and all pending applications therefore; (ii) all computer software
presently used by the Company which has been purchased or licensed from
outside parties with a purchase price or license fee in excess of $5,000;
and (iii) all other trade secrets, mailing lists, know-how, designs, plans,
specifications and other intellectual property rights of the Company
(whether or not registered or registrable) (collectively, "Intellectual
Property"). Section 3.14 of the Company Disclosure Letter identifies (i)
each patent or registration which has been issued (and which has not
expired or lapsed) to the Company or any of the Company Subsidiaries with
respect to any Intellectual Property, (ii) each pending patent application
or application for registration which the Company or any of the Company
Subsidiaries has made with respect to any Intellectual Property, and (iii)
any Intellectual Property that any third party owns and that the Company or
any of the Company Subsidiaries use or propose to use in its business
(including any marketing rights granted to the Company or any of the
Company Subsidiaries under patents owned or licensed by third parties).
Except as set forth in Section 3.14 of the Company Disclosure Letter, (i)
the Company or one of the Company Subsidiaries solely owns or is in sole
and exclusive possession of adequate licenses or other legal rights to use
all Intellectual Property now used or held for use in connection with the
business as currently conducted or as contemplated to be conducted and (ii)
neither the Company nor any of the Company Subsidiaries has disclosed any
of the Intellectual Property other than in a manner reasonably necessary
for the operation of their business. None of the Company or any of the
Company Subsidiaries have granted any licenses of or other rights to use
any of the Intellectual Property to any third party. The Intellectual
Property comprises all of the intellectual property rights that are in the
aggregate necessary in any material respect for the operation of its
business as it is presently conducted.
(b) To the Company's knowledge, there is no unauthorized use,
disclosure, infringement or misappropriation of any Intellectual Property
rights of the Company or any of its Subsidiaries, or any Intellectual
Property right of any third party to the extent licensed by or through the
Company or any of its Subsidiaries, by any third party, including any
employee or former employee of the Company or any of its Subsidiaries.
Neither the Company nor any of its Subsidiaries has entered into any
agreement to indemnify any other person against any charge of infringement
of any Intellectual Property.
(c) The Company is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations under
this Agreement, in breach of any license, sublicense or other agreement
relating to the Intellectual Property.
(d) All patents, registered trademarks, service marks and copyrights
held by the Company are valid and subsisting. The Company (i) has not been
sued in any suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third
party; (ii) has no knowledge that the manufacturing, marketing, licensing
or sale of its products infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party; and
(iii) has not brought any action, suit or proceeding
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for infringement of Intellectual Property or breach of any license or
agreement involving Intellectual Property against any third party.
(e) The Company has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Intellectual Property of the rights to such contributions that the Company
does not already own by operation of law.
(f) The Company has taken all necessary and appropriate steps to
protect and preserve the confidentiality of all Intellectual Property not
otherwise protected by patents, patent applications or copyright
("Confidential Information"). All use, disclosure or appropriation of
Confidential Information owned by the Company by or to a third party has
been pursuant to the terms of a written agreement between the Company and
such third party. All use, disclosure or appropriation of Confidential
Information not owned by the Company has been pursuant to the terms of a
written agreement between the Company and the owner of such Confidential
Information, or is otherwise lawful.
Section 3.15 Environmental Matters. Except as disclosed in Section 3.15 of
the Company Disclosure Letter or as disclosed in the Company SEC Documents:
(a) no notice, request for information, order, complaint or penalty
has been received relating to, and there are no judicial, administrative or
other actions, suits or proceedings pending or, to the knowledge of the
Company, threatened which allege a violation of, any law, regulation, rule
or governmental restriction relating to the environment or to pollutants,
contaminants or wastes, in each case relating to the current or prior
business of the Company or any of its Subsidiaries which, individually or
in the aggregate, would have a Company Material Adverse Effect; and
(b) there has been no environmental assessment, investigation or audit
conducted of which the Company has knowledge in relation to the current or
prior business of the Company or any of its Subsidiaries or any property or
facility now or previously owned, leased or operated by the Company or any
of its Subsidiaries which has not been made available to the Parent.
Section 3.16 Employee and Labor Matters. Except as set forth in Section
3.16 of the Company Disclosure Letter and except to the extent that the failure
of any of the following representations to be accurate would not have a Company
Material Adverse Effect: (i) since January 1, 1996 there has been no labor
strike or work stoppage against, or lockout by, the Company or any of its
Subsidiaries, (ii) there is no unfair labor practice charge or complaint against
the Company or any of its Subsidiaries pending before, or, to the knowledge of
the Company or any of its Subsidiaries, threatened by, the National Labor
Relations Board, and (iii) there is no pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened union grievance against the
Company or any of its Subsidiaries.
Section 3.17 Information in Offer Documents. None of the information
supplied or to be supplied by the Company or any of its or agents for inclusion
or incorporation by reference in the Offer Documents or the Schedule 14D-9,
including any amendments or supplements thereto, will at the respective times
the Offer Documents and the Schedule 14D-9 are filed with the SEC or first
published, sent or given to the Company's shareholders, contain any statement
which, at such 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 necessary in order to make the statements therein not false or
misleading. Notwithstanding the foregoing, the Company does not make any
representation or warranty with respect to the information that has been or will
be supplied by Parent or the Purchaser or their officers, directors, employees,
representatives Subsidiaries, or any of their officers, directors, employees,
representatives or agents for inclusion or incorporation by reference in any of
the foregoing documents. The Schedule 14D-9 and any amendments or supplements
thereto will comply in all material respects with the applicable provisions of
the Exchange Act and the rules and regulations thereunder.
Section 3.18 Brokers or Finders. The Company represents, as to itself, its
Subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any brokers'
or finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement, except Deutsche Morgan Grenfell
("DMG"), the fees and expenses of which will be paid by the Company in
accordance with the Company's agreement with such firm, a true and
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complete copy of which has heretofore been furnished to Parent. The Company has
no obligations or commitments to any investment banker or financial advisor in
connection with any future transactions that may be considered or entered into
by the Company after the Effective Time.
Section 3.19 Insurance. The Company maintains insurance coverage with
reputable insurers in such amounts and covering such risks as are in accordance
with normal industry practice for companies engaged in businesses similar to
that of the Company (taking into account the cost and availability of such
insurance).
Section 3.20 Opinion of Financial Advisor. The Company has received the
opinion of DMG to the effect that, as of the date hereof, the consideration to
be received by the stockholders of the Company in the Offer and the Merger is
fair from a financial point of view.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
AND THE PURCHASER
Parent and the Purchaser jointly and severally represent and warrant to the
Company as follows:
Section 4.1 Organization. Each of Parent and the Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Parent and each of its Subsidiaries is duly
qualified to do business and in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification necessary, except where the failure to be so duly
qualified and in good standing would not have a material adverse effect on the
consummation of the transactions contemplated hereby.
Section 4.2 Authorization; Validity of Agreement; Necessary Action. Each
of Parent and the Purchaser has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Parent and the Purchaser of
this Agreement, and the consummation of the transactions contemplated hereby,
have been duly authorized by their Boards of Directors and no other corporate
action on the part of Parent and the Purchaser is necessary to authorize the
execution and delivery by Parent and the Purchaser of this Agreement and the
consummation by them of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Parent and the Purchaser, as the case may be
and (assuming due and valid authorization, execution and delivery hereof by the
Company) is a valid and binding obligation of each of Parent and the Purchaser,
as the case may be, enforceable against them in accordance with its terms,
except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
Section 4.3 Consents and Approvals; No Violations. Except for (a) filings
pursuant to the HSR Act, (b) applicable requirements under the Exchange Act, (c)
the filing of the Certificate of Merger, (d) applicable requirements under
"takeover" or "blue sky" laws of various states, or (e) as described in this
Agreement, neither the execution, delivery or performance of this Agreement by
Parent and the Purchaser nor the consummation by Parent and the Purchaser of the
transactions contemplated hereby will (i) violate any provision of the charter
or by-laws or other comparable constituent documents of Parent or the Purchaser,
(ii) result in a violation or breach of, or result in any loss of benefit or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation, acceleration or
modification) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent or any of its Subsidiaries is a party
or by which any of them or any of their properties or assets may be bound, (iii)
violate any order, writ, judgment, injunction or decree applicable to Parent,
any of its Subsidiaries or any of their properties or assets, (iv) violate any
law, statute, rule or regulation applicable to Parent, any of its Subsidiaries
or any of their properties or assets, or (v) require on the part of Parent or
the Purchaser any filing or registration with,
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notification to, or authorization, consent or approval of, any Governmental
Entity, except in the case of clauses (ii), (iv) or (v) for such violations,
breaches or defaults which, or filings, registrations, notifications,
authorizations, consents or approvals the failure of which to obtain, would not
materially adversely affect the ability of Parent and the Purchaser to
consummate the transactions contemplated by this Agreement.
Section 4.4 SEC Reports and Financial Statements. Parent has filed all
reports required to be filed by it with the SEC pursuant to the Exchange Act and
the Securities Act since July 30, 1995 (as such documents have been amended
since the date of their filing, collectively, the "Parent SEC Documents"). The
Parent SEC Documents (a) were prepared in accordance with the requirements of
the Securities Act or the Exchange Act, as the case may be, and (b) as of their
respective filing dates, or if amended, as of the date of the last such
amendment, did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the historical consolidated balance sheets
(including the related notes) included in the Parent SEC Documents fairly
presents in all material respects the financial position of the Parent and its
consolidated Subsidiaries as of the date thereof, and the other related
historical statements (including the related notes) included in the Parent SEC
Documents fairly present in all material respects the results of operations and
cash flows of Parent and its consolidated Subsidiaries for the respective
periods or as of the respective dates set forth therein. Each of the historical
consolidated balance sheets and historical statements of operations and cash
flow (including the related notes) included in the Parent SEC Documents has been
prepared in all material respects in accordance with GAAP applied on a
consistent basis during the periods involved, except as otherwise noted therein
and, in the case of unaudited interim financial statements, subject to normal
year-end adjustments and except as permitted by Form 10-Q of the SEC. The books
and records of Parent and its Subsidiaries have been, and are being, maintained
in accordance with GAAP and any other applicable legal and accounting
requirements.
Section 4.5 Information in Offer Documents; Proxy Statement. None of the
information supplied or to be supplied by Parent or the Purchaser, or any of
their officers, directors, employees, representatives or agents for inclusion or
incorporation by reference in the Offer Documents, the Schedule 14D-9 or the
Proxy Statement, including any amendments or supplements thereto, will, in the
case of the Offer Documents and the Schedule 14D-9, at the respective times the
Offer Documents and the Schedule 14D-9 are filed with the SEC or first
published, sent or given to the Company's stockholders, or, in the case of the
Proxy Statement, at the date the Proxy Statement is first mailed to the
Company's stockholders or at the time of the Special Meeting, contain any
statement which, at such 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 necessary in order to make the statements therein not
false or misleading. Notwithstanding the foregoing, Parent and the Purchaser do
not make any representation or warranty with respect to the information that has
been supplied by the Company or any of its Subsidiaries or their officers,
directors, employees, representatives or agents for inclusion or incorporation
by reference in any of the foregoing documents. The Offer Documents and the
Proxy Statement and any amendments or supplements thereto will comply in all
material respects with the applicable provisions of the Exchange Act and the
rules and regulations thereunder.
Section 4.6 Sufficient Funds. Either Parent or the Purchaser has
sufficient funds available to purchase all of the Shares outstanding on a fully
diluted basis and to pay all fees and expenses related to the transactions
contemplated by this Agreement.
Section 4.7 Share Ownership. None of Parent, the Purchaser or any of their
respective affiliates beneficially owns any Shares.
Section 4.8 Purchaser's Operations. The Purchaser was formed solely for
the purpose of engaging in the transactions contemplated hereby and has not
engaged in any business activities or conducted any operations other than in
connection with the transactions contemplated hereby.
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ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. The Company covenants and
agrees that, except (i) as contemplated by this Agreement, (ii) as disclosed in
Section 5.1 of the Company Disclosure Letter or (iii) as agreed in writing by
Parent, after the date hereof, and prior to the time the directors of the
Purchaser have been elected to, and shall constitute a majority of, the Board of
Directors of the Company pursuant to Section 1.3:
(a) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary course of business and, to the extent
consistent therewith, each of the Company and its Subsidiaries shall use
its reasonable best efforts to preserve in all material respects its
business organization intact and maintain its existing relations with
customers, suppliers, employees and business associates;
(b) each of the Company and its Subsidiaries will not, directly or
indirectly, (i) amend its Certificate of Incorporation or By-laws or
similar organizational documents or (ii) split, combine or reclassify its
outstanding capital stock;
(c) neither the Company nor any of its Subsidiaries shall: (i)
declare, set aside or pay any dividend or other distribution (whether
payable in cash, stock or property) with respect to its capital stock
(other than dividends from any Subsidiary of the Company to the Company or
any other Subsidiary of the Company); (ii) issue or sell any additional
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares
of capital stock of any class of the Company or its Subsidiaries, other
than issuances pursuant to the exercise of Options outstanding on the date
hereof; (iii) sell, lease, license or dispose of any assets or properties,
other than in the ordinary course of business; (iv) incur or modify any
material debt, other than in the ordinary course of business consistent
with past practice; (v) license or sublicense any asset or property of the
Company or any Company Subsidiary except in the ordinary course of business
consistent with past practice on a basis that results in a positive current
royalty net of any royalties due by the Company or any Company Subsidiary
on account of sales by the licensee or sublicensee; or (vi) redeem,
purchase or otherwise acquire, directly or indirectly, any of its or its
Subsidiaries' capital stock;
(d) neither the Company nor any of its Subsidiaries shall, except as
may be required or contemplated by this Agreement or by applicable law, (i)
enter into, adopt, materially amend or terminate any employee benefit
plans, (ii) amend any employment or severance agreement, (iii) increase in
any manner the compensation or other benefits of its officers or directors
or (iv) increase in any manner the compensation of any other employees
(except, in the case of this clause (iv), for normal increases in the
ordinary course of business);
(e) neither the Company nor any of its Subsidiaries shall: (i) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the material obligations of any
other person (other than Subsidiaries of the Company), except pursuant to
contractual indemnification agreements entered into in the ordinary course
of business; (ii) make any loans, advances or capital contributions to, or
investments in, any other person (other than to Subsidiaries of the Company
and payroll, travel and similar advances made in the ordinary course of
business); or (iii) make capital expenditures other than pursuant to the
Company's current capital expenditure budget, a copy of which has been
provided to Parent;
(f) neither the Company nor any of its Subsidiaries shall change any
of the accounting methods used by it unless required by GAAP or applicable
law;
(g) the Company will not settle or compromise any claim (including
arbitration) or litigation involving payments by the Company in excess of
$250,000 individually which are not subject to insurance reimbursement
without the prior written consent of Parent, which consent will not be
unreasonably withheld;
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(h) the Company will not amend, modify or terminate in any material
respect any Material Agreement or enter into any new agreement material to
the business of the Company without the prior written consent of Parent,
which consent shall not be unreasonably withheld; and
(i) neither the Company nor any of its Subsidiaries will authorize or
enter into an agreement to do any of the foregoing.
Section 5.2 Access to Information. Upon reasonable notice, the Company
shall (and shall cause each of its Subsidiaries to) afford to the officers,
employees, accountants, counsel, financing sources and other representatives of
Parent, access, during normal business hours during the period prior to the
Closing Date, to all its properties, books, contracts, commitments and records
and, during such period, the Company shall (and shall cause each of its
Subsidiaries to) furnish promptly to Parent (a) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of federal securities laws or regulatory
boards or agencies and (b) all other information concerning its business,
properties and personnel as Parent may reasonably request. Unless otherwise
required by law and until the Closing Date, Parent will hold any such
information which is nonpublic in confidence in accordance with the provisions
of the Confidentiality Agreement between the Company and Parent, dated as of
July 22, 1997 (the "Confidentiality Agreement").
Section 5.3 Employee Benefits.
(a) Parent and the Purchaser agree that the Surviving Corporation and
its Subsidiaries and successors shall provide those persons who,
immediately prior to the Effective Time, were employees of the Company or
its Subsidiaries ("Retained Employees") with employee plans and programs
that provide benefits that are no less favorable in the aggregate to those
provided to such Retained Employees immediately prior to the date hereof.
With respect to such employee plans and programs provided by the Surviving
Corporation and its Subsidiaries and successors, service accrued by such
Retained Employees during employment with the Company and its Subsidiaries
prior to the Effective Time shall be recognized for all purposes, except to
the extent necessary to prevent duplication of benefits.
(b) Parent and the Purchaser agree to honor, and cause the Surviving
Corporation to honor, without modification, all employment and severance
agreements and arrangements, as amended through the date hereof, with
respect to employees and former employees of the Company that are listed in
Section 3.8 of the Company Disclosure Letter (collectively, the "Severance
Agreements").
(c) After the date hereof and prior to the Effective Time, Parent and
the Company shall reasonably cooperate to develop and adopt an employee
retention plan for key employees of the Company, which shall be subject to
Parent approval.
Section 5.4 No Solicitation.
(a) The Company and its Subsidiaries will not, and will use their best
efforts to cause their respective officers, directors, employees and
investment bankers, attorneys or other agents retained by or acting on
behalf of the Company or any of its Subsidiaries not to, (i) initiate,
solicit or encourage, directly or indirectly, any inquiries or the making
of any proposal that constitutes or is reasonably likely to lead to any
Acquisition Proposal (as defined in Section 5.4(c) hereof), (ii) engage in
negotiations or discussions (other than to advise as to the existence of
the restrictions set forth in this Section 5.4) with, or furnish any
information or data to, any third party relating to an Acquisition
Proposal, or (iii) enter into any agreement with respect to any Acquisition
Proposal or approve any Acquisition Proposal. Notwithstanding anything to
the contrary contained in this Section 5.4 or in any other provision of
this Agreement, the Company and its Board of Directors (i) may participate
in discussions or negotiations (including, as a part thereof, making any
counterproposal) with or furnish information to any third party making an
unsolicited Acquisition Proposal (a "Potential Acquiror") or approve an
unsolicited Acquisition Proposal if the Company's Board of Directors is
advised by its financial advisor that such Potential Acquiror has the
financial wherewithal to be reasonably capable of consummating such an
Acquisition Proposal, and the Board determines in good faith (A) after
receiving advice from its financial advisor, that such third
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party has submitted to the Company an Acquisition Proposal which is a
Superior Proposal (as defined in Section 5.4(d) hereof), and (B) based upon
advice of outside legal counsel, that the failure to participate in such
discussions or negotiations or to furnish such information or approve an
Acquisition Proposal would violate the Board's fiduciary duties under
applicable law. The Company agrees that any non-public information
furnished to a Potential Acquiror will be pursuant to a confidentiality
agreement containing confidentiality and standstill provisions
substantially similar to the confidentiality and standstill provisions of
the Confidentiality Agreement. In the event that the Company shall
determine to provide any information as described above, or shall receive
any Acquisition Proposal, it shall promptly inform Parent in writing as to
the fact that information is to be provided and shall furnish to Parent the
identity of the recipient of such information and/or the Potential Acquiror
and the terms of such Acquisition Proposal, except to the extent that the
Board determines in good faith, based upon advice of its outside legal
counsel, that any such action described in this sentence would violate such
Board's fiduciary duties under, or otherwise violate, applicable law. The
Company will inform Parent of any material amendment to the essential terms
of any such Acquisition Proposal except to the extent that the Board
determines in good faith, based upon advice of outside legal counsel, that
any such action would violate such Board's fiduciary duties under, or
otherwise violate, applicable law.
(b) The Board of Directors of the Company shall not (i) withdraw or
modify or propose to withdraw or modify, in any manner adverse to Parent,
the approval or recommendation of such Board of Directors of this
Agreement, the Offer or the Merger or (ii) approve or recommend, or propose
to approve or recommend, any Acquisition Proposal unless, in each case, the
Board determines in good faith (A) after receiving advice from its
financial advisor, that such Acquisition Proposal is a Superior Proposal
and (B) based upon advice of outside legal counsel, that the failure to
take such action would violate the Board's fiduciary duties under
applicable law.
(c) For purposes of this Agreement, "Acquisition Proposal" shall mean
any bona fide proposal, whether in writing or otherwise, made by a third
party to acquire beneficial ownership (as defined under Rule 13d-3 of the
Exchange Act) of all or a material portion of the assets of, or any
material equity interest in, the Company or its material Subsidiaries
pursuant to a merger, consolidation or other business combination, sale of
shares of capital stock, sale of assets, tender offer or exchange offer or
similar transaction involving the Company or its material Subsidiaries
including any single or multi-step transaction or series of related
transactions which is structured to permit such third party to acquire
beneficial ownership of any material portion of the assets of, or any
material portion of the equity interest in, the Company or its material
Subsidiaries (other than the transactions contemplated by this Agreement).
(d) The term "Superior Proposal" means any bona fide proposal to
acquire, directly or indirectly, for consideration consisting of cash
and/or securities, more than a majority of the Shares then outstanding or
all or substantially all the assets of the Company, and otherwise on terms
which the Board of Directors of the Company determines in good faith to be
more favorable to the Company and its stockholders than the Offer and the
Merger (based on advice of the Company's financial advisor that the value
of the consideration provided for in such proposal is superior to the value
of the consideration provided for in the Offer and the Merger), for which
financing, to the extent required, is then committed or which, in the good
faith reasonable judgment of the Board of Directors, after receiving advice
from its financial advisor, is reasonably capable of being financed by such
third party.
Section 5.5 Publicity. The initial press releases with respect to the
execution of this Agreement shall be acceptable to Parent and the Company and
shall be in the form of Annex B hereto. Thereafter, so long as this Agreement is
in effect, neither the Company, Parent nor any of their respective affiliates
shall issue or cause the publication of any press release with respect to the
Merger, this Agreement or the other transactions contemplated hereby without
prior consultation with the other party, except as may be required by law or by
any listing agreement with a national securities exchange or national securities
quotation system.
Section 5.6 Indemnification. The Company shall, and from and after the
consummation of the Offer, Parent and the Surviving Corporation shall jointly
and severally, indemnify, defend and hold harmless the
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present and former directors and officers of the Company and its Subsidiaries
(the "Indemnified Parties") from and against all losses, expenses, claims,
damages or liabilities arising out of the transactions contemplated by this
Agreement to the fullest extent permitted or required under applicable law. All
rights to indemnification existing in favor of the directors and officers of the
Company as provided in the Company's Certificate of Incorporation or By-laws, as
in effect as of the date hereof, with respect to matters occurring through the
Effective Time, shall survive the Merger and shall not be amended, repealed or
otherwise modified for a period of six years after the consummation of the Offer
in any manner that would adversely affect the rights of the individuals who at
or prior to the consummation of the Offer were directors or officers of the
Company with respect to occurrences at or prior to the consummation of the Offer
and Parent shall cause the Surviving Corporation to honor all such rights to
indemnification.
Section 5.7 Approvals and Consents; Cooperation; Notification.
(a) The parties hereto shall use their respective reasonable best
efforts, and cooperate with each other, to (i) determine as promptly as
practicable all governmental and third party authorizations, approvals,
consents or waivers, including, pursuant to the HSR Act, advisable (in
Parent's and Purchaser's discretion) or required in order to consummate the
transactions contemplated by this Agreement, including, the Offer and the
Merger and (ii) obtain such authorizations, approvals, consents or waivers
as promptly as practicable.
(b) The Company, Parent and the Purchaser shall take all actions
necessary to file as soon as practicable all notifications, filings and
other documents required to obtain all governmental authorizations,
approvals, consents or waivers, including, under the HSR Act, and to
respond as promptly as practicable to any inquiries received from the
Federal Trade Commission, the Antitrust Division of the Department of
Justice and any other Governmental Entity for additional information or
documentation and to respond as promptly as practicable to all inquiries
and requests received from any Governmental Entity in connection therewith.
(c) The Company shall give prompt notice to Parent of (i) the
occurrence of any event, condition or development material to the Company
and its Subsidiaries, taken as a whole, and (ii) any notice from any Person
claiming its consent is required in connection with the transactions
contemplated by this Agreement. Each of the Company and Parent shall give
prompt notice to the other of the occurrence or failure to occur of an
event that would, or, with the lapse of time would cause any condition to
the consummation of the Offer or the Merger not to be satisfied.
Section 5.8 Further Assurances. Each of the parties hereto agrees to use
its respective reasonable best efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, including, the Offer and the
Merger.
Section 5.9 Taxes. With respect to any Taxes, the Company shall not (i)
make any material tax election or (ii) settle or compromise any material income
tax liability (whether with respect to amount or timing), in each case without
the prior written consent of Parent which consent shall not be unreasonably
withheld.
Section 5.10 Shareholder Litigation. The Company and Parent agree that in
connection with any litigation which may be brought against the Company or its
directors relating to the transactions contemplated hereby, the Company will
keep Parent, and any counsel which Parent may retain at its own expense,
informed of the course of such litigation, to the extent Parent is not otherwise
a party thereto, and the Company agrees that it will consult with Parent prior
to entering into any settlement or compromise of any such shareholder
litigation; provided, that, no such settlement or compromise will be entered
into without Parent's prior written consent, which consent shall not be
unreasonably withheld.
Section 5.11 Loan and Security Agreement. Concurrently with the execution
and delivery of this Agreement, the Company and Parent shall execute and deliver
the Loan and Security Agreement in the form of Annex C attached hereto.
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ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) this Agreement shall have been adopted by the requisite vote of
the holders of Company Common Stock, if required by applicable law and the
Certificate of Incorporation (provided that Parent shall comply with its
obligations in respect of the voting of Shares set forth in Section
1.8(b));
(b) any waiting period applicable to the Merger under the HSR Act
shall have expired or been terminated;
(c) no statute, rule, regulation, order, decree or injunction shall
have been enacted, promulgated or issued by any Governmental Entity or
court which prohibits the consummation of the Merger; and
(d) Parent, the Purchaser or their affiliates shall have purchased
shares of Company Common Stock pursuant to the Offer.
Section 6.2 Conditions to the Obligations of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be further
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) the representations and warranties of Parent and the Purchaser
shall be true and accurate in all material respects as of the Effective
Time as if made at and as of such time (except for those representations
and warranties that address matters only as of a particular date or only
with respect to a specific period of time which need only be true and
accurate as of such date or with respect to such period); and
(b) each of Parent and the Purchaser shall have performed in all
material respects all of the respective obligations hereunder required to
be performed by Parent or the Purchaser, as the case may be, at or prior to
the Effective Time.
Section 6.3 Conditions to the Obligations of Parent and the Purchaser to
Effect the Merger. The obligations of Parent and the Purchaser to effect the
Merger shall be further subject to the satisfaction at or prior to the Effective
Time of the following conditions:
(a) the representations and warranties of the Company shall be true
and accurate in all material respects as of the Effective Time as if made
at and as of such time (except for those representations and warranties
that address matters only as of a particular date or only with respect to a
specific period of time which need only be true and accurate as of such
date or with respect to such period); and
(b) the Company shall have performed in all material respects all of
the respective obligations hereunder required to be performed by the
Company, at or prior to the Effective Time.
Section 6.4 Exception. The conditions set forth in Section 6.2 and 6.3
hereof shall cease to be conditions to the obligations of the parties if the
Purchaser shall have accepted for payment and paid for Shares validly tendered
pursuant to the Offer.
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ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether before or after stockholder approval thereof:
(a) By the mutual consent of Parent, the Purchaser and the Company.
(b) By either of the Company, on the one hand, or Parent and the
Purchaser, on the other hand:
(i) if shares of Company Common Stock shall not have been purchased
pursuant to the Offer on or prior to February 23, 1998, which date may
be extended by Parent, in its sole discretion, for up to an additional
30 days; provided further, however, that the right to terminate this
Agreement under this Section 7.1(b)(i) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of Parent or the
Purchaser, as the case may be, to purchase shares of Company Common
Stock pursuant to the Offer on or prior to such date; or
(ii) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action (which order, decree, ruling or
other action the parties hereto shall use their respective reasonable
best efforts to lift), in each case permanently restraining, enjoining
or otherwise prohibiting the transactions contemplated by this Agreement
or prohibiting Parent to acquire or hold or exercise rights of ownership
of the Shares, and such order, decree, ruling or other action shall have
become final and non-appealable.
(c) By the Company:
(i) if, prior to the purchase of shares of Company Common Stock
pursuant to the Offer, either (A) a third party shall have made an
Acquisition Proposal that the Board of Directors of the Company
determines in good faith, after consultation with its financial advisor,
is a Superior Proposal and the Company shall have concurrently executed
a definitive agreement with such third party in respect of such Superior
Proposal, or (B) the Board of Directors of the Company shall have
withdrawn, or modified or changed in any manner adverse to Parent or the
Purchaser its approval or recommendation of the Offer, this Agreement or
the Merger (or the Board of Directors of the Company resolves to do any
of the foregoing); or
(ii) if Parent or the Purchaser shall have terminated the Offer, or
the Offer shall have expired, without Parent or the Purchaser, as the
case may be, purchasing any shares of Company Common Stock pursuant
thereto; provided that the Company may not terminate this Agreement
pursuant to this Section 7.1(c)(ii) if the Company is in willful breach
of this Agreement; or
(iii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of
the conditions set forth in Annex A hereto, Parent or the Purchaser
shall have failed to commence the Offer on or prior to five business
days following the date of the initial public announcement of the Offer;
provided, that the Company may not terminate this Agreement pursuant to
this Section 7.1(c)(iii) if the Company is in willful breach of this
Agreement.
(d) By Parent and the Purchaser:
(i) if, prior to the purchase of shares of Company Common Stock
pursuant to the Offer, the Board of Directors of the Company shall have
withdrawn, modified or changed in a manner adverse to Parent or the
Purchaser its approval or recommendation of the Offer, this Agreement or
the Merger or shall have recommended an Acquisition Proposal or shall
have executed an agreement in principle or definitive agreement relating
to an Acquisition Proposal or similar business combination with a person
or entity other than Parent, the Purchaser or their affiliates (or the
Board of Directors of the Company resolves to do any of the foregoing);
or
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(ii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of
the conditions set forth in Annex A hereto, Parent or the Purchaser
shall have failed to commence the Offer on or prior to five business
days following the date of the initial public announcement of the Offer;
provided that Parent may not terminate this Agreement pursuant to this
Section 7.1(d)(ii) if Parent or the Purchaser is in willful breach of
this Agreement.
Section 7.2 Effect of Termination.
(a) In the event of the termination of this Agreement as provided in
Section 7.1, written notice thereof shall forthwith be given to the other
party or parties specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall forthwith become null and
void, and there shall be no liability on the part of Parent, the Purchaser
or the Company or their respective directors, officers, employees,
shareholders, representatives, agents or advisors other than, with respect
to Parent, the Purchaser and the Company, the obligations pursuant to this
Section 7.2, Sections 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.7, 8.8, 8.10, 8.11,
8.12, 8.13 and the last sentence of Section 5.2. Nothing contained in this
Section 7.2 shall relieve Parent, the Purchaser or the Company from
liability for willful breach of this Agreement.
(b) In the event that this Agreement is terminated by the Company
pursuant to Section 7.1(c)(i) hereof or by Parent and the Purchaser
pursuant to Section 7.1(d)(i) hereof, the Company shall pay to Parent by
certified check or wire transfer to an account designated by Parent
immediately following receipt of a request therefor, an amount equal to $8
million (the "Termination Fee").
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the stockholders of the Company contemplated
hereby, by written agreement of the parties hereto, by action taken by their
respective Boards of Directors (which in the case of the Company shall include
approvals as contemplated in Section 1.3(b)), at any time prior to the Closing
Date with respect to any of the terms contained herein; provided, however, that
after the approval of this Agreement by the stockholders of the Company, no such
amendment, modification or supplement shall reduce or change the Merger
Consideration or adversely affect the rights of the Company's stockholders
hereunder without the approval of such stockholders.
Section 8.2 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time. This Section 8.2 shall not limit any covenant or agreement
contained in this Agreement which by its terms contemplates performance after
the Effective Time.
Section 8.3 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or sent by an overnight courier service, such as Federal
Express, with delivery by such service confirmed, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent or the Purchaser, to:
Texas Instruments Incorporated
7839 Churchill Way
P.O. Box 650311, M/S 3995
Dallas, Texas 75265
Telephone: (972) 917-3810
Telecopy: (972) 917-3804
Attention: Charles D. Tobin
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<PAGE> 98
with copies to:
Texas Instruments Incorporated
P.O. Box 655474, M/S 241
Dallas, Texas 75265
Telephone: (972) 995-2551
Telecopy: (972) 995-9133
Attention: Richard J. Aqnich, Esq.
and
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Telephone: (214) 746-7738
Telecopy: (214) 746-7777
Attention: R. Scott Cohen, Esq.
(b) if to the Company, to:
Amati Communications Corporation
2043 Samaritan Drive
San Jose, California 95124
Telephone: (408) 879-2000
Telecopy: (408) 879-2900
Attention: James Steenbergen
with a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301-1900
Telephone: (650) 324-7025
Telecopy: (650) 324-0638
Attention: Richard A. Peers, Esq.
Any notice which is not sent to the party's counsel in the manner and at the
address or telecopy number set forth above within 24 hours following the time
such notice is given to such party shall be deemed not to be validly delivered
to such party.
Section 8.4 Interpretation. The words "hereof", "herein" and "herewith"
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and article, section, paragraph, exhibit and schedule references are
to the articles, sections, paragraphs, exhibits and schedules of this Agreement
unless otherwise specified. Whenever the words "include", "includes" or
"including" are used in this Agreement they shall be deemed to be followed by
the words "without limitation". The words describing the singular number shall
include the plural and vice versa, and words denoting any gender shall include
all genders and words denoting natural persons shall include corporations and
partnerships and vice versa. The phrase "to the best knowledge of" or any
similar phrase shall mean such facts and other information which as of the date
of determination are actually known to any vice president, chief financial
officer, general counsel, chief compliance officer, controller, and any officer
superior to any of the foregoing, of the referenced party after the conduct of a
reasonable investigation under the circumstances by such officer. The phrases
"the date of this Agreement", "the date hereof" and terms of similar import,
unless the context otherwise requires, shall be deemed to refer to November 19,
1997. As used in this Agreement, the term "affiliate(s)" shall have the meaning
set forth in Rule 12b-2 of the Exchange Act. The parties have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly
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<PAGE> 99
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
Section 8.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 8.6 Entire Agreement; Third Party Beneficiaries. This Agreement
and the Confidentiality Agreement (including the documents and the instruments
referred to herein and therein) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, and (b) except as
provided in Sections 5.3 and 5.6, are not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
Section 8.7 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
Section 8.8 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without giving effect to
the principles of conflicts of law thereof or of any other jurisdiction.
Section 8.9 Specific Performance. Each of the parties hereto acknowledges
and agrees that in the event of any breach of this Agreement, each non-breaching
party would be irreparably and immediately harmed and could not be made whole by
monetary damages. It is accordingly agreed that the parties hereto (a) will
waive, in any action for specific performance, the defense of adequacy of a
remedy at law and (b) shall be entitled, in addition to any other remedy to
which they may be entitled at law or in equity, to compel specific performance
of this Agreement in any action instituted in a court of competent jurisdiction.
Section 8.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective permitted successors and assigns.
Section 8.11 Expenses. Except as set forth in Section 7.2 hereof, all
costs and expenses incurred in connection with the Offer, the Merger, this
Agreement and the consummation of the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the Offer or
the Merger is consummated.
Section 8.12 Headings. Headings of the Articles and Sections of this
Agreement are for convenience of the parties only, and shall be given no
substantive or interpretative effect whatsoever.
Section 8.13 Waivers. Except as otherwise provided in this Agreement, any
failure of any of the parties to comply with any obligation, covenant, agreement
or condition herein may be waived by the party or parties entitled to the
benefits thereof only by a written instrument
signed by the party granting such waiver, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
Section 8.14 Disclosure Letter. The Company Disclosure Letter shall be
construed with and as an integral part of this Agreement to the same extent as
if the same had been set forth verbatim herein. Any matter disclosed pursuant to
the Company Disclosure Letter shall be deemed to be disclosed for all purposes
under this Agreement but such disclosure shall not be deemed to be an admission
or representation as to the materiality of the item so disclosed.
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<PAGE> 100
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
TEXAS INSTRUMENTS INCORPORATED
By: /s/ RICHARD K. TEMPLETON
----------------------------------
Name: Richard K. Templeton
Title: President, Semiconductor
Group
DSL ACQUISITION CORPORATION
By: /s/ GEORGE BARBER
----------------------------------
Name: George Barber
Title: President
AMATI COMMUNICATIONS
CORPORATION
By: /s/ JAMES STEENBERGEN
----------------------------------
Name: James Steenbergen
Title: President and Chief
Executive Officer
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<PAGE> 101
ANNEX A
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, subject to the provisions
of the Merger Agreement, the Purchaser shall not be required to accept for
payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the acceptance for payment of
or, subject to the restriction referred to above, the payment for, any tendered
Shares, and may terminate the Offer and not accept for payment any tendered
Shares if (i) any applicable waiting period under the HSR Act has not expired or
been terminated prior to the expiration of the Offer, (ii) the Minimum Condition
has not been satisfied, or (iii) at any time on or after November 19, 1997, and
before the time of acceptance of Shares for payment pursuant to the Offer, any
of the following events shall occur:
(a) there shall have been any statute, rule, regulation, judgment,
order or injunction promulgated, entered, enforced, enacted or issued
applicable to the Offer or the Merger by any federal or state governmental
regulatory or administrative agency or authority or court or legislative
body or commission which (1) prohibits the consummation of the Offer or the
Merger, (2) prohibits, or imposes any material limitations on, Parent's or
the Purchaser's ownership or operation of all or a material portion of the
Company's businesses or assets or the Shares, except for such prohibitions
or limitations which would not have a Company Material Adverse Effect, (3)
prohibits, or makes illegal the acceptance for payment, payment for or
purchase of Shares or the consummation of the Offer, or (4) renders the
Purchaser unable to accept for payment, pay for or purchase a material
portion or all of the Shares; provided, that the parties shall have used
their reasonable best efforts to cause any such statute, rule, regulation,
judgment, order or injunction to be vacated or lifted;
(b) the representations and warranties of the Company set forth in the
Merger Agreement shall not be true and accurate as of the date of
consummation of the Offer as though made on or as of such date (except for
those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which
need only be true and accurate as of such date or with respect to such
period), except where the failure of such representations and warranties to
be true and accurate (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein), do not,
individually or in the aggregate, have a Company Material Adverse Effect;
(c) the Company shall have breached or failed to perform or comply
with, in all material respects, any material obligation, agreement or
covenant required by the Merger Agreement to be performed or complied with
by it as of the date of consummation of the Offer;
(d) the Merger Agreement shall have been terminated in accordance with
its terms;
(e) the Board of Directors of the Company shall have withdrawn,
modified or changed in a manner adverse to Parent or the Purchaser its
approval or recommendation of the Offer, the Merger Agreement or the Merger
or shall have recommended an Acquisition Proposal or shall have executed an
agreement in principle or definitive agreement relating to an Acquisition
Proposal or similar business combination with a person or entity other than
Parent, the Purchaser or their affiliates or the Board of Directors of the
Company shall have adopted a resolution to do any of the foregoing;
(f) Thirty percent (30%) or more of the key personnel of the Company
and its Subsidiaries identified on Schedule A(h) of the Company Disclosure
Letter shall no longer be employed by the Company or its Subsidiaries or
shall have submitted their resignations.
The foregoing conditions are for the sole benefit of the Purchaser and
Parent and, subject to the Merger Agreement, may be asserted by either of them
or may be waived by Parent or the Purchaser, in whole or in part at any time and
from time to time in the sole discretion of Parent or the Purchaser. The failure
by Parent or the Purchaser at any time to exercise any such rights shall not be
deemed a waiver of any right and each right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
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ANNEX II
SECTION 262 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
<PAGE> 103
SECTION 262 -- Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to sec. 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's
shares of stock under the circumstances described in subsections (b) and
(c) of this section. As used in this section, the word "stockholder" means
a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and
include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with
the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation
to be effected pursuant to sec. 251 (other than a merger effected pursuant
to sec. 251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec.
263 or sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice and to
vote at the meeting of stockholders to act upon the agreement of merger
or consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000 holders; and
further provided that no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a merger if the
merger did not require for its approval the vote of the stockholders of
the surviving corporation as provided in subsection (f) of sec. 251 of
this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class
or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to sec. 251, 252, 254, 257, 258, 263 and 264 of this title to
accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under sec. 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares
of any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was such
on the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsections (b) or (c) hereof
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of
this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote
on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has compiled with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec.
228 or sec. 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten
days thereafter, shall notify each of the holders of any class or series
of stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that appraisal
rights are available for any or all shares of such class or series of
stock of such constituent corporation, and shall include in such notice
a copy of this section; provided that, if the notice is given on or
after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation
that are entitled to appraisal rights. Such notice may, and, if given on
or after the effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within
20 days after the date of mailing of such notice, demand in writing from
the surviving or resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger
or consolidation, either (i) each such constituent corporation shall
send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of
stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to
all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only
be sent to each stockholder who is entitled to appraisal rights and who
has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective
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<PAGE> 105
date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior
to the effective date, the record date shall be the close of business on
the date next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has compiled with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in favor of the
merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period of
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also
be given by 1 or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of
the proceeding. Upon application by the surviving or resulting corporation
or by any stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder
whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
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<PAGE> 106
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and
the case of holders of shares represented by certificates upon the
surrender to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court of
Chancery may be enforced, whether such surviving or resulting corporation
be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the
stock (except dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the merger or
consolidation); provided, however, that if no petition for an appraisal
shall be filed within the time provided in subsection (e) of this section,
of if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation,
then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms as the
Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation. (Last
amended by Ch. 299, L. '96, eff. 2-1-96 and Ch. 349, L. '96, eff. 7-1-96).
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<PAGE> 107
ANNEX III
OPINION OF DEUTSCHE MORGAN GRENFELL INC.
<PAGE> 108
[DEUTSCHE MORGAN GRENFELL TECHNOLOGY GROUP LOGO]
DEUTSCHE MORGAN GRENFELL INC.
TECHNOLOGY GROUP
1550 EL CAMINO REAL
SUITE 10
MENLO PARK, CALIFORNIA 94026
TELEPHONE: (415) 614-5000
FAX: (415) 614-5030
November 19, 1997
Board of Directors
Amati Communications Corporation
2043 Samaritan Drive
San Jose, CA 95124
Members of the Board:
We understand that Amati Communications Corporation ("Amati"), Texas
Instruments, Inc. ("TI") and DSL Acquisition Corp. ("Acquisition Sub"), a
wholly-owned subsidiary of TI, have entered into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), pursuant to which
TI, through Acquisition Sub, will make a tender offer for all of the outstanding
shares of common stock, par value $.20 per share, of Amati (the "Amati Common
Stock") for $20.00 per share net to the seller in cash (the "Offer") and,
following consummation of the Offer, TI will cause Acquisition Sub to be merged
with and into Amati (the "Merger"). Pursuant to the Merger, Amati will become a
wholly-owned subsidiary of TI and each outstanding share of Amati Common Stock,
other than shares held in treasury or held by TI or any affiliate of TI or as to
which dissenters' rights have been perfected, will be converted into the right
to receive $20.00 per share in cash. The terms and conditions of the Offer and
the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the cash consideration to be
received by the holders of Amati Common Stock (other than TI and its affiliates)
in the Offer and the Merger is fair from a financial point of view to such
holders.
For purposes of the opinion set forth herein, we have:
i. analyzed certain publicly available financial statements and other
information of Amati and TI, respectively;
ii. analyzed certain internal financial statements and other financial
and operating data concerning Amati prepared by the management of
Amati;
iii. analyzed certain financial projections relating to Amati prepared by
the management of Amati;
iv. discussed the past and current operations and financial condition and
the prospects of Amati with senior executives of Amati;
v. reviewed the reported prices and trading activity for the Amati
Common Stock;
vi. compared the financial performance of Amati and the prices and
trading activity of the Amati Common Stock with that of certain other
comparable publicly-traded companies and their securities;
vii. reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
viii. participated in discussions and negotiations among representatives of
Amati and TI and their respective financial and legal advisors;
ix. reviewed the Merger Agreement and certain related agreements; and
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<PAGE> 109
x. performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of Amati.
We have not made any independent valuation or appraisal of the assets,
liabilities or technology of Amati nor have we been furnished with any such
appraisals. We have assumed that the Offer and the Merger will each be
consummated in accordance with the terms set forth in the Merger Agreement. Our
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Amati in
connection with this transaction and will receive a fee for our services. In
addition, in the ordinary course of our business, we may actively trade the
securities and loans of Amati and TI for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities and loans.
It is understood that this letter is for the information of the Board of
Directors of Amati and may not be used for any other purpose without our prior
written consent. In addition, we express no recommendation to the stockholders
of Amati as to whether or not to tender shares of Amati Common Stock pursuant to
the Offer.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the cash consideration to be received by the holders of Amati Common
Stock (other than TI and its affiliates) in the Offer and Merger is fair from a
financial point of view to such holders.
Very truly yours,
DEUTSCHE MORGAN GRENFELL INC.
By: /s/ GEORGE F. BOUTROS
----------------------------------
George F. Boutros
Managing Director
By: /s/ DAVID A. POPOWITZ
----------------------------------
David A. Popowitz
Vice President
III-2
