AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 2002
REGISTRATION NO. 333-83768
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ALPHA INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 3674 04-2302115
(State or Other Jurisdiction of (Primary Standard Industrial Classification Code Number) (I.R.S. Employer
Incorporation or Organization) Identification Number)
20 SYLVAN ROAD
WOBURN, MASSACHUSETTS 01801
(781) 935-5150
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
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DAVID J. ALDRICH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ALPHA INDUSTRIES, INC.
20 SYLVAN ROAD
WOBURN, MASSACHUSETTS 01801
(781) 935-5150
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------------
COPIES TO:
MARGARET A. BROWN, ESQ. JAMES K. JACOBS, ESQ. DENNIS E. O'REILLY, ESQ. PETER R. KOLYER, ESQ.
SKADDEN, ARPS, SLATE, GENERAL COUNSEL SENIOR VICE PRESIDENT, GENERAL CHADBOURNE & PARKE LLP
MEAGHER & FLOM LLP ALPHA INDUSTRIES, INC. COUNSEL AND SECRETARY 30 ROCKEFELLER PLAZA
ONE BEACON STREET 20 SYLVAN ROAD CONEXANT SYSTEMS, INC. NEW YORK, NEW YORK 10112
BOSTON, MASSACHUSETTS 02108 WOBURN, MASSACHUSETTS 01801 4311 JAMBOREE ROAD (212) 408-5100
(617) 573-4800 (781) 935-5150 NEWPORT BEACH, CALIFORNIA 92660
(949) 483-4600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable following the effective date of this registration statement and the
date on which all other conditions to the merger of Washington Sub, Inc. with
and into Alpha Industries, Inc. pursuant to the merger agreement described in
the enclosed document have been satisfied or waived.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE(2) REGISTRATION FEE(3)
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Common Stock, par value $0.25 per share................... 94,065,894 $274,023,000 $25,210.12
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(1)Estimated maximum number of shares of common stock of Alpha Industries, Inc.
to be issued to holders of Washington Sub, Inc. common stock in connection
with the merger of Washington with and into Alpha based on (i) an exchange
ratio of 0.351 of a share of Alpha common stock for each share of Washington
common stock and (ii) approximately 267,994,000 shares of Washington common
stock expected to be outstanding immediately prior to the merger.
(2)Based on the book value of Washington common stock on December 31, 2001, in
accordance with Rule 457(f)(2), and calculated solely for the purpose of
calculating the registration fee in accordance with Rule 457 under the
Securities Act.
(3)Previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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[Alpha Logo]
[Conexant Logo]
May , 2002
To the Stockholders of Alpha Industries, Inc. and Conexant Systems, Inc.:
Alpha Industries, Inc. and Conexant Systems, Inc. have entered into an
agreement to merge Conexant's wireless communications business with Alpha to
create a leading independent company focused exclusively on radio frequency and
complete semiconductor system solutions for mobile communications applications.
Under the agreement, Conexant will spin off its wireless communications business
to Conexant stockholders, to be followed immediately by a merger of the wireless
communications business with Alpha, which will survive the merger. In the
merger, each Conexant stockholder will receive 0.351 of a share of common stock
of the combined company for each share of Conexant stock owned, and Alpha
stockholders will continue to hold their shares of Alpha common stock as shares
of the combined company. The value of the consideration to be received by
Conexant stockholders in the merger will vary depending on the price of Alpha
common stock. Alpha common stock is traded on the Nasdaq National Market under
the symbol "AHAA", and on May 2, 2002, the closing price was $11.30.
The Alpha board of directors has unanimously determined that the merger is
advisable and fair to, and in the best interests of, Alpha and its stockholders
and has unanimously approved and adopted the merger agreement and the merger. In
order to complete the merger, we must obtain the approval of Alpha stockholders.
A special meeting of Alpha stockholders to vote on the merger proposal will be
held on June , 2002, at 10:00 a.m., Eastern Time, at the Four Points
(Sheraton) Burlington Hotel, 30 Wheeler Road, Burlington, Massachusetts. THE
ALPHA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALPHA STOCKHOLDERS VOTE FOR
THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE MERGER.
Conexant's board of directors also has determined that the combination of
Conexant's wireless communications business with Alpha is advisable and in the
best interests of Conexant and its stockholders, and has approved the proposed
transaction. No vote of Conexant stockholders is required in connection with the
spin-off transaction or the merger.
Alpha stockholders will also vote on proposals to amend Alpha's 1996
Long-Term Incentive Plan and Directors' 2001 Stock Option Plan to increase the
number of shares of common stock that may be issued under the plans. THE ALPHA
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALPHA STOCKHOLDERS VOTE FOR THE
PROPOSALS TO AMEND ALPHA'S 1996 LONG-TERM INCENTIVE PLAN AND DIRECTORS' 2001
STOCK OPTION PLAN.
The following document contains important information describing the terms
of the merger, the proposed Alpha plan amendments, Conexant's wireless
communications business, Alpha and the combined company. WE ENCOURAGE YOU TO
READ IT CAREFULLY, INCLUDING THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON
PAGE 17.
/s/ David J. Aldrich /s/ Dwight W. Decker, Ph.D.
David J. Aldrich Dwight W. Decker, Ph.D.
President and Chief Executive Officer Chairman of the Board and Chief Executive
Alpha Industries, Inc. Officer
Conexant Systems, Inc.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
PROXY STATEMENT/PROSPECTUS-INFORMATION STATEMENT OR DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS-INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROXY STATEMENT/PROSPECTUS-INFORMATION STATEMENT DATED MAY , 2002 AND
FIRST MAILED TO ALPHA AND CONEXANT STOCKHOLDERS ON MAY , 2002.
ALPHA INDUSTRIES, INC.
20 SYLVAN ROAD
WOBURN, MASSACHUSETTS 01801
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE , 2002
To the Stockholders of Alpha Industries, Inc.:
A Special Meeting of Stockholders of Alpha Industries, Inc. will be held at
10:00 a.m., Eastern Time, on June , 2002, at the Four Points (Sheraton)
Burlington Hotel, 30 Wheeler Road, Burlington, Massachusetts. The special
meeting is being held for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Reorganization, dated as of December 16, 2001, as
amended as of April 12, 2002 (the "Merger Agreement"), by and among
Conexant Systems, Inc., Washington Sub, Inc. and Alpha Industries, Inc. and
the merger provided for by the Merger Agreement, pursuant to which
Washington, which will hold the wireless communications business of
Conexant (excluding certain assets and liabilities), will merge with and
into Alpha, with Alpha surviving the merger.
2. To consider and vote upon a proposal to approve an amendment to
Alpha's 1996 Long-Term Incentive Plan to increase the number of shares of
common stock that may be issued under the plan by 1,885,000 shares (from
4,200,000 shares to 6,085,000 shares).
3. To consider and vote upon a proposal to approve an amendment to
Alpha's Directors' 2001 Stock Option Plan to increase the number of shares
of common stock that may be issued under the plan by 315,000 shares (from
250,000 shares to 565,000 shares).
4. To transact any and all other business that may properly come
before the special meeting or any adjourned session of the special meeting.
The Merger Agreement, the merger and the amendments to Alpha's 1996
Long-Term Incentive Plan and Directors' 2001 Stock Option Plan are described
more fully in the attached proxy statement/prospectus-information statement, and
we urge you to read it carefully. All Alpha stockholders are cordially invited
to attend the special meeting, although only those stockholders of record at the
close of business on April 22, 2002 are entitled to notice of the special
meeting and to vote at the meeting, whether in person or by proxy.
THE ALPHA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALPHA STOCKHOLDERS
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER AND FOR
APPROVAL OF THE PROPOSED AMENDMENTS TO ALPHA'S 1996 LONG-TERM INCENTIVE PLAN AND
DIRECTORS' 2001 STOCK OPTION PLAN.
To ensure that your shares of Alpha common stock are represented at the
special meeting, please complete, date and sign the enclosed proxy card and mail
it promptly in the envelope provided. Any executed but unmarked proxy cards will
be voted FOR approval and adoption of the Merger Agreement and the merger and
FOR approval of the proposed amendments to Alpha's 1996 Long-Term Incentive Plan
and Directors' 2001 Stock Option Plan. You may revoke your proxy in the manner
described in the accompanying proxy statement/prospectus-information statement
before it has been voted at the special meeting.
By Order of the Board of Directors:
/s/ Paul E. Vincent
Paul E. Vincent
Secretary
May , 2002
YOUR VOTE IS VERY IMPORTANT. THE MERGER CANNOT PROCEED UNLESS THE HOLDERS
OF A MAJORITY OF THE OUTSTANDING SHARES OF ALPHA COMMON STOCK ENTITLED TO VOTE
UPON THE MERGER PROPOSAL VOTE IN FAVOR OF PROPOSAL NO. 1. IN ADDITION, THE
PROPOSED AMENDMENTS TO ALPHA'S 1996 LONG-TERM INCENTIVE PLAN AND DIRECTORS' 2001
STOCK OPTION PLAN WILL NOT BE ADOPTED UNLESS A MAJORITY OF THE VOTES PROPERLY
CAST ARE VOTED IN FAVOR OF PROPOSAL NOS. 2 AND 3, RESPECTIVELY. PLEASE RETURN
YOUR SIGNED AND DATED PROXY CARD AT YOUR EARLIEST CONVENIENCE.
TABLE OF CONTENTS
PAGE
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QUESTIONS AND ANSWERS....................................... 1
SUMMARY..................................................... 5
RISK FACTORS................................................ 17
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 34
THE ALPHA SPECIAL MEETING................................... 35
Date, Time and Place...................................... 35
Matters for Consideration................................. 35
Record Date; Voting Information; Quorum................... 35
Required Votes............................................ 36
Voting by Proxy........................................... 36
Revocation of Proxies..................................... 36
Voting by Alpha Management................................ 36
No Dissenters' or Appraisal Rights........................ 37
Solicitation of Proxies................................... 37
THE MERGER.................................................. 38
General................................................... 38
Background of the Merger.................................. 39
Alpha Board of Directors' Recommendation to Alpha
Stockholders; Reasons for the Merger................... 42
Opinion of Alpha's Financial Advisor...................... 43
Regulatory Approvals...................................... 49
Accounting Treatment...................................... 50
Interests of Certain Persons in the Merger................ 50
THE MERGER AGREEMENT........................................ 52
The Merger................................................ 52
Merger Consideration...................................... 52
Treatment of Stock Options................................ 52
Exchange of Shares; Treatment of Fractional Shares........ 52
Effective Time............................................ 53
Representations and Warranties............................ 53
Covenants................................................. 54
Conditions................................................ 59
Amendments................................................ 61
Termination of the Merger Agreement....................... 61
Payment of Termination Fee................................ 62
Restrictions on Resales by Affiliates..................... 63
THE SPIN-OFF TRANSACTION.................................... 64
Introduction.............................................. 64
Manner of Effecting the Distribution...................... 64
No Trading Market......................................... 65
Conditions to the Completion of the Distribution.......... 65
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
TRANSACTION AND THE MERGER................................ 66
AGREEMENTS RELATING TO THE SPIN-OFF TRANSACTION............. 69
Distribution Agreement.................................... 69
Employee Matters Agreement................................ 71
Tax Allocation Agreement.................................. 72
Transition Services Agreement............................. 73
Newport Supply Agreement.................................. 74
Newbury Supply Agreement.................................. 75
i
PAGE
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THE MEXICALI SALE........................................... 76
The Mexicali Operations................................... 76
Mexican Stock and Asset Purchase Agreement................ 76
U.S. Asset Purchase Agreement............................. 80
Facility Services Agreement............................... 81
PROPOSED AMENDMENT TO ALPHA'S 1996 LONG-TERM INCENTIVE
PLAN...................................................... 83
PROPOSED AMENDMENT TO ALPHA'S DIRECTORS' 2001 STOCK OPTION
PLAN...................................................... 86
PRICE RANGE OF ALPHA COMMON STOCK AND DIVIDENDS............. 89
HISTORICAL SELECTED COMBINED FINANCIAL DATA OF THE
WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS........... 90
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE WASHINGTON BUSINESS AND
THE MEXICALI OPERATIONS................................... 92
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
OF THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS.... 112
COMBINED COMPANY UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION..................................... 114
INFORMATION ABOUT ALPHA..................................... 125
Products and Applications................................. 125
Research and Development.................................. 125
Raw Materials............................................. 126
Marketing and Distribution; Customers..................... 126
Backlog................................................... 126
Environmental Regulations................................. 126
Employees................................................. 126
Properties................................................ 126
Legal Proceedings......................................... 127
Other Information......................................... 127
INFORMATION ABOUT THE WASHINGTON BUSINESS................... 128
The Washington Business................................... 128
Research and Development.................................. 129
Manufacturing............................................. 129
Raw Materials and Supplies................................ 130
Customers, Marketing and Sales............................ 130
Backlog................................................... 131
Competition............................................... 131
Intellectual Property and Proprietary Rights.............. 131
Environmental Regulation.................................. 132
Cyclicality; Seasonality.................................. 132
Employees................................................. 132
Properties................................................ 133
Legal Proceedings......................................... 133
INFORMATION ABOUT THE COMBINED COMPANY...................... 134
Industry Background....................................... 134
Business of the Combined Company.......................... 135
MANAGEMENT AND OPERATIONS OF THE COMBINED COMPANY AFTER THE
MERGER.................................................... 138
Board of Directors........................................ 138
Alpha Designees to the Board of Directors................. 138
Conexant Designees to the Board of Directors.............. 138
Joint Designee to the Board of Directors.................. 139
ii
PAGE
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Classified Board.......................................... 139
Committees of the Board of Directors...................... 139
Compensation of Directors................................. 140
Management................................................ 140
COMPENSATION OF EXECUTIVE OFFICERS OF THE COMBINED
COMPANY................................................... 142
Summary Compensation Table................................ 142
Option Grants in Last Fiscal Year......................... 143
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values................................. 144
OWNERSHIP OF COMBINED COMPANY COMMON STOCK.................. 145
DESCRIPTION OF THE COMBINED COMPANY'S CAPITAL STOCK......... 147
Common Stock.............................................. 147
Preferred Stock........................................... 148
Certain Provisions in the Combined Company's Second
Amended and Restated Certificate of Incorporation and
Amended By-Laws........................................ 148
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS..... 151
COMPARISON OF RIGHTS OF ALPHA STOCKHOLDERS BEFORE AND AFTER
THE MERGER................................................ 152
RIGHTS OF CONEXANT STOCKHOLDERS BEFORE AND AFTER THE
MERGER.................................................... 155
LEGAL MATTERS............................................... 155
EXPERTS..................................................... 155
STOCKHOLDER PROPOSALS....................................... 155
OTHER MATTERS............................................... 156
WHERE YOU CAN FIND MORE INFORMATION......................... 156
INDEX TO AUDITED COMBINED FINANCIAL STATEMENTS AND SCHEDULE
OF THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS.... F-1
ANNEX A-Agreement and Plan of Reorganization................ A-1
ANNEX B-Contribution and Distribution Agreement............. B-1
ANNEX C-Opinion of U.S. Bancorp Piper Jaffray............... C-1
ANNEX D-Second Amended and Restated Certificate of
Incorporation............................................. D-1
ANNEX E-Second Amended and Restated By-Laws................. E-1
iii
QUESTIONS AND ANSWERS
Q: WHAT ARE ALPHA INDUSTRIES, INC. STOCKHOLDERS BEING ASKED TO VOTE ON AT THE
SPECIAL MEETING?
A: First, Alpha stockholders are being asked to approve and adopt the merger
agreement and the merger of Washington Sub, Inc., currently a wholly-owned
subsidiary of Conexant Systems, Inc. to which Conexant will contribute its
wireless communications business (excluding certain assets and liabilities),
with and into Alpha, with Alpha surviving the merger as the combined company
(page 38). The Alpha board of directors has unanimously approved and adopted the
merger agreement and the merger and unanimously recommends that Alpha
stockholders vote FOR the proposal to approve and adopt the merger agreement and
the merger (page 42).
Second, Alpha stockholders are being asked to approve an amendment to
Alpha's 1996 Long-Term Incentive Plan to increase the number of shares of Alpha
common stock that may be issued under the plan.
Third, Alpha stockholders are being asked to approve an amendment to
Alpha's Directors' 2001 Stock Option Plan to increase the number of shares of
Alpha common stock that may be issued under the plan.
Alpha believes the amendments to Alpha's 1996 Long-Term Incentive Plan and
Directors' 2001 Stock Option Plan are advisable in connection with the increase
in the number of employees and the addition of new officers and directors that
will occur as a result of the merger. The Alpha board of directors unanimously
recommends that Alpha stockholders vote FOR the proposals to approve the
amendments to Alpha's 1996 Long-Term Incentive Plan and Directors' 2001 Stock
Option Plan. Completion of the merger is a condition to the effectiveness of the
amendments to the plans, but approval of the amendments to the plans is not a
condition to completion of the merger (pages 83 and 86).
Q: WHAT WILL HAPPEN IN THE MERGER?
A: The merger will be accomplished by Conexant contributing its wireless
communications business (excluding certain assets and liabilities) to Washington
and distributing all of the outstanding shares of Washington common stock to the
stockholders of Conexant on a one share-for-one share basis, immediately after
which Washington will merge with and into Alpha. Alpha will be the surviving
company in the merger.
Q: WHAT WILL ALPHA STOCKHOLDERS RECEIVE IN THE MERGER?
A: Alpha stockholders are not exchanging their shares of Alpha common stock in
the merger. All shares of Alpha common stock issued and outstanding immediately
prior to the merger will remain issued and outstanding after completion of the
merger as shares of the combined company. Immediately following the merger,
approximately 33% of the common stock of the combined company, on a fully
diluted basis, will be owned by Alpha stockholders.
Q: WHAT WILL CONEXANT STOCKHOLDERS RECEIVE IN THE MERGER?
A: In the merger, stockholders of Conexant will receive 0.351 of a share of
combined company common stock in exchange for each share of Washington common
stock issued to them in the distribution and the shares of Washington stock will
be canceled and will cease to exist. In the distribution, Conexant stockholders
will receive one share of Washington common stock for each share of Conexant
stock held by them. As a result, Conexant stockholders will receive 0.351 of a
share of combined company common stock for each share of Conexant stock that
they own as of the record date for the distribution. Immediately following the
merger, approximately 67% of the common stock of the combined company, on a
fully diluted basis, will be owned by Conexant stockholders. In addition,
Conexant stockholders will continue to own their shares of Conexant stock.
1
No fractional shares of combined company common stock will be issued to
Conexant stockholders in the merger. Conexant stockholders who otherwise would
be entitled to a fraction of a share will receive a cash payment in lieu of
issuance of that fractional share (page 52).
Q: WHAT STOCKHOLDER APPROVALS ARE NEEDED?
A: The merger cannot be completed unless the holders of a majority of the
outstanding shares of Alpha common stock entitled to vote on the merger proposal
vote in favor of approval and adoption of the merger agreement and the merger.
The Alpha board of directors unanimously recommends that Alpha stockholders vote
FOR approval and adoption of the merger agreement and the merger. No vote of
Conexant stockholders is required or being sought in connection with the
spin-off transaction or the merger. Conexant, as sole stockholder of Washington,
has approved and adopted the merger agreement and the merger (page 38).
The proposed amendments to Alpha's 1996 Long-Term Incentive Plan and
Directors' 2001 Stock Option Plan will not be adopted unless a majority of the
votes properly cast are voted in favor of their adoption. The Alpha board of
directors unanimously recommends that Alpha stockholders vote FOR approval and
adoption of the proposed amendments to Alpha's 1996 Long-Term Incentive Plan and
Directors' 2001 Stock Option Plan (pages 83 and 86).
Q: WHO IS ELIGIBLE TO VOTE AT THE ALPHA SPECIAL MEETING?
A: Holders of Alpha common stock are eligible to vote their shares of Alpha
common stock at the special meeting if they were holders of record of those
shares at the close of business on April 22, 2002 (page 35).
Q: WHEN WILL THE MERGER BE COMPLETED?
A: If the merger agreement and the merger are approved by Alpha stockholders,
Alpha and Conexant expect to complete the merger as soon as possible after the
satisfaction or waiver (where permissible) of the conditions to the merger.
Alpha and Conexant currently anticipate that the merger will be completed during
the second calendar quarter of 2002 (page 53).
Q: WHAT SHOULD ALPHA STOCKHOLDERS DO NOW?
A: After carefully reading and considering the information contained in this
proxy statement/prospectus-information statement, Alpha stockholders should
complete and mail their signed and dated proxy card in the enclosed,
postage-paid envelope as soon as possible so that their shares will be
represented and voted at the Alpha special meeting.
ALPHA STOCKHOLDERS WILL NOT BE REQUIRED TO SURRENDER THEIR EXISTING ALPHA
SHARES IN THE MERGER AND THEY SHOULD NOT SEND IN THEIR ALPHA STOCK CERTIFICATES.
Q: WHAT SHOULD CONEXANT STOCKHOLDERS DO NOW?
A: Conexant stockholders should carefully read this proxy
statement/prospectus-information statement, which contains important information
about the merger, the distribution of Washington common stock by Conexant to its
stockholders, the wireless communications business of Conexant, Alpha and the
combined company. Conexant stockholders are not required to take any action to
approve the distribution of Washington common stock by Conexant to them or the
merger of Washington with and into Alpha. Holders of Conexant stock entitled to
receive shares of combined company common stock will be mailed after the merger
book-entry statements evidencing their ownership of combined company common
stock and other information regarding their receipt of combined company common
stock.
CONEXANT STOCKHOLDERS WILL NOT BE REQUIRED TO SURRENDER THEIR EXISTING
CONEXANT SHARES IN THE SPIN-OFF TRANSACTION OR THE MERGER AND THEY SHOULD NOT
SEND IN THEIR CONEXANT STOCK CERTIFICATES.
2
Q: CAN ALPHA STOCKHOLDERS CHANGE THEIR VOTE AFTER THEY MAIL THEIR PROXY CARD?
A: Yes. If you are a record holder of Alpha common stock and have mailed your
proxy card, you can change your vote in any of the following ways:
- sending a written notice to the corporate secretary of Alpha that is
received prior to the special meeting stating that you revoke your proxy;
- signing a new proxy card and returning it by mail to Alpha's transfer
agent so that it is received prior to the special meeting; or
- attending the special meeting and voting in person.
If you are an Alpha stockholder and your shares are held in "street name"
by your broker, you will need to contact your broker to revoke your proxy (page
36).
Q: WHAT IF MY SHARES OF ALPHA COMMON STOCK ARE HELD IN "STREET NAME" BY MY
BROKER?
A: If you are an Alpha stockholder and your shares of Alpha common stock are
held in "street name" by your broker, your broker will vote your shares with
respect to the merger proposal only if you provide written instructions to your
broker on how to vote, so it is important that you provide your broker with
instructions. If you do not provide your broker with instructions, your broker
will not be authorized to vote with respect to the merger proposal. To ensure
that your broker receives your instructions, Alpha requests that you promptly
send your broker your instructions in the envelope enclosed with this proxy
statement/ prospectus-information statement. If your shares are held in street
name by your broker and you wish to vote in person at the meeting, you must
contact your broker and request a document called a "legal proxy". You must
bring the legal proxy to the meeting in order to vote in person.
If you do not give voting instructions to your broker with respect to the
merger proposal, you will, in effect, be voting against the merger proposal,
unless you appear in person at the special meeting with a valid legal proxy from
your broker and vote in favor of the merger proposal.
If your shares are held in street name by your broker, your broker may be
permitted to vote your shares with respect to the proposals to approve the
amendments to Alpha's 1996 Long-Term Incentive Plan and Directors' 2001 Stock
Option Plan if these proposals are considered routine matters, even if you do
not provide written instructions to your broker on how to vote. As a result, if
you do not give your broker instructions on how to vote your shares, your broker
may vote your shares in a manner different than you would have voted if you had
provided instructions (page 35).
Q: WHO CAN ANSWER MY QUESTIONS?
A: If you are an Alpha stockholder and you have any questions about the merger,
the special meeting, the proposed amendments to Alpha's 1996 Long-Term Incentive
Plan and Directors' 2001 Stock Option Plan, or if you need assistance in voting
your shares, please contact Alpha's proxy solicitor:
Morrow & Co., Inc.
14755 Preston Road, Suite 725
One Signature Place
Dallas, Texas 75240
Telephone: (972) 788-0977
All other questions should be directed to:
Alpha Industries, Inc.
20 Sylvan Road
Woburn, Massachusetts 01801
Attention: Investor Relations
Telephone: (781) 935-5150, extension 4798
3
If you are a Conexant stockholder and you have any questions regarding the
merger, the distribution of shares of Washington common stock by Conexant to its
stockholders or any other matter described in this proxy
statement/prospectus-information statement, please direct your questions to:
Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, California 92660-3095
Attention: Shareowner Services
Telephone: (949) 483-4533
4
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus-information statement and may not contain all of the
information that is important to you. For a more complete description of the
legal terms of the merger and to understand the merger and the other
transactions described in this summary fully, you should carefully read this
proxy statement/prospectus-information statement and the other documents to
which we have referred you. See "Where You Can Find More Information". This
proxy statement/prospectus-information statement is a proxy statement/prospectus
of Alpha Industries, Inc. for use in soliciting proxies for Alpha's special
meeting and relating to the issuance of shares of Alpha common stock in
connection with the merger. It is also an information statement of Conexant
Systems, Inc. relating to the spin-off of its wireless communications business.
References to Alpha, Conexant and the combined company in this proxy
statement/prospectus-information statement include their respective subsidiaries
unless otherwise noted. The terms "we", "us" and "our" refer to Alpha and
Conexant, jointly.
THE COMPANIES
ALPHA INDUSTRIES, INC.
20 Sylvan Road
Woburn, Massachusetts 01801
(781) 935-5150
Alpha Industries, Inc., a Delaware corporation, manufactures and markets
proprietary radio frequency and microwave integrated circuit products and
solutions primarily for wireless communications. Alpha's products include
modules, integrated circuits and discrete components, as well as components
based on electrical ceramic and ferrite technology. The primary applications for
Alpha's products are wireless handsets and wireless base station equipment,
together with wireless local area network, wide area network and local loop
applications.
WASHINGTON SUB, INC.
c/o Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, California 92660-3095
(949) 483-4600
Washington Sub, Inc., a Delaware corporation, is a newly-formed corporation
that has not conducted any activities other than those incident to its formation
and the matters contemplated by the merger agreement, which is described below.
Washington is currently a wholly-owned subsidiary of Conexant Systems, Inc., a
Delaware corporation. Prior to the merger of Washington with and into Alpha,
Conexant will contribute to Washington the assets, liabilities (including
liabilities relating to former operations) and operations of its wireless
communications business, other than certain assets and liabilities retained by
Conexant. We refer to the business contributed to Washington by Conexant as the
Washington Business.
The Washington Business's wireless communications product portfolio is
comprised of components, subsystems and system-level semiconductor solutions for
wireless voice and data communications applications, supporting the world's most
widely adopted wireless standards, including: CDMA, or Code Division Multiple
Access; TDMA, or Time Division Multiple Access; and GSM, or Global System for
Mobile Communications. Wireless communications product offerings of the
Washington Business include power amplifier modules, radio frequency components
and subsystems, and cellular systems.
5
CONEXANT SYSTEMS, INC.
4311 Jamboree Road
Newport Beach, California 92660-3095
(949) 483-4600
Conexant Systems, Inc., a Delaware corporation, is a worldwide leader in
semiconductor system solutions for communications applications. Conexant's
expertise in mixed-signal processing allows it to deliver integrated systems and
semiconductor products which facilitate communications worldwide through
wireline voice and data communications networks, cellular telephony systems and
emerging cable, satellite and fixed wireless broadband communications networks.
Conexant operates in two business segments: the Personal Networking business and
Mindspeed Technologies(TM), its Internet infrastructure business. The Washington
Business is currently part of Conexant's Personal Networking business.
THE MERGER
Alpha and Conexant have agreed to merge the Washington Business with
Alpha's business pursuant to the terms of the Agreement and Plan of
Reorganization, dated as of December 16, 2001, as amended as of April 12, 2002,
by and among Conexant, Washington and Alpha, which we refer to in this proxy
statement/prospectus-information statement as the merger agreement. In
connection with the merger, Conexant will contribute the Washington Business to
Washington pursuant to the terms of the Contribution and Distribution Agreement,
dated as of December 16, 2001, by and between Conexant and Washington.
Immediately prior to the merger, Conexant will distribute all of the outstanding
shares of Washington common stock to Conexant stockholders on a one
share-for-one share basis. Conexant's contribution of the Washington Business to
Washington and the subsequent distribution of Washington common stock to
Conexant stockholders together comprise the spin-off transaction. Washington
will then merge with Alpha in accordance with the terms of the merger agreement,
with Alpha surviving the merger as the combined company.
Conexant stockholders will receive 0.351 of a share of combined company
common stock in exchange for each share of Washington common stock issued to
them in the distribution. Alpha stockholders will continue to hold their
existing shares of Alpha common stock as shares of the combined company after
the merger and will not receive any new shares in the merger.
Following the merger, the combined company will operate the combined
business operations of Alpha and the Washington Business and will adopt a new
corporate name. The corporate name change will be effected by a means that will
not require the approval of the stockholders of the combined company. The
combined company will have joint headquarters in Woburn, Massachusetts and
Newport Beach, California. The fiscal year of the combined company will end on
the Sunday closest to September 30.
We encourage you to read carefully the merger agreement and the
distribution agreement, which are attached as Annexes A and B, respectively,
because they set forth the legal terms of the merger, the contribution of the
Washington Business to Washington and the distribution of Washington common
stock to Conexant stockholders.
Upon completion of the merger, the combined company will purchase from
Conexant:
- Conexant's semiconductor assembly and test facility located in Mexicali,
Mexico and certain related assets, pursuant to the Mexican Stock and
Asset Purchase Agreement, dated as of December 16, 2001, between Conexant
and Alpha; and
- Conexant's package design team that supports the Mexicali facility,
pursuant to the U.S. Asset Purchase Agreement, dated as of December 16,
2001, between Conexant and Alpha.
The combined company will pay Conexant $150 million for the purchase of
Conexant's Mexicali facility, the package design team and certain related
assets. The satisfaction of the conditions to closing set forth in the Mexican
stock and asset purchase agreement is a condition to the obligations of Alpha
and Washington to complete the merger.
6
ALPHA BOARD OF DIRECTORS' RECOMMENDATION TO ALPHA STOCKHOLDERS; REASONS FOR THE
MERGER
The Alpha board of directors has determined that the merger is advisable
and fair to, and in the best interests of, Alpha and its stockholders and
unanimously recommends that Alpha stockholders vote FOR the proposal to approve
and adopt the merger agreement and the merger.
The combination of Alpha and the Washington Business will create a leading
independent company focused exclusively on radio frequency and semiconductor
systems solutions for mobile communications applications. Alpha believes that
the combination of the two complementary wireless businesses will enable the
combined company to offer a more comprehensive portfolio of technology and
products to an expanded customer base.
OPINION OF ALPHA'S FINANCIAL ADVISOR
In deciding to approve the merger, the Alpha board of directors considered
an opinion delivered to it by U.S. Bancorp Piper Jaffray, its financial advisor,
that, as of the date of the opinion, based upon and subject to the assumptions,
factors and limitations set forth in the opinion, the consideration to be paid
by Alpha to the holders of Washington common stock in the merger pursuant to the
merger agreement was fair, from a financial point of view, to Alpha and its
stockholders (other than Conexant, Washington and their affiliates). A copy of
the opinion is attached as Annex C. Alpha encourages you to read the opinion in
its entirety.
REGULATORY APPROVALS
Alpha and Washington cannot complete the merger until they submit the
filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
to the Department of Justice and the Federal Trade Commission and satisfy
waiting period requirements. Alpha and Washington submitted the required filings
under the Hart-Scott-Rodino Act and early termination of the waiting period
under this Act was granted on January 29, 2002.
Alpha and Washington also have made filings to obtain approval of the
merger from the Finnish Competition Authority, the Swedish Competition Authority
and other foreign regulatory agencies. Alpha and Washington received approvals
of the merger from the Finnish Competition Authority on March 14, 2002 and from
the Swedish Competition Authority on April 9, 2002.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting
and Washington will be considered the acquiror of Alpha for accounting purposes.
TREATMENT OF STOCK OPTIONS
In the merger, each outstanding option to purchase Washington common stock
resulting from the adjustment to outstanding options to purchase Conexant common
stock in connection with the distribution of Washington common stock will be
converted into an option to purchase a number of shares of combined company
common stock that is equal to the product of 0.351 multiplied by the number of
shares of Washington common stock subject to the Washington option immediately
before the conversion, rounded down to the nearest whole share. The exercise
price per share of the converted option will be equal to the exercise price per
share of the Washington option immediately before the conversion divided by
0.351, rounded up to the nearest whole cent.
Each option to purchase shares of Alpha common stock outstanding
immediately prior to the effective time of the merger will remain outstanding as
an option to purchase shares of combined company common stock, without
adjustment.
7
EXCHANGE OF SHARES; TREATMENT OF FRACTIONAL SHARES
Conexant stockholders will receive shares of the combined company in
book-entry form. As soon as practicable after the effective time of the merger,
the exchange agent will mail to Conexant stockholders account statements
indicating the number of whole shares of combined company common stock owned by
each stockholder as a result of the conversion of the shares of Washington
common stock in the merger. No fractional shares of combined company common
stock will be issued in the merger and each Conexant stockholder will receive a
check representing the amount of cash in lieu of fractional shares payable by
the combined company to the stockholder.
MANAGEMENT AND OPERATIONS OF THE COMBINED COMPANY AFTER THE MERGER
After the merger, David J. Aldrich, currently president and chief executive
officer of Alpha, will be chief executive officer of the combined company and
Paul E. Vincent, currently vice president, chief financial officer, treasurer
and secretary of Alpha, will be vice president and chief financial officer of
the combined company. In addition, after the merger, Liam K. Griffin, currently
an executive officer of Alpha, George M. LeVan, currently director, human
resources of Alpha, and Kevin D. Barber, currently an executive officer of
Conexant, will be executive officers of the combined company. The board of
directors of the combined company will be comprised of nine directors. Four
directors of the combined company, Mr. Aldrich, Timothy R. Furey, Thomas C.
Leonard and David J. McLachlan, have been selected from among Alpha's current
directors, and four directors, Dwight W. Decker, chairman and chief executive
officer of Conexant, who will serve as chairman of the board of directors of the
combined company, Donald R. Beall, Moiz M. Beguwala and F. Craig Farrill, have
been selected by Conexant. Alpha and Conexant will jointly select the remaining
director.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
When considering the recommendation of the Alpha board of directors with
respect to the merger, Alpha stockholders should be aware that certain Alpha
executive officers and directors have interests in the merger that are different
from, or are in addition to, the interests of Alpha stockholders. These
interests exist because:
- certain executive officers and directors of Alpha will hold positions as
executive officers and directors of the combined company;
- unvested options held by current directors of Alpha who will not continue
as directors of the combined company and having an aggregate value of
approximately $0.8 million as of April 30, 2002 will accelerate and
become vested and exercisable at the completion of the merger, and the
exercise period for these options will be extended; and
- following the merger, the combined company will indemnify, and maintain
directors' and officers' insurance policies for the benefit of, the
directors and officers of Alpha for events occurring before the merger,
including events that are related to the merger agreement.
The affirmative vote of a majority of the outstanding shares of Alpha
common stock entitled to vote on the merger proposal is required to approve and
adopt the merger agreement and the merger. Each of the Alpha directors and
certain executive officers of Alpha have entered into a stockholders agreement
with Conexant pursuant to which each has agreed to vote his shares in favor of
approval and adoption of the merger agreement and the merger. As of April 22,
2002, these directors and officers, as a group, held approximately 0.54% of the
voting power of the outstanding Alpha common stock. As of April 22, 2002, all
Alpha directors, executive officers and their affiliates, as a group, owned and
were entitled to vote shares representing approximately 0.6% of the outstanding
voting power of Alpha common stock.
NO DISSENTERS' OR APPRAISAL RIGHTS
Alpha stockholders will not be entitled to exercise dissenters' or
appraisal rights or to demand payment for their shares in connection with the
merger.
8
CONDITIONS
The respective obligations of Washington and Alpha to complete the merger
are subject to the satisfaction or waiver of various conditions, including
approval and adoption of the merger agreement and the merger by Alpha
stockholders, receipt of regulatory approvals and receipt by Conexant of a
favorable IRS ruling with respect to the tax-free nature of the spin-off
transaction. Each of Alpha, Conexant and Washington may waive, at their sole
discretion, any of the conditions to their respective obligations to complete
the merger, to the extent permitted by applicable laws. If Alpha, Conexant or
Washington waives any of the conditions to their respective obligations to
complete the merger and the board of directors of Alpha determines that the
waiver is material to an Alpha stockholder's decision with respect to the vote
regarding the approval and adoption of the merger agreement and the merger,
Alpha currently intends to amend and recirculate this proxy
statement/prospectus-information statement to its stockholders and resolicit
proxies.
TERMINATION OF THE MERGER AGREEMENT; TERMINATION FEE
Conexant and Alpha can mutually agree to terminate the merger agreement. In
addition, either Conexant or Alpha can decide, without the consent of the other,
to terminate the merger agreement in a number of situations, including the
failure to complete the merger by September 30, 2002, the final denial of a
required regulatory approval or the failure by Alpha stockholders to approve and
adopt the merger agreement and the merger. In addition, Conexant can decide,
without the consent of Alpha, to terminate the merger agreement in a number of
situations, including specified circumstances relating to a withdrawal or
modification by Alpha's board of directors of its recommendation to Alpha
stockholders to approve and adopt the merger agreement and the merger.
Alpha has agreed to pay Conexant a termination fee of $45 million if the
merger agreement has been terminated under specified circumstances relating to a
competing transaction or if Conexant terminates the merger agreement as a result
of certain actions or failures to act by Alpha or its board of directors.
COMPARISON OF RIGHTS OF ALPHA STOCKHOLDERS BEFORE AND AFTER THE MERGER
By approving and adopting the merger agreement, Alpha stockholders will be
approving the adoption of Alpha's second amended and restated certificate of
incorporation and Alpha's amended by-laws as the certificate of incorporation
and by-laws of the combined company, in the forms attached to this proxy
statement/prospectus-information statement as Annexes D and E, respectively.
Accordingly, after completion of the merger, the rights of Alpha stockholders
will be governed by these revised documents and, as a result, the rights of
Alpha stockholders before the merger will be different in some respects from the
rights of stockholders of the combined company after the merger. Among other
things, under the terms of the second amended and restated certificate of
incorporation, the combined company will be authorized to issue 525 million
shares of common stock and 25 million shares of preferred stock. Alpha is
currently authorized to issue 100 million shares of common stock and is not
authorized to issue any preferred stock.
THE SPIN-OFF TRANSACTION
THE DISTRIBUTION
In the distribution of Washington common stock, each Conexant stockholder
will receive one share of Washington common stock for each share of Conexant
common stock or Conexant Series B voting preferred stock held as of the record
date for the distribution. On the distribution date, each record holder of
Conexant common stock or Conexant Series B voting preferred stock who receives
shares of Washington common stock will be credited through book-entry in
Washington's records with the number of shares of Washington common stock
received by the stockholder.
Conexant stockholders will not be required to pay for shares of Washington
common stock received in the distribution, or to surrender or exchange shares of
Conexant stock or take any other action in order to
9
be entitled to receive Washington common stock. All shares of Washington common
stock issued in the distribution will be immediately converted in the merger
into the right to receive 0.351 of a share of combined company common stock in
exchange for each share of Washington common stock and the Washington shares
will be canceled and will cease to exist. After the merger, Conexant
stockholders will not have any rights in the shares of Washington common stock
other than the right to receive the shares of combined company common stock.
The distribution of Washington common stock will not cancel or affect the
number of outstanding shares of Conexant stock. Conexant stockholders should
retain their Conexant stock certificates.
CONDITIONS TO THE COMPLETION OF THE DISTRIBUTION
The distribution of Washington common stock is subject to the satisfaction
or waiver of certain conditions set forth in the distribution agreement,
including:
- Conexant's board of directors' satisfaction that, after giving effect to
the contribution, Conexant will not be insolvent or have unreasonably
small capital and will have sufficient surplus under Delaware law to
permit the distribution of Washington common stock; and
- the satisfaction or waiver of all conditions to the merger under the
merger agreement, including receipt of a favorable IRS ruling with
respect to the tax-free nature of the spin-off transaction.
Conexant's board of directors, in its sole discretion, may waive any and all of
the conditions but has no obligation to do so.
CONTRIBUTION OF THE WASHINGTON BUSINESS
Prior to the distribution, Conexant will transfer to Washington
specifically identified assets, including stock of certain subsidiaries, and
other categories of assets used primarily in or related primarily to the
Washington Business and Washington will assume specifically identified
liabilities and liabilities to the extent related to the Washington Business.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF TRANSACTION AND THE MERGER
The spin-off transaction is conditioned upon the receipt by Conexant of a
ruling from the IRS to the effect that the spin-off transaction will qualify as
a reorganization under Sections 355 and 368 of the Internal Revenue Code of 1986
and the merger is conditioned upon the receipt of opinions of counsel to Alpha
and Conexant that the merger will qualify as a reorganization under Section 368
of the Internal Revenue Code. So long as the spin-off transaction and merger so
qualify, then:
- no taxable gain or loss will generally be recognized by a Conexant
stockholder as a result of the distribution or receipt of Washington
common stock in the spin-off transaction;
- no taxable gain or loss will generally be recognized by Conexant so long
as the spin-off transaction is not disqualified as tax-free to Conexant
under Section 355(e) of the Internal Revenue Code because of certain
acquisitions of Conexant common stock or combined company common stock by
a third party; and
- no taxable gain or loss will generally be recognized by Alpha,
Washington, an Alpha stockholder or a Conexant stockholder in the merger
(except with respect to cash received by Conexant stockholders in lieu of
a fractional share interest in common stock of the combined company).
Each of Alpha and Conexant may waive, in their sole discretion, the
conditions to their respective obligations to complete the merger that (1)
Conexant receive a favorable IRS ruling regarding the spin-off transaction and
(2) Conexant and Alpha receive tax opinions of counsel regarding the merger. If
Alpha or Conexant waives either of these conditions and the board of directors
of Alpha determines that the U.S. federal income tax consequences to Alpha
stockholders are materially different than as described in this proxy
statement/prospectus-information statement, Alpha currently intends to amend and
recirculate
10
this proxy statement/prospectus-information statement to its stockholders and
resolicit their proxies. Neither Alpha nor Conexant currently intends to waive
either of these conditions to their respective obligations to complete the
merger.
AGREEMENTS RELATING TO THE SPIN-OFF TRANSACTION
Conexant and Washington have entered into, or prior to the distribution of
Washington common stock will enter into, various agreements that will govern the
spin-off transaction and various interim and ongoing relationships between
Conexant and the combined company, including:
- the distribution agreement;
- an employee matters agreement;
- a tax allocation agreement;
- a transition services agreement pursuant to which each of Conexant and
the combined company will provide to the other until December 31, 2002
various accounting, administrative, technical and other services at
prices equal to the actual cost, including out of pocket expenses, of
providing the services;
- a supply agreement with respect to the supply of products and services to
the combined company by the Newport Beach, California semiconductor wafer
fabrication facility owned by a foundry joint venture between Conexant
and The Carlyle Group; and
- a supply agreement with respect to the supply of products and services to
Conexant by the combined company's Newbury Park, California wafer
fabrication facility.
MEXICALI SALE
Immediately following the completion of the merger, Conexant will sell to
the combined company all of the stock of Conexant Systems, S.A. de C.V.,
Conexant's Mexican subsidiary that owns and operates an assembly and test
facility located in Mexicali, Mexico. In addition, Conexant will sell to the
combined company certain Mexican assets used in connection with the business of
the Mexican subsidiary and certain U.S. assets utilized by Conexant's package
design team employees who are located in Newport Beach, California. The business
and operations of Conexant's Mexican subsidiary and the package design team
together constitute the Mexicali operations.
The aggregate purchase price to be paid by the combined company to Conexant
for the stock of Conexant's Mexican subsidiary, the Mexican assets and the U.S.
assets is $150 million. We expect that the combined company will pay the
purchase price by delivering a short-term promissory note to Conexant, which
will be secured by all current and future assets of the combined company and its
subsidiaries, including the stock of its subsidiaries.
The obligations of each of the parties to complete these sales are subject
to the satisfaction of various conditions, including entering into a facility
services agreement providing for the supply of assembly and test services after
the closing of the merger by the combined company to Conexant and for the supply
of transition services after the closing of the merger by Conexant to the
combined company.
11
PROPOSED AMENDMENTS TO ALPHA'S 1996 LONG-TERM INCENTIVE PLAN AND DIRECTORS' 2001
STOCK OPTION PLAN
The Alpha board of directors is asking Alpha stockholders to approve
proposals to amend Alpha's 1996 Long-Term Incentive Plan and Directors' 2001
Stock Option Plan to increase the number of shares of common stock that may be
issued under the plans. The remaining shares authorized for issuance under the
1996 plan and the 2001 plan are expected to be insufficient for purposes of the
plans, largely due to the increase in the number of employees and the addition
of new officers and directors that will occur as a result of the merger.
Accordingly, the Alpha board of directors has adopted, subject to approval by
Alpha stockholders, an amendment to the 1996 plan increasing the number of
shares of common stock that may be issued under the 1996 plan by 1,885,000
shares (from 4,200,000 shares to 6,085,000 shares) and an amendment to the 2001
plan increasing the number of shares of common stock that may be issued under
the 2001 plan by 315,000 shares (from 250,000 shares to 565,000 shares).
SUMMARY SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA OF THE
WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
The following table presents summary selected historical and pro forma
combined financial data of the Washington Business and the Mexicali operations,
which are sometimes referred to collectively as Washington/Mexicali. For
financial accounting purposes, the sale of the Mexicali operations by Conexant
to the combined company will be treated as if Conexant had contributed the
Mexicali operations to Washington as part of the spin-off transaction, and the
$150 million purchase price will be treated as a return of capital to Conexant.
Consequently, the summary selected historical and pro forma combined financial
data presented below include the Mexicali operations for all periods presented.
The Washington/Mexicali combined statement of operations data for the years
ended September 30, 1999, 2000 and 2001 and the Washington/Mexicali combined
balance sheet data as of September 30, 2000 and 2001 have been derived from the
audited Combined Financial Statements of the Washington Business and the
Mexicali Operations included in this proxy statement/prospectus-information
statement. The Washington/Mexicali combined statement of operations data for the
three months ended December 31, 2000 and 2001 and the Washington/Mexicali
combined balance sheet data as of December 31, 2001 have been derived from
Washington/Mexicali's unaudited combined financial statements included in this
proxy statement/prospectus-information statement. The Washington/Mexicali
combined statement of operations data for the years ended September 30, 1997 and
1998 and the Washington/Mexicali combined balance sheet data as of September 30,
1997, 1998 and 1999 have been derived from Washington/Mexicali's unaudited
combined financial statements which are not presented in this proxy
statement/prospectus-information statement. The historical financial information
may not be indicative of Washington/Mexicali's future performance and does not
reflect what the results of operations and financial position of
Washington/Mexicali would have been had it operated as an independent company
during the periods presented.
The Washington/Mexicali summary pro forma combined balance sheet data as of
December 31, 2001 have been derived from the Unaudited Pro Forma Condensed
Combined Financial Information of the Washington Business and the Mexicali
Operations included in this proxy statement/prospectus-information statement.
This information is based on Washington/Mexicali's unaudited combined financial
statements and gives effect to the spin-off transaction as if it had been
completed on December 31, 2001. The summary pro forma combined balance sheet
data are not necessarily indicative of Washington/Mexicali's financial position
had the spin-off transaction been completed on December 31, 2001. In the
spin-off transaction, Conexant will retain certain assets and liabilities of
Washington/Mexicali. The retention of these assets and liabilities will have no
pro forma effect on the Washington/Mexicali combined statements of operations,
and therefore no pro forma adjustments are made to the Washington/Mexicali
historical combined statements of operations to give effect to the spin-off
transaction.
This information is only a summary and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Washington Business and the
12
Mexicali Operations, the Combined Financial Statements of the Washington
Business and the Mexicali Operations and the notes thereto, the Historical
Selected Combined Financial Data of the Washington Business and the Mexicali
Operations and the Unaudited Pro Forma Condensed Combined Financial Information
of the Washington Business and the Mexicali Operations included in this proxy
statement/prospectus-information statement.
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------------- -------------------
1997 1998 1999 2000(1) 2001(1) 2000 2001
-------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA:
Net revenues:
Third parties............. $ 49,201 $ 79,066 $176,015 $312,983 $ 215,502 $ 68,518 $ 88,404
Conexant.................. 30,818 33,205 40,400 65,433 44,949 16,978 5,356
Total net revenues.......... 80,019 112,271 216,415 378,416 260,451 85,496 93,760
Net loss(2)................. (54,134) (43,284) (14,915) (66,479) (318,924) (53,964) (34,297)
SEPTEMBER 30, DECEMBER 31, 2001
---------------------------------------------------- -----------------------
1997 1998 1999 2000(1) 2001(1) ACTUAL PRO FORMA(3)
-------- -------- -------- -------- -------- -------- ------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital........... $ 40,529 $ 17,831 $ 55,374 $135,649 $ 60,540 $ 60,683 $ 12,352
Total assets.............. 155,982 203,313 291,909 501,553 314,287 311,084 261,360
Long-term liabilities..... 1,549 2,063 3,335 3,767 3,806 3,772 3,772
Conexant's net
investment.............. 144,332 187,196 275,568 466,416 287,661 274,023 225,420(4)
---------------
(1) In fiscal 2000, Conexant acquired Philsar Semiconductor Inc., which became
part of Washington/Mexicali. As a result of the acquisition of Philsar,
during fiscal 2000 and 2001 Washington/Mexicali recorded $5.3 million and
$15.3 million, respectively, in amortization of goodwill and other
acquisition-related intangible assets and in fiscal 2000 Washington/Mexicali
recorded a charge of $24.4 million related to purchased in-process research
and development.
(2) In fiscal 2001, Washington/Mexicali recorded special charges of $88.9
million, principally related to the impairment of certain wafer fabrication
assets and restructuring activities. In addition, Washington/Mexicali
recorded inventory write-downs of $58.7 million in fiscal 2001.
(3) In the spin-off transaction, Conexant will retain certain assets and
liabilities of Washington/Mexicali. The assets include cash and cash
equivalents, receivables and certain other assets included in "other current
assets" and "other assets" on Washington/Mexicali's historical unaudited
combined balance sheet. In addition, Conexant will remain obligated for
payment of Washington/Mexicali's accounts payable.
(4) The retention of certain assets and liabilities by Conexant is reflected as
an adjustment to Conexant's net investment in Washington/Mexicali.
RECENT DEVELOPMENTS
In March 2002, Conexant and The Carlyle Group formed the Newport foundry
joint venture. Conexant owns a 45% equity interest in the Newport foundry joint
venture and The Carlyle Group owns the remaining 55%. In the transaction,
Conexant contributed its Newport Beach, California wafer fabrication facility
and certain related intellectual property to the Newport foundry joint venture
and entered into a long-term supply arrangement with the Newport foundry joint
venture for the supply of silicon-based semiconductor products.
13
ALPHA SELECTED HISTORICAL FINANCIAL DATA
Alpha is providing the following information to aid you in your analysis of
the financial aspects of the merger. Alpha derived the information for each of
the years in the five-year period ended April 1, 2001, and as of the end of each
such year, from, and such information should be read in conjunction with,
Alpha's historical audited financial statements. Alpha derived the financial
information as of and for the nine months ended December 31, 2000 and December
30, 2001 from its unaudited financial statements. These statements include, in
the opinion of management, all normal and recurring adjustments that are
necessary for a fair statement of results. The operating results for the nine
months ended December 30, 2001 are not necessarily indicative of the results
that may be expected for the year ending March 31, 2002. This information is
only a summary and you should read it in conjunction with Alpha's consolidated
financial statements and related notes contained in Alpha's annual reports on
Form 10-K and quarterly reports on Form 10-Q filed with the Securities and
Exchange Commission.
YEAR ENDED NINE MONTHS ENDED
--------------------------------------------------------- ---------------------------
MARCH 30, MARCH 29, MARCH 28, APRIL 2, APRIL 1, DECEMBER 31, DECEMBER 30,
1997 1998 1999 2000 2001 2000 2001
--------- --------- --------- --------- --------- ------------ ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 85,253 $116,881 $126,413 $186,402 $271,568 $217,573 $ 98,312
Net income (loss).................. $(15,572) $ 10,161 $ 19,263 $ 17,982 $ 33,373 $ 29,988 $ (9,787)
Basic earnings (loss) per share.... $ (0.48) $ 0.31 $ 0.56 $ 0.44 $ 0.78 $ 0.70 $ (0.22)
Diluted earnings (loss) per
share............................ $ (0.48) $ 0.30 $ 0.54 $ 0.42 $ 0.75 $ 0.67 $ (0.22)
Shares used in computing:
Basic earnings (loss) per
share.......................... 32,208 33,268 34,314 40,659 43,029 42,882 43,933
Diluted earnings (loss) per
share.......................... 32,208 34,088 35,406 42,822 44,752 44,760 43,933
AS OF
--------------------------------------------------------- AS OF
MARCH 30, MARCH 29, MARCH 28, APRIL 2, APRIL 1, DECEMBER 30,
1997 1998 1999 2000 2001 2001
--------- --------- --------- --------- --------- ------------
(UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital.................... $ 32,647 $ 38,620 $ 51,154 $170,357 $188,288 $166,479
Total assets....................... 71,979 92,524 120,683 281,024 337,019 324,904
Long-term debt..................... 3,606 1,625 713 345 235 139
Other long-term liabilities........ 1,494 2,370 4,856 5,538 5,893 5,203
Stockholders' equity............... 50,108 71,287 94,252 242,093 299,178 299,798
RECENT RESULTS
On April 30, 2002, Alpha announced its financial results for its fourth
quarter and fiscal year ended March 31, 2002. Net sales for the quarter were
$28.2 million. Net loss for the quarter was $8.5 million or $0.19 per share.
During the quarter, Alpha incurred one-time costs associated with its
acquisition of privately-held Aimta, Inc. on March 15, 2002 (for a purchase
price of $7 million) and transaction expenses related to the merger totaling
$4.5 million. For the fiscal year ended March 31, 2002, net sales were $126.5
million. Net loss for the fiscal year was $18.3 million or $0.42 per share.
During the fiscal year, Alpha incurred one-time costs associated with the Aimta
acquisition and transaction expenses related to the merger totaling $6.6
million.
14
SELECTED COMBINED COMPANY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma combined financial information
has been derived from and should be read in conjunction with the Combined
Company Unaudited Pro Forma Condensed Combined Financial Information and related
notes included elsewhere in this proxy statement/prospectus-information
statement. This information is based on the historical consolidated balance
sheets and related historical statements of operations of Alpha and the
historical combined balance sheets and related historical combined statements of
operations of the Washington Business and the Mexicali operations, giving effect
to the spin-off transaction and the merger using the purchase method of
accounting for business combinations, the purchase by the combined company of
the Mexicali operations and the adoption by the combined company of a September
30 fiscal year. This information is for illustrative purposes only. The
companies may have performed differently had they always been combined. You
should not rely on the selected unaudited pro forma combined financial
information as being indicative of the historical results that would have been
achieved had the companies always been combined or the future results that the
combined company will experience after the merger.
TWELVE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2001 DECEMBER 31, 2001
------------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA STATEMENT OF OPERATIONS DATA:
Net sales................................................ $ 458,310 $ 126,850
Net loss................................................. $(339,761) $ (48,064)
Basic loss per share..................................... $ (2.62) $ (0.36)
Diluted loss per share................................... $ (2.62) $ (0.36)
Shares used in computing:
Basic loss per share................................... 129,444 133,443
Diluted loss per share................................. 129,444 133,443
AS OF
DECEMBER 31, 2001
------------------
PRO FORMA BALANCE SHEET DATA(1):
Working capital (deficit)................................. $ (20,068)
Total assets.............................................. 1,363,691
Long-term debt............................................ 139
Other long-term liabilities............................... 6,233
Stockholders' equity...................................... 1,155,387
---------------
(1) The historical combined balance sheet data of the Washington Business and
the Mexicali operations have been adjusted to reflect the assets and
liabilities of Washington/Mexicali that will be retained by Conexant in the
spin-off transaction.
15
SELECTED UNAUDITED COMPARATIVE PER SHARE INFORMATION
The following table sets forth certain historical per share data of Alpha
and combined per share data of Alpha and the Washington Business and the
Mexicali operations on an unaudited pro forma combined basis giving effect to
the spin-off transaction, the merger, the purchase by the combined company of
the Mexicali operations and the adoption by the combined company of a September
30 fiscal year. This information should be read in conjunction with the selected
historical financial data and the Combined Company Unaudited Pro Forma Condensed
Combined Financial Information and related notes included elsewhere in this
proxy statement/prospectus-information statement, and the separate historical
financial statements of Alpha and the Washington Business and the Mexicali
operations and the related notes, included or incorporated by reference in this
proxy statement/prospectus-information statement. The unaudited pro forma
combined information provided below is for illustrative purposes only. The
companies may have performed differently had they always been combined. You
should not rely on this information as being indicative of the historical
results that would have been achieved had the companies always been combined or
the future results that the combined company will experience after the merger.
AS OF AND FOR THE AS OF AND FOR THE
TWELVE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2001 DECEMBER 31, 2001
------------------- ------------------
ALPHA -- HISTORICAL:
Basic earnings (loss) per share from continuing
operations............................................. $ 0.18 $(0.07)
Diluted earnings (loss) per share from continuing
operations............................................. 0.18 (0.07)
Cash dividends declared per common share................. -- --
Book value per common share.............................. $ 6.85 $ 6.79
PRO FORMA COMBINED:
Basic loss per share from continuing operations.......... $(2.62) $(0.36)
Diluted loss per share from continuing operations........ (2.62) (0.36)
Cash dividends declared per common share................. -- --
Book value per common share.............................. $ 8.63
16
RISK FACTORS
You should carefully consider and evaluate all of the information in this
proxy statement/prospectus-information statement, including the risk factors
listed below. Any of these risks could materially and adversely affect the
combined company's business, financial condition and results of operations,
which in turn could materially and adversely affect the price of the combined
company's common stock.
RISKS RELATED TO THE SPIN-OFF TRANSACTION AND THE MERGER
OBTAINING REQUIRED REGULATORY APPROVALS MAY DELAY CONSUMMATION OF THE
MERGER.
Consummation of the merger is conditioned upon the receipt of all material
governmental consents, approvals, orders and authorizations, including the
receipt of approvals from foreign regulatory agencies, and the receipt by
Conexant of a ruling from the IRS regarding the tax-free nature of the spin-off
transaction. We intend to pursue vigorously all required governmental approvals.
While we do not know of any reason why we would not be able to obtain the
necessary approvals in a timely manner, the requirement for these approvals
could delay the consummation of the merger, possibly for a significant period of
time, after Alpha stockholders have approved the merger proposal at the special
meeting. See "The Merger -- Regulatory Approvals" for a description of the
regulatory approvals necessary in connection with the merger. Any delay in the
completion of the merger could diminish the anticipated benefits of the merger
or result in additional transaction costs, loss of revenue or other effects
associated with uncertainty about the transaction. Any uncertainty over the
ability of the companies to complete the merger could make it more difficult for
Alpha and the Washington Business to retain key employees or to pursue certain
business strategies. In addition, until the merger is completed, the attention
of management of Alpha and the Washington Business may be diverted from ongoing
business concerns and regular business responsibilities to the extent management
is focused on matters relating to the transaction, such as obtaining regulatory
approvals.
THE COMBINED COMPANY MAY BE UNABLE SUCCESSFULLY TO INTEGRATE ALPHA, THE
WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS AND REALIZE THE FULL BENEFITS WE
ANTICIPATE.
The merger involves the integration of businesses that have previously
operated separately. The difficulties of combining the operations of the
businesses include:
- the challenge of effecting integration while carrying on an ongoing
business;
- the necessity of coordinating geographically separate organizations; and
- integrating personnel with diverse business backgrounds.
The process of integrating operations could cause an interruption of, or
loss of momentum in, the activities of one or more of the combined company's
businesses and the loss of key personnel. The diversion of management's
attention and any delays or difficulties encountered in connection with the
merger and the integration of the two companies' operations could have an
adverse effect on the business, financial condition or results of operations of
the combined company.
Among the factors considered by the Conexant and Alpha boards of directors
in connection with their respective approvals of the merger were the benefits of
the more diversified product line, the broader customer base and the enhanced
technology capabilities that are expected to result from the merger. We cannot
assure you that these benefits will be realized within the time periods
contemplated or at all.
THE COMBINED COMPANY'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS MAY SUFFER IF MATERIAL CONTRACTS OF THE WASHINGTON BUSINESS AND/OR
THE MEXICALI OPERATIONS CANNOT ULTIMATELY BE ASSUMED BY THE COMBINED COMPANY
FOLLOWING THE MERGER WITHOUT ADVERSE CHANGES TO THEIR EXISTING TERMS.
The existing material contracts under which the Washington Business
operates have been entered into by Conexant and may need to be assigned by
Conexant to Washington, or Washington or the combined company may need to enter
into new contracts with the parties to these contracts. In addition, existing
material contracts under which the Mexicali operations conduct business have
been entered into by
17
Conexant and may need to be assigned by Conexant to the combined company or the
combined company may need to enter into new contracts. In many cases, consent of
the parties to these contracts is required for the assignment or in connection
with the merger. The parties to these contracts may not be willing to permit the
transfer of the contracts to the combined company at all or may be willing to
permit the transfer only on terms less favorable than those currently in effect.
If the parties to these contracts are unwilling to consent to their assignment
or to the merger, or refuse to do business with the combined company or demand
revised business terms from the combined company, the combined company's
business, financial condition and results of operations could suffer.
DIRECTORS AND OFFICERS OF ALPHA HAVE INTERESTS IN THE MERGER THAT ARE
DIFFERENT FROM, OR IN ADDITION TO, THE INTERESTS OF ALPHA STOCKHOLDERS.
The Alpha board of directors unanimously recommends that Alpha stockholders
vote FOR approval and adoption of the merger agreement and the merger. However,
directors and officers of Alpha have interests in the merger that are different
from, or in addition to, the interests of Alpha stockholders. These interests
include:
- David J. Aldrich, Timothy R. Furey, Thomas C. Leonard and David J.
McLachlan, each of whom is currently a director of Alpha, are expected to
serve as directors of the combined company;
- Mr. Aldrich, Liam K. Griffin and Paul E. Vincent, each of whom is
currently an executive officer of Alpha, are expected to serve as
executive officers of the combined company;
- the combined company will maintain for a period of six years after the
merger, for the benefit of Alpha's officers and directors, the directors'
and officers' liability insurance and fiduciary liability insurance
policies currently maintained by Alpha or policies of at least the same
coverage and amounts containing terms and conditions which are, in the
aggregate, no less advantageous to the insured than the current insurance
maintained by Alpha with respect to claims arising from facts or events
that occurred on or before the effective time of the merger;
- the current directors of Alpha who will not continue as directors of the
combined company hold unvested options to purchase shares of Alpha common
stock having an aggregate value of approximately $0.8 million as of April
30, 2002 that will accelerate and become vested and exercisable at the
completion of the merger, and the exercise period for these options will
be extended; and
- as of the record date for the special meeting of Alpha stockholders,
directors and executive officers of Alpha beneficially owned 265,227
shares of Alpha common stock, entitling them to exercise approximately
0.6% of the voting power of the Alpha common stock entitled to vote at
the Alpha special meeting, and each director and certain executive
officers of Alpha has entered into an agreement with Conexant pursuant to
which the director or executive officer agreed to vote his shares for
approval and adoption of the merger agreement and the merger.
See "The Merger -- Interests of Certain Persons in the Merger".
THE MARKET VALUE OF THE COMBINED COMPANY COMMON STOCK THAT CONEXANT
STOCKHOLDERS WILL RECEIVE IN THE MERGER MAY BE LOWER THAN EXPECTED.
In the merger, Conexant stockholders will receive 0.351 of a share of
combined company common stock in exchange for each share of Washington common
stock issued to them in the distribution. This is a fixed exchange ratio.
However, the market value of combined company common stock when the merger is
completed may vary from the market value of Alpha common stock as of the date of
this proxy statement/prospectus-information statement or as of the date of the
special meeting of Alpha stockholders because of ordinary trading fluctuations
as well as changes in the business, operations or prospects of Alpha, general
market and economic conditions and other factors. If the market value of Alpha
common stock declines prior to the effective time of the merger, the market
value of the combined company common stock issued to Conexant stockholders in
the merger could be lower than expected. See "Price Range of Alpha Common Stock
and Dividends".
18
ALPHA AND CONEXANT WILL INCUR SUBSTANTIAL EXPENSES WHETHER OR NOT THE
MERGER IS COMPLETED.
Alpha and Conexant will incur substantial expenses related to the merger
whether or not the merger is completed. These costs include fees for financial
advisors, attorneys and accountants, filing fees, financial printing costs and
costs associated with the agreements related to the spin-off transaction. Alpha
currently expects to incur approximately $17 million in expenses, approximately
$7 million of which are not contingent on the completion of the merger. Conexant
currently expects to incur approximately $37 million in expenses, approximately
$15 million of which are not contingent on the completion of the merger. In
addition, Alpha has agreed to pay Conexant $45 million if the merger agreement
is terminated under certain circumstances. See "The Merger Agreement -- Payment
of Termination Fee".
THE DEAL-PROTECTION PROVISIONS OF THE MERGER AGREEMENT MAY DETER
ALTERNATIVE BUSINESS COMBINATIONS AND COULD NEGATIVELY IMPACT THE STOCK PRICE OF
ALPHA IF THE MERGER AGREEMENT IS TERMINATED IN CERTAIN CIRCUMSTANCES.
As a result of the provisions of the merger agreement, it is possible that
a third party who might be interested in submitting a business combination
proposal to Alpha would be discouraged from doing so. In addition, restrictions
in the merger agreement on solicitation generally prohibit Alpha from soliciting
any acquisition proposal or offer for a merger or business combination with a
party other than Conexant or Washington. Any such proposal might be advantageous
to the stockholders of Alpha when compared to the terms and conditions of the
transaction described in this proxy statement/prospectus-information statement.
In particular, the termination fee provision of the merger agreement may deter
third parties from proposing alternative business combinations that might result
in greater value to Alpha stockholders than the merger. In addition, in the
event the merger is terminated by Alpha or Conexant in circumstances that
obligate Alpha to pay a termination fee to Conexant, including where Conexant
terminates the merger agreement because the Alpha board of directors withdraws
its support of the merger with Washington, Alpha's stock price may decline as a
result of the termination fee. See "The Merger Agreement -- Payment of
Termination Fee".
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY AFFECT ALPHA'S AND
CONEXANT'S STOCK PRICES AND EACH COMPANY'S FUTURE BUSINESS AND OPERATIONS.
If the merger is not completed for any reason, the price of Alpha common
stock and Conexant common stock may decline to the extent that the current
market prices of Alpha common stock and Conexant common stock reflect a positive
market assumption that the spin-off transaction and the merger will be
completed. In addition, if the merger is not completed, each company may be
subject to a number of material risks, including the following:
- Alpha may be required under certain circumstances to pay Conexant a
termination fee; and
- costs related to the merger, such as financial, advisory, legal,
accounting and printing fees, must be paid even if the merger is not
completed.
Moreover, if the merger agreement is terminated, either company may be
unable to find a partner willing to engage in a similar transaction on terms as
favorable as those set forth in the merger agreement, or at all. This could
limit each company's ability to pursue its strategic goals.
IF THE SPIN-OFF TRANSACTION OR THE MERGER DOES NOT QUALIFY AS A
REORGANIZATION FOR U.S. FEDERAL INCOME TAX PURPOSES EITHER AS A RESULT OF
ACTIONS TAKEN IN CONNECTION WITH THE SPIN-OFF TRANSACTION OR THE MERGER OR AS A
RESULT OF CERTAIN ACQUISITIONS OF STOCK OF CONEXANT OR THE COMBINED COMPANY,
CONEXANT, WASHINGTON, CONEXANT STOCKHOLDERS AND/OR THE COMBINED COMPANY MAY BE
RESPONSIBLE FOR PAYMENT OF U.S. FEDERAL INCOME TAXES, WHICH MAY BE VERY
SUBSTANTIAL IN AMOUNT.
The spin-off transaction is conditioned upon the receipt of a ruling from
the IRS to the effect that the spin-off transaction will qualify as a
reorganization for U.S. federal income tax purposes. While the tax ruling
generally will be binding on the IRS, the continuing validity of the ruling will
be subject to certain factual representations and assumptions. The merger is
also conditioned upon the receipt of opinions from
19
Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to Alpha, and
Chadbourne & Parke LLP, counsel to Conexant, that the merger will constitute a
reorganization for U.S. federal income tax purposes, based in part on certain
factual representations and assumptions.
The tax allocation agreement to be entered into among Conexant, Washington
and Alpha generally provides that the combined company will be responsible for
any taxes imposed on Conexant, Washington or Conexant stockholders as a result
of either:
- the failure of the spin-off transaction to qualify as a reorganization
for U.S. federal income tax purposes, or
- the subsequent disqualification of the distribution of Washington common
stock to Conexant stockholders in connection with the spin-off
transaction as a tax-free transaction to Conexant for U.S. federal income
tax purposes,
if such failure or disqualification is attributable to certain post-spin-off
transaction actions by or in respect of the combined company (including its
subsidiaries) or its stockholders, such as the acquisition of the combined
company by a third party at a time and in a manner that would cause such failure
or disqualification. For example, even if the spin-off transaction otherwise
qualifies as a reorganization for U.S. federal income tax purposes, the
distribution of the Washington common stock to Conexant stockholders in
connection with the spin-off transaction may be disqualified as tax-free to
Conexant if there is an acquisition of stock of the combined company as part of
a plan (or series of related transactions) that includes the spin-off
transaction and that results in a deemed acquisition of 50% or more of
Washington common stock. For purposes of this test, any acquisitions of Conexant
stock or combined company stock within two years before or after the spin-off
transaction are presumed to be part of such a plan, although the combined
company or Conexant may be able to rebut that presumption. Also for purposes of
this test, the merger will be treated as resulting in a deemed acquisition by
Alpha stockholders of approximately 33% of Washington common stock. The process
for determining whether a change of ownership has occurred under the tax rules
is complex and uncertain. If the combined company does not carefully monitor its
compliance with these rules, the combined company might inadvertently cause or
permit a change of ownership to occur, triggering the combined company's
obligation to indemnify Conexant pursuant to the tax allocation agreement. In
addition, the combined company's indemnity obligation could discourage or
prevent a third party from making a proposal to acquire the combined company.
If the combined company were required to pay any of the taxes described
above, the payment would be very substantial and would be expected to have a
material adverse effect on the combined company's business, financial condition,
results of operation and cash flow.
20
RISK FACTORS RELATED TO THE COMBINED COMPANY'S BUSINESS FOLLOWING THE MERGER
References in this section to Alpha's fiscal year refer to the fiscal year
which ends on the Sunday closest to March 31 of each year and references to
Washington/Mexicali's fiscal year refer to the fiscal year which ends on the
Friday closest to September 30 of each year.
EACH OF WASHINGTON/MEXICALI AND ALPHA HAS RECENTLY INCURRED SUBSTANTIAL
OPERATING LOSSES AND THE COMBINED COMPANY ANTICIPATES FUTURE LOSSES.
During fiscal 2001, Washington/Mexicali's operating results were adversely
affected by sharply reduced end-customer demand in many of the communications
electronics end-markets for its products. As a result, Washington/Mexicali
incurred a net loss of approximately $318.9 million for fiscal 2001 and a net
loss of approximately $34.3 million for the first three months of fiscal 2002.
During the first nine months of fiscal 2002, Alpha's operating results were
adversely affected by a global economic slowdown and an abrupt decline in demand
for many of the end-user products that incorporate wireless communications
semiconductor products and system solutions. As a result, Alpha incurred a net
loss of approximately $9.8 million for the first nine months of fiscal 2002.
During fiscal 2001, Washington/Mexicali implemented a number of expense
reduction and restructuring initiatives to more closely align its cost structure
with the weakened business environment for wireless communications products. The
cost reduction initiatives included a worldwide workforce reduction, temporary
shutdowns of manufacturing facilities, significant reductions in capital
spending and the consolidation of certain facilities. However, these expense
reduction initiatives alone will not return Washington/Mexicali to
profitability. During fiscal 2001, Alpha also implemented a number of expense
reduction initiatives, including a work force reduction, a modification of
employee work schedules and reduced discretionary spending. We expect that
reduced end-customer demand, underutilization of the combined company's
manufacturing capacity, changes in the combined company's revenue mix and other
factors will continue to adversely affect the combined company's operating
results in the near term and we anticipate that the combined company will incur
additional losses in the fiscal year ending September 29, 2002. In order to
return to profitability, the combined company must achieve substantial revenue
growth and the combined company will face an environment of uncertain demand in
the markets for its products. We cannot assure you as to whether or when the
combined company will return to profitability or whether the combined company
will be able to sustain such profitability, if achieved.
THE COMBINED COMPANY WILL OPERATE IN THE HIGHLY CYCLICAL WIRELESS
COMMUNICATIONS SEMICONDUCTOR INDUSTRY, WHICH IS SUBJECT TO SIGNIFICANT
DOWNTURNS.
The wireless communications semiconductor industry is highly cyclical and
is characterized by constant and rapid technological change, rapid product
obsolescence and price erosion, evolving technical standards, short product life
cycles and wide fluctuations in product supply and demand. From time to time
these and other factors, together with changes in general economic conditions,
cause significant upturns and downturns in the industry. Periods of industry
downturns -- as both Washington/Mexicali and Alpha experienced through most of
calendar year 2001 -- have been characterized by diminished product demand,
production overcapacity, high inventory levels and accelerated erosion of
average selling prices. These factors, and in particular the level of demand for
digital cellular handsets, may cause substantial fluctuations in the combined
company revenues and results of operations. Washington/Mexicali and Alpha have
experienced these cyclical fluctuations in their businesses and may experience
cyclical fluctuations in the future.
During the late 1990's and extending into 2000, the wireless communications
semiconductor industry enjoyed unprecedented growth, benefiting from the rapid
expansion of wireless communication services worldwide and increased demand for
digital cellular handsets. During calendar year 2001, Washington/Mexicali and
Alpha were adversely impacted by a global economic slowdown and an abrupt
decline in demand for many of the end-user products that incorporate their
respective wireless communications semiconductor products and system solutions,
particularly digital cellular handsets. The impact of weakened end-customer
demand was compounded by higher than normal levels of inventories among their
21
respective original equipment manufacturer, or OEM, subcontractor and
distributor customers. As a result of this reduced demand, Washington/Mexicali
recorded $58.7 million of inventory write-downs in fiscal 2001. We expect that
reduced end-customer demand, underutilization of the combined company's
manufacturing capacity, changes in revenue mix and other factors will continue
to adversely affect the combined company's operating results in the near term.
THE COMBINED COMPANY WILL BE SUBJECT TO INTENSE COMPETITION.
The wireless communications semiconductor industry in general and the
markets in which the combined company will compete in particular are intensely
competitive. The combined company will compete with U.S. and international
semiconductor manufacturers that are both larger and smaller than it in terms of
resources and market share. Washington/Mexicali and Alpha currently face
significant competition in their markets and expect that intense price and
product competition will continue. This competition has resulted and is expected
to continue to result in declining average selling prices for the combined
company's products. We also anticipate that additional competitors will enter
the combined company's markets as a result of growth opportunities in
communications electronics, the trend toward global expansion by foreign and
domestic competitors and technological and public policy changes. Moreover, as
with many companies in the semiconductor industry, customers for certain of the
combined company's products offer products that compete with products that will
be offered by the combined company.
We believe that the principal competitive factors for semiconductor
suppliers in the combined company's market will include, among others:
- time-to-market;
- new product innovation;
- product quality, reliability and performance;
- price;
- compliance with industry standards;
- strategic relationships with customers; and
- protection of intellectual property.
We cannot assure you that the combined company will be able to successfully
address these factors.
Many of the combined company's competitors will have advantages over the
combined company, including:
- longer presence in key markets;
- greater name recognition;
- ownership or control of key technology; and
- greater financial, sales and marketing, manufacturing, distribution,
technical or other resources.
As a result, certain competitors may be able to adapt more quickly than the
combined company to new or emerging technologies and changes in customer
requirements or may be able to devote greater resources to the development,
promotion and sale of their products than the combined company can.
Current and potential competitors also have established or may establish
financial or strategic relationships among themselves or with the combined
company's customers, resellers or other third parties. These relationships may
affect customers' purchasing decisions. Accordingly, it is possible that new
competitors or alliances among competitors could emerge and rapidly acquire
significant market share. We cannot assure you that the combined company will be
able to compete successfully against current and potential competitors.
A number of the combined company's competitors have combined with each
other and consolidated their businesses, including the consolidation of
competitors with the combined company's customers. This consolidation is
attributable to a number of factors, including the historically high-growth
nature of the
22
communications electronics industry and the time-to-market pressures on
suppliers to decrease the time required for product conception, research and
development, sampling and production launch before a product reaches the market.
This consolidation trend is expected to continue, since investments, alliances
and acquisitions may enable semiconductor suppliers, including the combined
company and its competitors, to achieve economies of scale, to augment technical
capabilities or to achieve faster time-to-market for their products than would
be possible solely through internal development.
This consolidation is creating entities with increased market share,
customer base, technology and marketing expertise in markets in which the
combined company will compete. These developments may adversely affect the
markets the combined company will seek to serve and the combined company's
ability to compete successfully in those markets.
THE COMBINED COMPANY'S SUCCESS WILL DEPEND UPON ITS ABILITY TO DEVELOP NEW
PRODUCTS AND REDUCE COSTS IN A TIMELY MANNER.
The markets into which the combined company sells demand cutting-edge
technologies and new and innovative products. The combined company's operating
results will depend largely on its ability to continue to introduce new and
enhanced products on a timely basis. Successful product development and
introduction depends on numerous factors, including, among others:
- the ability to anticipate customer and market requirements and changes in
technology and industry standards;
- the ability to define new products that meet customer and market
requirements;
- the ability to complete development of new products and bring products to
market on a timely basis;
- the ability to differentiate the combined company's products from
offerings of its competitors; and
- overall market acceptance of the combined company's products.
We cannot assure you that the combined company will have sufficient
resources to make the substantial investment in research and development in
order to develop and bring to market new and enhanced products in a timely
manner. The combined company will be required continually to evaluate
expenditures for planned product development and to choose among alternative
technologies based on its expectations of future market growth. We cannot assure
you that the combined company will be able to develop and introduce new or
enhanced wireless communications semiconductor products in a timely and
cost-effective manner, that its products will satisfy customer requirements or
achieve market acceptance or that the combined company will be able to
anticipate new industry standards and technological changes. We also cannot
assure you that the combined company will be able to respond successfully to new
product announcements and introductions by competitors.
In addition, prices of established products may decline, sometimes
significantly, over time. We believe that in order to remain competitive the
combined company must continue to reduce the cost of producing and delivering
existing products at the same time that it develops and introduces new or
enhanced products. We cannot assure you that the combined company will be able
to continue to reduce the cost of its products to remain competitive.
THE COMBINED COMPANY MAY NOT BE ABLE TO KEEP ABREAST OF THE RAPID
TECHNOLOGICAL CHANGES IN ITS MARKETS.
The demand for the combined company's products can change quickly and in
ways the combined company may not anticipate. The combined company's markets
generally exhibit the following characteristics:
- rapid technological developments;
- rapid changes in customer requirements;
23
- frequent new product introductions and enhancements;
- short product life cycles with declining prices over the life cycle of
the product; and
- evolving industry standards.
The combined company's products could become obsolete or less competitive
sooner than anticipated because of a faster than anticipated change in one or
more of the technologies related to its products or in market demand for
products based on a particular technology, particularly due to the introduction
of new technology that represents a substantial advance over current technology.
Currently accepted industry standards are also subject to change, which may
contribute to the obsolescence of the combined company's products.
THE COMBINED COMPANY MAY NOT BE ABLE TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL NECESSARY FOR THE DESIGN, DEVELOPMENT, MANUFACTURE AND SALE OF ITS
PRODUCTS. THE COMBINED COMPANY'S SUCCESS COULD BE NEGATIVELY AFFECTED IF KEY
PERSONNEL LEAVE.
The combined company's future success depends on its ability to continue to
attract, retain and motivate qualified personnel, including executive officers
and other key management and technical personnel. As the source of its
technological and product innovations, the combined company's key technical
personnel represent a significant asset. The competition for management and
technical personnel is intense in the semiconductor industry. We cannot assure
you that the combined company will be able to attract and retain qualified
management and other personnel necessary for the design, development,
manufacture and sale of its products.
The combined company may have particular difficulty attracting and
retaining key personnel during periods of poor operating performance, given,
among other things, the use of equity-based compensation by the combined company
and its competitors. The loss of the services of one or more of the combined
company's key employees, including David J. Aldrich, its chief executive
officer, or certain key design and technical personnel, or the combined
company's inability to attract, retain and motivate qualified personnel, could
have a material adverse effect on its ability to operate its business.
IF OEMS OF COMMUNICATIONS ELECTRONICS PRODUCTS DO NOT DESIGN THE COMBINED
COMPANY'S PRODUCTS INTO THEIR EQUIPMENT, THE COMBINED COMPANY WILL HAVE
DIFFICULTY SELLING THOSE PRODUCTS. MOREOVER, A "DESIGN WIN" FROM A CUSTOMER DOES
NOT GUARANTEE FUTURE SALES TO THAT CUSTOMER.
The combined company's products will not be sold directly to the end-user
but will be components of other products. As a result, the combined company will
rely on OEMs of wireless communications electronics products to select its
products from among alternative offerings to be designed into their equipment.
Without these "design wins" from OEMs, the combined company would have
difficulty selling its products. Once an OEM designs another supplier's product
into one of its product platforms, it will be more difficult for the combined
company to achieve future design wins with that OEM product platform because
changing suppliers involves significant cost, time, effort and risk for that
OEM. Also, achieving a design win with a customer does not ensure that the
combined company will receive significant revenues from that customer. Even
after a design win, the customer is not obligated to purchase the combined
company's products and can choose at any time to reduce or cease use of the
combined company's products, for example, if its own products are not
commercially successful or for any other reason. The combined company may be
unable to achieve design wins or to convert design wins into actual sales.
BECAUSE OF THE LENGTHY SALES CYCLES OF MANY OF THE COMBINED COMPANY'S
PRODUCTS, IT MAY INCUR SIGNIFICANT EXPENSES BEFORE IT GENERATES ANY REVENUES
RELATED TO THOSE PRODUCTS.
The combined company's customers may need three to six months to test and
evaluate its products and an additional three to six months to begin volume
production of equipment that incorporates the combined company's products. The
lengthy period of time required increases the possibility that a customer may
decide to cancel or change product plans, which could reduce or eliminate sales
to that customer. As a result of this lengthy sales cycle, the combined company
may incur significant research and development, and selling, general and
administrative expenses before it generates the related revenues for
24
these products, and it may never generate the anticipated revenues if its
customer cancels or changes its product plans.
UNCERTAINTIES INVOLVING THE ORDERING AND SHIPMENT OF THE COMBINED COMPANY'S
PRODUCTS COULD ADVERSELY AFFECT ITS BUSINESS.
The combined company's sales will typically be made pursuant to individual
purchase orders and not under long-term supply arrangements with its customers.
Customers of the combined company may cancel orders prior to shipment. In
addition, the combined company will sell a portion of its products through
distributors, some of whom will have rights to return unsold products. Sales to
distributors accounted for an insignificant portion of Washington/Mexicali net
revenues in each of fiscal 2001 and the first three months of fiscal 2002 and
approximately 12% and 6% of Alpha's net revenues in fiscal 2001 and the first
nine months of fiscal 2002, respectively. The combined company may purchase and
manufacture inventory based on estimates of customer demand for its products,
which is difficult to predict. This difficulty may be compounded when the
combined company sells to OEMs indirectly through distributors or contract
manufacturers, or both, as the combined company's forecasts of demand will then
be based on estimates provided by multiple parties. In addition, the combined
company's customers may change their inventory practices on short notice for any
reason. The cancellation or deferral of product orders, the return of previously
sold products or overproduction due to the failure of anticipated orders to
materialize could result in the combined company holding excess or obsolete
inventory, which could result in write-downs of inventory.
During 2001, the wireless communications electronics markets which the
Washington Business and Alpha address were characterized by dramatic decreases
in end-user demand and high levels of channel inventories which reduced
visibility into future demand for their products. As a result of sharply reduced
demand, Washington/Mexicali recorded $58.7 million of inventory write-downs in
fiscal 2001. If these conditions were to recur in the future, they could
adversely affect the combined company's business.
THE COMBINED COMPANY'S RELIANCE ON A SMALL NUMBER OF CUSTOMERS FOR A LARGE
PORTION OF ITS SALES COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMBINED
COMPANY'S RESULTS OF OPERATIONS.
A significant portion of the combined company's sales will be concentrated
among a limited number of customers. If the combined company lost one or more of
these major customers, or if one or more major customers significantly decreased
its orders, the combined company's business would be materially and adversely
affected. Sales to Samsung Electronics Co., Ltd. represented approximately 44%
and 48% of Washington/Mexicali net revenues from third parties (excluding sales
to Conexant) in fiscal 2001 and the first three months of fiscal 2002,
respectively. Sales to Nokia Corporation represented approximately 12% and 11%
of Washington/Mexicali net revenues from third parties in fiscal 2001 and the
first three months of fiscal 2002, respectively. In addition, sales to Conexant
represented approximately 17% and 6% of Washington/Mexicali net revenues in
fiscal 2001 and the first three months of fiscal 2002, respectively. Sales to
Motorola, Inc. represented approximately 26% and 32% of Alpha net revenues in
fiscal 2001 and the first nine months of fiscal 2002, respectively. On a pro
forma basis, for the twelve months ended September 30, 2001 and for the three
months ended December 31, 2001, sales to each of these customers as a percentage
of net revenues of the combined company would have been as follows: Samsung
Electronics Co., Ltd., approximately 21% and 34%, respectively; Nokia
Corporation, approximately 6% and 8%, respectively; Conexant, approximately 10%
and 4%, respectively; and Motorola, Inc., approximately 13% and 15%,
respectively. The combined company's future operating results will depend on the
success of these customers and the combined company's success in selling
products to them.
THE COMBINED COMPANY FACES A RISK THAT CAPITAL NEEDED FOR ITS BUSINESS WILL
NOT BE AVAILABLE WHEN IT NEEDS IT.
It is likely the combined company will need to obtain sources of financing
in the near future. We expect that the combined company will be required to
raise capital to satisfy its working capital needs after the merger and to repay
the short-term note delivered to Conexant in payment of the purchase price owed
to Conexant under the Mexican stock and asset purchase agreement and the U.S.
asset purchase
25
agreement. We expect that the combined company will seek to raise capital
through a public or private offering of equity, debt or some combination thereof
within six months after the closing of the Mexicali transaction. See "The
Mexicali Sale". Under the terms of the short-term note to be delivered to
Conexant at the closing of the Mexicali transaction, the combined company must
use 100% of the proceeds from asset sales or other dispositions of property by
the combined company or from the issuance of debt or equity to prepay the amount
outstanding under the note until paid in full. Conditions existing in the U.S.
capital markets when the combined company seeks financing will affect its
ability to raise capital, as well as the terms of any financing. The combined
company may not be able to raise enough capital to meet its capital needs on a
timely basis or at all. Failure to obtain capital when required will have a
material adverse effect on the combined company.
In addition, any strategic investments and acquisitions that the combined
company may make to help it grow its business may require additional capital
resources. We cannot assure you that the capital required to fund these
investments and acquisitions will be available in the future.
THE COMBINED COMPANY'S MANUFACTURING PROCESSES WILL BE EXTREMELY COMPLEX
AND SPECIALIZED.
The combined company's manufacturing operations will be complex and subject
to disruption due to causes beyond its control. The fabrication of integrated
circuits is an extremely complex and precise process consisting of hundreds of
separate steps. It requires production in a highly controlled, clean
environment. Minor impurities, errors in any step of the fabrication process,
defects in the masks used to print circuits on a wafer or a number of other
factors can cause a substantial percentage of wafers to be rejected or numerous
die on each wafer not to function.
The combined company's operating results will be highly dependent upon its
ability to produce integrated circuits at acceptable manufacturing yields. The
combined company's operations may be affected by lengthy or recurring
disruptions of operations at any of its production facilities or those of its
subcontractors. These disruptions may include labor strikes, work stoppages,
electrical power outages, fire, earthquake, flooding or other natural disasters.
Certain of the combined company's manufacturing facilities will be located near
major earthquake fault lines, including its Newbury Park and Sunnyvale,
California and Mexicali, Mexico facilities. The combined company does not intend
to maintain earthquake insurance coverage on these facilities. Disruptions of
the combined company's manufacturing operations could cause significant delays
in shipments until it could shift the products from an affected facility or
subcontractor to another facility or subcontractor.
In the event of these types of delays, we cannot assure you that the
required alternate capacity, particularly wafer production capacity, would be
available on a timely basis or at all. Even if alternate wafer production
capacity is available, the combined company may not be able to obtain it on
favorable terms, which could result in higher costs and/or a loss of customers.
The combined company may be unable to obtain sufficient manufacturing capacity
to meet demand, either at its own facilities or through external manufacturing
or similar arrangements with others.
Due to the highly specialized nature of the gallium arsenide integrated
circuit manufacturing process, in the event of a disruption at the Newbury Park
or Sunnyvale, California or Woburn, Massachusetts semiconductor wafer
fabrication facilities, alternate gallium arsenide production capacity would not
be immediately available from third-party sources. Although the Washington
Business has a multi-year agreement with a semiconductor foundry that guarantees
it access to additional gallium arsenide wafer production capacity, a disruption
of operations at the Newbury Park, Sunnyvale or Woburn wafer fabrication
facilities or the interruption in the supply of epitaxial wafers used in its
gallium arsenide semiconductor manufacturing process could have a material
adverse effect on the combined company's business, financial condition and
results of operations.
THE COMBINED COMPANY MAY NOT BE ABLE TO ACHIEVE MANUFACTURING YIELDS THAT
CONTRIBUTE POSITIVELY TO ITS GROSS MARGIN AND PROFITABILITY.
Minor deviations in the manufacturing process can cause substantial
manufacturing yield loss, and in some cases, cause production to be suspended.
Manufacturing yields for new products will initially tend to
26
be lower as the combined company completes product development and commences
volume manufacturing, and will typically increase as the combined company brings
the product to full production. The combined company's forward product pricing
will include this assumption of improving manufacturing yields and, as a result,
material variances between projected and actual manufacturing yields will have a
direct effect on the combined company's gross margin and profitability. The
difficulty of forecasting manufacturing yields accurately and maintaining cost
competitiveness through improving manufacturing yields will continue to be
magnified by the increasing process complexity of manufacturing semiconductor
products. The combined company's manufacturing operations also will face
pressures arising from the compression of product life cycles which will require
the combined company to manufacture new products faster and for shorter periods
while maintaining acceptable manufacturing yields and quality without, in many
cases, reaching the longer-term, high-volume manufacturing conducive to higher
manufacturing yields and declining costs.
THE COMBINED COMPANY WILL BE DEPENDENT UPON THIRD PARTIES FOR THE
MANUFACTURE, ASSEMBLY AND TEST OF ITS PRODUCTS.
The combined company will rely upon independent wafer fabrication
facilities, called foundries, including the Newport foundry joint venture, to
provide silicon-based products and to supplement its gallium arsenide wafer
manufacturing capacity. There are significant risks associated with reliance on
third-party foundries, including:
- the lack of ensured wafer supply, potential wafer shortages and higher
wafer prices;
- limited control over delivery schedules, manufacturing yields, production
costs and product quality; and
- the inaccessibility of, or delays in obtaining access to, key process
technologies.
Although the combined company will have long-term supply arrangements to
obtain additional external manufacturing capacity, the third-party foundries it
uses may allocate their limited capacity to the production requirements of other
customers. If the combined company chooses to use a new foundry, it will
typically take an extended period of time to complete the qualification process
before the combined company can begin shipping products from the new foundry.
The foundries may experience financial difficulties, be unable to deliver
products to the combined company in a timely manner or suffer damage or
destruction to their facilities, particularly since some of them are located in
earthquake zones. If any disruption of manufacturing capacity occurs, the
combined company may not have alternative manufacturing sources immediately
available. The combined company may therefore experience difficulties or delays
in securing an adequate supply of its products, which could impair its ability
to meet its customers' needs and have a material adverse effect on its operating
results.
The combined company also intends to utilize subcontractors to package,
assemble and test a portion of the combined company's products. Because the
combined company will rely on others to package, assemble or test its products,
the combined company will be subject to many of the same risks as are described
above with respect to foundries.
THE COMBINED COMPANY WILL BE DEPENDENT UPON THIRD PARTIES FOR THE SUPPLY OF
RAW MATERIALS AND COMPONENTS.
We believe the combined company will have adequate sources for the supply
of raw materials and components for its manufacturing needs with suppliers
located around the world. However, each of the Washington Business and Alpha is
currently dependent on the same two suppliers for epitaxial wafers used in the
gallium arsenide semiconductor manufacturing processes at their respective
manufacturing facilities. Although in the past the number of qualified
alternative suppliers for wafers has been limited and the process of qualifying
a new wafer supplier has required a substantial lead-time, more epitaxial wafer
capacity has recently become available and the supplier qualification process
has become less lengthy and complex. Nevertheless, while Washington/Mexicali and
Alpha historically have not experienced any significant difficulties in
obtaining an adequate supply of raw materials, including epitaxial wafers, and
components necessary for their manufacturing operations, we cannot assure you
that the combined
27
company will not lose a significant supplier or that a supplier will be able to
meet performance and quality specifications or delivery schedules.
THE COMBINED COMPANY WILL BE SUBJECT TO THE RISKS OF DOING BUSINESS
INTERNATIONALLY.
For fiscal 2001 and the first three months of fiscal 2002, approximately
91% and 97%, respectively, of Washington/Mexicali net revenues from third
parties were from customers located outside the United States, primarily
countries located in the Asia-Pacific region and Europe. For fiscal 2001 and the
first nine months of fiscal 2002, approximately 49% and 67%, respectively, of
Alpha's net revenues were from these customers. In addition, the combined
company will have facilities and suppliers located outside the United States,
including the assembly and test facility in Mexicali, Mexico and third-party
packaging, assembly and test facilities and foundries located in the
Asia-Pacific region. The combined company's international sales and operations
will be subject to a number of risks inherent in selling and operating abroad.
These include, but are not limited to, risks regarding:
- currency exchange rate fluctuations;
- local economic and political conditions;
- disruptions of capital and trading markets;
- restrictive governmental actions (such as restrictions on transfer of
funds and trade protection measures, including export duties and quotas
and customs duties and tariffs);
- changes in legal or regulatory requirements;
- limitations on the repatriation of funds;
- difficulty in obtaining distribution and support;
- the laws and policies of the United States and other countries affecting
trade, foreign investment and loans, and import or export licensing
requirements;
- tax laws; and
- limitations on the combined company's ability under local laws to protect
its intellectual property.
Because most of the combined company's international sales, other than
sales to Japan (which are denominated principally in Japanese yen), will be
denominated in U.S. dollars, the combined company's products could become less
competitive in international markets if the value of the U.S. dollar increases
relative to foreign currencies. Moreover, the combined company may be
competitively disadvantaged relative to its competitors located outside the
United States who may benefit from a devaluation of their local currency. We
cannot assure you that the factors described above will not have a material
adverse effect on the combined company's ability to increase or maintain its
international sales.
The past operating performance of each of Washington/Mexicali and Alpha has
been affected by adverse economic conditions in the Asia-Pacific region. In
addition, the South Korean government's decision in 2000 to impose a ban on
South Korean cellular service providers subsidizing new digital cellular
handsets curtailed demand in the South Korean market for digital cellular
handsets using the CDMA wireless standard. In fiscal 2001, sales to customers in
the Asia-Pacific region, principally South Korea, Taiwan, Japan and Hong Kong,
represented approximately 77% (including South Korea, which represented
approximately 66%) of Washington/Mexicali net revenues from third parties and
approximately 20% of Alpha's net revenues.
THE COMBINED COMPANY'S OPERATING RESULTS MAY BE NEGATIVELY AFFECTED BY
SUBSTANTIAL QUARTERLY AND ANNUAL FLUCTUATIONS AND MARKET DOWNTURNS.
The revenues, earnings and other operating results of Washington/Mexicali
and Alpha have fluctuated in the past and the combined company's revenues,
earnings and other operating results may fluctuate in the future. These
fluctuations are due to a number of factors, many of which are beyond the
combined company's control. These factors include, among others:
- changes in end-user demand for the products manufactured and sold by the
combined company's customers, principally digital cellular handsets;
28
- the effects of competitive pricing pressures, including decreases in
average selling prices of the combined company's products;
- production capacity levels and fluctuations in manufacturing yields;
- availability and cost of products from the combined company's suppliers;
- the gain or loss of significant customers;
- the combined company's ability to develop, introduce and market new
products and technologies on a timely basis;
- new product and technology introductions by competitors;
- changes in the mix of products produced and sold;
- market acceptance of the products of the combined company and its
customers;
- intellectual property disputes;
- seasonal customer demand;
- the timing of receipt, reduction or cancellation of significant orders by
customers; and
- the timing and extent of product development costs.
The foregoing factors are difficult to forecast, and these, as well as
other factors, could materially adversely affect the combined company's
quarterly or annual operating results. If the combined company's operating
results fail to meet the expectations of analysts or investors, it could
materially and adversely affect the price of the combined company's common
stock.
THE COMBINED COMPANY'S GALLIUM ARSENIDE SEMICONDUCTORS MAY NOT CONTINUE TO
BE COMPETITIVE WITH SILICON ALTERNATIVES.
The combined company will manufacture and sell gallium arsenide
semiconductors, principally power amplifiers and switches. The production of
gallium arsenide integrated circuits is more costly than the production of
silicon circuits. As a result, the combined company must offer gallium arsenide
products that provide superior performance to that of silicon for specific
applications to be competitive with silicon products. If the combined company
does not continue to offer products that provide sufficiently superior
performance to offset the cost differential, its operating results may be
materially and adversely affected. It is expected that the costs of producing
gallium arsenide integrated circuits will continue to exceed the costs
associated with the production of silicon circuits. The costs differ because of
higher costs of raw materials for gallium arsenide and higher unit costs
associated with smaller-sized wafers and lower production volumes. Silicon
semiconductor technologies are widely-used process technologies for certain
integrated circuits and these technologies continue to improve in performance.
We cannot assure you that the combined company will continue to identify
products and markets that require performance superior to that offered by
silicon solutions.
THE VALUE OF THE COMBINED COMPANY'S COMMON STOCK MAY BE ADVERSELY AFFECTED
BY MARKET VOLATILITY.
The trading price of the combined company's common stock may fluctuate
significantly. This price may be influenced by many factors, including:
- the combined company's performance and prospects;
- the performance and prospects of the combined company's major customers;
- the depth and liquidity of the market for the combined company's common
stock;
- investor perception of the combined company and the industry in which it
operates;
- changes in earnings estimates or buy/sell recommendations by analysts;
- general financial and other market conditions; and
- domestic and international economic conditions.
29
Public stock markets have experienced, and are currently experiencing,
extreme price and trading volume volatility, particularly in the technology
sectors of the market. This volatility has significantly affected the market
prices of securities of many technology companies for reasons frequently
unrelated to or disproportionately impacted by the operating performance of
these companies. These broad market fluctuations may adversely affect the market
price of the combined company's common stock.
SALES OF COMBINED COMPANY COMMON STOCK BY CONEXANT STOCKHOLDERS MAY
NEGATIVELY AFFECT THE COMBINED COMPANY'S STOCK PRICE.
As a result of the merger, Conexant stockholders will hold approximately
67% of the combined company common stock outstanding immediately after the
merger, on a fully diluted basis. Conexant believes that as much as 12.5% of its
outstanding common stock may be held by index funds tied to the Standard &
Poor's 500, Nasdaq 100 and Russell 1000 indices. Alpha common stock is not
currently included in these indices. In addition, Conexant believes that its
common stock is also held by institutional investors bound by certain investing
guidelines. As the combined company common stock is not expected to be included
in these indices and may not meet the investing guidelines of some of these
institutional investors after the merger, the index funds and certain
institutional investors may be required to sell in the public market the shares
of combined company common stock they receive in the merger. We are unable to
predict whether a sufficient number of buyers would be available in the market
to absorb these potential sales, which, if substantial, could materially
adversely affect the market price of combined company common stock.
THE COMBINED COMPANY MAY BE SUBJECT TO CLAIMS OF INFRINGEMENT OF
THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS OR DEMANDS THAT IT LICENSE THIRD-PARTY
TECHNOLOGY, WHICH COULD RESULT IN SIGNIFICANT EXPENSE AND LOSS OF ITS
INTELLECTUAL PROPERTY RIGHTS.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights. From time to time, third parties have
asserted and may in the future assert patent, copyright, trademark and other
intellectual property rights to technologies that are important to the combined
company's business and have demanded and may in the future demand that the
combined company license their technology. Any litigation to determine the
validity of claims that the combined company's products infringe or may infringe
these rights, including claims arising from the combined company's contractual
indemnification of its customers, regardless of their merit or resolution, could
be costly and divert the efforts and attention of the combined company's
management and technical personnel. Regardless of the merits of any specific
claim, we cannot assure you that the combined company would prevail in
litigation because of the complex technical issues and inherent uncertainties in
intellectual property litigation. If litigation were to result in an adverse
ruling, the combined company could be required to:
- pay substantial damages;
- cease the manufacture, import, use, sale or offer for sale of infringing
products;
- discontinue the use of infringing technology;
- expend significant resources to develop non-infringing technology; or
- license technology from the third party claiming infringement, which
license may not be available on commercially reasonable terms.
IF THE COMBINED COMPANY IS NOT SUCCESSFUL IN PROTECTING ITS INTELLECTUAL
PROPERTY RIGHTS, IT MAY HARM ITS ABILITY TO COMPETE.
The combined company will rely on patent, copyright, trademark, trade
secret and other intellectual property laws, as well as nondisclosure and
confidentiality agreements and other methods, to protect its proprietary
technologies, devices, algorithms and processes. In addition, the combined
company will often incorporate the intellectual property of its customers,
suppliers or other third parties into its designs, and the combined company will
have obligations with respect to the non-use and non-disclosure of such third-
party intellectual property. In the past, the Washington Business has found it
necessary to engage in litigation or like activities to enforce its intellectual
property rights, to protect its trade secrets or to determine the validity and
scope of proprietary rights of others, including its customers. Similar
litigation
30
may arise in the future, which could require the combined company to expend
significant resources and to divert the efforts and attention of its management
and technical personnel from its business operations. We cannot assure you that:
- the steps the combined company takes to prevent misappropriation,
infringement or other violation of its intellectual property or the
intellectual property of its customers, suppliers or other third parties
will be successful;
- any existing or future patents, copyrights, trademarks, trade secrets or
other intellectual property rights will not be challenged, invalidated or
circumvented; or
- any of the measures described above would provide meaningful protection.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use the combined company's technology without
authorization, develop similar technology independently or design around its
patents. If any of the combined company's patents fails to protect its
technology, it would make it easier for the combined company's competitors to
offer similar products. In addition, effective patent, copyright, trademark and
trade secret protection may be unavailable or limited for certain technologies
and in certain foreign countries.
THE COMBINED COMPANY'S SUCCESS DEPENDS, IN PART, ON ITS ABILITY TO EFFECT
SUITABLE INVESTMENTS, ALLIANCES AND ACQUISITIONS, AND THE COMBINED COMPANY MAY
HAVE DIFFICULTY INTEGRATING COMPANIES IT ACQUIRES.
Although the combined company intends to invest significant resources in
internal research and development activities, the complexity and rapidity of
technological changes and the significant expense of internal research and
development make it impractical for the combined company to pursue development
of all technological solutions on its own. On an ongoing basis, the combined
company intends to review investment, alliance and acquisition prospects that
would complement its product offerings, augment its market coverage or enhance
its technological capabilities. However, we cannot assure you that the combined
company will be able to identify and consummate suitable investment, alliance or
acquisition transactions in the future.
Moreover, if the combined company consummates such transactions, they could
result in:
- issuances of equity securities dilutive to the combined company's
stockholders;
- large one-time write-offs;
- the incurrence of substantial debt and assumption of unknown liabilities;
- the potential loss of key employees from the acquired company;
- amortization expenses related to intangible assets; and
- the diversion of management's attention from other business concerns.
Additionally, in periods following an acquisition, the combined company
will be required to evaluate goodwill and acquisition-related intangible assets
for impairment. When such assets are found to be impaired, they will be written
down to estimated fair value, with a charge against earnings.
Integrating acquired organizations and their products and services may be
difficult, expensive, time-consuming and a strain on the combined company's
resources and its relationship with employees and customers and ultimately may
not be successful.
THE COMBINED COMPANY MAY BE AFFECTED BY SIGNIFICANT RESTRICTIONS WITH
RESPECT TO ISSUANCE OF ITS EQUITY SECURITIES FOR TWO YEARS AFTER THE SPIN-OFF
TRANSACTION.
Even if the spin-off transaction otherwise qualifies as a reorganization
within the meaning of Sections 355 and 368 of the Internal Revenue Code, the
distribution of Washington common stock to Conexant stockholders in connection
with the spin-off transaction may be disqualified as tax-free to Conexant under
Section 355(e) of the Internal Revenue Code if 50% or more of the stock of
Conexant or the combined company is acquired as part of a plan (or series of
related transactions) that includes the
31
spin-off transaction. For this purpose, any acquisitions of Conexant stock or
combined company stock within two years before or after the spin-off transaction
are presumed to be part of such a plan, although Conexant or the combined
company may be able to rebut that presumption. The merger will be treated as
resulting in a deemed acquisition by Alpha stockholders of approximately 33% of
Washington common stock. The process for determining whether a change of
ownership has occurred under the tax rules is complex. Section 355(e) is a
relatively new provision of law. Accordingly, little guidance exists regarding
its interpretation. In particular, there is uncertainty over the analysis to be
used to determine whether transactions are part of a plan (or series of related
transactions). In addition, such a determination is inherently factual and
subject to the interpretation of the facts and circumstances of a particular
case. If an acquisition of Conexant stock or combined company stock triggers the
application of Section 355(e), Conexant would recognize taxable gain but the
spin-off transaction would generally be tax-free to Conexant stockholders. Under
the tax allocation agreement to be entered into among Conexant, Washington and
Alpha, the combined company would be required to indemnify Conexant against that
taxable gain if it were triggered by actions by or in respect of the combined
company (including its subsidiaries) or its stockholders. See "Agreements
Relating to the Spin-Off Transaction -- Tax Allocation Agreement".
Because of the change in control limitation imposed by Section 355(e) of
the Internal Revenue Code, the combined company may be limited in the amount of
stock that it can issue to make acquisitions or to raise additional capital in
the two years subsequent to the merger. Also, the combined company's indemnity
obligation to Conexant might discourage, delay or prevent a change of control
during this two year period that stockholders of the combined company may
consider favorable.
THE COMBINED COMPANY MAY BE LIABLE FOR PENALTIES UNDER ENVIRONMENTAL LAWS,
RULES AND REGULATIONS, WHICH COULD ADVERSELY IMPACT ITS BUSINESS.
The Washington Business, the Mexicali operations and Alpha have used, and
the combined company will continue to use, a variety of chemicals in
manufacturing operations and have been or will be subject to a wide range of
environmental protection regulations in the United States and Mexico. While the
Washington Business, the Mexicali operations and Alpha have not experienced any
material adverse effect on their operations as a result of such regulations, we
cannot assure you that current or future regulations would not have a material
adverse effect on the combined company's business, financial condition and
results of operations.
The Washington Business is engaged in remediation of groundwater
contamination at its Newbury Park, California facility. The Washington Business
currently estimates the remaining costs for this remediation to be approximately
$0.8 million and the Washington Business has accrued for these costs as of
December 31, 2001.
Environmental regulations often require parties to fund remedial action
regardless of fault. Consequently, it is often difficult to estimate the future
impact of environmental matters, including potential liabilities. We cannot
assure you that the amount of expense and capital expenditures that might be
required to satisfy environmental liabilities, to complete remedial actions and
to continue to comply with applicable environmental laws will not have a
material adverse effect on the combined company's business, financial condition
and results of operations.
CERTAIN PROVISIONS IN THE COMBINED COMPANY'S ORGANIZATIONAL DOCUMENTS AND
DELAWARE LAW MAY MAKE IT DIFFICULT FOR SOMEONE TO ACQUIRE CONTROL OF THE
COMBINED COMPANY.
The combined company will have certain anti-takeover measures that may
affect the combined company's common stock. The combined company's second
amended and restated certificate of incorporation, its second amended and
restated by-laws and the Delaware General Corporation Law contain several
provisions that would make more difficult an acquisition of control of the
combined company in a transaction not approved by the combined company's board
of directors. The combined
32
company's second amended and restated certificate of incorporation and second
amended and restated by-laws include provisions such as:
- the division of the combined company's board of directors into three
classes to be elected on a staggered basis, one class each year;
- the ability of the combined company's board of directors to issue shares
of preferred stock in one or more series without further authorization of
stockholders;
- a prohibition on stockholder action by written consent;
- elimination of the right of stockholders to call a special meeting of
stockholders;
- a requirement that stockholders provide advance notice of any stockholder
nominations of directors or any proposal of new business to be considered
at any meeting of stockholders;
- a requirement that the affirmative vote of at least 66 2/3% of the
combined company's shares be obtained to amend or repeal any provision of
the second amended and restated by-laws or the provision of the second
amended and restated certificate of incorporation relating to amendments
to the by-laws;
- a requirement that the affirmative vote of at least 80% of the combined
company's shares be obtained to amend or repeal the provisions of the
second amended and restated certificate of incorporation relating to the
election and removal of directors, the classified board or the right to
act by written consent;
- a requirement that the affirmative vote of at least 80% of the combined
company's shares be obtained for business combinations not approved by a
majority of the members of the board of directors in office prior to the
time the other party to the business combination becomes the beneficial
owner of 5% or more of the shares of the combined company;
- a fair price provision; and
- a requirement that the affirmative vote of at least 90% of the combined
company's shares be obtained to amend or repeal the fair price provision.
In addition to the provisions in the combined company's second amended and
restated certificate of incorporation and second amended and restated by-laws,
Section 203 of the Delaware General Corporation Law generally provides that a
corporation shall not engage in any business combination with any interested
stockholder during the three-year period following the time that such
stockholder becomes an interested stockholder, unless a majority of the
directors then in office approves either the business combination or the
transaction that results in the stockholder becoming an interested stockholder
or specified stockholder approval requirements are met. See "Description of the
Combined Company's Capital Stock -- Certain Provisions in the Combined Company's
Second Amended and Restated Certificate of Incorporation and Amended By-Laws".
33
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus-information statement includes
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are
subject to the "safe harbor" created by those sections. Some of the
forward-looking statements can be identified by the use of forward-looking terms
such as "believes", "expects", "may", "will", "should", "could", "seek",
"intends", "plans", "estimates", "anticipates" or other comparable terms.
Forward-looking statements involve inherent risks and uncertainties. A number of
important factors could cause actual results to differ materially from those in
the forward-looking statements, including those factors discussed in "Risk
Factors". Factors that could cause actual results to differ from those reflected
in forward-looking statements relating to the operations and business of the
combined company include:
- the cyclical nature of the wireless communications semiconductor industry
and the markets addressed by the combined company's products and its
customers' products;
- general economic and business conditions that adversely affect the
combined company or its suppliers, distributors or customers;
- demand for and market acceptance of new and existing products;
- successful development of new products and the timing of new product
introductions;
- the successful integration of Alpha, the Washington Business and the
Mexicali operations and future acquisitions;
- the availability and extent of utilization of manufacturing capacity and
raw materials;
- pricing pressures and other competitive factors;
- fluctuations in manufacturing yields;
- product obsolescence;
- the combined company's ability to develop and implement new technologies
and to obtain protection of the related intellectual property;
- the combined company's ability to attract and retain qualified personnel;
- the disproportionate impact of the combined company's business
relationships with large customers;
- the uncertainties of litigation; and
- other risks and uncertainties, including those set forth in this proxy
statement/prospectus-information statement and those detailed from time
to time in the combined company's filings with the Securities and
Exchange Commission.
You should read this proxy statement/prospectus-information statement and
the documents incorporated by reference into it completely and with the
understanding that actual future results may be materially different from
expectations. All forward-looking statements made in this proxy statement/
prospectus-information statement are qualified by these cautionary statements.
These forward-looking statements are made only as of the date of this proxy
statement/prospectus-information statement, and Alpha, Conexant and the combined
company do not undertake any obligation, other than as may be required by law,
to update or revise any forward-looking statements to reflect changes in
assumptions, the occurrence of unanticipated events or changes in future
operating results over time.
34
THE ALPHA SPECIAL MEETING
DATE, TIME AND PLACE
The Alpha special meeting will be held on June , 2002 at 10:00 a.m.,
Eastern Time, at the Four Points (Sheraton) Burlington Hotel, 30 Wheeler Road,
Burlington, Massachusetts.
MATTERS FOR CONSIDERATION
The purposes of the special meeting are for Alpha stockholders to consider
and vote upon:
- a proposal to approve and adopt the merger agreement attached as Annex A
to this proxy statement/prospectus-information statement and the merger
contemplated by the merger agreement;
- a proposal to approve an amendment to Alpha's 1996 Long-Term Incentive
Plan to increase the number of shares of Alpha common stock that may be
issued under the plan;
- a proposal to approve an amendment to Alpha's Directors' 2001 Stock
Option Plan to increase the number of shares of Alpha common stock that
may be issued under the plan; and
- any other matter that may properly come before the special meeting.
Alpha knows of no other matters to be brought before the special meeting.
THE ALPHA BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT ALPHA
STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND
THE MERGER.
ALPHA BELIEVES THE AMENDMENTS TO ALPHA'S 1996 LONG-TERM INCENTIVE PLAN AND
DIRECTORS' 2001 STOCK OPTION PLAN ARE ADVISABLE IN CONNECTION WITH THE INCREASE
IN THE NUMBER OF EMPLOYEES AND THE ADDITION OF NEW OFFICERS AND DIRECTORS THAT
WILL OCCUR AS A RESULT OF THE MERGER. THE ALPHA BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT ALPHA STOCKHOLDERS VOTE FOR THE PROPOSALS TO APPROVE THE
AMENDMENTS TO ALPHA'S 1996 LONG-TERM INCENTIVE PLAN AND DIRECTORS' 2001 STOCK
OPTION PLAN.
RECORD DATE; VOTING INFORMATION; QUORUM
The Alpha board of directors has fixed the close of business on April 22,
2002 as the record date for determining the holders of Alpha common stock
entitled to notice of, and to vote at, the special meeting. Only holders of
record of Alpha common stock at the close of business on the record date will be
entitled to notice of, and to vote at, the special meeting.
As of the record date, approximately 44,264,906 shares of Alpha common
stock were issued and outstanding and entitled to vote at the special meeting.
Alpha's amended and restated by-laws provide that each share of Alpha common
stock shall entitle the holder to one vote on each matter to be considered at
the special meeting.
If you are a record holder of Alpha common stock on the record date, you
may vote your shares of Alpha common stock in person at the special meeting or
by proxy as described below under "-- Voting by Proxy".
The presence in person or by proxy at the special meeting of the holders of
at least a majority of the outstanding shares of Alpha common stock entitled to
vote will constitute a quorum for the special meeting. Properly signed proxies
that are marked "abstain" are known as abstentions. Properly signed proxies that
are held by brokers in street name on behalf of customers who have not provided
their broker with specific voting instructions on nonroutine matters are known
as broker non-votes. Abstentions and broker non-votes will be counted for the
purposes of determining whether a quorum exists at the special meeting.
35
REQUIRED VOTES
The affirmative vote of a majority of the outstanding shares of Alpha
common stock entitled to vote on the merger proposal is required to approve and
adopt the merger agreement and the merger. For purposes of the vote upon the
merger proposal, abstentions and broker non-votes will have the same effect as a
vote against the proposal. The affirmative vote of a majority of the votes
properly cast is required to approve the proposals to amend Alpha's 1996
Long-Term Incentive Plan and Directors' 2001 Stock Option Plan. For purposes of
the vote upon the proposals to amend Alpha's 1996 Long-Term Incentive Plan and
Directors' 2001 Stock Option Plan, abstentions and broker non-votes will have no
effect on the outcome of the vote.
VOTING BY PROXY
Alpha stockholders who vote their shares of Alpha common stock by signing a
proxy and returning it in time for the special meeting will have their shares
voted as indicated on their proxy card. If a proxy is properly executed but does
not contain voting instructions, the proxy will be voted FOR approval and
adoption of the merger agreement and the merger and FOR approval of the
amendments to Alpha's 1996 Long-Term Incentive Plan and Directors' 2001 Stock
Option Plan. If other matters are properly presented before the special meeting,
the persons named in the proxy will have authority to vote in accordance with
their judgment on any other such matter, including, without limitation, any
proposal to adjourn or postpone the meeting or otherwise concerning the conduct
of the meeting. Alpha does not currently expect that any matter other than as
described in this proxy statement/prospectus-information statement will be
brought before the special meeting.
If your broker holds your shares of Alpha common stock in street name, you
must either direct your broker on how to vote your shares or obtain a proxy from
your broker to vote in person at the special meeting.
If you are a participant in Alpha's 401(k) Savings and Investment Plan, you
will receive a proxy card for the shares of Alpha common stock you own through
the 401(k) Plan. That proxy card will serve as a voting instruction card for the
trustee of the 401(k) Plan, and your 401(k) Plan shares will be voted as you
instruct. If you do not sign and return your proxy card to indicate your
instructions, the 401(k) Plan trustee will vote your 401(k) Plan shares in the
same proportion as shares for which instructions are received from other 401(k)
Plan participants.
REVOCATION OF PROXIES
Without affecting any vote previously taken, if you are a record holder of
Alpha common stock, you may revoke your proxy in any of the following ways:
- sending a written notice to Alpha's corporate secretary that is received
prior to the special meeting stating that you are revoking your proxy;
- signing a new, later-dated proxy card and returning it by mail to Alpha's
transfer agent so that it is received prior to the special meeting; or
- attending the special meeting and voting in person.
Simply attending the special meeting will not revoke your proxy. If you
instructed a broker to vote your shares and wish to change your instructions,
you must follow your broker's directions for changing those instructions. If an
adjournment occurs and no new record date is set, it will have no effect on the
ability of Alpha stockholders of record as of the record date to exercise their
voting rights or to revoke any previously delivered proxies.
VOTING BY ALPHA MANAGEMENT
As of the record date for the special meeting of Alpha stockholders, Alpha
directors and executive officers as a group owned and were entitled to vote
265,227 shares of Alpha common stock, representing
36
approximately 0.6% of the outstanding voting power of Alpha common stock
entitled to vote at the special meeting. All of the directors and executive
officers of Alpha that are entitled to vote at the Alpha special meeting have
indicated that they intend to vote their shares of Alpha common stock in favor
of approval and adoption of the merger agreement and the merger and in favor of
the amendments to Alpha's 1996 Long-Term Incentive Plan and Directors' 2001
Stock Option Plan.
In addition, each of the directors and certain executive officers of Alpha
entered into a stockholders agreement with Conexant pursuant to which the
director or executive officer agreed to vote his shares in favor of approval and
adoption of the merger agreement and the merger and against any action or
proposal, including any competing or superior proposals, that could reasonably
be expected to result in the failure to satisfy any of the conditions to the
obligations of the parties in the merger agreement with respect to the merger or
otherwise prevent, interfere with or delay the consummation of the merger. As of
the record date for the special meeting of Alpha stockholders, Alpha directors
and executive officers who have entered into the stockholders agreements held
approximately 0.54% of the voting power of the outstanding Alpha common stock.
NO DISSENTERS' OR APPRAISAL RIGHTS
Alpha stockholders will not be entitled to exercise dissenters' or
appraisal rights or to demand payment for their shares in connection with the
merger because Alpha common stock is traded on the Nasdaq National Market. Under
Delaware law, no appraisal rights are available for shares of any class or
series of stock which, as of the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of stockholders to act
upon any merger agreement, were listed on a national securities exchange or
traded on the Nasdaq National Market.
SOLICITATION OF PROXIES
This proxy statement/prospectus-information statement is being furnished to
Alpha stockholders in connection with the Alpha board of directors' solicitation
of proxies from the holders of Alpha common stock for use at the special
meeting. In addition to solicitation by mail, Alpha may solicit proxies in
person or by telephone, telecopy or e-mail. Alpha also has engaged a
professional proxy solicitation firm, Morrow & Co., Inc., to assist it in
soliciting proxies. Alpha will pay to Morrow & Co., Inc. a fee of $8,500 plus
expenses for its services and will bear all costs of the proxy solicitation.
37
THE MERGER
The discussion in this proxy statement/prospectus-information statement of
the merger and the principal terms of the merger agreement is subject to and
qualified in its entirety by reference to the merger agreement. A copy of the
merger agreement is attached as Annex A and is incorporated by reference into
this section of the proxy statement/prospectus-information statement.
GENERAL
Alpha and Conexant have agreed to merge the Washington Business with
Alpha's business pursuant to the terms of the merger agreement. In connection
with the merger, Conexant will contribute the Washington Business to Washington
pursuant to the terms of the distribution agreement. Immediately prior to the
merger, Conexant will distribute all of the outstanding shares of Washington
common stock to Conexant stockholders on a one share-for-one share basis.
Washington will then merge with and into Alpha in accordance with the terms of
the merger agreement, and Alpha will be the surviving company in the merger. All
shares of Washington common stock issued in the distribution will be immediately
converted in the merger into the right to receive 0.351 of a share of combined
company common stock in exchange for each share of Washington common stock and
the Washington shares will be canceled and will cease to exist. After the
merger, Conexant stockholders will not have any rights in the shares of
Washington common stock other than the right to receive the shares of combined
company common stock.
Alpha stockholders will continue to hold their existing shares of Alpha
common stock as shares of the combined company after the merger and will not
receive any new shares in the merger. Immediately after consummation of the
merger, approximately 67% of the outstanding shares of common stock of the
combined company, on a fully diluted basis, will be owned by Conexant
stockholders and approximately 33% will be owned by Alpha stockholders.
No vote of Conexant stockholders is required or being sought in connection
with the spin-off transaction or the merger. Conexant, as sole stockholder of
Washington, has approved and adopted the merger agreement and the merger.
Following the merger, the combined company will operate the combined
business operations of Alpha and the Washington Business and will adopt a new
corporate name. The corporate name change will be effected by a means that will
not require the approval of the stockholders of the combined company. The
combined company will have joint headquarters in Woburn, Massachusetts and
Newport Beach, California. The fiscal year of the combined company will end on
the Sunday closest to September 30.
We encourage you to read carefully the merger agreement and the
distribution agreement, which are attached as Annexes A and B, respectively,
because they set forth the terms of the merger, the contribution of the
Washington Business to Washington and the distribution of Washington common
stock to Conexant stockholders.
Upon completion of the merger, the combined company will purchase from
Conexant:
- Conexant's semiconductor assembly and test facility located in Mexicali,
Mexico and certain related assets, pursuant to the Mexican stock and
asset purchase agreement; and
- Conexant's package design team that supports the Mexicali facility,
pursuant to the U.S. asset purchase agreement.
The combined company will pay Conexant $150 million for the purchase of
Conexant's Mexicali facility, the package design team and certain related
assets. The satisfaction of the conditions to closing set forth in the Mexican
stock and asset purchase agreement is a condition to the obligations of Alpha
and Washington to complete the merger.
38
BACKGROUND OF THE MERGER
In August 2001, as part of its ongoing review of its long-term strategic
plans, Alpha met with U.S. Bancorp Piper Jaffray, its financial advisor, to
discuss strategic alternatives available to Alpha, including a possible business
combination with Conexant's wireless communications business. On August 20,
2001, Alpha, through U.S. Bancorp Piper Jaffray, contacted Conexant, through its
financial advisor, Credit Suisse First Boston, regarding a possible business
combination between Alpha and Conexant's wireless communications business.
Thereafter Conexant had several discussions with Credit Suisse First Boston
regarding Conexant's overall business strategy and various strategic
alternatives for its wireless communication business, including a possible
business combination with Alpha.
On or about September 7, 2001, David J. Aldrich, president and chief
executive officer of Alpha, and Dwight W. Decker, chairman of the board and
chief executive officer of Conexant, agreed to meet in person for a preliminary
high-level discussion regarding the possible strategic merits of a combination
between Alpha and Conexant's wireless communications business.
On September 13, 2001, Mr. Aldrich and Mr. Decker met in Newport Beach,
California. In their meeting, Messrs. Aldrich and Decker observed that the
products of Alpha's business and of Conexant's wireless communications business
were largely complementary. At this time, there was no discussion of any
particular structure for a potential business combination. During the next
several weeks, Mr. Aldrich and Mr. Decker had additional preliminary discussions
relating to Alpha's business and Conexant's wireless communications business and
a possible business combination between them. In the course of these
discussions, Alpha suggested as a possible business combination structure an
acquisition by Alpha of Conexant's wireless communications business for a
combination of cash and Alpha stock.
On September 27, 2001, Credit Suisse First Boston, on behalf of Conexant,
contacted U.S. Bancorp Piper Jaffray, on behalf of Alpha, regarding alternative
proposed terms of a possible business combination between Alpha and Conexant's
wireless communications business, which terms included a potential structure
involving a spin-off of Conexant's wireless communications business followed by
a merger of that business with Alpha.
On September 28, 2001, Alpha and Conexant executed a Mutual Confidentiality
Agreement with respect to the exchange of non-public information for purposes of
further exploring a potential transaction. The Mutual Confidentiality Agreement
did not restrict Alpha or Conexant from pursuing other transactions.
On October 10, 2001, at a meeting of the Conexant board of directors held
by telephone conference call, members of Conexant's management and
representatives of Credit Suisse First Boston reported on the preliminary
discussions with Alpha and a potential business combination between Alpha and
Conexant's wireless communications business. The Conexant board of directors
authorized Conexant's management to proceed with the conduct of due diligence
with respect to a potential transaction involving Alpha.
On October 10 and 11, 2001, members of Alpha's management, including Mr.
Aldrich, Paul E. Vincent, vice president, chief financial officer, treasurer and
secretary of Alpha, and Jean-Pierre Gillard, vice president of marketing and
development of Alpha, together with representatives of U.S. Bancorp Piper
Jaffray, met in Newport Beach, California, with members of Conexant's
management, including Mr. Decker, Balakrishnan S. Iyer, senior vice president
and chief financial officer of Conexant, and Moiz M. Beguwala, senior vice
president and general manager -- wireless communications of Conexant, and
representatives of Credit Suisse First Boston. Alpha presented an overview of
its operations and business plan and Conexant presented an overview of its
wireless communications operations and business plan. At the conclusion of the
meeting, the parties agreed that they would each have separate internal
discussions regarding the possibility of a strategic relationship before having
further discussions between the two companies.
On October 23 and 24, 2001, management teams from Alpha and Conexant, along
with their respective financial advisors, met in Bedford, Massachusetts, to
review and discuss Alpha's business and Conexant's wireless communications
business.
39
On October 25, 2001, at a meeting of the Alpha board of directors, Mr.
Aldrich and representatives of U.S. Bancorp Piper Jaffray updated the directors
concerning the various discussions with Conexant and the current status and
nature of the proposals and the strategic opportunity presented by a possible
combination between Alpha and Conexant's wireless communications business. The
Alpha board of directors and representatives of U.S. Bancorp Piper Jaffray
discussed various topics, including the complementary nature of the products of
Alpha and Washington, the potential management team of the combined company, the
potential board composition of the combined company, possible valuation
methodologies and the overall strategic rationale for a business combination.
The Alpha board of directors authorized Alpha's management to continue exploring
a potential transaction with Conexant.
From October 25, 2001 through December 16, 2001, Alpha's senior management
and its financial advisor engaged in continued discussions with representatives
of Conexant and its financial advisor. During the same period, Alpha, U.S.
Bancorp Piper Jaffray and Skadden, Arps, Slate, Meagher & Flom LLP, Alpha's
special legal counsel, and Conexant, Credit Suisse First Boston and Chadbourne &
Parke LLP, Conexant's legal counsel, had telephone calls and in-person due
diligence meetings regarding the respective businesses, operations, financial
condition and results of operations of each of Alpha and Conexant's wireless
communications business, discussions regarding the roles of the respective
management teams after a possible business combination and preparation and
negotiation of agreements outlining the proposed terms of a possible business
combination.
At a meeting of the board of directors of Conexant held on November 1 and
2, 2001, members of Conexant's management reported on the operations and
business plan of Conexant's wireless communications business and updated the
board on the status of Conexant's discussions with Alpha.
On November 2 and 3, 2001, management teams from Alpha and Conexant, along
with representatives of their respective financial advisors, met again in
Newport Beach, California, to further review specific areas of each of their
businesses and to discuss the potential combination of Alpha and Conexant's
wireless communications business. Present at these meetings for Alpha, among
others, were Mr. Aldrich, Mr. Vincent and Mr. Gillard. Present at these meetings
for Conexant, among others, were Mr. Decker, Mr. Iyer and Mr. Beguwala.
On November 7, 2001, Conexant's financial advisor contacted Alpha's
financial advisor to propose the purchase by Alpha of the Mexicali operations in
connection with a possible business combination. From November 8 to November 28,
2001, representatives of Alpha and Conexant, together with their financial
advisors and legal counsel, continued negotiating the terms of a potential
business combination. During this time, Mr. Aldrich and Mr. Decker held several
discussions regarding their continued interest in a potential business
combination and the terms under which such a combination might take place.
On November 16, 2001, U.S. Bancorp Piper Jaffray, on behalf of Alpha,
contacted Credit Suisse First Boston, on behalf of Conexant, to propose the
inclusion of certain assets utilized by Conexant's package design team, as well
as certain intellectual property, in the Mexicali operations to be purchased by
Alpha.
On November 19 and November 28, 2001, the Alpha board of directors met by
telephone conference call to review the status of Alpha's discussions with
Conexant. At the conclusion of each meeting, the Alpha board of directors
authorized Mr. Aldrich to continue gathering information concerning a potential
business combination with Conexant's wireless communications business.
On or about November 21, 2001, Alpha and Conexant mutually determined to
pursue negotiations of a transaction whereby Conexant would contribute its
wireless communications business (excluding certain assets and liabilities) to
Washington and distribute all of the outstanding shares of Washington common
stock to the stockholders of Conexant on a one share-for-one share basis,
immediately after which Washington would merge with and into Alpha. The
discussions included proposals on the relative stock ownership by Conexant
stockholders and Alpha stockholders of the outstanding shares of common stock of
the combined company, on a fully diluted basis, following the merger.
Additionally, the discussions also contemplated that, following the consummation
of the merger, the combined company would purchase the Mexicali operations for
$150 million, which was less than the price initially proposed by Conexant on
40
November 7, 2001. The Mexicali operations were proposed to be acquired by the
combined company after the merger, rather than being included in the Washington
Business spun-off to Conexant stockholders, because Conexant desired to divest
the Mexicali operations for cash consideration.
On November 28, 2001, Conexant's board of directors met by telephone
conference call to review the transaction structure and terms. At that meeting,
the Conexant board of directors authorized Conexant's management to proceed with
the negotiation of definitive agreements with respect to a proposed transaction,
subject to further board review and approval.
On December 4, 2001, the Alpha board of directors met by telephone
conference call to review the status of Alpha's discussions with Conexant. At
the conclusion of the meeting, the Alpha board of directors authorized Mr.
Aldrich to continue discussions concerning a possible business combination with
Conexant's wireless communications business.
From December 5, 2001 to December 7, 2001, Mr. Aldrich and other members of
Alpha's senior management held various meetings with members of the senior
management of Conexant and its wireless communications business in Newport
Beach, California to review further the potential benefits of a combination
between Alpha and Conexant's wireless communications business.
On December 12, 2001, the Alpha board of directors met to discuss the
status of the negotiations with Conexant. A representative from Skadden, Arps,
Slate, Meagher & Flom LLP reviewed and discussed with the Alpha board of
directors the fiduciary duties of directors in considering a strategic business
combination and further discussed the material terms of the current drafts of a
merger agreement and other transaction agreements. Also at this meeting, the
Alpha board of directors discussed with U.S. Bancorp Piper Jaffray various
valuation methodologies that would be utilized in connection with U.S. Bancorp
Piper Jaffray's evaluation of the proposed consideration to be paid by Alpha in
the merger. After extensive discussions, the Alpha board of directors concluded
that a merger with Conexant's wireless communications business and the
acquisition of Conexant's Mexicali operations would make strong strategic sense.
On December 13 and 14, 2001, representatives of Alpha, Conexant and their
legal counsel and financial advisors met at the offices of Chadbourne & Parke
LLP in New York City to negotiate a merger agreement and other transaction
agreements. Negotiations with respect to the definitive agreements continued
through December 16, 2001.
On December 15, 2001, the Conexant board of directors met by telephone
conference call with members of Conexant's management and representatives of
Credit Suisse First Boston and Chadbourne & Parke LLP to discuss the proposed
final terms of the business combination transaction, including the merger
exchange ratio. After presentations by Credit Suisse First Boston, Conexant's
management and Chadbourne & Parke LLP, and after further discussion, the
Conexant board of directors, by unanimous vote of those present, approved and
adopted the merger agreement and the merger, approved the related transactions
and agreements and authorized Conexant's management to resolve any remaining
issues consistent with discussions and to execute the merger agreement and the
related transaction documents.
On December 16, 2001, the Alpha board of directors met by telephone
conference call with management and representatives of U.S. Bancorp Piper
Jaffray and Skadden, Arps, Slate, Meagher & Flom LLP to discuss the final terms
of the proposed transaction, which terms were substantially the same as those
discussed on or about November 21, 2001, and included the final determination of
the post-merger relative ownership of combined company common stock, on a fully
diluted basis, of approximately 67% by Conexant stockholders and approximately
33% by Alpha stockholders. Mr. Aldrich, Mr. Vincent and a representative from
Skadden, Arps, Slate, Meagher & Flom LLP reviewed the material terms and
conditions of the transaction documents, as negotiated, and discussed with the
Alpha board of directors the differences between those terms and conditions and
those outlined at the December 12 meeting of the board. A representative from
Skadden, Arps, Slate, Meagher & Flom LLP reviewed with the Alpha board of
directors the documentation to be executed in connection with the proposed
transaction and the board's fiduciary duties to Alpha stockholders.
Representatives of U.S. Bancorp Piper Jaffray then reviewed its
41
financial presentation concerning the proposed merger consideration with the
Alpha board of directors, copies of which had been provided to the directors in
advance of the meeting. At this time, U.S. Bancorp Piper Jaffray rendered an
oral opinion, subsequently confirmed in writing, that, as of such date, and
based upon and subject to the assumptions, factors and limitations set forth in
its written opinion, the consideration to be paid by Alpha in the merger was
fair from a financial point of view to Alpha and its stockholders (other than
Conexant, Washington and their affiliates). The Alpha board of directors
carefully considered the benefits and risks to Alpha and its stockholders of the
proposed transaction, unanimously determined that the transaction was in the
best interest of Alpha stockholders, unanimously approved and adopted the merger
agreement and merger and unanimously resolved to recommend that the Alpha
stockholders vote to approve and adopt the merger agreement and the merger. In
addition, the Alpha board of directors authorized Alpha's management to resolve
any remaining issues consistent with the discussions and to execute the merger
agreement and the related transaction documents.
Later that night, Conexant, Washington and Alpha entered into the merger
agreement and other transaction documents. On the morning of December 17, 2001,
Alpha and Conexant issued a joint press release announcing the transaction.
As of April 12, 2002, Alpha, Conexant and Washington executed an amendment
to the merger agreement incorporating a change to the exchange ratio in order to
adjust for certain options issued to employees of Conexant's Mindspeed
Technologies business that will not be adjusted in the spin-off transaction,
pursuant to the employee matters agreement, and the merger, pursuant to the
merger agreement, in the same manner as other Conexant options and the holders
of these Mindspeed options will not receive options to purchase shares of the
combined company in respect thereof. The revised exchange ratio was calculated
to maintain the same proportional ownership of the combined company immediately
after the merger by Conexant stockholders and Alpha stockholders as would have
existed if these options had been excluded from the parties' original
calculations.
ALPHA BOARD OF DIRECTORS' RECOMMENDATION TO ALPHA STOCKHOLDERS; REASONS FOR THE
MERGER
THE ALPHA BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS ADVISABLE
AND FAIR TO, AND IN THE BEST INTERESTS OF, ALPHA AND ITS STOCKHOLDERS.
ACCORDINGLY, THE ALPHA BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT ALPHA STOCKHOLDERS VOTE
FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE MERGER.
The Alpha board of directors, in reaching its decision to approve and adopt
the merger agreement and the merger, consulted with Alpha's management, as well
as its financial and legal advisors, and considered a variety of factors,
including the following:
- information concerning the business, operations, financial condition,
earnings and prospects of each of Alpha and the Washington Business as
separate entities and on a combined basis, including their revenues,
their complementary businesses and the potential for revenue enhancement
and cost savings;
- the enhanced strategic and market position of the combined company beyond
that achievable by Alpha alone;
- the increased scale, scope and diversity of operations, product lines,
served markets and customers that could be achieved by combining Alpha
and the Washington Business;
- the increase in the market capitalization of the combined company, which
should allow the combined company to have increased access to debt and
equity markets;
- the combined company's anticipated future financial performance;
- the opportunity for Alpha stockholders to participate in a larger company
with a more diversified product line, a broader customer base and
enhanced technology capabilities, and, as stockholders of the combined
company, to benefit from future growth of the combined company;
42
- the structure of the merger as a generally tax-free reorganization for
federal income tax purposes;
- the terms of the merger agreement, including composition of the board of
directors and the management structure of the combined company;
- the obligations of Alpha with respect to non-solicitation and the
provisions of the merger agreement relating to non-solicitation of
alternative proposals, termination of the merger agreement and payment of
a termination fee under the circumstances described in the merger
agreement, and the impact that those obligations may have on potential
third-party acquirers and on the ability of Alpha to respond to any
potential third-party offer;
- the likelihood of the merger being approved by the appropriate regulatory
authorities; and
- the strategic advantages of acquiring the Mexicali operations following
consummation of the merger.
The Alpha board also considered the opinion of U.S. Bancorp Piper Jaffray,
its financial advisor, that, as of the date of the opinion and based upon and
subject to the assumptions, factors and limitations set forth in the opinion,
the consideration to be paid by Alpha to the holders of Washington common stock
in the merger pursuant to the merger agreement was fair, from a financial point
of view, to Alpha and its stockholders (other than Conexant, Washington and
their affiliates).
The Alpha board of directors also identified and considered certain
countervailing factors in its deliberations concerning the merger, including:
- the possibility that the expected benefits from the merger might not be
fully realized;
- the challenges of separating the Washington Business from Conexant and
integrating the Washington Business with Alpha;
- the possible disruption of Alpha's business that might result from the
announcement of the merger and the diversion of management's attention in
connection with the merger;
- the substantial dilution to Alpha's existing stockholders as a result of
the issuance of combined company common stock in the merger;
- the combined company's potential liabilities to Conexant under the tax
allocation agreement; and
- the possibility that the merger may not be consummated and the potential
adverse consequences if the merger is not completed.
The foregoing discusses the material factors considered by the Alpha board
of directors and is not exhaustive of all factors considered by the Alpha board
of directors. Moreover, in view of the variety of factors considered in
connection with its evaluation of the merger agreement and the merger, the Alpha
board of directors considered the factors as a whole and did not find it
practicable to, and did not, quantify or otherwise assign relative weight to the
specific factors considered in reaching its determination to approve the merger
agreement and the merger. In addition, each member of the Alpha board of
directors may have given differing weights to different factors.
OPINION OF ALPHA'S FINANCIAL ADVISOR
Alpha retained U.S. Bancorp Piper Jaffray to act as its financial advisor
in connection with the Alpha board's consideration of the merger and the related
transactions.
U.S. Bancorp Piper Jaffray delivered to the board of directors of Alpha at
a meeting of the Alpha board held on December 16, 2001 its oral opinion
(subsequently confirmed in writing), as of that date and based upon and subject
to the assumptions, factors and limitations set forth in its written opinion and
described below, that the consideration to be paid by Alpha to the holders of
Washington common stock in the merger pursuant to the merger agreement was fair,
from a financial point of view, to Alpha and its stockholders (other than
Conexant, Washington and their affiliates). A copy of U.S. Bancorp Piper
43
Jaffray's written opinion is attached as Annex C and is incorporated into this
section of the proxy statement/prospectus-information statement by reference.
While U.S. Bancorp Piper Jaffray rendered its opinion and provided certain
analyses to the Alpha board of directors, U.S. Bancorp Piper Jaffray was not
requested to and did not make any recommendation to the board as to the specific
form or amount of the consideration to be paid by Alpha in the proposed merger,
which was determined through negotiations between Alpha and Conexant. U.S.
Bancorp Piper Jaffray's written opinion, which was directed to the Alpha board
of directors, addresses only the fairness, from a financial point of view, of
the consideration proposed to be paid to stockholders of Washington in the
merger pursuant to the merger agreement, and does not address Alpha's underlying
business decision to proceed with or effect the merger or the structure thereof,
the relative merits of the merger compared to any alternative business strategy
or transaction in which Alpha might engage, or whether any alternative
transaction might produce superior benefits to Alpha or its stockholders and
does not constitute a recommendation to any Alpha stockholder as to how to vote
or any action an Alpha stockholder should take with respect to the proposed
merger.
In arriving at its opinion, U.S. Bancorp Piper Jaffray's review included:
- a draft of the merger agreement (including draft term sheets for the
Newport supply agreement and the Newbury supply agreement attached
thereto) dated December 15, 2001;
- a draft of the distribution agreement dated December 15, 2001;
- a draft of the tax allocation agreement dated December 16, 2001;
- a draft of the employee matters agreement dated December 16, 2001;
- a draft of the Mexican stock and asset purchase agreement dated December
15, 2001;
- a draft of the U.S. asset purchase agreement dated December 16, 2001;
- financial and other information, including financial forecasts, relating
to the business, earnings, cash flows, assets, liabilities and prospects
of Alpha, Conexant and the Washington Business that was publicly
available or furnished to or discussed with U.S. Bancorp Piper Jaffray by
management of Alpha and Conexant;
- publicly available market and securities data of Alpha and Conexant and
of selected public companies deemed comparable to Alpha and the
Washington Business; and
- to the extent publicly available, financial information relating to
selected transactions deemed comparable to the proposed merger.
In addition, U.S. Bancorp Piper Jaffray visited the headquarters of Alpha
and Conexant and conducted discussions with members of senior management of both
Alpha and Conexant concerning the anticipated financial condition, operating
performance and balance sheet characteristics of Alpha and the Washington
Business following the merger and their views of the strategic rationale of the
merger.
The following is a summary of the material analyses and other information
that U.S. Bancorp Piper Jaffray prepared and relied on in delivering its opinion
to the board of directors of Alpha:
IMPLIED CONSIDERATION
U.S. Bancorp Piper Jaffray calculated an implied transaction value of
$2.067 billion, after giving effect to the exchange ratio, the resulting implied
value of Alpha stock consideration (based on the closing price of Alpha common
stock on December 13, 2001 of $21.58), the anticipated outstanding Washington
common shares and common share equivalents, and the implied cost of the Mexicali
facility being acquired by Alpha allocable to existing Alpha stockholders. Based
on information provided by management of Conexant and Alpha indicating the net
debt of Washington in the transaction was not meaningful, U.S. Bancorp Piper
Jaffray used the $2.067 billion transaction value for purposes of the equity and
enterprise value of Washington in its analysis.
44
WASHINGTON
Comparable Company Analysis. U.S. Bancorp Piper Jaffray analyzed financial
information and valuation ratios relating to publicly traded companies in the
semiconductor industry deemed comparable to Washington. This group comprised
Alpha, ANADIGICS, Inc., RF Micro Devices, Inc., Sirenza Microdevices, Inc. and
TriQuint Semiconductor, Inc. U.S. Bancorp Piper Jaffray applied the resulting
multiples of selected valuation data to derive aggregate equity values for
Washington. All multiples were based on closing stock prices of the comparable
companies on December 13, 2001. All forward-looking data for the comparable
companies was based on publicly available Wall Street research analyst
estimates. This analysis produced implied aggregate equity values for Washington
ranging from a low of $930 million to a high of $4.999 billion, with median
implied aggregate equity values of $1.142 billion to $2.580 billion and mean
implied aggregate equity values of $1.343 billion to $3.196 billion.
Comparable Acquisition Analysis. U.S. Bancorp Piper Jaffray reviewed ten
acquisition transactions that it deemed comparable to the transaction between
Alpha and Washington. It selected these transactions by searching Securities and
Exchange Commission filings, news stories, press releases, industry and popular
press reports, databases and other sources and by applying the following
criteria:
- transactions that were announced between January 1, 1999 and December 13,
2001;
- transactions involving target companies in the communications and analog
semiconductor industry deemed comparable to Washington;
- transactions with a transaction value greater than $750 million;
- transactions in which 100% of the target company was acquired; and
- transactions that were not repurchases or hostile transactions.
U.S. Bancorp Piper Jaffray performed its analysis on the following transactions:
ACQUIRING COMPANY TARGET COMPANY
TriQuint Semiconductor, Inc. Sawtek, Inc.
Marvell Technology Group Ltd. Galileo Technology Ltd.
Applied Micro Circuits Corporation MMC Networks, Inc.
PMC - Sierra, Inc. Quantum Effect Devices, Inc.
Conexant Systems, Inc. Maker Communications, Inc.
Intel Corporation DSP Communications, Inc.
Intel Corporation Level One Communications, Incorporated
Maxim Integrated Products, Inc. Dallas Semiconductor Corporation
Texas Instruments Incorporated Burr-Brown Corporation
Texas Instruments Incorporated Unitrode Corporation
U.S. Bancorp Piper Jaffray applied the resulting multiples of selected
valuation data to derive implied aggregate equity values of Washington from a
low of $341 million to a high of $7.253 billion, with median implied aggregate
equity values of $633 million to $3.439 billion and mean implied aggregate
equity values of $990 million to $3.997 billion.
Discounted Cash Flow Analysis. U.S. Bancorp Piper Jaffray performed a
discounted cash flow analysis for Washington in which it calculated the present
value of the projected hypothetical future cash flows of Washington based on
Conexant management's estimates. U.S. Bancorp Piper Jaffray estimated a range of
theoretical values for Washington based on the net present value of its implied
annual cash flows and a terminal value for Washington in 2006 calculated based
upon a multiple of revenue. U.S. Bancorp Piper Jaffray applied a range of
discount rates of 25% to 29% and a range of terminal value multiples of 6.0x to
7.5x of forecasted 2006 revenue. This analysis resulted in implied aggregate
equity values of Washington ranging from a low of $1.673 billion to a high of
$2.460 billion.
45
ALPHA
Market Analysis. U.S. Bancorp Piper Jaffray reviewed general background
information concerning Alpha, including, the price performance of Alpha common
stock over the previous twelve months relative to Conexant, the Nasdaq Stock
Market, a group of companies operating in the wireless integrated circuit
market, a group of companies operating in the high-speed transceiver market and
a group of companies operating in the communication integrated circuit market,
and the stock price and trading history of Alpha common stock over selected
periods.
U.S. Bancorp Piper Jaffray presented the closing prices of Alpha common
stock on December 13, 2001 and for the periods preceding that date set forth in
the following table:
Closing price on December 13, 2001.......................... $21.58
HIGH LOW
------ ------
One week.................................................... $25.92 $21.58
One month................................................... $28.52 $21.58
Three months................................................ $30.05 $16.55
Six months.................................................. $40.36 $16.55
Year-to-date................................................ $40.36 $13.56
Comparable Company Analysis. U.S. Bancorp Piper Jaffray analyzed financial
information and valuation ratios relating to publicly traded companies in the
semiconductor industry deemed comparable to Alpha. This group comprised
ANADIGICS, Inc., Conexant, RF Micro Devices, Inc., Sirenza Microdevices, Inc.
and TriQuint Semiconductor, Inc. U.S. Bancorp Piper Jaffray applied the
resulting multiples of selected valuation data to derive implied equity values
per share of Alpha common stock. All multiples were based on closing stock
prices of Alpha and the comparable companies on December 13, 2001. All
forward-looking data for the comparable companies was based on publicly
available Wall Street research analyst estimates. This analysis produced implied
per share equity values for Alpha ranging from a low of $10.26 to a high of
$48.74, with the median implied per share values of $11.42 to $26.68 and mean
implied per share values of $11.42 to $32.15.
Comparable Acquisition Analysis. U.S. Bancorp Piper Jaffray reviewed the
current trading price for Alpha common stock against the values implied by the
ten comparable semiconductor transactions described above. U.S. Bancorp Piper
Jaffray applied the resulting multiples of selected valuation data to derive
implied per share equity values of Alpha common stock from a low of $3.75 to a
high of $85.49, with median implied per share equity values of $6.96 to $34.80
and mean implied per share equity values of $10.88 to $44.36.
Discounted Cash Flow Analysis. U.S. Bancorp Piper Jaffray performed a
discounted cash flow analysis for Alpha in which it calculated the present value
of the projected hypothetical future cash flows of Alpha based on publicly
available Wall Street estimates. U.S. Bancorp Piper Jaffray estimated a range of
theoretical values for Alpha based on the net present value of its implied
annual cash flows and a terminal value for Alpha in 2006 calculated based upon a
multiple of revenue. U.S. Bancorp Piper Jaffray applied a range of discount
rates of 25% to 29% and a range of terminal value multiples of 6.0x to 7.5x of
forecasted 2006 revenue. This analysis resulted in implied per share equity
values of Alpha common stock ranging from a low of $20.62 to a high of $28.37.
PRO FORMA ANALYSES
U.S. Bancorp Piper Jaffray analyzed pro forma effects resulting from the
impact of the transaction on the projected earnings per share of the combined
company for calendar year 2002 based on publicly available Wall Street research
analyst estimates for Alpha and Conexant management's projections for the
Washington Business. U.S. Bancorp Piper Jaffray compared the earnings per share
of Alpha common stock, on a stand-alone basis, to the earnings per share of the
common stock of the combined company on a pro forma basis for calendar year
2002. Without including any synergies that the combined company
46
may realize following consummation of the transaction, but excluding the effect
of any transaction expenses or one-time costs related to the merger, U.S.
Bancorp Piper Jaffray determined that the merger could be accretive to the
projected stand-alone earnings per share of Alpha based on the publicly
available Wall Street estimates.
U.S. Bancorp Piper Jaffray analyzed the expected contributions of each of
Alpha and Washington to revenue, gross profit, operating income, pretax income
and net income of the combined company for calendar years 2001 and 2002 based on
the same Wall Street estimates for Alpha discussed above and Conexant
management's estimates for Washington, and without including possible synergies
and other transaction related expenses. The analysis indicated that Alpha would
contribute to the combined entity revenue of 39.1% and 29.6% and gross profit of
33.7% and 28.1% for calendar years 2001 and 2002, respectively. In addition, the
analysis indicated that Alpha would contribute to the combined entity operating
income of 11.9%, pretax income of 33.7% and net income of 33.7% in calendar year
2002.
CONEXANT MARKET ANALYSIS
U.S. Bancorp Piper Jaffray reviewed general background information
concerning Conexant, including, the price performance of Conexant common stock
over the previous twelve months relative to Alpha, the Nasdaq Stock Market, a
group of companies operating in the wireless integrated circuit market, a group
of companies operating in the high-speed transceiver market and a group of
companies operating in the communication integrated circuit market, and the
stock price and trading history over selected periods of Conexant common stock.
U.S. Bancorp Piper Jaffray presented the closing prices of Conexant common
stock on December 13, 2001 and for the periods preceding that date set forth in
the following table:
Closing price on December 13, 2001.......................... $15.77
HIGH LOW
------ ------
One week.................................................... $17.30 $15.77
One month................................................... $17.50 $12.47
Three months................................................ $17.50 $ 7.33
Six months.................................................. $17.50 $ 7.33
Year-to-date................................................ $19.94 $ 7.07
Giving effect to the outstanding debt and cash of Conexant, U.S. Bancorp
Piper Jaffray calculated an implied enterprise value (equity value plus debt
less cash) for Conexant of $4.6937 billion. In addition, U.S. Bancorp Piper
Jaffray presented the following multiples of selected valuation data:
ENTERPRISE VALUE AS SHARE PRICE AS A
A MULTIPLE OF: MULTIPLE OF
-------------------- EARNINGS PER
CALENDAR YEAR REVENUES EBIT SHARE
------------- ---------- ------- ------------------
2000................................................ 2.3x 15.6x 29.2x
2001E............................................... 5.4x nm nm
2002E............................................... 4.6x nm nm
---------------
nm = not meaningful
In reaching its conclusion as to the fairness of the consideration to be
paid in the merger and in its presentation to the Alpha board of directors, U.S.
Bancorp Piper Jaffray did not rely on any single analysis or factor described
above, assign relative weights to the analyses or factors considered by it, or
make any conclusion as to how the results of any given analysis, taken alone,
supported its opinion. The preparation of a fairness opinion is a complex
process and not necessarily susceptible to partial analysis or summary
description. U.S. Bancorp Piper Jaffray believes that its analyses must be
considered as a whole and that selection of portions of its analyses and of the
factors considered by it, without considering all of the factors and analyses,
would create a misleading view of the processes underlying the opinion.
47
The analyses of U.S. Bancorp Piper Jaffray are not necessarily indicative
of actual values or future results, which may be significantly more or less
favorable than suggested by the analyses. Analyses relating to the value of
companies do not purport to be appraisals or valuations or necessarily reflect
the price at which companies may actually be sold. U.S. Bancorp Piper Jaffray
assumed for purposes of its opinion that the assets and liabilities being
conveyed pursuant to the distribution agreement, the Mexican stock and asset
purchase agreement and the U.S. asset purchase agreement constitute all the
material assets and liabilities of the Washington Business. No company or
transaction used in any analysis for purposes of comparison is identical to
Alpha, Conexant, the Washington Business or the merger. Accordingly, an analysis
of the results of the comparisons is not mathematical; rather, it involves
complex considerations and judgments about differences in the companies to which
Alpha, Conexant and the Washington Business were compared and other factors that
could affect the public trading value of the companies.
For purposes of its opinion, U.S. Bancorp Piper Jaffray relied upon and
assumed the accuracy and completeness of the financial statements and other
information provided to it by Alpha and Conexant, or otherwise made available to
it, and did not assume responsibility for the independent verification of that
information. U.S. Bancorp Piper Jaffray relied upon the assurances of the
management of Alpha and Conexant that the information provided to it by Alpha
and Conexant was prepared on a reasonable basis in accordance with industry
practice, the financial planning data and other business outlook information
reflects the best currently available estimates and judgment of Alpha and
Conexant's respective management, and management was not aware of any
information or facts that would make the information provided to U.S. Bancorp
Piper Jaffray incomplete or misleading. U.S. Bancorp Piper Jaffray expressed no
opinion as to such financial planning data or the assumptions on which it is
based.
For purposes of its opinion, U.S. Bancorp Piper Jaffray assumed that
neither Conexant nor Alpha is a party to any material pending or probable
transaction, including any external financing, recapitalizations, acquisitions
or merger discussions, other than the merger and related transactions, and the
potential financing by Alpha of the aggregate purchase price under the Mexican
stock and asset purchase agreement and the U.S. asset purchase agreement by
means of an offering of equity, debt or some combination thereof. For purposes
of its opinion, U.S. Bancorp Piper Jaffray assumed that all the necessary
regulatory approvals and consents required for the transaction will be obtained
in a manner that will not adversely affect Alpha or Conexant or alter the terms
of the transaction. In arriving at its opinion, U.S. Bancorp Piper Jaffray also
assumed, based on discussions with management and legal representatives of
Alpha, that the transactions will not result in a change in control of Alpha
under applicable state law. Accordingly, U.S. Bancorp Piper Jaffray did not
evaluate the fairness, from a financial point of view, to Alpha and the holders
of common stock of Alpha of the consideration payable in the merger in the
context of a change in control.
In arriving at its opinion, U.S. Bancorp Piper Jaffray did not perform any
appraisals or valuations of any specific assets or liabilities of Alpha,
Conexant or the Washington Business, including, without limitation, the assets
and liabilities being conveyed pursuant to the Mexican stock and asset purchase
agreement and the U.S. asset purchase agreement, and was not furnished with any
such appraisals or valuations. Without limiting the generality of the foregoing,
U.S. Bancorp Piper Jaffray undertook no independent analysis of any owned real
estate, or any pending or threatened litigation, possible unasserted claims or
other contingent liabilities, to which either Alpha, Conexant or the Washington
Business or their respective affiliates was a party or may be subject and U.S.
Bancorp Piper Jaffray's opinion made no assumption concerning and therefore did
not consider the possible assertion of claims, outcomes or damages arising out
of any such matters. U.S. Bancorp Piper Jaffray made no physical inspection of
the properties or assets of Alpha, Conexant or the Washington Business. U.S.
Bancorp Piper Jaffray analyzed each of Alpha, Conexant and the Washington
Business as a going concern and, accordingly, expressed no opinion as to the
liquidation value of any entity. For the purpose of its opinion, U.S. Bancorp
Piper Jaffray assumed that Alpha will be provided the necessary support,
personnel and transition services pursuant to the transaction documents
contemplated in the merger agreement to permit Alpha to operate the combined
company in the ordinary course.
48
U.S. Bancorp Piper Jaffray expressed no opinion as to the price at which
shares of Alpha common stock have traded or may trade following announcement or
consummation of the transactions or at any future time. U.S. Bancorp Piper
Jaffray's opinion addressed only the fairness from a financial point of view, to
Alpha and the holders of common stock of Alpha of the proposed consideration in
the merger and no other transaction terms or arrangements. The opinion is based
on information available to U.S. Bancorp Piper Jaffray and the facts and
circumstances and economic, market and other conditions as they existed and were
subject to evaluation on the date of the opinion. Events occurring after that
date could materially affect the assumptions used in preparing the opinion. U.S.
Bancorp Piper Jaffray has not undertaken to and is not obligated to affirm or
revise its opinion or otherwise comment on any events occurring after the date
it was given.
U.S. Bancorp Piper Jaffray assumed that the transactions will be
non-taxable for United States federal and state income tax purposes to the
respective stockholders of Alpha, Conexant and Washington; and that none of
Alpha, Conexant or Washington will recognize material income, gain or loss for
United States federal or other income tax purposes as a result of the
transactions. U.S. Bancorp Piper Jaffray did not independently verify that such
tax treatment will be available in respect of the transactions, and U.S. Bancorp
Piper Jaffray expressed no view with respect to the tax treatment that will be
required to be applied to the transactions. In addition, U.S. Bancorp Piper
Jaffray assumed, with Alpha's consent, that following the consummation of the
transactions, no indemnification payments with respect to any taxes or otherwise
will be required to be made by Alpha pursuant to the merger agreement, the
distribution agreement or the tax allocation agreement.
U.S. Bancorp Piper Jaffray, as a customary part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, underwritings and secondary
distributions of securities, private placements and valuations for estate,
corporate and other purposes. In the ordinary course of its business, U.S.
Bancorp Piper Jaffray and its affiliates may actively trade securities of Alpha
and Conexant for their own accounts or the accounts of their customers and,
accordingly, may at any time hold a long or short position in such securities.
Under the terms of the engagement letter between Alpha and U.S. Bancorp
Piper Jaffray, Alpha has agreed to pay U.S. Bancorp Piper Jaffray upon
completion of the merger a fee of $10 million for U.S. Bancorp Piper Jaffray's
financial advisory services. Alpha has previously paid U.S. Bancorp Piper
Jaffray a separate fee of $1 million for rendering its opinion. In the event
that Alpha requires external sources of financing in connection with the merger
or other related transactions and seeks to retain a manager/arranger for such
fund raising, Alpha has also agreed to offer U.S. Bancorp Piper Jaffray the
right of first refusal to act as a financial advisor for such fundraising. In
the event that U.S. Bancorp Piper Jaffray accepts such offer, U.S. Bancorp Piper
Jaffray will receive a customary fee for its services in connection with such
fundraising. Whether or not the transaction is consummated, Alpha has agreed to
pay the reasonable out-of-pocket expenses of U.S. Bancorp Piper Jaffray and to
indemnify U.S. Bancorp Piper Jaffray against liabilities incurred. These
liabilities include liabilities under the federal securities laws in connection
with the engagement of U.S. Bancorp Piper Jaffray by the Alpha board of
directors. With the exception of the fees discussed above, in the past two years
Alpha has not paid any fees to U.S. Bancorp Piper Jaffray in connection with the
rendering of financial advisory services.
REGULATORY APPROVALS
U.S. Antitrust Approvals. Alpha and Washington cannot complete the merger
until they have filed notifications with the Antitrust Division of the
Department of Justice and the Federal Trade Commission under the
Hart-Scott-Rodino Act and the applicable rules of the Federal Trade Commission,
and specified waiting periods have expired or terminated. Alpha and Washington
filed the required notification and report forms under the Hart-Scott-Rodino Act
with the Federal Trade Commission and the Antitrust Division and early
termination of the waiting period under this Act was granted on January 29,
2002.
Finnish and Swedish Approval. Alpha and Washington cannot complete the
merger until they have filed a mandatory pre-closing notification with, and
obtained the approval of, the Finnish Competition
49
Authority and the Swedish Competition Authority. Alpha and Washington made the
filings to obtain approval of the merger under Finnish law on February 21, 2002,
and made the filings to obtain approval of the merger under Swedish law on March
13, 2002. Alpha and Washington received the approvals from the Finnish
Competition Authority on March 14, 2002 and from the Swedish Competition
Authority on April 9, 2002.
Other Approvals. In addition, Alpha and Washington are required to make
filings with or obtain approvals in connection with the merger from regulatory
authorities in Brazil and in connection with the sale of the Mexicali facility
from regulatory authorities in Mexico. These filings have been made with the
appropriate authorities and approval from the Mexican regulatory authorities was
received on April 25, 2002.
The obligations of Alpha and Conexant to complete the merger are subject
to, among others, the following conditions:
- the absence of any order or injunction having the effect of making the
merger illegal or otherwise prohibiting completion of the merger; and
- the receipt of all governmental and other regulatory consents, approvals,
orders and authorizations, unless not obtaining those consents,
approvals, orders or authorizations would not reasonably be expected to
have a material adverse effect on the combined company and its
subsidiaries, taken together, after giving effect to the merger.
Alpha and Conexant are not aware of any governmental approvals or actions
that are required for consummation of the merger other than as described above.
If any other governmental approval or action is required, Alpha, Conexant and
Washington will seek that additional approval or action. There can be no
assurance, however, that they will be able to obtain any such additional
approvals or actions.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting
and Washington will be considered the acquiror of Alpha for accounting purposes.
Accordingly, the historical financial statements of Washington/Mexicali will
become the historical financial statements of the combined company following the
merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
When considering the recommendation of the Alpha board of directors with
respect to the merger, Alpha stockholders should be aware that certain Alpha
executive officers and directors have interests in the merger that are different
from, or are in addition to, the interests of Alpha stockholders. The Alpha
board of directors was aware of the interests described below and considered
them, among other matters, in making its recommendation.
POSITIONS WITH THE COMBINED COMPANY
David J. Aldrich, Timothy R. Furey, Thomas C. Leonard and David J.
McLachlan, each of whom is currently a director of Alpha, are expected to serve
as directors of the combined company following completion of the merger. In
addition, Mr. Aldrich, Paul E. Vincent and Liam K. Griffin, each of whom is
currently an executive officer of Alpha, and George M. LeVan, who is currently
director, human resources of Alpha, are expected to serve as executive officers
of the combined company following completion of the merger. See "Management and
Operations of the Combined Company After the Merger".
ACCELERATION OF ALPHA STOCK OPTIONS
Unvested stock options granted under Alpha's stock option plans to current
members of the Alpha board of directors who will not serve as directors of the
combined company will vest and become exercisable at the completion of the
merger, and the exercise period for these options will be extended until the
earlier of the maximum term of the options or one year after the director ceases
to be a member of the Alpha board of directors. As of April 30, 2002, 214,358
shares of Alpha common stock were subject
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to unvested options held by these directors. The aggregate value of these
options as of April 30, 2002, was approximately $0.8 million.
INDEMNIFICATION; DIRECTORS AND OFFICERS LIABILITY INSURANCE
The merger agreement provides that the combined company will indemnify and
provide advancement of expenses to all past and present directors, officers and
employees of Conexant and its subsidiaries (solely with respect to the
Washington Business), and of Alpha and its subsidiaries, to the same extent
those persons were indemnified or had the right to advancement of expenses on
the date of the merger agreement, for acts or omissions occurring on or before
the effective time of the merger. The merger agreement further provides that
subject to certain limitations, the combined company will maintain for a period
of six years after the merger, for the benefit of Alpha's directors and
officers, the directors' and officers' liability insurance and fiduciary
liability insurance policies currently maintained by Alpha or policies of at
least the same coverage and amounts containing terms and conditions which are,
in the aggregate, no less advantageous to the insured than the current insurance
maintained by Alpha with respect to claims arising from facts or events that
occurred on or before the effective time of the merger. The combined company
will also maintain for a period of six years after the merger, for the benefit
of the directors and officers of Conexant (solely with respect to the Washington
Business), directors' and officers' liability insurance and fiduciary liability
insurance policies which are, in the aggregate, no less advantageous to the
insured than the current insurance maintained by Conexant (solely with respect
to the Washington Business) with respect to claims arising from facts or events
that occurred on or before the effective time of the merger. However, the
combined company will not be required to expend in any one year an amount in
excess of 200% of the current annual premiums, on a per capita basis, paid by
Alpha or Conexant, as applicable, for the insurance described above.
OWNERSHIP OF ALPHA COMMON STOCK
As of the record date for the special meeting of Alpha stockholders,
directors and executive officers of Alpha beneficially owned 265,227 shares of
Alpha common stock, entitling them to exercise approximately 0.6% of the voting
power of the Alpha common stock entitled to vote at the Alpha special meeting.
In addition, each of the directors and certain executive officers of Alpha
entered into a stockholders agreement with Conexant pursuant to which the
director or executive officer agreed to vote his shares in favor of approval and
adoption of the merger agreement and the merger and against any action or
proposal, including any competing or superior proposals, that could reasonably
be expected to result in the failure to satisfy any of the conditions to the
obligations of the parties in the merger agreement with respect to the merger or
otherwise prevent, interfere with or delay the consummation of the merger.
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THE MERGER AGREEMENT
The following is a summary of the material terms and provisions of the
merger agreement, which is attached as Annex A to this proxy
statement/prospectus-information statement and incorporated herein by reference.
We encourage you to read the entire merger agreement.
THE MERGER
Under the merger agreement and in accordance with Delaware law, Washington
will merge with and into Alpha. As a result of the merger, the separate
corporate existence of Washington will terminate and Alpha will continue as the
surviving corporation.
MERGER CONSIDERATION
The merger agreement provides that each share of Washington common stock
outstanding immediately prior to the effective time of the merger will be
converted into 0.351 of a share of combined company common stock.
The merger agreement provides that each share of Alpha common stock
outstanding immediately prior to the effective time of the merger will remain an
outstanding share of combined company common stock.
TREATMENT OF STOCK OPTIONS
In the merger, each outstanding option to purchase Washington common stock
resulting from the adjustment to outstanding options to purchase Conexant common
stock in connection with the distribution of Washington common stock (see
"Agreements Relating to the Spin-Off Transaction -- Employee Matters Agreement")
will be converted into an option to purchase a number of shares of combined
company common stock that is equal to the product of 0.351 multiplied by the
number of shares of Washington common stock subject to the unexercised portion
of the Washington option immediately before the conversion, rounded down to the
nearest whole share. The exercise price per share of each converted option will
be equal to the exercise price per share of the Washington option immediately
before the conversion divided by 0.351, and rounded up to the nearest whole
cent. Based on options to purchase approximately 68,432,550 shares of Conexant
common stock outstanding as of March 29, 2002 that will be so adjusted, options
to purchase approximately 24,019,825 shares of combined company stock would
result from the conversion of Washington options in the merger.
Each option to purchase shares of Alpha common stock outstanding
immediately prior to the effective time of the merger will remain outstanding as
an option to purchase shares of combined company common stock, without
adjustment.
EXCHANGE OF SHARES; TREATMENT OF FRACTIONAL SHARES
In connection with the merger, Alpha or the combined company will deposit,
or cause to be deposited, with the exchange agent, American Stock Transfer &
Trust Company, the shares of combined company common stock to be issued in the
merger upon conversion of the shares of Washington common stock.
Conexant stockholders will receive shares of combined company common stock
in book-entry form. As soon as practicable after the effective time of the
merger, the exchange agent will mail to Conexant stockholders:
- account statements indicating the number of whole shares of combined
company common stock owned by each stockholder as a result of the
conversion of the shares of Washington common stock in the merger; and
- a check representing the amount of cash in lieu of fractional shares of
the combined company payable by the combined company to the stockholder.
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After the effective time of the merger, there will be no transfers on the
stock transfer books of Washington of shares of Washington common stock.
No fractional shares of combined company common stock will be issued to any
holder of shares of Conexant common stock upon consummation of the merger. For
each fractional share that would otherwise be issued to each stockholder, the
combined company will pay in cash an amount equal to the stockholder's
proportionate interest in the net proceeds from the sale or sales in the open
market of the aggregate fractional combined company shares that otherwise would
have been issued in the merger. The exchange agent will sell the aggregate
fractional shares at the then prevailing prices on the Nasdaq National Market.
Following the effective time, any stockholder whose ownership of combined
company common stock is registered in book-entry form may obtain at any time
without charge, physical certificates to represent the number of whole shares
owned by the stockholder by contacting the combined company's transfer agent,
American Stock Transfer & Trust Company.
EFFECTIVE TIME
The effective time of the merger will be the time and date set forth in the
certificate of merger that will be filed with the Secretary of State of the
State of Delaware on the closing date of the merger. The closing date of the
merger will be a date to be specified by the parties that will not be later than
three business days after the satisfaction or waiver (subject to applicable law)
of the conditions precedent to the merger set forth in the merger agreement,
unless otherwise agreed by Conexant, Washington and Alpha. We anticipate that
the merger will be consummated in the second calendar quarter of 2002. However,
consummation of the merger could be delayed if there is a delay in obtaining the
required regulatory approvals, in obtaining the IRS ruling or in satisfying
other conditions to the merger. We cannot assure you whether, and on what date,
we will obtain those approvals or that we will consummate the merger. If the
merger is not completed on or before September 30, 2002, either Conexant or
Alpha may terminate the merger agreement, unless the failure to effect the
merger by that date is due to the failure of the party seeking to terminate the
merger agreement to fulfill in any material respect any obligation set forth in
the merger agreement.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties made by
Conexant to Alpha regarding Conexant's capacity as a party to the merger
agreement, the Washington Business and the capitalization of Conexant and
Washington. The merger agreement also contains representations and warranties
made by Alpha to Conexant. These representations and warranties of Conexant and
Alpha, which are substantially reciprocal, relate to, among other things:
- corporate existence, qualification to conduct business and corporate
power;
- ownership of subsidiaries;
- capital structure;
- corporate authority to enter into, and perform the obligations under, the
merger agreement and enforceability of the merger agreement;
- absence of a breach of organizational documents and absence of a material
breach of laws or material agreements as a result of the merger;
- required governmental approvals;
- filings with the Securities and Exchange Commission;
- financial statements;
- information supplied for use in this proxy
statement/prospectus-information statement;
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- board of directors approval;
- litigation;
- compliance with laws;
- absence of certain changes or events;
- environmental matters;
- intellectual property matters;
- title to properties;
- payment of fees to finders or brokers in connection with the merger;
- opinions of financial advisors;
- tax matters;
- material contracts and restrictive contracts;
- employee benefits;
- labor relations;
- insurance; and
- absence of material liens.
Alpha has also made representations and warranties to Conexant relating to
the required vote of Alpha stockholders to approve and adopt the merger
agreement and the merger and the inapplicability to the merger of state
anti-takeover laws, and Conexant has made representations and warranties to
Alpha that it does not beneficially own more than 5% of Alpha's outstanding
common stock.
Most of the representations and warranties contained in the merger
agreement are subject to materiality qualifications and/or knowledge
qualifications, and none of the representations and warranties survive the
effective time of the merger.
COVENANTS
Each of Conexant and Alpha has undertaken to perform certain covenants in
the merger agreement. The principal covenants are as follows:
NO SOLICITATION
The merger agreement contains detailed provisions prohibiting Conexant and
Alpha from seeking an alternative transaction. Under these no solicitation
provisions, each of Conexant and Alpha has agreed that it will not, and that it
will use reasonable best efforts to ensure that its officers, directors,
employees, agents and representatives do not, directly or indirectly:
- initiate, solicit, encourage or knowingly facilitate any inquiries or the
making of any proposal or offer with respect to, or a transaction to
effect, any acquisition proposal, as described below;
- have any discussions with, or provide any confidential information or
data to, any person relating to an acquisition proposal, or engage in any
negotiations concerning an acquisition proposal, or knowingly facilitate
any effort or attempt to make or implement any acquisition proposal;
- approve or recommend, or propose publicly to approve or recommend, any
acquisition proposal; or
- approve or recommend, or propose to approve or recommend, or enter into,
any letter of intent, agreement in principle, merger agreement,
acquisition agreement, option agreement or other similar agreement
related to any acquisition proposal.
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An acquisition proposal with respect to Conexant is any inquiry, proposal
or offer from any person with respect to any purchase or sale or other
disposition of 20% or more of the consolidated assets (including stock of
subsidiaries) of the Washington Business.
An acquisition proposal with respect to Alpha is any inquiry, proposal or
offer from any person with respect to:
- a merger, reorganization, share exchange, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving Alpha or any of its significant subsidiaries;
- any purchase or sale or other disposition of 20% or more of the
consolidated assets (including stock of subsidiaries) of Alpha and its
subsidiaries, taken as a whole; or
- any purchase or sale of, or tender or exchange offer for, or similar
transaction with respect to the equity securities of Alpha that, if
completed, would result in any person beneficially owning securities
representing 20% or more of the total voting power of Alpha, or of the
surviving parent entity in the transaction, or any of its significant
subsidiaries.
However, the merger agreement does not prevent Alpha or its board of
directors from:
- engaging in any discussions with, or providing any information to, any
person in response to an unsolicited bona fide written acquisition
proposal with respect to Alpha by that person in order to be informed
with respect to the acquisition proposal in order to make any
determination to withdraw, modify or qualify the recommendation of the
Alpha board of directors that Alpha stockholders approve and adopt the
merger agreement and the merger, if and only to the extent that the Alpha
board of directors concludes in good faith there is a reasonable
likelihood that the acquisition proposal would constitute a superior
Alpha proposal, as described below, and determines in good faith that
such action is required by the board's fiduciary duties to Alpha
stockholders as a result of the acquisition proposal; or
- withdrawing, modifying or qualifying the recommendation of the Alpha
board of directors that Alpha stockholders approve and adopt the merger
agreement and the merger, if and only to the extent that Alpha has
received an unsolicited bona fide written acquisition proposal with
respect to Alpha from a third party and the Alpha board of directors
concludes in good faith that the acquisition proposal constitutes a
superior Alpha proposal, determines in good faith that such action is
required by the board's fiduciary duties to Alpha stockholders as a
result of the acquisition proposal and provides Conexant with immediate
written notice of such action.
However, Alpha or its board of directors may take such actions only if and
to the extent that:
- the Alpha stockholders meeting to vote on the approval and adoption of
the merger agreement and the merger has not occurred;
- before providing any information or data to any person in connection with
the acquisition proposal with respect to Alpha by that person, Alpha or
its board of directors receives from that person an executed
confidentiality agreement with terms substantially the same as those
contained in the confidentiality agreement between Conexant and Alpha;
and
- before providing any information or data to any person or entering into
discussions with any person, Alpha promptly:
- notifies Conexant of any inquiries, proposals or offers received from,
any information requested by, or any discussions sought to be
initiated or continued with, that person or any of its
representatives;
- notifies Conexant of the name of the person and the material terms and
conditions of any inquiries, proposals or offers; and
- provides Conexant with a copy of any written inquiry, proposal or
offer.
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In addition, the merger agreement does not prevent Alpha or its board of
directors from disclosing to its stockholders a position with respect to a
tender offer as required by law.
A superior Alpha proposal is a bona fide written acquisition proposal with
respect to Alpha (except that for purposes of a superior Alpha proposal,
references to 20% in the definition of an acquisition proposal with respect to
Alpha are deemed to be references to 50%) made by a person other than a party to
the merger agreement which is on terms the Alpha board of directors in good
faith concludes, following receipt of the advice of its financial advisors,
taking into account, among other things, all legal, financial, regulatory and
other aspects of the proposal and the person making the proposal, would, if
consummated, result in a transaction that is more favorable to Alpha
stockholders, from a financial point of view, than the transactions contemplated
by the merger agreement and is reasonably likely to be completed.
The board of directors of Alpha may withdraw, modify or qualify its
recommendation that Alpha stockholders approve and adopt the merger agreement
and the merger only as provided in the no solicitation provision of the merger
agreement. Notwithstanding a withdrawal, modification or qualification in the
recommendation of the Alpha board of directors, Alpha is still required to
convene a meeting of its stockholders to vote upon approval and adoption of the
merger agreement and the merger and may not submit to the vote of its
stockholders any acquisition proposal with respect to Alpha other than the
merger.
CONDUCT OF BUSINESS PENDING CLOSING
Conexant and Alpha each has agreed to restrictions on its activities until
the effective time of the merger. In general, Alpha is required to conduct its
business, and Conexant and Washington are required to conduct the Washington
Business, in the ordinary course, and to use all reasonable efforts to preserve
intact the Alpha and Washington business organizations, keep available the
services of their current officers and other key employees and preserve their
relationships with customers and suppliers with the intention that the ongoing
businesses shall not be materially impaired. Each of Conexant (with respect to
the Washington Business), Washington and Alpha, subject to agreed upon
exceptions set forth in the merger agreement, has agreed to specific
restrictions that, without the consent of the other party, prohibit each party
from:
- entering into any new material lines of business or incurring any capital
expenditures other than in the ordinary course of business consistent
with past practice;
- declaring or paying dividends in respect of its capital stock;
- splitting, combining or reclassifying its capital stock or issuing
securities in respect of, in lieu of or in substitution for its capital
stock;
- repurchasing, redeeming or otherwise acquiring its capital stock;
- issuing, delivering, selling or encumbering any shares of its capital
stock or any securities convertible into or exercisable for, or any right
to acquire, capital stock other than:
- with respect to Alpha, in connection with its benefit plans (subject
to specified limits) or in connection with the exercise of options or
other stock based awards, or in connection with certain issuances by
its subsidiaries; and
- with respect to Conexant, in connection with its benefit plans
(subject to specified limits), in connection with the exercise of
options or other stock based awards, in connection with the conversion
of Conexant convertible debt securities, pursuant to the exchange or
retraction of exchangeable shares of Conexant's subsidiary, Philsar
Semiconductor Inc., or in connection with its stockholder rights
agreement.
- amending its certificate of incorporation, by-laws or other governing
documents (other than pursuant to the merger agreement);
- making acquisitions of other entities or material assets;
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- disposing of assets, other than inventory in the ordinary course of
business consistent with past practice;
- making loans, advances, capital contributions to, or investments in, any
other person other than certain intercompany loans or investments,
employee loans, loans made pursuant to existing obligations, loans,
advances, capital contributions or investments made in the ordinary
course of business which are not material, or loans, advances, capital
contributions or investments not in excess of specified amounts;
- incurring debt, other than under existing agreements or in the ordinary
course of business and which is not material;
- increasing the compensation or employee benefits of any director, officer
or employee, paying any pension, retirement, savings or profit-sharing
allowance to any employee that is not required by any existing plan or
agreement, entering into any employment contract, issuing additional
stock options beyond specified amounts, or adopting or amending any
employee benefit plan or making any contribution, other than regularly
scheduled contributions, to a benefit plan other than, in each case, in
the ordinary course of business or as required by an existing agreement
or applicable law, provided that each party may, without the consent of
the other party but after consultation with the other party, enter into
retention or similar agreements with its employees on terms, and with
such number of employees, as are substantially similar as those entered
into by the other party;
- changing its accounting methods, except as may be required by changes in
generally accepted accounting principles;
- changing its fiscal year or making any material tax election or settling
or compromising any material income tax liability other than in the
ordinary course of business consistent with past practice; and
- entering into any agreement or arrangement that limits or restricts it or
that will limit or restrict the combined company from engaging or
competing in any line of business in any geographic area if that
resulting restriction would have a material adverse effect on the
combined company and its subsidiaries, taken together, after the merger.
Each of Conexant, Washington and Alpha has also agreed to use its
reasonable best efforts not to take any action that would prevent or impede the
spin-off transaction or the merger from qualifying as generally tax-free
reorganizations.
In addition, Conexant has agreed to certain restrictions on changes to its
capital structure, including, without limitation, restrictions on splitting,
combining or reclassifying, repurchasing, redeeming or acquiring, or issuing,
delivering or selling its capital stock.
Conexant and Washington also have agreed that prior to the effective time
of the merger, Washington will not conduct any activities other than in
connection with its organization and the negotiation and execution of the merger
agreement, the Mexican stock and asset purchase agreement, the U.S. asset
purchase agreement, the facility services agreement, the Newport supply
agreement and the Newbury supply agreement and the transactions contemplated by
these agreements.
Subsequent to execution of the merger agreement, Alpha consented to certain
actions taken or proposed to be taken by Conexant that might otherwise be
prohibited by the foregoing provisions, including:
- in connection with the formation of the Newport foundry joint venture,
the issuance by Conexant to the Newport foundry joint venture of a
warrant to purchase up to 2.9 million shares of Conexant common stock at
a price per share equal to the closing market price of Conexant common
stock on the day of the issuance of the warrant and the acceleration of
vesting and/or extension of options to purchase an aggregate of
approximately 925,000 shares of Conexant common stock held
57
by Conexant employees who are expected to become employees of the Newport
foundry joint venture; and
- the issuance by Conexant of up to 4.5 million additional shares of
Conexant common stock in connection with the conversion or exchange of
outstanding convertible subordinated notes of Conexant.
In connection with the distribution, the Conexant warrant issued to the Newport
foundry joint venture will be adjusted so that in addition to the Conexant
warrant, the Newport foundry joint venture will hold a warrant to purchase
Washington common stock. The exercise prices of the adjusted Conexant warrant
and the Washington warrant will be determined in a manner similar to the
adjustments to the exercise prices of Conexant options as described under
"Agreements Relating to the Spin-Off Transaction--Employee Matters Agreement".
In connection with the merger, in replacement of the Washington warrant, Alpha
has agreed to issue to the Newport foundry joint venture a warrant to purchase
approximately one million shares of combined company common stock at a price per
share determined by dividing the exercise price of the Washington warrant by the
exchange ratio in the merger.
REASONABLE BEST EFFORTS
The merger agreement provides, subject to certain limitations, for the
parties to use their reasonable best efforts to take all actions and do all
things necessary or advisable under the merger agreement or applicable laws to
complete the merger and the other transactions contemplated by the merger
agreement as soon as practicable. However, nothing in the merger agreement will
require Conexant, Washington, Alpha or the combined company for any reason to
sell, hold separate or otherwise dispose of assets, or to conduct its business
in a specified manner, if such action is not conditioned on closing the merger
or would reasonably be expected to have a material adverse effect on the
combined company after the merger (or, only with respect to Conexant and its
subsidiaries, to have a material adverse effect on Conexant and its subsidiaries
after giving effect to the distribution of Washington common stock).
EMPLOYEE MATTERS
The merger agreement provides that after the effective time of the merger,
existing Alpha employee benefit plans and employee benefit plans established or
assumed by Washington in the distribution of Washington common stock will remain
in effect until such time as the combined company otherwise determines, subject
to applicable laws and the terms of the plans.
Prior to completion of the merger, Conexant and Alpha will cooperate in
reviewing, evaluating and analyzing Washington and Alpha benefit plans with a
view toward developing appropriate new benefit plans for employees of the
combined company. We intend, to the extent permitted by applicable law, to
develop new benefit plans that treat similarly situated employees on a
substantially equivalent basis, taking into account relevant factors, and that
do not discriminate between employees of the combined company who were covered
by Washington or Alpha benefit plans. The merger agreement will not prevent the
combined company from amending, modifying or terminating any benefit plan or
other arrangement in accordance with its terms and applicable law.
NASDAQ NATIONAL MARKET
Alpha has agreed to use its reasonable best efforts to cause the shares of
combined company common stock to be issued in the merger and the shares of
combined company common stock to be reserved for issuance upon exercise of
Washington options converted in the merger to be approved for listing on the
Nasdaq National Market prior to the closing date of the merger.
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INSURANCE AND INDEMNIFICATION
Following the merger, the combined company will be obligated to:
- indemnify and provide advancement of expenses to all past and present
directors, officers and employees of Conexant and its subsidiaries
(solely with respect to the Washington Business), and of Alpha and its
subsidiaries, to the same extent those persons were indemnified or had
the right to advancement of expenses on the date of the merger agreement,
for acts or omissions occurring on or before the effective time of the
merger;
- maintain for a period of six years after the merger, for the benefit of
Alpha's directors and officers, directors' and officers' liability
insurance and fiduciary liability insurance policies currently maintained
by Alpha, or policies of at least the same coverage and amounts
containing terms and conditions which are, in the aggregate, no less
advantageous to the insured than the current insurance maintained by
Alpha with respect to claims arising from facts or events that occurred
on or before the effective time of the merger. However, the combined
company will not be required to expend in any one year an amount in
excess of 200% of the current annual premiums paid by Alpha, on a per
capita basis, for this insurance; and
- maintain for a period of six years after the merger, for the benefit of
the directors and officers of Conexant (solely with respect to the
Washington Business), directors' and officers' liability insurance and
fiduciary liability insurance policies which are, in the aggregate, no
less advantageous to the insured than the current insurance maintained by
Conexant (solely with respect to the Washington Business) with respect to
claims arising from facts or events that occurred on or before the
effective time of the merger. However, the combined company will not be
required to expend in any one year an amount in excess of 200% of the
current annual premiums paid by Conexant, on a per capita basis, for this
insurance.
EXPENSES
Conexant and Alpha each has agreed to pay its own costs and expenses
incurred in connection with the merger and the merger agreement. Conexant and
Alpha will, however, share equally the expenses incurred in connection with
filing with the Securities and Exchange Commission this proxy statement/
prospectus-information statement and the related registration statement and the
costs associated with printing and mailing this proxy
statement/prospectus-information statement. However, pursuant to the terms of
the distribution agreement, if the merger is consummated, Washington will
reimburse Conexant for all expenses incurred in connection with the merger and
the merger agreement, with the practical effect that, if the merger is
consummated, the combined company will bear substantially all expenses incurred
in connection with the merger.
CONDITIONS
The respective obligations of Washington and Alpha to complete the merger
are subject to the satisfaction or waiver of various conditions, including:
- the approval and adoption of the merger agreement and the merger by Alpha
stockholders;
- the absence of any law, order or injunction having the effect of making
the merger illegal or otherwise prohibiting completion of the merger, and
the absence of any proceeding initiated by any governmental entity
seeking, and which is reasonably likely to result in, such a law, order
or injunction;
- the expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Act, which waiting period was terminated on January 29,
2002;
- the receipt of all other governmental and regulatory consents, approvals,
orders and authorizations required to complete the merger, unless not
obtaining those consents, approvals, orders or authorizations would not
reasonably be expected to have a material adverse effect on the combined
company and its subsidiaries, taken together, after giving effect to the
merger;
59
- the approval for listing on the Nasdaq National Market of the combined
company common stock to be issued in the merger;
- the effectiveness of the registration statement for the issuance of
combined company common stock in the merger;
- the consummation of the spin-off transaction in accordance with the terms
of the merger agreement, the distribution agreement and the tax ruling
from the IRS with respect to the tax-free nature of the spin-off
transaction, provided that the failure of the spin-off transaction to be
consummated will not be a condition to the obligations of Conexant if its
breach of the distribution agreement has been the cause of such failure;
- the receipt by Conexant of a tax ruling from the IRS with respect to the
tax-free nature of the spin-off transaction; and
- the satisfaction of the conditions to the obligations of Conexant and
Alpha specified in the Mexican stock and asset purchase agreement with
respect to the transactions contemplated thereby.
Alpha's obligation to complete the merger is also subject to the
satisfaction or waiver of the following additional conditions:
- the accuracy of Conexant's representations and warranties set forth in
the merger agreement and the distribution agreement, without any
qualification or limitation as to materiality or material adverse effect
set forth therein, except where the failure of such representations and
warranties to be true and correct would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on
the Washington Business;
- the performance or compliance of each of Conexant and Washington with all
agreements and covenants required to be performed by it under the merger
agreement that are qualified as to materiality or material adverse effect
and the performance or compliance in all material respects with all other
agreements and covenants required to be performed by it under the merger
agreement that are not so qualified;
- receipt from Skadden, Arps, Slate, Meagher & Flom LLP of an opinion
stating that the merger will constitute a reorganization under Section
368 of the Internal Revenue Code;
- the delivery by Conexant of a special purpose statement describing
Washington's tangible net assets in accordance with the terms of the
distribution agreement;
- the satisfaction of the conditions to the obligations of Alpha specified
in the Mexican stock and asset purchase agreement with respect to the
transactions contemplated thereby; and
- the execution and delivery by Conexant and Washington of the employee
matters agreement and the tax allocation agreement, and the execution and
delivery by Conexant of the facility services agreement, the Newport
supply agreement, the Newbury supply agreement and the transition
services agreement.
Washington's obligation to complete the merger is also subject to the
satisfaction or waiver of the following additional conditions:
- the accuracy of Alpha's representations and warranties set forth in the
merger agreement, without any qualification or limitation as to
materiality or material adverse effect set forth therein, except where
the failure of such representations and warranties to be true and correct
would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on Alpha and its subsidiaries;
- the performance or compliance of Alpha with all agreements and covenants
required to be performed by it under the merger agreement that are
qualified as to materiality or material adverse effect and the
performance or compliance in all material respects with all other
agreements and covenants required to be performed by it under the merger
agreement that are not so qualified;
- receipt from Chadbourne & Parke LLP of an opinion stating that the merger
will constitute a reorganization under Section 368 of the Internal
Revenue Code;
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- receipt of written evidence reasonably satisfactory to Conexant that
Alpha has taken all action necessary to ensure that no officer, director
or other employee of Alpha or any of its subsidiaries has received or
will become entitled to receive any change of control or other payment or
benefit under any employment, severance or other agreement with Alpha,
except as disclosed in the merger agreement, that may arise as a result
of the approval or consummation of the merger;
- the satisfaction of the conditions to the obligations of Conexant
specified in the Mexican stock and asset purchase agreement with respect
to the transactions contemplated thereby; and
- the execution and delivery by Alpha of the employee matters agreement,
the tax allocation agreement, the facility services agreement, the
Newport supply agreement, the Newbury supply agreement and the transition
services agreement.
Each of Alpha, Conexant and Washington may waive, at their sole discretion,
any of the conditions to their respective obligations to complete the merger, to
the extent permitted by applicable laws. If Alpha, Conexant or Washington waives
any of the conditions to their respective obligations to complete the merger,
the board of directors of Alpha will evaluate the materiality of the waiver to
determine whether amendment of this proxy statement/prospectus-information
statement and resolicitation of proxies is warranted. In the event that the
board of directors of Alpha determines the waiver is material to an Alpha
stockholder's decision with respect to the vote regarding the approval and
adoption of the merger agreement and the merger, Alpha currently intends to
amend and recirculate this proxy statement/ prospectus-information statement to
its stockholders and resolicit their proxies. None of Alpha, Conexant and
Washington currently intends to waive any conditions to their respective
obligations to complete the merger.
AMENDMENTS
The merger agreement may be amended by action of the boards of directors of
the parties at any time before or after approval by Alpha stockholders, provided
that, after approval by Alpha stockholders, no amendment which by law or under
the rules of the Nasdaq National Market requires further stockholder approval
may be made to the merger agreement without obtaining such further approval. All
amendments to the merger agreement must be in writing signed by each party.
TERMINATION OF THE MERGER AGREEMENT
TERMINATION BY CONEXANT OR ALPHA
Either Conexant or Alpha, by action of its respective board of directors,
may terminate the merger agreement at any time prior to the merger if:
- Conexant and Alpha agree to terminate by mutual written consent;
- the merger has not been completed by September 30, 2002, provided that
the terminating party's failure to fulfill in any material respect any
obligation under the merger agreement cannot be the cause of the merger
not being completed;
- an order or ruling of a court or other governmental entity permanently
prohibiting the completion of the merger becomes final and
non-appealable, provided that the terminating party has used its
reasonable best efforts to avoid or remove the prohibition;
- a court or other governmental entity fails to issue an order or ruling
that is necessary to satisfy specified conditions to the merger and the
denial of a request to issue such an order or ruling becomes final and
non-appealable, provided that the terminating party has used its
reasonable best efforts to obtain the order or ruling; or
- Alpha stockholders fail to approve and adopt the merger agreement and the
merger at the Alpha stockholders meeting.
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TERMINATION BY CONEXANT
Conexant, by action of its board of directors, also may terminate the
merger agreement at any time prior to the merger if:
- the Alpha board of directors:
- fails to recommend approval and adoption of the merger agreement and
the merger to Alpha stockholders;
- withdraws (or proposes to withdraw) its recommendation to Alpha
stockholders to approve and adopt the merger agreement and the merger;
- modifies or qualifies (or proposes to modify or qualify), in any
manner adverse to Conexant or Washington, its recommendation to Alpha
stockholders to approve and adopt the merger agreement and the merger;
or
- fails to confirm its recommendation to Alpha stockholders to approve
and adopt the merger agreement and the merger within five business
days of Conexant's request to do so; or
- Alpha breaches its obligation to call and hold the Alpha stockholders
meeting; or
- a tender or exchange offer relating to securities of Alpha has been
commenced by a person unaffiliated with Conexant, and Alpha has not sent
to its stockholders within ten business days after such tender or
exchange offer is first published, sent or given, a statement that Alpha
recommends rejection of such tender or exchange offer; or
- Alpha breaches or fails to perform any of its representations,
warranties, covenants or other agreements contained in the merger
agreement such that any of the conditions described above with respect to
the accuracy of Alpha's representations and warranties or the performance
by Alpha of its covenants and agreements is not capable of being
satisfied prior to September 30, 2002.
TERMINATION BY ALPHA
Alpha, by action of its board of directors, also may terminate the merger
agreement at any time prior to the merger if Conexant or Washington breaches or
fails to perform any of its representations, warranties, covenants or other
agreements contained in the merger agreement such that any of the conditions
described above with respect to the accuracy of Conexant's representations and
warranties or the performance by Conexant and Washington of their respective
covenants and agreements is not capable of being satisfied prior to September
30, 2002.
PAYMENT OF TERMINATION FEE
Alpha has agreed to pay Conexant a termination fee of $45 million in the
following circumstances:
- The merger agreement has been terminated (1) by either Conexant or Alpha
because the merger has not been completed by September 30, 2002, and the
Alpha stockholders meeting has not occurred, (2) by either Conexant or
Alpha because Alpha stockholders fail to approve and adopt the merger
agreement and the merger at the Alpha stockholders meeting or (3) by
Conexant because of Alpha's intentional breach or failure to perform any
of its representations, warranties, covenants or other agreements
contained in the merger agreement, and
- at any time before such termination (1) an acquisition proposal with
respect to Alpha has been publicly announced or (2) if the merger
agreement is terminated because the merger has not been completed by
September 30, 2002, or because Alpha intentionally breaches or fails
to perform any of its representations, warranties, covenants or other
agreements contained in the merger agreement, an acquisition proposal
with respect to Alpha has been publicly announced or otherwise
communicated to the senior management, board of directors or
stockholders of Alpha, and
- within nine months of the termination of the merger agreement, Alpha
enters into a definitive agreement with respect to or consummates an
acquisition proposal, provided that for purposes
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of this clause of the merger agreement, references to 20% in the
definition of an acquisition proposal with respect to Alpha shall be
deemed to be references to 50%;
or
- Conexant terminates the merger agreement as the result of the Alpha board
of directors (1) failing to recommend approval and adoption of the merger
agreement and the merger to Alpha stockholders, (2) withdrawing (or
proposing to withdraw) its recommendation to Alpha stockholders to
approve and adopt the merger agreement and the merger, (3) modifying or
qualifying (or proposing to modify or qualify), in any manner adverse to
Conexant or Washington, its recommendation to Alpha stockholders to
approve and adopt the merger agreement and the merger or (4) failing to
confirm its recommendation to Alpha stockholders to approve and adopt the
merger agreement and the merger within five business days of Conexant's
request to do so;
or
- Conexant terminates the merger agreement as a result of Alpha breaching
its obligations to call and hold the Alpha stockholders meeting;
or
- Conexant terminates the merger agreement as a result of a tender or
exchange offer relating to securities of Alpha having been commenced by a
person unaffiliated with Conexant, and Alpha having failed to send to its
stockholders within ten business days after such tender or exchange offer
is first published, sent or given, a statement that Alpha recommends
rejection of such tender or exchange offer.
RESTRICTIONS ON RESALES BY AFFILIATES
The issuance of the shares of combined company common stock to Conexant
stockholders, after giving effect to the distribution of Washington common stock
and the merger, has been registered under the Securities Act. Accordingly, the
shares of combined company common stock issued in the merger may be traded
freely and without restriction by those stockholders not deemed to be affiliates
of Washington. Any subsequent transfer of these shares by any person who is an
affiliate of Washington at the time that Conexant, as sole stockholder of
Washington, approved the merger agreement and the merger or who is an affiliate
of the combined company will, under existing law, require:
- the further registration under the Securities Act of the transfer of
shares of the combined company's common stock by any such affiliate;
- compliance with Rule 145 promulgated under the Securities Act (permitting
limited sales under certain circumstances); or
- the availability of another exemption from registration.
An "affiliate" of Washington or the combined company is a person who
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, Washington or the combined
company, respectively. These restrictions are expected to apply to the directors
and executive officers of Conexant, Washington and the combined company and any
holder of 10% or more of Conexant common stock or combined company common stock
(and to certain relatives or the spouse of those persons and any trusts,
estates, corporations or other entities in which those persons have a 10% or
greater beneficial or equity interest). Stop transfer instructions will be given
by the combined company to the transfer agent with respect to the shares of
combined company common stock to be received by persons subject to these
restrictions, and any certificates for their shares will be appropriately
legended.
Conexant has agreed in the merger agreement to use its reasonable best
efforts to cause each person who is an affiliate of Washington (for purposes of
Rule 145 under the Securities Act) to deliver to Alpha a written agreement
intended to ensure such compliance with the Securities Act.
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THE SPIN-OFF TRANSACTION
INTRODUCTION
The board of directors of Conexant has approved and authorized the spin-off
transaction and the distribution agreement, subject to the satisfaction of the
conditions set forth in the distribution agreement and further action of
Conexant's board of directors to establish the distribution record date and the
distribution date. Upon satisfaction or waiver, subject to applicable law, of
the conditions to the distribution of Washington common stock set forth in the
distribution agreement, Conexant will pay on the distribution date a special
dividend payable in Washington common stock on a one share-for-one share basis
to holders of record of Conexant common stock and Conexant Series B voting
preferred stock on the distribution record date. At the time of the distribution
of Washington common stock, Washington will own all of the assets, liabilities
(including liabilities relating to former operations) and operations which prior
to the distribution date comprise the Washington Business.
MANNER OF EFFECTING THE DISTRIBUTION
On the distribution date, Conexant will deliver all outstanding shares of
Washington common stock to the distribution agent, American Stock Transfer &
Trust Company, for allocation to the holders of record of Conexant common stock
and Conexant Series B voting preferred stock as of the close of business on the
distribution record date, which will be the date on which the merger becomes
effective. In the distribution of Washington common stock, each Conexant
stockholder will receive one share of Washington common stock for each share of
Conexant common stock or Conexant Series B voting preferred stock held. Based on
the number of shares of Conexant common stock and Conexant Series B voting
preferred stock outstanding as of March 29, 2002, approximately 257,820,000
shares of Washington common stock will be distributed in the distribution.
Ownership of Washington common stock will be registered only in book-entry form.
Book-entry registration refers to a method of recording stock ownership in
Washington's records in which no share certificates are issued. On the
distribution date, each record holder of Conexant common stock or Conexant
Series B voting preferred stock will be credited through book-entry in
Washington's records with the number of shares of Washington common stock
received by the stockholder. Immediately following the distribution of
Washington common stock, in the merger each share of Washington common stock
will be converted into 0.351 of a share of combined company common stock as
described in the merger agreement. Following the merger, Conexant stockholders
will receive account statements indicating the number of shares of combined
company common stock registered in book-entry form into which their shares of
Washington common stock have been converted.
Participants in any Conexant savings plan will have their Conexant common
stock accounts credited with the number of shares (including fractional shares)
of combined company common stock into which the shares of Washington common
stock distributed in the distribution in respect of the Conexant common stock
held in their Conexant savings plan accounts have been converted in the merger.
Individual Conexant savings plan participants, rather than the applicable
Conexant savings plans, will have authority to determine if and when shares of
combined company common stock held in their Conexant savings plan accounts will
be sold, subject to the terms of the applicable savings plan.
CONEXANT STOCKHOLDERS WILL NOT BE REQUIRED TO PAY FOR SHARES OF WASHINGTON
COMMON STOCK RECEIVED IN THE DISTRIBUTION, OR TO SURRENDER OR EXCHANGE SHARES OF
CONEXANT STOCK OR TAKE ANY OTHER ACTION IN ORDER TO BE ENTITLED TO RECEIVE
WASHINGTON COMMON STOCK OR THE COMBINED COMPANY COMMON STOCK INTO WHICH THE
SHARES OF WASHINGTON COMMON STOCK WILL BE CONVERTED IN THE MERGER. ALL SHARES OF
WASHINGTON COMMON STOCK ISSUED IN THE DISTRIBUTION WILL BE IMMEDIATELY CONVERTED
IN THE MERGER INTO THE RIGHT TO RECEIVE 0.351 OF A SHARE OF COMBINED COMPANY
COMMON STOCK IN EXCHANGE FOR EACH SHARE OF WASHINGTON COMMON STOCK AND THE
WASHINGTON SHARES WILL BE CANCELED AND WILL CEASE TO EXIST. AFTER THE MERGER,
CONEXANT STOCKHOLDERS WILL NOT HAVE ANY RIGHTS IN THE SHARES OF WASHINGTON
COMMON STOCK OTHER THAN THE RIGHT TO RECEIVE THE SHARES OF COMBINED COMPANY
COMMON STOCK.
The distribution of Washington common stock will not affect the number of
outstanding shares of Conexant stock. Conexant stockholders should retain their
certificates representing Conexant stock.
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NO TRADING MARKET
There will be no trading market in the shares of Washington common stock
distributed to Conexant stockholders and the shares of Washington common stock
received by Conexant stockholders in the distribution will not be listed on any
stock exchange or automated quotation system.
CONDITIONS TO THE COMPLETION OF THE DISTRIBUTION
The distribution of Washington common stock is subject to the satisfaction
or waiver of certain conditions set forth in the distribution agreement,
including:
- Conexant's board of directors' satisfaction that, after giving effect to
the contribution, Conexant will not be insolvent or have unreasonably
small capital and will have sufficient surplus under Delaware law to
permit the distribution of Washington common stock; and
- the satisfaction or waiver of all conditions to the merger under the
merger agreement, including receipt of a favorable IRS ruling with
respect to the tax-free nature of the spin-off transaction.
Conexant's board of directors, in its sole discretion, may waive any and all of
the conditions but has no obligation to do so.
65
U.S. FEDERAL INCOME TAX CONSEQUENCES OF
THE SPIN-OFF TRANSACTION AND THE MERGER
The following discusses the material U.S. federal income tax consequences
of the spin-off transaction and the merger to Alpha, Conexant, Washington and
stockholders who hold Alpha common stock or Conexant common stock as a capital
asset. The discussion which follows is based on the Internal Revenue Code,
Treasury regulations issued under the Internal Revenue Code, and judicial and
administrative interpretations thereof, all as in effect as of the date of this
proxy statement/prospectus-information statement, all of which are subject to
change at any time, possibly with retroactive effect. The discussion assumes
that the spin-off transaction and the merger will be consummated in accordance
with the distribution agreement and the merger agreement and as further
described in this proxy statement/ prospectus-information statement. This
summary is not a complete description of all of the consequences of the spin-off
transaction and merger and, in particular, may not address U.S. federal income
tax considerations applicable to Alpha stockholders and Conexant stockholders
subject to special treatment under U.S. federal income tax law. Stockholders
subject to special treatment include, for example, foreign persons, financial
institutions, dealers in securities, traders in securities who elect to apply a
mark-to-market method of accounting, insurance companies, tax-exempt entities,
holders who acquired their shares pursuant to the exercise of an employee stock
option or right or otherwise as compensation, and holders who hold Alpha common
stock or Conexant common stock as part of a "hedge", "straddle", "conversion" or
"constructive sale" transaction. In addition, no information is provided in this
proxy statement/ prospectus-information statement with respect to the tax
consequences of the spin-off transaction and merger under applicable foreign or
state or local laws.
ALPHA STOCKHOLDERS AND CONEXANT STOCKHOLDERS ARE URGED TO CONSULT WITH
THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE SPIN-OFF TRANSACTION
AND THE MERGER TO THEM, AS APPLICABLE, INCLUDING THE EFFECTS OF U.S. FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
Consummation of the spin-off transaction is conditioned upon the receipt by
Conexant of a tax ruling from the IRS to the effect that the spin-off
transaction will qualify as a reorganization under Sections 355 and 368 of the
Internal Revenue Code. So long as the spin-off transaction qualifies as such a
reorganization and the distribution of the Washington common stock to Conexant
stockholders in connection with the spin-off transaction is not disqualified as
tax-free to Conexant under Section 355(e) of the Internal Revenue Code because
of an acquisition of Conexant common stock or combined company common stock by a
third party as described below, the material U.S. federal income tax
consequences of the spin-off transaction will be as described below. While the
tax ruling generally is binding on the IRS, the tax ruling will be based on,
among other things, current law and certain representations as to factual
matters made by, among others, Alpha, Conexant and Washington, which, if
incorrect, could jeopardize the validity of the tax ruling.
Chadbourne & Parke LLP, counsel to Conexant and Washington, has advised
Conexant and Washington that, assuming receipt of the tax ruling from the IRS,
the material U.S. federal income tax consequences of the spin-off transaction to
Conexant, Conexant stockholders and Washington are as follows:
- Conexant will not recognize any taxable gain or loss upon its
distribution of the Washington common stock to Conexant stockholders in
connection with the spin-off transaction;
- no taxable gain or loss will be recognized by a Conexant stockholder
solely as the result of the receipt of Washington common stock in the
spin-off transaction;
- the aggregate tax basis of the Conexant common stock and Washington
common stock in the hands of Conexant stockholders immediately after the
distribution of the Washington common stock to Conexant stockholders in
connection with the spin-off transaction will be the same as the
aggregate tax basis of the Conexant common stock immediately before the
distribution, allocated between the common stock of Conexant and
Washington in proportion to their relative fair market values on the date
the Washington common stock is distributed to Conexant stockholders; and
66
- the holding period of Washington common stock received by Conexant
stockholders will include the holding period of their Conexant common
stock, provided that their Conexant common stock is held as a capital
asset on the date the Washington common stock is distributed to Conexant
stockholders.
If the spin-off transaction were not to qualify as a reorganization,
Conexant would recognize taxable gain equal to the excess of the fair market
value of Washington common stock distributed to Conexant stockholders over
Conexant's tax basis in Washington common stock. In addition, each Conexant
stockholder who receives Washington common stock in the spin-off transaction
would generally be treated as receiving a taxable distribution in an amount
equal to the fair market value of Washington common stock received.
Even if the spin-off transaction otherwise qualifies as a reorganization
within the meaning of Sections 355 and 368 of the Internal Revenue Code, the
distribution of Washington common stock to Conexant stockholders in connection
with the spin-off transaction may be disqualified as tax-free to Conexant under
Section 355(e) of the Internal Revenue Code if 50% or more of the stock of
Conexant or the combined company is acquired as part of a plan (or series of
related transactions) that include the spin-off transaction. For purposes of
this test, any acquisitions of Conexant stock or combined company stock within
two years before or after the spin-off transaction are presumed to be part of
such a plan, although Conexant or the combined company may be able to rebut that
presumption. Also for purposes of this test, the merger will be treated as
resulting in a deemed acquisition by Alpha stockholders of approximately 33% of
Washington common stock. The process for determining whether a change of
ownership has occurred under the tax rules is complex. Section 355(e) is a
relatively new provision of law. Accordingly, little authoritative guidance
exists regarding its interpretation. In particular, there is uncertainty over
the analysis to be used to determine whether transactions are part of a plan (or
series of related transactions). In addition, such a determination is inherently
factual and subject to the interpretation of the facts and circumstances of a
particular case. If an acquisition of Conexant stock or combined company stock
triggers the application of Section 355(e), Conexant would recognize taxable
gain as described above but the spin-off transaction would generally be tax-free
to each Conexant stockholder. Under the tax allocation agreement to be entered
into among Conexant, Washington and Alpha, the combined company would be
required to indemnify Conexant against that taxable gain if it were triggered by
actions by or in respect of the combined company (including its subsidiaries) or
its stockholders. See "Agreements Relating to the Spin-Off Transaction -- Tax
Allocation Agreement".
Consummation of the merger is subject to receipt by Conexant and Washington
of an opinion of Chadbourne & Parke LLP, counsel to Conexant and Washington,
that the merger will constitute a reorganization under Section 368 of the
Internal Revenue Code and receipt by Alpha of an opinion of Skadden, Arps,
Slate, Meagher & Flom LLP, special counsel to Alpha, that the merger will
constitute a reorganization under Section 368 of the Internal Revenue Code. An
opinion of counsel is not binding on the IRS or the courts. Further, the
foregoing opinions of Chadbourne & Parke LLP and Skadden, Arps, Slate, Meagher &
Flom LLP will be based on, among other things, current law and certain
representations as to factual matters made by, among others, Alpha, Conexant and
Washington, which, if incorrect, could jeopardize the conclusions reached by
counsel in their opinions.
Chadbourne & Parke LLP, counsel to Conexant and Washington, has advised
Conexant and Washington that, assuming receipt of the tax ruling from the IRS
and the representations from Alpha, Conexant and Washington, the material U.S.
federal income tax consequences of the merger to Washington and Conexant
stockholders are as follows:
- Washington will not recognize any taxable gain or loss in the merger;
- no taxable gain or loss will be recognized by a Conexant stockholder
solely as a result of the receipt of combined company common stock in
exchange for the stockholder's Washington common stock in the merger
(except with respect to cash received in lieu of a fractional share
interest in common stock of the combined company);
67
- the aggregate tax basis of the combined company common stock in the hands
of Conexant stockholders immediately after the merger (including
fractional shares deemed received and redeemed as described below) will
be the same as the aggregate tax basis of the shares of Washington common
stock surrendered in exchange for combined company common stock (as
determined immediately following the distribution of Washington common
stock to Conexant stockholders);
- the holding period of combined company common stock received by Conexant
stockholders in the merger will include the holding period of their
Conexant common stock, provided that their Conexant common stock is held
as a capital asset on the date of the merger; and
- cash received by a Conexant stockholder in lieu of a fractional share
interest in common stock of the combined company will be treated as
received in redemption of that fractional share interest, and a Conexant
stockholder should generally recognize capital gain or loss for U.S.
federal income tax purposes measured by the difference between the amount
of cash received and the portion of the tax basis of the shares of
Washington common stock allocable to that fractional share of combined
company common stock. This gain or loss should be long-term capital gain
or loss if the holding period for the Washington common stock (as
determined above) is greater than one year at the effective time of the
merger.
Following the spin-off transaction and merger, information with respect to
the allocation of tax basis among Conexant common stock, Washington common stock
and combined company common stock will be made available to the holders of
Conexant common stock.
Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to Alpha, has
advised Alpha that, assuming receipt of the tax ruling from the IRS and the
representations from Alpha, Conexant and Washington, the material U.S. federal
income tax consequences of the merger to Alpha and Alpha stockholders are as
follows:
- Alpha will not recognize any taxable gain or loss in the merger; and
- no taxable gain or loss will be recognized by an Alpha stockholder in the
merger because no Alpha stockholder is exchanging any property in the
merger.
Each of Alpha and Conexant may waive, in their sole discretion, the
conditions to their respective obligations to complete the merger that (1)
Conexant receive a favorable IRS ruling regarding the spin-off transaction and
(2) Conexant and Alpha receive tax opinions of counsel regarding the merger. If
Alpha or Conexant waives either of these conditions and the board of directors
of Alpha determines that the U.S. federal income tax consequences to Alpha
stockholders are materially different than as described in this proxy
statement/prospectus-information statement, Alpha currently intends to amend and
recirculate this proxy statement/prospectus-information statement to its
stockholders and resolicit their proxies. Neither Alpha nor Conexant currently
intends to waive either of these conditions to their respective obligations to
complete the merger.
THE FOREGOING IS ONLY A SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE SPIN-OFF TRANSACTION AND THE MERGER UNDER CURRENT LAW AND IS
INTENDED FOR GENERAL INFORMATION ONLY. EACH ALPHA STOCKHOLDER AND CONEXANT
STOCKHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR
CONSEQUENCES OF THE SPIN-OFF TRANSACTION AND MERGER TO SUCH STOCKHOLDER,
INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS, AND AS TO
POSSIBLE PROSPECTIVE OR RETROACTIVE CHANGES IN TAX LAW THAT MAY AFFECT THE TAX
CONSEQUENCES DESCRIBED ABOVE.
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AGREEMENTS RELATING TO THE SPIN-OFF TRANSACTION
Conexant and Washington have entered into, or prior to the distribution of
Washington common stock will enter into, various agreements which will govern
the spin-off transaction and various interim and ongoing relationships between
Conexant and the combined company, including the following:
- the distribution agreement;
- an employee matters agreement;
- a tax allocation agreement;
- a transition services agreement;
- the Newport supply agreement; and
- the Newbury supply agreement.
The material terms of these agreements are summarized below.
DISTRIBUTION AGREEMENT
The distribution agreement between Conexant and Washington provides for,
among other things, the principal corporate transactions required to effect the
separation of the Washington Business from Conexant, the proposed distribution
of Washington common stock and certain other terms governing the relationship
between Conexant and Washington with respect to or in consequence of the
spin-off transaction. A copy of the distribution agreement is attached as Annex
B and is incorporated by reference into this section of the proxy
statement/prospectus-information statement.
THE CONTRIBUTION
The distribution agreement provides for the transfer from Conexant to
Washington of specifically identified assets, including stock of certain
subsidiaries, and other categories of assets used primarily in or related
primarily to the Washington Business. The distribution agreement also provides
generally for the assumption by Washington of specifically identified
liabilities and liabilities to the extent related to the Washington Business.
In addition, Conexant has represented and warranted to Washington that,
after giving effect to the spin-off transaction (but not considering any assets
or rights held by Alpha or its subsidiaries prior to the effective time of the
merger) and after taking into account any services to be provided to the
combined company pursuant to the transition services agreement, except for
certain specified assets and rights, immediately after the distribution of
Washington common stock, the assets and rights held by Washington and its
subsidiaries will constitute all of the material assets and rights of Conexant
and its subsidiaries (including Washington and its subsidiaries) immediately
prior to the distribution of Washington common stock that are necessary to
conduct the Washington Business substantially as conducted on the date of the
distribution agreement.
THE DISTRIBUTION
The distribution agreement provides that the distribution of Washington
common stock will occur only if certain conditions are satisfied or waived by
Conexant's board of directors in its sole discretion, including:
- Conexant's board of directors must be reasonably satisfied that, after
giving effect to the contribution, Conexant will not be insolvent and
will not have unreasonably small capital and that Conexant will have
sufficient surplus under Delaware law to permit the distribution of
Washington common stock;
- there must be no legal restraint preventing the distribution of
Washington common stock and no litigation seeking to restrain or
challenge the distribution of Washington common stock; and
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- all conditions to the closing of the merger under the merger agreement,
including receipt of a favorable IRS ruling with respect to the tax-free
nature of the spin-off transaction (but excluding the consummation of the
spin-off transaction), must be satisfied or waived.
INTELLECTUAL PROPERTY MATTERS
In the contribution, Conexant will transfer to Washington specifically
identified patents, trademarks and copyrights and other intellectual property to
the extent used primarily in or related primarily to the Washington Business.
The distribution agreement also includes non-exclusive, world-wide, irrevocable,
royalty-free cross licenses by Conexant to Washington and Alpha and by
Washington and Alpha to Conexant of rights under the intellectual property of
the licensor. Each of the licensees is prohibited from assigning or granting a
sublicense of the licensed intellectual property other than to any entity or
business that is a spin-off or similar divestiture of any part of its business
and such sublicense will be subject to the same restrictions on assignment and
transfer as the original license. If the licensee or a spin-off or similar
divested entity or business of the licensee becomes insolvent or is acquired by
or merges with a third party, the license or sublicense will automatically
terminate as to the licensee or sublicensee, as the case may be.
CONEXANT NAME
The distribution agreement provides that after the distribution of
Washington common stock, Conexant will have all rights in and to the name
"Conexant" and all derivatives thereof, except for limited rights of use
retained for specified periods of time by Washington. Washington will change the
names of its subsidiaries to eliminate the name "Conexant" and all its
derivatives.
LIABILITIES
Under the terms of the distribution agreement, Washington will assume:
- all liabilities of Conexant to the extent relating to the Washington
Business, including, but not limited to, liabilities for product
warranties, for environmental matters, under contracts and relating to
former or discontinued businesses of the Washington Business, and
excluding tax liabilities that are addressed in the tax allocation
agreement; and
- certain specifically identified liabilities, including all liabilities
relating to litigation matters set forth on a schedule and all
liabilities to the extent set forth on a special purpose statement
describing Washington's tangible net assets delivered by Conexant to
Alpha, other than those satisfied in the ordinary course of business
prior to the distribution of Washington common stock.
INDEMNIFICATION
Under the terms of the distribution agreement, Washington generally will be
obligated to indemnify and defend Conexant and its affiliates and
representatives for all damages, liabilities or actions arising out of or in
connection with:
- the liabilities assumed by Washington as part of the contribution;
- the breach by Washington of the distribution agreement, the employee
matters agreement, the tax allocation agreement or the transition
services agreement; and
- the use by Washington and its subsidiaries (and, in the case of
intellectual property, its sublicensees) of names or intellectual
property licensed by Conexant and its subsidiaries other than in
accordance with the distribution agreement.
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Conexant generally will be obligated to indemnify and defend Washington and
its affiliates and representatives for all damages, liabilities or actions
arising out of or in connection with:
- the liabilities of Conexant not assumed by Washington as part of the
contribution;
- the breach by Conexant of the distribution agreement, the employee
matters agreement, the tax allocation agreement or the transition
services agreement;
- the use by Conexant and its subsidiaries and sublicensees of intellectual
property licensed by Washington and its subsidiaries other than in
accordance with the distribution agreement; and
- the breach of the representation and warranty of Conexant regarding the
sufficiency of the assets and rights that will be held by Washington and
its subsidiaries immediately after the distribution of Washington common
stock to conduct the Washington Business.
Conexant will only be obligated to indemnify Washington for damages
relating to the breach of the representations and warranty regarding the
sufficiency of assets to the extent those damages exceed $1.5 million.
Conexant's indemnification obligation for damages relating to that breach will
be limited to a maximum amount of $15 million. In lieu of payment of monetary
damages for a breach of the sufficiency of assets representation, Conexant has
the right, in its sole discretion, to transfer any asset to Washington necessary
to cure that breach.
EXPENSES
Under the terms of the distribution agreement, Washington generally will be
obligated to pay all expenses incurred in connection with the spin-off
transaction and the merger, except that Conexant will be obligated to pay all
expenses incurred in connection with the preparation of the Mexican stock and
asset purchase agreement, the U.S. asset purchase agreement and the facility
services agreement and all expenses relating to the spin-off transaction and the
merger to the extent the expenses relate to the operations of Conexant's
business after the distribution of Washington common stock.
NO SOLICITATION OR HIRE
Without the other's consent, Conexant and Washington will not solicit,
recruit or hire employees of, or individuals providing contracting services to,
the other party until the earlier of December 31, 2003, or six months after such
employment or services terminate. These restrictions do not apply to general
recruiting efforts carried out through a public or general solicitation.
EMPLOYEE MATTERS AGREEMENT
The employee matters agreement allocates among Conexant, Washington and
Alpha assets, liabilities, and responsibilities relating to current and former
employees of Conexant and the Washington Business and governs certain aspects of
the participation by those individuals in stock and other benefit plans of
Conexant, Washington and the combined company.
The employee matters agreement generally requires Washington or Alpha to
assume liabilities related to all current and former employees of the Washington
Business, including, but not limited to, under certain savings, incentive
compensation, deferred compensation and employee welfare plans. The employee
matters agreement also generally requires Washington or Alpha to have in effect
certain benefit plans (including employee stock purchase plans) for current and
former employees of the Washington Business. Washington or Alpha employee
benefit plans generally will assume liabilities relating to Washington's current
and former employees under the corresponding Conexant benefit plans. Washington
is also required to establish one or more stock option plans, or the split
option plans, which will govern the terms and conditions of options to purchase
Washington common stock derived from outstanding options to purchase Conexant
common stock.
Following the distribution of Washington common stock and the merger, each
of Conexant and the combined company may modify or terminate its benefit plans
in accordance with the terms of the plans
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and applicable law. Each of the Washington employee welfare plans will provide
that all service and other applicable items that, as of the time of
distribution, were recognized under the corresponding Conexant benefit plan will
be taken into account under that welfare plan.
The employee matters agreement provides for the adjustment of outstanding
options to purchase Conexant common stock, referred to as Conexant options,
granted under stock option plans of Conexant, which are referred to collectively
as the Conexant option plans.
Conexant options outstanding at the time of the distribution, other than
options granted to employees of Conexant's Mindspeed Technologies business on
March 30, 2001, or Mindspeed March 30 options, will be adjusted so that
immediately following the distribution, each option holder will hold both
Conexant options and options to purchase Washington common stock, referred to as
Washington options. The number of shares subject to, and the exercise price of,
such adjusted options will be adjusted to take into account the distribution of
Washington common stock and to ensure that (1) the aggregate economic value
(i.e., the difference between the aggregate fair market value of the shares
subject to such options and the aggregate per share exercise price thereof) of
the resulting Conexant and Washington options immediately after the distribution
of Washington common stock is equal to the aggregate economic value of the
Conexant options immediately prior to the distribution of Washington common
stock and (2) for each resulting option, the ratio of the exercise price to the
fair market value of the underlying stock remains the same immediately before
and immediately after the distribution. The resulting Washington options and
Conexant options will otherwise have substantially the same terms and conditions
as the original Conexant options from which they are derived.
Mindspeed March 30 options will remain exercisable only for shares of
Conexant common stock, with appropriate adjustments to the number of shares
subject to, and the exercise prices of, the Mindspeed March 30 options to ensure
that (i) the aggregate economic value of the adjusted Mindspeed March 30 option
is the same immediately before and immediately after the distribution of
Washington common stock and (ii) the ratio of the exercise price to the fair
market value of the underlying Conexant common stock remains the same
immediately before and immediately after the distribution of Washington common
stock.
Prior to the distribution, Washington's board of directors will adopt, and
Conexant as Washington's sole stockholder will approve, the split option plans,
which will cover Washington options resulting from adjustments to Conexant
options outstanding at the time of the distribution. The split option plans will
also contain specific provisions applicable only to certain options which
correspond to the terms of the relevant Conexant option plan under which the
corresponding Conexant option was originally granted. No further options to
purchase either Washington common stock or combined company common stock are
expected to be granted under the split option plans after the distribution date.
In the merger, each outstanding Washington option will be converted into an
option to purchase combined company common stock and the combined company, as
successor to Washington, will assume the split option plans. See "The Merger
Agreement -- Treatment of Stock Options".
TAX ALLOCATION AGREEMENT
Through the date of the spin-off transaction, the results of operations of
the Washington Business have been and will be included in Conexant's
consolidated United States federal tax returns. As part of the spin-off
transaction and the merger, Conexant, Washington and Alpha will enter into a tax
allocation agreement which provides, among other things, for the allocation
between Conexant and the combined company of federal, state, local and foreign
tax liabilities relating to the Washington Business. In general, Conexant will
assume and be responsible for tax liabilities of the Washington Business and
Washington for periods prior to the merger and the combined company will assume
and be responsible for tax liabilities of the Washington Business for periods
after the merger.
The tax allocation agreement also allocates liability for any taxes that
may arise in connection with separating the Washington Business from Conexant.
The tax allocation agreement generally provides that
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Conexant will be responsible for any such taxes. However, the combined company
will be responsible for any taxes imposed on Washington, Conexant or Conexant
stockholders as a result of either:
- the failure of the spin-off transaction to qualify as a reorganization
for U.S. federal income tax purposes, or
- the subsequent disqualification of the distribution of Washington common
stock to Conexant stockholders in connection with the spin-off
transaction as a tax-free transaction to Conexant for U.S. federal income
tax purposes,
if such failure or disqualification is attributable to specific post-spin-off
transaction actions by or in respect of the combined company, the combined
company's subsidiaries or the combined company's stockholders, including any
change of ownership of 50% or more in either the voting power or value of the
combined company's stock. The merger will be treated as a deemed acquisition by
Alpha stockholders of approximately 33% of Washington common stock. The process
for determining whether a change of ownership has occurred under the tax rules
is complex. If the combined company does not carefully monitor its compliance
with these rules, the combined company might inadvertently cause or permit a
change of ownership to occur, triggering its obligation to indemnify Conexant
under the tax allocation agreement. The combined company's obligation to
indemnify Conexant in the event that a change of ownership causes the
distribution of Washington common stock to Conexant stockholders in connection
with the spin-off transaction not to be tax-free to Conexant could discourage a
third party from making a proposal to acquire the combined company.
If the combined company were required to pay any of the taxes described
above, the payment would be very substantial and would be expected to have a
material adverse effect on the combined company's business, financial condition,
results of operations and cash flow.
Though valid as among the parties thereto, the tax allocation agreement is
not binding on the IRS and does not affect the liability of each of Alpha,
Conexant, Washington and their respective subsidiaries to the IRS for all
federal taxes of the consolidated group relating to periods through the date of
the spin-off transaction.
TRANSITION SERVICES AGREEMENT
On or prior to the distribution date, Conexant and Alpha will enter into a
transition services agreement under which each of Conexant and the combined
company will provide to the other certain specified services. These services
generally will be provided until December 31, 2002, unless the parties otherwise
agree. The price to be paid by each of Conexant and the combined company for the
services will be the actual cost, including out of pocket expenses, of providing
the services.
Under the transition services agreement, Conexant will provide certain
services to the combined company, including services related to:
- accounting and payroll;
- finance and treasury;
- engineering and design services, including technology transfer support
relative to certain engineering and design systems included in the
Washington Business and for cellular systems and radio frequency
products, including Bluetooth(TM) baseband products;
- platform technology and other support for the Newbury Park facility;
- human resources, including transitional support regarding the
implementation or incorporation of the Washington Business's human
resources systems, data, practices and procedures;
- information technology;
- sales;
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- other support services, including global trade, shipping, storage and
logistics services;
- manufacturing quality and reliability, including product qualification
support for certain products of the Washington Business;
- facilities, including provision of various services related to facilities
currently utilized by the Washington Business; and
- material management and printed wire board assembly services.
In addition, the combined company will provide certain services to
Conexant, including services related to:
- engineering and design services for Conexant's broadband access products,
including Bluetooth(TM) radio frequency products;
- human resources;
- product testing and package qualification consulting; and
- facilities, including environmental consulting services.
NEWPORT SUPPLY AGREEMENT
Under the Newport supply agreement to be entered into with Conexant on or
prior to the distribution date, the combined company will obtain services from
the Newport foundry joint venture's Newport Beach, California wafer fabrication
facility for both production and prototypes of semiconductor products, including
services related to:
- semiconductor wafer fabrication;
- semiconductor wafer probe; and
- die bank warehousing and shipping.
These services generally will be provided for a term of three years after
the distribution date. The price for the services in the first year will be the
actual cost of the services. In the second year the price will be the average of
(1) the actual cost in the first year and (2) the market price (determined prior
to the start of the second year) of the services. In the third year the price
will be based on the market price of the services.
The combined company's cost of obtaining wafer fabrication services under
the Newport supply agreement is expected to approximate market prices currently
available for similar wafer fabrication services from outside foundries. The
market for wafer fabrication services currently is characterized by an abundance
of capacity at third-party foundries, many of whom have more favorable cost
structures than the Washington Business and the Newport foundry joint venture
due to lower labor costs and higher volumes. The combined company believes that
currently supply arrangements can be negotiated on terms which are similar to
the Newport foundry joint venture's current costs, particularly for supply
arrangements covering an expected volume of sales and purchases comparable to
those expected under the Newport supply agreement.
Subsequent to the execution of the merger agreement, in March 2002 Conexant
and The Carlyle Group formed the Newport foundry joint venture, a specialty
foundry company in which Conexant owns a 45% equity interest and The Carlyle
Group owns the remaining 55%. In the transaction, Conexant contributed its
Newport Beach, California wafer fabrication facility and certain related
intellectual property to the Newport foundry joint venture and entered into a
long-term supply arrangement with the Newport foundry joint venture for the
supply of silicon-based semiconductor products. During the first three years of
the supply agreement, Conexant will have certain minimum volume commitments in
each year. The Newport foundry joint venture will provide capacity to meet
Conexant's wafer requirements. Under the Newport supply agreement, the combined
company will obtain through Conexant silicon-based
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semiconductor products supplied by the Newport foundry joint venture.
Alternatively, the combined company may enter into a direct arrangement on
substantially similar terms with the Newport foundry joint venture in lieu of
the Newport supply agreement.
NEWBURY SUPPLY AGREEMENT
Under the Newbury supply agreement to be entered into on or prior to the
distribution date, the combined company will provide services to Conexant for
both production and prototypes of semiconductor products at the combined
company's Newbury Park, California wafer fabrication facility, including
services related to:
- semiconductor wafer fabrication;
- semiconductor wafer probe;
- final test;
- die processing; and
- shipping.
These services generally will be provided for a term of three years after
the distribution date. The price for the services in the first year will be the
actual cost of the services. In the second year the price will be the average of
(1) the actual cost in the first year and (2) the market price (determined prior
to the start of the second year) of the services. In the third year the price
will be based on the market price of the services.
The combined company's selling prices for wafer fabrication services
provided under the Newbury supply agreement are expected to approximate market
prices, in part because of current market conditions, including the abundance of
capacity at third-party foundries, many of whom have more favorable cost
structures due to lower labor costs and higher volumes.
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THE MEXICALI SALE
THE MEXICALI OPERATIONS
Conexant currently owns and operates an assembly and test facility located
in Mexicali, Mexico through its Mexican subsidiary, Conexant Systems, S.A. de
C.V. Conexant's package design team located in Newport Beach, California also
supports the operations of the Mexicali facility. The business and operations of
Conexant's Mexican subsidiary and the package design team together constitute
the Mexicali operations. The Mexicali assembly and test facility consists of
approximately 380,000 square feet of owned space and is ISO 9002 certified. As
of May 1, 2002, there were approximately 2,000 employees of Conexant supporting
the Mexicali operations who will become employees of the combined company in
connection with the sale of the stock of Conexant's Mexican subsidiary, the
Mexican assets and the U.S. assets described below immediately following the
merger.
MEXICAN STOCK AND ASSET PURCHASE AGREEMENT
PURCHASE AND SALE OF SHARES AND ASSETS
The Mexican stock and asset purchase agreement provides for the sale by
Conexant to the combined company, immediately following the completion of the
merger, of all of the stock of Conexant's Mexican subsidiary. In addition, the
Mexican stock and asset purchase agreement provides for the sale by Conexant to
the combined company of the following assets:
- all of Conexant's tangible personal property (other than certain books
and records) that is used by Conexant's Mexican subsidiary in the conduct
of its business and that is located at the Mexicali assembly and test
facility on the date of the Mexican stock and asset purchase agreement or
on the closing date (and certain third party insurance proceeds relating
to such property); and
- certain contracts entered into by Conexant to the extent relating to
assets to be purchased under the Mexican stock and asset purchase
agreement.
The assets to be sold under the Mexican stock and asset purchase agreement do
not include Conexant's inventory or intellectual property or certain equipment
set forth on a schedule to the Mexican stock and asset purchase agreement.
PURCHASE PRICE
The aggregate purchase price to be paid by the combined company to Conexant
under the Mexican stock and asset purchase agreement for the stock of Conexant's
Mexican subsidiary and the Mexican assets and under the U.S. asset purchase
agreement for the U.S. assets (see "-- U.S. Asset Purchase Agreement" below) is
$150 million. Prior to closing, the combined company and Conexant will agree
upon a reasonable allocation of the purchase price among the stock of Conexant's
Mexican subsidiary, the Mexican assets and the U.S. assets.
We expect that the combined company will pay the purchase price by
delivering a short-term promissory note to Conexant on substantially the
following terms:
- the combined company's obligations will be secured by first priority
liens in favor of Conexant on all current and future tangible and
intangible assets of the combined company and its subsidiaries (including
stock of subsidiaries);
- the combined company's obligations will be guaranteed by all of the
combined company's direct and indirect, current and future subsidiaries;
- 50% of the principal will be due six months after the closing date and
the remaining 50% of the principal will be due nine months after the
closing date;
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- interest will be payable at the rate of 10% per annum for the first three
months, increasing to 12% per annum for the second three months, and
increasing to 15% thereafter, with payments due quarterly in arrears;
- during the term of the note the combined company must use 100% of the
proceeds from asset sales or other dispositions of property by the
combined company and its subsidiaries or from issuance of debt or any
equity or equity linked products to prepay the amount outstanding under
the note until paid in full;
- the combined company may prepay the note at any time; and
- the note will contain representations, warranties, covenants and events
of default customary for loans of this nature.
In connection with the delivery of the promissory note, the combined company
will also be required to deliver to Conexant, at the closing, a security
agreement granting Conexant a first priority security interest as described
above, any filings, instruments or other documents as Conexant may reasonably
require to perfect its first priority security interest and customary opinions
of counsel to the combined company for secured transactions of this nature
reasonably satisfactory to the combined company, Conexant and their respective
counsel.
The combined company will be required to finance the repayment of the note
through a public or private offering of equity, debt or some combination thereof
within six months after the closing of the Mexicali transaction.
ASSUMPTION OF LIABILITIES
The combined company will assume all liabilities of Conexant under and
related to the contracts constituting Mexican assets and all trade payables
incurred by Conexant on behalf of the Mexican subsidiary in the ordinary course
of business consistent with past practice with respect to the Mexican assets.
The Mexican subsidiary will continue to be responsible for all of its
liabilities and obligations (except for certain tax liabilities), including
those that relate back to events prior to the closing date.
REPRESENTATIONS AND WARRANTIES
The Mexican stock and asset purchase agreement contains representations and
warranties made by each party to the other party, most of which are subject to
materiality and/or knowledge qualifications. The representations and warranties
of Conexant relate to, among other things, the following matters:
- capitalization of Conexant's Mexican subsidiary;
- permits required by the Mexican subsidiary, or by Conexant in respect of
its ownership of the subsidiary and its ownership and use of the Mexican
assets;
- compliance with laws;
- absence of certain changes or events;
- title to the assets and properties of the Mexican subsidiary and the
Mexican assets;
- tax matters;
- environmental matters; and
- sufficiency of assets.
The representations and warranties (other than those relating to corporate
status, good standing and qualification to do business; authority; governmental
approvals; absence of breach; capitalization of the Mexican subsidiary; the
Mexicali facility; tax matters; and title, which will survive until the
applicable statutes of limitation have expired) will survive for six months
following the closing and will then expire.
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COVENANTS
Each of Conexant and Alpha has undertaken to perform certain covenants in
the Mexican stock and asset purchase agreement. The principal covenants are as
follows:
Reasonable Best Efforts. The parties have agreed to use their reasonable
best efforts to take all actions and do all things necessary or advisable under
the Mexican stock and asset purchase agreement and applicable laws to complete
the transactions contemplated by the Mexican stock and asset purchase agreement
as soon as practicable. However, neither party will be required to take any
action in addition to the actions required to be taken by the merger agreement
to consummate the merger.
Conduct of Business Pending Closing. Conexant has agreed to certain
restrictions on its activities with respect to its Mexican subsidiary, the
business and operations of its Mexican subsidiary and the Mexican assets until
the closing of the sale.
Intercompany Accounts and Agreements. Conexant and its Mexican subsidiary
will settle or eliminate all intercompany receivables, payables and other
balances existing immediately prior to the closing between Conexant and/or any
of Conexant's subsidiaries (other than its Mexican subsidiary), on the one hand,
and Conexant's Mexican subsidiary, on the other hand. Conexant and its Mexican
subsidiary will terminate all agreements between Conexant and/or any of
Conexant's subsidiaries (other than its Mexican subsidiary), on the one hand,
and Conexant's Mexican subsidiary, on the other hand, prior to the closing.
CONDITIONS
Each of the parties' obligations to complete the transactions contemplated
by the Mexican stock and asset purchase agreement is subject to the satisfaction
of various conditions, including:
- the expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Act, which waiting period was terminated on January 29,
2002;
- the receipt of the required consent or approval of the Mexican Comision
Federal de Competencia, which was received on April 25, 2002;
- the absence of any law, order or injunction having the effect of making
the transactions contemplated by the Mexican stock and asset purchase
agreement illegal or otherwise prohibiting such transactions; and the
absence of any proceeding initiated by any governmental authority
seeking, and which is reasonably likely to result in, any such
injunction;
- the consummation of the merger;
- the accuracy of representations and warranties of the other party
contained in the merger agreement, without any qualification or
limitation as to materiality or material adverse effect set forth
therein, except where the failure of such representations and warranties
of the other party to be true and correct, individually or in the
aggregate, would not reasonably be expected to have a material adverse
effect on the ability of the other party to consummate the transactions
contemplated by the Mexican stock and asset purchase agreement and, in
the case of the representations and warranties of Conexant, would not
reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of Conexant's Mexican
subsidiary, the business, financial condition or results of operations of
the Washington Business and the Mexican assets, taken as a whole; and
- the performance and compliance of the other party with all agreements and
covenants required to be performed by it under the Mexican stock and
asset purchase agreement that are qualified as to materiality or material
adverse effect and the performance and compliance of the other party in
all material respects with all other agreements and covenants required to
be performed by it under the Mexican stock and asset purchase agreement
that are not so qualified.
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Notwithstanding the foregoing, upon consummation of the merger, the closing
conditions of each of the parties will be deemed fully satisfied.
CLOSING
The closing of the Mexican stock and asset purchase agreement will take
place immediately following the closing of the merger and will be effective
immediately following the effective time of the merger. The Mexican stock and
asset purchase agreement provides for closing deliveries by the parties,
including, among other things, a facility services agreement providing for the
supply of assembly and test services after the closing by the combined company
to Conexant and for the supply of transition services after the closing by
Conexant to the combined company.
INDEMNIFICATION
Under the terms of the Mexican stock and asset purchase agreement, Conexant
will be obligated to indemnify and defend Alpha and its affiliates and
representatives for all damages, liabilities and actions arising out of or
relating to:
- the breach of any representation, warranty, covenant or agreement of
Conexant contained in the Mexican stock and asset purchase agreement;
- the liabilities retained by Conexant under the Mexican stock and asset
purchase agreement; and
- the assets retained by Conexant under the Mexican stock and asset
purchase agreement, including Conexant's inventory and intellectual
property.
Alpha will be obligated to indemnify and defend Conexant and its affiliates
for all damages, liabilities and actions arising out of or relating to:
- the breach of any representation, warranty, covenant or agreement of
Alpha contained in the Mexican stock and asset purchase agreement;
- the liabilities assumed by Alpha under the Mexican stock and asset
purchase agreement; and
- any liabilities of Conexant's Mexican subsidiary, except to the extent
Conexant would be required to indemnify Alpha for such liability because
it arises out of or relates to the breach of a representation or warranty
of Conexant.
Each party will only be obligated to indemnify the other party for damages
relating to breaches of representations and warranties that exceed in the
aggregate $1 million. Each indemnifying party's indemnification obligation for
damages relating to breaches of representations and warranties is limited to a
maximum aggregate amount of $10 million.
Each party's obligation to indemnify the other party for breach of any
representation or warranty will terminate when the applicable representation or
warranty expires under the Mexican stock and asset purchase agreement. Each
party's obligation to indemnify the other party for breach of any covenant or
agreement will terminate upon the expiration of all applicable statutes of
limitation. Each party's other indemnification obligations will continue without
time limitation.
TAX MATTERS
The Mexican stock and asset purchase agreement provides, among other
things, for the allocation between Conexant and the combined company of the
federal, state, local and foreign tax liabilities relating to Conexant's Mexican
subsidiary and the Mexican assets. The Mexican stock and asset purchase
agreement also allocates the liability for any transfer taxes that may arise in
connection with the transactions contemplated by the Mexican stock and asset
purchase agreement.
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TERMINATION
If the merger agreement is terminated, the Mexican stock and asset purchase
agreement will automatically terminate. In addition, the parties may terminate
the Mexican stock and asset purchase agreement by mutual consent.
U.S. ASSET PURCHASE AGREEMENT
PURCHASE AND SALE OF ASSETS
The U.S. asset purchase agreement provides for the sale by Conexant to the
combined company immediately following the completion of the merger of the
following assets utilized by Conexant's package design team employees who are
located in Newport Beach, California and who are to be offered employment by
Alpha:
- certain equipment (and certain third party insurance proceeds relating to
such equipment); and
- certain intellectual property, subject to a royalty-free license of such
intellectual property to Conexant.
PURCHASE PRICE; LIABILITIES
The aggregate purchase price to be paid by the combined company to Conexant
under the U.S. asset purchase agreement for the U.S. assets and under the
Mexican stock and asset purchase agreement for the stock of Conexant's Mexican
subsidiary and the Mexican assets is $150 million. We expect that the combined
company will pay the purchase price by delivering a promissory note to Conexant
substantially on the terms described above under "-- Mexican Stock and Asset
Purchase Agreement".
The combined company will not assume any liabilities of Conexant related to
the U.S. assets.
REPRESENTATIONS AND WARRANTIES
The U.S. asset purchase agreement contains representations and warranties
made by each party to the other party, most of which are subject to materiality
and/or knowledge qualifications.
The representations and warranties (other than those relating to corporate
status, good standing and qualification to do business; authority; governmental
approvals; absence of breach; tax matters; and title, which will survive until
the applicable statutes of limitation have expired) will survive for six months
following the closing and will then expire.
COVENANTS
Each of the parties has undertaken to perform certain covenants in the U.S.
asset purchase agreement. The principal covenants are as follows:
Reasonable Best Efforts. The parties have agreed to use their reasonable
best efforts to take all actions and do all things necessary or advisable under
the U.S. asset purchase agreement and applicable laws to complete the
transactions contemplated by the U.S. asset purchase agreement as soon as
practicable. Neither party will be required to take any action in addition to
the actions required to be taken by the merger agreement to consummate the
merger.
Conduct of Business Pending Closing. Conexant has agreed to certain
restrictions on its activities with respect to the package design team and the
U.S. assets until the closing of the sale.
Employment Arrangements. Alpha has agreed to offer employment to the
package design team employees, as of the closing date, with a salary level at
least equal to that which the employees received immediately prior to the
closing and employee benefits comparable in all material respects and no less
favorable, in the aggregate, to those provided to the employees immediately
prior to the closing. After the closing, the combined company may modify the
salary level of any package design team employee and, in
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accordance with the terms of the benefit plan and applicable law, may modify any
benefit plan benefiting the package design team employees.
The parties have agreed that the package design team employees will be
deemed to be employees of the Washington Business for purposes of the employee
matters agreement. Accordingly, the combined company has agreed to assume and
fully perform, pay and discharge all liabilities and obligations relating to the
package design team employees of the type assumed by Alpha, Washington or any of
Washington's subsidiaries under, and in the same manner as provided in, the
employee matters agreement.
CONDITIONS
Each of the parties' obligations to complete the transactions contemplated
by the U.S. asset purchase agreement is subject to the consummation of the
merger.
CLOSING
The closing of the U.S. asset purchase agreement will take place
immediately following the closing of the merger and will be effective
immediately following the effective time of the merger.
INDEMNIFICATION
Under the terms of the U.S. asset purchase agreement, Conexant will be
obligated to indemnify and defend Alpha and its affiliates and representatives
for all damages, liabilities and actions arising out of or relating to the
breach of any representation, warranty, covenant or agreement of Conexant
contained in the U.S. asset purchase agreement.
Alpha will be obligated to indemnify and defend Conexant and its affiliates
for all damages, liabilities and actions arising out of or relating to the
breach of any representation, warranty, covenant or agreement of Alpha contained
in the U.S. asset purchase agreement.
Each party will only be obligated to indemnify the other party for damages
relating to breaches of representations and warranties that exceed $50,000 in
the aggregate. Each party's indemnification obligation for damages relating to
breaches of representations and warranties is limited to a maximum aggregate
amount of $500,000.
Each party's obligation to indemnify the other party for breach of any
representation or warranty will terminate when the applicable representation or
warranty expires under the U.S. asset purchase agreement. Each party's
obligation to indemnify the other party for breach of any covenant or agreement
will terminate upon the expiration of all applicable statutes of limitation.
TAX MATTERS
The U.S. asset purchase agreement provides, among other things, for the
allocation between Conexant and the combined company of the federal, state,
local and foreign non-income tax liabilities relating to the U.S. assets. The
U.S. asset purchase agreement also allocates the liability for any transfer
taxes that may arise in connection with the transactions contemplated by the
U.S. asset purchase agreement.
TERMINATION
If the merger agreement is terminated, the U.S. asset purchase agreement
will automatically terminate. In addition, the parties may terminate the U.S.
asset purchase agreement by mutual consent.
FACILITY SERVICES AGREEMENT
SUPPLY ARRANGEMENTS
Conexant and Alpha currently expect that under the facility services
agreement to be entered into between Conexant and Alpha prior to the effective
time of the merger, after the merger the combined
81
company will provide Conexant with certain semiconductor processing, packaging
and testing services, including:
- assembly services;
- final testing;
- post-test processing; and
- shipping.
These services will be performed at the Mexicali facility and, if Conexant and
the combined company agree, at other facilities approved by the combined
company.
These services generally will be provided for a term of three years after
the closing date of the Mexican stock and asset purchase agreement. The price
for the services in the first year will be the actual cost of the services. In
the second year the price for services will be the average of (1) the actual
cost in the first year and (2) the market price (determined prior to the start
of the second year) of the services. In the third year the price will be based
on the market price of the services.
During the term of the supply arrangement, Conexant will have the right to
purchase products manufactured through the use of technologies developed and
qualified for full-scale production at the Mexicali facility at the time of the
supply arrangement and, if the parties agree on terms, products manufactured
through the use of any new technologies in development at the Mexicali facility
at the time of the supply arrangement, but not yet qualified for full scale
production.
TRANSITION SERVICES
Under the facility services agreement, the parties will provide certain
transition services to each other with respect to the Mexicali operations. These
services generally will be provided until December 31, 2002, unless the parties
otherwise agree. The price for the services will be the actual cost, including
out-of pocket expenses, of providing the services. The parties expect that these
services will include:
- general accounting support;
- metrology services and test equipment support;
- thermal mechanical analysis and measurement of packages;
- electrical analysis and measurement for packages; and
- electromagnetic impulse measurement and certification services.
82
PROPOSED AMENDMENT TO ALPHA'S 1996 LONG-TERM INCENTIVE PLAN
Alpha's 1996 Long-Term Incentive Plan was adopted by the Alpha board of
directors in 1996 and approved by Alpha stockholders in September 1996. Of the
4,200,000 shares of Alpha common stock currently authorized for issuance under
the 1996 plan, approximately 597,000 shares remained available for future awards
as of the close of business on April 29, 2002.
The Alpha board of directors believes that it is in the best interests of
Alpha to be able to continue to create equity incentives to assist in
attracting, retaining and motivating key employees. Alpha expects to continue to
issue awards under the 1996 plan in the form of options to purchase shares of
Alpha common stock. The remaining shares authorized for issuance under the 1996
plan are expected to be insufficient for this purpose, largely due to the
increase in the number of employees and the addition of new officers and
directors that will occur as a result of the merger. Accordingly, the Alpha
board of directors has adopted, subject to approval by Alpha stockholders, an
amendment to the 1996 plan increasing the number of shares of common stock that
may be issued under the 1996 plan by 1,885,000 shares (from 4,200,000 shares to
6,085,000 shares).
THE ALPHA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALPHA STOCKHOLDERS
VOTE FOR THE PROPOSAL TO AMEND THE 1996 PLAN.
General. The 1996 plan is administered by the compensation committee of
the Alpha board of directors. As of April 29, 2002, all of Alpha's employees
were eligible to participate in the 1996 plan. Because grants of awards under
the 1996 plan are made at the discretion of the compensation committee, the
awards, if any, to be granted to the executive officers of Alpha under the 1996
plan should the plan amendments be approved are not presently determinable.
Stock Available for Awards. Without giving effect to the proposed
amendment, a maximum of 4,200,000 shares of Alpha common stock are currently
authorized for issuance under the 1996 plan. The shares of Alpha common stock to
be delivered under the 1996 plan may be either authorized but unissued shares or
treasury shares. Any shares subject to an option under the 1996 plan which for
any reason terminates, is canceled or otherwise expires unexercised, any shares
reacquired by Alpha because restrictions on the shares do not lapse, any shares
reacquired by Alpha due to restrictions imposed on the shares, any shares
returned because payment is made under the 1996 plan by a plan participant in
Alpha common stock of equivalent value rather than in cash, and any shares
reacquired from a recipient for any other reason are available for further
awards under the 1996 plan.
Eligibility; Grant of Awards. Subject to the terms of the 1996 plan, and
subject to ratification by the Alpha board of directors only if required by
applicable law, the Alpha compensation committee has the authority and sole
discretion to determine those key employees and other individuals eligible to
participate in the 1996 plan, select to whom awards will be granted, determine
the size and form of awards and the times that awards are to be granted,
establish the terms under which awards will be exercised or transferred, make or
alter any restrictions or conditions on any award and adopt such rules and
regulations, establish, define and interpret other terms and conditions and make
all other determinations necessary or desirable for the administration of the
1996 plan. Under the 1996 plan, Alpha may grant incentive stock options intended
to qualify under Section 422 of the Internal Revenue Code, non-qualified stock
options, which are not qualified as incentive stock options under Section 422 of
the Internal Revenue Code, and restricted share awards. Incentive stock options
may only be granted to employees of Alpha or its subsidiaries.
Stock Option Awards; Price; Exercise; Restrictions. Stock options are
rights to purchase shares of Alpha common stock at a fixed price for a
predetermined period of time. The 1996 plan authorizes the Alpha compensation
committee to determine the number of shares of Alpha common stock to be covered
by each option, the purchase or exercise price of stock subject to such stock
options and the term of each stock option, which, in the case of incentive stock
options, may not be longer than ten years after the date of grant. The exercise
price may not be less than par value and may not be less than the fair market
value at the time of grant in the case of incentive stock options. The aggregate
fair market value of the Alpha
83
common stock (at the time of grant of any incentive stock option) with respect
to which incentive stock options are exercisable for the first time by any
employee during any calendar year under all of Alpha's plans may not exceed
$100,000. At the compensation committee's discretion, the Alpha common stock
issued pursuant to stock options granted under the 1996 plan may be subject to
restrictions on vesting or transferability.
Stock Option Awards; Rights in the Event of Termination. In the event of
termination of employment (for reasons other than death or permanent and total
disability), the option holder may generally exercise stock options vested as of
the date of termination for a period of three months after the termination of
employment. In the event of a termination of employment for cause, all remaining
options cease to be exercisable, whether or not previously vested. In the event
of termination of employment by reason of death, the option holder's vested and
unvested stock options may generally be exercised for a period of twelve months
after the date of death. In the event of termination of employment by reason of
permanent and total disability, the option holder may generally exercise stock
options vested as of the date of termination for a period of six months after
the termination of employment.
Restricted Share Awards; Rights in the Event of Termination or
Death. Restricted share awards are grants of shares of common stock that are
subject to forfeiture under certain conditions. In the event of the recipient's
termination of employment with Alpha for any reason other than death, retirement
or permanent disability, Alpha may reacquire all or a portion of the restricted
shares as to which restrictions have not already lapsed for the recipient's
original acquisition price, or, if the original acquisition price was $0, for no
value. The restrictions against disposition and the obligation of resale to
Alpha will lapse as to any restricted shares that Alpha declines to purchase.
Upon the death, retirement or permanent disability of the recipient of a
restricted share award, the restrictions against disposition and the obligation
of resale to Alpha of the restricted shares as to which such restrictions and
obligations have not otherwise lapsed will immediately lapse.
Indemnity. Neither the Alpha board of directors nor its compensation
committee, nor any member of either, nor any employees of Alpha, shall be liable
for any act, omission, interpretation, construction or determination made in
good faith in connection with their responsibilities with respect to the 1996
plan. Alpha will indemnify the members of the Alpha board of directors, the
members of the Alpha compensation committee and the employees of Alpha in
respect of any claim, loss, damage or expense (including reasonable counsel
fees) arising from any such act, omission, interpretation, construction or
determination to the full extent permitted by law.
Amendment or Termination of the 1996 Plan. The Alpha board of directors
may at any time amend, suspend or terminate the 1996 plan; provided that any
such amendments relating to the definition of the employees and individuals
eligible to participate in the 1996 plan or an increase in the maximum number of
shares of Alpha common stock authorized for issuance under the 1996 plan are
subject to stockholder approval to the extent required by the provisions of the
Internal Revenue Code relating to incentive stock options. No amendment,
suspension or termination of the 1996 plan may affect the rights of a
participant to whom an award has been granted without such participant's
consent.
Share Adjustments. If Alpha's outstanding common stock is increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities by reason of a recapitalization, reclassification, stock
split, combination of shares, separation (including a spin-off) or stock
dividend, there will be an equitable adjustment in the exercise prices of
outstanding options and the number and kind of shares as to which outstanding
options shall be exercisable as determined by the Alpha board of directors. If
Alpha is a party to any merger or consolidation, any purchase or acquisition of
property or stock, or any separation, reorganization or liquidation, the Alpha
board of directors (or, if Alpha is not the surviving corporation, the board of
directors of the surviving corporation) shall have the power to make
arrangements for the substitution of new options for, or the assumption by
another corporation of, any options then outstanding under the 1996 plan.
Duration of the 1996 Plan. Awards may be made under the 1996 plan for a
period of ten years ending on June 14, 2006. The period during which a stock
option or other award may be exercised, however, may extend beyond that time.
84
Change of Control Provision. Upon the occurrence of a change of control of
Alpha (as defined in the 1996 plan) each outstanding and unvested option will
become exercisable.
Federal Income Tax Consequences of the 1996 Plan. The following general
discussion of the federal income tax consequences of options and restricted
share awards granted under the 1996 plan is based upon the provisions of the
Internal Revenue Code as in effect on the date hereof, current regulations
thereunder, and existing public and private administrative rulings of the IRS.
This discussion is not intended to be a complete discussion of all of the
federal income tax consequences of the 1996 plan or of all of the requirements
that must be met in order to qualify for the tax treatment described herein.
Non-Qualified Stock Options
An optionee generally will not be taxed upon the grant of a non-qualified
stock option. Rather, at the time of exercise of a non-qualified stock option,
the optionee will recognize ordinary income for federal income tax purposes in
an amount equal to the excess of the fair market value of the shares purchased
over the option exercise price. Alpha will generally be entitled to a tax
deduction at the time and in the same amount that the optionee recognizes
ordinary income.
If shares acquired upon exercise of a non-qualified stock option are later
sold or exchanged, then the difference between the sales price and the fair
market value of such stock on the date that ordinary income was recognized with
respect thereto will generally be taxable as long-term or short-term capital
gain or loss, depending upon the length of time such shares were held by the
optionee.
Incentive Stock Options
An optionee will not be in receipt of taxable income upon the grant or
exercise of an incentive stock option. If stock acquired pursuant to the timely
exercise of an incentive stock option is later disposed of, the optionee will,
except as noted below, recognize long-term capital gain or loss equal to the
difference between the amount realized upon the sale and the option price.
Alpha, under these circumstances, will not be entitled to any federal income tax
deduction in connection with either the exercise of the incentive stock option
or the sale of such stock by the optionee. Exercise of an incentive stock option
will be timely if made during its term and if the optionee remains an employee
of Alpha or a subsidiary at all times during the period beginning on the date of
grant of the incentive stock option and ending on the date three months before
the date of exercise (or one year before the date of exercise in the case of a
disabled optionee).
If, however, stock acquired pursuant to the exercise of an incentive stock
option is disposed of by the optionee prior to the expiration of two years from
the date of grant of the incentive stock option or within one year from the date
the stock is transferred to the optionee upon exercise (a "disqualifying
disposition"), any gain realized by the optionee generally will be taxable at
the time of the disqualifying disposition at ordinary income rates. In such
case, Alpha may claim a federal income tax deduction at the time of the
disqualifying disposition for the amount taxable to the optionee as ordinary
income.
Stock Awards
A participant in the 1996 plan generally will not be taxed upon the grant
of an award of restricted shares, but rather will recognize ordinary income in
an amount equal to the fair market value of the stock at the time the shares are
no longer subject to a substantial risk of forfeiture (less any amounts paid by
the participant). Alpha will be entitled to a deduction at the time when, and in
the amount that, the participant recognizes ordinary income. However, a
participant may elect (not later than 30 days after acquiring the restricted
shares) to recognize ordinary income at the time the restricted shares are
awarded in an amount equal to their fair market value at that time (less any
amounts paid by the participant), notwithstanding the fact that the shares are
subject to restrictions and a substantial risk of forfeiture. If such an
election is made, no additional taxable income will be recognized by the
participant at the time the restrictions lapse. Alpha will be entitled to a tax
deduction at the time when, and to the extent that, income is recognized by such
participant. However, if shares in respect of which the election was made are
later forfeited, no tax deduction is allowable to the participant for the
forfeited shares, and Alpha will be deemed to recognize ordinary income equal to
the amount of the deduction allowed to Alpha at the time of the election in
respect of the forfeited shares.
85
PROPOSED AMENDMENT TO ALPHA'S DIRECTORS' 2001 STOCK OPTION PLAN
Alpha's Directors' 2001 Stock Option Plan was adopted by the Alpha board of
directors on April 26, 2001 and approved by Alpha stockholders in September
2001. Of the 250,000 shares of Alpha common stock currently authorized for
issuance under the 2001 plan to non-employee directors, approximately 145,000
shares remained available for future awards as of the close of business on April
29, 2002.
The Alpha board of directors believes that it is in the best interests of
Alpha to be able to continue to create equity incentives to assist in
attracting, retaining and motivating qualified persons who are not employees of
Alpha to serve as directors. Alpha expects to continue to issue awards under the
2001 plan in the form of options to purchase shares of Alpha common stock. Due
to the increase in the size of the Alpha board of directors if the merger is
consummated, and the addition of several new non-employee directors of the
combined company, the remaining shares authorized for issuance under the 2001
plan will be insufficient for this purpose. Accordingly, the Alpha board of
directors has adopted, subject to approval by Alpha stockholders, an amendment
to the 2001 plan increasing the number of shares of common stock that may be
issued under the 2001 plan by 315,000 shares (from 250,000 shares to 565,000
shares).
Stock options are a significant part of each director's overall
compensation and permit Alpha to seek and retain the services of highly skilled
and competent persons to serve as directors. Competition for highly qualified
individuals to serve as directors is intense, and to successfully attract and
retain the best candidates, Alpha must continue to offer a competitive equity
incentive program as an essential component of directors' compensation. Without
the proposed authorization of shares available for directors' stock options,
Alpha may be unable to continue to attract and retain the best individuals to
serve as directors. The 2001 plan is intended to offer an equity incentive to
Alpha's non-employee directors by granting the non-employee directors annual
options to purchase common stock at a price equal to the stock's fair market
value on the date of the option grant. These options therefore only become
valuable if the price of Alpha's common stock increases. By providing the
directors with the opportunity to acquire an equity interest in Alpha over time
and because a benefit is only received through stock performance, stock options
align the interests of the directors with those of the stockholders.
THE ALPHA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALPHA STOCKHOLDERS
VOTE FOR THE PROPOSAL TO AMEND THE 2001 PLAN.
General. The 2001 plan is administered by the Alpha board of directors.
Stock Available for Awards. Without giving effect to the proposed
amendment, a maximum of 250,000 shares of Alpha common stock are currently
authorized for issuance under the 2001 plan. The shares of Alpha common stock to
be delivered under the 2001 plan may be either authorized but unissued shares,
treasury shares, shares reacquired by Alpha for such purpose or shares
previously reserved for issuance upon exercise of directors' options (under the
2001 plan or other plans) which have expired or been terminated.
Eligibility; Grant of Awards. Grants of options are made to non-employee
directors upon their election and re-election to the Alpha board. Under the 2001
plan, each new non-employee director receives an option to purchase 45,000
shares of Alpha common stock immediately following the earlier of Alpha's annual
meeting of stockholders at which the director is first elected by the Alpha
stockholders or immediately following the director's initial appointment by the
board of directors. In addition, following each annual meeting of stockholders
each director who is continuing in office or re-elected receives an option to
purchase 15,000 shares of Alpha common stock. The 2001 plan is not intended to
be a means of compensating officers of Alpha; directors who are also officers of
Alpha are not eligible to participate in the 2001 Plan. As of the date of this
proxy statement/prospectus-information statement, there were seven non-officer
directors of Alpha.
Price; Exercise; Restrictions. Stock options are rights to purchase shares
of Alpha common stock at a fixed exercise price for a predetermined period of
time. The exercise price of all options to be granted under the 2001 plan will
be the fair market value of Alpha common stock on the date the option is granted
or the par value of the shares of common stock if that is higher. This price
must be paid in full
86
upon exercise of the option either in cash or by delivery of shares of common
stock (as permitted by the Alpha board of directors), or any combination of cash
and stock (as permitted by the Alpha board of directors). All options under the
2001 plan will become exercisable in four equal increments over a period of four
years from the date of grant and must be exercised within ten years after the
date the option is granted. The options may not be assigned or transferred
except by will or under the laws of descent and distribution, or pursuant to a
qualified domestic relations order. During the lifetime of a director, the
option may be exercisable only by the director. All of the options granted under
the 2001 plan will be non-qualified stock options under the Internal Revenue
Code.
Rights in the Event of Cessation of Service. In the event of the cessation
of service of a director, the director's options may be exercised as follows:
(1) in the event of death, all unvested options will become fully vested and all
options may be exercised by the heirs of the director for twelve months after
the date of death (or until the expiration of the option, if sooner); (2) in the
event of a director's permanent and total disability, only vested options may be
exercised, and only for a period of six months after the cessation of service
(or until the expiration of the option, if sooner); (3) in the event a director
ceases to serve as a director for any other reason, except for cause, only
vested options may be exercised, and only for a period of three months after the
cessation of service (or until the expiration of the option, if sooner). In the
event a director is removed from office for cause, all remaining options cease
to be exercisable whether or not previously vested.
Indemnity. The 2001 plan provides that the Alpha board of directors shall
not be liable for any act, omission, interpretation, construction or
determination made in good faith in connection with their responsibilities with
respect to the 2001 plan. Alpha agrees to indemnify the directors in respect of
any claim, loss, damage or expense (including counsel fees) arising from any
such act, omission, interpretation, construction or determination to the full
extent permitted by law.
Amendment or Termination of the 2001 Plan. The Alpha board of directors
may at any time, and from time to time, amend, suspend or terminate the 2001
plan in whole or in part, provided that the provisions of the 2001 plan relating
to the amount and price of Alpha common stock to be awarded and the timing of
such awards may not be amended more than once every six months other than to
comport with changes in the Internal Revenue Code, the Employee Retirement
Income Security Act or the rules under either statute. No amendment, suspension
or termination of the 2001 plan may affect the rights of any participant to whom
an option has been granted without such participant's consent.
Share Adjustments. If Alpha's outstanding common stock is increased or
decreased, or changed into or exchanged for a different number or kind of shares
or other securities by reason of a recapitalization, reclassification, stock
split, combination of shares, separation (including a spin-off) or stock
dividend, there will be an equitable adjustment in the exercise prices of
outstanding options and the number and kind of shares as to which outstanding
options shall be exercisable as determined by the Alpha board of directors. If
Alpha is a party to any merger or consolidation, any purchase or acquisition of
property or stock, or any separation, reorganization or liquidation, the Alpha
board of directors (or, if Alpha is not the surviving corporation, the board of
directors of the surviving corporation) shall have the power to make
arrangements for the substitution of new options for, or the assumption by
another corporation of, any options then outstanding under the 2001 plan.
Duration of the 2001 Plan. Awards may be made under the 2001 plan for a
period of ten years ending on September 10, 2011. The period during which a
stock option or other award may be exercised, however, may extend beyond that
time.
Change of Control. Upon the occurrence of a change of control of Alpha (as
defined in the 2001 plan) each outstanding and unvested option will become
exercisable.
Federal Tax Consequences of the 2001 Plan. The options granted under the
2001 plan will be non-qualified stock options. An optionee generally will not be
taxed upon the grant of a non-qualified stock option. Rather, at the time of
exercise of such non-qualified stock option, the optionee will recognize
ordinary income for federal income tax purposes in an amount equal to the excess
of the fair market value
87
of the shares purchased over the option exercise price. Alpha will generally be
entitled to a tax deduction at the time and in the same amount that the optionee
recognizes ordinary income.
If shares acquired upon exercise of a non-qualified stock option are later
sold or exchanged, then the difference between the sales price and the fair
market value of the stock on the date that ordinary income was recognized with
respect thereto will generally be taxable as long-term or short-term capital
gain or loss, depending upon the length of time the shares were held by the
optionee.
88
PRICE RANGE OF ALPHA COMMON STOCK AND DIVIDENDS
Alpha common stock is traded on the Nasdaq National Market under the
trading symbol "AHAA". The number of Alpha stockholders of record as of April
29, 2002 was approximately 950.
Alpha has not paid cash dividends on its common stock since fiscal 1986,
and does not anticipate paying cash dividends in the future. Alpha effected a
two-for-one stock split effective April 19, 2000.
The following table shows the range of high and low per share sale prices
of Alpha common stock as reported on the Nasdaq National Market for the periods
indicated and adjusted to reflect the effects of the April 19, 2000 stock split.
HIGH LOW
------- -------
FISCAL YEAR ENDED APRIL 1, 2001
First quarter............................................. $ 23.13 $ 8.94
Second quarter............................................ 28.91 21.50
Third quarter............................................. 33.13 23.88
Fourth quarter............................................ 74.73 27.02
FISCAL YEAR ENDED MARCH 31, 2002
First quarter............................................. $ 31.34 $ 13.06
Second quarter............................................ 41.45 16.73
Third quarter............................................. 31.84 15.64
Fourth quarter............................................ 24.24 14.05
FISCAL YEAR ENDING MARCH 30, 2003
First quarter (through May 2, 2002)....................... $ 17.54 $ 11.25
On December 14, 2001, the last trading day before the announcement of the
signing of the merger agreement, the closing sale price of Alpha common stock on
the Nasdaq National Market was $21.20. On May 2, 2002, the closing sale price of
Alpha common stock on the Nasdaq National Market was $11.30. Washington is
currently a wholly-owned subsidiary of Conexant, and Washington stock is not
traded on any stock exchange or the Nasdaq Stock Market.
89
HISTORICAL SELECTED COMBINED FINANCIAL DATA
OF THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
The selected combined financial data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Washington Business and the Mexicali
Operations" and the Combined Financial Statements of the Washington Business and
the Mexicali Operations and the notes thereto appearing elsewhere in this proxy
statement/prospectus-information statement.
For financial accounting purposes, the sale of the Mexicali operations by
Conexant to the combined company will be treated as if Conexant had contributed
the Mexicali operations to Washington as part of the spin-off transaction, and
the $150 million purchase price will be treated as a return of capital to
Conexant. Consequently, the selected combined financial data presented below
includes the Mexicali operations for all periods presented. The Washington
Business and the Mexicali operations together comprise Washington/Mexicali.
The Washington/Mexicali combined statement of operations data for the years
ended September 30, 1999, 2000 and 2001 and the Washington/Mexicali combined
balance sheet data as of September 30, 2000 and 2001 have been derived from the
Combined Financial Statements of the Washington Business and the Mexicali
Operations included in this proxy statement/prospectus-information statement,
which have been audited by Deloitte & Touche LLP, whose opinion is included in
this proxy statement/prospectus-information statement. The Washington/Mexicali
combined statement of operations data for the three months ended December 31,
2000 and 2001 and the Washington/Mexicali combined balance sheet data as of
December 31, 2001 have been derived from Washington/Mexicali's unaudited
combined financial statements included in this proxy
statement/prospectus-information statement. The Washington/Mexicali combined
statement of operations data for the years ended September 30, 1997 and 1998 and
the Washington/Mexicali combined balance sheet data as of September 30, 1997,
1998 and 1999 have been derived from Washington/Mexicali's unaudited combined
financial statements which are not presented in this proxy
statement/prospectus-information statement. The historical financial information
may not be indicative of Washington/Mexicali's future performance and does not
reflect what the results of operations and financial position of
Washington/Mexicali would have been had it operated as an independent company
during the periods presented.
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------------- -------------------
1997 1998 1999 2000(1) 2001(1) 2000 2001
-------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net revenues:
Third parties................................ $ 49,201 $ 79,066 $176,015 $312,983 $ 215,502 $ 68,518 $ 88,404
Conexant..................................... 30,818 33,205 40,400 65,433 44,949 16,978 5,356
-------- -------- -------- -------- --------- -------- --------
Total net revenues..................... 80,019 112,271 216,415 378,416 260,451 85,496 93,760
-------- -------- -------- -------- --------- -------- --------
Cost of goods sold(2):
Third parties................................ 42,950 44,503 96,699 207,450 268,749 76,272 72,729
Conexant..................................... 29,868 33,350 37,840 62,720 42,754 16,244 5,077
-------- -------- -------- -------- --------- -------- --------
Total cost of goods sold............... 72,818 77,853 134,539 270,170 311,503 92,516 77,806
-------- -------- -------- -------- --------- -------- --------
Gross margin................................... 7,201 34,418 81,876 108,246 (51,052) (7,020) 15,954
Operating expenses:
Research and development..................... 47,156 56,748 66,457 91,616 111,053 26,918 32,181
Selling, general and administrative.......... 13,102 21,211 27,202 52,422 51,267 16,013 10,636
Amortization of intangible assets............ -- -- -- 5,327 15,267 3,737 3,937
Special charges(3)........................... -- 220 1,432 -- 88,876 -- --
Purchased in-process research and
development................................ -- -- -- 24,362 -- -- --
-------- -------- -------- -------- --------- -------- --------
Total operating expenses............... 60,258 78,179 95,091 173,727 266,463 46,668 46,754
-------- -------- -------- -------- --------- -------- --------
Operating loss................................. (53,057) (43,761) (13,215) (65,481) (317,515) (53,688) (30,800)
Other income (expense), net.................... 80 1,559 (54) 142 210 (11) 52
-------- -------- -------- -------- --------- -------- --------
Loss before income taxes....................... (52,977) (42,202) (13,269) (65,339) (317,305) (53,699) (30,748)
Provision for income taxes..................... 1,157 1,082 1,646 1,140 1,619 265 3,549
-------- -------- -------- -------- --------- -------- --------
Net loss....................................... $(54,134) $(43,284) $(14,915) $(66,479) $(318,924) $(53,964) $(34,297)
======== ======== ======== ======== ========= ======== ========
90
SEPTEMBER 30,
----------------------------------------------------- DECEMBER 31,
1997 1998 1999 2000(1) 2001(1) 2001
-------- -------- -------- -------- --------- ------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital..................................... $ 40,529 $ 17,831 $ 55,374 $135,649 $ 60,540 $ 60,683
Total assets........................................ 155,982 203,313 291,909 501,553 314,287 311,084
Long-term liabilities............................... 1,549 2,063 3,335 3,767 3,806 3,772
Shareholder's net investment........................ 144,332 187,196 275,568 466,416 287,661 274,023
---------------
(1) In fiscal 2000, Conexant acquired Philsar Semiconductor Inc., which became
part of Washington/ Mexicali. As a result of the acquisition of Philsar,
during fiscal 2000 and 2001 Washington/Mexicali recorded $5.3 million and
$15.3 million, respectively, in amortization of goodwill and other
acquisition-related intangible assets and in fiscal 2000 Washington/Mexicali
recorded a charge of $24.4 million related to purchased in-process research
and development.
(2) In fiscal 2001, Washington/Mexicali recorded inventory write-downs of $58.7
million.
(3) In fiscal 2001, Washington/Mexicali recorded special charges of $88.9
million, principally related to the impairment of certain wafer fabrication
assets and restructuring activities. In fiscal 1998 and 1999,
Washington/Mexicali recorded special charges of $0.2 million and $1.4
million, respectively, primarily related to a workforce reduction.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
The following discussion of the financial condition and results of
operations of the Washington Business and the Mexicali operations should be read
together with the Combined Financial Statements of the Washington Business and
the Mexicali operations and the notes thereto appearing elsewhere in this proxy
statement/prospectus-information statement.
OVERVIEW
The Washington Business is a worldwide leader in semiconductor products and
systems for wireless communications applications. Its product portfolio is
comprised of components, subsystems and system-level semiconductor solutions for
wireless voice and data communications applications, supporting the world's most
widely adopted wireless standards, including CDMA (Code Division Multiple
Access), TDMA (Time Division Multiple Access) and GSM (Global System for Mobile
Communications). Wireless communications product offerings of the Washington
Business include power amplifier modules, radio frequency components and
subsystems and cellular systems.
The Washington Business operates a gallium arsenide semiconductor wafer
fabrication facility in Newbury Park, California to meet a portion of its wafer
requirements. The Washington Business has historically provided substantially
all of Conexant's requirements for gallium arsenide wafers. Revenues from
Conexant for these products totaled $9.6 million and $0.5 million for fiscal
2001 and the first quarter of fiscal 2002, respectively.
The Mexicali operations consist of a semiconductor assembly and test
facility in Mexicali, Mexico and related operations. The Mexicali operations
have historically provided a substantial portion of the Washington Business's
and Conexant's requirements for semiconductor assembly and test services.
Revenues from Conexant for semiconductor assembly and test services totaled
$35.3 million and $4.8 million for fiscal 2001 and the first quarter of fiscal
2002, respectively.
Prior to the completion of the spin-off transaction, Conexant and
Washington will enter into various agreements providing for the supply of
gallium arsenide wafer fabrication and assembly and test services by the
combined company to Conexant, initially at substantially the same volumes as
historically obtained by Conexant from Washington/Mexicali. Conexant and
Washington will also enter into agreements providing for the supply to the
combined company of transition services by Conexant and silicon-based wafer
fabrication services by the Newport foundry joint venture to which Conexant
contributed its Newport Beach, California wafer fabrication facility.
Historically, Washington/Mexicali has obtained a portion of its silicon-based
semiconductors from the Newport Beach wafer fabrication facility and currently
expects that it initially will obtain substantially the same volume under the
Newport supply agreement as it historically obtained from Conexant.
The wireless communications semiconductor industry is highly cyclical and
is characterized by constant and rapid technological change, rapid product
obsolescence and price erosion, evolving standards, short product life cycles
and wide fluctuations in product supply and demand. The operating results of
Washington/Mexicali have been, and may continue to be, negatively affected by
substantial quarterly and annual fluctuations and market downturns due to a
number of factors, such as changes in demand for end-user equipment, the timing
of the receipt, reduction or cancellation of significant customer orders, the
gain or loss of significant customers, market acceptance of
Washington/Mexicali's products and its customers' products,
Washington/Mexicali's ability to develop, introduce and market new products and
technologies on a timely basis, availability and cost of products from
suppliers, new product and technology introductions by competitors, changes in
the mix of products produced and sold, intellectual property disputes, the
timing and extent of product development costs and general economic conditions.
In the past, average selling prices of established products have generally
declined over time and this trend is expected to continue in the future.
92
On an ongoing basis, Washington/Mexicali reviews investment, alliance and
acquisition prospects that would complement its existing product offerings,
augment its market coverage or enhance its technological capabilities. During
fiscal 2000, Conexant acquired Philsar Semiconductor Inc. for aggregate
consideration of $110.0 million to accelerate Washington/Mexicali's development
efforts and fill technology gaps in its product portfolio. Washington/Mexicali
treated the Philsar acquisition as a purchase for financial accounting purposes
and its results of operations reflect the operations of Philsar after the date
of acquisition.
BASIS OF PRESENTATION
The Washington Business and the Mexicali operations are currently business
units of Conexant. The Washington Business consists of Conexant's wireless
communications business, including its Newbury Park gallium arsenide
semiconductor wafer fabrication facility, but excluding certain assets and
liabilities. The Mexicali operations include Conexant's Mexicali semiconductor
assembly and test facility and certain related operations which Conexant will
sell to the combined company immediately following the completion of the merger.
For financial accounting purposes, the sale of the Mexicali operations by
Conexant to the combined company will be treated as if Conexant had contributed
the Mexicali operations to Washington as part of the spin-off transaction, and
the $150 million purchase price will be treated as a return of capital to
Conexant.
The combined financial statements include the assets, liabilities,
operating results and cash flows of the Washington Business and the Mexicali
operations, which together represent all of the businesses and assets which
Alpha will acquire upon completion of the spin-off transaction, the merger and
the Mexicali sale.
The combined financial statements presented in this proxy
statement/prospectus-information statement have been prepared using Conexant's
historical bases in the assets and liabilities and the historical operating
results of Washington/Mexicali during each respective period. The combined
financial statements include allocations of certain Conexant operating expenses
for research and development and corporate functions. The operating expense
allocations have been determined on bases that management considered to be
reasonable reflections of the utilization of services provided to, or the
benefit received by, Washington/Mexicali. The allocation methods include
specific identification, activity-based analyses, relative revenues or costs,
manufacturing capacity utilization and headcount.
The combined financial information presented in this proxy
statement/prospectus-information statement is not necessarily indicative of the
financial position, results of operations or cash flows of Washington/Mexicali
in the future, nor is it necessarily indicative of what the financial position,
results of operations or cash flows of Washington/Mexicali would have been had
it been an independent company for the periods presented.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires Washington/Mexicali
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 reporting period. Among the significant estimates affecting
Washington/Mexicali's combined financial statements are those relating to
allowances for doubtful accounts, inventories, long-lived assets, income taxes,
warranties, restructuring costs and other contingencies. Washington/Mexicali
regularly evaluates its estimates and assumptions based upon historical
experience and various other factors that it believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. To the extent actual results differ from those estimates,
Washington/Mexicali's future results of operations may be affected.
Inventories -- Washington/Mexicali writes down its inventory for estimated
obsolescence or unmarketable inventory in an amount equal to the difference
between the cost of inventory and the estimated
93
market value based upon assumptions about future demand and market conditions.
If actual market conditions are less favorable than those projected by
management, additional inventory write-downs may be required.
Impairment of long-lived assets -- Long-lived assets, including fixed
assets, goodwill and intangible assets, are continually monitored and are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of any such asset may not be recoverable. The
determination of recoverability is based on an estimate of undiscounted cash
flows expected to result from the use of an asset and its eventual disposition.
The estimate of cash flows is based upon, among other things, certain
assumptions about expected future operating performance. Washington/Mexicali's
estimates of undiscounted cash flows may differ from actual cash flows due to,
among other things, technological changes, economic conditions, changes to its
business model or changes in its operating performance. If the sum of the
undiscounted cash flows (excluding interest) is less than the carrying value,
Washington/ Mexicali recognizes an impairment loss, measured as the amount by
which the carrying value exceeds the fair value of the asset.
Deferred income taxes -- Washington/Mexicali has provided a full valuation
reserve related to its substantial deferred tax assets. If sufficient evidence
of Washington/Mexicali's ability to generate sufficient future taxable income in
certain tax jurisdictions becomes apparent, Washington/Mexicali may be required
to reduce its valuation allowances, resulting in income tax benefits in
Washington/Mexicali's statement of operations. Management of Washington/Mexicali
evaluates the realizability of the deferred tax assets and assesses the need for
a valuation allowance quarterly.
Warranties -- Reserves for estimated product warranty costs are provided at
the time revenue is recognized. Although Washington/Mexicali engages in
extensive product quality programs and processes, its warranty obligation is
affected by product failure rates and costs incurred to rework or replace
defective product. Should actual product failure rates or costs differ from
estimates, additional warranty reserves could be required, which could reduce
Washington/Mexicali's gross margins.
Allowance for doubtful accounts -- Washington/Mexicali maintains allowances
for doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. If the financial condition of
Washington/Mexicali's customers were to deteriorate, its actual losses may
exceed its estimates, and additional allowances would be required.
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
During fiscal 2001, Washington/Mexicali -- like many of its customers and
competitors -- was adversely impacted by a broad slowdown affecting the wireless
communications sector, including most of the end-markets for its products.
Washington/Mexicali's net revenues for fiscal 2001 reflected deterioration in
the digital cellular handset market resulting from excess channel inventories
due to a slowdown in demand for mobile phones and a slower transition to
next-generation phones. The effect of weakened end-customer demand was
compounded by higher than normal levels of component inventories among
manufacturer, subcontractor and distributor customers.
The overall slowdown in the wireless communications markets also impacted
Washington/Mexicali's gross margins and operating income. Cost of goods sold for
fiscal 2001 was adversely affected by the significant underutilization of
manufacturing capacity. Cost of goods sold for fiscal 2001 also reflects $58.7
million of inventory write-downs across Washington/Mexicali's product portfolio
resulting from the sharply reduced end-customer demand for digital cellular
handsets.
In the first quarter of fiscal 2002, Washington/Mexicali's revenues from
product sales to third parties increased over 50% sequentially from the fourth
quarter of fiscal 2001, its second consecutive quarter of sequential revenue
growth, as a result of renewed demand for its wireless product portfolio. The
increased demand is partially due to improvement in the level of excess channel
inventories that had adversely affected the digital cellular handset markets
during fiscal 2001.
94
EXPENSE REDUCTION AND RESTRUCTURING INITIATIVES
In fiscal 2001, Washington/Mexicali implemented a number of expense
reduction and restructuring initiatives to more closely align its cost structure
with the then-current business environment. The cost reduction initiatives
included workforce reductions, temporary shutdowns of manufacturing facilities
and significant reductions in capital spending.
Through involuntary severance programs and attrition, Washington/Mexicali
reduced its workforce in fiscal 2001 by approximately 800 employees (principally
in its manufacturing operations), a 22% reduction from January 2001 levels. In
addition, Washington/Mexicali periodically idled its Newbury Park wafer
fabrication facility and, for a portion of fiscal 2001, implemented a reduced
work week at its Mexicali facility.
Washington/Mexicali recorded restructuring charges of $2.7 million in
fiscal 2001 related to the workforce reductions completed through September 30,
2001. The restructuring initiatives and other expense reduction actions resulted
in a quarterly reduction of operating expenses of approximately $4.8 million for
the fourth quarter of fiscal 2001 as compared with the second quarter of fiscal
2001.
ASSET IMPAIRMENTS
During fiscal 2001, Washington/Mexicali management determined that the
value of the Newbury Park wafer fabrication assets was impaired as a result of
then-current and projected business conditions. Accordingly, Washington/Mexicali
recorded an impairment charge of $86.2 million to write down the carrying value
of the wafer fabrication assets to their estimated fair value.
THREE MONTHS ENDED DECEMBER 31, 2000 AND 2001
The following table sets forth the results of operations of
Washington/Mexicali expressed as a percentage of net revenues for the three
months ended December 31, 2000 and 2001:
THREE MONTHS ENDED
DECEMBER 31,
------------------
2000 2001
------ ------
Net revenues................................................ 100.0% 100.0%
Cost of goods sold.......................................... 108.2 83.0
----- -----
Gross margin................................................ (8.2) 17.0
Operating expenses:
Research and development.................................. 31.5 34.3
Selling, general and administrative....................... 18.7 11.3
Amortization of intangible assets......................... 4.4 4.2
----- -----
Total operating expenses............................... 54.6 49.8
----- -----
Operating loss.............................................. (62.8) (32.8)
Other income, net........................................... -- --
----- -----
Loss before income taxes.................................... (62.8) (32.8)
Provision for income taxes.................................. 0.3 3.8
----- -----
Net loss.................................................... (63.1)% (36.6)%
===== =====
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NET REVENUES
THREE MONTHS ENDED
------------------------------------
DECEMBER 31, DECEMBER 31,
2000 CHANGE 2001
------------ ------ ------------
(IN MILLIONS)
Net revenues:
Third parties..................................... $68.5 29% $88.4
Conexant.......................................... 17.0 (68)% 5.4
----- --- -----
$85.5 $93.8
===== =====
The Washington Business markets and sells its semiconductor products and
system solutions to leading OEMs of communication electronics products,
third-party original design manufacturers, or ODMs, and contract manufacturers
and indirectly through electronic components distributors. Samsung Electronics
Co. Ltd. and Nokia Corporation accounted for 48% and 11%, respectively, of net
revenues from third parties for the first quarter of fiscal 2002 and sales to
the Washington Business's top 10 customers accounted for 95% of net revenues
from third parties for the period. Revenues derived from customers located in
the Americas, Asia-Pacific and Europe/Middle East/Africa regions were 4%, 92%
and 4%, respectively, of net revenues from third parties for the first quarter
of fiscal 2002.
Washington/Mexicali generally recognizes revenues from product sales
directly to its customers and to certain distributors upon shipment and transfer
of title. Provision for sales returns is made at the time of sale based on
experience. An insignificant portion of product sales are made to electronic
component distributors under agreements allowing for price protection and/or a
right of return on unsold products. The recognition of revenue on sales to these
distributors is deferred until the products are sold by the distributors.
Revenues from product sales to third parties, which represented 94% of
total net revenues for the first quarter of fiscal 2002, increased 29% from the
comparable period of fiscal 2001, principally reflecting increased sales of GSM
products, including power amplifier modules and complete cellular systems.
Washington/Mexicali also experienced increased demand for its power amplifier
modules for CDMA and TDMA applications from a number of its key customers.
Revenues from wafer fabrication and semiconductor assembly and test
services provided to Conexant, which represented 6% of total revenues for the
first quarter of fiscal 2002, decreased 68% from the comparable period of fiscal
2001. The decrease principally reflects lower demand for assembly and test
services from Conexant's Mindspeed Technologies and broadband access businesses
due to the broad slowdown affecting most of the communications electronics
end-markets for Conexant's products.
GROSS MARGIN
THREE MONTHS ENDED
------------------------------------
DECEMBER 31, DECEMBER 31,
2000 CHANGE 2001
------------ ------ ------------
(IN MILLIONS)
Gross margin:
Third parties..................................... $(7.8) nm $15.7
Percent of net revenues from third parties........ (11)% 18%
Conexant.......................................... $ 0.7 (62)% $ 0.3
Percent of net revenues from Conexant............. 4% 5%
---------------
nm = not meaningful
Gross margin represents net revenues less cost of goods sold. Cost of goods
sold consists primarily of purchased materials, labor and overhead (including
depreciation) associated with product manufacturing, royalty and other
intellectual property costs, warranties and sustaining engineering expenses
pertaining to
96
products sold. In the past, Washington/Mexicali purchased a portion of its
requirements for complementary metal-oxide semiconductor, or CMOS, wafers from
Conexant at Conexant's actual cost. In fiscal 2001 and the first quarter of
fiscal 2002, approximately 46% and 35%, respectively, of cost of goods sold
represented the value of products supplied by Conexant, which were charged to
Washington/Mexicali at Conexant's actual cost. Because Washington/Mexicali and
Conexant incur substantial fixed costs to maintain their own manufacturing
facilities, in periods of lower utilization of these manufacturing facilities,
unit costs have increased. Cost of goods sold also includes allocations from
Conexant of manufacturing cost variances, process engineering and other
manufacturing costs which are not included in the unit costs of Washington/
Mexicali inventories but are expensed as incurred.
The improvement in gross margin from third party sales for the first
quarter of fiscal 2002, compared with the first quarter of fiscal 2001, reflects
increased revenues, improved utilization of Washington/ Mexicali's manufacturing
facilities and a decrease in depreciation expense of approximately $3.5 million
that resulted from the write-down of the Newbury Park wafer fabrication assets
in the third quarter of fiscal 2001. Although recent revenue growth has
increased the level of utilization of Washington/ Mexicali's manufacturing
facilities, these facilities continue to operate below optimal capacity and
underutilization continues to adversely affect Washington/Mexicali's unit cost
of goods sold and gross margin. Gross margin for the first quarter of fiscal
2002 was also adversely impacted by additional warranty costs of $14.0 million.
The additional warranty costs were the result of an agreement with a major
customer for the reimbursement of costs the customer incurred in connection with
the failure of a product when used in a certain adverse environment. Although
Washington/Mexicali developed and sold the product to the customer pursuant to
mutually agreed-upon specifications, the product experienced unusual failures
when used in an environment in which the product had not been previously tested.
The product has since been modified and no additional costs are expected to be
incurred in connection with this issue. Gross margin for the fiscal 2002 period
benefitted by approximately $7.5 million as a result of the sale of inventories
having a historical cost of $7.5 million that were written down to a zero cost
basis during fiscal year 2001. Excluding the effect of these items, gross margin
for the first quarter of fiscal 2002 was approximately $22.2 million, or 25% of
net revenues from third parties. Gross margin for the first quarter of fiscal
2001 was adversely affected by inventory write-downs of approximately $5.6
million.
The inventory write-downs recorded in the first quarter of fiscal 2001
resulted from the sharply reduced end-customer demand Washington/Mexicali
experienced, primarily associated with its radio frequency components, as a
result of the rapidly changing demand environment for digital cellular handsets
during that period. As a result of these market conditions, Washington/Mexicali
experienced a significant number of order cancellations and a decline in the
volume of new orders, beginning in the fiscal 2001 first quarter and becoming
more pronounced in the second quarter. Due to the relatively weak global market
for cellular handsets, in the second quarter of fiscal 2001 the Washington
Business's revenues decreased 32% compared with the immediately preceding
quarter.
Washington/Mexicali assesses the recoverability of inventories through an
on-going review of inventory levels in relation to sales backlog and forecasts,
product marketing plans and product life cycles. When the inventory on hand
exceeds the foreseeable demand, Washington/Mexicali writes down the value of
those inventories which, at the time of its review, it expects to be unable to
sell. Washington/Mexicali sells its products to communications equipment OEMs
that have designed its products into equipment such as cellular handsets. These
design wins are gained through a lengthy sales cycle, which includes providing
technical support to the OEM customer. Moreover, once a customer has designed a
particular supplier's components into a cellular handset, substituting another
supplier's components requires substantial design changes which involve
significant cost, time, effort and risk. In the event of the loss of business
from existing OEM customers, Washington/Mexicali may be unable to secure new
customers for its existing products without first achieving new design wins.
Consequently, when the quantities of inventory on hand exceed forecasted demand
from existing OEM customers into whose products Washington/Mexicali's products
have been designed, Washington/Mexicali generally will be unable to sell its
excess inventories to others, and the net realizable value of such inventories
is generally estimated to be zero. The amount of the write-down is the excess of
historical cost over estimated realizable value
97
(generally zero). Once established, these write-downs are considered permanent
adjustments to the cost basis of the excess inventory.
Through December 31, 2001, Washington/Mexicali scrapped inventories having
an original cost of approximately $34.5 million and sold an additional $12.1
million of inventories previously written down to a zero cost basis. As of
December 31, 2001, Washington/Mexicali continued to hold inventories with an
original cost of approximately $12.1 million which were previously written down
to a zero cost basis. Washington/Mexicali currently intends to hold these
remaining inventories and will sell these inventories if it experiences renewed
demand for these products. While there can be no assurance that it will be able
to do so, if Washington/Mexicali is able to sell a portion of the inventories
which are carried at zero cost basis, its gross margins will be favorably
affected. Subsequent to December 31, 2001, Washington/Mexicali sold to OEM
customers inventories having an original cost of $1.2 million which had been
written down to a zero cost basis in fiscal 2001. To the extent that
Washington/Mexicali does not experience renewed demand for the remaining
inventories, they will be scrapped as they become obsolete.
Washington/Mexicali bases its assessment of the recoverability of its
inventories, and the amounts of any write-downs, on currently available
information and assumptions about future demand and market conditions. Demand
for Washington/Mexicali's products may fluctuate significantly over time, and
actual demand and market conditions may be more or less favorable than those
projected by management. In the event that actual demand is lower than
originally projected, additional inventory write-downs may be required.
Under supply agreements to be entered into prior to completion of the
spin-off transaction, the combined company will receive wafer fabrication, wafer
probe and certain other services from the Newport foundry joint venture's
Newport Beach, California wafer fabrication facility and the combined company
will provide wafer fabrication, wafer probe, final test and other services to
Conexant at the Newbury Park facility, in each case, for a three-year period
after the merger. The combined company will also provide semiconductor assembly
and test services to Conexant at the Mexicali facility. The price for the
services under the agreements in the first year will be the actual cost of the
services. In the second year the price will be the average of (1) the actual
cost in the first year and (2) the market price (determined prior to the start
of the second year) of the services. In the third year the price will be based
on the market price of the services.
During the term of the Newport supply agreement, Washington/Mexicali's unit
cost of goods supplied by the Newport foundry joint venture will continue to be
affected by the level of utilization of the Newport foundry joint venture's
Newport Beach, California wafer fabrication facility and other factors outside
Washington/Mexicali's control. In addition, Washington/Mexicali's costs will be
affected by the extent of its use of outside foundries and the pricing it is
able to obtain. During periods of high industry demand for wafer fabrication
capacity, Washington/Mexicali may have to pay higher prices to secure wafer
fabrication capacity.
Washington/Mexicali has historically sold gallium arsenide semiconductors
to Conexant at cost and has provided semiconductor assembly and test services to
Conexant at approximately 5% over cost. Washington/Mexicali's overall gross
margin on sales to Conexant has been approximately 5% of net revenues.
RESEARCH AND DEVELOPMENT
THREE MONTHS ENDED DECEMBER 31,
--------------------------------------
2000 CHANGE 2001
------------- ------ -------------
(IN MILLIONS)
Research and development............................. $26.9 20% $32.2
Percent of net revenues.............................. 32% 34%
Research and development expenses consist principally of direct personnel
costs, costs for pre-production evaluation and testing of new devices and design
and test tool costs. Research and
98
development expenses also include allocated costs for shared research and
development services provided by Conexant, principally in the areas of advanced
semiconductor process development, design automation and advanced package
development, for the benefit of several of Conexant's businesses.
The increase in research and development expenses for the first quarter of
fiscal 2002 compared to the similar period of fiscal 2001 primarily reflects the
opening of a new design center in Le Mans, France and higher headcount and
personnel-related costs. Subsequent to the first quarter of fiscal 2001,
Washington/ Mexicali expanded its customer support engagements as well as
development efforts targeted at components and full system solutions using the
CDMA2000, GSM, General Packet Radio Services, or GPRS, and third-generation, or
3G, wireless standards in both the digital cellular handset and infrastructure
markets.
Under a transition services agreement to be entered into on or prior to
completion of the spin-off transaction, Conexant will continue to perform
various research and development services for the combined company at actual
cost until December 31, 2002, unless the parties otherwise agree. To the extent
Washington/Mexicali uses these services subsequent to the expiration of the
specified term, the pricing is subject to negotiation.
SELLING, GENERAL AND ADMINISTRATIVE
THREE MONTHS ENDED DECEMBER 31,
----------------------------------------
2000 CHANGE 2001
------------- ------ -------------
(IN MILLIONS)
Selling, general and administrative................ $16.0 (34)% $10.6
Percent of net revenues............................ 19% 11%
Selling, general and administrative expenses include personnel costs, sales
representative commissions, advertising and other marketing costs. Selling,
general and administrative expenses also include allocated general and
administrative expenses from Conexant for a variety of shared functions,
including legal, accounting, treasury, human resources, real estate, information
systems, customer service, sales, marketing, field application engineering and
other corporate services.
The decrease in selling, general and administrative expenses for the first
quarter of fiscal 2002 compared to the first quarter of fiscal 2001 primarily
reflects lower headcount and personnel-related costs resulting from the expense
reduction and restructuring actions initiated during fiscal 2001 and lower
provisions for uncollectible accounts receivable. The provision for
uncollectible accounts receivable of $(1.2) million for the first quarter of
fiscal 2002 resulted from collections experience more favorable than previously
estimated; in the first quarter of fiscal 2001 the provision reflected an
increase in past-due accounts which management estimated would ultimately be
uncollectible.
Under the transition services agreement, Conexant will continue to perform
various services for Washington/Mexicali at actual cost until December 31, 2002,
unless the parties otherwise agree. To the extent Washington/Mexicali uses these
services subsequent to the expiration of the specified term, the pricing is
subject to negotiation. In addition, until the combined company completes the
integration of its previously separate operations, it will incur duplicative
costs for certain functions.
AMORTIZATION OF INTANGIBLE ASSETS
THREE MONTHS ENDED DECEMBER 31,
----------------------------------------
2000 CHANGE 2001
------------- ------ -------------
(IN MILLIONS)
Amortization of intangible assets.................. $ 3.7 5% $ 3.9
In connection with the fiscal 2000 acquisition of Philsar,
Washington/Mexicali recorded an aggregate of $78.2 million of identified
intangible assets and goodwill. These assets are being amortized over their
estimated useful lives (principally 5 years).
99
The higher amortization expense in the fiscal 2002 first quarter primarily
resulted from the additional consideration for the acquisition of Philsar paid
by Conexant during fiscal 2001 upon the expiration of an indemnification period.
The value of the additional consideration paid was added to the recorded amounts
of goodwill and is being amortized over the remainder of the original estimated
lives of the goodwill.
Under the recently-issued Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets", which Washington/Mexicali will
adopt in the first quarter of fiscal 2003, Washington/Mexicali will cease
amortizing goodwill against its results of operations, reducing annual
amortization expense by approximately $14 million. However, Washington/Mexicali
will be required to evaluate goodwill at least annually for impairment, and to
write down the value of goodwill -- with a charge against its results of
operations -- when the recorded value of goodwill exceeds its estimated fair
value.
OTHER INCOME, NET
Other income, net is comprised primarily of interest income on invested
cash balances, gains/losses on the sale of assets, foreign exchange gains/losses
and other non-operating income and expense items.
PROVISION FOR INCOME TAXES
As a result of its history of operating losses and the expectation of
future operating results, Washington/Mexicali determined that it is more likely
than not that the income tax benefits which arose during the first quarters of
fiscal 2001 and fiscal 2002 will not be realized. Consequently, no income tax
benefit has been recognized relating to the operating loss for either period. As
of December 31, 2001, Washington/Mexicali has established a valuation allowance
of $219.6 million for the deferred tax assets (principally arising from net
operating loss carryforwards) which currently are not expected to be realized
through the reduction of future income tax payments. The net operating loss
carryforwards and other tax benefits relating to the historical operations of
Washington/Mexicali will be retained by Conexant in the spin-off transaction,
and will not be available to be utilized in the separate tax returns of the
combined company.
The provision for income taxes for the first quarters of fiscal 2001 and
fiscal 2002 consist of foreign income taxes incurred by foreign operations.
Washington/Mexicali does not expect to recognize any income tax benefits
relating to future operating losses until management determines that such
benefits are more likely than not to be realized.
100
YEARS ENDED SEPTEMBER 30, 1999, 2000 AND 2001
The following table sets forth Washington/Mexicali's results of operations
expressed as a percentage of net revenues for the fiscal years ended September
30, 1999, 2000 and 2001:
1999 2000 2001
----- ----- ------
Net revenues............................................... 100.0% 100.0% 100.0%
Cost of goods sold......................................... 62.2 71.4 119.6
----- ----- ------
Gross margin............................................... 37.8 28.6 (19.6)
Operating expenses:
Research and development................................. 30.7 24.2 42.6
Selling, general and administrative...................... 12.5 13.9 19.7
Amortization of intangible assets........................ -- 1.4 5.9
Special charges.......................................... 0.7 -- 34.1
Purchased in-process research and development............ -- 6.4 --
----- ----- ------
Total operating expenses.............................. 43.9 45.9 102.3
----- ----- ------
Operating loss............................................. (6.1) (17.3) (121.9)
Other income (expense), net................................ -- -- 0.1
----- ----- ------
Loss before income taxes................................... (6.1) (17.3) (121.8)
Provision for income taxes................................. 0.8 0.3 0.7
----- ----- ------
Net loss................................................... (6.9)% (17.6)% (122.5)%
===== ===== ======
NET REVENUES
1999 CHANGE 2000 CHANGE 2001
------------- ------ ------------- ------ -------------
(IN MILLIONS)
Net revenues:
Third parties.............. $176.0 78% $313.0 (31)% $215.5
Conexant................... 40.4 62 65.4 (31) 45.0
------ ------ ------
$216.4 $378.4 $260.5
====== ====== ======
Revenues from product sales to third parties for fiscal 2001 declined 31%
from fiscal 2000, reflecting a steep decline in global demand for digital
cellular handsets and the excess channel inventories among Washington/Mexicali's
manufacturer, subcontractor and distributor customers. Net revenues from
Washington/Mexicali's digital cellular components, subsystems and system-level
products were also adversely affected by a slower transition to next-generation
wireless phones. In addition, revenues from products for CDMA applications were
adversely affected by the ongoing effects of lower subsidies of new digital
cellular handsets. During fiscal 2000, the South Korean government imposed a ban
on South Korean cellular service providers subsidizing new digital cellular
handsets, which curtailed demand in the South Korean market for CDMA digital
cellular handset production and attendant semiconductor component supply. While
overall demand remained lower than fiscal 2000 levels throughout the year,
during the fourth quarter of fiscal 2001 Washington/Mexicali experienced strong
sequential quarterly growth in its revenues, driven by increased sales volume
across its product portfolio.
Samsung Electronics Co. Ltd. and Nokia Corporation accounted for 44% and
12%, respectively, of net revenues from third parties for fiscal 2001 and sales
to the Washington Business's top 10 customers accounted for 90% of net revenues
from third parties for the period. Revenues derived from customers located in
the Americas, Asia-Pacific and Europe/Middle East/Africa regions were 11%, 77%
and 12%, respectively, of net revenues from third parties for fiscal 2001.
Revenues from wafer fabrication and semiconductor assembly and test services
provided to Conexant for fiscal 2001 decreased 31% from fiscal 2000. The
decrease principally reflects lower demand for assembly and test services from
Conexant's Mindspeed Technologies and broadband access businesses due to the
broad slowdown affecting most of the communications electronics end-markets for
Conexant's products.
101
Revenues from product sales to third parties for fiscal 2000 grew 78% over
fiscal 1999, driven by strong overall demand for digital cellular handsets
worldwide. In fiscal 1999, Washington/Mexicali commenced efforts to expand its
product offerings to include GSM products, which it believed presented a large
total addressable market. Washington/Mexicali also considered entry into the GSM
market necessary in preparation for eventual migration to 3G digital cellular
systems that will incorporate both CDMA and GSM technologies.
Washington/Mexicali derived significant revenue growth from the successful
launch of its GSM product portfolio, including power amplifiers, radio frequency
subsystems and full system solutions. While annual revenues from the CDMA
product portfolio also increased, sales of these products declined during the
second half of fiscal 2000 as a result of the South Korean government ban on
subsidies of new digital cellular handsets by cellular service providers in the
South Korean market.
Revenues from wafer fabrication and semiconductor assembly and test
services provided to Conexant for fiscal 2000 increased 62% from fiscal 1999.
The increase principally reflects higher demand for assembly and test services
from Conexant's Mindspeed Technologies and broadband access businesses due to
the rapid sales growth experienced by those businesses during fiscal 2000.
GROSS MARGIN
1999 CHANGE 2000 CHANGE 2001
----- ------ ------ ------ ------
(IN MILLIONS)
Gross margin
Third parties.............................. $79.3 33% $105.5 (150)% $(53.2)
Percent of net revenues from third
parties................................. 45% 34% (25)%
Conexant................................... $ 2.6 6% $ 2.7 (19)% $ 2.2
Percent of net revenues from Conexant...... 6% 4% 5%
Gross margin from third party sales for fiscal 2001 reflects the impact of
the 31% decrease in revenues on a base of relatively fixed manufacturing support
costs. Gross margin for fiscal 2001 was also adversely affected by the continued
shift in revenue mix toward GSM products, which yielded lower margins as
Washington/Mexicali sought to expand and strengthen its position in this
highly-competitive market. In bringing its GSM product portfolio to market,
Washington/Mexicali focused on high levels of integration and performance,
rather than minimizing component cost, which affected its gross margin on sales
of GSM products. Washington/Mexicali anticipates that gross margins for its
subsystems and systems solutions will improve as Washington/Mexicali transitions
to more highly-integrated solutions comprised of fewer separate components.
Gross margin for fiscal 2001 was also adversely affected by inventory
write-downs of $58.7 million and a $14.0 million increase in warranty costs.
The inventory write-downs resulted from the sharply reduced end-customer
demand experienced in fiscal 2001, primarily for Washington/Mexicali's radio
frequency components and power amplifier modules. As a result of these market
conditions, Washington/Mexicali experienced a significant number of order
cancellations and a decline in the volume of new orders during fiscal 2001,
beginning in the fiscal 2001 first quarter and becoming more pronounced in the
second quarter. Due to the relatively weak global market for cellular handsets,
in the second quarter of fiscal 2001 the Washington Business's revenues
decreased 32% compared with the immediately preceding quarter.
Washington/Mexicali assesses the recoverability of inventories through an
on-going review of inventory levels in relation to sales backlog and forecasts,
product marketing plans and product life cycles. When the inventory on hand
exceeds the forseeable demand, Washington/Mexicali writes down the value of
those inventories which, at the time of its review, it expects to be unable to
sell. Washington/Mexicali sells its products to communications equipment OEMs
that have designed its products into equipment such as cellular handsets. These
design wins are gained through a lengthy sales cycle, which includes providing
technical support to the OEM customer. Moreover, once a customer has designed a
particular supplier's components into a cellular handset, substituting another
supplier's components requires substantial design changes which involve
significant cost, time, effort and risk. In the event of the loss of business
from existing OEM customers, Washington/Mexicali may be unable to secure new
customers for its existing products without first achieving new design wins.
Consequently, when the quantities of
102
inventory on hand exceed forecasted demand from existing OEM customers into
whose products Washington/Mexicali's products have been designed,
Washington/Mexicali generally will be unable to sell its excess inventories to
others, and the net realizable value of such inventories is generally estimated
to be zero. The amount of the write-down is the excess of historical cost over
estimated realizable value(generally zero). Once established, these write-downs
are considered permanent adjustments to the cost basis of the excess inventory.
During fiscal 2001, Washington/Mexicali sold to OEM customers $4.6 million of
the inventory that had previously been written down to a zero cost basis.
Washington/Mexicali typically makes sales pursuant to individual purchase
orders and not under long-term supply contracts with its customers. Customers
may cancel orders prior to shipment. Washington/ Mexicali purchases and
manufactures inventory based upon estimates of customer demand, which is
difficult to predict. The inventories written down during fiscal 2001
principally consisted of power amplifiers and radio frequency subsystem
components which, in many cases, Washington/Mexicali had purchased or
manufactured to satisfy expected customer demand.
Of the $58.7 million original cost amount of inventories written down to a
zero cost basis in fiscal 2001, Washington/Mexicali scrapped approximately $34.5
million of obsolete inventories during the first quarter of fiscal 2002. As of
December 31, 2001, Washington/Mexicali continued to hold inventories with an
original cost of approximately $12.1 million which were previously written down
to a zero cost basis. Washington/Mexicali currently intends to hold these
remaining inventories and will sell these inventories if it experiences renewed
demand for these products. While there can be no assurance that it will be able
to do so, if Washington/Mexicali is able to sell a portion of the inventories
which are carried at a zero cost basis, its gross margins will be favorably
affected. Subsequent to December 31, 2001, Washington/Mexicali sold to OEM
customers inventories having an original cost of $1.2 million which had been
written down to a zero cost basis in fiscal 2001. To the extent that
Washington/Mexicali does not experience renewed demand for the remaining
inventories, they will be scrapped as they become obsolete.
Washington/Mexicali bases its assessment of the recoverability of its
inventories, and the amounts of any write-downs, on currently available
information and assumptions about future demand and market conditions. Demand
for Washington/Mexicali's products may fluctuate significantly over time, and
actual demand and market conditions may be more or less favorable than those
projected by management. In the event that actual demand is lower than
originally projected, additional inventory write-downs may be required.
The gross margin from third party sales of 34% achieved in fiscal 2000
compared with 45% in fiscal 1999 principally reflects the beginning of
Washington/Mexicali's revenue mix shift toward GSM products. The GSM product
portfolio, and GSM components in particular, accounted for a significant portion
of the increase in fiscal 2000 net revenues over fiscal 1999. Gross margins for
fiscal 2000 also include higher allocated manufacturing costs from Conexant
resulting from increased purchases of CMOS wafer fabrication and other services.
Washington/Mexicali has historically sold gallium arsenide semiconductors
to Conexant at cost and has provided semiconductor assembly and test services to
Conexant at approximately 5% over cost. Consequently, Washington/Mexicali's
overall gross margin on sales to Conexant is approximately 5% of net revenues.
RESEARCH AND DEVELOPMENT
1999 CHANGE 2000 CHANGE 2001
------------- ------ ------------- ------ -------------
(IN MILLIONS)
Research and development..... $66.5 38% $91.6 21% $111.1
Percent of net revenues...... 31% 24% 43%
During fiscal 2001, Washington/Mexicali focused its research and
development investment principally on wireless communications applications such
as next generation power amplifiers, radio frequency subsystems and cellular
systems. In particular, Washington/Mexicali has focused a significant amount of
103
research and development resources in developing complete network protocol
stacks and user interface software in support of its cellular systems
initiative. The increase in research and development expenses for fiscal 2001
primarily reflects higher headcount and personnel-related costs to support
Washington/ Mexicali's expanded development efforts and the accelerated launch
of new products. The higher fiscal 2001 research and development expenses also
include costs of approximately $5.6 million resulting from the acquisition of
Philsar in fiscal 2000.
The increase in research and development expenses for fiscal 2000 compared
to fiscal 1999 primarily reflects higher headcount and personnel-related costs
to support expanded research and development efforts and approximately $1.6
million of costs resulting from the acquisition of Philsar. Key product
development efforts targeted were a dual-band GSM power amplifier multi-chip
module and a Bluetooth(TM) radio frequency transceiver. Research and development
efforts were also focused on the development of next-generation radio frequency
solutions using silicon germanium process technologies.
SELLING, GENERAL AND ADMINISTRATIVE
1999 CHANGE 2000 CHANGE 2001
------------- ------ ------------- ------ -------------
(IN MILLIONS)
Selling, general and
administrative............. $27.2 93% $52.4 (2)% $51.3
Percent of net revenues...... 13% 14% 20%
The decrease in selling, general and administrative expenses for fiscal
2001 compared to fiscal 2000 reflects the favorable impact of the expense
reduction and restructuring actions initiated during fiscal 2001 as well as a
$4.0 million decrease in the provision for uncollectible accounts receivable.
The lower provision for uncollectible accounts receivable resulted from
collections experience more favorable than previously estimated and a 38%
decrease in the balance of accounts receivable. These factors were largely
offset by a $3.4 million increase in allocated costs for shared functions
provided by Conexant in fiscal 2001 and the inclusion of the selling, general
and administrative costs of Philsar (acquired in May 2000) for the entire fiscal
year.
The increase in selling, general and administrative expenses for fiscal
2000 as compared to fiscal 1999 was due primarily to increased personnel and
related costs resulting from the continued expansion of Washington/Mexicali's
sales and marketing functions to support the sales growth experienced during
fiscal 1999 and fiscal 2000. The increase also reflects higher sales
representative commissions, driven by revenue growth, and the addition of
approximately $1.1 million of selling, general and administrative costs
associated with Philsar, which was acquired during fiscal 2000. Selling, general
and administrative expenses for fiscal 2000 also included provisions of $3.5
million for accounts receivable from slow-paying customers which
Washington/Mexicali expected to be uncollectible. In addition, allocated general
and administrative costs for shared business support functions increased $13.7
million as a result of the continued development of Conexant's corporate
infrastructure to support Conexant's and Washington/Mexicali's growth.
AMORTIZATION OF INTANGIBLE ASSETS
1999 CHANGE 2000 CHANGE 2001
------------- ------ ------------- ------ -------------
(IN MILLIONS)
Amortization of intangible
assets......................... $ -- nm $ 5.3 nm $ 15.3
Percent of net revenues.......... -- 1% 6%
---------------
nm = not meaningful
In connection with the fiscal 2000 acquisition of Philsar,
Washington/Mexicali recorded an aggregate of $78.2 million of identified
intangible assets and goodwill. These assets are being amortized over their
estimated useful lives (principally 5 years). The increase in amortization
expense in fiscal 2001 compared
104
with fiscal 2000 reflects the inclusion of Philsar in the Washington/Mexicali
results of operations for the entire fiscal year.
SPECIAL CHARGES
Special charges consist of the following:
1999 CHANGE 2000 CHANGE 2001
------------- ------ ------------- ------ -------------
(IN MILLIONS)
Asset impairments................ $ -- nm $ -- nm $86.2
Restructuring charges............ 1.4 nm -- nm 2.7
----- ----- -----
$ 1.4 $ -- $88.9
===== ===== =====
---------------
nm = not meaningful
Asset Impairments. During the third quarter of fiscal 2001,
Washington/Mexicali recorded an $86.2 million charge for the impairment of the
manufacturing facility and related wafer fabrication machinery and equipment at
the Washington Business's Newbury Park facility. This impairment charge was
based on a recoverability analysis prepared by management as a result of the
dramatic downturn in the market for wireless communications products and the
related impact on the then-current and projected business condition of the
Washington Business. During the third quarter of fiscal 2001, the Washington
Business experienced a severe decline in factory utilization at the Newbury Park
wafer fabrication facility, which management believed to be reflective of the
future outlook for the market for its wireless communications products. These
factors resulted in management's decision to significantly reduce all future
capital expenditures for advanced process technologies and capacity beyond the
then-current levels, which further supported management's determination that an
impairment analysis should be performed. In performing the analysis for
recoverability, management estimated the future cash flows expected to result
from the manufacturing activities at the Newbury Park facility over a ten-year
period. The estimated future cash flows were based on modest volume increases
consistent with management's view of the outlook for the industry, partially
offset by declining average selling prices. The declines in average selling
prices are consistent with historical trends and management's decision to focus
on existing products based on the current technology. Since the estimated
undiscounted cash flows were less than the carrying value (approximately $106
million based on historical cost) of the related assets, it was concluded that
an impairment loss should be recognized. The impairment charge was determined by
comparing the estimated fair value of the related assets to their carrying
value. The fair value of the assets was determined by computing the present
value of the estimated future cash flows using a discount rate of 30%, which
management believed was commensurate with the underlying risks associated with
the projected cash flows. Washington/Mexicali believes the assumptions used in
the discounted cash flow model represented a reasonable estimate of the fair
value of the assets. The write-down established a new cost basis for the
impaired assets and will reduce annual depreciation expense for fiscal 2002 by
approximately $14 million.
Restructuring Charges. Through involuntary severance programs and
attrition, Washington/Mexicali reduced its workforce by approximately 800
employees (principally in its manufacturing operations), a 22% reduction from
January 2001 levels. In addition to the workforce reductions,
Washington/Mexicali periodically idled its Newbury Park wafer fabrication
facility and, for a portion of fiscal 2001, implemented a reduced work week at
its Mexicali semiconductor assembly and test facility.
Washington/Mexicali recorded restructuring charges of $2.7 million for the
workforce reductions completed through fiscal 2001, based upon estimates of the
cost of severance benefits for the approximately 250 affected employees.
Substantially all amounts accrued for these actions are expected to be paid
within one year. Cash payments to complete the restructuring actions will be
funded from available cash reserves and funds from operations, and are not
expected to significantly impact Washington/Mexicali's liquidity.
105
Activity and liability balances related to the fiscal 2001 restructuring
actions are as follows (in thousands):
Charged to costs and expenses............................... $2,667
Cash payments............................................... (1,943)
------
Restructuring balance, September 30, 2001................... 724
Cash payments............................................... (461)
------
Restructuring balance, December 31, 2001.................... $ 263
======
The fiscal 2001 restructuring initiatives and other expense reduction
actions resulted in a quarterly reduction of operating expenses of approximately
$4.8 million for the fourth quarter of fiscal 2001 as compared with the second
quarter of fiscal 2001.
In fiscal 1999, Washington/Mexicali recorded additional restructuring
charges of $1.4 million to complete a workforce reduction which was commenced in
1998. The fiscal 1999 restructuring charges primarily relate to costs of a
voluntary early retirement program for employees who elected early retirement
during fiscal 1999.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the fiscal 2000 acquisition of Philsar,
Washington/Mexicali recorded a $24.4 million charge for the fair value of
purchased in-process research and development, or IPRD. The following table
summarizes the significant assumptions underlying the valuations of the Philsar
in-process research and development at the time of the acquisition.
ESTIMATED COSTS WEIGHTED
DATE TO COMPLETE DISCOUNT RATE AVERAGE COST OF
ACQUIRED IPRD PROJECTS APPLIED TO IPRD CAPITAL
-------- ----- --------------- --------------- ---------------
(IN MILLIONS)
Philsar................. May 2000 $24.4 $5.4 30% 20%
Washington/Mexicali believes the discount rate applied to the in-process
research and development projects reflects the specific risks associated with
the projects. Washington/Mexicali is responsible for the amounts determined for
in-process research and development and believes the amounts are representative
of fair values and do not exceed the amounts an independent party would pay for
these projects at the date of acquisition.
Three in-process research and development projects, representing 75% of the
value assigned to in-process research and development, were directed toward the
development of Bluetooth(TM) radio frequency transceivers. These projects ranged
from 62% to 78% complete and averaged approximately 72% complete. In fiscal
2001, Washington/Mexicali completed two of these projects. The third project was
suspended to permit development resources to be directed to projects which
Washington/Mexicali believed were better aligned with expected future demand.
The product resulting from the acquired transceiver projects and
Washington/Mexicali's subsequent development efforts is a portfolio of 2.4 GHz
frequency-hopping spread spectrum radio frequency transceivers optimized for use
in Bluetooth-enabled systems. To date, Washington/Mexicali has not derived any
revenues from these products. Washington/Mexicali believes major communications
electronics OEMs have been slow to incorporate Bluetooth short-range wireless
connectivity into their products. This trend, combined with the broad slowdown
that has affected the wireless communications sector, has led to slower than
anticipated growth in demand for Bluetooth-enabled systems. However,
Washington/Mexicali believes its transceivers are particularly well-suited for
use in devices such as mobile phones and personal digital assistants that
require extended battery life and small size and is actively pursuing design
wins with communications electronics OEMs. In the event that Bluetooth-enabled
systems in general, and Washington/Mexicali's products in particular, do not
gain acceptance, Washington/ Mexicali's return on its investment in Philsar will
be adversely affected.
The remaining two in-process research and development projects, directed
toward the development of a Bluetooth baseband controller and an integrated
Bluetooth single-chip solution, represented 4% and 21%, respectively, of the
value assigned to in-process research and development. During fiscal 2000,
106
Washington/Mexicali transferred these development efforts to Conexant. In the
spin-off transaction and the merger, Conexant will retain all rights to the
Bluetooth baseband controller and the single-chip solution technology which it
has developed or derived from the acquired in-process research and development
projects. Consequently, Washington/Mexicali does not expect to derive any
revenues from these projects.
PROVISION FOR INCOME TAXES
The provision for income taxes for fiscal years 1999, 2000 and 2001
consists of foreign income taxes incurred by foreign operations. As a result of
its history of operating losses and the expectation of future operating results,
Washington/Mexicali determined that it is more likely than not that the income
tax benefits which arose during fiscal years 1999, 2000 and 2001 will not be
realized. Consequently, no income tax benefit has been recognized relating to
the operating losses for these periods. As of September 30, 2001,
Washington/Mexicali has established a valuation allowance of $207.3 million for
the deferred tax assets (principally arising from net operating loss
carryforwards) which currently are not expected to be realized through the
reduction of future income tax payments. The net operating loss carryforwards
and other tax benefits relating to the historical operations of
Washington/Mexicali will be retained by Conexant in the spin-off transaction,
and will not be available to be utilized in the separate tax returns of the
combined company.
QUARTERLY RESULTS OF OPERATIONS
The following table presents Washington/Mexicali's combined operating
results for each of the nine fiscal quarters in the period ended December 31,
2001. The information for each of these quarters is derived from unaudited
combined interim financial statements that have been prepared on the same basis
as the audited combined financial statements of Washington/Mexicali included in
this proxy statement/prospectus-information statement. In the opinion of
Washington/Mexicali management, all necessary adjustments, which consist only of
normal and recurring accruals as well as inventory write-downs, special charges
and the write-off of purchased in-process research and development, have been
included to fairly present the unaudited quarterly results. This data should be
read together with the Combined Financial Statements of the Washington Business
and the Mexicali Operations and the notes thereto appearing elsewhere in this
proxy statement/prospectus-information statement.
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1999 2000 2000 2000 2000 2001 2001 2001 2001
-------- -------- -------- --------- -------- --------- --------- --------- --------
(IN THOUSANDS)
Net revenues:
Third parties............. $75,470 $82,098 $ 78,494 $ 76,921 $ 68,518 $ 46,583 $ 42,310 $ 58,091 $ 88,404
Conexant.................. 15,875 16,760 15,393 17,405 16,978 10,920 8,735 8,316 5,356
------- ------- -------- -------- -------- --------- --------- -------- --------
Total net
revenues........... 91,345 98,858 93,887 94,326 85,496 57,503 51,045 66,407 93,760
Cost of goods sold:
Third parties............. 42,970 50,696 51,917 61,867 76,272 93,577 55,137 43,763 72,729
Conexant.................. 15,080 16,023 14,712 16,905 16,244 10,352 8,322 7,836 5,077
------- ------- -------- -------- -------- --------- --------- -------- --------
Total cost of goods
sold............... 58,050 66,719 66,629 78,772 92,516 103,929 63,459 51,599 77,806
------- ------- -------- -------- -------- --------- --------- -------- --------
Gross margin............... 33,295 32,139 27,258 15,554 (7,020) (46,426) (12,414) 14,808 15,954
Operating expenses:
Research and
development............. 20,058 22,324 23,998 25,236 26,918 29,465 26,571 28,099 32,181
Selling, general and
administrative.......... 11,367 11,375 11,874 17,806 16,013 18,075 12,681 4,498 10,636
Amortization of intangible
assets.................. -- -- 1,304 4,023 3,737 3,807 3,808 3,915 3,937
Special charges(1)........ -- -- -- -- -- 1,846 86,627 403 --
Purchased in-process
research and
development............. -- -- 24,362 -- -- -- -- -- --
------- ------- -------- -------- -------- --------- --------- -------- --------
Total operating
expenses........... 31,425 33,699 61,538 47,065 46,668 53,193 129,687 36,915 46,754
------- ------- -------- -------- -------- --------- --------- -------- --------
Operating income (loss).... 1,870 (1,560) (34,280) (31,511) (53,688) (99,619) (142,101) (22,107) (30,800)
Other income (expense),
net....................... 33 34 18 57 (11) 63 23 135 52
------- ------- -------- -------- -------- --------- --------- -------- --------
Income (loss) before income
taxes..................... 1,903 (1,526) (34,262) (31,454) (53,699) (99,556) (142,078) (21,972) (30,748)
Provision (benefit) for
income taxes.............. 870 852 153 (735) 265 604 347 403 3,549
------- ------- -------- -------- -------- --------- --------- -------- --------
Net income (loss).......... $ 1,033 $(2,378) $(34,415) $(30,719) $(53,964) $(100,160) $(142,425) $(22,375) $(34,297)
======= ======= ======== ======== ======== ========= ========= ======== ========
107
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1999 2000 2000 2000 2000 2001 2001 2001 2001
-------- -------- -------- --------- -------- --------- --------- --------- --------
AS A PERCENTAGE OF NET
REVENUES:
Net revenues............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......... 63.6 67.5 71.0 83.5 108.2 180.7 124.3 77.7 83.0
------- ------- -------- -------- -------- --------- --------- -------- --------
Gross margin............... 36.4 32.5 29.0 16.5 (8.2) (80.7) (24.3) 22.3 17.0
Operating expenses:
Research and
development............. 22.0 22.6 25.6 26.8 31.5 51.2 52.1 42.3 34.3
Selling, general and
administrative.......... 12.4 11.5 12.6 18.8 18.7 31.5 24.8 6.8 11.3
Amortization of intangible
assets.................. -- -- 1.4 4.3 4.4 6.6 7.5 5.9 4.2
Special charges(1)........ -- -- -- -- -- 3.2 169.7 0.6 --
Purchased in-process
research and
development............. -- -- 25.9 -- -- -- -- -- --
------- ------- -------- -------- -------- --------- --------- -------- --------
Total operating
expenses........... 34.4 34.1 65.5 49.9 54.6 92.5 254.1 55.6 49.8
------- ------- -------- -------- -------- --------- --------- -------- --------
Operating income (loss).... 2.0 (1.6) (36.5) (33.4) (62.8) (173.2) (278.4) (33.3) (32.8)
Other income (expense),
net....................... 0.1 0.1 -- 0.1 -- 0.1 0.1 0.2 --
------- ------- -------- -------- -------- --------- --------- -------- --------
Income (loss) before income
taxes..................... 2.1 (1.5) (36.5) (33.3) (62.8) (173.1) (278.3) (33.1) (32.8)
Provision (benefit) for
income taxes.............. 1.0 0.9 0.2 (0.7) 0.3 1.1 0.7 0.6 3.8
------- ------- -------- -------- -------- --------- --------- -------- --------
Net income (loss).......... 1.1% (2.4)% (36.7)% (32.6)% (63.1)% (174.2)% (279.0)% (33.7)% (36.6)%
======= ======= ======== ======== ======== ========= ========= ======== ========
---------------
(1) Special charges are comprised of the impairment of certain wafer fabrication
assets aggregating $86.2 million during the three months ended June 30, 2001
and other restructuring activities for the periods presented.
Washington/Mexicali's quarterly revenues increased through the second
quarter of fiscal 2000, but commencing in the third quarter of fiscal 2000
quarterly revenues declined as a result of reduced global demand for digital
cellular handsets. The decline in quarterly revenues, together with lower
utilization of Washington/Mexicali's and Conexant's manufacturing facilities and
the inventory write-downs caused a deterioration in gross margins as a
percentage of net revenues.
Research and development expenses generally increased through the quarterly
periods presented, reflecting Washington/Mexicali's sustained investment in
product development. Quarterly selling, general and administrative expenses
generally increased, but declined beginning in the third quarter of fiscal 2001
as a result of the cost reduction initiatives. Operating expenses (both research
and development and selling, general and administrative) increased as a
percentage of net revenues through the third quarter of fiscal 2001 primarily as
a result of the decline in net revenues.
In the third quarter of fiscal 2000, Washington/Mexicali recorded the
in-process research and development charge and commenced amortization of
intangible assets upon completion of Conexant's acquisition of Philsar.
Washington/Mexicali did not recognize any tax benefit relating to its operating
losses in any of the quarters presented; the provision for income taxes for each
quarter consisted of foreign income taxes incurred by foreign operations.
The historical quarterly financial information set forth above presents the
results of operations of Washington/Mexicali while it was part of Conexant. The
historical quarterly results of operations are not necessarily indicative of
Washington/Mexicali's future performance and do not reflect the results
Washington/Mexicali would have achieved had it been an independent company
during the periods presented.
In the past, Washington/Mexicali's quarterly operating results have
fluctuated due to a number of factors, many of which are outside
Washington/Mexicali's control. These include changes in the overall demand for
digital cellular handsets, changes in product mix, the timing of new product
introductions, the timing of receipt, reduction or cancellation of significant
orders by customers, and other factors that have had a significant impact on
Washington/Mexicali's revenues and gross margins. In addition, the level of
utilization of Washington/Mexicali's and Conexant's wafer fabrication and
assembly and test facilities has affected Washington/Mexicali's gross margins.
Significant quarterly fluctuations in results of operations have also caused
significant fluctuations in Washington/Mexicali's liquidity and working capital,
including its cash and cash equivalents, accounts receivable and inventories.
108
LIQUIDITY AND CAPITAL RESOURCES
Historically, Conexant has managed cash on a centralized basis. Cash
receipts associated with Washington/Mexicali's business were generally collected
by Conexant, and Conexant generally made disbursements on behalf of
Washington/Mexicali. Cash and cash equivalents at September 30, 2001 and
December 31, 2001 totaled $2.0 million and $4.7 million, respectively,
representing cash balances held by foreign operations. Working capital at
December 31, 2001 was approximately $60.7 million compared to $60.5 million at
September 30, 2001.
In connection with the spin-off transaction, Conexant will transfer to
Washington the assets and liabilities which relate to the Washington Business,
except for the Washington Business's cash and cash equivalents, accounts
receivable and certain other assets and liabilities which Conexant will retain.
Cash used in operating activities was $16.3 million for the first quarter
of fiscal 2002, compared to cash used in operating activities of $31.7 million
for the first quarter of fiscal 2001. Operating cash flows for the first quarter
of fiscal 2002 reflect a net loss of $34.3 million, offset by non-cash charges
(depreciation and amortization, special charges and other) of $14.8 million and
a net decrease in the non-cash components of working capital of approximately
$3.2 million. Before the effect of the working capital changes, cash used in
operating activities was $19.5 million for the first quarter of fiscal 2002
compared to $28.0 million for the first quarter of fiscal 2001.
The first quarter fiscal 2002 working capital decreases include a $12.0
million increase in accrued expenses and other current liabilities. These
working capital decreases were partially offset by a $5.7 million increase in
net inventories, a $1.6 million increase in net receivables, a $1.5 million
reduction of accounts payable, and other working capital changes.
Cash used in investing activities consisted of capital expenditures of $1.6
million and $18.2 million for the first quarter of fiscal 2002 and 2001,
respectively. The capital expenditures for the first quarter of fiscal 2002
reflect a significant reduction from annual capital expenditures of $51.1
million in fiscal 2001, a key component of the cost reduction initiatives
implemented by Washington/Mexicali in fiscal 2001.
Cash provided by financing activities consisted of net transfers from
Conexant of $20.6 million and $55.4 million for the first quarter of fiscal 2002
and 2001, respectively.
Cash used in operating activities was $89.4 million for fiscal 2001,
compared to cash used in operating activities of $53.8 million for fiscal 2000
and $7.1 million for fiscal 1999. Fiscal 2001 operating cash flows reflect a net
loss of $318.9 million, offset by non-cash charges (depreciation and
amortization, special charges and other) of $220.8 million, and a net decrease
in the non-cash components of working capital of $8.7 million. Before the effect
of working capital changes, cash used in operating activities was $98.1 million
for fiscal 2001, compared to cash provided by operating activities of $31.6
million for fiscal 2000 and $30.4 million for fiscal 1999.
The fiscal 2001 working capital decreases include a $27.3 million decrease
in net receivables, principally due to lower quarterly sales. These working
capital decreases were partially offset by a $8.4 million increase in net
inventories, a $8.6 million reduction of current liabilities resulting from
lower materials purchases and decreased capital spending, and other working
capital changes.
Cash used in investing activities consisted of capital expenditures of
$51.1 million in fiscal 2001, $100.4 million in fiscal 2000 and $94.3 million in
fiscal 1999. In fiscal 2000, the capital expenditures were partially offset by
the cash balance of an acquired business of $7.7 million.
During fiscal years 1998 through 2001, Washington/Mexicali made a series of
capital investments which increased the capacity of its Newbury Park gallium
arsenide wafer fabrication facility. Washington/ Mexicali made these investments
to support then-current and anticipated future growth in sales of its wireless
communications products, such as power amplifiers, that use the gallium arsenide
process. During the same period, Washington/Mexicali made a series of capital
investments at the Mexicali facility to expand its integrated circuit assembly
capacity, including the addition of assembly lines using surface
109
mount technology processes for the production of multi-chip modules, which the
Mexicali facility principally produces for the Washington Business. The capital
investments also increased the Mexicali facility's test capacity, including
radio frequency capable equipment for testing wireless communications products.
Washington/Mexicali invested in the Mexicali facility to support then-current
and anticipated future growth in sales of its wireless communications products
and to support increasing demand for assembly and test services from Conexant.
Capital investments for the Newbury Park wafer fabrication facility totaled
$35.5 million, $27.3 million and $0.2 million during fiscal 2000, fiscal 2001
and the first three months of fiscal 2002, respectively. A significant portion
of the fiscal 2001 capital investments were made to continue or complete capital
investment programs that Washington/Mexicali had initiated during fiscal 2000.
During the second quarter of fiscal 2001, in response to the broad slowdown
affecting the wireless communications sector, including Conexant and the
Washington Business, Washington/Mexicali sharply curtailed its capital
expenditure programs.
Cash provided by financing activities consisted of net transfers from
Conexant of $138.3 million in fiscal 2001, $148.7 million in fiscal 2000 and
$103.5 million in fiscal 1999.
Ongoing changes in end-user demand and fluctuations in the levels of
channel inventories have reduced visibility into future demand and
Washington/Mexicali expects that these and other factors will continue to affect
its revenues in fiscal 2002. Washington/Mexicali also believes that ongoing
underutilization of its manufacturing capacity will adversely affect its gross
margin and operating profit. Consequently, Washington/Mexicali anticipates that
it will continue to experience negative cash flows from operations in the near
term.
Historically, Washington/Mexicali has relied on funding from Conexant
together with cash generated from operations to fund its operations, research
and development efforts and capital expenditures. Although reduced capital
expenditures are a key component of the cost reduction initiatives, a focused
program of capital expenditures will be required to sustain
Washington/Mexicali's current manufacturing capabilities, including its
specialty-process wafer fabrication facilities. Washington/Mexicali may also
consider acquisition opportunities to extend its technology portfolio and design
expertise and to expand its product offerings.
Following the spin-off transaction and the merger, Washington/Mexicali will
be dependent on the combined company to provide the capital resources needed to
fund its operations, research and development efforts and capital expenditures
and to increase its working capital or complete any acquisitions. There can be
no assurance that the combined company will be able to provide the necessary
capital resources to Washington/Mexicali. For example, it is expected that the
combined company will be required to raise capital to satisfy its working
capital needs after the merger and to repay the short-term note delivered to
Conexant in payment of the purchase price owed to Conexant under the Mexican
stock and asset purchase agreement and the U.S. asset purchase agreement. The
combined company will likely seek to raise capital through a public or private
offering of equity, debt or some combination thereof within six months after the
closing of the Mexicali transaction. See "The Mexicali Sale". Moreover, under
the terms of the short-term note, the combined company must use 100% of the
proceeds from asset sales or other dispositions of property by the combined
company or from the issuance of debt or equity to prepay the amount outstanding
under the note until paid in full. In addition, the combined company may be
limited in the amount of stock that it can issue to raise additional capital in
the two years subsequent to the merger because of the change in control
limitation imposed by Section 355(e) of the Internal Revenue Code. See "Risk
Factors -- The combined company may be affected by significant restrictions with
respect to issuance of its equity securities for two years after the spin-off
transaction".
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Washington/Mexicali's financial instruments include cash and cash
equivalents. Washington/ Mexicali's main investment objectives are the
preservation of investment capital and the maximization of
110
after-tax returns on its investment portfolio. Consequently, Washington/Mexicali
invests with only high-credit-quality issuers and limits the amount of its
credit exposure to any one issuer.
Washington/Mexicali's cash and cash equivalents are not subject to
significant interest rate risk due to the short maturities of these instruments.
As of December 31, 2001, the carrying value of Washington/ Mexicali's cash and
cash equivalents approximates fair value.
Washington/Mexicali does not expect that changes in foreign currency
exchange rates will have a material effect on its financial position or results
of operations, as the majority of its revenues are denominated in U.S. dollars.
When exposures to foreign exchange risk arise, Washington/Mexicali may use
hedging strategies, including foreign currency forward exchange contracts, to
manage its foreign exchange risk. As of December 31, 2001, Washington/Mexicali
had no obligations under any forward exchange contracts. Washington/Mexicali
limits its use of derivative financial instruments to specific risk management
strategies. Washington/Mexicali does not use derivative instruments for
speculative or investment purposes.
IMPACT OF RECENTLY-ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS 141 requires that all
business combinations be accounted for using the purchase method and provides
new criteria for recording intangible assets separately from goodwill. Existing
goodwill and intangible assets will be evaluated against these new criteria,
which may result in certain intangible assets being subsumed into goodwill. SFAS
142 addresses financial accounting and reporting for acquired goodwill and other
intangible assets. Goodwill and intangible assets that have indefinite useful
lives will not be amortized into results of operations, but instead will be
evaluated at least annually for impairment and written down when the recorded
value exceeds the estimated fair value. Washington/Mexicali will adopt the
provisions of each statement that apply to goodwill and intangible assets
acquired prior to June 30, 2001 as of the beginning of fiscal 2003. However,
SFAS 142 is immediately applicable to any goodwill and intangible assets
acquired after June 30, 2001. Upon adoption, Washington/Mexicali will cease
amortizing goodwill against its results of operations, reducing annual
amortization expense by approximately $14 million. Washington/Mexicali is
evaluating the full impact of adopting the new standards. In addition,
impairment reviews may result in charges against earnings to write down the
value of goodwill.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which
supersedes previous guidance on financial accounting and reporting for the
impairment or disposal of long-lived assets and for segments of a business to be
disposed of. Adoption of SFAS 144 is required no later than the beginning of
fiscal 2003. Management does not expect the adoption of SFAS 144 to have a
significant impact on the combined financial position or results of operations
of Washington/Mexicali. However, future impairment reviews may result in charges
against earnings to write down the value of long-lived assets.
111
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
OF THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
The following Unaudited Pro Forma Condensed Combined Financial Information
for the Washington Business and the Mexicali Operations gives effect to the
spin-off transaction as if it had occurred on December 31, 2001. The
Washington/Mexicali historical financial information set forth below has been
derived from the unaudited combined financial statements of the Washington
Business and the Mexicali operations and the notes thereto appearing elsewhere
in this proxy statement/prospectus-information statement.
In the spin-off transaction, Conexant will retain certain assets and
liabilities of Washington/Mexicali. Pro forma adjustments to reflect the
retention of these assets and liabilities are included in the following
Unaudited Pro Forma Condensed Combined Balance Sheet. The retention of these
assets and liabilities will have no pro forma effect on the Washington/Mexicali
combined statements of operations and, therefore, no pro forma adjustments are
made to the Washington/Mexicali historical combined statements of operations to
give effect to the spin-off transaction.
The Unaudited Pro Forma Condensed Combined Balance Sheet should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Washington Business and the Mexicali
Operations" and the Combined Financial Statements of the Washington Business and
the Mexicali Operations and the notes thereto appearing elsewhere in this proxy
statement/prospectus-information statement. The Unaudited Pro Forma Condensed
Combined Balance Sheet is provided for informational purposes only and is not
necessarily indicative of the combined financial position of the Washington
Business and the Mexicali operations had the spin-off transaction occurred on
the date specified, nor is it necessarily indicative of the combined financial
position that may be expected in the future.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 2001
ADJUSTMENTS
HISTORICAL FOR THE PRO FORMA
WASHINGTON/ SPIN-OFF WASHINGTON/
MEXICALI TRANSACTION MEXICALI
----------- ----------- -----------
(IN THOUSANDS)
Current assets:
Cash and cash equivalents............................ $ 4,747 $ (4,747)(1) $ --
Receivables, net..................................... 43,565 (43,565)(1) --
Inventories.......................................... 43,030 -- 43,030
Other current assets................................. 2,630 (1,140)(1) 1,490
-------- --------- --------
Total current assets......................... 93,972 (49,452) 44,520
Property, plant and equipment, net..................... 159,195 -- 159,195
Goodwill and intangible assets, net.................... 53,669 -- 53,669
Other assets........................................... 4,248 (272)(1) 3,976
-------- --------- --------
Total assets................................. $311,084 $ (49,724) $261,360
======== ========= ========
112
ADJUSTMENTS
HISTORICAL FOR THE PRO FORMA
WASHINGTON/ SPIN-OFF WASHINGTON/
MEXICALI TRANSACTION MEXICALI
----------- ----------- -----------
(IN THOUSANDS)
Current liabilities:
Accounts payable..................................... $ 1,121 $ (1,121)(1) $ --
Accrued compensation and benefits.................... 13,652 -- 13,652
Other current liabilities............................ 18,516 -- 18,516
-------- --------- --------
Total current liabilities.................... 33,289 (1,121) 32,168
Long-term liabilities.................................. 3,772 -- 3,772
-------- --------- --------
Total liabilities............................ 37,061 (1,121) 35,940
Conexant's net investment.............................. 274,023 (48,603)(2) 225,420
-------- --------- --------
Total liabilities and Conexant's net
investment................................. $311,084 $ (49,724) $261,360
======== ========= ========
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
Pro forma adjustments to the Unaudited Pro Forma Condensed Combined Balance
Sheet as of December 31, 2001 are as follows:
(1) In the spin-off transaction, Conexant will retain certain assets and
liabilities of Washington/Mexicali. The assets include cash and cash
equivalents, receivables and certain other assets included in "other
current assets" and "other assets" on Washington/Mexicali's historical
unaudited combined balance sheet. In addition, Conexant will remain
obligated for payment of Washington/Mexicali's accounts payable.
(2) The retention of certain assets and liabilities by Conexant is
reflected as a reduction of Conexant's net investment in
Washington/Mexicali.
113
COMBINED COMPANY UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
The following tables present selected pro forma condensed combined
statements of operations and balance sheet information of Alpha and the
Washington Business and the Mexicali operations. The information is presented as
if the spin-off transaction and the merger had occurred on October 1, 2000 for
statement of operations data and on December 31, 2001 for balance sheet data.
The pro forma data assume that the combined company will exchange 0.351 of
a share of combined company common stock for each share of Washington common
stock in the merger and will pay an aggregate of $150 million for the Mexicali
operations. For financial accounting purposes, the sale of the Mexicali
operations by Conexant to the combined company will be treated as if Conexant
had contributed the Mexicali operations to Washington as part of the spin-off
transaction, and the $150 million aggregate purchase price paid by the combined
company to Conexant will be accounted for as a return of capital to Conexant.
Pursuant to the merger agreement, it is a condition to the obligations of Alpha,
Conexant and Washington to complete the merger that each of the conditions to
the closing of the acquisition of the Mexicali operations by the combined
company (other than the condition that the merger has been completed) has been
satisfied. Pursuant to the Mexican stock and asset purchase agreement, it is a
condition to the obligations of Alpha and Conexant to complete the purchase and
sale of the Mexican assets that the merger has been completed.
The merger is being accounted for as a purchase business combination as
defined by Statement of Financial Accounting Standards No. 141, Business
Combinations. Because Conexant stockholders will own a majority of the
outstanding shares of the combined company upon completion of the merger, the
merger will be accounted for as a reverse acquisition in which Alpha will
survive as the combined company. Accordingly, for accounting purposes, in the
merger Alpha is treated as the acquired company and Washington is treated as the
acquiring company and the historical financial statements of the Washington
Business and the Mexicali operations will become those of the combined company
after the merger. Under reverse acquisition accounting, the purchase price of
Alpha is based upon the fair market value of Alpha common stock and the fair
value of Alpha stock options. The purchase price of Alpha will be allocated to
the assets and liabilities of Alpha assumed by Washington, as the acquiring
company for accounting purposes, based on their estimated fair market values at
the acquisition date.
The unaudited pro forma condensed combined financial information is
provided for illustrative purposes only, and is not necessarily indicative of
the operating results or financial position that would have occurred if the
spin-off transaction and the merger had been consummated at the beginning of the
periods or on the dates indicated, nor is it necessarily reflective of any
future operating results or financial position. The pro forma adjustments are
preliminary and have been made solely for purposes of developing the pro forma
information. The unaudited pro forma condensed combined financial information
does not include any adjustments related to any potential cost savings or
one-time charges that may result from the merger. The unaudited pro forma
condensed combined financial information reflects a preliminary allocation of
the purchase price which is subject to change based on finalization of the fair
value of the tangible and intangible assets acquired and liabilities assumed as
of the date of the closing of the merger.
In the pro forma condensed combined financial information, Alpha's
historical information as of and for the three months ended December 31, 2001
was derived from Alpha's Quarterly Report on Form 10-Q for the quarterly period
ended December 30, 2001, filed with the Securities and Exchange Commission on
February 13, 2002. Alpha's historical data for the twelve months ended September
30, 2001, was derived from its unaudited quarterly financial statements. The
Washington/Mexicali historical statement of operations information for the year
ended September 30, 2001 has been derived from the audited combined financial
statements of the Washington Business and the Mexicali operations and the notes
thereto appearing elsewhere in this proxy statement/prospectus-information
statement. The Washington/Mexicali historical statement of operations
information for the three months ended December 31, 2001 has been derived from
the unaudited combined financial statements of the Washington Business and the
Mexicali operations and the notes thereto appearing elsewhere in this proxy
statement/prospectus-information statement. The Washington/Mexicali adjusted
historical balance sheet information as of December 31, 2001 has been derived
from the unaudited
114
pro forma condensed combined balance sheet of the Washington Business and the
Mexicali operations and the notes thereto appearing elsewhere in this proxy
statement/prospectus-information statement.
The Combined Company Unaudited Pro Forma Condensed Combined Financial
Information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Washington
Business and the Mexicali Operations", the Combined Financial Statements of the
Washington Business and the Mexicali Operations and the notes thereto appearing
elsewhere in this proxy statement/prospectus-information statement and Alpha's
historical financial information incorporated by reference into this proxy
statement/prospectus-information statement.
115
COMBINED COMPANY UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2001
HISTORICAL
HISTORICAL WASHINGTON/ PRO FORMA PRO FORMA
ALPHA MEXICALI ADJUSTMENTS COMBINED
---------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales.................................. $197,901 $ 260,451 $ (42)(1) $ 458,310
Cost of sales.............................. 121,811 311,503 (22)(1) 436,806
1,162 (2)
2,352 (4)
Research and development expenses.......... 39,026 111,053 371 (2) 152,722
2,272 (4)
Selling, general and administrative
expenses................................. 33,494 51,267 280 (2) 88,529
3,488 (4)
Amortization of intangible assets.......... -- 15,267 3,060 (3) 18,327
Special charges............................ -- 88,876 -- 88,876
-------- --------- -------- ---------
Operating income (loss).................... 3,570 (317,515) (13,005) (326,950)
Other income (expense), net................ 8,098 210 (19,500)(5) (11,192)
-------- --------- -------- ---------
Income (loss) before income taxes.......... 11,668 (317,305) (32,505) (338,142)
Provision (benefit) for income taxes....... 3,700 1,619 (3,700)(6) 1,619
-------- --------- -------- ---------
Net income (loss).......................... $ 7,968 $(318,924) $(28,805) $(339,761)
======== ========= ======== =========
Basic earnings (loss) per share............ $ 0.18 $ (2.62)
======== =========
Diluted earnings (loss) per share.......... $ 0.18 $ (2.62)
======== =========
Shares used in computing:
Basic earnings (loss) per share....... 43,550 129,444(7)
Diluted earnings (loss) per share..... 45,130 129,444(7)
See accompanying notes to unaudited pro forma condensed combined financial
information.
116
COMBINED COMPANY UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2001
HISTORICAL
HISTORICAL WASHINGTON/ PRO FORMA PRO FORMA
ALPHA MEXICALI ADJUSTMENTS COMBINED
---------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales.................................. $33,090 $ 93,760 $ -- $126,850
Cost of sales.............................. 21,935 77,806 291(2) 100,620]
588(4)
Research and development expenses.......... 9,557 32,181 93(2) 42,399
568(4)
Selling, general and administrative
expenses................................. 5,546 10,636 70(2) 17,124
872(4)
Amortization of intangible assets.......... -- 3,937 765(3) 4,702
Special charges............................ 2,128 -- -- 2,128
------- -------- -------- --------
Operating loss............................. (6,076) (30,800) (3,247) (40,123)
Other income (expense), net................ 1,181 52 (5,625)(5) (4,392)
------- -------- -------- --------
Loss before income taxes................... (4,895) (30,748) (8,872) (44,515)
Provision (benefit) for income taxes....... (1,615) 3,549 1,615(6) 3,549
------- -------- -------- --------
Net loss................................... $(3,280) $(34,297) $(10,487) $(48,064)
======= ======== ======== ========
Basic loss per share....................... $ (0.07) $ (0.36)
======= ========
Diluted loss per share..................... $ (0.07) $ (0.36)
======= ========
Shares used in computing:
Basic loss per share.................. 44,162 133,443(7)
Diluted loss per share................ 44,162 133,443(7)
See accompanying notes to unaudited pro forma condensed combined financial
information.
117
COMBINED COMPANY UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2001
HISTORICAL
HISTORICAL WASHINGTON/MEXICALI PRO FORMA PRO FORMA
ALPHA AS ADJUSTED(A) ADJUSTMENTS COMBINED
---------- ------------------- ----------- ----------
(IN THOUSANDS)
Current assets:
Cash and cash equivalents...... $ 45,888 $ -- $ (27,000)(11) $ 3,888
(15,000)(9)
Short-term investments......... 83,622 -- -- 83,622
Accounts receivable, net....... 27,112 -- -- 27,112
Inventories.................... 10,223 43,030 1,700(8) 54,953
Prepaid expenses and other
current assets.............. 19,398 1,490 (8,599)(8) 12,289
-------- -------- ---------- ----------
Total current assets... 186,243 44,520 (48,899) 181,864
Property, plant and equipment,
net............................ 131,359 159,195 9,589(8) 300,143
Intangible assets................ -- 4,760 30,600(8) 37,560
2,200(8)
Goodwill, net.................... -- 48,909 783,937(8) 832,846
Other assets..................... 7,302 3,976 -- 11,278
-------- -------- ---------- ----------
Total assets..................... $324,904 $261,360 $ 777,427 $1,363,691
======== ======== ========== ==========
Current liabilities:
Current portion of long-term
debt........................ $ 129 $ -- $ -- $ 129
Short-term debt................ -- -- 150,000(10) 150,000
Accounts payable............... 12,185 -- -- 12,185
Accrued liabilities and other
current liabilities......... 7,450 32,168 -- 39,618
-------- -------- ---------- ----------
Total current
liabilities.......... 19,764 32,168 150,000 201,932
Long-term debt................... 139 -- -- 139
Other long-term liabilities...... 5,203 3,772 (2,742)(8) 6,233
Stockholders' equity............. 299,798 225,420 (299,798)(8) 1,155,387
1,146,530(8)
(53,500)(8)
(13,063)(8)(12)
(150,000)(10)
-------- -------- ---------- ----------
Total liabilities and
stockholders' equity........... $324,904 $261,360 $ 777,427 $1,363,691
======== ======== ========== ==========
---------------
(a) Historical Washington/Mexicali as adjusted is derived from the unaudited pro
forma condensed combined balance sheet of the Washington Business and the
Mexicali operations appearing elsewhere in this proxy
statement/prospectus-information statement.
See accompanying notes to unaudited pro forma condensed combined financial
information.
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
NOTE 1 -- PURCHASE PRICE
The purchase consideration of the merger is assumed to be approximately
$1.17 billion, based on the sum of the fair market value of the outstanding
Alpha common stock and the fair value of Alpha stock options. These estimates
are preliminary and will depend upon the actual number of shares of Alpha common
stock and Alpha stock options outstanding as of the date of the closing of the
merger. The fair market value of the shares of Alpha common stock used in
determining the purchase price was $23.79 per share, which reflects the average
of the closing prices of Alpha common stock on December 17, 2001, the date the
merger was announced, and on the three business days before and after this
announcement. Conexant stockholders will receive 0.351 of a share of combined
company common stock for each share of Washington common stock issued to them in
the distribution. This is a fixed exchange ratio and will not be adjusted in the
event of any increase or decrease in the current market price of Alpha. Alpha
stockholders will continue to hold their existing shares of Alpha common stock
as shares of the combined company after the merger and will not receive any new
shares in the merger.
The fair value of Alpha stock options was estimated using the Black-Scholes
option pricing model with the following assumptions: risk free rate of return of
approximately 3.5%, expected lives of approximately three years, expected
dividend rate of 0%, and volatility of approximately 120%.
The purchase consideration is summarized as follows (in thousands):
Fair market value of Alpha common stock......... $1,051,142
Fair value of Alpha stock options............... 95,388
Estimated transaction costs of Washington....... 27,000
----------
Total........................................... $1,173,530
==========
The unaudited pro forma condensed combined financial information reflects a
preliminary allocation of the purchase price and represents Alpha's expectations
of the significant liabilities and tangible and intangible assets that will be
recognized in connection with the merger. The items which could change are
goodwill and deferred compensation as the final computation of these values
depends on the actual number of shares of Alpha common stock and stock options
outstanding and the market price of Alpha's stock as of the date of consummation
of the merger. The preliminary allocation of the purchase price assuming the
transaction occurred on December 31, 2001 is summarized below (in thousands):
Working capital............................................. $ 144,580
Property, plant and equipment............................... 140,948
Other long-term assets...................................... 7,302
Amortized intangible assets................................. 30,600
Unamortized intangible assets............................... 2,200
Goodwill.................................................... 783,937
In-process research and development......................... 53,500
Long-term debt.............................................. (139)
Other long-term liabilities................................. (2,461)
Deferred compensation....................................... 13,063
----------
Net assets acquired......................................... $1,173,530
==========
The excess of the purchase price over the fair value of net assets acquired
has been classified as goodwill.
119
Amortized intangible assets are comprised of the following (in thousands):
Current Technology -- Semiconductor Segment........ $15,300
Current Technology -- Ceramics Segment............. 2,600
Customer Relationships -- Semiconductor Segment.... 8,600
Customer Relationships -- Ceramics Segment......... 4,100
-------
Total amortized intangible assets.................. $30,600
=======
The amortization period for each of the above intangibles is ten years. The
preliminary value assigned to Current Technology for Alpha's Semiconductor and
Ceramics Segments was determined by management using the income approach. Under
the income approach, the fair value reflects the present value of the projected
cash flows that are expected to be generated by the products incorporating the
current technology. The preliminary value assigned to Customer Relationships for
Alpha's Semiconductor and Ceramics Segments was determined by management using
the cost approach. The cost approach determines the value of an asset as an
estimate of the current cost to purchase or replace the asset.
Unamortized intangible assets are comprised of the following (in
thousands):
Trademark -- Ceramics Segment....................... $2,200
------
$2,200
======
The preliminary value assigned to Trademark- Ceramics Segment was
determined using the income approach. The type of income approach was the relief
from royalty methodology. Under the relief from royalty methodology, an estimate
is made as to the appropriate royalty income that would be negotiated in an
arm's length transaction if the subject intangible asset were licensed from an
independent third-party owner.
Approximately $53.5 million of the purchase price has been allocated to
in-process research and development and will be written off to expense at the
time of closing. See Note 4.
Upon completion of the merger, the stock options held by certain current
Alpha directors who will not be directors of the combined company will vest.
This will be recorded as a one-time charge to expense at the time of the closing
and is expected to approximate $0.8 million.
The pro forma condensed combined financial information is intended for
information purposes, and does not purport to represent what the combined
company's results of operations or financial position would actually have been
had the transaction in fact occurred at an earlier date, or project the results
for any future date or period. Upon completion of the merger, the actual
financial position and results of operations of the combined company will
differ, perhaps significantly, from the pro forma amounts reflected in this
proxy statement/prospectus-information statement due to a variety of factors,
including changes in operating results between the date of the pro forma
condensed combined financial data and the date on which the merger is completed
and thereafter, and those factors discussed under "Risk Factors".
NOTE 2 -- PRO FORMA ADJUSTMENTS
The following adjustments are reflected in the unaudited pro forma
condensed combined statements of operations to reflect the estimated impact of
the merger on the historical combined results of Alpha and Washington/Mexicali:
(1) To eliminate sales and cost of sales for transactions between
Alpha and Washington/Mexicali.
(2) To record the incremental depreciation expense resulting from the
preliminary adjustment to record Alpha property, plant and equipment at
estimated fair values using the straight-line method and assuming a
weighted-average estimated useful life of four years.
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(3) To record the incremental amortization expense resulting from the
preliminary adjustment to record Alpha amortized intangible assets at
estimated fair value utilizing the straight-line method over a useful life
of ten years.
(4) To record the amortization of unearned compensation related to
unvested stock options held by Alpha employees at the time of the closing.
(5) To record the interest expense on the short-term promissory note
from the combined company to Conexant, assuming the combined company uses
the short-term promissory note to finance the $150 million aggregate
purchase price to be paid by the combined company to Conexant for the
Mexicali operations. The rates of 13% and 15% for the twelve months ended
September 30, 2001 and the three months ended December 31, 2001,
respectively, used in these calculations reflect the terms of the note
provided under the Mexican stock and asset purchase agreement. The combined
company intends to obtain alternative financing as soon as practicable upon
completion of the merger. It is expected that the interest rate on this
alternative financing will be substantially lower than the rate used in
this pro forma presentation. For each 1% decrease in the interest rate, the
impact would be to increase income before income taxes by $1.5 million and
$0.375 million for the twelve months ended September 30, 2001 and for the
three months ended December 31, 2001, respectively.
(6) To record the income tax effects of the merger and of the pro
forma adjustments.
(7) Pro forma per share data is based on the number of Alpha common
shares that would have been outstanding had the merger occurred on the date
presented. In order to compute the number of shares used in the calculation
of pro forma basic and diluted earnings (loss) per share, the weighted-
average number of Conexant shares multiplied by the exchange ratio of 0.351
per share was added to the weighted-average number of Alpha shares
outstanding. The weighted-average number of shares outstanding for Conexant
was 244,711,000 and 254,362,000 for the twelve months ended September 30,
2001 and for the three months ended December 31, 2001, respectively.
Potentially dilutive securities are not taken into account when their
effect would be anti-dilutive. A reconciliation of shares used to compute
historical basic and diluted earnings (loss) per share to shares used to
compute pro forma basic and diluted earnings (loss) per share is as follows
(in thousands):
TWELVE MONTHS ENDED THREE MONTHS ENDED
SEPT. 30, 2001 DEC. 31, 2001
------------------- ------------------
Shares used to compute Alpha historical
basic earnings (loss) per share........ 43,550 44,162
Shares issued in merger.................. 85,894 89,281
------- -------
Shares used to compute pro forma basic
earnings (loss) per share.............. 129,444 133,443
======= =======
Shares used to compute Alpha historical
diluted earnings (loss) per share...... 45,130 44,162
Potentially dilutive securities.......... (1,580) --
Shares issued in merger.................. 85,894 89,281
------- -------
Shares used to compute pro forma diluted
earnings (loss) per share.............. 129,444 133,443
======= =======
The following adjustments are reflected in the unaudited pro forma
condensed combined balance sheet to reflect the estimated impact of the
merger on the historical combined results of Alpha and Washington/Mexicali:
(8) These pro forma adjustments reflect the allocation to the assets
and liabilities of Alpha of the difference between the market value of
Alpha and the book value of Alpha (the excess purchase price). The market
value of Alpha is assumed to be the sum of the fair market value of the
outstanding Alpha common stock and the fair value of the Alpha outstanding
stock options. Alpha's
121
book value is assumed to be its stockholders' equity, less estimated
transaction fees. The following data is in thousands (except per share
data):
Market value of Alpha:
Shares of Alpha common stock outstanding.................. 44,184
Average market price per share of Alpha common stock...... $ 23.79
----------
Market value of Alpha common stock........................ $1,051,142
Market value of Alpha outstanding stock options........... $ 95,388
----------
Market value of Alpha.................................. $1,146,530
Book value of Alpha:
Stockholders' equity at December 31, 2001................. $ 299,798
Estimated remaining transaction fees...................... $ (15,000)
----------
Book value of Alpha.................................... $ 284,798
Estimated transaction costs of Washington................... $ 27,000
----------
Excess purchase price....................................... $ 888,732
==========
This excess purchase price has been allocated to the assets and liabilities
of Alpha as follows:
Inventories................................................. $ 1,700
Property, plant and equipment............................... 9,589
Goodwill.................................................... 783,937
Amortized intangible assets................................. 30,600
Unamortized intangible assets............................... 2,200
In-process research and development......................... 53,500
Deferred tax liability...................................... 2,742
Deferred tax asset.......................................... (8,599)
Deferred compensation....................................... 13,063
--------
Total............................................. $888,732
========
(9) To record Alpha's estimated direct merger costs, consisting
primarily of fees for investment bankers, attorneys, accountants, and
regulatory filing fees. Alpha's fees are estimated to be $17 million, of
which $2 million has already been paid.
(10) To record a return of capital to Conexant. The amount consists of
the issuance of $150 million in short-term debt and Conexant's transfer of
the Mexicali Operations.
(11) To record $27 million of estimated transaction costs, consisting
primarily of fees for investment bankers, attorneys, accountants, and
regulatory filing fees, for which Alpha has agreed to reimburse Conexant.
(12) The deferred compensation of $13,063,000 was calculated as the
aggregate of the difference between the market price of Alpha's common
stock and the exercise price of all unvested options as of December 31,
2001 for all options with exercise prices lower than the fair market value
of Alpha's common stock as of December 31, 2001.
NOTE 3 -- BASIS OF PRESENTATION
Alpha's historical information as of and for the three months ended
December 31, 2001 was derived from Alpha's Quarterly Report on Form 10-Q for the
quarterly period ended December 30, 2001, filed with the Securities and Exchange
Commission on February 13, 2002. Alpha's historical data for the twelve
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months ended September 30, 2001 was derived from its unaudited quarterly
financial statements. The historical income tax information was calculated based
on an estimated annual effective rate of 32% for the twelve months ended
September 30, 2001 and 33% for the three months ended December 30, 2001. Upon
completion of the merger, the stock options held by certain current Alpha
directors who will not be directors of the combined company will vest. This will
be recorded as a one-time charge to expense by Alpha at the time of the closing
of the merger and is expected to approximate $0.8 million. Additionally, upon
completion of the merger, the combined company will record an estimated charge
of $53.5 million for in-process research and development. Alpha anticipates that
this amount will be charged to expense in the period immediately following the
merger. These charges are not reflected in the pro forma data as the charges are
non-recurring and have no significant continuing impact.
NOTE 4 -- IN-PROCESS RESEARCH AND DEVELOPMENT
As of December 31, 2001, Alpha was in the process of developing new
technologies in its semiconductor and ceramics segments. The objective of the
in-process research and development effort is to develop new semiconductor
processes, ceramic materials and related products to satisfy customer
requirements in the wireless and broadband markets.
SEMICONDUCTOR
The semiconductor segment was involved in several projects that have been
aggregated into the following categories based on the respective technologies:
Power Amplifier
Power amplifiers are designed and manufactured for use in different
types of wireless handsets. The main performance attributes of these
amplifiers are efficiency, power output, voltage of operation and
distortion. Current research and development is focused on expanding the
offering to all types of wireless standards, improving performance by
process and circuit improvements and offering more integrated solutions.
Control Products
Control products consist of switches and switch filters that are used
in wireless applications for channeling the signal. Most applications are
in the handset market enabling multi-mode, multi-band handsets. Current
research and development is focused on performance improvement and cost
reduction by reducing chip size and increasing functionality.
Broadband
The products in this grouping consist of radio frequency and
millimeter wave semiconductors and components designed and manufactured
specifically to address the needs of the high-speed, wireline and wireless
internet access. Current and long-term research and development is focused
on performance enhancement of speed and bandwidth as well as cost reduction
and integration.
Silicon Diode
These products use silicon processes to fabricate diodes (two terminal
semiconductor devices) for use in a variety of radio frequency and wireless
applications. Current research and development is focused on reducing the
size of the device, improving performance and reducing cost.
CERAMICS
The ceramics segment was involved in projects which relate to the design
and manufacture of ceramic-based components such as resonators and filters for
the wireless infrastructure market. Current
123
research and development is focused on performance enhancements through improved
formulations and electric designs.
The fair value assigned to each of the significant projects and estimated
time to complete are reported below. The estimated costs to complete for these
projects, which are estimated at $11.6 million, are expected to be spent evenly
for the remainder of their respective development cycles.
FAIR HOURS TO
PRODUCT VALUE COMPLETE
------- ------- --------
(IN THOUSANDS)
Power Amplifiers.......................................... $16,200 27.1
Control Products.......................................... 17,800 15.3
Broadband................................................. 16,400 29.1
Silicon Diode............................................. 3,000 5.0
Ceramics.................................................. 100 5.2
------- ----
$53,500 81.7
======= ====
The material risks associated with the successful completion of the
in-process technology are associated with Alpha's ability to successfully finish
the creation of viable prototypes and successful design of the chips, masks and
manufacturing processes required. Alpha expects to benefit from the in-process
projects as the individual products that contain the in-process technology are
put into production and sold to end-users. The release dates for each of the
products within the product families are varied. The fair value of the
in-process research and development was determined using the income approach.
Under the income approach, the fair value reflects the present value of the
projected cash flows that are expected to be generated by the products
incorporating the in-process research and development, if successful.
The projected cash flows were discounted to approximate fair value. The
discount rate applicable to the cash flows of each project reflects the stage of
completion and other risks inherent in each project. The discount rate used in
the valuation of in-process research and development was 30 percent.
124
INFORMATION ABOUT ALPHA
Alpha Industries, Inc., a Delaware corporation, manufactures and markets
proprietary radio frequency and microwave integrated circuit products and
solutions primarily for wireless communications. Alpha's products include
modules, integrated circuits and discrete components, as well as components
based on electrical ceramic and ferrite technology. The primary applications for
Alpha's products are wireless handsets and wireless base station equipment,
together with wireless local area network, wide area network and local loop
applications.
PRODUCTS AND APPLICATIONS
Alpha offers a broad array of products, including gallium arsenide
semiconductor integrated circuit switches, controls and power amplifiers,
silicon discrete semiconductors, ceramic based components and multi-chip
modules. A typical wireless handset contains radio frequency and baseband
components. Alpha is focused on providing radio frequency components that
convert, switch, process and amplify the high frequency signals that carry the
information to be transmitted or received.
Power Amplifiers. Wireless communications systems require amplification to
transmit and receive signals. The power amplifier gives the radio signal the
energy to travel farther. The power efficiency of gallium arsenide semiconductor
based power amplifiers offer superior performance to silicon solutions. Alpha
has been an innovator of gallium arsenide semiconductor based power amplifier
products. Alpha was the first merchant semiconductor company to offer a
three-volt, high-efficiency power amplifier integrated circuit based on
pseudomorphic high electron mobility transistor process, or PHEMT, for the GSM
wireless standard operating at three different frequencies. Alpha was also the
first merchant semiconductor company to deliver a three-volt metal semiconductor
field effect transistor, or MESFET, gallium arsenide semiconductor based power
amplifier integrated circuit. Alpha's power amplifier business is supported by
Alpha's experience with gallium arsenide heterojunction bipolar transistor, or
HBT, gallium arsenide PHEMT and gallium arsenide MESFET semiconductor processes.
Integrated Circuit Switches and Controls. Switching and control functions
route and adjust signal levels between the receiver and transmitter and other
processing devices. The number of switching functions increases with the design
complexity of the handset. Alpha's gallium arsenide integrated circuit switches
are used in handsets to provide lower signal loss and better signal isolation
than comparable products. Alpha's high-efficiency gallium arsenide switch
integrated circuits integrate logic elements, making the circuits easier for
Alpha's customers to use.
Discrete Semiconductors. Discrete semiconductors, especially diodes, are
used for signal tuning and switching functions in the handset. Alpha draws on
its microwave frequency and millimeter wave frequency experience to produce
diodes with enhanced circuit performance. Alpha manufactures these products in
high volumes for several handset manufacturers.
Multi-Chip Modules. Multi-chip modules combine semiconductor devices, such
as integrated circuits and discrete semiconductors, in a single module-based
platform. The result is an easy-to-manufacture solution that enables wireless
manufacturers to reduce design complexity and dramatically shorten their product
development cycle.
Ceramic Products. Alpha's ceramic products play a critical role in
processing communications signals. Ceramic materials allow improved power
efficiency and miniaturization in wireless communications infrastructure.
RESEARCH AND DEVELOPMENT
Alpha's products and markets are subject to continued technological
advances. Recognizing this, Alpha maintains a high level of research and
development activities to remain competitive in certain areas and to be an
industry leader in other areas. Alpha maintains close collaborative
relationships with many of its customers to help it identify market demands and
target its development efforts to meet those demands. Alpha is focusing its
development efforts on new products, design tools and manufacturing processes in
its semiconductor products segment using its core technologies.
125
Alpha's research and development expenditures for fiscal 1999, 2000 and
2001 and the first nine months of fiscal 2002 were approximately $15.9 million,
$25.3 million, $36.0 million and $29.3 million, respectively.
RAW MATERIALS
Raw materials for Alpha's products and manufacturing processes are
generally available from several sources. It is Alpha's policy not to depend on
a sole source of supply. However, there are limited situations where Alpha
procures certain components and services for its products from single or limited
sources. Alpha purchases these materials and services on a purchase order basis.
Alpha does not carry significant inventories and has long-term supply contracts
with only a limited number of its vendors.
MARKETING AND DISTRIBUTION; CUSTOMERS
Alpha sells its products through independent manufacturers' representatives
and distribution partners and through a direct sales staff. Alpha also
distributes its products through a global organization that is franchised
throughout portions of the world, and through two organizations that focus
primarily on the North American market. Alpha maintains an internal marketing
organization that is responsible for developing sales and advertising
literature, such as product announcements, catalogs, brochures and magazine
articles in trade and other publications. During fiscal 2001 and the first nine
months of fiscal 2002, Motorola, Inc. accounted for approximately 26% and 32%,
respectively, of Alpha's total net revenues.
BACKLOG
Alpha's policy is to book only the next three months of commercial orders
consistent with customer short-term requirements. Many commercial orders cover
substantially more than three months of performance, but such orders can be
easily modified or canceled by the customer and Alpha believes it is a better
practice to limit bookings in this manner. On this basis, Alpha believes all
orders in its backlog to be firm. However, current market conditions make
predictions about future operations particularly difficult. While Alpha believes
all orders in its backlog to be firm, Alpha's operating results have been
materially and adversely affected in the past by deferral and cancellation of
orders as a result of changes in customer requirements.
ENVIRONMENTAL REGULATIONS
In Alpha's opinion, compliance with federal, state, and local environmental
protection regulations does not and will not have a material effect on Alpha's
capital expenditures, earnings and competitive position.
EMPLOYEES
As of April 29, 2002, Alpha employed approximately 935 persons.
PROPERTIES
The following information describes the major facilities Alpha owns and
leases. Alpha believes it has adequate production capacity to meet its current
business needs.
- Alpha owns a 158,000 square foot building in Woburn, Massachusetts. This
facility houses Alpha's primary gallium arsenide semiconductor integrated
circuit fabrication facility and its corporate headquarters.
- Alpha owns a 125,000 square foot facility in Haverhill, Massachusetts.
This facility was purchased in September 2000 and provides manufacturing
and office space. Operations at this site include design engineering as
well as gallium arsenide semiconductor integrated circuit, silicon
semiconductor and multi-chip module assembly and testing.
126
- Alpha leases a 27,000 square foot building in Sunnyvale, California. This
facility was acquired in April 2000 and houses Alpha's second gallium
arsenide semiconductor integrated circuit fabrication facility.
- Alpha owns a 92,000 square foot facility in Adamstown, Maryland. This
facility is occupied by a subsidiary, and is Alpha's primary electrical
ceramic product manufacturing facility.
- Alpha leases a 33,000 square foot facility in Frederick, Maryland. This
building is used to manufacture ceramic components, including filters.
Alpha also maintains design centers in Fremont, California and near
Chicago, Illinois and regional sales support offices in England and Hong Kong.
LEGAL PROCEEDINGS
Alpha does not have any material pending legal proceedings. From time to
time various lawsuits, claims and proceedings have been, and may in the future
be, instituted or asserted against Alpha, including those pertaining to patent
infringement, intellectual property, environmental, product liability, safety
and health, employment and contractual matters. The outcome of litigation cannot
be predicted with certainty and some lawsuits, claims or proceedings may be
disposed of unfavorably to Alpha. Intellectual property disputes often have a
risk of injunctive relief and there can be no assurance that a license will be
granted. Injunctive relief could materially and adversely affect the financial
condition or results of operations of Alpha.
OTHER INFORMATION
Information relating to Alpha's executive compensation, compensation plans
(including stock option plans), voting securities, including the principal
holders of those securities, and other matters as to Alpha is included or
incorporated by reference in Alpha's Annual Report on Form 10-K for the fiscal
year ended April 1, 2001, which is incorporated by reference into this section
of the proxy statement/prospectus-information statement. Alpha and Conexant
stockholders may obtain a copy of this document and other filings made by Alpha
with the Securities and Exchange Commission by contacting Alpha at its address
or telephone number indicated under "Where You Can Find More Information".
127
INFORMATION ABOUT THE WASHINGTON BUSINESS
THE WASHINGTON BUSINESS
The Washington Business's product portfolio is comprised of components,
subsystems and system-level semiconductor solutions for wireless voice and data
communications applications, supporting the world's most widely-adopted wireless
standards, including CDMA, TDMA and GSM.
Wireless communications product offerings of the Washington Business
include:
- power amplifier modules;
- radio frequency components and subsystems; and
- cellular systems.
A mobile phone's power amplifier provides the radio signal that connects
the handset to a base station, and its power efficiency is the most important
factor in determining a mobile phone's battery life and talk time. Based on a
gallium arsenide HBT manufacturing process and packaged in state-of-the-art
modules, the Washington Business's power amplifiers are compact, power
efficient, highly-integrated solutions that enable mobile phones with extended
talk and standby times. In order to provide customers with design flexibility,
the Washington Business's power amplifiers meet or exceed stringent performance
requirements and may be used with a variety of handset battery voltages.
The Washington Business's power amplifiers enabled the first CDMA wireless
standard handsets and are considered market leaders with respect to packaging,
efficiency and performance. In addition, the Washington Business has developed
power amplifier modules for the TDMA and GSM wireless standards.
The Washington Business has introduced a suite of power amplifiers for next
generation mobile phones supporting Internet access based on the CDMA2000
wireless standard for use in CDMA networks, the general packet radio services,
or GPRS, wireless standard for use in GSM networks, and the enhanced data for
GSM evolution, or EDGE, wireless standard. Broadly supported around the world,
these emerging standards, known as 2.5G standards, provide an intermediate level
of high speed wireless data transmission and easy migration paths from the
current generation CDMA, TDMA and GSM wireless standards to future third
generation, or 3G, wireless data transmission standards, including wideband
CDMA, or WCDMA, for even higher speed wireless multimedia voice and data
services.
In addition, the Washington Business offers radio frequency transceiver
subsystems for CDMA, TDMA and GSM applications, including a highly integrated
single-chip transceiver targeting higher speed GPRS applications. By eliminating
intermediate frequency conversion steps, this direct-conversion solution
significantly reduces the number of external components required to build a
mobile phone. Proprietary design techniques employed in the transceiver also
allow the device to be used with a variety of baseband processors.
The Washington Business has developed a spread spectrum radio frequency
transceiver operating at the 2.4 GHz frequency that is optimized for use in
Bluetooth(TM)-enabled systems which support short-range (30 feet or less)
wireless data connectivity applications. This portfolio is compliant with the
Bluetooth(TM) Special Interest Group specification 1.1 and is targeted for use
in mobile phones and personal digital assistants that require extended battery
life and small size.
The Washington Business has also developed and launched complete cellular
systems combining key hardware and software functions for GSM and GPRS mobile
phones. The hardware portion of this solution implements digital and analog
baseband processing, multi-band power amplification, power management and radio
frequency transceiver functionality. The software portion consists of a network-
approved protocol stack and user interface software. The Washington Business
provides a reference design and a comprehensive suite of design support services
and tools to aid OEM customers through the development process. A number of the
Washington Business's customers' mobile phones have been type-certified by
various network service providers around the world.
128
Capitalizing on its strong radio frequency capabilities, the Washington
Business has developed a suite of components for cellular/personal
communications service wireless infrastructure applications, including front-end
receivers, interface quadrature modulators and power amplifier drivers.
In connection with the spin-off transaction, the Washington Business will
be contributed to Washington, a newly formed Delaware corporation that has not
conducted any activities other than those incident to its formation and the
matters contemplated by the merger agreement. Washington is currently a
wholly-owned subsidiary of Conexant. The current officers and directors of
Washington are Dwight W. Decker, Director and Chairman of the Board and Chief
Executive Officer; Balakrishnan S. Iyer, Director and Vice President and
Treasurer; and Dennis E. O'Reilly, Director and Vice President and Secretary. In
the merger, these officers and directors will cease to be officers and directors
of Washington pursuant to the merger agreement. Prior to the merger of
Washington with and into Alpha, Conexant will distribute all of the outstanding
shares of Washington common stock on a one share-for-one share basis to Conexant
stockholders. See "The Spin-Off Transaction -- Introduction" and "Agreements
Relating to the Spin-Off Transaction -- Distribution Agreement -- The
Contribution".
RESEARCH AND DEVELOPMENT
The Washington Business has significant research, development, engineering
and product design capabilities. At May 1, 2002, there were approximately 500
employees of Conexant engaged in research and development who will become
employees of the Washington Business. The Washington Business performs research
and product development activities at its offices in Newport Beach, California
and at eleven design centers throughout the world. The Washington Business's
design centers provide design engineering and product application support as
well as after-sales customer service. The design centers are strategically
located around the world to take advantage of key technical and engineering
resources worldwide and to be in proximity to several of the Washington
Business's OEM customers.
The Washington Business's current research and development efforts are
focused on key components, radio frequency subsystems and cellular systems for
emerging CDMA2000, GPRS and EDGE applications, as well as 3G WCDMA systems that
provide greater bandwidth and will enable new possibilities for accessing the
Internet using wireless communications platforms.
Washington/Mexicali spent approximately $66.5 million, $91.6 million,
$111.1 million and $32.2 million in fiscal 1999, 2000, 2001 and the first three
months of fiscal 2002, respectively, on research and development activities,
representing 38%, 29%, 52% and 36%, respectively, of Washington/Mexicali net
revenues from third parties for those periods.
MANUFACTURING
The Washington Business operates a gallium arsenide semiconductor
fabrication facility in Newbury Park, California. The Washington Business
obtains assembly and test services from Conexant's integrated circuit assembly
and test facility in Mexicali, Mexico and also has arrangements with Conexant
and third parties outside the United States for the production, assembly and
testing of certain semiconductor products. The Washington Business has a
long-term supply arrangement with a foundry located in Taiwan for the supply of
gallium arsenide semiconductor products, which will expire in 2009 and contains
no provision for early termination of the arrangements by the foundry. In
addition, the Washington Business currently obtains silicon-based semiconductor
products under Conexant's arrangement with another foundry and in connection
with the spin-off transaction, expects to enter into its own arrangement with
the foundry on substantially similar terms as under the Conexant arrangement.
The Washington Business's international subcontract manufacturing arrangements,
including those with Conexant's Mexicali assembly and test facility, are subject
to a number of risks of operating abroad. After the merger, pursuant to the
terms of the Mexicali sale agreements, the combined company will purchase from
Conexant the Mexicali assembly and test facility. See "The Mexicali Sale".
The Washington Business obtains CMOS wafer manufacturing and certain
specialty wafer manufacturing services from the Newport foundry joint venture's
Newport Beach, California semi-
129
conductor fabrication facility and has entered into long-term supply agreements
with foundry partners to obtain external CMOS wafer manufacturing capacity and
specialty-process wafer manufacturing capacity.
The Washington Business's Newbury Park, California gallium arsenide
semiconductor fabrication facility uses the following semiconductor
manufacturing processes:
- HBT, a process technology used in the manufacture of amplifiers and other
discrete and integrated circuits for wireless handset and infrastructure
applications;
- InGaP HBT, a variant of the HBT process technology that uses indium
gallium phosphide semiconductor materials in the manufacture of power
amplifiers and front-end modules for wireless handset and infrastructure
applications; and
- MESFET, a process technology used in the manufacture of amplifiers,
switches, mixers, attenuators and other radio frequency components in
wireless infrastructure applications.
Gallium arsenide semiconductors are particularly well suited for mobile
communications products such as power amplifiers. This facility is ISO 9002
certified.
RAW MATERIALS AND SUPPLIES
Conexant believes that the Washington Business has adequate sources for the
supply of raw materials and components for its manufacturing needs through
suppliers located around the world. Raw wafers and other raw materials used in
the production of the Washington Business's CMOS products are available from
several suppliers; however, the Washington Business is currently dependent on
two suppliers for epitaxial wafers used in the gallium arsenide manufacturing
process at its Newbury Park, California facility.
CUSTOMERS, MARKETING AND SALES
The Washington Business markets and sells its semiconductor products and
system solutions directly to leading OEMs, original design manufacturers and
contract manufacturers, including the following:
Appeal Telecom Co., Ltd Kyocera Wireless Corp. Nokia Corporation
Benq Corporation LG International Corporation Samsung Electronics Co. Ltd.
Ezze Mobile Tech, Inc. Motorola, Inc. Sony Ericsson Mobile Communications AB
Sales to Samsung Electronics Co. Ltd. represented approximately 44% and 48%
of Washington/Mexicali net revenues from third parties in fiscal 2001 and the
first three months of fiscal 2002, respectively. Sales to Nokia Corporation
represented approximately 12% and 11% of Washington/Mexicali net revenues from
third parties in fiscal 2001 and the first three months of fiscal 2002,
respectively. In addition, sales to Conexant represented approximately 17% and
6% of Washington/Mexicali total net revenues in fiscal 2001 and the first three
months of fiscal 2002, respectively.
For fiscal 2001 and the first three months of fiscal 2002, approximately
91% and 97%, respectively, of Washington/Mexicali net revenues from third
parties were from customers located outside the United States, primarily
countries located in the Asia-Pacific region and Europe. In fiscal 2001, sales
to customers in the Asia-Pacific region, principally South Korea, Taiwan, Japan
and Hong Kong, represented approximately 77% (including South Korea, which
represented approximately 66%) of Washington/ Mexicali net revenues from third
parties.
The Washington Business has a worldwide sales organization comprised of
approximately 60 employees as of May 1, 2002 with five domestic and twelve
international sales offices. To complement its direct sales and customer support
efforts, the Washington Business also sells its products through approximately
25 independent manufacturers' representatives and approximately 32 distributors
and dealers. In addition, the Washington Business's design and applications
engineering staff is actively involved with customers during all phases of
design and production and provides customer support through its worldwide sales
offices, which are generally in close proximity to customers' facilities.
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The Washington Business continues to seek close technical collaboration
with its customers during the design phase of new customer programs to
facilitate integration of its products into the programs, to improve its ability
to rapidly reach high manufacturing volumes and to position it to be a primary
supplier for new programs.
BACKLOG
The Washington Business's sales are made primarily pursuant to purchase
orders for delivery of products, with such purchase orders acknowledged by the
Washington Business according to its own terms and conditions. Due to industry
practice, which allows customers to cancel orders with limited advance notice
prior to shipment, the Washington Business believes that backlog as of any
particular date is not a reliable indicator of future revenue levels.
COMPETITION
The wireless communications semiconductor industry in general, and the
markets in which the Washington Business competes in particular, are intensely
competitive. The Washington Business competes worldwide with a number of U.S.
and international suppliers that are both larger and smaller than it in terms of
resources and market share. The Washington Business anticipates that additional
competitors will enter its markets and expects intense product competition to
continue.
The specific bases on which the Washington Business competes vary by
market. The Washington Business believes that the principal competitive factors
for semiconductor suppliers in its market are:
- time-to-market;
- new product innovation;
- product quality, reliability and performance;
- level of integration;
- price and total system cost;
- compliance with industry standards;
- design and engineering capabilities;
- strategic relationships with customers;
- customer support; and
- protection of intellectual property.
The Washington Business believes that it competes favorably with respect to each
of these factors.
Competitors of the Washington Business include Agere Systems Inc., Agilent
Technologies, Inc., ANADIGICS, Inc., Analog Devices, Inc., Cambridge Silicon
Radio, Hitachi Ltd., Infineon Technologies A.G., Motorola, Inc., National
Semiconductor Corporation, Philips Electronics N.V., Qualcomm Incorporated, RF
Micro Devices, Inc., Texas Instruments Incorporated and TriQuint Semiconductor,
Inc.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
In the spin-off transaction, Conexant will transfer to Washington
specifically identified patents, trademarks and copyrights and other
intellectual property to the extent used primarily in or related primarily to
the Washington Business. The distribution agreement also includes non-exclusive,
world-wide, irrevocable, royalty-free cross licenses by Conexant to Washington
and Alpha and by Washington and Alpha to Conexant of rights under the
intellectual property of the licensor. See "Agreements Relating to the Spin-Off
Transaction -- Distribution Agreement -- Intellectual Property Matters". After
the spin-off transaction, Washington will own or be licensed under numerous U.S.
and foreign patents and patent applications related to the Washington Business's
manufacturing operations and other activities, and a
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number of trademarks applicable only to certain of the Washington Business's
products. While in the aggregate patents, patent applications, licenses and
trademarks of the Washington Business are considered material to the operations
of the Washington Business, they are not of such importance that the loss or
termination of any one of them would materially affect the business or financial
condition of the Washington Business.
Various claims of patent infringement have been made against Conexant with
respect to the Washington Business. Pursuant to the distribution agreement,
Washington will assume all liabilities of Conexant in respect of intellectual
property matters to the extent related to current and former operations of the
Washington Business. See "Agreements Relating to the Spin-Off Transaction --
Distribution Agreement -- The Contribution". Conexant believes that none of
these claims will have a material adverse effect on the financial position or
results of operations of the Washington Business.
ENVIRONMENTAL REGULATION
Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes, and other
activities affecting the environment have had an impact on the Washington
Business's manufacturing operations and will continue to have an impact on the
combined company's manufacturing operations. Thus far, compliance with
environmental requirements and resolution of environmental claims have been
accomplished without material effect on the Washington Business's liquidity and
capital resources, competitive position or financial condition.
In connection with the spin-off transaction, Washington will assume all
liabilities in respect of environmental matters related to the current and
former operations of the Washington Business, including the remediation of
groundwater contamination at the Newbury Park, California facility. Conexant
currently estimates the remaining costs for this remediation to be approximately
$0.8 million and the Washington Business has accrued for these costs as of
December 31, 2001.
CYCLICALITY; SEASONALITY
The wireless communications semiconductor industry is highly cyclical and
is characterized by constant and rapid technological change, rapid product
obsolescence and price erosion, evolving technical standards, short product life
cycles and wide fluctuations in product supply and demand. From time to time
these and other factors, together with changes in general economic conditions,
cause significant upturns and downturns in the industry, and in the Washington
Business in particular. Periods of industry downturns -- as the Washington
Business experienced through most of calendar year 2001 -- have been
characterized by diminished product demand, production overcapacity, high
inventory levels and accelerated erosion of average selling prices. These
factors cause substantial fluctuations in the Washington Business's revenues and
results of operations. The Washington Business has experienced these cyclical
fluctuations in its business in the past and may experience cyclical
fluctuations in the future.
Sales of products of the Washington Business are subject to seasonal
fluctuation related to the increase in sales of products which include the
Washington Business's customers' products, such as mobile phones, generally
associated with the holiday season in December. The Washington Business's sales
of semiconductor products and system solutions used in these products generally
increase beginning in August and September and continue at a higher level
through the end of the calendar year.
EMPLOYEES
As of May 1, 2002, there were approximately 1,300 full-time employees of
Conexant who will become employees of the Washington Business. The Washington
Business believes its future success will depend in large part upon its ability
to continue to attract, motivate, develop and retain highly skilled and
dedicated employees.
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PROPERTIES
As of May 1, 2002, the general offices of the Washington Business were
located in Newport Beach, California and Newbury Park, California and consisted
of approximately 189,000 square feet of leased floor space. The Washington
Business operated one manufacturing facility in Newbury Park, California
consisting of approximately 117,000 square feet of owned floor space and 67,000
square feet of leased floor space. It also had eleven design centers and sixteen
independent sales offices with an aggregate leased floor space of approximately
144,000 square feet. In the opinion of management, the properties of the
Washington Business have been well maintained, are in sound operating condition
and contain all the equipment and facilities necessary to operate at present
levels. A summary of floor space of the Washington Business's facilities at May
1, 2002 is as follows (in thousands of square feet):
OWNED LEASED
TYPE OF FACILITY FACILITIES FACILITIES TOTAL
---------------- ---------- ---------- -----
Manufacturing............................................... 117 67 184
General office space........................................ -- 189 189
Sales offices............................................... -- 30 30
Design centers.............................................. -- 114 114
--- --- ---
Total..................................................... 117 400 517
=== === ===
Certain of the Washington Business's facilities, including the Newbury
Park, California facility, are located near major earthquake fault lines.
LEGAL PROCEEDINGS
The Washington Business does not currently have any material pending legal
proceedings. Various lawsuits, claims and proceedings have been or may be
instituted or asserted against Conexant, Washington or their respective
subsidiaries, including those pertaining to product liability, intellectual
property, environmental, safety and health, and employment matters. In
connection with the spin-off transaction, Washington will assume responsibility
for all then current and future litigation (including environmental and
intellectual property proceedings) against Conexant or its subsidiaries in
respect of the operations of the Washington Business.
The outcome of litigation cannot be predicted with certainty and some
lawsuits, claims or proceedings may be disposed of unfavorably to the Washington
Business. Many intellectual property disputes have a risk of injunctive relief
and there can be no assurance that a license will be granted. Injunctive relief
could materially and adversely affect the financial condition or results of
operations of the Washington Business. Based on its evaluation of matters that
are pending or asserted, and taking into account the Washington Business's
reserves for such matters, management of the Washington Business believes the
disposition of such matters will not have a material adverse effect on the
Washington Business's financial condition or results of operations.
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INFORMATION ABOUT THE COMBINED COMPANY
INDUSTRY BACKGROUND
Cellular services and personal communications services are increasingly
expanding beyond traditional voice services, with emerging mobile communications
technologies offering consumers and businesses wireless access to data and
information across a wide range of applications. High-speed mobile access has
the potential to enhance dramatically use of the Internet, thereby facilitating
the growth of electronic commerce. At the center of these developments is the
continuing evolution of the mobile phone and the corresponding growth of the
wireless communications infrastructure.
The cellular handset market has grown considerably over the past five years
with unit sales of approximately 400 million units in 2001, according to Gartner
Dataquest, a market research firm, up 500% over 1996 levels. As additional
wireless cellular capacity became available, an intensely competitive pricing
environment for wireless services developed at the same time that lower-priced,
feature-rich mobile phones were being introduced, contributing substantially to
the growth of new subscribers. We expect this trend to continue, enabling
further wireless expansion and increased market penetration worldwide. Market
penetration measures the portion of users or subscribers within the entire
population of a specified geographic area. In the United States, market research
firm EMC is forecasting that wireless penetration will grow from approximately
46% in 2001 to almost 75% by 2005. On a worldwide basis, market penetration of
wireless phones was nearly 16% in 2001 and could approach 30% by 2005, based on
data from EMC. We believe this anticipated dramatic market growth will create
significant demand for mobile phones as well as for wireless infrastructure
equipment to meet future network capacity requirements.
New mobile phones with improved battery life and features are being
introduced at a rapid rate, made possible by significant technological advances
that make earlier models obsolete after only one or two years. According to
Strategy Analytics, roughly half of the cellular handsets sold in 2001 worldwide
were replacements of previous models. We expect this replacement market to
continue to contribute to growth for the digital cellular handset industry, led
by the transition to next generation services, such as CDMA2000, GPRS and EDGE
wireless standards, which support wireless data capacity, and the further
transition to third generation services which will enable even higher bandwidth
applications, including streaming video, digital audio and digital camera
functionality. In addition, in emerging markets where wireline infrastructure is
inadequate or limited, digital wireless networks are providing a viable and
economic alternative that can be rapidly deployed.
In response to this rapidly changing market, handset OEMs are significantly
shortening product development cycles, seeking simplified architectures and
streamlining manufacturing processes. Traditional OEMs are shifting to low-cost
suppliers around the world. In turn, original design manufacturers and contract
manufacturers, who lack radio frequency and systems-level expertise, are
entering the high volume mobile phone market to support OEMs, as well as to
develop handset platforms of their own. Original design manufacturers supply
complete handsets to OEMs, while contract manufacturers supply substantially all
the finished components of the handset. Original design manufacturers and
contract manufacturers can manage low-cost manufacturing and assembly of
handsets, freeing OEMs to focus on the higher value marketing and distribution
aspects of their business. Established handset manufacturers and new market
entrants alike are demanding full semiconductor system solutions that include
the complete radio frequency system as well as all baseband processing, protocol
stack and user interface software, plus comprehensive reference designs and
development platforms. With these solutions, traditional handset OEMs can
accelerate time-to-market cycles with lower investment in engineering and system
design. These semiconductor system solutions also enable original design
manufacturers to enter the high volume handset market without the need to make
significant investments in radio frequency and systems level expertise.
Similarly, cellular and personal communications services network operators
are developing and deploying next generation services. These service providers
are incorporating packet-switching capability in their networks to deliver data
communications and Internet access to digital cellular and other wireless
devices. Over the long-term, service providers are seeking to establish a global
network that can be
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accessed by subscribers at any time, anywhere in the world and that can provide
subscribers with multimedia services. In order to meet this goal, OEMs who
supply wireless infrastructure base stations to network operators are
increasingly relying on mobile communications semiconductor suppliers who can
provide highly integrated radio frequency and mixed signal processing
functionality.
In addition, as service providers migrate cellular subscribers to data
intensive next generation 2.5G and third generation 3G applications, base
stations that transmit and receive signals in the backbone of cellular and
personal communications services systems will be under further capacity
constraints. To meet the related demand, OEMs will be challenged to increase
base station transceiver performance and functionality, while reducing size,
power consumption and overall system costs.
These market trends are creating a potentially significant opportunity for
a broad-based wireless semiconductor supplier with a comprehensive product
portfolio supported by specialized wireless manufacturing process technologies
and a full range of systems-level expertise.
BUSINESS OF THE COMBINED COMPANY
Upon completion of the merger, we believe the combined company will be a
leading company focused exclusively on supplying radio frequency and complete
semiconductor systems solutions for mobile communications applications. The
combined company will supply components, subsystems and system-level
semiconductor solutions for wireless voice and data communications applications,
supporting the world's most widely adopted wireless standards, including CDMA,
TDMA and GSM.
Combining the wireless technology and product portfolios of the Washington
Business and Alpha will position the combined company to provide integrated
radio frequency products and complete semiconductor and software solutions for
advanced and next generation wireless communications applications. The combined
company will possess a broad wireless technology capability and one of the most
complete wireless communications product portfolios, coupled with customer
relationships with all major handset and infrastructure manufacturers. The
combined company expects to continue to make substantial investments in research
and development to participate in the formulation of industry standards.
The combined company's product portfolio will include almost every key
semiconductor integrated circuit found within a digital cellular handset,
including:
- baseband processors, digital devices that act as the cellular handset's
central processor;
- couplers and detectors, devices used to measure radio frequency signals;
- detection diodes, diodes used in radio frequency applications;
- mixed signal processors, devices that convert analog signals into digital
signals and vice versa;
- power management integrated circuits, circuits that charge and monitor
the cellular handset's battery;
- radio frequency integrated circuit power amplifiers and modules, devices
that amplify a signal to provide energy for the signal to reach the base
station;
- radio frequency integrated circuit switches and switch filters, circuits
that switch radio frequency signals and incorporate some signal filtering
functionality;
- radio frequency transceivers, devices that perform both the radio
frequency transmit and receive functions;
- switching diodes, diodes used for channeling the cellular handset's power
for switching purposes;
- synthesizers, circuits that tune to the correct channel to receive the
radio frequency signal from the base station; and
- tuning diodes, diodes that are used to make voltage controlled
oscillators or other frequency tuning circuits.
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In the radio frequency integrated circuit market, the combined company's
product portfolio will include combination switch and filter products,
multi-chip power amplifier modules and highly integrated transceivers. We
believe that the combination of Alpha's discrete component, switch filter and
power amplifier technology with the Washington Business's direct conversion
transceiver will enable the combined company to provide a radio frequency system
with an unmatched level of integration. We believe that the combined company
will be positioned to deliver the world's most comprehensive cellular systems
for next generation handsets, including the complete radio frequency system as
well as all baseband processing, protocol stack and user interface software.
The following diagram illustrates the products of the combined company that
are used in a digital cellular handset:
[DESCRIPTION OF ILLUSTRATION: INTERIOR OF A CELLULAR HANDSET IDENTIFYING
COMPONENTS SUPPLIED BY ALPHA AND THE WASHINGTON BUSINESS, INCLUDING COUPLERS AND
DETECTORS, RF IC POWER AMPLIFIERS AND MODULES, POWER MANAGEMENT ICs,
SYNTHESIZERS, VARACTOR DIODES, MIXED SIGNAL PROCESSOR, BASEBAND PROCESSOR, PIN
DIODES, RF IC SWITCHES AND SWITCH FILTERS, SCHOTTKY DIODES AND RF TRANSCEIVERS]
At the same time, the combined company will be able to offer a broad
product portfolio addressing next generation wireless infrastructure
applications, including:
- amplifiers and amplifier drivers, devices used to amplify the radio
frequency signal to a higher power level;
- attenuators, devices used to reduce radio frequency signal levels;
- ceramic resonators, ceramic devices used to generate or filter radio
frequency signals for various radio and other applications;
- coaxial resonators, devices used in wireless applications to generate or
filter radio frequency signals;
- couplers and detectors, devices used to measure radio frequency signals;
- diodes, components used in detectors, mixers, switches and other
applications;
- filters, circuits used in radio applications to filter unwanted signals
at a specific range of frequencies;
- frequency synthesizers, devices used for generating signals which are
mixed with higher or lower frequency radio frequency signals for
conversion upwards or downwards or modulation or demodulation of signals;
- front-end receivers, radio frequency integrated circuits that convert the
received radio frequency signal in a base station to a lower intermediate
frequency;
- modulators, radio frequency integrated circuits which, when used with a
local oscillator, modulate and convert the incoming baseband signal to a
higher frequency signal;
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- magnetic products, components with magnetic properties;
- switches, devices used to switch a signal on or off to transmit the
signal to a specific path in the circuit; and
- vector modulators, devices used in a base station power amplifier
system's distortion cancellation circuitry.
The following diagram illustrates the combined company's product offerings
for wireless infrastructure applications:
[DESCRIPTION OF ILLUSTRATION: BASE STATION SURROUNDED BY COMPONENTS SUPPLIED BY
ALPHA AND THE WASHINGTON BUSINESS, INCLUDING DIODES, COAXIAL RESONATORS,
MAGNETIC PRODUCTS, DETECTORS/COUPLERS, PA DRIVERS, CERAMIC RESONATORS, FRONT-END
RECEIVERS, FILTERS, FREQUENCY SYNTHESIZERS, VECTOR MODULATORS, IQ MODULATORS,
AMPLIFIERS, SWITCHES AND ATTENUATORS]
These components support a variety of radio frequency and mixed signal
processing functions within the wireless infrastructure, including
down-conversion, switching, signal conditioning and power management.
The combined company will have a comprehensive radio frequency and mixed
signal processing and packaging portfolio, extensive circuit design libraries
and a proven track record in component and system design. We believe that these
capabilities will position the combined company to address the growing need of
wireless infrastructure manufacturers for base station products with increased
transceiver performance and functionality and reduced size, power consumption
and overall system costs. The combination of the Washington Business's wireless
infrastructure portfolio with Alpha's strong existing customer and channel
relationships is expected to enable the combined company to expand its market
presence in the wireless infrastructure market.
The combined company also will supply a variety of advanced components for
integration into cable access and wireless networking applications. Among the
components will be amplification and switching solutions, multi-chip modules and
discrete ceramic solutions.
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MANAGEMENT AND OPERATIONS OF THE COMBINED COMPANY AFTER THE MERGER
BOARD OF DIRECTORS
The board of directors of Alpha will change as a result of the merger. At
the effective time of the merger, the board of directors of the combined company
will consist of nine directors. Four directors of the combined company will be
selected from among Alpha's current directors and four directors will be
selected by Conexant. Alpha and Conexant will jointly select the remaining
director.
We have listed below biographical information for each person who is
currently expected to be a member of the board of directors of the combined
company.
ALPHA DESIGNEES TO THE BOARD OF DIRECTORS
DAVID J. ALDRICH, age 45, was elected chief executive officer, president
and director of Alpha in April 2000. From September 1999 to April 2000, Mr.
Aldrich served as president and chief operating officer of Alpha. From May 1996
to May 1999, when he was appointed executive vice president, Mr. Aldrich served
as vice president and general manager of the semiconductor products segment. Mr.
Aldrich joined Alpha in 1995 as vice president, chief financial officer and
treasurer. From 1989 to 1995, Mr. Aldrich held senior management positions at
M/A-COM, Inc., a developer and manufacturer of radio frequency and microwave
semiconductors, components and IP networking solutions, including manager
integrated circuits active products, corporate vice president strategic
planning, director of finance and administration, and director of strategic
initiatives with the microelectronics division.
TIMOTHY R. FUREY, age 44, has been chief executive officer of MarketBridge,
a privately-owned sales and marketing strategy and technology professional
services firm, since 1991. Prior to 1991, Mr. Furey was a consultant with Boston
Consulting Group, Strategic Planning Associates, Kaiser Associates and the
Marketing Science Institute.
THOMAS C. LEONARD, age 67, was elected chairman of the Alpha board of
directors in April 2000; he has been a director since August 1996. From
September 1999 to April 2000, Mr. Leonard served as chief executive officer of
Alpha. From July 1996 to September 1999, he served as president and chief
executive officer of Alpha. Mr. Leonard joined Alpha in 1992 as a division
general manager and was elected a vice president in 1994. Mr. Leonard has over
thirty years' experience in the microwave industry, having held a variety of
executive and senior level management and marketing positions at M/A-COM, Inc.,
Varian Associates, Inc. and Sylvania. Mr. Leonard is a director of the
Massachusetts Telecommunications Council.
DAVID J. MCLACHLAN, age 63, was the executive vice president and chief
financial officer of Genzyme Corporation, a biotechnology company, from 1989 to
1999. Mr. McLachlan is currently a senior adviser to Genzyme's chairman and
chief executive officer. Prior to joining Genzyme, Mr. McLachlan served as vice
president, finance of Adams-Russell Company, an electronic component supplier
and cable television franchise owner. Mr. McLachlan also serves on the boards of
directors of Dyax Corporation, a biotechnology company, and HEARx, Ltd., a
hearing care services company.
CONEXANT DESIGNEES TO THE BOARD OF DIRECTORS
DWIGHT W. DECKER, age 52, has been chairman of the board and chief
executive officer of Conexant since November 1998. He served as senior vice
president of Rockwell International Corporation (electronic controls and
communications) and president, Rockwell Semiconductor Systems from July 1998 to
December 1998; senior vice president of Rockwell and president, Rockwell
Semiconductor Systems and Electronic Commerce from March 1997 to July 1998; and
president, Rockwell Semiconductor Systems from October 1995 to March 1997. Mr.
Decker has been a director of Conexant since its incorporation in 1996.
DONALD R. BEALL, age 63, is the non-executive chairman of the board of
Rockwell Collins, Inc. (avionics and communications). He served as a director of
Rockwell International Corporation from February 1978 to February 2001. He was
chairman of the board and chief executive officer of Rockwell
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from February 1988 to February 1998 and chief executive officer of Rockwell from
February 1988 to September 1997. Mr. Beall has been a director of Conexant since
1998. In addition to being a director of Rockwell Collins and Conexant, Mr.
Beall is a director of The Procter & Gamble Company and a former director of
Amoco Corporation, ArvinMeritor, Inc., Rockwell and The Times Mirror Company. He
is a trustee of California Institute of Technology, a member of the Foundation
Board of Trustees at the University of California, Irvine and an overseer of the
Hoover Institution. He is also a member of The Business Council and numerous
professional, civic and entrepreneurial organizations.
MOIZ M. BEGUWALA, age 56, has served as senior vice president and general
manager -- wireless communications of Conexant since January 1999. Prior to
Conexant's spin-off from Rockwell International Corporation, Mr. Beguwala served
as vice president and general manager -- wireless communications division,
Rockwell Semiconductor Systems, Inc. from October 1998 to December 1998; vice
president and general manager -- personal computing division, Rockwell
Semiconductor Systems, Inc. from January 1998 to October 1998; and vice
president, worldwide sales, Rockwell Semiconductor Systems, Inc. from October
1995 to January 1998.
F. CRAIG FARRILL, age 49, has been managing director and chief technology
officer of inOvate Communications Group (wireless communications) since
September 2000. Prior thereto, he was chief technology officer of Vodafone
AirTouch PLC (wireless communications) from July 1999 to July 2000 and was vice
president, strategic technology of AirTouch Communications, Inc. (wireless
communications) from June 1996 to July 1999. Mr. Farrill has been a director of
Conexant since 1998. He is also a member of the board of directors and a
corporate officer of the CDMA Development Group, a digital cellular technology
consortium, which he founded in 1993.
JOINT DESIGNEE TO THE BOARD OF DIRECTORS
Alpha and Conexant will jointly designate an individual to serve as a
member of the board of directors of the combined company.
CLASSIFIED BOARD
After the merger, the combined company's second amended and restated
certificate of incorporation will provide that the board of directors will
consist of three classes of directors with overlapping three-year terms, each
class having as nearly equal a number of directors as possible. One class of
directors is to be elected each year with a term extending to the third
succeeding annual meeting of stockholders after election.
It is expected that at the effective time of the merger, the board of
directors of Alpha will take action such that the members of Class I, whose
terms expire at the 2002 annual meeting of stockholders, will be Mr. Farrill and
Mr. Leonard; the members of Class II, whose terms expire at the 2003 annual
meeting of stockholders, will be Mr. Beall, Mr. Beguwala and Mr. Furey; and the
members of Class III, whose terms expire at the 2004 annual meeting of
stockholders, will be Mr. Aldrich, Mr. Decker and Mr. McLachlan. Upon
appointment to the board, the jointly selected director is expected to join
Class I.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors of the combined company will initially have the
following three committees:
Audit Committee. The audit committee will consist of at least three
non-employee directors who are independent directors within the meaning of Rule
4200(a)(14) of the Rules of the National Association of Securities Dealers, Inc.
The audit committee will review the scope and effectiveness of audits of the
combined company by the combined company's independent public accountants and
internal auditors; review the audit plans of the combined company's independent
public accountants and internal auditors; review the combined company's
quarterly and annual financial statements before their release; review the
adequacy of the combined company's system of internal controls and
recommendations of the independent public accountants and of the internal
auditors with respect thereto; review and act on the comments and
139
suggestions by the independent public accountants and by the internal auditors
with respect to their audit activities; and monitor compliance by the employees
of the combined company with the combined company's standards of business
conduct policies.
Compensation Committee. The compensation committee will consist of at
least two non-employee directors. The principal functions of the compensation
committee will be to evaluate the performance of the combined company's senior
executives and plans for management succession and development, to consider the
design and competitiveness of the combined company's compensation plans, to
review and approve senior executive compensation and to administer the combined
company's compensation plans pursuant to the terms of the respective plans. The
members of the committee will be ineligible to participate in any of the plans
or programs which are administered by the committee, except for Alpha's
Directors' 2001 Stock Option Plan.
Nominating Committee. The nominating committee is expected to consist only
of non-employee directors. The principal functions of the nominating committee
will be to consider and recommend to the board of directors qualified candidates
for election as directors of the combined company. Stockholders of the combined
company will be able to recommend candidates for consideration by the committee
by writing to the secretary of the combined company within certain time periods
specified in the combined company's amended by-laws, giving the candidate's
name, biographical data and qualifications.
COMPENSATION OF DIRECTORS
Subject to approval by the combined company's board of directors, we
anticipate that non-employee directors of the combined company will be paid a
retainer at the rate of $30,000 per year for service on the board of directors.
Upon initial election to the board of directors, each non-employee director will
be granted an option to purchase 45,000 shares of the combined company's common
stock at an exercise price per share equal to the fair market value of the
combined company's common stock on the date of grant. Such stock options will
become exercisable in four equal installments on each of the first, second,
third and fourth anniversaries of the date the options are granted. In addition,
each non-employee director who is reelected or continues in office will be
granted an option to purchase 15,000 shares of the combined company's common
stock immediately after each annual meeting of stockholders of the combined
company.
Non-employee directors of the combined company will receive fees for
attending each meeting of the board of directors: $1,000 per day for attending
board meetings in person and $500 per day for participating in board meetings
via telephone. Additionally, for service on the committees of the board of
directors, the chairman of each committee will receive $2,500 per year and the
other members will receive $1,250 per year.
MANAGEMENT
Certain of the executive officers of Alpha will change as a result of the
merger. After completion of the merger, David J. Aldrich, currently president
and chief executive officer of Alpha, will be chief executive officer of the
combined company. After completion of the merger, Kevin D. Barber, currently
senior vice president, operations of Conexant, will be senior vice president,
operations of the combined company; Liam K. Griffin, currently vice president,
sales of Alpha, will be vice president, sales and marketing of the combined
company; George M. LeVan, currently director, human resources of Alpha, will be
vice president, human resources of the combined company; and Paul E. Vincent,
currently vice president, chief financial officer, treasurer and secretary of
Alpha, will be vice president and chief financial officer of the combined
company. See "The Merger -- Interests of Certain Persons in the Merger".
We have set forth below certain information about persons expected to be
executive officers of the combined company as of the effective time of the
merger.
DAVID J. ALDRICH, chief executive officer. A brief description of Mr.
Aldrich's business experience during the past five years is included in
"-- Alpha Designees to the Board of Directors".
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KEVIN D. BARBER, senior vice president, operations, age 41, has served as
senior vice president, operations of Conexant since February 2001; vice
president, internal manufacturing from August 2000 to February 2001; vice
president, device manufacturing from March 1999 to August 2000; vice president,
strategic sourcing from November 1998 to March 1999; and director, material
sourcing of Rockwell Semiconductor Systems (now Conexant) from May 1997 to
November 1998.
LIAM K. GRIFFIN, vice president, sales and marketing, age 35, has served as
Alpha's vice president, sales and marketing since July 2001. Previously, Mr.
Griffin was employed by Vectron International, a division of Dover Corp., as
vice president of worldwide sales from 1997 to 2001, and as vice president of
North American sales from 1995 to 1997. His prior experience included positions
as a marketing manager at AT&T Microelectronics, Inc. and product and process
engineer at AT&T Network Systems.
GEORGE M. LEVAN, vice president, human resources, age 56, has managed
Alpha's human resources department since becoming employed by Alpha in 1982.
Since April 1991, Mr. LeVan has served as Alpha's director, human resources.
Before becoming employed by Alpha, he held human resource positions at Data
Terminal Systems, Inc., W.R. Grace & Co., Compo Industries, Inc. and RCA.
PAUL E. VINCENT, vice president and chief financial officer, age 54, has
served as vice president and chief financial officer of Alpha since January
1997, treasurer of Alpha since September 1997 and secretary of Alpha since
September 1999. Mr. Vincent joined Alpha in 1979 as controller. Prior to joining
Alpha, Mr. Vincent worked at Applicon Incorporated and, prior to that, Arthur
Andersen & Co.
141
COMPENSATION OF EXECUTIVE OFFICERS OF THE COMBINED COMPANY
The following tables disclose compensation received by the individuals who
will be the chief executive officer and the next four most highly compensated
executive officers of the combined company based on compensation received from
Alpha or Conexant, as applicable, for the fiscal years indicated. These officers
are referred to as named executive officers in other parts of this proxy
statement/prospectus-information statement. References in this section to
Alpha's 2000, 2001 and 2002 fiscal years refer to the fiscal years which ended
on April 2, 2000, April 1, 2001 and March 31, 2002, respectively, and references
to Conexant's 1999, 2000 and 2001 fiscal years refer to the fiscal years which
ended on September 30, 1999, 2000 and 2001, respectively.
SUMMARY COMPENSATION TABLE
ALPHA
The following table discloses compensation received from Alpha by the named
executive officers who are currently employees of Alpha.
LONG-TERM COMPENSATION
---------------------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION --------------------- ---------------------------
---------------------------------------------- RESTRICTED STOCK LONG-TERM
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK OPTIONS INCENTIVE ALL OTHER
POSITION(1) YEAR SALARY BONUS COMPENSATION(3) AWARDS (SHARES) PAYOUTS COMPENSATION(2)
------------------ ------ -------- -------- --------------- ---------- -------- --------- ---------------
David J. Aldrich 2002 $351,154 $ -- $ -- -- 160,000 -- $8,922
chief executive 2001 336,615 -- -- -- 150,000 -- 8,550
officer 2000 278,269 284,800 -- -- 120,000 -- 6,839
Liam K. Griffin 2002 130,039 25,000(4) -- -- 100,000(4) -- 1,062
vice president,
sales and marketing
George M. LeVan 2002 144,807 -- -- -- 25,000 -- 7,774
vice president, 2001 129,038 31,590 6,049 -- 18,467 -- 8,155
human resources 2000 122,038 35,053 3,988 -- 18,000 -- 6,643
Paul E. Vincent 2002 226,385 -- -- -- 50,000 -- 8,956
vice president and 2001 217,462 -- -- -- 60,000 -- 9,681
chief financial 2000 190,192 186,400 -- -- 50,000 -- 8,571
officer
---------------
(1) The listed principal position of each named executive officer is the
principal position each named executive officer is expected to hold with the
combined company. Mr. Aldrich is currently the president and chief executive
officer of Alpha. Mr. Vincent is currently vice president, chief financial
officer, treasurer and secretary of Alpha.
(2) "All Other Compensation" includes service awards and Alpha's contributions
to the executive officer's 401(k) plan account (including contributions for
the fourth quarter of each fiscal year, which were included in the year of
accrual but not distributed until the subsequent fiscal year).
(3) "Other Annual Compensation" includes contributions under Alpha's
company-wide gain-sharing program.
(4) In connection with his joining Alpha in July 2001, Mr. Griffin received a
sign-on bonus and a grant of Alpha stock options.
142
CONEXANT
The following table discloses compensation received from Conexant by the
named executive officer who is currently an executive officer of Conexant.
LONG-TERM COMPENSATION
---------------------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION --------------------- ---------------------------
-------------------------------------------- RESTRICTED STOCK LONG-TERM
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK OPTIONS INCENTIVE ALL OTHER
POSITION(1) YEAR SALARY BONUS COMPENSATION AWARDS (SHARES) PAYOUTS COMPENSATION
------------------ ------ -------- -------- ------------ ---------- -------- --------- ---------------
Kevin D. Barber........ 2001 $253,919(2) $314,568 $8,543 -- 107,201 -- --
senior vice
president, operations
---------------
(1) The listed principal position is the principal position the named executive
officer is expected to hold with the combined company.
(2) Includes $21,153 paid to Mr. Barber in lieu of vacation.
OPTION GRANTS IN LAST FISCAL YEAR
ALPHA
The following table provides information about stock options granted by
Alpha in the fiscal year ended March 31, 2002 to named executive officers who
are currently employees of Alpha.
OPTION GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENTAGE OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM
OPTIONS GRANTED TO ALPHA EMPLOYEES BASE PRICE EXPIRATION ------------------------
NAME (SHARES) IN FISCAL 2002 (PER SHARE) DATE 5% 10%
---- --------------- ------------------- ----------- ---------- ---------- ----------
David J. Aldrich 160,000 5.79% $13.56 4/4/2011 $1,364,752 $3,458,549
Liam K. Griffin 100,000 3.62% 24.78 9/7/2011 1,558,401 3,949,249
George M. LeVan 25,000 0.90% 13.56 4/4/2011 213,242 540,398
Paul E. Vincent 50,000 1.81% 13.56 4/4/2011 426,485 1,080,796
Generally, Alpha options vest at a rate of 25% per year commencing one year
after the date of grant, provided the holder of the option remains employed by
Alpha. Generally, options may not be exercised more than three months after the
holder ceases to be employed by Alpha, except in the event of termination by
reason of death or permanent and total disability, in which event the option may
be exercised for specific periods not exceeding one year following termination.
In addition, Alpha has severance agreements with each of Messrs. Aldrich and
Vincent, pursuant to which, under certain circumstances, unvested options held
by them will vest immediately and they will be entitled to extended periods of
exercise of their options.
The assumed annual rates of stock price appreciation stated in the table
are dictated by the regulations of the Securities and Exchange Commission and
are compounded annually for the full term of the options. Actual outcomes may
differ.
143
CONEXANT
The following table provides information about stock options granted by
Conexant in the fiscal year ended September 30, 2001 to the named executive
officer who is currently an executive officer of Conexant.
OPTION GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS GRANTED PRICE APPRECIATION FOR
UNDERLYING TO CONEXANT EXERCISE OR OPTION TERM
OPTIONS GRANTED EMPLOYEES BASE PRICE EXPIRATION ----------------------
NAME (SHARES) IN FISCAL 2001 (PER SHARE) DATE 5% 10%
---- --------------- ------------------- ----------- ---------- --------- ---------
Kevin D. Barber 33,564 0.12% $ 8.9375 3/30/2011 $188,655 $478,088
7,201 0.02% 21.8750 10/27/2010 99,065 251,049
66,436 0.23% 8.9375 3/30/2009 283,500 679,031
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
ALPHA
The following table provides information about option exercises during the
fiscal year ended March 31, 2002 by the named executive officers who are
currently employees of Alpha and the value of their unexercised options as of
the end of that fiscal year, based on the closing price of Alpha common stock on
the Nasdaq National Market on March 28, 2002 ($15.25).
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS
SHARES MARCH 31, 2002 AT MARCH 31, 2001
ACQUIRED VALUE ----------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
David J. Aldrich 55,000 $1,588,806 124,500 389,500 $481,116 $800,530
Liam K. Griffin -- -- -- 100,000 -- --
George M. LeVan 12,000 426,476 26,017 55,950 171,123 116,298
Paul E. Vincent 24,400 645,343 39,000 149,000 292,488 359,342
The values of unexercised options in the foregoing table are based on the
difference between the $15.25 closing price of Alpha's common stock at the end
of the 2002 fiscal year on the Nasdaq National Market and the respective option
exercise price.
CONEXANT
The following table provides information about option exercises during the
fiscal year ended September 30, 2001 by the named executive officer who is
currently an executive officer of Conexant and the value of his unexercised
options as of the end of that fiscal year, based on the closing price of
Conexant common stock on the Nasdaq National Market on September 28, 2001
($8.30).
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES SEPTEMBER 30, 2001 SEPTEMBER 30, 2001
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
Kevin D. Barber -- -- 63,812 118,389 -- --
144
OWNERSHIP OF COMBINED COMPANY COMMON STOCK
The table below sets forth the projected beneficial ownership of the
combined company's common stock immediately after the completion of the merger
and is derived from information relating to the beneficial ownership of Alpha
common stock and Conexant common stock as of April 15, 2002. The table sets
forth the projected beneficial ownership of the combined company's common stock
by the following individuals or entities:
- each person who will beneficially own more than 5% of the outstanding
shares of the combined company's common stock immediately after
completion of the merger;
- the individuals who will be the chief executive officer and the other
four most highly compensated executive officers of the combined company;
- the individuals who will be the directors of the combined company; and
- the individuals who will be the directors and executive officers of the
combined company as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Except as otherwise indicated, each person
or entity named in the table is expected to have sole voting and investment
power with respect to all shares of the combined company's common stock shown as
beneficially owned, subject to applicable community property laws. As of April
29, 2002, 44,265,003 shares of Alpha common stock were issued and outstanding.
The percentage of beneficial ownership set forth below gives effect to the
issuance of an estimated 94,065,894 shares of combined company common stock in
the merger and is based on 138,330,897 shares of combined company common stock
estimated to be outstanding immediately following completion of the merger. In
computing the number of shares of combined company common stock beneficially
owned by a person and the percentage ownership of that person, shares of
combined company common stock that will be subject to options held by that
person that are currently exercisable or that are exercisable within 60 days of
April 15, 2002 are deemed outstanding. These shares are not, however, deemed
outstanding for the purpose of computing the percentage ownership of any other
person.
NUMBER OF SHARES
BENEFICIAL OWNER NUMBER OF SHARES SUBJECT TO OPTIONS(1) PERCENT
---------------- ---------------- --------------------- -------
David J. Aldrich.................................. 52,673 199,250 *
Kevin D. Barber(2)................................ 4,107(3,4) 44,699 *
Donald R. Beall(2)................................ 233,909(3,5) 235,716 *
Moiz M. Beguwala(2)............................... 15,261(3,4) 244,821 *
Dwight W. Decker(2)............................... 60,647(3,4) 903,328 *
F. Craig Farrill(2)............................... 2,510(6) 26,325 *
Timothy R. Furey.................................. -- 54,750 *
Liam K. Griffin................................... -- -- --
Thomas C. Leonard................................. 62,340 56,250 *
George M. LeVan................................... 6,504 39,867 *
David J. McLachlan................................ 2,600 11,250 *
Paul E. Vincent................................... 72,316 69,000 *
All directors and executive officers as a group
(12 persons).................................... 512,867 1,885,256 1.72%
---------------
* Less than one percent.
(1) Indicates the projected number of shares of combined company common stock
issuable upon the exercise of options exercisable within 60 days of April
15, 2002.
(2) Amounts shown are based on Conexant share ownership and Conexant shares
subject to options, which will equal the Washington share ownership and
Washington shares subject to options
145
immediately after the distribution of Washington common stock, multiplied by
0.351, the exchange ratio in the merger.
(3)Includes the projected number of shares of combined company common stock
issuable in respect of shares of Conexant common stock held under the savings
plans of Conexant and Rockwell Automation, Inc. as of April 15, 2002.
(4)Includes the projected number of shares of combined company common stock
issuable in respect of shares of Conexant common stock that may be issued as
restricted stock under the Conexant Systems, Inc. 2001 Performance Share Plan
prior to the distribution of Washington common stock as follows: 2,587;
3,274; 14,311; and 20,172 for Messrs. Barber, Beguwala, Decker and the group,
respectively.
(5)Includes the projected number of shares of combined company common stock as
to which beneficial ownership is disclaimed as follows: 7,073 shares of
combined company common stock issuable in respect of shares of Conexant
common stock held for the benefit of family members and 3,510 shares of
combined company common stock issuable in respect of shares of Conexant
common stock owned by the Beall Foundation, of which Mr. Beall is President
and a director. Does not include 101,161 shares of combined company common
stock issuable in respect of shares of Conexant common stock that may be
acquired upon exercise of Conexant stock options transferred to family
members who are the beneficial owners thereof.
(6)Includes the projected 1,319 shares of combined company common stock issuable
in respect of shares of Conexant common stock granted to Mr. Farrill as
restricted stock under the Conexant Systems, Inc. Directors Stock Plan.
146
DESCRIPTION OF THE COMBINED COMPANY'S CAPITAL STOCK
The following description of the material terms of the capital stock of the
combined company includes a summary of certain provisions of the combined
company's second amended and restated certificate of incorporation and second
amended and restated by-laws that will become effective at the effective time of
the merger. This description is subject to the detailed provisions of, and is
qualified by reference to, the combined company's second amended and restated
certificate of incorporation and amended by-laws, copies of which are attached
as Annexes D and E, respectively, and are incorporated by reference into this
section of the proxy statement/prospectus-information statement.
The combined company will be authorized to issue (1) 525,000,000 shares of
common stock, par value $0.25 per share, and (2) 25,000,000 shares of preferred
stock, without par value. Following completion of the merger, it is anticipated
that approximately 138,330,897 shares of combined company common stock will be
outstanding. The authorized shares of common stock and preferred stock will be
available for issuance without further action by the combined company's
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the combined company's
securities may be listed or traded. If the approval of the combined company's
stockholders is not so required, the combined company's board of directors may
determine not to seek stockholder approval.
Certain of the provisions described below under "-- Certain Provisions in
the Combined Company's Second Amended and Restated Certificate of Incorporation
and Amended By-Laws" could have the effect of discouraging transactions that
might lead to a change of control of the combined company. For example, the
combined company's second amended and restated certificate of incorporation and
amended by-laws:
- establish a classified board of directors;
- permit the board of directors to issue shares of preferred stock in one
or more series without further authorization of the combined company's
stockholders;
- prohibit stockholder action by written consent;
- require stockholders to provide advance notice of any stockholder
nominations of directors or any proposal of new business to be considered
at any meeting of stockholders;
- require a supermajority vote to amend or repeal certain provisions of the
combined company's second amended and restated certificate of
incorporation or amended by-laws;
- preclude stockholders from calling a special meeting of stockholders;
- require a supermajority vote for business combinations not approved by a
majority of the members of the board of directors in office prior to the
time the other party to the business combination became the beneficial
owner of 5% or more of the shares of the combined company; and
- contain a fair price provision.
COMMON STOCK
Holders of combined company common stock are entitled to such dividends as
may be declared by the combined company's board of directors out of funds
legally available for such purpose. Dividends may not be paid on common stock
unless all accrued dividends on preferred stock, if any, have been paid or
declared and set aside. In the event of the combined company's liquidation,
dissolution or winding up, the holders of common stock will be entitled to share
pro rata in the assets remaining after payment to creditors and after payment of
the liquidation preference plus any unpaid dividends to holders of any
outstanding preferred stock.
Each holder of combined company common stock will be entitled to one vote
for each such share outstanding in the holder's name. No holder of common stock
will be entitled to cumulate votes in voting for directors. The combined
company's second amended and restated certificate of incorporation provides
that, unless otherwise determined by the combined company's board of directors,
no holder of common
147
stock will have any preemptive right to purchase or subscribe for any stock of
any class which the combined company may issue or sell.
The shares of combined company common stock to be issued in the merger and
the shares of combined company common stock to be reserved for issuance upon
exercise of Washington options converted in the merger will be listed on the
Nasdaq National Market.
American Stock Transfer & Trust Company will be the transfer agent and
registrar for the combined company's common stock. Its address is 59 Maiden
Lane, New York, NY 10038, and its telephone number is (800) 937-5449.
PREFERRED STOCK
The combined company's second amended and restated certificate of
incorporation permits the combined company to issue up to 25,000,000 shares of
combined company preferred stock in one or more series and with rights and
preferences that may be fixed or designated by the combined company's board of
directors without any further action by the combined company's stockholders. The
designation, powers, preferences, rights and qualifications, limitations and
restrictions of the preferred stock of each series will be fixed by the
certificate of designation relating to such series, which will specify the terms
of the preferred stock, including:
- the designation of the series, which may be by distinguishing number,
letter or title;
- the number of shares of the series, which number the board of directors
may thereafter (except where otherwise provided in the preferred stock
designation) increase or decrease (but not below the number of shares
thereof then outstanding);
- whether dividends, if any, shall be cumulative or noncumulative and the
dividend rate of the series;
- the dates at which dividends, if any, shall be payable;
- the redemption rights and price or prices, if any, for shares of the
series;
- the terms and amount of any sinking fund provided for the purchase or
redemption of shares of the series;
- the amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of
the combined company;
- whether the shares of the series shall be convertible into shares of any
other class or series, or any other security, of the combined company or
any other corporation, and, if so, the specification of such other class
or series or such other security, the conversion price or prices or rate
or rates, any adjustments thereof, the date or dates as of which such
shares shall be convertible and all other terms and conditions upon which
such conversion may be made;
- restrictions on the issuance of shares of the same series or of any other
class or series; and
- the voting rights, if any, of the holders of shares of the series;
provided, that no share of preferred stock of any series will be entitled
to more than one vote per share of preferred stock.
Although the combined company's board of directors has no intention at the
present time of doing so, it could issue a series of preferred stock that could,
depending on the terms of such series, impede the completion of a merger, tender
offer or other takeover attempt.
CERTAIN PROVISIONS IN THE COMBINED COMPANY'S SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION AND AMENDED BY-LAWS
The combined company's second amended and restated certificate of
incorporation and amended by-laws contain various provisions intended to:
- promote the stability of the combined company's stockholder base; and
- render more difficult certain unsolicited or hostile attempts to take the
combined company over which could disrupt the combined company, divert
the attention of its directors, officers and employees and adversely
affect the independence and integrity of the combined company's business.
148
Pursuant to the combined company's second amended and restated certificate
of incorporation, the number of directors is fixed by the combined company's
board of directors. The combined company's directors are divided into three
classes, each class to consist as nearly as possible of one third of the
directors. Pursuant to the combined company's amended by-laws, directors elected
by stockholders at an annual meeting of stockholders will be elected by a
plurality of all votes cast. Currently, the terms of office of the three classes
of directors will expire, respectively, at the combined company's 2002, 2003 and
2004 annual meetings. The term of the successors of each such class of directors
expires three years from the year of election.
The combined company's second amended and restated certificate of
incorporation contains a fair price provision pursuant to which a business
combination (including, among other things, a merger or consolidation) between
the combined company or its subsidiaries and a related person (as defined in the
combined company's second amended and restated certificate of incorporation),
requires approval by the affirmative vote of the holders of at least 90% of the
then outstanding shares of capital stock entitled to vote generally in the
election of directors, voting together as a single class, unless the business
combination is approved by a majority of the continuing directors (as defined in
the combined company's second amended and restated certificate of incorporation)
and certain fair price criteria and procedural requirements specified in the
fair price provision are met. If the business combination does not involve any
cash or other property being received by any of the other stockholders, then the
fair price criteria discussed below would not apply, and only approval by a
majority of the continuing directors would be required.
Under the fair price provision, the fair price criteria that must be
satisfied to avoid the 90% stockholder voting requirement include the
requirement that the consideration paid to the combined company's stockholders
in a business combination must be either cash or the same form of consideration
used by the related person in acquiring its beneficial ownership of the largest
number of shares of the combined company's capital stock acquired by the related
person. The related person would be required to meet the fair price criteria
with respect to each class of the combined company's capital stock entitled to
vote generally in the election of directors, whether or not the related person
beneficially owned shares of that class prior to proposing the business
combination.
Under the fair price provision, even if the foregoing fair price criteria
are met, the following procedural requirements must be met if the business
combination is not to require approval by the holders of at least 90% of the
then outstanding shares of capital stock entitled to vote generally in the
election of directors, voting together as a single class:
- after the related person had become a related person and before the
consummation of such business combination, (1) the combined company must
not have failed to declare and pay full quarterly dividends on any
outstanding combined company preferred stock, reduced the annual rate of
dividends paid on combined company common stock or failed to increase
such annual rate of dividends as necessary to reflect any
reclassification, recapitalization, reorganization or any similar
transaction which has the effect of reducing the number of outstanding
shares of combined company common stock, unless such failure, reduction
or reclassification was approved by a majority of the continuing
directors and (2) the related person must not have acquired any newly
issued shares of combined company capital stock entitled to vote
generally in the election of directors, directly or indirectly, from the
combined company, except as part of the transaction which results in such
related person becoming a related person;
- the related person must not have received, directly or indirectly (other
than proportionately as a stockholder), at any time after becoming a
related person, the benefit of any loans, advances, guarantees, pledges
or other financial assistance or any tax advantages provided by the
combined company; and
- a proxy or information statement describing the proposed business
combination and complying with the requirements of the Exchange Act must
have been mailed to all stockholders of the combined company at least 30
days prior to the consummation of the business combination and such proxy
or information statement must have contained a recommendation as to the
advisability or inadvisability
149
of the business combination which any of the continuing directors may
have furnished in writing to the board of directors.
The combined company's second amended and restated certificate of
incorporation requires the affirmative vote of the holders of at least 80% of
the shares of all classes of stock entitled to vote for the election of
directors, voting together as a single class, to approve a business combination
(including, among other things, a merger, consolidation or sale of all or
substantially all of the assets of the combined company) that has not been
approved by a majority of the members of the board of directors in office prior
to the time the other party to the business combination became the beneficial
owner of 5% or more of the shares of the combined company entitled to vote for
the election of directors.
The combined company's amended by-laws provide that a special meeting of
stockholders may be called only by a resolution adopted by a majority of the
entire board of directors. Stockholders are not permitted to call, or to require
that the board of directors call, a special meeting of stockholders. Moreover,
the business permitted to be conducted at any special meeting of stockholders is
limited to the business brought before the meeting pursuant to the notice of the
meeting given by the combined company. In addition, the combined company's
second amended and restated certificate of incorporation provides that any
action taken by the combined company's stockholders must be effected at an
annual or special meeting of stockholders and may not be taken by written
consent instead of a meeting. The combined company's amended by-laws establish
an advance notice procedure for stockholders to nominate candidates for election
as directors or to bring other business before meetings of the combined
company's stockholders.
The combined company's second amended and restated certificate of
incorporation requires the affirmative vote of the holders of at least 66 2/3%
of the shares of all classes of stock entitled to vote for the election of
directors, voting together as a single class, to:
- amend or repeal any provision of the combined company's amended by-laws;
- amend or repeal the provision of the combined company's second amended
and restated certificate of incorporation relating to amendments to the
combined company's amended by-laws; or
- adopt any provision inconsistent with such provisions.
The combined company's second amended and restated certificate of
incorporation requires the affirmative vote of the holders of at least 80% of
the shares of all classes of stock entitled to vote for the election of
directors, voting together as a single class, to:
- amend or repeal the provisions of the combined company's second amended
and restated certificate of incorporation relating to the election of
directors, the classified board, or the right to act by written consent;
or
- adopt any provision inconsistent with such provisions.
The combined company's second amended and restated certificate of
incorporation requires the affirmative vote of the holders of at least 90% of
the shares of all classes of stock entitled to vote for the election of
directors, voting together as a single class, to:
- amend or repeal the fair price provision of the combined company's second
amended and restated certificate of incorporation; or
- adopt any provision inconsistent with such provision.
Under the business combination provision discussed above, the combined
company's second amended and restated certificate of incorporation requires the
affirmative vote of the holders of at least 80% of the shares of all classes of
stock entitled to vote for the election of directors, voting together as a
single class, to amend, revise or revoke the business combination provision.
150
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law permits Delaware corporations to
eliminate or limit the monetary liability of directors for breach of their
fiduciary duty of care, subject to certain limitations. The combined company's
second amended and restated certificate of incorporation provides that directors
are not liable to the combined company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (1) for any
breach of the director's duty of loyalty to the combined company or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) for willful or
negligent violation of the laws governing the payment of dividends or the
purchase or redemption of stock or (4) for any transaction from which a director
derived an improper personal benefit.
The Delaware General Corporation Law provides for indemnification of
directors, officers, employees and agents subject to certain limitations. The
combined company's amended by-laws and the appendices thereto provide for the
indemnification of the combined company's directors, officers, employees and
agents to the maximum extent permitted by Delaware law. The combined company's
directors and officers are insured against certain liabilities for actions taken
in such capacities, including liabilities under the Securities Act.
151
COMPARISON OF RIGHTS OF ALPHA STOCKHOLDERS BEFORE AND AFTER THE MERGER
By approving and adopting the merger agreement, Alpha stockholders will be
approving the adoption of Alpha's second amended and restated certificate of
incorporation and Alpha's amended by-laws as the certificate of incorporation
and by-laws of the combined company, which will be in the forms attached to this
proxy statement/prospectus-information statement as Annexes D and E,
respectively, and are incorporated by reference into this section of the proxy
statement/prospectus-information statement. Accordingly, after completion of the
merger, the rights of Alpha stockholders will be governed by these revised
documents. The following is a summary of the material differences with respect
to the rights of stockholders of Alpha before the merger and the rights of
stockholders of the combined company after the merger that arise as a result of
the adoption of the second amended and restated certificate of incorporation and
amended by-laws in connection with the merger. Each of the changes to Alpha's
existing certificate of incorporation and by-laws described below has been
modeled on provisions of Conexant's existing certificate of incorporation and
by-laws.
RIGHTS OF ALPHA STOCKHOLDERS RIGHTS OF COMBINED COMPANY STOCKHOLDERS
BEFORE THE MERGER AFTER THE MERGER
-------------------------------------------------- ---------------------------------------
DESCRIPTION OF Pursuant to the certificate of incorporation, Pursuant to the certificate of
CAPITAL STOCK Alpha is authorized to issue 100,000,000 shares of incorporation, the combined company
common stock, par value $.25. will be authorized to issue 550,000,000
shares consisting of (i) 525,000,000
shares of common stock, par value $.25,
and (ii) 25,000,000 shares of preferred
stock, no par value.
The Delaware General Corporation Law provides that The same provisions of the Delaware
the directors of a corporation may declare and pay General Corporation Law will be
dividends upon the shares of the corporation's applicable to the combined company. In
capital stock either (i) out of its surplus, as addition, subject to the rights of the
defined by the Delaware General Corporation Law, holders of preferred stock, the holders
or (ii) in case there is no such surplus, out of of shares of common stock shall be
the corporation's net profits for the fiscal year entitled to receive dividends and
in which the dividend is declared and/or the distributions in equal amounts per
preceding fiscal year. share, payable in cash or otherwise, as
may be declared by the board of
directors from time to time out of
assets or funds of the combined company
legally available for dividends or
distributions.
The Delaware General Corporation Law provides that The same provisions of the Delaware
in the event of a dissolution of a corporation, General Corporation Law will be
after payment of creditors and other claims or applicable to the combined company. In
obligations provided for under the Delaware addition, in the event of any
General Corporation Law, all of the remaining liquidation, dissolution or winding-up
assets of the corporation shall be distributed to of the combined company after the
the stockholders of the corporation. payment to creditors and the payment or
setting apart for payment to the
holders of any preferred stock of the
full preferential amounts to which
those holders are entitled, all of the
remaining assets of the combined
company shall belong to and be
distributable in equal amounts per
share to the holders of common stock.
For this purpose, a consolidation or
merger of the combined company with any
other corporation, or the sale,
transfer or lease of all or
substantially all its assets shall not
constitute or be deemed a liquidation,
dissolution or winding-up of the
combined company.
152
RIGHTS OF ALPHA STOCKHOLDERS RIGHTS OF COMBINED COMPANY STOCKHOLDERS
BEFORE THE MERGER AFTER THE MERGER
-------------------------------------------------- ---------------------------------------
PREFERRED STOCK Under its certificate of incorporation, Alpha is Pursuant to the certificate of
not authorized to issue preferred stock without incorporation, the board of directors
stockholder approval. of the combined company will be
authorized to provide for the issuance
of shares of preferred stock in one or
more series, to establish from time to
time the number of shares to be
included in each series, and to fix the
designation, powers, preferences and
rights of the shares of each series and
the qualifications, limitations and
restrictions of each series; pro-
vided, that no share of preferred stock
of any series will be entitled to more
than one vote per share of preferred
stock.
Except as may be provided in the
certificate of incorporation or in a
preferred stock designation, the common
stock shall have the exclusive right to
vote for the election of directors and
for all other purposes, and holders of
preferred stock shall not be entitled
to receive any notice of any meeting of
stockholders at which they are not
entitled to vote. The number of
authorized shares of preferred stock
may be increased or decreased by the
affirmative vote of the holders of a
majority of the shares of all classes
of stock of the combined company
entitled to vote for the election of
directors, without a vote of the
holders of the preferred stock, or any
series of preferred stock, unless a
vote is required pursuant to any
preferred stock designation.
AMENDMENT OF Pursuant to the by-laws, the stockholders may Pursuant to the certificate of
BY-LAWS amend, alter or repeal the by-laws at any special incorporation, the board of directors
or annual meeting of stockholders by a vote of the is authorized to adopt, alter, amend
majority of all shares outstanding, unless law, and repeal the by-laws, in any manner
the certificate of incorporation or the by-laws not inconsistent with the laws of the
requires a higher vote. state of Delaware or the certificate of
incorporation, subject to the power of
the holders of capital stock of the
combined company to adopt, alter, amend
or repeal the by-laws made by the board
of directors; provided, that any
adoption, amendment or repeal by the
stockholders shall require the
affirmative vote of the holders of at
least 66 2/3% of the shares of all
classes of stock of the combined
company entitled to vote for the
election of directors, considered for
this purpose as one class of stock.
153
RIGHTS OF ALPHA STOCKHOLDERS RIGHTS OF COMBINED COMPANY STOCKHOLDERS
BEFORE THE MERGER AFTER THE MERGER
-------------------------------------------------- ---------------------------------------
The directors may amend or alter the by-laws by a
majority vote of the directors then in office,
except the directors may not amend the by-laws in
any manner which:
- Changes the stockholder voting requirements for
any action;
- Alters or abolishes any preferential right or
right of redemption applicable to a class or
series of stock with shares already outstanding;
- Alters the application of the indemnification
provisions of the by-laws to any act or
transaction that occurs prior to the date of the
amendment;
- Alters the amendment provision of the by-laws;
or
- Permits the board of directors to take any
action which under law, the certificate of
incorporation or the by-laws is required to be
taken by the stockholders.
Any amendment of the by-laws by the board of
directors may be altered or repealed by a majority
vote of the stockholders entitled to vote at any
annual meeting or special meeting of stockholders.
AMENDMENT OF THE The amendment provision of the certificate of Pursuant to the certificate of
AMENDMENT PROVISION incorporation may be amended in accordance with incorporation, no section of the
OF THE CERTIFICATE the Delaware General Corporation Law, which amendment provision of the certificate
OF INCORPORATION provides that, except as otherwise provided in the of incorporation that requires other
certificate of incorporation, the certificate of than a majority vote to amend a
incorporation may be amended by the affirmative provision of the certificate of
vote of a majority of the outstanding stock incorporation may be amended so as to
entitled to vote and a majority of the outstanding alter the vote required by such
stock of each class entitled to vote as a sepa- section, unless the amendment is itself
rate class. approved by the same vote referred to
in such section.
154
RIGHTS OF CONEXANT STOCKHOLDERS BEFORE AND AFTER THE MERGER
Conexant stockholders will not be required to surrender their Conexant
shares in the spin-off transaction or the merger. The distribution of Washington
common stock to Conexant stockholders will not cancel or affect the number of
outstanding shares of Conexant common stock or the related rights. The rights of
Washington stockholders after the merger as stockholders of the combined company
will be as set forth above under the heading "Description of the Combined
Company's Capital Stock".
LEGAL MATTERS
The validity of the shares of common stock of the combined company to be
issued in connection with the merger will be passed upon by Skadden, Arps,
Slate, Meagher & Flom LLP, Boston, Massachusetts. It is a condition to the
completion of the merger that Alpha and Conexant receive opinions from Skadden,
Arps, Slate, Meagher & Flom LLP and Chadbourne & Parke LLP, respectively, with
respect to the tax treatment of the merger.
EXPERTS
KPMG LLP, independent certified public accountants, have audited Alpha's
consolidated financial statements as of April 1, 2001 and April 2, 2000 and for
each of the years in the three-year period ended April 1, 2001 included in
Alpha's Annual Report on Form 10-K for the year ended April 1, 2001, as set
forth in their report, which is incorporated by reference in this proxy
statement/prospectus-information statement. Alpha's financial statements are
incorporated by reference in reliance on the report of KPMG LLP, given upon
their authority as experts in accounting and auditing.
The combined financial statements of the Washington Business and the
Mexicali operations of Conexant Systems, Inc. as of September 30, 2000 and 2001
and for each of the three years in the period ended September 30, 2001 included
in this proxy statement/prospectus-information statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
Alpha currently expects to hold its 2002 annual meeting of stockholders in
the third calendar quarter of 2002. Under the rules and regulations of the
Securities and Exchange Commission, to be eligible for inclusion in Alpha's
proxy statement for its 2002 annual meeting of stockholders, proposals of
stockholders must have been received at Alpha's principal executive offices no
later than April 3, 2002 and must otherwise satisfy the conditions established
by the Securities and Exchange Commission for such inclusion.
In accordance with Alpha's amended and restated by-laws, proposals of
stockholders intended for presentation at the 2002 annual meeting of
stockholders (but not intended to be included in Alpha's proxy statement for
that meeting) may be made only by a stockholder of record who has given notice
of the proposal to the Secretary of the company at its principal executive
offices no earlier than June 12, 2002 and no later than July 12, 2002. The
notice must contain information as specified in Alpha's amended and restated
by-laws. Any such proposal received after July 12, 2002 will not be considered
"timely" under the federal proxy rules for purposes of determining whether the
company may use discretionary authority to vote on such proposal.
155
OTHER MATTERS
As of the date of this proxy statement/prospectus-information statement,
Alpha knows of no matters that will be presented for consideration at the Alpha
special meeting, other than as described in this proxy statement/prospectus-
information statement. If any other matters do properly come before the Alpha
special meeting or any adjournments or postponements of the special meeting and
are voted upon, the enclosed proxies will be deemed to confer discretionary
authority on the individuals named as proxies to vote the shares represented by
those proxies as to any of those other matters.
WHERE YOU CAN FIND MORE INFORMATION
Alpha files reports (including annual reports which contain audited
financial statements), proxy statements and other information with the
Securities and Exchange Commission. You may read and copy these reports, proxy
statements and other information at the Securities and Exchange Commission's
public reference rooms in Washington, D.C. and Chicago, Illinois. Please call
1-800-SEC-0330 for further information on the public reference rooms. Alpha's
Securities and Exchange Commission filings are also available to the public from
commercial document retrieval services and at the web site maintained by the
Securities and Exchange Commission at "http://www.sec.gov".
Alpha has filed with the Securities and Exchange Commission a registration
statement on Form S-4. This proxy statement/prospectus-information statement is
a part of the registration statement and constitutes the prospectus for the
common stock of the combined company to be issued to the holders of shares of
Washington common stock in the merger. As allowed by the Securities and Exchange
Commission rules, this proxy statement/prospectus-information statement does not
contain all of the information you can find in the registration statement or the
exhibits to the registration statement.
The Securities and Exchange Commission allows Alpha to "incorporate by
reference" information into this proxy statement/prospectus-information
statement. This means that Alpha can disclose important information to you by
referring you to another document filed separately with the Securities and
Exchange Commission. These documents contain important information about Alpha
and its financial condition. The information incorporated by reference is
considered to be part of this proxy statement/prospectus-information statement.
Information that Alpha files later with the Securities and Exchange
Commission will automatically update and supersede this information. Alpha
incorporates by reference the documents listed below and any future filings it
will make with the Securities and Exchange Commission under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act until the date of the Alpha special
meeting:
- Annual Report on Form 10-K for the fiscal year ended April 1, 2001 filed
with the Securities and Exchange Commission on June 29, 2001;
- Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2001
filed with the Securities and Exchange Commission on August 13, 2001;
- Quarterly Report on Form 10-Q for the quarterly period ended September
30, 2001 filed with the Securities and Exchange Commission on November
14, 2001;
- Quarterly Report on Form 10-Q for the quarterly period ended December 30,
2001 filed with the Securities and Exchange Commission on February 13,
2002;
- Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 19, 2001;
- Current Report on Form 8-K filed with the Securities and Exchange
Commission on March 15, 2002;
- Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 2, 2002; and
156
- The description of Alpha common stock contained in Item 1 of its
Registration Statement on Form 8-A filed with the Securities and Exchange
Commission on May 29, 1998, including any amendments or reports filed for
the purpose of updating the description.
You may request a copy of these filings at no cost by writing or
telephoning Alpha at the following address or telephone number:
Alpha Industries, Inc.
20 Sylvan Road
Woburn, Massachusetts 01801
Attention: Investor Relations
Telephone: (781) 935-5150, extension 4798
IN ORDER TO ENSURE TIMELY DELIVERY OF THESE DOCUMENTS, YOU SHOULD MAKE YOUR
REQUEST BY MAY , 2002.
ALPHA HAS NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ABOUT THE MERGER OR ABOUT ALPHA THAT DIFFERS FROM OR ADDS TO THE
INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS-INFORMATION STATEMENT OR THE
DOCUMENTS THAT ALPHA PUBLICLY FILES WITH THE SECURITIES AND EXCHANGE COMMISSION.
THEREFORE, IF ANYONE DOES GIVE YOU DIFFERENT OR ADDITIONAL INFORMATION, YOU
SHOULD NOT RELY ON IT.
IF YOU ARE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR
SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
PROXY STATEMENT/PROSPECTUS-INFORMATION STATEMENT OR TO ASK FOR PROXIES, OR IF
YOU ARE A PERSON TO WHOM IT IS UNLAWFUL TO DIRECT SUCH ACTIVITIES, THEN THE
OFFER PRESENTED BY THIS PROXY STATEMENT/PROSPECTUS-INFORMATION STATEMENT DOES
NOT EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS-INFORMATION
STATEMENT SPEAKS ONLY AS OF ITS DATE UNLESS THE INFORMATION SPECIFICALLY
INDICATES THAT ANOTHER DATE APPLIES.
157
INDEX TO AUDITED COMBINED FINANCIAL STATEMENTS AND SCHEDULE OF
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
PAGE
----
Independent Auditors' Report................................ F-2
Combined Balance Sheets as of September 30, 2000, September
30, 2001 and December 31, 2001 (unaudited)................ F-3
Combined Statements of Operations for the years ended
September 30, 1999, 2000 and 2001 and the three months
ended December 31, 2000 and 2001 (unaudited).............. F-4
Combined Statements of Cash Flows for the years ended
September 30, 1999, 2000 and 2001 and the three months
ended December 31, 2000 and 2001 (unaudited).............. F-5
Combined Statements of Conexant's Net Investment and
Comprehensive Income for the years ended September 30,
1999, 2000 and 2001 and the three months ended December
31, 2001 (unaudited)...................................... F-6
Notes to Combined Financial Statements...................... F-7
Schedule II -- Valuation and Qualifying Accounts............ F-28
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Conexant Systems, Inc.
We have audited the accompanying combined balance sheets of the Washington
Business and the Mexicali Operations of Conexant Systems, Inc. as of September
30, 2000 and 2001, and the related combined statements of operations, cash flows
and Conexant's net investment and comprehensive income for each of the three
years in the period ended September 30, 2001. Our audits also included the
financial statement schedule listed at page F-1. These financial statements and
the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of the Washington
Business and the Mexicali Operations of Conexant Systems, Inc. at September 30,
2000 and 2001, and the results of their operations and their cash flows for each
of the three years in the period ended September 30, 2001, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule when considered in relation to
the basic combined financial statements taken as a whole presents fairly, in all
material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 14, 2002
F-2
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30,
------------------- DECEMBER 31,
2000 2001 2001
-------- -------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................ $ 4,179 $ 1,998 $ 4,747
Receivables, net of allowance for doubtful accounts of
$3,792, $3,206 and $2,028 (unaudited) at September 30,
2000, September 30, 2001 and December 31, 2001,
respectively.......................................... 67,562 40,754 43,565
Inventories.............................................. 89,983 37,383 43,030
Other current assets..................................... 5,295 3,225 2,630
-------- -------- --------
Total current assets.................................. 167,019 83,360 93,972
Property, plant and equipment, net......................... 263,427 169,547 159,195
Goodwill and intangible assets, net........................ 70,817 57,606 53,669
Other assets............................................... 290 3,774 4,248
-------- -------- --------
Total assets.......................................... $501,553 $314,287 $311,084
======== ======== ========
LIABILITIES AND CONEXANT'S NET INVESTMENT
Current liabilities:
Accounts payable......................................... $ 5,200 $ 2,653 $ 1,121
Accrued compensation and benefits........................ 19,212 12,363 13,652
Other current liabilities................................ 6,958 7,804 18,516
-------- -------- --------
Total current liabilities............................. 31,370 22,820 33,289
Long-term liabilities...................................... 3,767 3,806 3,772
-------- -------- --------
Total liabilities..................................... 35,137 26,626 37,061
Commitments and contingencies.............................. -- -- --
Conexant's net investment.................................. 466,416 287,661 274,023
-------- -------- --------
Total liabilities and Conexant's net investment....... $501,553 $314,287 $311,084
======== ======== ========
See accompanying notes to combined financial statements.
F-3
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------- -------------------
1999 2000 2001 2000 2001
-------- -------- --------- -------- --------
(UNAUDITED)
Net revenues:
Third parties.................................. $176,015 $312,983 $ 215,502 $ 68,518 $ 88,404
Conexant....................................... 40,400 65,433 44,949 16,978 5,356
-------- -------- --------- -------- --------
Total net revenues........................... 216,415 378,416 260,451 85,496 93,760
-------- -------- --------- -------- --------
Cost of goods sold:
Third parties.................................. 96,699 207,450 268,749 76,272 72,729
Conexant....................................... 37,840 62,720 42,754 16,244 5,077
-------- -------- --------- -------- --------
Total cost of goods sold..................... 134,539 270,170 311,503 92,516 77,806
-------- -------- --------- -------- --------
Gross margin..................................... 81,876 108,246 (51,052) (7,020) 15,954
Operating expenses:
Research and development....................... 66,457 91,616 111,053 26,918 32,181
Selling, general and administrative............ 27,202 52,422 51,267 16,013 10,636
Amortization of intangible assets.............. -- 5,327 15,267 3,737 3,937
Special charges................................ 1,432 -- 88,876 -- --
Purchased in-process research and
development.................................. -- 24,362 -- -- --
-------- -------- --------- -------- --------
Total operating expenses................ 95,091 173,727 266,463 46,668 46,754
-------- -------- --------- -------- --------
Operating loss................................... (13,215) (65,481) (317,515) (53,688) (30,800)
Other income (expense), net...................... (54) 142 210 (11) 52
-------- -------- --------- -------- --------
Loss before income taxes......................... (13,269) (65,339) (317,305) (53,699) (30,748)
Provision for income taxes....................... 1,646 1,140 1,619 265 3,549
-------- -------- --------- -------- --------
Net loss......................................... $(14,915) $(66,479) $(318,924) $(53,964) $(34,297)
======== ======== ========= ======== ========
See accompanying notes to combined financial statements.
F-4
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------- -------------------
1999 2000 2001 2000 2001
-------- --------- --------- -------- --------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................... $(14,915) $ (66,479) $(318,924) $(53,964) $(34,297)
Adjustments required to reconcile net
loss to net cash used in operating
activities:
Depreciation......................... 42,468 61,710 58,708 15,018 11,863
Amortization of intangible assets.... -- 5,327 15,267 3,737 3,937
Asset impairments.................... -- -- 86,209 -- --
Provision for losses on accounts
receivable........................ (30) 3,538 (468) 1,353 (1,178)
Inventory provisions................. 2,530 3,132 60,978 5,844 87
Purchased in-process research and
development....................... -- 24,362 -- -- --
Loss on disposition of assets........ 297 4 80 42 60
Changes in assets and liabilities,
net of acquisition:
Receivables....................... (19,606) (39,846) 27,276 (2,384) (1,633)
Inventories....................... (10,115) (65,150) (8,378) (4,872) (5,734)
Accounts payable.................. (710) 1,961 (2,547) (1,031) (1,532)
Accrued expenses and other current
liabilities..................... (338) 14,210 (6,003) 3,831 12,001
Other............................. (6,643) 3,401 (1,604) 754 106
-------- --------- --------- -------- --------
Net cash used in operating
activities................... (7,062) (53,830) (89,406) (31,672) (16,320)
-------- --------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................... (94,331) (100,424) (51,118) (18,200) (1,571)
Cash balances of acquired business..... -- 7,655 -- -- --
-------- --------- --------- -------- --------
Net cash used in investing
activities................... (94,331) (92,769) (51,118) (18,200) (1,571)
-------- --------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net transfers from Conexant............ 103,465 148,706 138,343 55,405 20,640
-------- --------- --------- -------- --------
Net increase (decrease) in cash and
cash equivalents..................... 2,072 2,107 (2,181) 5,533 2,749
Cash and cash equivalents at beginning
of period............................ -- 2,072 4,179 4,179 1,998
-------- --------- --------- -------- --------
Cash and cash equivalents at end of
period............................... $ 2,072 $ 4,179 $ 1,998 $ 9,712 $ 4,747
======== ========= ========= ======== ========
See accompanying notes to combined financial statements.
F-5
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
COMBINED STATEMENTS OF CONEXANT'S NET INVESTMENT AND COMPREHENSIVE INCOME
(IN THOUSANDS)
ACCUMULATED
OTHER
CONEXANT'S COMPREHENSIVE
NET INCOME
INVESTMENT (LOSS) TOTAL
---------- ------------- ----------
Balance at September 30, 1998........................... $ 187,196 $ -- $ 187,196
Net loss................................................ (14,915) -- (14,915)
Foreign currency translation adjustment................. -- (178) (178)
---------
Comprehensive loss.................................... (15,093)
Net transfers from Conexant............................. 103,465 -- 103,465
--------- ----- ---------
Balance at September 30, 1999........................... 275,746 (178) 275,568
Net loss................................................ (66,479) -- (66,479)
Foreign currency translation adjustment................. -- 126 126
---------
Comprehensive loss.................................... (66,353)
Contribution of business acquired by Conexant........... 108,495 -- 108,495
Net transfers from Conexant............................. 148,706 -- 148,706
--------- ----- ---------
Balance at September 30, 2000........................... 466,468 (52) 466,416
Net loss................................................ (318,924) -- (318,924)
Foreign currency translation adjustment................. -- (232) (232)
---------
Comprehensive loss.................................... (319,156)
Contribution of additional assets related to business
acquired.............................................. 2,058 -- 2,058
Net transfers from Conexant............................. 138,343 -- 138,343
--------- ----- ---------
Balance at September 30, 2001........................... 287,945 (284) 287,661
Net loss (unaudited).................................... (34,297) -- (34,297)
Foreign currency translation adjustment (unaudited)..... -- 19 19
---------
Comprehensive loss (unaudited)........................ (34,278)
Net transfers from Conexant (unaudited)................. 20,640 -- 20,640
--------- ----- ---------
Balance at December 31, 2001 (unaudited)................ $ 274,288 $(265) $ 274,023
========= ===== =========
See accompanying notes to combined financial statements.
F-6
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
On December 16, 2001, Conexant Systems, Inc. (Conexant) entered into
agreements with Washington Sub, Inc. (Washington), currently a wholly-owned
subsidiary of Conexant, and Alpha Industries, Inc. (Alpha), a leading provider
of proprietary radio frequency and microwave integrated circuit-based products
and solutions, primarily for wireless communications. Alpha's products include
modules, integrated circuits and discrete components, as well as components
based on electrical ceramic and ferrite technology. Under the agreements,
Conexant will contribute to Washington its wireless communications business,
including its Newbury Park, California gallium arsenide semiconductor wafer
fabrication facility, but excluding certain assets and liabilities
(collectively, the Washington Business), and will distribute all the outstanding
shares of Washington common stock to the Conexant shareholders (the Spin-off).
The common stock of Washington will be distributed on a pro rata basis to the
shareholders of Conexant, with each Conexant shareholder receiving one share of
Washington common stock for each share of Conexant common stock or Conexant
Series B voting preferred stock owned on the record date for the distribution.
Immediately thereafter, Washington will merge with and into Alpha (the Merger),
with Alpha as the surviving corporation (the combined company). Completion of
the Spin-off and the Merger are subject to, among other things, regulatory
approvals, a ruling by the Internal Revenue Service (IRS) that the Spin-off
qualifies as tax-free and approval of the Merger by Alpha's stockholders. Upon
completion of the Merger, the combined company will purchase Conexant's
semiconductor assembly and test facility, located in Mexicali, Mexico, and
certain related operations (collectively, the Mexicali Operations) for $150
million. Early termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 was granted on January 29, 2002. There can be
no assurance that the other regulatory approvals, the IRS ruling or the approval
of the Merger by Alpha's stockholders will be obtained, or that the Spin-off and
the Merger will be successfully completed.
For financial accounting purposes, the sale of the Mexicali Operations by
Conexant to the combined company will be treated as if Conexant had contributed
the Mexicali Operations to Washington as part of the Spin-off, and the $150
million purchase price will be treated as a return of capital to Conexant. The
accompanying combined financial statements include the assets, liabilities,
operating results and cash flows of the Washington Business and the Mexicali
Operations. For purposes of these combined financial statements, the Washington
Business and the Mexicali Operations are collectively referred to as
Washington/Mexicali.
For financial accounting purposes, the Merger will be accounted for as a
purchase of Alpha by Washington in a reverse acquisition. Accordingly, the
historical financial statements of Washington/ Mexicali will become the
historical financial statements of the combined company after the Merger.
The Washington Business is a worldwide leader in semiconductor products and
systems for wireless communications applications. Its product portfolio is
comprised of components, subsystems and system-level semiconductor solutions for
wireless voice and data communications applications, supporting the world's most
widely adopted wireless standards, including Code Division Multiple Access
(CDMA), Time Division Multiple Access (TDMA) and Global System for Mobile
Communications (GSM). Wireless communications product offerings of the
Washington Business include power amplifier modules, radio frequency components
and subsystems and cellular systems.
F-7
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Washington was incorporated in Delaware on December 12, 2001. On December
31, 1998, Rockwell International Corporation (Rockwell) distributed all the
outstanding shares of Conexant (formerly named Rockwell Semiconductor Systems,
Inc.) to shareholders of Rockwell in a tax-free spin-off. As a result, Conexant
became an independent publicly-traded company owning and operating Rockwell's
former semiconductor systems business. The accompanying combined financial
statements report the operations that comprise Conexant's Washington Business
and Mexicali Operations. For periods prior to Conexant's spin-off from Rockwell,
the accompanying combined financial statements report the operations that
comprised Washington/Mexicali as part of Rockwell's semiconductor systems
business. References to Conexant prior to January 1, 1999 include the
semiconductor systems business of Rockwell.
BASIS OF PRESENTATION
The combined financial statements of Washington/Mexicali have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The combined financial statements have been prepared using
Conexant's historical bases in the assets and liabilities and the historical
operating results of Washington/Mexicali during each respective period.
Management believes the assumptions underlying the combined financial statements
are reasonable. However, the financial information included herein does not
necessarily reflect the combined assets, liabilities, operating results, changes
in Conexant's net investment and comprehensive income and cash flows of
Washington/Mexicali in the future or what they would have been had
Washington/Mexicali been an independent company during the periods presented.
Conexant uses a centralized approach to cash management and the financing
of its operations. Cash deposits from Washington/Mexicali are generally
collected by Conexant on a regular basis and are netted against Conexant's net
investment. As a result, none of Conexant's cash, cash equivalents, marketable
securities or debt at the corporate level has been allocated to
Washington/Mexicali in the combined financial statements. Cash and cash
equivalents in the combined financial statements represent amounts held by
foreign operations of Washington/Mexicali. Changes in Conexant's net investment
represent funding from Conexant for working capital and capital expenditure
requirements after giving effect to Washington/Mexicali's transfers to and from
Conexant for its cash flows from operations.
Historically, Conexant has provided financing for Washington/Mexicali and
incurred debt at the parent level. The combined financial statements of
Washington/Mexicali do not include an allocation of Conexant's debt or the
related interest expense. Therefore, the combined financial statements do not
necessarily reflect the financial position and results of operations of
Washington/Mexicali had it been an independent company as of the dates, and for
the periods, presented.
The combined financial statements include allocations of certain Conexant
operating expenses for research and development, legal, accounting, treasury,
human resources, real estate, information systems, distribution, customer
service, sales, marketing, engineering and other corporate services provided by
Conexant, including executive salaries and other costs (see Note 11). The
operating expense allocations have been determined on bases that management
considered to be reasonable reflections of the utilization of services provided
to, or the benefit received by, Washington/Mexicali. Management believes that
the expenses allocated to Washington/Mexicali are representative of the
operating expenses that would have been incurred had Washington/Mexicali
operated as an independent company. Following the Spin-off and the Merger, the
combined company will perform these functions using its own resources or
purchased services, including services obtained from Conexant pursuant to a
transition services agreement (see Note 11).
F-8
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination -- The combined financial statements include all
businesses and foreign operations of Conexant that relate to
Washington/Mexicali. All accounts and transactions among the entities of
Washington/Mexicali have been eliminated in combination.
Fiscal Periods -- The combined financial statements have been prepared on a
fiscal year basis consistent with that of Conexant, which maintains a
fifty-two/fifty-three week fiscal year ending on the Friday closest to September
30. Fiscal years 1999, 2000 and 2001 each comprised 52 weeks and ended on
October 1, September 29 and September 28, respectively. The first quarter of
fiscal 2000 and 2001 ended on December 29 and December 28, respectively. For
convenience, the combined financial statements have been shown as ending on the
last day of the calendar month.
Unaudited Interim Financial Information -- The combined financial
information as of December 31, 2001 and for the three months ended December 31,
2000 and 2001 is unaudited and, in the opinion of management, includes all
adjustments, consisting of adjustments of a normal recurring nature, as well as
the special charges and inventory write-downs, necessary to present fairly the
financial position, results of operations and cash flows of Washington/Mexicali.
The results of operations for the interim periods are not necessarily indicative
of the results that may be expected for a full year.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the combined
financial statements and accompanying notes. Among the significant estimates
affecting the financial statements are those related to inventories, long-lived
assets and income taxes. On an ongoing basis, management reviews its estimates
based upon currently available information. Actual results could differ
materially from those estimates.
Revenue Recognition -- Revenues from product sales are recognized upon
shipment and transfer of title, in accordance with the shipping terms specified
in the arrangement with the customer. Revenue recognition is deferred in all
instances where the earnings process is incomplete. Certain product sales are
made to electronic component distributors under agreements allowing for price
protection and/or a right of return on unsold products. Recognition of revenue
on sales to these distributors is deferred until the products are sold by the
distributors to a third party. Deferred revenue in the combined balance sheets
was not significant in any of the periods presented.
A reserve for sales returns and allowances for non-distributor customers is
recorded based on historical experience or specific identification of an event
necessitating a reserve.
Development revenue is recognized when services are performed and was not
significant for any of the periods presented.
Securities and Exchange Commission Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101) was adopted in the
fourth quarter of fiscal 2001. The adoption of SAB 101 did not have a
significant impact on the combined financial position or results of operations
of Washington/Mexicali.
Cash and Cash Equivalents -- All highly-liquid investments with
insignificant interest rate risk and original maturities of three months or less
from the date of purchase are considered to be cash equivalents. The carrying
amounts of cash and cash equivalents approximate their fair values.
Inventories -- Inventories are stated at the lower of cost or market. Cost
is computed using the average cost method on a currently adjusted standard basis
(which approximates actual cost); market is based upon estimated net realizable
value. The valuation of inventories at the lower of cost or market
F-9
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
requires the use of estimates as to the amounts of current inventories that will
be sold. These estimates are dependent on management's assessment of current and
expected orders from customers, and orders generally are subject to cancellation
with limited advance notice prior to shipment.
Property, Plant and Equipment -- Property, plant and equipment are stated
at cost. Depreciation is based on estimated useful lives (principally 50 years
for buildings and 10 to 30 years for building improvements; 5 years for
machinery and equipment; and the shorter of the remaining terms of the leases or
the estimated economic useful lives of the improvements for land and leasehold
improvements). Significant renewals and betterments are capitalized and replaced
units are written off. Maintenance and repairs, as well as renewals of a minor
amount, are expensed as incurred.
Goodwill and Intangible Assets -- Goodwill and intangible assets are the
result of a business acquisition completed in fiscal 2000. Business acquisitions
are accounted for by assigning the purchase price to the tangible and intangible
assets and liabilities, including purchased in-process research and development
(IPRD) projects, which have not yet reached technological feasibility and have
no alternative future use. Assets acquired and liabilities assumed are recorded
at their estimated fair values; the excess of the purchase price over the net
assets acquired is recorded as goodwill. The value of IPRD is immediately
charged to expense upon completion of the acquisition. Goodwill, developed
technology and other intangibles are amortized on a straight-line basis over
their estimated useful lives (principally 5 years).
Impairment of Long-Lived Assets -- Management continually monitors events
or changes in circumstances that could indicate that the carrying amount of
long-lived assets to be held and used, including goodwill and intangible assets,
may not be recoverable. The determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the use of an asset
and its eventual disposition. When impairment is indicated for a long-lived
asset, the amount of impairment loss is the excess of net book value over fair
value. Long-lived assets to be disposed of are reported at the lower of carrying
amount or fair value less costs to sell. During fiscal 2001, the Washington
Business recorded an impairment charge as discussed in Note 10.
Product Warranties -- Warranties are offered on the sale of certain
products and an accrual is recorded for estimated claims at the time of sale.
Such accruals are based on historical experience and management's estimate of
future claims.
Foreign Currency Translation and Remeasurement -- The foreign operations of
Washington/Mexicali are subject to exchange rate fluctuations and foreign
currency transaction costs. The functional currency of the foreign operations in
South Korea and Finland is the local currency. Assets and liabilities
denominated in foreign functional currencies are translated into U.S. dollars at
the rates of exchange in effect at the balance sheet dates and income and
expense items are translated at the average exchange rates prevailing during the
period. The resulting foreign currency translation adjustments are accumulated
as a component of other comprehensive income. For the Mexicali Operations and
the foreign operations in Canada and France, the functional currency is the U.S.
dollar. Inventories; property, plant and equipment; goodwill and intangible
assets; cost of goods sold; and depreciation and amortization are remeasured
from the foreign currency into U.S. dollars at historical exchange rates; other
accounts are translated at current exchange rates. Gains and losses resulting
from these remeasurements are included in income. Gains and losses resulting
from foreign currency transactions are recognized currently in income.
Derivative Financial Instruments -- Derivative financial instruments are
accounted for in accordance with Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS 133 requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative, and its designation
F-10
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
as a hedge. Derivatives that are not hedges must be adjusted to fair value
through earnings. If a derivative is a hedge, depending on the nature of the
hedge, changes in fair value of derivatives either offset the change in fair
value of the hedged assets, liabilities or firm commitments through earnings, or
are recognized in other comprehensive income until the hedged item is recognized
in earnings. The change in a derivative's fair value related to the ineffective
portion of a hedge, if any, is immediately recognized in earnings. As of
September 30, 2000 and 2001, Washington/Mexicali had no derivative financial
instruments.
Research and Development -- Research and development costs, other than
software development costs, are expensed as incurred. Development costs for
software to be sold or marketed are capitalized following attainment of
technological feasibility. However, no development costs that qualify for
capitalization were incurred during any of the periods presented.
Stock-Based Compensation -- Washington/Mexicali accounts for employee
stock-based compensation in accordance with the provisions of Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees" and related interpretations, and has adopted the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation".
Income Taxes -- Historically, the results of operations of the Washington
Business have been included in Conexant's (or Rockwell's) consolidated federal
and state income tax returns, and the results of operations of the Mexicali
Operations have been included in its separate tax returns filed as an
independent foreign company. The provision for income taxes is calculated as if
the Washington Business and the Mexicali Operations had each filed separate tax
returns as independent companies and the resulting amounts combined for
inclusion in the combined financial statements. The provision for income taxes
is determined in accordance with SFAS No. 109, "Accounting for Income Taxes".
Deferred tax assets and liabilities are determined based on the temporary
differences between the financial reporting and tax bases of assets and
liabilities, applying enacted statutory tax rates in effect for the year in
which the differences are expected to reverse. A valuation allowance is recorded
when it is more likely than not that some or all of the deferred tax assets will
not be realized. The balance of the income taxes currently payable (or
refundable) has been included in Conexant's net investment in the combined
balance sheets.
Concentrations -- Financial instruments that potentially subject
Washington/Mexicali to concentration of credit risk consist principally of trade
accounts receivable. Trade receivables are primarily derived from sales to
manufacturers of communications and consumer products. Ongoing credit
evaluations of customers' financial condition are performed and collateral, such
as letters of credit and bank guarantees, are required whenever deemed
necessary. The following customers accounted for 10% or more of trade
receivables from third parties:
SEPTEMBER 30,
------------- DECEMBER 31,
2000 2001 2001
----- ----- ------------
(UNAUDITED)
Customer A.................................................. 29% 63% 63%
Customer B.................................................. -- 13% --
Customer D.................................................. 16% -- --
Customer E.................................................. 15% -- --
F-11
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The following customers accounted for 10% or more of net revenues from
third parties:
THREE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- ------------
1999 2000 2001 2000 2001
---- ---- ---- ---- ----
(UNAUDITED)
Customer A........................................ 37% 28% 44% 30% 48%
Customer B........................................ 14% -- 12% 16% 11%
Customer C........................................ -- 18% -- 23% --
Customer D........................................ 11% 10% -- -- --
Comprehensive Income -- Comprehensive loss presented in the combined
statements of Conexant's net investment consists of Washington/Mexicali's net
loss and foreign currency translation adjustments. The foreign currency
translation adjustments are not recorded net of any tax effect, as management
does not expect to incur any tax liability or benefit related thereto.
Accumulated other comprehensive loss is included in Conexant's net investment in
the combined balance sheets.
Supplemental Cash Flow Information -- All income tax payments were made by
Conexant on behalf of Washington/Mexicali.
Recent Accounting Standards -- In June 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets". SFAS 141 requires that all business
combinations be accounted for using the purchase method and provides new
criteria for recording intangible assets separately from goodwill. Existing
goodwill and intangible assets will be evaluated against these new criteria,
which may result in certain intangible assets being subsumed into goodwill. SFAS
142 addresses financial accounting and reporting for acquired goodwill and other
intangible assets. Goodwill and intangible assets that have indefinite useful
lives will not be amortized into results of operations, but instead will be
evaluated at least annually for impairment and written down when the recorded
value exceeds the estimated fair value. Washington/Mexicali will adopt the
provisions of each statement that apply to goodwill and intangible assets
acquired prior to June 30, 2001 as of the beginning of fiscal 2003. However,
SFAS 142 is immediately applicable to any goodwill and intangible assets
acquired after June 30, 2001. Upon adoption, goodwill will cease to be amortized
against results of operations, reducing annual amortization expense by
approximately $14 million. Management is evaluating the full impact of adopting
the new standards. In addition, impairment reviews may result in charges against
earnings to write down the value of goodwill.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supersedes previous guidance
on financial accounting and reporting for the impairment or disposal of
long-lived assets and for segments of a business to be disposed of. Adoption of
SFAS 144 is required no later than the beginning of fiscal 2003. Management does
not expect the adoption of SFAS 144 to have a significant impact on the combined
financial position or results of operations of Washington/Mexicali. However,
future impairment reviews may result in charges against earnings to write down
the value of long-lived assets.
3. ACQUISITION
In May 2000, Conexant acquired Philsar Semiconductor Inc. (Philsar), which
became a part of Conexant's wireless communications business. This acquisition
has been accounted for as a contribution to the Washington Business by Conexant
and such contribution has been recorded in Conexant's net investment in the
combined financial statements.
F-12
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Philsar is a developer of radio frequency semiconductor solutions for
personal wireless connectivity, including emerging standards such as Bluetooth,
and radio frequency components for third-generation (3G) digital cellular
handsets. To effect the acquisition of Philsar, all of the then-outstanding
capital stock of Philsar was exchanged for Philsar securities exchangeable at
the option of the holders into an aggregate of approximately 2.5 million shares
of Conexant common stock (including 248,000 exchangeable shares issued in fiscal
2001 upon the expiration of an indemnification period). The outstanding Philsar
stock options were converted into options to purchase an additional 525,000
shares of Conexant common stock.
The total value of the consideration for the Philsar acquisition was $110.0
million. The value of the consideration paid was based on market prices of
Conexant common stock at the time of announcement of the acquisition or, in the
case of the additional consideration, at the time of resolution of the
contingency. The value of the options converted (an average fair value of $36.12
per share) was determined using the Black-Scholes option pricing model, based
upon their various exercise prices (which ranged from $5.47 to $9.41) and
remaining contractual lives (ranging from 1.4 to 9.8 years) and the following
additional assumptions: estimated volatility of 60%, risk-free interest rate of
5.9% and no dividend yield). The value of the consideration has been allocated
among the assets and liabilities acquired, including identified intangible
assets and IPRD, based upon estimated fair values. The excess of the value of
the consideration over the net assets acquired was allocated to goodwill. The
tangible assets acquired totaled $8.0 million, net of liabilities of $2.2
million, and included $7.7 million in cash. The total goodwill associated with
this acquisition was $71.4 million and such amount is not deductible for tax
purposes.
In connection with the acquisition of Philsar, $24.4 million was allocated
to IPRD and expensed immediately upon completion of the acquisition (as a charge
not deductible for tax purposes) because the technological feasibility of
products under development had not been established and no future alternative
uses existed. The fair value of the IPRD was determined using the income
approach. Under the income approach, expected future after-tax cash flows from
each of the projects or product families (projects) under development are
estimated and discounted to their net present value at an appropriate
risk-adjusted rate of return. Each project was analyzed to determine the
technological innovations included in the project; the existence and utilization
of core technology; the complexity, cost and time to complete the remaining
development efforts; the existence of any alternative future use or current
technological feasibility; and the stage of completion in development.
Future cash flows for each project used in the income approach were
estimated based on forecasted revenues and costs, taking into account the
expected life cycles of the products and the underlying technology, relevant
market sizes and industry trends. The projected revenues used in the income
approach were the revenues expected to be generated upon completion of the IPRD
projects and the beginning of commercial sales, as estimated by management. The
projections assume that the projects will be successful and that the products'
development and commercialization meet management's estimated time schedule. The
projected gross margins and operating expenses reflect the costs expected to be
incurred for production, marketing, and ongoing development of the product
families as estimated by management. The IPRD projects were expected to commence
generating net cash inflows in fiscal 2001.
The projects were then classified as developed technology, IPRD or future
development. The estimated future cash flows for each were discounted to
approximate fair value. Discount rates of 30% for IPRD and 25% for developed
technology were derived from a weighted-average cost of capital analysis,
adjusted upward to reflect additional risks inherent in the development process,
including the probability of achieving technological success and market
acceptance. The IPRD charge includes the fair value of the portion of IPRD
completed as of the date of acquisition. The fair values assigned to IPRD to-be-
completed and future development are included in goodwill. Management is
responsible for the amounts
F-13
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
determined for IPRD, as well as developed technology, and believes the amounts
are representative of fair values and do not exceed the amounts an independent
party would pay for these projects.
The results of operations of Philsar are included in the combined financial
statements from the date of acquisition. The pro forma combined statement of
operations data for fiscal 1999 and 2000 below assumes that the acquisition of
Philsar had been completed as of the beginning of each period presented and
includes amortization of goodwill and identified intangible assets from that
date. However, the impact of the charge for IPRD has been excluded. This pro
forma data is presented for informational purposes only, and is not necessarily
indicative of the results of future operations nor of the results that would
have been achieved had the acquisition of Philsar taken place at the beginning
of fiscal 1999.
YEAR ENDED SEPTEMBER 30,
-------------------------
1999 2000
----------- -----------
(UNAUDITED, IN THOUSANDS)
Net revenues................................................ $ 216,873 $ 379,161
Net loss.................................................... $ (34,630) $ (62,326)
4. SUPPLEMENTAL FINANCIAL STATEMENT DATA
Inventories consist of the following (in thousands):
SEPTEMBER 30,
------------------- DECEMBER 31,
2000 2001 2001
-------- -------- ------------
(UNAUDITED)
Raw materials...................................... $ 13,369 $ 3,626 $ 5,166
Work-in-process.................................... 50,572 19,164 22,520
Finished goods..................................... 26,042 14,593 15,344
-------- -------- --------
$ 89,983 $ 37,383 $ 43,030
======== ======== ========
Cost of goods sold for fiscal 2001 includes inventory write-downs of $58.7
million. These write-downs resulted from the sharply reduced end-customer demand
experienced for digital cellular handsets in fiscal 2001. As a result of these
market conditions, Washington/Mexicali experienced a significant number of order
cancellations and a decline in the volume of new orders during fiscal 2001. The
inventories written down during fiscal 2001 principally consisted of power
amplifiers and radio frequency subsystem components which, in many cases, had
been purchased or manufactured to satisfy expected customer demand.
The recoverability of inventories is assessed through an on-going review of
inventory levels in relation to sales backlog and forecasts, product marketing
plans and product life cycles. When the inventory on hand exceeds the
foreseeable demand, the value of such inventory that is not expected to be sold
at the time of the review is written down. The amount of the write-down is the
excess of historical cost over estimated realizable value (generally zero). Once
established, these write-downs are considered permanent adjustments to the cost
basis of the excess inventory.
The assessment of the recoverability of inventories, and the amounts of any
write-downs, is based on currently available information and assumptions about
future demand and market conditions. Demand for products may fluctuate
significantly over time, and actual demand and market conditions may be more or
less favorable than those projected by management. In the event that actual
demand is lower than originally projected, additional inventory write-downs may
be required.
F-14
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Some or all of the inventories which have been written down may be retained
and made available for sale. In the event that actual demand is higher than
originally projected, a portion of these inventories may be able to be sold in
the future. Inventories which have been written-down and are identified as
obsolete are generally scrapped.
Property, plant and equipment consist of the following (in thousands):
SEPTEMBER 30,
--------------------- DECEMBER 31,
2000 2001 2001
--------- --------- ------------
(UNAUDITED)
Land............................................. $ 5,323 $ 8,336 $ 8,399
Land and leasehold improvements.................. 16,748 11,730 12,823
Buildings........................................ 24,644 18,285 23,987
Machinery and equipment.......................... 470,215 396,268 399,345
Construction in progress......................... 21,667 19,807 10,337
--------- --------- ---------
538,597 454,426 454,891
Accumulated depreciation and amortization........ (275,170) (284,879) (295,696)
--------- --------- ---------
$ 263,427 $ 169,547 $ 159,195
========= ========= =========
Goodwill and intangible assets consist of the following (in thousands):
SEPTEMBER 30,
------------------- DECEMBER 31,
2000 2001 2001
-------- -------- ------------
(UNAUDITED)
Goodwill........................................... $ 69,356 $ 71,412 $ 71,412
Developed technology............................... 5,995 5,995 5,995
Other.............................................. 793 793 793
-------- -------- --------
76,144 78,200 78,200
Accumulated amortization........................... (5,327) (20,594) (24,531)
-------- -------- --------
$ 70,817 $ 57,606 $ 53,669
======== ======== ========
Other current liabilities consist of the following (in thousands):
SEPTEMBER 30,
------------------- DECEMBER 31,
2000 2001 2001
-------- -------- ------------
(UNAUDITED)
Warranty........................................... $ -- $ 3,414 $15,120
Other.............................................. 6,958 4,390 3,396
-------- -------- -------
$ 6,958 $ 7,804 $18,516
======== ======== =======
5. INCOME TAXES
The provision for income taxes in the combined statements of operations is
comprised solely of the foreign current tax expense for all periods presented.
F-15
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Loss before income taxes consists of the following components (in
thousands):
YEAR ENDED SEPTEMBER 30,
-------------------------------
1999 2000 2001
-------- -------- ---------
United States....................................... $(18,359) $(67,995) $(323,642)
Foreign............................................. 5,090 2,656 6,337
-------- -------- ---------
$(13,269) $(65,339) $(317,305)
======== ======== =========
A reconciliation of income taxes computed at the U.S. Federal statutory
income tax rate to the provision for income taxes follows (in thousands):
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 2000 2001
------- -------- ---------
U.S. Federal statutory tax at 35%................... $(4,644) $(22,869) $(111,057)
State taxes, net of federal effects................. (1,556) (3,283) (11,672)
Foreign income taxes in excess of (less than)
U.S............................................... (136) 210 (599)
Research and development credits.................... (1,388) (3,937) (4,921)
Nondeductible amortization of intangible assets..... -- 1,752 5,099
Nondeductible IPRD.................................. -- 8,527 --
Valuation allowance................................. 9,327 19,870 123,466
Other............................................... 43 870 1,303
------- -------- ---------
$ 1,646 $ 1,140 $ 1,619
======= ======== =========
Deferred income tax assets and liabilities consist of the tax effects of
temporary differences related to the following (in thousands):
SEPTEMBER 30,
--------------------
2000 2001
-------- ---------
Current:
Inventories............................................... $ 6,813 $ 31,836
Deferred revenue.......................................... 2,340 2,779
Accrued compensation and benefits......................... 1,441 1,872
Product returns, allowances and warranty.................. 210 3,686
Deferred state taxes...................................... (475) (1,822)
Other -- net.............................................. 1,607 1,470
-------- ---------
Current deferred income taxes.......................... 11,936 39,821
-------- ---------
F-16
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,
--------------------
2000 2001
-------- ---------
Long-term:
Property, plant and equipment............................. 2,536 30,876
Intangible assets......................................... (2,768) (2,337)
Retirement benefits and deferred compensation............. 984 1,299
Net operating loss carryforwards.......................... 61,994 125,456
Research and development credits.......................... 9,681 16,918
State investment credits.................................. 4,277 4,801
Deferred state taxes...................................... (5,127) (10,071)
Other -- net.............................................. 173 531
-------- ---------
Long-term deferred income taxes........................ 71,750 167,473
-------- ---------
Total deferred income taxes.......................... 83,686 207,294
Valuation allowance.................................. (83,686) (207,294)
-------- ---------
Net deferred tax assets.............................. $ -- $ --
======== =========
Based upon a history of significant operating losses, management has
determined that it is more likely than not that all of the deferred tax assets
will not be realized. Consequently, a valuation allowance has been established
for all of the net deferred tax assets. The net change in the valuation
allowance for fiscal 1999, 2000 and 2001 was $9.8 million, $30.4 million and
$123.6 million, respectively.
Approximately $13.8 million of the valuation allowance at September 30,
2001 relates to net operating losses from stock option exercises. Upon
realization of the underlying deferred tax assets, the tax benefit will be
credited to Conexant's net investment.
To the extent that Washington/Mexicali had filed separate tax returns as of
September 30, 2001, the U.S. Federal net operating loss carryforwards would have
been approximately $316.3 million, which would expire at various dates through
2021, and aggregate state net operating loss carryforwards would have been
approximately $295.3 million, which would expire at various dates through 2011.
Washington/Mexicali would also have had U.S. Federal and state research and
development tax credit carryforwards of approximately $11.5 million and $5.4
million, respectively. The U.S. Federal credits would expire at various dates
through 2021, while the state credits would have no expiration date. California
Manufacturers' Investment Credits of approximately $4.8 million would expire at
various dates through 2009.
The research and development credits and the net operating losses shown
above are calculated as if Washington/Mexicali had filed separate tax returns.
These tax attributes include certain amounts that will be retained by Conexant
and will not be available to be utilized in the separate tax returns of the
combined company subsequent to the Merger and the combined company's purchase of
the Mexicali Operations.
As part of the Spin-off and the Merger, Washington, Conexant and Alpha
intend to enter into a tax allocation agreement which will provide, among other
things, for the allocation between Conexant and the combined company of certain
tax liabilities relating to the Washington Business. In general, Conexant will
assume and be responsible for tax liabilities of the Washington Business and
Washington for periods prior to the Merger and the combined company will assume
and be responsible for tax liabilities of the Washington Business for periods
after the Merger.
F-17
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS
Conexant leases certain facilities and equipment under non-cancelable
operating leases. Land and facility leases expire at various dates through 2007
and contain various provisions for rental adjustments including, in certain
cases, adjustments based on increases in the Consumer Price Index. The leases
generally contain renewal provisions for varying periods of time. Rental expense
allocated to Washington/Mexicali was approximately $1.6 million, $3.7 million,
$4.9 million, $1.2 million (unaudited) and $1.3 million (unaudited) during
fiscal 1999, 2000, 2001, and the three months ended December 31, 2000 and 2001,
respectively.
In connection with the Spin-off, the Merger and the sale of the Mexicali
Operations, certain Conexant leases associated with Washington/Mexicali will be
assumed by the combined company. The future minimum obligations under operating
leases associated with Washington/Mexicali and to be assumed by the combined
company as of September 30, 2001 are as follows (in thousands):
FISCAL YEAR
-----------
2002........................................................ $ 3,672
2003........................................................ 3,397
2004........................................................ 3,233
2005........................................................ 2,362
2006........................................................ 737
Thereafter.................................................. 1,279
-------
Total future minimum payments............................. $14,680
=======
7. CONTINGENCIES
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against Conexant or its subsidiaries, the Washington Business or the
Mexicali Operations, including those pertaining to product liability,
intellectual property, environmental, safety and health, and employment matters.
In connection with the Spin-off, Washington will assume responsibility for all
then current and future litigation (including environmental and intellectual
property proceedings) against Conexant or its subsidiaries in respect of the
operations of the Washington Business.
The outcome of litigation cannot be predicted with certainty and some
lawsuits, claims or proceedings may be disposed of unfavorably to
Washington/Mexicali. Many intellectual property disputes have a risk of
injunctive relief and there can be no assurance that a license will be granted.
Injunctive relief could materially and adversely affect the combined financial
condition or results of operations of Washington/Mexicali. Based on its
evaluation of matters that are pending or asserted, and taking into account any
reserves for such matters, management believes the disposition of such matters
will not have a material adverse effect on the combined financial condition or
results of operations of Washington/Mexicali.
Conexant has been designated as a potentially responsible party and is
engaged in groundwater remediation at its Newbury Park wafer fabrication
facility. Management estimated the aggregate remaining costs for this
remediation to be approximately $0.6 million and accrued for these costs in the
combined balance sheet as of September 30, 2001.
F-18
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK PLANS
STOCK OPTIONS
Conexant has stock option plans under which the employees of
Washington/Mexicali may be granted options to purchase common stock. Options are
generally granted with exercise prices at not less than the fair market value at
grant date, generally vest over four years and expire eight to ten years after
the grant date.
A summary of stock options held by the employees of Washington/Mexicali
under Conexant's stock option plans follows (shares in thousands):
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------- THREE MONTHS ENDED
1999 2000 2001 DECEMBER 31, 2001
----------------- ----------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------- -------- ------- --------
(UNAUDITED)
Outstanding at beginning
of period............... -- $ -- 3,593 $11.09 7,485 $35.10 11,723 $26.78
Issued in spin-off from
Rockwell................ 1,287 8.32 -- -- -- -- -- --
Granted during period..... 2,435 12.39 3,936 52.91 4,301 12.12 381 11.92
Options assumed in
acquisition............. -- -- 525 36.12 -- -- -- --
Exercised................. (129) 8.14 (569) 7.53 (33) 7.99 (12) 8.23
Cancelled................. -- -- -- -- (30) 21.03 (4,678) 49.53
----- ------ ----- ------ ------- ------ ------- ------
Outstanding at end of
period.................. 3,593 $11.09 7,485 $35.10 11,723 $26.78 7,414 $11.70
===== ====== ===== ====== ======= ====== ======= ======
Exercisable at end of
period.................. 501 $ 7.60 959 $10.87 2,944 $26.12 2,075 $13.76
===== ====== ===== ====== ======= ====== ======= ======
The following table summarizes Conexant stock options held by the employees
of Washington/Mexicali at September 30, 2001 (shares in thousands):
OUTSTANDING EXERCISABLE
----------------------------------- --------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OF SHARES LIFE (YEARS) PRICE OF SHARES PRICE
------------------------ --------- ------------ -------- --------- --------
$ 4.13 -- $ 8.45.................. 801 6.2 $ 8.19 717 $ 8.25
$ 8.50 -- $ 8.93.................. 2,807 9.5 8.92 11 8.75
$ 8.95 -- $ 14.87.................. 2,351 7.7 9.84 928 9.52
$15.00 -- $ 24.87.................. 942 9.0 21.16 34 18.85
$25.00 -- $115.62.................. 4,822 8.5 49.63 1,254 48.97
------ --- ------ ----- ------
$ 4.13 -- $115.62.................. 11,723 8.5 $26.78 2,944 $26.12
====== === ====== ===== ======
In September 2001, Conexant commenced an offer to its employees to
voluntarily exchange certain outstanding stock options. Under the terms of the
offer, employees holding Conexant stock options having an exercise price equal
to or greater than $25.00 per share could exchange their options for new options
to purchase an equal number of shares of Conexant's common stock (subject to
adjustment in certain circumstances). Employees accepting the exchange offer
were also required to exchange all options granted
F-19
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
within six months of the exchange offer. Approximately 4.7 million options held
by the employees of Washington/Mexicali, with a weighted-average exercise price
of $49.53 per share, were tendered by such employees and on October 2, 2001
those options were accepted and cancelled by Conexant. Conexant undertook to
grant new stock options to the affected employees, on a one-for-one basis, at
least six months and one day after the acceptance of the old options for
exchange and cancellation. The new options will be granted at an exercise price
equal to the closing market price of Conexant's common stock on the grant date,
and will have vesting and other provisions substantially the same as the
cancelled options.
Conexant options outstanding as of the Spin-off date, other than options
granted to employees of Conexant's Mindspeed Technologies business on March 30,
2001 (Mindspeed March 30 options) are expected to be adjusted to become
Washington stock options and Conexant stock options at the time of the Spin-off.
The exercise prices of the Conexant options and Washington options and the
number of shares subject to such options will be adjusted using a formula that
will ensure that (1) the aggregate intrinsic value of the options immediately
before and after the Spin-off are the same, (2) the ratio of the exercise price
per option to the market value per share is the same immediately before and
after the Spin-off, and (3) the vesting provisions and option period of the
replacement Washington options are the same as the original vesting terms and
option period of the Conexant options.
Mindspeed March 30 options will remain exercisable only for shares of
Conexant common stock, with appropriate adjustments to the number of shares
subject to, and the exercise prices of, such Mindspeed March 30 options to
ensure that (i) the aggregate economic value of the adjusted Mindspeed March 30
option is the same immediately before and immediately after the Spin-off and
(ii) the ratio of the exercise price to the fair market value of the underlying
Conexant common stock remains the same immediately before and immediately after
the Spin-off.
In the Merger, each outstanding option to purchase Washington common stock
will be converted into an option to purchase a number of shares of Alpha common
stock that is equal to the product of 0.351 multiplied by the number of shares
of Washington common stock subject to the unexercised portion of the Washington
option immediately before the conversion, rounded down to the nearest whole
share. The exercise price per share of the converted options will be equal to
the exercise price per share of the Washington options immediately before the
conversion divided by 0.351, and rounded up to the nearest whole cent.
RESTRICTED STOCK
Conexant's long-term incentive plans also provide for awards of restricted
shares of common stock and other stock-based incentive awards to officers and
other employees and certain non-employees. Restricted stock awards are subject
to forfeiture if employment terminates during the prescribed retention period
(generally within two years of the date of award) or, in certain cases, if
prescribed performance criteria are not met. The fair value of restricted stock
awards is charged to expense over the vesting period. In fiscal 1999, 2000 and
2001, compensation expense of $2.6 million, $0.8 million and $0.4 million,
respectively, was recorded for the value of restricted stock awards to employees
of Washington/Mexicali.
EMPLOYEE STOCK PURCHASE PLAN
Conexant has an employee stock purchase plan which allows eligible
employees to purchase shares of Conexant common stock at six-month intervals
during a 24-month offering period at 85% of the lower of the fair market value
on the first day of the 24-month offering period or on the purchase date. Under
the employee stock purchase plan, employees may authorize Conexant to withhold
up to 10% of their compensation for each pay period to purchase shares under the
plan, subject to certain limitations.
F-20
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Offering periods generally commence on the first trading day of February and
August of each year and are generally 24 months in duration, but may be
terminated earlier under certain circumstances.
ACCOUNTING FOR STOCK-BASED COMPENSATION
As permitted under SFAS 123, Washington/Mexicali has elected to follow APB
25 and related interpretations in accounting for stock-based awards to
employees. Under APB 25, no compensation expense is generally recognized with
respect to such awards.
Pro forma information regarding net loss is required by SFAS 123. This
information is required to be determined as if stock-based awards to employees
had been accounted for under the fair value method of that Statement. Had
compensation cost for stock option awards to employees of Washington/Mexicali
under Conexant's stock option plans been determined based on the fair value at
the grant date for awards in fiscal 1999, 2000 and 2001, the pro forma net loss
for Washington/Mexicali would have been approximately $19.3 million, $102.9
million and $390.8 million, respectively.
For purposes of pro forma disclosures under SFAS 123, the estimated fair
value of the options is assumed to be amortized to expense over the options'
vesting period. The fair value of the options granted has been estimated at the
date of grant using the Black-Scholes option pricing model with the following
assumptions:
YEAR ENDED SEPTEMBER 30,
-------------------------
1999 2000 2001
------ ------- ------
Risk-free interest rate..................................... 5.9% 5.9% 3.8%
Expected volatility......................................... 60% 60% 85%
Dividend yield.............................................. -- -- --
Expected life (years)....................................... 5.0 4.5 4.5
Weighted-average fair value of options granted.............. $7.23 $27.46 $7.96
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because options held by employees and directors have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
the opinion of management, the existing models do not necessarily provide a
reliable single measure of the fair value of these options.
In connection with the Spin-off and the Merger, as noted above, the number
of shares and the related exercise prices of outstanding stock options held by
employees of Washington/Mexicali will be adjusted. Accordingly, the outstanding
stock option information and the SFAS 123 disclosures presented above are not
necessarily indicative of the amounts that would have been presented if the
Spin-off and the Merger had occurred at the beginning of any of the periods
presented, nor what the amounts will be in the future.
9. EMPLOYEE BENEFIT PLANS
Conexant sponsors various benefit plans for its eligible employees,
including a 401(k) retirement savings plan, a retirement medical plan and a
pension plan. Expenses allocated from Conexant under these employee benefit
plans for Washington/Mexicali participants were $0.6 million, $1.3 million and
$1.3 million for fiscal 1999, 2000 and 2001, respectively.
F-21
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
10. SPECIAL CHARGES
ASSET IMPAIRMENTS
During the third quarter of fiscal 2001, Washington/Mexicali recorded an
$86.2 million charge for the impairment of the manufacturing facility and
related wafer fabrication machinery and equipment at the Washington Business's
Newbury Park facility. This impairment charge was based on a recoverability
analysis prepared by management as a result of the dramatic downturn in the
market for wireless communications products and the related impact on the
then-current and projected business condition of the Washington Business. During
the third quarter of fiscal 2001, the Washington Business experienced a severe
decline in factory utilization at the Newbury Park wafer fabrication facility,
which management believed to be reflective of the future outlook for the market
for its wireless communications products. These factors resulted in management's
decision to significantly reduce all future capital expenditures for advanced
process technologies and capacity beyond the then-current levels, which further
supported management's determination that an impairment analysis should be
performed. In performing the analysis for recoverability, management estimated
the future cash flows expected to result from the manufacturing activities at
the Newbury Park facility over a ten-year period. The estimated future cash
flows were based on modest volume increases consistent with management's view of
the outlook for the industry, partially offset by declining average selling
prices. The declines in average selling prices are consistent with historical
trends and management's decision to focus on existing products based on the
current technology. Since the estimated undiscounted cash flows were less than
the carrying value (approximately $106 million based on historical cost) of the
related assets, it was concluded that an impairment loss should be recognized.
The impairment charge was determined by comparing the estimated fair value of
the related assets to their carrying value. The fair value of the assets was
determined by computing the present value of the estimated future cash flows
using a discount rate of 30%, which management believed was commensurate with
the underlying risks associated with the projected cash flows.
Washington/Mexicali believes the assumptions used in the discounted cash flow
model represented a reasonable estimate of the fair value of the assets. The
write-down established a new cost basis for the impaired assets.
RESTRUCTURING CHARGES
In connection with a restructuring plan initiated in September 1998,
Conexant offered a voluntary early retirement program (VERP) to certain salaried
employees. Pension benefits under the VERP are paid from a newly established
pension plan (the VERP Plan) of Conexant. Benefits payable under the VERP Plan
are equal to the excess of the total early retirement pension benefit over the
vested benefit obligation retained by Rockwell under a Rockwell pension plan.
Fiscal 1999 restructuring charges include $1.4 million for costs associated with
Washington/Mexicali employees who accepted the VERP after September 30, 1998.
During fiscal 2001, Washington/Mexicali reduced its workforce by
approximately 250 employees, including approximately 230 employees in
manufacturing operations. Restructuring charges of $2.7 million were recorded
for such actions and were based upon estimates of the cost of severance benefits
for the affected employees. Substantially all amounts accrued for these actions
are expected to be paid within one year.
F-22
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Activity and liability balances related to the fiscal 2001 restructuring
actions are as follows (in thousands):
Charged to costs and expenses............................... $2,667
Cash payments............................................... (1,943)
------
Restructuring balance, September 30, 2001................... 724
Cash payments (unaudited)................................... (461)
------
Restructuring balance, December 31, 2001 (unaudited)........ $ 263
======
11. RELATED PARTY TRANSACTIONS
Historically, a significant portion of Conexant's semiconductor product
assembly and test function has been performed by the Mexicali Operations. In
addition, Conexant has purchased certain semiconductor products from the Newbury
Park wafer fabrication facility included in the Washington Business. Revenues
and related costs of goods sold for products manufactured in the Newbury Park
wafer fabrication facility and assembled and tested by the Mexicali Operations
for Conexant have been separately presented in the combined statements of
operations. Accounts receivable related to sales to Conexant are included in
Conexant's net investment.
Conexant uses a central approach to cash management and financing its
operations. Accordingly, Conexant has provided funding for the working capital
and capital expenditure requirements of Washington/Mexicali. This funding
consists of Conexant's payment of expenses allocated to Washington/Mexicali and
payments made by Conexant on behalf of Washington/Mexicali. This financing by
Conexant has been in the form of equity capital advances in Washington/Mexicali
and there are no formal repayment or interest arrangements, nor any expectation
of any such arrangements in the future. The equity capital advances have been
presented separately as additions to Conexant's net investment in the
accompanying combined statements of Conexant's net investment and comprehensive
income.
F-23
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
A summary of the accumulated net transfers from Conexant and the average
balances outstanding are as follows (in thousands):
THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
--------------------------------- -------------------
1999 2000 2001 2000 2001
--------- --------- --------- -------- --------
(UNAUDITED)
Balance at beginning of period......... $ 284,614 $ 388,079 $ 536,785 $536,785 $675,128
--------- --------- --------- -------- --------
Cash collected by Conexant on behalf of
Washington/Mexicali.................. (156,379) (276,414) (242,310) (30,918) (85,593)
Cash received in connection with
business acquisition................. -- (7,655) -- -- --
Sales to Conexant...................... (40,400) (65,433) (44,949) (16,978) (5,356)
Purchases from Conexant................ 3,586 51,402 37,470 6,130 20,860
Capital expenditures................... 94,331 100,424 51,118 18,200 1,571
Expenses allocated from Conexant....... 56,767 88,565 104,483 26,456 19,131
Amounts paid by Conexant on behalf of
Washington/Mexicali.................. 145,560 257,817 232,531 52,515 70,027
--------- --------- --------- -------- --------
Net transfers from Conexant............ 103,465 148,706 138,343 55,405 20,640
--------- --------- --------- -------- --------
Balance at end of period............... $ 388,079 $ 536,785 $ 675,128 $592,190 $695,768
========= ========= ========= ======== ========
Average balance........................ $ 336,347 $ 462,432 $ 605,957 $564,488 $685,448
========= ========= ========= ======== ========
The operating costs and expenses of Washington/Mexicali include allocations
from Conexant for research and development, legal, accounting, treasury, human
resources, real estate, information systems, distribution, customer service,
sales, marketing, engineering and other corporate services provided by Conexant,
including executive salaries and other costs. Operating costs and expenses for
Washington/ Mexicali are allocated based upon specific identification to the
extent possible and the remaining common costs are allocated on bases that
management considered to be reasonable reflections of the utilization of
services provided to or the benefit received by Washington/Mexicali. A summary
of the primary methods used to allocate common costs and expenses are as
follows:
Cost of goods sold - Percentage of specifically-identified
cost of goods sold for
Washington/Mexicali to the total of
specifically-identified cost of goods
sold.
Research and development
expenses
and selling/marketing
expenses - Detailed activity-based analyses.
- Percentage of specific spending for
Washington/Mexicali to the total spending
for research and development and
selling/marketing expenses, respectively.
- Pro rata manufacturing capacity
utilization.
General and administrative
expenses - Percentage of all specifically-identified
costs incurred by Washington/Mexicali to
the total of all specifically-identified
costs by Conexant for cost of goods sold,
research and development and
selling/marketing expenses.
F-24
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Allocated operating costs included in the combined statements of operations
are as follows (in thousands):
THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
------------------------------ -------------------
1999 2000 2001 2000 2001
-------- -------- -------- -------- --------
(UNAUDITED)
Cost of goods sold...................... $ 11,513 $ 17,259 $ 35,382 $ 5,053 $ 4,908
Research and development................ 23,346 32,056 31,694 9,074 7,071
Selling, general and administrative..... 21,908 39,250 37,407 12,329 7,152
-------- -------- -------- -------- --------
$ 56,767 $ 88,565 $104,483 $ 26,456 $ 19,131
======== ======== ======== ======== ========
Conexant and Washington have entered into, or prior to the distribution of
Washington common stock will enter into, various agreements which will govern
the Spin-off and various interim and ongoing relationships between Conexant and
the combined company, including: the contribution and distribution agreement, an
employee matters agreement, a tax allocation agreement, a transition services
agreement and certain product supply agreements.
Distribution Agreement -- The distribution agreement between Conexant and
Washington provides for, among other things, the principal corporate
transactions required to effect the separation of the Washington Business from
Conexant, the proposed distribution of Washington common stock and certain other
terms governing the relationship between Conexant and Washington with respect to
or in consequence of the Spin-off.
Employee Matters Agreement -- The employee matters agreement allocates
among Conexant, Washington and Alpha assets, liabilities, and responsibilities
relating to current and former employees of Conexant and the Washington Business
and governs certain aspects of the participation by those individuals in stock
and other benefit plans of Conexant, Washington and Alpha following the
Spin-off.
Tax Allocation Agreement -- Through the date of the Spin-off, the results
of operations of the Washington Business have been and will be included in
Conexant's consolidated U.S. Federal income tax returns. As part of the Spin-off
and the Merger, Alpha, Conexant and Washington will enter into a tax allocation
agreement which provides, among other things, for the allocation between
Conexant and the combined company of federal, state, local and foreign tax
liabilities relating to the Washington business.
The tax allocation agreement also allocates the liability for any taxes
that may arise in connection with separating the Washington Business from
Conexant. The tax allocation agreement provides, in general, that Conexant will
be responsible for any such taxes. However, the combined company will be
responsible for any taxes imposed on Washington, Conexant or Conexant
shareholders if either the Spin-off fails to qualify as a reorganization for
U.S. Federal income tax purposes or the distribution of Washington common stock
is disqualified as a tax-free transaction to Conexant for U.S. Federal income
tax purposes and such failure or disqualification is attributable to
post-Spin-off transaction actions by the combined company, its subsidiaries or
its stockholders.
Transition Services Agreement -- Under the transition services agreement to
be entered into prior to the Spin-off, Conexant will provide certain services to
the combined company. In addition the combined company will provide certain
services to Conexant. These services generally will be provided until December
31, 2002, unless the parties otherwise agree. The price for the services will be
the actual cost of the services.
F-25
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Newport Supply Agreement -- Under the Newport supply agreement to be
entered into prior to the Spin-off, the combined company will obtain wafer
fabrication, wafer probe and other services for both production and prototypes
of semiconductor products from the Newport Beach, California wafer fabrication
facility owned by the foundry joint venture formed by Conexant and The Carlyle
Group, to which Conexant contributed the facility in March 2002 and with which
Conexant has a supply agreement. These services generally will be provided for a
term of three years after the Spin-off. The price for the services in the first
year will be the actual cost of the services; in the second year will be the
average of (1) the actual cost in the first year and (2) the market price
(determined prior to the start of the second year) of the services; and in the
third year will be based on the market price of the services.
Newbury Supply Agreement -- Under the Newbury supply agreement, the
combined company will provide wafer fabrication, wafer probe, final test and
other services to Conexant for both production and prototypes of semiconductor
products at the Newbury Park wafer fabrication facility. These services
generally will be provided for a term of three years after the Spin-off. The
price for the services in the first year will be the actual cost of the
services; in the second year will be the average of (1) the actual cost in the
first year and (2) the market price (determined prior to the start of the second
year) of the services; and in the third year will be based on the market price
of the services.
Conexant and the combined company will also enter into a facility services
agreement under which the combined company will provide Conexant with certain
semiconductor assembly and test services, and Conexant will provide the combined
company with certain transition services with respect to the Mexicali
Operations. The assembly and test services will be performed at the Mexicali
facility and, if Conexant and the combined company agree, at other facilities
approved by the combined company. These services generally will be provided for
a term of three years after the closing date of the sale of the Mexicali
Operations. The price for the services in the first year will be the actual cost
of the services; in the second year will be the average of (1) the actual cost
in the first year and (2) the market price (determined prior to the start of the
second year) of the services; and in the third year will be based on the market
price of the services. During the term of the supply arrangement, Conexant will
have the right to purchase products manufactured through the use of any
technologies developed and qualified for full-scale production at the Mexicali
facility at the time of the supply arrangement and, if the parties agree on
terms, products manufactured through the use of any new technologies in
development at the Mexicali facility at the time of the supply arrangement, but
not yet qualified for full-scale production. The transition services will be
provided by Conexant for a specified period of time following the closing date
of the sale of the Mexicali Operations.
12. SEGMENT AND GEOGRAPHIC INFORMATION
The Washington Business operates in one business segment, which designs,
develops and sells semiconductor products and system solutions for manufacturers
of wireless communications products. The Mexicali Operations consist of a
semiconductor assembly and test facility, located in Mexicali, Mexico, which has
provided services for both the Washington Business and Conexant.
F-26
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Net revenues from third parties by geographic area are presented based upon
the country of destination. Net revenues from third parties by geographic area
are as follows (in thousands):
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------ -------------------
1999 2000 2001 2000 2001
-------- -------- -------- -------- --------
(UNAUDITED)
United States............................. $ 50,884 $ 32,726 $ 18,999 $ 5,143 $ 2,523
Other Americas............................ 4,114 8,146 5,455 1,111 978
-------- -------- -------- ------- -------
Total Americas.......................... 54,998 40,872 24,454 6,254 3,501
South Korea............................... 108,501 167,269 142,459 32,834 60,970
Other Asia-Pacific........................ 5,275 46,255 23,898 12,617 20,360
-------- -------- -------- ------- -------
Total Asia-Pacific...................... 113,776 213,524 166,357 45,451 81,330
Europe, Middle East and Africa............ 7,241 58,587 24,691 16,813 3,573
-------- -------- -------- ------- -------
$176,015 $312,983 $215,502 $68,518 $88,404
======== ======== ======== ======= =======
Net revenues from third parties by product group are as follows (in
thousands):
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------ -------------------
1999 2000 2001 2000 2001
-------- -------- -------- -------- --------
(UNAUDITED)
Handset components........................ $168,000 $300,013 $205,375 $63,669 $87,720
Infrastructure components................. 8,015 12,970 10,127 4,849 684
-------- -------- -------- ------- -------
$176,015 $312,983 $215,502 $68,518 $88,404
======== ======== ======== ======= =======
Long-lived assets principally consist of property, plant and equipment,
goodwill and intangible assets. Long-lived assets by geographic area are as
follows (in thousands):
SEPTEMBER 30,
------------------- DECEMBER 31,
2000 2001 2001
-------- -------- ------------
(UNAUDITED)
United States...................................... $115,417 $ 44,539 $ 44,160
Mexico............................................. 144,890 126,730 117,261
Canada............................................. 72,235 58,373 54,347
Other.............................................. 1,992 1,285 1,344
-------- -------- --------
$334,534 $230,927 $217,112
======== ======== ========
F-27
SCHEDULE II
THE WASHINGTON BUSINESS AND THE MEXICALI OPERATIONS
OF CONEXANT SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1999, 2000 AND 2001
(IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES(1) DEDUCTIONS(1) YEAR
----------- ---------- ----------- ------------- ----------
Year ended September 30, 1999:
Allowance for doubtful accounts.............. $ 436 $ (30) $ -- $ 406
Reserve for sales returns and allowances..... 4,132 479 (3,486) 1,125
Allowance for excess and obsolete
inventories............................... 3,437 2,530 -- 5,967
Year ended September 30, 2000:
Allowance for doubtful accounts.............. $ 406 $3,538 $ (152) $ 3,792
Reserve for sales returns and allowances..... 1,125 55 (646) 534
Allowance for excess and obsolete
inventories............................... 5,967 3,132 -- 9,099
Year ended September 30, 2001:
Allowance for doubtful accounts.............. $3,792 $ (468) $ (118) $ 3,206
Reserve for sales returns and allowances..... 534 4,055 -- 4,589
Allowance for excess and obsolete
inventories............................... 9,099 2,286(2) -- 11,385
---------------
(1) Additions charged to costs and expenses in the allowance for doubtful
accounts are presented net of credits to the provision for doubtful accounts
resulting from collections experience more favorable than previously
expected in relation to accounts receivable balances that were not expected
to be collected and were previously reserved for (but not written off).
Deductions in the allowance for doubtful accounts reflect amounts written
off.
(2) Amount excludes inventory write-downs of $58.7 million charged to cost of
goods sold relating to inventory that management expects to be unable to
sell. Through December 31, 2001, Washington/ Mexicali scrapped inventories
having an original cost of approximately $34.5 million and sold an
additional $12.1 million of inventories previously written down to a zero
cost basis. As of December 31, 2001, Washington/Mexicali continued to hold
inventories with an original cost of approximately $12.1 million which were
previously written down to a zero cost basis.
F-28
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF DECEMBER 16, 2001,
AS AMENDED AS OF APRIL 12, 2002,
BY AND AMONG
CONEXANT SYSTEMS, INC.,
WASHINGTON SUB, INC.
AND
ALPHA INDUSTRIES, INC.
A-1
TABLE OF CONTENTS
PAGE
----
ARTICLE I THE MERGER.................................................. A-6
SECTION 1.1 The Merger.................................................. A-6
SECTION 1.2 Closing; Effective Time..................................... A-6
SECTION 1.3 Effects of the Merger....................................... A-6
SECTION 1.4 Conversion of Washington Common Stock....................... A-6
SECTION 1.5 Alpha Common Stock.......................................... A-7
SECTION 1.6 Certificate of Incorporation................................ A-7
SECTION 1.7 By-Laws..................................................... A-7
SECTION 1.8 Officers.................................................... A-7
SECTION 1.9 Board of Directors.......................................... A-7
SECTION 1.10 Name; Corporate Offices..................................... A-7
SECTION 1.11 Fiscal Year................................................. A-8
ARTICLE II OPTIONS..................................................... A-8
SECTION 2.1 Option Conversion........................................... A-8
SECTION 2.2 Incentive Stock Options..................................... A-8
SECTION 2.3 Shares Reserved; Registration............................... A-8
ARTICLE III EXCHANGE OF SHARES.......................................... A-8
SECTION 3.1 Alpha to Make Shares Available.............................. A-8
SECTION 3.2 Exchange of Shares.......................................... A-9
SECTION 3.3 Affiliates.................................................. A-10
ARTICLE IV CERTAIN PRE-MERGER TRANSACTIONS............................. A-10
SECTION 4.1 Ancillary Agreements........................................ A-10
SECTION 4.2 Contribution................................................ A-11
SECTION 4.3 Distribution................................................ A-11
ARTICLE V REPRESENTATIONS AND WARRANTIES.............................. A-11
SECTION 5.1 Representations and Warranties of Alpha..................... A-11
SECTION 5.2 Representations and Warranties of Conexant.................. A-19
ARTICLE VI COVENANTS RELATING TO CONDUCT OF BUSINESS................... A-28
SECTION 6.1 Covenants of Alpha.......................................... A-28
SECTION 6.2 Covenants of Conexant and Washington........................ A-30
SECTION 6.3 Reports; SEC Reports........................................ A-33
SECTION 6.4 Control of Other Party's Business........................... A-33
ARTICLE VII ADDITIONAL AGREEMENTS....................................... A-33
SECTION 7.1 Preparation of Proxy Statement; Stockholders Meeting........ A-33
SECTION 7.2 Combined Company Board of Directors and Management.......... A-35
SECTION 7.3 Access to Information....................................... A-35
SECTION 7.4 Reasonable Best Efforts..................................... A-35
SECTION 7.5 Acquisition Proposals....................................... A-36
SECTION 7.6 Employee Benefits Matters................................... A-38
SECTION 7.7 Fees and Expenses........................................... A-39
SECTION 7.8 Directors' and Officers' Indemnification and Insurance...... A-39
A-2
PAGE
----
SECTION 7.9 Public Announcements........................................ A-40
SECTION 7.10 Accounting Matters.......................................... A-40
SECTION 7.11 Listing of Shares of Alpha Common Stock..................... A-41
SECTION 7.12 Affiliates.................................................. A-41
SECTION 7.13 Section 16 Matters.......................................... A-41
SECTION 7.14 Takeover Statutes........................................... A-41
SECTION 7.15 Advice of Changes........................................... A-41
SECTION 7.16 Shareholders Agreement...................................... A-41
SECTION 7.17 Tax Ruling.................................................. A-41
SECTION 7.18 Option Acceleration......................................... A-42
SECTION 7.19 Employment and Severance Arrangements....................... A-42
SECTION 7.20 Transition Services Agreement............................... A-42
ARTICLE VIII CONDITIONS PRECEDENT........................................ A-42
SECTION 8.1 Conditions to Each Party's Obligation to Effect the A-42
Merger......................................................
SECTION 8.2 Additional Conditions to Obligations of Alpha............... A-43
SECTION 8.3 Additional Conditions to Obligations of Washington.......... A-44
ARTICLE IX TERMINATION AND AMENDMENT................................... A-45
SECTION 9.1 Termination................................................. A-45
SECTION 9.2 Effect of Termination....................................... A-46
SECTION 9.3 Amendment................................................... A-46
SECTION 9.4 Extension; Waiver........................................... A-47
ARTICLE X GENERAL PROVISIONS.......................................... A-47
SECTION 10.1 Non-Survival of Representations, Warranties, Covenants and A-47
Agreements..................................................
SECTION 10.2 Notices..................................................... A-47
SECTION 10.3 Interpretation.............................................. A-48
SECTION 10.4 Counterparts................................................ A-48
SECTION 10.5 Entire Agreement; No Third Party Beneficiaries.............. A-48
SECTION 10.6 Governing Law............................................... A-48
SECTION 10.7 Severability................................................ A-48
SECTION 10.8 Assignment.................................................. A-49
SECTION 10.9 Submission to Jurisdiction; Waivers......................... A-49
SECTION 10.10 Enforcement................................................. A-49
SECTION 10.11 Definitions................................................. A-49
SECTION 10.12 Disclosure Schedule......................................... A-53
A-3
EXHIBITS
Exhibit A -- Form of Contribution and Distribution Agreement
Exhibit B -- Form of Amended and Restated Certificate
Exhibit C -- Form of By-Laws
Exhibit D -- Form of Certificate of Merger
Exhibit E -- Certain Alpha Agreements
Exhibit F -- Form of Tax Allocation Agreement
Exhibit G -- Form of Employee Matters Agreement
Exhibit H -- Form of Affiliate Agreement
Exhibit I -- Parties to Shareholder Agreement
Exhibit J -- Form of Shareholder Agreement
Exhibit K -- Terms of Newport Supply Agreement
Exhibit L -- Terms of Newbury Supply Agreement
A-4
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of December 16, 2001, as
amended as of April 12, 2002 (this "Agreement"), by and among CONEXANT SYSTEMS,
INC., a Delaware corporation ("Conexant"), WASHINGTON SUB, INC., a Delaware
corporation and a wholly-owned subsidiary of Conexant ("Washington"), and ALPHA
INDUSTRIES, INC., a Delaware corporation ("Alpha").
W I T N E S S E T H :
WHEREAS, simultaneously with the execution and delivery of this Agreement,
Conexant and Washington are entering into a contribution and distribution
agreement in the form attached hereto as Exhibit A (the "Distribution
Agreement") pursuant to which (a) all the Washington Assets (as defined in the
Distribution Agreement) will be assigned to Washington and/or to one or more of
the Washington Subsidiaries (as defined in the Distribution Agreement) and all
of the Washington Liabilities (as defined in the Distribution Agreement) will be
assumed by Washington and/or by one or more of the Washington Subsidiaries, all
as provided in the Distribution Agreement (the "Contribution") and (b) all of
the issued and outstanding shares of common stock, par value $.01 per share, of
Washington (the "Washington Common Stock") will be distributed on a pro rata
basis to Conexant's stockholders as provided in the Distribution Agreement (the
"Distribution");
WHEREAS, the Boards of Directors of Conexant, Washington and Alpha deem it
advisable and in the best interests of each corporation and its respective
stockholders that Washington and Alpha enter into a merger transaction in order
to advance the long-term strategic business interests of Conexant, Washington
and Alpha;
WHEREAS, the Boards of Directors of Conexant, Washington and Alpha have
determined to consummate such merger transaction by means of the business
combination transaction provided for herein in which, immediately following the
Distribution Washington will, subject to the terms and conditions set forth
herein, merge with and into Alpha (the "Merger"), with Alpha being the surviving
corporation (hereinafter sometimes referred to in such capacity as the "Combined
Company") in the Merger;
WHEREAS, the parties to this Agreement intend that the Contribution and the
Distribution qualify under Sections 355 and 368 of the Internal Revenue Code of
1986, as amended (the "Code"), as a reorganization, that the Merger qualify
under Section 368 of the Code as a reorganization and that this Agreement shall
constitute a "plan of reorganization" for purposes of Sections 354 and 361 of
the Code;
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger;
WHEREAS, capitalized terms used in this Agreement will have the respective
meanings set forth (i) in Section 10.11 or (ii) in the Sections of this
Agreement or in the relevant Reorganization Agreement (as defined in Section
10.11) set forth opposite such terms in Section 10.11; and
WHEREAS, subsequent to the execution and delivery of this Agreement as of
December 16, 2001, Alpha, Conexant and Washington agreed effective as of April
12, 2002 to amend this Agreement to (a) incorporate a change in the Exchange
Ratio (as defined in Section 1.4(a)) in order to adjust for certain options
issued to employees of Conexant's Mindspeed Technologies business that will not
be adjusted in the Distribution, pursuant to the Employee Matters Agreement (as
defined in Section 4.1), and the Merger, pursuant to this Agreement, in the same
manner as other Conexant Stock Options (as defined in Section 5.2(b)(i)), and
the holders of which will not receive Converted Options (as defined in Section
10.11) in respect thereof, and (b) amend Sections 1.8 and 10.3, it being
understood and agreed by the parties that in all other respects, this Agreement
shall remain in effect in the form executed and delivered by the parties as of
December 16, 2001. The revised Exchange Ratio was calculated to maintain the
same proportional ownership of the Combined Company immediately following the
Merger by holders of Conexant Common Stock (as defined in Section 5.2(b)(i)) and
the holders of Alpha Common Stock (as
A-5
defined in Section 1.4(a)) as would have existed if these options had been
excluded from the parties' original calculations.
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and conditions of this Agreement,
and in accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), at the Effective Time (as defined in Section 1.2(b)), Washington shall
merge with and into Alpha. Alpha shall be the surviving corporation in the
Merger and shall continue its corporate existence under the laws of the State of
Delaware. Upon consummation of the Merger, the separate corporate existence of
Washington shall terminate.
SECTION 1.2 Closing; Effective Time.
(a) The closing of the Merger (the "Closing") will take place as soon as
practicable, but in any event within three Business Days, after the satisfaction
or waiver (subject to Applicable Laws) of the conditions (excluding conditions
that, by their nature, cannot be satisfied until the Closing Date (as defined
below)) set forth in Article VIII, unless this Agreement has been theretofore
terminated pursuant to its terms or unless another time or date is agreed to in
writing by the parties hereto (the actual time and date of the Closing being
referred to herein as the "Closing Date"). The Closing shall be held at the
offices of Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, New York,
unless another place is agreed to in writing by the parties hereto.
(b) The Merger shall become effective as set forth in the certificate of
merger relating thereto substantially in the form attached hereto as Exhibit D
that shall be filed with the Secretary of State of the State of Delaware (the
"Delaware Secretary") on the Closing Date (the "Certificate of Merger"). The
term "Effective Time" shall be the date and time when the Merger becomes
effective, as set forth in the Certificate of Merger. The Effective Time shall
occur immediately after the Time of Distribution (as defined in the Distribution
Agreement).
SECTION 1.3 Effects of the Merger. At and after the Effective Time, the
Merger shall have the effects set forth in the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all of
the properties, rights, privileges, powers and franchises of Washington shall
vest in Alpha, and all debts, liabilities and duties of Washington shall become
the debts, liabilities and duties of Alpha.
SECTION 1.4 Conversion of Washington Common Stock. At the Effective Time,
by virtue of the Merger and without any action on the part of Washington, Alpha
or the holders of any capital stock of Washington or Alpha:
(a) Subject to Section 3.2(d), each share of Washington Common Stock
issued and outstanding immediately prior to the Effective Time (after
giving effect to the Distribution), other than shares of Washington Common
Stock held in Washington's treasury or owned by Alpha or any wholly-owned
Subsidiary of Washington or Alpha, shall automatically be converted into
the right to receive 0.351 shares (the "Exchange Ratio") of common stock,
par value $.25 per share, of Alpha (including the associated preferred
share purchase rights, the "Alpha Common Stock"). If (i) between the date
hereof and the Effective Time, the outstanding shares of Alpha Common
Stock, (ii) between the date hereof and the Time of Distribution, the
outstanding shares of Conexant Common Stock (as defined in Section
5.2(b)(i)) or (iii) following the Time of Distribution and prior to the
Effective Time, the outstanding shares of Washington Common Stock, shall
have been increased, decreased, changed into or exchanged for a different
number or kind of shares or securities (or a record date within any such
period shall have been established for any of the foregoing) as a result of
a reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar change in capitalization (other
than solely as a result of the Distribution or the Merger, but including
any
A-6
increase or decrease in the outstanding shares of Conexant Common Stock as
a result of the issuance of any security in accordance with the Conexant
Rights Agreement (as defined in Section 5.2(b)(i)), an appropriate and
proportionate adjustment shall be made to the Exchange Ratio to the extent
necessary to reflect such reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or
similar change in capitalization.
(b) All shares of Washington Common Stock converted into the right to
receive Alpha Common Stock pursuant to this Article I shall no longer be
outstanding and shall automatically be canceled and shall cease to exist,
and each certificate or book-entry credit previously evidencing any such
shares of Washington Common Stock (a "Washington Certificate") shall
thereafter evidence only the right to receive (i) the number of whole
shares of Alpha Common Stock (which shall be in uncertificated book-entry
form unless a physical certificate is requested) and (ii) cash in lieu of
fractional shares of Alpha Common Stock into which the shares of Washington
Common Stock formerly evidenced by such Washington Certificate have been
converted pursuant to this Section 1.4 and Section 3.2(d), without any
interest thereon.
(c) All shares of Washington Common Stock held in Washington's
treasury or owned by Alpha, or any wholly-owned Subsidiary of Washington or
Alpha shall be canceled and shall cease to exist and no shares of Alpha
Common Stock or other consideration shall be delivered in exchange
therefor.
SECTION 1.5 Alpha Common Stock. At and after the Effective Time, each
share of Alpha Common Stock issued and outstanding immediately prior to the
Effective Time shall remain an issued and outstanding share of common stock of
the Combined Company and shall not be affected by the Merger.
SECTION 1.6 Certificate of Incorporation. At the Effective Time, the
certificate of incorporation of the Combined Company shall be in the form
attached hereto as Exhibit B, with such changes thereto as shall be mutually
agreed upon by Conexant and Alpha (the "Restated Certificate"), until thereafter
amended in accordance with the terms thereof and Applicable Laws (as defined in
Section 10.11).
SECTION 1.7 By-Laws. At the Effective Time, the by-laws of the Combined
Company shall be in the form attached hereto as Exhibit C, with such changes as
may be mutually agreed upon by Conexant and Alpha (the "By-Laws"), until
thereafter amended in accordance with the terms thereof, the Restated
Certificate and Applicable Laws.
SECTION 1.8 Officers. At the Effective Time, David J. Aldrich shall be
Chief Executive Officer of the Combined Company and otherwise the initial
officers of the Combined Company shall be as Conexant and Alpha shall agree
prior to the Effective Time, and such officers shall hold office until their
respective successors are duly appointed and qualified, or their earlier death,
resignation or removal.
SECTION 1.9 Board of Directors. At the Effective Time, until duly changed
in compliance with the Restated Certificate, the By-Laws and Applicable Laws,
the Board of Directors of the Combined Company shall consist of either nine or
eleven persons (as agreed by Conexant and Alpha prior to the Effective Time),
including (a) four (in the case of a nine-person Board of Directors) or five (in
the case of an eleven-person Board of Directors) persons (one of whom shall be
Chairman of the Board of the Combined Company) to be named by the Board of
Directors of Conexant, (b) four (in the case of a nine-person Board of
Directors) or five (in the case of an eleven-person Board of Directors) persons
to be named by the Board of Directors of Alpha and (c) one person to be jointly
named by the Boards of Directors of Conexant and Alpha. The directors named by
Conexant and Alpha shall be allocated proportionately among the classes of the
Board of Directors of the Combined Company as shall be agreed between Conexant
and Alpha prior to the Effective Time.
SECTION 1.10 Name; Corporate Offices.
(a) At the Effective Time, the name of the Combined Company shall be
as agreed by Conexant and Alpha prior to the Effective Time.
(b) At the Effective Time, the Combined Company shall have joint
headquarters located in Newport Beach, California and Woburn,
Massachusetts.
A-7
SECTION 1.11 Fiscal Year. The fiscal year of the Combined Company will
initially end on September 30 of each year.
ARTICLE II
OPTIONS
SECTION 2.1 Option Conversion. At or prior to the Effective Time,
Washington and Alpha will take all action necessary such that each Washington
Option (as defined in the Employee Matters Agreement) that is outstanding and
unexercised immediately prior thereto (after giving effect to the adjustments to
Conexant Stock Options (as defined in Section 5.2(b)(i)) to be effected in
connection with the Distribution as provided for in the Employee Matters
Agreement) shall cease to represent a right to acquire shares of Washington
Common Stock and shall, as of the Effective Time, automatically be converted
into a Converted Option exercisable for a number of shares of Alpha Common Stock
and at an exercise price determined as provided below (and otherwise subject to
the terms of the appropriate Washington Stock Plan (as defined in the Employee
Matters Agreement) governing such option and the agreements evidencing grants
thereunder):
(i) The number of shares of Alpha Common Stock to be subject to the
Converted Option shall be equal to the product of the number of shares of
Washington Common Stock subject to the unexercised portion of the
Washington Option (as adjusted in connection with the Distribution)
multiplied by the Exchange Ratio, provided that any fractional shares of
Alpha Common Stock resulting from such multiplication shall be rounded down
to the nearest whole share; and
(ii) The exercise price per share of Alpha Common Stock under the
Converted Option shall be equal to the exercise price per share of
Washington Common Stock under the Washington Option (as adjusted in
connection with the Distribution) divided by the Exchange Ratio, provided
that such exercise price shall be rounded up to the nearest whole cent.
SECTION 2.2 Incentive Stock Options. The adjustment provided herein with
respect to any options that are "incentive stock options" (as defined in Section
422 of the Code) shall be and is intended to be effected in a manner that is
consistent with Section 424(a) of the Code. Except as set forth in this Section
2.2, the duration and other terms of such Converted Option shall be the same as
the Washington Option, except that all references to Washington shall be deemed
to be references to the Combined Company (but taking into account any changes
thereto provided for in the Washington Stock Plans by reason of this Agreement
or the transactions contemplated hereby).
SECTION 2.3 Shares Reserved; Registration. Following the Effective Time,
the Combined Company shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Alpha Common Stock for delivery upon
exercise of the Converted Options pursuant to the terms set forth in this
Article II. As soon as practicable but in any event not later than five days
following the Effective Time, the shares of Alpha Common Stock subject to the
Converted Options will be covered by an effective registration statement on Form
S-8 (or any successor form) or another appropriate form and the Combined Company
shall use its reasonable best efforts to maintain the effectiveness of such
registration statement for so long as the Converted Options remain outstanding.
ARTICLE III
EXCHANGE OF SHARES
SECTION 3.1 Alpha to Make Shares Available. From time to time, prior to,
at or after the Effective Time, Alpha shall deposit, or shall cause to be
deposited, with a bank or trust company appointed by Conexant and reasonably
acceptable to Alpha (the "Exchange Agent"), for the benefit of the holders of
the Washington Certificates, for exchange in accordance with this Article III,
the shares of Alpha Common Stock to be issued pursuant to Section 1.4 and
delivered pursuant to Section 3.2(a) in
A-8
exchange for Washington Certificates (such shares of Alpha Common Stock,
together with any dividends or distributions with respect thereto, the "Exchange
Fund").
SECTION 3.2 Exchange of Shares.
(a) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall make book-entry credits as of the Closing Date for each
holder of record of Washington Common Stock immediately prior to the Effective
Time for that number of whole shares of Alpha Common Stock into which the shares
of Washington Common Stock formerly evidenced by such holder's Washington
Certificate shall have been converted pursuant to this Agreement and shall
deliver to each such holder (x) an account statement indicating the number of
whole shares of Alpha Common Stock that such holder owns of record as of the
Effective Time and (y) a check representing the amount of any cash in lieu of
fractional shares that such holder has the right to receive pursuant to Section
3.2(d) in respect of such holder's Washington Certificate. No interest will be
paid or accrued on any cash in lieu of fractional shares or on any unpaid
dividends and distributions payable to holders of Washington Certificates.
(b) If any certificate or book-entry credit evidencing shares of Alpha
Common Stock is to be registered in a name other than that in which the
Washington Certificate is registered, it shall be a condition of the issuance
thereof that an appropriate instrument of transfer of Washington Certificates be
delivered and that the person requesting such exchange will have paid to the
Exchange Agent in advance any transfer or other taxes required by reason of the
issuance of a certificate or book-entry credit evidencing shares of Alpha Common
Stock in any name other than that of the registered holder of the Washington
Certificate formerly held, or required for any other reason, or shall have
established to the satisfaction of the Exchange Agent that such tax has been
paid or is not payable.
(c) After the Effective Time, there shall be no transfers on the stock
transfer books of Washington of the shares of Washington Common Stock that were
issued and outstanding immediately prior to the Effective Time.
(d) (i) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Alpha Common Stock or
book-entry credit of the same shall be issued in exchange for Washington
Certificates, no dividend or distribution with respect to Alpha Common Stock
shall be payable on or with respect to any such fractional share, and such
fractional share interests shall not entitle the owner thereof to vote or to any
other rights of a stockholder of Alpha. In lieu of the issuance of any such
fractional share, Alpha shall pay to each holder of Washington Certificates who
otherwise would be entitled to receive such fractional share an amount in cash
determined in the manner provided in clauses (ii) and (iii) of this Section
3.2(d).
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (x) the number of full shares
of Alpha Common Stock delivered to the Exchange Agent by Alpha pursuant to
Section 3.1 for issuance to holders of Washington Certificates pursuant to
Section 1.4 over (y) the aggregate number of full shares of Alpha Common
Stock to be distributed to holders of Washington Certificates pursuant to
this Section 3.2 (such excess being herein referred to as the "Excess Alpha
Shares"). As soon as reasonably practicable following the Effective Time,
the Exchange Agent, as agent for such holders of Washington Certificates,
shall sell the Excess Alpha Shares at then prevailing prices on the Nasdaq
National Market System, all in the manner provided in clause (iii) of this
Section 3.2(d).
(iii) The sale of the Excess Alpha Shares by the Exchange Agent shall
be executed on the Nasdaq National Market System through one or more member
firms of the National Association of Securities Dealers, Inc. and shall be
executed in round lots to the extent practicable. Until the net proceeds of
any such sale or sales have been distributed to the holders of Washington
Certificates, the Exchange Agent will hold such proceeds in trust for such
holders as part of the Exchange Fund. The Combined Company shall pay all
commissions, transfer taxes and other out-of-pocket transaction costs of
the Exchange Agent incurred in connection with such sale or sales of Excess
Alpha Shares. In addition, the Combined Company shall pay the Exchange
Agent's compensation and expenses in
A-9
connection with such sale or sales. The Exchange Agent shall determine the
portion of such net proceeds to which each holder of Washington
Certificates shall be entitled, if any, by multiplying the amount of the
aggregate net proceeds by a fraction, the numerator of which is the amount
of the fractional share interest to which such holder of Washington
Certificates is entitled (after taking into account all Washington
Certificates then held by such holder) and the denominator of which is the
aggregate amount of fractional share interests to which all holders of
Washington Certificates are entitled. As soon as practicable after the
determination of the amount of cash, if any, to be paid to holders of
Washington Certificates with respect to any fractional share interests, the
Exchange Agent shall promptly pay such amounts to such holders of
Washington Certificates subject to and in accordance with this Section 3.2.
(e) Any portion of the Exchange Fund that remains unclaimed by holders of
Certificates for twelve months after the Effective Time shall be delivered to
the Combined Company, and any holders of Washington Certificates who have not
theretofore complied with this Article III shall thereafter look only to the
Combined Company for payment of the shares of Alpha Common Stock, cash in lieu
of any fractional shares and any unpaid dividends and distributions on the Alpha
Common Stock deliverable in respect of each share of Washington Common Stock
formerly evidenced by such Washington Certificate as determined pursuant to this
Agreement, without any interest thereon. Any such portion of the Exchange Fund
remaining unclaimed by holders of Washington Certificates five years after the
Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any Governmental Entity
(as defined in Section 5.1(c)(iii)) shall, to the extent permitted by Applicable
Laws, become the property of the Combined Company free and clear of any claims
or interest of any Person previously entitled thereto.
(f) None of the Combined Company, Conexant, Washington, the Exchange Agent
or any other Person shall be liable to any holder of Washington Certificates for
any shares of Alpha Common Stock, cash in lieu of fractional shares thereof and
any dividend or other distribution with respect thereto delivered in good faith
to a public official pursuant to applicable abandoned property, escheat or
similar Applicable Laws.
(g) The Exchange Agent shall invest any cash included in the Exchange Fund,
as directed by the Combined Company, on a daily basis. Any interest and other
income resulting from such investments shall be paid to the Combined Company
promptly upon request by the Combined Company.
(h) The Combined Company shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
Washington Certificates such amounts as the Combined Company or the Exchange
Agent is required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by the Combined Company or the Exchange
Agent, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of the shares of Alpha Common Stock in respect
of which such deduction and withholding was made by the Combined Company or the
Exchange Agent.
SECTION 3.3 Affiliates. Notwithstanding anything to the contrary herein,
to the fullest extent permitted by law, no certificates or book-entry credits
evidencing shares of Alpha Common Stock or cash shall be issued or delivered
pursuant to this Article III to a Person who may be deemed an "affiliate" of
Washington in accordance with Section 7.12 hereof for purposes of Rule 145 under
the Securities Act of 1933, as amended (the "Securities Act"), until such Person
has executed and delivered an Affiliate Agreement (as defined in Section 7.12)
pursuant to Section 7.12.
ARTICLE IV
CERTAIN PRE-MERGER TRANSACTIONS
SECTION 4.1 Ancillary Agreements. Prior to the Time of Distribution,
Conexant, Washington and Alpha will execute and deliver a tax allocation
agreement substantially in the form attached hereto as
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Exhibit F (the "Tax Allocation Agreement") and an employee matters agreement
substantially in the form attached hereto as Exhibit G (the "Employee Matters
Agreement"). Prior to the Effective Time, Conexant and Alpha will execute and
deliver a Newport Supply Agreement substantially on the terms attached hereto as
Exhibit K (the "Newport Supply Agreement"), a Newbury Supply Agreement
substantially on the terms attached hereto as Exhibit L (the "Newbury Supply
Agreement") and a Transition Services Agreement in accordance with Section 7.20
(the "Transition Services Agreement").
SECTION 4.2 Contribution. Prior to the Time of Distribution and pursuant
to the terms and conditions of the Distribution Agreement, Conexant and
Washington will consummate the Contribution contemplated by Article II of the
Distribution Agreement.
SECTION 4.3 Distribution. Prior to the Effective Time, and pursuant to
the terms and conditions of the Distribution Agreement, Conexant will cause
Washington to be recapitalized and effect the Distribution.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 Representations and Warranties of Alpha. Except as set forth
in the Alpha Disclosure Schedule delivered by Alpha to Conexant prior to the
execution of this Agreement (the "Alpha Disclosure Schedule") (each section of
which, to the extent specified therein, qualifies the correspondingly numbered
representation and warranty or covenant of Alpha contained herein and, to the
extent it is apparent on the face of such disclosure that such disclosure
qualifies another representation and warranty of Alpha contained herein, such
other representation and warranty of Alpha), Alpha represents and warrants to
Conexant as follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) Each of Alpha and its Subsidiaries is a corporation or other
organization duly organized, validly existing and in good standing
(where applicable) under the laws of its jurisdiction of incorporation
or organization, has the requisite power and authority to own, lease and
operate its properties and to carry on its business as now being
conducted and as it will be conducted through the Effective Time, except
where the failure to be so organized, existing and in good standing or
to have such power and authority, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on
Alpha and its Subsidiaries, and is duly qualified and in good standing
to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure so to
qualify or to be in good standing, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on
Alpha and its Subsidiaries. The copies of the certificate of
incorporation and by-laws of Alpha which were previously furnished or
made available to Conexant are true, complete and correct copies of such
documents as in effect on the date of this Agreement.
(ii) Exhibit 21 to Alpha's Annual Report on Form 10-K for the year
ended April 1, 2001 includes all the Subsidiaries of Alpha which as of
the date of this Agreement are Significant Subsidiaries of Alpha (as
defined in Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission (the "SEC")). All the outstanding shares of capital stock of,
or other equity interests in, each such Significant Subsidiary have been
validly issued and are fully paid and nonassessable and are owned
directly or indirectly by Alpha, free and clear of all material pledges,
claims, liens, charges, encumbrances and security interests of any kind
or nature whatsoever (collectively, "Liens") and free of any other
material restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock or other equity
interests, but excluding restrictions under the Securities Act). None of
Alpha or any of its Subsidiaries directly or indirectly owns any equity
or similar interest in, or any interest convertible into or exchangeable
or exercisable for any equity or similar interest in, any
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corporation, partnership, joint venture or other business association or
entity (other than Subsidiaries of Alpha), that is or would reasonably
be expected to be material to Alpha and its Subsidiaries taken as a
whole.
(b) Capital Structure.
(i) The authorized capital stock of Alpha consists of 100,000,000
shares of Alpha Common Stock. As of December 14, 2001, 44,174,096 shares
of Alpha Common Stock were issued and outstanding and no other shares of
capital stock of Alpha were issued and outstanding. As of December 14,
2001, 10,370,507 shares of Alpha Common Stock were reserved for issuance
upon exercise of options outstanding under Alpha Stock Plans. As of
December 14, 2001, no shares of Alpha Common Stock were held as treasury
shares. Since December 14, 2001 to the date of this Agreement, no shares
of capital stock of Alpha or any other securities of Alpha have been
issued other than shares of Alpha Common Stock issued pursuant to
options or rights outstanding as of December 14, 2001 under the Alpha
Stock Plans. All issued and outstanding shares of capital stock of Alpha
are duly authorized, validly issued, fully paid and nonassessable, and
no class of capital stock of Alpha is entitled to preemptive rights.
There are outstanding as of the date hereof no options, warrants or
other rights to acquire capital stock from Alpha other than options and
other rights to acquire Alpha Common Stock from Alpha ("Alpha Stock
Options") representing in the aggregate the right to purchase 6,619,900
shares of Alpha Common Stock under the Alpha Stock Plans. Section 5.1(b)
of the Alpha Disclosure Schedule sets forth a complete and correct list
as of a recent date of all outstanding Alpha Stock Options and the
exercise prices thereof.
(ii) No bonds, debentures, notes or other indebtedness of Alpha
having the right to vote on any matters on which stockholders of Alpha
may vote ("Alpha Voting Debt") are issued or outstanding.
(iii) Except as otherwise set forth in this Section 5.1(b), as of
the date of this Agreement, there are no securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of
any kind to which Alpha or any of its Subsidiaries is a party or by
which any of them is bound obligating Alpha or any of its Subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of Alpha
or any of its Subsidiaries or obligating Alpha or any of its
Subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking. As of the date of this Agreement, there are no outstanding
obligations of Alpha or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of Alpha or any of its
Subsidiaries.
(c) Authority; No Conflicts.
(i) Alpha has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated
hereby, subject, in the case of the consummation of the Merger, to the
approval and adoption of this Agreement and the Merger by the Required
Alpha Vote (as defined in Section 5.1(g)). The execution and delivery of
this Agreement by Alpha and the consummation by Alpha of the
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Alpha, subject in the case of
the consummation of the Merger, to the approval and adoption of this
Agreement and the Merger by the Required Alpha Vote. This Agreement has
been duly executed and delivered by Alpha and, assuming the due
authorization and valid execution and delivery of this Agreement by each
of Conexant and Washington, constitutes a valid and binding agreement of
Alpha, enforceable against Alpha in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium and similar Applicable
Laws relating to or affecting creditors generally or by general equity
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
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(ii) The execution and delivery of this Agreement by Alpha does
not, and the consummation by Alpha of the Merger and the other
transactions contemplated hereby will not, conflict with, or result in
any breach or violation of, or constitute a default (with or without
notice or lapse of time, or both) under, or give rise to a right of or
result by its terms in the termination, amendment, cancellation or
acceleration of any obligation or the loss of a material benefit under,
or the creation of a Lien, charge, "put" or "call" right or other
encumbrance on, or the loss of, any assets (any such conflict, breach,
violation, default, right of termination, amendment, cancellation or
acceleration, loss or creation, a "Violation") pursuant to: (A) any
provision of the certificate of incorporation or by-laws or similar
organizational documents of Alpha or any Significant Subsidiary of Alpha
or (B) except as, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on Alpha and its
Subsidiaries or, to the Knowledge of Alpha, the Combined Company and its
Subsidiaries following the Merger, subject to obtaining or making the
Alpha Necessary Consents (as defined in paragraph (iii) below), (I) any
loan or credit agreement, note, instrument, mortgage, bond, indenture,
lease, benefit plan or other contract, agreement or obligation (a
"Contract") to which Alpha or any of its Subsidiaries is a party or by
which any of them or any of their respective properties or assets is
bound, or (II) any permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Alpha or any Subsidiary of Alpha or their respective properties or
assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any supranational, national,
state, municipal, local or foreign government, any instrumentality,
subdivision, court, administrative agency or commission or other
authority thereof, or any quasi-governmental or private body exercising
any regulatory, taxing, importing or other governmental or
quasi-governmental authority (a "Governmental Entity") or any other
Person is required by or with respect to Alpha or any Subsidiary of
Alpha in connection with the execution and delivery of this Agreement by
Alpha or the consummation by Alpha of the Merger and the other
transactions contemplated hereby, except for those required under or in
relation to (A) the Required Alpha Vote, (B) the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (C)
state securities or "blue sky" laws, (D) the Securities Act, (E) the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (F)
the DGCL with respect to the filing of the Certificate of Merger with
the Delaware Secretary, (G) the rules and regulations of Nasdaq, (H)
antitrust or other competition laws of other jurisdictions and (I) such
consents, approvals, orders, authorizations, registrations, declarations
and filings the failure of which to make or obtain, individually or in
the aggregate, would not reasonably be expected to have a Material
Adverse Effect on Alpha and its Subsidiaries. Consents, approvals,
orders, authorizations, registrations, declarations and filings required
under or in relation to any of the foregoing clauses (A) through (H) or
set forth in Section 5.1(c)(iii) of the Alpha Disclosure Schedule are
hereinafter referred to as "Alpha Necessary Consents".
(d) Reports and Financial Statements.
(i) Alpha has filed all registration statements, prospectuses,
reports, schedules, forms, statements and other documents required to be
filed by it with the SEC since January 1, 2000 (collectively, including
all exhibits thereto, the "Alpha SEC Reports"). No Subsidiary of Alpha
is subject to the periodic reporting requirements of the Exchange Act.
None of the Alpha SEC Reports, as of their respective dates (or, if
amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the
financial statements (including the related notes) included in the Alpha
SEC Reports fairly presents, in all material respects, the consolidated
financial position and consolidated results of operations and cash flows
of Alpha and its consolidated Subsidiaries as of the respective dates or
for the respective periods set forth therein, all in conformity with
generally
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accepted accounting principles ("GAAP") consistently applied during the
periods involved except as otherwise noted therein, and subject, in the
case of unaudited interim financial statements, to normal and recurring
year-end adjustments that have not been and are not expected to be
material in amount. All Alpha SEC Reports, as of their respective dates
(and as of the date of any amendment to the respective Alpha SEC
Report), complied as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder.
(ii) Except as disclosed in the Alpha SEC Reports filed and
publicly available prior to the date hereof (the "Alpha Filed SEC
Reports"), since April 1, 2001, Alpha and its Subsidiaries have not
incurred any liabilities that are of a nature that would be required to
be disclosed on a balance sheet of Alpha and its Subsidiaries or in the
footnotes thereto prepared in conformity with GAAP, other than
liabilities incurred in the ordinary course of business or that,
individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on Alpha and its Subsidiaries.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by Alpha for
inclusion or incorporation by reference in (A) the Form S-4 (as defined
in Section 7.1(a)) will, at the time the Form S-4 is filed with the SEC,
at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and (B) the
Proxy Statement/Prospectus (as defined in Section 7.1(a)) will, on the
date it is first mailed to Conexant stockholders or Alpha stockholders
or at the time of the Alpha Stockholders Meeting (as defined in Section
7.1(b)), 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.
(ii) Notwithstanding the foregoing provisions of this Section
5.1(e), no representation or warranty is made by Alpha with respect to
statements made or incorporated by reference in the Form S-4 or the
Proxy Statement/Prospectus based on information supplied by Conexant or
Washington for inclusion or incorporation by reference therein, or based
on information with is not included or incorporated by reference in such
documents but which should have been disclosed therein pursuant to
Section 5.2(e).
(f) Board Approval. The Board of Directors of Alpha, by resolutions
duly adopted by unanimous vote at a meeting duly called and held and, other
than as provided for in Section 7.5, not subsequently rescinded or modified
in any way, has duly (i) determined that this Agreement and the Merger are
advisable and in the best interests of Alpha and its stockholders, (ii)
approved this Agreement and the Merger, (iii) resolved to recommend that
the stockholders of Alpha approve and adopt this Agreement and the Merger
and directed that this Agreement and the Merger be submitted for
consideration by Alpha's stockholders at the Alpha Stockholders Meeting and
(iv) taken all other action necessary to render (A) the limitations on
business combinations contained in Section 203 of the DGCL (or any similar
provision) and (B) the provisions of Article Fifteenth of Alpha's
Certificate of Incorporation inapplicable to the transactions contemplated
hereby. To the Knowledge of Alpha, except for the limitations on business
combinations contained in Section 203 of the DGCL (which have been rendered
inapplicable), no state takeover statute is applicable or purports to be
applicable to the Merger or the other transactions contemplated hereby.
(g) Vote Required. The affirmative vote of the holders of a majority
of the outstanding shares of Alpha Common Stock (the "Required Alpha Vote")
to approve and adopt this Agreement and the Merger is the only vote of the
holders of any class or series of Alpha capital stock necessary to approve
or adopt this Agreement and the Merger and the other transactions
contemplated hereby.
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(h) Litigation; Compliance with Laws.
(i) Except as set forth in the Alpha Filed SEC Reports, there is no
suit, action, proceeding or regulatory investigation pending or, to the
Knowledge of Alpha, threatened, against or affecting Alpha or any
Subsidiary of Alpha or any property or asset of Alpha or any Subsidiary
of Alpha which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on Alpha and its
Subsidiaries, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against Alpha
or any Subsidiary of Alpha which, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect on Alpha
and its Subsidiaries.
(ii) Except as, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on Alpha and
its Subsidiaries, Alpha and its Subsidiaries hold all permits, licenses,
franchises, variances, exemptions, orders and approvals of all
Governmental Entities which are necessary for the operation of the
businesses of Alpha and its Subsidiaries, taken as a whole (the "Alpha
Permits"), and no suspension or cancellation of any of the Alpha Permits
is pending or, to the Knowledge of Alpha, threatened, except for
suspensions or cancellations which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on
Alpha and its Subsidiaries. Alpha and its Subsidiaries are in compliance
with the terms of the Alpha Permits, except where the failure so to
comply, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Alpha and its
Subsidiaries. None of Alpha or any of its Subsidiaries is in violation
of, and Alpha and its Subsidiaries have not received any notices of
violations with respect to, any Applicable Laws, except for violations
which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Alpha and its
Subsidiaries.
(i) Absence of Certain Changes or Events. Except as set forth in the
Alpha Filed SEC Reports, since April 1, 2001, Alpha and its Subsidiaries
have conducted their business only in the ordinary course, consistent with
past practice. Except as set forth in the Alpha Filed SEC Reports, since
April 1, 2001, there has not been any event, change, circumstance or
development which, individually or in the aggregate, has had, or would
reasonably be expected to have, a Material Adverse Effect on Alpha and its
Subsidiaries. Since April 1, 2001 through the date of this Agreement, none
of Alpha or any of its Subsidiaries has taken any action that, if taken
during the period from the date of this Agreement through the Effective
Time, would constitute a breach of Section 6.1 (other than Section
6.1(a)(i)).
(j) Environmental Matters. Except as set forth in the Alpha Filed SEC
Reports and except as, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on Alpha and its
Subsidiaries, (i) the operations of Alpha and its Subsidiaries have been
and are in compliance with all applicable Environmental Laws (as defined
below) and with all Alpha Permits required by applicable Environmental
Laws, (ii) there are no pending or, to the Knowledge of Alpha, threatened,
actions, suits, claims, investigations or other proceedings (collectively,
"Actions") under or pursuant to Environmental Laws against Alpha or its
Subsidiaries or involving any real property currently owned or, to the
Knowledge of Alpha, formerly owned, or currently or formerly operated or
leased, by Alpha or its Subsidiaries and (iii) to the Knowledge of Alpha,
Alpha and its Subsidiaries are not subject to any Environmental Liabilities
(as defined below), and no facts, circumstances or conditions relating to,
arising from, associated with or attributable to any real property
currently or formerly owned, operated or leased by Alpha or its
Subsidiaries or operations thereon would reasonably be expected to result
in Environmental Liabilities for Alpha or its Subsidiaries. The
representations and warranties in this Section 5.1(j) constitute the sole
representations and warranties of Alpha concerning environmental matters in
this Agreement.
As used in this Agreement, "Environmental Laws" means any and all
federal, state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decisions, injunctions, orders, decrees,
requirements of any Governmental Entity, any and all common law
requirements, rules and
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bases of liability regulating or imposing liability or legally binding
standards of conduct concerning pollution, Hazardous Materials (as defined
below) or protection of human health, safety or the environment, as in
effect on or prior to the Closing Date and includes the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section
9601 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the
Clean Air Act, 33 U.S.C. Section 2601 et seq., the Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq., the Occupational Safety and Health
Act, 29 U.S.C. Section 651 et seq. and the Oil Pollution Act of 1990, 33
U.S.C. Section 2701 et seq., as such laws have been amended or
supplemented, and the regulations promulgated pursuant thereto, and all
analogous state or local statutes. As used in this Agreement,
"Environmental Liabilities" with respect to any Person means any and all
liabilities of or relating to such Person or any of its Subsidiaries
(including any entity which is a predecessor of such Person or any of such
Subsidiaries and for which such Person has liability by law or contract),
whether vested or unvested, contingent or fixed, which (i) arise under or
relate to matters covered or regulated by, or for which liability is
imposed under, Environmental Laws and (ii) relate to actions occurring or
conditions existing on or prior to the Closing Date. As used in this
Agreement, "Hazardous Materials" means any hazardous or toxic substances,
materials or wastes, defined, listed, classified or regulated as such in or
under any Environmental Laws and which includes petroleum, petroleum
products, friable asbestos, urea formaldehyde and polychlorinated
biphenyls.
(k) Intellectual Property. Except as set forth in the Alpha Filed SEC
Reports and except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Alpha and its
Subsidiaries: (i) Alpha and each of its Subsidiaries owns, or is licensed
to use (in each case, free and clear of any Liens), all Intellectual
Property (as defined below) used in or necessary for the conduct of its
business as currently conducted; (ii) to the Knowledge of Alpha, the use of
any Intellectual Property by Alpha and its Subsidiaries does not infringe
on or otherwise violate the rights of any Person; (iii) the use of
Intellectual Property by or on behalf of Alpha and its Subsidiaries is in
accordance with any applicable license pursuant to which Alpha or any
Subsidiary acquired the right to use any Intellectual Property; (iv) to the
Knowledge of Alpha, no Person is challenging, infringing on or otherwise
violating any right of Alpha or any of its Subsidiaries with respect to any
Intellectual Property owned by and/or licensed to Alpha or its
Subsidiaries; and (v) Alpha does not have any Knowledge of any pending
claim, order or proceeding with respect to any use of Intellectual Property
by Alpha and its Subsidiaries and, to the Knowledge of Alpha, no
Intellectual Property owned and/or licensed by Alpha or its Subsidiaries is
being used or enforced in a manner that would reasonably be expected to
result in the abandonment, cancellation or unenforceability of such
Intellectual Property. For purposes of this Agreement, "Intellectual
Property" shall mean trademarks, service marks, brand names, certification
marks, trade dress and other indications of origin, the goodwill associated
with the foregoing and registrations in any jurisdiction of, and
applications in any jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable or not, in any
jurisdiction; patents, applications for patents (including divisions,
continuations, continuations in part and renewal applications), and any
renewals, extensions or reissues thereof and rights to apply for any of the
foregoing, in any jurisdiction; nonpublic information, trade secrets and
confidential information and rights in any jurisdiction to limit the use or
disclosure thereof by any Person; writings and other works, whether
copyrightable or not, in any jurisdiction; and registrations or
applications for registration of copyrights in any jurisdiction, and any
renewals or extensions thereof; and any similar intellectual property or
proprietary rights.
(l) Title to Properties. Each of Alpha and its Subsidiaries has good
and valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its tangible properties and assets, except
where the failure to have such good and valid title, or valid leasehold
interest, would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Alpha and its Subsidiaries.
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(m) Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any
broker's or finder's fee or any other similar commission or fee in
connection with any of the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Alpha or any of its
Subsidiaries, except U.S. Bancorp Piper Jaffray (the "Alpha Financial
Advisor"), whose fees and expenses will be paid by Alpha in accordance with
Alpha's agreement with such firm.
(n) Opinion of Alpha Financial Advisor. Alpha has received the
opinion of the Alpha Financial Advisor, dated the date of this Agreement,
to the effect that, as of such date, the consideration to be paid to
Washington's stockholders in the Merger is fair, from a financial point of
view, to Alpha and its stockholders.
(o) Taxes.
(i) Each of Alpha and its Subsidiaries has timely filed or has
caused to be timely filed all Tax returns or reports required to be
filed by it, or requests for extensions to file such returns or reports
have been timely filed, granted and have not expired, and all such
returns and reports are complete and correct, except to the extent that
such failures to file, to have extensions granted that remain in effect
or to be complete or correct, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on Alpha
and its Subsidiaries. Alpha and each of its Subsidiaries has paid or
caused to be paid all Taxes shown as due on such returns and the most
recent financial statements contained in the Alpha Filed SEC Reports
reflect an adequate reserve in accordance with GAAP for all Taxes
payable by Alpha and its Subsidiaries for all taxable periods and
portions thereof accrued through the date of such financial statements.
(ii) No deficiencies for any Taxes have been proposed, asserted or
assessed in writing against Alpha or any of its Subsidiaries that are
not adequately reserved for, except for deficiencies that, individually
or in the aggregate, would not reasonably be expected to have a Material
Adverse Effect on Alpha and its Subsidiaries. The U.S. federal income
Tax returns of Alpha and each of its Subsidiaries consolidated in such
returns have been either examined by and settled with the IRS or closed
by virtue of the applicable statute of limitations and no requests for
waivers of the time to assess any such Taxes are pending.
(iii) None of Alpha or any of its Subsidiaries has taken any
action, and Alpha has no Knowledge of any fact, agreement, plan or other
circumstance, that is reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of
the Code.
(iv) None of Alpha or any of its Subsidiaries is a party to any Tax
sharing or Tax indemnity agreements (other than agreements between or
among Alpha and its Subsidiaries).
(v) Within the past five years, none of Alpha or any of its
Subsidiaries has been a "distributing corporation" or a "controlled
corporation" in a distribution intended to qualify under Section 355(a)
of the Code.
(vi) Except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Alpha and
its Subsidiaries, none of Alpha or any of its Subsidiaries is obligated
to make any payments, or is a party to any contract that could obligate
it to make any payments, that would not be deductible by reason of
Section 162(m) or Section 280G of the Code.
(vii) None of Alpha or any of its Subsidiaries has agreed to make,
or is required to make, any material adjustment under Section 481(a) of
the Code or any similar provision of state, local or foreign law by
reason of a change in accounting methods or otherwise.
(p) Certain Contracts. As of the date hereof, none of Alpha or any of
its Subsidiaries is a party to or bound by (i) any non-competition
agreement or any other Contract that limits or otherwise restricts Alpha or
any of its Subsidiaries or any of their respective affiliates or any
successor thereto,
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or that would, after the Effective Time, to the Knowledge of Alpha, limit
or restrict the Combined Company or any of its Subsidiaries or any of their
respective affiliates or any successor thereto, from engaging or competing
in any line of business in any geographic area, which agreements or other
Contracts, individually or in the aggregate, would reasonably be expected
to have a Material Adverse Effect on the Combined Company and its
Subsidiaries, after giving effect to the Merger or (ii) any employee
benefit plan, employee contract or any other material Contract, pursuant to
which any benefits will arise or be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement. All material Contracts of
Alpha and its Subsidiaries are valid and binding on Alpha and its
Subsidiaries, as applicable, and in full force and effect except to the
extent they have previously expired in accordance with their terms or if
the failure to be valid, binding and in full force and effect, individually
or in the aggregate, would not reasonably be expected to have a Material
Adverse Effect on Alpha and its Subsidiaries. None of Alpha or any of its
Subsidiaries has Knowledge of, or has received notice of, any violation or
default under (nor to their Knowledge does there exist any condition which
with the passage of time or the giving of notice would cause such a
violation or default under) the provisions of any Contract of Alpha or any
of its Subsidiaries, except for violations or defaults which, individually
or in the aggregate, would not reasonably be expected to have a Material
Adverse Effect on Alpha and its Subsidiaries.
(q) Employee Benefits.
(i) With respect to each Alpha Plan, except for Alpha Plans the
liabilities under which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on Alpha and
its Subsidiaries, Alpha has made available to Conexant a true, correct
and complete copy of: (A) all plan documents, trust agreements, and
insurance contracts and other funding vehicles; (B) the three most
recent Annual Reports (Form 5500 Series) and accompanying schedules and
exhibits, if any; (C) the current summary plan description and any
material modifications thereto, if any (in each case, whether or not
required to be furnished under ERISA); (D) the three most recent annual
financial reports, if any; (E) the three most recent actuarial reports,
if any; (F) the most recent determination letter from the IRS, if any;
and (G) the annual compliance testing under Sections 401(a) through 416
of the Code for the three most recently completed plan years, if any.
(ii) With respect to each Alpha Plan, Alpha and its Subsidiaries
have complied with, and are now in compliance with, all provisions of
ERISA, the Code and all other Applicable Laws and regulations applicable
to such Alpha Plans and each Alpha Plan has been administered in
accordance with its terms, in each case except as would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Alpha and its Subsidiaries. Each Alpha Plan
that is required by ERISA to be funded is fully funded in accordance
with reasonable actuarial assumptions, except as would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse
Effect on Alpha and its Subsidiaries.
(iii) All Alpha Plans subject to the Applicable Laws of any
jurisdiction outside of the United States (A) have been maintained in
accordance with all applicable requirements, (B) if they are intended to
qualify for special tax treatment meet all requirements for such
treatment, and (C) if they are intended to be funded and/or
book-reserved are fully funded and/or book-reserved, as appropriate,
based upon reasonable actuarial assumptions, in each case except as
would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Alpha and its Subsidiaries.
(iv) None of Alpha or any of its Subsidiaries has any liability
under or obligation to any Multiemployer Plan.
(r) Labor Relations. As of the date of this Agreement, (i) none of
Alpha or any of its Subsidiaries is a party to any collective bargaining
agreement, (ii) except as would not, individually or
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in the aggregate, reasonably be expected to have a Material Adverse Effect
on Alpha and its Subsidiaries, no labor organization or group of employees
of Alpha or any of its Subsidiaries has made a pending demand for
recognition or certification, and there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or, to the Knowledge of Alpha, threatened to be brought
or filed, with the National Labor Relations Board or any other domestic or
foreign labor relations tribunal or authority and (iii) except as would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Alpha and its Subsidiaries, there are no
organizing activities, strikes, work stoppages, slowdowns, lockouts,
arbitrations or grievances, or other labor disputes pending or, to the
Knowledge of Alpha, threatened against or involving Alpha or any of its
Subsidiaries.
(s) Insurance. Alpha maintains insurance coverage with reputable
insurers in such amounts and covering such risks as is deemed reasonably
appropriate for its business (taking into account the cost and availability
of such insurance).
(t) Liens. No Liens exist on any assets of Alpha or any of its
Subsidiaries, except (i) Liens expressly set forth in the notes to Alpha's
audited consolidated financial statements as of April 1, 2001 included in
the Alpha Filed SEC Reports, (ii) Liens consisting of zoning or planning
restrictions, easements, permits or other restrictions or limitations on
the use of real property or irregularities in title thereto which do not
materially detract from the value of, or impair the use of, such property
by Alpha and its Subsidiaries, (iii) Liens for current taxes, assessments
or governmental charges or levies on property not yet due or which are
being contested in good faith and for which appropriate reserves in
accordance with GAAP have been created and (iv) Liens which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Alpha and its Subsidiaries.
SECTION 5.2 Representations and Warranties of Conexant. Except as set
forth in the Conexant Disclosure Schedule delivered by Conexant to Alpha prior
to the execution of this Agreement (the "Conexant Disclosure Schedule") (each
section of which, to the extent specified therein, qualifies the correspondingly
numbered representation and warranty or covenant of Conexant contained herein
and, to the extent it is apparent on the face of such disclosure that such
disclosure qualifies another representation and warranty of Conexant contained
herein, such other representation and warranty of Conexant), Conexant represents
and warrants to Alpha as follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) Conexant and each Subsidiary of Conexant engaged in the
Washington Business (as defined in the Distribution Agreement) is a
corporation or other organization duly organized, validly existing and
in good standing (where applicable) under the laws of its jurisdiction
of incorporation or organization, except where the failure to be so
organized, existing and in good standing, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect on the Washington Business. Each of the Washington Companies (as
defined in Section 10.11) has the requisite power and authority to own,
lease and operate its properties and to carry on its business as now
being conducted and as it will be conducted through the Effective Time,
except where the failure to have such power and authority, individually
or in the aggregate, would not reasonably be expected to have a Material
Adverse Effect on the Washington Business, and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification necessary, other than in such jurisdictions where the
failure so to qualify or to be in good standing, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect on the Washington Business. The copies of the certificate of
incorporation and by-laws of Conexant which were previously furnished or
made available to Alpha are true, complete and correct copies of such
documents as in effect on the date of this Agreement.
(ii) Washington is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
Washington is a direct wholly-owned subsidiary of
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Conexant. The copies of the certificate of incorporation and by-laws of
Washington which were previously furnished or made available to Alpha
are true, complete and correct copies of such documents as in effect on
the date of this Agreement.
(iii) Section 5.2(a)(iii) of the Conexant Disclosure Schedule sets
forth a list of the Washington Companies which as of the date of this
Agreement would be Significant Subsidiaries of Washington (as defined in
Rule 1-02 of Regulation S-X of the SEC) if the Distribution had occurred
immediately prior to the date hereof (the "Washington Significant
Subsidiaries"). All the outstanding shares of capital stock of, or other
equity interests in, each Washington Significant Subsidiary have been
validly issued and are fully paid and nonassessable and are owned
directly or indirectly by Conexant, free and clear of all material Liens
and free of any other material restriction (including any restriction on
the right to vote, sell or otherwise dispose of such capital stock or
other equity interests, but excluding restrictions under the Securities
Act). None of the Washington Companies directly or indirectly owns any
equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity (other than Subsidiaries of Conexant) that is or would reasonably
be expected to be material to the Washington Business taken as a whole.
(b) Capital Structure.
(i) The authorized capital stock of Conexant consists of
1,000,000,000 shares of Common Stock, par value $1.00 per share (the
"Conexant Common Stock"), and 25,000,000 shares of preferred stock,
without par value (the "Conexant Preferred Stock"), 1,500,000 shares of
which are designated as "Series A Junior Participating Preferred Stock"
and one share of which is designated as "Series B Voting Preferred
Stock". As of November 30, 2001, (A) 254,423,819 shares of Conexant
Common Stock and (B) one share of Conexant Preferred Stock designated as
"Series B Voting Preferred Stock" were issued and outstanding and no
other shares of capital stock of Conexant were issued and outstanding.
As of November 30, 2001, 84,082,811 shares of Conexant Common Stock were
reserved for issuance upon exercise of options outstanding under
Conexant Stock Plans. As of November 30, 2001, no shares of Conexant
Common Stock were held as treasury shares. Since November 30, 2001 to
the date of this Agreement, no shares of capital stock of Conexant or
any other securities of Conexant have been issued other than shares of
Conexant Common Stock (and accompanying Conexant Rights (as defined
below)) issued pursuant to (w) the Conexant Systems, Inc. Retirement
Savings Plan and the Conexant Systems, Inc. Hourly Employees Savings
Plan, (x) options or rights outstanding as of November 30, 2001 under
Conexant Stock Plans and (y) the exchange or retraction of Exchangeable
Shares of Philsar Semiconductor Inc. All issued and outstanding shares
of capital stock of Conexant are duly authorized, validly issued, fully
paid and nonassessable, and no class of capital stock of Conexant is
entitled to preemptive rights. There are outstanding as of the date
hereof no options, warrants or other rights to acquire capital stock
from Conexant other than (w) rights (the "Conexant Rights") distributed
to the holders of Conexant Common Stock pursuant to the Rights Agreement
dated as of November 30, 1998, as amended as of December 9, 1999,
between Conexant and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent (the "Conexant Rights Agreement"), (x) options and other rights to
acquire Conexant Common Stock from Conexant ("Conexant Stock Options")
representing in the aggregate the right to purchase 51,394,095 shares of
Conexant Common Stock under the Conexant Stock Plans, (y) $94,849,000
aggregate principal amount of Conexant's 4 1/4% Convertible Subordinated
Notes due 2006 and $615,000,000 aggregate principal amount of Conexant's
4% Convertible Subordinated Notes due 2007 which are, on the date
hereof, convertible into Conexant Common Stock at exercise prices of
$23.098 and $108, respectively, per share (collectively, the "Conexant
Convertible Notes") and (z) Exchangeable Shares of Philsar Semiconductor
Inc. which are exchangeable into, or subject to retraction in exchange
for, an aggregate of 357,640 shares of Conexant Common Stock. Section
5.2(b) of the Conexant Disclosure Schedule sets forth a
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complete and correct list as of a recent date of all outstanding
Conexant Stock Options and the exercise prices thereof.
(ii) On the date hereof, the authorized capital stock of Washington
consists of 1,000 shares of Washington Common Stock, all of which are
issued and outstanding.
(iii) Except as otherwise set forth in this Section 5.2(b) or as
provided for in the Reorganization Agreements, as of the date of this
Agreement, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to
which Conexant or any member of the Washington Group (as defined in the
Distribution Agreement) is a party or by which any of them is bound
obligating any of Conexant or any member of the Washington Group to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of
Conexant or any member of the Washington Group or obligating Conexant or
any member of the Washington Group to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. As of the date of this Agreement, there are
no outstanding obligations of Conexant or any member of the Washington
Group to repurchase, redeem or otherwise acquire any shares of capital
stock of Conexant or any member of the Washington Group.
(c) Authority; No Conflicts.
(i) Conexant has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions
contemplated hereby, subject to further action of the Board of Directors
of Conexant to establish the Record Date and the Distribution Date (each
as defined in the Distribution Agreement) and provided that the
effectiveness of the declaration of the Distribution by the Board of
Directors of Conexant is subject to the satisfaction of the conditions
set forth in the Distribution Agreement. The execution and delivery of
this Agreement and the Reorganization Agreements by Conexant and the
consummation by Conexant of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on
the part of Conexant, subject to further action of the Board of
Directors of Conexant to establish the Record Date and the Distribution
Date and provided that the effectiveness of the declaration of the
Distribution by the Board of Directors of Conexant is subject to the
satisfaction of the conditions set forth in the Distribution Agreement.
This Agreement and the Distribution Agreement have been, and the other
Reorganization Agreements will be, duly executed and delivered by
Conexant and, assuming the due authorization and valid execution and
delivery of this Agreement by Alpha, constitute or will constitute valid
and binding agreements of Conexant, enforceable against Conexant in
accordance with their respective terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium and similar Applicable Laws relating to or
affecting creditors generally or by general equity principles
(regardless of whether such enforceability is considered in a proceeding
in equity or at law).
(ii) Washington has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by
Washington and the consummation by Washington of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Washington. Conexant, as the sole stockholder of
Washington, has duly approved and adopted this Agreement and the Merger
and has duly approved the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Washington and
constitutes a valid and binding agreement of Washington, enforceable
against Washington in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium and similar Applicable Laws relating
to or affecting creditors generally and by general equity principles
(regardless of whether such enforceability is considered in a proceeding
in equity or at law).
A-21
(iii) The execution and delivery by Conexant and Washington of this
Agreement and the Distribution Agreement do not, the execution and
delivery by Conexant and Washington of the other Reorganization
Agreements will not, and the consummation by Conexant and Washington of
the Contribution, the Distribution, the Merger and the other
transactions contemplated hereby and thereby will not result in a
Violation pursuant to: (A) any provision of the certificate of
incorporation or by-laws or similar organizational documents of
Conexant, Washington or any Washington Significant Subsidiary or (B)
except as, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on the Washington Business
or, to the Knowledge of Conexant, the Combined Company and its
Subsidiaries following the Merger, subject to obtaining or making the
Conexant Necessary Consents (as defined in paragraph (iv) below), (I)
any Contract included in the Washington Assets or by which any of the
properties or assets included in the Washington Assets is bound, or (II)
any permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to any of the
Washington Companies or the properties or assets included in the
Washington Assets.
(iv) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or any
other Person is required by or with respect to Conexant or any
Subsidiary of Conexant in connection with the execution and delivery of
this Agreement and the Reorganization Agreements by Conexant or
Washington or the consummation by Conexant or Washington of the
Contribution, the Distribution and the Merger and the other transactions
contemplated hereby and thereby, except for those required under or in
relation to (A) the HSR Act, (B) state securities or "blue sky" laws,
(C) the Securities Act, (D) the Exchange Act, (E) the DGCL with respect
to the filing of the Certificate of Merger with the Delaware Secretary,
(F) the rules and regulations of Nasdaq, (G) antitrust or other
competition laws of other jurisdictions, (H) the further action of the
Board of Directors of Conexant to establish the Record Date and the
Distribution Date, and the effectiveness of the declaration of the
Distribution by the Board of Directors of Conexant (which is subject to
the satisfaction of the conditions set forth in the Distribution
Agreement) and (I) such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make or
obtain, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on the Washington Business.
Consents, approvals, orders, authorizations, registrations, declarations
and filings required under or in relation to any of the foregoing
clauses (A) through (H) or set forth in Section 5.2(c)(iv) of the
Conexant Disclosure Schedule are hereinafter referred to as the
"Conexant Necessary Consents".
(v) The Board of Directors of Conexant, by resolutions duly adopted
by a unanimous vote of those in attendance at a meeting duly called and
held, a quorum being present, has duly (i) determined that this
Agreement is advisable and in the best interests of Conexant and its
stockholders and (ii) approved this Agreement and the Distribution
Agreement and the transactions contemplated hereby and thereby. The
Board of Directors of Washington, by resolutions duly adopted by a
unanimous vote at a meeting duly called and held, or by action by
unanimous written consent, has duly (i) determined that this Agreement
is advisable and in the best interests of Washington and its
stockholders and (ii) approved this Agreement and the transactions
contemplated hereby.
(d) Reports and Financial Statements.
(i) No member of the Washington Group is subject to the periodic
reporting requirements of the Exchange Act. With respect to the
Washington Business, none of the registration statements, prospectuses,
reports, schedules, forms, statements and other documents required to be
filed by Conexant and its Subsidiaries with the SEC since January 1,
2000 (collectively, including all exhibits thereto, the "Conexant SEC
Reports"), as of their respective dates (or, if amended or superseded by
a filing prior to the date of this Agreement, then on the date of such
filing) contained any untrue statement of a material fact or omitted to
state a material fact
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required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(ii) Included in Section 5.2(d)(ii) of the Conexant Disclosure
Schedule are a special purpose statement as of September 30, 2001 of
tangible assets and liabilities to be contributed by Conexant and its
Subsidiaries to the Washington Group (together with the notes thereto,
the "Unaudited Special Purpose Statement of Tangible Net Assets") and a
special purpose product line contribution statement with respect to the
Washington Business for the year ended September 30, 2001 (together with
the notes thereto, and collectively with the Unaudited Special Purpose
Statement of Tangible Net Assets, the "Washington Financial
Statements"). The Washington Financial Statements fairly present, in all
material respects, the tangible assets and liabilities to be contributed
by Conexant and its Subsidiaries to the Washington Group as of September
30, 2001 and the product line contribution of the Washington Business
for the year ended September 30, 2001.
(iii) Except as disclosed in the Conexant SEC Reports filed and
publicly available prior to the date hereof (the "Conexant Filed SEC
Reports") or in the Washington Financial Statements, since September 30,
2001, Conexant and its Subsidiaries have not incurred any liabilities
that are of a nature that would be required to be disclosed on a
statement of assets and liabilities of the Washington Business or in the
footnotes thereto prepared in conformity with GAAP, other than
liabilities incurred in the ordinary course of business or that,
individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on the Washington Business.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by Conexant
or Washington for inclusion or incorporation by reference in (A) the
Form S-4 will, at the time the Form S-4 is filed with the SEC, at any
time it is amended or supplemented or at the time it becomes effective
under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading and (B) the Proxy
Statement/Prospectus will, on the date it is first mailed to Conexant
stockholders or Alpha stockholders or at the time of the Alpha
Stockholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(ii) Notwithstanding the foregoing provisions of this Section
5.2(e), no representation or warranty is made by Conexant with respect
to statements made or incorporated by reference in the Form S-4 or the
Proxy Statement/Prospectus based on information supplied by Alpha for
inclusion or incorporation by reference therein, or based on information
which is not included or incorporated by reference in such documents but
which should have been disclosed pursuant to Section 5.1(e).
(f) Litigation; Compliance with Laws.
(i) Except as set forth in the Conexant Filed SEC Reports or in the
Washington Financial Statements, there is no suit, action, proceeding or
regulatory investigation pending or, to the Knowledge of Conexant,
threatened, against or affecting any of the Washington Companies or any
property or asset included in the Washington Assets which, individually
or in the aggregate, would reasonably be expected to have a Material
Adverse Effect on the Washington Business, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against any of the Washington Companies which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on the Washington Business.
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(ii) Except as, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the
Washington Business, the Washington Companies hold all permits,
licenses, franchises, variances, exemptions, orders and approvals of all
Governmental Entities which are necessary for the operation of the
Washington Business, taken as a whole (the "Washington Permits"), and no
suspension or cancellation of any of the Washington Permits is pending
or, to the Knowledge of Conexant, threatened, except for suspensions or
cancellations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the
Washington Business. The Washington Companies are in compliance with the
terms of the Washington Permits, except where the failure so to comply,
individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on the Washington Business. None of the
Washington Companies is in violation of, and the Washington Companies
have not received any notices of violations with respect to, any
Applicable Laws, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect on the Washington Business.
(g) Absence of Certain Changes or Events. Except as set forth in the
Conexant Filed SEC Reports or in the Washington Financial Statements, since
September 30, 2001, the Washington Companies have conducted the Washington
Business only in the ordinary course, consistent with past practice. Except
as set forth in the Conexant Filed SEC Reports, since September 30, 2001,
there has not been any event, change, circumstance or development which,
individually or in the aggregate, has had, or would reasonably be expected
to have, a Material Adverse Effect on the Washington Business. Since
September 30, 2001 through the date of this Agreement, none of the
Washington Companies has taken any action that, if taken during the period
from the date of this Agreement through the Effective Time, would
constitute a breach of Section 6.2 (other than Section 6.2(a)(i)).
Washington has not conducted any activities other than in connection with
the organization of Washington, the negotiation, execution and performance
of this Agreement and the Reorganization Agreements and the consummation of
the transactions contemplated hereby and thereby.
(h) Environmental Matters. Except as set forth in the Conexant Filed
SEC Reports or in the Washington Financial Statements and except as,
individually or in the aggregate, would not reasonably be expected to have
a Material Adverse Effect on the Washington Business, (i) the operations of
the Washington Companies have been and are in compliance with all
applicable Environmental Laws and with all Washington Permits required by
applicable Environmental Laws, (ii) there are no pending or, to the
Knowledge of Conexant, threatened, Actions under or pursuant to
Environmental Laws against the Washington Companies or involving any real
property currently owned or formerly owned, or currently or formerly
operated or leased, by the Washington Companies and (iii) to the Knowledge
of Conexant, the Washington Companies are not subject to any Environmental
Liabilities and no facts, circumstances or conditions relating to, arising
from, associated with or attributable to any real property currently or
formerly owned, operated or leased by the Washington Companies or
operations thereon would reasonably be expected to result in Environmental
Liabilities for the Washington Companies. The representations and
warranties in this Section 5.2(h) constitute the sole representations and
warranties of Conexant concerning environmental matters in this Agreement.
(i) Intellectual Property. Except as set forth in the Conexant Filed
SEC Reports or in the Washington Financial Statements and except as would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Washington Business: (i) the Washington
Companies own, or are licensed to use (in each case, free and clear of any
Liens), all Intellectual Property used in or necessary for the conduct of
the Washington Business as currently conducted; (ii) to the Knowledge of
Conexant, the use of any Intellectual Property by the Washington Companies
does not infringe on or otherwise violate the rights of any Person; (iii)
the use of Intellectual Property by or on behalf of the Washington
Companies is in accordance with any applicable license pursuant to which
the Washington Companies acquired the right to use any Intellectual
Property; (iv) to the Knowledge of Conexant, no Person is challenging,
infringing on or
A-24
otherwise violating any right of the Washington Companies with respect to
any Intellectual Property owned by and/or licensed to the Washington
Companies; and (v) Conexant does not have any Knowledge of any pending
claim, order or proceeding with respect to any use of Intellectual Property
by the Washington Companies and, to the Knowledge of Conexant, no
Intellectual Property owned and/or licensed by the Washington Companies is
being used or enforced in a manner that would reasonably be expected to
result in the abandonment, cancellation or unenforceability of such
Intellectual Property.
(j) Title to Properties. Each of the Washington Companies has good
and valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of the tangible properties and assets that are
Washington Assets, except where the failure to have such good and valid
title, or valid leasehold interest, would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Washington Business.
(k) Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any
broker's or finder's fee or any other similar commission or fee in
connection with any of the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Conexant or any of its
Subsidiaries, except Credit Suisse First Boston Corporation (the "Conexant
Financial Advisor"), whose fees and expenses will be paid by Conexant in
accordance with Conexant's agreement with such firm.
(l) Opinion of Conexant Financial Advisor. Conexant has received the
opinion of the Conexant Financial Advisor, dated the date of this
Agreement, to the effect that, as of such date, the Exchange Ratio is fair,
from a financial point of view, to holders of Conexant Common Stock.
(m) Taxes.
(i) Each of the Washington Companies has timely filed or has caused
to be timely filed all Tax returns or reports required to be filed by it
with respect to Taxes for which the Washington Group will have liability
following the Time of Distribution pursuant to the Tax Allocation
Agreement, or requests for extensions to file such returns or reports
have been timely filed, granted and have not expired, and all such
returns and reports are complete and correct, except to the extent that
such failures to file, to have extensions granted that remain in effect
or to be complete or correct, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on the
Washington Business. The Washington Companies have paid or caused to be
paid all Taxes shown as due on such returns, other than Taxes for which
the Conexant Group will have liability following the Time of
Distribution pursuant to the Tax Allocation Agreement.
(ii) No deficiencies for any Taxes have been proposed, asserted or
assessed in writing against the Washington Companies that are not
adequately reserved for, except for deficiencies that, individually or
in the aggregate, would not reasonably be expected to have a Material
Adverse Effect on the Washington Business and deficiencies with respect
to Taxes for which Conexant will have liability following the Time of
Distribution pursuant to the Tax Allocation Agreement. The U.S. federal
income Tax returns required to be filed with respect to Taxes for which
the Washington Group will have liability following the Time of
Distribution pursuant to the Tax Allocation Agreement have been either
examined by and settled with the IRS or closed by virtue of the
applicable statute of limitations and no requests for waivers of the
time to assess any such Taxes are pending.
(iii) None of Conexant or its Subsidiaries has taken any action,
and Conexant has no Knowledge of any fact, agreement, plan or other
circumstance, that is reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of
the Code.
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(iv) No member of the Washington Group is a party to any Tax
sharing or Tax indemnity agreements (other than agreements between or
among members of the Washington Group) that will be in effect after the
Time of Distribution.
(v) Within the past five years, no member of the Washington Group
has been a "distributing corporation" or a "controlled corporation" in a
distribution intended to qualify under Section 355(a) of the Code.
(vi) Except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the
Washington Business, no member of the Washington Group is obligated to
make any payments, or is a party to any contract that could obligate it
to make any payments, that would not be deductible by reason of Section
162(m) or Section 280G of the Code.
(vii) No member of the Washington Group has agreed to make, or is
required to make, any material adjustment under Section 481(a) of the
Code or any similar provision of state, local or foreign law by reason
of a change in accounting methods or otherwise.
(n) Certain Contracts. As of the date hereof, none of the Washington
Companies is a party to or bound by (i) any non-competition agreement or
any other Contract that will be binding on any member of the Washington
Group following the Time of Distribution that limits or otherwise restricts
the Washington Companies or any of their respective affiliates or any
successor thereto, or that would, after the Effective Time, to the
Knowledge of Conexant, limit or restrict the Combined Company or any of its
Subsidiaries or any of their respective affiliates or any successor
thereto, from engaging or competing in any line of business in any
geographic area, which agreements or other Contracts, individually or in
the aggregate, would reasonably be expected to have a Material Adverse
Effect on the Combined Company and its Subsidiaries, after giving effect to
the Merger or (ii) any employee benefit plan, employee contract or any
other material Contract that will be binding on any member of the
Washington Group following the Time of Distribution, pursuant to which any
benefits will arise or be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement. All material Contracts that will be included in the
Washington Assets are valid and binding on the Washington Companies, as
applicable, and in full force and effect except to the extent they have
previously expired in accordance with their terms or if the failure to be
valid, binding and in full force and effect, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect on the Washington Business. None of the Washington Companies has
Knowledge of, or has received notice of, any violation or default under
(nor to their Knowledge does there exist any condition which with the
passage of time or the giving of notice would cause such a violation or
default under) the provisions of any Contract of the Washington Companies
that will be included in the Washington Assets, except for violations or
defaults which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on the Washington Business.
(o) Employee Benefits.
(i) With respect to each Washington Plan, except for Washington
Plans the liabilities under which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on
the Washington Business, Conexant has made available to Alpha a true,
correct and complete copy of: (A) all plan documents, trust agreements,
and insurance contracts and other funding vehicles; (B) the three most
recent Annual Reports (Form 5500 Series) and accompanying schedules and
exhibits, if any; (C) the current summary plan description and any
material modifications thereto, if any (in each case, whether or not
required to be furnished under ERISA); (D) the three most recent annual
financial reports, if any; (E) the three most recent actuarial reports,
if any; (F) the most recent determination letter from the IRS, if any;
and (G) the annual compliance testing under Sections 401(a) through 416
of the Code for the three most recently completed plan years, if any.
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(ii) With respect to each Washington Plan, Conexant and its
Subsidiaries have complied with, and are now in compliance with, all
provisions of ERISA, the Code and all other Applicable Laws and
regulations applicable to such Washington Plans and each Washington Plan
has been administered in accordance with its terms, in each case except
as would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on the Washington Business. Each
Washington Plan that is required by ERISA to be funded is fully funded
in accordance with reasonable actuarial assumptions, except as would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Washington Business.
(iii) All Washington Plans subject to the Applicable Laws of any
jurisdiction outside of the United States (A) have been maintained in
accordance with all applicable requirements, (B) if they are intended to
qualify for special tax treatment meet all requirements for such
treatment, and (C) if they are intended to be funded and/or
book-reserved are fully funded and/or book-reserved, as appropriate,
based upon reasonable actuarial assumptions, in each case except as
would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on the Washington Business.
(iv) None of the Washington Companies has any liability under or
obligation to any Multiemployer Plan that will be included in the
Washington Liabilities.
(p) Labor Relations. As of the date of this Agreement, (i) none of
the Washington Companies is a party to any collective bargaining agreement,
(ii) except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Washington Business, no
labor organization or group of employees of the Washington Business has
made a pending demand for recognition or certification, and there are no
representation or certification proceedings or petitions seeking a
representation proceeding presently pending or, to the Knowledge of
Conexant, threatened to be brought or filed, with the National Labor
Relations Board or any other domestic or foreign labor relations tribunal
or authority and (iii) except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Washington Business, there are no organizing activities, strikes, work
stoppages, slowdowns, lockouts, arbitrations or grievances, or other labor
disputes pending or, to the Knowledge of Conexant, threatened against or
involving any of the Washington Companies.
(q) Insurance. The Washington Companies maintain insurance coverage
with reputable insurers in such amounts and covering such risks as is
deemed reasonably appropriate for its business (taking into account the
cost and availability of such insurance).
(r) Liens. No Liens exist on any of the Washington Assets, except (i)
Liens expressly set forth in the Washington Financial Statements, (ii)
Liens consisting of zoning or planning restrictions, easements, permits or
other restrictions or limitations on the use of real property or
irregularities in title thereto which do not materially detract from the
value of, or impair the use of, such property in the Washington Business,
(iii) Liens for current taxes, assessments or governmental charges or
levies on property not yet due or which are being contested in good faith
and for which appropriate reserves in accordance with GAAP have been
created and (iv) Liens which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Washington
Business.
(s) Ownership of Alpha Common Stock. Conexant, together with its
affiliates and associates (as those terms are defined in Rule 12b-2
promulgated under the Exchange Act), is not the beneficial owner of 5% or
more of the outstanding shares of Alpha Common Stock. For purposes of this
Section 5.2(s), a Person shall be deemed to be the "beneficial owner" of
Alpha Common Stock if such Person, directly or indirectly, controls the
voting of such Alpha Common Stock or has any options, warrants, conversion
or other rights to acquire such Alpha Common Stock.
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ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 6.1 Covenants of Alpha. During the period from the date of this
Agreement and continuing until the Effective Time, Alpha agrees as to itself and
its Subsidiaries that (except as required or otherwise expressly contemplated or
permitted by this Agreement or Section 6.1 (including its subsections) of the
Alpha Disclosure Schedule or as required by a Governmental Entity or to the
extent that Conexant shall otherwise consent in writing, which consent shall not
be unreasonably withheld or delayed):
(a) Ordinary Course.
(i) Alpha and its Subsidiaries shall carry on their respective
businesses in the ordinary course, in substantially the same manner as
heretofore conducted, and shall use all reasonable efforts to preserve
intact their present business organizations, keep available the services
of their current officers and other key employees and preserve their
relationships with customers, suppliers and others having business
dealings with them to the end that their ongoing businesses shall not be
materially impaired at the Effective Time; provided, however, that no
action by Alpha or its Subsidiaries with respect to matters specifically
addressed by any other provision of this Section 6.1 shall be deemed a
breach of this Section 6.1(a)(i) unless such action would constitute a
breach of one or more of such other provisions.
(ii) Other than in connection with acquisitions permitted by
Section 6.1(e) or investments permitted by Section 6.1(g), Alpha shall
not, and shall not permit any of its Subsidiaries to, (A) enter into any
new material line of business or (B) incur or commit to any capital
expenditures or any obligations or liabilities in connection with any
capital expenditures other than capital expenditures and obligations or
liabilities in connection therewith incurred or committed to in the
ordinary course of business consistent with past practice.
(b) Dividends; Changes in Share Capital. Alpha shall not, and shall
not permit any of its Subsidiaries to, and shall not propose to, (i)
declare or pay any dividends on or make other distributions (whether in
cash, stock or property) in respect of any of its capital stock, except for
dividends by any direct or indirect wholly-owned Subsidiaries of Alpha,
(ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for, shares of its capital stock, except for any
such transaction by a wholly-owned Subsidiary of Alpha which remains a
wholly-owned Subsidiary after consummation of such transaction or (iii)
repurchase, redeem or otherwise acquire any shares of its capital stock or
any securities convertible into or exercisable for any shares of its
capital stock.
(c) Issuance of Securities. Alpha shall not, and shall not permit any
of its Subsidiaries to, issue, deliver, sell, pledge or otherwise encumber,
or authorize or propose the issuance, delivery, sale, pledge or encumbrance
of, any shares of its capital stock of any class, any Alpha Voting Debt or
any securities convertible into or exercisable for, or any rights,
warrants, calls or options to acquire, any such shares or Alpha Voting
Debt, or enter into any commitment, arrangement, undertaking or agreement
with respect to any of the foregoing, other than (i) the issuance of Alpha
Common Stock upon the exercise of Alpha Stock Options outstanding on the
date hereof in accordance with their present terms or pursuant to Alpha
Stock Options or other stock based awards granted pursuant to clause (ii)
below, (ii) the granting of Alpha Stock Options or other stock based awards
under the Alpha Stock Plans in a manner consistent with Alpha's established
policies and guidelines in effect on the date hereof relating to the
granting of Alpha Stock Options or other stock based awards or (iii)
issuances by a wholly-owned Subsidiary of Alpha of capital stock of such
Subsidiary to such Subsidiary's parent or another wholly-owned Subsidiary
of Alpha.
(d) Governing Documents. Except to the extent required to comply with
its obligations hereunder or with Applicable Laws, Alpha shall not amend or
propose to so amend its certificate of incorporation, by-laws or other
governing documents.
A-28
(e) No Acquisitions. Alpha shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merger or consolidation, or
by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, limited liability entity, joint venture, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any material assets (excluding the acquisition of assets used in
the operations of the business of Alpha and its Subsidiaries in the
ordinary course consistent with past practice, which assets do not
constitute a business unit, division or all or substantially all of the
assets of the transferor); provided, however, that the foregoing shall not
prohibit (x) internal reorganizations or consolidations involving existing
Subsidiaries of Alpha or (y) the creation of new direct or indirect
wholly-owned Subsidiaries of Alpha organized to conduct or continue
activities otherwise permitted by this Agreement.
(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of Alpha or (ii) as may be
required by or in conformance with Applicable Laws in order to permit or
facilitate the consummation of the transactions contemplated hereby, Alpha
shall not, and shall not permit any of its Subsidiaries to, sell, lease,
license or otherwise encumber or subject to any Lien or otherwise dispose
of, or agree to sell, lease, license or otherwise encumber or subject to
any Lien or otherwise dispose of, any of its assets (including capital
stock of Subsidiaries of Alpha but excluding inventory and obsolete
equipment in the ordinary course of business consistent with past
practice).
(g) Investments; Indebtedness. Alpha shall not, and shall not permit
any of its Subsidiaries to, (i) make any loans, advances or capital
contributions to, or investments in, any other Person, other than (A) loans
or investments by Alpha or a Subsidiary of Alpha to or in Alpha or a
Subsidiary of Alpha, (B) pursuant to any contract or other legal obligation
of Alpha or any of its Subsidiaries as in effect at the date of this
Agreement, (C) employee loans or advances for travel, business, relocation
or other reimbursable expenses made in the ordinary course of business, (D)
loans, advances, capital contributions or investments which in the
aggregate do not exceed the amount specified in Section 6.1(g) of the Alpha
Disclosure Schedule or (E) loans, advances, capital contributions or
investments in the ordinary course of business which are not, individually
or in the aggregate, material to Alpha and its Subsidiaries taken as a
whole or (ii) create, incur, assume or suffer to exist any indebtedness,
issuances of debt securities, guarantees, loans or advances not in
existence as of the date of this Agreement except in the ordinary course of
business which are not, individually or in the aggregate, material to Alpha
and its Subsidiaries taken as a whole. Without limiting Alpha's covenants
contained in this Section 6.1, Alpha will consult with Conexant in any
efforts by Alpha to obtain financing with respect to Alpha's obligations
under the Facility Sale Agreement, provided that Conexant's consent in
writing, which shall not be unreasonably withheld or delayed, shall be
required prior to Alpha agreeing or committing to such financing. Conexant
will cooperate with and reasonably assist Alpha, at Alpha's expense, in
Alpha's efforts to obtain such financing.
(h) Tax-Free Qualification. Alpha shall use its reasonable best
efforts not to, and shall use its reasonable best efforts not to permit any
of its Subsidiaries to, take any action (including any action otherwise
permitted by this Section 6.1) that would prevent or impede the
Contribution and Distribution from qualifying as a reorganization under
Sections 355 and 368 of the Code or the Merger from qualifying as a
reorganization under Section 368 of the Code.
(i) Compensation. Except (x) as set forth in Section 6.1(c), (y) as
required by Applicable Laws or by the terms of any collective bargaining
agreement or other agreement currently in effect between Alpha or any
Subsidiary of Alpha and any executive officer or employee thereof or (z) in
the ordinary course of business, Alpha shall not increase the amount of
compensation or employee benefits of any director, officer or employee of
Alpha or any Subsidiary or business unit of Alpha, pay any pension,
retirement, savings or profit-sharing allowance to any employee that is not
required by any existing plan or agreement, enter into any Contract with
any of its employees regarding his or her employment, compensation or
benefits, increase or commit to increase any employee benefits, issue any
additional Alpha Stock Options, adopt or amend or make any commitment to
adopt or amend
A-29
any Alpha Plan or make any contribution, other than regularly scheduled
contributions, to any Alpha Plan. Alpha shall not accelerate the vesting
of, or the lapsing of restrictions with respect to, any stock options or
other stock-based compensation, except as required by Applicable Laws or in
the ordinary course of business or in accordance with this Agreement, and
any option committed to be granted or granted after the date hereof shall
not accelerate as a result of the approval or consummation of any
transaction contemplated by this Agreement. Notwithstanding the foregoing,
Alpha may, without Conexant's consent but only after consultation with
Conexant, enter into retention or other similar agreements with employees
of Alpha on terms, and with such number of employees, as are substantially
comparable to the severance or other similar agreements to be entered into
between the Washington Companies and their employees.
(j) Accounting Methods; Income Tax Elections. Except as disclosed in
the Alpha Filed SEC Reports, as required by a Governmental Entity or as
required by changes in GAAP as concurred in by Alpha's independent public
accountants, Alpha shall not make any material change in its methods of
accounting in effect at April 1, 2001. Alpha shall not, and shall not
permit its Subsidiaries to, (i) change its fiscal year or (ii) make any
material Tax election or settle or compromise any material income Tax
liability, other than in the ordinary course of business consistent with
past practice.
(k) Certain Agreements and Arrangements. Alpha shall not, and shall
not permit any of its Subsidiaries to, enter into any Contracts that limit
or otherwise restrict Alpha or any of its Subsidiaries or any of their
respective affiliates or any successor thereto, or that would, after the
Effective Time, limit or restrict the Combined Company or any of its
Subsidiaries or any of their respective affiliates or any successor
thereto, from engaging or competing in any line of business in any
geographic area which agreements or arrangements, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect
on the Combined Company and its Subsidiaries following the Merger.
(l) No Related Actions. Alpha will not, and will not permit any of
its Subsidiaries to, agree or commit to do any of the foregoing actions.
SECTION 6.2 Covenants of Conexant and Washington. During the period from
the date of this Agreement and continuing until the Effective Time, Conexant, as
to the Washington Companies, and Washington each agrees that (except for the
Contribution, the Distribution, as required or otherwise expressly contemplated
or permitted by this Agreement, the Reorganization Agreements or Section 6.2
(including its subsections) of the Conexant Disclosure Schedule or as required
by a Governmental Entity or to the extent that Alpha shall otherwise consent in
writing, which consent shall not be unreasonably withheld or delayed):
(a) Ordinary Course.
(i) The Washington Companies shall carry on the Washington Business
in the ordinary course, in substantially the same manner as heretofore
conducted, and shall use all reasonable efforts to preserve intact their
present business organizations, keep available the services of their
current officers and other key employees of the Washington Business and
preserve their relationships with customers, suppliers and others having
business dealings with them to the end that the Washington Business
shall not be materially impaired at the Effective Time; provided,
however, that no action by the Washington Companies with respect to
matters specifically addressed by any other provision of this Section
6.2 shall be deemed a breach of this Section 6.2(a)(i) unless such
action would constitute a breach of one or more of such other
provisions.
(ii) Other than in connection with acquisitions permitted by
Section 6.2(e) or investments permitted by Section 6.2(g), the
Washington Companies shall not (A) enter into any new material line of
business that would be part of the Washington Business or (B) incur or
commit to any capital expenditures or any obligations or liabilities in
connection with any capital expenditures other than capital expenditures
and obligations or liabilities in connection therewith incurred or
committed to in the ordinary course of business consistent with past
practice.
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(b) Dividends; Changes in Share Capital. The members of the
Washington Group shall not, and shall not propose to, declare any dividends
on or make other distributions (whether in cash, stock or property) in
respect of any of their capital stock that will be payable after the
Effective Time, except for dividends payable entirely to members of the
Washington Group. Prior to the Time of Distribution, Conexant will not, and
following the Time of Distribution and prior to the Effective Time,
Washington will not, (i) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities
of Conexant or Washington, as the case may be, in respect of, in lieu of or
in substitution for, shares of its capital stock or (ii) repurchase, redeem
or otherwise acquire any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock.
(c) Issuance of Securities.
(i) Prior to the Time of Distribution, Conexant shall not issue,
deliver, sell, pledge or otherwise encumber, or authorize or propose the
issuance, delivery, sale, pledge or encumbrance of, any shares of
Conexant Common Stock or any securities convertible into or exercisable
for, or any rights, warrants, calls or options to acquire, any such
shares, or enter into any commitment, arrangement, undertaking or
agreement with respect to any of the foregoing, other than (A) the
issuance of Conexant Common Stock (and the associated Conexant Rights)
(w) pursuant to the Conexant Systems, Inc. Retirement Savings Plan and
the Conexant Systems, Inc. Hourly Employees Savings Plan, (x) upon the
exercise of Conexant Stock Options outstanding on the date hereof in
accordance with their present terms or pursuant to Conexant Stock
Options or other stock based awards granted pursuant to clause (B)
below, (y) upon conversion of the Conexant Convertible Notes or (z)
pursuant to the exchange or retraction of Exchangeable Shares of Philsar
Semiconductor Inc., (B) the granting of Conexant Stock Options or other
stock based awards under the Conexant Stock Plans in a manner consistent
with Conexant's established policies and guidelines in effect on the
date hereof relating to the granting of Conexant Stock Options or other
stock based awards or (C) issuances in accordance with the Conexant
Rights Agreement.
(ii) Following the Time of Distribution and prior to the Effective
Time, no member of the Washington Group will issue, deliver, sell,
pledge or otherwise encumber, or authorize or propose the issuance,
delivery, sale, pledge or encumbrance of, any shares of its capital
stock of any class or any securities convertible into or exercisable
for, or any rights, warrants, calls or options to acquire, any such
shares, or enter into any commitment, arrangement, undertaking or
agreement with respect to any of the foregoing, other than (A) the
granting of options to purchase Washington Common Stock upon conversion
of Conexant Stock Options in connection with the Distribution in
accordance with the Employee Matters Agreement or (B) issuances by a
wholly-owned Subsidiary of Washington of capital stock of such
Subsidiary to such Subsidiary's parent or another wholly-owned
Subsidiary of Washington.
(d) Governing Documents. Except to the extent required to comply with
its obligations hereunder or under the Reorganization Agreements or with
Applicable Laws, Washington shall not amend or propose to so amend its
certificate of incorporation, by-laws or other governing documents.
(e) No Acquisitions. The Washington Companies shall not acquire or
agree to acquire by merger or consolidation, or by purchasing a substantial
equity interest in or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, limited
liability entity, joint venture, association or other business organization
or division thereof or otherwise acquire or agree to acquire any material
assets (excluding the acquisition of assets used in the operations of the
Washington Business in the ordinary course consistent with past practice,
which assets do not constitute a business unit, division or all or
substantially all of the assets of the transferor), in each case, that
would be part of the Washington Business; provided, however, that the
foregoing shall not prohibit (x) internal reorganizations or consolidations
involving existing Subsidiaries of Conexant or
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(y) the creation of new direct or indirect wholly-owned Subsidiaries of
Conexant organized to conduct or continue activities otherwise permitted by
this Agreement.
(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of Conexant (with respect to
which, to the extent involving Washington Assets or Washington Liabilities,
Conexant shall reasonably consult with Alpha) or (ii) as may be required by
or in conformance with Applicable Laws in order to permit or facilitate the
consummation of the transactions contemplated hereby or by the
Reorganization Agreements, the Washington Companies shall not sell, lease,
license or otherwise encumber or subject to any Lien or otherwise dispose
of, or agree to sell, lease, license or otherwise encumber or subject to
any Lien or otherwise dispose of, any Assets that would constitute
Washington Assets if the Distribution Date were the date hereof (including
capital stock of members of the Washington Group, but excluding inventory
and obsolete equipment in the ordinary course of business consistent with
past practice).
(g) Investments; Indebtedness. The Washington Companies shall not (i)
make any loans, advances or capital contributions to, or investments in,
any other Person that will be included in the Washington Assets, other than
(A) loans or investments by a member of the Washington Group to or in
another member of the Washington Group, (B) pursuant to any contract or
other legal obligation of any of the Washington Companies as in effect at
the date of this Agreement, (C) employee loans or advances for travel,
business, relocation or other reimbursable expenses made in the ordinary
course of business, (D) loans, advances, capital contributions or
investments which in the aggregate do not exceed the amount specified in
Section 6.2(g) of the Conexant Disclosure Schedule or (E) loans, advances,
capital contributions or investments in the ordinary course of business
which are not, individually or in the aggregate, material to the Washington
Business taken as a whole or (ii) create, incur, assume or suffer to exist
any indebtedness, issuances of debt securities, guarantees, loans or
advances not in existence as of the date of this Agreement that will be
included in the Washington Liabilities except in the ordinary course of
business which are not, individually or in the aggregate, material to the
Washington Business taken as a whole.
(h) Tax-Free Qualification. Conexant and Washington shall use their
reasonable best efforts not to, and shall use their reasonable best efforts
not to permit any of their Subsidiaries to, take any action (including any
action otherwise permitted by this Section 6.2) that would prevent or
impede the Contribution and Distribution from qualifying as a
reorganization under Sections 355 and 368 of the Code or the Merger from
qualifying as a reorganization under Section 368 of the Code.
(i) Compensation. Except (x) as set forth in Section 6.2(c), (y) as
required by Applicable Laws or by the terms of any collective bargaining
agreement or other agreement currently in effect between any of the
Washington Companies and any Washington Employee or (z) in the ordinary
course of business, none of the Washington Companies shall increase the
amount of compensation or employee benefits of any director or any
Washington Employee, pay any pension, retirement, savings or profit-sharing
allowance to any Washington Employee that is not required by any existing
plan or agreement, enter into any Contract with any Washington Employee
regarding his or her employment, compensation or benefits, increase or
commit to increase any employee benefits for Washington Employees, issue
any additional Conexant Stock Options, adopt or amend or make any
commitment to adopt or amend any Washington Plan or make any contribution,
other than regularly scheduled contributions, to any Washington Plan for
the benefit of Washington Employees. The Washington Companies shall not
accelerate the vesting of, or the lapsing of restrictions with respect to,
any stock options or other stock-based compensation, except as required by
Applicable Laws or in the ordinary course of business or in accordance with
this Agreement, and any option committed to be granted or granted after the
date hereof shall not accelerate as a result of the approval or
consummation of any transaction contemplated by this Agreement.
Notwithstanding the foregoing, the Washington Companies may, without
Alpha's consent but only after consultation with Alpha, enter into
retention or other similar agreements with employees of the Washington
Business on terms, and with such number of employees, as are substantially
comparable to the severance or other similar agreements currently in effect
or to be entered into between Alpha and its employees.
A-32
(j) Accounting Methods; Income Tax Elections. Except as disclosed in
Conexant Filed SEC Reports or the Washington Financial Statements, as
required by a Governmental Entity or as required by changes in GAAP as
concurred in by their independent public accountants, the Washington
Business shall not make any material change in its methods of accounting in
effect at September 30, 2001. No member of the Washington Group will (i)
change its fiscal year or (ii) make any material Tax election or settle or
compromise any material income Tax liability with respect to matters that
will be a liability of the Washington Group after the Time of Distribution
pursuant to the Tax Allocation Agreement, other than in the ordinary course
of business consistent with past practice.
(k) Certain Agreements and Arrangements. Except as contemplated by
the Reorganization Agreements, the Washington Companies shall not enter
into any Contracts that will bind any member of the Washington Group after
the Time of Distribution that limit or otherwise restrict any of the
Washington Companies or any of their respective affiliates or any successor
thereto, or that would, after the Effective Time, limit or restrict the
Combined Company or any of its Subsidiaries or any of their respective
affiliates or any successor thereto, from engaging or competing in any line
of business in any geographic area, which agreements or arrangements,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on the Combined Company and its Subsidiaries
following the Merger.
(l) No Washington Business Activities. Prior to the Effective Time,
Washington will not conduct any activities other than in connection with
the organization of Washington, the negotiation and execution of this
Agreement, the Reorganization Agreements, the Mexican Stock and Asset
Purchase Agreement dated as of the date hereof between Conexant and Alpha
(the "Facility Sale Agreement"), the U.S. Asset Purchase Agreement dated as
of the date hereof between Conexant and Alpha (the "U.S. Asset Purchase
Agreement"), the Facility Services Agreement to be entered into prior to
the Effective Time between Conexant and Alpha (the "Facility Services
Agreement"), the Newport Supply Agreement, the Newbury Supply Agreement and
the consummation of the transactions contemplated hereby and thereby.
(m) No Related Actions. None of Conexant or its Subsidiaries (as to
the Washington Companies) or Washington will agree or commit to do any of
the foregoing actions.
SECTION 6.3 Reports; SEC Reports. Each of Conexant (with respect to the
Washington Business) and Alpha shall (a) confer on a regular and frequent basis
with the other and (b) report to the other (to the extent permitted by law or
regulation or any applicable confidentiality agreement) on operational matters.
Each of Conexant (with respect to the Washington Business) and Alpha shall file
all reports required to be filed by each of them with the SEC between the date
of this Agreement and the Effective Time and shall deliver to the other parties
copies of all such reports promptly after the same are filed.
SECTION 6.4 Control of Other Party's Business. Nothing contained in this
Agreement shall give Conexant, directly or indirectly, the right to control or
direct Alpha's operations prior to the Effective Time. Nothing contained in this
Agreement shall give Alpha, directly or indirectly, the right to control or
direct the operations of the Washington Business prior to the Effective Time.
Prior to the Effective Time, each of Conexant and Alpha shall exercise,
consistent with the terms and conditions of this Agreement, complete control and
supervision over its respective operations.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Preparation of Proxy Statement; Stockholders Meeting.
(a) As promptly as reasonably practicable following the date hereof, Alpha
and Conexant shall prepare and Alpha shall file with the SEC proxy materials
which shall constitute the Proxy Statement/ Prospectus to be mailed to Alpha's
stockholders in connection with the Alpha Stockholders Meeting (such proxy
statement/prospectus, and any amendments or supplements thereto, the "Proxy
Statement/
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Prospectus") and Conexant and Alpha shall prepare and Alpha shall file with the
SEC a registration statement on Form S-4 with respect to the issuance of Alpha
Common Stock in the Merger (the "Form S-4"). The Proxy Statement/Prospectus will
be included in and will constitute a part of the Form S-4 as Alpha's prospectus
and will be mailed to Conexant's stockholders as an Information Statement in
connection with the Distribution. The Form S-4 and the Proxy
Statement/Prospectus will comply as to form in all material respects with the
requirements of the Exchange Act and the Securities Act and the rules and
regulations of the SEC thereunder. Alpha shall use reasonable best efforts to
have the Proxy Statement/Prospectus cleared by the SEC as promptly as reasonably
practicable after filing with the SEC, to have the Form S-4 declared effective
by the SEC as promptly as reasonably practicable after filing with the SEC and
to keep the Form S-4 effective as long as is necessary to consummate the Merger
and the transactions contemplated thereby. Alpha shall, as promptly as
practicable after receipt thereof, provide to Conexant copies of any written
comments and advise Conexant of any oral comments with respect to the Proxy
Statement/Prospectus and the Form S-4 received from the SEC. Alpha shall provide
Conexant with a reasonable opportunity to review and comment on any amendment or
supplement to the Form S-4 or the Proxy Statement/Prospectus prior to filing
such with the SEC, and with a copy of all such filings made with the SEC.
Notwithstanding any other provision herein to the contrary, no amendment or
supplement (including by incorporation by reference) to the Proxy
Statement/Prospectus or the Form S-4 shall be made without the approval of both
Conexant and Alpha, which approval shall not be unreasonably withheld or
delayed. Alpha will use reasonable best efforts to cause the Proxy Statement/
Prospectus to be mailed to Alpha's stockholders, and Conexant will use
reasonable best efforts to cause the Proxy Statement/Prospectus to be mailed to
Conexant's stockholders, in each case as promptly as practicable after the Proxy
Statement/Prospectus is cleared by the SEC and the Form S-4 is declared
effective under the Securities Act. Alpha shall also take any action (other than
qualifying to do business in any jurisdiction in which it is not now so
qualified or to file a general consent to service of process) required to be
taken under any applicable state securities laws in connection with the issuance
of Alpha Common Stock in the Merger and Alpha and Conexant shall furnish all
information concerning Alpha, Washington and Conexant and the holders of
Conexant Common Stock as may be reasonably requested in connection with any such
action. Alpha will advise Conexant, promptly after it receives notice thereof,
of the time when the Form S-4 has become effective, the issuance of any stop
order with respect to the Form S-4, the suspension of the qualification of the
Alpha Common Stock issuable in connection with the Merger for offering or sale
in any jurisdiction, or any request by the SEC for amendment of the Proxy
Statement/Prospectus or the Form S-4. If at any time prior to the Effective Time
any information relating to Alpha or Washington, or any of their respective
affiliates, officers or directors, should be discovered by Alpha or Conexant
which should be set forth in an amendment or supplement to the Form S-4 or the
Proxy Statement/Prospectus so that any of such documents would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the party which discovers such information shall promptly
notify the other parties hereto and, to the extent required by Applicable Laws,
an appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and disseminated to the stockholders of Alpha and
Conexant.
(b) Alpha shall duly take all lawful action to call, give notice of,
convene and hold a meeting of its stockholders on a date determined in
accordance with the mutual agreement of Alpha and Conexant (the "Alpha
Stockholders Meeting") for the purpose of obtaining the Required Alpha Vote with
respect to the transactions contemplated by this Agreement and shall take all
lawful action to solicit the approval and adoption of this Agreement and the
Merger by the Required Alpha Vote, and the Board of Directors of Alpha shall
recommend approval and adoption of this Agreement and the Merger by the
stockholders of Alpha to the effect as set forth in Section 5.1(f) (the "Alpha
Recommendation"), and shall not withdraw, modify or qualify (or propose to
withdraw, modify or qualify) such recommendation (a "Change in the Alpha
Recommendation"); provided, however, that the Board of Directors of Alpha may
make a Change in the Alpha Recommendation pursuant to Section 7.5.
Notwithstanding any Change in the Alpha Recommendation, this Agreement shall be
submitted to the stockholders of Alpha at the Alpha
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Stockholders Meeting for the purpose of approving and adopting this Agreement
and the Merger, and nothing contained herein shall be deemed to relieve Alpha of
such obligation.
SECTION 7.2 Combined Company Board of Directors and Management. At or
prior to the Effective Time, the parties will take all action necessary to
effectuate the provisions of Sections 1.8 and 1.9.
SECTION 7.3 Access to Information. Upon reasonable notice, each of
Conexant and Alpha shall (and shall cause its Subsidiaries to) afford to the
officers, employees, accountants, counsel, financial advisors and other
representatives of the other reasonable access during normal business hours,
during the period prior to the Effective Time, to all its books, records,
properties, plants and personnel (in the case of Conexant and its Subsidiaries,
only with respect to the Washington Business) and, during such period, such
party shall (and shall cause its Subsidiaries to) furnish promptly to the other
party all information concerning it and its business, properties and personnel
(as to Conexant and its Subsidiaries, only with respect to the Washington
Business) as such other party may reasonably request; provided, however, that
either party may restrict the foregoing access to the extent that (i) any
Applicable Laws or Contract requires such party or its Subsidiaries to restrict
or prohibit access to any such properties or information or (ii) the information
is subject to confidentiality obligations to a third party. The parties will
hold any such information obtained pursuant to this Section 7.3 in confidence in
accordance with, and will otherwise be subject to, the provisions of the Mutual
Confidentiality Agreement dated September 28, 2001 between Conexant and Alpha
(as it may be amended or supplemented, the "Confidentiality Agreement"). Any
investigation by either Alpha or Conexant shall not affect the representations
and warranties contained herein or the conditions to the respective obligations
of the parties to consummate the Merger.
SECTION 7.4 Reasonable Best Efforts.
(a) Subject to the terms and conditions of this Agreement, each party will
use its reasonable best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, and to assist and cooperate with the other parties
in doing or causing to be done, all things necessary, proper or advisable under
this Agreement and Applicable Laws to consummate the Merger and the other
transactions contemplated by this Agreement as soon as practicable after the
date hereof, including (i) taking all reasonable actions to cause the conditions
set forth in Article VIII to be satisfied as promptly as reasonably practicable;
(ii) preparing and filing as promptly as practicable all documentation to effect
all necessary applications, notices, petitions and filings and to obtain as
promptly as practicable the Tax Ruling, all Alpha Necessary Consents and
Conexant Necessary Consents and all other consents, waivers, licenses, orders,
registrations, approvals, permits, rulings, authorizations and clearances
necessary or advisable to be obtained from any third party and/or any
Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement (collectively, the "Required
Approvals") and (iii) taking all reasonable steps as may be necessary to obtain
all Required Approvals. In furtherance and not in limitation of the foregoing,
each party hereto agrees to make (i) an appropriate filing of a Notification and
Report Form pursuant to the HSR Act with respect to the transactions
contemplated hereby as promptly as practicable after the date hereof, (ii)
appropriate filings, if any are required, with the European Commission and/or
other foreign regulatory authorities in accordance with applicable competition,
merger control, antitrust, investment or similar Applicable Laws, and (iii) all
other necessary filings with other Governmental Entities relating to the Merger,
and, in each case, to supply as promptly as practicable any additional
information and documentary material that may be requested pursuant to such
Applicable Laws or by such authorities and to use reasonable best efforts to
cause the expiration or termination of the applicable waiting periods under the
HSR Act and the receipt of the Required Approvals under such other Applicable
Laws or from such authorities as soon as practicable. Notwithstanding the
foregoing, nothing in this Section 7.4 shall require any of Alpha and its
Subsidiaries, Conexant and its Subsidiaries, Washington and its Subsidiaries or
the Combined Company and its Subsidiaries to sell, hold separate or otherwise
dispose of any assets of Alpha, Conexant, Washington, the Combined Company or
their respective Subsidiaries (including the capital stock of any Subsidiary) or
conduct their business in a specified manner, or agree to do so, whether as a
condition to obtaining any approval from a Governmental Entity or any other
Person or for any other reason, if such sale, holding separate or other
disposition or the conduct of their business in a specified manner is not
conditioned on the Closing or, individually or in the
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aggregate, would reasonably be expected to have a Material Adverse Effect on the
Combined Company and its Subsidiaries, after giving effect to the Merger (or,
only with respect to Conexant and its Subsidiaries, to have a Material Adverse
Effect on Conexant and its Subsidiaries, after giving effect to the
Distribution).
(b) Each of Alpha, on the one hand, and Conexant and Washington, on the
other hand, shall, in connection with the efforts referenced in Section 7.4(a)
to obtain all Required Approvals, use its reasonable best efforts to (i)
cooperate in all respects with each other in connection with any filing or
submission and in connection with any investigation or other inquiry, including
any proceeding initiated by a private party, (ii) promptly inform the other
party of any communication received by such party from, or given by such party
to, the Antitrust Division of the Department of Justice (the "DOJ"), the Federal
Trade Commission (the "FTC") or any other Governmental Entity and of any
material communication received or given in connection with any proceeding by a
private party, in each case regarding any of the transactions contemplated
hereby, and (iii) permit the other party to review any communication given by it
to, and consult with each other in advance of any meeting or conference with,
the DOJ, the FTC or any such other Governmental Entity or, in connection with
any proceeding by a private party, with any other Person, and to the extent
appropriate or permitted by the DOJ, the FTC or such other applicable
Governmental Entity or other Person, give the other party the opportunity to
attend and participate in such meetings and conferences.
(c) In furtherance and not in limitation of the covenants of the parties
contained in Section 7.4(a) and Section 7.4(b), if any administrative or
judicial action or proceeding, including any proceeding by a private party, is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Applicable Laws, or if any
statute, rule, regulation, executive order, decree, injunction or administrative
order is enacted, entered, promulgated or enforced by a Governmental Entity
which would make the Merger or the other transactions contemplated hereby
illegal or would otherwise prohibit or materially impair or delay the
consummation of the Merger or the other transactions contemplated hereby, each
of Conexant and Alpha shall cooperate in all respects with each other and use
its respective reasonable best efforts, including, subject to the last sentence
of Section 7.4(a), selling, holding separate or otherwise disposing of any
assets of Alpha or its Subsidiaries or the Washington Companies (including the
capital stock of any Subsidiary) or conducting their business (in the case of
Conexant, only with respect to the Washington Business) in a specified manner,
or agreeing to do so, to contest and resist any such action or proceeding and to
have vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order, whether temporary, preliminary or permanent, that is in effect and
that prohibits, prevents or restricts consummation of the Merger or the other
transactions contemplated by this Agreement and to have such statute, rule,
regulation, executive order, decree, injunction or administrative order
repealed, rescinded or made inapplicable so as to permit consummation of the
transactions contemplated by this Agreement. Notwithstanding the foregoing or
any other provision of this Agreement, nothing in this Section 7.4 shall limit a
party's right to terminate this Agreement pursuant to Section 9.1(b) or Section
9.1(c) so long as such party has complied with its obligations under this
Section 7.4.
(d) Each of Alpha, Conexant and Washington shall cooperate with each other
in obtaining opinions of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to
Alpha, and Chadbourne & Parke LLP, counsel to Conexant and Washington, to
satisfy the conditions set forth in Section 8.2(c) and Section 8.3(c). In
connection therewith, each of Alpha and Conexant shall deliver to such counsel
customary representation letters in form and substance reasonably satisfactory
to such counsel.
SECTION 7.5 Acquisition Proposals.
(a) Without limiting Alpha's other obligations under this Agreement
(including under Article VI hereof), Alpha agrees that from and after the date
of this Agreement until the earlier of the Effective Time or the termination of
this Agreement in accordance with Article IX, neither it nor any of its
Subsidiaries shall, and it shall use its reasonable best efforts to cause its
and its Subsidiaries' officers, directors, employees, agents and representatives
(including any investment banker, attorney or accountant
A-36
retained by it or any of its Subsidiaries) not to, directly or indirectly, (i)
initiate, solicit, encourage or knowingly facilitate (including by way of
furnishing information) any inquiries or the making of any proposal or offer
with respect to, or a transaction to effect, any Alpha Acquisition Proposal (as
defined below), (ii) have any discussions with or provide any confidential
information or data to any Person relating to an Alpha Acquisition Proposal, or
engage in any negotiations concerning an Alpha Acquisition Proposal, or
knowingly facilitate any effort or attempt to make or implement an Alpha
Acquisition Proposal, (iii) approve or recommend, or propose publicly to approve
or recommend, any Alpha Acquisition Proposal or (iv) approve or recommend, or
propose to approve or recommend, or execute or enter into, any letter of intent,
agreement in principle, merger agreement, acquisition agreement, option
agreement or other similar agreement related to any Alpha Acquisition Proposal.
(b) For purposes of this Agreement, "Alpha Acquisition Proposal" means any
inquiry, proposal or offer from any Person with respect to (A) a merger,
reorganization, share exchange, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Alpha or any of its Significant Subsidiaries (as defined in Rule 1-02 of
Regulation S-X of the SEC), (B) any purchase or sale or other disposition of 20%
or more of the consolidated assets (including stock of its Subsidiaries) of
Alpha and its Subsidiaries, taken as a whole, or (C) any purchase or sale of, or
tender or exchange offer for, or similar transaction with respect to, the equity
securities of Alpha that, if consummated, would result in any Person (or the
stockholders of such Person) beneficially owning securities representing 20% or
more of the total voting power of Alpha (or of the surviving parent entity in
such transaction) or any of its Significant Subsidiaries, including in the case
of each of clauses (A) through (C), any single or multi-step transaction or
series of related transactions (other than a proposal or offer made by Conexant
or a Subsidiary thereof).
(c) Notwithstanding anything in this Agreement to the contrary, Alpha or
its Board of Directors shall be permitted to (i) to the extent applicable,
comply with Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act with
regard to an Alpha Acquisition Proposal, (ii) effect a Change in the Alpha
Recommendation or (iii) engage in any discussions or negotiations with, or
provide any information to, any Person in response to an unsolicited bona fide
written Alpha Acquisition Proposal by any such Person (which has not been
withdrawn) in order to be informed with respect thereto in order to make any
determination permitted in clause (ii), if and only to the extent that, in any
such case referred to in clause (ii) or (iii), (A) the Alpha Stockholders
Meeting shall not have occurred, (B) it has received an unsolicited bona fide
written Alpha Acquisition Proposal from a third party (which has not been
withdrawn) and (x) in the case of clause (ii) above, its Board of Directors
concludes in good faith that such Alpha Acquisition Proposal constitutes a
Superior Alpha Proposal and (y) in the case of clause (iii) above, its Board of
Directors concludes in good faith that there is a reasonable likelihood that
such Alpha Acquisition Proposal would constitute a Superior Alpha Proposal, (C)
its Board of Directors, after consultation with its outside counsel, determines
in good faith that such action is required by its fiduciary duties to
stockholders under Applicable Laws as a result of such Alpha Acquisition
Proposal, (D) in the case of clause (ii) above, it shall provide Conexant
immediate written notice of such action, (E) prior to providing any information
or data to any Person in connection with an Alpha Acquisition Proposal by any
such Person, it receives from such Person an executed confidentiality agreement
containing terms substantially the same as the Confidentiality Agreement and (F)
prior to providing any information or data to any Person or entering into
discussions or negotiations with any Person, it notifies Conexant promptly of
such inquiries, proposals or offers received by, any such information requested
from, or any such discussions or negotiations sought to be initiated or
continued with, such Person or any of its representatives indicating, in
connection with such notice, the name of such Person and the material terms and
conditions of any inquiries, proposals or offers, and furnishes to Conexant a
copy of any such written inquiry, proposal or offer. Alpha agrees that it will
promptly keep Conexant informed of the status and terms of any such proposals or
offers and the status and terms of any such discussions or negotiations and will
promptly provide Conexant with any such written proposals or offers. Alpha
agrees that it will, and will cause its officers, directors and representatives
to, immediately cease and cause to be terminated any activities, discussions or
negotiations existing as of the date of this Agreement with any Persons
conducted heretofore with respect to any Alpha Acquisition Proposal, and request
the return or destruction of all non-
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public information furnished in connection therewith. Alpha agrees that it will
use reasonable best efforts to promptly inform its directors, officers, key
employees, agents and representatives of the obligations undertaken by Alpha in
this Section 7.5. Nothing in this Section 7.5 shall (x) permit Alpha to
terminate this Agreement (except as specifically provided in Article IX) or (y)
affect any other obligation of Alpha or Conexant under this Agreement. Alpha
shall not submit to the vote of its stockholders any Alpha Acquisition Proposal
other than the Merger.
(d) For purposes of this Agreement, "Superior Alpha Proposal" means a bona
fide written Alpha Acquisition Proposal (for purposes of this definition of
"Superior Alpha Proposal", references to 20% in the definition of "Alpha
Acquisition Proposal" shall be deemed to be references to 50%) made by a Person
other than a party hereto which is on terms which the Board of Directors of
Alpha in good faith concludes (following receipt of the advice of its financial
advisors), taking into account, among other things, all legal, financial,
regulatory and other aspects of the proposal and the Person making the proposal,
(x) would, if consummated, result in a transaction that is more favorable to its
stockholders (in their capacities as stockholders), from a financial point of
view, than the transactions contemplated by this Agreement and (y) is reasonably
likely to be completed.
(e) Without limiting Conexant's other obligations under this Agreement
(including under Article VI hereof), Conexant agrees that from and after the
date of this Agreement until the earlier of the Effective Time or the
termination of this Agreement in accordance with Article IX, neither it nor any
of its Subsidiaries shall, and it shall use its reasonable best efforts to cause
its and its Subsidiaries' officers, directors, employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly, (i)
initiate, solicit, encourage or knowingly facilitate (including by way of
furnishing information) any inquiries or the making of any proposal or offer
with respect to, or a transaction to effect, any Washington Acquisition Proposal
(as defined below), (ii) have any discussions with or provide any confidential
information or data to any Person relating to a Washington Acquisition Proposal,
or engage in any negotiations concerning a Washington Acquisition Proposal, or
knowingly facilitate any effort or attempt to make or implement a Washington
Acquisition Proposal, (iii) approve or recommend, or propose publicly to approve
or recommend, any Washington Acquisition Proposal or (iv) approve or recommend,
or propose to approve or recommend, or execute or enter into, any letter of
intent, agreement in principle, merger agreement, acquisition agreement, option
agreement or other similar agreement related to any Washington Acquisition
Proposal.
(f) For purposes of this Agreement, "Washington Acquisition Proposal" means
any inquiry, proposal or offer from any Person with respect to any purchase or
sale or other disposition of 20% or more of the consolidated assets (including
stock of subsidiaries) of the Washington Business, including any single or
multi-step transaction or series of related transactions (other than a proposal
or offer made by Alpha or a Subsidiary thereof).
SECTION 7.6 Employee Benefits Matters.
(a) Continuation and Comparability of Benefits. Subject to the Employee
Matters Agreement, from and after the Effective Time, the employee benefit plans
established or assumed by Washington pursuant to the Employee Matters Agreement
and the Alpha Plans in effect as of the date of this Agreement and at the
Effective Time shall remain in effect with respect to Washington Participants
(as defined in the Employee Matters Agreement) and employees and former
employees of Alpha and its Subsidiaries (collectively, the "Combined Company
Employees"), covered by such plans at the Effective Time, until such time as the
Combined Company shall otherwise determine, subject to Applicable Laws and the
terms of such plans. Prior to the Effective Time, or as soon as reasonably
practicable thereafter, Conexant and Alpha shall cooperate in reviewing,
evaluating and analyzing the Washington Plans and the Alpha Plans with a view
towards developing appropriate new benefit plans for Combined Company Employees.
It is the intention of Conexant and Alpha, to the extent permitted by Applicable
Laws, to develop new benefit plans prior to the Effective Time or as soon as
reasonably practicable after the Effective Time which, among other things, (i)
treat similarly situated employees on a substantially equivalent basis, taking
into
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account all relevant factors, including duties, geographic location, tenure,
qualifications and abilities and (ii) do not discriminate between Combined
Company Employees who were covered by Washington Plans, on the one hand, and
those covered by Alpha Plans, on the other, at the Effective Time. Nothing in
this Section 7.6 shall be interpreted as preventing the Combined Company from
amending, modifying or terminating any employee benefit plans established or
assumed by Washington pursuant to the Employee Matters Agreement or any Alpha
Plan or other contract, arrangement, commitment or understanding, in accordance
with its terms and Applicable Laws.
(b) Pre-Existing Limitations; Deductibles; Service Credit. With respect to
any employee benefit plans in which any Combined Company Employees who were
employees of Conexant or Alpha (or their Subsidiaries) prior to the Effective
Time first become eligible to participate on or after the Effective Time, and in
which the Combined Company Employees did not participate prior to the Effective
Time (the "New Combined Company Plans"), the Combined Company shall: (A) waive
all pre-existing conditions, exclusions and waiting periods with respect to
participation and coverage requirements applicable to the Combined Company
Employees and their eligible dependents under any New Combined Company Plans in
which such employees may be eligible to participate after the Effective Time,
except to the extent such pre-existing conditions, exclusions or waiting periods
would apply under the analogous Washington Plan or Alpha Plan, as the case may
be; (B) provide each Combined Company Employee and their eligible dependents
with credit for any co-payments and deductibles paid prior to the Effective Time
under a Washington Plan or an Alpha Plan (to the same extent such credit was
given under the analogous employee benefit plan prior to the Effective Time) in
satisfying any applicable deductible or out-of-pocket requirements under any New
Combined Company Plans in which such employees may be eligible to participate
after the Effective Time; and (C) recognize all service of the Combined Company
Employees with Conexant and Alpha, and their respective affiliates, for purposes
of eligibility to participate, vesting credit, entitlement to benefits and,
other than with respect to defined benefit pension plans, benefit accrual, in
any New Combined Company Plan in which such employees may be eligible to
participate after the Effective Time, to the extent such service is taken into
account under the applicable New Combined Company Plan; provided that the
foregoing shall not apply to the extent it would result in duplication of
benefits.
SECTION 7.7 Fees and Expenses. Subject to Section 9.2(c) of this
Agreement and Section 4.09 of the Distribution Agreement, whether or not the
Merger is consummated, all Expenses (as defined below) incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such Expenses, except Expenses incurred in connection with
the filing, printing and mailing of the Form S-4 and the Proxy
Statement/Prospectus, which shall be shared equally by Alpha and Conexant. As
used in this Agreement, "Expenses" means all out-of-pocket expenses (including
all fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and the transactions
contemplated hereby, including the preparation, printing, filing and mailing of
the Form S-4 and the Proxy Statement/ Prospectus and the solicitation of
stockholder approval and all other matters related to the transactions
contemplated hereby.
SECTION 7.8 Directors' and Officers' Indemnification and Insurance.
(a) The Combined Company shall (i) indemnify and hold harmless, and provide
advancement of expenses to, all past and present directors, officers and
employees of Alpha and its Subsidiaries (in all of their capacities as such), to
the same extent such persons are indemnified or have the right to advancement of
expenses as of the date of this Agreement by Alpha pursuant to Alpha's
certificate of incorporation, by-laws and indemnification agreements, if any, in
existence on the date hereof with any such directors, officers and employees of
Alpha and its Subsidiaries for acts or omissions occurring at or prior to the
Effective Time (including for acts or omissions occurring in connection with the
approval of this Agreement and the consummation of the transactions contemplated
hereby) and (ii) cause to be maintained for a period of six years after the
Effective Time the current policies of directors' and officers' liability
insurance and fiduciary liability insurance maintained by Alpha (provided that
the Combined
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Company may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are, in the aggregate, no less
advantageous to the insured than the current policies maintained by Alpha) with
respect to claims arising from facts or events that occurred on or before the
Effective Time; provided, however, that in no event shall the Combined Company
be required to expend in any one year an amount in excess of 200% of the annual
premiums (on a per capita basis) currently paid by Alpha for such insurance;
and, provided, further, that if the annual premiums of such insurance coverage
exceed such amount, the Combined Company shall be obligated to obtain a policy
with the greatest coverage available for a cost not exceeding such amount.
(b) The Combined Company shall (i) indemnify and hold harmless, and provide
advancement of expenses to, all past and present directors, officers and
employees of the Washington Companies (in all of their capacities as such), to
the same extent such persons are indemnified or have the right to advancement of
expenses as of the date of this Agreement by Conexant pursuant to Conexant's
certificate of incorporation, by-laws and indemnification agreements, if any, in
existence on the date hereof with any such directors, officers and employees of
the Washington Companies for acts or omissions occurring at or prior to the
Effective Time (including for acts or omissions occurring in connection with the
approval of this Agreement and the consummation of the transactions contemplated
hereby) and (ii) maintain in effect for each of the applicable persons referred
to in clause (i) for a period of six years after the Effective Time policies of
directors' and officers' liability insurance and fiduciary liability insurance
of at least the same coverage and amounts as, and containing terms and
conditions which are, in the aggregate, no less advantageous to the insured
than, the current policies of directors' and officers' liability insurance
maintained by Conexant, with respect to claims arising from facts or events that
occurred on or before the Effective Time; provided, however, that in no event
shall the Combined Company be required to expend in any one year an amount in
excess of 200% of the annual premiums (on a per capita basis) currently paid by
Conexant for such insurance; and, provided, further, that if the annual premiums
of such insurance coverage exceed such amount, the Combined Company shall be
obligated to obtain a policy with the greatest coverage available for a cost not
exceeding such amount.
(c) The provisions of this Section 7.8 are intended to be for the benefit
of and shall be enforceable by each indemnified or insured party referred to
above in this Section 7.8.
SECTION 7.9 Public Announcements. Alpha and Conexant each shall use
reasonable best efforts to develop a joint communications plan and each party
shall use reasonable best efforts (i) to ensure that all press releases and
other public statements with respect to the transactions contemplated hereby
shall be consistent with such joint communications plan, and (ii) unless
otherwise required by Applicable Laws or by obligations pursuant to any listing
agreement with or rules of any securities exchange or automated quotation
system, to consult with each other before issuing any press release or, to the
extent practicable, otherwise making any public statement with respect to this
Agreement or the transactions contemplated hereby.
SECTION 7.10 Accounting Matters.
(a) Alpha shall use reasonable best efforts to cause to be delivered to
Conexant two letters from Alpha's independent public accountants, one dated
approximately the date on which the Form S-4 shall become effective and one
dated the Closing Date, each addressed to Alpha, Conexant and Washington, in
form and substance reasonably satisfactory to Conexant and reasonably customary
in scope and substance for comfort letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
(b) Conexant shall use reasonable best efforts to cause to be delivered to
Alpha two letters from Washington's independent public accountants, one dated
approximately the date on which the Form S-4 shall become effective and one
dated the Closing Date, each addressed to Conexant, Alpha and Washington, in
form and substance reasonably satisfactory to Alpha and reasonably customary in
scope and substance for comfort letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
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SECTION 7.11 Listing of Shares of Alpha Common Stock. Alpha shall prior
to the Effective Time use reasonable best efforts to cause the shares of Alpha
Common Stock to be issued in the Merger and the shares of Alpha Common Stock to
be reserved for issuance upon exercise of the Converted Options to be approved
for listing on the Nasdaq National Market System prior to the Closing Date.
SECTION 7.12 Affiliates. Not less than 45 days prior to the Effective
Time, Conexant shall deliver to Alpha a letter identifying all persons who, in
the judgment of Conexant, may be deemed at the time this Agreement is submitted
for approval by Conexant as the sole stockholder of Washington, "affiliates" of
Washington for purposes of Rule 145 under the Securities Act and applicable SEC
rules and regulations, and such list shall be updated as necessary to reflect
changes from the date of delivery thereof. Conexant shall use reasonable best
efforts to cause each person identified on such list to deliver to Alpha not
less than 30 days prior to the Effective Time, a written agreement substantially
in the form attached hereto as Exhibit H (an "Affiliate Agreement").
SECTION 7.13 Section 16 Matters. Prior to the Effective Time, Alpha shall
take all such steps as may be required to cause any acquisitions or dispositions
of Alpha Common Stock (including derivative securities with respect to Alpha
Common Stock) resulting from the transactions contemplated by this Agreement by
each individual who is or will be subject to the reporting requirements of
Section 16(a) of the Exchange Act with respect to Alpha to be exempt under Rule
16b-3 promulgated under the Exchange Act, such steps to be taken in accordance
with applicable SEC rules and regulations and interpretations of the SEC staff.
SECTION 7.14 Takeover Statutes. If any "fair price", "moratorium",
"control share acquisition" or other form of antitakeover statute or regulation
shall become applicable to the transactions contemplated hereby, each of
Conexant, Alpha and Washington and their respective Boards of Directors shall
use all reasonable efforts to grant such approvals and take such actions as are
reasonably necessary so that the transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of such statute or regulation
on the transactions contemplated hereby.
SECTION 7.15 Advice of Changes. Each of Conexant and Alpha shall as
promptly as reasonably practicable after becoming aware thereof advise the
others of (a) any representation or warranty made by it contained in this
Agreement that is qualified as to materiality becoming untrue or inaccurate in
any respect or any such representation or warranty that is not so qualified
becoming untrue or inaccurate in any material respect, (b) the failure by it to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement or (c) any
change or event (i) having, or which would, individually or in the aggregate,
reasonably be expected to have, in the case of Alpha, a Material Adverse Effect
on Alpha and its Subsidiaries, and, in the case of Conexant, a Material Adverse
Effect on the Washington Business, or (ii) which has resulted, or which, insofar
as can reasonably be foreseen, would result, in any of the conditions set forth
in Article VIII not being satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
SECTION 7.16 Shareholders Agreement. Concurrently with the execution and
delivery of this Agreement, each of the directors and executive officers of
Alpha set forth on Exhibit I shall execute and deliver a Shareholders Agreement,
substantially in the form attached hereto as Exhibit J (the "Shareholders
Agreement").
SECTION 7.17 Tax Ruling. In connection with the Distribution, Conexant
shall use its reasonable best efforts in seeking, as promptly as practicable,
the Tax Ruling. Prior to filing with the Internal Revenue Service (the "IRS"),
Conexant shall furnish Alpha with a draft of the ruling request letter with
respect to the Tax Ruling and of any substantive supplemental submission in
respect thereof. Alpha may review and provide any comments on such drafts and
Conexant shall reasonably consider any comments provided in a reasonably prompt
manner by Alpha. Conexant shall keep Alpha fully informed of the status of the
Tax Ruling request. At Conexant's request, Alpha shall cooperate with and use
its reasonable best efforts to assist Conexant in connection with the Tax Ruling
request. At Alpha's reasonable request,
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Conexant shall cooperate with Alpha and use its reasonable best efforts to seek
to obtain, as promptly as practicable, any supplemental Tax Ruling or other
guidance from the IRS.
SECTION 7.18 Option Acceleration.
(a) Except with respect to the acceleration of the vesting and the
extension of the exercise period of the Alpha Stock Options set forth in Section
7.18 of the Alpha Disclosure Schedule, Alpha will take all action necessary to
prevent the acceleration of the vesting of, or the lapsing of restrictions with
respect to, any stock options, restricted stock or other stock-based
compensation (including the Alpha Stock Options, and whether granted under the
Alpha Stock Plans or otherwise) as a result of the approval or consummation of
any transaction contemplated by this Agreement.
(b) Washington will take all action necessary to prevent the acceleration
of the vesting of, or the lapsing of restrictions with respect to, any stock
options, restricted stock or other stock-based compensation (including the
Washington Options and any Converted Options into which they may be converted
hereunder, and whether granted under the Conexant Stock Plans, the Washington
Stock Plans or otherwise) as a result of the approval or consummation of any
transaction contemplated by this Agreement.
SECTION 7.19 Employment and Severance Arrangements. Except with respect
to the acceleration of the vesting and the extension of the exercise period of
the Alpha Stock Options set forth in Section 7.18 of the Alpha Disclosure
Schedule, Alpha will take all action necessary to ensure that no officer,
director or other employee of Alpha or any of its Subsidiaries will become
entitled to receive any change of control or other payment or benefit under any
employment, severance or other agreement with Alpha or any of its Subsidiaries,
including those agreements set forth on Exhibit E, that may otherwise arise as a
result of the approval or consummation of any transaction contemplated by this
Agreement.
SECTION 7.20 Transition Services Agreement. Promptly following the date
hereof, Alpha and Conexant will discuss the scope, nature, term and pricing of
the transition services to be provided by Conexant to Alpha following the
Effective Time pursuant to the Transition Services Agreement. Alpha and Conexant
will negotiate in good faith with respect thereto and prior to the Effective
Time will enter into the Transition Services Agreement in a form reasonably
satisfactory to Alpha and Conexant. The Transition Services Agreement will
provide that either party may terminate any services provided under the
Transition Services Agreement upon such prior written notice as the parties
shall mutually agree prior to the Effective Time.
ARTICLE VIII
CONDITIONS PRECEDENT
SECTION 8.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of Washington and Alpha to effect the Merger
are subject to the satisfaction or waiver prior to the Effective Time of the
following conditions:
(a) Stockholder Approval. Alpha shall have obtained the Required
Alpha Vote.
(b) No Injunctions or Restraints, Illegality. No Applicable Laws
shall have been adopted, promulgated or enforced by any Governmental
Entity, and no temporary restraining order, preliminary or permanent
injunction or other order issued by a court or other Governmental Entity of
competent jurisdiction (an "Injunction") shall be in effect, having the
effect of making the Merger illegal or otherwise prohibiting consummation
of the Merger.
(c) No Pending Governmental Actions. No proceeding initiated by any
Governmental Entity seeking, and which is reasonably likely to result in
the granting of, an Injunction shall be pending.
(d) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
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(e) EU Antitrust. If required, Alpha and Conexant shall have received
in respect of the Merger and any matters arising therefrom confirmation by
way of a determination from the European Commission under Regulation
4064/89 (with or without the initiation of proceedings under Article
6(1)(c) thereof) that the Merger and any matters arising therefrom are
compatible with the common market.
(f) Governmental and Regulatory Approvals. Other than the filings
provided for under Section 1.2 and filings pursuant to the HSR Act and, if
required, the EC Merger Regulation (which are addressed in Section 8.1(d)
and Section 8.1(e)), all consents, approvals, orders or authorizations of,
actions of, filings and registrations with and notices to any Governmental
Entity (i) required of Alpha, Conexant, Washington or any of their
Subsidiaries to consummate the Merger and the other transactions
contemplated hereby, the failure of which to be obtained or taken would
reasonably be expected to have a Material Adverse Effect on the Combined
Company and its Subsidiaries, taken together after giving effect to the
Merger or (ii) set forth in Section 8.1(f) of the Alpha Disclosure Schedule
or Section 8.1(f) of the Conexant Disclosure Schedule shall have been
obtained and shall be in full force and effect.
(g) Nasdaq Listing. The shares of Alpha Common Stock to be issued in
the Merger and to be reserved for issuance in connection with the Merger
shall have been approved for listing on the Nasdaq National Market System.
(h) Effectiveness of the Form S-4. The Form S-4 shall have been
declared effective by the SEC under the Securities Act and no stop order
suspending the effectiveness of the Form S-4 shall then be in effect and no
proceedings for that purpose shall be pending before or threatened by the
SEC.
(i) Pre-Merger Transactions. The Contribution and the Distribution
shall have been consummated in accordance with the terms of this Agreement
and the Distribution Agreement (which includes additional conditions to
such consummation) and in all material respects in accordance with the Tax
Ruling, provided that the failure of the Contribution and the Distribution
to be consummated shall not be a condition to the obligations of a party
whose breach (or breach by an Affiliate thereof) of the Distribution
Agreement has been the cause of, or resulted in, such failure.
(j) Tax Ruling. Conexant shall have received the Tax Ruling and the
Tax Ruling shall be in full force and effect and shall not have been
modified or amended in any respect adversely affecting the Tax consequences
set forth therein.
(k) Mexicali Conditions. Each condition to the closing of the
Facility Sale Agreement set forth in Article VI thereof (other than in
Section 6.4 thereof) shall have been satisfied.
SECTION 8.2 Additional Conditions to Obligations of Alpha. The obligation
of Alpha to effect the Merger is subject to the satisfaction or waiver by Alpha
prior to the Effective Time of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Conexant set forth in this Agreement and in Section
2.01(d)(i) of the Distribution Agreement shall be true and correct (without
giving effect to any qualification or limitation as to materiality or
Material Adverse Effect set forth therein), in each case as of the date of
this Agreement and (except to the extent that such representations and
warranties speak solely as of another date) as of the Closing Date as
though made on and as of the Closing Date, except where the failure of such
representations and warranties to be true and correct would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Washington Business, and Alpha shall have received a
certificate of Conexant executed by an executive officer of Conexant to
such effect.
(b) Performance of Obligations of Conexant and Washington. Each of
Conexant and Washington shall have performed or complied with all
agreements and covenants required to be performed by it under this
Agreement at or prior to the Closing Date that are qualified as to
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materiality or Material Adverse Effect and shall have performed or complied
in all material respects with all other agreements and covenants required
to be performed by it under this Agreement at or prior to the Closing Date
that are not so qualified, and Alpha shall have received a certificate of
Conexant executed by an executive officer of Conexant to such effect.
(c) Tax Opinion. Alpha shall have received an opinion from Skadden,
Arps, Slate, Meagher & Flom LLP, dated the Closing Date, to the effect
that, on the basis of facts, representations and assumptions, including the
validity of the Tax Ruling, set forth in such opinion which are consistent
with the state of facts existing at the Effective Time, the Merger will
constitute a reorganization under Section 368 of the Code.
(d) Net Assets Statement. Conexant shall have delivered the Special
Purpose Statement of Tangible Net Assets in accordance with Section
2.01(d)(ii) of the Distribution Agreement.
(e) Mexicali Conditions. Each condition to the closing of the
Facility Sale Agreement set forth in Section 7.2 thereof shall have been
satisfied.
(f) Ancillary Agreements. The Employee Matters Agreement and the Tax
Allocation Agreement shall have been executed and delivered by Conexant and
Washington and the Facility Services Agreement, the Newport Supply
Agreement, the Newbury Supply Agreement and the Transition Services
Agreement shall have been executed and delivered by Conexant.
SECTION 8.3 Additional Conditions to Obligations of Washington. The
obligation of Washington to effect the Merger is subject to the satisfaction or
waiver by Conexant prior to the Effective Time of the following additional
conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Alpha set forth in this Agreement shall be true and correct
(without giving effect to any qualification or limitation as to materiality
or Material Adverse Effect set forth therein), in each case as of the date
of this Agreement and (except to the extent that such representations and
warranties speak solely as of another date) as of the Closing Date as
though made on and as of the Closing Date, except where the failure of such
representations and warranties to be true and correct would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Alpha and its Subsidiaries, and Conexant shall have
received a certificate of Alpha executed by an executive officer of Alpha
to such effect.
(b) Performance of Obligations of Alpha. Alpha shall have performed
or complied with all agreements and covenants required to be performed by
it under this Agreement at or prior to the Closing Date that are qualified
as to materiality or Material Adverse Effect and shall have performed or
complied in all material respects with all other agreements and covenants
required to be performed by it under this Agreement at or prior to the
Closing Date that are not so qualified, and Conexant shall have received a
certificate of Alpha executed by an executive officer of Alpha to such
effect.
(c) Tax Opinion. Conexant and Washington shall have received an
opinion from Chadbourne & Parke LLP, dated the Closing Date, to the effect
that, on the basis of facts, representations and assumptions, including the
validity of the Tax Ruling, set forth in such opinion which are consistent
with the state of facts existing at the Effective Time, the Merger will
constitute a reorganization under Section 368 of the Code.
(d) Employment and Severance Arrangements. Conexant shall have
received written evidence reasonably satisfactory to Conexant that Alpha
has taken all action necessary to ensure that no officer, director or other
employee of Alpha or any of its Subsidiaries has received or will become
entitled to receive any change of control or other payment or benefit under
any employment, severance or other agreement with Alpha or any of its
Subsidiaries (except with respect to the acceleration of the vesting and
the extension of the exercise period of the Alpha Stock Options set forth
in Section 7.18 of the Alpha Disclosure Schedule), including those
agreements set forth on Exhibit E, that may otherwise arise as a result of
the approval or consummation of any transaction contemplated by this
Agreement.
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(e) Mexicali Condition. Each condition to the closing of the Facility
Sale Agreement set forth in Section 7.1 thereof shall have been satisfied.
(f) Ancillary Agreements. The Employee Matters Agreement, the Tax
Allocation Agreement, the Facility Services Agreement, the Newport Supply
Agreement, the Newbury Supply Agreement and the Transition Services
Agreement shall have been executed and delivered by Alpha.
ARTICLE IX
TERMINATION AND AMENDMENT
SECTION 9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, by action taken or authorized by the Board of
Directors of the terminating party or parties, and except as provided below,
whether before or after approval of the matters presented in connection with the
Merger by the stockholders of Alpha:
(a) by mutual written consent of Conexant and Alpha;
(b) by either Conexant or Alpha if the Effective Time shall not have
occurred on or before September 30, 2002 (the "Termination Date");
provided, however, that the right to terminate this Agreement under this
Section 9.1(b) shall not be available to any party whose failure to fulfill
in any material respect any obligation under this Agreement (including such
party's obligations set forth in Section 7.4) has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before the
Termination Date;
(c) by either Conexant or Alpha if any Governmental Entity (i) shall
have issued an order, decree or ruling or taken any other action (which
such party shall have used its reasonable best efforts to resist, resolve
or lift, as applicable, in accordance with Section 7.4) permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable or (ii) shall have failed
to issue an order, decree or ruling, or to take any other action, necessary
to fulfill any conditions set forth in subsections 8.1(d) and (e), and the
failure to issue such order, decree, ruling or take such action shall have
become final and nonappealable; provided, however, that the right to
terminate this Agreement under this Section 9.1(c) shall not be available
to any party whose failure to comply with Section 7.4 has been the cause
of, or resulted in, such action or inaction;
(d) by either Conexant or Alpha if the approval by the stockholders of
Alpha required for the consummation of the Merger shall not have been
obtained by reason of the failure to obtain the Required Alpha Vote upon
the taking of such vote at a duly held meeting of stockholders of Alpha or
at any adjournment thereof;
(e) by Conexant, if (i) Alpha's Board of Directors shall have (A)
failed to make the Alpha Recommendation, (B) withdrawn the Alpha
Recommendation, (C) modified or qualified the Alpha Recommendation in any
manner adverse to Conexant or Washington or (D) failed to confirm the Alpha
Recommendation within five Business Days of Conexant's request to do so (or
resolved or proposed to take any such action referred to in clause (A),
(B), (C) or (D)), in each case, whether or not permitted by the terms
hereof, (ii) Alpha shall have breached its obligations under this Agreement
by reason of a failure to call and hold the Alpha Stockholders Meeting in
accordance with Section 7.1(b) or a failure to prepare and mail to its
stockholders the Proxy Statement/Prospectus in accordance with Section
7.1(a) or (iii) a tender or exchange offer relating to securities of Alpha
shall have been commenced by a Person unaffiliated with Conexant, and Alpha
shall not have sent to its stockholders pursuant to Rule 14e-2 under the
Exchange Act, within ten Business Days after such tender or exchange offer
is first published, sent or given, a statement that Alpha recommends
rejection of such tender or exchange offer;
(f) by Conexant, if Alpha shall have breached or failed to perform any
of its representations, warranties, covenants or other agreements contained
in this Agreement, such that the conditions set
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forth in Section 8.3(a) or Section 8.3(b) are not capable of being
satisfied on or before the Termination Date; or
(g) by Alpha, if Conexant or Washington shall have breached or failed
to perform any of its representations, warranties, covenants or other
agreements contained in this Agreement, such that the conditions set forth
in Section 8.2(a) or Section 8.2(b) are not capable of being satisfied on
or before the Termination Date.
SECTION 9.2 Effect of Termination.
(a) In the event of termination of this Agreement by either Conexant or
Alpha as provided in Section 9.1, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of Alpha, Conexant or
Washington or their respective officers or directors under this Agreement,
except that (i) the provisions of Section 5.1(m), Section 5.2(k), the second
sentence of Section 7.3, Section 7.7, this Section 9.2 and Article X shall
survive such termination, and (ii) notwithstanding anything to the contrary
contained in this Agreement (including Section 7.7), none of Alpha, Conexant or
Washington shall be relieved or released from any liabilities or damages arising
out of its willful breach of any provision of this Agreement.
(b) If:
(i) (A)(x) either Conexant or Alpha shall terminate this Agreement
pursuant to Section 9.1(b) without the Alpha Stockholder Meeting having
occurred or pursuant to Section 9.1(d) or (y) Conexant shall terminate this
Agreement pursuant to Section 9.1(f) as a result of any intentional breach
or failure to perform by Alpha (unless covered by clause (ii) below), and
(B) at any time after the date of this Agreement and before such
termination an Alpha Acquisition Proposal shall have been publicly
announced or, in the case of termination of this Agreement pursuant to
Section 9.1(b) or Section 9.1(f), publicly announced or otherwise
communicated to the senior management, Board of Directors or stockholders
of Alpha, and
(C) within nine months of such termination Alpha or any of its
Subsidiaries enters into a definitive agreement with respect to, or
consummates, any Alpha Acquisition Proposal (for purposes of this clause
(C), references to 20% in the definition of "Alpha Acquisition Proposal"
shall be deemed to be references to 50%); or
(ii) Conexant shall terminate this Agreement pursuant to Section
9.1(e);
then Alpha shall promptly, but in no event later than the date of such
termination (or in the case of clause (i), if later, the date Alpha or its
Subsidiary enters into such agreement with respect to or consummates such Alpha
Acquisition Proposal), pay Conexant an amount equal to Forty-Five Million
dollars ($45,000,000), by wire transfer of immediately available funds.
(c) The parties acknowledge that the agreements contained in this Section
9.2 are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements, the parties would not enter into this Agreement;
accordingly, if Conexant or Alpha fails promptly to pay any amount due pursuant
to this Section 9.2, and, in order to obtain such payment, the other party
commences a suit which results in a judgment against such party for the fee set
forth in this Section 9.2, such party shall pay to the other party its costs and
expenses (including attorneys' fees and expenses) in connection with such suit,
together with interest on the amount of the fee from the date such payment is
required to be made until the date such payment is actually made at the prime
rate of Citibank, N.A. in effect on the date such payment was required to be
made. The parties agree that any remedy or amount payable pursuant to this
Section 9.2 shall not preclude any other remedy or amount payable hereunder, and
shall not be an exclusive remedy, for any willful breach of any provision of
this Agreement.
SECTION 9.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
this Agreement and the Merger by the stockholders of Alpha, but, after any
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such approval, no amendment shall be made which by law or in accordance with the
rules of any relevant stock exchange or automated quotation system requires
further approval by such stockholders without such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
SECTION 9.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties of other
parties contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions of other parties
contained herein or in any document delivered pursuant hereto. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in a written instrument signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of those rights.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Non-Survival of Representations, Warranties, Covenants and
Agreements. None of the representations, warranties, covenants and other
agreements in this Agreement or in any certificate delivered pursuant to this
Agreement, including any rights arising out of any breach of such
representations, warranties, covenants and other agreements, shall survive the
Effective Time, except for those covenants and agreements contained herein and
therein that by their terms apply or are to be performed in whole or in part
after the Effective Time.
SECTION 10.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed duly given (a) on the date of delivery
if delivered personally, (b) upon confirmation of receipt if delivered by
telecopy or telefacsimile, (c) on the first Business Day following the date of
dispatch if delivered by a recognized next-day courier service, or (d) on the
fifth Business Day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. All notices hereunder
shall be delivered as set forth below, or pursuant to such other instructions as
may be designated in writing by the party to receive such notice:
(a) if to Conexant or Washington to
Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, California 92660-3095
Fax: (949) 483-6388
Attention: Dennis E. O'Reilly
Senior Vice President, General
Counsel and Secretary
with a copy to
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Fax: (212) 541-5369
Attention: Peter R. Kolyer, Esq.
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(b) if to Alpha to
Alpha Industries, Inc.
20 Sylvan Road
Woburn, MA 01801
Fax: (617) 824-4426
Attention: Paul E. Vincent
Chief Financial Officer
with a copy to
Alpha Industries, Inc.
20 Sylvan Road
Woburn, MA 01801
Fax: (617) 824-4564
Attention: James K. Jacobs, Esq.
General Counsel
SECTION 10.3 Interpretation. When a reference is made in this Agreement
to Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". All references in this Agreement to "the date of this Agreement",
"the date hereof", "a recent date" or similar references shall refer or relate
to the date as of which this Agreement was originally executed and delivered
(December 16, 2001) and not the date as of which this Agreement was amended
(April 12, 2002).
SECTION 10.4 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 the
parties need not sign the same counterpart.
SECTION 10.5 Entire Agreement; No Third Party Beneficiaries.
(a) This Agreement, the Confidentiality Agreement, the Reorganization
Agreements, the Facility Sale Agreement, the U.S. Asset Purchase Agreement, the
Facility Services Agreement, the Newport Supply Agreement, the Newbury Supply
Agreement and the exhibits and schedules hereto and thereto and the other
agreements and instruments of the parties delivered in connection herewith and
therewith constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and thereof.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 7.8 (which is intended to be for the benefit of the Persons covered
thereby).
SECTION 10.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (without giving
effect to choice of law principles thereof).
SECTION 10.7 Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon any such determination, the parties shall
negotiate in good faith in an effort to agree upon a suitable and equitable
substitute provision to effect the original intent of the parties.
A-48
SECTION 10.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of law or otherwise), without
the prior written consent of the other parties, and any attempt to make any such
assignment without such consent shall be null and void. 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 successors and assigns.
SECTION 10.9 Submission to Jurisdiction; Waivers. Each of Alpha, Conexant
and Washington irrevocably agrees that any legal action or proceeding with
respect to this Agreement, the transactions contemplated hereby, any provision
hereof, the breach, performance, validity or invalidity hereof or for
recognition and enforcement of any judgment in respect hereof brought by another
party hereto or its successors or permitted assigns may be brought and
determined in any federal or state court located in the State of Delaware, and
each of Alpha, Conexant and Washington hereby irrevocably submits with regard to
any such action or proceeding for itself and in respect to its property,
generally and unconditionally, to the exclusive jurisdiction of the aforesaid
courts. Each of Alpha, Conexant and Washington hereby irrevocably waives, and
agrees not to assert, by way of motion, as a defense, counterclaim or otherwise,
in any action or proceeding with respect to this Agreement, the transactions
contemplated hereby, any provision hereof or the breach, performance,
enforcement, validity or invalidity hereof, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to lawfully serve process, (b) that it or its property is
exempt or immune from jurisdiction of any such court or from any legal process
commenced in such courts (whether through service of notice, attachment prior to
judgment, attachment in aid of execution of judgment, execution of judgment or
otherwise), and (c) to the fullest extent permitted by Applicable Laws, that (i)
the suit, action or proceeding in any such court is brought in an inconvenient
forum, (ii) the venue of such suit, action or proceeding is improper and (iii)
this Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
SECTION 10.10 Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed that
the parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
SECTION 10.11 Definitions. As used in this Agreement:
(a) "affiliate" means (except as specifically otherwise defined), as
to any Person, any other Person which, directly or indirectly, controls, or
is controlled by, or is under common control with, such Person. As used in
this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") means the possession,
directly or indirectly, of the power to direct or cause the direction of
management or policies of a Person, whether through the ownership of
securities or partnership or other ownership interests, by contract or
otherwise.
(b) An "Alpha Plan" means any employee benefit plan, program, policy,
practice or other arrangement providing benefits to any current or former
employee, officer or director of Alpha or any of its Subsidiaries or any
beneficiary or dependent thereof that is sponsored or maintained by Alpha
or any of its Subsidiaries or to which Alpha or any of its Subsidiaries
contributes or is obligated to contribute, whether or not written,
including any employee benefit plan within the meaning of Section 3(3) of
ERISA (whether or not such plan is subject to ERISA) and any bonus,
incentive, deferred compensation, vacation, stock purchase, stock option,
severance, employment, change of control or fringe benefit plan, or similar
program or agreement.
(c) "Alpha Stock Plans" means, collectively, the Alpha Industries,
Inc. 1986 Long-Term Incentive Plan; the Alpha Industries, Inc. 1999
Employee Long-Term Incentive Plan; the Alpha Industries, Inc. Long-Term
Compensation Plan; the Alpha Industries, Inc. 1994 Non-Qualified Stock
Option Plan for Non-Employee Directors; the Alpha Industries, Inc. 1997
Non-Qualified Stock Option Plan for Non-Employee Directors; the Alpha
Industries, Inc. 1996 Long-Term Incentive Plan;
A-49
the Alpha Industries, Inc. Directors' 2001 Stock Option Plan; and the Alpha
Industries, Inc. Employee Stock Purchase Plan.
(d) "Applicable Laws" means all applicable laws, statutes, orders,
rules, regulations, policies or guidelines promulgated, or judgments,
decisions or orders entered, by any Governmental Entity.
(e) "beneficial ownership" or "beneficially own" (except as
specifically otherwise defined) shall have the meaning under Section 13(d)
of the Exchange Act and the rules and regulations thereunder.
(f) "Board of Directors" means the Board of Directors of any specified
Person and any committees thereof.
(g) "Business Day" means a day other than a Saturday, a Sunday or a
day on which banks are required or authorized to close in the City of New
York.
(h) "Conexant Stock Plans" means, collectively, the Conexant Systems,
Inc. 2001 Employee Stock Purchase Plan; the Conexant Systems, Inc. 2001
Performance Share Plan; the Conexant Systems, Inc. 1999 Non-Qualified Stock
Purchase Plan; the Conexant Systems, Inc. 1998 Stock Option Plan; the
Conexant Systems, Inc. 1999 Long-Term Incentives Plan; the Conexant
Systems, Inc. 2000 Non-Qualified Stock Plan; the Conexant Systems, Inc.
Directors Stock Plan; the Istari Design, Inc. 1997 Stock Option Plan; the
Microcosm Communications Limited Stock Option Plan; the Maker
Communications, Inc. 1999 Stock Incentive Plan; the Maker Communications,
Inc. 1999 Non-Employee Director Stock Option Plan; the Maker
Communications, Inc. 1996 Stock Option Plan; the Applied Telecom, Inc. 2000
Non-Qualified Stock Option Plan; the Philsar Semiconductor Inc. Stock
Option Plan; the Sierra Imaging, Inc. 1996 Stock Option Plan; the HotRail,
Inc. 2000 Equity Plan; the HotRail, Inc. 1997 Equity Incentive Plan; the
Novanet Semiconductor Ltd. Employee Shares Option Plan; the NetPlane
Systems, Inc. Stock Option Plan; and the HyperXS Communications, Inc. 2000
Stock Option Plan.
(i) "Converted Option" means a Washington Option which has been
converted into an option to purchase shares of Alpha Common Stock pursuant
to the Merger.
(j) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(k) "Known" or "Knowledge" means, (i) with respect to Conexant, the
knowledge of any of Dwight W. Decker, Balakrishnan S. Iyer, Dennis E.
O'Reilly, Moiz M. Beguwala and Mohy Abdelgany after reasonable inquiry and
(ii) with respect to Alpha, the knowledge of any of Thomas C. Leonard,
David J. Aldrich, Paul E. Vincent, Ljubisa Ristic, Michael Dys, David
Fryklund and Jean-Pierre Gillard after reasonable inquiry.
(l) "Material Adverse Effect" means, with respect to any entity or
business (or group of entities or businesses taken as a whole), any event,
change, circumstance or development that is materially adverse to (i) the
ability of such entity or business (or group of entities or businesses
taken as a whole) (or, in the case of a Material Adverse Effect with
respect to the Washington Business, Conexant and its Subsidiaries) to
consummate the transactions contemplated by this Agreement or (ii) the
business, financial condition or results of operations of such entity or
business (or, if with respect thereto, of such group of entities or
businesses taken as a whole), other than, with respect to this clause (ii),
any (1) change in the stock price of such entity or business, in and of
itself, or (2) event, change, circumstance or development (A) resulting
from any action taken in connection with the transactions contemplated
hereby pursuant to the terms of this Agreement, (B) relating to the economy
or financial markets in general, (C) relating in general to the industries
in which such entity or business operates and not specifically relating to
such entity or business or (D) relating to any action or omission of
Conexant, Alpha or Washington or any Subsidiary of any of them taken with
the express prior written consent of the parties hereto.
(m) A "Multiemployer Plan" means any "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA.
A-50
(n) "Nasdaq" means The Nasdaq Stock Market, Inc.
(o) "Person" means an individual, corporation, limited liability
entity, partnership, association, trust, unincorporated organization, other
entity or group (as defined in the Exchange Act), including any
Governmental Entity.
(p) "Reorganization Agreements" means collectively, the Distribution
Agreement, the Employee Matters Agreement, the Tax Allocation Agreement and
the Transition Services Agreement.
(q) "Subsidiary" when used with respect to any Person means any
corporation or other organization, whether incorporated or unincorporated,
at least a majority of the securities or other interests of which 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 Person or by any one or more of its Subsidiaries, or by
such Person and one or more of its Subsidiaries.
(r) "Tax" (and, with correlative meaning, "Taxes" and "Taxable") shall
mean (i) any federal, state, local or foreign net income, gross income,
receipts, windfall profit, severance, property, production, sales, use,
license, excise, franchise, employment, payroll, withholding, alternative
or add-on minimum, ad valorem, transfer, stamp, or environmental tax, or
any other tax, customs, duty or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, addition to tax or
additional amount imposed by any governmental authority; (ii) any liability
for payments of a type described in clause (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group; and (iii)
any liability for the payment of any amounts as a result of being party to
a tax sharing arrangement or as a result of any express or implied
obligation to indemnify any Person with respect to the payment of amounts
of the type described in clause (i) or clause (ii).
(s) "Tax Ruling" means a private letter ruling issued by the IRS in
form and substance reasonably satisfactory to Conexant and Alpha indicating
that the Contribution and the Distribution will qualify as a reorganization
under Sections 355 and 368 of the Code.
(t) "Washington Companies" means, collectively, Conexant and its
Subsidiaries who are engaged in the Washington Business, in each case,
solely to the extent related to the Washington Business, it being
understood that the term "Washington Companies" shall not be deemed to
refer to Conexant and its Subsidiaries to the extent not related to the
Washington Business.
(u) "Washington Employee" means any employee or former employee of the
Washington Business with respect to whom a member of the Washington Group
will have liability pursuant to the Employee Matters Agreement.
(v) A "Washington Plan" means any employee benefit plan, program,
policy, practice or other arrangement providing benefits to any Washington
Participants or any beneficiary or dependent thereof that is sponsored or
maintained by Conexant or any of its Subsidiaries or to which Conexant or
any of its Subsidiaries contributes or is obligated to contribute, whether
or not written, including any employee benefit plan within the meaning of
Section 3(3) of ERISA (whether or not such plan is subject to ERISA) and
any bonus, incentive, deferred compensation, vacation, stock purchase,
stock option, severance, employment, change of control or fringe benefit
plan, or similar program or agreement.
Each of the following terms is defined in the Section of this Agreement or
the agreement set forth opposite such term:
TERM SECTION
---- -------
Actions................................................. 5.1(j)
Affiliate Agreement..................................... 7.12
Agreement............................................... Preamble
Alpha................................................... Preamble
A-51
TERM SECTION
---- -------
Alpha Acquisition Proposal.............................. 7.5(b)
Alpha Common Stock...................................... 1.4(a)
Alpha Disclosure Schedule............................... 5.1
Alpha Filed SEC Reports................................. 5.1(d)(ii)
Alpha Financial Advisor................................. 5.1(m)
Alpha Necessary Consents................................ 5.1(c)(iii)
Alpha Permits........................................... 5.1(h)(ii)
Alpha Recommendation.................................... 7.1(b)
Alpha SEC Reports....................................... 5.1(d)(i)
Alpha Stock Options..................................... 5.1(b)(i)
Alpha Stockholders Meeting.............................. 7.1(b)
Alpha Voting Debt....................................... 5.1(b)(ii)
Assets.................................................. Distribution Agreement
By-Laws................................................. 1.7
Certificate of Merger................................... 1.2(b)
Change in the Alpha Recommendation...................... 7.1(b)
Closing................................................. 1.2(a)
Closing Date............................................ 1.2(a)
Code.................................................... Recitals
Combined Company........................................ Recitals
Combined Company Employees.............................. 7.6(a)
Conexant................................................ Preamble
Conexant Common Stock................................... 5.2(b)(i)
Conexant Convertible Notes.............................. 5.2(b)(i)
Conexant Disclosure Schedule............................ 5.2
Conexant Filed SEC Reports.............................. 5.2(d)(iii)
Conexant Financial Advisor.............................. 5.2(k)
Conexant Necessary Consents............................. 5.2(c)(iv)
Conexant Preferred Stock................................ 5.2(b)(i)
Conexant Rights......................................... 5.2(b)(i)
Conexant Rights Agreement............................... 5.2(b)(i)
Conexant SEC Reports.................................... 5.2(d)(i)
Conexant Stock Options.................................. 5.2(b)(i)
Confidentiality Agreement............................... 7.3
Contract................................................ 5.1(c)(ii)
Contribution............................................ Recitals
Delaware Secretary...................................... 1.2(b)
DGCL.................................................... 1.1
Distribution............................................ Recitals
Distribution Agreement.................................. Recitals
Distribution Date....................................... Distribution Agreement
DOJ..................................................... 7.4(b)
Effective Time.......................................... 1.2(b)
Employee Matters Agreement.............................. 4.1
Environmental Laws...................................... 5.1(j)
Environmental Liabilities............................... 5.1(j)
Excess Alpha Shares..................................... 3.2(d)(ii)
Exchange Act............................................ 5.1(c)(iii)
Exchange Agent.......................................... 3.1
Exchange Fund........................................... 3.1
Exchange Ratio.......................................... 1.4(a)
A-52
TERM SECTION
---- -------
Expenses................................................ 7.7
Facility Sale Agreement................................. 6.2(l)
Facility Services Agreement............................. 6.2(l)
Form S-4................................................ 7.1(a)
FTC..................................................... 7.4(b)
GAAP.................................................... 5.1(d)(i)
Governmental Entity..................................... 5.1(c)(iii)
Hazardous Materials..................................... 5.1(j)
HSR Act................................................. 5.1(c)(iii)
Injunction.............................................. 8.1(b)
Intellectual Property................................... 5.1(k)
IRS..................................................... 7.17
Liens................................................... 5.1(a)(ii)
Merger.................................................. Recitals
New Combined Company Plans.............................. 7.6(b)
Newbury Supply Agreement................................ 4.1
Newport Supply Agreement................................ 4.1
Proxy Statement/Prospectus.............................. 7.1(a)
Record Date............................................. Distribution Agreement
Required Approvals...................................... 7.4(a)
Required Alpha Vote..................................... 5.1(g)
Restated Certificate.................................... 1.6
SEC..................................................... 5.1(a)(ii)
Securities Act.......................................... 3.3
Shareholders Agreement.................................. 7.16
Special Purpose Statement of Tangible Net Assets........ Distribution Agreement
Superior Alpha Proposal................................. 7.5(d)
Tax Allocation Agreement................................ 4.1
Termination Date........................................ 9.1(b)
Time of Distribution.................................... Distribution Agreement
Transition Services Agreement........................... 4.1
Unaudited Special Purpose Statement of Tangible Net 5.2(d)(ii)
Assets................................................
U.S. Asset Purchase Agreement........................... 6.2(l)
Violation............................................... 5.1(c)(ii)
Washington.............................................. Preamble
Washington Acquisition Proposal......................... 7.5(f)
Washington Assets....................................... Distribution Agreement
Washington Business..................................... Distribution Agreement
Washington Certificate.................................. 1.4(b)
Washington Common Stock................................. Recitals
Washington Financial Statements......................... 5.2(d)(ii)
Washington Group........................................ Distribution Agreement
Washington Liabilities.................................. Distribution Agreement
Washington Option....................................... Employee Matters Agreement
Washington Participant.................................. Employee Matters Agreement
Washington Permits...................................... 5.2(f)(ii)
Washington Significant Subsidiaries..................... 5.2(a)(iii)
Washington Stock Plan................................... Employee Matters Agreement
Washington Subsidiaries................................. Distribution Agreement
SECTION 10.12 Disclosure Schedule. The mere inclusion of an item in the
relevant Disclosure Schedule as an exception to a representation, warranty or
covenant shall not be deemed an admission by a
A-53
party that such item represents a material exception or material fact, event or
circumstance or that such item has had or would have a Material Adverse Effect
with respect to Conexant, Alpha, Washington, any Subsidiary of the foregoing or
the Washington Business, as applicable.
[remainder of page intentionally left blank]
A-54
IN WITNESS WHEREOF, the parties hereto have caused this Agreement, as
amended, to be signed by their respective officers thereunto duly authorized.
CONEXANT SYSTEMS, INC.
By: /s/ DWIGHT W. DECKER
------------------------------------
Dwight W. Decker
Chairman of the Board and Chief
Executive Officer
WASHINGTON SUB, INC.
By: /s/ DWIGHT W. DECKER
------------------------------------
Dwight W. Decker
Chairman of the Board and Chief
Executive Officer
ALPHA INDUSTRIES, INC.
By: /s/ DAVID J. ALDRICH
------------------------------------
David J. Aldrich
President and Chief Executive
Officer
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ANNEX B
CONTRIBUTION AND DISTRIBUTION AGREEMENT
BY AND BETWEEN
CONEXANT SYSTEMS, INC.
AND
WASHINGTON SUB, INC.
DECEMBER 16, 2001
B-1
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS................................................. B-5
SECTION 1.01 General..................................................... B-5
ARTICLE II THE CONTRIBUTION............................................ B-19
SECTION 2.01 Intercorporate Reorganization............................... B-19
SECTION 2.02 Financial Instruments....................................... B-22
SECTION 2.03 Intercompany Accounts and Arrangements...................... B-22
SECTION 2.04 Cash Management............................................. B-22
SECTION 2.05 The Washington Board........................................ B-23
SECTION 2.06 Resignations; Transfer of Stock Held as Nominee............. B-23
SECTION 2.07 Washington Certificate of Incorporation and By-laws......... B-23
SECTION 2.08 Consents.................................................... B-23
ARTICLE III THE DISTRIBUTION............................................ B-24
SECTION 3.01 The Distribution............................................ B-24
SECTION 3.02 Cooperation Prior to the Distribution....................... B-24
SECTION 3.03 Conditions to the Distribution.............................. B-25
SECTION 3.04 Waiver of Conditions........................................ B-25
SECTION 3.05 Disclosure.................................................. B-25
ARTICLE IV MUTUAL RELEASE; INDEMNIFICATION; EXPENSES................... B-25
SECTION 4.01 Mutual Release.............................................. B-25
SECTION 4.02 Indemnification by Conexant................................. B-26
SECTION 4.03 Indemnification by Washington............................... B-27
SECTION 4.04 Limitations on Indemnification Obligations.................. B-27
SECTION 4.05 Procedures Relating to Indemnification...................... B-28
SECTION 4.06 Remedies Cumulative......................................... B-29
SECTION 4.07 Survival of Indemnities..................................... B-29
SECTION 4.08 Exclusivity of Tax Allocation Agreement..................... B-29
SECTION 4.09 Expenses.................................................... B-29
SECTION 4.10 Effect of Investigation..................................... B-30
ARTICLE V CERTAIN OTHER MATTERS....................................... B-30
SECTION 5.01 Insurance................................................... B-30
SECTION 5.02 Use of Names, Trademarks, etc............................... B-31
SECTION 5.03 License of Intellectual Property............................ B-34
SECTION 5.04 Software and Other License Agreements....................... B-37
SECTION 5.05 Non-Solicitation of Employees............................... B-38
ARTICLE VI ACCESS TO INFORMATION....................................... B-38
SECTION 6.01 Provision of Corporate Records.............................. B-38
SECTION 6.02 Access to Information....................................... B-38
SECTION 6.03 Production of Witnesses..................................... B-39
SECTION 6.04 Retention of Records........................................ B-40
SECTION 6.05 Confidentiality............................................. B-40
B-2
PAGE
----
ARTICLE VII MISCELLANEOUS............................................... B-40
SECTION 7.01 Entire Agreement; Construction.............................. B-40
SECTION 7.02 Survival of Agreements...................................... B-41
SECTION 7.03 Governing Law............................................... B-41
SECTION 7.04 Notices..................................................... B-41
SECTION 7.05 Dispute Resolution.......................................... B-42
SECTION 7.06 Amendments.................................................. B-42
SECTION 7.07 Assignment.................................................. B-42
SECTION 7.08 Captions; Currency.......................................... B-43
SECTION 7.09 Severability................................................ B-43
SECTION 7.10 Parties in Interest......................................... B-43
SECTION 7.11 Schedules................................................... B-43
SECTION 7.12 Waivers; Remedies........................................... B-43
SECTION 7.13 Further Assurances.......................................... B-43
SECTION 7.14 Counterparts................................................ B-43
SECTION 7.15 Performance................................................. B-43
SECTION 7.16 Currency Calculations....................................... B-44
SECTION 7.17 Interpretation.............................................. B-44
B-3
SCHEDULES
Schedule 1.01(a) -- Amended By-Laws
Schedule 1.01(b) -- Washington Machinery and Equipment
Schedule 1.01(c) -- Washington Patents and Trademarks
Schedule 1.01(d) -- Conexant Former Businesses
Schedule 1.01(e) -- Conexant Financial Instruments
Schedule 1.01(f) -- Certain Conexant Assets
Schedule 1.01(g) -- Restated Certificate of Incorporation
Schedule 1.01(h) -- Washington Former Businesses
Schedule 1.01(i) -- Washington Financial Instruments
Schedule 1.01(j) -- Washington Actions
Schedule 1.01(k) -- Washington Real Property
Schedule 1.01(l) -- Washington Subsidiaries
Schedule 2.01(d) -- Sufficiency Exceptions
Schedule 2.03(a) -- Intercompany Accounts
Schedule 2.05 -- Washington Directors
Schedule 2.06 -- Continuing Directors and Officers
B-4
CONTRIBUTION AND DISTRIBUTION AGREEMENT
CONTRIBUTION AND DISTRIBUTION AGREEMENT (this "Agreement"), dated as of
December 16, 2001, by and between CONEXANT SYSTEMS, INC., a Delaware corporation
("Conexant"), and WASHINGTON SUB, INC., a Delaware corporation and a
wholly-owned subsidiary of Conexant ("Washington").
WHEREAS, Conexant, Washington and Alpha Industries, Inc., a Delaware
corporation ("Alpha"), have entered into an Agreement and Plan of
Reorganization, dated as of the date hereof (the "Merger Agreement"), providing
for, among other things, the merger of Washington with and into Alpha, with
Alpha being the surviving corporation (the "Merger");
WHEREAS, it is a condition to the Merger that, prior to the Effective Time
(as defined in the Merger Agreement), the Contribution (as defined herein) and
the Distribution (as defined herein) be completed;
WHEREAS, subject to the terms and conditions contained herein, immediately
prior to the Effective Time, the Conexant Board (as defined herein) will cause
Conexant to distribute to the holders of shares of Common Stock, par value $1
per share, of Conexant ("Conexant Common Stock") and Conexant Series B Preferred
Stock (as defined herein), other than shares held in the treasury of Conexant,
on a pro rata basis as provided for herein, all of the issued and outstanding
shares of Common Stock, par value $.01 per share, of Washington ("Washington
Common Stock") (the "Distribution");
WHEREAS, subject to the terms and conditions contained herein, immediately
prior to the Distribution, Conexant and the Conexant Subsidiaries (as defined
herein) will transfer the Washington Assets and the Washington Subsidiaries
(each as defined herein) to Washington or one of the Washington Subsidiaries and
Washington and the Washington Subsidiaries will assume the Washington
Liabilities (as defined herein), all as more fully described in this Agreement
(the "Contribution");
WHEREAS, Conexant and Washington have determined that it is appropriate and
desirable to set forth the principal corporate transactions required to effect
the Contribution and the Distribution and certain other agreements that will
govern certain matters relating to the Contribution and the Distribution and the
relationship of Conexant, Washington and the respective members of the Conexant
Group and the Washington Group (each as defined herein) following the
Contribution and the Distribution; and
WHEREAS, the parties to this Agreement intend that the Contribution and the
Distribution qualify under Sections 355 and 368 of the Code (as defined herein)
as a reorganization and that the Merger qualifies under Section 368 of the Code
as a reorganization.
NOW, THEREFORE, in consideration of the premises and of the respective
agreements and covenants contained in this Agreement, the parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 General. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"1999 INDENTURE" means the Indenture dated as of May 12, 1999 between
Conexant and The First National Bank of Chicago, as Trustee.
"2000 INDENTURE" means the Indenture dated as of February 1, 2000
between Conexant and Bank One Trust Company, National Association, as
Trustee.
"ACCOUNTS RECEIVABLE" means accounts, loans and notes receivable
(whether current or not current), including receivables due from employees,
and all proceeds thereof and rights to payment with respect thereto.
B-5
"ACTION" means, with respect to any Person, any actual or threatened
or future action, suit, arbitration, inquiry, proceeding or investigation
by or before any Governmental Entity or any claims or other legal matters
that have been or may be asserted by or against, or otherwise affect, such
Person.
"ADMINISTRATIVE SERVICES" shall have the meaning set forth in Section
5.03(e)(i)(A).
"ADMINISTRATIVE SERVICES SOFTWARE" shall have the meaning set forth in
Section 5.03(e)(i)(B).
"AFFILIATE" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person; provided, however, that for purposes of the Transaction Agreements,
following the Time of Distribution, no member of either Group shall be
deemed to be an Affiliate of any member of the other Group. For purposes of
the immediately preceding sentence, the term "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through ownership of voting
securities, by contract or otherwise.
"AGREEMENT" shall have the meaning set forth in the preamble.
"ALPHA" shall have the meaning set forth in the recitals.
"ANCILLARY AGREEMENTS" means, collectively, the Employee Matters
Agreement, the Tax Allocation Agreement, the Transition Agreement and the
Conveyance and Assumption Instruments.
"ASSET/LIABILITY ALLOCATION MATTER" shall have the meaning set forth
in Section 2.01(b).
"ASSETS" means any and all assets, properties and rights, whether
tangible or intangible, real, personal or mixed, fixed, contingent or
otherwise, and wherever located (other than ownership interests in
Subsidiaries), including the following:
(a) Real Property;
(b) Machinery and Equipment;
(c) Inventories;
(d) bank accounts;
(e) cash, cash on hand, cash equivalents, funds, certificates of
deposit, similar instruments and travelers checks;
(f) Accounts Receivable;
(g) advances, performance and surety bonds, and interests as
beneficiary under letters of credit and other similar instruments and
all proceeds thereof;
(h) Securities;
(i) Hedging Arrangements;
(j) Data and Records;
(k) Patents and Trademarks;
(l) Trade Secrets;
(m) Contracts;
(n) credits, prepayments, prepaid expenses, deposits and retentions
held by third parties;
(o) claims, causes of action, choses in action, rights under
express or implied warranties, guarantees and indemnities and similar
rights, rights of recovery, rights of set-off, rights of
B-6
subrogation and all other rights of any kind (including the right to
receive mail and other communications);
(p) Permits;
(q) goodwill and going concern value; and
(r) other intangible assets not otherwise included in clauses (a)
through (q) of this definition.
"ASSIGNING PARTY" shall have the meaning set forth in Section 2.08.
"AUDITED BALANCE SHEET" means the combined balance sheet of the
Washington Business as of September 30, 2001, together with the notes
thereto, audited by Deloitte & Touche LLP, prepared in accordance with U.S.
generally accepted accounting principles.
"BY-LAWS" means Washington's amended by-laws in the form attached
hereto as Schedule 1.01(a).
"CASH" means all cash, cash on hand, cash equivalents, funds,
certificates of deposit, similar instruments and travelers checks held by
Conexant or any of its Subsidiaries and Affiliates (including members of
the Washington Group) immediately prior to the Time of Distribution.
"CERTIFICATE OF INCORPORATION" means Washington's restated certificate
of incorporation in the form attached hereto as Schedule 1.01(g).
"CLAIMS ADMINISTRATION" means the processing of claims made under
Policies, including the reporting of claims to the insurance carrier,
management and defense of claims, and providing for appropriate releases
upon settlement of claims.
"CLAIMS MADE POLICIES" shall have the meaning set forth in Section
5.01(b).
"CODE" means the Internal Revenue Code of 1986, as amended, or any
successor legislation.
"COMBINED COMPANY" shall have the meaning set forth in the Merger
Agreement.
"CONEXANT" shall have the meaning set forth in the preamble.
"CONEXANT ASSETS" means the following:
(a) all rights of any member of the Conexant Group under any
Transaction Agreement to which it is or becomes a party;
(b) all Assets which are expressly allocated to any member of the
Conexant Group pursuant to any Ancillary Agreement;
(c) the following specifically enumerated Assets which immediately
prior to the Time of Distribution are owned by Conexant or any of its
Subsidiaries (including members of the Washington Group), in each case
whether or not such Assets are used in or relate to the Conexant
Business or the Washington Business:
(i) (A) all Conexant Bank Accounts and (B) all Cash (including
all Cash contained in the Conexant Bank Accounts);
(ii) all Machinery and Equipment other than that set forth on
Schedule 1.01(b);
(iii) all Securities;
(iv) all Hedging Arrangements;
(v) all Patents and Trademarks other than those set forth on
Schedule 1.01(c);
(vi) all Accounts Receivable;
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(vii) all Policies and all rights, benefits and privileges
thereunder and related thereto (including the right to receive any
and all return premiums with respect thereto), other than rights with
respect to Policies to the extent provided in Sections 5.01(b) and
5.01(c);
(viii) other than as provided for in Section 5.02, all rights
in, and to the use of, the Conexant Marks;
(ix) all rights in, and to the use of, the names, trademarks,
trade names, domain names and service marks "Mindspeed", "Mindspeed
Technologies" and "Mindspeed Technologies, Inc." and all corporate
symbols and logos related thereto and all names, trademarks, trade
names, domain names and service marks which include the words
"Mindspeed", "Mindspeed Technologies" or "Mindspeed Technologies,
Inc." or any derivative thereof;
(x) all Real Property (including the wafer fabrication and other
manufacturing, assembly and test facilities and other facilities
located at Newport Beach, California, San Diego, California,
Mexicali, Mexico and El Paso, Texas and the real property and
fixtures associated therewith) other than the Washington Real
Property;
(xi) all Inventories other than Washington Inventories;
(xii) all Assets, including the stock and assets of Maquiladora
(as defined in the Facility Sale Agreement), subject to the Facility
Sale Agreement and the U.S. Asset Purchase Agreement;
(xiii) all Assets set forth on Schedule 1.01(f); and
(xiv) the Conexant Bluetooth Baseband Solution;
(d) all other Assets which immediately prior to the Time of
Distribution are owned by Conexant or any of its Subsidiaries (including
members of the Washington Group) that are not Washington Assets; and
(e) all rights, choses in action, causes of action and claims of
Conexant or any of its Subsidiaries (including members of the Washington
Group) to the extent relating to any asset described in clauses (a)
through (d) above.
Anything contained herein to the contrary notwithstanding, assets
described in paragraphs (b) and (c) of the definition of "Washington
Assets" will not be included in Conexant Assets.
"CONEXANT BANK ACCOUNTS" means all bank accounts of Conexant or any of
its Subsidiaries (including members of the Washington Group) immediately
prior to the Time of Distribution.
"CONEXANT BLUETOOTH BASEBAND SOLUTION" means the Bluetooth baseband
solution known internally at Conexant as "Albert" and "Cobalt", the
ownership of which is retained by Conexant at the Time of Distribution.
"CONEXANT BOARD" means the Board of Directors of Conexant or a duly
authorized committee thereof.
"CONEXANT BUSINESS" means (a) the businesses and operations engaged in
prior to the Time of Distribution by the members of the Pre-Distribution
Group (but with respect to each such member who has ceased to be an
Affiliate of Conexant or its predecessors, only businesses engaged in prior
to the time that such member of the Pre-Distribution Group ceased to be an
Affiliate of Conexant or its predecessors) of researching, developing,
designing, engineering, manufacturing, having manufactured, assembling,
having assembled, selling, distributing, installing, modifying, repairing,
servicing and supporting semiconductor products and systems for
communications electronics markets such as personal computers, personal
imaging devices, wireless communications products, network access products,
digital information and entertainment products, and activities related
thereto, (b) Former Businesses related to any of the foregoing, including
Former Businesses set forth on Schedule 1.01(d), and (c) activities related
to the foregoing, in the case of each of the foregoing clauses (a), (b) and
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(c), other than any businesses, operations or activities included in the
Washington Business. The parties acknowledge that businesses contained in
the Conexant Business have in the past operated under the names Mindspeed
Technologies, Network Access Division, Digital Infotainment Division,
Personal Imaging Division and Personal Computing Division.
"CONEXANT COMMON STOCK" shall have the meaning set forth in the
recitals.
"CONEXANT EXPENSES" means the following out-of-pocket fees, costs and
expenses of Conexant or any of its Subsidiaries (including members of the
Washington Group), whether incurred and/or paid before, at or after the
Time of Distribution:
(a) all out-of-pocket fees, costs and expenses incurred in
connection with the preparation, execution and delivery of the Facility
Sale Agreement, the U.S. Asset Purchase Agreement and the Facility
Services Agreement; and
(b) all out-of-pocket fees, costs and expenses relating to the
Contribution, the Distribution and/or the Merger to the extent the same
relate to operations of the Conexant Business after the Time of
Distribution.
"CONEXANT FINANCIAL INSTRUMENTS" means those credit facilities,
guaranties, foreign currency forward exchange contracts, comfort letters,
letters of credit and similar instruments related to the Conexant Business
under which any member of the Washington Group has any primary, secondary,
contingent, joint, several or other Liability after the Time of
Distribution (a) set forth on Schedule 1.01(e) or (b) entered into between
the date hereof and the Time of Distribution in the ordinary course of
business.
"CONEXANT GROUP" means Conexant and the Conexant Subsidiaries.
"CONEXANT INDEMNITEES" means each member of the Conexant Group and
each of their respective Representatives and Affiliates and each of the
heirs, executors, successors and assigns of any of the foregoing.
"CONEXANT LIABILITIES" means the following:
(a) all Liabilities of any member of the Conexant Group under any
Transaction Agreement to which it is or becomes a party;
(b) all Liabilities for which any member of the Conexant Group is
expressly made responsible pursuant to any Ancillary Agreement;
(c) the following specifically enumerated Liabilities of Conexant
or any of its Subsidiaries (including members of the Washington Group),
in each case whether or not such Liabilities relate to the Conexant
Business, the Conexant Assets, the Washington Business or the Washington
Assets:
(i) all Liabilities in respect of the Convertible Notes;
(ii) all accounts payable accrued in the accounts payable
account on the books of Conexant and its Subsidiaries (including
members of the Washington Group) immediately prior to the Time of
Distribution (subject to Section 4.09); and
(iii) all Liabilities specified in writing by Conexant to
Washington pursuant to Section 2.01(d)(ii), if and to the extent
required by Section 2.01(d)(ii); and
(d) all other Liabilities of Conexant or any of its Subsidiaries
(including members of the Washington Group) in respect of operations
engaged in prior to the Time of Distribution that are not Washington
Liabilities.
Anything contained herein to the contrary notwithstanding, Liabilities
described in paragraphs (b) and (c) of the definition of "Washington
Liabilities" will not be included in Conexant Liabilities.
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"CONEXANT LICENSE AGREEMENT" shall have the meaning set forth in
Section 5.04.
"CONEXANT MARKS" means the names, trademarks, trade names, domain
names and service marks "Conexant", "Conexant Systems" and "Conexant
Systems, Inc." and all corporate symbols and logos related thereto and all
names, trademarks, trade names, domain names and service marks which
include the words "Conexant", "Conexant Systems" or "Conexant Systems,
Inc." or any derivative thereof.
"CONEXANT SERIES B PREFERRED STOCK" means the Series B Voting
Preferred Stock, without par value, of Conexant, one share of which is
issued and outstanding as of the date hereof.
"CONEXANT SPIN-OFF" shall have the meaning set forth in Section
5.03(b)(iii).
"CONEXANT SUBSIDIARY" means each Subsidiary of Conexant other than
Washington and the Washington Subsidiaries.
"CONSENTS" means consents, approvals, waivers, clearances, exemptions,
allowances, novations, authorizations, filings, registrations and
notifications.
"CONTRACTS" means all agreements, real estate and other leases,
contracts (including employee contracts), licenses, memoranda of
understanding, letters of intent, sales orders, purchase orders, open bids
and other commitments, including in each case, all amendments,
modifications and supplements thereto and waivers and consents thereunder.
"CONTRIBUTION" shall have the meaning set forth in the recitals.
"CONVERTIBLE NOTES" means Conexant's (a) 4 1/4% convertible
subordinated notes due May 1, 2006 issued under the 1999 Indenture and (b)
4% convertible subordinated notes due February 1, 2007 issued under the
2000 Indenture.
"CONVEYANCE AND ASSUMPTION INSTRUMENTS" means, collectively, the
various agreements, deeds (including transfer deeds for Real Property),
bills of sale, stock powers, certificates of title, instruments of
conveyance and assignment, instruments of assumption and other instruments
and documents which are, in the reasonable opinion of Conexant, Washington
and Alpha, necessary or desirable to effect the transfer of Assets and
Subsidiaries and the assumption of Liabilities contemplated by the
transactions described in Section 2.01.
"DATA AND RECORDS" means financial, accounting, corporate, operating,
design, manufacturing, test and other data and records (in each case, in
whatever form or medium, including electronic media), including books,
records, notes, sales and sales promotional material and data, advertising
materials, credit information, cost and pricing information, customer,
supplier and agent lists, other records pertaining to customers, business
plans, reference catalogs, payroll and personnel records and procedures,
blue-prints, research and development files, data and laboratory books,
sales order files, litigation files, minute books, stock ledgers, stock
transfer records and other similar data and records.
"DISPUTE" shall have the meaning set forth in Section 7.05.
"DISTRIBUTION" shall have the meaning set forth in the recitals.
"DISTRIBUTION AGENT" means the distribution agent selected by Conexant
to distribute Washington Common Stock in connection with the Distribution.
"DISTRIBUTION DATE" means the date determined by the Conexant Board in
accordance with Section 3.01 as the date as of which the Distribution will
be effected.
"EFFECTIVE TIME" shall have the meaning set forth in the Merger
Agreement.
"EMPLOYEE MATTERS AGREEMENT" means the Employee Matters Agreement to
be entered into among Conexant, Washington and Alpha prior to the Time of
Distribution.
"FACILITY SALE AGREEMENT" shall have the meaning set forth in the
Merger Agreement.
B-10
"FACILITY SERVICES AGREEMENT" shall have the meaning set forth in the
Merger Agreement.
"FORMER BUSINESS" means any corporation, partnership, entity,
division, business unit, business, assets, plants, product line, operations
or contract (including any assets and liabilities comprising the same) that
has been sold, conveyed, assigned, transferred or otherwise disposed of or
divested (in whole or in part) by any member of the Pre-Distribution Group
or the operations, activities or production of which has been discontinued,
abandoned, completed or otherwise terminated (in whole or in part) by any
member of the Pre-Distribution Group.
"GOVERNMENTAL ENTITY" means any government or any court, arbitral
tribunal, administrative agency or commission or other governmental or
regulatory authority or agency, federal, state, local, domestic, foreign or
international.
"GROUP" means the Conexant Group or the Washington Group, as
applicable.
"HEDGING ARRANGEMENTS" means swaps, collars, caps and other hedging
arrangements of any kind.
"INDEMNIFIABLE LOSSES" means any and all losses, Liabilities, claims,
damages, deficiencies, obligations, fines, payments, Taxes, Liens, costs
and expenses, matured or unmatured, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, known or unknown, whenever arising
and whether or not resulting from Third Party Claims (including the costs
and expenses of any and all Actions; all amounts paid in connection with
any demands, assessments, judgments, settlements and compromises relating
thereto; interest and penalties with respect thereto; out-of-pocket
expenses and reasonable attorneys', accountants' and other experts' fees
and expenses reasonably incurred in investigating, preparing for or
defending against any such Actions or in asserting, preserving or enforcing
an Indemnitee's rights hereunder; and any losses that may result from the
granting of injunctive relief as a result of any such Actions).
"INDEMNIFYING PARTY" shall have the meaning set forth in Section
4.04(a).
"INDEMNITEE" means any of the Conexant Indemnitees or the Washington
Indemnitees who or which is entitled to seek indemnification under this
Agreement.
"INDEMNITY REDUCTION AMOUNTS" shall have the meaning set forth in
Section 4.04(a).
"INFORMATION" means all records, books, contracts, instruments,
computer data and other data and information (in each case, in whatever
form or medium, including electronic media).
"INFORMATION STATEMENT" means the information statement with respect
to Washington sent to holders of Conexant Common Stock and Conexant Series
B Preferred Stock in connection with the Distribution.
"INSURANCE PROCEEDS" means monies (a) received by an insured from an
insurance carrier, (b) paid by an insurance carrier on behalf of an insured
or (c) received from any third party in the nature of insurance,
contribution or indemnification in respect of any Liability.
"INTELLECTUAL PROPERTY" shall have the meaning set forth in Section
5.03(a)(i).
"INVENTORIES" means inventories, including raw materials,
work-in-process, materials, components, finished goods, parts, accessories
and supplies.
"IRS" means the Internal Revenue Service.
"LIABILITIES" means any and all claims, debts, liabilities,
commitments and obligations of whatever nature, whether fixed, contingent
or absolute, matured or unmatured, liquidated or unliquidated, accrued or
not accrued, known or unknown, due or to become due, whenever or however
arising and whether or not the same would be required by generally accepted
accounting principles to
B-11
be reflected as a liability in financial statements or disclosed in the
notes thereto, including all costs and expenses relating thereto and those
claims, debts, liabilities, commitments and obligations:
(a) based upon, arising out of or relating to any law, statute,
rule, regulation, judgment, order, decision or consent decree of any
Governmental Entity or any noncompliance therewith or breach or
violation of any thereof;
(b) in respect of accounts payable;
(c) in respect of outstanding checks;
(d) based upon, arising out of or relating to workers'
compensation, automobile liability, general liability, product
liability, intellectual property liability and other claims and matters
(whether direct or for indemnification of any Person or otherwise, and
whether insured or uninsured);
(e) based upon, arising out of or relating to Actions or any award
of any arbitrator of any kind;
(f) in respect of salary, bonuses, incentive payments, severance
payments and other compensation payments and all Taxes and withholdings
related thereto;
(g) in respect of employee welfare and fringe benefits (including
claims for medical and disability benefits);
(h) based upon, arising out of or relating to environmental matters
(including the presence, release or threatened release of hazardous
materials or any other environmental conditions or the violation of any
environmental laws), including all removal, remediation and cleanup
costs, investigatory costs, settlement costs, governmental response
costs, natural resources damages, property damages, personal injury
damages and all other costs and damages;
(i) based upon, arising out of or relating to Contracts;
(j) based upon, arising out of or relating to torts (whether based
on negligence, strict liability or otherwise) or infringements; and
(k) in respect of products and services, including warranty
liabilities, deferred revenues, product liability claims and liabilities
in respect of the return, repair or replacement of products.
"LIEN" means any lien, security interest, pledge, mortgage, charge,
restriction, retention of title agreement or other encumbrance of whatever
nature.
"LUCENT LICENSE AGREEMENT" means the license agreement effective
October 1, 1999 between Conexant and Lucent Technologies GRL Corporation.
"MACHINERY AND EQUIPMENT" means machinery, equipment, tooling,
vehicles, furniture and fixtures, leasehold improvements, repair parts,
tools, plant, laboratory and office equipment and supplies, computer
hardware and software, computer networking equipment, engineering and
design equipment, test equipment and other tangible personal property
(other than tangible personal property included in other categories of
assets in the definition of "Assets"), together with any rights or claims
arising out of maintenance or service contracts relating thereto or the
breach of any express or implied warranty by the manufacturers or sellers
of any of such assets or any component part thereof.
"MATERIAL ADVERSE EFFECT" shall have the meaning set forth in the
Merger Agreement.
"MERGER" shall have the meaning set forth in the recitals.
"MERGER AGREEMENT" shall have the meaning set forth in the recitals.
"NET ASSET DEFICIENCY" shall have the meaning set forth in Section
2.01(d)(ii).
"OCCURRENCE BASIS POLICIES" shall have the meaning set forth in
Section 5.01(b).
B-12
"PATENTS AND TRADEMARKS" means (a) all patents (including utility and
design patents, industrial designs and utility models), patent applications
and patent and invention disclosures, together with all reissuances,
continuations, continuations-in-part, divisions, revisions, supplementary
protection certificates, extensions and re-examinations thereof, and any
other U.S. or foreign patent rights entitled to the same priority claim (in
whole or in part) as any of the foregoing, (b) trademarks, service marks,
trade names, trade dress, logos, Internet domain names, business and
product names and slogans and all registrations and applications for
registration of any of the foregoing, (c) copyrights and all applications,
registrations and renewals in connection therewith and (d) mask work and
semiconductor chip right applications, registrations and renewals in
connection therewith.
"PERMITS" means licenses, permits, authorizations, consents,
certificates, registrations, variances, franchises and other approvals from
any Governmental Entity, including those relating to environmental matters.
"PERSON" means any individual, partnership, joint venture,
corporation, limited liability entity, trust, unincorporated organization
or other entity (including a Governmental Entity).
"POLICIES" means all insurance policies, insurance contracts and claim
administration contracts of any kind of Conexant and its Subsidiaries
(including members of the Washington Group) and their predecessors which
were or are in effect at any time at or prior to the Time of Distribution
(other than insurance policies, insurance contracts and claim
administration contracts established in contemplation of the Distribution
and the Merger to cover only Washington and its Subsidiaries after the Time
of Distribution), including primary, excess and umbrella, commercial
general liability, fiduciary liability, product liability, automobile,
aircraft, property and casualty, business interruption, directors and
officers liability, employment practices liability, workers' compensation,
crime, errors and omissions, special accident, cargo and employee
dishonesty insurance policies and captive insurance company arrangements,
together with all rights, benefits and privileges thereunder.
"PRE-DISTRIBUTION GROUP" means (a) each of Conexant, the Subsidiaries
of Conexant existing immediately prior to the Time of Distribution
(including members of the Washington Group) and Persons that have ceased to
be Subsidiaries of Conexant prior to the Time of Distribution, (b) each of
the predecessors of each of the foregoing (including Rockwell) and (c) each
of the Persons that have ceased to be Subsidiaries and other Affiliates of
each of the foregoing and their predecessors prior to the Time of
Distribution. Notwithstanding the foregoing, (i) Boeing North American,
Inc. and Persons who are Affiliates of Boeing North American, Inc. after
December 6, 1996 will not constitute members of the Pre-Distribution Group
for periods after December 6, 1996 and (ii) Rockwell and Persons who are
Affiliates of Rockwell after December 31, 1998 will not constitute members
of the Pre-Distribution Group for periods after December 31, 1998.
"PRIVILEGED INFORMATION" means, with respect to a Group, Information
regarding a member of such Group, or any of its operations, employees,
Assets or Liabilities (whether in documents or stored in any other form or
known to its employees or agents) that is or may be protected from
disclosure pursuant to the attorney-client privilege, the work product
doctrine or other applicable privileges, that a member of the other Group
has or may come into possession of or has obtained or may obtain access to
pursuant to this Agreement or otherwise.
"REAL PROPERTY" means real property (including land, plants,
buildings, fixtures and improvements) and real property interests
(including real property leases).
"RECIPIENT PARTY" shall have the meaning set forth in Section 2.08.
"RECORD DATE" means 11:57 p.m. Eastern Time on the Distribution Date.
"REORGANIZATION AGREEMENTS" shall have the meaning set forth in the
Merger Agreement.
"REPRESENTATIVE" means, with respect to any Person, any of such
Person's directors, officers, employees, agents, consultants, advisors,
accountants, attorneys and representatives.
B-13
"ROCKWELL" means Rockwell International Corporation, a Delaware
corporation.
"ROCKWELL DISTRIBUTION AGREEMENT" means the Distribution Agreement
dated as of December 31, 1998 between Conexant and Rockwell.
"SECURITIES" means short-term and long-term investments, banker's
acceptances, shares of stock, notes, bonds, debentures, evidences of
indebtedness, certificates of interest or participation in profit-sharing
agreements, collateral-trust certificates, preorganization certificates or
subscriptions, transferable shares, puts, calls, straddles, options,
investment contracts, voting trusts and certificates and other securities
of any kind (other than ownership interests in Subsidiaries).
"SPECIAL PURPOSE STATEMENT OF TANGIBLE NET ASSETS" means the special
purpose statement as of September 30, 2001 of tangible assets and
liabilities to be contributed by Conexant and its Subsidiaries to the
Washington Group, which will be derived from the Audited Balance Sheet,
will contain only those line items contained in the Unaudited Special
Purpose Statement of Tangible Net Assets (which line items will be in the
same amounts as the corresponding line items in the Audited Balance Sheet,
unless otherwise provided in the methodology set forth in the notes to the
Unaudited Special Purpose Statement of Tangible Net Assets) and will be
prepared using the same methodology set forth in the notes to the Unaudited
Special Purpose Statement of Tangible Net Assets.
"SUBSIDIARY" means, with respect to any Person, any corporation or
other organization, whether incorporated or unincorporated, of which such
Person or any Subsidiaries of such Person controls or owns, directly or
indirectly, more than 50% of the stock or other equity interest, or more
than 50% of the voting power entitled to vote on the election of members to
the board of directors or similar governing body; provided, however, that
(except as specifically noted herein) for purposes of this Agreement, none
of Washington or the Washington Subsidiaries shall be deemed to be a
Conexant Subsidiary.
"TAX" and "TAXES" shall have the meaning set forth in the Tax
Allocation Agreement.
"TAX ALLOCATION AGREEMENT" means the Tax Allocation Agreement to be
entered into among Conexant, Washington and Alpha prior to the Time of
Distribution.
"THIRD PARTY CLAIM" shall have the meaning set forth in Section
4.05(a).
"TIME OF DISTRIBUTION" means 11:58 p.m. Eastern Time on the
Distribution Date.
"TRADE SECRETS" means (a) trade secrets and confidential business and
technical information (including ideas, research and development, know-how,
formulas, technology, compositions, manufacturing and production processes
and techniques, technical data, engineering, production and other designs,
drawings, engineering notebooks, industrial models, mask works,
semiconductor chip topographies, software and specifications and any other
information meeting the definition of a trade secret under the Uniform
Trade Secrets Act); (b) computer and electronic data processing programs
and software, both source code and object code (including data and related
documentation, flow charts, diagrams, descriptive texts and programs,
computer print-outs, underlying tapes, computer databases and similar
items), computer applications and operating programs; and (c) all copies
and tangible embodiments of any or all of the foregoing (in whatever form
or medium, including electronic media).
"TRANSACTION AGREEMENTS" means, collectively, this Agreement and each
Ancillary Agreement.
"TRANSITION AGREEMENT" means the Transition Services Agreement to be
entered into among Conexant, Washington and Alpha prior to the Time of
Distribution, among other things, providing for various service and other
relationships between Conexant and Alpha following the Distribution Date.
"UNAUDITED SPECIAL PURPOSE STATEMENT OF TANGIBLE NET ASSETS" shall
have the meaning set forth in the Merger Agreement.
"U.S. ASSET PURCHASE AGREEMENT" shall have the meaning set forth in
the Merger Agreement.
B-14
"WASHINGTON" shall have the meaning set forth in the preamble.
"WASHINGTON ASSETS" means the following:
(a) all rights of any member of the Washington Group under any
Transaction Agreement to which it is or becomes a party;
(b) all Assets which are expressly allocated to any member of the
Washington Group pursuant to any Ancillary Agreement;
(c) the following specifically enumerated Assets which immediately
prior to the Time of Distribution are owned by Conexant or any of its
Subsidiaries (including members of the Washington Group), in each case
whether or not such Assets are used in or relate to the Conexant
Business or the Washington Business:
(i) the Washington Real Property;
(ii) Machinery and Equipment set forth on Schedule 1.01(b);
(iii) the Washington Inventories;
(iv) the trademarks and trademark registrations and applications
for registrations thereof and issued patents, patent applications and
patent and invention disclosures (including any foreign counterparts)
set forth on Schedule 1.01(c);
(v) rights to the extent relating to the Washington Business to
receive indemnification from Rockwell pursuant to the Rockwell
Distribution Agreement;
(vi) all Assets set forth in the Special Purpose Statement of
Tangible Net Assets, other than those sold or otherwise disposed of
in the ordinary course of business prior to the Time of Distribution
consistent with the terms of the Merger Agreement;
(vii) except as otherwise specifically provided herein, all
Assets of the kind that appear on the Special Purpose Statement of
Tangible Net Assets as would appear on a balance sheet of Washington
if prepared as of the Time of Distribution, including all reserves
and accruals maintained by Conexant (but excluding Assets described
in clauses (b) and (c) of the definition of "Conexant Assets");
(viii) all Assets specified in writing by Conexant to Washington
pursuant to Section 2.01(d)(ii), if and to the extent required by
Section 2.01(d)(ii); and
(ix) the Washington Bluetooth RF Solution.
(d) the following Assets (other than those described in paragraphs
(b) and (c) of the definition of "Conexant Assets") which immediately
prior to the Time of Distribution are owned by Conexant or any of its
Subsidiaries (including members of the Washington Group) and which are
used primarily in or relate primarily to the Washington Business, as the
same shall exist as of such time:
(i) Contracts (other than real property leases);
(ii) advances, performance and surety bonds, and interests as
beneficiary under letters of credit and other similar instruments and
all proceeds thereof;
(iii) Data and Records;
(iv) Permits;
(v) Trade Secrets;
(vi) credits, prepayments, prepaid expenses, deposits and
retentions held by third parties;
B-15
(vii) claims, causes of action, choses in action, rights under
express or implied warranties, guarantees and indemnities and similar
rights, rights of recovery, rights of set-off, rights of subrogation
and all other rights of any kind (including the right to receive mail
and other communications) (other than, in each such case, those
relating to the Conexant Assets described in clauses (b) or (c) of
the definition thereof); and
(viii) goodwill, going concern value and other intangible assets
not otherwise included in clauses (a) through (q) of the definition
of "Assets"; and
(e) all rights, choses in action, causes of action and claims of
Conexant or any of its Subsidiaries (including members of the Washington
Group) to the extent relating to any asset described in clauses (a)
through (d) above.
Anything contained herein to the contrary notwithstanding, assets
described in paragraphs (b) and (c) of the definition of "Conexant Assets"
will not be included in Washington Assets.
"WASHINGTON BLUETOOTH RF SOLUTION" means the Bluetooth RF solutions
known internally at Conexant as "Blue RF", "Blue Q" and "ULV Blue RF", the
ownership of which will be transferred to Washington at the Time of
Distribution.
"WASHINGTON BOARD" means the Board of Directors of Washington.
"WASHINGTON BUSINESS" means (a) the business and operations engaged in
prior to the Time of Distribution by the members of the Pre-Distribution
Group (but with respect to each such member who has ceased to be an
Affiliate of Conexant or its predecessors, only businesses engaged in prior
to the time that such member of the Pre-Distribution Group ceased to be an
Affiliate of Conexant or its predecessors) of researching, developing,
designing, engineering, manufacturing, having manufactured, assembling,
having assembled, selling, distributing, installing, modifying, repairing,
servicing and supporting semiconductor products and systems, including
components, subsystems and systems, for wireless voice and data
communications applications, including digital cellular handsets and base
stations, as well as advanced mobile terminals that support next-generation
multimedia and high-speed web browsing, for communications electronics
markets as conducted by Conexant's Wireless Communications Division, other
than the Washington Data Business Unit, and activities related thereto, (b)
Former Businesses related to any of the foregoing, including the Former
Businesses set forth on Schedule 1.01(h) and (c) activities related to the
foregoing. Notwithstanding anything contained herein to the contrary, the
term "Washington Business" shall not include any of Conexant's Mindspeed
Technologies or Broadband access businesses, the Washington Data Business
Unit and activities related thereto.
"WASHINGTON COMMON STOCK" shall have the meaning set forth in the
recitals.
"WASHINGTON DATA BUSINESS UNIT" means the business and operations
engaged in by Conexant's Wireless Communications Division prior to the Time
of Distribution of researching, developing, designing, engineering,
manufacturing, having manufactured, assembling, having assembled, selling,
distributing, installing, modifying, repairing, servicing and supporting
the PHS, DSS, standalone GPS and Bluetooth baseband hardware and software
product lines and the Bluetooth baseband hardware and software development
efforts and the support and development of Bluetooth radio frequency
products associated with such Bluetooth baseband hardware and software.
"WASHINGTON EXPENSES" means the following out-of-pocket fees, costs
and expenses of Conexant or any of its Subsidiaries (including members of
the Washington Group), in each case, whether
B-16
incurred and/or paid before, at or after the Time of Distribution and
whether or not they constitute accounts payable:
(a) all out-of-pocket fees, costs and expenses incurred in
connection with the Contribution, the Distribution and/or the Merger,
including any and all:
(i) transfer taxes;
(ii) out-of-pocket fees, costs and expenses incurred in
connection with any notices to customers or suppliers of the
Washington Business or other third parties that are party to
Contracts that constitute Washington Assets or relate to Washington
Liabilities regarding the Contribution, the Distribution and/or the
Merger;
(iii) out-of-pocket fees, costs and expenses incurred in
connection with the transfer of any Permits from Conexant or any
Conexant Subsidiary to Washington or any Washington Subsidiary or the
obtaining of any new (or the re-issuance of any existing) Permits in
the name of Washington or a Washington Subsidiary;
(iv) out-of-pocket fees, costs and expenses incurred in
connection with the assignment or transfer of any Contracts, Patents
and Trademarks or Trade Secrets from Conexant or any Conexant
Subsidiary to Washington or any Washington Subsidiary, including
legal fees, costs and expenses associated with such assignments or
transfers;
(v) accounting, legal, investment banking and other outside
consultants' fees, costs and expenses in an amount not to exceed
Twenty-Seven Million Five Hundred Thousand dollars ($27,500,000); and
(vi) out-of-pocket fees, costs and expenses in connection with
the preparation, execution and delivery of the Transaction Agreements
and the Reorganization Agreements;
provided, however, that Washington Expenses will not include (A)
any such out-of-pocket fees, costs and expenses described in the
definition of "Conexant Expenses" and (B) any such out-of-pocket fees,
costs and expenses incurred in connection with any modification of or
dispute with respect to the Transaction Agreements or the transactions
contemplated thereby after the Distribution Date or any claim under
Article IV; and
(b) all out-of-pocket fees, costs and expenses relating to the
Contribution, the Distribution and/or the Merger to the extent the same
relate to operations of the Washington Business after the Time of
Distribution.
"WASHINGTON FINANCIAL INSTRUMENTS" means those credit facilities,
guaranties, foreign currency forward exchange contracts, comfort letters,
letters of credit and similar instruments related to the Washington
Business under which any member of the Conexant Group has any primary,
secondary, contingent, joint, several or other Liability, after the Time of
Distribution (a) set forth on Schedule 1.01(i) or (b) entered into between
the date hereof and the Time of Distribution in the ordinary course of
business.
"WASHINGTON GROUP" means Washington and the Washington Subsidiaries.
"WASHINGTON INDEMNITEES" means each member of the Washington Group and
each of their respective Representatives and Affiliates and each of the
heirs, executors, successors and assigns of any of the foregoing.
"WASHINGTON INVENTORIES" means the following Inventories of products
of the Washington Business owned by Conexant and its Subsidiaries
(including members of the Washington Group) immediately prior to the Time
of Distribution:
(a) the following raw materials: (i) 100mm GaAs Combined Microwave
Digital wafer substrates; (ii) 100mm GaAs epitaxial HBT wafer
substrates; and (iii) assembly materials at Conexant's Mexicali assembly
and test facility which are specific to the Washington Business;
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(b) the following work-in-process:
(i) unprobed finished wafers at internal or external locations
awaiting the probe process;
(ii) probed wafer finish inventories;
(iii) die bank inventories at internal or external locations
awaiting assembly, packaging and test processes;
(iv) wafer fabrication and other work-in-process at Conexant's
Newbury Park wafer fabrication facility; and
(v) work-in-process at Conexant's Mexicali assembly and test
facility which are specific to the Washington Business; and
(c) finished goods.
"WASHINGTON LIABILITIES" means the following:
(a) all Liabilities of any member of the Washington Group under any
Transaction Agreement to which it is or becomes a party;
(b) all Liabilities for which any member of the Washington Group is
expressly made responsible pursuant to any Ancillary Agreement;
(c) the following specifically enumerated Liabilities of Conexant
or any of its Subsidiaries (including members of the Washington Group),
in each case whether or not such Liabilities relate to the Conexant
Business, the Conexant Assets, the Washington Business or the Washington
Assets:
(i) all Liabilities based upon, arising out of or relating to
the Actions set forth on Schedule 1.01(j); and
(ii) all Liabilities to the extent set forth in the Special
Purpose Statement of Tangible Net Assets, other than those satisfied
in the ordinary course of business prior to the Time of Distribution;
and
(d) all Liabilities (other than those described in paragraphs (b)
and (c) of the definition of "Conexant Liabilities") of Conexant or any
of its Subsidiaries (including members of the Washington Group) to the
extent based upon, arising out of or relating to the Washington Assets
or the Washington Business, including:
(i) all Liabilities (including Liabilities arising out of any
breaches or violations) to the extent relating to the Washington
Business based upon, arising out of or relating to Contracts (whether
or not such Contracts constitute Washington Assets) (including any
primary, secondary, contingent or other obligations, such as under
guaranties or indemnities, in respect of such Contracts); and
(ii) all Liabilities to the extent relating to the Washington
Assets or the Washington Business for which Conexant has agreed to
indemnify Rockwell and certain other Persons pursuant to the Rockwell
Distribution Agreement.
Anything contained herein to the contrary notwithstanding, Liabilities
described in paragraphs (b) and (c) of the definition of "Conexant
Liabilities" will not be included in Washington Liabilities.
"WASHINGTON REAL PROPERTY" means the Real Property set forth on
Schedule 1.01(k).
"WASHINGTON SPIN-OFF" shall have the meaning set forth in Section
5.03(a)(iii).
"WASHINGTON SUBSIDIARY" means each Person listed on Schedule 1.01(l).
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ARTICLE II
THE CONTRIBUTION
SECTION 2.01 Intercorporate Reorganization. (a) Prior to the Time of
Distribution, Conexant and Washington will take all actions necessary to
increase the outstanding shares of Washington Common Stock so that, immediately
prior to the Distribution, Conexant will hold a number of shares of Washington
Common Stock equal to the aggregate number of shares of Conexant Common Stock
and Conexant Series B Preferred Stock issued and outstanding as of the Record
Date (excluding treasury shares held by Conexant).
(b) Subject to Section 2.08, prior to the Time of Distribution:
(i) Conexant and each Conexant Subsidiary shall convey, assign and
transfer, or cause to be conveyed, assigned and transferred, to Washington
or a Washington Subsidiary, as appropriate, any and all right, title and
interest of Conexant and each of the Conexant Subsidiaries in the
Washington Subsidiaries;
(ii) Washington and each Washington Subsidiary shall convey, assign
and transfer, or cause to be conveyed, assigned and transferred, to
Conexant or a Conexant Subsidiary, as appropriate, any and all right, title
and interest of Washington and each of the Washington Subsidiaries in the
Conexant Subsidiaries;
(iii) Conexant and each Conexant Subsidiary shall convey, assign and
transfer, or cause to be conveyed, assigned and transferred, to Washington
or a Washington Subsidiary, as appropriate, any and all right, title and
interest of Conexant and each of the Conexant Subsidiaries in the
Washington Assets;
(iv) Washington and each Washington Subsidiary shall convey, assign
and transfer, or cause to be conveyed, assigned and transferred, to
Conexant or a Conexant Subsidiary, as appropriate, any and all right, title
and interest of Washington and each of the Washington Subsidiaries in the
Conexant Assets;
(v) Conexant or a Conexant Subsidiary, as appropriate, shall
unconditionally assume and undertake to pay, perform and discharge, in a
timely manner and in accordance with the terms thereof, all Conexant
Liabilities; and
(vi) Washington or a Washington Subsidiary, as appropriate, shall
unconditionally assume and undertake to pay, perform and discharge, in a
timely manner and in accordance with the terms thereof, all Washington
Liabilities.
In the event that at any time or from time to time (whether prior to, at or
after the Time of Distribution) any member of the Conexant Group shall receive
or otherwise possess any Washington Asset or interest in a Washington
Subsidiary, such member will promptly convey, assign and transfer, or cause to
be conveyed, assigned and transferred, such Washington Asset or interest in a
Washington Subsidiary to Washington. In the event that at any time or from time
to time (whether prior to, at or after the Time of Distribution) any member of
the Washington Group shall receive or otherwise possess any Conexant Asset or
interest in a Conexant Subsidiary, such member will promptly convey, assign and
transfer, or cause to be conveyed, assigned and transferred, such Conexant Asset
or interest in a Conexant Subsidiary to Conexant. Prior to any such transfer,
the Person receiving or possessing such Asset or interest in a Subsidiary will
hold such Asset or interest in a Subsidiary in trust for the benefit of the
Person entitled thereto (at the expense of the Person entitled thereto).
Without limiting the foregoing, in the event that after the Time of
Distribution (x) Conexant or any Conexant Subsidiary possesses product
intellectual property, human resources or other data bases that are comprised in
whole or in part of Information that constitutes Washington Assets, Conexant
will, and will cause each Conexant Subsidiary to, afford Washington and its
Representatives (at Washington's expense) reasonable access, during normal
business hours and upon reasonable advance notice, to the portion of
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such data bases containing Information that constitutes Washington Assets in
order to retrieve such Information and effect the transfer of such Information
to Washington and (y) Washington or any Washington Subsidiary possesses product
intellectual property, human resources or other data bases that are comprised in
whole or in part of Information that constitutes Conexant Assets, Washington
will, and will cause each Washington Subsidiary to, afford Conexant and its
Representatives (at Conexant's expense) reasonable access, during normal
business hours and upon reasonable advance notice, to the portion of such data
bases containing Information that constitutes Conexant Assets in order to
retrieve such Information and effect the transfer of such Information to
Conexant.
In the event that at any time or from time to time (whether prior to, at or
after the Time of Distribution) either Conexant or Washington determines that
the other party (or any member of such other party's respective Group) shall not
have unconditionally assumed any Liabilities that are allocated to such other
party (or a member of such other party's respective Group) pursuant to this
Agreement or any Ancillary Agreement, such other party will promptly execute and
deliver, or cause to be executed and delivered, all such documents and
instruments and will take, or cause to be taken, all such actions as the
requesting party may reasonably request to unconditionally assume, or cause to
be unconditionally assumed, such Liabilities.
Solely for purposes of implementing the terms of this Agreement, during the
period beginning on the date of this Agreement and ending six months after the
Distribution Date, Conexant and Alpha agree to discuss the allocation of any
Asset or Liability of Conexant and its Subsidiaries (including members of the
Washington Group) that either of them reasonably believes should be or should
have been allocated differently than pursuant to the terms of this Agreement (an
"Asset/Liability Allocation Matter"). The Conexant Chief Executive Officer will
designate an employee of the Conexant Business and the Alpha Chief Executive
Officer will designate an employee of Alpha who will discuss an appropriate
resolution of any Asset/Liability Allocation Matter. If within thirty days of
the receipt of the notification of an Asset/ Liability Allocation Matter by
either Conexant or Alpha pursuant to this paragraph, or such other time as
Conexant and Alpha may agree, the designees have not reached a mutually
acceptable resolution of the Asset/Liability Allocation Matter, the matter will
be referred for discussion to the Conexant Chief Executive Officer and the Alpha
Chief Executive Officer. Should a mutually acceptable resolution of the
Asset/Liability Allocation Matter not be reached within thirty days following
the referral to them, the terms and conditions of this Agreement shall remain in
full force and effect, unamended, unmodified and unsupplemented. Notwithstanding
the foregoing, in no event shall the terms and conditions of this Agreement be
amended, modified or supplemented other than in accordance with the provisions
of Section 7.06. Nothing in this paragraph shall affect the right of any party
to resort to the dispute resolution provisions of Section 7.05 in respect of any
dispute, claim or controversy arising out of an alleged breach of any provision
of this Agreement.
(c) In connection with the transfers of Subsidiaries and Assets and the
assumptions of Liabilities contemplated by Section 2.01(b), Conexant and
Washington will execute or cause to be executed by the appropriate entities the
Conveyance and Assumption Instruments in a form reasonably acceptable to
Conexant, Washington and Alpha. The transfer of capital stock contemplated by
Section 2.01(b) will be effected, prior to the Time of Distribution, by means of
delivery of stock certificates duly endorsed or accompanied by duly executed
stock powers and notation on the stock record books of the corporation or other
legal entities involved and, to the extent required by applicable law, by
notation on appropriate registries.
(d) (i) Conexant hereby represents and warrants to Washington that after
giving effect to the Contribution and the Distribution (but not considering any
assets or rights held by Alpha or its Subsidiaries prior to the Effective Time
and after taking into account any services to be provided to Alpha pursuant to
the Transition Agreement, except for the matters set forth on Schedule 2.01(d),
immediately after the Time of Distribution, the assets and rights held by the
Washington Group will constitute all of the material assets and rights of
Conexant and its Subsidiaries (including members of the Washington Group)
immediately prior to the Time of Distribution that are necessary to conduct the
Washington Business substantially as conducted on the date hereof. The
representation and warranty of Conexant set
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forth in this Section 2.01(d)(i) will survive the execution and delivery of this
Agreement and the Distribution Date and will continue in full force and effect
solely for purposes of Section 4.02(d) until six months after the Distribution
Date and shall then terminate and expire.
(ii) Within 60 days after the date of this Agreement, Conexant will
cause to be delivered to Alpha the Audited Balance Sheet with the report of
Deloitte & Touche LLP thereon. Conexant will provide Alpha with reasonable
access to the relevant work papers used to prepare the Audited Balance
Sheet and will consider in good faith any comments of Alpha thereon
delivered to Conexant within 10 days after receipt of the Audited Balance
Sheet. Within 20 days after Deloitte & Touche LLP has delivered its report
on the Audited Balance Sheet, Conexant will prepare and deliver to Alpha
the Special Purpose Statement of Tangible Net Assets. Conexant will provide
Alpha with reasonable access to the relevant work papers used to prepare
the Special Purpose Statement of Tangible Net Assets and will consider in
good faith any comments of Alpha thereon delivered to Conexant within 10
days after receipt of the Special Purpose Statement of Tangible Net Assets.
If and to the extent the total value of the tangible net assets set forth
on the Unaudited Special Purpose Statement of Tangible Net Assets exceeds
the total value of the tangible net assets set forth on the Special Purpose
Statement of Tangible Net Assets (a "Net Asset Deficiency"),
notwithstanding anything to the contrary set forth in this Agreement,
Conexant will cause either (A) the Washington Assets to include such
additional Assets (which shall be Cash, like kind Assets other than Cash
that are usable in the Washington Business and reasonably acceptable to
Alpha, or any combination thereof) as are specified by Conexant to
Washington in writing or (B) the Washington Liabilities to exclude such
Liabilities as are specified by Conexant to Washington in writing and
reasonably acceptable to Alpha (which will be retained by Conexant and
constitute Conexant Liabilities), or any combination of (A) and (B) as
Conexant shall elect in its sole discretion, such that the sum of (x) the
value of such Assets, if any, plus (y) the value of such Liabilities
(expressed as a positive number), if any, shall equal the excess, if any,
of the Net Asset Deficiency over One Million dollars ($1,000,000).
(iii) Each of Conexant (on behalf of itself and each other member of
the Conexant Group) and Washington (on behalf of itself and each other
member of the Washington Group) understands and agrees that, except as
expressly set forth in any Transaction Agreement, no party to any
Transaction Agreement or any other agreement or document contemplated by
any Transaction Agreement either has or is, in such agreement or otherwise,
representing or warranting in any way as to the Assets, Subsidiaries,
businesses or Liabilities retained, conveyed, assigned, transferred or
assumed as contemplated thereby, as to any consents or approvals required
in connection with the transactions contemplated by the Transaction
Agreements, as to the value or freedom from any Lien of, or any other
matter concerning, any Assets, Liabilities or Subsidiaries of such party,
or as to the absence of any defenses or rights of setoff or freedom from
counterclaim with respect to any claim or other Assets or Subsidiaries of
any party, or as to the legal sufficiency of any assignment, document or
instrument delivered thereunder to convey title to any Asset or Subsidiary
or thing of value upon the execution, delivery or filing thereof. Except as
may expressly be set forth in any Transaction Agreement, all Assets and
Subsidiaries being transferred or retained as contemplated by any
Transaction Agreement or any other agreement or document contemplated by
any Transaction Agreement are being transferred, or are being retained, on
an "as is", "where is" basis (and, in the case of the transfer of any real
property, by means of a quitclaim or similar form deed or conveyance) and
the respective transferees shall bear the economic and legal risks that any
conveyance shall prove to be insufficient or that the title to any Asset or
Subsidiary shall be other than good and marketable and free and clear of
any Lien.
(e) It is the intention of the parties that payments made by the parties to
each other after the Time of Distribution pursuant to this Agreement, the
Employee Matters Agreement or the Tax Allocation Agreement are to be treated as
relating back to the transactions occurring prior to the Time of Distribution
pursuant to this Section 2.01 as an adjustment to the transfers of Assets,
Subsidiaries and Liabilities contemplated by this Section 2.01, and Conexant and
Washington will, and will cause the
B-21
Conexant Subsidiaries and the Washington Subsidiaries, respectively, to, take
positions consistent with such intention with any Tax authority, unless with
respect to any payment any party receives an opinion of counsel reasonably
acceptable to the other party to the effect that there is no substantial
authority for such a position.
SECTION 2.02 Financial Instruments. (a) (i) Washington will, at its
expense, take or cause to be taken all actions, and enter into (or cause the
Washington Subsidiaries to enter into) such agreements and arrangements, as
shall be necessary to effect the release of and substitution for each member of
the Conexant Group, as of the Time of Distribution, from all primary, secondary,
contingent, joint, several and other Liabilities in respect of Washington
Financial Instruments (it being understood that all Liabilities in respect of
Washington Financial Instruments are Washington Liabilities).
(ii) Washington's obligations under this Section 2.02(a) will continue
to be applicable to all Washington Financial Instruments after the Time of
Distribution.
(b) (i) Conexant will, at its expense, take or cause to be taken all
actions, and enter into (or cause the Conexant Subsidiaries to enter into) such
agreements and arrangements, as shall be necessary to effect the release of and
substitution for each member of the Washington Group, as of the Time of
Distribution, from all primary, secondary, contingent, joint, several and other
Liabilities in respect of Conexant Financial Instruments (it being understood
that all Liabilities in respect of Conexant Financial Instruments are Conexant
Liabilities).
(ii) Conexant's obligations under this Section 2.02(b) will continue
to be applicable to all Conexant Financial Instruments after the Time of
Distribution.
SECTION 2.03 Intercompany Accounts and Arrangements.
(a) Elimination of Intercompany Accounts.
(i) Except as set forth in Section 2.03(a)(ii) or on Schedule 2.03(a),
Conexant, on behalf of itself and each other member of the Conexant Group,
on the one hand, and Washington, on behalf of itself and each other member
of the Washington Group, on the other hand, hereby settle and eliminate, by
cancellation or transfer to a member of the other Group (whether to cancel
or transfer and the manner thereof will be determined by Conexant),
effective as of the Time of Distribution, all intercompany receivables,
payables and other balances existing immediately prior to the Time of
Distribution between Conexant and/or any Conexant Subsidiary, on the one
hand, and Washington and/or any Washington Subsidiary, on the other hand.
(ii) The provisions of Section 2.03(a)(i) will not apply to any
intercompany receivables, payables and other balances arising under any
Transaction Agreement, including those incurred in connection with the
payment by any party of any expenses which are required to be paid or
reimbursed by the other party pursuant to Section 4.09.
SECTION 2.04 Cash Management.
(a) Cash Management Operations.
(i) Effective as of the Time of Distribution, the cash management
operations of the Washington Group will be segregated from the cash
management operations of the Conexant Group.
(ii) Washington will, and will cause the Washington Subsidiaries to,
forward to Conexant (for the account of Conexant or the applicable Conexant
Subsidiary) any customer payments in respect of Accounts Receivable to the
extent they constitute Conexant Assets received by Washington or any of the
Washington Subsidiaries after the Time of Distribution, whether received in
lock boxes, via wire transfer or otherwise, by the first business day of
the week after the week during which such payment is received. Such amounts
will be forwarded by wire transfer (to Conexant's bank account at Bank One,
N.A., Account No. 51-52283, A.B.A. Routing Number 071000013) in the case of
customer payments received within sixty days after the Distribution Date
and by check sent by reputable overnight courier service to Conexant in the
case of customer payments received thereafter.
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(b) Certain Payments after the Distribution Date. Washington will pay to
Conexant (by wire transfer to Conexant's bank account at Bank One, N.A., Account
No. 51-52283, A.B.A. Routing Number 071000013), within three business days after
the Distribution Date, (x) the amount of all balances contained immediately
prior to the Time of Distribution in petty cash accounts at locations of the
Washington Business, (y) the dollar value of travelers checks immediately prior
to the Time of Distribution at locations of the Washington Business and (z) the
dollar value of all other cash immediately prior to the Time of Distribution at
locations of the Washington Business.
SECTION 2.05 The Washington Board. Prior to the Time of Distribution,
Washington and Conexant will take all actions which may be required to elect or
otherwise appoint as directors of Washington the persons named on Schedule 2.05
to constitute the board of directors of Washington at the Time of Distribution.
SECTION 2.06 Resignations; Transfer of Stock Held as Nominee. (a)
Conexant will cause all of its employees and directors and all of the employees
and directors of each other member of the Conexant Group to resign, effective
not later than the Time of Distribution, from all boards of directors or similar
governing bodies of Washington or any other member of the Washington Group on
which they serve, and from all positions as officers of Washington or any other
member of the Washington Group in which they serve, except as otherwise
specified on Schedule 2.06. Washington will cause all of its employees and
directors and all of the employees and directors of each other member of the
Washington Group to resign, effective not later than the Time of Distribution,
from all boards of directors or similar governing bodies of Conexant or any
other member of the Conexant Group on which they serve, and from all positions
as officers of Conexant or any other member of the Conexant Group in which they
serve, except as otherwise specified on Schedule 2.06.
(b) Conexant will cause each of its employees, and each of the employees of
the other members of the Conexant Group, who holds stock or similar evidence of
ownership of any Washington Group entity as nominee for such entity pursuant to
the laws of the country in which such entity is located to transfer such stock
or similar evidence of ownership to the Person so designated by Washington to be
such nominee as of and after the Time of Distribution. Washington will cause
each of its employees, and each of the employees of the other members of the
Washington Group, who holds stock or similar evidence of ownership of any
Conexant Group entity as nominee for such entity pursuant to the laws of the
country in which such entity is located to transfer such stock or similar
evidence of ownership to the Person so designated by Conexant to be such nominee
as of and after the Time of Distribution.
(c) Conexant will cause each of its employees and each of the employees of
the other members of the Conexant Group to revoke or withdraw their express
written authority, if any, to act on behalf of any Washington Group entity as an
agent or representative therefor after the Time of Distribution. Washington will
cause each of its employees and each of the employees of the other members of
the Washington Group to revoke or withdraw their express written authority, if
any, to act on behalf of any Conexant Group entity as an agent or representative
therefor after the Time of Distribution.
SECTION 2.07 Washington Certificate of Incorporation and By-laws. Prior
to the Time of Distribution, (a) the Washington Board will (i) approve the
Certificate of Incorporation and will cause the same to be filed with the
Secretary of State of the State of Delaware and (ii) adopt the By-laws, and (b)
Conexant, as sole stockholder of Washington, will approve the Certificate of
Incorporation.
SECTION 2.08 Consents. Prior to and after the Time of Distribution,
Conexant and Washington will, and will cause the Conexant Subsidiaries and the
Washington Subsidiaries, respectively, to, use their commercially reasonable
efforts (as requested by the other party) to obtain, or to cause to be obtained,
all Consents necessary for the transfer of all Assets, Subsidiaries and
Liabilities contemplated to be transferred pursuant to this Article II;
provided, however, that none of Conexant (or any of the Conexant Subsidiaries)
or Washington (or any of the Washington Subsidiaries) shall be obligated to pay
any consideration or offer or grant any financial accommodation in connection
therewith. Anything contained herein to the contrary notwithstanding, this
Agreement shall not constitute an agreement to assign any Contract or Permit if
an assignment or attempted assignment of the same without the Consent of any
B-23
other party or parties thereto or other required Consent would constitute a
breach thereof or of any applicable law or in any way impair the rights of any
member of the Conexant Group or the Washington Group thereunder. If any such
Consent is not obtained or if an attempted assignment would be ineffective or
would impair any rights of either Group under any such Contract or Permit so
that the contemplated assignee hereunder (the "Recipient Party") would not
receive all such rights, then (x) the party contemplated hereunder to assign
such Contract or Permit (the "Assigning Party") will use commercially reasonable
efforts (it being understood that such efforts shall not include any requirement
of the Assigning Party to pay any consideration or offer or grant any financial
accommodation) to provide or cause to be provided to the Recipient Party the
benefits of any such Contract or Permit and the Assigning Party will promptly
pay or cause to be paid to the Recipient Party when received all moneys and
properties received by the Assigning Party with respect to any such Contract or
Permit and (y) to the extent that the Recipient Party receives the benefits of
such Contract or Permit, the Recipient Party will pay, perform and discharge on
behalf of the Assigning Party all of the Assigning Party's Liabilities
thereunder in a timely manner and in accordance with the terms thereof. If and
when such Consents are obtained, the transfer of the applicable Contract or
Permit shall be effected as promptly following the Time of Distribution as shall
be practicable in accordance with the terms of this Agreement. To the extent
that any transfers and assumptions contemplated by this Article II shall not
have been consummated on or prior to the Time of Distribution, the parties shall
cooperate to effect such transfers as promptly following the Time of
Distribution as shall be practicable.
ARTICLE III
THE DISTRIBUTION
SECTION 3.01 The Distribution. (a) Subject to Section 3.03, the Conexant
Board will establish the Record Date and the Distribution Date and authorize
Conexant to pay the Distribution immediately prior to the Effective Time by
delivery to the Distribution Agent, for the benefit of holders of record of
Conexant Common Stock and Conexant Series B Preferred Stock as of the Record
Date, of a number of shares of Washington Common Stock equal to the aggregate
number of shares of Conexant Common Stock and Conexant Series B Preferred Stock
issued and outstanding as of the Record Date (excluding treasury shares held by
Conexant), and Conexant will instruct the Distribution Agent to make book-entry
credits on the Distribution Date or as soon thereafter as practicable for each
holder of record of Conexant Common Stock and Conexant Series B Preferred Stock
as of the Record Date for a number of shares of Washington Common Stock equal to
the number of shares of Conexant Common Stock or Conexant Series B Preferred
Stock so held by such holder of record as of the Record Date (excluding treasury
shares held by Conexant). Prior to the Effective Time, the shares of Washington
Common Stock shall not be transferable and the transfer agent for the Washington
Common Stock shall not transfer any shares of Washington Common Stock, except
that the Distribution Agent, on behalf of the holders of Washington Common
Stock, may exchange such shares for shares of Alpha Common Stock as provided by
Section 3.2 of the Merger Agreement in connection with the Merger. The
Distribution will be deemed to be effective as of the Time of Distribution upon
written authorization from Conexant to the Distribution Agent to proceed as set
forth in this Section 3.01(a).
(b) Conexant and Washington each will provide to the Distribution Agent all
information (including information necessary to make appropriate book-entry
credits) and share certificates, in each case, as may be required in order to
complete the Distribution on the basis of one share of Washington Common Stock
for each share of Conexant Common Stock and Conexant Series B Preferred Stock
issued and outstanding as of the Record Date (excluding treasury shares held by
Conexant).
SECTION 3.02 Cooperation Prior to the Distribution. Prior to the
Distribution:
(a) Conexant and Washington will prepare the Information Statement
which will include appropriate disclosure concerning Washington, its
business, operations and management, the Contribution, the Distribution and
such other matters as Conexant and Washington may determine
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and as may be required by law. Conexant will mail to the holders of
Conexant Common Stock and the Conexant Series B Preferred Stock the
Information Statement prior to the Distribution.
(b) Conexant and Washington will take all such action as may be
necessary or appropriate under the securities or "blue sky" laws of the
states or other political subdivisions of the United States and the
securities laws of any applicable foreign countries or other political
subdivisions thereof in connection with the transactions contemplated by
this Agreement.
SECTION 3.03 Conditions to the Distribution. In no event will the
Distribution occur prior to such time as each of the following conditions shall
have been satisfied or shall have been waived by the Conexant Board:
(a) the Conexant Board shall be reasonably satisfied that, after
giving effect to the Contribution, (i) Conexant will not be insolvent and
will not have unreasonably small capital with which to engage in its
businesses and (ii) Conexant's surplus would be sufficient to permit,
without violation of Section 170 of the Delaware General Corporation Law,
the Distribution;
(b) no order, ruling, injunction or decree issued by any court of
competent jurisdiction or other Governmental Entity or other legal
restraint or prohibition preventing consummation of the Contribution or the
Distribution shall be in effect;
(c) no suit, action or proceeding by or before any court of competent
jurisdiction or other Governmental Entity shall have been commenced and be
pending to restrain or challenge the Contribution or the Distribution; and
(d) each condition to the closing of the Merger Agreement set forth in
Article VIII thereof, other than the condition set forth in Section 8.1(i)
thereof as to the consummation of the Contribution and the Distribution,
shall have been fulfilled or waived by the party for whose benefit such
condition exists.
Subject to the terms and conditions of this Agreement, each party will use
its reasonable best efforts to cause the conditions set forth in this Section
3.03 to be satisfied as promptly as reasonably practicable; provided that no
party will be required to waive any condition.
SECTION 3.04 Waiver of Conditions. Any or all of the conditions set
forth in Section 3.03 may be waived, in whole or in part, in the sole discretion
of the Conexant Board. The conditions set forth in Section 3.03 are for the sole
benefit of Conexant and shall not give rise to or create any duty on the part of
Conexant or the Conexant Board to waive or not waive any such conditions.
SECTION 3.05 Disclosure. If at any time after the date hereof either of
the parties shall become aware of any circumstances that will or could
reasonably be expected to prevent any or all of the conditions contained in
Section 3.03 from being satisfied, it will promptly give to the other party
written notice of those circumstances.
ARTICLE IV
MUTUAL RELEASE; INDEMNIFICATION; EXPENSES
SECTION 4.01 Mutual Release. Effective as of the Time of Distribution and
except as otherwise specifically set forth in the Transaction Agreements, each
of Conexant, on behalf of itself and each of the Conexant Subsidiaries, on the
one hand, and Washington, on behalf of itself and each of the Washington
Subsidiaries, on the other hand, hereby releases and forever discharges the
other party and its Subsidiaries, and its and their respective officers,
directors, agents, record and beneficial security holders (including trustees
and beneficiaries of trusts holding such securities), advisors and
Representatives (in each case, in their respective capacities as such) and their
respective heirs, executors, administrators, successors and assigns, of and from
all debts, demands, actions, causes of action, suits, accounts, covenants,
contracts, agreements, damages, claims and Liabilities whatsoever of every name
and nature, both in law and in equity, which the releasing party has or ever had
or ever will have, which arise out of or relate to events,
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circumstances or actions taken by such other party occurring or failing to occur
or any conditions existing at or prior to the Time of Distribution; provided,
however, that the foregoing general release shall not apply to (i) any
Liabilities or other obligations (including Liabilities with respect to payment,
reimbursement, indemnification or contribution) under the Transaction Agreements
or assumed, transferred, assigned, allocated or arising under any of the
Transaction Agreements (including any Liability that the parties may have with
respect to payment, performance, reimbursement, indemnification or contribution
pursuant to any Transaction Agreement for claims brought against the parties by
third Persons or any Indemnitee), and the foregoing release will not affect any
party's right to enforce the Transaction Agreements in accordance with their
terms or (ii) any Liability the release of which would result in the release of
any Person other than a Person released pursuant to this Section 4.01 (provided,
that the parties agree not to bring suit or permit any of their Subsidiaries to
bring suit against any member of the other Group with respect to any Liability
to the extent such member of the other Group would be released with respect to
such Liability by this Section 4.01 but for this clause (ii)).
Each of Conexant and Washington acknowledges that it has been advised by
its legal counsel and is familiar with the provisions of California Civil Code
Section 1542, which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
Being aware of said Code section, each of Conexant, on behalf of itself and the
Conexant Subsidiaries, and Washington, on behalf of itself and the Washington
Subsidiaries, hereby expressly waives any rights it may have under California
Civil Code Section 1542, as well as any other statutes or common law principles
of similar effect.
SECTION 4.02 Indemnification by Conexant. Subject to the provisions of
this Article IV, Conexant shall indemnify, defend and hold harmless the
Washington Indemnitees from and against, and pay or reimburse, as the case may
be, the Washington Indemnitees for, all Indemnifiable Losses, as incurred,
suffered by any Washington Indemnitee to the extent based upon, arising out of
or relating to the following:
(a) the Conexant Liabilities (including the failure by Conexant or any
other member of the Conexant Group to pay, perform or otherwise discharge
the Conexant Liabilities in accordance with their terms), whether such
Indemnifiable Losses are based upon, arise out of or relate to events,
occurrences, actions, omissions, facts, circumstances or conditions
occurring, existing or asserted before, at or after the Time of
Distribution;
(b) the breach by any member of the Conexant Group of any agreement or
covenant contained in a Transaction Agreement which does not by its express
terms expire at the Time of Distribution;
(c) the use by members of the Conexant Group or their respective
sublicensees of any intellectual property licensed by Washington and the
Washington Subsidiaries pursuant to Section 5.03 other than in accordance
with the terms of such provision;
(d) the breach of the representation and warranty of Conexant
contained in Section 2.01(d)(i); or
(e) the enforcement by the Washington Indemnitees of their rights to
be indemnified, defended and held harmless under this Section 4.02.
Notwithstanding anything to the contrary contained herein, in the event it is
determined that Conexant shall have breached its representation and warranty
contained in Section 2.01(d)(i), Conexant shall have the right, in its sole
discretion, to transfer any Asset to Washington necessary to cure such breach,
in which event Conexant's indemnification obligation in respect of such breach
shall be satisfied in full, except with respect to any Indemnifiable Losses
arising from such breach during the period from the Time of Distribution to the
time of such transfer.
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SECTION 4.03 Indemnification by Washington. Subject to the provisions of
this Article IV, Washington shall indemnify, defend and hold harmless the
Conexant Indemnitees from and against, and pay or reimburse, as the case may be,
the Conexant Indemnitees for, all Indemnifiable Losses, as incurred, suffered by
any Conexant Indemnitee to the extent based upon, arising out of or relating to
the following:
(a) the Washington Liabilities (including the failure by Washington or
any other member of the Washington Group to pay, perform or otherwise
discharge the Washington Liabilities in accordance with their terms),
whether such Indemnifiable Losses are based upon, arise out of or relate to
events, occurrences, actions, omissions, facts, circumstances or conditions
occurring, existing or asserted before, at or after the Time of
Distribution;
(b) the breach by any member of the Washington Group of any agreement
or covenant contained in a Transaction Agreement which does not by its
express terms expire at the Time of Distribution;
(c) the use by members of the Washington Group (or, in the case of
intellectual property licensed by Conexant and the Conexant Subsidiaries
pursuant to Section 5.03, members of the Washington Group or their
respective sublicensees) of any names, trademarks, trade names, domain
names, service marks or corporate symbols or logos pursuant to Section 5.02
or intellectual property licensed by Conexant and the Conexant Subsidiaries
pursuant to Section 5.03 other than in accordance with the terms of such
provisions; or
(d) the enforcement by the Conexant Indemnitees of their rights to be
indemnified, defended and held harmless under this Section 4.03.
SECTION 4.04 Limitations on Indemnification Obligations. (a) The amount
which any party (an "Indemnifying Party") is or may be required to pay to an
Indemnitee in respect of Indemnifiable Losses or other Liability for which
indemnification is provided under this Agreement shall be reduced by any amounts
actually received (including Insurance Proceeds actually received) by or on
behalf of such Indemnitee (net of increased insurance premiums and charges to
the extent related to Indemnifiable Losses and costs and expenses (including
reasonable legal fees and expenses) incurred by such Indemnitee in connection
with seeking to collect and collecting such amounts) in respect of such
Indemnifiable Losses or other Liability (such net amounts are referred to herein
as "Indemnity Reduction Amounts"). If any Indemnitee receives any Indemnity
Reduction Amounts in respect of an Indemnifiable Loss for which indemnification
is provided under this Agreement after the full amount of such Indemnifiable
Loss has been paid by an Indemnifying Party or after an Indemnifying Party has
made a partial payment of such Indemnifiable Loss and such Indemnity Reduction
Amounts exceed the remaining unpaid balance of such Indemnifiable Loss, then the
Indemnitee shall promptly remit to the Indemnifying Party an amount equal to the
excess (if any) of (A) the amount theretofore paid by the Indemnifying Party in
respect of such Indemnifiable Loss, less (B) the amount of the indemnity payment
that would have been due if such Indemnity Reduction Amounts in respect thereof
had been received before the indemnity payment was made.
(b) In determining the amount of any Indemnifiable Losses, such amount
shall be (i) reduced to take into account any net Tax benefit realized by the
Indemnitee arising from the incurrence or payment by the Indemnitee of such
Indemnifiable Losses and (ii) increased to take into account any net Tax cost
incurred by the Indemnitee as a result of the receipt or accrual of payments
hereunder (grossed-up for such increase), in each case determined by treating
the Indemnitee as recognizing all other items of income, gain, loss, deduction
or credit before recognizing any item arising from such Indemnifiable Losses. In
determining the amount of any such Tax benefit or Tax cost, the Washington
Indemnitees or the California Indemnitees, as applicable, shall be deemed to be
subject to Tax as follows: (A) U.S. federal income Taxes and foreign income
Taxes at the maximum statutory rate then in effect and (B) U.S. state and local
income Taxes at an assumed rate of five percent net of U.S. federal income Tax
benefits. It is the intention of the parties to this Agreement that indemnity
payments made pursuant to this Agreement are to be treated as relating back to
the Distribution as an adjustment to capital (i.e., capital contribution or
distribution), and the parties shall not take any position inconsistent with
such intention before any Tax
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Authority (as defined in the Tax Allocation Agreement), except to the extent
that a final determination (as defined in Section 1313 of the Code) with respect
to the recipient party causes any such payment not to be so treated.
(c) No monetary amount will be payable by Conexant to any Washington
Indemnitee with respect to the indemnification of any claims pursuant to Section
4.02(d) until the aggregate amount of Indemnifiable Losses actually incurred by
the Washington Indemnitees with respect to such claims shall exceed on a
cumulative basis an amount equal to One Million Five Hundred Thousand dollars
($1,500,000), in which event Conexant shall be responsible only for the amount
of such Indemnifiable Losses in excess of One Million Five Hundred Thousand
dollars ($1,500,000).
(d) No monetary amount will be payable by Conexant to any Washington
Indemnitee with respect to the indemnification of any claims pursuant to Section
4.02(d) after the aggregate amount of Indemnifiable Losses actually paid by
Conexant with respect to such claims shall equal on a cumulative basis an amount
equal to Fifteen Million dollars ($15,000,000).
SECTION 4.05 Procedures Relating to Indemnification. (a) If a claim or
demand is made against an Indemnitee, or an Indemnitee shall otherwise learn of
an assertion, by any Person who is not a party to this Agreement (or an
Affiliate thereof) as to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement (a "Third Party Claim"), such
Indemnitee will notify the Indemnifying Party in writing, and in reasonable
detail, of the Third Party Claim reasonably promptly after becoming aware of
such Third Party Claim; provided, however, that failure to give such
notification will not affect the indemnification provided hereunder except to
the extent the Indemnifying Party shall have been actually prejudiced as a
result of such failure. Thereafter, the Indemnitee will deliver to the
Indemnifying Party, promptly after the Indemnitee's receipt thereof, copies of
all material notices and documents (including court papers) received or
transmitted by the Indemnitee relating to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnitee, the Indemnifying
Party will be entitled to participate in or to assume the defense thereof (in
either case, at the expense of the Indemnifying Party) with counsel selected by
the Indemnifying Party and reasonably satisfactory to the Indemnitee. Should the
Indemnifying Party so elect to assume the defense of a Third Party Claim, the
Indemnifying Party will not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with the defense
thereof; provided, that if in the Indemnitee's reasonable judgment a conflict of
interest exists in respect of such claim or if the Indemnifying Party shall have
assumed responsibility for such claim with any reservations or exceptions, such
Indemnitee will have the right to employ separate counsel reasonably
satisfactory to the Indemnifying Party to represent such Indemnitee and in that
event the reasonable fees and expenses of such separate counsel (but not more
than one separate counsel for all Indemnitees similarly situated) shall be paid
by such Indemnifying Party. If the Indemnifying Party assumes the defense of any
Third Party Claim, the Indemnitee will have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the Indemnifying Party, it being understood that the
Indemnifying Party will control such defense. The Indemnifying Party will be
liable for the fees and expenses of counsel employed by the Indemnitee for any
period during which the Indemnifying Party has failed to assume the defense
thereof. If the Indemnifying Party assumes the defense of any Third Party Claim,
the Indemnifying Party will promptly supply to the Indemnitee copies of all
material correspondence and documents relating to or in connection with such
Third Party Claim and keep the Indemnitee fully informed of all material
developments relating to or in connection with such Third Party Claim (including
providing to the Indemnitee on request updates and summaries as to the status
thereof). If the Indemnifying Party chooses to defend a Third Party Claim, the
parties hereto will cooperate in the defense thereof (such cooperation to be at
the expense, including reasonable legal fees and expenses, of the Indemnifying
Party), which cooperation shall include the retention in accordance with this
Agreement and (upon the Indemnifying Party's request) the provision to the
Indemnifying Party of records and information which are reasonably relevant to
such Third Party Claim, and making employees available on a mutually convenient
basis to provide additional information and explanation of any material provided
hereunder.
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(c) No Indemnifying Party will consent to any settlement, compromise or
discharge (including the consent to entry of any judgment) of any Third Party
Claim without the Indemnitee's prior written consent (which consent will not be
unreasonably withheld); provided, that if the Indemnifying Party assumes the
defense of any Third Party Claim, the Indemnitee will agree to any settlement,
compromise or discharge of such Third Party Claim which the Indemnifying Party
may recommend and which by its terms obligates the Indemnifying Party to pay the
full amount of Indemnifiable Losses in connection with such Third Party Claim
and unconditionally and irrevocably releases the Indemnitee and its Affiliates
completely from all Liability in connection with such Third Party Claim;
provided, however, that the Indemnitee may refuse to agree to any such
settlement, compromise or discharge (x) that provides for injunctive or other
nonmonetary relief affecting the Indemnitee or any of its Affiliates or (y)
that, in the reasonable opinion of the Indemnitee, would otherwise materially
adversely affect the Indemnitee or any of its Affiliates. Whether or not the
Indemnifying Party shall have assumed the defense of a Third Party Claim, the
Indemnitee will not (unless required by law) admit any liability with respect
to, or settle, compromise or discharge, such Third Party Claim without the
Indemnifying Party's prior written consent (which consent will not be
unreasonably withheld).
(d) Any claim on account of Indemnifiable Losses which does not involve a
Third Party Claim will be asserted by reasonably prompt written notice given by
the Indemnitee to the Indemnifying Party from whom such indemnification is
sought. The failure by any Indemnitee so to notify the Indemnifying Party will
not relieve the Indemnifying Party from any liability which it may have to such
Indemnitee under this Agreement, except to the extent that the Indemnifying
Party shall have been actually prejudiced by such failure.
(e) In the event of payment in full by an Indemnifying Party to any
Indemnitee in connection with any Third Party Claim, such Indemnifying Party
will be subrogated to and shall stand in the place of such Indemnitee as to any
events or circumstances in respect of which such Indemnitee may have any right
or claim relating to such Third Party Claim against any claimant or plaintiff
asserting such Third Party Claim or against any other Person. Such Indemnitee
will cooperate with such Indemnifying Party in a reasonable manner, and at the
cost and expense of such Indemnifying Party, in prosecuting any subrogated right
or claim.
SECTION 4.06 Remedies Cumulative. Subject to the provisions of Section
7.05, the remedies provided in this Article IV shall be cumulative and shall not
preclude assertion by any Indemnitee of any other rights or the seeking of any
and all other remedies against any Indemnifying Party, except that the indemnity
contained in Section 4.02(d) shall be the sole and exclusive remedy of the
parties hereto, their Affiliates, successors and assigns with respect to any and
all claims arising out of or relating to the breach of the representation and
warranty of Conexant contained in Section 2.01(d)(i).
SECTION 4.07 Survival of Indemnities. Except as set forth in the
following sentence, the obligations of each of Conexant and Washington under
this Article IV will not terminate at any time and will survive the sale or
other transfer by any party of any assets or businesses or the assignment by any
party of any Liabilities. Notwithstanding anything to the contrary contained
herein, the obligation of Conexant to indemnify, defend and hold harmless the
Washington Indemnitees pursuant to Section 4.02(d) will terminate upon the
expiration of the representation and warranty set forth in Section 2.01(d)(i);
provided, however, that such obligation to indemnify, defend and hold harmless
will not terminate with respect to any individual claim as to which an
Indemnitee shall have, before such expiration of such representation and
warranty, previously delivered a notice (stating in reasonable detail the basis
of such claim) to Conexant.
SECTION 4.08 Exclusivity of Tax Allocation Agreement. Notwithstanding
anything in this Agreement to the contrary, the Tax Allocation Agreement will be
the exclusive agreement among the parties with respect to all Tax matters,
including indemnification in respect of Tax matters.
SECTION 4.09 Expenses. (a) Except as otherwise set forth in any
Transaction Agreement, (i) all Conexant Expenses will be charged to and paid by
Conexant and (ii) all Washington Expenses will be charged to and paid by
Washington.
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(b) Within twenty business days after the Distribution Date, Washington
will reimburse Conexant (by wire transfer to Conexant's bank account at Bank
One, N.A., Account No. 51-52283, A.B.A. Routing Number 071000013) for all
amounts in respect of Washington Expenses paid by Conexant or any of its
Subsidiaries (including members of the Washington Group) before or at the Time
of Distribution (including Washington Expenses that would otherwise constitute
accounts payable); provided that, within ten business days after the
Distribution Date, Conexant has notified Washington in writing of such
Washington Expenses and provided Washington with appropriate supporting
documentation for such Washington Expenses. Promptly after Conexant's request
therefor and upon production to Washington of appropriate supporting
documentation, Washington will reimburse Conexant (by wire transfer to the same
bank account referred to in the preceding sentence) for all Washington Expenses
paid by Conexant or any of its Subsidiaries before, at or after the Time of
Distribution (including Washington Expenses that would otherwise constitute
accounts payable), other than as previously reimbursed by Washington pursuant to
the preceding sentence.
SECTION 4.10 Effect of Investigation. The right to indemnification
pursuant to Section 4.02(d) shall not be affected by any investigation conducted
with respect to, or any knowledge acquired (or capable of being acquired) at any
time, whether before or after the execution and delivery of this Agreement or
the Distribution Date, with respect to the representation and warranty contained
in Section 2.01(d)(i).
ARTICLE V
CERTAIN OTHER MATTERS
SECTION 5.01 Insurance.
(a) Coverage. Subject to the provisions of this Section 5.01, coverage of
Washington and the Washington Subsidiaries under all Policies shall cease as of
the Time of Distribution. From and after the Time of Distribution, Washington
and the Washington Subsidiaries will be responsible for obtaining and
maintaining all insurance coverages in their own right. All Policies will
constitute Conexant Assets and will be retained by Conexant and the Conexant
Subsidiaries, together with all rights, benefits and privileges thereunder
(including the right to receive any and all return premiums with respect
thereto), except that Washington will have the rights in respect of Policies to
the extent described in Section 5.01(b).
(b) Rights Under Policies. From and after the Time of Distribution,
Washington and the Washington Subsidiaries will have no rights with respect to
any Policies, except that (i) Washington will have the right to assert claims
(and Conexant will use commercially reasonable efforts to assist Washington in
asserting claims) for any loss, liability or damage with respect to the
Washington Assets or Washington Liabilities under Policies with third-party
insurers which are "occurrence basis" insurance policies ("Occurrence Basis
Policies") arising out of insured incidents occurring from the date coverage
thereunder first commenced until the Time of Distribution to the extent that the
terms and conditions of any such Occurrence Basis Policies and agreements
relating thereto so allow and (ii) Washington will have the right to continue to
prosecute claims with respect to Washington Assets or Washington Liabilities
properly asserted with an insurer prior to the Time of Distribution (and
Conexant will use commercially reasonable efforts to assist Washington in
connection therewith) under Policies with third-party insurers which are
insurance policies written on a "claims made" basis ("Claims Made Policies")
arising out of insured incidents occurring from the date coverage thereunder
first commenced until the Time of Distribution to the extent that the terms and
conditions of any such Claims Made Policies and agreements relating thereto so
allow, provided, that in the case of both clauses (i) and (ii) above, (A) all of
Conexant's and each Conexant Subsidiary's reasonable out-of-pocket costs and
expenses incurred in connection with the foregoing are promptly paid by
Washington, (B) Conexant and the Conexant Subsidiaries may, at any time, without
liability or obligation to Washington or any Washington Subsidiary (other than
as set forth in Section 5.01(c)), amend, commute, terminate, buy-out, extinguish
liability under or otherwise modify any Occurrence Basis Policies or Claims Made
Policies (and such claims shall be subject to any such amendments, commutations,
terminations, buy-outs, extinguishments and
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modifications), (C) such claims will be subject to (and recovery thereon will be
reduced by the amount of) any applicable deductibles, retentions or
self-insurance provisions, (D) such claims will be subject to (and recovery
thereon will be reduced by the amount of) any payment or reimbursement
obligations of Conexant, any Conexant Subsidiary or any Affiliate of Conexant or
any Conexant Subsidiary in respect thereof and (E) such claims will be subject
to exhaustion of existing aggregate limits. Conexant's obligation to use
commercially reasonable efforts to assist Washington in asserting claims under
applicable Policies will include using commercially reasonable efforts in
assisting Washington to establish its right to coverage under such Policies (so
long as all of Conexant's reasonable out-of-pocket costs and expenses in
connection therewith are promptly paid by Washington). None of Conexant or the
Conexant Subsidiaries will bear any Liability for the failure of an insurer to
pay any claim under any Policy. It is understood that any Claims Made Policies
will not provide any coverage to Washington and the Washington Subsidiaries for
incidents occurring prior to the Time of Distribution but which are asserted
with the insurance carrier after the Time of Distribution.
(c) Conexant Actions. In the event that after the Time of Distribution
Conexant or any Conexant Subsidiary proposes to amend, commute, terminate,
buy-out, extinguish liability under or otherwise modify any Policies under which
Washington has rights to assert claims pursuant to Section 5.01(b) in a manner
that would adversely affect any such rights of Washington, (i) Conexant will
give Washington prior notice thereof and consult with Washington with respect to
such action (it being understood that the decision to take any such action will
be in the sole discretion of Conexant) and (ii) Conexant will pay to Washington
its equitable share (which shall be determined by Conexant in good faith based
on the amount of premiums paid by or allocated to the Washington Business in
respect of the applicable Policy) of any net proceeds actually received by
Conexant from the insurer under the applicable Policy as a result of such action
by Conexant (after deducting Conexant's reasonable costs and expenses incurred
in connection with such action).
(d) Administration. From and after the Time of Distribution:
(i) Conexant or a Conexant Subsidiary, as appropriate, will be
responsible for the Claims Administration with respect to claims of
Conexant and the Conexant Subsidiaries under Policies; and
(ii) Washington or a Washington Subsidiary, as appropriate, will be
responsible for the Claims Administration with respect to claims of
Washington and the Washington Subsidiaries under Policies.
(e) Insurance Premiums. From and after the Time of Distribution, Conexant
will pay all premiums (retrospectively-rated or otherwise) as required under the
terms and conditions of the respective Policies in respect of periods prior to
the Time of Distribution, whereupon Washington will upon the request of
Conexant, forthwith reimburse Conexant for that portion of such premiums paid by
Conexant as are reasonably determined by Conexant to be attributable to the
Washington Business.
(f) Agreement for Waiver of Conflict and Shared Defense. In the event that
a Policy provides coverage for both Conexant and/or a Conexant Subsidiary, on
the one hand, and Washington and/or a Washington Subsidiary, on the other hand,
relating to the same occurrence, Conexant and Washington agree to defend jointly
and to waive any conflict of interest necessary to the conduct of that joint
defense. Nothing in this Section 5.01(f) will be construed to limit or otherwise
alter in any way the indemnity obligations of the parties to this Agreement,
including those created by this Agreement, by operation of law or otherwise.
SECTION 5.02 Use of Names, Trademarks, etc. (a) From and after the Time
of Distribution, subject to Section 5.02(b), Conexant will own all rights of
Conexant or any of its Subsidiaries (including members of the Washington Group)
in, and to the use of, the Conexant Marks. Prior to or promptly after the Time
of Distribution (but in no event later than 90 days after the Time of
Distribution in the case of United States Persons and 180 days after the Time of
Distribution in the case of non-United States Persons), Washington will change
the name of any Washington Subsidiary or other Person under its control to
eliminate therefrom the names "Conexant", "Conexant Systems" and "Conexant
Systems, Inc." and all derivatives thereof.
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(b) From and after the Time of Distribution, except as permitted in this
Section 5.02(b), the Washington Group will not use or have any rights to the
Conexant Marks or any name, mark or symbol confusingly similar thereto, or any
special script, type font, form, style, logo, design, device, trade dress or
symbol which contains, represents or evokes the Conexant Marks or any name or
mark confusingly similar thereto. From and after the Time of Distribution, the
Washington Group will not hold itself out as having any affiliation with the
Conexant Group. However, Conexant hereby grants to Washington a non-exclusive,
non-transferable (other than by way of sublicenses to members of the Washington
Group) license to utilize without obligation to pay royalties to Conexant the
names, trademarks, trade names and service marks "Conexant", "Conexant Systems"
and "Conexant Systems, Inc." and any corporate symbol or logo related thereto in
connection with stationery, supplies, labels, catalogs, vehicles, signs,
packaging and products of the Washington Business, but only as described in
paragraphs (i) through (vi) of this Section 5.02(b), subject to the terms and
conditions of this Section 5.02(b) and Section 5.02(c), in each case in the same
manner and to the same extent as such names, trademarks, trade names, service
marks, corporate symbols or logos were used by the Washington Business at any
time within the two year period preceding the Time of Distribution:
(i) All documents constituting Washington Assets as of the Time of
Distribution within the following categories may be used for the duration
of the periods following the Time of Distribution indicated below or until
the supply is exhausted, whichever is the first to occur:
MAXIMUM PERIOD OF
PERMITTED USE
FOLLOWING THE TIME
CATEGORY OF DOCUMENTS OF DISTRIBUTION
--------------------- --------------------
A. Stationery............................................... 3 months
B. Invoices, purchase orders, debit and credit memos and
other similar documents of a transactional nature........ 3 months
C. Business cards........................................... 3 months
D. Other outside forms such as packing lists, labels,
packing materials and cartons, etc....................... 6 months
E. Forms for internal use only.............................. 6 months
F. Product literature....................................... 6 months;
provided, however, that Washington will cause each document within any of
the above categories A, B or F used for any purpose within the stated
period to clearly and prominently display a statement, the form of which is
approved by Conexant, to the effect that the Washington Group was formerly
affiliated with Conexant.
(ii) All vehicles constituting Washington Assets as of the Time of
Distribution may continue to be used without re-marking (except as to
legally required permit numbers, license numbers, etc.) for a period not to
exceed three months following the Time of Distribution or the date of
disposition of the vehicle, whichever is the first to occur. Washington
will cause all markings on such vehicles to be removed or permanently
obscured prior to the disposition of such vehicles.
(iii) Within three months following the Time of Distribution,
Washington will remove or cause to be removed from display all signs and
displays which contain the Conexant Marks.
(iv) Products of the Washington Business may have applied thereto the
names, trademarks, trade names or service marks "Conexant", "Conexant
Systems" or "Conexant Systems, Inc." or any Conexant corporate symbol or
logo related thereto for a period of three months after the Time of
Distribution.
(v) Products of the Washington Business in finished goods inventory
and work in process (to the extent the same bear the name, trademark, trade
name or service mark "Conexant", "Conexant Systems" or "Conexant Systems,
Inc." or any Conexant corporate symbol or logo related thereto as of the
Time of Distribution or have any such name, trademark, trade name, service
mark, corporate
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symbol or logo applied to them in accordance with paragraph (iv) above) may
be disposed of without re-marking.
(vi) All documents of the Washington Business of the type described in
paragraph (i) above and displays and signs of the Washington Business may,
for a period not to exceed one year after the Distribution Date (or such
longer period as shall be approved by Conexant), contain the statement "A
Heritage of Conexant Technology" (or other similar phrase, the form of
which is approved by Conexant) in conjunction with the name of Washington
or any Subsidiary thereof so long as such statement is of a type no more
prominent than such name of Washington or such Subsidiary thereof.
(c) (i) Apart from the rights granted under Section 5.02(b), no member of
the Washington Group shall have any right, title or interest in or to the use of
the Conexant Marks, either alone or in combination with any other word, name,
symbol, device, trademarks, or any combination thereof. Anything contained
herein to the contrary notwithstanding, except as expressly permitted by Section
5.02(b), in no event will any member of the Washington Group utilize the
Conexant Marks as a component of a company or trade name. Washington will not,
and will cause each other member of the Washington Group not to, challenge or
contest the validity of the Conexant Marks, the registration thereof or the
ownership thereof by the Conexant Group. Washington will not, and will cause
each other member of the Washington Group not to, apply anywhere at any time for
any registration as owner or exclusive licensee of the Conexant Marks. If,
notwithstanding the foregoing, any member of the Washington Group develops,
adopts or acquires, directly or indirectly, any right, title or interest in, or
to the use of, any Conexant Marks in any jurisdiction, or any goodwill incident
thereto, Washington will, upon the request of Conexant, and for a nominal
consideration of one dollar, assign or cause to be assigned to Conexant or any
designee of Conexant, all right, title and interest in, and to the use of, such
Conexant Marks in any and all jurisdictions, together with any goodwill incident
thereto.
(ii) If the laws of any country require that any mark subject to Section
5.02(b) or the right of any member of the Washington Group to use any mark as
permitted by Section 5.02(b) be registered in order to fully protect the
Conexant Group, Conexant and Washington will cooperate in constituting such
member of the Washington Group as a registered user (or its equivalent) in each
of the countries in which such registration is necessary. If any such laws of
any country require that any such mark or the use by any member of the
Washington Group of any such mark be registered prior to use in order to protect
fully the Conexant Group, the license granted pursuant to Section 5.02(b) will
not extend to such country until such registration has been effected to the
reasonable satisfaction of Conexant. Any expenses for registering such mark or
constituting such member of the Washington Group as a registered user in any
country shall be borne by Washington. Any registration of such member of the
Washington Group as a registered user of any mark hereunder shall be expunged on
termination of the period of permitted use under this Agreement or upon a breach
or threatened breach by any member of the Washington Group of the terms of this
Section 5.02 and Washington will, upon request of Conexant, take all necessary
steps to cause such registration to be so expunged upon such termination or
breach or threatened breach. In addition, Washington hereby constitutes and
appoints Conexant the true and lawful attorney of Washington, with full power of
substitution, in the name and on behalf of Washington (and at the cost of
Washington) to take all necessary steps to cause such registration to be so
expunged upon such termination or breach or threatened breach.
(iii) Washington will cause each member of the Washington Group to comply
with the provisions of this Section 5.02. Nothing in this Section 5.02 will
prevent any member of the Conexant Group from enforcing the provisions of this
Section 5.02 against any member of the Washington Group.
(iv) Conexant will have the right to terminate the license granted in
Section 5.02(b) upon 30 days written notice to Washington for any material
failure by any member of the Washington Group to observe the terms of Section
5.02(b) or this Section 5.02(c), provided that such failure is not remedied
(where commercially feasible) prior to the effectiveness of the termination.
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SECTION 5.03 License of Intellectual Property.
(a) License of Conexant Intellectual Property to Washington.
(i) Subject to Sections 5.03(a)(iv) and 5.03(d), effective as of the Time
of Distribution, Conexant, on behalf of itself and the Conexant Subsidiaries,
hereby grants to the Washington Group a non-exclusive, world-wide, irrevocable,
royalty-free license, without the right to assign or grant sublicenses, except
as provided in Sections 5.03(a)(ii) and (iii), under all Patents and Trademarks,
Trade Secrets and other intellectual property rights existing as of the Time of
Distribution (collectively, "Intellectual Property") that constitute Conexant
Assets (excluding trademarks, trade names, domain names, service marks, trade
dress and any other form of trade identity) that the Conexant Group has a right
to license without the payment of royalties to a third party, (A) with respect
to any copyrighted work included in such Intellectual Property, to reproduce,
display, distribute and prepare derivative works of such copyrighted work; and
(B) to make, have made (including by third-party contract manufacturers), use,
sell, offer for sale, import, or otherwise dispose of products in the conduct of
the Washington Business as it is being conducted immediately prior to the Time
of Distribution and any related extensions or expansions thereof, and to
practice any process involved in the use or manufacture thereof; provided, that
in connection with the Merger, this license will also extend to products in the
conduct of Alpha's business as it is being conducted immediately prior to the
Effective Time and any related extensions or expansions thereof.
(ii) The license granted under Section 5.03(a)(i) is non-assignable and
non-transferable (in insolvency proceedings, by reason of corporate merger, by
acquisition or other change of control or otherwise) by the Washington Group,
except that a one-time assignment may be made to Alpha and its Subsidiaries in
connection with the Merger.
(iii) The license granted under Section 5.03(a)(i) does not include the
right to grant sublicenses, except that the Washington Group (or, following the
Effective Time, Alpha and its Subsidiaries) may grant a sublicense (within the
scope of such license) to any entity or business that is a spin-off or other
similar divestiture of all or any part of the Washington Group's businesses (or,
following the Effective Time, the Combined Company's businesses) (a "Washington
Spin-Off") and to any subsequent entity or business that is a spin-off or other
similar divestiture of all or any part of a Washington Spin-Off; provided,
however, that any such sublicense shall be subject to the same restrictions on
assignment and transfer as the original license granted in this Section 5.03(a).
(iv) In the event that following the Effective Time, the Combined Company
or a Washington Spin-Off becomes insolvent or is acquired by or merges with a
third party, such license or sublicense shall immediately and automatically
terminate with respect to such Person and its Affiliates effective as of the
date of such insolvency, acquisition or merger, unless Conexant and the Combined
Company otherwise agree; provided, that such termination of such license or
sublicense shall not necessarily affect any other license or sublicense.
(v) Without limiting the foregoing, Conexant and Alpha shall confer in good
faith to determine whether and on what terms Conexant's rights under the Lucent
License Agreement may be sublicensed to Washington and/or the Combined Company,
and, if mutually agreed by Conexant and Alpha, Conexant shall grant a sublicense
as Conexant and Alpha may mutually determine may be granted, subject to the
terms and conditions of the Lucent License Agreement; provided, however, that
nothing in this Section 5.03(a)(v) shall require that Conexant pay any
additional fees or royalties under the Lucent License Agreement or grant any
sublicense to Washington and/or the Combined Company if Conexant in good faith
determines such sublicense would jeopardize any rights of Conexant under the
Lucent License Agreement.
(b) License of Alpha Intellectual Property to Conexant
(i) Subject to Section 5.03(b)(iv), effective immediately prior to the
Effective Time, Alpha, on behalf of itself and its Subsidiaries, hereby grants
to the Conexant Group a non-exclusive, world-wide, irrevocable royalty-free
license, without the right to assign or grant sublicenses, except as provided in
Sections 5.03(b)(ii) and (iii), under all Intellectual Property owned by Alpha
and its Subsidiaries
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(excluding trademarks, trade names, domain names, service marks, trade dress and
any other form of trade identity) that Alpha and its Subsidiaries have a right
to license without the payment of royalties to a third party, (A) with respect
to any copyrighted work included in such Intellectual Property, to reproduce,
display, distribute and prepare derivative works of such copyrighted work; and
(B) to make, have made (including by third-party contract manufacturers), use,
sell, offer for sale, import, or otherwise dispose of products in the conduct of
the Conexant Business as it is being conducted immediately prior to the Time of
Distribution and any related extensions or expansions thereof, and to practice
any process involved in the use or manufacture thereof.
(ii) The license granted under Section 5.03(b)(i) is non-assignable and
non-transferable (in insolvency proceedings, by reason of corporate merger, by
acquisition or other change in control or otherwise) by the Conexant Group.
(iii) The license granted under Section 5.03(b)(i) does not include the
right to grant sublicenses, except that the Conexant Group may grant a
sublicense (within the scope of such license) to any entity or business that is
a spin-off or other similar divestiture of all or any part of the Conexant
Group's businesses (a "Conexant Spin-Off") and to any subsequent entity or
business that is a spin-off or other similar divestiture of all or any part of a
Conexant Spin-Off; provided, however, that any such sublicense shall be subject
to the same restrictions on assignment and transfer as the original license
granted in this Section 5.03(b).
(iv) In the event that following the Effective Time, Conexant or a Conexant
Spin-Off becomes insolvent or is acquired by or merges with a third party, such
license or sublicense shall immediately and automatically terminate with respect
to such Person and its Affiliates effective as of the date of such insolvency,
acquisition or merger, unless Conexant and the Combined Company otherwise agree;
provided, that such termination of such license or sublicense shall not
necessarily affect any other license or sublicense.
(c) License of Washington Intellectual Property to Conexant
(i) Subject to in Sections 5.03(c)(iv) and 5.03(d), effective as of the
Time of Distribution, Washington, on behalf of itself and the Washington
Subsidiaries, hereby grants to the Conexant Group a non-exclusive, world-wide,
irrevocable, royalty-free license, without the right to assign or grant
sublicenses, except as provided in Sections 5.03(c)(ii) and (iii), under all
Intellectual Property that constitute Washington Assets (excluding trademarks,
trade names, domain names, service marks, trade dress and any other form of
trade identity) that the Washington Group has a right to license without the
payment of royalties to a third party, (A) with respect to any copyrighted work
included in such Intellectual Property, to reproduce, display, distribute and
prepare derivative works of such copyrighted work; and (B) to make, have made
(including by third-party contract manufacturers), use, sell, offer for sale,
import, or otherwise dispose of products in the conduct of the Conexant Business
as it is being conducted immediately prior to the Time of Distribution and any
related extensions or expansions thereof, and to practice any process involved
in the use or manufacture thereof.
(ii) The license granted under Section 5.03(c)(i) is not assignable and
non-transferable (in insolvency proceedings, by reason of corporate mergers, by
acquisition or other change of control or otherwise) by the Conexant Group.
(iii) The license granted under Section 5.03(c)(i) does not include the
right to grant sublicenses, except that the Conexant Group may grant a
sublicense (within the scope of such license) to any Conexant Spin-Off and to
any subsequent entity or business that is a spin-off or other similar
divestiture of all or any part of a Conexant Spin-Off; provided, however, that
any such sublicense shall be subject to the same restrictions on assignment and
transfer as the original license granted in this Section 5.03(c).
(iv) In the event that following the Effective Time, Conexant or a Conexant
Spin-Off becomes insolvent or is acquired by or merges with a third party, such
license or sublicense shall immediately and automatically terminate with respect
to such Person and its Affiliates effective as of the date of such insolvency,
acquisition or merger, unless Conexant and the Combined Company otherwise agree;
provided,
B-35
that such termination of such license or sublicense shall not necessarily affect
any other license or sublicense.
(d) Field of Use Restrictions on Bluetooth Technology
(i) Notwithstanding anything to the contrary contained in this Agreement,
effective immediately after the Time of Distribution and continuing for a term
of eighteen months, Conexant agrees that no member of the Conexant Group shall
sell or offer for sale the Washington Bluetooth RF Solution on a stand-alone
basis into any market , and that no member of the Conexant Group shall sell or
offer for sale the combination of the Washington Bluetooth RF Solution with the
Conexant Bluetooth Baseband Solution into the cellular handset market; provided,
however, that nothing in this Section 5.03(d)(i) shall prohibit any member of
the Conexant Group from selling the Conexant Bluetooth Baseband Solution, a
third-party Bluetooth RF solution or any other Bluetooth RF solution that is not
substantially based on the Washington Bluetooth RF Solution into any market.
(ii) Notwithstanding anything to the contrary contained in this Agreement,
effective immediately after the Time of Distribution and continuing for a term
of eighteen months, Washington agrees that no member of the Washington Group
(and, following the Effective Time, Alpha agrees that neither it nor any of its
Subsidiaries) shall sell or offer for sale the Conexant Bluetooth Baseband
Solution into any market outside the cellular handset market, whether on a
stand-alone basis or in combination with the Washington Bluetooth RF Solution,
unless the Conexant Bluetooth Baseband Solution is sold in combination with the
Washington Group's cellular chipset solution; provided, however, that nothing in
this Section 5.03(d)(ii) shall prohibit any member of the Washington Group (or,
following the Effective Time, Alpha and its Subsidiaries) from selling the
Washington Bluetooth RF Solution, a third-party Bluetooth baseband solution or
any other Bluetooth baseband solution that is not substantially based on the
Conexant Bluetooth Baseband Solution into any market.
(e) Administrative Services Software.
(i) For purposes of this Section 5.03(e), the following terms will have the
following definitions:
(A) "Administrative Services" means services pertaining to personnel,
payroll, property management, benefits, human resource management,
financial planning, case docketing and management, contract and subcontract
management, facilities management, proposal activities, supply chain
planning for production, product distribution, material requirements
planning, inventory management, engineering documentation control, workflow
and e-mail management, networks and computer systems management and other
similar services.
(B) "Administrative Services Software" means software originated
internally and owned by Conexant or any of its Subsidiaries (including
members of the Washington Group) prior to the Time of Distribution and
relating to the provision of Administrative Services to the Conexant
Business or the Washington Business immediately prior to the Time of
Distribution, regardless of where ownership of such software vests after
the Time of Distribution. Administrative Services Software also shall
include materials and documentation supplied by one party to the other
pursuant to clause (iv) of this Section 5.03(e).
(ii) Anything contained herein to the contrary notwithstanding, the
following licenses shall govern the licensing of Administrative Services
Software:
(A) Effective as of the Time of Distribution, Conexant, on behalf of
itself and the Conexant Subsidiaries, hereby grants to Washington a
royalty-free, world-wide, irrevocable, non-exclusive license to use
Administrative Services Software which constitutes Conexant Assets and
which immediately after the Time of Distribution is either owned by the
Conexant Group or under which the Conexant Group has a right to license
without the payment of royalties to a third party, but only for the
internal business purposes of the Washington Group, including the right to
sublicense only to (x) members of the Washington Group and (y) service
providers and similar third parties to use the Administrative Services
Software only for or on behalf of the Washington Group.
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(B) Effective as of the Time of Distribution, Washington, on behalf of
itself and the Washington Subsidiaries, hereby grants to Conexant a
royalty-free, world-wide, irrevocable, non-exclusive license to use
Administrative Services Software which constitutes Washington Assets and
which immediately after the Time of Distribution is either owned by the
Washington Group or under which the Washington Group has a right to license
without the payment of royalties to a third party, but only for the
internal business purposes of the Conexant Group, including the right to
sublicense only to (x) members of the Conexant Group and (y) service
providers and similar third parties to use the Administrative Services
Software only for or on behalf of the Conexant Group.
(C) Except as set forth in this paragraph (e)(ii), the licenses
granted pursuant to this Section 5.03(e) do not include the right to
sublicense.
(iii) Each party shall have the right to use, disclose, perform, display,
copy, distribute and make derivative works of Administrative Services Software
within the scope of the licenses granted herein. Title to Administrative
Services Software and all rights therein, including all rights in patents,
copyrights and trade secrets and any other intellectual property rights
applicable thereto, shall remain vested in the party to which ownership is
allocated pursuant to this Agreement. Notwithstanding anything to the contrary
contained herein, each licensed party agrees that it will not use, copy,
disclose, sell, assign or sublicense, or otherwise transfer Administrative
Services Software licensed to it under this Section 5.03(e) or any derivative
works thereof, except as expressly provided in this Section 5.03(e) and Section
7.07.
(iv) To the extent that a licensed party does not have copies of any
Administrative Services Software or materials and documentation (such as source
code listings, flow charts, user guides and programmer's guides) relating to the
operation and maintenance of such Administrative Services Software to which the
other party has ownership, such owning party shall, as soon as practicable after
request of the licensed party, supply to the licensed party copies of such
Administrative Services Software and any related operating and maintenance
materials or documentation existing as of the Time of Distribution.
(v) In the event that Administrative Services Software is used by the owner
in the ordinary course of its business either associated or bundled with
software owned or controlled by a third party (e.g., as a suite of software),
without which the Administrative Services Software would be wholly or partly
inoperable or otherwise unfit for its intended purposes, the grant of the
licenses under the provisions of this Section 5.03(e) shall not be construed as
an implied license to use the software of such a third party or as an
undertaking on the part of the owner of the Administrative Services Software to
obtain a license to permit the use of such third party software.
(f) (i) Conexant makes no representations or warranties of any kind with
respect to the validity, scope or enforceability of any intellectual property
rights licensed by Conexant or the Conexant Subsidiaries pursuant to this
Section 5.03 and none of Conexant or the Conexant Subsidiaries has any
obligation to file or prosecute any patent applications or maintain any patents
in force in connection therewith. Notwithstanding anything contained herein to
the contrary, this Section 5.03 will not be applicable to any rights in, or to
the use of, the Conexant Marks (which are the subject of Section 5.02).
(ii) Washington makes no representations or warranties of any kind with
respect to the validity, scope or enforceability of any intellectual property
rights licensed by Washington or the Washington Subsidiaries pursuant to this
Section 5.03 and none of Washington or the Washington Subsidiaries has any
obligation to file or prosecute any patent applications or maintain any patents
in force in connection therewith.
SECTION 5.04 Software and Other License Agreements. If after the Time of
Distribution, Washington (or any member of the Washington Group) no longer has
licensee rights under any software or other license agreement of Conexant (or
any member of the Conexant Group) (a "Conexant License Agreement") that, prior
to the Time of Distribution, was used in the conduct of the Washington Business
(i) because such license agreement does not constitute a Washington Asset; (ii)
because the transfer of, or sublicense under, such Conexant License Agreement
required the consent of a third party and such consent was not obtained or (iii)
for any other reason, then Washington shall be responsible for all costs and
expenses incurred in connection with the procurement of new license agreements
to replace any such
B-37
Conexant License Agreements. Conexant will use commercially reasonable efforts
to assist Washington in the procurement of such new license agreements; provided
that all of Conexant's costs and expenses incurred in connection therewith shall
be paid by Washington.
SECTION 5.05 Non-Solicitation of Employees. Without the express written
agreement of either (a) both the Chief Executive Officer of Conexant and the
Chief Executive Officer of Alpha or (b) both the Senior Vice President, Human
Resources of Conexant and the Vice President, Treasurer, Chief Financial Officer
and Secretary of Alpha:
(a) Conexant agrees not to (and to cause the other members of the
Conexant Group not to) solicit, recruit or hire any employee of, or
individuals providing contracting services to, Washington or any other
member of the Washington Group for a period of six months following the
Distribution Date or until six months after such employee's employment
with, or such individual's provision of contracting services to, Washington
or any other member of the Washington Group terminates, whichever occurs
first;
(b) Washington agrees not to (and to cause the other members of the
Washington Group, Alpha and all Subsidiaries and Affiliates of Alpha not
to) solicit, recruit or hire any employee of, or individuals providing
contracting services to, Conexant or any other member of the Conexant Group
for a period of six months following the Distribution Date or until six
months after such employee's employment with, or such individual's
provision of contracting services to, Conexant or any other member of the
Conexant Group terminates, whichever occurs first; and
(c) Notwithstanding the foregoing (but subject to the restriction on
hiring), such prohibitions on solicitation do not restrict general
recruitment efforts carried out through a public or general solicitation.
ARTICLE VI
ACCESS TO INFORMATION
SECTION 6.01 Provision of Corporate Records. Prior to or as promptly as
practicable after the Time of Distribution, Conexant shall deliver to Washington
all minute books and other records of meetings of the Board of Directors,
committees of the Board of Directors and stockholders of the Washington Group,
all corporate books and records of the Washington Group in its possession and
the relevant portions (or copies thereof) of all corporate books and records of
the Conexant Group relating directly and primarily to the Washington Assets, the
Washington Business or the Washington Liabilities, including, in each case, all
active agreements and active litigation files. From and after the Time of
Distribution, all such books, records and copies shall be the property of
Washington. Prior to or as promptly as practicable after the Time of
Distribution, Washington shall deliver to Conexant all corporate books and
records of the Conexant Group in Washington's possession (other than the books,
records and copies described in the first sentence of this Section 6.01) and the
relevant portions (or copies thereof) of all corporate books and records of the
Washington Group relating directly and primarily to the Conexant Assets, the
Conexant Business or the Conexant Liabilities, including, in each case, all
active agreements and active litigation files. From and after the Time of
Distribution, all such books, records and copies shall be the property of
Conexant.
SECTION 6.02 Access to Information. (a) From and after the Time of
Distribution, Conexant will, and will cause each Conexant Subsidiary to, afford
to Washington and its Representatives (at Washington's expense) reasonable
access and duplicating rights during normal business hours and upon reasonable
advance notice to all pre-Distribution Information within the Conexant Group's
possession or control relating to Washington, any Washington Subsidiary, any
Washington Asset, any Washington Liability or the Washington Business, insofar
as such access is reasonably required by Washington or any Washington
Subsidiary, subject to the provisions below regarding Privileged Information.
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(b) From and after the Time of Distribution, Washington will, and will
cause each Washington Subsidiary to, afford to Conexant and its Representatives
(at Conexant's expense) reasonable access and duplicating rights during normal
business hours and upon reasonable advance notice to all pre-Distribution
Information within the Washington Group's possession or control relating to
Conexant, any Conexant Subsidiary, any Conexant Asset, any Conexant Liability or
the Conexant Business, insofar as such access is reasonably required by Conexant
or any Conexant Subsidiary, subject to the provisions below regarding Privileged
Information.
(c) Without limiting the foregoing, Information may be requested under this
Article VI for audit (including in respect of any audit of the Washington
Business after the Time of Distribution), accounting, claims, litigation,
insurance, environmental and safety and tax purposes, as well as for purposes of
fulfilling disclosure and reporting obligations and for performing this
Agreement and the transactions contemplated hereby.
In furtherance of the foregoing:
(i) Each party acknowledges that (A) each of Conexant and Washington
(and the members of the Conexant Group and the Washington Group,
respectively) has or may obtain Privileged Information; (B) there are or
may be a number of Actions affecting one or more of the members of the
Conexant Group and the Washington Group; (C) the parties may have a common
legal interest in Actions, in the Privileged Information, and in the
preservation of the confidential status of the Privileged Information; and
(D) each of Conexant and Washington intends that the transactions
contemplated by the Transaction Agreements and any transfer of Privileged
Information in connection therewith shall not operate as a waiver of any
potentially applicable privilege.
(ii) Each of Conexant and Washington agrees, on behalf of itself and
each member of the Group of which it is a member, not to disclose or
otherwise waive any privilege attaching to any Privileged Information
relating to the pre-Distribution business of the other Group or relating to
or arising in connection with the relationship between the Groups on or
prior to the Time of Distribution, without providing prompt written notice
to and obtaining the prior written consent of the other, which consent will
not be unreasonably withheld. In the event of a disagreement between any
member of the Conexant Group and/or any member of the Washington Group
concerning the reasonableness of withholding such consent, no disclosure
will be made prior to a final, nonappealable resolution of such
disagreement by a court of competent jurisdiction.
(iii) Upon any member of the Conexant Group or any member of the
Washington Group receiving any subpoena or other compulsory disclosure
notice from a court, other Governmental Entity or otherwise which requests
disclosure of Privileged Information, in each case relating to the pre-
Distribution business of the other Group or relating to or arising in
connection with the relationship between the Groups on or prior to the Time
of Distribution, the recipient of the notice will promptly provide to the
other party (following the notice provisions set forth herein) a copy of
such notice, the intended response, and a description of all materials or
information relating to the other Group that might be disclosed. In the
event of a disagreement as to the intended response or disclosure, unless
and until the disagreement is resolved as provided in Section 6.02(c)(ii),
the parties will cooperate to assert all defenses to disclosure claimed by
either Group, at the cost and expense of the Group claiming such defense to
disclosure, and shall not disclose any disputed documents or information
until all legal defenses and claims of privilege have been finally
determined.
SECTION 6.03 Production of Witnesses. Subject to Section 6.02, after the
Time of Distribution, each of Conexant and Washington will, and will cause each
member of the Conexant Group and the Washington Group, respectively, to, make
available to the other party and members of such other party's Group, upon
written request and at the cost and expense of the party so requesting, its
directors, officers, employees and agents as witnesses to the extent that any
such Person may reasonably be required (giving consideration to business demands
of such directors, officers, employees and agents) in connection with any
Actions, administrative or other proceedings in which the requesting party may
from time to time be involved and relating to the pre-Distribution business of
either Group or relating to or arising in connection
B-39
with the relationship between the Groups on or prior to the Time of
Distribution, provided that the same shall not unreasonably interfere with the
conduct of business by the Group of which the request is made.
SECTION 6.04 Retention of Records. Except as otherwise required by law or
agreed to by the parties in writing, if any Information relating to the
pre-Distribution business, Assets or Liabilities of a member of a Group is
retained by a member of the other Group, each of Conexant and Washington will,
and will cause the members of the Group of which it is a member to, retain for
the period required by the applicable Conexant records retention policy in
effect immediately prior to the Time of Distribution all such Information in
such Group's possession or under its control. In addition, after the expiration
of such required retention period, if any member of either Group wishes to
destroy or dispose of any such Information, prior to destroying or disposing of
any of such Information, (i) Conexant or Washington, on behalf of the member of
its Group that is proposing to destroy or dispose of any such Information, will
provide no less than 30 days' prior written notice to the other party,
specifying in reasonable detail the Information proposed to be destroyed or
disposed of, and (ii) if, prior to the scheduled date for such destruction or
disposal, the recipient of such notice requests in writing that any of the
Information proposed to be destroyed or disposed of be delivered to such
requesting party, the party whose Group is proposing to destroy or dispose of
such Information promptly will arrange for the delivery of the requested
Information to a location specified by, and at the expense of, the requesting
party.
SECTION 6.05 Confidentiality. Subject to the provisions of Section 6.02,
which shall govern Privileged Information, from and after the Time of
Distribution, each of Conexant and Washington shall hold, and shall use
reasonable efforts to cause members of its Group and its and their Affiliates
and Representatives to hold, in strict confidence all Information concerning the
other party's Group in its possession or control prior to the Time of
Distribution or furnished to it by such other party's Group pursuant to the
Transaction Agreements or the transactions contemplated thereby and will not
release or disclose such Information to any other Person, except members of its
Group and its and their Representatives, who will be bound by the provisions of
this Section 6.05; provided, however, that any member of the Conexant Group or
the Washington Group may disclose such Information to the extent that (a)
disclosure is compelled by judicial or administrative process or, in the opinion
of such Person's counsel, by other requirements of law (in which case the party
required to make such disclosure will notify the other party as soon as
practicable of such obligation or requirement and cooperate with the other party
to limit the Information required to be disclosed and to obtain a protective
order or other appropriate remedy with respect to the Information ultimately
disclosed) or (b) such Person can show that such Information was (i) available
to such Person on a nonconfidential basis (other than from a member of the other
party's Group) prior to its disclosure by such Person, (ii) in the public domain
through no fault of such Person or (iii) lawfully acquired by such Person from
another source after the time that it was furnished to such Person by the other
party's Group, and not acquired from such source subject to any confidentiality
obligation on the part of such source known to the acquiror, or on the part of
the acquiror. Each party acknowledges that it will be liable for any breach of
this Section 6.05 by its Affiliates, Representatives and Subsidiaries.
Notwithstanding the foregoing, each of Conexant and Washington will be deemed to
have satisfied its obligations under this Section 6.05 with respect to any
Information (other than Privileged Information) if it exercises the same care
with regard to such Information as it takes to preserve confidentiality for its
own similar Information.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 Entire Agreement; Construction. This Agreement and the
Ancillary Agreements, including any annexes, schedules and exhibits hereto or
thereto, and other agreements and documents referred to herein and therein, will
together constitute the entire agreement between the parties with respect to the
subject matter hereof and thereof and will supersede all prior negotiations,
agreements and understandings of the parties of any nature, whether oral or
written, with respect to such subject matter. Notwithstanding any other
provisions in the Transaction Agreements to the contrary, (i) in the event and
B-40
to the extent that there is a conflict between the provisions of this Agreement
and the provisions of the Employee Matters Agreement or the Tax Allocation
Agreement, the provisions of the Employee Matters Agreement or the Tax
Allocation Agreement, as appropriate, will control and (ii) in the event and to
the extent that there is a conflict between the provisions of this Agreement and
the provisions of any Conveyance and Assumption Instruments, the provisions of
this Agreement will control.
SECTION 7.02 Survival of Agreements. Except as otherwise contemplated by
the Transaction Agreements, all covenants and agreements of the parties
contained in the Transaction Agreements will remain in full force and effect and
survive the Time of Distribution.
SECTION 7.03 Governing Law. This Agreement will be governed by and
construed in accordance with the internal laws of the State of Delaware
applicable to contracts made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
SECTION 7.04 Notices. All notices, requests, claims, demands and other
communications required or permitted to be given hereunder will be in writing
and will be delivered by hand or telecopied, e-mailed or sent, postage prepaid,
by registered, certified or express mail or reputable overnight courier service
and will be deemed given when so delivered by hand or telecopied, when e-mail
confirmation is received if delivered by e-mail, or three business days after
being so mailed (one business day in the case of express mail or overnight
courier service). All such notices, requests, claims, demands and other
communications will be addressed as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
(a) If to Conexant:
Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, California 92660-3095
Attention: Dwight W. Decker
Chairman of the Board and Chief Executive Officer
Telecopy: (949) 483-4318
E-mail: dwight.decker@conexant.com
with a copy to:
Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, California 92660-3095
Attention: Dennis E. O'Reilly, Esq.
Senior Vice President, General Counsel
and Secretary
Telecopy: (949) 483-6388
E-mail: dennis.o'reilly@conexant.com
(b) If to Washington after the Effective Time:
Washington Sub, Inc.
c/o Alpha Industries, Inc.
20 Sylvan Road
Woburn, Massachusetts 01801
Attention: Paul E. Vincent
Chief Financial Officer
Telecopy: (617) 824-4426
E-mail: pvincent@alphaind.com
B-41
with a copy to:
Alpha Industries, Inc.
20 Sylvan Road
Woburn, Massachusetts 01801
Attention: James K. Jacobs, Esq.
General Counsel
Telecopy: (617) 824-4564
E-mail: jjacobs@alphaind.com
SECTION 7.05 Dispute Resolution. In the event that from and after the
Time of Distribution any dispute, claim or controversy (collectively, a
"Dispute") arises out of or relates to any provision of any Transaction
Agreement or the breach, performance, enforcement or validity or invalidity
thereof, the designees of the Conexant Chief Executive Officer and the Alpha
Chief Executive Officer will attempt a good faith resolution of the Dispute
within thirty days after either party notifies the other party in writing of the
Dispute. If the Dispute is not resolved within thirty days of the receipt of the
notification, or within such other time as they may agree, the Dispute will be
referred for resolution to the Conexant Chief Executive Officer and the Alpha
Chief Executive Officer. Should they be unable to resolve the Dispute within
thirty days following the referral to them, or within such other time as they
may agree, Conexant and Washington will then attempt in good faith to resolve
such Dispute by mediation in accordance with the then-existing CPR Mediation
Procedures promulgated by the CPR Institute for Dispute Resolution, New York
City. If such mediation is unsuccessful within thirty days (or such other period
as the parties may mutually agree) after the commencement thereof, such Dispute
shall be submitted by the parties to binding arbitration, initiated and
conducted in accordance with the then-existing American Arbitration Association
Commercial Arbitration Rules, before a single arbitrator selected jointly by
Conexant and Alpha, who shall not be the same person as the mediator appointed
pursuant to the preceding sentence. If Conexant and Alpha cannot agree upon the
identity of an arbitrator within ten days after the arbitration process is
initiated, then the arbitration will be conducted before three arbitrators, one
selected by Conexant, one selected by Alpha and the third selected by the first
two. The arbitration shall be conducted in San Francisco, California and shall
be governed by the United States Arbitration Act, 9 U.S.C. Sections 1-16, and
judgment upon the award may be entered by any court having jurisdiction thereof.
The arbitrators shall have case management authority and shall resolve the
Dispute in a final award within one hundred eighty days from the commencement of
the arbitration action, subject to any extension of time thereof allowed by the
arbitrators upon good cause shown.
SECTION 7.06 Amendments. This Agreement cannot be amended, modified or
supplemented except by a written agreement executed by Conexant and Washington
that is consented to in writing by Alpha.
SECTION 7.07 Assignment. Except as otherwise provided herein, neither
party to this Agreement will convey, assign or otherwise transfer any of its
rights or obligations under this Agreement without the prior written consent of
the other party and Alpha in its sole and absolute discretion. Notwithstanding
the foregoing, either party may (without obtaining any consent) assign, delegate
or sublicense all or any portion of its rights and obligations hereunder to (i)
the surviving entity resulting from a merger or consolidation involving such
party, (ii) the acquiring entity in a sale or other disposition of all or
substantially all of the assets of such party as a whole or of any line of
business or division of such party, or (iii) any other Person that is created as
a result of a spin-off from, or similar reorganization transaction of, such
party or any line of business or division of such party. In the event of an
assignment pursuant to (ii) or (iii) above, the nonassigning party shall, at the
assigning party's request, use good faith commercially reasonable efforts to
enter into separate agreements with each of the resulting entities and take such
further actions as may be reasonably required to assure that the rights and
obligations under this Agreement are preserved, in the aggregate, and divided
equitably between such resulting entities. Any conveyance, assignment or
transfer requiring the prior written consent of another party pursuant to this
B-42
Section 7.07 which is made without such consent will be void ab initio. No
assignment of this Agreement will relieve the assigning party of its obligations
hereunder.
SECTION 7.08 Captions; Currency. The article, section and paragraph
captions herein and the table of contents hereto are for convenience of
reference only, do not constitute part of this Agreement and will not be deemed
to limit or otherwise affect any of the provisions hereof. Unless otherwise
specified, all references herein to numbered articles or sections are to
articles and sections of this Agreement and all references herein to schedules
are to schedules to this Agreement. Unless otherwise specified, all references
contained in this Agreement, in any schedule referred to herein or in any
instrument or document delivered pursuant hereto to dollars or "$" shall mean
United States Dollars.
SECTION 7.09 Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, will remain in full force and effect and will in no way be
affected, impaired or invalidated thereby. If the economic or legal substance of
the transactions contemplated hereby is affected in any manner adverse to any
party as a result thereof, the parties will negotiate in good faith in an effort
to agree upon a suitable and equitable substitute provision to effect the
original intent of the parties.
SECTION 7.10 Parties in Interest. This Agreement is binding upon and is
for the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement is not made for the benefit of any Person not
a party hereto, and no Person other than the parties hereto or their respective
successors and permitted assigns will acquire or have any benefit, right, remedy
or claim under or by reason of this Agreement, except that (i) the provisions of
Sections 4.02 and 4.03 shall inure to the benefit of and shall be enforceable by
the Persons referred to therein and (ii) the provisions of Sections 2.01, 3.01,
5.03, 7.06, 7.07 and 7.10 and the last sentence of Section 7.12 shall inure to
the benefit of and shall be enforceable by Alpha.
SECTION 7.11 Schedules. All schedules attached hereto are hereby
incorporated in and made a part of this Agreement as if set forth in full
herein. Capitalized terms used in the schedules hereto but not otherwise defined
therein will have the respective meanings assigned to such terms in this
Agreement.
SECTION 7.12 Waivers; Remedies. No failure or delay on the part of either
Conexant or Washington in exercising any right, power or privilege hereunder
will operate as a waiver thereof, nor will any waiver on the part of either
Conexant or Washington of any right, power or privilege hereunder operate as a
waiver of any other right, power or privilege hereunder, nor will any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege hereunder. Subject to Section 7.05, except as otherwise provided
herein, the rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies which the parties may otherwise have at law
or in equity. Notwithstanding the foregoing, Washington will not waive any
right, power or privilege hereunder in any material respect without the prior
written consent of Alpha.
SECTION 7.13 Further Assurances. From time to time after the Time of
Distribution, as and when requested by either party hereto, the other party
shall execute and deliver, or cause to be executed and delivered, all such
documents and instruments and shall take, or cause to be taken, all such actions
as the requesting party may reasonably request to consummate the transactions
contemplated by the Transaction Agreements.
SECTION 7.14 Counterparts. This Agreement may be executed in separate
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts will together constitute the same agreement. This
Agreement may be executed and delivered by telecopier with the same force and
effect as if it were a manually executed and delivered counterpart.
SECTION 7.15 Performance. Conexant will cause to be performed and hereby
guarantees the performance of all actions, agreements and obligations set forth
herein to be performed by any Conexant
B-43
Subsidiary. Washington will cause to be performed and hereby guarantees the
performance of all actions, agreements and obligations set forth herein to be
performed by any Washington Subsidiary.
SECTION 7.16 Currency Calculations. Following the Distribution Date, for
purposes of calculating the United States Dollar equivalent of any amount
payable under any Transaction Agreement which is denominated in a currency other
than United States Dollars, the New York foreign exchange selling rate
applicable to such currency will be used, as published in the Wall Street
Journal, New York Edition, for the second business day preceding the earlier of
the date such payment is due or the date such payment is made (it being
understood that this Section 7.16 shall not apply to the conversion of foreign
currency balances made as of the Distribution Date in accordance with standard
Conexant accounting practices and procedures).
SECTION 7.17 Interpretation. Any reference herein to any federal, state,
local, or foreign law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. For the purposes
of this Agreement, (a) words in the singular shall be held to include the plural
and vice versa and words of one gender shall be held to include the other gender
as the context requires, (b) the terms "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 (c) the word "including" and words of similar import when used in this
Agreement shall mean "including, without limitation".
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
B-44
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties as of the date first hereinabove
written.
CONEXANT SYSTEMS, INC.
By: /s/ DWIGHT W. DECKER
------------------------------------
Dwight W. Decker
Chairman of the Board and
Chief Executive Officer
WASHINGTON SUB, INC.
By: /s/ DWIGHT W. DECKER
------------------------------------
Dwight W. Decker
Chairman of the Board and
Chief Executive Officer
Alpha acknowledges that from and after the Effective Time (as defined in
the Merger Agreement), Alpha will succeed to all rights, obligations and
Liabilities of Washington under this Agreement. In addition, Alpha hereby agrees
to be bound by, and to cause its Subsidiaries to be bound by, the provisions of
Section 5.03 and 7.05 that are applicable to Alpha and its Subsidiaries.
ALPHA INDUSTRIES, INC.
By: /s/ DAVID J. ALDRICH
------------------------------------
David J. Aldrich
President and Chief Executive
Officer
B-45
ANNEX C
U.S. BANCORP PIPER JAFFRAY INC. LOGO
December 16, 2001
PERSONAL AND CONFIDENTIAL
Board of Directors
Alpha Industries, Inc.
20 Sylvan Road
Woburn, MA 01801
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Alpha Industries, Inc. ("Alpha") and its holders of common stock (other
than Washington and Conexant (each as defined below) and their affiliates) of
the consideration (the "Consideration") to be paid by Alpha to shareholders of
Washington in the Merger described below, as set forth in the Agreement and Plan
of Merger and Reorganization (the "Agreement") to be entered into among Conexant
Systems, Inc. ("Conexant"), Washington Sub, Inc., a wholly owned subsidiary of
Conexant ("Washington"), and Alpha.
The Agreement contemplates that, subject to the terms and conditions therein:
A. Pursuant to a Contribution and Distribution Agreement to be entered
into between Conexant and Washington (the "Contribution Agreement"),
among other things, all of the Washington Assets (as defined in the
Contribution Agreement) and Washington Liabilities (as defined in the
Contribution Agreement) will be assigned to and assumed by Washington
and any one or more of the Washington Subsidiaries (as defined in the
Contribution Agreement) (the "Contribution"); and following the
Contribution, all of the Washington Common Stock will be distributed to
Conexant's stockholders (the "Distribution"); and
B. Immediately following the Distribution, Washington will merge with and
into Alpha (the "Merger"), following which Alpha will be the surviving
corporation and pursuant to which each share of Washington Common Stock
will be converted into the right to receive shares of Alpha Common
Stock, as determined by the Exchange Ratio (as defined in the
Agreement).
Capitalized terms used, but not defined herein shall have the meanings ascribed
to them in the Agreement and the Contribution Agreement. Based on the advice of
management of Conexant and Alpha, we understand and have assumed for purposes
hereof that the Washington Assets, the Washington Liabilities, and the assets
and liabilities being conveyed pursuant to the Mexican Stock and Asset Purchase
Agreement and U.S. Asset Purchase Agreement constitute all the material assets
and liabilities of the wireless communications business of Conexant (the
"Washington Business"). The Contribution,
C-1
Distribution, Merger, the conveyance of assets and liabilities pursuant to the
Mexican Stock and Asset Purchase Agreement and the U.S. Asset Purchase Agreement
and the other transactions contemplated in the Agreement and the Contribution
Agreement are collectively referred to as the "Transactions." The terms and
conditions of the Transactions are more fully set forth in the Agreement, the
Contribution Agreement, the Mexican Stock and Asset Purchase Agreement, the U.S.
Asset Purchase Agreement and related documents.
U.S. Bancorp Piper Jaffray Inc. ("U.S. Bancorp Piper Jaffray"), as a customary
part of our investment banking business, is engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
underwriting and secondary distributions of securities, private placements and
valuations for estate, corporate and other purposes. We have acted as financial
advisor to Alpha in connection with the Merger and will receive a fee from Alpha
which is contingent upon the consummation of the Merger. We will also receive a
fee from Alpha for providing this opinion. This opinion fee is not contingent
upon the consummation of the Merger. In the event that Alpha pursues a financing
in connection with the Transactions, Alpha has agreed to pay us a fee to act as
advisor on the financing. Alpha has also agreed to indemnify us against certain
liabilities in connection with our services. In the ordinary course of our
business, we and our affiliates may actively trade securities of Alpha and
Conexant for our own account or the account of our customers and, accordingly,
we may at any time hold a long or short position in such securities. We have
performed investment banking services for Alpha in the past.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. We
have reviewed (i) a draft dated December 15, 2001 of the Agreement, (ii) a draft
dated December 15, 2001 of the Contribution Agreement, (iii) a draft dated
December 16, 2001 of the Tax Allocation Agreement, (iv) a draft dated December
16, 2001 of the Employee Matters Agreement, (v) a draft dated December 15, 2001
of the Mexican Stock and Asset Purchase Agreement, and (vii) a draft dated
December 16, 2001 of the U.S. Asset Purchase Agreement (collectively, the
"Transaction Documents"). We also have reviewed financial and other information
that was publicly available or furnished to us by Alpha and Conexant, including
information provided during discussions with the management of each company and
the Washington Business. This information included, without limitation, the
Washington Financial Statements and certain internal business, operating and
financial information and projections relating to the Washington Business as
provided by Conexant's management. In addition, we have compared certain
financial data of Alpha, the Washington Business and Conexant with various other
companies whose securities are traded in public markets and, to the extent
publicly available, reviewed prices paid in certain other selected business
combinations deemed comparable to the Merger.
We have relied upon and assumed the accuracy and completeness of the financial
statements and other information provided by Alpha and Conexant or otherwise
made available to us and have not assumed responsibility independently to verify
such information. We have further relied upon the assurances of the respective
management of Alpha, Conexant and the Washington Business that the information
provided has been prepared on a reasonable basis in accordance with industry
practice, and, with respect to financial planning data, reflects the best
currently available estimates and judgment of respective management of Alpha,
Conexant and the Washington Business and that they are not aware of any
information or facts that would make the information provided to us incomplete
or misleading. We express no opinion as to such financial planning data or the
assumptions on which it is based.
We have assumed that that the Transactions will be non-taxable for United States
federal and state income tax purposes to the respective shareholders of Alpha,
Conexant and Washington; and that none of Alpha, Conexant or Washington will
recognize material income, gain or loss for United States federal or other
income tax purposes as a result of the Transactions. We have not independently
verified that such tax treatment will be available in respect of the
Transactions, and we express no view with respect to the tax treatment that will
be required to be applied to the Transactions. In addition, we have assumed,
with your consent, that following the consummation of the Transactions, no
indemnification payments with respect to any taxes or otherwise will be required
to be made by Alpha pursuant to the Agreement or Contribution Agreement.
C-2
We have relied as to all legal and tax matters on the advice of counsel and tax
advisors to Alpha. We have assumed that the executed Transaction Documents will
be in all material respects identical to the last drafts reviewed by us. We have
also assumed the Transactions will be consummated pursuant to the terms of the
Transaction Documents without amendments thereto and without waiver by any party
of any material conditions or obligations thereunder.
For the purpose of this opinion, we have assumed that neither Alpha nor Conexant
is party to any material pending or probable transaction, including any external
financing, recapitalization, acquisition or merger, other than the Transactions
and the potential financing by Alpha of the aggregate purchase price under the
Mexican Stock and Asset Purchase Agreement and U.S. Asset Purchase Agreement by
means of an offering of equity or debt. In arriving at our opinion, we have also
assumed that all the necessary regulatory approvals and consents required for
the Transactions will be obtained in a manner that will not adversely affect
Alpha or Conexant or alter the terms of the Transactions. In arriving at our
opinion, we have also assumed, based on discussions with management and legal
representatives of Alpha, that the Transactions will not result in a change in
control of Alpha under applicable state law. Accordingly we did not evaluate the
fairness, from a financial point of view, to Alpha and the holders of common
stock of Alpha of the Consideration in the context of a change in control.
In arriving at our opinion, we have not performed any appraisals or valuations
of any specific assets or liabilities of Alpha, Conexant or the Washington
Business, including, without limitation, the assets and liabilities being
conveyed pursuant to the Mexican Stock and Asset Purchase Agreement and the U.S.
Asset Purchase Agreement, and have not been furnished with any such appraisals
or valuations. We express no opinion regarding the liquidation value of Alpha,
Conexant, the Washington Business or any other entity. For the purpose of this
opinion, we have assumed that Alpha will be provided the necessary support,
personnel and transition services pursuant to the Transaction Documents,
together with other arrangements, to permit Alpha to operate the combined
company in the ordinary course. Without limiting the generality of the
foregoing, we have undertaken no independent analysis of any pending or
threatened litigation, possible unasserted claims or other contingent
liabilities, to which Alpha, the Washington Business, Conexant or any of their
respective affiliates is a party or may be subject and, at your direction and
with your consent, our opinion makes no assumption concerning, and therefore
does not consider, the possible assertions of claims, outcomes or damages
arising out of any such matters.
This opinion is necessarily based upon the information available to us and facts
and circumstances as they exist and are subject to evaluation on the date
hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the price at which shares of common stock of Alpha have traded or
may trade following announcement or consummation of the Transactions or at any
future time. We have not undertaken to reaffirm or revise this opinion or
otherwise comment upon any events occurring after the date hereof and do not
have any obligation to update, revise or reaffirm this opinion.
This opinion is directed to the Board of Directors of Alpha in connection with
its consideration of the Merger and is not intended to be and does not
constitute a recommendation to any stockholder of Alpha as to how such
shareholders should vote or any action they should take with respect to the
proposed Merger or other Transactions. Except with respect to the use of this
opinion in connection with the prospectus/proxy statement relating to the
Merger, this opinion shall not be published or otherwise used, nor shall any
public references to us be made, without our prior written approval.
This opinion addresses solely the fairness, from a financial point of view, to
Alpha and the holders of common stock of Alpha of the proposed Consideration and
does not address any other terms or agreement relating to the Transactions. We
were not requested to opine as to, and this opinion does not address, the basic
business decision to proceed with or effect the Transactions. We express no
opinion as to whether any alternative transaction might produce superior
benefits to Alpha or its shareholders. We were not requested to solicit, and we
did not solicit, any expressions of interest from any other parties with respect
to any business combination with Alpha or any other alternative transaction.
C-3
Based upon and subject to the foregoing and based upon such other factors as we
consider relevant, it is our opinion that the Consideration to be paid by Alpha
is fair, from a financial point of view, to Alpha and the holders of common
stock of Alpha (other than Conexant, Washington and their affiliates) as of the
date hereof.
Sincerely,
U.S. BANCORP PIPER JAFFRAY INC.
C-4
ANNEX D
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ALPHA INDUSTRIES, INC.
FIRST: The name of the Corporation is
Alpha Industries, Inc.
SECOND: The Corporation's principal office in the State of Delaware is
located at 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent. The name and address of its registered agent is The Prentice-Hall
Corporation System, Inc., 32 Loockerman Square, Suite L-100, Dover, Delaware.
THIRD: The nature of the business, or objects or purposes to be
transacted, promoted or carried on, are: To engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is 550,000,000, of which (i)
525,000,000 shares of the par value of $.25 each are to be of a class designated
Common Stock (the "Common Stock") and (ii) 25,000,000 shares without par value
are to be of a class designated Preferred Stock (the "Preferred Stock").
In this Article Fourth, any reference to a section or paragraph, without
further attribution, within a provision relating to a particular class of stock
is intended to refer solely to the specified section or paragraph of the other
provisions relating to the same class of stock.
COMMON STOCK
The Common Stock shall have the following voting powers, designations,
preferences and relative, participating, optional and other special rights, and
qualifications, limitations or restrictions thereof:
1. DIVIDENDS. Subject to the rights of the holders of Preferred
Stock, the holders of shares of the Common Stock shall be entitled to
receive such dividends and distributions in equal amounts per share,
payable in cash or otherwise, as may be declared thereon by the Board of
Directors from time to time out of assets or funds of the Corporation
legally available therefor.
2. RIGHTS ON LIQUIDATION. In the event of any liquidation,
dissolution or winding-up of the Corporation, whether voluntary or
involuntary, after the payment to creditors and the payment or setting
apart for payment to the holders of any outstanding Preferred Stock of the
full preferential amounts to which such holders are entitled as herein
provided or referred to, all of the remaining assets of the Corporation
shall belong to and be distributable in equal amounts per share to the
holders of the Common Stock. For purposes of this paragraph 2, a
consolidation or merger of the Corporation with any other corporation, or
the sale, transfer or lease of all or substantially all its assets shall
not constitute or be deemed a liquidation, dissolution or winding-up of the
Corporation.
3. VOTING. Except as otherwise provided by the laws of the State of
Delaware or by this Article Fourth, each share of Common Stock shall
entitle the holder thereof to one vote.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized to provide for the issuance of
shares of Preferred Stock in series and, by filing a certificate pursuant to the
applicable law of the State of Delaware (hereinafter referred to as a "Preferred
Stock Designation"), to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and the
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qualifications, limitations and restrictions thereof. The authority of the Board
of Directors with respect to each series shall include, but not be limited to,
determination of the following:
(a) the designation of the series, which may be by distinguishing
number, letter or title;
(b) the number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding);
(c) whether dividends, if any, shall be cumulative or noncumulative
and the dividend rate of the series;
(d) the dates at which dividends, if any, shall be payable;
(e) the redemption rights and price or prices, if any, for shares of
the series;
(f) the terms and amount of any sinking fund provided for the purchase
or redemption of shares of the series;
(g) the amounts payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation;
(h) whether the shares of the series shall be convertible into shares
of any other class or series, or any other security, of the Corporation or
any other corporation, and, if so, the specification of such other class or
series or such other security, the conversion price or prices or rate or
rates, any adjustments thereof, the date or dates as of which such shares
shall be convertible and all other terms and conditions upon which such
conversion may be made;
(i) restrictions on the issuance of shares of the same series or of
any other class or series; and
(j) the voting rights, if any, of the holders of shares of the series;
provided, that, except as otherwise provided by the laws of the State of
Delaware, no share of Preferred Stock of any series shall be entitled to
more than one vote per share of Preferred Stock.
Except as may be provided in this Certificate of Incorporation or in a
Preferred Stock Designation, the Common Stock shall have the exclusive right to
vote for the election of directors and for all other purposes, and holders of
Preferred Stock shall not be entitled to receive notice of any meeting of
stockholders at which they are not entitled to vote. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the shares of all classes of stock of the Corporation
entitled to vote for the election of directors, considered for the purposes of
this Article Fourth as one class of stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to any Preferred Stock Designation.
The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not the Corporation shall have
notice thereof, except as expressly provided by applicable law.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The private property of the stockholders of the Corporation shall
not be subject to the payment of corporate debts to any extent whatever.
SEVENTH: The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption). At the 1983
annual meeting of stockholders, the directors shall be divided into three
classes, as nearly equal in number as possible, with the term of office of the
first class to expire at the 1984 annual meeting of stockholders, the term of
office
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of the second class to expire at the 1985 annual meeting of stockholders and the
term of office of the third class to expire at the 1986 annual meeting of
stockholders. At each annual meeting of stockholders following such initial
classification and election, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, unless, by
reason of any intervening changes in the authorized number of directors, the
board shall designate one or more of the then expiring directorships as
directorships of another class in order more nearly to achieve equality of
number of directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly equal in
number of directors as possible, in the event of any change in the authorized
number of directors, each director then continuing to serve as such shall
nevertheless continue as a director of the class of which he is a member until
the expiration of his current term, or his prior death, resignation or removal.
If any newly created directorship may, consistently with the rule that the three
classes shall be as nearly equal in number of directors as possible, be
allocated to one of two or more classes, the Board of Directors shall allocate
it to that of the available classes whose term of office is due to expire at the
earliest date following such allocation.
Vacancies resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the directors then in office, though less than a
quorum, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires. No decrease in the number of authorized
directors shall shorten the term of any incumbent director.
Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock, as provided herein or in any Preferred Stock
Designation, to elect additional directors under specific circumstances, any
director may be removed from office at any time, but only for cause and only by
the affirmative vote of the holders of at least a majority of the shares of all
classes of stock of the Corporation entitled to vote for the election of
directors, considered for the purposes of this Article Seventh as one class of
stock.
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. No repeal or
modification of this paragraph, directly or by adoption of an inconsistent
provision of this Certificate of Incorporation, by the stockholders of the
Corporation shall be effective with respect to any cause of action, suit, claim
or other matter that, but for this paragraph, would accrue or arise prior to
such repeal or modification.
EIGHTH: Unless otherwise determined by the Board of Directors, no holder
of stock of the Corporation shall, as such holder, have any right to purchase or
subscribe for any stock of any class which the Corporation may issue or sell,
whether or not exchangeable for any stock of the Corporation of any class or
classes and whether out of unissued shares authorized by the Certificate of
Incorporation of the Corporation as originally filed or by any amendment thereof
or out of shares of stock of the Corporation acquired by it after the issue
thereof.
NINTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of the General Corporation Law of the State of
Delaware (the "GCL") or on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under the provisions of
section 279 of the GCL order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority
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in number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
TENTH:
1. AMENDMENT OF CERTIFICATE OF INCORPORATION. The Corporation
reserves the right to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, in the manner hereafter set
forth, and all rights conferred upon stockholders herein are granted
subject to this reservation.
A. Except as provided in paragraphs 1(B) and 2 of this Article Tenth
and in Article Eleventh, any provision of this Certificate of
Incorporation may be amended, altered, changed or repealed in the
manner now or hereafter prescribed by the statutes of the State of
Delaware.
B. Notwithstanding any of the provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit
a lesser vote or no vote, but in addition to any affirmative vote
of holders of any particular class or series of stock of the
Corporation required by law or this Certificate of Incorporation,
the affirmative vote of the holders of at least the following
percentages of the shares of all classes of stock of the
Corporation entitled to vote for the election of directors,
considered for this purpose as one class of stock, shall be
required to amend, alter, change or repeal, or to adopt any
provisions inconsistent with, the indicated provisions of this
Certificate of Incorporation:
(i) 80% in the case of Article Seventh or Article Thirteenth; and
(ii) 90% in the case of Article Twelfth.
The foregoing paragraphs 1(B)(i) and (ii) of this Article Tenth
may not be amended so as to alter the stockholder vote required by
either such paragraph or to adopt any provisions inconsistent with
these provisions, except by an amendment that is itself approved
by the affirmative vote of the holders of at least the percentage
of shares of all classes of stock of the Corporation as is
required to amend the provision or provisions of this Certificate
of Incorporation to which such amendment relates.
2. BY-LAWS. The Board of Directors is expressly authorized to adopt,
alter, amend and repeal the By-laws of the Corporation, in any manner not
inconsistent with the laws of the State of Delaware or of the Certificate
of Incorporation of the Corporation, subject to the power of the holders of
capital stock of the Corporation to adopt, alter or repeal the By-laws made
by the Board of Directors; provided, that any such adoption, amendment or
repeal by stockholders shall require the affirmative vote of the holders of
at least 66 2/3% of the shares of all classes of stock of the Corporation
entitled to vote for the election of directors, considered for this purpose
as one class of stock. This paragraph 2 of Article Tenth may not be amended
so as to alter the stockholder vote specified hereby, nor may any
provisions inconsistent with these provisions be adopted, except by an
amendment that is itself approved by the affirmative vote of the holders of
at least 66 2/3% of the shares of all classes of stock of the Corporation
entitled to vote for the election of directors, considered for this purpose
as one class of stock.
ELEVENTH:
1. Except as set forth in paragraph 2 of this Article Eleventh, the
affirmative vote or consent of the holders of 80% of the shares of all
classes of stock of the Corporation entitled to vote for the election of
directors, considered for the purposes of this Article as one class, shall
be required (a) for
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the adoption of any agreement for the merger or consolidation of the
Corporation with or into any Other Corporation (as hereinafter defined), or
(b) to authorize any sale, lease, exchange, mortgage, pledge or other
disposition of all, or substantially all of the assets of the Corporation
or any Subsidiary (as hereinafter defined) to any Other Corporation, or (c)
to authorize the issuance or transfer by the Corporation of any Substantial
Amount (as hereinafter defined) of securities of the Corporation in
exchange for the securities or assets of any Other Corporation. Such
affirmative vote or consent shall be in addition to the vote or consent of
the holders of the stock of the Corporation otherwise required by law, the
Certificate of Incorporation of the Corporation or any agreement or
contract to which the Corporation is a party.
2. The provisions of paragraph 1 of this Article Eleventh shall not
be applicable to any transaction described therein if such transaction is
approved by resolution of the Board of Directors of the Corporation;
provided that a majority of the members of the Board of Directors voting
for the approval of such transaction were duly elected and acting members
of the Board of Directors prior to the time any such Other Corporation may
have become a Beneficial Owner (as hereinafter defined) of 5% or more of
the shares of stock of the Corporation entitled to vote for the election of
directors.
3. For the purposes of paragraph 2 of this Article, the Board of
Directors shall have the power and duty to determine for the purposes of
this Article Eleventh, on the basis of information known to such Board, if
and when any Other Corporation is the Beneficial Owner of 5% or more of the
outstanding shares of stock of the Corporation entitled to vote for the
election of directors. Any such determination shall be conclusive and
binding for all purposes of this Article Eleventh.
4. As used in this Article Eleventh, the following terms shall have
the meanings indicated:
"Other Corporation" means any person, firm, corporation or other
entity, other than a subsidiary of the Corporation.
"Subsidiary" means any corporation in which the Corporation owns,
directly or indirectly, more than 50% of the voting securities.
"Substantial Amount" means any securities of the Corporation having
a then fair market value of more than $500,000.
An Other Corporation (as defined above) shall be deemed to be the
"Beneficial Owner" of stock if such Other Corporation or any "affiliate"
or "associate" of such Other Corporation (as those terms are defined in
Rule 12b-2 promulgated under the Securities Exchange Act of 1934 (15
U.S.C. 78 aaa et seq.), as amended from time to time), directly or
indirectly, controls the voting of such stock or has any options,
warrants, conversion or other rights to acquire such stock.
5. This Article Eleventh may not be amended, revised or revoked, in
whole or in part, except by the affirmative vote or consent of the holders
of 80% of the shares of all classes of stock of the Corporation entitled to
vote for the election of directors, considered for the purposes of this
Article Eleventh as one class of stock.
TWELFTH:
1. The following definitions shall apply for the purpose of this
Article Twelfth only:
A. "Announcement Date" shall mean the date of first public
announcement of the proposal of a Business Combination.
B. "Business Combination" shall mean:
(i) any merger or consolidation of the Corporation or any
Subsidiary with (a) any Related Person, or (b) any other corporation
(whether or not itself a Related Person) which is, or after such merger
or consolidation would be, an Affiliate of a Related Person; or
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(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with
any Related Person or any Affiliate of any Related Person of any assets
of the Corporation or any Subsidiary having an aggregate Fair Market
Value of $500,000 or more; or
(iii) the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Related Person or any Affiliate
of any Related Person in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value of
$500,000 or more; or
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any Related
Person or any Affiliate of any Related Person; or
(v) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
the Related Person) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any
class of equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any Related Person
or any Affiliate of any Related Person.
C. "Consideration Received" shall mean the amount of cash and the
Fair Market Value, as of the Consummation Date, of consideration other than
cash received by the stockholder. In the event of any Business Combination
in which the Corporation survives, the consideration other than cash shall
include shares of any class of outstanding Voting Stock retained by the
holders of such shares.
D. "Consummation Date" shall mean the date upon which the Business
Combination is consummated.
E. "Continuing Director" shall mean any member of the Board of
Directors of the Corporation who is unaffiliated with the Related Person
and who was a member of the Board of Directors prior to the time that the
Related Person became a Related Person, and any successor of a Continuing
Director who is unaffiliated with the Related Person and is recommended to
succeed a Continuing Director by a majority of the Continuing Directors
then on the Board of Directors.
F. "Determination Date" shall mean the date upon which a Related
Person became a Related Person.
G. "Exchange Act" shall mean the Securities Exchange Act of 1934 as
in effect on May 1, 1983.
H. "Fair Market Value" shall mean: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the principal United
States securities exchange registered under the Exchange Act on which such
stock is listed, or, if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of such stock during
the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations System or any
system then in use or, if no such quotations are available, the fair market
value on the date in question of a share of such stock as determined by the
Board of Directors in good faith; and (ii) in the case of property other
than cash or stock, the fair market value of such property on the date in
question as determined by the Board of Directors in good faith.
I. "Related Person" shall mean any individual, firm, corporation or
other entity (other than the Corporation or any Subsidiary) which, together
with its Affiliates and Associates (as such terms are defined in Rule 12b-2
under the Exchange Act) and with any other individual, firm, corporation or
other entity (other than the Corporation or any Subsidiary) with which it
or they have any agreement, arrangement or understanding with respect to
acquiring, holding or disposing of Voting
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Stock, beneficially owns (as defined in Rule 13d-3 of the Exchange Act,
except that such term shall include any Voting Stock which such person has
the right to acquire, whether or not such right may be exercised within 60
days), directly or indirectly, more than twenty percent of the voting power
of the outstanding Voting Stock.
J. "Subsidiary" shall mean any corporation in which a majority of the
capital stock entitled to vote generally in the election of directors is
owned, directly or indirectly, by the Corporation.
K. "Voting Stock" shall mean all of the then outstanding shares of
the capital stock of the Corporation entitled to vote generally in the
election of directors.
2. In addition to the affirmative vote otherwise required by law or
any provision of this Certificate of Incorporation (including without
limitation Article Eleventh), except as otherwise provided in paragraph 3,
any Business Combination shall require the affirmative vote of the holders
of 90% of all Voting Stock, voting together as a single class.
Such affirmative vote shall be required notwithstanding any other
provision of this Certificate of Incorporation or any provision of law or
of any agreement with any national securities exchange which might
otherwise permit a lesser vote or no vote, and such affirmative vote shall
be required in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law or by this
Certificate of Incorporation.
3. The provisions of paragraph 2 of this Article Twelfth shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote as is required by law,
any other provision of this Certificate of Incorporation (including Article
Eleventh), or any agreement with any national securities exchange, if, in
the case of a Business Combination that does not involve any Consideration
Received by the stockholders of the Corporation, solely in their respective
capacities as stockholders of the Corporation, the condition specified in
the following paragraph A is met, or, in the case of any other Business
Combination, the conditions specified in either of the following paragraphs
A and B are met:
A. The Business Combination shall have been approved by a majority of
the Continuing Directors, it being understood that this condition shall not
be capable of satisfaction unless there is at least one Continuing
Director.
B. All of the following conditions shall have been met:
(i) The form of the Consideration Received by holders of shares of
a particular class of outstanding Voting Stock shall be in cash or in
the same form as the Related Person has paid for shares of such class of
Voting Stock within the two-year period ending on and including the
Determination Date. If, within such two-year period, the Related Person
has paid for shares of any class of Voting Stock with varying forms of
consideration, the form of Consideration Received per share by holders
of shares of such class of Voting Stock shall be either cash or the form
used to acquire the largest number of shares of such class of Voting
Stock acquired by the Related Person within such two-year period.
(ii) The aggregate amount of Consideration Received per share by
holders of each class of Voting Stock in such Business Combination shall
be at least equal to the higher of the following (it being intended that
the requirements of this paragraph B(ii) shall be required to be met
with respect to every such class of Voting Stock outstanding, whether or
not the Related Person has previously acquired any shares of that
particular class of Voting Stock):
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by the Related Person for any shares of that class of Voting
Stock acquired by it within the two-year period immediately prior to
the Announcement Date or in the transaction in which it became a
Related Person, whichever is higher; or
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(b) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date; or
(c) in the case of any class of preferred stock, the highest
preferential amount per share to which the holders of shares of such
class of Voting Stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation.
(iii) After such Related Person has become a Related Person and
prior to the consummation of such Business Combination: (a) except as
approved by a majority of the Continuing Directors, there shall have
been no failure to declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on any outstanding
preferred stock; (b) there shall have been (I) no reduction in the
annual rate of dividends paid on the Common Stock (except as necessary
to reflect any subdivision of the Common Stock), except as approved by a
majority of the Continuing Directors, and (II) an increase in such
annual rate of dividends as necessary to reflect any reclassification
(including any reverse stock split), recapitalization, reorganization or
any similar transaction which has the effect of reducing the number of
outstanding shares of the Common Stock, unless the failure so to
increase such annual rate is approved by a majority of the Continuing
Directors; and (c) such Related Person shall have not become the
beneficial owner of any newly issued share of Voting Stock directly or
indirectly from the Corporation except as part of the transaction which
results in such Related Person becoming a Related Person.
(iv) After such Related Person has become a Related Person, such
Related Person shall not have received the benefit, directly or
indirectly (except proportionately, solely in such Related Person's
capacity as a stockholder of the Corporation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or
other tax advantages provided by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise.
(v) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Exchange
Act and the rules and regulations thereunder (or any subsequent
provisions replacing such act, rules or regulations) shall be mailed to
all stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to the Exchange
Act or subsequent provisions). Such proxy or information statement shall
contain on the front thereof, prominently displayed, any recommendation
as to the advisability or inadvisability of the Business Combination
which the Continuing Directors, or any of them, may have furnished in
writing to the Board of Directors.
4. A majority of the total number of authorized directors (whether or
not there exist any vacancies in previously authorized directorships at the
time any determination is to be made by the Board of Directors) shall have
the power and duty to determine, on the basis of information known to them
after reasonable inquiry, all facts necessary to determine compliance with
this Article Twelfth including, without limitation, (1) whether a person is
a Related Person, (2) the number of shares of Voting Stock beneficially
owned by any person, (3) whether the applicable conditions set forth in
paragraph (2) of Section C have been met with respect to any Business
Combination, and (4) whether the assets which are the subject of any
Business Combination or the Consideration Received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any Business
Combination have an aggregate Fair Market Value of $500,000 or more.
5. Nothing contained in this Article Twelfth shall be construed to
relieve any Related Person from any fiduciary obligation imposed by law.
THIRTEENTH: Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
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ANNEX E
SECOND AMENDED AND RESTATED
BY-LAWS OF
ALPHA INDUSTRIES, INC.
ARTICLE I
OFFICES
SECTION 1 Registered Office in Delaware; Resident Agent. The address of
the Corporation's registered office in the State of Delaware and the name and
address of its resident agent in charge thereof are as filed with the Secretary
of State of the State of Delaware.
SECTION 2 Other Offices. The Corporation may also have an office or
offices at such other place or places either within or without the State of
Delaware as the Board of Directors may from time to time determine or the
business of the Corporation requires.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1 Place of Meetings. All meetings of the stockholders of the
Corporation shall be held at such place, within or without the State of
Delaware, as may from time to time be designated by resolution passed by the
Board of Directors. The Board of Directors may, in its sole discretion,
determine that the meetings shall not be held at any place, but may instead be
held solely by means of remote communication.
SECTION 2 Annual Meeting. An annual meeting of the stockholders for the
election of directors and for the transaction of such other proper business,
notice of which was given in the notice of meeting, shall be held on a date and
at a time as may from time to time be designated by resolution passed by the
Board of Directors.
SECTION 3 Special Meetings. A special meeting of the stockholders for any
purpose or purposes shall be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the whole Board.
SECTION 4 Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of the stockholders, whether annual or special,
shall be mailed, postage prepaid, or sent by electronic transmission, not less
than ten nor more than sixty days before the date of the meeting, to each
stockholder entitled to vote at such meeting, at the stockholder's address as it
appears on the records of the Corporation. Every such notice shall state the
place, date and hour of the meeting, the means of remote communications, if any,
by which stockholders and proxy holders may be deemed to be present in person or
by proxy and vote at such meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. Notice of any adjourned
meeting of the stockholders shall not be required to be given, except when
expressly required by law.
SECTION 5 List of Stockholders. The Secretary shall, from information
obtained from the transfer agent, prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting: (a) on a reasonably accessible
electronic network, provided that the information required to gain access to
such list is provided with the notice of the meeting, or (b) during ordinary
business hours, at the principal place of business of the Corporation. In the
event that the Corporation determines to make the list available on an
electronic network, the Corporation may take reasonable steps to ensure that
such information is available only to
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stockholders of the Corporation. If the meeting is to be held at a specified
place, then the list shall be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. If the meeting is to be held solely by means of remote
communication, then the list shall also be open to the examination of any
stockholder during the whole time of the meeting on a reasonably accessible
electronic network, and the information required to access the list shall be
provided with the notice of the meeting. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list referred to in this section or the books of the Corporation, or to vote
in person or by proxy at any meeting of stockholders.
SECTION 6 Quorum. At each meeting of the stockholders, the holders of a
majority of the issued and outstanding stock of the Corporation present either
in person or by proxy shall constitute a quorum for the transaction of business
except where otherwise provided by law or by the Certificate of Incorporation or
by these By-laws for a specified action. Except as otherwise provided by law, in
the absence of a quorum, a majority in interest of the stockholders of the
Corporation present in person or by proxy and entitled to vote shall have the
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until stockholders holding the requisite amount of
stock shall be present or represented. At any such adjourned meeting at which a
quorum may be present, any business may be transacted which might have been
transacted at a meeting as originally called, and only those stockholders
entitled to vote at the meeting as originally called shall be entitled to vote
at any adjournment or adjournments thereof. The absence from any meeting of the
number of stockholders required by law or by the Certificate of Incorporation or
by these By-laws for action upon any given matter shall not prevent action at
such meeting upon any other matter or matters which may properly come before the
meeting, if the number of stockholders required in respect of such other matter
or matters shall be present.
SECTION 7 Organization. At every meeting of the stockholders the Chief
Executive Officer, or in the absence of the Chief Executive Officer, a director
or an officer of the Corporation designated by the Board, shall act as Chairman
of the meeting. The Secretary, or, in the Secretary's absence, an Assistant
Secretary, shall act as Secretary at all meetings of the stockholders. In the
absence from any such meeting of the Secretary and the Assistant Secretaries,
the Chairman may appoint any person to act as Secretary of the meeting.
SECTION 8 Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or
at the direction of the Board of Directors or (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of notice
provided for in this By-law, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this By-law.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this By-law, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the case of the
annual meeting to be held in 2003 or in the event that the date of the annual
meeting is more than 30 days before or after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating
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to such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
Notwithstanding anything in the second sentence of paragraph (A)(2) of this
By-law to the contrary, in the event that the number of directors to be elected
to the Board of Directors of the Corporation is increased and there is no public
announcement by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 100 days prior
to the first anniversary of the preceding year's annual meeting, a stockholder's
notice required by this By-law shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this By-law, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this By-law. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any stockholder who
shall be entitled to vote at the meeting may nominate a person or persons (as
the case may be), for election to such position(s) as specified in the
Corporation's notice of meeting, if the stockholder's notice required by
paragraph (A)(2) of this By-law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 120th day prior to such special meeting and not later than the
close of business on the later of the 90th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.
(C) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this By-law shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this By-law. Except as otherwise provided by law, the Certificate of
Incorporation or these By-laws, the Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this By-law and, if any proposed
nomination or business is not in compliance with this By-law, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
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(3) Notwithstanding the foregoing provisions of this By-law, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
By-law. Nothing in this By-law shall be deemed to affect any rights (i) of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of Preferred Stock to elect directors under specified
circumstances.
SECTION 9 Business and Order of Business. At each meeting of the
stockholders such business may be transacted as may properly be brought before
such meeting, except as otherwise provided by law or in these By-laws. The order
of business at all meetings of the stockholders shall be as determined by the
Chairman of the meeting.
SECTION 10 Voting. Except as otherwise provided by law, the Certificate
of Incorporation or these By-laws, each stockholder shall at every meeting of
the stockholders be entitled to one vote for each share of stock held by such
stockholder. Any vote on stock may be given by the stockholder entitled thereto
in person or by proxy appointed by an instrument in writing, subscribed (or
transmitted by electronic means and authenticated as provided by law) by such
stockholder or by the stockholder's attorney thereunto authorized, and delivered
to the Secretary; provided, however, that no proxy shall be voted after three
years from its date unless the proxy provides for a longer period. Except as
otherwise provided by law, the Certificate of Incorporation or these By-laws, at
all meetings of the stockholders, all matters shall be decided by the vote
(which need not be by ballot) of a majority in interest of the stockholders
present in person or by proxy and entitled to vote thereat, a quorum being
present.
SECTION 11 Participation at Meetings Held by Remote Communication. If
authorized by the Board of Directors in its sole discretion, and subject to such
guidelines and procedures as the Board of Directors may adopt, stockholders and
proxy holders not physically present at a meeting of stockholders may, by means
of remote communication: (A) participate in a meeting of stockholders; and (B)
be deemed present in person and vote at a meeting of stockholders whether such
meeting is to be held at a designated place or solely by means of remote
communication.
SECTION 12 Inspectors of Election. In advance of any meeting of
stockholders, the Board by resolution or the Chief Executive Officer shall
appoint one or more inspectors of election to act at the meeting and make a
written report thereof. One or more other persons may be designated as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is present, ready and willing to act at a meeting of stockholders, the
Chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Unless otherwise required by law, inspectors may be officers, employees
or agents of the Corporation. Each inspector, before entering upon the discharge
of his or her duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his or
her ability. The inspector shall have the duties prescribed by law and shall
take charge of the polls and, when the vote is completed, shall make a
certificate of the result of the vote taken and of such other facts as may be
required by law.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1 General Powers. The property, affairs and business of the
Corporation shall be managed by or under the direction of its Board of
Directors.
SECTION 2 Number, Qualifications, and Term of Office. Subject to the
rights of the holders of any series of Preferred Stock to elect additional
directors under specified circumstances, the number of directors of the
Corporation shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the whole Board. A
director need not be a stockholder.
The number of directors shall be fixed from time to time exclusively by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not
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there exist any vacancies in previously authorized directorships at the time any
such resolution is presented to the Board of Directors for adoption). At the
1983 annual meeting of stockholders, the directors shall be divided into three
classes, as nearly equal in number as possible, with the term of office of the
first class to expire at the 1984 annual meeting of stockholders, the term of
office of the second class to expire at the 1985 annual meeting of stockholders
and the term of office of the third class to expire at the 1986 annual meeting
of stockholders. At each annual meeting of stockholders following such initial
classification and election, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, unless, by
reason of any intervening changes in the authorized number of directors, the
board shall designate one or more of the then expiring directorships as
directorships of another class in order more nearly to achieve equality of
number of directors among the classes.
SECTION 3 Election of Directors. At each meeting of the stockholders for
the election of directors, at which a quorum is present, the directors shall be
elected by a plurality vote of all votes cast for the election of directors at
such meeting.
SECTION 4 Chairman of the Board of Directors. The Board of Directors may
elect from among its members one director to serve at its pleasure as Chairman
of the Board.
SECTION 5 Quorum and Manner of Acting. A majority of the members of the
Board of Directors shall constitute a quorum for the transaction of business at
any meeting, and the act of a majority of the directors present at any meeting
at which a quorum is present shall be the act of the Board of Directors unless
otherwise provided by law, the Certificate of Incorporation or these By-laws. In
the absence of a quorum, a majority of the directors present may adjourn any
meeting from time to time until a quorum shall be obtained. Notice of any
adjourned meeting need not be given. The directors shall act only as a board and
the individual directors shall have no power as such.
SECTION 6 Place of Meetings. The Board of Directors may hold its meetings
at such place or places within or without the State of Delaware as the Board may
from time to time determine or as shall be specified or fixed in the respective
notices or waivers of notice thereof.
SECTION 7 First Meeting. Promptly after each annual election of
directors, the Board of Directors shall meet for the purpose of organization,
the election of officers and the transaction of other business, at the same
place as that at which the annual meeting of stockholders was held or as
otherwise determined by the Board. Notice of such meeting need not be given.
Such meeting may be held at any other time or place which shall be specified in
a notice given as hereinafter provided for special meetings of the Board of
Directors.
SECTION 8 Regular Meetings. Regular meetings of the Board of Directors
shall be held at such places and at such times as the Board shall from time to
time determine. If any day fixed for a regular meeting shall be a legal holiday
at the place where the meeting is to be held, then the meeting which would
otherwise be held on that day shall be held at the same hour on the next
succeeding business day not a legal holiday. Notice of regular meetings need not
be given.
SECTION 9 Special Meetings; Notice. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board or the
Chief Executive Officer and shall be called by the Chairman of the Board, the
Chief Executive Officer or the Secretary of the Corporation at the written
request of three directors. Notice of each such meeting stating the time and
place of the meeting shall be given to each director by mail, telephone, other
electronic transmission or personally. If by mail, such notice shall be given
not less than five days before the meeting; and if by telephone, other
electronic transmission or personally, not less than two days before the
meeting. A notice mailed at least two weeks before the meeting need not state
the purpose thereof except as otherwise provided in these By-laws. In all other
cases the notice shall state the principal purpose or purposes of the meeting.
Notice of any meeting of the Board need not be given to a director, however, if
waived by the director in writing before or after such meeting or if the
director shall be present at the meeting, except when the director attends a
meeting
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for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 10 Organization. At each meeting of the Board of Directors, the
Chairman of the Board, or, in the absence of the Chairman of the Board, the
Chief Executive Officer, or, in his or her absence, a director or an officer of
the Corporation designated by the Board shall act as Chairman of the meeting.
The Secretary, or, in the Secretary's absence, any person appointed by the
Chairman of the meeting, shall act as Secretary of the meeting.
SECTION 11 Order of Business. At all meetings of the Board of Directors,
business shall be transacted in the order determined by the Board.
SECTION 12 Resignations. Any director of the Corporation may resign at
any time by giving written notice to the Chairman of the Board, the Chief
Executive Officer or the Secretary of the Corporation. The resignation of any
director shall take effect at the time specified therein, and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 13 Compensation. Each director shall be paid such compensation,
if any, as shall be fixed by the Board of Directors.
SECTION 14 Indemnification. (A) The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation), by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation or any of its
majority-owned subsidiaries or is or was serving at the request of the
Corporation as a director, officer, employee or agent (except in each of the
foregoing situations to the extent any agreement, arrangement or understanding
of agency contains provisions that supersede or abrogate indemnification under
this section) of another corporation or of any partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
(B) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation or any of its majority-owned subsidiaries, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent (except in each of the foregoing situations to the extent any agreement,
arrangement or understanding of agency contains provisions that supersede or
abrogate indemnification under this section) of another corporation or of any
partnership, joint venture, trust, employee benefit plan or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of Delaware
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery of Delaware or such
other court shall deem proper.
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(C) To the extent that a director, officer, employee or agent of the
Corporation or any of its majority-owned subsidiaries has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to in
subsections (A) and (B), or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by or on behalf of such person in connection
therewith. If any such person is not wholly successful in any such action, suit
or proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters therein, the Corporation shall
indemnify such person against all expenses (including attorneys' fees) actually
and reasonably incurred by or on behalf of such person in connection with each
claim, issue or matter that is successfully resolved. For purposes of this
subsection and without limitation, the termination of any claim, issue or matter
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
(D) Notwithstanding any other provision of this section, to the extent any
person is a witness in, but not a party to, any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director, officer, employee or agent of the
Corporation or any of its majority-owned subsidiaries, or is or was serving at
the request of the Corporation as a director, officer, employee or agent (except
in each of the foregoing situations to the extent any agreement, arrangement or
understanding of agency contains provisions that supersede or abrogate
indemnification under this section) of another corporation or of any
partnership, joint venture, trust, employee benefit plan or other enterprise,
such person shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by or on behalf of such person in
connection therewith.
(E) Indemnification under subsections (A) and (B) shall be made only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because such
person has met the applicable standard of conduct set forth in subsections (A)
and (B). Such determination shall be made (1) if a Change of Control (as
hereinafter defined) shall not have occurred, (a) with respect to a person who
is a present or former director or officer of the Corporation, (i) by the Board
of Directors by a majority vote of the Disinterested Directors (as hereinafter
defined), even though less than a quorum, or (ii) if there are no Disinterested
Directors or, even if there are Disinterested Directors, a majority of such
Disinterested Directors so directs, by (x) Independent Counsel (as hereinafter
defined) in a written opinion to the Board of Directors, a copy of which shall
be delivered to the claimant, or (y) the stockholders of the Corporation; or (b)
with respect to a person who is not a present or former director or officer of
the Corporation, by the chief executive officer of the Corporation or by such
other officer of the Corporation as shall be designated from time to time by the
Board of Directors; or (2) if a Change of Control shall have occurred, by
Independent Counsel selected by the claimant in a written opinion to the Board
of Directors, a copy of which shall be delivered to the claimant, unless the
claimant shall request that such determination be made by or at the direction of
the Board of Directors (in the case of a claimant who is a present or former
director or officer of the Corporation) or by an officer of the Corporation
authorized to make such determination (in the case of a claimant who is not a
present or former director or officer of the Corporation), in which case it
shall be made in accordance with clause (1) of this sentence. Any claimant shall
be entitled to be indemnified against the expenses (including attorneys' fees)
actually and reasonably incurred by such claimant in cooperating with the person
or entity making the determination of entitlement to indemnification
(irrespective of the determination as to the claimant's entitlement to
indemnification) and, to the extent successful, in connection with any
litigation or arbitration with respect to such claim or the enforcement thereof.
(F) If a Change of Control shall not have occurred, or if a Change of
Control shall have occurred and a director, officer, employee or agent requests
pursuant to clause (2) of the second sentence in subsection (E) that the
determination as to whether the claimant is entitled to indemnification be made
by or at the direction of the Board of Directors (in the case of a claimant who
is a present or former director or officer of the Corporation) or by an officer
of the Corporation authorized to make such determination (in the case of a
claimant who is not a present or former director or officer of the Corporation),
the claimant shall be conclusively presumed to have been determined pursuant to
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subsection (E) to be entitled to indemnification if (1) in the case of a
claimant who is a present or former director or officer of the Corporation,
(a)(i) within fifteen days after the next regularly scheduled meeting of the
Board of Directors following receipt by the Corporation of the request therefor,
the Board of Directors shall not have resolved by majority vote of the
Disinterested Directors to submit such determination to (x) Independent Counsel
for its determination or (y) the stockholders for their determination at the
next annual meeting, or any special meeting that may be held earlier, after such
receipt, and (ii) within sixty days after receipt by the Corporation of the
request therefor (or within ninety days after such receipt if the Board of
Directors in good faith determines that additional time is required by it for
the determination and, prior to expiration of such sixty-day period, notifies
the claimant thereof), the Board of Directors shall not have made the
determination by a majority vote of the Disinterested Directors, or (b) after a
resolution of the Board of Directors, timely made pursuant to clause (a)(i)(y)
above, to submit the determination to the stockholders, the stockholders meeting
at which the determination is to be made shall not have been held on or before
the date prescribed (or on or before a later date, not to exceed sixty days
beyond the original date, to which such meeting may have been postponed or
adjourned on good cause by the Board of Directors acting in good faith), or (2)
in the case of a claimant who is not a present or former director or officer of
the Corporation, within sixty days after receipt by the Corporation of the
request therefor (or within ninety days after such receipt if an officer of the
Corporation authorized to make such determination in good faith determines that
additional time is required for the determination and, prior to expiration of
such sixty-day period, notifies the claimant thereof), an officer of the
Corporation authorized to make such determination shall not have made the
determination; provided, however, that this sentence shall not apply if the
claimant has misstated or failed to state a material fact in connection with his
or her request for indemnification. Such presumed determination that a claimant
is entitled to indemnification shall be deemed to have been made (I) at the end
of the sixty-day or ninety-day period (as the case may be) referred to in clause
(1)(a)(ii) or (2) of the immediately preceding sentence or (II) if the Board of
Directors has resolved on a timely basis to submit the determination to the
stockholders, on the last date within the period prescribed by law for holding
such stockholders meeting (or a postponement or adjournment thereof as permitted
above).
(G) Expenses (including attorneys' fees) incurred in defending a civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding to a present or former director or officer of the Corporation,
promptly after receipt of a request therefor stating in reasonable detail the
expenses incurred, and to a person who is not a present or former director or
officer of the Corporation as authorized by the chief executive officer of the
Corporation or such other officer of the Corporation as shall be designated from
time to time by the Board of Directors; provided that in each case the
Corporation shall have received an undertaking by or on behalf of the present or
former director, officer, employee or agent to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation as authorized in this section.
(H) The Board of Directors shall establish reasonable procedures for the
submission of claims for indemnification pursuant to this section, determination
of the entitlement of any person thereto and review of any such determination.
Such procedures shall be set forth in an appendix to these By-laws and shall be
deemed for all purposes to be a part hereof.
(I) For purposes of this section,
(1) "Change of Control" means any of the following:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (i) the then outstanding shares
of common stock of the Corporation (the "Outstanding Corporation Common
Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the election of
directors (the "Outstanding Corporation Voting Securities"); provided,
however, that for purposes of this subparagraph (a), the following
acquisitions shall not
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constitute a Change of Control: (w) any acquisition directly from the
Corporation, (x) any acquisition by the Corporation, (y) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Corporation or any corporation controlled by the Corporation or (z) any
acquisition pursuant to a transaction which complies with clauses (i), (ii)
and (iii) of subsection (c) of this Paragraph 13(I)(1); or
(b) Individuals who, as of the date of the Distribution, constitute
the Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors; provided,
however, that any individual becoming a director subsequent to that date
whose election, or nomination for election by the Corporation's
stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs
as a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board of
Directors; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the
Corporation or the acquisition of assets of another entity (a "Corporate
Transaction"), in each case, unless, following such Corporate Transaction,
(i) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities immediately prior to
such Corporate Transaction beneficially own, directly or indirectly, more
than 60% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns the Corporation or all or substantially all of the
Corporation's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately prior
to such Corporate Transaction, of the Outstanding Corporation Common Stock
and Outstanding Corporation Voting Securities, as the case may be, (ii) no
Person (excluding any employee benefit plan (or related trust) of the
Corporation or of such corporation resulting from such Corporate
Transaction) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the combined
voting power of the then outstanding voting securities of such corporation
except to the extent that such ownership existed prior to the Corporate
Transaction and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Corporate Transaction were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board of Directors, providing for such
Corporate Transaction; or
(d) Approval by the Corporation's stockholders of a complete
liquidation or dissolution of the Corporation.
(2) "Disinterested Director" means a director of the Corporation who is not
and was not a party to an action, suit or proceeding in respect of which
indemnification is sought by a director, officer, employee or agent.
(3) "Independent Counsel" means a law firm, or a member of a law firm, that
(i) is experienced in matters of corporation law; (ii) neither presently is, nor
in the past five years has been, retained to represent the Corporation, the
director, officer, employee or agent claiming indemnification or any other party
to the action, suit or proceeding giving rise to a claim for indemnification
under this section, in any matter material to the Corporation, the claimant or
any such other party; and (iii) would not, under applicable standards of
professional conduct then prevailing, have a conflict of interest in
representing either the Corporation or such director, officer, employee or agent
in an action to determine the Corporation's or such person's rights under this
section.
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(J) The indemnification and advancement of expenses herein provided, or
granted pursuant hereto, shall not be deemed exclusive of any other rights to
which any of those indemnified or eligible for advancement of expenses may be
entitled under any agreement, vote of stockholders or Disinterested Directors or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.
Notwithstanding any amendment, alteration or repeal of this section or any of
its provisions, or of any of the procedures established by the Board of
Directors pursuant to subsection (H) hereof, any person who is or was a
director, officer, employee or agent of the Corporation or any of its
majority-owned subsidiaries or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of any partnership, joint venture, employee benefit plan or other enterprise
shall be entitled to indemnification in accordance with the provisions hereof
and thereof with respect to any action taken or omitted prior to such amendment,
alteration or repeal except to the extent otherwise required by law.
(K) No indemnification shall be payable pursuant to this section with
respect to any action against the Corporation commenced by an officer, director,
employee or agent unless the Board of Directors shall have authorized the
commencement thereof or unless and to the extent that this section or the
procedures established pursuant to subsection (H) shall specifically provide for
indemnification of expenses relating to the enforcement of rights under this
section and such procedures.
SECTION 15 Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of any
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have the power or the obligation to indemnify such
person against such liability under the provisions of Section 14 of this Article
III.
ARTICLE IV
COMMITTEES
SECTION 1 Appointment and Powers. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of two or more directors of the
Corporation (or in the case of a special-purpose committee, one or more
directors of the Corporation), which, to the extent provided in said resolution
or in these By-laws and not inconsistent with Section 141 of the Delaware
General Corporation Law, as amended, shall have and may exercise the powers of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
Board of Directors.
SECTION 2 Term of Office and Vacancies. Each member of a committee shall
continue in office until a director to succeed him or her shall have been
elected and shall have qualified, or until he or she ceases to be a director or
until he or she shall have resigned or shall have been removed in the manner
hereinafter provided. Any vacancy in a committee shall be filled by the vote of
a majority of the whole Board of Directors at any regular or special meeting
thereof.
SECTION 3 Alternates. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee.
SECTION 4 Organization. Unless otherwise provided by the Board of
Directors, each committee shall appoint a chairman. Each committee shall keep a
record of its acts and proceedings and report the same from time to time to the
Board of Directors.
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SECTION 5 Resignations. Any regular or alternate member of a committee
may resign at any time by giving written notice to the Chairman of the Board,
the Chief Executive Officer or the Secretary of the Corporation. Such
resignation shall take effect at the time of the receipt of such notice or at
any later time specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 6 Removal. Any regular or alternate member of a committee may be
removed with or without cause at any time by resolution passed by a majority of
the whole Board of Directors at any regular or special meeting.
SECTION 7 Meetings. Regular meetings of each committee, of which no
notice shall be necessary, shall be held on such days and at such places as the
chairman of the committee shall determine or as shall be fixed by a resolution
passed by a majority of all the members of such committee. Special meetings of
each committee will be called by the Secretary at the request of any two members
of such committee, or in such other manner as may be determined by the
committee. Notice of each special meeting of a committee shall be mailed to each
member thereof at least two days before the meeting or shall be given personally
or by telephone or other electronic transmission at least one day before the
meeting. Every such notice shall state the time and place, but need not state
the purposes of the meeting. No notice of any meeting of a committee shall be
required to be given to any alternate.
SECTION 8 Quorum and Manner of Acting. Unless otherwise provided by
resolution of the Board of Directors, a majority of a committee (including
alternates when acting in lieu of regular members of such committee) shall
constitute a quorum for the transaction of business and the act of a majority of
those present at a meeting at which a quorum is present shall be the act of such
committee. The members of each committee shall act only as a committee and the
individual members shall have no power as such.
SECTION 9 Compensation. Each regular or alternate member of a committee
shall be paid such compensation, if any, as shall be fixed by the Board of
Directors.
ARTICLE V
OFFICERS
SECTION 1 Officers. The officers of the Corporation shall be a Chief
Executive Officer, a President, one or more Vice Presidents (one or more of whom
may be Executive Vice Presidents, Senior Vice Presidents or otherwise as may be
designated by the Board), a Secretary and a Treasurer, all of whom shall be
elected by the Board of Directors. Any two or more offices may be held by the
same person. The Board of Directors may also from time to time elect such other
officers as it deems necessary.
SECTION 2 Term of Office. Each officer shall hold office until his or her
successor shall have been duly elected and qualified in his or her stead, or
until his or her death or until he or she shall have resigned or shall have been
removed in the manner hereinafter provided.
SECTION 3 Additional Officers; Agents. The Chief Executive Officer or the
President may from time to time appoint and remove such additional officers and
agents as may be deemed necessary. Such persons shall hold office for such
period, have such authority, and perform such duties as provided in these
By-laws or as the Chief Executive Officer or the President may from time to time
prescribe. The Board of Directors or the Chief Executive Officer or the
President may from time to time authorize any officer to appoint and remove
agents and employees and to prescribe their powers and duties.
SECTION 4 Salaries. Unless otherwise provided by resolution passed by a
majority of the whole Board, the salaries of all officers elected by the Board
of Directors shall be fixed by the Board of Directors.
SECTION 5 Removal. Except where otherwise expressly provided in a
contract authorized by the Board of Directors, any officer may be removed,
either with or without cause, by the vote of a majority of the Board at any
regular or special meeting or, except in the case of an officer elected by the
Board, by any superior officer upon whom the power of removal may be conferred
by the Board or by these By-laws.
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SECTION 6 Resignations. Any officer elected by the Board of Directors may
resign at any time by giving written notice to the Chairman of the Board, the
Chief Executive Officer, the President or the Secretary. Any other officer may
resign at any time by giving written notice to the Chief Executive Officer or
the President. Any such resignation shall take effect at the date of receipt of
such notice or at any later time specified therein, and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 7 Vacancies. A vacancy in any office because of death,
resignation, removal or otherwise, shall be filled for the unexpired portion of
the term in the manner provided in these By-laws for regular election or
appointment to such office.
SECTION 8 Chief Executive Officer. Subject to the control of the Board of
Directors, the Chief Executive Officer shall have general and overall charge of
the business and affairs of the Corporation and of its officers. The Chief
Executive Officer shall keep the Board of Directors appropriately informed on
the business and affairs of the Corporation. The Chief Executive Officer shall
preside at all meetings of the stockholders and shall enforce the observance of
the rules of order for the meetings of the stockholders and of the By-laws of
the Corporation.
SECTION 9 President. The President shall be the chief operating officer
of the Corporation and, subject to the control of the Chief Executive Officer,
shall direct and be responsible for the operation of the business and affairs of
the Corporation. The President shall keep the Chief Executive Officer and the
Board of Directors appropriately informed on the business and affairs of the
Corporation. In the case of the absence or disability of the Chief Executive
Officer, the President shall perform all the duties and functions and execute
all the powers of, and be subject to all the restrictions upon, the Chief
Executive Officer.
SECTION 10 Executive and Senior Vice Presidents. One or more Executive or
Senior Vice Presidents shall, subject to the control of the Chief Executive
Officer, have lead accountability for components or functions of the Corporation
as and to the extent designated by the Chief Executive Officer. Each Executive
or Senior Vice President shall keep the Chief Executive Officer appropriately
informed on the business and affairs of the designated components or functions
of the Corporation.
SECTION 11 Vice Presidents. The Vice Presidents shall perform such duties
as may from time to time be assigned to them or any of them by the Chief
Executive Officer.
SECTION 12 Secretary. The Secretary shall keep or cause to be kept in
books provided for the purpose the minutes of the meetings of the stockholders,
of the Board of Directors and of any committee constituted pursuant to Article
IV of these By-laws. The Secretary shall be custodian of the corporate seal and
see that it is affixed to all documents as required and attest the same. The
Secretary shall perform all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him or her.
SECTION 13 Assistant Secretaries. At the request of the Secretary, or in
the Secretary's absence or disability, the Assistant Secretary designated by the
Secretary shall perform all the duties of the Secretary and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Secretary. The Assistant Secretaries shall perform such other duties as from
time to time may be assigned to them.
SECTION 14 Treasurer. The Treasurer shall have charge of and be
responsible for the receipt, disbursement and safekeeping of all funds and
securities of the Corporation. The Treasurer shall deposit all such funds in the
name of the Corporation in such banks, trust companies or other depositories as
shall be selected in accordance with the provisions of these By-laws. From time
to time and whenever requested to do so, the Treasurer shall render statements
of the condition of the finances of the Corporation to the Board of Directors.
The Treasurer shall perform all the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him or her.
SECTION 15 Assistant Treasurers. At the request of the Treasurer, or in
the Treasurer's absence or disability, the Assistant Treasurer designated by the
Treasurer shall perform all the duties of the Treasurer
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and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the Treasurer. The Assistant Treasurers shall perform such
other duties as from time to time may be assigned to them.
SECTION 16 Certain Agreements. The Board of Directors shall have power to
authorize or direct the proper officers of the Corporation, on behalf of the
Corporation, to enter into valid and binding agreements in respect of
employment, incentive or deferred compensation, stock options, and similar or
related matters, notwithstanding the fact that a person with whom the
Corporation so contracts may be a member of its Board of Directors. Any such
agreement may validly and lawfully bind the Corporation for a term of more than
one year, in accordance with its terms, notwithstanding the fact that one of the
elements of any such agreement may involve the employment by the Corporation of
an officer, as such, for such term.
ARTICLE VI
AUTHORIZATIONS
SECTION 1 Contracts. The Board of Directors, except as otherwise provided
in these By-laws, may authorize any officer, employee or agent of the
Corporation to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Corporation, and such authority may be general
or confined to specific instances.
SECTION 2 Loans. No loan shall be contracted on behalf of the Corporation
and no negotiable paper shall be issued in its name, unless authorized by the
Board of Directors.
SECTION 3 Checks, Drafts, Etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, employee or
employees, of the Corporation as shall from time to time be determined in
accordance with authorization of the Board of Directors.
SECTION 4 Deposits. All funds of the Corporation shall be deposited from
time to time to the credit of the Corporation in such banks, trust companies or
other depositories as the Board of Directors may from time to time designate, or
as may be designated by any officer or officers of the Corporation to whom such
power may be delegated by the Board, and for the purpose of such deposit the
officers and employees who have been authorized to do so in accordance with the
determinations of the Board may endorse, assign and deliver checks, drafts, and
other orders for the payment of money which are payable to the order of the
Corporation.
SECTION 5 Proxies. Except as otherwise provided in these By-laws or in
the Certificate of Incorporation, and unless otherwise provided by resolution of
the Board of Directors, the Chief Executive Officer or any other officer may
from time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as a stockholder or otherwise in
any other corporation any of whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
other corporations, or to consent in writing to any action by such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such vote or giving such consent, and may execute or cause to
be executed in the name and on behalf of the Corporation and under its corporate
seal, or otherwise, all such written proxies or other instruments as such
officer may deem necessary or proper in the premises.
ARTICLE VII
SHARES AND THEIR TRANSFER
SECTION 1 Shares of Stock. Certificates for shares of the stock of the
Corporation shall be in such form as shall be approved by the Board of
Directors. They shall be numbered in the order of their issue, by class and
series, and shall be signed by the Chief Executive Officer or a Vice President,
and the
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Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary,
of the Corporation. If a share certificate is countersigned (1) by a transfer
agent other than the Corporation or its employee, or (2) by a registrar other
than the Corporation or its employee, any other signature on the certificate may
be a facsimile. In case any officer, transfer agent, or registrar who has signed
or whose facsimile signature has been placed upon a share certificate shall have
ceased to be such officer, transfer agent, or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent, or registrar at the date of issue. The
Board of Directors may by resolution or resolutions provide that some or all of
any or all classes or series of the shares of stock of the Corporation shall be
uncertificated shares. Notwithstanding the preceding sentence, every holder of
uncertificated shares, upon request, shall be entitled to receive from the
Corporation a certificate representing the number of shares registered in such
stockholder's name on the books of the Corporation.
SECTION 2 Record Ownership. A record of the name and address of each
holder of the shares of the Corporation, the number of shares held by such
stockholder, the number or numbers of any share certificate or certificates
issued to such stockholder and the number of shares represented thereby, and the
date of issuance of the shares held by such stockholder shall be made on the
Corporation's books. The Corporation shall be entitled to treat the holder of
record of any share of stock (including any holder registered in a book-entry or
direct registration system maintained by the Corporation or a transfer agent or
a registrar designated by the Board of Directors) as the holder in fact thereof
and accordingly shall not be bound to recognize any equitable or other claim to
or interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, except as required by law.
SECTION 3 Transfer of Stock. Shares of stock shall be transferable on the
books of the Corporation by the holder of record of such stock in person or by
such person's attorney or other duly constituted representative, pursuant to
applicable law and such rules and regulations as the Board of Directors shall
from time to time prescribe. Any shares represented by a certificate shall be
transferable upon surrender of such certificate with an assignment endorsed
thereon or attached thereto duly executed and with such guarantee of signature
as the Corporation may reasonably require.
SECTION 4 Lost, Stolen and Destroyed Certificates. The Corporation may
issue a new certificate of stock or may register uncertificated shares, if then
authorized by the Board of Directors, in the place of any certificate
theretofore issued by it, alleged to have been lost, stolen or destroyed, and
the Corporation may require the owner of the lost, stolen or destroyed
certificate, or such person's legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate, the
issuance of such new certificate or the registration of such uncertificated
shares.
SECTION 5 Transfer Agent and Registrar; Regulations. The Corporation
shall, if and whenever the Board of Directors shall so determine, maintain one
or more transfer offices or agencies, each in charge of a transfer agent
designated by the Board of Directors, where the shares of the stock of the
Corporation shall be directly transferable, and also one or more registry
offices, each in charge of a registrar designated by the Board of Directors,
where such shares of stock shall be registered, and no certificate for shares of
the stock of the Corporation, in respect of which a registrar and transfer agent
shall have been designated, shall be valid unless countersigned by such transfer
agent and registered by such registrar. The Board of Directors may also make
such additional rules and regulations as it may deem expedient concerning the
issue, transfer and registration of shares of stock of the Corporation and
concerning the registration of pledges of uncertificated shares.
SECTION 6 Fixing Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. If no record
date is fixed, (1) the record date for determining stockholders entitled to
notice of or to vote at a meeting of
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stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held and (2) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 7 Examination of Books by Stockholders. The Board of Directors
shall, subject to the laws of the State of Delaware, have power to determine
from time to time, whether and to what extent and under what conditions and
regulations the accounts and books of the Corporation, or any of them, shall be
open to the inspection of the stockholders; and no stockholder shall have any
right to inspect any book or document of the Corporation, except as conferred by
the laws of the State of Delaware, unless and until authorized so to do by
resolution of the Board of Directors or of the stockholders of the Corporation.
ARTICLE VIII
NOTICE
SECTION 1 Manner of Giving Written Notice. (A) Any notice in writing
required by law or by these By-laws to be given to any person shall be effective
if delivered personally, by depositing the same in the post office or letter box
in a postpaid envelope addressed to such person at such address as appears on
the books of the Corporation or by a form of electronic transmission consented
to by such person to whom the notice is to be given. Any such consent shall be
deemed revoked if (i) the Corporation is unable to deliver by electronic
transmission two consecutive notices given by the Corporation in accordance with
such consent and (ii) such inability becomes known to the Secretary or an
Assistant Secretary of the Corporation or to the transfer agent, or other person
responsible for the giving of notice; provided, however, the inadvertent failure
to treat such inability as a revocation shall not invalidate any meeting or
other action.
(B) Notice by mail shall be deemed to be given at the time when the same
shall be mailed and notice by other means shall be deemed given when actually
delivered (and in the case of notice transmitted by a form of electronic
transmission, such notice shall be deemed given (i) if by facsimile
telecommunication, when directed to a number at which the stockholder has
consented to receive notice; (ii) if by electronic mail, when directed to an
electronic mail address at which the stockholder has consented to receive
notice; (iii) if by a posting on an electronic network together with separate
notice to the stockholder of such specific posting, upon the later of (a) such
posting and (b) the giving of such separate notice; and (iv) if by any other
form of electronic transmission, when directed to the stockholder).
SECTION 2 Waiver of Notice. Whenever any notice is required to be given
to any person, a waiver thereof by such person in writing or transmitted by
electronic means (and authenticated if and as required by law), whether before
or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE IX
SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal" and
"Delaware".
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall end on the Sunday closest to
September 30 in each year.
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APPENDIX
PROCEDURES FOR SUBMISSION AND
DETERMINATION OF CLAIMS FOR INDEMNIFICATION
PURSUANT TO ARTICLE III, SECTION 14 OF THE BY-LAWS.
SECTION 1 Purpose. The Procedures for Submission and Determination of
Claims for Indemnification Pursuant to Article III, Section 14 of the By-laws
(the "Procedures") are to implement the provisions of Article III, Section 14 of
the By-laws of the Corporation (the "By-laws") in compliance with the
requirement of subsection (H) thereof.
SECTION 2 Definitions. For purposes of these Procedures:
(A) All terms that are defined in Article III, Section 14 of the
By-laws shall have the meanings ascribed to them therein when used in these
Procedures unless otherwise defined herein.
(B) "Expenses" include all reasonable attorneys' fees, court costs,
transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a
witness in, a Proceeding; and shall also include such retainers as counsel
may reasonably require in advance of undertaking the representation of an
Indemnitee in a Proceeding.
(C) "Indemnitee" includes any person who was or is, or is threatened
to be made, a witness in or a party to any Proceeding by reason of the fact
that such person is or was a director, officer, employee or agent of the
Corporation or any of its majority-owned subsidiaries or is or was serving
at the request of the Corporation as a director, officer, employee or agent
(except in each of the foregoing situations to the extent any agreement,
arrangement or understanding of agency contains provisions that supersede
or abrogate indemnification under Article III, Section 14 of the By-laws)
of another corporation or of any partnership, joint venture, trust,
employee benefit plan or other enterprise.
(D) "Proceeding" includes any action, suit, arbitration, alternative
dispute resolution mechanism, investigation, administrative hearing or any
other proceeding, whether civil, criminal, administrative or investigative,
except one initiated by an Indemnitee unless the Board of Directors shall
have authorized the commencement thereof.
SECTION 3 Submission and Determination of Claims.
(A) To obtain indemnification or advancement of Expenses under Article III,
Section 14 of the By-laws, an Indemnitee shall submit to the Secretary of the
Corporation a written request therefor, including therein or therewith such
documentation and information as is reasonably available to the Indemnitee and
is reasonably necessary to permit a determination as to whether and what extent
the Indemnitee is entitled to indemnification or advancement of Expenses, as the
case may be. The Secretary shall, promptly upon receipt of a request for
indemnification, advise the Board of Directors (if the Indemnitee is a present
or former director or officer of the Corporation) or the officer of the
Corporation authorized to make the determination as to whether an Indemnitee is
entitled to indemnification (if the Indemnitee is not a present or former
director or officer of the Corporation) thereof in writing if a determination in
accordance with Article III, Section 14(E) of the By-laws is required.
(B) Upon written request by an Indemnitee for indemnification pursuant to
Section 3(A) hereof, a determination with respect to the Indemnitee's
entitlement thereto in the specific case, if required by the By-laws, shall be
made in accordance with Article III, Section 14(E) of the By-laws, and, if it is
so determined that the Indemnitee is entitled to indemnification, payment to the
Indemnitee shall be made within ten days after such determination. The
Indemnitee shall cooperate with the person, persons or entity making such
determination, with respect to the Indemnitee's entitlement to indemnification,
including providing to such person, persons or entity upon reasonable advance
request any documentation
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or information which is not privileged or otherwise protected from disclosure
and which is reasonably available to the Indemnitee and reasonably necessary to
such determination.
(C) If entitlement to indemnification is to be made by Independent Counsel
pursuant to Article III, Section 14(E) of the By-laws, the Independent Counsel
shall be selected as provided in this Section 3(C). If a Change of Control shall
not have occurred, the Independent Counsel shall be selected by the Board of
Directors, and the Corporation shall give written notice to the Indemnitee
advising the Indemnitee of the identity of the Independent Counsel so selected.
If a Change of Control shall have occurred, the Independent Counsel shall be
selected by the Indemnitee (unless the Indemnitee shall request that such
selection be made by the Board of Directors, in which event the immediately
preceding sentence shall apply), and the Indemnitee shall give written notice to
the Corporation advising it of the identity of the Independent Counsel so
selected. In either event, the Indemnitee or the Corporation, as the case may
be, may, within seven days after such written notice of selection shall have
been given, deliver to the Corporation or to the Indemnitee, as the case may be,
a written objection to such selection. Such objection may be asserted only on
the ground that the Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Article III, Section 14 of
the By-laws, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made, the Independent
Counsel so selected may not serve as Independent Counsel unless and until a
court has determined that such objection is without merit. If, within twenty
days after the next regularly scheduled Board of Directors meeting following
submission by the Indemnitee of a written request for indemnification pursuant
to Section 3(A) hereof, no Independent Counsel shall have been selected and not
objected to, either the Corporation or the Indemnitee may petition the Court of
Chancery of the State of Delaware or other court of competent jurisdiction for
resolution of any objection which shall have been made by the Corporation or the
Indemnitee to the other's selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by the Court or by such
other person as the Court shall designate, and the person with respect to whom
an objection is favorably resolved or the person so appointed shall act as
Independent Counsel under Article III, Section 14(E) of the By-laws. The
Corporation shall pay any and all reasonable fees and expenses (including
without limitation any advance retainers reasonably required by counsel) of
Independent Counsel incurred by such Independent Counsel in connection with
acting pursuant to Article III, Section 14(E) of the By-laws, and the
Corporation shall pay all reasonable fees and expenses (including without
limitation any advance retainers reasonably required by counsel) incident to the
procedures of Article III, Section 14(E) of the By-laws and this Section 3(C),
regardless of the manner in which Independent Counsel was selected or appointed.
Upon the delivery of its opinion pursuant to Article III, Section 14 of the
By-laws or, if earlier, the due commencement of any judicial proceeding or
arbitration pursuant to Section 4(A)(3) of these Procedures, Independent Counsel
shall be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).
(D) If a Change of Control shall have occurred, in making a determination
with respect to entitlement to indemnification under the By-laws, the person,
persons or entity making such determination shall presume that an Indemnitee is
entitled to indemnification under the By-laws if the Indemnitee has submitted a
request for indemnification in accordance with Section 3(A) hereof, and the
Corporation shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any determination
contrary to that presumption.
SECTION 4 Review and Enforcement of Determination.
(A) In the event that (1) advancement of Expenses is not timely made
pursuant to Article III, Section 14(G) of the By-laws, (2) payment of
indemnification is not made pursuant to Article III, Section 14(C) or (D) of the
By-laws within ten days after receipt by the Corporation of written request
therefor, (3) a determination is made pursuant to Article III, Section 14(E) of
the By-laws that an Indemnitee is not entitled to indemnification under the
By-laws, (4) the determination of entitlement to indemnification is to be made
by Independent Counsel pursuant to Article III, Section 14(E) of the By-laws and
such determination shall not have been made and delivered in a written opinion
within ninety days after receipt by the Corporation of the written request for
indemnification, or (5) payment of
E-17
indemnification is not made within ten days after a determination has been made
pursuant to Article III, Section 14(E) of the By-laws that an Indemnitee is
entitled to indemnification or within ten days after such determination is
deemed to have been made pursuant to Article III, Section 14(F) of the By-laws,
the Indemnitee shall be entitled to an adjudication in an appropriate court of
the State of Delaware, or in any other court of competent jurisdiction, of the
Indemnitee's entitlement to such indemnification or advancement of Expenses.
Alternatively, the Indemnitee, at his or her option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association. The Indemnitee shall commence such proceeding
seeking an adjudication or an award in arbitration within one year following the
date on which the Indemnitee first has the right to commence such proceeding
pursuant to this Section 4(A). The Corporation shall not oppose the Indemnitee's
right to seek any such adjudication or award in arbitration.
(B) In the event that a determination shall have been made pursuant to
Article III, Section 14(E) of the By-laws that an Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 4 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and the Indemnitee shall not be prejudiced by reason
of that adverse determination. If a Change of Control shall have occurred, the
Corporation shall have the burden of proving in any judicial proceeding or
arbitration commenced pursuant to this Section 4 that the Indemnitee is not
entitled to indemnification or advancement of Expenses, as the case may be.
(C) If a determination shall have been made or deemed to have been made
pursuant to Article III, Section 14(E) or (F) of the By-laws that an Indemnitee
is entitled to indemnification, the Corporation shall be bound by such
determination in any judicial proceeding or arbitration commenced pursuant to
this Section 4, absent (1) a misstatement or omission of a material fact in
connection with the Indemnitee's request for indemnification, or (2) a
prohibition of such indemnification under applicable law.
(D) The Corporation shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 4 that the
procedures and presumptions of these Procedures are not valid, binding and
enforceable, and shall stipulate in any such judicial proceeding or arbitration
that the Corporation is bound by all the provisions of these Procedures.
(E) In the event that an Indemnitee, pursuant to this Section 4, seeks to
enforce the Indemnitee's rights under, or to recover damages for breach of,
Article III, Section 14 of the By-laws or these Procedures in a judicial
proceeding or arbitration, the Indemnitee shall be entitled to recover from the
Corporation, and shall be indemnified by the Corporation against, any and all
expenses (of the types described in the definition of Expenses in Section 2 of
these Procedures) actually and reasonably incurred in such judicial proceeding
or arbitration, but only if the Indemnitee prevails therein. If it shall be
determined in such judicial proceeding or arbitration that the Indemnitee is
entitled to receive part but not all of the indemnification or advancement of
Expenses sought, the expenses incurred by the Indemnitee in connection with such
judicial proceeding or arbitration shall be appropriately prorated.
SECTION 5 Amendments. These Procedures may be amended at any time and
from time to time in the same manner as any By-law of the Corporation in
accordance with the Certificate of Incorporation; provided, however, that
notwithstanding any amendment, alteration or repeal of these Procedures or any
provision hereof, any Indemnitee shall be entitled to utilize these Procedures
with respect to any claim for indemnification arising out of any action taken or
omitted prior to such amendment, alteration or repeal except to the extent
otherwise required by law.
E-18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
other than an action by or in the right of the corporation, by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. A Delaware corporation may indemnify any person
in connection with a proceeding by or in the right of the corporation to procure
judgment in its favor against expenses, including attorneys' fees, actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action, except that indemnification shall not be made in respect thereof
if such person shall have been adjudged to be liable to the corporation unless,
and then only to the extent that, a court of competent jurisdiction shall
determine upon application that despite such adjudication such person is fairly
and reasonably entitled to indemnity for such expenses as the court shall deem
proper. A Delaware corporation may pay for the expenses, including attorneys'
fees, incurred by a director or officer in defending a proceeding in advance of
the final disposition upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the corporation. The statute
provides that it is not exclusive of other indemnification that may be granted
by a corporation's bylaws, disinterested director vote, stockholder vote,
agreement, or otherwise.
Under the Delaware General Corporation Law, to the extent that a person is
successful on the merits or otherwise in defense of a suit or proceeding brought
against such person by reason of the fact that such person is or was a director,
officer, employee or agent of Alpha, or is or was serving at the request of
Alpha as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, such person shall be
indemnified against expenses, including attorneys' fees, actually and reasonably
incurred in connection with such action.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
payment of unlawful dividends or unlawful stock purchases or redemptions, or
(iv) any transaction from which the director derived an improper personal
benefit. Alpha's certificate of incorporation provides that no director of Alpha
shall be liable to Alpha or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for (i) any breach of the
director's duty of loyalty to Alpha or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law,
or (iv) any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law permits the purchase of insurance on
behalf of directors and officers against any liability asserted against
directors and officers and incurred by such persons in such capacity, whether or
not the corporation would have the power to indemnify such person against such
liability. Alpha's by-laws permit Alpha to purchase and maintain insurance on
behalf of its directors,
II-1
officers and certain other parties against any liability asserted against and
incurred by such person in such capacity, whether or not Alpha would have the
power to indemnify such person against such liability.
In addition, Alpha maintains a directors' and officers' liability insurance
policy.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith or incorporated herein by
reference:
EXHIBIT NO.
-----------
2.a Agreement and Plan of Reorganization dated as of December
16, 2001, as amended as of April 12, 2002, by and among
Conexant Systems, Inc., Washington Sub, Inc. and the
Registrant (included as Annex A in the proxy
statement/prospectus-information statement included in this
Registration Statement)
2.b Mexican Stock and Asset Purchase Agreement dated as of
December 16, 2001 by and between Conexant Systems, Inc. and
the Registrant (incorporated herein by reference to Exhibit
2.3 to the Registrant's Current Report on Form 8-K filed on
December 19, 2001)
2.c U.S. Asset Purchase Agreement dated as of December 16, 2001
by and between Conexant Systems, Inc. and the Registrant
(incorporated herein by reference to Exhibit 2.4 to the
Registrant's Current Report on Form 8-K filed on December
19, 2001)
3.a Form of Second Amended and Restated Certificate of
Incorporation of the Registrant to be adopted as of the
effective time of the merger (included as Annex D in the
proxy statement/prospectus-information statement included in
this Registration Statement)
3.b Form of Second Amended and Restated By-laws of the
Registrant to be adopted as of the effective time of the
merger (included as Annex E in the proxy
statement/prospectus-information statement included in this
Registration Statement)
4 Specimen Certificate for Registrant's Common Stock
(incorporated herein by reference to Exhibit 4(a) filed with
the Registrant's Registration Statement on Form S-3
(Registration No. 333-63857))
5 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
the validity of the shares being issued
8.a Opinion of Chadbourne & Parke LLP regarding federal income
tax consequences of the merger
8.b Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding federal income tax consequences of the merger
10 Form of Stockholders Agreement dated as of December 16, 2001
entered into between each of the directors and certain
executive officers of the Registrant and Conexant Systems,
Inc.
23.a Consent of KPMG LLP
23.b Consent of Deloitte & Touche LLP
23.c Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in their opinion filed as Exhibit 5)
23.d Consent of Chadbourne & Parke LLP (included in their opinion
filed as Exhibit 8.a)
23.e Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in their opinion filed as Exhibit 8.b)
*23.f Consent of U.S. Bancorp Piper Jaffray
*24.a Power of Attorney
II-2
EXHIBIT NO.
-----------
99.a Form of proxy card for the Registrant
*99.b Consents of Donald R. Beall, Moiz M. Beguwala, Dwight W.
Decker and F. Craig Farrill to be named as directors of the
combined company
99.c Contribution and Distribution Agreement dated as of December
16, 2001 by and between Conexant Systems, Inc. and
Washington Sub, Inc. (included as Annex B to the proxy
statement/prospectus-information statement included in this
Registration Statement)
*99.d Form of Employee Matters Agreement to be entered into by and
among Conexant Systems, Inc., Washington Sub, Inc. and the
Registrant
*99.e Form of Tax Allocation Agreement to be entered into by and
among Conexant Systems, Inc., Washington Sub, Inc. and the
Registrant
---------------
* Previously filed.
(b) Financial Statement Schedules
None.
(c) Report, Opinion or Appraisal.
See Exhibits 5, 8.a and 8.b. The opinion of U.S. Bancorp Piper Jaffray is
included as Annex C to the proxy statement/prospectus-information statement
included as part of this Registration Statement.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to the information in the registration statement.
2. That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof;
II-3
3. That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form; and
4. That every prospectus (i) that is filed pursuant to paragraph (3)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the proxy
statement/prospectus-information statement pursuant to Item 4, 10(b), 11 or 13
of this form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding to
the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Woburn,
Commonwealth of Massachusetts, on May 3, 2002.
ALPHA INDUSTRIES, INC.
By: /s/ DAVID J. ALDRICH
------------------------------------
David J. Aldrich
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of Alpha Industries, Inc. in the capacities indicated on May 3, 2002.
TITLE
-----
/s/ DAVID J. ALDRICH President and Chief Executive Officer and Director
------------------------------------------------ (Principal Executive Officer)
David J. Aldrich
/s/ PAUL E. VINCENT Vice President, Chief Financial Officer, Treasurer
------------------------------------------------ and Secretary (Principal Financial and Accounting
Paul E. Vincent Officer)
* Chairman of the Board
------------------------------------------------
Thomas C. Leonard
* Director
------------------------------------------------
Timothy R. Furey
* Director
------------------------------------------------
James W. Henderson
* Director
------------------------------------------------
George S. Kariotis
* Director
------------------------------------------------
David J. McLachlan
* Director
------------------------------------------------
Arthur Pappas
* Director
------------------------------------------------
Sidney Topol
*By: /s/ DAVID J. ALDRICH
------------------------------------------
David J. Aldrich
Attorney-in-fact
II-5
EXHIBIT INDEX
EXHIBIT NO.
-----------
2.a Agreement and Plan of Reorganization dated as of December
16, 2001, as amended as of April 12, 2002, by and among
Conexant Systems, Inc., Washington Sub, Inc. and the
Registrant (included as Annex A in the proxy
statement/prospectus-information statement included in this
Registration Statement)
2.b Mexican Stock and Asset Purchase Agreement dated as of
December 16, 2001 by and between Conexant Systems, Inc. and
the Registrant (incorporated herein by reference to Exhibit
2.3 to the Registrant's Current Report on Form 8-K filed on
December 19, 2001)
2.c U.S. Asset Purchase Agreement dated as of December 16, 2001
by and between Conexant Systems, Inc. and the Registrant
(incorporated herein by reference to Exhibit 2.4 to the
Registrant's Current Report on Form 8-K filed on December
19, 2001)
3.a Form of Second Amended and Restated Certificate of
Incorporation of the Registrant to be adopted as of the
effective time of the merger (included as Annex D in the
proxy statement/prospectus-information statement included in
this Registration Statement)
3.b Form of Second Amended and Restated By-laws of the
Registrant to be adopted as of the effective time of the
merger (included as Annex E in the proxy
statement/prospectus-information statement included in this
Registration Statement)
4 Specimen Certificate for Registrant's Common Stock
(incorporated herein by reference to Exhibit 4(a) filed with
the Registrant's Registration Statement on Form S-3
(Registration No. 333-63857))
5 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
the validity of the shares being issued
8.a Opinion of Chadbourne & Parke LLP regarding federal income
tax consequences of the merger
8.b Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding federal income tax consequences of the merger
10 Form of Stockholders Agreement dated as of December 16, 2001
entered into between each of the directors and certain
executive officers of the Registrant and Conexant Systems,
Inc.
23.a Consent of KPMG LLP
23.b Consent of Deloitte & Touche LLP
23.c Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in their opinion filed as Exhibit 5)
23.d Consent of Chadbourne & Parke LLP (included in their opinion
filed as Exhibit 8.a)
23.e Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in their opinion filed as Exhibit 8.b)
*23.f Consent of U.S. Bancorp Piper Jaffray
*24.a Power of Attorney
99.a Form of proxy card for the Registrant
*99.b Consents of Donald R. Beall, Moiz M. Beguwala, Dwight W.
Decker and F. Craig Farrill to be named as directors of the
combined company
99.c Contribution and Distribution Agreement dated as of December
16, 2001 by and between Conexant Systems, Inc. and
Washington Sub, Inc. (included as Annex B to the proxy
statement/prospectus-information statement included in this
Registration Statement)
*99.d Form of Employee Matters Agreement to be entered into by and
among Conexant Systems, Inc., Washington Sub, Inc. and the
Registrant
*99.e Form of Tax Allocation Agreement to be entered into by and
among Conexant Systems, Inc., Washington Sub, Inc. and the
Registrant
---------------
* Previously filed.