As filed with the Securities and Exchange Commission on September 28, 2001
Registration Statement No. 333-67190
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
to
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Conexant Systems, Inc.
(Exact name of registrant as specified in its charter)
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4311 Jamboree Road
Newport Beach, California 92660-3095
Delaware (949) 483-4600 25-179943
(State or other (Address, including zip code, and telephone (I.R.S. Employer
jurisdiction of number, including area code, of registrant's Identification
incorporation or principal executive offices) No.)
organization)
----------------------------
DENNIS E. O'REILLY, ESQ.
Senior Vice President, General Counsel and Secretary
Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, California 92660-3095
(Name and address of agent for service)
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(949) 483-4600
(Telephone number, including area code, of agent for service)
--------------------------------------------
Copy to:
PETER R. KOLYER, ESQ.
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
(212) 408-5100
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Approximate date of commencement of proposed sale to the public: From time to
time after this registration statement becomes effective. If the only securities
being registered on this form are being offered pursuant to dividend or interest
reinvestment plans, please check the following box. |_|
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. |X|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please 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(c) 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
----------------------------
The registrant hereby amends this registration statement on such date or dates
as will 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 this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
----------------------------
Pursuant to Rule 429 under the Securities Act, the prospectus included as part
of this registration statement may be used in connection with the offer and sale
of certain shares of the registrant's common stock previously registered under
the registrant's registration statements on Form S-3 having Registration Nos.
333-30596, 333-42500 and 333-61912.
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The information in this prospectus is incomplete and may be changed. The selling
securityholders may not sell the securities to be sold by them and Conexant may
not sell the securities to be sold by it until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 28, 2001
PROSPECTUS
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Conexant Systems, Inc.
Common Stock
(including the associated preferred share purchase rights)
---------------
This prospectus relates to shares of our common stock, and shares of
our common stock issuable upon the exercise of options, issued prior to the date
of this prospectus in connection with our acquisition of Microcosm
Communications Limited ("Microcosm"), shares of our common stock issued prior to
the date of this prospectus in connection with our acquisition of Applied
Telecom, Inc. ("ATI") and shares of our common stock issued prior to the date of
this prospectus in connection with our acquisition of HyperXS Communications,
Inc. ("HyperXS"). This includes:
o an aggregate of 5,734,321 shares of our common stock and
618,815 shares of our common stock issuable upon the exercise of
options that we issued to the former Microcosm shareholders and
option holders in connection with the closing of the Microcosm
acquisition, upon the release of an indemnification holdback as
provided in the Stock Purchase Agreement dated as of January 6,
2000 among us and the former Microcosm shareholders and option
holders (the "Microcosm Purchase Agreement") and as additional
consideration for the achievement of certain technology and
performance goals as provided in the Microcosm Purchase Agreement;
o an aggregate of 409,252 shares of our common stock that
we issued in connection with the closing of the ATI acquisition
and as additional consideration for the achievement of certain
technology and performance goals as provided in the Agreement and
Plan of Merger dated as of April 5, 2000 among us, Wildflower
Acquisition, Inc. and ATI (the "ATI Merger Agreement"); and
o an aggregate of 75,000 shares of our common stock that we
issued as additional consideration for the achievement of certain
technology and performance goals as provided in the Securities
Purchase Agreement dated as of February 22, 2001 by and among us,
the securityholders of HyperXS and HyperXS (the "HyperXS Purchase
Agreement").
This prospectus may be used by:
o former shareholders of Microcosm, ATI or HyperXS to
resell shares of our common stock we issued to them under the
Microcosm Purchase Agreement, the ATI Merger Agreement or the
HyperXS Purchase Agreement prior to the date of this prospectus;
o any transferee of restricted shares of our common stock
issued as described above to former shareholders of Microcosm, ATI
or HyperXS under the Microcosm Purchase Agreement, the ATI Merger
Agreement or the HyperXS Purchase Agreement, respectively;
o a former option holder of Microcosm to resell shares of our common
stock issued upon the exercise of options we have issued under the
Microcosm Purchase Agreement prior to the date of this prospectus;
and
o us to offer and sell shares of our common stock upon the
exercise of options we have issued to other former option holders
of Microcosm under the Microcosm Purchase Agreement prior to the
date of this prospectus.
Our common stock is traded on the Nasdaq National Market under the
symbol "CNXT". On September 27, 2001, the last reported sale price for our
common stock on the Nasdaq National Market was $7.79 per share.
Investing in the common stock involves a high degree of risk. Please
consider the "Risk Factors" beginning on page 5 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is September 28, 2001
TABLE OF CONTENTS
Page
Summary.....................................................................3
Risk Factors................................................................5
Use Of Proceeds............................................................23
Price Range of Common Stock................................................23
Dividend Policy............................................................24
Determination of Microcosm Option Exercise Prices..........................24
Microcosm Stock Option Plan................................................25
Description of Capital Stock...............................................27
U.K. Tax Considerations....................................................36
U.S. Federal Income Tax Considerations.....................................37
Selling Securityholders....................................................41
Plan of Distribution.......................................................43
Legal Matters..............................................................46
Experts....................................................................46
How to Obtain More Information.............................................47
Forward-Looking Statements.................................................48
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2
SUMMARY
CONEXANT SYSTEMS, INC.
Conexant Systems, Inc. (which may be referred to as Conexant, the
Company, we, us or our) is a worldwide leader in semiconductor system solutions
for communications applications. Conexant leverages its expertise in
mixed-signal processing 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. The Company
operates in two business segments: the Personal Networking business and
Mindspeed Technologies(TM), the Company's Internet infrastructure business.
Personal Networking designs, develops and sells semiconductor system
solutions for mobile communications and broadband access applications. Personal
Networking's products are sold into three general end-user product platforms:
Wireless Communications, Digital Infotainment and Personal Computing. Wireless
Communications products are comprised of components, subsystems and system-level
semiconductor solutions for wireless voice and data communication applications,
including digital cellular handsets and base stations as well as advanced mobile
terminals that support next-generation multimedia and high-speed web browsing.
Digital Infotainment products include semiconductor solutions that perform
communication and media processing functions within a variety of information and
entertainment platforms, such as set-top boxes, PCs and gaming consoles.
Personal Computing products include telephony-based communications solutions for
PCs and other communications devices such as gaming consoles, web browsers,
facsimile machines, multi-function peripherals and handheld devices.
Mindspeed Technologies designs, develops and sells semiconductor
networking solutions that facilitate the aggregation, transmission and switching
of data, video and voice from the edge of the Internet to linked metropolitan
area networks and long-haul networks. Mindspeed Technologies' products, ranging
from physical layer devices to higher layer network processors, are sold to
infrastructure original equipment manufacturers (OEMs) and can be classified
into two general categories: access products and wide area network (WAN)
transport products. Access products include multi-service access gateway
solutions, including voice-over-Internet protocol, and a broad family of
high-speed digital subscriber line (DSL) products that are used in a variety of
network access platforms such as remote access concentrators, voice gateways,
digital loop carriers, DSL access multiplexers and integrated access devices.
WAN transport products, focused on packet-based optical networks, include T/E
carrier, asynchronous transfer mode (ATM) and synchronous optical networking
(SONET)/synchronous digital hierarchy (SDH) transceivers, switch products,
network processors and software subsystems. These solutions are used in a
variety of network equipment, including high-speed routers, ATM switches,
optical switches, add-drop multiplexers, digital cross-connect systems, and
dense wave division multiplexer equipment.
Before December 31, 1998, we were a wholly owned subsidiary of Rockwell
International Corporation ("Rockwell") and, together with certain other
subsidiaries and
3
divisions of Rockwell, operated Rockwell's semiconductor systems business. On
December 31, 1998, we became an independent, separately traded, publicly-held
company when Rockwell distributed all the outstanding shares of our common stock
to the shareowners of Rockwell in a tax-free spin-off.
On March 26, 2001, we announced a plan to spin-off our Personal
Networking business by means of a pro rata distribution to our shareowners of
all the outstanding shares of New Conexant Systems, Inc., a newly formed
Delaware corporation ("New Conexant"), which will own and operate the Personal
Networking business. The distribution is subject to a number of conditions,
including approval by our shareowners of the contribution of the Personal
Networking business to New Conexant and the distribution and receipt of a ruling
from the Internal Revenue Service that the spin-off will qualify as a tax-free
distribution. The IRS ruling has been obtained. However, there can be no
assurance that shareowner approval will be obtained, or that the distribution
will be successfully completed. In connection with the distribution, we will
change our name to Mindspeed Technologies, Inc. and New Conexant will assume the
name Conexant Systems, Inc. Following the distribution, Microcosm and ATI will
be subsidiaries of Mindspeed Technologies, and HyperXS will be a part of the
Personal Networking business.
Our principal executive offices are located at 4311 Jamboree Road,
Newport Beach, California 92660-3095 and our telephone number is (949)
483-4600.
ACQUISITION OF MICROCOSM COMMUNICATIONS LIMITED
On January 6, 2000, we completed the acquisition of all outstanding
ordinary, "A" ordinary and preference shares and options to purchase ordinary
shares of Microcosm, a leading supplier of high-speed integrated circuits for
fiber optic communications located in Bristol, England. The purchase price was
approximately $129 million, subject to a holdback of approximately $18 million
to pay any contingent indemnification obligations and to payment of additional
consideration of up to approximately $52 million, payable in shares of our
common stock and stock options, if certain technology and performance goals are
achieved.
A closing payment was made by delivery of 1,523,430 shares of our
common stock to the shareholders of Microcosm and options to purchase 94,078
shares of our common stock to the option holders of Microcosm.
We subsequently issued 1,982,735 shares of our common stock to certain
former shareholders and options to purchase 334,827 shares of our common stock
to the former option holders of Microcosm, upon the release of the
indemnification holdback. We have also issued 3,507,123 shares of our common
stock to certain former shareholders and options to purchase 593,476 shares of
our common stock to the former option holders of Microcosm as additional
consideration for the achievement of certain technology and performance goals.
Under the Microcosm Purchase Agreement, we agreed to register the
resale of shares of our common stock issued at the closing of the acquisition
transaction and upon the release of the indemnification holdback, as well as the
sale of shares of our common stock issuable upon the exercise of options granted
in connection with those events. Those shares were registered pursuant to
previous Registration Statements on Form S-3 (Registration Nos. 333-30596 and
4
333-61912). We also agreed to register the resale of shares of our common stock
issued as additional consideration if the technology and/or performance goals
referred to above are achieved, as well as the sale of shares of our common
stock issuable upon exercise of any stock options granted in connection with
those events.
ACQUISITION OF APPLIED TELECOM, INC.
On April 13, 2000, we completed the acquisition of ATI, a leading
supplier of telecommunications software and hardware products to communications
equipment companies located in Lisle, Illinois in a merger transaction. The
purchase price was paid by a closing delivery of 121,244 shares of our common
stock and approximately $4.3 million in cash to the shareholders of ATI and
options to purchase 37,464 shares of our common stock to the option holders of
ATI. We subsequently issued 288,088 shares of our common stock to the former
shareholders of ATI and paid $7.4 million to the former option holders of ATI,
as additional consideration for the achievement of certain technology and
performance goals.
Under the ATI Merger Agreement and the Registration Rights Agreement
dated as of April 5, 2000 among us and the shareholders of ATI, we agreed to
register the resale of shares of our common stock issued at the closing of the
acquisition transaction. Those shares of common stock were registered pursuant
to a previous Registration Statement on Form S-3 (Registration No. 333-42500).
We also agreed to register the resale of shares of our common stock issued as
additional consideration if the technology and/or performance goals referred to
above are achieved.
ACQUISITION OF HYPERXS COMMUNICATIONS, INC.
On February 26, 2001, we completed the acquisition of HyperXS, a
developer of communications semiconductor products located in Irvine,
California. The purchase price was paid by a closing delivery of approximately
$7.5 million in cash to the securityholders of HyperXS, subject to payment of
additional consideration of up to 300,000 shares of our common stock to Global
Business Investments (B.V.I.) Corp. ("Global"), an investor in HyperXS, if
certain technology and performance goals are achieved. In addition, at the time
of the closing of the acquisition, outstanding HyperXS options were converted
into options to acquire our common stock. We subsequently issued 75,000 shares
of our common stock to Global as additional consideration for the achievement of
certain technology and performance goals. Under the HyperXS Purchase Agreement
and the Registration Rights Agreement dated as of February 22, 2001 among us and
Global, we agreed to register the resale of shares of such common stock.
RISK FACTORS
Our business, financial condition and operating results can be impacted
by a number of factors including, but not limited to, those set forth below, any
one of which could cause our actual results to vary materially from recent
results or from our anticipated future results.
You should carefully consider and evaluate all of the information in
this Report, including the risk factors listed below. Any of these risks could
materially and adversely affect
5
our business, financial condition and results of operations, which in turn could
materially and adversely affect the price of our common stock or other
securities.
WE HAVE RECENTLY INCURRED SUBSTANTIAL OPERATING LOSSES, AND WE ANTICIPATE
ADDITIONAL FUTURE LOSSES.
Our net revenues for the first nine months of fiscal 2001 were $861.5
million compared to $1.5 billion for the comparable fiscal 2000 period due to
sharply reduced end-customer demand in many of the communications electronics
end-markets which our products address. We incurred a loss (before an
extraordinary gain) of $1.2 billion for the first nine months of fiscal 2001.
During fiscal 2001, we announced a number of expense reduction
initiatives and a comprehensive business reassessment focused on leveraging our
core capabilities and aligning resources with our highest-growth, highest-margin
market opportunities. The expense reduction initiatives include workforce
reductions, temporary shutdowns of our manufacturing facilities, significant
reductions in capital spending, the consolidation of certain facilities, and
salary reductions of 10% for our senior management team until we return to
profitability. However, these expense reduction initiatives alone will not
return us to profitability. We expect that reduced end-customer demand,
underutilization of our manufacturing capacity, changes in our revenue mix and
other factors will continue to adversely affect our operating results in the
near term and we anticipate incurring additional losses through fiscal 2001. In
order to return to profitability, we must achieve substantial revenue growth and
we currently face an environment of uncertain demand in the markets our products
address. We cannot assure as to whether or when we will return to profitability
or whether we will be able to sustain such profitability, if achieved.
WE OPERATE IN THE HIGHLY CYCLICAL SEMICONDUCTOR INDUSTRY, WHICH IS SUBJECT TO
SIGNIFICANT DOWNTURNS.
The 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 industry has experienced significant downturns, often in connection
with, or in anticipation of, maturing product cycles (of both semiconductor
companies' and their customers' products) and declines in general economic
conditions. These downturns have been characterized by diminished product
demand, production overcapacity, high inventory levels and accelerated erosion
of average selling prices. We have experienced these conditions in our business
in the past, are currently experiencing a significant downturn, and may
experience such downturns in the future.
During the late 1990's and extending into 2000, the semiconductor
industry in general, and communications applications in particular, enjoyed
unprecedented growth, benefiting from the rapid expansion of the Internet and
other communication services worldwide. During the first nine months of fiscal
2001, we--like many of our customers and competitors--were adversely impacted by
a global economic slowdown and an abrupt decline in demand for many of the
end-
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user products that incorporate our communications semiconductor products and
system solutions. The impact of weakened end-customer demand has been compounded
by higher than normal levels of equipment and component inventories among our
original equipment manufacturer, or OEM, subcontractor and distributor
customers. As a result of this sharply reduced demand across our product
portfolio, we recorded $241.1 million of inventory write-downs in the first nine
months of fiscal 2001. We expect that reduced end-customer demand,
underutilization of our manufacturing capacity, changes in our revenue mix and
other factors will continue to adversely affect our operating results in the
near term.
In addition, the current environment of weak end-customer demand and
high levels of channel inventories has, in some cases, led to delays in payments
for our products. During the first nine months of fiscal 2001, we recorded $23
million of additional provisions for uncollectible accounts receivable from
certain slow-paying customers. In the event that our customers delay payments to
us, or are unable to pay amounts owed to us, we may incur additional losses on
our accounts receivable.
Demand in each of the communications electronics end-markets which our
products address is subject to a unique set of factors, and a downturn in demand
affecting one market may be more pronounced, or last longer, than a downturn
affecting another of our markets. In particular, we expect that demand for the
products sold by our Mindspeed Technologies business, which are incorporated
into telecommunications and data communications infrastructure equipment, may
recover more slowly than demand for products offered by our Personal Networking
business, which are ultimately sold to individual consumers in applications such
as personal computers and digital cellular handsets.
WE ARE SUBJECT TO INTENSE COMPETITION AND COULD LOSE BUSINESS TO OUR
COMPETITORS.
The semiconductor industry in general and the markets in which we
compete in particular are intensely competitive. We compete worldwide with a
number of United States and international semiconductor manufacturers that are
both larger and smaller than us in terms of resources and market share. We
currently face significant competition in our 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 our
products. We also anticipate that additional competitors will enter our markets
as a result of growth opportunities in communications electronics, the trend
toward global expansion by foreign and domestic competitors, technological and
public policy changes and relatively low barriers to entry in certain markets of
the industry. Moreover, as with many companies in the semiconductor industry,
customers for certain of our products offer other products that compete with
similar products offered by us.
We believe that the principal competitive factors for semiconductor
suppliers in our market are:
o time-to-market;
o product performance;
o level of integration;
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o price and total system cost;
o compliance with industry standards;
o design and engineering capabilities;
o strategic relationships with customers;
o customer support;
o new product innovation; and
o quality.
The specific bases on which we compete vary by market. We cannot assure
you that we will be able to successfully address these factors.
Many of our current and potential competitors have certain advantages
over us, including:
o longer operating histories and presence in key markets;
o greater name recognition;
o access to larger customer bases; and
o significantly greater financial, sales and marketing,
manufacturing, distribution, technical and other resources.
As a result, these competitors may be able to adapt more quickly 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 we can.
Current and potential competitors also have established or may
establish financial or strategic relationships among themselves or with our
existing or potential 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 we will be
able to compete successfully against current and potential competitors.
A number of our competitors have combined with each other and
consolidated their businesses, including the consolidation of competitors with
our customers. This is attributable to a number of factors, including the
high-growth nature of the communications electronic 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 us and our competitors, to augment
8
technical capabilities or to achieve faster time-to-market for their products
than would be possible solely through internal development.
Consolidations by industry participants, including in some cases,
acquisitions of certain of our customers by our competitors, are creating
entities with increased market share, customer base, technology and marketing
expertise in markets in which we compete. These developments may significantly
and adversely affect our current markets, the markets we are seeking to serve
and our ability to compete successfully in those markets.
OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO TIMELY DEVELOP NEW PRODUCTS AND
REDUCE COSTS.
Our operating results will depend largely on our ability to continue to
introduce new and enhanced semiconductor products on a timely basis. Successful
product development and introduction depends on numerous factors, including,
among others:
o our ability to anticipate customer and market requirements
and changes in technology and industry standards;
o our ability to accurately define new products;
o our ability to timely complete development of new products
and bring our products to market on a timely basis;
o our ability to differentiate our products from offerings of
our competitors; and
o overall market acceptance of our products.
Furthermore, we are required to continually evaluate expenditures for
planned product development and to choose among alternative technologies based
on our expectations of future market growth. We cannot assure you that we will
be able to develop and introduce new or enhanced products in a timely and
cost-effective manner, that our products will satisfy customer requirements or
achieve market acceptance, or that we will be able to anticipate new industry
standards and technological changes. We also cannot assure you that we 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 we must
continue to reduce the cost of producing and delivering existing products at the
same time that we develop and introduce new or enhanced products. We cannot
assure you that we will be able to continue to reduce the cost of our products
to remain competitive.
WE MAY BE UNABLE TO MAKE THE SUBSTANTIAL RESEARCH AND DEVELOPMENT INVESTMENTS
REQUIRED TO REMAIN COMPETITIVE IN OUR BUSINESS.
The semiconductor industry requires substantial investment in research
and development in order to develop and bring to market new and enhanced
products. We cannot assure you that we will have sufficient resources to develop
new and enhanced technologies and competitive products.
9
WE MAY NOT BE ABLE TO KEEP ABREAST OF THE RAPID TECHNOLOGICAL CHANGES IN OUR
MARKETS.
The demand for our products can change quickly and in ways we may not
anticipate because our markets generally exhibit the following characteristics:
o rapid technological developments;
o evolving industry standards;
o changes in customer requirements;
o frequent new product introductions and enhancements; and
o short product life cycles with declining prices over the life
cycle of the product.
Our products could become obsolete sooner than anticipated because of a
faster than anticipated change in one or more of the technologies related to our
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 our products.
WE MAY NOT BE ABLE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL NECESSARY FOR THE
DESIGN, DEVELOPMENT, MANUFACTURE AND SALE OF OUR PRODUCTS. OUR SUCCESS COULD BE
NEGATIVELY AFFECTED IF KEY PERSONNEL LEAVE.
Our future success depends on our ability to continue to attract,
retain and motivate qualified personnel, including executive officers and other
key management and technical personnel. As the source of our technological and
product innovations, our key technical personnel represent a significant asset.
The competition for such personnel is intense in the semiconductor industry. We
cannot assure you that we will be able to continue to attract and retain
qualified management and other personnel necessary for the design, development,
manufacture and sale of our products.
We may have particular difficulty attracting and retaining key
personnel during periods of poor operating performance, given, among other
things, the significant use of equity-based compensation by our competitors and
us. The loss of the services of one or more of our key employees, including
Dwight W. Decker, our Chairman and Chief Executive Officer, or certain key
design and technical personnel, or our inability to attract, retain and motivate
qualified personnel could have a material adverse effect on our ability to
operate our business.
IF OEMS OF COMMUNICATIONS ELECTRONICS PRODUCTS DO NOT DESIGN OUR PRODUCTS INTO
THEIR EQUIPMENT, WE WILL HAVE DIFFICULTY SELLING THOSE PRODUCTS. MOREOVER, A
DESIGN WIN FROM A CUSTOMER DOES NOT GUARANTEE FUTURE SALES TO THAT CUSTOMER.
Our products are not sold directly to the end-user but are components
of other products. As a result, we rely on OEMs of communications electronics
products to select our products from among alternative offerings to be designed
into their equipment. Without these "design
10
wins" from OEMs, we would have difficulty selling our products. Once an OEM
designs another supplier's semiconductors into its products, it will be more
difficult for us to achieve future design wins with that OEM's product platform
because changing suppliers involves significant cost, time, effort and risk.
Achieving a design win with a customer does not ensure that we will receive
significant revenues from that customer. Even after a design win, the customer
is not obligated to purchase our products and can choose at any time to stop
using our products, for example, if its own products are not commercially
successful or for any other reason. We may be unable to achieve design wins or
to convert design wins into actual sales.
BECAUSE OF THE LENGTHY SALES CYCLES OF MANY OF OUR PRODUCTS, WE MAY INCUR
SIGNIFICANT EXPENSES BEFORE WE GENERATE ANY REVENUES RELATED TO THOSE PRODUCTS.
Our customers may need six months or longer to test and evaluate our
products and an additional six months or more to begin volume production of
equipment that incorporates our products. The lengthy period of time required
also 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, we may incur significant research and
development, and selling, general and administrative expenses before we generate
the related revenues for these products, and we may never generate the
anticipated revenues if our customer cancels or changes its product plans.
UNCERTAINTIES INVOLVING THE ORDERING AND SHIPMENT OF OUR PRODUCTS COULD
ADVERSELY AFFECT OUR BUSINESS.
Our sales are typically made pursuant to individual purchase orders and
we generally do not have long-term supply arrangements with our customers.
Generally, our customers may cancel orders until 30 days prior to shipment. In
addition, we sell a portion of our products through distributors, some of whom
have rights to return unsold products to us. Sales to distributors accounted for
approximately 19% of fiscal 2000 net revenue and 29% of net revenue in the first
nine months of fiscal 2001. We routinely purchase inventory based on estimates
of customer demand for their products, which is difficult to predict. This
difficulty may be compounded when we sell to OEMs indirectly through
distributors or contract manufacturers, or both, as our forecasts of demand are
then based on estimates provided by multiple parties. In addition, our 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 our holding excess or obsolete inventory, which
could result in write-downs of inventory.
Recently, the communications electronics markets which we address have
been characterized by dramatic changes in end-user demand and continued high
levels of channel inventories which have reduced visibility into future demand
for our products. We expect that these and other factors will continue to affect
our revenues in the near term. As a result of sharply reduced demand across our
product portfolio, we recorded $241.1 million of inventory write-downs in the
first nine months of fiscal 2001.
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OUR MANUFACTURING PROCESS IS EXTREMELY COMPLEX AND SPECIALIZED.
Our manufacturing operations are complex and subject to disruption due
to causes beyond our 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. Minute
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.
Our operating results are highly dependent upon our ability to produce
integrated circuits at acceptable manufacturing yields. Our operations may be
affected by lengthy or recurring disruptions of operations at any of our
production facilities or those of our subcontractors. These disruptions may
include labor strikes, work stoppages, electrical power outages, fire,
earthquake, flooding or other natural disasters. These disruptions could cause
significant delays in shipments until we 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, we may not be able to obtain it on favorable terms, which
could result in a loss of customers. We may be unable to obtain sufficient
manufacturing capacity to meet demand, either at our own facilities or through
foundry or similar arrangements with others. Certain of our manufacturing
facilities are located near major earthquake fault lines, including our
California and Mexico facilities. We maintain only minimal earthquake insurance
coverage on these facilities.
Due to the highly specialized nature of the gallium arsenide
semiconductor manufacturing process, in the event of a disruption at our Newbury
Park, California wafer fabrication facility, alternate gallium arsenide
production capacity would not be readily available from third-party sources.
Although we have a multi-year agreement with a foundry that guarantees us access
to additional gallium arsenide wafer production capacity, a disruption of
operations at our Newbury Park wafer fabrication facility or the interruption in
the supply of epitaxial wafers used in our gallium arsenide process could have a
material adverse effect on our business, financial condition and results of
operations, particularly with respect to our Wireless Communications products.
Other wafer manufacturing processes we use, including the silicon
germanium process, are also highly specialized. In the event of a disruption at
our Newport Beach, California wafer fabrication facility, we may be required to
seek alternate production capacity from third-party sources. These processes are
available from a limited number of third-party sources, including a foundry
partner to whom we recently licensed our silicon germanium process technology.
We cannot assure you that we would be able to obtain adequate external wafer
manufacturing capacity on favorable terms, or at all.
Our long-term revenue growth is also dependent on our ability to
achieve a balance of internal and external manufacturing capacity, including
wafer production capacity. During times when the semiconductor industry is
experiencing an excess of wafer fabrication capacity, we are
12
at a relative disadvantage when compared to some of our competitors who rely
primarily on outside foundries because our wafer fabrication facilities require
substantial fixed costs and investment. We recently decided to realign our
manufacturing and procurement strategies, accelerating our transition from
volume digital CMOS manufacturing to a fabless CMOS business model. Over time,
it is expected that the majority of our requirements for CMOS wafers, previously
manufactured internally, will be sourced from third-party foundries.
Specialty-process wafer manufacturing (such as gallium arsenide and silicon
germanium processes) will remain an important component of our strategy. To
complete our transition to a fabless CMOS business model, we must secure
additional external CMOS wafer manufacturing capacity and we may enter into
additional long-term supply arrangements with foundry partners. We cannot assure
you that we will be successful in implementing any of these alternatives.
WE MAY NOT BE ABLE TO ACHIEVE MANUFACTURING YIELDS THAT CONTRIBUTE POSITIVELY TO
OUR 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 initially tend to be lower as we complete
product development and commence volume manufacturing, and will typically
increase as we ramp to full production. Our forward product pricing includes
this assumption of improving manufacturing yields and, as a result, material
variances between projected and actual manufacturing yields have a direct effect
on our 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
ever-increasing process complexity of manufacturing semiconductor products. Our
manufacturing operations also face pressures arising from the compression of
product life cycles which requires us to bring new products on line 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.
UNDER OUR REALIGNED MANUFACTURING STRATEGY, WE WILL BE INCREASINGLY DEPENDENT
UPON THIRD PARTIES FOR THE MANUFACTURE, ASSEMBLY AND TEST OF OUR PRODUCTS.
As we transition to a fabless CMOS business model, we will obtain an
increasing portion of our CMOS wafer requirements from outside wafer fabrication
facilities, known as foundries. To a lesser extent, we also rely upon
third-party foundries to supplement our specialty-process wafer manufacturing
capacity. There are significant risks associated with our reliance on
third-party foundries, including:
o the lack of ensured wafer supply, potential wafer shortages
and higher wafer prices;
o limited control over delivery schedules, quality assurance
and control, manufacturing yields and production costs; and
o the unavailability of, or delays in obtaining, access to key
process technologies.
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Third-party foundries may allocate their limited capacity to the
production requirements of other customers that are larger and better financed
than we. If we choose to use a new foundry, it typically takes several months to
complete the qualification process before we can begin shipping products from
the new foundry. The foundries we use may experience financial difficulties or
suffer damage or destruction to their facilities, particularly since many of
them are located in earthquake zones. If these events or any other disruption of
wafer fabrication capacity occur, we may not have a second manufacturing source
immediately available. We may therefore experience difficulties or delays in
securing an adequate supply of our products, which could impair our ability to
meet our customers' needs and have a material adverse effect on our operating
results.
In addition, the highly complex and technologically demanding nature of
semiconductor manufacturing has caused foundries to experience from time to time
lower than anticipated manufacturing yields, particularly in connection with the
introduction of new products and the installation and start-up of new process
technologies. Lower than anticipated manufacturing yields may affect our ability
to fulfill our customers' demands for our products on a timely and
cost-effective basis.
Third-party subcontractors also assemble and test a substantial portion
of our products. Because we rely on others to assemble and test our products, we
are subject to many of the same risks as are described above with respect to
independent wafer fabrication facilities.
WE ARE DEPENDENT UPON THIRD PARTIES FOR THE SUPPLY OF RAW MATERIALS AND
COMPONENTS.
We believe we have adequate sources for the supply of raw materials and
components for our manufacturing needs with suppliers located around the world.
Although we currently purchase wafers used in the production of our CMOS
products from one major supplier, such wafers are available from several other
suppliers. We are currently dependent on two suppliers for epitaxial wafers used
in the gallium arsenide semiconductor manufacturing processes at our Newbury
Park, California facility. The number of qualified alternative suppliers for
wafers is limited and the process of qualifying a new wafer supplier could
require a substantial lead-time. Although we historically have not experienced
any significant difficulties in obtaining an adequate supply of raw materials
and components necessary for our manufacturing operations, we cannot assure you
that we may not lose a significant supplier or that a supplier may be unable to
meet performance and quality specifications or delivery schedules.
OUR MANUFACTURING OPERATIONS IN CALIFORNIA MAY BE ADVERSELY AFFECTED BY POWER
OUTAGES IN THAT STATE.
The electric utility industry in California, where we maintain the
majority of our manufacturing operations, has recently been affected by supply
shortages which have led to electric power outages and increased electric power
costs. If our California operations were to shut down due to lack of electric
power for extended periods, we may be unable to meet customers' delivery
schedules, thereby adversely affecting our revenue. In addition, our California
operations may experience increased operating expenses due to inefficiencies
resulting from irregular interruptions in electric power supply, including costs
to access or operate backup power sources during such interruptions. We are
unable to predict whether
14
electric power outages in California will occur in the future, or how supply
shortages may affect our cost of electric power. To the extent electric power
outages do occur and our operations experience power outages and/or increases in
their cost of electric power, our business could be adversely affected.
WE MUST INCUR SIGNIFICANT CAPITAL EXPENDITURES FOR MANUFACTURING TECHNOLOGY AND
EQUIPMENT TO REMAIN COMPETITIVE.
The semiconductor industry is highly capital intensive. Semiconductor
manufacturing requires a constant upgrading of process technology to remain
competitive, as new and enhanced semiconductor processes are developed which
permit smaller, more efficient and more powerful semiconductor devices. Although
reduced capital expenditures are a key component of our realigned manufacturing
and procurement strategy, we will need to continue a focused program of capital
expenditures to sustain our current manufacturing capabilities during our
accelerated transition to a fabless CMOS business model and in connection with
our continued efforts in specialty-process wafer manufacturing.
We have made substantial capital expenditures and installed significant
production capacity to support new technologies and increased production volume.
We made capital expenditures during fiscal 2000 of approximately $315 million,
compared to approximately $214 million during fiscal 1999. We expect our capital
expenditures for fiscal 2001 will total approximately $165 million.
We cannot assure you that we will have sufficient capital resources to
make necessary investments in manufacturing technology and equipment.
OUR SUCCESS DEPENDS ON OUR ABILITY TO EFFECT SUITABLE INVESTMENTS, ALLIANCES OR
ACQUISITIONS.
Although we invest significant resources in research and development
activities, the complexity and rapidity of technological changes make it
impractical for us to pursue development of all technological solutions on our
own. As part of our goal to provide advanced semiconductor product systems, we
have and will continue to review on an ongoing basis investment, alliance and
acquisition prospects that would complement our existing product offerings,
augment our market coverage or enhance our technological capabilities. However,
we cannot assure you that we will be able to identify and consummate suitable
investment, alliance or acquisition transactions in the future.
Moreover, if we consummate such transactions, they could result in:
o issuances of equity securities dilutive to our existing
shareholders;
o large one-time write-offs;
o the incurrence of substantial debt and assumption of unknown
liabilities;
o the potential loss of key employees from the acquired company;
o amortization expenses related to intangible assets; and
15
o the diversion of management's attention from other business
concerns.
In fiscal 2000, we recorded charges of $215.7 million for purchased
in-process research and development and amortization expenses of $160.2 million
for acquisition-related intangible assets, principally related to the ten
acquisitions we completed in fiscal 2000. As a result of these acquisitions, we
expect to record amortization expense related to goodwill and intangible assets
of approximately $340 million annually for five years. A recent new accounting
standard, which we will be required to adopt not later than the first quarter of
our fiscal year 2003, will require us to cease amortizing goodwill against our
results of operations, reducing our annual amortization expense by approximately
$280 million. However, we will be required to evaluate goodwill at least
annually for impairment, and to write down the value of goodwill--with a charge
against our results of operations--when the recorded value of goodwill exceeds
its estimated fair value.
WE MAY HAVE DIFFICULTY INTEGRATING COMPANIES WE ACQUIRE.
We completed ten acquisitions in fiscal 2000. We evaluate acquisitions
on an ongoing basis and we may make additional acquisitions in the future.
Integrating acquired organizations and their products and services may be
expensive, time-consuming and a strain on our resources. We could face several
challenges integrating current and future acquisitions, including:
o the difficulty of integrating acquired technology into our
product offerings;
o the impairment of relationships with employees and customers;
o the difficulty of coordinating and integrating overall
business strategies and worldwide operations;
o the potential disruption of our ongoing business and
distraction of management;
o the inability to maintain brand recognition of acquired
businesses;
o the inability to maintain corporate controls, procedures and
policies;
o the failure of acquired features, functions, products or
services to achieve market acceptance; and
o the potential unknown liabilities associated with acquired
businesses.
We cannot assure you that we will be able to address these challenges
successfully.
WE FACE A RISK THAT CAPITAL NEEDED FOR OUR BUSINESS WILL NOT BE AVAILABLE WHEN
WE NEED IT.
Our $475 million credit facility was terminated in May 2001. We did not
use it to fund our operations, but it was a source of stand-by liquidity. We
believe that cash flows from operations, existing cash reserves and
available-for-sale marketable securities will be sufficient to satisfy our
research and development, capital expenditure, working capital and other
financing requirements for the next twelve months. However, we cannot assure you
that this will be the case. We may need to obtain alternate sources of
financing, such as another credit facility, in the
16
future. We cannot assure you that we will have access to additional sources of
capital on favorable terms or at all.
In addition, we have and will continue to review, on an ongoing basis,
strategic investments and acquisitions, which will help us grow our business.
These investments and acquisitions 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.
WE ARE SUBJECT TO THE RISKS OF DOING BUSINESS INTERNATIONALLY.
For fiscal 2000 and the first nine months of fiscal 2001, approximately
70 percent and 66 percent, respectively, of our net revenues were from customers
located outside the United States, primarily in the Asia-Pacific and European
countries. In addition, we have facilities and suppliers located outside the
United States, including our assembly and test facility in Mexicali, Mexico and
third-party foundries located in the Asia-Pacific region. Our international
sales and operations are subject to a number of risks inherent in selling and
operating abroad. These include, but are not limited to, risks regarding:
o currency exchange rate fluctuations;
o local economic and political conditions;
o disruptions of capital and trading markets;
o restrictive governmental actions (such as restrictions on
transfer of funds and trade protection measures, including export duties
and quotas and customs duties and tariffs);
o changes in legal or regulatory requirements;
o limitations on the repatriation of funds;
o difficulty in obtaining distribution and support;
o the laws and policies of the United States and other countries
affecting trade, foreign investment and loans, and import or export
licensing requirements;
o tax laws; and
o limitations on our ability under local laws to protect our
intellectual property.
Because most of our international sales, other than sales to Japan
(which are denominated principally in Japanese yen), are currently denominated
in U.S. dollars, our products could become less competitive in international
markets if the value of the U.S. dollar increases relative to foreign
currencies. Moreover, we may be competitively disadvantaged relative to our
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 our ability to increase or maintain
our foreign sales.
17
Our past operating performance has been impacted by adverse economic
conditions in the Asia-Pacific region, which have increased the uncertainty with
respect to the long-term viability of certain of our customers and suppliers in
the region. Sales to customers in Japan and other countries in the Asia-Pacific
region, principally Taiwan, South Korea and Hong Kong, represented approximately
57 percent and 52 percent, respectively, of our net revenues in fiscal 2000 and
the first nine months of fiscal 2001.
We enter into foreign currency forward exchange contracts, principally
for the Japanese yen, to minimize risk of loss from currency exchange rate
fluctuations for foreign currency commitments entered into in the ordinary
course of business. We have not entered into foreign currency forward exchange
contracts for other purposes and our financial condition and results of
operations could be affected (negatively or positively) by currency
fluctuations.
OUR OPERATING RESULTS MAY BE NEGATIVELY AFFECTED BY SUBSTANTIAL QUARTERLY AND
ANNUAL FLUCTUATIONS AND MARKET DOWNTURNS.
Our revenues, earnings and other operating results have fluctuated in
the past and may fluctuate in the future. These fluctuations are due to a number
of factors, many of which are beyond our control. These factors include, among
others:
o changes in end-user demand for the products manufactured and
sold by our customers;
o the effects of competitive pricing pressures, including
decreases in average selling prices of our products;
o production capacity levels and fluctuations in manufacturing
yields;
o availability and cost of products from our suppliers;
o the gain or loss of significant customers;
o our ability to develop, introduce and market new products and
technologies on a timely basis;
o new product and technology introductions by competitors;
o changes in the mix of products produced and sold;
o market acceptance of our products and our customers' products;
o intellectual property disputes;
o seasonal customer demand;
o the timing of receipt, reduction or cancellation of
significant orders by customers; and
o the timing and extent of product development costs.
18
The foregoing factors are difficult to forecast, and these, as well as
other factors, could materially adversely affect our quarterly or annual
operating results. If our operating results fail to meet the expectations of
analysts or investors, it could materially and adversely affect the price of our
common stock and other securities.
THE VALUE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED BY MARKET VOLATILITY.
The trading price of our common stock fluctuates significantly. Since
our common stock began trading publicly, the reported sale price of our common
stock on the NASDAQ National Market has been as high as $132.50 and as low as
$6.84 per share. This price may be influenced by many factors, including:
o our performance and prospects;
o the depth and liquidity of the market for our common stock;
o investor perception of Conexant and the industry in which we
operate;
o changes in earnings estimates or buy/sell recommendations by
analysts;
o general financial and other market conditions; and
o domestic and international economic conditions.
In addition, public stock markets have experienced, and are currently
experiencing, extreme price and trading volume volatility, particularly in high
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 our common stock.
WE MAY BE SUBJECT TO CLAIMS OF INFRINGEMENT OF THIRD-PARTY INTELLECTUAL PROPERTY
RIGHTS OR DEMANDS THAT WE LICENSE THIRD-PARTY TECHNOLOGY, WHICH COULD RESULT IN
SIGNIFICANT EXPENSE AND LOSS OF OUR INTELLECTUAL PROPERTY RIGHTS.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights. From time to time, third parties may
assert patent, copyright, trademark and other intellectual property rights to
technologies that are important to our business and may demand that we license
their technology. Any litigation to determine the validity of claims that our
products infringe or may infringe these rights, including claims arising through
our contractual indemnification of our customers, regardless of their merit or
resolution, could be costly and divert the efforts and attention of our
management and technical personnel. We cannot assure you that we would prevail
in litigation given the complex technical issues and inherent uncertainties in
intellectual property litigation. If litigation results in an adverse ruling we
could be required to:
o pay substantial damages;
19
o cease the manufacture, use or sale of infringing products;
o discontinue the use of infringing technology;
o expend significant resources to develop non-infringing
technology; or
o license technology from the third party claiming infringement,
which license may not be available on commercially reasonable terms, or
at all.
IF WE ARE NOT SUCCESSFUL IN PROTECTING OUR INTELLECTUAL PROPERTY RIGHTS, IT MAY
HARM OUR ABILITY TO COMPETE.
We rely primarily on patent, copyright, trademark and trade secret
laws, as well as nondisclosure and confidentiality agreements and other methods,
to protect our proprietary technologies and processes. In addition, we often
incorporate the intellectual property of our customers into our designs, and we
have obligations with respect to the non-use and non-disclosure of their
intellectual property. In the past, we have found it necessary to engage in
litigation to enforce our intellectual property rights, to protect our trade
secrets or to determine the validity and scope of proprietary rights of others,
including our customers. We expect future litigation on similar grounds, which
may require us to expend significant resources and to divert the efforts and
attention of our management from our business operations. We cannot assure you
that:
o the steps we take to prevent misappropriation or infringement
of our intellectual property or the intellectual property of our
customers will be successful;
o any existing or future patents will not be challenged,
invalidated or circumvented; or
o 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 our technology without authorization, develop
similar technology independently or design around our patents. If any of our
patents fails to protect our technology it would make it easier for our
competitors to offer similar products. In addition, effective copyright,
trademark and trade secret protection may be unavailable or limited in certain
countries.
WE MAY BE LIABLE FOR PENALTIES UNDER ENVIRONMENTAL LAWS, RULES AND REGULATIONS,
WHICH COULD ADVERSELY IMPACT OUR BUSINESS.
We use a variety of chemicals in our manufacturing operations and are
subject to a wide range of environmental protection regulations in the United
States and Mexico. While we have not experienced any material adverse effect on
our operations as a result of such regulations, we cannot assure you that
current or future regulations would not have a material adverse effect on our
business, financial condition and results of operations.
In the United States, environmental regulations often require parties
to fund remedial action regardless of fault. Consequently, it is often difficult
to estimate the future impact of
20
environmental matters, including potential liabilities. We cannot assure you
that the amount of expense and capital expenditures that might be required to
complete remedial actions and to continue to comply with applicable
environmental laws will not have a material adverse effect on our business,
financial condition and results of operations.
We have been designated as a potentially responsible party at one
Superfund site located at a former silicon wafer manufacturing facility and
steel fabrication plant in Parker Ford, Pennsylvania formerly occupied by the
semiconductor systems business of Rockwell. The site was also formerly occupied
by Recticon Corporation and Allied Steel Products Corporation, each of whom has
also been named as a potentially responsible party and each of whom is
insolvent. We have accrued approximately $2.0 million at June 30, 2001 for the
cost of groundwater remediation, including installation of a public water supply
line and groundwater pump and treatment system, as well as routine groundwater
sampling. In addition, we are engaged in two other remediations of groundwater
contamination at our Newport Beach and Newbury Park, California facilities for
which we have accrued approximately $2.3 million for the costs of remediation at
June 30, 2001. Pursuant to our agreement with Rockwell, we have assumed
liabilities in respect of environmental matters related to current and former
operations of Conexant.
OUR MANAGEMENT TEAM MAY BE SUBJECT TO A VARIETY OF DEMANDS FOR ITS ATTENTION.
Our management currently faces a variety of challenges, including the
implementation of our strategic manufacturing realignment, the implementation of
our expense reduction and restructuring initiatives, the integration of
recently-acquired businesses and the anticipated separation of the Personal
Networking and Mindspeed Technologies businesses. While we believe that we have
sufficient management resources to execute each of these initiatives, we cannot
assure you that we will have these resources or that our initiatives will be
successfully implemented.
CERTAIN PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS AND RIGHTS AGREEMENT AND
DELAWARE LAW MAY MAKE IT DIFFICULT FOR SOMEONE TO ACQUIRE CONTROL OF CONEXANT.
We have established certain anti-takeover measures that may affect our
common stock and convertible notes. Our restated certificate of incorporation,
our by-laws, our rights agreement with Mellon Investor Services LLC, as rights
agent, dated as of November 30, 1998, as amended, and the Delaware General
Corporation Law contain several provisions that would make more difficult an
acquisition of control of Conexant in a transaction not approved by our board of
directors. Our restated certificate of incorporation and by-laws include
provisions such as:
o the division of our board of directors into three classes to
be elected on a staggered basis, one class each year;
o the ability of our board of directors to issue shares of our
preferred stock in one or more series without further authorization of
our shareowners;
o a prohibition on shareowner action by written consent;
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o a requirement that shareowners provide advance notice of any
shareowner nominations of directors or any proposal of new business to
be considered at any meeting of shareowners;
o a requirement that a supermajority vote be obtained to remove
a director for cause or to amend or repeal certain provisions of our
restated certificate of incorporation or by-laws;
o elimination of the right of shareowners to call a special
meeting of shareowners; and
o a fair price provision.
We also have a rights agreement which gives our shareowners certain
rights that would substantially increase the cost of acquiring us in a
transaction not approved by our board of directors.
In addition to the rights agreement and the provisions in our restated
certificate of incorporation and 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 shareowner during the three-year period
following the time that such shareowner becomes an interested shareowner, unless
a majority of the directors then in office approves either the business
combination or the transaction that results in the shareowner becoming an
interested shareowner or specified shareowner approval requirements are met.
WE MAY BE RESPONSIBLE FOR CERTAIN FEDERAL INCOME TAX LIABILITIES THAT RELATE TO
OUR SPIN-OFF FROM ROCKWELL.
In connection with our spin-off from Rockwell, the Internal Revenue
Service issued a tax ruling to Rockwell stating that the spin-off would qualify
as a tax-free reorganization within the meaning of Section 368(a)(1)(D) of the
Internal Revenue Code of 1986, as amended. While the tax ruling generally is
binding on the Internal Revenue Service, the continuing validity of the tax
ruling is subject to certain factual representations and assumptions. We are not
aware of any facts or circumstances that would cause such representations and
assumptions to be untrue.
The Tax Allocation Agreement dated as of December 31, 1998 between
Conexant and Rockwell provides that we will be responsible for any taxes imposed
on Rockwell, Conexant or Rockwell shareowners as a result of either:
o the failure of the spin-off from Rockwell to qualify as a
tax-free reorganization within the meaning of Section 368(a)(1)(D) of
the Internal Revenue Code or
o the subsequent disqualification of the spin-off from Rockwell
as a tax-free transaction to Rockwell under Section 361(c)(2) of the
Internal Revenue Code,
if the failure or disqualification is attributable to certain post-spin-off
actions by or in respect of Conexant (including our subsidiaries) or our
shareowners, such as our acquisition by a third party at a time and in a manner
that would cause such failure or disqualification.
22
The Tax Allocation Agreement also provides, among other things, that
neither Rockwell nor Conexant is to take any action inconsistent with, nor fail
to take any action required by, the request for the tax ruling or the tax ruling
unless:
o required to do so by law;
o the other party has given its prior written consent; or
o in certain circumstances, a supplemental ruling permitting
such action is obtained.
Rockwell and Conexant have indemnified each other for any tax liability
resulting from each entity's failure to comply with these provisions.
In addition, we effected certain tax-free intragroup spin-offs as a
result of Rockwell's spin-off of Meritor Automotive, Inc. (now ArvinMeritor,
Inc.) on September 30, 1997. The Tax Allocation Agreement provides that we will
be responsible for any taxes imposed on Rockwell, Conexant or Rockwell
shareowners in respect of those intragroup spin-offs if such taxes are
attributable to certain actions taken after the spin-off from Rockwell by or in
respect of Conexant (including our subsidiaries) or our shareowners, such as our
acquisition by a third party at a time and in a manner that would cause the
taxes to be incurred.
If we were required to pay any of the taxes described above, such
payments would be very substantial.
USE OF PROCEEDS
The selling securityholders will receive all of the proceeds from the
sales of common stock by them pursuant to this prospectus. We will not receive
any proceeds from these sales. Any proceeds received by us from the exercise of
options granted under the Microcosm Purchase Agreement will be used for general
corporate purposes. The actual amount of proceeds we receive upon the exercise
of options will depend on how many options are ultimately exercised. However, if
all the options issued prior to the date of this prospectus were exercised, the
aggregate proceeds would not exceed approximately $2.1 million.
PRICE RANGE OF COMMON STOCK
Our common stock began trading on the Nasdaq National Market under the
symbol "CNXT" on January 4, 1999. The following table lists the high and low per
share sale prices for our common stock as reported by the Nasdaq National Market
for the periods indicated. These per share sale prices reflect the 2-for-1 stock
split effected in the form of a stock dividend on October 29, 1999.
23
High Low
------ ------
Fiscal year ending September 30, 1999:
Second quarter............................. $ 14.44 $ 6.84
Third quarter.............................. $ 34.19 $ 12.63
Fourth quarter............................. $ 41.94 $ 27.50
Fiscal year ending September 30, 2000:
First quarter.............................. $ 76.19 $ 30.88
Second quarter............................. $ 132.50 $ 53.00
Third quarter.............................. $ 79.00 $ 31.25
Fourth quarter............................. $ 57.06 $ 26.50
Fiscal year ending September 30, 2001:
First quarter.............................. $ 43.25 $ 13.75
Second quarter............................. $ 21.50 $ 8.19
Third quarter.............................. $ 12.75 $ 6.90
Fourth quarter (through September 27, 2001) $ 12.85 $ 7.25
On September 27, 2001 the last bid price of the common stock as
reported on the Nasdaq National Market was $7.79 per share. As of August 24,
2001 there were approximately 48,600 holders of record of our common stock.
DIVIDEND POLICY
We have never paid cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future.
DETERMINATION OF MICROCOSM OPTION EXERCISE PRICES
Under the Microcosm Purchase Agreement, each holder of Microcosm
options received in exchange for the surrender and cancellation of all of his or
her Microcosm options, a stock option to purchase that number of shares of
Conexant common stock equal to the number of shares he or she would have
received if he or she had exercised the Microcosm option and been a Microcosm
shareholder immediately prior to the closing of the Microcosm acquisition
transaction. The exercise price per share of the new Conexant option was
determined in accordance with the Microcosm Purchase Agreement by aggregating
the exercise prices of all Microcosm options held by the Microcosm option holder
immediately prior to the closing and dividing it by the total number of shares
of Conexant common stock for which the new Conexant option is exercisable. This
determination of the exercise price was established through negotiations among
the parties to the Microcosm Purchase Agreement.
Under the Microcosm Purchase Agreement, a $1.00 per share exercise
price was set for any Conexant options issued upon the release of the
indemnification holdback or as additional consideration for achievement of
certain technology and performance goals. The exercise price was also
established through negotiations among the parties to the Microcosm Purchase
Agreement.
24
MICROCOSM STOCK OPTION PLAN
The following statements include summaries of certain provisions of our
Microcosm Communications Limited Stock Option Plan (the "Plan"). These
statements do not purport to be complete and are qualified by reference to the
provisions of the Plan, which are incorporated by reference into this
prospectus. The Plan was adopted by Conexant's board of directors and became
effective as of January 6, 2000.
PURPOSE
The purpose of the Plan is to provide a means for Conexant to perform
its obligations under the Microcosm Purchase Agreement with respect to the
holders of Microcosm options. The Microcosm options originally granted under
Microcosm's Executive Share Option Scheme were surrendered and canceled at the
closing of the Microcosm acquisition. In exchange, we granted stock options
under the Plan. In addition, as additional consideration for the surrender and
cancellation of their Microcosm options, the former holders of Microcosm options
are entitled to receive additional stock options under the Plan, in accordance
with the Microcosm Purchase Agreement, upon the release of the indemnification
holdback or as additional consideration payable if certain technology or
performance goals are achieved.
ELIGIBILITY
Only those persons who, on the closing date of the Microcosm
acquisition, held Microcosm options are eligible to participate in the Plan and
be granted stock options under the Plan. These stock options may be subsequently
transferred, subject to certain restrictions on transfer.
PURCHASE PRICE
The purchase price of the shares of our common stock subject to an
option may be paid:
o in cash;
o in shares of our common stock (valued at the closing price of
our common stock as reported in the Nasdaq National Market
reporting system on the date of exercise, or if no sale of
shares of our common stock is reported for such date, the next
preceding day for which there is a reported sale);
o in a combination of shares of our common stock and cash; or
o through such other means as Conexant's board of directors
determines are consistent with the Plan's purpose and applicable
law.
No fractional shares of common stock will be issued or accepted.
In addition, any option holder may simultaneously exercise options and
sell the shares of common stock acquired, pursuant to a brokerage or other
arrangement, and use the proceeds
25
from the sale as payment of the purchase price of the common stock and any
applicable withholding taxes.
SHARES AVAILABLE
The Plan provides for awards of stock options for that number of shares
of our common stock as are necessary to provide to the holders of Microcosm
options their portion of the consideration paid or to be paid by us pursuant to
the Microcosm Purchase Agreement in the form of stock options.
The common stock delivered upon exercise of a stock option may be
treasury shares, authorized but unissued shares of common stock or shares of
common stock acquired in the open market to satisfy the requirements of the
Plan.
AWARD AGREEMENTS
Each award under the Plan will be evidenced by an award agreement
between the holder and Conexant. Each award agreement will state the number of
shares of common stock subject to the award and will include the terms described
below. In the event of any conflict between an award agreement and the Plan, the
terms of the Plan will govern.
Exercising Options
The stock options issued under the Plan are immediately exercisable and
entitle the option holder to purchase the number of shares of our common stock
set forth in the award agreement. The exercise prices of the stock options were
determined in accordance with the terms of the Microcosm Purchase Agreement
described above under "Determination of Microcosm Option Exercise Prices".
Rights as a Shareowner
An option holder will have no rights as a shareowner with respect to
any common stock covered by an award until the date he or she becomes the holder
of record of the shares. Except as described below under "--Adjustment
Provisions", no adjustment will be made for dividends or other rights, unless
the award agreement specifically requires the adjustment.
Withholding
Whenever taxes are required by law to be withheld in connection with
the granting, vesting or exercise of an award, we will have the right to deduct
those taxes from any payment to be made by us or Mellon Investor Services LLC,
our stock option administrator, under the Plan. This may be done by retaining
the notional proceeds received by us on a cashless exercise of stock options by
a sale to us or the cash proceeds received by Mellon from a cashless exercise of
stock options and remitting the cash or cash equivalent to Microcosm in order
for Microcosm to withhold the applicable personal taxes in connection with such
cashless exercise or requiring an option holder to remit to us an amount
sufficient to satisfy the tax withholding obligation. An option holder may
satisfy the withholding obligation by paying the amount of any taxes in cash, or
shares of common stock may be delivered to us or sold or deducted from the
payment to
26
satisfy the obligation in full or in part. If an option holder satisfies the
withholding obligation by paying in shares of our common stock, the tax amounts
will be limited to the statutory minimum as required by law.
ADMINISTRATION; INTERPRETATION
The Plan is administered by our board of directors. Our board of
directors also has the power to interpret the Plan, to adopt, amend and rescind
procedural rules and regulations relating to the exercise of stock options under
the Plan, and to take all other actions they may deem necessary or appropriate
for the implementation and administration of the Plan.
ADJUSTMENT PROVISIONS
In the event of any change in or affecting shares of our common stock
on account of any merger, consolidation, reorganization, recapitalization,
reclassification, stock dividend, stock split or combination, or other
distribution to holders of our common stock (other than a cash dividend), the
Plan will be amended and the board of directors may adopt adjustments and take
certain actions as it deems appropriate under the circumstances. However, these
adjustments and actions may not materially adversely affect any holder of stock
options granted under the Plan. In the event of a recapitalization,
reorganization or reclassification of Conexant, the stock options will be
exercisable for the same consideration as that for which our common stock is
exchanged. These amendments, adjustments and actions may include changes in the
number of shares of our common stock which may be issued or transferred pursuant
to the Plan, the number of shares of our common stock subject to outstanding
stock options and the related exercise price per share or a requirement that
holders of stock options exercise such options and become holders of our common
stock upon the occurrence of certain events.
AMENDMENT AND TERMINATION; TERM
Except as described above under "--Adjustment Provisions", (a) the
Plan and the stock options granted under the Plan may not be amended, suspended
or terminated without the consent in writing of the holders of then outstanding
stock options representing at least 75 percent of the common stock underlying
such stock options and (b) without the approval of the shareowners of Conexant,
(i) the number of shares subject to the Plan may not be increased and (ii) the
exercise price of any stock option may not be reduced. No amendment, suspension
or termination may impair the rights of any holder of stock options without that
holder's consent.
The Plan will remain in effect until all awards granted under the Plan
have been exercised or terminated under the terms of the Plan and applicable
award agreements.
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock includes a summary of
certain provisions of our restated certificate of incorporation and our by-laws.
This description is subject to the detailed provisions of, and is qualified by
reference to, our restated certificate of incorporation, as amended, and our
by-laws, copies of which have been filed as exhibits to the registration
statement of which this prospectus is a part.
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We are authorized to issue (1) 1,000,000,000 shares of common stock, of
which approximately 252,198,000 shares were outstanding as of August 24, 2001
and (2) 25,000,000 shares of preferred stock, without par value, of which our
board of directors has designated (a) 1,500,000 shares as Series A Junior
Participating Preferred Stock for issuance in connection with the exercise of
our preferred share purchase rights and (b) one share as Series B Voting
Preferred Stock issued in connection with the acquisition of Philsar
Semiconductor Inc. For a more detailed discussion of our preferred share
purchase rights and how they relate to our common stock, see "Conexant Rights
Plan". The authorized shares of common stock and preferred stock will be
available for issuance without further action by our shareowners, unless such
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which our securities may be listed or traded. If
the approval of our shareowners is not so required, our board of directors may
determine not to seek shareowner approval.
Certain of the provisions described under this section entitled
"Description of Capital Stock" could have the effect of discouraging
transactions that might lead to a change of control of Conexant.
Our restated certificate of incorporation and by-laws:
o establish a classified board of directors, whereby our
directors are elected for staggered terms in office so that only
one-third of our directors stand for election in any one year;
o require shareowners to provide advance notice of any shareowner
nominations of directors or any proposal of new business to be
considered at any meeting of shareowners;
o require a supermajority vote to remove a director or to amend or
repeal certain provisions of our restated certificate of
incorporation or by-laws;
o preclude shareowners from acting by written consent without a
meeting of shareowners; and
o preclude shareowners from calling a special meeting of
shareowners.
COMMON STOCK
Holders of common stock are entitled to such dividends as may be
declared by our board of directors out of funds legally available therefor.
Dividends may not be paid on common stock unless all accrued dividends on
preferred stock, if any, have been paid or set aside. In the event of our
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. See "Dividend Policy".
Each holder of common stock will be entitled to one vote for each such
share outstanding in such holder's name. No holder of common stock will be
entitled to cumulate votes in voting
28
for directors. Our certificate provides that, unless otherwise determined by our
board of directors, no holder of common stock will have any right to purchase or
subscribe for any stock of any class which we may issue or sell.
Mellon Investor Services LLC is the transfer agent and registrar for
our common stock.
PREFERRED STOCK
Our restated certificate of incorporation permits us to issue up to
25,000,000 shares of our preferred stock in one or more series and with rights
and preferences that may be fixed or designated by our board of directors
without any further action by our shareowners. Our board of directors has
designated (1) 1,500,000 shares of our preferred stock as Series A Junior
Participating Preferred Stock for issuance in connection with the exercise of
our preferred share purchase rights and (2) one share of our preferred stock as
Series B Voting Preferred Stock issued in connection with the Philsar
acquisition. The powers, preferences, rights and qualifications, limitations and
restrictions of the preferred stock of any other series will be fixed by the
certificate of designation relating to such series, which will specify the terms
of the preferred stock, including:
o the maximum number of shares in the series and the distinctive
designation;
o the terms on which dividends, if any, will be paid;
o the terms on which the shares may be redeemed, if at all;
o the terms of any retirement or sinking fund for the purchase or
redemption of the shares of the series;
o the liquidation preference, if any;
o the terms and conditions, if any, on which the shares of the
series shall be convertible into, or exchangeable for,
shares of any other class or classes of capital stock;
o the restrictions on the issuance of shares of the same series or
any other class or series; and
o the voting rights, if any, of the shares of the series.
Although our 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.
Series A Junior Participating Preferred Stock
For a description of the Series A Junior Participating Preferred Stock,
see "--Conexant Rights Plan".
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Series B Voting Preferred Stock
Under the Voting and Exchange Trust Agreement dated as of May 30, 2000
by and among Conexant, Philsar and CIBC Mellon Trust Company entered into in
connection with the Philsar acquisition, Conexant issued one share of Series B
Voting Preferred Stock to CIBC Mellon Trust Company, as trustee of the voting
trust established thereunder, which is holding the share in trust for the
benefit of the holders of the exchangeable shares of Philsar issued to Philsar's
stockholders in connection with the Philsar acquisition. The Series B preferred
stock entitles the trustee to vote at meetings of the holders of our common
stock, voting together with the holders of our common stock. For each
exchangeable share that is not held by us or one of our subsidiaries on the
record date for any meeting of holders of our common stock, the trustee will
have one vote for each such exchangeable share at such meeting, which will be
exercised only to the extent that the trustee receives voting instructions from
the registered holders of exchangeable shares. The trustee is entitled to notice
of any shareowner's meeting in accordance with our by-laws.
The trustee, as the holder of the Series B preferred stock, is entitled
to receive such dividends and distributions in equal amounts per exchangeable
share, payable in cash or otherwise, as may be declared per share of our common
stock by our board of directors from time to time out of assets or funds of ours
legally available therefor to the holder of record as it appears on the stock
books on such record dates as are fixed by the board of directors. Such
dividends will not be cumulative.
In the event of our liquidation, dissolution or winding up, whether
voluntary or involuntary, the holder of Series B preferred stock is entitled to
receive out of our assets, whether these assets are capital or surplus of any
nature, an amount equal to the sum of (1) the dividends declared but not paid
thereon to the date of the final distribution to the holder of the Series B
preferred stock, and (2) $100 per share, and no more, before any payment shall
be made or any assets distributed to the holders of shares of our common stock
or any other class or series of our capital stock ranking junior as to
liquidation rights to the Series B preferred stock.
The Series B preferred stock is not convertible into or exchangeable
for any other class or series of capital stock, or any other securities, of our
or any other corporation.
The Series B preferred stock is not subject to redemption by us until
such time as there are no exchangeable shares outstanding which are not owned by
us or any of our direct or indirect subsidiaries. Thereafter, the share of
Series B preferred stock may be redeemed at any time by us, out of funds legally
available for a stock redemption, for cash, at a price equal to the sum of $1.00
plus any declared and unpaid dividends, upon giving 30 days' written notice to
the holder of record of the Series B preferred stock at the address of such
holder set forth in our stock books. No sinking fund has been provided for the
purchase or redemption of Series B preferred stock.
At such time as (1) the Series B preferred stock is no longer entitled
to vote at a meeting of holders of our common stock because there are no
exchangeable shares outstanding which are not owned by us or any of our direct
or indirect subsidiaries, and (2) there is no share of stock, warrant, option or
other agreement, obligation or commitment of Philsar which by its terms
30
could require Philsar to issue any exchangeable shares to any person other than
us or any of our direct or indirect subsidiaries, then the share of Series B
preferred stock will be retired and canceled promptly thereafter. Such share
will upon its cancellation, and upon the taking of any action required by
applicable law, become an authorized but unissued preferred share and may be
reissued as part of a new series of preferred shares to be created by resolution
or resolutions of our board of directors, subject to the conditions and
restrictions on issuance set forth in our restated certificate of incorporation.
The Series B preferred stock ranks equally with our common stock as to
payment of dividends and prior to our common stock and our Series A junior
preferred stock as to distribution of assets upon liquidation to the extent
provided above.
CERTAIN PROVISIONS IN OUR RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
Our restated certificate of incorporation and by-laws contain various
provisions intended to (1) promote the stability of our shareowner base and (2)
render more difficult certain unsolicited or hostile attempts to take us over
which could disrupt us, divert the attention of our directors, officers and
employees and adversely affect the independence and integrity of our business.
Pursuant to our restated certificate of incorporation, the number of
directors is fixed by our board of directors. Other than directors elected by
the holders of any series of preferred stock or any other series or class of
stock except common stock, our directors are divided into three classes, each
class to consist as nearly as possible of one-third of the directors. Directors
elected by shareowners at an annual meeting of shareowners will be elected by a
plurality of all votes cast. Currently, the terms of office of the three classes
of directors expire, respectively, at our annual meetings in 2002, 2003 and
2004. The term of the successors of each such class of directors expires three
years from the year of election.
Our restated certificate of incorporation contains a fair price
provision pursuant to which a Business Combination (as defined in our restated
certificate of incorporation) between us or one of our subsidiaries and an
Interested Shareowner (as defined in our restated certificate of incorporation)
requires approval by the affirmative vote of the holders of not less than 80
percent of the voting power of all of our outstanding capital stock entitled to
vote generally in the election of directors, voting together as a single class,
unless the Business Combination is approved by at least two-thirds of the
Continuing Directors (as defined in our restated certificate of incorporation)
or certain fair price criteria and procedural requirements specified in the fair
price provision are met. If either the requisite approval of our board of
directors or the fair price criteria and procedural requirements were met, the
Business Combination would be subject to the voting requirements otherwise
applicable under the Delaware General Corporation Law, which for most types of
Business Combinations currently would be the affirmative vote of the holders of
a majority of all of our outstanding shares of stock entitled to vote thereon.
Any amendment or repeal of the fair price provision, or the adoption of
provisions inconsistent therewith, must be approved by the affirmative vote of
the holders of not less than 80 percent of the voting power of all of our
outstanding capital stock entitled to vote generally in the election of
directors, voting together as a single class, unless such amendment, repeal or
adoption were approved by at least two-thirds of the Continuing Directors, in
which case the provisions of the Delaware General
31
Corporation Law would require the affirmative vote of the holders of a majority
of the outstanding shares of our capital stock entitled to vote thereon.
Our restated certificate of incorporation and by-laws provide that a
special meeting of shareowners may be called only by a resolution adopted by a
majority of the entire board of directors. Shareowners are not permitted to
call, or to require that the board of directors call, a special meeting of
shareowners. Moreover, the business permitted to be conducted at any special
meeting of shareowners is limited to the business brought before the meeting
pursuant to the notice of the meeting given by us. In addition, our certificate
provides that any action taken by our shareowners must be effected at an annual
or special meeting of shareowners and may not be taken by written consent
instead of a meeting. Our by-laws establish an advance notice procedure for
shareowners to nominate candidates for election as directors or to bring other
business before meetings of our shareowners.
Our restated certificate of incorporation provides that the affirmative
vote of at least 80 percent of the voting power of all of our outstanding
capital stock entitled to vote generally in the election of directors, voting
together as a single class, would be required to:
o amend or repeal the provisions of our certificate with
respect to (a) the election of directors, (b) the right to
call a special shareowners' meeting or (c) the right to act
by written consent;
o adopt any provision inconsistent with such provisions; or
o amend or repeal the provisions of our restated certificate
of incorporation with respect to amendments to our restated
certificate of incorporation or by-laws.
In addition, our restated certificate of incorporation provides that our board
of directors may make, alter, amend and repeal our by-laws and that the
amendment or repeal by shareowners of any of our by-laws would require the
affirmative vote of at least 80 percent of the voting power described above,
voting together as a single class.
CONEXANT RIGHTS PLAN
Each outstanding share of our common stock also evidences one preferred
share purchase right. Each preferred share purchase right entitles the
registered holder to purchase from us one two-hundredth of a share of Series A
Junior Participating Preferred Stock, at $300, subject to adjustment. The
description and terms of the preferred share purchase rights are set forth in
the rights agreement dated as of November 30, 1998, as amended as of December 9,
1999.
Until the earlier to occur of (1) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired beneficial ownership of 20 percent or more of
the outstanding common stock or (2) 10 business days, or such later date as may
be determined by our board of directors prior to such time as any person or
group becomes an Acquiring Person, following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20 percent or more of the outstanding common
32
stock, preferred share purchase rights will be attached to common stock and will
be owned by the registered owners of common stock.
The rights agreement provides that, until the preferred share purchase
rights are no longer attached to the common stock, or until the earlier
redemption or expiration of the preferred share purchase rights:
o the preferred share purchase rights will be transferred with and
only with common stock;
o certificates representing common stock and statements in
respect of shares of common stock registered in book-entry
or uncertificated form will contain a notation incorporating
the terms of the preferred share purchase rights by reference;
and
o the transfer of any shares of common stock will also
constitute the transfer of the associated preferred share
purchase rights.
As soon as practicable following the date the preferred share purchase rights
are no longer attached to the common stock (the "Distribution Date"), separate
certificates evidencing preferred share purchase rights will be mailed to
holders of record of common stock as of the close of business on the date the
preferred share purchase rights are no longer attached to the common stock and
the separate certificates alone will evidence preferred share purchase rights.
In addition, the rights agreement provides that in connection with the
issuance or sale of our common stock following the Distribution Date and prior
to the earlier of (1) the redemption of the preferred share purchase rights and
(2) the expiration of the preferred share purchase rights (a) we will, with
respect to common stock issued or sold pursuant to the exercise of stock options
or under any employee plan or arrangement in existence prior to the Distribution
Date, or upon the exercise, conversion or exchange of securities, notes or
debentures (pursuant to the terms thereof) issued by us and in existence prior
to the Distribution Date, and (b) we may, in any other case, if deemed necessary
or appropriate by our board of directors, issue certificates representing the
appropriate number of preferred share purchase rights in connection with such
issuance or sale. We will not be obligated to issue any of these certificates
if, and to the extent that, we are advised by counsel that the issuance of those
certificates would create a significant risk of material adverse tax
consequences to us or the person to whom such certificate would be issued or
would create a significant risk that the stock options or employee plans or
arrangements would fail to qualify for otherwise available special tax
treatment. In addition, no certificate will be issued if, and to the extent
that, appropriate adjustments otherwise have been made instead of the issuance
thereof.
Preferred share purchase rights will not be exercisable until the
Distribution Date. Preferred share purchase rights will expire on December 31,
2008, unless this expiration date is extended or unless preferred share purchase
rights are earlier redeemed by us, in each case, as described below.
The purchase price payable, and the number of shares of Series A junior
preferred stock or other securities or property issuable, upon exercise of the
preferred share purchase rights will
33
be subject to adjustment from time to time to prevent dilution upon the
occurrence of the following events:
o in the event of a stock dividend on, or a subdivision,
combination or reclassification of, Series A junior preferred
stock;
o upon the grant to holders of shares of Series A junior preferred
stock of certain rights or warrants to subscribe for or purchase
shares of Series A junior preferred stock at a price, or
securities convertible into shares of Series A junior preferred
stock with a conversion price, less than the then current market
price of the shares of Series A junior preferred stock; or
o upon the distribution to holders of shares of Series A junior
preferred stock of evidences of indebtedness or assets (excluding
regular periodic cash dividends or dividends payable in shares of
Series A junior preferred stock) or of subscription rights or
warrants (other than those referred to above).
The number of outstanding preferred share purchase rights and the
number of one two-hundredths of a share of Series A junior preferred stock
issuable upon exercise of each preferred share purchase right will also be
subject to adjustment in the event of a stock split of common stock or a stock
dividend on common stock payable in common stock or subdivisions, consolidations
or combinations of common stock occurring, in any such case, prior to the date
the preferred share purchase rights are no longer attached to the common stock.
We cannot redeem shares of Series A junior preferred stock purchasable
upon exercise of preferred share purchase rights. Each share of Series A junior
preferred stock will be entitled to a minimum preferential quarterly dividend
payment of $1 per share but will be entitled to an aggregate dividend of 100
times the dividend declared per share of common stock whenever such dividend is
declared. In the event of liquidation, the holders of Series A junior preferred
stock will be entitled to a minimum preferential liquidation payment of $100 per
share but will be entitled to an aggregate payment of 100 times the payment made
per share of common stock. Each share of Series A junior preferred stock will
have 100 votes, voting together with common stock. In the event of any merger,
consolidation or other transaction in which shares of common stock are
exchanged, each share of Series A junior preferred stock will be entitled to
receive 100 times the amount received per share of common stock. These rights
will be protected by customary antidilution provisions.
Because of the nature of the Series A junior preferred stock's
dividend, liquidation and voting rights, the value of each one-hundredth
interest in a share of Series A junior preferred stock purchasable upon exercise
of each preferred share purchase right should approximate the value of one share
of common stock.
In the event that, at any time after any person or group of affiliated
or associated persons has become an Acquiring Person, we are acquired in a
merger or other business combination transaction or 50 percent or more of our
consolidated assets or earning power is sold, proper provision will be made so
that each holder of a preferred
34
share purchase right will thereafter have the right to receive, upon the
exercise thereof at the then current exercise price of a preferred share
purchase right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of a preferred share purchase right. In the event that any person
becomes an Acquiring Person, proper provision shall be made so that each holder
of a preferred share purchase right, other than preferred share purchase rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise, instead of shares of Series
A junior preferred stock, that number of shares of common stock having a market
value of two times the exercise price of a preferred share purchase right.
At any time after any person or group of affiliated or associated
persons becomes an Acquiring Person, and prior to the acquisition by such person
or group of 50 percent or more of the outstanding shares of common stock, our
board of directors may exchange preferred share purchase rights (other than
preferred share purchase rights owned by such person or group, which will have
become void after such person became an Acquiring Person) for common stock, in
whole or in part, at an exchange ratio of one share of common stock per
preferred share purchase right (subject to adjustment).
Generally, no adjustment in the purchase price will be required until
cumulative adjustments require an adjustment of at least one percent. No
fractional shares of Series A junior preferred stock will be issued, other than
fractions which are integral multiples of one two-hundredth of a share of Series
A junior preferred stock, which may, at our election, be evidenced by depository
receipts. Instead, an adjustment in cash will be made based on the market price
of Series A junior preferred stock on the last trading day prior to the date of
exercise.
At any time prior to any person or group of affiliated or associated
persons becoming an Acquiring Person, our board of directors may redeem
preferred share purchase rights in whole, but not in part, at a price of $.01
per preferred share purchase right. The redemption of preferred share purchase
rights may be made effective at such time, on such basis and with such
conditions as our board of directors may determine, in its sole discretion.
Immediately upon any redemption of preferred share purchase rights, the right to
exercise preferred share purchase rights will terminate and the only right of
the holders of preferred share purchase rights will be to receive the redemption
price.
The terms of preferred share purchase rights may be amended by our
board of directors without the consent of the holders of preferred share
purchase rights, including an amendment to decrease the threshold at which a
person becomes an Acquiring Person from 20 percent to not less than 10 percent,
except that from and after such time as any person becomes an Acquiring Person
no such amendment may adversely affect the interests of the holders of preferred
share purchase rights.
Until a preferred share purchase right is exercised, the holder
thereof, as such, will have no rights as a shareowner of Conexant, including,
without limitation, the right to vote or to receive dividends.
The foregoing summary of the material terms of preferred share purchase
rights is qualified by reference to the rights agreement, a copy of which is on
file with the SEC.
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U.K. TAX CONSIDERATIONS
Conexant has been advised by Manches & Co., U.K. counsel for Conexant,
of the following details regarding the U.K. tax position of U.K. Holders arising
from the exercise of stock options and the ownership and disposition of common
stock. This discussion relates to the former shareholders and option holders of
Microcosm only and is based on currently existing provisions of U.K. law, and
administrative and judicial interpretations thereof, all as in effect or
proposed on the date hereof and all of which are subject to change, possibly
with retroactive effect, or different interpretations. There can be no assurance
that the U.K. Inland Revenue will not take a view contrary to the
interpretations set forth herein, and no ruling from the Inland Revenue has been
or will be sought.
Moreover, this discussion is for general information only and does not
address all of the tax consequences that may be relevant to particular holders.
The actual tax consequences of the exercise of stock options and the ownership
and disposition of our common stock will vary depending upon the particular
circumstances of each holder. The discussion which follows also does not address
the tax consequences applicable to all categories of holders, some of which
(such as dealers in securities or commodities, investors that do not hold their
common stock as capital assets, tax exempt organizations, banks, thrifts, and
insurance companies) may be subject to special rules.
For purposes of this summary, a "U.K. Holder" means a beneficial owner
of our common stock or stock options who is resident in the U.K. for the
purposes of U.K. taxation law.
Holders of our common stock and stock options are advised to consult
their own tax advisers as to the U.K. or other tax consequences of the exercise
of stock options and the ownership and disposition of our common stock,
including the effect of any state, local or foreign tax laws.
Stock Options
If a U.K. Holder who is employed by Conexant or any associated company
acquired options by reason of his or her employment or pursuant to the Microcosm
Purchase Agreement then, on an exercise of options for our common stock, the
U.K. Holder will be subject to income tax on the exercise of such options. The
tax will normally be charged on the difference between the value of our common
stock acquired and the price paid by the owner for the common stock. The tax
will in most instances be collected via the PAYE (pay as you earn) mechanism
from subsequent payments of salary to the U.K. Holder. A charge to both
employees' and employers' National Insurance Contributions (NIC) could also
arise upon exercise of such options. Employers' NIC is a liability of the
employer, not the employee.
A subsequent disposal of our common stock may result in a liability to
United Kingdom taxation of chargeable gains, depending on individual
circumstances. If a U.K. Holder who is employed by Conexant or any associated
company acquired our common stock upon the exercise of options granted by reason
of his or her employment or pursuant to the Microcosm Purchase Agreement then,
in certain unusual circumstances, the U.K. Holder will be subject to income tax
on some or all of the gain made on selling the common stock.
36
Gains on Disposition of Our Common Stock
A disposal of our common stock by a U.K. Holder may result in a
liability to United Kingdom taxation of chargeable gains.
For any U.K. Holder who is subject to U.K. corporation tax, the
chargeable gain will be calculated after deducting an allowance for inflation
based on the U.K. Retail Price Index (the indexation allowance).
For U.K. Holders who are not U.K. corporation taxpayers, the indexation
allowance has been frozen at 5 April 1998. However, a new relief (taper relief)
has been introduced from that date under which the chargeable proportion of any
gain on our common stock will generally be reduced by reference to the time the
stock has been held. For most taxpayers with a qualifying period of ownership of
three years, taper relief will reduce the chargeable gain on the stock by 5
percent, with further reductions of 5 percent for each complete year the stock
is held thereafter, subject to maximum taper relief of 40 percent where the
stock is held for 10 years or more. In certain circumstances taper relief can be
higher than these rates.
If a U.K. Holder who is employed by Conexant or any associated company
acquired our common stock by reason of his or her employment or pursuant to the
Microcosm Purchase Agreement then, in certain unusual circumstances, the U.K.
Holder will be subject to income tax on some or all of the gain made on selling
the stock.
Dividends
Dividends received from our common stock will in general be subject to
U.K. tax in the hands of U.K. Holders. Most taxpayers will be entitled to offset
against the U.K. tax charge the amount of any U.S. withholding tax paid in
respect of the dividend. The amount of U.S. withholding tax may be reduced below
the normal 30 percent rate pursuant to the U.S./U.K. double tax treaty.
U.K. Inheritance Tax
Individuals who are domiciled or deemed domiciled in the U.K. are
generally subject to U.K. inheritance tax on their worldwide assets, wherever
these are situated, and this would include our common stock. Where both U.K.
inheritance tax and U.S. federal estate tax are chargeable in respect of the
stock, a credit will normally be available to prevent a double tax charge from
arising.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
Conexant has been advised by Chadbourne & Parke LLP, counsel for
Conexant, that under the present provisions of the Internal Revenue Code, the
principal U.S. federal income tax consequences arising from the exercise of
stock options and the ownership and disposition of our common stock are
described below. This discussion is based on currently existing provisions of
the Internal Revenue Code, existing, temporary and proposed Treasury regulations
promulgated thereunder, and administrative and judicial interpretations thereof,
all as in effect or proposed on
37
the date hereof and all of which are subject to change, possibly with
retroactive effect, or different interpretations. There can be no assurance that
the Internal Revenue Service will not take a view contrary to the
interpretations set forth herein, and no ruling from the IRS has been or will be
sought.
Moreover, this discussion is for general information only and does not
address all of the tax consequences that may be relevant to particular holders.
The actual tax consequences of the exercise of stock options and the ownership
and disposition of our common stock will vary depending upon the particular
circumstances of each holder. The discussion which follows also does not address
the tax consequences applicable to all categories of holders, some of which
(such as dealers in securities or commodities, investors that do not hold their
common stock as capital assets, tax exempt organizations, banks, thrifts,
insurance companies, and holders of common stock that own (directly, indirectly
or by attribution) 10 percent or more of the outstanding common stock) may be
subject to special rules.
For purposes of this summary, a "U.S. Holder" includes a beneficial
owner of our common stock or stock options that is: (1) a citizen or resident of
the United States; (2) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any state thereof; (3) a
trust which is subject to primary supervision by a court within the United
States and with respect to which one or more United States fiduciaries have the
authority to control all substantial decisions; or (4) an estate the income of
which is subject to U.S. federal income tax regardless of its source. A
"Non-U.S. Holder" is any beneficial owner of our common stock or stock options
that is not a U.S. Holder.
Holders of our common stock and stock options are advised to consult
their own tax advisers as to the United States or other tax consequences of the
exercise of stock options and the ownership and disposition of our common stock,
including the effect of any state, local or foreign tax laws.
U.S. HOLDERS
Stock Options
If an individual U.S. Holder exercises a stock option, the individual
U.S. Holder will, except as noted below, realize ordinary taxable compensation
income measured by the difference between the option price and the fair market
value of the shares on the date of exercise, and we will be entitled to a
deduction in the same amount. Any difference between such fair market value and
the price at which the individual U.S. Holder may subsequently sell such shares
will be treated as capital gain or loss, long-term or short-term depending on
the length of time the shares have been held.
If upon exercise of an option the option price is paid in shares of
stock, rather than cash, no gain or loss will be recognized upon the transfer of
such shares in payment of the option price to the extent that the number of
shares received is equal to the number of shares surrendered. In such case, the
basis and holding period of a corresponding number of the shares received will
be the same as the basis and holding period of the shares surrendered. To the
extent that the number of shares received upon the exercise exceeds the number
of shares surrendered, an individual
38
U.S. Holder would realize ordinary income in an amount equal to the fair market
value of such excess number of shares, and such individual U.S. Holder's basis
for such shares would be equal to such amount.
NON-U.S. HOLDERS
Stock Options
The exercise of a stock option will have no U.S. federal income tax
consequences to a Non-U.S. Holder of our common stock.
Dividends
In the event that dividends are paid on shares of our common stock,
dividends paid to a Non-U.S. Holder of our common stock will be subject to
withholding of U.S. federal income tax at a 30 percent rate or such lower rate
as may be specified by an applicable income tax treaty. A Non-U.S. Holder must,
however, file a valid Internal Revenue Service Form W-8BEN or successor form
with the payer (or, in the case of payments made outside the United States with
respect to an offshore account, must comply with certain documentary evidence
procedures), directly or through an intermediary to obtain the benefits of a
reduced rate under an income tax treaty. A Non-U.S. Holder of our common stock
eligible for a reduced rate of U.S. withholding tax pursuant to an income tax
treaty may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the IRS.
However, if (i) dividends are effectively connected with the conduct of
a trade or business by the Non-U.S. Holder within the United States and, where a
tax treaty applies, are attributable to a U.S. permanent establishment of the
Non-U.S. Holder and (ii) a valid Internal Revenue Service Form W-8ECI or
successor form is filed with the payer, the dividends are not subject to
withholding tax, but instead are subject to U.S. federal income tax on a net
basis at applicable graduated individual or corporate rates. Any such
effectively connected dividends received by a foreign corporation may, under
certain circumstances, be subject to an additional "branch profits tax" at a
rate of 30 percent or such lower rate as may be specified by an applicable
income tax treaty.
Gain on Disposition of Conexant Stock
A Non-U.S. Holder generally will not be subject to U.S. federal income
tax with respect to gain recognized on a sale or other disposition of our common
stock unless: (i) the gain is effectively connected with a trade or business of
the Non-U.S. Holder in the United States and, where a tax treaty applies, is
attributable to a U.S. permanent establishment of the Non-U.S. Holder; or (ii)
in the case of a Non-U.S. Holder who is an individual and holds our common stock
as a capital asset, such holder is present in the United States for 183 or more
days in the taxable year of the sale or other disposition and certain other
conditions are met.
An individual Non-U.S. Holder who falls under clause (i) above will,
unless an applicable treaty provides otherwise, be taxed on his or her net gain
derived from the sale under regular graduated U.S. federal income tax rates. An
individual Non-U.S. Holder who falls under
39
clause (ii) above will be subject to a flat 30 percent tax on the gain derived
from the sale, which may be offset by certain U.S. capital losses.
A Non-U.S. Holder that is a foreign corporation falling under clause
(i) above will be taxed on its gain under regular graduated U.S. federal income
tax rates and may be subject to an additional branch profits tax equal to 30
percent of its effectively connected earnings and profits within the meaning of
the Code for the taxable year, as adjusted for certain items, unless it
qualifies for a lower rate under an applicable income tax treaty.
Federal Estate Tax
Common stock held by an individual Non-U.S. Holder at the time of death
will be included in such holder's gross estate for U.S. federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding Tax
Under Treasury regulations, Conexant must report annually to the IRS
and to each Non-U.S. Holder the amount of dividends paid to such holder and the
tax withheld with respect to such dividends, regardless of whether withholding
was required. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder resides under the provisions of an applicable income
tax treaty.
A backup withholding tax is imposed at the rate of 3l percent on
certain payments to persons that fail to furnish certain identifying information
to the payer. A Non-U.S. Holder generally will be subject to backup withholding
tax at a 31 percent rate unless a valid Internal Revenue Service Form W-8BEN or
successor form is filed with the payer (or in the case of payments made outside
the United States with respect to an offshore account, certain documentary
evidence procedures are complied with) directly or through an intermediary.
Backup withholding and information reporting generally will also apply to
dividends paid on our common stock at addresses inside the United States to
Non-U.S. Holders that fail to provide certain identifying information in the
manner required. The Treasury Regulations provide certain presumptions unless
Conexant receives certification from the holder of the Non-U.S. Holder's
Non-U.S. status.
Payment of the proceeds of a sale of our common stock by or through a
U.S. office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner provides the payer with its name and
address and certifies under penalties of perjury that it is a Non-U.S. Holder,
or otherwise establishes an exemption. In general backup withholding and
information reporting will not apply to a payment of the proceeds of a sale of
our common stock by or through a foreign office of a broker. If, however, such
broker is, for U.S. federal income tax purposes, a U.S. person, a controlled
foreign corporation, a foreign person that derives 50 percent or more of its
gross income for certain periods from the conduct of a trade or business in the
United States, or a foreign partnership in certain circumstances, such payments
will be subject to information reporting, but not backup withholding, unless (i)
such broker has
40
documentary evidence in its records that the beneficial owner is a Non-U.S.
Holder and certain other conditions are met or (ii) the beneficial owner
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules generally will
be allowed as a refund or a credit against such holder's U.S. federal income tax
liability, provided the required information is furnished in a timely manner to
the IRS.
SELLING SECURITYHOLDERS
The shares which may be resold hereunder by the selling securityholders
are any restricted shares issued by us pursuant to the Microcosm Purchase
Agreement, the ATI Merger Agreement and the HyperXS Purchase Agreement.
These shares were issued in transactions exempt from the registration
requirements of the Securities Act. Selling securityholders, including their
transferees, pledgees or donees or their successors, may from time to time offer
and sell pursuant to this prospectus any or all of their shares of our common
stock.
The following tables set forth information, as of September 27, 2001,
with respect to the selling securityholders and the shares of common stock
beneficially owned by each selling securityholder that may be offered pursuant
to this prospectus. The information is based on information provided by or on
behalf of the selling securityholders. The selling securityholders may offer
all, some or none of the shares of common stock. Because the selling
securityholders may offer all or some portion of the common stock, we cannot
estimate the amount of the common stock that will be held by the selling
securityholders upon termination of any of these sales. In addition, the selling
securityholders identified below may have sold, transferred or otherwise
disposed of all or a portion of their shares of common stock since the date on
which they provided the information regarding their shares in transactions
exempt from the registration requirements of the Securities Act. No selling
securityholder named in the table below beneficially owns one percent or more of
our common stock based on approximately 252,198,000 shares of common stock
outstanding on August 24, 2001, except for Gary Steele, who beneficially owns
1.8% of our common stock.
Microcosm Selling Securityholders
--------------------------------------------------------------------------
Shares of Common Shares of Common
Stock Owned Prior to Stock
Name the Offering(1)(2) Offered Hereby(2)
--------------------------------- -------------------- -----------------
Donna Elizabeth Brailey 7,658 4,482
Jenny Brayne 2,221 558
Christopher Campbell Bryson 8,641 838
Peter Anthony Davies 37,630 19,028
Jerome Garez 10,258 3,663
Christian Hess 40,515 838
Graham Richard Jones 34,658 5,042
Amanda Karn 16,206 838
41
--------------------------------------------------------------------------
Shares of Common Shares of Common
Stock Owned Prior to Stock
Name the Offering(1)(2) Offered Hereby(2)
--------------------------------- -------------------- -----------------
Stephen King 80,008 77,508
Richard Hammond Mayo 570,863 570,863
Andrew John Millard 707 707
John Michael Millard 707 707
Stuart James Millard 12,470 544
Ya Nong Ning 7,195 1,678
Mark Richardson 43,275 3,440
Gary Steele 4,566,127 4,566,127
Richard Watts 513,879 473,822
Colin Whitfield 24,987 2,800
Mark Patrick Wills 3,603 838
--------------------------------- -------------------- -----------------
Total: 5,976,329 5,734,321
(1) Includes shares issuable upon the exercise of options to purchase our
common stock under the Microcosm Communications Limited Stock Option Plan or
the Conexant 2000 Non-Qualified Stock Plan.
(2) Includes shares previously registered under our Registration
Statements on Form S-3 (Registration Nos. 333-30596 and 333-61912).
ATI Selling Securityholders
--------------------------------------------------------------------------
Shares of Common Shares of Common
Stock Owned Prior to Stock
Name the Offering(1)(2) Offered Hereby(2)
--------------------------------- -------------------- -----------------
James Beatty 146,639 102,313
Mark Erlenborn 147,363 102,313
Roger Gale 146,644 102,313
Myron Jeffries 145,985 102,313
--------------------------------- -------------------- -----------------
Total: 586,631 409,252
(1) Includes shares issuable upon the exercise of options to purchase our
common stock under the Conexant 2000 Non-Qualified Stock Plan or the
Conexant Employee Stock Purchase Plan and shares held under the Conexant
Retirement Savings Plan.
(2) Includes shares previously registered under our Registration Statement on
Form S-3 (Registration No. 333-42500).
42
HyperXS Selling Securityholder
--------------------------------------------------------------------------
Shares of Common Shares of Common
Stock Owned Prior to Stock
Name the Offering Offered Hereby
--------------------------------- -------------------- -----------------
Global Business Investments
(B.V.I.) Corporation 75,000 75,000
--------------------------------------------------------------------------
Total: 75,000 75,000
Each of the selling securityholders set forth in the tables is a party
to the Microcosm Purchase Agreement, the ATI Merger Agreement or the HyperXS
Purchase Agreement.
Each of the following selling securityholders held the following
positions with Microcosm prior to our acquisition of Microcosm: Gary Steele,
Chairman, President and Chief Executive Officer; Stephen King, Vice President of
Sales; Richard Mayo, Vice President of Applications; Mark Richardson, Vice
President of Finance; and Richard Watts, Vice President of Research. Following
our acquisition of Microcosm until July 6, 2001, Stephen King held the position
of Vice President of Marketing of our ICON business. Following our acquisition
of Microcosm until August 1, 2001, Mark Richardson held the position of Finance
Director with Microcosm. Currently, each of the following selling
securityholders holds the following positions with Microcosm: Gary Steele,
General Manager and Vice President; Richard Mayo, Senior Design Engineer; and
Richard Watts, Research Fellow.
Each of the following selling securityholders held the following
positions with ATI prior to our acquisition of ATI: James Beatty, President and
Director; Mark Erlenborn, Vice President - Systems Development and Director;
Roger Gale, Vice President - Engineering and Director; and Myron Jeffries, Vice
President - Business Operations and Director. Currently, each of the following
selling securityholders holds the following positions with ATI: James Beatty,
Director of Engineering; Mark Erlenborn, Director of Engineering; Roger Gale,
Director of Engineering; and Myron Jeffries, Director of Marketing.
In addition, as of the date of this prospectus, each of the individual
selling securityholders set forth in the tables is an employee or former
employee of Conexant or one of its subsidiaries, other than Andrew John Millard
and John Michael Millard, who are relatives of Stuart James Millard.
All of the shares received by the selling securityholders as additional
consideration for the achievement of certain technology and performance goals
are "restricted securities" under the Securities Act.
Information concerning the selling securityholders may change from time
to time and any changed information will be set forth in supplements to this
prospectus if and when necessary.
PLAN OF DISTRIBUTION
The selling securityholders and their successors, which term includes
their transferees, pledgees or donees or their successors, may sell the common
stock directly to purchasers or
43
through underwriters, broker-dealers or agents, who may receive compensation in
the form of discounts, concessions or commissions from the selling
securityholders or the purchasers. These discounts, concessions or commissions
as to any particular underwriter, broker-dealer or agent may be in excess of
those customary in the types of transactions involved.
The common stock may be sold in one or more transactions at:
o fixed prices,
o prevailing market prices at the time of sale,
o prices related to the prevailing market prices,
o varying prices determined at the time of sale, or
o negotiated prices.
These sales may be effected in transactions:
o on any national securities exchange or quotation service
on which our common stock may be listed or quoted at the
time of sale, including the Nasdaq National Market,
o in the over-the-counter market,
o otherwise than on such exchanges or services or in the
over-the-counter market,
o through the writing of options, whether the options are listed
on an options exchange or otherwise, or
o through the settlement of short sales.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as agent on both sides of the trade.
In connection with the sale of the common stock or otherwise, the
selling securityholders may enter into hedging transactions with broker-dealers
or other financial institutions. These broker-dealers or financial institutions
may in turn engage in short sales of the common stock in the course of hedging
the positions they assume with selling securityholders. The selling
securityholders may also sell the common stock short and deliver these
securities to close out such short positions, or loan or pledge the common stock
to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling securityholders from the sale of
the common stock offered by them hereby will be the purchase price of the common
stock less discounts and commissions, if any. Each of the selling
securityholders reserves the right to accept and, together with their agents
from time to time, to reject, in whole or in part, any proposed purchase
44
of common stock to be made directly or through agents. We will not receive any
of the proceeds from the offering of shares by the selling securityholders.
Our outstanding common stock is listed for trading on the Nasdaq
National Market.
In order to comply with the securities laws of some states, if
applicable, the common stock may be sold in these jurisdictions only through
registered or licensed brokers or dealers.
The selling securityholders and any broker-dealers or agents that
participate in the sale of the common stock may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act. Profits on the sale
of the common stock by selling securityholders and any discounts, commissions or
concessions received by any broker-dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. Selling
securityholders who are deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act.
The selling securityholders and any other person participating in a
distribution will be subject to applicable provisions of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder. Regulation M under the Exchange Act may limit the timing of
purchases and sales of any of the securities by the selling securityholders and
any other person. In addition, Regulation M may restrict the ability of any
person engaged in the distribution of the securities to engage in market-making
activities with respect to the particular securities being distributed for a
period of up to five business days before the distribution. The selling
securityholders have acknowledged that they understand their obligations to
comply with the provisions of the Exchange Act and the rules thereunder relating
to stock manipulation, particularly Regulation M, and have agreed that they will
not engage in any transaction in violation of such provisions.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholder and any underwriter,
broker-dealer or agent regarding the sale of the common stock by the selling
securityholders.
A selling securityholder may decide not to sell any common stock
described in this prospectus. We cannot assure you that any selling
securityholder will use this prospectus to sell any or all of the common stock.
Any securities covered by this prospectus which qualify for sale pursuant to
Rule 144 of the Securities Act may be sold under Rule 144 rather than pursuant
to this prospectus. In addition, a selling securityholder may transfer, devise
or gift the common stock by other means not described in this prospectus.
With respect to a particular offering of the common stock, to the
extent required, an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement of which this prospectus
is a part will be prepared and will set forth the following information:
o the specific shares of common stock to be offered and sold,
o the names of the selling securityholders,
45
o the respective purchase prices and public offering prices and
other material terms of the offering,
o the names of any participating agents, broker-dealers or
underwriters, and
o any applicable commissions, discounts, concessions and other
items constituting compensation from the selling securityholders.
The holders of the shares of common stock received under the Microcosm
Purchase Agreement, the ATI Merger Agreement and the HyperXS Purchase Agreement
have a right to have their shares of common stock registered under applicable
federal and state securities laws under certain circumstances and at certain
times. The registration rights provide that the selling securityholders and
Conexant will indemnify each other and their respective directors, officers,
employees, stockholders, agents and controlling persons against specific
liabilities in connection with the offer and sale of the common stock, including
liabilities under the Securities Act, or will be entitled to contribution in
connection with those liabilities. We will pay all of our expenses and specified
expenses incurred by the selling securityholders incidental to the registration,
offering and sale of the common stock to the public, but each selling
securityholder will be responsible for payment of commissions, concessions, fees
and discounts of underwriters, broker-dealers and agents, if any.
The shares of common stock we issue upon the exercise of options issued
under the Microcosm Purchase Agreement may be treasury shares, authorized but
unissued shares or shares acquired in the open market.
LEGAL MATTERS
The validity of the issuance of the common stock subject to this
prospectus will be passed upon for us by Jasmina Theodore Boulanger, Esq., our
Associate General Counsel and Assistant Secretary.
EXPERTS
The consolidated financial statements and the financial statement
schedule incorporated in this prospectus by reference from the Conexant Systems,
Inc. Annual Report on Form 10-K for the year ended September 30, 2000 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The consolidated financial statements of Maker Communications, Inc.
incorporated by reference in this prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are incorporated herein in reliance upon the authority of
said firm as experts in giving said reports.
46
HOW TO OBTAIN MORE INFORMATION
In accordance with the Exchange Act, we file reports, proxy and
information statements and other information with the Securities and Exchange
Commission. You may read and copy these reports, proxy and information
statements and other information that we file at the SEC's public reference room
at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on
the operation of the public reference room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an internet site that contains reports, proxy and
information statements and other information regarding registrants (including
Conexant) that file electronically with the SEC (http://www.sec.gov). Our
internet site is http://www.conexant.com.
You also may inspect reports, proxy statements and other information
about Conexant at the offices of the Nasdaq Stock Market, Inc. National Market
System, 1735 K Street, N.W., Washington, D.C. 20006-1500.
We have filed with the SEC a registration statement on Form S-3 under
the Securities Act. This prospectus does not contain all of the information in
the registration statement. We have omitted certain parts of the registration
statement, as permitted by the rules and regulations of the SEC. You may inspect
and copy the registration statement, including exhibits, at the SEC's public
reference room or internet site. Our statements in this prospectus about the
contents of any contract or other document are not necessarily complete. You
should refer to the copy of each contract or other document we have filed as an
exhibit to the registration statement for complete information.
The SEC's rules allow us to "incorporate by reference" into this
prospectus the information we file with the SEC. This means that we can disclose
important information to you by referring you to those filings. This information
we incorporate by reference is considered a part of this prospectus, and
subsequent information that we file with the SEC will automatically update and
supersede this information. Any such information so modified or superseded will
not constitute a part of this prospectus, except as so modified or superseded.
We incorporate by reference the following documents and any future filings we
make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
until the offering of securities by this prospectus is completed:
o Our Annual Report on Form 10-K for the fiscal year ended
September 30, 2000 (including the portions of our Proxy
Statement for our 2001 Annual Meeting of Shareowners that are
incorporated therein by reference);
o Our Quarterly Report on Form 10-Q for the quarter ended
December 31, 2000;
o Our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2001;
o Our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001;
o Our Current Report on Form 8-K filed April 3, 2000;
o Our Current Report on Form 8-K filed October 3, 2000;
47
o Our Current Report on Form 8-K filed March 27, 2001;
o Our Current Report on Form 8-K filed May 29, 2001; and
o The description of our common stock contained in Item 11
of our Registration Statement on Form 10, as amended (File
No. 000-24923), dated December 1, 1998, as amended by Part II,
Item 2 of our Quarterly Report on Form 10-Q for the quarter
ended December 31, 1999.
Upon written or oral request, we will provide you with a copy of any of
the incorporated documents without charge (not including exhibits to the
documents unless the exhibits are specifically incorporated by reference into
the documents). You may submit such a request for this material to Office of the
Secretary, Conexant Systems, Inc., 4311 Jamboree Road, Newport Beach, California
92660-3095 (telephone number (949) 483-4600).
FORWARD-LOOKING STATEMENTS
In addition to historical information, this prospectus contains
statements relating to our future results. These statements include certain
projections and business trends which are "forward looking" within the meaning
of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are made only as of the date of this prospectus. We do not undertake
to update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise.
Our actual results may differ materially from projected results as a
result of certain risks and uncertainties. These risks and uncertainties
include, without limitation, those described under "Risk Factors" as well as
those set forth below and those detailed from time to time in our filings with
the SEC:
o global economic and market conditions, including the cyclical
nature of the semiconductor industry and the markets related to
our and our customers' products;
o demand for and market acceptance of new and existing products;
o successful development of new products;
o timing of new product introductions;
o successful integration of acquisitions;
o availability and extent of utilization of manufacturing capacity
and raw materials;
o pricing pressures and other competitive factors;
o changes in product mix;
o fluctuations in manufacturing yields;
48
o product obsolescence;
o our ability to develop and implement new technologies and to
obtain protection of the related intellectual property;
o the successful implementation of our strategic manufacturing
realignment, expense reduction and restructuring initiatives;
o the successful separation of our Mindspeed Technologies and
Personal Networking businesses;
o our labor relations and those of our customers and suppliers;
o our ability to attract and retain qualified personnel;
o maintaining a consistent and reliable source of energy;
o uncertainties of litigation; and
o other risks and uncertainties.
---------------
The Conexant logo and Mindspeed Technologies(TM) are trademarks of Conexant
Systems, Inc. Other brands, names and trademarks contained in this prospectus
are the property of their respective owners.
49
===============================================================================
Conexant Systems, Inc.
Common Stock
(including associated preferred share purchase rights)
--------------
Prospectus
--------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. You should not assume that the information contained or
incorporated by reference in this prospectus is accurate as of any date other
than the date of this prospectus. We are not making an offer of these securities
in any state where the offer is not permitted.
===============================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
-------------------------------------
Item 14. Other Expenses of Issuance and Distribution.
Conexant will pay all expenses incident to the offering and sale to the
public of the common stock being registered, other than any commissions and
discounts of underwriters, dealers or agents and any transfer taxes. Such
expenses are set forth in the following table. All of the amounts shown are
estimates except the Securities and Exchange Commission (the "Commission")
registration fee.
Amount
Commission Registration Fee........................... $ 10,691
*Costs of Printing.................................... $ 1,000
*Legal Fees and Expenses.............................. $ 40,000
*Accounting Fees and Expenses......................... $ 7,500
*Miscellaneous Expenses............................... $ 5,809
-------------
*Total............ $ 65,000
------------
* Estimated
Item 15. 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. Our restated certificate
of incorporation provides that our directors are not liable to Conexant or its
shareowners 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
Conexant or its shareowners, (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. Our
by-laws and the appendix thereto provide for the indemnification of our
directors, officers, employees and
agents to the extent permitted by Delaware law. Our directors and officers are
insured against certain liabilities for actions taken in such capacities,
including liabilities under the Securities Act.
Item 16. Index to Exhibits.
4.a.1 Restated Certificate of Incorporation, as amended, of Conexant,
filed as Exhibit 3.1 to Conexant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000, is incorporated herein by
reference.
4.a.2 Amended By-Laws of Conexant, filed as Exhibit 4.2 to
Conexant's Registration Statement on Form S-8 (Registration No.
333-68755), is incorporated herein by reference.
4.a.3 Specimen certificate for Common Stock, par value $1 per share,
filed as Exhibit 4.3 to Conexant's Registration Statement on
Form 10 (File No. 000-24923), is incorporated herein by
reference.
4.a.4 Rights Agreement, dated as of November 30, 1998, by and
between Conexant and ChaseMellon Shareholder Services,
L.L.C. as rights agent, filed as Exhibit 4.4 to Conexant's
Registration Statement on Form S-8 (Registration No. 333-68755),
is incorporated herein by reference.
4.a.5 First Amendment to Rights Agreement dated as of December 9,
1999, filed as Exhibit 4.1 to Conexant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1999, is
incorporated herein by reference.
4.b.1 Registration Rights attached as Schedule 7.4(a) to
the Stock Purchase Agreement dated as of January 6, 2000 among
Conexant and the Shareholders and Option Holders of Microcosm
Communications Limited, filed as Exhibit 4.b.1 to Conexant's
Registration Statement on Form S-3 (Registration No. 333-30596),
is incorporated herein by reference.
*4.b.2 Registration Rights Agreement dated as of April 5, 2000 by and
among Conexant and the shareholders of Applied Telecom, Inc.
*4.b.3 Registration Rights Agreement dated as of February 22, 2001 by
and between Conexant and Global Business Investments (B.V.I.)
Corp.
--------------
* Previously filed.
II-2
4.c.1 Conexant's Microcosm Communications Limited Stock Option Plan,
filed as Exhibit 4.c.1 to Conexant's Registration Statement on
Form S-3 (Registration No. 333-30596), is incorporated herein by
reference.
4.c.2 Form of Stock Option Agreement under Conexant's Microcosm
Communications Limited Stock Option Plan, filed as Exhibit 4.c.1
to Conexant's Registration Statement on Form S-3 (Registration
No. 333-30596), is incorporated herein by reference.
*5 Opinion of Jasmina Theodore Boulanger, Associate General Counsel
and Assistant Secretary of Conexant.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2 Consent of Arthur Andersen LLP, independent public accountants.
*23.3 Consent of Jasmina Theodore Boulanger, contained in her opinion
filed as Exhibit 5 to this Registration Statement.
*23.4 Consent of Chadbourne & Parke LLP.
*23.5 Consent of Manches & Co.
*24 Power of Attorney authorizing certain persons to sign this
Registration Statement on behalf of certain directors and
officers of Conexant.
--------------
* Previously filed.
Item 17. Undertakings.
A. The Company 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;
(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;
II-3
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that clauses (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by
those clauses is contained in periodic reports filed with or furnished
to the Commission by the Company pursuant to Section 13 or 15(d) of the
Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Company's annual report pursuant to Section
13(a) or 15(d) of the Exchange Act that is incorporated by reference in the
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.
B. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions described above, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company 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
Company 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 and will be governed by the final adjudication
of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment to
the Registration Statement (No. 333-67190) to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newport Beach, State of
California, on the 28th day of September, 2001.
CONEXANT SYSTEMS, INC.
By /s/ Dennis E. O'Reilly
--------------------------------
(Dennis E. O'Reilly, Senior Vice President,
General Counsel and Secretary)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement (No. 333-67190) has been signed on the
28th day of September, 2001 by the following persons in the capacities
indicated:
Signature Title
--------- -----
DWIGHT W. DECKER* Chairman of the Board and Chief Executive Officer
(principal executive officer) and Director
DONALD R. BEALL* Director
RICHARD M. BRESSLER* Director
F. CRAIG FARRILL* Director
JERRE L. STEAD* Director
BALAKRISHNAN S. IYER* Senior Vice President and Chief Financial Officer
(principal financial officer)
J. SCOTT BLOUIN* Senior Vice President and Chief Accounting Officer
(principal accounting officer)
*By /s/ Dennis E. O'Reilly
-----------------------------
(Dennis E. O'Reilly, Attorney-in-fact)**
** By authority of the power of attorney filed as Exhibit 24 to the Registration
Statement (No. 333-67190).
II-5
EXHIBIT INDEX
Sequentially
Numbered Pages
--------------
4.a.1 Restated Certificate of Incorporation, as amended,
of Conexant, filed as Exhibit 3.1 to Conexant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000, is incorporated herein by reference.
4.a.2 Amended By-Laws of Conexant, filed as Exhibit 4.2 to
Conexant's Registration Statement on Form S-8
(Registration No. 333-68755), is incorporated herein
by reference.
4.a.3 Specimen certificate for Common Stock, par value $1
per share, filed as Exhibit 4.3 to Conexant's
Registration Statement on Form 10 (File No. 000-24923),
is incorporated herein by reference.
4.a.4 Rights Agreement, dated as of November 30, 1998, by
and between Conexant and ChaseMellon Shareholder
Services, L.L.C. as rights agent, filed as Exhibit 4.4
to Conexant's Registration Statement on Form S-8
(Registration No. 333-68755), is incorporated herein
by reference.
4.a.5 First Amendment to Rights Agreement dated as of
December 9, 1999, filed as Exhibit 4.1 to Conexant's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1999, is incorporated herein by reference.
4.b.1 Registration Rights attached as Schedule 7.4(a) to
the Stock Purchase Agreement dated as of January 6,
2000 among Conexant and the Shareholders and Option
Holders of Microcosm Communications Limited, filed as
Exhibit 4.b.1 to Conexant's Registration Statement on
Form S-3 (Registration No. 333-30596), is incorporated
herein by reference.
*4.b.2 Registration Rights Agreement dated as of April 5,
2000 by and among Conexant and the shareholders of
Applied Telecom, Inc.
--------------
* Previously filed.
II-6
*4.b.3 Registration Rights Agreement dated as of February 22,
2001 by and between Conexant and Global Business
Investments (B.V.I.) Corp.
4.c.1 Conexant's Microcosm Communications Limited Stock
Option Plan, filed as Exhibit 4.c.1 to Conexant's
Registration Statement on Form S-3 (Registration
No. 333-30596), is incorporated herein by reference.
4.c.2 Form of Stock Option Agreement under Conexant's
Microcosm Communications Limited Stock Option Plan,
filed as Exhibit 4.c.1 to Conexant's Registration
Statement on Form S-3 (Registration No. 333-30596),
is incorporated herein by reference.
*5 Opinion of Jasmina Theodore Boulanger, Associate
General Counsel and Assistant Secretary of Conexant.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2 Consent of Arthur Andersen LLP, independent public
accountants.
*23.3 Consent of Jasmina Theodore Boulanger, contained in
her opinion filed as Exhibit 5 to this Registration
Statement.
*23.4 Consent of Chadbourne & Parke LLP.
*23.5 Consent of Manches & Co.
*24 Power of Attorney authorizing certain persons to
sign this Registration Statement on behalf of
certain directors and officers of Conexant.
--------------
* Previously filed.
II-7