-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R5sdtPts75zP2znuLVohDNNv4Du094AOmKUCWURdCCODIZt8fuQd0o3nn7xLeh96 caummTEXZrvJiT1Halqt1g== 0001047469-98-032828.txt : 19980827 0001047469-98-032828.hdr.sgml : 19980827 ACCESSION NUMBER: 0001047469-98-032828 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19980826 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL INSTRUMENT CORP CENTRAL INDEX KEY: 0001035881 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 364134221 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-62291 FILM NUMBER: 98698413 BUSINESS ADDRESS: STREET 1: 101 TOURNAMENT DRIVE CITY: HORSHAM STATE: PA ZIP: 19044 BUSINESS PHONE: (215)323-1 MAIL ADDRESS: STREET 1: 101 TOURNAMENT DRIVE CITY: HORSHAM STATE: PA ZIP: 19044 FORMER COMPANY: FORMER CONFORMED NAME: NEXTLEVEL SYSTEMS INC DATE OF NAME CHANGE: 19970314 S-3 1 FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1998 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ GENERAL INSTRUMENT CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 36-4134221 (State or Other Jurisdiction of (I.R.S. Employer Identification Incorporation or Organization) Number)
------------------------ 101 TOURNAMENT DRIVE HORSHAM, PENNSYLVANIA 19044 (215) 323-1000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------------ ROBERT A. SCOTT, ESQ. SENIOR VICE PRESIDENT, LEGAL AND SECRETARY GENERAL INSTRUMENT CORPORATION 101 TOURNAMENT DRIVE HORSHAM, PENNSYLVANIA 19044 (215) 323-1000 (Name, address, including zip code, and telephone number, including area code, of Agent for Service) ------------------------------ COPIES OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO AGENT FOR SERVICE, SHOULD BE SENT TO: LOIS HERZECA, ESQ. ROBERT E. BUCKHOLZ, JR., ESQ. FRIED, FRANK, HARRIS, SHRIVER & SULLIVAN & CROMWELL JACOBSON 125 Broad Street One New York Plaza New York, New York 10004-2498 New York, New York 10004 (212) 558-4000 (212) 859-8000
------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------------ 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, 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. / / ------------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED TITLE OF MAXIMUM MAXIMUM SHARES AGGREGATE AGGREGATE AMOUNT OF TO BE AMOUNT TO BE PRICE PER OFFERING REGISTRATION REGISTERED REGISTERED UNIT (2) PRICE (2) FEE Common Stock, $.01 par value (1) 21,708,665 shares $25.9375 $563,068,498 $166,105.00
(1) This registration statement covers (i) the distribution of 11,547,008 shares by Instrument Partners to its partners and the resale of some of those shares by certain of its partners as Selling Stockholders and (ii) the sale of 10,161,657 shares by another Selling Stockholder. (2) Estimated in accordance with Rule 457 of Regulation C under the Securities Act of 1933, as amended, solely for the purpose of determining the registration fee. The above calculation is based on the average of the high and low sale prices of the Common Stock reported by the New York Stock Exchange on August 21, 1998. ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXPLANATORY NOTE This Registration Statement covers (i) the distribution of 11,547,008 shares of Common Stock, par value $.01 per share ("Common Stock"), of General Instrument Corporation, a Delaware corporation, by Instrument Partners to its partners and the resale of some of those shares by certain of its partners as Selling Stockholders and (ii) the sale of 10,161,657 shares of Common Stock by another Selling Stockholder. The same Prospectus is being used with respect to both the distribution and the sale of shares by the Selling Stockholders. SUBJECT TO COMPLETION, DATED AUGUST 26, 1998 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. 17,000,000 SHARES [LOGO] COMMON STOCK (PAR VALUE $.01 PER SHARE) ------------------------ All the shares of Common Stock offered are being sold by the Selling Stockholders. See "Selling Stockholders". The Company will not receive any of the proceeds from the sale of the shares. The last reported sale price of the Common Stock, which is listed under the symbol "GIC", on the New York Stock Exchange on August 25, 1998 was $28.25 per share. See "Price Range of Common Stock and Dividend Policy". SEE "RISK FACTORS" ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING OFFERING PRICE DISCOUNT (1) STOCKHOLDERS (2) -------------- ------------- ------------------- Per Share.................................................... $ $ $ Total (3).................................................... $ $ $
- ------------------------ (1) The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (2) Estimated expenses of $900,000 are payable by the Company. (3) The Selling Stockholders have granted the Underwriters an option for 30 days to purchase up to an additional 2,550,000 shares at the initial public offering price per share, less the underwriting discount, solely to cover over-allotments. If such option is exercised in full, the total initial public offering price, underwriting discount and proceeds to Selling Stockholders will be $ , $ and $ , respectively. See "Underwriting". ------------------------ The shares offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that the certificates for the shares will be ready for delivery in New York, New York, on or about , 1998 against payment therefor in immediately available funds. GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. LAZARD FRERES & CO. LLC ------------------------ The date of this Prospectus is , 1998. [Pictures depicting certain of the Company's digital network systems products and certain television images.] CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE COMMON STOCK AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING". 2 AVAILABLE INFORMATION General Instrument Corporation (the "Company") is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports and other information, as well as the Registration Statement and the consolidated financial statements, schedules and exhibits thereto, may be inspected and copied at the offices of the Commission at 450 Fifth Street, N.W., Washington D.C. 20549 and at the following regional offices of the Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material or any part thereof may also be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington D.C. 20549 at prescribed rates. The Commission also maintains a Web site (http://www.sec.gov) from which such reports, proxy statements and other information concerning the Company may be obtained. The Common Stock is traded on the New York Stock Exchange ("NYSE") and such reports and other information may also be inspected at the offices of the NYSE, 20 Broad Street, New York, NY 10005. The Company has filed with the Commission in Washington, D.C. a Registration Statement (of which this Prospectus is a part and which term shall encompass any amendments thereto) on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Common Stock offered hereby (the "Offering"). This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto, certain portions of which have been omitted as permitted by the rules and regulations of the Commission. Statements contained herein concerning the provisions of any document are not necessarily complete; reference is made to the exhibits of the Registration Statement for a more complete description of the matters involved, and each such statement shall be deemed qualified in its entirety by such reference. For further information pertaining to the shares offered hereby and to the Company, reference is made to the Registration Statement, including the consolidated financial statements, schedules and exhibits filed as a part thereof or incorporated therein by reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, and all documents incorporated by reference therein, filed by the Company with the Commission pursuant to the Exchange Act are incorporated herein by reference: 1. The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997; 2. The Company's Current Report on Form 8-K, dated February 2, 1998; 3. The Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1998 and June 30, 1998, respectively; 4. The description of the Company's Common Stock set forth in its Registration Statement on Form 8-A, dated April 24, 1997, as amended; and 5. All other documents filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering covered by this Prospectus will be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing of such documents. The Company will provide, without charge, to each person to whom this Prospectus is delivered, upon written or oral request of such person, a copy of any and all of the information that has been or may be incorporated by reference in this Prospectus, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Such requests should be 3 directed to the Secretary, General Instrument Corporation, 101 Tournament Drive, Horsham, PA 19044 (telephone (215) 323-1000). ------------------------ Any statement contained herein or in a document all or a portion thereof which is incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document or portion thereof which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified shall not be deemed to constitute a part of this Prospectus except as so modified, and any statement so superseded shall not be deemed to constitute part of this Prospectus. CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Registration Statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which reflect, among other things, the Company's current views with respect to its prospects, its future performance and future events, all of which are subject to risks and uncertainties. These forward-looking statements are identified by their use of such terms and phrases as "intends", "intend", "intended", "goal", "estimate", "estimates", "expects", "expect", "expected", "project", "projects", "projected", "projections", "plans", "anticipates", "anticipated", "should", "designed to", "foreseeable future", "believe", "believes", and "scheduled". Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The actual results of the Company may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include (i) the factors discussed under "Risk Factors", (ii) the factors discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and (iii) the following factors: uncertainties relating to general political, economic and competitive conditions in the United States and other markets where the Company operates; uncertainties relating to government and regulatory policies; uncertainties relating to customer plans and commitments; the Company's dependence on the cable television industry and cable television spending; signal security; the pricing and availability of equipment, materials and inventories; technological developments; the competitive environment in which the Company operates; changes in the financial markets relating to the Company's capital structure and cost of capital; the uncertainties inherent in international operations and foreign currency fluctuations; and authoritative generally accepted accounting principles or policy changes from such standard-setting bodies as the Financial Accounting Standards Board and the Commission. 4 PROSPECTUS SUMMARY The following summary information is qualified in its entirety by the detailed information and consolidated financial statements and notes thereto appearing elsewhere in this Prospectus or incorporated by reference herein. On July 25, 1997, the Company was spun off (the "Distribution") from its former parent company, General Instrument Corporation (the "Distributing Company"), under the name "NextLevel Systems, Inc.", through a distribution of the Company's common stock, par value $.01 per share (the "Common Stock"), to the stockholders of the Distributing Company. Immediately following the Distribution, the Distributing Company changed its corporate name to "General Semiconductor, Inc." ("General Semiconductor"). Effective February 2, 1998, the Company changed its corporate name from "NextLevel Systems, Inc." to "General Instrument Corporation". Unless the context otherwise requires, references to the "Company" or "General Instrument" include General Instrument Corporation and its direct or indirect subsidiaries and the business of the Company as conducted by the Distributing Company prior to the Distribution. THE COMPANY OVERVIEW The Company is a leading worldwide provider of integrated and interactive broadband access solutions and, with its strategic partners and customers, is advancing the convergence of the Internet, telecommunications and video entertainment industries. The Company is the world's leading supplier of digital and analog set-top terminals and systems for wired and wireless cable television networks, as well as hybrid fiber/coaxial network transmission systems used by cable television operators, and is a leading provider of digital satellite television systems for programmers, direct-to-home ("DTH") satellite networks and private networks for business communications. Through its limited partnership interest in Next Level Communications, L.P. (the "Partnership"), the Company provides next-generation broadband telephony network solutions with the Partnership's NLevel(3)-Registered Trademark- Switched Digital Access System ("NLevel(3)"). BUSINESS STRATEGY The Company's strategy is to use its technological leadership in providing secure broadband systems and equipment to enhance its leading position in its traditional markets while expanding into new markets. This strategy is based on the belief that (i) consumers in the United States and international markets will continue to demonstrate an increasing demand for new information and entertainment services and (ii) content and service providers will continue to create new bandwidth-intensive video, voice and data applications. The Company's management believes that these factors will generate a continuing need for systems and equipment with greater capacity for all networks and architectures. DEMAND FOR SYSTEMS AND EQUIPMENT SUPPORTING NEW BANDWIDTH INTENSIVE APPLICATIONS The Company expects the market for systems and equipment supporting new bandwidth intensive applications to grow significantly as a result of the availability of new information and entertainment services for consumers. - CABLE SYSTEM UPGRADES. Cable operators are upgrading their systems to provide for two-way capabilities and additional capacity in order to provide advanced services such as Internet access, video-on-demand ("VOD") and telephony. The cable infrastructure, with its high capacity access into the home, is regarded as an attractive network for the delivery of advanced communication and entertainment services. The Company believes that the commercialization of advanced broadband systems and equipment, which provide for greatly expanded channel capacity and programming options, improved quality and security of signal transmission and the capability of delivering enhanced features and 5 services, presents a significant opportunity for the Company. Recent developments in the cable and telecommunications industries, including the announcement of a proposed merger between AT&T Corporation ("AT&T") and Tele-Communications, Inc. ("TCI"), Microsoft Corporation's ("Microsoft") $1 billion investment in Comcast Cable Communications, Inc. ("Comcast"), and the purchase of Marcus Cable and Charter Communications, Inc. ("Charter") by Paul Allen, a founder of Microsoft, are expected to accelerate cable system operator spending for these advanced broadband systems to facilitate the offering of advanced services. - TELEPHONY DEVELOPMENTS. At the same time cable operators are upgrading their systems to offer advanced services, Regional Bell Operating Companies and other telecommunications companies are also seeking a cost-effective way to deliver standard telephony and advanced services to the home, including high-speed data/Internet, distance learning and video services. The Company believes that this presents a significant opportunity for suppliers, such as the Partnership, which provide integrated broadband access systems that enable these services from a single access platform. THE COMPANY'S MARKET LEADERSHIP The Company has a leading position in providing systems and equipment to the broadband communications market. Currently, the Company is a leading supplier to 16 of the 20 largest cable television multiple systems operators ("MSOs") in the United States and believes that it has supplied a majority of the addressable systems in use by cable television operators in the United States and abroad. - LEADER OF COMMERCIALIZATION OF DIGITAL BROADBAND SYSTEMS. The Company is the leading supplier of interactive digital cable television systems. Through June 30, 1998, the Company had shipped approximately 600 digital cable television head-end systems, passing approximately 28 million homes, and over 1.4 million two-way interactive digital cable television set-top terminals to broadband system operators. The Company has entered into definitive agreements, with an estimated value of $4.5 billion, to supply approximately 15 million digital set-top terminals to leading North American cable operators, with a collective subscriber base of over 46 million, over the next three to five years. During the second half of 1998 and during 1999, the Company expects to introduce new two-way interactive set-top terminal models, including terminals targeted at European and other international cable operators and a high-end terminal that incorporates a built-in Data-Over-Cable-Service/Interoperability Specification ("DOCSIS")-compliant cable modem, Internet protocols ("IP") and a unique triple tuner architecture that will ultimately enable consumers to watch television, surf the World Wide Web and talk on the telephone simultaneously. - THE WORLD LEADER IN ANALOG ADDRESSABILITY. The Company is the world's leading provider of addressable analog set-top systems. The Company's latest two-way interactive advanced analog terminal provides cable operators with Internet access, interactive programming guides, CD-quality music, near video-on-demand ("NVOD"), supplemental sports and entertainment information and local information-on-demand. - NEXT GENERATION TELEPHONY. The Partnership, in which the Company has an 89% limited partnership interest, is a leading provider of the next generation of integrated full service digital loop carrier ("DLC") and fiber-to-the-curb ("FTTC") systems for the delivery of telephony, video and data for local telephone companies. The Partnership's product, NLevel(3), is designed to permit the cost effective delivery of a suite of standard telephony and advanced services, including high-speed data/Internet, distance learning, VOD and video telephony, to the home from a single access platform. In July 1998, the Partnership was selected to supply DLC and FTTC systems to U S West Communications ("U S West") for the delivery of broadband video, high-speed data/Internet, and basic telephone services. The Company has also contracted to supply U S West with 450,000 broadband xDSL access lines and to 6 supply Bell Atlantic Corporation ("Bell Atlantic") with 1,000,000 lines of telephone service. The Partnership is currently deploying its NLevel(3) products pursuant to these contracts. STRATEGIC PARTNER AND CUSTOMER RELATIONSHIPS The Company recently entered into several strategic relationships, including equity investments in the Company by large MSOs, which are expected to provide a strong foundation for future business development and to reinforce the Company's position as a leading provider of the next generation of broadband communications equipment and systems. - CABLE CUSTOMER EQUITY OWNERSHIP. The Company has issued warrants to purchase approximately 29 million shares of Common Stock to leading North American cable system operators. These warrants were issued in connection with the definitive agreements to supply approximately 15 million digital set-top terminals to such operators. Included among the cable operators entitled to exercise the warrants upon the purchase of set-top terminals from the Company are TCI, Time Warner Cable ("Time Warner"), MediaOne of Delaware, Inc. ("MediaOne"), Comcast, Cox Communications, Inc. ("Cox"), Adelphia Communication Corporation ("Adelphia"), Shaw Communications, Inc. ("Shaw"), Jones Intercable, Inc. ("Jones") and Charter. - SET-TOP AUTHORIZATION SERVICES. The Company issued 21,356,000 shares of its Common Stock to an affiliate of TCI in connection with the Company's acquisition of the set-top authorization services business that controls the receipt of cable programming services delivered to subscribers by TCI's Headend In The Sky-Registered Trademark-. The Company now provides national authorization services throughout the United States to TCI, its affiliates and other operators, many with relatively small individual systems that could not otherwise justify the initial capital investment required to launch a local digital headend computer control system. - SONY CORPORATION. The Company has announced plans to enter into a strategic alliance with Sony Corporation ("Sony") to jointly develop digital television technologies for cable television devices and high definition television ("HDTV") products. In addition, the Company plans to incorporate Sony's Home Network architecture into its advanced digital set-top terminals. Sony has also agreed to purchase 7.5 million newly issued shares of Common Stock at a purchase price of $25.00 per share. These transactions are all subject to the completion of definitive agreements. - CISCO SYSTEMS, INC. In anticipation of mass distribution of standardized cable modems, the Company has entered into a working relationship with Cisco Systems, Inc. ("Cisco Systems") to develop an interoperable DOCSIS-compliant two-way cable modem network using the Company's cable modems. - STRATEGIC INVESTMENTS. The Company has made investments in certain companies that it believes bring strategic value in support of the Company's business strategy. These investments include an approximately 5% interest in Broadcom Corporation, a leading developer of highly integrated silicon solutions that enable broadband transmission of video and high-speed data, and a 7.6% interest in Wink Communications, Inc., a provider of an enhanced television broadcasting system that adds interactivity and electronic commerce opportunities to traditional television programming and advertising. SELLING STOCKHOLDERS All of the shares of Common Stock being offered are being sold by certain stockholders of the Company (collectively, the "Selling Stockholders"). Two partnerships formed by affiliates of Forstmann Little & Co. ("Forstmann Little") currently own an aggregate of 21,708,665 shares of Common Stock (approximately 12.5% of the outstanding shares of Common Stock as of July 31, 1998). Prior to the closing of the Offering, one of such partnerships will distribute (the "FL Distribution") 11,547,008 shares of Common Stock to the general and limited partners of such partnership in accordance with the terms 7 of its partnership agreement. The shares of Common Stock to be sold in the Offering consist of shares owned by one of the partnerships and shares received by certain of the partners in the other partnership in the FL Distribution. Following the consummation of the Offering, the partnerships will no longer own any shares of Common Stock of the Company. See "Selling Stockholders". THE OFFERING Common Stock offered by the Selling Stockholders............................... 17,000,000 shares Common Stock to be outstanding after the Offering................................... 173,238,021 shares (1)(2) Use of proceeds.............................. The Company will not receive any of the proceeds from the sale of the Common Stock. See "Use of Proceeds". NYSE symbol.................................. GIC
The Company has agreed to repurchase from the Selling Stockholders 2,550,000 shares of Common Stock, less any shares of Common Stock sold pursuant to the Underwriters' over-allotment option, at a price per share equal to the net proceeds per share to the Selling Stockholders in the Offering (the "Company Repurchase"). - ------------------------ 1. Based on 173,238,021 shares outstanding on July 31, 1998; does not include (i) 12,708,622 shares issuable upon the exercise of employee stock options outstanding as of July 31, 1998, (ii) 28,715,960 shares issuable pursuant to outstanding warrants issued to certain cable television system operators, which warrants are not currently exercisable and (iii) 7,500,000 shares expected to be issued to Sony. See "Business--Strategic Partner and Customer Relationships". 2. Assumes that the Underwriters' over-allotment option is exercised in full by the Underwriters and that the Company Repurchase does not occur. RISK FACTORS Prospective purchasers of the Common Stock should carefully consider the factors set forth under "Risk Factors" as well as the other information set forth or incorporated by reference in this Prospectus. 8 SUMMARY FINANCIAL DATA The summary consolidated financial data set forth below should be read in conjunction with the Company's consolidated financial statements and the related notes thereto, which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 and are incorporated herein by reference, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. The consolidated financial data as of and for the six months ended June 30, 1998 and 1997 are derived from the unaudited consolidated financial statements of the Company, and in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, except for those charges discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations", necessary for a fair presentation of its financial condition and results of operations as of such dates and for such periods. The results for the six months ended June 30, 1998 are not necessarily indicative of the results that may be expected for the full year. The consolidated financial data as of and for each of the four years ended December 31, 1997 are derived from the Company's audited consolidated financial statements. The consolidated financial data for the year ended December 31, 1993 are derived from unaudited consolidated financial statements of the Company.
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, --------------------------- ---------------------------------------------------------------------------- 1998 (A) 1997 (B) 1997 (C) 1996 (D) 1995 (E) 1994 (F) 1993 --------- ------------- -------------- ----------- ----------- ----------- --------- (IN THOUSANDS, UNLESS OTHERWISE NOTED, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales........... $ 905,425 $ 858,431 $ 1,764,088 $ 1,755,585 $ 1,532,595 $ 1,275,307 $ 782,960 Cost of sales....... 671,316 627,299 1,336,482 1,349,815 1,079,916 877,667 528,719 --------- ------------- -------------- ----------- ----------- ----------- --------- Gross profit........ 234,109 231,132 427,606 405,770 452,679 397,640 254,241 Operating expenses: Selling, general and administrative.. 101,768 94,644(g) 215,404(g) 174,432 138,209 102,753 87,389 Research and development..... 158,169 100,675 207,826 198,071 137,930 104,795 67,610 Purchased in-process technology...... -- -- -- -- 139,860 -- -- NLC litigation costs........... -- -- -- 141,000 -- -- -- Amortization of excess of cost over fair value of net assets acquired........ 7,123 7,118 14,571 14,278 14,418 14,931 15,027 --------- ------------- -------------- ----------- ----------- ----------- --------- Operating income (loss)............ (32,951) 28,695 (10,195) (122,011) 22,262 175,161 84,215 Other income (expense)--net.... (9,804) (1,853) 5,766 (1,427) (1,737) 1,380 8,944 Interest expense--net...... (1,264) (13,511)(h) (5,210)(h) (25,970) (22,933) (27,337) (35,026) --------- ------------- -------------- ----------- ----------- ----------- --------- Income (loss) before income taxes and cumulative effect of changes in accounting principles........ (44,019) 13,331 (9,639) (149,408) (2,408) 149,204 58,133 Cumulative effect of changes in accounting principles........ -- -- -- -- -- (1,445) 216 Benefit (provision) for income taxes.. 14,090 (7,965) (6,474) 53,098 6,614 (26,710) (8,493) --------- ------------- -------------- ----------- ----------- ----------- --------- Net income (loss)... $ (29,929) $ 5,366 $ (16,113) $ (96,310) $ 4,206 $ 121,049 $ 49,856 --------- ------------- -------------- ----------- ----------- ----------- --------- --------- ------------- -------------- ----------- ----------- ----------- --------- Loss per share -- basic and diluted........... $ (0.20) Pro forma earnings (loss) per share (i)......... $ 0.04 $ (0.11) $ (0.65)
AT JUNE 30, AT DECEMBER 31, 1998 1997 ----------- ---------------- (IN THOUSANDS, UNLESS OTHERWISE NOTED) BALANCE SHEET DATA: Cash.............................................................................. $ 82,854 $ 35,225 Total assets...................................................................... 1,693,269 1,675,353 Debt.............................................................................. -- -- Stockholders' equity.............................................................. 1,250,308 1,214,811
(FOOTNOTES ON FOLLOWING PAGE) 9 (FOOTNOTES FROM PREVIOUS PAGE) - ------------------------------ (a) Includes charges of $124 million ($79 million net-of-tax) which consist of costs related to the closure of various facilities, including the Company's satellite television manufacturing facility in Puerto Rico, severance and other employee separation costs, the write-down of certain assets to their estimated net realizable values and a $75 million charge to fully reserve for an advance made to the Partnership. (b) Includes charges of $24 million ($18 million net-of-tax) reflecting restructuring costs related to dividing the Distributing Company's Taiwan operations between the Company and General Semiconductor and costs directly related to the Distribution. (c) Includes charges of $110 million ($79 million net-of-tax) reflecting restructuring and other charges primarily related to the closure of various facilities, including the Company's satellite television manufacturing facility in Puerto Rico, severance and other employee separation costs, the write-down of certain assets to their estimated net realizable values and costs related to dividing the Distributing Company's Taiwan operations between the Company and General Semiconductor. (d) Includes charges of $226 million ($145 million net-of-tax) reflecting Next Level Communications, a California corporation ("NLC"), litigation costs and other charges primarily related to the transition to the Company's next-generation digital products and the write-down of certain assets to their estimated net realizable values. (e) Includes a charge of $140 million ($90 million net-of-tax) for purchased in-process technology in connection with the acquisition of NLC. (f) Includes an income tax benefit of $31 million, as a result of a reduction in a valuation allowance related to domestic deferred income tax assets. (g) On a pro forma basis, selling, general and administrative expenses would be increased by $4 million for the six months ended June 30, 1997 and the year ended December 31, 1997 to eliminate the allocation of corporate expenses to CommScope, Inc. ("CommScope") and General Semiconductor, as such costs subsequent to the Distribution were no longer allocable. (h) For the periods prior to the Distribution, interest expense -- net includes an allocation of interest expense from the Distributing Company which was allocated based upon the Company's net assets as a percentage of the total net assets of the Distributing Company. On a pro forma basis, interest expense would be reduced by $10 million and $11 million for the six months ended June 30, 1997 and the year ended December 31, 1997, respectively, to eliminate the aforementioned interest allocation and provide for interest expense on a net debt level of $100 million as of January 1, 1997. (i) Prior to the Distribution, the Company did not have its own capital structure, and pro forma per share information has been presented only for the years ended December 31, 1997 and 1996 and the six months ended June 30, 1997. The pro forma earnings (loss) per share was calculated by dividing the net income (loss) by the pro forma weighted-average number of shares outstanding. The pro forma weighted-average number of shares outstanding used for the year ended December 31, 1996 and the six months ended June 30, 1997 equaled the number of common shares issued and common equivalent shares, if dilutive, existing on the date of the Distribution, and for the year ended December 31, 1997, included the number of common shares issued on the date of the Distribution plus the actual share activity during the period subsequent to the Distribution. 10 RISK FACTORS In addition to the matters described in the documents incorporated by reference herein, the following risk factors should be considered by prospective purchasers of the Common Stock offered hereby: FACTORS RELATING TO THE DISTRIBUTION In a transaction that was consummated on July 28, 1997, the Distributing Company (i) transferred all the assets and liabilities relating to the manufacture and sale of broadband communications products used in the cable television, satellite, and telecommunications industries to the Company (which was then named "NextLevel Systems, Inc." and was a wholly-owned subsidiary of the Distributing Company) and transferred all the assets and liabilities relating to the manufacture and sale of coaxial, fiber optic and other electric cable used in the cable television, satellite and other industries to its wholly-owned subsidiary CommScope and (ii) then distributed all of the outstanding shares of capital stock of each of the Company and CommScope to its stockholders in the Distribution. Immediately following the Distribution, the Distributing Company changed its corporate name to "General Semiconductor, Inc.". Effective February 2, 1998, the Company changed its corporate name from "NextLevel Systems, Inc." to "General Instrument Corporation". The Distribution Agreement, dated as of June 12, 1997, among the Company, CommScope and the Distributing Company (the "Distribution Agreement") and certain other agreements executed in connection with the Distribution (collectively, the "Ancillary Agreements") allocate among the Company, CommScope, and General Semiconductor and their respective subsidiaries responsibility for various indebtedness, liabilities and obligations. It is possible that a court would disregard this contractual allocation of indebtedness, liabilities and obligations among the parties and require the Company or its subsidiaries to assume responsibility for obligations allocated to another party, particularly if such other party were to refuse or was unable to pay or perform any of its allocated obligations. Pursuant to the Distribution Agreement and certain of the Ancillary Agreements, the Company has agreed to indemnify the other parties (and certain related persons) from and after consummation of the Distribution with respect to certain indebtedness, liabilities and obligations, which indemnification obligations could be significant. Although the Distributing Company has received a favorable ruling from the Internal Revenue Service, if the Distribution were not to qualify as a tax free spin-off (either because of the nature of the Distribution or because of events occurring after the Distribution) under Section 355 of the Internal Revenue Code of 1986, as amended, then, in general, a corporate tax would be payable by the consolidated group of which the Distributing Company was the common parent based upon the difference between the fair market value of the stock distributed and the Distributing Company's adjusted basis in such stock. The corporate level tax would be payable by General Semiconductor and could substantially exceed the net worth of General Semiconductor. However, under certain circumstances, the Company and CommScope have agreed to indemnify General Semiconductor for such tax liability. In addition, under the consolidated return rules, each member of the consolidated group (including the Company and CommScope) is severally liable for such tax liability. DEPENDENCE OF THE COMPANY ON THE CABLE TELEVISION INDUSTRY AND CABLE TELEVISION CAPITAL SPENDING The majority of the Company's revenues come from sales of systems and equipment to the cable television industry. Demand for these products depends primarily on capital spending by cable television system operators for constructing, rebuilding or upgrading their systems. The amount of this capital spending, and therefore the Company's sales and profitability, may be affected by a variety of factors, including general economic conditions, the continuing trend of cable system consolidation 11 within the industry, the financial condition of domestic cable television system operators and their access to financing, competition from DTH, satellite, wireless television providers and telephone companies offering video programming, technological developments that impact the deployment of equipment and new legislation and regulations affecting the equipment used by cable television system operators and their customers. There can be no assurance that cable television capital spending will increase from historical levels or that existing levels of cable television capital spending will be maintained. Although the domestic cable television industry is comprised of thousands of cable systems, a small number of MSOs own a majority of cable television systems and account for a significant portion of the capital expenditures made by cable television system operators. The loss of business from a significant MSO could have a material adverse effect on the business of the Company. THE IMPACT OF REGULATION AND GOVERNMENT ACTION In recent years, cable television capital spending has been affected by new legislation and regulation, on the federal, state and local level, and many aspects of such regulation are currently the subject of judicial proceedings and administrative or legislative proposals. During 1993 and 1994, the Federal Communications Commission (the "FCC") adopted rules under the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), regulating rates that cable television operators may charge for lower tiers of service and generally not regulating the rates for higher tiers of service. In 1996, the Telecommunications Act of 1996 (the "Telecom Act") was enacted to eliminate certain governmental barriers to competition among local and long distance telephone, cable television, broadcasting and wireless services. The FCC is continuing its implementation of the Telecom Act which, when fully implemented, may significantly impact the communications industry and alter federal, state and local laws and regulations regarding the provision of cable and telephony services. Among other things, the Telecom Act eliminates substantially all restrictions on the entry of telephone companies and certain public utilities into the cable television business. Telephone companies may now enter the cable television business as traditional cable operators, as common carrier conduits for programming supplied by others, as operators of wireless distribution systems, or as hybrid common carrier/cable operator providers of programming on so-called "open video systems." The economic impact of the 1992 Cable Act, the Telecom Act and the rules thereunder on the cable television industry and the Company is still uncertain. On June 24, 1998, the FCC released a Report and Order entitled IN THE MATTER OF IMPLEMENTATION OF SECTION 304 OF THE TELECOMMUNICATIONS ACT OF 1996 -- COMMERCIAL AVAILABILITY OF NAVIGATION DEVICES (the "Retail Sales Order"), which promulgates rules providing for the commercial availability of navigation devices, including set-top devices and other consumer equipment, used to receive video signals and other services from multichannel video programming distributors ("MVPDs"), including cable television system operators. The Retail Sales Order mandates that (i) subscribers have a right to attach any compatible navigation device to an MVPD system regardless of its source and (ii) service providers are prohibited from taking actions which would prevent navigation devices that do not perform conditional access functions from being made available by retailers, manufacturers, or other affiliated vendors. To accomplish subscribers' right to attach, the FCC has ordered that (i) MVPDs must provide technical information concerning interface parameters necessary to permit navigation devices to operate with their systems; (ii) MVPDs must separate out security functions from non-security functions by July 1, 2000; and (iii) after January 1, 2005, MVPDs may not provide new navigation devices for sale, lease or use that perform both conditional access functions and other functions in a single integrated device. Unless modified or overturned, the Retail Sales Order will require set-top device manufacturers, such as the Company, to develop a separate security module to be available for sale to other manufacturers who want to build set-top devices, as well as ultimately prevent the Company from offering set-top devices in which the security and non-security functions are integrated. In addition, the 12 Retail Sales Order may require the Company to offer its set-top devices through retail distribution channels, an area in which the Company has limited experience. The competitive impact of the Retail Sales Order is still uncertain, and there can be no assurance that the Company will be able to compete successfully with other consumer electronics manufacturers interested in manufacturing set-top devices, many of which have greater resources and retail sales experience than the Company. In February 1998, PRIMESTAR, the nation's second largest provider of satellite television entertainment, entered into agreements with the Company, pursuant to which the Company will manufacture integrated receiver decoders for PRIMESTAR's planned high-power retail and wholesale service. Offering a high-power service would enable PRIMESTAR to provide expanded channel capacity and smaller receiving dishes to its subscribers. As a result of a pending Department of Justice proceeding seeking to block PRIMESTAR's acquisition of high-powered satellites from American Sky Broadcasting LLC ("ASkyB"), there is uncertainty concerning PRIMESTAR's ability to provide this proposed service. There can be no assurance that PRIMESTAR will ultimately gain governmental approval to acquire the ASkyB assets or that it will be able to secure another high-powered orbital slot, and accordingly, there can be no assurance that the Company will realize the benefits of its agreement with PRIMESTAR. There can be no assurance that future legislation, regulations or government action will not have a material adverse effect on the operations and financial condition of the Company. TELECOMMUNICATIONS INDUSTRY COMPETITION AND TECHNOLOGICAL CHANGES AFFECTING THE COMPANY The Company will be significantly affected by the competition among cable television system operators, satellite television providers and telephone companies to provide video, voice and data/Internet services. In particular, although cable television operators have historically provided television services to the majority of U.S. households, DTH satellite television has attracted a growing number of subscribers and the regional telephone companies have begun to offer competing cable and wireless cable services. This competitive environment is characterized by rapid technological changes, particularly with respect to developments in digital compression and broadband access technology. The Company believes that, as a result of its development of new products based on emerging technologies and the diversity of its product offerings, it is well positioned to supply each of the cable, satellite and telephony markets. The future success of the Company, however, will be dependent on its ability to market and deploy these new products successfully and to continue to develop and timely exploit new technologies and market opportunities both in the United States and internationally. There can be no assurance that the Company will be able to continue to successfully introduce new products and technologies, that it will be able to deploy them successfully on a large-scale basis or that its technologies and products will achieve significant market acceptance. The future success of the Company will also be dependent on the ability of cable and satellite television operators to successfully market the services provided by the Company's advanced digital terminals to their customers. Further, there can be no assurance that the development of products using new technologies or the increased deployment of new products will not have an adverse impact on sales by the Company of certain of its other products. In addition, because of the competitive environment and the nature of the Company's business, there have been and may continue to be claims by third parties asserting their intellectual property rights and challenging the Company's ability to deploy new technologies. COMPETITION The Company's products and services compete with those of a substantial number of foreign and domestic companies, some with greater resources, financial or otherwise, than the Company, and the rapid technological changes occurring in the Company's markets are expected to lead to the entry of new competitors. The Company's ability to anticipate technological changes and to introduce enhanced 13 products on a timely basis will be a significant factor in the Company's ability to expand and remain competitive. Existing competitors' actions and new entrants may have an adverse impact on the Company's sales and profitability. For a discussion of competitive factors regarding retail consumer electronic manufacturers see "--The Impact of Regulation and Government Action". The Company believes that it enjoys a strong competitive position because of its large installed cable television equipment base, its strong relationships with the major MSOs, its technological leadership and new product development capabilities, and the likely need for compatibility of new technologies with currently installed systems. There can be no assurance, however, that competitors will not be able to develop systems compatible with, or that are alternatives to, the Company's proprietary technology or systems. INTERNATIONAL OPERATIONS; FOREIGN CURRENCY RISKS U.S. broadband system designs and equipment are being employed in international markets, where cable television penetration is low. In addition, the Company is developing new products to address international market opportunities. However, the impact of the economic crises in Asia and Latin America has significantly affected the Company's results in these markets. There can be no assurance that international markets will rebound to historical levels or that such markets will continue to develop or that the Company will receive additional contracts to supply systems and equipment in international markets. International shipments of certain of the Company's products require export licenses issued by the U.S. Department of Commerce prior to shipment in accordance with U.S. export control regulations. The Company has made a voluntary disclosure to the U.S. Department of Commerce with respect to a number of violations by the Company of these export control regulations. While the Company does not expect these violations to have a material adverse effect on the Company's operations or financial condition, there can be no assurance that these violations will not result in the imposition of sanctions or restrictions on the Company. A significant portion of the Company's products are manufactured or assembled in Taiwan and Mexico. In addition, the Company's operations are expanding into new international markets. These foreign operations are subject to the usual risks inherent in situating operations abroad, including risks with respect to currency exchange rates, economic and political destabilization, restrictive actions by foreign governments, nationalizations, the laws and policies of the United States affecting trade, foreign investment and loans, and foreign tax laws. The Company's cost-competitive status relative to other competitors could be adversely affected if the New Taiwan dollar or another relevant currency appreciates relative to the U.S. dollar. CERTAIN RESTRICTIONS UNDER CREDIT FACILITIES The Credit Agreement dated as of July 23, 1997, as amended (the "Credit Agreement"), among the Company, certain banks, and The Chase Manhattan Bank, as Administrative Agent, contains certain restrictive financial and operating covenants, including, among others, requirements that the Company satisfy certain financial ratios. The failure of the Company to satisfy such covenants could cause the Company to be unable to borrow under the Credit Agreement and would cause the Company to seek alternative sources of working capital financing and, depending upon the Company's financial condition at such time, could have a material adverse effect on the operations and financial condition of the Company. 14 USE OF PROCEEDS The Company will not receive any of the proceeds from the sale of shares of Common Stock by the Selling Stockholders. PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY The Common Stock has been listed on the NYSE since July 28, 1997 and currently trades under the symbol "GIC". The following sets forth the high and low sale prices for the Common Stock as reported on the NYSE Composite Tape for the periods indicated.
COMMON STOCK PRICE RANGE ------------- HIGH LOW ----- ----- 1997 Third Quarter (beginning July 24).............................................. $ 211/2 $ 16 Fourth Quarter................................................................. $ 191/8 $ 125/8 1998 First Quarter.................................................................. $ 22 $ 167/16 Second Quarter................................................................. $ 283/4 $ 193/4 Third Quarter (through August 25).............................................. $ 291/2 $ 247/8
For a recent sale price for the Common Stock, see the cover page of this Prospectus. The Company has never paid cash dividends on its Common Stock and does not anticipate paying such dividends in the foreseeable future. The Credit Agreement limits the ability of the Company to pay cash dividends to its stockholders. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources". Any determination to pay cash dividends in the future will be at the discretion of the Company's Board of Directors and will depend upon the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant at that time by the Company's Board of Directors. 15 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company and its subsidiaries as of June 30, 1998. This table should be read in conjunction with the Company's consolidated financial statements and the notes thereto, incorporated herein by reference, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
JUNE 30, 1998(1) ----------------- (IN THOUSANDS) Cash..................................................................... $ 82,854 ----------------- ----------------- Total debt............................................................... $ -- ----------------- ----------------- Stockholders' equity: Preferred Stock, $.01 par value, 20,000,000 shares authorized; no shares issued................................................................. -- Common Stock, $.01 par value; 400,000,000 shares authorized; 151,686,994 shares issued (2)...................................................... 1,517 Additional paid-in capital............................................... 1,282,428 Accumulated deficit...................................................... (49,165) Accumulated other comprehensive income, net of taxes of $9,129........... 15,530 Less--Treasury stock, at cost, 6,134 shares of Common Stock.............. (2) ----------------- Total stockholders' equity............................................. 1,250,308 ----------------- Total capitalization................................................... $ 1,250,308 ----------------- -----------------
- ------------------------ (1) If the Company Repurchase is consummated in full, on a pro forma basis at June 30, 1998, cash would be $10,816 and total stockholders' equity and total capitalization would be $1,178,270, assuming a purchase price of $28.25 per share, the closing price of the Common Stock on August 25, 1998. (2) Does not include 21,356,000 shares of Common Stock issued in July 1998 in connection with an acquisition. See "Business--Business Units--Digital Network Systems". 16 SELECTED FINANCIAL DATA The selected consolidated financial data set forth below should be read in conjunction with the Company's consolidated financial statements and the related notes thereto, which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 and are incorporated herein by reference, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. The consolidated financial data as of and for the six months ended June 30, 1998 and 1997 are derived from the unaudited consolidated financial statements of the Company, and in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, except for those charges discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations", necessary for a fair presentation of its financial condition and results of operations as of such dates and for such periods. The results for the six months ended June 30, 1998 are not necessarily indicative of the results that may be expected for the full year. The consolidated financial data as of and for each of the four years ended December 31, 1997 are derived from the Company's audited consolidated financial statements. The consolidated financial data as of and for the year ended December 31, 1993 are derived from unaudited consolidated financial statements of the Company.
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, --------------------------- ---------------------------------------------------------------------------- 1998 (A) 1997 (B) 1997 (C) 1996 (D) 1995 (E) 1994 (F) 1993 --------- ------------- -------------- ----------- ----------- ----------- --------- (IN THOUSANDS, UNLESS OTHERWISE NOTED, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales........... $ 905,425 $ 858,431 $ 1,764,088 $ 1,755,585 $ 1,532,595 $ 1,275,307 $ 782,960 Cost of sales....... 671,316 627,299 1,336,482 1,349,815 1,079,916 877,667 528,719 --------- ------------- -------------- ----------- ----------- ----------- --------- Gross profit........ 234,109 231,132 427,606 405,770 452,679 397,640 254,241 Operating expenses: Selling, general and administrative... 101,768 94,644(g) 215,404(g) 174,432 138,209 102,753 87,389 Research and development..... 158,169 100,675 207,826 198,071 137,930 104,795 67,610 Purchased in-process technology...... -- -- -- -- 139,860 -- -- NLC litigation costs........... -- -- -- 141,000 -- -- -- Amortization of excess of cost over fair value of net assets acquired........ 7,123 7,118 14,571 14,278 14,418 14,931 15,027 --------- ------------- -------------- ----------- ----------- ----------- --------- Operating income (loss)............ (32,951) 28,695 (10,195) (122,011) 22,262 175,161 84,215 Other income (expense)--net.... (9,804) (1,853) 5,766 (1,427) (1,737) 1,380 8,944 Interest expense--net...... (1,264) (13,511)(h) (5,210)(h) (25,970) (22,933) (27,337) (35,026) --------- ------------- -------------- ----------- ----------- ----------- --------- Income (loss) before income taxes and cumulative effect of changes in accounting principles........ (44,019) 13,331 (9,639) (149,408) (2,408) 149,204 58,133 Cumulative effect of changes in accounting principles........ -- -- -- -- -- (1,445) 216 Benefit (provision) for income taxes............. 14,090 (7,965) (6,474) 53,098 6,614 (26,710) (8,493) --------- ------------- -------------- ----------- ----------- ----------- --------- Net income (loss)... $ (29,929) $ 5,366 $ (16,113) $ (96,310) $ 4,206 $ 121,049 $ 49,856 --------- ------------- -------------- ----------- ----------- ----------- --------- --------- ------------- -------------- ----------- ----------- ----------- --------- Loss per share -- basic and diluted........... $ (0.20) Pro forma earnings (loss) per share (i)............... $ 0.04 $ (0.11) $ (0.65)
AT JUNE 30, AT DECEMBER 31, ---------------------- --------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- --------- (IN THOUSANDS, UNLESS OTHERWISE NOTED) BALANCE SHEET DATA: Cash (j).................................. $ 82,854 $ -- $ 35,225 $ -- $ -- $ -- $ -- Total assets.............................. 1,693,269 1,654,127 1,675,353 1,629,736 1,354,338 1,199,002 969,635 Debt (j).................................. -- -- -- -- -- -- -- Other non-current liabilities............. 62,525 205,639 65,730 188,045 75,125 77,890 103,293 Stockholders' equity...................... 1,250,308 1,084,452 1,214,811 1,051,174 926,168 763,895 629,016
(FOOTNOTES ON FOLLOWING PAGE) 17 (FOOTNOTES FROM PREVIOUS PAGE) - ------------------------------ (a) Includes charges of $124 million ($79 million net-of-tax) which consist of costs related to the closure of various facilities, including the Company's satellite television manufacturing facility in Puerto Rico, severance and other employee separation costs, the write-down of certain assets to their estimated net realizable values and a $75 million charge to fully reserve for an advance made to the Partnership. (b) Includes charges of $24 million ($18 million net-of-tax) reflecting restructuring costs related to dividing the Distributing Company's Taiwan operations between the Company and General Semiconductor and costs directly related to the Distribution. (c) Includes charges of $110 million ($79 million net-of-tax) reflecting restructuring and other charges primarily related to the closure of various facilities, including the Company's satellite television manufacturing facility in Puerto Rico, severance and other employee separation costs, the write-down of certain assets to their estimated net realizable values and costs related to dividing the Distributing Company's Taiwan operations between the Company and General Semiconductor. (d) Includes charges of $226 million ($145 million net-of-tax) reflecting NLC's litigation costs and other charges primarily related to the transition to the Company's next-generation digital products and the write-down of certain assets to their estimated net realizable values. (e) Includes a charge of $140 million ($90 million net-of-tax) for purchased in-process technology in connection with the acquisition of NLC. (f) Includes an income tax benefit of $31 million, as a result of a reduction in a valuation allowance related to domestic deferred income tax assets. (g) On a pro forma basis, selling, general and administrative expenses would be increased by $4 million for the six months ended June 30, 1997 and the year ended December 31, 1997 to eliminate the allocation of corporate expenses to CommScope and General Semiconductor, as such costs subsequent to the Distribution were no longer allocable. (h) For the periods prior to the Distribution, interest expense -- net includes an allocation of interest expense from the Distributing Company which was allocated based upon the Company's net assets as a percentage of the total net assets of the Distributing Company. On a pro forma basis, interest expense would be reduced by $10 million and $11 million for the six months ended June 30, 1997 and the year ended December 31, 1997, respectively, to eliminate the aforementioned interest allocation and provide for interest expense on a net debt level of $100 million as of January 1, 1997. (i) Prior to the Distribution, the Company did not have its own capital structure, and pro forma per share information has been presented only for the years ended December 31, 1997 and 1996 and the six months ended June 30, 1997. The pro forma earnings (loss) per share was calculated by dividing the net income (loss) by the pro forma weighted-average number of shares outstanding. The pro forma weighted-average number of shares outstanding used for the year ended December 31, 1996 and the six months ended June 30, 1997 equaled the number of common shares issued and common equivalent shares, if dilutive, existing on the date of the Distribution, and for the year ended December 31, 1997, included the number of common shares issued on the date of the Distribution plus the actual share activity during the period subsequent to the Distribution. (j) Prior to the Distribution, the Company participated in the Distributing Company's cash management program. To the extent the Company generated positive cash, such amounts were remitted to the Distributing Company. To the extent the Company experienced temporary cash needs for working capital purposes or capital expenditures, such funds were historically provided by the Distributing Company. Accordingly, for the dates presented prior to the Distribution, no cash or debt balances existed. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS. COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 NET SALES. Net sales for the three months ended June 30, 1998 ("Second Quarter 1998") were $489 million compared to $450 million for the three months ended June 30, 1997 ("Second Quarter 1997"), an increase of $39 million, or 9%. Net sales for the six months ended June 30, 1998 were $905 million compared to $858 million for the six months ended June 30, 1997, an increase of $47 million, or 5%. The increases in net sales for the three and six month periods reflect increased sales of digital cable systems, partially offset by lower sales of analog cable terminals and satellite systems for private and commercial networks. Analog and digital products each represented approximately 50% of total sales of the Company for the six months ended June 30, 1998, compared to approximately 63% and 37%, respectively, for the six months ended June 30, 1997. Worldwide broadband sales (consisting of digital and analog cable and wireless television systems and network transmission systems) of $380 million and $689 million for Second Quarter 1998 and for the six months ended June 30, 1998, respectively, increased $61 million, or 19%, and $71 million, or 11%, respectively, from the comparable 1997 periods primarily as a result of increased U.S. sales volume of digital cable terminals and headends, partially offset by the expected decline in sales of basic analog cable network systems. These sales reflect the increasing commitment of cable television operators to deploy state-of-the-art digital and interactive advanced analog systems in order to offer advanced entertainment, interactive services and Internet access to their customers. During the Second Quarter 1998 and Second Quarter 1997, net broadband sales in the U.S. were 83% and 70%, respectively, combined U.S. and Canadian sales were 84% and 73%, respectively, and all other international sales were 16% and 27%, respectively, of total worldwide broadband sales. For the six months ended June 30, 1998 and 1997, net broadband sales in the U.S. were 82% and 69%, respectively, combined U.S. and Canadian sales were 84% and 73%, respectively, and all other international sales were 16% and 27%, respectively, of total worldwide broadband sales. Worldwide satellite sales of $109 million and $216 million for Second Quarter 1998 and the six months ended June 30, 1998, respectively, decreased $22 million, or 17%, and $24 million, or 10%, respectively, from the comparable 1997 periods primarily as a result of lower private and commercial network sales. During the Second Quarter 1998 and Second Quarter 1997, net satellite sales in the U.S. were 96% and 75%, respectively, combined U.S. and Canadian sales were 96% and 85%, respectively, and all other international sales were 4% and 15%, respectively, of total worldwide satellite sales. For the six months ended June 30, 1998 and 1997, net satellite sales in the U.S. were 95% and 79%, respectively, combined U.S. and Canadian sales were 98% and 86%, respectively, and all other international sales were 2% and 14%, respectively, of total worldwide satellite sales. The decrease in broadband and satellite international sales during the 1998 periods was experienced in all international regions. The largest decreases in sales during the first half of 1998 were experienced in the Asia/Pacific and Latin American regions and there can be no assurance that international sales will return to 1997 levels in the near term. TCI and Time Warner, including affiliates, each represented approximately 14% of the revenues of the Company for the year ended December 31, 1997. For the six months ended June 30, 1998, TCI, PRIMESTAR and Time Warner accounted for approximately 24%, 14% and 11% of total Company sales, respectively. 19 GROSS PROFIT. Gross profit of $141 million and $234 million for Second Quarter 1998 and the six months ended June 30, 1998, respectively, increased $23 million, or 20%, and $3 million, or 1%, respectively, from the comparable 1997 periods. Gross profit was 29% and 26% of sales for Second Quarter 1998 and the six months ended June 30, 1998, respectively, compared to 26% and 27%, respectively, for the comparable 1997 periods. Gross profit for the six months ended June 30, 1998 included $27 million of charges recorded in the first quarter of 1998, primarily related to severance and other employee separation costs, costs associated with the closure of various facilities and the write- down of certain assets to their net realizable values. Gross profit for Second Quarter 1997 and the six months ended June 30, 1997 included $16 million and $18 million, respectively, of charges for employee costs related to dividing the Distributing Company's Taiwan operations between the Company and General Semiconductor. Gross profit increases primarily reflect increased sales levels. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative ("SG&A") expense was $46 million and $102 million for the Second Quarter 1998 and the six months ended June 30, 1998, respectively, compared to $52 million and $95 million, respectively, for the comparable 1997 periods. SG&A expense as a percentage of sales was 9% and 11% for the Second Quarter 1998 and the six months ended June 30, 1998, respectively, and 12% and 11%, respectively, for the 1997 periods. SG&A spending for the six months ended June 30, 1998 included $13 million of charges primarily related to severance and other employee separation costs, costs associated with the closure of various facilities, including moving costs, and costs associated with changing the Company's corporate name. SG&A spending for the Second Quarter 1997 and the six months ended June 30, 1997 included $6 million of charges primarily for legal and other professional fees directly related to the Distribution. SG&A spending for the 1997 periods also included SG&A expenses related to NLC. RESEARCH AND DEVELOPMENT. Research and development ("R&D") expense was $42 million and $158 million for the Second Quarter 1998 and six months ended June 30, 1998, respectively, compared to $50 million and $101 million, respectively, for the comparable 1997 periods. R&D expense for the six months ended June 30, 1998 included a $75 million charge to fully reserve the Note (as defined below under "--Liquidity and Capital Resources"). R&D spending in 1998 is focused on new product opportunities, including advanced digital services, high-speed internet and data systems, and next generation transmission network systems. In addition, the Company is incurring R&D expense to develop analog and digital products for international markets, reduce costs and expand the features of its digital cable and satellite systems. OTHER EXPENSE--NET. Other expense was $1 million and $10 million for the Second Quarter 1998 and the six months ended June 30, 1998, respectively, compared with $1 million and $2 million, respectively, for the comparable 1997 periods. Other expense increased in the first half of 1998 from the comparable 1997 period primarily due to the Company's equity interest in the Partnership's loss, which includes the BROADBAND TECHNOLOGIES, INC. V. GENERAL INSTRUMENT CORP. settlement and compensation expense related to key executives of an acquired company, partially offset by a gain on the sale of a portion of the Company's investment in Ciena Corporation and settlement of an insurance claim. INTEREST EXPENSE--NET. Net interest expense for the three and six months ended June 30, 1997 represents an allocation of interest expense from the Distributing Company and was allocated based upon the Company's net assets as a percentage of the total net assets of the Distributing Company for the period prior to the date of the Distribution. Net interest expense allocated to the Company was $6 million and $14 million for the Second Quarter 1997 and for the six months ended June 30, 1997, respectively. Subsequent to July 25, 1997, the date of the Distribution, net interest represents actual net interest expense incurred by the Company. Pro forma interest expense for the Second Quarter 1997 and the six months ended June 30, 1997 includes a reduction of interest expense of $5 million and $10 million, respectively, to reflect an assumed net debt level of $100 million at January 1, 1997. 20 INCOME TAXES. Through the date of the Distribution, income taxes were determined as if the Company had filed separate tax returns under its existing structure for the periods presented. Accordingly, future tax rates could vary from the historical effective tax rates depending on the Company's future tax elections. The Company recorded a provision for income taxes of $18 million and a benefit for income taxes of $14 million for the Second Quarter 1998 and the six months ended June 30, 1998, respectively, and a provision for income taxes of $4 million and $8 million, respectively, for the comparable 1997 periods based upon the expected annual effective tax rate. COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 WITH THE YEAR ENDED DECEMBER 31, 1996 NET SALES. Net sales for the year ended December 31, 1997 were $1,764 million compared to $1,756 million for the year ended December 31, 1996. Net sales in 1997 when compared to 1996 reflect higher sales of digital cable television systems and interactive advanced analog television systems, offset by lower sales of basic analog cable television systems, cable transmission network systems, digital satellite receivers and private/commercial network satellite systems. Analog and digital products represented 58% and 42%, respectively, of total sales in 1997 compared to 67% and 33%, respectively, of total sales in 1996. Worldwide broadband sales (consisting of digital and analog cable and wireless television systems and transmission network systems) increased $112 million, or 10%, to $1,293 million in 1997 primarily as a result of increased U.S. sales volumes of digital cable television terminals and headends and CFT advanced analog cable television terminals, partially offset by lower sales of basic analog cable and transmission network systems. These sales reflect the increasing commitment of U.S. cable television operators to deploy state-of-the-art digital and interactive advanced analog systems in order to offer advanced entertainment, interactive services and Internet access to their customers. International broadband sales increased $11 million, or 3%, to $403 million in 1997 and represented 31% of worldwide broadband sales in 1997 compared to 33% in 1996. Worldwide satellite sales of $462 million for the year ended December 31, 1997 decreased $113 million, or 20%, from 1996 primarily as a result of lower sales volumes of digital satellite receivers to PRIMESTAR. International satellite sales increased $41 million, or 59%, to $110 million in 1997, primarily as a result of higher Canadian sales. International satellite sales represented 24% of worldwide satellite sales in 1997 compared to 12% in 1996. NLC's sales were $9 million in 1997. GROSS PROFIT. Gross profit increased $22 million, or 5%, to $428 million in 1997 from $406 million in 1996 and was 24% of sales in 1997 compared to 23% in 1996. Gross profit for the year ended December 31, 1997 was reduced by $84 million of charges primarily related to the closure of the Company's Puerto Rico satellite manufacturing facility, employee costs related to dividing the Distributing Company's Taiwan operations between the Company and General Semiconductor and the write-down of inventories to their estimated net realizable values. Gross profit for the year ended December 31, 1996 was reduced by $71 million of charges primarily related to the write-down of inventories to their estimated net realizable values and the accrual of upgrade and product warranty liabilities in connection with the transition to the Company's next-generation digital products. The higher gross profit and gross profit margin in 1997 resulted from higher production volumes and ongoing cost reduction programs on digital and advanced analog products. SELLING, GENERAL AND ADMINISTRATIVE. SG&A expense was $215 million in 1997 compared to $174 million in 1996 and was 12% of sales in 1997 compared to 10% in 1996. SG&A expense for the year ended December 31, 1997 included $28 million of charges related to severance and other employee separation costs, costs associated with the closure of various facilities and legal and other professional fees incurred in connection with the Distribution, partially offset by a $5 million credit related to the collection of certain receivables previously considered to be uncollectible. SG&A expense in 1996 included $14 million of charges primarily related to employee separation costs due to the Distributing 21 Company's plan to separate into three independent companies, the write-down of various fixed assets to their estimated net realizable values and the settlement of a litigation matter. SG&A base spending was also greater in 1997 than in 1996 as a result of increased marketing and field support for NLC's NLevel(3) telephony system and the Company's digital video broadcasting ("DVB") compliant digital satellite products and increased sales force, field support and marketing in international cable and satellite television markets. RESEARCH AND DEVELOPMENT. R&D expense increased $10 million, or 5%, to $208 million in 1997 from $198 million in 1996 and was 12% of sales in 1997 compared to 11% in 1996. R&D expense for the year ended December 31, 1997 included $9 million of charges primarily related to the write-down of certain assets used in R&D activities to their estimated net realizable values. R&D spending in 1997 reflects: the continued development of next-generation products, including high-speed data systems for cable and telephone networks, switched-digital access systems for fiber and twisted-pair networks, as well as the modification of existing products for international markets; the continued development of enhanced addressable analog terminals and advanced digital systems for cable and satellite television distribution; and product development and international expansion through strategic alliances. In addition, in 1997, the Company remained focused on reducing costs and enhancing the features of its digital cable and satellite television systems. OTHER INCOME (EXPENSE)--NET. Other income of $6 million for the year ended December 31, 1997 predominately reflects net investment gains, primarily from the sale of a portion of the Company's investment in Ciena Corporation. INTEREST INCOME (EXPENSE)--NET. Net interest expense represents an allocation of interest expense from the Distributing Company based upon the Company's net assets as a percentage of the total net assets of the Distributing Company through July 25, 1997, the date of the Distribution. Net interest expense allocated to the Company was $15 million for the year ended December 31, 1997 compared to $26 million in 1996. Subsequent to July 25, 1997, net interest income primarily represents actual interest earned on the Company's net cash balance and the net reversal of accrued interest subsequent to receiving a revised final judgment in the suit brought against NLC and the founders of NLC by DSC Communications Corporation and DSC Technologies Corporation. On a pro forma basis, interest income was $6 million in 1997 compared to interest expense of $8 million in 1996. INCOME TAXES. Through the date of the Distribution, income taxes were determined as if the Company had filed separate tax returns under its then existing structure for the periods presented. Accordingly, future tax rates could vary from the historical effective tax rates depending on the Company's future tax elections. The Company recorded a provision for income taxes of $6 million and a benefit for income taxes of $53 million for the years ended December 31, 1997 and 1996, respectively. Excluding the restructuring and other net charges recorded in 1997 and 1996, the effective tax rates were 38% and 36%, respectively. The higher effective rate in 1997 resulted from a higher provision for state income taxes. LIQUIDITY AND CAPITAL RESOURCES Prior to the Distribution, the Company participated in the Distributing Company's cash management program. To the extent the Company generated positive cash, such amounts were remitted to the Distributing Company. To the extent the Company experienced temporary cash needs for working capital purposes or capital expenditures, such funds were historically provided by the Distributing Company. At the date of the Distribution, $125 million of cash was transferred to the Company. For the six months ended June 30, 1998 and 1997, cash provided by operations was $35 million and $66 million, respectively. Cash provided by operations in the first half of 1998 primarily reflects cash 22 generated from operations, partially offset by the funding provided to the Partnership related to its R&D activities and payments related to the restructuring. Cash provided by operations in the first half of 1997 primarily represents cash generated by the broadband business, partially offset by increased inventory levels to support business growth. At June 30, 1998 and December 31, 1997, working capital was $453 million and $436 million, respectively. The Company believes that working capital levels are adequate to support the growth of the digital business, however, there can be no assurance that future industry-specific developments or general economic trends will not continue to alter the Company's working capital requirements. During the six months ended June 30, 1998 and 1997, the Company invested $40 million and $37 million, respectively, in equipment and facilities. The Company expects to continue to expand its capacity to meet increased current and anticipated future demands for digital products, with capital expenditures for the year expected to approximate $120 million. The Company's R&D expenditures were $158 million (including the $75 million funding related to the Partnership's R&D activities) and $101 million during the first six months of 1998 and the first six months of 1997, respectively. The Company expects total R&D expenditures to approximate $245 million (including the $75 million funding related to the Partnership) for the year ending December 31, 1998. The Company's Credit Agreement provides a $600 million unsecured revolving credit facility and matures on December 31, 2002. The Credit Agreement permits the Company to choose between two competitive interest rate options. The Credit Agreement contains financial and operating covenants, including limitations on guarantee obligations, liens and the sale of assets, and requires the maintenance of certain financial ratios. None of the restrictions contained in the Credit Agreement is expected to have a significant effect on the Company's ability to operate. As of June 30, 1998, the Company was in compliance with all financial and operating covenants contained in the Credit Agreement and had available credit of $500 million. In January 1998, the Company announced that, subject to the completion of definitive agreements, Sony will purchase 7.5 million new shares of Common Stock of the Company for $188 million. See "Business--Strategic Partner and Customer Relationships--Sony Corporation". In January 1998, the Company transferred the net assets, principally technology, and the management and workforce of NLC to the Partnership in exchange for approximately an 89% (subject to additional dilution) limited partnership interest. Additionally, the Company advanced to the Partnership $75 million, utilizing available operating funds and borrowings under its Credit Agreement, in exchange for a Partnership note (the "Note"). Since the repayment of the Note is solely dependent upon the results of the Partnership's research and development activities and the commercial success of its product development, the Company recorded a charge to fully reserve for the Note concurrent with the funding. The Company has agreed to make an additional $50 million equity investment in the Partnership, expected to occur on or after November 1, 1998, to fund the Partnership's growth and assist the Partnership in meeting its forecasted working capital requirements. The Company's management assesses its liquidity in terms of its overall ability to obtain cash to support its ongoing business levels and to fund its growth objectives. The Company's principal sources of liquidity both on a short-term and long-term basis are cash flows provided by operations and borrowings under the Credit Agreement. The Company believes that based upon its analysis of its consolidated financial position and its expected operating cash flows from future operations, along with available funding under the Credit Agreement, cash flows will be adequate to fund operations, research and development and capital expenditures. There can be no assurance, however, that future industry-specific developments or general economic trends will not adversely affect the Company's operations or its ability to meet its cash requirements. 23 NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED SEGMENT REPORTING--In June 1997, Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information", was issued and is effective for fiscal periods beginning after December 15, 1997. SFAS No. 131 establishes standards for the reporting of information about operating segments, including related disclosures about products and services, geographic areas and major customers, and requires the reporting of selected information about operating segments in interim financial statements. The Company is currently evaluating the disclosure requirements of this statement and will include the necessary disclosures in the year-end financial statements as required in the initial year of adoption. PENSION AND OTHER POSTRETIREMENT DISCLOSURES--In February 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits--an amendment of FASB Statements No. 87, 88 and 106". This statement, which is effective for fiscal years beginning after December 15, 1997, requires revised disclosures about pension and other postretirement benefit plans. Since the above two statements revise only financial statement disclosures, their adoption will not have any impact on the Company's consolidated financial position, results of operations or cash flows. DERIVATIVE AND HEDGE ACCOUNTING--In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued and is effective for fiscal years beginning after June 15, 1999. SFAS No. 133 requires that all derivative instruments be measured at fair value and recognized in the balance sheet as either assets or liabilities. The Company is currently evaluating the impact this pronouncement will have on its consolidated financial statements. NEW TECHNOLOGIES The Company operates in a dynamic and competitive environment in which its success will be dependent upon numerous factors, including its ability to continue to develop appropriate technologies and successfully implement applications based on those technologies. In this regard, the Company has made significant investments to develop advanced systems and equipment for the cable and satellite television, Internet/data delivery and local telephone access markets. Additionally, the future success of the Company will be dependent on the ability of cable and satellite television operators to successfully market the services provided by the Company's advanced digital terminals to their customers. Furthermore, as a result of the higher costs of initial production, digital products presently being shipped carry lower margins than the Company's mature analog products. Management of the Company expects cable television operators in the United States and abroad to continue to purchase analog products to upgrade their basic networks and to develop, using U.S. architecture and systems, international markets where cable penetration is low and demand for entertainment programming is growing. However, management expects that demand in North America for its basic analog cable products will continue to decline. As the Company continues to introduce new products and technologies and such technologies gain market acceptance, there can be no assurance that sales of products based on new technologies will not affect the Company's product sales mix and/or will not have an adverse impact on sales of certain of the Company's other products. FOREIGN EXCHANGE AND MARKET RISK A significant portion of the Company's products are manufactured or assembled in Taiwan and Mexico. These foreign operations are subject to market risk changes with respect to currency exchange rate fluctuations, which could impact the Company's consolidated financial statements. The Company monitors its underlying exchange rate exposures on an ongoing basis and continues to implement 24 selective hedging strategies to reduce the market risks from changes in exchange rates. On a selective basis, the Company enters into contracts to hedge the currency exposure of monetary assets and liabilities, contractual and other firm commitments denominated in foreign currencies and the currency exposure of anticipated, but not yet committed, transactions expected to be denominated in foreign currencies. The use of these derivative financial instruments allows the Company to reduce its overall exposure to exchange rate movements since the gains and losses on these contracts substantially offset losses and gains on the assets, liabilities and transactions being hedged. Foreign currency exchange contracts are sensitive to changes in exchange rates. As of June 30, 1998, a hypothetical 10% fluctuation in the exchange rate of foreign currencies applicable to the Company, principally the New Taiwan and Canadian dollars, would result in a net $2 million gain or loss on the contracts the Company has outstanding, which would offset the related net loss or gain on the assets, liabilities and transactions being hedged. INTERNATIONAL MARKETS Management of the Company believes that additional growth for the Company will come from international markets, although the Company's international sales decreased in the first half of 1998 in comparison to the prior year, and there can be no assurance that international sales will increase to 1997 levels in the near future. In order to support the Company's international product and marketing strategies, it is currently expected that the Company will add operations in foreign markets in the following areas, among others: customer service, sales, finance, product warehousing and expansion of manufacturing capacity at existing facilities. Although no assurance can be given, management expects that the expansion of international operations will not require significant increased levels of capital expenditures. EFFECT OF INFLATION The Company continually attempts to minimize any effect of inflation on earnings by controlling its operating costs and selling prices. During the past few years, the rate of inflation has been low and has not had a material impact on the Company's results of operations. READINESS FOR YEAR 2000 The Company has identified and evaluated the changes to its computer systems and products necessary to achieve a year 2000 date conversion, and required conversion and testing efforts are currently underway and are expected to be completed by mid 1999. The Company continues to communicate with its suppliers, customers and others with which it does business to understand the impact of any year 2000 issues on the Company. However, there can be no assurance that the companies with which the Company does business will achieve a year 2000 conversion in a timely fashion, or that such failure to convert by another company will not have an adverse effect on the Company. The Company does not expect the cost of achieving year 2000 compliance will exceed $5 million. Additionally, based on the current status of these efforts, the Company believes that it will be able to manage its total year 2000 transition without any material adverse effect on its business operations, products or financial prospects. 25 BUSINESS The Company is a leading worldwide provider of integrated and interactive broadband access solutions and, with its strategic partners and customers, is advancing the convergence of the Internet, telecommunications and video entertainment industries. The Company is the world's leading supplier of digital and analog set-top terminals and systems for wired and wireless cable television networks, as well as hybrid fiber/coaxial network transmission systems used by cable television operators, and is a leading provider of digital satellite television systems for programmers, DTH satellite networks and private networks for business communications. Through its limited partnership interest in the Partnership, the Company provides next-generation broadband telephony network solutions with the Partnership's NLevel(3)-Registered Trademark- Switched Digital Access System. The Company's principal executive offices are located at 101 Tournament Drive, Horsham, Pennsylvania 19044 and the telephone number of the Company, at such offices, is (215) 323-1000. BUSINESS STRATEGY The Company's strategy is to use its technological leadership in providing secure broadband systems and equipment to enhance its leading position in its traditional markets while expanding into new markets. This strategy is based on the belief that (i) consumers in the United States and international markets will continue to demonstrate an increasing demand for new information and entertainment services and (ii) content and service providers will continue to create new bandwidth-intensive video, voice and data applications. The Company's management believes that these factors will generate a continuing need for systems and equipment with greater capacity for all networks and architectures. DEMAND FOR SYSTEMS AND EQUIPMENT SUPPORTING NEW BANDWIDTH INTENSIVE APPLICATIONS The Company expects the market for systems and equipment supporting new bandwidth intensive applications to grow significantly as a result of the availability of new information and entertainment services for consumers. - CABLE SYSTEM UPGRADES. Cable operators are upgrading their systems to provide for two-way capabilities and additional capacity in order to provide advanced services such as Internet access, VOD and telephony. The cable infrastructure, with its high capacity access into the home, is regarded as an attractive network for the delivery of advanced communication and entertainment services. The Company believes that the commercialization of advanced broadband systems and equipment, which provide for greatly expanded channel capacity and programming options, improved quality and security of signal transmission and the capability of delivering enhanced features and services, presents a significant opportunity for the Company. Recent developments in the cable and telecommunications industries, including the announcement of a proposed merger between AT&T and TCI, Microsoft's $1 billion investment in Comcast, and the purchase of Marcus Cable and Charter by Paul Allen, a founder of Microsoft, are expected to accelerate cable systems operator spending for these advanced broadband systems to facilitate the offering of advanced services. - TELEPHONY DEVELOPMENTS. At the same time as cable operators are upgrading their systems to offer advanced services, Regional Bell Operating Companies and other telecommunications companies are also seeking a cost-effective way to deliver standard telephony and advanced services to the home, including high-speed data/Internet, distance learning and video services. The Company believes that this presents a significant opportunity for suppliers, such as the Partnership, which provide integrated broadband access systems that enable these services from a single access platform. 26 THE COMPANY'S MARKET LEADERSHIP The Company has a leading position in providing systems and equipment to the broadband communications market. Currently, the Company is a leading supplier to 16 of the 20 largest MSOs in the United States and believes that it has supplied a majority of the addressable systems in use by cable television operators in the United States and abroad. - LEADER OF COMMERCIALIZATION OF DIGITAL BROADBAND SYSTEMS. The Company is the leading supplier of interactive digital cable television systems. Through June 30, 1998, the Company had shipped approximately 600 digital cable television head-end systems, passing approximately 28 million homes, and over 1.4 million two-way interactive digital cable television set-top terminals to broadband system operators. The Company has entered into definitive agreements, with an estimated value of $4.5 billion, to supply approximately 15 million digital set-top terminals to leading North American cable operators, with a collective subscriber base of over 46 million, over the next three to five years. During the second half of 1998 and during 1999, the Company expects to introduce new two-way interactive set-top terminal models, including terminals targeted at European and other international cable operators and a high-end terminal that incorporates a built-in DOCSIS-compliant cable modem, IP and a unique triple tuner architecture that will ultimately enable consumers to watch television, surf the World Wide Web and talk on the telephone simultaneously. - THE WORLD LEADER IN ANALOG ADDRESSABILITY. The Company is the world's leading provider of addressable analog set-top systems. The Company's latest two-way interactive advanced analog terminal provides cable operators with Internet access, interactive programming guides, CD-quality music, NVOD, supplemental sports and entertainment information and local information-on-demand. - NEXT GENERATION TELEPHONY. The Partnership, in which the Company has an 89% limited partnership interest, is a leading provider of the next generation of integrated full service DLC and FTTC systems for the delivery of telephony, video and data for local telephone companies. The Partnership's product, NLevel(3), is designed to permit the cost effective delivery of a suite of standard telephony and advanced services, including high-speed data/Internet, distance learning, VOD and video telephony, to the home from a single access platform. In July 1998, the Partnership was selected to supply DLC and FTTC systems to U S West for the delivery of broadband video, high-speed data/Internet, and basic telephone services. The Company has also contracted to supply U S West with 450,000 broadband xDSL access lines and to supply Bell Atlantic with 1,000,000 lines of telephone service. The Partnership is currently deploying its NLevel(3) products pursuant to these contracts. STRATEGIC PARTNER AND CUSTOMER RELATIONSHIPS The Company recently entered into several strategic relationships, including equity investments in the Company by large MSOs, which are expected to provide a strong foundation for future business development and to reinforce the Company's position as a leading provider of the next generation of broadband communications equipment and systems. - CABLE CUSTOMER EQUITY OWNERSHIP. The Company has issued warrants to purchase approximately 29 million shares of Common Stock to leading North American cable system operators. These warrants were issued in connection with the definitive agreements to supply approximately 15 million digital set-top terminals to such operators. Included among the cable operators entitled to exercise the warrants upon the purchase of set-top terminals from the Company are TCI, Time Warner, MediaOne, Comcast, Cox, Adelphia, Shaw, Jones and Charter. - SET-TOP AUTHORIZATION SERVICES. The Company issued 21,356,000 shares of its Common Stock to an affiliate of TCI in connection with the Company's acquisition of the set-top authorization services business that controls the receipt of cable programming services delivered to subscribers by TCI's Headend In The Sky. The Company now provides national authorization services throughout the United 27 States to TCI, its affiliates and other operators, many with relatively small individual systems that could not otherwise justify the initial capital investment required to launch a local digital headend computer control system. - SONY CORPORATION. The Company has announced plans to enter into a strategic alliance with Sony to jointly develop digital television technologies for cable television devices and HDTV products. In addition, the Company plans to incorporate Sony's Home Network architecture into its advanced digital set-top terminals. Sony has also agreed to purchase 7.5 million newly issued shares of Common Stock at a purchase price of $25.00 per share. These transactions are all subject to the completion of definitive agreements. - CISCO SYSTEMS, INC. In anticipation of mass distribution of standardized cable modems, the Company has entered into a working relationship with Cisco Systems to develop an interoperable DOCSIS-compliant two-way cable modem network using the Company's cable modems. - STRATEGIC INVESTMENTS. The Company has made investments in certain companies that it believes bring strategic value in support of the Company's business strategy. These investments include an approximately 5% interest in Broadcom Corporation, a leading developer of highly integrated silicon solutions that enable broadband transmission of video and high-speed data, and a 7.6% interest in Wink Communications, Inc., a provider of an enhanced television broadcasting system that adds interactivity and electronic commerce opportunities to traditional television programming and advertising. BUSINESS UNITS The Company is presently organized into four strategic business units: Digital Network Systems, Advanced Network Systems, Transmission Network Systems and Satellite Data Network Systems. DIGITAL NETWORK SYSTEMS. The Company is the world's leading supplier of secure interactive digital cable television delivery systems. The principal products of this business unit are: (i) individual network elements, including consumer set-top terminals and various video, audio and data processing equipment used in cable operators' headends; (ii) computer equipment, software and services for securing programming content, downloading software applications to consumer set-top terminals, authorizing individual subscriber services, enabling network management and providing interfaces to cable operators' billing systems; and (iii) system integration services for the custom assembly and test of Company and third-party hardware and software elements. North American cable operators began deploying commercial services using the Company's interactive digital delivery systems in 1996. As of June 30, 1998, the Company had shipped approximately 600 digital headend systems throughout North America, passing approximately 28 million homes, and over 1.4 million digital cable and wireless set-top terminals. In addition, the Company's digital business is in the early stages of expanding into regions beyond North America such as Europe, the Middle East, Asia/Pacific and Latin America. Digital compression technology allows cable operators to provide 6 to 12 times the number of programs per traditional channel slot than is possible using analog technology. Initial cable operator demand for the Company's digital products has been the result of the cable operators' ability to offer additional pay-per-view and other programming choices enabled by such digital compression technology, the high quality of digital video/audio, electronic program guides and the potential to offer a wide range of new interactive applications. Several cable operators are now performing trials of some of these new interactive applications such as true VOD, Internet access and e-mail. The Company's digital products are designed with an open architecture so that these new interactive software applications being developed by a number of third parties can be downloaded over the cable network to set-top terminals already installed in consumer homes. 28 All of the Company's digital cable set-top terminals utilize the digital transport stream and decode video compliant with the Motion Picture Experts Group 2 ("MPEG-2") international standard and demodulate Quadrature-Amplitute-Modulated signals compliant with International Telecommunications Union international standards. The terminals and delivery systems also use standards-based interactive communications protocols and the Company's proprietary access control technology marketed under the DigiCipher-Registered Trademark- II and MediaCipher-TM- brand names, as well as decode Dolby Digital-Registered Trademark- audio. As of June 30, 1998, the Company's digital terminal shipments have consisted of its DCT-1000 and DCT-1200 model cable terminals and DWT-1000 model wireless terminals. All of these set-top products are two-way terminals capable of real-time, interactive operation using either a built-in RF return modem or optional telephone return modem. Additionally, all of these set-top products are compatible with the existing installed base of the Company's set-top products. Such compatability enhances security, reduces operating costs and improves bandwidth utilization. The Company expects to introduce new two-way interactive set-top terminal models during the second half of 1998 and during 1999. The DVi-2000 model, which includes DVB-compliant technologies such as Musicam-Registered Trademark- audio decoding, is targeted at European and other international cable operators. The DCT-2000 model is an evolution of the DCT-1000 and DCT-1200 product line that includes a faster microprocessor, enhanced graphics and expanded application memory. The DCT-5000+ model is a high-end terminal that incorporates a built-in DOCSIS compliant cable modem, IP and a unique triple tuner architecture that ultimately will enable consumers to watch television, surf the World Wide Web and talk on a telephone simultaneously. The Company has completed definitive agreements with leading North American cable operators to supply approximately 15 million digital set-top terminals, consistent with the cable industry's OpenCable initiative, over the next three to five years, with an estimated value of $4.5 billion. The Company has issued warrants to purchase approximately 29 million shares of the Company's Common Stock to these cable operators in connection with such agreements. Included among the cable operators entitled to purchase set-top terminals from the Company under these agreements are TCI, Time Warner, MediaOne, Comcast, Cox, Adelphia, Shaw, Jones, Charter, Suburban Cable Company, Intermedia Cable and Bresnan Communications Company, with a collective subscriber base of over 46 million. In July 1998, the Company completed its acquisition from affiliates of TCI of certain physical assets and a license of associated intellectual property to enable it to provide the set-top authorization services that control the receipt of cable programming services delivered to subscribers by TCI's Headend In The Sky. The Company issued 21,356,000 shares of its Common Stock to an affiliate of TCI in exchange for this acquisition. The Company now provides national authorization services throughout the United States to TCI, its affiliates and other operators, many with relatively small individual systems that could not otherwise justify the initial capital investment required to launch a local digital headend computer control system. The Company continues to supply its internally developed DAC-6000 model controller for local and regional authorization systems solutions for individual operators with larger individual subscriber bases. ADVANCED NETWORK SYSTEMS. The Company is the world's leading provider of addressable analog set-top systems which enable cable operator control and subscriber access to a number of advanced entertainment services and features. The principal products of this business unit are consumer set-top terminals and the associated central office headend computer and processing equipment. Use of these addressable systems enables operators to provide a suite of service offerings, from pay-per-view and multiple tiers of programming services, through advanced video, audio and data entertainment services. Beginning in early 1995, the Company began shipping its latest generation CFT system, the CFT2200 interactive advanced analog system, adding a new level of service offering to the prior analog platforms. The CFT2200 two-way interactive advanced analog terminal provides cable operators with 29 the most complete set of functionality available today over an analog platform, including Internet access, interactive programming guides, CD-quality music, NVOD, supplemental sports and entertainment information and local information-on-demand. The Company shipped approximately 1.6 million CFT advanced analog terminals for the six months ended June 30, 1998 and approximately 3.2 million CFT advanced analog terminals for the year ended December 31, 1997. The Company provides addressable analog set-top systems throughout the world, and is the market leader in North and South America, Europe, and Asia with the CFT advanced platform. Market share in the U.S. analog addressable market has exceeded 50% for the last several years, both in the traditional and advanced product segments. While management expects that the Company's advanced analog cable products will continue to meet cable and wireless operator demands worldwide for several years, due to the anticipated increased availability and use of digital cable products, the Company expects that demand in North America for its traditional analog cable products will continue to decline. TRANSMISSION NETWORK SYSTEMS. The Company's transmission products provide end-to-end solutions that enable the transformation of the traditional cable television network to a two-way, fiber-rich, high speed voice/video/data network. Transmission products include headend signal processing equipment, distribution amplifiers, fiber optic transmission equipment and passive components for wired television distribution systems. The Company's management expects cable television operators in the United States and abroad to continue to upgrade their basic networks and invest in new system capacity primarily to compete with other television programming sources, such as DTH, as well as to capitalize on the rapid growth in demand for high-speed Internet access. Further opportunities exist internationally where cable penetration is low and demand for both entertainment and high speed internet access is growing. SATELLITE DATA NETWORK SYSTEMS. The Company is a leading provider of digital satellite television systems for programmers, DTH satellite network providers and private networks for business communications and distance learning. It offers a broad product line of digital compression and transmission systems including MPEG-2, DVB and Advanced Television Systems Committee compliant solutions. The Company is also a leader in the development of high-speed data networks. DIGITAL AND ANALOG SATELLITE PRODUCTS. The Company designs, manufactures and sells analog and digital satellite uplink and downlink products for commercial and consumer use. Using the Company's DigiCipher II digital technology, commercial customers are able to compress their video, audio and data transmissions resulting in significant cost savings over traditional analog transmission. The Company also offers state-of-the-art network management and access control products and services allowing program packagers to efficiently and cost-effectively manage customer transactions and securely transmit their programming to only authorized end-users. The Company is the leading manufacturer of access control and scrambling and descrambling equipment used by television programmers for the satellite distribution of proprietary programming. The Company is the sole supplier of digital satellite receivers and digital satellite encoders to DTH provider PRIMESTAR and a leading supplier of digital satellite encoders for DTH provider DIRECTV-Registered Trademark-. The Company is also a leading supplier of digital satellite systems to private networks for such applications as business communications and distance learning. The analog satellite products of the Company are the exclusive systems for the distribution of encrypted C-band (large dish) satellite-delivered programming to cable television operators and large-diameter backyard satellite dish owners. Sales of analog consumer descramblers have declined, as expected, to minimal levels over the past two years, and are expected to continue to decline as a result of the availability of competing digital satellite video services. The Company introduced its first digital descramblers for the backyard C-band market in 1997. This product, called 4DTV-Registered Trademark-, allows C-band dish owners to take advantage of the wealth of digital programming now being transmitted by satellite. There 30 can be no assurance, however, as to the degree of market acceptance of this new product. To date, significant quantities of 4DTV have not been shipped. HIGH SPEED DATA NETWORKS. The Company's management believes that the rapid growth in personal computer ownership and, in particular, usage of on-line and Internet access services, has created a demand for increased data transmission speeds. The Company's high-speed cable modem is capable of delivering information through the cable television network at speeds significantly faster than a traditional telephone modem, while delivering instructions and other information upstream from the consumer over telephone lines. The Company has become the first company to market cable modems with a major national computer retailer--CompUSA. In addition, in anticipation of mass distribution of standardized cable modems, the Company has entered into a working relationship with Cisco Systems to develop an interoperable DOCSIS-compliant two-way cable modem network using the Company's cable modems. NEXT LEVEL COMMUNICATIONS, L.P. The Partnership is a leading provider of next-generation integrated full service DLC and FTTC systems for the delivery of telephony, video and data for local telephone companies, including Bell Atlantic and U S West. The Partnership's product, NLevel(3), is designed to permit the cost effective delivery of a suite of standard telephony and advanced services, including high-speed data/Internet, distance learning, VOD and video telephony, to the home from a single access platform. In the fourth quarter of 1996, NLC entered into an agreement with a subsidiary of NYNEX Corporation, now Bell Atlantic, pursuant to which the Partnership will supply its NLevel(3) system for one million lines of telephone service in metropolitan New York City and Boston. Initial deployment for the greater Boston area began in the first quarter of 1997. Bell Atlantic also has options to extend its deployment of the NLevel(3) system to up to five million lines. In the third quarter of 1997 NLC entered into an agreement with U S West, pursuant to which the Partnership will supply its NLevel(3) system for 450,000 lines of broadband xDSL access. In addition, in July 1998, U S West selected the Partnership to supply DLC and FTTC systems for the delivery of broadband video, high-speed data/Internet, and basic telephone services. In January 1998, the Company transferred the business of NLC, including its net assets, principally technology, and its management and workforce to the Partnership in exchange for approximately an 89% limited partnership interest (subject to additional dilution). An entity controlled by Spencer Trask & Co., the operating general partner, acquired approximately an 11% interest in the Partnership and has the potential to acquire up to an additional 11% in the future. Pursuant to an agreement entered into in July 1998, the Company has agreed to make an additional $50 million equity investment in the Partnership, expected to occur on or after November 1, 1998, which will increase its limited partnership interest to more than 90%. Pursuant to the partnership agreement, the operating general partner controls the Partnership and is responsible for developing the business plan and infrastructure necessary to position the Partnership as a stand-alone company. 31 MANAGEMENT BOARD OF DIRECTORS OF THE COMPANY Set forth below, in alphabetical order, are the persons who currently serve as directors of the Company, each of whom has served since the Distribution. Theodore J. Forstmann intends to resign as a director in conjunction with, and prior to the consummation of, the Offering.
TERM NAME AGE EXPIRES POSITION - ----------------------------------- --- ----------- ----------------------------------- Edward D. Breen.................... 42 2001 Chairman of the Board, President and Chief Executive Officer John Seely Brown................... 58 1999 Director Frank M. Drendel................... 53 1999 Director Lynn Forester...................... 44 1999 Director Theodore J. Forstmann.............. 58 2000 Director Alex J. Mandl...................... 54 2001 Director J. Tracy O'Rourke.................. 63 2000 Director
Edward D. Breen became Chairman of the Board, President and Chief Executive Officer of the Company in December 1997, after having served as Acting Chief Executive Officer and President since October 1997. He was President of the Distributing Company's Broadband Networks Group from February 1996 and Vice President of the Distributing Company from November 1994 until July 1997. He continued in such positions for the Company through October 1997. He was Executive Vice President, Terrestrial Systems of the Distributing Company from October 1994 to January 1996 and Senior Vice President of Sales of the Distributing Company from June 1988 to October 1994. He is a director of CommScope. John Seely Brown was a director of the Distributing Company from July 1993 to July 1997. He has been Chief Scientist of Xerox Corporation ("Xerox") since 1992 and Corporate Vice President of Xerox since 1990. He is also the director of the Xerox Palo Alto Research Center. He is a Fellow of the American Association for Artificial Intelligence and a member of the National Academy of Education. He is a director of Corning, Inc. and Varian Associates, Inc. Frank M. Drendel was a director of the Distributing Company from March 1992 until July 1997 and was a director of General Instrument Corporation of Delaware, Inc. ("GI Delaware"), a subsidiary of the Distributing Company, and its predecessors from 1987 to March 1992. He has served as Chairman and Chief Executive Officer of CommScope since July 1997, Chairman and President of CommScope, Inc. of North Carolina ("CommScope NC") from 1986 to July 1997, and Chief Executive Officer of CommScope NC since 1976. Lynn Forester was a director of the Distributing Company from February 1995 until July 1997. She has been President and Chief Executive Officer of FirstMark Holdings, Inc. since 1984. From 1989 to December 1994, she was Chairman and Chief Executive Officer of TPI Communications International, Inc., a radio common carrier and paging company. She is a director of Gulfstream Aerospace Corporation and Vice Chairman of the Corporate Commission on Educational Technology. Theodore J. Forstmann was a director of GI Delaware from August 1990 to March 1992, and was a director of the Distributing Company from March 1992 until July 1997. He has been a General Partner of FLC Partnership, L.P., the General Partner of Forstmann Little, since he co-founded Forstmann Little in 1978. He is Chairman of the Board of Gulfstream Aerospace Corporation. Alex J. Mandl was a director of the Distributing Company from December 1996 until July 1997. Mr. Mandl is Chairman and Chief Executive Officer of Teligent, Inc. He was Chairman and Chief Executive Officer of Associated Communications, the predecessor of Teligent, Inc., from September 1996 until 32 June 1997; Mr. Mandl served with AT&T, as President and Chief Operating Officer from January 1996 to August 1996; from 1993 to 1995, as Executive Vice President of AT&T and Chief Executive Officer of AT&T Communications Services Group; and from 1991 to 1993, as Chief Financial Officer and Group Executive of AT&T. He is a director of Warner-Lambert Company, Carnegie Hall and WETA-TV-FM Washington. J. Tracy O'Rourke was a director of GI Delaware from September 1990 to March 1992, and was a director of the Distributing Company from March 1992 until July 1997. He has been Chairman and Chief Executive Officer of Varian Associates, Inc., a manufacturer of health care systems, semiconductor manufacturing equipment and analytical instruments, since 1990. He is a director of National Semiconductor Corp. EXECUTIVE OFFICERS Set forth below are the persons who currently serve as executive officers of the Company.
NAME AGE POSITION - ------------------------------------------ --- ------------------------------------------ Edward D. Breen....................... 42 Chairman of the Board, President and Chief Executive Officer Robert D. Cromack..................... 55 Senior Vice President, Manufacturing and Procurement Scott A. Crum......................... 42 Senior Vice President, Administration and Employee Resources Thomas J. Lynch....................... 43 Senior Vice President and General Manager, Satellite Data Network Systems Daniel M. Moloney..................... 39 Senior Vice President and General Manager, Advanced Network Systems Eric M. Pillmore...................... 45 Senior Vice President, Finance and Chief Financial Officer G. Bickley Remmey, III................ 39 Senior Vice President and General Manager, Transmission Network Systems David E. Robinson..................... 39 Senior Vice President and General Manager, Digital Network Systems Geoffrey S. Roman..................... 46 Executive Vice President Marc E. Rothman....................... 33 Vice President and Controller Robert A. Scott....................... 48 Senior Vice President, Legal and Secretary Richard C. Smith...................... 53 Executive Vice President and Treasurer Keith A. Zar.......................... 44 Senior Vice President and General Counsel
Edward D. Breen became Chairman of the Board, President and Chief Executive Officer of the Company in December 1997, after having served as Acting Chief Executive Officer and President since October 1997. He has held various positions with the Company and the Distributing Company since 1978. Robert D. Cromack became Senior Vice President, Manufacturing and Procurement of the Company in October 1997 and was elected as an executive officer in such position in April 1998. He has held various positions with the Company and the Distributing Company since 1966. Scott A. Crum became Senior Vice President, Administration and Employee Resources of the Company in April 1998, and from December 1997 to April 1998 he was Vice President, Administration and Employee Resources of the Company. He has held various positions with the Company and the Distributing Company since 1995. 33 Thomas J. Lynch became Senior Vice President and General Manager, Satellite Data Network Systems of the Company in April 1998. He was Vice President and General Manager, Satellite Data Networks Systems of the Company from October 1997 to April 1998. He has held various positions with the Company and the Distributing Company since 1982. Daniel M. Moloney became Senior Vice President and General Manager, Advanced Network Systems of the Company in April 1998. He became Vice President and General Manager, Advanced Network Systems of the Distributing Company's Advanced Network Systems business unit in August 1995 and continued in that position with the Company after the Distribution until April 1998. He has held various positions with the Company and the Distributing Company since 1983. Eric M. Pillmore became Senior Vice President, Finance and Chief Financial Officer of the Company in April 1988, and from December 1997 to April 1998 he was Acting Chief Financial Officer and Vice President, Finance of the Company. Previously, he was Vice President, Finance of the Communications division of the Distributing Company from the time he joined the Distributing Company in 1996 until December 1997. G. Bickley Remmey, III became Senior Vice President and General Manager, Transmission Network Systems of the Company in April 1998. He became Vice President and General Manager, Transmission Network Systems business unit of the Company in October 1997. He has held various positions with the Company and the Distributing Company since 1987. David E. Robinson became Senior Vice President and General Manager, Digital Network Systems of the Company in April 1998. He became Vice President and General Manager, Digital Network Systems of the Distributing Company's Digital Network Systems business unit in November 1995 and continued in that position with the Company after the Distribution until April 1998. He has held various positions with the Company and the Distributing Company from 1983 to 1993 and since 1995. Geoffrey S. Roman became Executive Vice President of the Company in April 1998, and from July 1997 to April 1998 he was Vice President of the Company. He has held various positions with the Company and the Distributing Company since 1982. Marc E. Rothman became Vice President and Controller of the Company in July 1998. He became Deputy Corporate Controller when he joined the Distributing Company in February 1995 and continued in that position with the Company after the Distribution until July 1998. Robert A. Scott became Senior Vice President, Legal and Secretary of the Company in April 1998, and from December 1997 to April 1998 he was Vice President, Legal and Secretary of the Company. He has held various positions with the Company and the Distributing Company since 1992. Richard C. Smith became Executive Vice President and Treasurer of the Company in April 1998, and from July 1997 to April 1998 he was Vice President, Business Development and Treasurer of the Company. He has held various positions with the Company and the Distributing Company since 1983. Keith A. Zar became Senior Vice President and General Counsel of the Company in April 1998, and from July 1997 to April 1998 he was Vice President and General Counsel of the Company. Previously, he was Assistant General Counsel from the time he joined the Distributing Company in 1993 until July 1997. 34 SELLING STOCKHOLDERS Forstmann Little & Co. Subordinated Debt and Equity Management Buyout Partnership-IV ("MBO-IV") and Instrument Partners, two partnerships formed by affiliates of Forstmann Little, currently own an aggregate of 21,708,665 shares of Common Stock (approximately 12.5% of the outstanding shares of Common Stock as of July 31, 1998). Prior to the closing of the Offering, Instrument Partners will consummate the FL Distribution, by distributing 11,547,008 shares of Common Stock to its individual partners, in accordance with the terms of its partnership agreement. The shares of Common Stock to be sold in this Offering consist of shares owned by MBO-IV and shares received in the FL Distribution by certain partners of Instrument Partners or their subsequent distributees. Following the consummation of the Offering, MBO-IV and Instrument Partners will no longer own any shares of Common Stock of the Company. The Company has entered into an agreement, dated , 1998, with the Selling Stockholders pursuant to which it has agreed to repurchase from the Selling Stockholders 2,550,000 shares of Common Stock, less the amount of any shares sold pursuant to the Underwriters' over-allotment option, at a price per share equal to the net proceeds per share to the Selling Stockholders in the Offering. The following table sets forth certain information as of July 15, 1998 regarding the beneficial ownership of Common Stock (i) immediately prior to the consummation of the Offering (assuming the FL Distribution had occurred), and (ii) as adjusted to reflect the sale of the shares of Common Stock pursuant to the Offering by each Selling Stockholder participating in the Offering. Except as otherwise indicated, the persons or entities listed below have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them, except to the extent such power may be shared with a spouse. None of the Selling Stockholders has held a position or office or had a material relationship with the Company since the Distribution other than as a result of the ownership of shares of Common Stock or interests in MBO-IV or Instrument Partners.
NUMBER OF SHARES NUMBER OF SHARES BENEFICIALLY PERCENTAGE NUMBER OF BENEFICIALLY OWNED BEFORE BEFORE THE SHARES BEING OWNED AFTER NAME THE OFFERING(1) OFFERING(1)(2) OFFERED(1)(3) THE OFFERING(1) - ---------------------------------------- ------------------- ------------------- --------------- ------------------- MBO-IV.................................. 10,161,657 5.9% 10,161,657 -- Bankers Trust Company as Trustee for the GTE Service Corporation Plans for Employees' Pensions(5)................ 228,397 * 228,397 -- Boston Safe Deposit and Trust Company as Trustee for the Employee Retirement Income Plan Trust of Minnesota Mining and Manufacturing Company(5).......... 721,019 * 228,397 492,622 Citibank F.S.B., solely as Directed Trustee of the Delta Master Trust(5).............................. 423,397 * 228,397 195,000 General Electric Pension Trust(5)....... 2,349,794 1.4 2,283,966 65,828 Kodak Retirement Income Plan(5)......... 228,397 * 228,397 -- Leeway & Co. c/o State Street Bank & Trust Company(5)...................... 276,376 * 274,076 2,300 New York State Common Retirement Fund(5)............................... 685,190 * 685,190 -- PERCENTAGE AFTER THE NAME OFFERING (1)(2)(4) - ---------------------------------------- --------------------- MBO-IV.................................. -- Bankers Trust Company as Trustee for the GTE Service Corporation Plans for Employees' Pensions(5)................ -- Boston Safe Deposit and Trust Company as Trustee for the Employee Retirement Income Plan Trust of Minnesota Mining and Manufacturing Company(5).......... * Citibank F.S.B., solely as Directed Trustee of the Delta Master Trust(5).............................. * General Electric Pension Trust(5)....... -- Kodak Retirement Income Plan(5)......... -- Leeway & Co. c/o State Street Bank & Trust Company(5)...................... * New York State Common Retirement Fund(5)............................... --
35
NUMBER OF SHARES NUMBER OF SHARES BENEFICIALLY PERCENTAGE NUMBER OF BENEFICIALLY OWNED BEFORE BEFORE THE SHARES BEING OWNED AFTER NAME THE OFFERING(1) OFFERING(1)(2) OFFERED(1)(3) THE OFFERING(1) - ---------------------------------------- ------------------- ------------------- --------------- ------------------- Northern Trust Company as Trustee for the TI Employees Pension Trust(5)..... 228,397 * 228,397 -- State of Wisconsin Investment Board(5).............................. 528,397 * 228,397 300,000 United Technologies Corporation Master Retirement Trust(5)................... 182,718 * 182,718 -- Additional Selling Stockholders receiving shares in the FL Distribution (approximately 50 persons), each of whom is selling less than shares in the Offering and will beneficially own less than 1% of the outstanding Common Stock after the Offering(5)........................... 6,750,676 3.9% 4,592,011 2,158,665 PERCENTAGE AFTER THE NAME OFFERING (1)(2)(4) - ---------------------------------------- --------------------- Northern Trust Company as Trustee for the TI Employees Pension Trust(5)..... -- State of Wisconsin Investment Board(5).............................. * United Technologies Corporation Master Retirement Trust(5)................... -- Additional Selling Stockholders receiving shares in the FL Distribution (approximately 50 persons), each of whom is selling less than shares in the Offering and will beneficially own less than 1% of the outstanding Common Stock after the Offering(5)........................... 1.2%
- -------------------------- * The percentage of shares of Common Stock beneficially owned does not exceed one percent of the outstanding shares of Common Stock. (1) For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares of Common Stock that such person or persons has the right to acquire within 60 days following July 15, 1998. For purposes of computing the percentage of outstanding shares of Common Stock held by each person or group of persons named above, any shares which such person or persons has or have the right to acquire within 60 days following July 15, 1998 are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. (2) Based on 173,238,021 shares outstanding on July 31, 1998. (3) Assumes that the Underwriters' over-allotment option is exercised in full by the Underwriters or that the Company Repurchase occurs. (4) Assumes that the Underwriters' over-allotment option is exercised in full by the Underwriters and that the Company Repurchase does not occur. (5) All shares numbers and percentages are estimated and will be determined at the time of the FL Distribution. 36 DESCRIPTION OF CAPITAL STOCK GENERAL Pursuant to the Restated Certificate of Incorporation of the Company, the authorized capital stock of the Company consists of (i) 400,000,000 shares of Common Stock, of which 173,238,021 shares were issued and outstanding as of July 31, 1998 and (ii) 20,000,000 shares of preferred stock, $.01 par value per share ("Preferred Stock"), none of which were issued and outstanding as of such date. COMMON STOCK Each holder of Common Stock is entitled to one vote for each share owned of record on all matters submitted to a vote of stockholders. There are no cumulative voting rights. Accordingly, the holders of a majority of the shares voting for the election of directors can elect all the directors if they choose to do so, subject to any voting rights of holders of Preferred Stock to elect directors. Subject to the preferential rights of any outstanding series of Preferred Stock, and to any restrictions on payment of dividends imposed by the Credit Agreement, the holders of Common Stock will be entitled to such dividends as may be declared from time to time by the Board from funds legally available therefor, and will be entitled, after payment of all prior claims, to receive PRO RATA all assets of the Company upon the liquidation, dissolution or winding up of the Company. Holders of Common Stock have no redemption or conversion rights or preemptive rights to purchase or subscribe for securities of the Company. Certain provisions of the Certificate of Incorporation and By-Laws of the Company have the effect of making more difficult an acquisition of control of the Company in a transaction not approved by the Board of Directors. PREFERRED STOCK The authorized capital stock of the Company includes 20,000,000 shares of Preferred Stock, none of which are currently issued or outstanding. The Board is authorized to divide the Preferred Stock into series and, with respect to each series, to determine the preferences and rights and the qualifications, limitations or restrictions thereof, including the dividend rights, conversion rights, voting rights, redemption rights and terms, liquidation preferences, sinking fund provisions, the number of shares constituting the series and the designation of such series. The Board could, without stockholder approval, issue Preferred Stock with voting and other rights that could adversely affect the voting power of the holders of Common Stock and which could have certain antitakeover effects. In connection with the Rights Plan (as defined below), the Board has authorized 400,000 shares of Series A Junior Participating Preferred Stock (the "Series A Preferred"). No shares of Series A Preferred are outstanding. For a description of the rights, powers and preferences of the Series A Preferred, see "--Rights Plan." RIGHTS PLAN On June 10, 1997, the Board adopted a stockholder rights plan (the "Rights Plan") pursuant to which one right (collectively, the "Rights") to purchase one one-thousandth of a share of Series A Preferred would be distributed as a dividend for each outstanding share of Common Stock at a purchase price of $85.00 per one one-thousandth of a share of Series A Preferred, subject to adjustment. The Rights are issuable on the terms and subject to the conditions set forth in the Rights Plan. The Rights will expire no later than on the tenth anniversary of the adoption of the Rights Plan in 2007. The Rights will be exercisable on the earlier to occur of (i) the first date of public announcement that a person or "group" (other than FLC Entities (as defined below) to the extent FLC Entities, individually or as a group, beneficially own no more than 20% of the then outstanding Common Stock) has acquired beneficial ownership of 15% or more of the outstanding Common Stock (except pursuant to a Permitted Offer, as defined in the Rights Plan) (an "Acquiring Person"); and (ii) ten business days (or such later date as the Board may determine) following the commencement of, or announcement of an intention to commence, 37 a tender offer or exchange offer the consummation of which would result in a person or group becoming an Acquiring Person. On December 16, 1997, in connection with the transactions (the "Transaction") between affiliates of TCI and the Company, the Rights Plan was amended to provide that, for so long as (i) TCI and its subsidiaries do not acquire beneficial ownership of any Common Stock other than pursuant to the Transaction, or (ii) after giving effect to the acquisition of the beneficial ownership of any Common Stock by TCI or a subsidiary of TCI other than pursuant to the Transaction, the shares of Common Stock beneficially owned by TCI and its subsidiaries in the aggregate do not exceed 35% of the then outstanding shares of Common Stock, TCI and its subsidiaries shall not constitute an Acquiring Person for purposes of the Rights Plan. "FLC Entities" means Instrument Partners, MBO-IV, Theodore J. Forstmann, Nicholas C. Forstmann, Wm. Brian Little, Steven B. Klinsky, Sandra J. Horbach, Winston W. Hutchins and Thomas H. Lister and their affiliates and associates who or which are considered as one person and references to the FLC Entities include any or all such persons. If any person or group becomes an Acquiring Person or commences a tender offer upon consummation of which such person or group would become an Acquiring Person, each Right not owned by such Acquiring Person or certain related parties would entitle its holder to purchase, at the Right's then current exercise price, shares of Common Stock, or, in the discretion of the Board, the number of one one-thousandths of a share of Series A Preferred having a value of twice the Right's exercise price. In addition, if, after a person or group becomes an Acquiring Person, the Company is involved in a merger or other business combination transaction in which the holders of all of the outstanding Common Stock immediately prior to the consummation of the transaction are not the holders of the surviving corporation's voting power or more than 50% of the Company's assets or earning power is sold or transferred, each Right will entitle its holder to purchase common shares of the acquiring company having a value equal to two times the Right's then current exercise price. The purchase price payable, and the shares issuable, upon exercise of the Rights will be subject to adjustment from time to time as specified in the Rights Plan. The Company will generally be entitled to redeem the Rights in whole, but not in part, at $0.01 per Right at any time prior to the earlier to occur of (i) a person becoming an Acquiring Person or (ii) expiration of the Rights. Shares of Series A Preferred purchasable upon exercise of the Rights will not be redeemable. Each Share of Series A Preferred will be entitled to a minimum preferential quarterly dividend payment of $10.00 per share but, if greater, will be entitled to an aggregate dividend per share of 1,000 times the dividend declared per share of Common Stock. In the event of liquidation of the Company, the holders of Series A Preferred will be entitled to a minimum preferential liquidation payment of $100.00, provided that they will be entitled to an aggregate payment per share of at least 1,000 times the aggregate payment made per share of Common Stock. Each share of Series A Preferred will have one thousand votes, voting together with the Common Stock. These rights are protected by customary antidilution provisions. In the event that the amount of accrued and unpaid dividends on the Series A Preferred is equivalent to at least six full quarterly dividends, the holders of the Series A Preferred will have the right, voting as a class, to elect two directors in addition to the directors elected by the holders of Common Stock until all dividends in default on the Series A Preferred have been paid in full and dividends for the current dividend period declared and funds therefor set apart. TRANSFER AGENT The Transfer Agent for the Common Stock is ChaseMellon Shareholder Services, L.L.C. 38 VALIDITY OF COMMON STOCK The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional corporations), One New York Plaza, New York, New York 10004-1980, and for the Underwriters by Sullivan & Cromwell, 125 Broad Street, New York, New York 10004. Fried, Frank, Harris, Shriver & Jacobson renders legal services to Forstmann Little on a regular basis. EXPERTS The consolidated financial statements and the related financial statement schedule, incorporated in this Prospectus by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1997, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports, which are incorporated herein by reference and have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. 39 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Selling Stockholders have agreed to sell to each of the Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Lazard Freres & Co. LLC are acting as representatives, has severally agreed to purchase from the Selling Stockholders, the respective number of shares of Common Stock set forth opposite its name below:
NUMBER OF SHARES OF UNDERWRITERS COMMON STOCK - ----------------------------------------------------------- ------------------- Goldman, Sachs & Co........................................ Merrill Lynch, Pierce, Fenner & Smith Incorporated..................................... Lazard Freres & Co. LLC.................................... ------------------- Total.................................................. 17,000,000 ------------------- -------------------
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all of the shares offered hereby, if any are taken. The Underwriters propose to offer the shares of Common Stock in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus and in part to certain securities dealers at such price less a concession of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain brokers and dealers. After the shares of Common Stock are released for sale to the public, the offering price and other selling terms may from time to time be varied by the representatives. The Selling Stockholders have granted the Underwriters an option exercisable for 30 days after the date of this Prospectus to purchase, at the initial public offering price per share less any underwriting discount as set forth on the cover page of this Prospectus, up to an aggregate of 2,550,000 additional shares of Common Stock to cover over-allotments, if any. If the Underwriters exercise their over-allotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares to be purchased by each of them, as shown in the foregoing table, bears to the 17,000,000 shares of Common Stock offered. The Company and the Selling Stockholders have agreed that, during the period beginning from the date of this Prospectus and continuing to and including the date 90 days after the date of the Prospectus, they will not offer, sell, contract to sell or otherwise dispose of any securities of the Company which are substantially similar to the shares of Common Stock or which are convertible into or exchangeable for securities which are substantially similar to the shares of Common Stock without the prior written consent of the representatives, except for the shares of Common Stock offered in connection with the Offering, certain permitted transactions by the Company and certain permitted transfers by the Selling Stockholders who would agree to abide by the foregoing restrictions. The Company and the Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act. In connection with the Offering, the Underwriters may purchase and sell the Common Stock in the open market. These transactions may include over-allotment and stabilizing transactions and purchases to cover syndicate short positions created in connection with the Offering. Stabilizing transactions consist of certain bids or purchases for the purpose of preventing or retarding a decline in the market price of the Common Stock; and syndicate short positions involve the sale by the Underwriters of a greater number of shares of Common Stock than they are required to purchase from the Selling Stockholders in the Offering. The Underwriters also may impose a penalty bid, whereby selling U-1 concessions allowed to syndicate members or other broker-dealers in respect of the Common Stock sold in the Offering for their account may be reclaimed by the syndicate if such shares of Common Stock are repurchased by the syndicate in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the Common Stock which may be higher than the price that might otherwise prevail in the open market, and these activities, if commenced, may be discontinued at any time. These transactions may be effected on the NYSE, in the over-the-counter market or otherwise. U-2 [Pictures depicting certain of the Company's analog set-top terminals and certain television screen images.] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------ TABLE OF CONTENTS
PAGE ----- Available Information................. 3 Incorporation of Certain Documents by Reference........................... 3 Prospectus Summary.................... 5 Risk Factors.......................... 11 Use of Proceeds....................... 15 Price Range of Common Stock and Dividend Policy..................... 15 Capitalization........................ 16 Selected Financial Data............... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 19 Business.............................. 26 Management............................ 32 Selling Stockholders.................. 35 Description of Capital Stock.......... 37 Validity of Common Stock.............. 39 Experts............................... 39 Underwriting.......................... U-1
17,000,000 SHARES GENERAL INSTRUMENT CORPORATION COMMON STOCK (PAR VALUE $.01 PER SHARE) ------------------------ [LOGO] ------------------------ GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. LAZARD FRERES & CO. LLC REPRESENTATIVES OF THE UNDERWRITERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is an itemized statement of expenses of the Company in connection with the offering of the Common Stock being registered hereby, other than underwriting discounts and commissions. All of the expenses are estimated, except for the registration fee. Securities and Exchange Commission registration fee............. $ 166,105 NASD fees (actual).............................................. 30,500 Transfer agent and registrar fee and expenses................... 18,250 Accounting fees and expenses.................................... 75,000 Legal fees and expenses......................................... 400,000 Blue Sky expenses and counsel fees.............................. 5,000 Printing and engraving expenses................................. 160,000 Miscellaneous................................................... 45,145 ---------- Total........................................................... $ 900,000 ---------- ----------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law (the "DGCL") provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement in connection with specified actions, suits, or proceedings whether civil, criminal, administrative, or investigative, other than action by or in the right of the corporation (a "derivative action"), if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses (including attorneys' fees) incurred in connection with the defense or settlement of such action, and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation's charter, by-laws, disinterested director vote, stockholder vote, agreement, or otherwise. Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for (i) any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) payment of unlawful dividends or unlawful stock purchases or redemptions, or (iv) any transaction from which the director derived an improper personal benefit. Article Sixth of the Restated Certificate of Incorporation of the Company provides that directors of the Company shall not, to the fullest extent permitted by the DGCL, be liable to the Company or any of its stockholders for monetary damages for any breach of fiduciary duty as director. The Certificate of Incorporation of the Company also provides that if the DGCL is amended to permit further elimination or II-1 limitation of the personal liability of directors, then the liability of the directors of the Company shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended. The Company has entered into agreements to indemnify its directors and officers in addition to the indemnification provided for in its Restated Certificate of Incorporation and Amended and Restated By-Laws. These agreements, among other things, indemnify the Company's directors and officers to the fullest extent permitted by Delaware law for certain expenses (including attorneys' fees), liabilities, judgments, fines and settlement amounts incurred by such person arising out of or in connection with such person's service as a director or officer of the Company or an affiliate of the Company. The Company will maintain directors' and officers' liability insurance which will provide for payment, on behalf of the directors and officers thereof and its subsidiaries, of certain losses of such persons (other than matters uninsurable under law) arising from claims, including claims arising under the Securities Act, for acts or omissions by such persons while acting as directors or officers thereof and/or its subsidiaries, as the case may be. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NUMBER DESCRIPTION --------------- -------------------------------------------------------------------------------- 1 -- Form of Underwriting Agreement 4.1* -- Restated Certificate of Incorporation of the Company 4.2* -- Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock 4.3* -- Amended and Restated By-Laws of the Company 4.4** -- Rights Agreement, dated as of June 12, 1997 between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights Agreement"), which includes, as Exhibit B thereto, the Form of Right Certificate and as Exhibit C thereto, the Summary of Rights to Purchase Preferred Shares 4.5*** -- Amendment, dated as of December 16, 1997, to the Rights Agreement 4.6**** -- Form of Warrant Issuance Agreement 4.7 -- Specimen form of the Company's Common Stock Certificate 5 -- Opinion of Fried, Frank, Harris, Shriver & Jacobson as to the validity of the securities being registered 10 -- Form of Stock Disposition Agreement 23.1 -- Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5) 23.2 -- Independent Auditors' Consent of Deloitte & Touche LLP 24 -- Power of Attorney (included on signature page)
II-2 ------------------------ * Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1998 (File No. 001-12925) ** Incorporated herein by reference from the Company's Registration Statement on Form 8-A, filed with the Commission on June 30, 1997 (File No. 001-12925) *** Incorporated herein by reference from the Company's Current Report on Form 8-K dated as of December 17, 1997 (File No. 001-12925) **** Incorporated herein by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 001-12925)
All supporting schedules have been omitted either because they are not required or the information required to be set forth therein is included in the financial statements or in the notes thereto. ITEM 17. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (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 the undertakings set forth in paragraphs (1)(i) and (ii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit II-3 plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (c) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (d) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act 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 Registration Statement to be signed on its behalf by the undersigned, thereunder duly authorized, in the City of Horsham, State of Pennsylvania, on August 24, 1998. GENERAL INSTRUMENT CORPORATION BY: /S/ EDWARD D. BREEN ----------------------------------------- Edward D. Breen CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Edward D. Breen and Robert A. Scott, and each or any of them, his or her true and lawful attorneys-in-fact and agents, each acting alone, with full powers of substitution and resubstitution, for such person and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE CAPACITY IN WHICH SIGNED DATE - ------------------------------ --------------------------- ------------------- Chairman of the Board, /s/ EDWARD D. BREEN President and Chief - ------------------------------ Executive Officer August 24, 1998 Edward D. Breen (Principal Executive Officer) Senior Vice President, /s/ ERIC M. PILLMORE Finance and Chief - ------------------------------ Financial Officer August 24, 1998 Eric M. Pillmore (Principal Financial Officer) /s/ MARC E. ROTHMAN Vice President and - ------------------------------ Controller (Principal August 24, 1998 Marc E. Rothman Accounting Officer) /s/ JOHN SEELY BROWN Director - ------------------------------ August 24, 1998 John Seely Brown /s/ FRANK M. DRENDEL Director - ------------------------------ August 24, 1998 Frank M. Drendel /s/ LYNN FORESTER Director - ------------------------------ August 24, 1998 Lynn Forester /s/ THEODORE J. FORSTMANN Director - ------------------------------ August 24, 1998 Theodore J. Forstmann /s/ ALEX J. MANDL Director - ------------------------------ August 24, 1998 Alex J. Mandl /s/ J. TRACY O'ROURKE Director - ------------------------------ August 24, 1998 J. Tracy O'Rourke II-5 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE - --------------- ----------------------------------------------------------------------------------- ----------- 1 -- Form of Underwriting Agreement 4.1* -- Restated Certificate of Incorporation of the Company 4.2* -- Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock 4.3* -- Amended and Restated By-Laws of the Company 4.4** -- Rights Agreement, dated as of June 12, 1997 between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights Agreement"), which includes, as Exhibit B thereto, the Form of Right Certificate and as Exhibit C thereto, the Summary of Rights to Purchase Preferred Shares 4.5*** -- Amendment, dated as of December 16, 1997, to the Rights Agreement 4.6**** -- Form of Warrant Issuance Agreement 4.7 -- Specimen form of the Company's Common Stock Certificate 5 -- Opinion of Fried, Frank, Harris, Shriver & Jacobson as to the validity of the securities being registered 10 -- Form of Stock Disposition Agreement 23.1 -- Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5) 23.2 -- Independent Auditors' Consent of Deloitte & Touche LLP 24 -- Power of Attorney (included on signature page)
- ------------------------ * Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1998 (File No. 001-12925) ** Incorporated herein by reference from the Company's Registration Statement on Form 8-A, filed with the Commission on June 30, 1997 (File No. 001-12925) *** Incorporated herein by reference from the Company's Current Report on Form 8-K dated as of December 17, 1997 (File No. 001-12925) **** Incorporated herein by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 001-12925) EX-1 2 EXHIBIT 1 EXHIBIT 1 General Instrument Corporation Common Stock (par value $.01 per share) ------------ Form of Underwriting Agreement ---------------------- , 19 -------------- -- Goldman, Sachs & Co., Lazard Freres & Co., LLC, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated As representatives of the several Underwriters named in Schedule I hereto, c/o Goldman, Sachs & Co. 85 Broad Street, New York, New York 10004. Ladies and Gentlemen: Certain stockholders named in Schedule II hereto (the "Selling Stockholders") of General Instrument Corporation, a corporation incorporated under the laws of the State of Delaware (the "Company"), propose, subject to the terms and conditions stated herein, to sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of _________ shares (the "Firm Shares") and, at the election of the Underwriters, up to __________ additional shares (the "Optional Shares") of Common Stock, par value $.01 per share ("Stock"), of the Company (the Firm Shares and the Optional Shares which the Underwriters elect to purchase pursuant to Section 2 hereof are herein collectively called the "Shares"). 1. (a) The Company represents and warrants to, and agrees with, each of the Underwriters that: (i) A registration statement on Form S-3 (File No. 333-______) (the "Initial Registration Statement") in respect of the Shares has been filed with the Securities and Exchange Commission (the "Commission"); the Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto but including all documents incorporated by reference in the prospectus contained therein, to you for each of the other Underwriters, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Act"), which became effective upon filing, no other document with respect to the Initial Registration Statement or document incorporated by reference therein has heretofore been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act is hereinafter called a "Preliminary Prospectus"; the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including (A) the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective or such part of the Rule 462(b) Registration Statement, if any, became or hereafter becomes effective and (B) the documents incorporated by reference in the prospectus contained in the Initial Registration Statement at the time such part of the Initial Registration Statement became effective, each as amended at the time such part of the Initial Registration Statement became effective, are hereinafter collectively called the "Registration Statement"; such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus"; any reference herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of such Preliminary Prospectus or Prospectus, as the case may be; any reference to any amendment or supplement to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include any documents filed after the date of such Preliminary Prospectus or Prospectus, as the case may be, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated by reference in such Preliminary Prospectus or Prospectus, as the case may be; and any reference to any amendment to the Registration Statement shall be deemed to refer to and include any annual report of the Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act after the effective date of the Initial Registration Statement that is incorporated by reference in the Registration Statement; (ii) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each such Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder expressly for use in the preparation of the answers therein to Item 7 of Form S-3; (iii) The documents incorporated by reference in the Prospectus, when they became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder, and none of such documents, when they became effective or were filed with the Commission, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in the Prospectus or any further amendment or supplement thereto will, when such documents become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein; 2 (iv) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder expressly for use in the preparation of the answers therein to Item 7 of Form S-3; (v) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development that may reasonably be expected to involve a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus; (vi) The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not interfere in any material respect with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere in any material respect with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries; (vii) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; (viii) The Company has no material subsidiaries; provided that, for purposes of this clause (viii), the term "material subsidiary" shall mean a "significant subsidiary", as such term is defined in Rule 1-02 of Regulation S-X; (ix) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description of the Stock contained in the Prospectus; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and (except 3 for directors' qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims, except as provided under the Credit Agreement (as defined in the Prospectus); (x) The compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, which conflict, breach, violation or default would have, or may reasonably be expected to have, a material adverse effect on the consolidated financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Act of the Shares and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; (xi) Other than as set forth or contemplated in the Prospectus (including information incorporated therein), there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which would individually or in the aggregate have, or may reasonably be expected to have, a material adverse effect on the current or future consolidated financial position, stockholders' equity or results of operations of the Company and its subsidiaries taken as a whole; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (xii) Deloitte & Touche LLP, who have certified certain financial statements of the Company and its subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; and (xiii) The Company and its subsidiaries own or possess, or own or possess adequate licenses or other rights to use, all patents and trademarks used in connection with the businesses conducted by them as described in the Prospectus, other than such patents, trademarks or licenses with respect to which the failure to own or possess, or to own or possess adequate licenses or other rights to use in connection with the businesses conducted by the Company and its subsidiaries as described in the Prospectus, individually or considered together with all such other failures, may not reasonably be expected to have, a material adverse effect on the consolidated financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole; and neither the Company nor any of its subsidiaries has received any notice of infringement of or conflict with (and knows of no such infringement of or conflict with) asserted rights of others with respect to any such patents, trademarks or licenses of the Company, which infringement or conflict, individually or considered together with all other such infringements and conflicts, would have, or may reasonably be expected to have, a material adverse effect on the consolidated financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole. 4 (b) Each of the Selling Stockholders (including MBO-IV) severally represents and warrants to, and agrees with, each of the Underwriters and the Company that: (i) All consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholder of this Agreement and the Powers of Attorney and the Custody Agreements hereinafter referred to, and for the sale and delivery of the Shares to be sold by such Selling Stockholder hereunder, have been obtained; and such Selling Stockholder has full right, power and authority to enter into this Agreement, its Power of Attorney and its Custody Agreement and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder; (ii)The sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by such Selling Stockholder with all of the provisions of this Agreement, its Power of Attorney and its Custody Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any statute, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of such Selling Stockholder if such Selling Stockholder is a corporation, the Partnership Agreement of such Selling Stockholder if such Selling Stockholder is a partnership or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder; (iii)Immediately prior to each Time of Delivery (as defined in Section 4 hereof), such Selling Stockholder will have good and valid title to the Shares to be sold by such Selling Stockholder hereunder, free and clear of all liens, encumbrances, equities or claims, except for those arising under this Agreement, its Custody Agreement and its Power of Attorney; and, upon payment therefor and the delivery to the Depository Trust Company ("DTC") or its agent of the Shares registered in the name of Cede & Co. or such other nominee designated by DTC, both as provided for herein, and the crediting of the Shares to the Underwriters' accounts with DTC, Cede & Co. or such other nominee designated by DTC will be a "protected purchaser" of the Shares (as defined in Section 8-303 of the Uniform Commercial Code as in effect in the State of New York (the "UCC")), the Underwriters will acquire a valid "security entitlement" (within the meaning of Section 8-501 of the UCC) to the Shares, and no action based on an "adverse claim" (as defined in Section 8-102 of the UCC) may be asserted against the Underwriters with respect to such security entitlement (assuming that the Underwriters are without notice of any such adverse claim); (iv) During the period beginning from the date hereof and continuing to and including the date 90 days after the date of the Prospectus, not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Shares, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities (other than any transfers to (A) any spouse, parent, child, brother or sister of such Selling Stockholder, or any issue of the foregoing (including for this purpose persons legally adopted into the line of descent), (B) a trust established solely for the benefit of such Selling Stockholder or any spouse, parent, child, brother or sister of such Selling Stockholder, or for the benefit of any issue of the foregoing, (C) any corporation or partnership which is controlled by such Selling Stockholder, or by any spouse, parent, child, brother or sister of such Selling Stockholder, or by any issue of the foregoing, (D) any charitable organization or not-for-profit corporation or, (E) if such Selling Stockholder is a partnership, its partners and other than any transfers in connection with sales by such Selling Stockholder in the open market of shares of Stock, or such substantially similar securities, that were acquired by such Selling Stockholder in the open market; provided, however, that prior 5 to each such transfer such transferee shall have entered into a letter agreement with the Underwriters agreeing to abide by the restrictions contained in this clause (iv)); (v) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares; (vi)To the extent that any statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto are made in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder expressly for use therein, such Preliminary Prospectus and the Registration Statement did, and the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus, when they become effective or are filed with the Commission, as the case may be, will, conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (vii) In order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Stockholder will deliver to you prior to or at the First Time of Delivery (as defined in Section 4 hereof) a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof); (viii) Either (A) certificates in negotiable form representing all of the Shares to be sold by such Selling Stockholder hereunder have been placed in custody under a Custody Agreement, or (B) an Effective Notice (as defined in the Custody Agreement) has been delivered to the Custodian (as defined below) irrevocably authorizing the Custodian to sell hereunder all of the Shares distributed to such Selling Stockholder by Instrument Partners, a New York limited partnership ("Instrument Partners"), prior to the First Time of Delivery, all as set forth in the Custody Agreement in the form heretofore furnished to you (the "Custody Agreement"), duly executed and delivered by such Selling Stockholder to ChaseMellon Shareholder Services, L.L.C., as custodian (the "Custodian"), and such Selling Stockholder has duly executed and delivered a Power of Attorney, in the form heretofore furnished to you (the "Power of Attorney"), appointing the person indicated in Schedule II hereto as such Selling Stockholder's attorney-in-fact (the "Attorney-in-Fact") with authority to execute and deliver this Agreement on behalf of such Selling Stockholder, to determine the purchase price to be paid by the Underwriters to the Selling Stockholders as provided in Section 2 hereof, to authorize the delivery of the Shares to be sold by such Selling Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement and its Custody Agreement; and (ix)The Shares (A) represented by the certificates held in custody for such Selling Stockholder under the Custody Agreement or (B) the subject of the Effective Notice are subject to the interests of the Underwriters hereunder; the arrangements made by such Selling Stockholder for such custody, and the appointment by such Selling Stockholder of the Attorney-in-Fact by such Selling Stockholder's Power of Attorney, are to that extent irrevocable; the obligations of the Selling Stockholders hereunder shall not be terminated by operation of law, whether by the death or incapacity of any individual Selling Stockholder or, in the case of an estate or trust, by the death or incapacity of any executor or trustee or the termination of such estate or trust, or in the case of a partnership or corporation, by the dissolution of such partnership or corporation, or by the 6 occurrence of any other event; if any individual Selling Stockholder or any such executor or trustee should die or become incapacitated, or if any such estate or trust should be terminated, or if any such partnership or corporation should be dissolved, or if any other such event should occur, before the delivery of the Shares hereunder, certificates representing the Shares shall be delivered by or on behalf of the Selling Stockholders in accordance with the terms and conditions of this Agreement and of the various Custody Agreements; and actions taken by the Attorney-in-Fact pursuant to the Powers of Attorney shall be as valid as if such death, incapacity, termination, dissolution or other event had not occurred, regardless of whether or not the Custodian, the Attorney-in-Fact, or any of them, shall have received notice of such death, incapacity, termination, dissolution or other event. (c) MBO-IV represents and warrants to, and agrees with, each of the Underwriters and the Company that MBO-IV has good and valid title to the Shares to be sold by MBO-IV hereunder, free and clear of all liens, encumbrances, equities or claims, except for those arising under this Agreement, its Custody Agreement and its Power of Attorney. 2. Subject to the terms and conditions herein set forth, (a) each of the Selling Stockholders agrees, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from each of the Selling Stockholders, at a purchase price per share of $_____, the number of Firm Shares (to be adjusted by you so as to eliminate fractional shares) determined by multiplying the aggregate number of Firm Shares to be sold by each of the Selling Stockholders as set forth opposite their respective names in Schedule II hereto by a fraction, the numerator of which is the aggregate number of Firm Shares to be purchased by such Underwriter as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the aggregate number of Firm Shares to be purchased by all of the Underwriters from all of the Selling Stockholders hereunder and, (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, each of the Selling Stockholders agrees, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from each of the Selling Stockholders, at the purchase price per share set forth in clause (a) of this Section 2, that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder. The Selling Stockholders, as and to the extent indicated in Schedule II hereto, hereby grant, severally and not jointly, to the Underwriters the right to purchase at their election up to _____ Optional Shares, at the purchase price per share set forth in the paragraph above, for the sole purpose of covering over-allotments in the sale of the Firm Shares. Any such election to purchase Optional Shares shall be made in proportion to the number of Optional Shares to be sold by each Selling Stockholder. Any such election to purchase Optional Shares may be exercised only by written notice from you to the Attorney-in-Fact, given within a period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless you and the Attorney-in-Fact otherwise agree in writing, earlier than two or later than ten business days after the date of such notice. 3. Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus. 4. (a) The Shares to be purchased by each Underwriter hereunder, in definitive form, and in such authorized denominations and registered in such names as Goldman, Sachs & Co. may request 7 upon at least forty-eight hours' prior notice to the Selling Stockholders shall be delivered by or on behalf of the Selling Stockholders to Goldman, Sachs & Co., through the facilities of DTC, for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the account specified by the Custodian to Goldman, Sachs & Co. at least forty-eight hours in advance. The Company will cause the certificates representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of DTC or its designated custodian (the "Designated Office"). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York time, on ______, 19__ or such other time and date as Goldman, Sachs & Co. and the Selling Stockholders may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional Shares, or such other time and date as Goldman, Sachs & Co. and the Selling Stockholders may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the "First Time of Delivery", such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the "Second Time of Delivery", and each such time and date for delivery is herein called a "Time of Delivery". (b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof, including the cross receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 7(l) hereof, will be delivered at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004 (the "Closing Location"), and the Shares will be delivered at the Designated Office, all at such Time of Delivery. A meeting will be held at the Closing Location at 5:00 p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. 5. The Company agrees with each of the Underwriters: (a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or Prospectus prior to the last Time of Delivery which shall be reasonably disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish you with copies thereof; to file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus and for so long as the delivery of a prospectus is required in connection with the offering or sale of the Shares; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus or suspending any such qualification, promptly to use its best efforts to obtain the withdrawal of such order; 8 (b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares; provided that, in connection therewith, the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) Prior to 10:00 A.M., New York City time, on the New York Business Day next succeeding the date of this Agreement and from time to time, to furnish the Underwriters with copies of the Prospectus in New York City in such quantities as you may reasonably request, and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any events shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such period to amend or supplement the Prospectus or to file under the Exchange Act any document incorporated by reference in the Prospectus in order to comply with the Act or the Exchange Act, to notify you and upon your request to file such document and to prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance, and in case any Underwriter is required to deliver a prospectus in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act; (d) To make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earning statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158); (e) During the period beginning from the date hereof and continuing to and including the date 90 days after the date of the Prospectus, not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Shares, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities (other than pursuant to (i) a proposed transaction with Sony Corporation of America and its affiliates as described in the Registration Statement, (ii) privately negotiated transactions (not involving a public offering) which include or relate to business-related arrangements, or (iii) employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities, or upon the exercise of warrants, outstanding as of, the date of this Agreement), without your prior written consent; (f) To furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants); (g) During a period of five years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to 9 stockholders, and to deliver to you, (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); and (h) If the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act. 6. The Company covenants and agrees with the several Underwriters that the Company will pay or cause to be paid the following: (a) the fees, disbursements and expenses of the Company's counsel and accountants and the Selling Stockholders' counsel in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (b) the cost of printing or producing any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (c) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(b) hereof, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey; (d) all fees and expenses in connection with listing the Shares on the New York Stock Exchange, Inc. (the "Exchange"); (e) the filing fees incident to, and the fees and disbursements of counsel for the Underwriters in connection with, securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Shares; (f) the cost of preparing stock certificates; (g) the cost and charges of any transfer agent or registrar; (h) the fees and expenses of the Attorney-in-Fact and the Custodian; (i) all expenses and taxes incident to the sale and delivery of the Shares to be sold by the Selling Stockholders to the Underwriters hereunder, except as provided below; and (j) all other costs and expenses incident to the performance of its obligations or the Selling Stockholders' obligations hereunder which are not otherwise specifically provided for in this Section 6. In connection with clause (i) of the preceding sentence, the Underwriters agree to pay New York State stock transfer tax, and the Company agrees to reimburse the Underwriters for associated carrying costs if such tax payment is not rebated on the day of payment and for any portion of such tax payment not rebated. It is understood, however, that, except as provided in this Section 6, and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. 7. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company and of the Selling Stockholders herein are, at and as of such Time of Delivery, true and correct, the condition that the Company and the Selling Stockholders shall have performed all of its and their obligations hereunder theretofore to be performed, and the following additional conditions: (a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall have become effective by 10:00 P.M., Washington, D.C. time, on the date of this Agreement; no stop order suspending the 10 effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; (b) Sullivan & Cromwell, counsel for the Underwriters, shall have furnished to you such written opinion or opinions (a draft of each such opinion is attached as Annex I(a)(i) and I(a)(ii), respectively, hereto), dated such Time of Delivery, with respect to the incorporation of the Company, the validity of the Shares being delivered at such Time of Delivery, the Registration Statement, the Prospectus and as such other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (c) Robert Scott, Senior Vice President, Legal of the Company, shall have furnished to you his written opinion (a draft of such opinion is attached as Annex I(b) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, or is subject to no material liability or disability by reason of failure to be so qualified in any such jurisdiction (such counsel being entitled to rely in respect of the opinion in this clause (i) upon opinions of local counsel and in respect of matters of fact upon certificates of officers of the Company; provided that such counsel shall state that he believes that both you and he are justified in relying upon such opinions and certificates); (ii)The Company and its subsidiaries have good and marketable title in fee simple to all real property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not interfere in any material respect with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere in any material respect with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries (in giving the opinion in this clause (ii), such counsel may state that no examination of record titles for the purpose of such opinion has been made, and that he is relying upon a general review of the titles of the Company and its subsidiaries, upon opinions of local counsel and abstracts, reports and policies of title companies rendered or issued at or subsequent to the time of acquisition of such property by the Company or its subsidiaries, upon opinions of counsel to the lessors of such property and, in respect of matters of fact, upon certificates of officers of the Company or its subsidiaries; provided that such counsel shall state that he believes that both you and he are justified in relying upon such opinions, abstracts, reports, policies and certificates); (iii)To the best of such counsel's knowledge and other than as set forth or incorporated by reference in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, individually or in the aggregate, would have, or may reasonably be expected to have, a material adverse effect on the current or future consolidated financial position stockholders' equity or results of operations of the Company and its subsidiaries; and, to the best of such counsel's knowledge, no such 11 proceedings are threatened or contemplated by governmental authorities or threatened by others; (iv) The compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject and which is material to the Company and its subsidiaries, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of the Company or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; (v) No consent, approval, authorization or order of or with any court or governmental agency or body of the Commonwealth of Pennsylvania or the United States of America is required to be obtained by the Company for the sale of the Securities or the consummation by the Company of the transactions contemplated by the Underwriting Agreement, except such as have been obtained under the Act and such as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Securities by the Underwriters; (vi) The documents incorporated by reference in the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements, related schedules and other financial data included or incorporated by reference therein, as to which such counsel need express no opinion), when they became effective or were filed with the Commission, as the case may be, appeared on their face to be responsive as to form in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder; and he has no reason to believe that any of such documents, when such documents became effective or were so filed, as the case may be, contained, in the case of a registration statement which became effective under the Act, an untrue statement of a material fact, or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or, in the case of other documents which were filed under the Exchange Act with the Commission, an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading; and (vii) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by the Company prior to such Time of Delivery (other than the financial statements, related schedules and other financial data included or incorporated by reference therein, as to which such counsel need express no opinion) as of their respective effective or issue dates, appear on their face to be responsive as to form in all material respects with the requirements of the Act and the rules and regulations thereunder; he has no reason to believe that, as of its effective date, the Registration Statement or any further amendment thereto made by the Company prior to such Time of Delivery (other than the financial statements, related schedules and other financial data included or incorporated by reference therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that, as of its date, the Prospectus or any further amendment or supplement thereto made by the Company prior 12 to such Time of Delivery (other than the financial statements, related schedules and other financial data included or incorporated by reference therein, as to which such counsel need express no opinion) contain an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or that, as of such Time of Delivery, either the Registration Statement or the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements, related schedules and other financial data included or incorporated by reference therein, as to which such counsel need express no opinion) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. In rendering such opinions, such counsel may state that he expresses no opinion as to the laws of any jurisdiction other than the laws of the United States of America and the laws of the Commonwealth of Pennsylvania and, to the extent relevant, the General Corporation Law of the State of Delaware. (d) Fried, Frank, Harris, Shriver & Jacobson, counsel for the Company, shall have furnished to you their written opinion (a draft of such opinion is attached as Annex I(c) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; (ii)The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company (including the Shares being sold at such Time of Delivery) have been duly and validly authorized and issued and are fully paid and non-assessable; and the Shares conform as to legal matters to the description of the Stock contained in the Prospectus; (iii) This Agreement has been duly authorized, executed and delivered by the Company; (iv) The documents incorporated by reference in the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements, related schedules and other financial data included or incorporated by reference therein, as to which such counsel need express no opinion), when they became effective or were filed with the Commission, as the case may be, appeared on their face to be responsive as to form in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder; and (v) The Registration Statement and the Prospectus (other than the financial statements, related schedules and other financial data included or incorporated by reference therein, as to which such counsel need express no opinion) as of their respective effective or issue dates, appeared on their face to be responsive as to form in all material respects with the requirements of the Act and the rules and regulations thereunder; no facts have come to their attention that caused them to believe that, as of its effective date, the Registration Statement or any further amendments thereto made by the Company prior to such Time of Delivery contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading. They express no view or belief, however, with respect to financial statements and related notes and schedules and other financial data included in or incorporated by reference in or omitted from the Registration Statement. Also, no facts have come to their attention that caused them to believe that the Prospectus, as of its date, or any further amendments or 13 supplements thereto made by the Company prior to such Time of Delivery contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, and no facts have come to their attention that caused them to believe that the Prospectus, at such Time of Delivery, or any further amendments thereto made by the Company prior to such Time of Delivery, contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. In rendering such opinion, such counsel may state that they express no opinion as to the laws of any jurisdiction other than the laws of the State of New York, the Federal laws of the United States and the General Corporation Law of the State of Delaware; (e) Fried, Frank, Harris, Shriver & Jacobson, counsel for each of the Selling Stockholders, shall have furnished to you their written opinion with respect to Forstmann Little & Co. Subordinated Debt and Equity Management Buyout Partnership-IV ("MBO-IV"), which is a Selling Stockholder (a draft of such opinion is attached as Annex I(d) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The Power of Attorney and Custody Agreement have been duly executed and delivered by MBO-IV and constitute valid and binding agreements of MBO-IV in accordance with their terms, subject as to enforcement to (A) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws affecting creditors' rights generally and (B) general principles of equity (whether considered in a proceeding at law or in equity); (ii) This Agreement has been duly executed and delivered by or on behalf of MBO-IV; and the sale of the Shares to be sold by MBO-IV pursuant to this Agreement and the compliance by MBO-IV with all of the provisions of this Agreement, the Power of Attorney and the Custody Agreement, and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any terms or provisions of, or constitute a default under, any statute of the State of New York or the United States of America, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument identified to such counsel by the general partner of MBO-IV to which MBO-IV is a party or by which MBO-IV is bound or to which any of the property or assets of MBO-IV is subject, or the Partnership Agreement of MBO-IV, or any order, rule or regulation identified to such counsel by the general partner of MBO-IV of any court or governmental agency or body of the State of New York or the United States of America having jurisdiction over MBO-IV or the property of MBO-IV; (iii) No consent, approval, authorization or order of any court or governmental agency or body of the State of New York or the United States of America is required for the consummation of the transactions contemplated by this Agreement in connection with the Shares to be sold by MBO-IV pursuant to this Agreement, except such as have been obtained under the Act and such as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; and (iv) Assuming that the Underwriters purchase the Shares to be sold by MBO-IV to the Underwriters at such Time of Delivery for value and without notice of any "adverse claim" (as defined in Section 8-102 of the UCC), upon the crediting of the Underwriters' accounts with such Shares in the records of DTC, Cede & Co. or such other nominee designated by DTC will acquire all rights that MBO-IV had in the Shares and will be a "protected purchaser" of such Shares (as defined in Section 8-303 of the UCC), the Underwriters will acquire a valid "security entitlement" (within the meaning of Section 8-501 of the UCC) to such Shares, and 14 no action based on an "adverse claim" (as defined in Section 8-102 of the UCC) may be asserted against the Underwriters with respect to such security entitlement; (f) Fried, Frank, Harris, Shriver & Jacobson, counsel for each of the Selling Stockholders, shall have furnished to you their written opinion with respect to each of the Selling Stockholders other than MBO-IV (the "Other Selling Stockholders") (a draft of such opinion is attached as Annex I(e) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: Assuming that the Underwriters purchase the Shares to be sold by the Other Selling Stockholders to the Underwriters at such Time of Delivery for value and without notice of any "adverse claim" (as defined in Section 8-102 of the UCC), upon the crediting of the Underwriters' accounts with such Shares in the records of DTC, Cede & Co. or such other nominee designated by DTC will acquire all rights that the Other Selling Stockholders had in the Shares and will be a "protected purchaser" of such Shares (as defined in Section 8- 303 of the UCC), the Underwriters will acquire a valid "security entitlement" (within the meaning of Section 8-501 of the UCC) to such Shares, and no action based on an "adverse claim" (as defined in Section 8-102 of the UCC) may be asserted against the Underwriters with respect to such security entitlement; In rendering such opinion, such counsel may assume that (i) each Other Selling Stockholder has duly executed and delivered a Power of Attorney and a Custody Agreement and that such Power of Attorney and Custody Agreement constitute valid and binding agreements of such Other Selling Stockholder in accordance with their terms and (ii) this Agreement has been duly executed and delivered by or on behalf of such Selling Stockholder. (g) The respective General Counsel of each of the Selling Stockholders identified on Schedule III hereto shall have furnished to you his or her written opinion with respect to such Selling Stockholder, dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) A Power of Attorney and a Custody Agreement have been duly executed and delivered by such Selling Stockholder and constitute valid and binding agreements of such Selling Stockholder in accordance with their terms, subject as to enforcement to (A) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws affecting creditors' rights generally and (B) general principles of equity (whether considered in a proceeding at law or in equity); (ii) This Agreement has been duly executed and delivered by or on behalf of such Selling Stockholder; and the sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by such Selling Stockholder with all of the provisions of this Agreement, the Power of Attorney and the Custody Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any terms or provisions of, or constitute a default under, any statute of the state of incorporation or formation of such Selling Stockholder or the United States of America, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument identified after due inquiry to such counsel to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, or the Certificate of Incorporation, By-laws or Partnership Agreement of such Selling Stockholder, or any order, rule or regulation identified after due inquiry to such counsel of any court or governmental agency or body of the state of incorporation or formation of such Selling Stockholder or the United States of America having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder; 15 (iii) No consent, approval, authorization or order of any court or governmental agency or body of the state of incorporation or formation of such Selling Stockholder or the United States of America is required for the consummation of the transactions contemplated by this Agreement in connection with the Shares to be sold by such Selling Stockholder hereunder, except such as have been obtained under the Act and such as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; and (iv) Assuming that the Underwriters purchase the Shares to be sold by such Selling Stockholder to the Underwriters at such Time of Delivery for value and without notice of any "adverse claim" (as defined in Section 8-102 of the UCC), upon the crediting of the Underwriters' accounts with such Shares in the records of DTC, Cede & Co. or such other nominee designated by DTC will acquire all rights that such Selling Stockholder had in the Shares and will be a "protected purchaser" of such Shares (as defined in Section 8-303 of the UCC), the Underwriters will acquire a valid "security entitlement" (within the meaning of Section 8-501 of the UCC) to such Shares, and no action based on an "adverse claim" (as defined in Section 8-102 of the UCC) may be asserted against the Underwriters with respect to such security entitlement; (h) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, Deloitte & Touche LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, to the effect set forth in Annex II hereto (the executed copy of the letter delivered prior to the execution of this Agreement is attached as Annex II(a) hereto and a draft of the form of letter to be delivered on the effective date of any post-effective amendment to the Registration Statement and as of each Time of Delivery is attached as Annex II(b) hereto); (i)(i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, and (ii) since the respective dates as of which information is given in the Prospectus there shall not have been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any change, or any development that may be reasonably expected to involve a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is in the judgment of the Representatives so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (j) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the Exchange; (ii) a suspension or material limitation in trading in the Company's securities on the Exchange; (iii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities; or (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this clause (iv) in the judgment of Goldman, Sachs & Co., as representatives of the various Underwriters, makes it impracticable or inadvisable to proceed with the public offering or 16 the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (k) The Company shall have complied with the provisions of Section 5(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement; and (l) The Company and the Selling Stockholders shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company and of the Selling Stockholders, respectively, satisfactory to you as to the accuracy of the representations and warranties of the Company and the Selling Stockholders, respectively, herein at and as of such Time of Delivery, as to the performance by the Company and the Selling Stockholders of all of their respective obligations hereunder to be performed at or prior to such Time of Delivery, and as to such other matters as you may reasonably request, and the Company shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (i) of this Section. 8. (a) The Company will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through you expressly for use therein; and provided, further, that the Company shall not be liable to any Underwriter under the indemnity agreement in this subsection (a) with respect to any Preliminary Prospectus to the extent that any such loss, claim, damage or liability of such Underwriter results from the fact that such Underwriter sold Shares to a person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus or of the Prospectus as then amended or supplemented in any case where such delivery is required by the Act if the Company has previously furnished copies thereof in sufficient quantity to such Underwriter and the loss, claim, damage or liability of such Underwriter results from an untrue statement or omission of a material fact contained in the Preliminary Prospectus which was identified in writing at such time to such Underwriter and corrected in the Prospectus or in the Prospectus as then amended or supplemented. (b) MBO-IV (the "Indemnifying Stockholder"), in proportion to the number of Shares to be sold by it hereunder, will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Indemnifying Stockholder shall not be liable in any such case to the extent 17 that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon or in conformity with written information furnished to the Company by any Underwriter through you expressly for use therein; and provided, further, that the Indemnifying Stockholder shall not be liable to any Underwriter under the indemnity agreement in this subsection (b) with respect to any Preliminary Prospectus to the extent that any such loss, claim, damage or liability of such Underwriter results from the fact that such Underwriter sold Shares to a person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus or of the Prospectus as then amended or supplemented in any case where such delivery is required by the Act if the Company or the Indemnifying Stockholder have previously furnished copies thereof in sufficient quantity to such Underwriter and the loss, claim, damage or liability of such Underwriter results from an untrue statement or omission of a material fact contained in the Preliminary Prospectus which was identified in writing at such time to such Underwriter and corrected in the Prospectus or in the Prospectus as then amended or supplemented. Notwithstanding the provisions of this subsection (b), the Indemnifying Stockholder shall not be required to pay an amount in excess of the gross proceeds received by it from the Shares sold by it hereunder. (c) Each of the Selling Stockholders, severally in proportion to the number of Shares to be sold by such Selling Stockholder hereunder, will indemnify and hold harmless the Company and each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder expressly for use therein; provided, however, that the Selling Stockholders shall not be liable to any Underwriter under the indemnity agreement in this subsection (c) with respect to any Preliminary Prospectus to the extent that any such loss, claim, damage or liability of such Underwriter results from the fact that such Underwriter sold Shares to a person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus or of the Prospectus as then amended or supplemented in any case where such delivery is required by the Act if the Company or the Selling Stockholders have previously furnished copies thereof in sufficient quantity to such Underwriter and the loss, claim, damage or liability of such Underwriter results from an untrue statement or omission of a material fact contained in the Preliminary Prospectus which was identified in writing at such time to such Underwriter and corrected in the Prospectus or in the Prospectus as then amended or supplemented. Notwithstanding the provisions of this subsection (c), no Selling Stockholder shall be required to pay an amount in excess of the gross proceeds received by such Selling Stockholder from the Shares sold by it hereunder. (d) Each Underwriter will indemnify and hold harmless the Company and each Selling Stockholder against any losses, claims, damages or liabilities to which the Company or such Selling Stockholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the 18 omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Underwriter through Goldman, Sachs & Co. expressly for use therein; and will reimburse the Company and each Selling Stockholder for any legal or other expenses reasonably incurred by the Company or such Selling Stockholder in connection with investigating or defending any such action or claim as such expenses are incurred. (e) Promptly after receipt by an indemnified party under subsection (a), (b), (c) or (d) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. (f) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a), (b), (c) or (d) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (e) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Shares purchased under this Agreement (before deducting expenses) received by the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, each of the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (f) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (f). The amount paid or payable by an indemnified 19 party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (f) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (f), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no Selling Stockholder shall be required to contribute, in the aggregate, any amount in excess of the gross proceeds received by such Selling Stockholder from the Shares sold by it hereunder. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (f) to contribute are several in proportion to their respective underwriting obligations and not joint. (g) The obligations of the Company, the Indemnifying Stockholder and the Selling Stockholders under this Section 8 shall be in addition to any liability which the Company, the Indemnifying Stockholder and the respective Selling Stockholders may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company, to each partner of any Selling Stockholder that is a partnership and to each person, if any, who controls the Company or any Selling Stockholder within the meaning of the Act. 9. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Selling Stockholders shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the Selling Stockholders that you have so arranged for the purchase of such Shares, or the Selling Stockholders notify you that they have so arranged for the purchase of such Shares, you or the Selling Stockholders shall have the right to postpone a Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares. (b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Selling Stockholders shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the 20 aggregate number of all of the Shares to be purchased at such Time of Delivery, or if the Selling Stockholders shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligations of the Underwriters to purchase and of the Selling Stockholders to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or the Company or the Selling Stockholders, except for the expenses to be borne by the Company, the Selling Stockholders and the Underwriters as provided in Section 6 hereof and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 10. The respective indemnities, agreements, representations, warranties and other statements of the Company, the Selling Stockholders and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, or any of the Selling Stockholders, or any officer or director or controlling person of the Company, or any controlling person of any Selling Stockholder, or any partner of any Selling Stockholder that is a partnership, and shall survive delivery of and payment for the Shares. 11. If this Agreement shall be terminated pursuant to Section 9 hereof, neither the Company nor the Selling Stockholders shall then be under any liability to any Underwriter except as provided in Sections 6 and 8 hereof; but, if for any other reason any Shares are not delivered by or on behalf of the Selling Stockholders as provided herein, each of the Selling Stockholders pro rata (based on the number of Shares to be sold by such Selling Stockholder hereunder) will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company and the Selling Stockholders shall then be under no further liability to any Underwriter in respect of the Shares not so delivered except as provided in Sections 6 and 8 hereof. 12. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you; and in all dealings with any Selling Stockholder hereunder, you and the Company shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of such Selling Stockholder made or given by the Attorney-in-Fact for such Selling Stockholder. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the representatives at 32 Old Slip, 9th Floor, New York, New York 10004, Attention: Registration Department; if to any Selling Stockholder shall be delivered or sent by mail, telex or facsimile transmission to such Selling Stockholder's Attorney-in-Fact at its address set forth in Schedule II hereto; and if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Secretary; provided, however, that any notice to an Underwriter pursuant to Section 8(e) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire or telex constituting such Questionnaire, which address will be supplied to the Company or the Selling Stockholders by you on request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 13. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and the Selling Stockholders and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of the Company, each partner of any Selling Stockholder that is a partnership and each person who controls the Company, any Selling Stockholder or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any 21 right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 14. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 15. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 16. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. If the foregoing is in accordance with your understanding, please sign and return to us five counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters, the Company and each of the Selling Stockholders. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company and the Selling Stockholders for examination, upon request, but without warranty on your part as to the authority of the signers thereof. 22 Any person executing and delivering this Agreement as Attorney-in-Fact for a Selling Stockholder represents by so doing that he has been duly appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and binding Power of Attorney which authorizes such Attorney-in-Fact to take such action. Very truly yours, GENERAL INSTRUMENT CORPORATION By: -------------------------------------- Name: Title: THE SELLING STOCKHOLDERS NAMED IN SCHEDULE II HERETO By: -------------------------------------- As Attorney-in-Fact acting on behalf of each of the Selling Stockholders named in Schedule II to this Agreement Accepted as of the date hereof in New York, New York: GOLDMAN, SACHS & CO. LAZARD FRERES & CO., LLC MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: ------------------------------- (Goldman, Sachs & Co.) On behalf of each of the Underwriters 23 EX-4.7 3 EX-4.7 Exhibit 4.7 [Form of common stock certificate of General Instrument Corporation] NUMBER COMMON STOCK GI SHARES INCORPORATED UNDER GENERAL SEE REVERSE SIDE FOR THE LAWS OF THE STATE INSTRUMENT CERTAIN DEFINITIONS OF DELAWARE CORPORATION THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, N.Y. AND RIDGEFIELD PARK, N.J. THIS CERTIFIES that CUSIP 370120 10 7 is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF GENERAL INSTRUMENT CORPORATION transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its authorized officers. Dated: General Instrument /s/ Robert A. Scott Corporation /s/ Edward D. Breen - -------------------- --------------------- SECRETARY CORPORATE CHAIRMAN OF THE BOARD SEAL 1997 DELAWARE * COUNTERSIGNED AND REGISTERED: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. BY TRANSFER AGENT AND REGISTRAR AUTHORIZED SIGNATURE 2 [Form of reverse of common stock certificate of General Instrument Corporation] General Instrument Corporation The Corporation will furnish without charge of each stockholder who so requests, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such request should be sent to the Secretary of the Corporation at its home office, or to its Transfer Agent named on the face of this certificate. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT--____ Custodian ______ (Cust) (Minor) TEN ENT -- as tenants by the under Uniform Gifts to Minors entireties Act __________________ (State) JT TEN -- as joint tenants with right of survivorship and not as tenants in common Additional abbreviations may also be used though not in the above list. For value received, __________________________ hereby sell, assign and transfer unto 3 PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ----------------------------------------------------------- - ----------------------------------------------------------- - --------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - --------------------------------------------------------------------- - --------------------------------------------------------------------- ____________________________________________________________shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _____________________________________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated_______________________ 4 ------------------------------------------------ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed: - ------------------------------------ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. This certificate also evidences and entitles the holder hereof to certain rights as set forth in a Rights Agreement between General Instrument Corporation and ChaseMellon Shareholder Services, L.L.C., dated as of June 12, 1997, as amended (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of General Instrument Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. General Instrument Corporation will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor from such holder. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and certain related persons, whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void. 5 EX-5 4 EXHIBIT 5 Exhibit 5 [Fried, Frank, Harris, Shriver & Jacobson Letterhead] 212-859-8076 August 26, 1998 (FAX: 212-859-8587) General Instrument Corporation 101 Tournament Drive Horsham, Pennsylvania 19044 RE: Registration Statement on Form S-3 ---------------------------------- Ladies and Gentlemen: We have acted as special counsel for General Instrument Corporation, a Delaware corporation (the "Company"), in connection with the underwritten public offering (the "Offering") by certain of the Company's stockholders of shares (the "Shares") of common stock, par value $.01 per share (the "Common Stock") of the Company, including Shares that may be offered and sold upon the exercise of an over-allotment option granted to the underwriters. The Shares are to be offered to the public pursuant to an underwriting agreement among the Company, the selling stockholders named therein, and Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Lazard Freres & Co. LLC, as representatives of the underwriters (the "Underwriting Agreement"). With your permission, all assumptions and statements of reliance herein have been made without any independent investigation or verification on our part except to the extent otherwise expressly stated, and we express no opinion with respect to the subject matter or accuracy of such assumptions or items relied upon. In connection with this opinion, we have (i) investigated such questions of law, (ii) examined originals or certified, conformed or reproduction copies of such agreements, instruments, documents and records of the Company, such certificates of public officials and such other documents, and (iii) received such information from officers and representatives of the Company as we have deemed necessary or appropriate for the purposes of this opinion. In all examinations, we have assumed the legal capacity of all natural persons executing documents, the genuineness of all signatures, the authenticity of original and certified documents and the conformity to original or certified copies of all copies submitted to us as conformed or reproduction copies. As to various General Instrument Corporation August 26, 1998 questions of fact relevant to the opinions expressed herein, we have relied upon, and assume the accuracy of, representations and warranties contained in the documents and certificates and oral or written statements and other information of or from representatives of the Company and others and assume compliance on the part of all parties to the documents with their covenants and agreements contained therein. Based upon the foregoing and subject to the limitations, qualifications and assumptions set forth herein, we are of the opinion that the Shares are duly authorized, validly issued, fully paid and non-assessable. The opinion expressed herein is limited to the General Corporation Law of the State of Delaware, as currently in effect. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm under the caption "Validity of Common Stock" in the Prospectus forming part of the Registration Statement. In giving such consent, we do not hereby admit that we are in the category of such persons whose consent is required under Section 7 of the Securities Act of 1933, as amended. Very truly yours, FRIED, FRANK, HARRIS, SHRIVER & JACOBSON By: /s/ Lois Herzeca --------------------------------- Lois Herzeca 2 EX-10 5 EX-10 EXHIBIT 10 FORM OF STOCK DISPOSITION AGREEMENT Stock Disposition Agreement, dated as of September ___, 1998 (this "Agreement"), among General Instrument Corporation, a Delaware corporation (the "Company"), Forstmann Little & Co. Subordinated Debt and Equity Management Buyout Partnership-IV, a New York limited partnership ("MBO-IV"), and the individual selling stockholders listed on Schedule A hereto (the "Individual Selling Stockholders" and, together with MBO-IV, the "Selling Stockholders"). WHEREAS, the Company has filed a registration statement with the Securities and Exchange Commission relating to an underwritten public offering (the "Offering") of shares of the Company's common stock, par value $.01 per share (the "Common Stock"); and WHEREAS, each of MBO-IV and the Individual Selling Stockholders have granted to the underwriters in the Offering (the "Underwriters") an over-allotment option to purchase such number of shares of Common Stock as are set forth opposite their respective names on Schedule A hereto (collectively, the "Offered Shares"); and WHEREAS, the Company desires to purchase from the Selling Stockholders, and the Selling Stockholders desire to sell to the Company, all or a portion of the Offered Shares. NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and on the terms and subject to the conditions set forth herein, the parties hereto, each representing to the others that its execution, delivery and performance of this Agreement has been fully and duly authorized, agree as follows: SECTION 1 - DEFINITIONS 1.1 Specific Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: "Business Day" - any day other than a Saturday, a Sunday or a day on which banks in New York City are authorized or obligated by law or executive order to close. "Closing" - the closing of the purchase and sale of the Purchase Shares (as defined in Section 2.1 hereof). "Closing Date" - the date on which the Closing occurs. "Governmental Entity" - any federal, state or local judicial, legislative, executive or regulatory authority. 1.2 Other Terms. Other terms are defined elsewhere in this Agreement and, unless otherwise indicated, shall have such meanings throughout this Agreement. SECTION 2 - PURCHASE AND SALE 2.1 Purchase and Sale of Purchase Shares. On the terms and subject to the conditions set forth herein, at the Closing, each Selling Stockholder agrees to sell and transfer to the Company, and the Company agrees to purchase from such Selling Stockholder, such Selling Stockholder's Offered Shares, less any shares of Common Stock sold pursuant to the over-allotment option granted to the Underwriters in the Offering (the number of Offered Shares to be purchased by the Company being referred to as the "Purchase Shares"), at a purchase price per share equal to the per share proceeds (net of underwriting discounts and commissions) to the Selling Stockholders for the shares sold in the Offering (the "Purchase Price"). The Purchase Shares shall not be purchased or sold pursuant to this Agreement unless the Offering is consummated. 2.2 Closing; Delivery and Payment. (a) The Closing shall take place at the offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York or at such other place as the Selling Stockholders (through their Attorney-in-Fact) and the Company shall agree as soon as practicable, and in any event within five Business Days, after the earlier of (i) the expiration of the 30-day period during which the Underwriters have the right to exercise their over-allotment option, without such options having been exercised, and (ii) the receipt by the Company of written notice from Goldman, Sachs & Co. (on behalf of the Underwriters) that the Underwriters have either elected not to exercise their over-allotment option or have purchased only a portion (but not all) of the shares subject to their over-allotment option. It is understood and agreed that if their Underwriters exercise their over-allotment option in full, the Company will have no obligation to purchase, and the Selling Stockholders will have no obligation to sell, any Offered Shares pursuant to this Agreement. (b) On the Closing Date, each Selling Stockholder shall deliver to the Company certificates representing such Selling Stockholder's Purchase Shares duly endorsed and in form for transfer to the Company, and the Company shall pay to each Selling Stockholder the Purchase Price for each Purchase Share sold by such Selling Stockholder in immediately available funds to the 2 accounts designated by the Selling Stockholders in respect of proceeds from the Offering. SECTION 3 - REPRESENTATIONS AND WARRANTIES 3.1 By the Parties. Each Selling Stockholder represents and warrants as to itself to the Company, and the Company represents and warrants as to itself to the Selling Stockholders, as follows: (a) It has all necessary authority for the execution, delivery and performance of this Agreement by it; it has duly executed and delivered this Agreement; and this Agreement is a valid and legally binding agreement, enforceable against it in accordance with its terms, assuming the due execution and delivery by the other parties; and (b) The performance of this Agreement by it will not violate or conflict with any law, regulation, order or agreement, or, to the extent applicable, such party's charter or organic documents, and such party is not required to obtain any governmental approvals or third party consents to enter into and perform its obligations pursuant to this Agreement. Such execution and performance does not and will not constitute a default under any agreement or obligation binding on it or result in the forfeiture or loss of any rights or assets by it except as specifically provided for in this Agreement. 3.2 By the Selling Stockholders. Each Selling Stockholder represents and warrants to the Company that it owns the Purchase Shares to be sold hereunder by such Selling Stockholder to the Company, beneficially and of record, free and clear of any liens, charges or encumbrances and that upon delivery of its Purchase Shares, and payment therefore pursuant hereto, good and valid title to its Purchase Shares will pass to the Company (assuming that the Company is without notice of any adverse claim, as defined in the Uniform Commercial Code as adopted in the State of New York (the "Code") and is otherwise a bona fide purchaser for the purposes of the Code). SECTION 4 - CONDITIONS TO THE PARTIES' OBLIGATIONS TO CLOSE 4.1 Conditions to the Selling Stockholders Obligations to Close. The obligations of each of the several Selling Stockholders to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or waiver) of the following conditions: (a) No Injunctions. There shall not be in effect any statute, regulation, order, decree or judgment of any Governmental Entity that makes illegal or 3 enjoins or prevents in any material respect the consummation of the transactions contemplated by this Agreement. (b) Representations. All representations made by the Company in Article III hereof shall be true and correct in all material respects at and as of the Closing Date. (c) Consummation of the Offering. The Offering shall have been consummated. 4.2 Conditions to the Company's Obligations to Close. The obligations of the Company to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or waiver) of the following conditions: (a) No Injunctions. There shall not be in effect any statute, regulation, order, decree or judgment of any Governmental Entity that makes illegal or enjoins or prevents in any material respect the consummation of the transactions contemplated by this Agreement. (b) Representations. All representations made by the Selling Stockholders in Article III hereof shall be true and correct in all material respects at and as of the Closing Date. (c) Consummation of the Offering. The Offering shall have been consummated. SECTION 5 - TERMINATION 5.1 Termination. This Agreement shall terminate automatically if either (i) the Offering is terminated prior to consummation thereof or (ii) the Underwriters exercise their over-allotment option in full and purchase all of the Offered Shares subject thereto. This Agreement may be terminated at any time prior to the Closing: (a) by written agreement of MBO-IV and the Company; (b) either by MBO-IV or by the Company, by written notice of such termination to the other, if the Offering shall not have been consummated on or prior to December 31, 1998; (c) either by MBO-IV or by the Company if any court of competent jurisdiction or other competent Governmental Entity shall have by statute, rule, regulation, order, decree or injunction or other action permanently restrained, enjoined or otherwise prohibited any of the transactions contemplated by this Agreement. 4 SECTION 6 - MISCELLANEOUS 6.1 Notices. All notices or other communications hereunder shall be deemed to have been duly given and made if in writing and if served by personal delivery upon the party for whom it is intended, if delivered registered or certified mail, return receipt requested, or by a national courier service, if sent by facsimile transmission, provided that the facsimile transmission is promptly confirmed by telephone confirmation thereof, or on the third day after posting in the United States postage prepaid if sent by registered or certified mail, return receipt requested, to the person at the address set forth below, or such other address as may be designated in writing hereafter, in the same manner, by such person: To the Company: General Instrument Corporation 101 Tournament Drive Horsham, Pennsylvania 19044 Attention: Robert A. Scott, Senior Vice President, Legal and Secretary Tel: (215) 323-1000 Fax: (215) 323-1293 To the Selling Stockholders: c/o Forstmann Little & Co. 767 Fifth Avenue New York, New York 10153 Attention: Winston W. Hutchins Tel: (212) 355-5656 Fax: (212) 759-9059 6.2 Amendment; Waiver. Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of any amendment, by MBO-IV, the Individual Selling Stockholders (through their Attorney-in-Fact) and the Company, or in the case of a waiver, by the party against whom the waiver is to be effective. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and, except as otherwise provided herein, shall not be exclusive of any rights or remedies provided by law. 5 6.3 Assignment. No party to this Agreement may assign any of its rights or obligations under this Agreement without the consent of each other party hereto, except that a Selling Stockholder may make such assignments with notice to the Company but without the need for the Company's consent to one or more other Selling Stockholders. 6.4 Entire Agreement. This Agreement contains the entire agreement among the parties thereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, among them with respect to such matters, and any written agreement of the parties that expressly provides that it is not superseded by this Agreement. 6.5 Parties in Interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer upon any person other than each of the Selling Stockholders or the Company, and their successors or permitted assigns, any rights or remedies under or by reason of this Agreement. 6.6 Governing Law: Submission to Jurisdiction; Selection of Forum. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. Each party hereto agrees that it shall bring any action or proceeding in respect of any claim arising out of or related to this Agreement or the transactions contained in or contemplated by this Agreement, whether in tort or contract or at law or in equity, exclusively in the United States District Court for the Southern District of New York or the Supreme Court of the State of New York for the County of New York, and solely in connection with claims arising under this Agreement or the transactions contained in or contemplated by this Agreement (i) irrevocably submits to the exclusive jurisdiction of such courts, (iii) waives any objection that such courts are an inconvenient forum or do not have jurisdiction over any party hereto and (iv) agrees that service of process upon such party in any such action or proceeding shall be effective if notice is given in accordance with Section 6.1 of this Agreement. 6.7 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same Agreement. 6 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. GENERAL INSTRUMENT CORPORATION By: ------------------------------------------- Name: Title: SELLING STOCKHOLDERS The Individual Selling Stockholders Listed on Schedule A hereto By: -------------------------------------------- EX-23.2 6 CONSENT OF DELOITTE & TOUCH LLP EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of General Instrument Corporation on Form S-3 of our reports dated February 14, 1998 (March 5, 1998 as to Note 19), appearing in the Annual Report on Form 10-K of General Instrument Corporation for the year ended December 31, 1997, and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. /s/ DELOITTE & TOUCHE LLP - --------------------------- Parsippany, New Jersey August 25, 1998 -----END PRIVACY-ENHANCED MESSAGE-----