Filed Pursuant to Rule 424(b)(3)
SEC File Number 333-102157
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SKYWORKS SOLUTIONS, INC.
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$45,000,000
15% CONVERTIBLE SENIOR SUBORDINATED NOTES DUE 2005
AND THE COMMON STOCK
ISSUABLE UPON CONVERSION OR AT MATURITY
(INCLUDING UPON CERTAIN ACCELERATION EVENTS) OF THE 15%
CONVERTIBLE SENIOR SUBORDINATED
NOTES
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We issued on November 25, 2002 15% Convertible Senior Subordinated Notes
due June 30, 2005 (the "Senior Notes") to Conexant Systems, Inc. ("Conexant") in
exchange for an equal principal amount of 15% Interim Convertible Notes due June
30, 2005 (the "Interim Notes"), which were issued to Conexant in November 2002.
The Interim Notes were issued by us in exchange for certain outstanding
indebtedness issued under a financing agreement with Conexant. This prospectus
may be used by Conexant or its assigns, the selling securityholders, to resell
the Senior Notes and the common stock issuable upon conversion or at maturity
(including upon certain acceleration events) of the Senior Notes.
We will pay interest in cash on the Senior Notes on the last business day
of each March, June, September and December of each year, beginning December 31,
2002. The Senior Notes will mature on June 30, 2005, unless earlier converted or
redeemed. At maturity (including upon certain acceleration events), we will pay
the principal amount of the Senior Notes by issuing and delivering a number of
whole shares of common stock equal to the principal amount of the Senior Notes
then due and payable divided by the applicable conversion price in effect on
such date, together with cash in lieu of any fractional shares.
The Senior Notes are convertible, at the option of the holder, at any
time through the close of business on the business day immediately preceding
June 30, 2005 into shares of our common stock. The Senior Notes are convertible
at the applicable conversion price as of the conversion date. As of January 15,
2003, the Senior Notes are convertible at a conversion price of $7.87 per share
into 5,717,916 shares of common stock, subject to adjustment.
We may not redeem the Senior Notes (or any portion thereof) at any time
prior to May 12, 2004. Thereafter we may redeem the Senior Notes at our option,
in whole or in part, upon not less than 20 nor more than 60 days' notice by mail
to holders of the Senior Notes. The redemption price of the Senior Notes will be
$1,030 per $1,000 principal amount of Senior Notes to be redeemed, plus accrued
and unpaid interest, if any, to, but not including, the redemption date.
Holders of the Senior Notes may require us to repurchase the Senior Notes
upon a change in control.
Our common stock is quoted on the Nasdaq National Market under the symbol
"SWKS." On January 15, 2003, the last reported sale price of the common stock on
the Nasdaq National Market was $9.00 per share.
INVESTING IN THE SENIOR NOTES OR THE COMMON STOCK ISSUABLE UPON THE
CONVERSION OR AT MATURITY (INCLUDING UPON CERTAIN ACCELERATION EVENTS) OF THE
SENIOR NOTES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is January 21, 2003.
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 2
PROSPECTUS SUMMARY .............................. 3
THE OFFERING .................................... 4
RISK FACTORS .................................... 6
USE OF PROCEEDS ................................. 19
RATIO OF EARNINGS TO FIXED CHARGES .............. 19
DESCRIPTION OF THE SENIOR NOTES ................. 20
DESCRIPTION OF CAPITAL STOCK .................... 36
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS .. 40
SELLING SECURITYHOLDERS ......................... 47
PLAN OF DISTRIBUTION ............................ 52
LEGAL MATTERS ................................... 53
EXPERTS ......................................... 53
WHERE YOU CAN FIND MORE INFORMATION ............. 54
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH
WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements, within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, that are subject to the "safe harbor" created by those
sections. Some of the forward-looking statements can be identified by the use of
forward-looking terms such as "believes," "expects," "may," "will," "should,"
"could," "seek," "intends," "plans," "estimates," "anticipates" or other
comparable terms. Forward-looking statements involve inherent risks and
uncertainties. A number of important factors could cause actual results to
differ materially from those in the forward-looking statements, including those
factors discussed in this prospectus in "Risk Factors" and in the documents
incorporated by reference herein. Factors that could cause actual results to
differ from those reflected in forward-looking statements relating to the
operations and business of the combined company include:
o the failure to meet our expectations with respect to our merger
with the wireless communications business of Conexant in June
2002;
o the cyclical nature of the wireless communications semiconductor
industry and the markets addressed by our products and our
customers' products;
o general economic and business conditions that adversely affect us
or our suppliers, distributors or customers;
o demand for and market acceptance of new and existing products;
o successful development of new products and the timing of new
product introductions;
o the availability and extent of utilization of manufacturing
capacity and raw materials;
o pricing pressures and other competitive factors;
o fluctuations in manufacturing yields;
o product obsolescence;
o our ability to develop and implement new technologies and to
obtain protection of the related intellectual property;
o our ability to attract and retain qualified personnel;
o the disproportionate impact of our business relationships with
large customers;
o the uncertainties of litigation; and
o other risks and uncertainties, including those set forth in this
prospectus and those detailed from time to time in our filings
with the Securities and Exchange Commission.
You should read this prospectus and the documents incorporated by
reference into it completely and with the understanding that actual future
results may be materially different from expectations. All forward-looking
statements made in this prospectus are qualified by these cautionary statements.
These forward-looking statements are made only as of the date of this
prospectus, and we do not undertake any obligation, other than as may be
required by law, to update or revise any forward-looking statements to reflect
changes in assumptions, the occurrence of unanticipated events or changes in
future operating results over time.
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PROSPECTUS SUMMARY
This summary provides an overview of selected information and may not
contain all of the information that is important to you. You should read the
entire prospectus carefully, including the "Risk Factors" section included
herein, and the financial data, related notes and other information we have
incorporated by reference, before making an investment decision.
Unless the context otherwise requires in this prospectus, "Skyworks,"
"the Company," "we," "us," and "our" refer to Skyworks Solutions, Inc. and its
subsidiaries.
ABOUT SKYWORKS
Skyworks Solutions, Inc. ("Skyworks" or the "Company") is a leading
wireless semiconductor company focused on providing front-end modules, radio
frequency (RF) subsystems, semiconductor components and complete system
solutions to wireless handset and infrastructure customers worldwide. We offer a
comprehensive family of components and RF subsystems, and also provide complete
antenna-to-microphone semiconductor solutions that support advanced 2.5G and 3G
services.
Skyworks offers components, subsystems and system-level semiconductor
solutions for wireless voice and data communications applications, supporting
the world's most widely adopted wireless standards. Skyworks possesses a broad
wireless technology capability and one of the most complete wireless
communications product portfolios, coupled with customer relationships with
virtually all major handset and infrastructure manufacturers. Our product
portfolio includes almost every key semiconductor integrated circuit found
within a digital cellular handset. We believe that we have a comprehensive radio
frequency and mixed signal processing and packaging portfolio, extensive circuit
design libraries and a proven track record in component and system design. We
sell our products primarily through a direct Skyworks sales force and also
through independent manufacturers' representatives and distribution partners.
Skyworks was formed through the merger ("Merger") of the wireless
communications business of Conexant Systems, Inc. ("Conexant") and Alpha
Industries, Inc. ("Alpha") on June 25, 2002. Following the Merger, Alpha changed
its corporate name to Skyworks Solutions, Inc. On November 12, 2002, we
successfully closed a private placement of $230 million of 4 3/4% convertible
subordinated notes due November 2007. The net proceeds from this convertible
note offering were principally used to prepay debt owed to Conexant under a
financing agreement entered into with Conexant immediately following the Merger.
The payments to Conexant retired $105 million of a $150 million promissory note
relating to the purchase of Conexant's semiconductor assembly, module
manufacturing and test facility located in Mexicali, Mexico, and certain related
operations ("Mexicali Operations"). The payments also repaid the $65 million
principal amount then outstanding under a loan facility provided by Conexant
pursuant to the financing agreement, terminating the financing agreement,
including the loan facility and resulting in the release of Conexant's security
interest in substantially all assets and properties of the Company. Conexant's
former wireless communications business and the Mexicali Operations are
collectively referred to herein as "Washington/Mexicali."
We are headquartered in Woburn, Massachusetts, and have executive offices
in Newport Beach, California. We have design, engineering, manufacturing,
marketing, sales and service facilities throughout North America, Europe, and
the Asia/Pacific region. Our Internet address is www.skyworksinc.com. We make
available on our Internet website free of charge a link to our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports as soon as practicable after we electronically file
such material with the SEC. The information contained on our website is not
incorporated by reference in this prospectus.
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THE OFFERING
The following is a brief summary of some of the terms of the securities offered
for resale in this prospectus. For a more complete description of the terms of
the Senior Notes, see "Description of the Senior Notes" in this prospectus. For
a more complete description of our common stock, see "Description of Capital
Stock" in this prospectus.
Securities Offered.... $45,000,000 aggregate principal amount of 15%
Convertible Senior Subordinated Notes due June 30,
2005 and the shares of our common stock issuable upon
conversion or at maturity (including upon certain
acceleration events) of the Senior Notes.
Interest.............. The Senior Notes bear interest at an annual rate of
15%. Interest is payable in cash on the last business
day of each March, June, September and December of
each year, beginning December 31, 2002, and at
maturity.
Maturity Date......... June 30, 2005.
Payment of Principal.. On the maturity date and upon certain acceleration
events, we will pay the principal amount of the Senior
Notes by issuing and delivering a number of whole
shares of common stock equal to the principal amount
of the Senior Notes then due and payable divided by
the applicable conversion price in effect on such date
(described below under "Conversion Rights"), together
with cash in lieu of any fractional shares.
Conversion Rights..... Holders may convert the Senior Notes into shares of
our common stock, at the applicable conversion price
as of the related conversion date, at any time through
the close of business on the business day immediately
preceding June 30, 2005. The Senior Notes are
initially convertible at a conversion price of $7.87
per share, which, if converted in full on the date
hereof, would result in the issuance of approximately
5,717,916 shares of our common stock. In the event
that the market price of our common stock is below the
conversion price for a specified period, the holders
of the Senior Notes would be entitled to receive, upon
conversion of the Senior Notes, that number of shares
of our common stock that is equal to the principal
amount of the Senior Notes being converted, divided by
the market price of our common stock, provided that in
no event will the number of shares issued exceed 125%
of the number of shares that the holders would have
received at the conversion price. The conversion
price is also subject to adjustment pursuant to
anti-dilution provisions. Upon conversion, holders
will not receive any cash representing accrued
interest on the portion of the Senior Notes converted.
Optional Redemption... We may redeem the Senior Notes on or after May 12,
2004, at a redemption price of 103% of the principal
amount of the Senior Notes subject to redemption.
Change in Control..... Upon a change in control, we may be required to make
an offer to purchase each holder's Senior Notes at a
cash price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to
the date of purchase.
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Subordination......................... The Senior Notes are our unsecured
obligations. The Senior Notes are
senior in right of payment to our 4
3/4% Convertible Subordinated Notes
due November 2007. The Senior Notes
are subordinated in right of payment
to all of our existing and future
senior indebtedness (other than
indebtedness that is expressly
subordinated to the Senior Notes) and
structurally subordinated to all of
our subsidiary indebtedness. As of
December 27, 2002, our total senior
indebtedness was approximately $105
million. The indenture governing the
Senior Notes does not limit our or our
subsidiaries' ability to incur senior
indebtedness or other debt.
Use of Proceeds....................... We will not receive any of the
proceeds from the sale by the selling
securityholders of the Senior Notes or
the common stock issuable upon
conversion or at maturity (including
upon certain acceleration events) of
the Senior Notes.
Common Stock.......................... Our common stock is quoted on The
Nasdaq National Market under the
symbol "SWKS."
RISK FACTORS
Investment in the Senior Notes and the common stock issuable upon conversion of
the Senior Notes involves a high degree of risk. You should carefully consider
the information under "Risk Factors" beginning on page 6 and all other
information included and incorporated by reference in this prospectus before
investing in the Senior Notes or the common stock into which the Senior Notes
are convertible.
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RISK FACTORS
You should carefully consider the risks described below before investing in the
Senior Notes or the common stock issuable upon conversion or at maturity
(including upon certain acceleration events) of the Senior Notes. If any of the
following risks actually occurs, our business, financial condition or results of
operations could be materially and adversely affected. In such case, our ability
to make payments on the Senior Notes could be impaired, the trading price of the
Senior Notes and our common stock could decline, and you could lose all or part
of your investment.
This prospectus also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
the risks faced by us described below and elsewhere in this prospectus.
RISKS RELATED TO SKYWORKS
WE HAVE RECENTLY INCURRED SUBSTANTIAL OPERATING LOSSES AND ANTICIPATE FUTURE
LOSSES.
Our operating results have been adversely affected by a global economic slowdown
and an abrupt decline in demand for many of the end-user products that
incorporate wireless communications semiconductor products and system solutions.
As a result, we incurred substantial operating losses during the twelve-month
period ended September 27, 2002. We expect that reduced end-customer demand,
underutilization of our manufacturing capacity, changes in our revenue mix and
other factors will continue to adversely affect our operating results in the
near term. In order to become profitable, we must achieve substantial revenue
growth and we will face an environment of uncertain demand in the markets for
our products. We cannot assure you as to whether or when we will become
profitable or whether we will be able to sustain such profitability, if
achieved.
WE OPERATE IN THE HIGHLY CYCLICAL WIRELESS COMMUNICATIONS SEMICONDUCTOR
INDUSTRY, WHICH IS SUBJECT TO SIGNIFICANT DOWNTURNS.
The wireless communications semiconductor industry is highly cyclical and is
characterized by constant and rapid technological change, rapid product
obsolescence and price erosion, evolving technical standards, short product life
cycles and wide fluctuations in product supply and demand. From time to time
these and other factors, together with changes in general economic conditions,
cause significant upturns and downturns in the industry. Periods of industry
downturns, as we experienced through most of calendar year 2001, have been
characterized by diminished product demand, production overcapacity, high
inventory levels and accelerated erosion of average selling prices. These
factors, and in particular the level of demand for digital cellular handsets,
may cause substantial fluctuations in our revenues and results of operations. We
have experienced these cyclical fluctuations in our business and may experience
cyclical fluctuations in the future. During the late 1990's and extending into
2000, the wireless communications semiconductor industry enjoyed unprecedented
growth, benefiting from the rapid expansion of wireless communication services
worldwide and increased demand for digital cellular handsets. During calendar
year 2001, we were adversely impacted by a global economic slowdown and an
abrupt decline in demand for many of the end-user products that incorporate our
respective wireless communications semiconductor products and system solutions,
particularly digital cellular handsets. The impact of weakened end-customer
demand was compounded by higher than normal levels of inventories among our
original equipment manufacturer, or OEM, subcontractor and distributor
customers. We expect that reduced end-customer demand, underutilization of our
manufacturing capacity, changes in revenue mix and other factors will continue
to adversely affect our operating results in the near term.
WE ARE SUBJECT TO INTENSE COMPETITION.
The wireless communications semiconductor industry in general and the markets in
which we compete in particular are intensely competitive. We compete with U.S.
and international semiconductor manufacturers that are both larger and smaller
than us in terms of resources and market share. We currently face significant
competition in our markets and expect that intense price and product competition
will continue. This competition has resulted and is expected to continue to
result in declining average selling prices for our products. We also anticipate
that additional competitors will enter our markets as a result of growth
opportunities in communications electronics, the trend toward global
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expansion by foreign and domestic competitors and technological and public
policy changes. We believe that the principal competitive factors for
semiconductor suppliers in our market include, among others:
o time-to-market;
o new product innovation;
o product quality, reliability and performance;
o price;
o compliance with industry standards;
o strategic relationships with customers; and
o protection of intellectual property.
We cannot assure you that we will be able to successfully address these factors.
Many of our competitors have advantages over us, including:
o longer presence in key markets;
o greater name recognition;
o ownership or control of key technology or intellectual property;
and
o greater financial, sales and marketing, manufacturing,
distribution, technical or other resources.
As a result, certain competitors may be able to adapt more quickly than we can
to new or emerging technologies and changes in customer requirements or may be
able to devote greater resources to the development, promotion and sale of their
products than we can.
Current and potential competitors have established or may establish financial or
strategic relationships among themselves or with our customers, resellers or
other third parties. These relationships may affect customers' purchasing
decisions. Accordingly, it is possible that new competitors or alliances among
competitors could emerge and rapidly acquire significant market share. We cannot
assure you that we will be able to compete successfully against current and
potential competitors.
OUR SUCCESS DEPENDS UPON OUR ABILITY TO DEVELOP NEW PRODUCTS AND REDUCE COSTS IN
A TIMELY MANNER.
The markets into which we sell demand cutting-edge technologies and new and
innovative products. Our operating results depend largely on our ability to
continue to introduce new and enhanced products on a timely basis. Successful
product development and introduction depends on numerous factors, including:
o the ability to anticipate customer and market requirements and
changes in technology and industry standards;
o the ability to define new products that meet customer and market
requirements;
o the ability to complete development of new products and bring
products to market on a timely basis;
o the ability to differentiate our products from offerings of our
competitors; and
o overall market acceptance of our products.
We cannot assure you that we will have sufficient resources to make the
substantial investment in research and development in order to develop and bring
to market new and enhanced products in a timely manner. We will be required
continually to evaluate expenditures for planned product development and to
choose among alternative technologies based on our expectations of future market
growth. We cannot assure you that we will be able to develop and introduce new
or enhanced wireless communications semiconductor products in a timely and
cost-effective manner, that our products will satisfy customer requirements or
achieve market acceptance or that we will be able to anticipate new industry
standards and technological changes. We also cannot assure you that we will be
able to respond successfully to new product announcements and introductions by
competitors.
In addition, prices of established products may decline, sometimes
significantly, over time. We believe that to remain competitive we must continue
to reduce the cost of producing and delivering existing products at the same
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time that we develop and introduce new or enhanced products. We cannot assure
you that we will be able to continue to reduce the cost of our products to
remain competitive.
WE MAY NOT BE ABLE TO KEEP ABREAST OF THE RAPID TECHNOLOGICAL CHANGES IN OUR
MARKETS.
The demand for our products can change quickly and in ways we may not
anticipate. Our markets generally exhibit the following characteristics:
o rapid technological developments;
o rapid changes in customer requirements;
o frequent new product introductions and enhancements;
o short product life cycles with declining prices over the life
cycle of the product; and
o evolving industry standards.
Our products could become obsolete or less competitive sooner than anticipated
because of a faster than anticipated change in one or more of the technologies
related to our products or in market demand for products based on a particular
technology, particularly due to the introduction of new technology that
represents a substantial advance over current technology. Currently accepted
industry standards are also subject to change, which may contribute to the
obsolescence of our products.
WE MAY NOT BE ABLE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL NECESSARY FOR THE
DESIGN, DEVELOPMENT, MANUFACTURE AND SALE OF OUR PRODUCTS. OUR SUCCESS COULD BE
NEGATIVELY AFFECTED IF KEY PERSONNEL LEAVE.
Our success depends on our ability to continue to attract, retain and motivate
qualified personnel, including executive officers and other key management and
technical personnel. As the source of our technological and product innovations,
our key technical personnel represent a significant asset. The competition for
management and technical personnel is intense in the semiconductor industry. We
cannot assure you that we will be able to attract and retain qualified
management and other personnel necessary for the design, development,
manufacture and sale of our products. We may have particular difficulty
attracting and retaining key personnel during periods of poor operating
performance, given, among other things, the use of equity-based compensation by
us and our competitors. The loss of the services of one or more of our key
employees or our inability to attract, retain and motivate qualified personnel,
could have a material adverse effect on our ability to operate our business.
IF OEMS OF COMMUNICATIONS ELECTRONICS PRODUCTS DO NOT DESIGN OUR PRODUCTS INTO
THEIR EQUIPMENT, WE WILL HAVE DIFFICULTY SELLING THOSE PRODUCTS. MOREOVER, A
"DESIGN WIN" FROM A CUSTOMER DOES NOT GUARANTEE FUTURE SALES TO THAT CUSTOMER.
Our products will not be sold directly to the end-user but will be components of
other products. As a result, we will rely on OEMs of wireless communications
electronics products to select our products from among alternative offerings to
be designed into their equipment. Without these "design wins" from OEMs, we
would have difficulty selling our products. Once an OEM designs another
supplier's product into one of its product platforms, it is more difficult for
us to achieve future design wins with that OEM product platform because changing
suppliers involves significant cost, time, effort and risk on the part of that
OEM. Also, achieving a design win with a customer does not ensure that we will
receive significant revenues from that customer. Even after a design win, the
customer is not obligated to purchase our products and can choose at any time to
reduce or cease use of our products, for example, if its own products are not
commercially successful, or for any other reason. We may be unable to achieve
design wins or to convert design wins into actual sales.
BECAUSE OF THE LENGTHY SALES CYCLES OF MANY OF OUR PRODUCTS, WE MAY INCUR
SIGNIFICANT EXPENSES BEFORE WE GENERATE ANY REVENUES RELATED TO THOSE PRODUCTS.
Our customers may need three to six months to test and evaluate our products and
an additional three to six months to begin volume production of equipment that
incorporates our products. The lengthy period of time required increases the
possibility that a customer may decide to cancel or change product plans, which
could reduce or eliminate our sales to that customer. As a result of this
lengthy sales cycle, we may incur significant research and
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development, and selling, general and administrative expenses before we generate
the related revenues for these products, and we may never generate the
anticipated revenues if our customer cancels or changes its product plans.
UNCERTAINTIES INVOLVING THE ORDERING AND SHIPMENT OF OUR PRODUCTS COULD
ADVERSELY AFFECT OUR BUSINESS.
Our sales will typically be made pursuant to individual purchase orders and not
under long-term supply arrangements with our customers. Our customers may cancel
orders prior to shipment. Additionally, we will sell a portion of our products
through distributors, some of whom will have rights to return unsold products.
We may purchase and manufacture inventory based on estimates of customer demand
for our products, which is difficult to predict. This difficulty may be
compounded when we sell to OEMs indirectly through distributors or contract
manufacturers, or both, as our forecasts of demand will then be based on
estimates provided by multiple parties. In addition, our customers may change
their inventory practices on short notice for any reason. The cancellation or
deferral of product orders, the return of previously sold products, or
overproduction due to the failure of anticipated orders to materialize, could
result in us holding excess or obsolete inventory, which could result in
inventory write-downs.
OUR RELIANCE ON A SMALL NUMBER OF CUSTOMERS FOR A LARGE PORTION OF OUR SALES
COULD HAVE A MATERIAL ADVERSE EFFECT ON THE RESULTS OF OUR OPERATIONS.
A significant portion of our sales are concentrated among a limited number of
customers. If we lost one or more of these major customers, or if one or more
major customers significantly decreased its orders of our products, our business
would be materially and adversely affected. Sales to Samsung Electronics Co. and
to Motorola, Inc. represented approximately 38% and 12%, respectively, of net
revenues from customers other than Conexant during fiscal 2002 on a historical
basis (such sales representing Washington/Mexicali sales for the fiscal year
through June 25, 2002, and sales of Skyworks, the combined company, for the
post-merger period from June 26, 2002 through the end of the fiscal year). Our
future operating results will depend on the success of these customers and other
customers and our success in selling products to them.
WE FACE A RISK THAT CAPITAL NEEDED FOR OUR BUSINESS WILL NOT BE AVAILABLE WHEN
WE NEED IT.
We may need to obtain sources of financing in the future. After giving effect to
the net proceeds we received in our private placement of 4 3/4% convertible
subordinated notes due November 2007 and our debt refinancing with Conexant, we
believe that our existing sources of liquidity, together with cash expected to
be generated from operations, will be sufficient to fund our research and
development, capital expenditure, working capital and other financing
requirements for at least the next twelve months.
However, we cannot assure you that the capital required to fund these expenses
will be available in the future. Conditions existing in the U.S. capital markets
when the Company seeks financing will affect our ability to raise capital, as
well as the terms of any financing. The Company may not be able to raise enough
capital to meet our capital needs on a timely basis or at all. Failure to obtain
capital when required would have a material adverse effect on the Company.
In addition, any strategic investments and acquisitions that we may make to help
us grow our business may require additional capital resources. We cannot assure
you that the capital required to fund these investments and acquisitions will be
available in the future.
OUR MANUFACTURING PROCESSES ARE EXTREMELY COMPLEX AND SPECIALIZED.
Our manufacturing operations are complex and subject to disruption due to causes
beyond our control. The fabrication of integrated circuits is an extremely
complex and precise process consisting of hundreds of separate steps. It
requires production in a highly controlled, clean environment. Minor impurities,
errors in any step of the fabrication process, defects in the masks used to
print circuits on a wafer or a number of other factors can cause a substantial
percentage of wafers to be rejected or numerous die on each wafer not to
function.
Our operating results are highly dependent upon our ability to produce
integrated circuits at acceptable
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manufacturing yields. Our operations may be affected by lengthy or recurring
disruptions of operations at any of our production facilities or those of our
subcontractors. These disruptions may include electrical power outages, fire,
earthquake, flooding or other natural disasters. Disruptions of our
manufacturing operations could cause significant delays in shipments until we
are able to shift the products from an affected facility or subcontractor to
another facility or subcontractor.
In the event of these types of delays, we cannot assure you that the required
alternative capacity, particularly wafer production capacity, would be available
on a timely basis or at all. Even if alternative wafer production capacity is
available, we may not be able to obtain it on favorable terms, which could
result in higher costs and/or a loss of customers. We may be unable to obtain
sufficient manufacturing capacity to meet demand, either at our own facilities
or through external manufacturing or similar arrangements with others.
Due to the highly specialized nature of the gallium arsenide integrated circuit
manufacturing process, in the event of a disruption at the Newbury Park,
California or Woburn, Massachusetts semiconductor wafer fabrication facilities,
alternative gallium arsenide production capacity would not be immediately
available from third-party sources. These disruptions could have a material
adverse effect on our business, financial condition and results of operations.
WE MAY NOT BE ABLE TO ACHIEVE MANUFACTURING YIELDS THAT CONTRIBUTE POSITIVELY TO
OUR GROSS MARGIN AND PROFITABILITY.
Minor deviations or perturbations in the manufacturing process can cause
substantial manufacturing yield loss, and in some cases, cause production to be
suspended. Manufacturing yields for new products initially tend to be lower as
we complete product development and commence volume manufacturing, and typically
increase as we bring the product to full production. Our forward product pricing
includes this assumption of improving manufacturing yields and, as a result,
material variances between projected and actual manufacturing yields will have a
direct effect on our gross margin and profitability. The difficulty of
forecasting manufacturing yields accurately and maintaining cost competitiveness
through improving manufacturing yields will continue to be magnified by the
increasing process complexity of manufacturing semiconductor products. Our
manufacturing operations will also face pressures arising from the compression
of product life cycles, which will require us to manufacture new products faster
and for shorter periods while maintaining acceptable manufacturing yields and
quality without, in many cases, reaching the longer-term, high-volume
manufacturing conducive to higher manufacturing yields and declining costs.
WE ARE DEPENDENT UPON THIRD PARTIES FOR THE MANUFACTURE, ASSEMBLY AND TEST OF
OUR PRODUCTS.
We rely upon independent wafer fabrication facilities, called foundries, to
provide silicon-based products and to supplement our gallium arsenide wafer
manufacturing capacity. There are significant risks associated with reliance on
third-party foundries, including:
o the lack of ensured wafer supply, potential wafer shortages and
higher wafer prices;
o limited control over delivery schedules, manufacturing yields,
production costs and product quality; and
o the inaccessibility of, or delays in obtaining access to, key
process technologies.
Although we have long-term supply arrangements to obtain additional external
manufacturing capacity, the third-party foundries we use may allocate their
limited capacity to the production requirements of other customers. If we choose
to use a new foundry, it will typically take an extended period of time to
complete the qualification process before we can begin shipping products from
the new foundry. The foundries may experience financial difficulties, be unable
to deliver products to us in a timely manner or suffer damage or destruction to
their facilities, particularly since some of them are located in earthquake
zones. If any disruption of manufacturing capacity occurs, we may not have
alternative manufacturing sources immediately available. We may therefore
experience difficulties or delays in securing an adequate supply of our
products, which could impair our ability to meet our customers' needs and have a
material adverse effect on our operating results.
We also intend to utilize subcontractors to package, assemble and test a portion
of our products. Because we rely on others to package, assemble or test our
products, we are subject to many of the same risks as are described above with
respect to foundries.
-10-
WE ARE DEPENDENT UPON THIRD PARTIES FOR THE SUPPLY OF RAW MATERIALS AND
COMPONENTS.
We believe we have adequate sources for the supply of raw materials and
components for our manufacturing needs with suppliers located around the world.
However, we are currently dependent on two suppliers for epitaxial wafers used
in the gallium arsenide semiconductor manufacturing processes at our
manufacturing facilities. Nevertheless, while we historically have not
experienced any significant difficulties in obtaining an adequate supply of raw
materials, including epitaxial wafers, and components necessary for our
manufacturing operations, we cannot assure you that we will not lose a
significant supplier or that a supplier will be able to meet performance and
quality specifications or delivery schedules.
Under a supply agreement entered into with Conexant in connection with the
Merger, we receive wafer fabrication, wafer probe and certain other services
from Jazz Semiconductor, Inc., a Newport Beach, California foundry joint venture
between Conexant and The Carlyle Group. Pursuant to our supply agreement with
Conexant, we are initially obligated to purchase certain minimum volume levels
from Jazz Semiconductor based on a contractual agreement between Conexant and
Jazz Semiconductor. Our expected minimum purchase obligations under this supply
agreement are anticipated to be approximately $64 million, $39 million and $13
million in fiscal 2003, 2004 and 2005, respectively. We estimate that our
minimum purchase obligation under this agreement will result in excess costs of
approximately $5.1 million and we have recorded this liability and charged to
cost of sales in fiscal 2002.
WE ARE SUBJECT TO THE RISKS OF DOING BUSINESS INTERNATIONALLY.
Historically, a substantial majority of the Company's net revenues from
customers other than Conexant were derived from customers located outside the
United States, primarily countries located in the Asia-Pacific region and
Europe. In addition, we have suppliers located outside the United States and
third-party packaging, assembly and test facilities and foundries located in the
Asia-Pacific region. Our international sales and operations are subject to a
number of risks inherent in selling and operating abroad. These include, but are
not limited to, risks regarding:
o currency exchange rate fluctuations;
o local economic and political conditions;
o disruptions of capital and trading markets;
o restrictive governmental actions (such as restrictions on transfer
of funds and trade protection measures, including export duties
and quotas and customs duties and tariffs);
o changes in legal or regulatory requirements;
o limitations on the repatriation of funds;
o difficulty in obtaining distribution and support;
o the laws and policies of the United States and other countries
affecting trade, foreign investment and loans, and import or
export licensing requirements;
o tax laws; and
o limitations on our ability under local laws to protect our
intellectual property.
Because our international sales are denominated in U.S. dollars our products
could become less competitive in international markets if the value of the U.S.
dollar increases relative to foreign currencies. Moreover, we may be
competitively disadvantaged relative to our competitors located outside the
United States who may benefit from a devaluation of their local currency. We
cannot assure you that the factors described above will not have a material
adverse effect on our ability to increase or maintain our international sales.
OUR OPERATING RESULTS MAY BE NEGATIVELY AFFECTED BY SUBSTANTIAL QUARTERLY AND
ANNUAL FLUCTUATIONS AND MARKET DOWNTURNS.
Our revenues, earnings and other operating results have fluctuated in the past
and our revenues, earnings and other operating results may fluctuate in the
future. These fluctuations are due to a number of factors, many of which are
beyond our control. These factors include, among others:
o changes in end-user demand for the products (principally digital
cellular handsets) manufactured and sold
-11-
by our customers;
o the effects of competitive pricing pressures, including decreases
in average selling prices of our products;
o production capacity levels and fluctuations in manufacturing
yields;
o availability and cost of products from our suppliers;
o the gain or loss of significant customers;
o our ability to develop, introduce and market new products and
technologies on a timely basis;
o new product and technology introductions by competitors;
o changes in the mix of products produced and sold;
o market acceptance of our products and our customers;
o intellectual property disputes;
o seasonal customer demand;
o the timing of receipt, reduction or cancellation of significant
orders by customers; and
o the timing and extent of product development costs.
The foregoing factors are difficult to forecast, and these, as well as other
factors, could materially adversely affect our quarterly or annual operating
results. If our operating results fail to meet the expectations of analysts or
investors, it could materially and adversely affect the price of our common
stock.
OUR GALLIUM ARSENIDE SEMICONDUCTORS MAY NOT CONTINUE TO BE COMPETITIVE WITH
SILICON ALTERNATIVES.
We manufacture and sell gallium arsenide semiconductor devices and components,
principally power amplifiers and switches. The production of gallium arsenide
integrated circuits is more costly than the production of silicon circuits. As a
result, we must offer gallium arsenide products that provide superior
performance to that of silicon for specific applications to be competitive with
their respective silicon products. If we do not continue to offer products that
provide sufficiently superior performance to justify the cost differential, our
operating results may be materially and adversely affected. It is expected that
the costs of producing gallium arsenide integrated circuits will continue to
exceed the costs associated with the production of silicon circuits. The costs
differ because of higher costs of raw materials for gallium arsenide and higher
unit costs associated with smaller sized wafers and lower production volumes.
Silicon semiconductor technologies are widely-used process technologies for
certain integrated circuits and these technologies continue to improve in
performance. We cannot assure you that we will continue to identify products and
markets that require performance superior to that offered by silicon solutions.
WE MAY BE SUBJECT TO CLAIMS OF INFRINGEMENT OF THIRD-PARTY INTELLECTUAL PROPERTY
RIGHTS OR DEMANDS THAT WE LICENSE THIRD-PARTY TECHNOLOGY, WHICH COULD RESULT IN
SIGNIFICANT EXPENSE AND PREVENT US FROM USING OUR TECHNOLOGY.
The semiconductor industry is characterized by vigorous protection and pursuit
of intellectual property rights. From time to time, third parties have asserted
and may in the future assert patent, copyright, trademark and other intellectual
property rights to technologies that are important to our business and have
demanded and may in the future demand that we license their technology. At the
present time, we are in discussions with a third party who claims that we are
infringing certain of its intellectual property rights. The third party has
filed a complaint in this matter but has not yet served Skyworks with the
complaint. Although we believe that these claims are without merit, we are in
discussions with this party to avoid litigation. The third party has indicated
its willingness to resolve these claims without litigation. If this third party
were to proceed with litigation, we are prepared to vigorously defend against
these claims. Moreover, we believe that the patent infringement claims that were
asserted would impact only a limited number of our RF IC product line which
presently accounts for less than 5% of our annualized revenues.
Any litigation to determine the validity of claims that our products infringe or
may infringe these rights, including claims arising from our contractual
indemnification of our customers, regardless of their merit or resolution, could
be costly and divert the efforts and attention of our management and technical
personnel. Regardless of the merits of any specific claim, we cannot assure you
that we would prevail in litigation because of the complex technical issues and
inherent uncertainties in intellectual property litigation. If litigation were
to result in an adverse ruling, we could be required to:
o pay substantial damages;
-12-
o cease the manufacture, import, use, sale or offer for sale of
infringing products or processes;
o discontinue the use of infringing technology;
o expend significant resources to develop non-infringing technology;
and
o license technology from the third party claiming infringement,
which license may not be available on commercially reasonable
terms.
IF WE ARE NOT SUCCESSFUL IN PROTECTING OUR INTELLECTUAL PROPERTY RIGHTS, IT MAY
HARM OUR ABILITY TO COMPETE.
We rely on patent, copyright, trademark, trade secret and other intellectual
property laws, as well as nondisclosure and confidentiality agreements and other
methods, to protect our proprietary technologies, devices, algorithms and
processes. In addition, we often incorporate the intellectual property of our
customers, suppliers or other third parties into our designs, and we have
obligations with respect to the non-use and non-disclosure of such third-party
intellectual property. In the future, it may be necessary to engage in
litigation or like activities to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of proprietary
rights of others, including our customers. This could require us to expend
significant resources and to divert the efforts and attention of our management
and technical personnel from our business operations. We cannot assure you that:
o the steps we take to prevent misappropriation, infringement,
dilution or other violation of our intellectual property or the
intellectual property of our customers, suppliers or other third
parties will be successful;
o any existing or future patents, copyrights, trademarks, trade
secrets or other intellectual property rights will not be
challenged, invalidated or circumvented; or
o any of the measures described above would provide meaningful
protection.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use our technology without authorization, develop similar
technology independently or design around our patents. If any of our patents
fails to protect our technology, it would make it easier for our competitors to
offer similar products, potentially resulting in loss of market share and price
erosion. In addition, effective patent, copyright, trademark and trade secret
protection may be unavailable or limited for certain technologies and in certain
foreign countries.
OUR SUCCESS DEPENDS, IN PART, ON OUR ABILITY TO EFFECT SUITABLE INVESTMENTS,
ALLIANCES AND ACQUISITIONS, AND WE MAY HAVE DIFFICULTY INTEGRATING COMPANIES WE
ACQUIRE. SKYWORKS' MERGER WITH THE WIRELESS BUSINESS OF CONEXANT PRESENTS SUCH
RISKS.
Although we intend to invest significant resources in internal research and
development activities, the complexity and rapidity of technological changes and
the significant expense of internal research and development make it impractical
for us to pursue development of all technological solutions on our own. On an
ongoing basis, we intend to review investment, alliance and acquisition
prospects that would complement our product offerings, augment our market
coverage or enhance our technological capabilities. However, we cannot assure
you that we will be able to identify and consummate suitable investment,
alliance or acquisition transactions in the future. Moreover, if we consummate
such transactions, they could result in:
o issuances of equity securities dilutive to our stockholders;
o large one-time write-offs;
o the incurrence of substantial debt and assumption of unknown
liabilities;
o the potential loss of key employees from the acquired company;
o amortization expenses related to intangible assets; and
o the diversion of management's attention from other business
concerns.
Additionally, in periods following an acquisition, we will be required to
evaluate goodwill and acquisition-related intangible assets for impairment. When
such assets are found to be impaired, they will be written down to estimated
fair value, with a charge against earnings.
Integrating acquired organizations and their products and services may be
difficult, expensive, time-consuming and a strain on our resources and our
relationship with employees and customers and ultimately may not be successful.
-13-
WE MAY BE RESPONSIBLE FOR PAYMENT OF A SUBSTANTIAL AMOUNT OF U.S. FEDERAL INCOME
AND OTHER TAXES UPON CERTAIN EVENTS.
In connection with Conexant's spin-off of its wireless business prior to the
Merger, Conexant sought and received a ruling from the Internal Revenue Service
to the effect that certain transactions related to and including the spin-off
qualified as a reorganization and as tax-free for U.S. federal income tax
purposes. While the tax ruling generally is binding on the Internal Revenue
Service, the continuing validity of the ruling is subject to certain factual
representations and assumptions. In connection with the Merger, we entered into
a tax allocation agreement with Conexant that generally provides, among other
things, that we will be responsible for certain taxes imposed on various persons
(including Conexant) as a result of either:
o the failure of certain spin-off transactions to qualify as a
reorganization for U.S. federal income tax purposes, or
o the failure of certain spin-off transactions to qualify as
tax-free to Conexant for certain U.S. federal income tax purposes,
if such failure is attributable to certain actions or transactions by or in
respect of Skyworks (including our subsidiaries) or our stockholders, such as
the acquisition of stock of Skyworks by a third party at a time and in a manner
that would cause such failure. In addition, the tax allocation agreement
provides that we will be responsible for various other tax obligations and for
compliance with various representations, statements, and conditions made in the
course of obtaining the tax ruling referenced above and in connection with the
tax allocation agreement. Our obligations under the tax allocation agreement
have been limited by a letter agreement dated November 6, 2002 entered into in
connection with our debt refinancing with Conexant. Nevertheless, if we do not
carefully monitor our compliance with the requirements imposed as a result of
the spin-off and related transactions and our responsibilities under the tax
allocation agreement, we might inadvertently trigger an obligation to indemnify
certain persons (including Conexant) pursuant to the tax allocation agreement or
other obligations under such agreement. In addition, our indemnity obligations
could discourage or prevent a third party from making a proposal to acquire
Skyworks.
If we were required to pay any of the taxes described above, the payment could
be very substantial and have a material adverse effect on our business,
financial condition, results of operations and cash flow.
In addition, it is expected that the interest payments we are required to make
on the Senior Notes will not be deductible for tax purposes. Our inability to
offset our interest expense from the Senior Notes against other income may
increase our tax liability currently and in future years.
Further, the terms of the Senior Notes require us to pay the principal due at
the maturity date or upon certain acceleration events in a number of shares of
our common stock equal to the principal due at such time divided by the
applicable conversion price (as described in "Description of the Senior Notes -
Conversion of Notes") on such date. If the fair market value of our common stock
on such date is less than the applicable conversion price, we may recognize
cancellation of indebtedness income for tax purposes equal to the excess of the
principal amount of the Senior Notes due at such time over the fair market value
of the common stock issued by us to satisfy our obligations under the Senior
Notes.
CERTAIN PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS AND DELAWARE LAW MAY MAKE IT
DIFFICULT FOR SOMEONE TO ACQUIRE CONTROL OF US.
We have certain anti-takeover measures that may affect our common stock. Our
certificate of incorporation, our by-laws and the Delaware General Corporation
Law contain several provisions that would make more difficult an acquisition of
control of us in a transaction not approved by our board of directors. Our
certificate of incorporation and by-laws include provisions such as:
o the division of our board of directors into three classes to be
elected on a staggered basis, one class each year;
o the ability of our board of directors to issue shares of preferred
stock in one or more series without further authorization of
stockholders;
o a prohibition on stockholder action by written consent;
o elimination of the right of stockholders to call a special meeting
of stockholders;
o a requirement that stockholders provide advance notice of any
stockholder nominations of directors or any proposal of new
business to be considered at any meeting of stockholders;
o a requirement that the affirmative vote of at least 66 2/3% of our
shares be obtained to amend or repeal any provision of our by-laws
or the provision of our certificate of incorporation relating to
amendments to our by-laws;
-14-
o a requirement that the affirmative vote of at least 80% of our
shares be obtained to amend or repeal the provisions of our
certificate of incorporation relating to the election and removal
of directors, the classified board or the right to act by written
consent;
o a requirement that the affirmative vote of at least 80% of our
shares be obtained for business combinations unless approved by a
majority of the members of the board of directors and, in the
event that the other party to the business combination is the
beneficial owner of 5% or more of our shares, a majority of the
members of board of directors in office prior to the time such
other party became the beneficial owner of 5% or more of our
shares;
o a fair price provision; and
o a requirement that the affirmative vote of at least 90% of our
shares be obtained to amend or repeal the fair price provision.
In addition to the provisions in our certificate of incorporation and by-laws,
Section 203 of the Delaware General Corporation Law generally provides that a
corporation shall not engage in any business combination with any interested
stockholder during the three-year period following the time that such
stockholder becomes an interested stockholder, unless a majority of the
directors then in office approves either the business combination or the
transaction that results in the stockholder becoming an interested stockholder
or specified stockholder approval requirements are met.
WE MAY BE LIABLE FOR PENALTIES UNDER ENVIRONMENTAL LAWS, RULES AND REGULATIONS,
WHICH COULD ADVERSELY IMPACT OUR BUSINESS.
We have used, and will continue to use, a variety of chemicals and compounds in
manufacturing operations and have been and will continue to be subject to a wide
range of environmental protection regulations in the United States. While we
have not experienced any material adverse effect on our operations as a result
of such regulations, we cannot assure you that current or future regulations
would not have a material adverse effect on our business, financial condition
and results of operations. Environmental regulations often require parties to
fund remedial action regardless of fault. Consequently, it is often difficult to
estimate the future impact of environmental matters, including potential
liabilities. We cannot assure you that the amount of expense and capital
expenditures that might be required to satisfy environmental liabilities, to
complete remedial actions and to continue to comply with applicable
environmental laws will not have a material adverse effect on our business,
financial condition and results of operations.
WE HAVE ADOPTED NEW ACCOUNTING POLICIES IN FISCAL 2003 THAT COULD NEGATIVELY
IMPACT OUR EARNINGS FOR THE YEAR.
In our fiscal year 2003, which began on September 28, 2002, we have adopted SFAS
No. 142, "Goodwill and Other Intangible Assets." This policy requires us to
evaluate the goodwill and intangible assets with indefinite lives that we report
on our balance sheet for potential impairment using a fair value method. If we
determine that our goodwill and other intangible assets with indefinite lives
are impaired, we will be required to report non-cash charges to our earnings in
fiscal year 2003 in the amount of such impairment. At September 27, 2002, we
reported goodwill and intangible assets of $940,686,000. As a result, the
adoption of SFAS No. 142 may result in asset write-downs on our balance sheet
and significant non-cash charges to earnings in fiscal 2003. Management is
assessing the impact that the adoption of SFAS 142 will have on our financial
statements.
-15-
RISKS RELATED TO THE NOTES
THE SENIOR NOTES ARE SUBORDINATED.
The Senior Notes are unsecured and subordinated in right of payment to
all of our existing and future senior indebtedness. Generally, the indenture
governing the Senior Notes defines senior indebtedness as all of our
indebtedness, other than any indebtedness that expressly states that it is
subordinated to the Senior Notes. The 4 3/4% convertible subordinated notes due
November 2007 expressly state that they are subordinated to the Senior Notes.
The terms of the Senior Notes do not limit the amount of additional
indebtedness, including secured indebtedness, that we can create, incur, assume
or guarantee. In the event of our bankruptcy, liquidation or reorganization or
upon acceleration of the Senior Notes due to an event of default under the
indenture and in certain other events, our assets will be available to pay
obligations on the Senior Notes only after all senior indebtedness has been
paid. In addition, the subordination provisions of the indenture provide that
payments with respect to the Senior Notes will be blocked in the event of a
payment default on senior indebtedness and may be blocked for up to 179 days
each year in the event of certain non-payment defaults on senior indebtedness.
As a result, there may be insufficient assets remaining to pay amounts due on
any or all of the outstanding Senior Notes. In addition, under the subordination
provisions of the indenture, payments that would otherwise be made to holders of
the Senior Notes will instead be paid to holders of senior indebtedness under
certain circumstances. As a result of these provisions, our other creditors
(including trade creditors) may recover more, ratably, than the holders of the
Senior Notes. The Senior Notes also will be structurally subordinated to all
liabilities, including trade payables, of our subsidiaries, other than the 4
3/4% convertible subordinated notes due November 2007. The indenture governing
the Senior Notes does not limit our or our subsidiaries' ability to incur debt,
including senior indebtedness. Any right of ours to receive assets of any
subsidiary upon its liquidation or reorganization, and the consequent right of
the holders of the Senior Notes to participate in the assets is subject to the
claims of that subsidiary's creditors. If we or our subsidiaries were to incur
additional debt or liabilities, our ability to pay our obligations on the Senior
Notes could be adversely affected.
WE MAY BE UNABLE TO MEET THE REDEMPTION REQUIREMENTS UPON A CHANGE IN CONTROL.
Upon a change in control, holders of the Senior Notes may require us to
purchase all or a portion of their Senior Notes for cash. If a change in control
were to occur, we may not have enough funds to pay the purchase price for all
tendered Senior Notes. Future agreements relating to our indebtedness might
contain provisions that prohibit the repurchase of the Senior Notes upon a
change in control. If a change in control occurs at a time when we are
prohibited from purchasing the Senior Notes, we could seek the consent of our
lenders to purchase the Senior Notes or could attempt to refinance this debt. If
we do not obtain consent, we could not purchase the Senior Notes. Our failure to
purchase tendered Senior Notes would constitute an event of default under the
indenture. In such circumstances, or if a change in control would constitute an
event of default under our senior indebtedness, the subordination provisions of
the indenture would restrict payments to holders of the Senior Notes. The term
"change in control" is limited to certain specified transactions and may not
include other events that might harm our financial condition. Our obligation to
offer to purchase the Senior Notes upon a change in control would not
necessarily afford holders of the Senior Notes protection in the event of a
highly leveraged transaction, reorganization, merger or similar transaction
involving us.
OUR STOCK PRICE HAS BEEN VOLATILE AND OUR STOCK PRICE AND THE PRICE OF THE
SENIOR NOTES MAY FLUCTUATE IN THE FUTURE.
Upon conversion and at maturity (including upon certain acceleration
events), the principal of the Senior Notes will be paid in common stock of the
Company. The issuance of the common stock underlying the Senior Notes or the
issuance of the common stock underlying the 4 3/4% convertible subordinated
notes due November 2007 could cause our stock price to fluctuate and may
adversely affect the market price of our common stock.
-16-
The trading price of our common stock may fluctuate significantly. This
price may be influenced by many factors, including:
o our performance and prospects;
o the performance and prospects of our major customers;
o the depth and liquidity of the market for our common stock;
o investor perception of us and the industry in which we operate;
o changes in earnings estimates or buy/sell recommendations by
analysts;
o general financial and other market conditions; and
o domestic and international economic conditions.
Public stock markets have experienced, and are currently experiencing,
extreme price and trading volume volatility, particularly in the technology
sectors of the market. This volatility has significantly affected the market
prices of securities of many technology companies for reasons frequently
unrelated to or disproportionately impacted by the operating performance of
these companies. These broad market fluctuations may adversely affect the market
price of our common stock.
In addition, fluctuations in our stock price and our price-to-earnings
multiple may have made our stock attractive to momentum, hedge or day-trading
investors who often shift funds into and out of stocks rapidly, exacerbating
price fluctuations in either direction particularly when viewed on a quarterly
basis.
THERE MAY BE NO PUBLIC MARKET FOR THE SENIOR NOTES AND AN ACTIVE TRADING MARKET
FOR THE SENIOR NOTES MAY NOT DEVELOP.
The Senior Notes constitute a new class of securities for which there is
no established public trading market, and there can be no assurance as to:
o the liquidity of any such market that may develop;
o the ability of the holders of the Senior Notes to sell their
Senior Notes; or
o the price at which the holders of the Senior Notes would be able
to sell their Senior Notes.
If such a market were to exist, the Senior Notes could trade at prices that may
be higher or lower than their principal amount or purchase price, depending on
many factors, including:
o prevailing interest rates;
o the market for similar notes; and
o our financial performance and the performance of our subsidiaries.
There can be no assurance as to the development or liquidity of any market for
the Senior Notes.
SECURITIES WE ISSUE TO FUND OUR OPERATIONS COULD DILUTE YOUR OWNERSHIP OR
OTHERWISE ADVERSELY AFFECT YOU.
We may decide to raise additional funds through public or private debt or
equity financings to fund our
-17-
operations. If we raise funds by issuing equity securities, the percentage
ownership of current stockholders and the percentage ownership that holders of
the Senior Notes will receive upon conversion or at maturity (including upon
certain acceleration events) of the Senior Notes will be reduced and the new
equity securities may have rights prior to those of the common stock underlying
the Senior Notes. If we raise funds by issuing debt securities, we may be
required to agree to covenants that substantially restrict our ability to
operate our business. We may not obtain sufficient financing on terms that are
favorable to investors or us. We may delay, limit or eliminate some or all of
our proposed operations if adequate funds are not available.
OUR DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT OUR CASH FLOW.
While the Senior Notes are outstanding, we will have debt service
obligations on the Senior Notes of approximately $6,750,000 per year. In
addition, we have debt service obligations on our 4 3/4% convertible
subordinated notes due November 2007 of approximately $10,925,000 per year. If
we issue other debt securities in the future, our debt service obligations will
increase. If we are unable to generate sufficient cash to meet these obligations
and must instead use our existing cash or investments, we may have to reduce or
curtail other activities of our business.
We intend to fulfill our debt service obligations from cash generated by
our operations, if any, and from our existing cash and investments. If
necessary, among other alternatives, we may add lease lines of credit to finance
capital expenditures and we may obtain other long-term debt, lines of credit and
other financing.
Our indebtedness could have significant negative consequences, including:
o increasing our vulnerability to general adverse economic and
industry conditions;
o limiting our ability to obtain additional financing;
o requiring the dedication of a substantial portion of any cash flow
from operations to service our indebtedness, thereby reducing the
amount of cash flow available for other purposes, including
capital expenditures;
o limiting our flexibility in planning for, or reacting to, changes
in our business and the industry in which we compete; and
o placing us at a possible competitive disadvantage to less
leveraged competitors and competitors that have better access to
capital resources.
HOLDERS OF SENIOR NOTES MAY BE REQUIRED TO RECOGNIZE ORIGINAL ISSUE DISCOUNT OR
OTHER TAXABLE INCOME PRIOR TO THE RECEIPT OF CASH PAYMENTS ON THE SENIOR NOTES,
AND MAY BE REQUIRED TO TREAT AMOUNTS AS ORDINARY INCOME THAT WOULD OTHERWISE BE
TREATED AS CAPITAL GAIN; CHARACTERIZATION AND TREATMENT OF THE SENIOR NOTES AS
INDEBTEDNESS FOR U.S. FEDERAL INCOME TAX PURPOSES IS UNCLEAR IN VARIOUS
RESPECTS, AND NOTEHOLDERS MUST CONSULT WITH THEIR OWN TAX ADVISORS CONCERNING
THEIR TAX CONSEQUENCES FROM ACQUIRING, HOLDING, AND DISPOSING OF THE SENIOR
NOTES.
For U.S. federal income tax purposes, the holders of Senior Notes may be
required to recognize original issue discount or other taxable income on an
accelerated basis prior to the receipt of cash payments on the Notes, and may be
required to treat amounts as ordinary income that would otherwise be treated as
capital gain. In addition, the U.S. federal income tax characterization and
treatment of the Senior Notes as indebtedness (rather than as equity or some
other type of investment instrument) is unclear in a number of respects, and
noteholders must consult with their own tax advisors to understand and evaluate
the tax consequences that may result from the acquisition, holding, and
disposition of the Senior Notes. See "Certain U.S. Federal Income Tax
Considerations."
-18-
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Senior Notes or the
underlying common stock by the selling securityholders.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the periods
indicated is as follows:
FISCAL YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------------
2002 2001 2000 1999 1998
----------------- ------------ ----------- -------------- ------------- ------------
RATIO OF
EARNINGS TO
FIXED CHARGES (1) (2) (3) (4) (5)
----------------- ------------ ----------- -------------- ------------- ------------
(1) As a result of the net loss incurred in fiscal 2002, the Company was unable
to fully cover fixed charges. The amount of such deficiency in fiscal 2002 was
approximately $256 million.
(2) As a result of the net loss incurred in fiscal 2001, the Company was unable
to fully cover fixed charges. The amount of such deficiency in fiscal 2001 was
approximately $317 million.
(3) As a result of the net loss incurred in fiscal 2000, the Company was unable
to fully cover fixed charges. The amount of such deficiency in fiscal 2000 was
approximately $65 million.
(4) As a result of the net loss incurred in fiscal 1999, the Company was unable
to fully cover fixed charges. The amount of such deficiency in fiscal 1999 was
approximately $13 million.
(5) As a result of the net loss incurred in fiscal 1998, the Company was unable
to fully cover fixed charges. The amount of such deficiency in fiscal 1998 was
approximately $42 million.
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DESCRIPTION OF THE SENIOR NOTES
We issued the Senior Notes under an Indenture dated as of November 20,
2002 between the Company and Wachovia Bank, National Association, as Trustee, as
supplemented by the First Supplemental Indenture dated as of January 15, 2003
(collectively, the "Indenture"). The terms of the Senior Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act.
Certain terms used in this description are defined under the subheading
"-- Certain Definitions" and/or in the Indenture. In this description, the word
"Company" refers only to Skyworks Solutions, Inc. and not to any of its
subsidiaries.
The following description is only a summary of the material provisions of
the Indenture and the Registration Rights Agreement. We urge you to read the
Indenture and the Registration Rights Agreement because they, not this
description, define your rights as holders of the Senior Notes. You may request
copies of the these agreements at our address set forth under the heading "Where
You Can Find More Information."
BRIEF DESCRIPTION OF THE SENIOR NOTES
These Senior Notes:
o are unsecured subordinated obligations of the Company;
o are subordinated in right of payment to all existing and future
Senior Indebtedness of the Company (other than the 4 3/4%
convertible subordinated notes due November 2007, which expressly
state that they are subordinated to the Senior Notes);
o are convertible into shares of common stock; and
o together with the shares of common stock into which the Senior
Notes are convertible, are subject to registration with the SEC
pursuant to the Registration Rights Agreement.
The Company is not restricted from paying dividends, incurring debt, or
issuing or repurchasing its securities under the Indenture. In addition, there
are no financial covenants in the Indenture. You are not protected under the
Indenture in the event of a highly leveraged transaction or a change in control
of the Company except to the extent described under "-- Change in Control."
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are in a maximum aggregate principal amount of
$45,000,000. The Senior Notes may be issued in denominations of $1,000 and any
integral multiple of $1,000. The Senior Notes will mature on June 30, 2005.
Interest on the Senior Notes will accrue at the rate of 15% per annum and
will be payable in cash quarterly in arrears on the last business day of each
March, June, September and December, commencing on December 31, 2002, and at
maturity. We will make each interest payment to the holders of record of the
Senior Notes on the fifteenth day of each March, June, September and December.
Interest on the Senior Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from November 12,
2002. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Additional interest may accrue on the Senior Notes in certain
circumstances pursuant to the Registration Rights Agreement.
At maturity (including upon certain acceleration events), we will pay the
principal amount of the Senior Notes by issuing and delivering a number of whole
shares of common stock equal to the principal amount of the Senior Notes then
due and payable divided by the Applicable Conversion Price (as described below)
in effect on such date,
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together with cash in lieu of any fractional shares.
CONVERSION OF NOTES
Holders of the Senior Notes have the right, at their option, at any time
prior to the close of business on the business day immediately preceding June
30, 2005, to convert the Senior Notes or any portion of the Senior Notes into
shares of our common stock at the Applicable Conversion Price described below as
of the related conversion date, subject to adjustment as described below, unless
the Senior Notes or portion of a Senior Notes have been previously redeemed or
purchased by the Company. The right to convert the Senior Notes called for
redemption terminates on the close of business on the business day immediately
preceding the redemption date or the purchase date upon a Change in Control, as
the case may be, for such Senior Notes or such earlier date as the holder
presents such Senior Notes for redemption or purchase (unless the Company shall
default in payment of the redemption price or the purchase price upon a Change
in Control, as the case may be, when due, in which case the conversion right
shall terminate at the close of business on the date such default is cured and
such Senior Notes are redeemed or purchased).
For purposes of the Indenture, "Applicable Conversion Price" means as
applicable, with respect to the maturity or any conversion date, as the case may
be, (a) if the Current Market Price is greater than or equal to the Conversion
Price, the Conversion Price, (b) if the Current Market Price is less than the
Conversion Price but greater than or equal to the Floor Price, the Current
Market Price, and (c) if the Current Market Price is less than the Floor Price,
the Floor Price. For the purpose of this definition, "Current Market Price"
means the average of the daily Closing Price per share of the common stock for
the ten consecutive Trading Days immediately prior to, but not including, the
maturity date or the conversion date, as the case may be.
In the event that the Current Market Price is less than the Conversion
Price, the holders of the Senior Notes will be entitled to receive upon
conversion of the Senior Notes that number of shares of our common stock that is
equal to the principal amount of the Senior Notes being converted divided by the
Current Market Price of our common stock, provided that in no event will the
number of shares issued exceed 125% of the number of shares that the holders
would have received at the Conversion Price.
For information as to notices of redemption, see "-- Selection and Notice
of Redemption."
We will not issue fractional shares of common stock upon conversion of
the Senior Notes. Instead, we will pay a cash adjustment based upon the market
price of the common stock on the last trading day prior to the date of
conversion.
The Conversion Price will be adjusted according to formulae set forth in
the Indenture upon the occurrence of:
(a) the issuance of shares of the Company's common stock as a dividend
or distribution on the Company's common stock;
(b) the subdivision or combination of the Company's outstanding common
stock;
(c) the issuance to all or substantially all holders of the Company's
common stock of rights or warrants entitling them for a period of
not more than 60 days to subscribe for or purchase the Company's
common stock, or securities convertible into the Company's common
stock, at a price per share or a Conversion Price per share less
than the then Current Market Price Per Share, provided that the
Conversion Price will be readjusted to the extent that such rights
or warrants are not exercised prior to the expiration;
(d) the distribution to all or substantially all holders of the
Company's common stock of shares of our capital stock, evidences
of indebtedness or other assets, including securities of another
company, but excluding:
o dividends, distributions and rights or warrants referred to
in clause (a) or (c) above;
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o dividends or distributions exclusively in cash referred to
in clause (e) below;
(e) the distribution to all or substantially all holders of the
Company's common stock of all-cash distributions in an aggregate
amount that, together with (A) any cash and the fair market value
of any other consideration payable in respect of any tender offer
by the Company or any of its subsidiaries for the Company's common
stock consummated within the preceding 12 months that did not
trigger a Conversion Price adjustment and (B) all other all-cash
distributions to all or substantially all holders of the Company's
common stock made within the preceding 12 months that did not
trigger a Conversion Price adjustment, exceeds an amount equal to
10% of the Company's market capitalization on the business day
immediately preceding the day on which the Company declares such
distribution; and
(f) the purchase of our common stock pursuant to a tender offer made
by the Company or any of its subsidiaries to the extent that the
same involves the payment of aggregate consideration that,
together with (A) any cash and the fair market value of any other
consideration payable in respect of any tender offer by the
Company or any of its subsidiaries for our common stock
consummated within the preceding 12 months that did not trigger a
Conversion Price adjustment and (B) all cash distributions to all
or substantially all holders of the Company's common stock made
within the preceding 12 months that did not trigger a Conversion
Price adjustment, exceeds an amount equal to 10% of the Company's
market capitalization on the expiration date of such tender offer.
In the event of:
o any reclassification of the Company's common stock, or
o certain consolidations, mergers or combinations involving the
Company, or
o a sale or conveyance of all or substantially all of the property
and assets of the Company,
in which the holders of our outstanding common stock would be entitled to
receive stock, other securities, other property, assets or cash for their common
stock, holders of Senior Notes will generally be entitled thereafter to convert
their Senior Notes into the same type of consideration received by common stock
holders immediately prior to one of these events.
No adjustment in the Conversion Price will be required unless such
adjustment would require an increase or decrease of at least 1% in the
Conversion Price; provided, however, that any adjustments which by reason of
this limitation are not required to be made will be carried forward and taken
into account in any subsequent adjustment.
The holders of the Senior Notes may, in some circumstances, be deemed to
have received a dividend or other distribution subject to tax as a result of an
adjustment (or absence of an adjustment) to the Conversion Price. See "Certain
U.S. Federal Income Tax Considerations."
In addition, we may decrease the Conversion Price by any amount for any
period of at least 20 days, in which case we will give at least 15 days' notice
of that decrease, and if the reduction is irrevocable during the period if our
Board of Directors determines that such reduction would be in our best
interests; provided, however, that in no event may we decrease the Conversion
Price to be less than the par value of a share of Common Stock.
In addition, we may make any reductions in the Conversion Price that the
Board of Directors deems in its discretion to be advisable in order that any
stock dividends, subdivisions of shares, distributions of rights to purchase
stock or securities or distributions of securities convertible into or
exchangeable for stock hereafter made by us to our stockholders shall not be
taxable.
OPTIONAL REDEMPTION
The Senior Notes may be redeemed, in whole or in part, at the option of
the Company upon not less than 20 nor
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more than 60 days' notice by mail to holders of the Senior Notes at any time
after May 12, 2004. The redemption price (expressed as a percentage of principal
amount) shall be 103%, together with accrued interest up to but not including
the date of redemption, payable in cash.
SELECTION AND NOTICE OF REDEMPTION
If we redeem less than all the Senior Notes at any time, the Trustee will
select Senior Notes on a pro rata basis, by lot or by such other method as the
Trustee in its sole discretion shall deem to be fair and appropriate.
We will redeem Senior Notes of $1,000 or less in whole and not in part.
We will mail notices of redemption at least 20 but not more than 60 days before
the redemption date to each holder of Senior Notes to be redeemed at its
registered address.
We will issue new Senior Notes, at our expense, in a principal amount
equal to the unredeemed portion of the original Senior Notes in the name of the
holder upon cancellation of the original Senior Notes. Senior Notes called for
redemption become due on the date fixed for redemption.
MANDATORY REDEMPTION; OFFERS TO PURCHASE; OPEN MARKET PURCHASES
We are not required to make any mandatory redemption or sinking fund
payments with respect to the Senior Notes. However, under certain circumstances,
we may be required to offer to purchase Senior Notes as described under the
caption "-- Change in Control." We may at any time and from time to time
purchase Senior Notes in the open market or otherwise.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the
Senior Notes will be subordinate in right of payment to the prior payment in
full of all the Company's existing and future Senior Indebtedness (other than
the 4 3/4% convertible subordinated notes due November 2007, which expressly
state that they are subordinate to the Senior Notes).
A substantial portion of the Company's operations are conducted through
its subsidiaries. As a result, the Company's cash flow and its ability to
service its debt, including the Senior Notes, is dependent upon the earnings of
its subsidiaries. In addition, the Company is dependent on the distribution of
earnings, loans or other payments by its subsidiaries.
The Company's subsidiaries are separate and distinct legal entities. Its
subsidiaries have no obligation to pay any amounts due on the Senior Notes or to
provide the Company with funds for its payment obligations, whether by
dividends, distributions, loans or other payments. In addition, any payment of
dividends, distributions, loans or advances by subsidiaries to the Company could
be subject to statutory or contractual restrictions. Payments to the Company by
its subsidiaries will also be contingent upon its subsidiaries' earnings and
business consideration.
The Company's right to receive any assets of it subsidiaries upon their
liquidation or reorganization, and therefore the right of the holders of the
Senior Notes to participate in those assets, will be effectively subordinated to
the claims of those subsidiaries' creditors, including trade creditors. In
addition, even if the Company were a creditor of any of its subsidiaries, the
Company's rights as a creditor would be subordinate to any security interest in
the assets of its subsidiaries and any indebtedness of its subsidiaries senior
to that held by the Company.
As of December 27, 2002, the Company had approximately $105 million of
Senior Indebtedness, while as of December 27, 2002 its subsidiaries had
approximately $11 million of outstanding indebtedness and other liabilities,
including trade payables and excluding intercompany liabilities, as to which the
Senior Notes are effectively subordinated.
Neither the Company nor its subsidiaries are prohibited from incurring
senior indebtedness or any other indebtedness or liabilities under the
Indenture. The Company expects additional indebtedness and other liabilities,
including Senior Indebtedness, in the future.
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REGISTRATION RIGHTS
The following summary of the registration rights provided in the
registration rights agreement and the Senior Notes is not complete. You should
refer to the registration rights agreement, which has been filed as Exhibit
10.bb to the Company's Annual Report on Form 10-K, filed with the SEC on
December 23, 2002 and incorporated herein by reference, for a full description
of the registration rights that apply to the Senior Notes.
We have agreed to file a shelf registration statement under the
Securities Act within 45 days after November 12, 2002 to register the Senior
Notes and the shares of common stock into which the Senior Notes are
convertible, which we refer to as registrable securities. We will use
commercially reasonable efforts to have this shelf registration statement
declared effective within 90 days after November 12, 2002, and we will use
reasonable best efforts to keep it effective until the earliest of:
(1) December 31, 2005 (or for such longer period if extended
pursuant to the Registration Rights Agreement);
(2) the date when all registrable securities shall have been
registered under the Securities Act and disposed of; and
(3) the date on which all registrable securities are eligible
to be sold to the public pursuant to Rule 144(k) under the
Securities Act or any successor rule thereof, if Conexant
is then a holder of Senior Notes, it is no longer
considered an affiliate of the Company under the Securities
Act.
We will be permitted to suspend the use of the prospectus which is a part
of the registration statement for a period not to exceed 45 consecutive days or
an aggregate of 90 days in any twelve month period under certain circumstances
relating to pending corporate developments, public filings with the SEC and
similar events.
A holder of registrable securities that sells registrable securities
pursuant to the shelf registration statement generally will be required to
provide information about itself and the specifics of the sale, be named as a
selling security holder in the related prospectus and deliver a prospectus to
purchasers, be subject to relevant civil liability provisions under the
Securities Act in connection with such sales and be bound by the provisions of
the registration rights agreement which are applicable to such holder.
If:
(1) by the 45th day after November 12, 2002, the shelf
registration statement has not been filed with the SEC;
(2) by the 90th day after November 12, 2002, the shelf
registration statement has not been declared effective by
the SEC;
(3) we fail, with respect to a holder of Senior Notes that
supplies the questionnaire described below, to amend or
supplement the shelf registration statement in a timely
manner in order to name additional selling securityholders;
or
(4) after the shelf registration statement has been declared
effective, such shelf registration statement ceases to be
effective or fails to be usable in connection with resales
of Senior Notes and the common stock issuable upon the
conversion of the Senior Notes in accordance with and
during the periods specified in the Registration Rights
Agreement and (A) we do not cure the shelf registration
statement within fifteen business days by a post-effective
amendment or a report filed pursuant to the Exchange Act or
(B) if applicable, we do not terminate the suspension
period described above by the 45th or 90th day, as the case
may be,
(we refer to each such event described above in clauses (1) through (4) as a
registration default), additional interest will accrue on the Senior Notes, in
addition to the 15% annual interest rate, from and including the date on which
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any such registration default occurs to, but excluding the date on which the
registration default has been cured, at the rate of 0.50% per year (or an
equivalent amount for any common stock issued upon conversion of the Senior
Notes that are registrable securities). In the case of a registration default
described in clause (3), our obligation to pay additional interest extends only
to the affected Senior Notes. We will have no other liabilities for monetary
damages with respect to our registration obligations. With respect to each
holder, our obligations to pay additional interest remain in effect only so long
as the Senior Notes and the common stock issuable upon the conversion of the
Senior Notes held by the holder are "Securities" within the meaning of the
Registration Rights Agreement.
CHANGE IN CONTROL
Upon the occurrence of any of the following events (each a "Change in
Control"), each holder shall have the right to require that the Company
repurchase, as of the date that is no less than 30 days and no more than 60 days
from the date such notice is mailed or delivered, such holder's Senior Notes at
a purchase price in cash equal to 100% of the principal amount thereof on the
date of purchase, plus accrued and unpaid interest, if any, to, but not
including, the date of repurchase by the Company (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date):
(1) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act), is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of shares
of Voting Stock of the Company representing 50% or more of
the total voting power of all outstanding classes of Voting
Stock of the Company or such person or group has the power,
directly or indirectly, to elect a majority of the members
of the board of directors of the Company ;
(2) the merger or consolidation of the Company with or into
another person or the merger of another person with or into
the Company, or the sale of all or substantially all the
assets of the Company to another person other than a
transaction in which the persons that "beneficially owned,"
directly or indirectly, shares of Voting Stock of the
Company immediately prior to such transaction "beneficially
own," directly or indirectly, shares of Voting Stock
representing at least a majority of the voting power of all
outstanding classes of the Voting Stock of the surviving or
transferee person; or
(3) the adoption of a plan relating to the liquidation or
dissolution of the Company.
On or prior to the purchase date, we will deposit with a paying agent
funds sufficient to pay the aggregate purchase price of the Senior Notes which
is to be paid on the purchase date.
A Change in Control will not be deemed to have occurred:
o if the Closing Price of our common stock for any five Trading Days
during the ten Trading Days immediately preceding the Change in
Control is at least equal to 105% of the Conversion Price in
effect on such Trading Day; or
o in the case of a merger or consolidation, at least 75% of the
consideration received or to be received by the holders of shares
of our common stock (excluding cash payments for fractional shares
in the merger or conslidation constituting the Change in Control)
consists of shares of common stock that are, or upon issuance will
be, traded on a national securities exchange in the United States
or through the Nasdaq National Market and as a result of such
transaction or transactions the Senior Notes become convertible
into such common stock.
Within 10 business days following any Change in Control, we will mail a
notice to each holder, with a copy to the Trustee (the "Change in Control
Offer"), stating, among other things:
(1) that a Change in Control has occurred and that such holder
has the right to require us to purchase such holder's
Senior Notes at a purchase price in cash equal to 100% of
the principal amount thereof on the date of purchase, plus
accrued and unpaid interest, if any, to, but not including,
the
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date of repurchase (subject to the right of holders of
record on the relevant record date to receive interest on
the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change
in Control, including the then current Conversion Price and
the Floor Price;
(3) the purchase date;
(4) identification of the securities being purchased; and
(5) the procedures, as determined by us, consistent with the
covenant described hereunder, that a holder must follow in
order to have its Senior Notes repurchased by the Company
and the procedures for withdrawing a Change in Control
Offer.
To exercise the purchase right, the holder of Senior Notes must deliver,
on or before the close of business on the business day prior to the purchase
date, a written notice to us and the Paying Agent of the holder's exercise of
the right. This notice must be accompanied by the certificates evidencing the
Senior Notes with respect to which the right is being exercised, duly endorsed
for transfer. In addition, if the purchase date falls between the relevant
record date and the succeeding interest payment date, the holder will also be
required to deliver with the Senior Notes to be purchased a payment in cash
equal to the interest that the holder is to receive on the interest payment
date.
We will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Senior Notes as a result of a Change in
Control.
The Change in Control purchase feature of the Senior Notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company and, thus, the removal of incumbent management. The Change in Control
purchase feature is a result of negotiations between the Company and Conexant.
We have no present intention to engage in a transaction involving a Change in
Control, although it is possible that we could decide to do so in the future. We
could, in the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change in
Control under the Indenture, but that could increase the amount of indebtedness
outstanding at such time or otherwise affect our capital structure or credit
ratings. The Indenture will not contain any covenants or provisions that may
afford holders of the Senior Notes protection in the event of a highly leveraged
transaction.
Future indebtedness that we may incur may contain prohibitions on the
occurrence of certain events that would constitute a Change in Control or
require the repurchase of such indebtedness upon a Change in Control. Moreover,
the exercise by the holders of their right to require us to repurchase the
Senior Notes could cause a default under such indebtedness, even if the Change
in Control itself does not, due to the financial effect of such repurchase on
us. Finally, our ability to pay cash to the holders of Senior Notes following
the occurrence of a Change in Control may be limited by our then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
The definition of "Change in Control" includes a disposition of all or
substantially all of the assets of the Company to any person. Although there is
a limited body of case law interpreting the phrase "substantially all," there is
no precise established definition of the phrase under applicable law.
Accordingly, in certain circumstances, there may be a degree of uncertainty as
to whether a particular transaction would involve a disposition of "all or
substantially all" of the assets of the Company. As a result, it may be unclear
as to whether a Change in Control has occurred and whether a holder of Senior
Notes may require the Company to make an offer to repurchase the Senior Notes as
described above.
The provisions under the Indenture related to our obligation to make an
offer to repurchase the Senior Notes as a result of a Change in Control may be
waived or modified with the written consent of the holders of a majority in
principal amount of the Senior Notes.
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MERGER AND CONSOLIDATION
We shall not consolidate with or merge into any other person, in a
transaction in which we are not the surviving corporation, or sell, convey,
transfer or lease our properties and assets substantially as an entirety to, any
person, unless:
o the successor person, if any, is a corporation, limited liability
company, partnership, trust or other entity organized and existing
under the laws of the United States, or any state of the United
States, and expressly assumes the Company's obligations under the
Indenture by a supplemental indenture,
o immediately after giving effect to the transaction, no Event of
Default, and no event which, after notice or lapse of time or
both, would become an Event of Default, shall have occurred and be
continuing, and
o certain other conditions are met.
DEFAULTS
Each of the following is an Event of Default:
(1) a default in the payment of interest on the Senior Notes
when due, which continues for 15 days;
(2) a default in the payment of principal of any Senior Notes
when due at its maturity, or a failure to redeem or
purchase the Senior Notes when required pursuant to the
Indenture or the Senior Notes;
(3) the failure by the Company to provide notice of a Change of
Control in accordance with the terms of the Indenture;
(4) the failure by the Company to comply with its obligations
described under "-- Merger and Consolidation" above;
(5) the failure by the Company to comply with any of its
agreements in the Senior Notes or in the Indenture (other
than those referred to in clauses (1) through (4) above)
and such failure continues for 60 days after the notice
specified below;
(6) certain events of bankruptcy, insolvency or reorganization
of the Company (the "bankruptcy provisions"); and
(7) the payment of the principal of the Company's 4 3/4%
convertible subordinated notes due November 2007 is
accelerated under the terms of the indenture governing such
notes.
However, a default under clauses (3) and (5) will not constitute an Event of
Default until the Trustee or the holders of 25% in principal amount of the
outstanding Senior Notes notify the Company of the default and the Company does
not cure such default within the time specified after receipt of such notice.
If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of the Company or the acceleration of the Company's
4 3/4% convertible subordinated notes due November 2007 occurs and is
continuing, the principal of and interest on all the Senior Notes will ipso
facto become and be immediately due and payable in cash without any declaration
or other act on the part of the Trustee or any holders of the Senior Notes. If
an Event of Default relating to the Company's failure to pay interest on the
Senior Notes occurs and is continuing, or if an Event of Default relating to the
Company's failure to redeem or purchase the Senior Notes when required pursuant
to the Indenture or the Senior Notes occurs and is continuing, the Trustee by
notice to the Company, or the holders of at least 25% in principal amount of the
Senior Notes by notice to the Company and the Trustee, may declare the principal
of and interest on all the Senior Notes to be due and payable immediately in
cash. If any other Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the outstanding Senior Notes may
declare the principal of and interest on all the Senior Notes to be due and
payable, the
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principal to be paid in shares of common stock and the interest to be paid in
cash. Upon such a declaration, such principal and interest shall be due and
payable immediately. Under certain circumstances, the holders of a majority in
principal amount of the outstanding Senior Notes may rescind any such
acceleration with respect to the Senior Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee shall
exercise the rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its own exercise, as a prudent person would exercise
or use under the circumstances in the conduct of such person's own affairs.
Except to enforce the right to receive payment of principal, premium (if any) or
interest when due, no holder of Senior Notes may pursue any remedy with respect
to the Indenture or the Senior Notes unless:
(1) such holder has previously given the Trustee notice that an
Event of Default is continuing;
(2) holders of at least 25% in principal amount of the
outstanding Senior Notes have requested the Trustee to
pursue the remedy;
(3) such holders have offered the Trustee reasonable security
or indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60
days after the receipt thereof and the offer of security or
indemnity; and
(5) holders of a majority in principal amount of the
outstanding Senior Notes have not given the Trustee a
direction inconsistent with such request within such 60-day
period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Senior Notes are given the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other holder of Senior Notes or that would involve the Trustee in
personal liability.
If a Default occurs and is continuing and if it is actually known to the
Trustee, or upon written notice from the Company or any holder of Senior Notes
or upon a default of Senior Indebtedness, the Trustee must mail to each holder
of the Senior Notes notice of the Default within 90 days after it occurs. Except
in the case of a Default in the payment of principal of or interest on any
Senior Note, the Trustee may withhold notice if and so long as a committee of
its Trust Officers in good faith determines that withholding notice is in the
interest of the holders of the Senior Notes.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture or the Senior Notes may be
amended with the consent of the holders of a majority in principal amount of the
Senior Notes then outstanding (including consents obtained in connection with a
tender offer or exchange for the Senior Notes), without notice to any holder of
Senior Notes, and any past default or compliance with any provisions may also be
waived with the consent of the holders of a majority in principal amount of the
Senior Notes then outstanding. However, without the consent of each holder of
outstanding Senior Notes affected thereby, an amendment or waiver may not:
(1) change the stated maturity of the principal of, or interest
on, any Senior Note;
(2) reduce the principal amount of, or any premium or interest
on, any Senior Note;
(3) reduce the amount of principal payable upon acceleration of
the maturity of any Senior Note;
(4) change the time at which any Senior Notes may be redeemed
in accordance with the Indenture;
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(5) change the place or currency of payment of principal of, or
any premium or interest on, any Senior Note;
(6) impair the right to institute suit for the enforcement of
any payment on, or with respect to, any Senior Note;
(7) modify the subordination provisions of the Indenture in a
manner materially adverse to the holders of Senior Notes;
(8) adversely affect the right of holders to convert Securities
other than as provided in the Indenture
(9) adversely affect the adjustment of the Conversion Price
except as provided in the Indenture;
(10) reduce the percentage of the aggregate principal amount of
the outstanding Senior Notes whose holders must consent to
a modification or amendment of the Indenture; and
(11) modify any of the provisions of certain sections of the
Indenture relating to the vote required to approve
amendments and waivers, except to increase any specified
percentage or to provide that specified additional
provisions of the Indenture cannot be modified or waived
without the consent of the holder of outstanding Senior
Notes affected thereby.
Without the consent of any holder of the Senior Notes, the Company and
Trustee may amend the Indenture:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption by a successor corporation of
the obligations of the Company under the Indenture;
(3) to provide for uncertificated Senior Notes in addition to
or in place of certificated Senior Notes (provided that the
uncertificated Senior Notes are issued in registered form
for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Senior Notes are described in
Section 163(f)(2)(B) of the Code);
(4) to add guarantees with respect to the Senior Notes or to
secure the Senior Notes;
(5) to add to the covenants of the Company for the benefit of
the holders of the Senior Notes or to surrender any right
or power conferred upon the Company;
(6) to make any change that does not adversely affect the
rights of any holder of the Senior Notes;
(7) to comply with any requirement of the SEC in connection
with the qualification of the Indenture under the Trust
Indenture Act; or
(8) to appoint a successor Trustee.
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any Senior Indebtedness of the
Company then outstanding unless the holders of such Senior Indebtedness,
pursuant to the terms thereof, consent to such change.
The consent of the holders of the Senior Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Senior Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Senior
Notes, or any defect therein, will not impair or affect the validity of the
amendment.
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TRANSFER
The Senior Notes will be issued in registered form and will be
transferable only upon the surrender of the Senior Notes being transferred for
registration of transfer. We may require payment of a sum sufficient to cover
any tax, assessment or other governmental charge payable in connection with
certain transfers and exchanges.
SATISFACTION AND DISCHARGE
We may discharge our obligations under the Indenture (except as to any
surviving rights of conversion, registration of transfer or exchange) while
Senior Notes remain outstanding if (1) all outstanding Senior Notes will become
due and payable at their scheduled maturity within 90 days or (2) all
outstanding Senior Notes have been called for redemption within 90 days, and in
either case, we have deposited with the Trustee an amount of cash and/or shares
of common stock sufficient to pay and discharge all outstanding Senior Notes on
the date of their scheduled maturity or the scheduled date of redemption.
Notwithstanding the satisfaction and discharge of the Indenture, certain other
obligations of the Company shall survive until the Senior Notes have been paid
in full.
PURCHASE AND CANCELLATION
All Senior Notes surrendered for payment, redemption, registration or
transfer or exchange or conversion shall, if surrendered to any person other
than the Trustee, be delivered to the Trustee. All Senior Notes delivered to the
Trustee shall be canceled promptly by the Trustee. No Senior Notes shall be
authenticated in exchange for any Senior Notes canceled, as provided in the
Indenture.
We may, to the extent permitted by law, purchase Senior Notes in the open
market or by tender offer at any price or by agreement. Any Senior Notes
purchased by us may, to the extent permitted by law, be reissued or resold or
may, at our option, be surrendered to the Trustee for cancellation. Any Senior
Notes surrendered for cancellation may not be reissued or resold and will be
promptly canceled.
REPLACEMENT OF NOTES
We will replace mutilated, destroyed, stolen or lost Senior Notes at the
expense of the holder upon delivery to the Trustee of mutilated Senior Notes or
evidence of the loss, theft or destruction of the Senior Notes satisfactory to
us and the Trustee. In the case of a lost, stolen or destroyed Senior Note,
indemnity satisfactory to the Trustee and us may be required at the expense of
the holder of such Senior Notes before a replacement will be issued.
CONCERNING THE TRUSTEE
Wachovia Bank, National Association, is the Trustee under the Indenture.
We have appointed Wachovia Bank, National Association as Registrar and Paying
Agent with regard to the Senior Notes.
The holders of a majority in principal amount of the outstanding Senior
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. If an Event of Default occurs (and is not cured), the
Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent person in the conduct of his or her own affairs.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the
Company will have any liability for any obligations of the Company under the
Senior Notes, the Indenture or the Registration Rights Agreement or for any
claim based on, in respect of, or by reason of such obligations or their
creation. Each holder of the Senior Notes by accepting Senior Notes waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Senior Notes. Such waiver and release may not
be effective to waive liabilities under the U.S. federal securities laws, and it
is the view of the SEC that such a waiver is against public policy.
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GOVERNING LAW
The Indenture and the Senior Notes will be governed by, and construed in
accordance with, the laws of the State of New York.
CERTAIN DEFINITIONS
"Board of Directors" means the board of directors of the Company or any
committee thereof duly authorized to act on behalf of such board.
"Capital Stock" of any person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Closing Price" on any Trading Day shall be the last reported sales price
or, in case no such reported sale takes place on such date, the average of the
reported closing bid and asked prices in either case on The New York Stock
Exchange (the "NYSE") or The Nasdaq National Market (the "NNM"), as applicable,
or, if the Common Stock is not listed or admitted to trading on the NYSE or the
NNM, the principal national securities exchange or quotation system on which the
Common Stock is quoted or listed or admitted to trading or, if not quoted or
listed or admitted to trading on any national securities exchange or quotation
system, the closing sales price or, in case no reported sale takes place, the
average of the closing bid and asked prices, as furnished by any two members of
the National Association of Securities Dealers, Inc. selected from time to time
by the Company for that purpose.
"Conversion Price" is $7.87 per share, subject to adjustment under
certain circumstances.
"Currency Agreement" means in respect of a person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Floor Price" means 80% of the Conversion Price.
"Guarantee" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Indebtedness of any other person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness of such person
(whether arising by virtue of partnership arrangements, or
by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise); or
(2) entered into for the purpose of assuring in any other
manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect
thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
person Guaranteeing any obligation.
"Hedging Obligations" of any person means the obligations of such person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a person
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
person at the time it becomes a Subsidiary. The term "Incurrence" when used as a
noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any person on any date of
determination (without duplication):
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(1) the principal of an premium (if any) in respect of (A)
indebtedness of such person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such person is
responsible or liable;
(2) all Capital Lease Obligations of such person and all
Attributable Debt in respect of Sale/ Leaseback
Transactions entered into by such person;
(3) all obligations of such person issued or assumed as the
deferred purchase price of property, all conditional sale
obligations of such person and all obligations of such
person under any title retention agreement (but excluding
trade accounts payable arising in the ordinary course of
business);
(4) all obligations of such person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with
respect to letters of credit securing obligations (other
than obligations described in clauses (1) through (3)
above) entered into in the ordinary course of business of
such person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such
drawing is reimbursed no later than the tenth business day
following payment on the letter of credit);
(5) the amount of all obligations of such person with respect
to the redemption, repayment or other repurchase of any
Capital Stock of such person;
(6) all obligations of the type referred to in clauses (1)
through (5) of other persons and all dividends of other
Persons for the payment of which, in either case, such
person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any
Guarantee;
(7) all obligations of the type referred to in clauses (1)
through (6) of other persons secured by any Lien on any
property or asset of such person (whether or not such
obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so
secured; and
(8) to the extent not otherwise included in this definition,
Hedging Obligations of such person.
The amount of Indebtedness of any person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; provided,
however, that in the case of Indebtedness sold at a discount, the amount of such
Indebtedness at any time will be the accreted value thereof at such time.
"Interest Rate Agreement" means in respect of a person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such person against fluctuations in interest
rates.
"Obligations" means with respect to any Indebtedness all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
and other amounts payable pursuant to the documentation governing such
Indebtedness.
"Preferred Stock", as applied to the Capital Stock of any person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
person, over shares of Capital Stock of any other class of such person.
"principal" of Senior Notes means the principal plus the premium, if any,
of the Senior Notes payable on the Senior Notes which is due or overdue or is to
become due at the relevant time.
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"Registration Rights Agreement" means the Registration Rights Agreement,
dated November 12, 2002, between the Company and Conexant Systems, Inc.
"Senior Indebtedness" means with respect to any person:
(1) all Indebtedness of such person, whether outstanding on
November 12, 2002 or thereafter Incurred; and
(2) all other Obligations of such person (including interest
accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to such person
whether or not post-filing interest is allowed in such
proceeding) in respect of Indebtedness described in clause
(1) above
unless, in the case of clauses (1) and (2), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
expressly provided that such Indebtedness or other Obligations are not superior
in right of payment to the Senior Notes; provided, however, that Senior
Indebtedness shall not include:
(1) any obligation of such person to any subsidiary;
(2) any liability for Federal, state, local or other taxes owed
or owing by such person; or
(3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including
guarantees thereof or instruments evidencing such
liabilities).
"Trading Day" means, with respect to any security, each Monday, Tuesday,
Wednesday, Thursday and Friday, other than any day on which securities are not
generally traded on the principal exchange or market in which the security is
traded.
BOOK-ENTRY, DELIVERY AND FORM
We initially issued a certificated security, which may subsequently be
exchanged for one or more global notes (the "Global Note"). The Global Note will
be deposited with, or on behalf of, the Depository and registered in the name of
the Depository or its nominee. Except as set forth below, the Global Note may be
transferred, in whole and not in part, only to the Depository or another nominee
of the Depository. A holder may hold its beneficial interest in the Global Note
directly through the Depository if such holder has an account with the
Depository or indirectly through organizations which have accounts with the
Depository. The Depository has advised the Company as follows:
o the Depository is a limited-purpose trust company organized under
the laws of the State of New York,
o a member of the Federal Reserve System,
o a "clearing corporation" within the meaning of the New York
Uniform Commercial Code,
o and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act.
The Depository was created to hold securities of institutions that have
accounts with the Depository ("participants") and to facilitate the clearance
and settlement of securities transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The Depository's participants include securities brokers and
dealers (which may include the initial purchasers), banks, trust companies,
clearing corporations and certain other organizations. The Depository is owned
by a number of its participants and by the New York Stock Exchange, Inc., the
American Stock Exchange LLC and the National Association of Securities Dealers,
Inc. Access to the Depository's book-entry system is also available to others
such as banks, brokers, dealers and trust companies (collectively, the "indirect
participants") that clear through or maintain a custodial relationship with a
participant, whether directly or indirectly. The Rules applicable to the
Depositary and its participants and indirect participants are on file with the
SEC.
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The Company expects that pursuant to procedures established by the
Depository, upon the deposit of the Global Note with the Depository, the
Depository will credit, on its book-entry registration and transfer system, the
principal amount of Senior Notes represented by such Global Note to the accounts
of participants. Ownership of beneficial interests in the Global Note will be
limited to participants or persons that may hold interests through participants.
Ownership of beneficial interests in the Global Note will be shown on, and the
transfer of those ownership interests will be effected only through, records
maintained by the Depository (with respect to participants' interests), the
participants and the indirect participants (with respect to the owners of
beneficial interests in the Global Note other than participants). The laws of
some jurisdictions may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and laws
may impair the ability to transfer or pledge beneficial interests in the Global
Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of any related Senior Notes
evidenced by the Global Note for all purposes of such Senior Notes and the
Indenture. The Depository has no knowledge of the actual beneficial owners of
the Senior Notes; the Depository's records reflect only the identity of the
participants to whose accounts such Senior Notes are credited, which may or may
not be the beneficial owners. The participants and indirect participants will
remain responsible for keeping account of their holdings on behalf of their
customers. Except as set forth below, as an owner of a beneficial interest in
the Global Note, you will not be entitled to have the Senior Notes represented
by the Global Note registered in your name, will not receive or be entitled to
receive physical delivery of certificated Senior Notes and will not be
considered to be the owner or holder of any Senior Notes under the Global Note.
We understand that under existing industry practice, in the event an owner of a
beneficial interest in the Global Note desires to take any action that the
Depository, as the holder of the Global Note, is entitled to take, the
Depository would authorize the participants to take such action, and the
participants would authorize beneficial owners owning through such participants
to take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
Conveyance of notices and other communications by the Depository to
participants, by participants to indirect participants, and by participants and
indirect participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time. Beneficial owners of Senior Notes may wish to take
certain steps to augment transmission to them of notices of significant events
with respect to the Senior Notes, such as redemptions, tenders, defaults and
proposed amendments to any security documents. Beneficial owners of Senior Notes
may wish to determine whether the nominee holding the Senior Notes for their
benefit has agreed to obtain and transmit notices to beneficial owners, or in
the alternative, beneficial owners may wish to provide their names and addresses
to the registrar and request that copies of the notices be provided directly to
them.
Redemption notices will be sent to the Depository. If less than all of
the Senior Notes within an issue are being redeemed, the Depository's practice
is to determine by lot the amount of the interest of each participant in such
issue to be redeemed.
We will make payments of principal of, premium, if any, and interest on
Senior Notes represented by the Global Note registered in the name of and held
by the Depository or its nominee to the Depository or its nominee, as the case
may be, as the registered owner and holder of the Global Note.
We expect that the Depository or its nominee, upon receipt of any payment
of principal of, premium, if any, or interest on the Global Note will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. We also expect that
payments by participants or indirect participants to owners of beneficial
interests in the Global Note held through such participants or indirect
participants will be governed by standing instructions and customary practices
and will be the responsibility of such participants or indirect participants. We
will not have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial ownership interests in
the Global Note for any Senior Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for any
other aspect of the relationship between the Depository and its participants or
indirect participants or the relationship between such participants or indirect
participants and the owners of beneficial interests in the Global Note owning
through such participants.
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Although the Depository has agreed to the foregoing procedures in order
to facilitate transfers of interests in the Global Note among participants of
the Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Under such
circumstances, in the event that a successor securities depository is not
obtained, Senior Note certificates are required to be printed and delivered as
described below under "-- Certificated Notes." Neither the Trustee nor the
Company will have any responsibility or liability for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Company
believes to be reliable, but neither the Company nor the initial purchasers take
any responsibility for the accuracy thereof.
CERTIFICATED NOTES
Subject to certain conditions, the Senior Notes represented by the Global
Note are exchangeable for certificated Senior Notes in definitive form of like
tenor in denominations of $1,000 and integral multiples thereof if:
(1) the Depository notifies us that it is unwilling or unable
to continue as Depository for the Global Note or the
Depository ceases to be a clearing agency registered under
the Exchange Act and, in either case, we are unable to
locate a qualified successor within 90 days;
(2) we in our discretion at any time determine not to have all
the Senior Notes represented by the Global Note; or
(3) a default entitling the holders of the Senior Notes to
accelerate the maturity thereof has occurred and is
continuing.
Any Senior Notes that are exchangeable as described above are
exchangeable for certificated Senior Notes issuable in authorized denominations
and registered in such names as the Depository shall direct. Subject to the
foregoing, the Global Note is not exchangeable, except for a Global Note of the
same aggregate denomination to be registered in the name of the Depository or
its nominee.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Skyworks has 550,000,000 authorized shares of capital stock, consisting of
525,000,000 shares of common stock and 25,000,000 shares of preferred stock. As
of January 10, 2003, we had 138,006,514 shares of common stock outstanding and
no shares of preferred stock outstanding. The authorized shares of common stock
and preferred stock are available for issuance without further action by our
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which our securities may be
listed or traded. If the approval of our stockholders is not so required, our
board of directors may determine not to seek stockholder approval.
The following is a summary of certain provisions of Delaware law, our
Amended and Restated Certificate of Incorporation, as amended (the "Certificate
of Incorporation") and our Second Amended and Restated By-laws (the "By-laws").
This summary does not purport to be complete and is qualified in its entirety by
reference to the corporate law of Delaware and our Certificate of Incorporation
and By-laws.
Certain of the provisions described below under "-- Certain Provisions in
our Certificate of Incorporation and By-laws" could have the effect of
discouraging transactions that might lead to a Change in Control of Skyworks.
For example, our Certificate of Incorporation and Bylaws:
- establish a classified board of directors;
- permit the board of directors to issue shares of preferred stock in one
or more series without further authorization of our stockholders;
- prohibit stockholder action by written consent;
- require stockholders to provide advance notice of any stockholder
nominations of directors or any proposal of new business to be
considered at any meeting of stockholders;
- require a supermajority vote to amend or repeal certain provisions of
our Certificate of Incorporation or By-laws;
- preclude stockholders from calling a special meeting of stockholders;
- require a supermajority vote for business combinations not approved by a
majority of the members of the board of directors in office prior to the
time the other party to the business combination became the beneficial
owner of 5% or more of the shares of Skyworks; and
- contain a fair price provision.
COMMON STOCK
Holders of our common stock are entitled to such dividends as may be
declared by our Board of Directors out of funds legally available for such
purpose. Dividends may not be paid on common stock unless all accrued dividends
on preferred stock, if any, have been paid or declared and set aside. In the
event of Skyworks' liquidation, dissolution or winding up, the holders of common
stock will be entitled to share pro rata in the assets remaining after payment
to creditors and after payment of the liquidation preference plus any unpaid
dividends to holders of any outstanding preferred stock.
Each holder of our common stock is entitled to one vote for each such share
outstanding in the holder's name. No holder of common stock is entitled to
cumulate votes in voting for directors. Our Certificate of Incorporation
provides that, unless otherwise determined by our board of directors, no holder
of common stock will have any preemptive right to purchase or subscribe for any
stock of any class which we may issue or sell.
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Our common stock is listed on the Nasdaq National Market under the symbol
"SWKS". American Stock Transfer & Trust Company is the transfer agent and
registrar for our common stock. Its address is 59 Maiden Lane, New York, NY
10038, and its telephone number is (800) 937-5449.
PREFERRED STOCK
Our Certificate of Incorporation permits us to issue up to 25,000,000 shares
of preferred stock in one or more series and with rights and preferences that
may be fixed or designated by our board of directors without any further action
by our stockholders. The designation, powers, preferences, rights and
qualifications, limitations and restrictions of the preferred stock of each
series will be fixed by the certificate of designation relating to such series,
which will specify the terms of the preferred stock, including:
- the designation of the series, which may be by distinguishing number,
letter or title;
- the number of shares of the series, which number the board of directors
may thereafter (except where otherwise provided in the preferred stock
designation) increase or decrease (but not below the number of shares
thereof then outstanding);
- whether dividends, if any, shall be cumulative or noncumulative and the
dividend rate of the series;
- the dates at which dividends, if any, shall be payable;
- the redemption rights and price or prices, if any, for shares of the
series;
- the terms and amount of any sinking fund provided for the purchase or
redemption of shares of the series;
- the amounts payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of Skyworks;
- whether the shares of the series shall be convertible into shares of any
other class or series, or any other security, of Skyworks or any other
corporation, and, if so, the specification of such other class or series
or such other security, the conversion price or prices or rate or rates,
any adjustments thereof, the date or dates as of which such shares shall
be convertible and all other terms and conditions upon which such
conversion may be made;
- restrictions on the issuance of shares of the same series or of any
other class or series; and
- the voting rights, if any, of the holders of shares of the series,
provided that no share of preferred stock of any series will be entitled
to more than one vote per share of preferred stock.
Although our Board of Directors has no intention at the present time of
doing so, it could issue a series of preferred stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt.
CERTAIN PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BY-LAWS
Our Certificate of Incorporation and By-laws contain various provisions
intended to:
- promote the stability of our stockholder base; and
- render more difficult certain unsolicited or hostile attempts to take us
over, which could disrupt Skyworks, divert the attention of our
directors, officers and employees and adversely affect the independence
and integrity of our business.
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Pursuant to our Certificate of Incorporation, the number of directors is
fixed by our Board of Directors. Our directors are divided into three classes,
each class to consist as nearly as possible of one third of the directors.
Pursuant to our amended By-laws, directors elected by stockholders at an annual
meeting of stockholders will be elected by a plurality of all votes cast.
Currently, the terms of office of the three classes of directors will expire,
respectively, at our 2002, 2003 and 2004 annual meetings. The term of the
successors of each such class of directors expires three years from the year of
election.
Our Certificate of Incorporation contains a fair price provision pursuant to
which a business combination (including, among other things, a merger or
consolidation) between Skyworks or its subsidiaries and a related person (as
defined in the our Certificate of Incorporation), requires approval by the
affirmative vote of the holders of at least 90% of the then outstanding shares
of capital stock entitled to vote generally in the election of directors, voting
together as a single class, unless the business combination is approved by a
majority of the continuing directors (as defined in the our Certificate of
Incorporation) and certain fair price criteria and procedural requirements
specified in the fair price provision are met. If the business combination does
not involve any cash or other property being received by any of the other
stockholders, then the fair price criteria discussed below would not apply, and
only approval by a majority of the continuing directors would be required.
Under the fair price provision, the fair price criteria that must be
satisfied to avoid the 90% stockholder voting requirement include the
requirement that the consideration paid to the Skyworks' stockholders in a
business combination must be either cash or the same form of consideration used
by the related person in acquiring its beneficial ownership of the largest
number of shares of our capital stock acquired by the related person. The
related person would be required to meet the fair price criteria with respect to
each class of our capital stock entitled to vote generally in the election of
directors, whether or not the related person beneficially owned shares of that
class prior to proposing the business combination.
Under the fair price provision, even if the foregoing fair price criteria
are met, the following procedural requirements must be met if the business
combination is not to require approval by the holders of at least 90% of the
then outstanding shares of capital stock entitled to vote generally in the
election of directors, voting together as a single class:
- after the related person had become a related person and before the
consummation of such business combination, (1) Skyworks must not have
failed to declare and pay full quarterly dividends on any outstanding
Skyworks preferred stock, reduced the annual rate of dividends paid on
Skyworks common stock or failed to increase such annual rate of
dividends as necessary to reflect any reclassification,
recapitalization, reorganization or any similar transaction which has
the effect of reducing the number of outstanding shares of our common
stock, unless such failure, reduction or reclassification was approved
by a majority of the continuing directors and (2) the related person
must not have acquired any newly issued shares of Skyworks capital stock
entitled to vote generally in the election of directors, directly or
indirectly, from Skyworks, except as part of the transaction which
results in such related person becoming a related person;
- the related person must not have received, directly or indirectly (other
than proportionately as a stockholder), at any time after becoming a
related person, the benefit of any loans, advances, guarantees, pledges
or other financial assistance or any tax advantages provided by
Skyworks; and
- a proxy or information statement describing the proposed business
combination and complying with the requirements of the Exchange Act must
have been mailed to all stockholders of Skyworks at least 30 days prior
to the consummation of the business combination and such proxy or
information statement must have contained a recommendation as to the
advisability or inadvisability of the business combination which any of
the continuing directors may have furnished in writing to the board of
directors.
Our Certificate of Incorporation requires the affirmative vote of the
holders of at least 80% of the shares of all classes of stock entitled to vote
for the election of directors, voting together as a single class, to approve a
business combination (including, among other things, a merger, consolidation or
sale of all or substantially all of the assets of Skyworks) that has not been
approved by a majority of the members of the board of directors in office prior
to the time the other party to the business combination became the beneficial
owner of 5% or more of the shares of Skyworks entitled to vote for the election
of directors.
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Our By-laws provide that a special meeting of stockholders may be called
only by a resolution adopted by a majority of the entire board of directors.
Stockholders are not permitted to call, or to require that the board of
directors call, a special meeting of stockholders. Moreover, the business
permitted to be conducted at any special meeting of stockholders is limited to
the business brought before the meeting pursuant to the notice of the meeting
given by Skyworks. In addition, our Certificate of Incorporation provides that
any action taken by our stockholders must be effected at an annual or special
meeting of stockholders and may not be taken by written consent instead of a
meeting. Our By-laws establish an advance notice procedure for stockholders to
nominate candidates for election as directors or to bring other business before
meetings of our stockholders.
Our Certificate of Incorporation requires the affirmative vote of the
holders of at least 66 2/3% of the shares of all classes of stock entitled to
vote for the election of directors, voting together as a single class, to:
- amend or repeal any provision of our By-laws;
- amend or repeal the provision of our certificate of incorporation
relating to amendments to our By-laws; or
- adopt any provision inconsistent with such provisions.
Our Certificate of Incorporation requires the affirmative vote of the
holders of at least 80% of the shares of all classes of stock entitled to vote
for the election of directors, voting together as a single class, to:
- amend or repeal the provisions of our second amended and restated
certificate of incorporation relating to the election of directors, the
classified board, or the right to act by written consent; or
- adopt any provision inconsistent with such provisions.
Our Certificate of Incorporation requires the affirmative vote of the
holders of at least 90% of the shares of all classes of stock entitled to vote
for the election of directors, voting together as a single class, to:
- amend or repeal the fair price provision of our Certificate of
Incorporation; or
- adopt any provision inconsistent with such provision.
Under the business combination provision discussed above, our Certificate of
Incorporation requires the affirmative vote of the holders of at least 80% of
the shares of all classes of stock entitled to vote for the election of
directors, voting together as a single class, to amend, revise or revoke the
business combination provision.
BUSINESS COMBINATION PROVISIONS
We are subject to a Delaware statute regulating "business combinations,"
defined to include a broad range of transactions, between Delaware corporations
and "interested stockholders," defined as persons who have acquired at least 15%
of a corporation's stock. Under such statute, a corporation may not engage in
any business combination with any interested stockholder for a period of three
years after the date such person became an interested stockholder unless certain
conditions are satisfied. The statute contains provisions enabling a corporation
to avoid the statute's restrictions. We have not sought to "elect out" of the
statute, and therefore, the restrictions imposed by such statute will apply to
us.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes some of the U.S. federal income tax considerations
relating to the purchase, ownership, and disposition of the Senior Notes and of
our common stock into which the Senior Notes may be converted. This summary does
not discuss the tax consequences relating to the purchase, ownership and
disposition of the Interim Notes or the conversion of the Interim Notes into
Senior Notes. This summary is for general purposes only; it does not address all
potential tax considerations, and it does not provide a complete or detailed
discussion of the matters that are discussed below. The information provided
below is based on existing and generally applicable U.S. federal income tax
authorities, including the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, judicial decisions, and administrative
pronouncements. These authorities may change, possibly on a retroactive basis,
or the Internal Revenue Service (the "IRS") or the courts might interpret the
existing authorities differently. In either case, the tax consequences of
purchasing, owning or disposing of Senior Notes or our common stock could differ
from those described below.
Except as specifically stated below, this summary applies only to "U.S.
Holders" that hold Senior Notes or our common stock as "capital assets"
(generally, for investment) for U.S. federal income tax purposes. For this
purpose, U.S. Holders include individual citizens or residents of the United
States and corporations (or entities treated as corporations for U.S. federal
income tax purposes) organized under the laws of the United States or any state
or the District of Columbia. Trusts are U.S. Holders if they are subject to the
primary supervision of a U.S. court and the control of one or more U.S. persons
with respect to substantial trust decisions. An estate is a U.S. Holder if the
income of the estate is subject to U.S. federal income taxation regardless of
the source of the income. The term "Non-U.S. Holder" means a holder that is not
a U.S. Holder. This summary describes in general fashion some, but not all, of
the special rules applicable to Non-U.S. Holders.
The tax treatment of a holder of Senior Notes or our common stock may vary
depending on such holder's particular situation. This summary does not address
all of the tax consequences that may be relevant to you in light of your
particular circumstances, including but not limited to the application of the
alternative minimum tax or rules applicable to taxpayers in special
circumstances. Special rules may apply, for instance, to banks and financial
institutions, regulated investment companies, insurance companies, S
corporations, broker-dealers, tax-exempt organizations, pension funds, persons
who hold Senior Notes or our common stock as part of a hedge, conversion or
constructive sale transaction, straddle or other risk reduction transaction,
persons that have a "functional currency" other than the U.S. dollar, or persons
subject to taxation as expatriates of the United States. Furthermore, in
general, this discussion does not address the tax consequences applicable to
holders that are treated as partnerships or other passthrough entities for U.S.
federal income tax purposes, or to persons who hold Senior Notes or common stock
through a partnership or other passthrough entity.
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This summary is based on the U.S. federal income tax law in effect as of the
date hereof, which is subject to change, possibly on a retroactive basis. This
summary does not describe the effect of the U.S. federal estate or gift tax laws
on U.S. Holders or the effects of any other federal or any applicable foreign,
state, or local tax laws.
PLEASE CONSULT YOUR OWN TAX ADVISOR REGARDING THE APPLICATION OF THE U.S.
FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION AND THE CONSEQUENCES OF
OTHER FEDERAL TAX LAWS, FOREIGN, STATE, OR LOCAL TAX LAWS, AND TAX TREATIES. You
should note that we have not sought any ruling from the IRS with respect to the
statements made in this summary, and there can be no assurances that the IRS or
a court will agree with such statements.
CHARACTERIZATION OF SENIOR NOTES
We currently intend to treat the Senior Notes as indebtedness for U.S.
federal income tax purposes, but as discussed below there can be no assurance
that such treatment will be followed by the IRS or the courts. We expect that
such characterization as indebtedness will be binding on us (but not the IRS or
a court), and that it will also be binding on each holder (except in
circumstances where a holder makes adequate disclosure on its U.S. federal
income tax return that such holder will be treating the Senior Notes in a manner
that is inconsistent with our characterization as indebtedness). However,
noteholders should be aware that there is a substantial possibility that the IRS
would seek to treat the Senior Notes as equity (i.e., stock) or as some other
type of investment instrument, rather than as indebtedness. Neither our counsel
nor other tax advisors have expressed any opinion concerning the
characterization of the Senior Notes for U.S. federal income tax purposes, and
you should consult with your own tax advisor concerning the appropriate
characterization of the Senior Notes and the consequences that may result if the
Senior Notes were to be characterized as equity or as some other type of
investment instrument, as well as the consequences that would result from
characterization as indebtedness. With respect to the possible characterization
of the Senior Notes as equity, you should discuss with your own tax advisor,
among other things, the possibility that you will have to include taxable
dividends attributable to the Senior Notes into income before receiving cash
payments (e.g., the payments denominated in the Senior Notes as "interest") with
which to pay applicable taxes. This summary of U.S. federal income tax
considerations will proceed on the basis of our currently intended
characterization and treatment of the Senior Notes as indebtedness for U.S.
federal income tax purposes. The U.S. federal income tax considerations will be
substantially different if the Senior Notes are characterized and treated as
other than indebtedness, and you should consult your tax advisor with respect to
those differences.
U.S. HOLDERS
TAXATION OF INTEREST AND ORIGINAL ISSUE DISCOUNT
U.S. Holders are generally required to recognize as ordinary income any
interest paid or accrued on debt obligations, including the Senior Notes
assuming they are characterized as indebtedness for U.S. federal income tax
purposes, in accordance with their regular method of accounting for U.S. federal
income tax purposes. However, if a holder of a debt instrument may receive
payments, other than payments treated as qualified stated interest for U.S.
federal income tax purposes, that exceed the issue price of the instrument, the
holder may be required to recognize additional interest-type income as "original
issue discount" ("OID") over the term of the instrument (or a shorter term in
the case of certain deemed instruments). The OID rules are complicated, and
often provide for the inclusion of OID in taxable income in circumstances where
such treatment may not be readily apparent. Because the Senior Notes are payable
at maturity in our stock, it is likely that the Senior Notes will be treated as
contingent payment debt instruments, with consequences under the OID rules
potentially including but not limited to the following: all or part of the
payments denominated in the Senior Notes as "interest" may be treated as OID and
included in the U.S. Holder's income on a constant yield basis over the period
extending from the issue date until the dates such interest payments are made;
and a substantial part of the value of any stock paid to the U.S. Holder upon
maturity of the Senior Notes may be treated as OID and included in such holder's
income for the taxable year such stock is received. Several results from the
application of these rules may be, among other consequences, the inclusion of
taxable income prior to the receipt of cash payments that could be used to pay
applicable taxes on such income, and the treatment as ordinary income of amounts
that otherwise might be treated as capital gain. The U.S. tax rules relating to
OID, contingent payment debt instruments, and related tax issues and
consequences are complex, and U.S. Holders are strongly urged to consult their
tax advisors with respect to the application of those rules.
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We will provide the IRS and noteholders with information required to be
reported under the Code and Treasury regulations with respect to OID on the
Senior Notes.
We expect that we will not be permitted to deduct either interest payments
or OID with respect to the Senior Notes on our federal income tax returns.
Under the terms of the Senior Notes, if a noteholder converts Senior Notes
into our common stock after the record date but prior to the interest payment
date (and thus receives the interest payment payable on the interest payment
date, notwithstanding that as a result of the conversion the holder is not
entitled to retain such payment), the noteholder is obligated to pay us an
amount equal to the interest payable on the converted principal amount. The tax
consequences to the noteholder of the receipt and repayment of this amount are
uncertain. We believe that neither the receipt nor the repayment should be taken
into account in computing the noteholder's taxable income. A taxing authority,
however, may require the noteholder to recognize ordinary income in an amount
equal to the interest payment received. In that case, we believe the noteholder
should be allowed an offsetting deduction for the repayment. However, the
noteholder may be required to capitalize (rather than deduct) the repaid
interest payment as an addition to the adjusted tax basis in the common stock
received in the conversion, or may otherwise be subject to certain limitations
on the deductibility of the repaid interest payment.
The interest rate on the Senior Notes is subject to increase in the event of
certain defaults and circumstances when payments of interest or principal are
overdue. We intend to treat the possibility that we will have to pay such
additional interest as a remote or incidental contingency, within the meaning of
applicable Treasury regulations and, therefore, we believe that any such
additional interest will not affect the yield to maturity on the Senior Notes
and will be taxable to U.S. Holders at the time any such interest accrues or is
received in accordance with each such holder's method of accounting. Our
determination that there is a remote likelihood of paying the additional
interest is binding on each U.S. Holder unless the holder explicitly discloses
in the manner required by applicable Treasury regulations that its determination
is different from ours. Our determination is not binding on the IRS or a court,
however.
MARKET DISCOUNT
If a Senior Note is acquired at a "market discount," certain provisions of
the Code subject such market discount to special treatment, including treatment
as ordinary income. For this purpose, the market discount on a Senior Note
generally will equal the amount, if any, by which the stated redemption price at
maturity of the Senior Note exceeds the purchaser's adjusted tax basis in the
Senior Note immediately after its acquisition (other than at original issue).
The amount of market discount is subject to reduction for required inclusions of
OID with respect to the Senior Notes. Subject to a limited exception, the market
discount provisions generally require a U.S. Holder who acquires a Senior Note
at a market discount to treat as ordinary income any gain recognized on the
disposition of that Senior Note to the extent of the accrued market discount on
that Senior Note at the time of disposition, unless the U.S. Holder elects to
include accrued market discount in income over the life of the Senior Note. This
election to include market discount in income over the life of the Senior Note,
once made, applies to all market discount obligations acquired on or after the
first taxable year to which the election applies and may not be revoked without
the consent of the IRS. In general, market discount will be treated as accruing
on a straight-line basis over the remaining term of a Senior Note at the time of
acquisition, or, at the election of a U.S. Holder, under a constant yield
method. If such election is made, it will apply only to the Senior Note with
respect to which it is made, and may not be revoked. A U.S. Holder who acquires
a Senior Note at a market discount and who does not elect to include accrued
market discount in income over the life of the Senior Note may be required to
defer the deduction of a portion of the interest on any indebtedness incurred or
maintained to purchase or carry the Senior Note until such income is recognized.
If a U.S. Holder acquires a Senior Note with market discount and receives common
stock upon conversion of the Senior Note, the amount of accrued market discount
not previously included in income with respect to the converted Senior Note
through the date of conversion will be treated as ordinary income when the
holder disposes of the common stock.
AMORTIZABLE PREMIUM
A U.S. Holder who purchases a Senior Note at a premium over its stated
principal amount, plus accrued interest, generally may elect to amortize that
premium (referred to as Section 171 premium) from the purchase date to the
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Senior Note's maturity date under a constant yield method that reflects
semiannual compounding based on the Senior Note's payment period. However,
amortizable premium will not include any premium attributable to a Senior Note's
conversion feature. The premium attributable to the conversion feature generally
is the excess, if any, of the Senior Note's purchase price over what the Senior
Note's fair market value would be if there were no conversion feature. Amortized
Section 171 premium is treated as an offset to interest income on the Senior
Note and not as a separate deduction. Such offset shall require a U.S. Holder to
make a corresponding reduction in the adjusted tax basis of its Senior Notes.
The election to amortize premium on a constant yield method, once made, applies
to all debt obligations held or subsequently acquired by the electing U.S.
Holder on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the IRS. If such an
election to amortize Section 171 premium is not made, a U.S. Holder must include
all amounts of taxable interest and OID income without reduction for such
premium, and may receive a tax benefit from the premium only in computing such
U.S. Holder's gain or loss upon a disposition of the Senior Note.
SALE, EXCHANGE OR REDEMPTION OF THE SENIOR NOTES
Subject to the application of the OID and market discount rules described
above, you will generally recognize capital gain or loss if you dispose of
Senior Notes in a sale, redemption or exchange (other than a conversion of the
Senior Notes into our common stock pursuant to their conversion rights). Your
gain or loss will generally be equal to the difference between the proceeds
received by you and your adjusted tax basis in the Senior Notes. The proceeds
received by you will include the amount of any cash and the fair market value of
any other property received for the Senior Notes. If the Senior Notes are
treated as contingent payment debt instruments for purposes of the OID rules (as
described above in "Taxation of Interest and Original Issue Discount"), you may
be required to treat a substantial portion of such proceeds as OID and include
such portion in your income for the taxable year in which such proceeds are
received. Your adjusted tax basis in the Senior Notes will generally be equal to
the issue price of the Senior Notes for U.S. federal income tax purposes,
increased by any OID and any market discount included in income and reduced by
any amortized premium. The portion of any proceeds that is attributable to
accrued interest or OID will not be taken into account in computing your capital
gain or loss but, instead, will be recognized as ordinary income (to the extent
that you have not previously included the accrued interest or OID in income).
The capital gain or loss recognized by you on a disposition of the Senior Notes
generally will be long-term capital gain or loss if you held the Senior Notes
for more than one year. Long-term capital gains of individual taxpayers are
generally taxed at favorable rates relative to the rates imposed on ordinary
income. Short-term capital gains (capital gains other than long-term capital
gains) recognized by non-corporate taxpayers and generally all capital gains
recognized by corporate taxpayers are taxable at the same tax rates as are
imposed on ordinary income. The deductibility of capital losses is subject to
limitations.
Maturity of the Senior Notes -- Exchange of Senior Notes for Our Stock
Subject to the application of the OID and market discount rules described
above, in the case of an exchange of Senior Notes for our common stock upon
maturity of the Senior Notes, you should consult with your tax advisor as to
whether the exchange may be eligible for treatment as a tax-free exchange, in
which case you generally would not recognize any income, gain or loss except (i)
with respect to amounts treated as attributable to accrued interest and OID on
the Senior Notes and includable as ordinary income for U.S. federal income tax
purposes (and not previously included in income) and (ii) cash received in lieu
of a fractional share of common stock. As indicated in the preceding paragraph,
taking into account the operation of the OID rules dealing with contingent
payment debt instruments, you may be required to treat a substantial portion of
your proceeds from disposition of the Senior Notes as OID and include such
portion in your income for the taxable year in which such proceeds are received.
You will also be required to account for any market discount, in which case your
treatment may be similar to that resulting in the case of conversion of the
Senior Notes. See discussion above under "Market Discount." If the exchange of
Senior Notes for our common stock at maturity were to be eligible for treatment
as a tax-free exchange, your tax basis and holding period in the common stock
would generally be determined in a manner similar to the case of a conversion of
the Senior Notes for our common stock, described below under "Conversion of the
Senior Notes." If the exchange of Senior Notes for our common stock is not
eligible for tax-free exchange treatment, your income and gain or loss (if any
such loss is recognizable for tax purposes) would generally be determined in the
manner described in the preceding paragraph, your tax basis in our stock would
generally be treated as if you purchased the stock in a taxable transaction at
its fair market value, and the holding period in the stock would generally begin
on the day after acquisition. The tax rules governing this exchange are
complicated, and you should consult your tax advisor for advice with respect to
the consequences of the exchange of Senior Notes for stock on maturity of the
Senior Notes.
CONVERSION OF THE SENIOR NOTES
You generally will not recognize any income, gain or loss on the conversion
of Senior Notes into our common stock, except (i) with respect to any cash
received in lieu of a fractional share of common stock and (ii) to the extent,
if any, of any amounts treated as attributable to accrued interest and OID on
the Senior Notes and includable as ordinary income for U.S. federal income tax
purposes (and not previously included in income). If the Senior Notes are
treated as contingent payment debt instruments for purposes of the OID rules (as
described in "Taxation of Interest and Original Issue Discount"), upon
conversion of the Senior Notes into our common stock, you may be required to
treat a substantial amount as OID and include such amount in your ordinary
income for the taxable year in which such conversion occurs. If you receive cash
in lieu of a fractional share of stock, you would be treated as if you received
the fractional share and then had the fractional share redeemed for the cash.
You would recognize gain or loss equal to the difference between the cash
received and that portion of your adjusted tax basis in the stock attributable
to the fractional share. You will be required to account for any market discount
in the manner described above under "Market Discount."
Your adjusted tax basis in the common stock received upon conversion of
Senior Notes generally will be equal to your adjusted tax basis in the Senior
Notes (less the basis allocable to any fractional share for which you receive
cash), and increased in the event of any interest or OID accrual, inclusion, or
repayment that may be required or permitted to be capitalized and added to the
basis in your stock. Your holding period for such stock generally will include
the period during which you held the Senior Notes (except for the portion of
such stock, if any, that is treated as attributable to accrued interest or OID,
which may have a holding period beginning the day after conversion).
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DIVIDENDS ON COMMON STOCK
If, after you convert a Senior Note into common stock, we make a
distribution in respect of that stock, the distribution will be treated as a
dividend, taxable to you as ordinary income, to the extent it is paid from our
current or accumulated earnings and profits. If the distribution exceeds our
current and accumulated earnings and profits, the excess will be treated first
as a tax-free return of your investment, up to the adjusted tax basis in your
common stock. Any remaining excess will be treated as capital gain. If you are a
U.S. corporation, you may be able to claim a deduction equal to a portion of any
dividends received.
ADJUSTMENT OF CONVERSION RATE
The terms of the Senior Notes allow for changes in the conversion price of
the Senior Notes in certain circumstances. A change in the conversion price that
allows noteholders to receive more shares of common stock on conversion may
increase the noteholders' proportionate interests in our earnings and profits or
assets. In that case, the noteholders may be treated as though they received a
dividend in the form of our stock. Such a constructive stock dividend could be
taxable to the noteholders, although they would not actually receive any cash or
other property. A taxable constructive stock dividend would result, for example,
if the conversion price is adjusted to compensate noteholders for certain
distributions of cash or property to our shareholders. However, not all changes
in the conversion price that allow noteholders to receive more stock on
conversion would increase the noteholders' proportionate interests in Skyworks.
For instance, a change in the conversion price could simply prevent the dilution
of the noteholders' interests upon a stock split or other change in capital
structure. Changes of this type, if made by a bona fide, reasonable adjustment
formula, are not treated as constructive stock dividends. Conversely, if an
event occurs that dilutes the noteholders' interests and the conversion price is
not adjusted, the resulting increase in the proportionate interests of our
shareholders could be treated as a taxable stock dividend to them. Any taxable
constructive stock dividends resulting from a change to, or failure to change,
the conversion price would be treated like distributions paid in cash or other
property. These deemed distributions would result in ordinary income to the
recipient, to the extent of our current or accumulated earnings and profits,
with any excess treated as a tax-free return of capital up to the recipient's
adjusted tax basis and then as capital gain.
SALE OF COMMON STOCK
Except with respect to market discount as discussed above in "Market
Discount," you will generally recognize capital gain or loss on the sale or
exchange of our common stock that you received upon conversion of a Senior Note.
Your gain or loss will generally be equal to the difference between the proceeds
received by you and the adjusted tax basis in your stock. The proceeds received
by you will include the amount of any cash and the fair market value of any
other property received for your stock. The capital gain or loss recognized by
you on a sale or exchange of stock will generally be long-term capital gain or
loss if you held the stock for more than one year.
SPECIAL TAX RULES APPLICABLE TO NON-U.S. HOLDERS
The following rules apply to you if you are a Non-U.S. Holder.
TAXATION OF INTEREST AND OID
Payments of interest and OID to Non-U.S. Holders are generally subject to
U.S. federal withholding tax at a rate of 30 percent of the amounts of interest
and OID, collected by means of withholding by the payor. However, payments of
interest and OID on the Senior Notes to most Non-U.S. Holders will likely
qualify as "portfolio interest," and thus be exempt from withholding tax, if the
holders certify their nonresident status as described below. Subject to other
requirements, the portfolio interest exception generally will apply to payments
of interest and OID to you if:
- you do not own, directly or indirectly, 10 percent or more of the total
combined voting power of all classes of our stock entitled to vote; and
- you are not a "controlled foreign corporation" that is related to us.
In general, a foreign corporation is a "controlled foreign corporation" if
more than 50 percent of either (i) the total combined voting power of all
classes of its stock entitled to vote or (ii) the total value of its stock is
owned,
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directly or indirectly, by one or more U.S. persons that each owns,
directly or indirectly, 10 percent or more of the total combined voting power of
all classes of stock entitled to vote. If you are a bank investing in the Senior
Notes as an extension of credit made pursuant to a loan agreement entered into
in the ordinary course of your trade or business, please consult your own tax
advisor regarding your investment in the Senior Notes. Even if the portfolio
interest exemption does not apply, U.S. federal withholding tax may be reduced
or eliminated under an applicable tax treaty assuming you properly certify your
entitlement to the benefit under such treaty.
The portfolio interest exception and several of the special rules for
Non-U.S. Holders described below apply only if you certify your nonresident
status. You can generally meet this certification requirement by providing a
Form W-8BEN or appropriate substitute form to us or our paying agent. If you
hold Senior Notes through a financial institution or other agent acting on your
behalf, you will be required to provide appropriate documentation to the agent.
Your agent will then be required to provide certification to us or our paying
agent, either directly or through other intermediaries.
If the Senior Notes are treated as equity for U.S. federal income tax
purposes (see "Characterization of Senior Notes" above), payments of interest,
OID, and other amounts are subject to treatment as dividends, and the portfolio
interest exception would not be available. Amounts treated as dividends will be
treated in generally the same manner, and subject to withholding taxes, as
described below under "Special Tax Rules Applicable to Non-U.S. Holders --
Dividends on Common Stock."
SALE, EXCHANGE OR REDEMPTION OF THE SENIOR NOTES
Other than proceeds attributable to accrued interest and OID (or
alternatively subject to dividend treatment), you generally will not be subject
to U.S. federal income tax on any gain realized on the sale, exchange, or other
disposition of Senior Notes. This general rule, however, is subject to several
exceptions. For example, the gain would be subject to U.S. federal income tax
if:
- the gain is treated as effectively connected with the conduct by you of
a U.S. trade or business;
- you are a former citizen or long-term resident of the United States
subject to special rules that apply to expatriates;
- you are an individual present in the United States for 183 days or more
in the year of such sale, exchange or disposition and certain other
requirements are met; or
- certain rules described below under "Special Tax Rules Applicable to
Non-U.S. Holders -- United States Real Property Holding Corporation
Status" apply to such sale, exchange, or other disposition.
Proceeds attributable to accrued interest and OID, or alternatively subject to
dividend treatment, will be treated as described above under "Special Tax Rules
Applicable to Non-U.S. Holders -- Taxation of Interest and OID."
CONVERSION OF THE SENIOR NOTES
You generally will not recognize any income, gain or loss on converting
Senior Notes into common stock. However, to the extent a Non-U.S. Holder
receives cash in lieu of a fractional share of common stock on conversion, that
cash may give rise to gain that would be subject to the rules described below
under "Special Tax Rules Applicable to Non-U.S. Holders -- Sale of Common
Stock." In addition, Non-U.S. Holders should be aware that they may be subject
to withholding tax with respect to amounts considered to be received as payments
of accrued interest and OID pursuant to the rules described above under "Special
Tax Rules Applicable to Non-U.S. Holders -- Taxation of Interest and OID."
DIVIDENDS ON COMMON STOCK
Dividends paid to you on common stock received on conversion of Senior Notes
will generally be subject to U.S. withholding tax at a 30 percent rate. The
withholding tax might not apply, however, or might apply at a reduced rate,
under the terms of a tax treaty between the United States and your country of
residence. In order to claim the
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benefits of a tax treaty, you must demonstrate your entitlement by certifying
your nonresident status and eligibility for treaty benefits. The conversion
price of the Senior Notes may adjust in certain circumstances. An adjustment
could potentially give rise to a deemed distribution to Non-U.S. Holders of the
Senior Notes. See "U.S. Holders -- Adjustment of Conversion Rate" above. In that
case, the deemed distribution would be subject to the rules regarding
withholding of U.S. federal tax on dividends in respect of common stock.
SALE OF COMMON STOCK
You will generally not be subject to U.S. federal income tax on any gain
realized on the sale, exchange, or other disposition of common stock. This
general rule, however, is subject to exceptions, some of which are described
above under "Special Tax Rules Applicable to Non-U.S. Holders -- Sale, Exchange
or Redemption of the Senior Notes."
INCOME OR GAINS EFFECTIVELY CONNECTED WITH A U.S. TRADE OR BUSINESS
The preceding discussion of the U.S. federal income tax consequences of the
purchase, ownership and disposition of Senior Notes or common stock by a
Non-U.S. Holder assumes that the holder is not engaged in a U.S. trade or
business. If any interest or OID on the Senior Notes, dividends on common stock,
or gain from the sale, exchange or other disposition of the Senior Notes or
common stock is treated as effectively connected with a U.S. trade or business
conducted by you, then the income or gain will be subject to U.S. federal income
tax at the regular graduated rates. If you are eligible for the benefits of a
tax treaty between the United States and your country of residence, any
"effectively connected" income or gain generally will be subject to U.S. federal
income tax only if it is also attributable to a permanent establishment
maintained by you in the United States. Payments of interest, OID, or dividends
that are effectively connected with a U.S. trade or business, and therefore
included in your gross income, will not be subject to the 30 percent withholding
tax. To claim this exemption from withholding, you must certify your
qualification, which can be done by filing a Form W-8ECI. If you are a foreign
corporation, your income effectively connected with a U.S. trade or business
would generally be subject to an additional "branch profits tax." The branch
profits tax rate is generally 30 percent, although an applicable tax treaty
might provide for a lower rate.
UNITED STATES REAL PROPERTY HOLDING CORPORATION STATUS
Gain recognized on a sale, exchange or other disposition of Senior Notes or
our common stock may be subject to U.S. federal income tax (and, in certain
circumstances, to withholding tax) if we are, or were within the five years
before such sale, exchange or other disposition, a "United States real property
holding corporation" ("USRPHC"). In general, we would be (or would have been) a
USRPHC if assets treated as interests in U.S. real estate comprised 50 percent
or more of our assets. Although there can be no assurances, at the present time
we do not believe that we are (or have been) a USRPHC or that we will become one
in the future.
U.S. FEDERAL ESTATE TAX
The estates of nonresident alien individuals are subject to U.S. federal
estate tax on property with a U.S. situs. The Senior Notes will not be U.S.
situs property as long as interest on the Senior Notes would have qualified as
portfolio interest (as described above under "Special Tax Rules Applicable to
Non-U.S. Holders -- Taxation of Interest") were it received by the decedent at
the time of death. Because we are a U.S. corporation, our common stock will be
U.S. situs property if owned by a Non-U.S. Holder at the time of death, and
therefore will be included in the taxable estate of a nonresident alien decedent
for U.S. estate tax purposes. The U.S. federal estate tax liability of the
estate of a nonresident alien may be affected by a tax treaty between the United
States and the decedent's country of residence.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The Code and the Treasury regulations require those who make specified
payments to report the payments to the IRS. Among the specified payments are
interest, OID, dividends, and proceeds paid by brokers to their customers. The
required information returns enable the IRS to determine whether the recipient
properly included the payments in income. This information reporting regime is
reinforced by certain "backup withholding" rules. These rules require such
payors to withhold tax at a 30 percent rate (for payments made in 2002 and 2003)
from payments subject to information reporting if the recipient fails to
cooperate with the reporting regime or fails to provide a correct taxpayer
identification number to the payor, or if the IRS or a broker informs the payor
that backup withholding is required. The rate of backup withholding is scheduled
to be reduced over time to 28 percent in 2006. The information reporting and
backup withholding rules do not apply to payments made to corporations, whether
domestic or foreign.
If you are an individual U.S. holder of Senior Notes or common stock,
payments of interest, OID, or dividends to you will generally be subject to
information reporting, and will be subject to backup withholding unless you
provide us with a correct taxpayer identification number and neither the IRS nor
a broker informs us that withholding is required.
The backup withholding rules do not apply to payments of dividends,
interest, or OID to Non-U.S. Holders that are subject to the 30 percent
withholding tax described above under "Special Tax Rules Applicable to Non-U.S.
Holders -- Taxation of Interest" and "Special Tax Rules Applicable to Non-U.S.
Holders -- Dividends on Common Stock," or to payments that are exempt from that
tax by application of a tax treaty or special exception. Therefore, payments to
Non-U.S. Holders of dividends on common stock, or interest or OID on Senior
Notes, will generally not be subject to backup withholding. To avoid backup
withholding on dividends, interest, and OID, you will have to certify your
nonresident status. Even if certification is provided, information reporting may
still apply to payments of dividends, interest, and OID.
If you are a U.S. Holder, payments made to you by a broker upon a sale of
Senior Notes or common stock will generally be subject to information reporting
and possible backup withholding. If you are a Non-U.S. Holder, payments made to
you by a broker upon a sale of Senior Notes or common stock will not be subject
to information reporting or backup withholding as long as you certify your
foreign status.
Amounts withheld from a payment to a holder of Senior Notes or common stock
under the backup withholding rules can be credited against any U.S. federal
income tax liability of the holder.
Holders may be required to comply with certain reporting requirements if the
payment of our common stock to satisfy the principal due on the Senior Notes on
the maturity date or upon certain acceleration dates causes us to recognize
cancellation of indebtedness income for U.S. federal income tax purposes.
Holders of Senior Notes should consult with their own tax advisors regarding
the application of the backup withholding and information reporting rules to
their particular situations, the availability of an exemption from backup
withholding and the procedure for obtaining such exemption, if available.
THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. YOU SHOULD CONSULT YOUR
OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL, AND FOREIGN
TAX CONSEQUENCES OF PURCHASING, HOLDING, AND DISPOSING OF THE SENIOR NOTES OR
OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY CHANGE OR PROPOSED CHANGE IN
APPLICABLE LAWS.
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SELLING SECURITYHOLDERS
We originally issued the Interim Notes to Conexant in November 2002 in exchange
for certain outstanding indebtedness incurred in connection with the Merger and
our acquisition of the Mexicali Operations. This exchange was exempt from the
registration requirements of the Securities Act. On November 25, 2002, Conexant
exchanged the Interim Notes for an equal aggregate principal amount of Senior
Notes. Conexant or its assigns may offer and sell the Senior Notes and the
common stock underlying the Senior Notes pursuant to this prospectus.
The following table contains information as of January 15, 2003, with respect to
the initial selling securityholder and the principal amount of Senior Notes and
underlying common stock beneficially owned by the selling securityholder that
may be offered using this prospectus. The information is based on information
provided by or on behalf of the selling securityholder. Because the selling
securityholder may offer all or some of its Senior Notes, or the underlying
common stock from time to time, we cannot estimate the amount of the Senior
Notes or underlying common stock that will be held by the selling securityholder
upon the termination of any particular offering. The column showing ownership
after completion of the offering assumes that the selling securityholder will
sell all of the securities offered by this prospectus. The selling
securityholder listed in the table may have sold or transferred, in transactions
exempt from the registration requirements of the Securities Act, some or all of
its Senior Notes since the date on which the information in table is presented.
Information about the selling securityholder may change over time. Any change in
this information will be set forth in prospectus supplements, if required.
--------------------------------------------------------------------------------------------------------------------------------
# OF SHARES OF
COMMON STOCK TO BE
PRINCIPAL AMOUNT # OF SHARES OF BENEFICIALLY OWNED
OF SENIOR NOTES COMMON STOCK AFTER COMPLETION
BENEFICIALLY OWNED BENEFICIALLY OWNED # OF SHARES OF OF OFFERING AND %
NAME OF SELLING THAT MAY BE SOLD PERCENTAGE OF PRIOR TO THE COMMON STOCK THAT OF COMMON STOCK
SECURITYHOLDER (1) ($) NOTES OUTSTANDING OFFERING MAY BE SOLD (2) OUTSTANDING (3)
--------------------------------------------------------------------------------------------------------------------------------
Conexant Systems, $45,000,000.00 100% 6,209,316 5,717,916 491,400*
Inc.
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
* Less than 1% of total outstanding common stock
(1) Information about other selling securityholders will be set forth in
prospectus supplements, if required.
(2) Assumes conversion of all of the holder's Senior Notes at a conversion price
of $7.87 per share of common stock, which is the applicable conversion price
as of January 15, 2003. Fractions of a share are not included for purposes
of this calculation. The conversion price will be subject to adjustment as
described under "Description of the Senior Notes - Conversion of Notes." As
a result, the amount of common stock issuable upon conversion of the Senior
Notes may increase or decrease in the future.
(3) Calculated based on Rule 13d-3(d)(1)(i) of the Exchange Act, using
138,006,514 shares of common stock outstanding as of January 10, 2003. In
calculating this amount, we treated as outstanding the number of shares of
common stock issuable upon conversion of all Senior Notes held by Conexant.
However, we did not assume the conversion of any other holder's Senior
Notes.
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RELATIONSHIP WITH CONEXANT
Skyworks was formed through the merger of the wireless communications business
of Conexant, which it spun-off immediately prior to the Merger, with Alpha. The
Merger was completed on June 25, 2002. Immediately following the Merger,
Skyworks purchased the Mexicali Operations from Conexant for an aggregate
purchase price of $150 million. Following the Merger, Alpha changed its
corporate name to Skyworks Solutions, Inc.
In connection with the Merger, Skyworks and Conexant have engaged in various
transactions, including, without limitation, the transactions referred to
elsewhere in this prospectus and in the consolidated financial statements and
related notes thereto of Skyworks incorporated by reference herein. Skyworks
also has established ongoing arrangements and agreements with Conexant, the more
significant of which are described below.
As part of the terms of the Merger, four designees of Conexant - Messrs. Beall,
Beguwala, Decker and Iyer - were appointed to the Skyworks Board of Directors,
joining four members who had been serving on the Board having been previously
elected by the stockholders of Alpha. Each of the four Conexant designees to the
Board continues to have a business relationship with Conexant. Mr. Decker
currently serves as the chief executive officer, as well as the chairman of the
board, of Conexant. Mr. Iyer serves as senior vice president and chief financial
officer, as well as a director, of Conexant. Mr. Beguwala is a current employee,
as well as a former executive officer, of Conexant. Mr. Beall is a non-employee
director of Conexant.
FINANCING ARRANGEMENTS AND SENIOR NOTES
In connection with our acquisition from Conexant of the Mexicali Operations, we
and certain of our subsidiaries entered into a financing agreement, dated as of
June 25, 2002, with Conexant. Pursuant to the terms of the financing agreement,
in payment for the Mexicali Operations, we and certain of our subsidiaries
issued short-term promissory notes to Conexant in the aggregate principal amount
of $150 million. In addition, Conexant made a short-term $100 million loan
facility available to us under the financing agreement to fund working capital
and other requirements. $75 million of this facility became available on or
after July 10, 2002, and the remaining $25 million balance of the facility would
have become available if we had more than $150 million of eligible domestic
receivables. Interest on the short-term promissory notes and the loan facility
was payable at a rate of 10% per annum for the first ninety days following June
25, 2002, 12% per annum for the next ninety days and 15% per annum thereafter.
Unless paid earlier at the option of the Company or pursuant to mandatory
prepayment provisions contained in the financing agreement with Conexant, 50% of
the principal of the short-term promissory notes would become due on March 24,
2003 and the remaining 50%, as well as the entire principal amount of any
amounts borrowed under the loan facility, would become due on June 24, 2003.
There were $65 million of borrowings as of November 6, 2002 under this
facility. The promissory notes and the loan facility were secured by our assets
and properties.
Pursuant to our private placement of $230 million aggregate principal amount of
4 3/4% convertible subordinated notes due in November 2007, which closed on
November 12, 2002, we and Conexant entered into a refinancing agreement, and we,
certain of our subsidiaries and Conexant executed an amendment to the original
financing agreement with Conexant, each dated as of November 6, 2002. Pursuant
to the refinancing agreement and the amended financing agreement, of the net
cash proceeds received from the private placement, we paid Conexant (i) $105
million to prepay, in part, the short-term promissory notes issued to Conexant,
leaving a principal balance of $45 million due on such notes, and (ii) $65
million to prepay in full and retire the loan facility. Upon retiring the loan
facility, all security interests, liens and mortgages presently held by Conexant
on our assets and properties were released, and the financing agreement with
Conexant, as amended, was terminated. The remaining $45 million principal amount
of the short-term promissory notes was exchanged for the Interim Notes, which
were subsequently exchanged for the Senior Notes.
Conexant has also agreed with us that it may not exercise its rights to convert
the principal amount of the Senior Notes (or any portion thereof) to the extent
that such conversion would result in Conexant owning at any one time more than
10% of the then outstanding shares of the Company's common stock.
TAX ALLOCATION AGREEMENT
At the time of the Merger, we entered into a tax allocation agreement with
Conexant, which provides for the allocation of all responsibilities, liabilities
and benefits relating to or affecting all forms of taxation between us and our
affiliates and Conexant and its affiliates. In general, Conexant assumed and is
responsible for tax liabilities of the wireless communications business for
periods prior to the Merger and we assumed and are responsible for tax
liabilities of the wireless communications business for periods after the
Merger. Subsequent to the execution of the tax allocation agreement, and in
connection with the refinancing agreement and amended financing agreement with
Conexant, we entered into a letter agreement on November 6, 2002 with Conexant
that amends the tax allocation agreement to limit our indemnification
obligations under the tax allocation agreement to a reduced set of circumstances
that could trigger such indemnification. However, the tax allocation agreement
continues to provide that we will be responsible for various other tax
obligations and for compliance with various representations and covenants made
under the tax allocation agreement.
TRANSITION SERVICES AGREEMENT
In connection with the Merger, we entered into a transition services agreement
with Conexant on June 25, 2002 under which we and Conexant were to provide to
the other certain specified services, the majority of which were completed by
December 31, 2002. The services provided by Conexant under the agreement
include:
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- accounting and payroll;
- finance and treasury;
- engineering and design services;
- platform technology and other support for our Newbury Park facility;
- human resources;
- information technology;
- sales;
- other support services, including global trade, shipping, storage and
logistics services;
- manufacturing quality and reliability;
- facilities; and
- material management and printed wire board assembly services.
In addition, we provided certain services to Conexant, including services
related to:
- engineering and design services for Conexant's broadband access
products;
- human resources;
- product testing and package qualification consulting; and
- facilities, including environmental consulting services.
The price to be paid by us and Conexant for these services is generally based on
the actual cost of providing such services, including out of pocket expenses.
INFORMATION TECHNOLOGY SERVICES AGREEMENT
On June 25, 2002, in connection with the Merger, we entered into an information
technology services agreement with Conexant under which Conexant provides to us
a variety of information technology services that Conexant previously provided
to its wireless communications business. These services generally are to be
provided in six month increments until either party elects to terminate the
agreement or certain specific services provided thereunder. Payments to Conexant
for the services rendered under the agreement generally consist of a base fee
per month, plus an additional monthly service fee depending on the particular
services rendered. We and Conexant have agreed to review the fee structure each
year during the term of the agreement.
The services provided by Conexant under the agreement include:
- data center operations management;
- remote-site support;
- information technology infrastructure services;
- programming services; and
- applications support.
MEXICALI TRANSITION SERVICES AGREEMENT
Under a Mexicali transition services agreement dated as of June 25, 2002 with
Conexant, we and Conexant provided certain transition services to each other
with respect to the Mexicali Operations. A majority of these services were
completed by December 31, 2002. The price for the services is the actual cost,
including out-of pocket expenses, of providing the services. The services
covered under the agreement include:
- general accounting support;
- metrology services and test equipment support;
- thermal mechanical analysis and measurement of packages;
- electrical analysis and measurement for packages; and
- electromagnetic impulse measurement and certification services.
-49-
NEWPORT BEACH SUPPLY AGREEMENT
Under our Newport Beach wafer supply and services agreement entered into with
Conexant on June 25, 2002, we obtain through Conexant silicon-based
semiconductor products supplied by Jazz Semiconductor, Inc., a Newport Beach,
California foundry joint venture between Conexant and The Carlyle Group to which
Conexant contributed its Newport Beach wafer fabrication facility. These
services will be provided for a three-year period. Pursuant to the terms of this
supply agreement with Conexant, we are committed to obtain a minimum level of
service from Jazz Semiconductor, Inc., based on a contractual agreement between
Conexant and Jazz Semiconductor. The volume for wafers during these three years
has been pre-calculated based on our anticipated wafer fabrication needs. The
pricing under the agreement is established at Conexant's cost for the first
year, at the median of Conexant's cost and market price for the second year, and
at market price for the third year. Our expected minimum purchase obligations
under this supply agreement are anticipated to be approximately $64 million, $39
million and $13 million in fiscal 2003, 2004 and 2005, respectively. We estimate
that our obligation under this agreement will result in excess costs of
approximately $5.1 million and we have recorded this liability in fiscal 2002.
NEWBURY PARK SUPPLY AGREEMENT
Under a Newbury Park wafer supply and services agreement entered into with
Conexant on June 25, 2002, we provide services to Conexant for both production
and prototypes of semiconductor products at our Newbury Park, California wafer
fabrication facility, including services related to:
- semiconductor wafer fabrication;
- semiconductor wafer probe;
- final test; and
- die processing.
These services generally will be provided for a term of three years with
additional one-year renewal terms as may be mutually agreed. The pricing for
wafers has been fixed for the three years based on our mutual agreement, and is
based on cost plus a 50% markup.
MEXICALI SUPPLY AGREEMENT
Under a Mexicali device supply and services agreement entered into with Conexant
on June 25, 2002, we provide Conexant with certain semiconductor
processing, packaging and testing services, including:
- assembly services;
- final testing;
- post-test processing; and
- shipping.
During the term of the agreement, Conexant will have the right to purchase
products manufactured through the use of technologies developed and qualified
for full-scale production at the Mexicali facility at the time of the agreement
and, upon mutual agreement, products manufactured through the use of any new
technologies in development at the Mexicali facility at the time of the
agreement, but not yet qualified for full scale production. These services will
be performed at our Mexicali, Mexico facility and, upon mutual agreement, at
other facilities approved by Skyworks. These services generally will be provided
for a term of three years with additional one-year renewal terms as may be
mutually agreed. The pricing for the first year has been fixed based generally
on the yielded assembly cost of the particular materials. The pricing for the
second year will either be: (i) a 5% reduction from year one, or (ii) the actual
cost at the end of year one. Pricing for the third year will be negotiated
between the parties.
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PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the Senior Notes and the
underlying common stock offered by this prospectus. The Senior Notes, and the
common stock underlying the Senior Notes, may be sold from time to time to
purchasers:
- directly by the selling securityholders;
- through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or commissions from
the selling securityholder or the purchasers of the Senior Notes and the
underlying common stock.
The selling securityholders and any such broker-dealers or agents who
participate in the distribution of the Senior Notes and the underlying common
stock may be deemed to be "underwriters." As a result, any profits on the sale
of the Senior Notes and common stock underlying the Senior Notes by selling
securityholders and any discounts, commissions or concessions received by any
such broker-dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. If the selling securityholders were to be
deemed underwriters, the selling securityholders may be subject to certain
statutory liabilities of, including, but not limited to, Sections 11, 12 and 17
of the Securities Act and Rule 10b-5 under the Exchange Act.
If the Senior Notes and common stock underlying the Senior Notes are sold
through underwriters or broker-dealers, the selling securityholders will be
responsible for underwriting discounts or commissions or agent's commissions.
The Senior Notes and common stock underlying the Senior Notes may be sold in one
or more transactions at:
- fixed prices;
- prevailing market prices at the time of sale;
- varying prices determined at the time of sale; or
- negotiated prices.
These sales may be effected in transactions:
- on any national securities exchange or quotation service on which the
Senior Notes and underlying common stock may be listed or quoted at the
time of the sale, including the Nasdaq National Market in the case of
the common stock;
- in the over-the-counter market;
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market; or
- through the writing of options.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with sales of the Senior Notes and the common stock underlying the
Senior Notes or otherwise, the selling securityholders may enter into hedging
transactions with broker-dealers. These broker-dealers may in turn engage in
short sales of the Senior Notes and common stock underlying the Senior Notes in
the course of hedging their positions. The selling securityholders may also sell
the Senior Notes and the common stock underlying the Senior Notes short and
deliver Senior Notes and the common stock underlying the Senior Notes to close
out short positions, or loan or pledge notes and underlying common stock to
broker-dealers that in turn may sell the Senior Notes and underlying common
stock.
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To our knowledge, there are currently no plans, arrangements or understandings
between any selling securityholder and any underwriter, broker-dealer or agent
regarding the sale of the Senior Notes and the common stock underlying the
Senior Notes by the selling securityholders. There is no assurance that any
selling securityholders will sell any or all of the Senior Notes and the common
stock underlying the Senior Notes offered by them pursuant to this prospectus.
In addition, we cannot assure you that any such selling securityholder will not
transfer, devise or gift the Senior Notes and the common stock underlying the
Senior Notes by other means not described in this prospectus.
Our common stock trades on the Nasdaq National Market under the symbol "SWKS."
We do not intend to apply for listing of the Senior Notes on any securities
exchange or for quotation through Nasdaq. Accordingly, no assurance can be given
as to the development of liquidity or any trading market for the Senior Notes.
See "Risk Factors -- Risks Related to the Notes."
In addition, any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 or any other available exemption from registration under
the Securities Act may be sold under Rule 144 or any of the other available
exemptions rather than pursuant to this prospectus.
The selling securityholders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules
include, without limitation, Regulation M, which may limit the timing of
purchases and sales of any of the Senior Notes and the underlying common stock
by the selling securityholders and any other such person. In addition,
Regulation M of the Exchange Act may restrict the ability of any person engaged
in the distribution of the Senior Notes and the underlying common stock to
engage in market-making activities with respect to the particular Senior Notes
and the underlying common stock being distributed for a period of up to five
business days prior to the commencement of such distribution. This may affect
the marketability of the Senior Notes and the underlying common stock and the
ability of any person or entity to engage in market-making activities with
respect to the Senior Notes and the underlying common stock.
Pursuant to the registration rights agreement incorporated by reference into the
registration statement of which this prospectus is a part, we and the selling
securityholders will be indemnified by the other against certain liabilities,
including certain liabilities under the Securities Act or will be entitled to
contribution in connection with these liabilities.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the Senior Notes and underlying common stock
to the public other than commissions, fees and discounts of underwriters,
brokers, dealers and agents.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by
Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of Skyworks Solutions, Inc. as of and for
the year ended September 27, 2002 have been incorporated by reference herein in
reliance upon the report of KPMG LLP, independent accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing. The consolidated financial statements of Alpha Industries, Inc.
and subsidiaries as of March 31, 2002 and April 1, 2001, and for each of the
years in the three-year period ended March 31, 2002 contained in the Annual
Report on Form 10-K of Alpha Industries, Inc. for the fiscal year ended March
31, 2002, have been incorporated by reference herein in reliance upon the report
of KPMG LLP, independent accountants, incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements and the related financial statement
schedule of Skyworks Solutions, Inc. (formerly the consolidated financial
statements of the Washington Business and Mexicali Operations of Conexant
Systems, Inc.) as of September 30, 2001, and for the years ended September 30,
2001 and 2000, incorporated in this prospectus by reference from the Annual
Report of Skyworks Solutions, Inc. on Form 10-K for the fiscal year ended
September 27, 2002 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy these reports, proxy statements
and other information filed by us at the SEC's public reference rooms at 450
Fifth Street, NW., Washington, D.C. 20549. You can request copies of these
documents by writing to the SEC and paying a fee for the copying cost. Please
call the SEC at 1-800-SEC-0330 for more information about the operation of the
public reference rooms. Our SEC filings are also available at the SEC's web site
at http://www.sec.gov. In addition, you can read and copy our SEC filings at the
office of the National Association of Securities Dealers, Inc. at 1735 "K"
Street, Washington, DC 20006.
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act with respect to the Senior Notes and the common stock issuable
upon the conversion of the Senior Notes in connection with this prospectus. This
prospectus does not contain all of the information set forth in the registration
statement. We have omitted certain parts of the registration statement in
accordance with the rules and regulations of the SEC. For further information
with respect to us, the Senior Notes and the common stock, you should refer to
the registration statement. Statements contained in this prospectus as to the
contents of any contract or other document are not necessarily complete and, in
each instance, you should refer to the copy of such contract or document filed
as an exhibit to or incorporated by reference in the registration statement.
Each statement as to the contents of such contract or document is qualified in
all respects by such reference. You may obtain copies of the registration
statement from the SEC's principal office in Washington, D.C. upon payment of
the fees prescribed by the SEC, or you may examine the registration statement
without charge at the offices of the SEC described above.
The SEC allows us to "incorporate by reference" information that we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until the
selling securityholders sell all of their Skyworks common stock:
- our annual report on Form 10-K for the fiscal year ended September 27,
2002;
- Audited Consolidated Financial Statements of Alpha Industries, Inc. and
the notes thereto contained on pages 27 through 50 of the Annual Report
on Form 10-K of Alpha Industries, Inc. for the fiscal year ended March
31, 2002 filed with the Securities and Exchange Commission on July 1,
2002;
- our current report on Form 8-K, filed with the SEC on November 6, 2002,
our current report on Form 8-K, filed with the SEC on November 8, 2002,
and the amendment thereto, filed with the SEC on November 12, 2002, and
our additional current report on Form 8-K, filed with the SEC on
November 8, 2002; and
- the description of our common stock contained in Item 1 of our
Registration Statement on Form 8-A filed with the SEC on May 29, 1998,
including any amendments or reports filed for the purpose of updating
the description.
You may request a copy of these filings at no cost by writing or telephoning us
at:
Skyworks Solutions, Inc.
20 Sylvan Road
Woburn, MA 01801
Attention: Investor Relations
(781) 376-3000
You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
We are not making an offer of these securities in any state where the offer is
not permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of the document.
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