UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-5442
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General Semiconductor, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-3575653
- --------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Melville Park Road, Melville, New York 11747
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(Address of principal executive offices)
(Zip Code)
(516) 847-3000
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(Registrant's telephone number, including area code)
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) ,and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at October 31, 1997 (1)
----- -----------------------------------
Common Stock, par value $0.01 36,782,405
(1) Reflects a one for four reverse stock split of the Company's common stock
effected July 25, 1997.
<PAGE>
GENERAL SEMICONDUCTOR, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGES
PART I. FINANCIAL INFORMATION
---------------------
Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 1997 (unaudited) and December 31, 1996 2
Consolidated Statements of Operations for the Three and
Nine Months ended September 30, 1997 and 1996 (unaudited) 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-11
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-14
PART II. OTHER INFORMATION
-----------------
Legal Proceedings
Changes in Securities and Use of Proceeds
Submission of Matters to a Vote of Security Holders
Exhibits
SIGNATURE
<PAGE>
PART I
FINANCIAL INFORMATION
GENERAL SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Stock Par Value)
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1997 1996 (1)
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ....................................................................... $ 14,649 $ 20,252
Short-term investments .......................................................................... - 49,946
Accounts receivable, less allowance for doubtful accounts of $763
and $866, respectively ..................................................................... 54,036 49,629
Inventories ..................................................................................... 29,278 31,551
Prepaid expenses and other current assets ....................................................... 10,310 5,675
Deferred income taxes ........................................................................... 12,086 12,354
------------ -----------
Total current assets ....................................................................... 120,359 169,407
Property, plant and equipment - net ............................................................. 208,118 202,281
Excess of cost over fair value of net assets acquired, less accumulated
amortization of $37,498 and $33,641, respectively ........................................... 169,165 173,022
Deferred income taxes, net of valuation allowance ............................................... 23,879 41,590
Intangibles and other assets, less accumulated amortization of $8,760 and
$36,876, respectively ....................................................................... 20,738 26,128
----------- -----------
Total non-current assets ................................................................... 421,900 443,021
Net assets of discontinued operations ........................................................... - 1,444,734
----------- -----------
TOTAL ASSETS .................................................................................... $ 542,259 $ 2,057,162
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................................................ $ 40,665 $ 55,365
Accrued expenses ................................................................................. 56,475 40,119
Current portion of long-term debt ................................................................ 4,310 4,310
----------- -----------
Total current liabilities ................................................................... 101,450 99,794
Long-term debt ................................................................................... 272,919 688,025
Deferred income taxes ............................................................................ 14,308 15,104
Other non-current liabilities .................................................................... 75,924 81,086
----------- -----------
Total liabilities ........................................................................... 464,601 884,009
----------- -----------
Commitments and contingencies
Stockholders' Equity:
Preferred Stock, $0.01 par value; 20,000 shares authorized; no shares issued - -
Common Stock, $0.01 par value; 400,000 shares authorized; 36,887
and 34,286 shares issued, respectively ...................................................... 369 343
Retained earnings ................................................................................ 84,605 254,552
Other stockholders' equity ....................................................................... (7,316) 918,258
----------- -----------
77,658 1,173,153
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................................................$ 542,259 $ 2,057,162
=========== ===========
</TABLE>
(1) The consolidated balance sheet as of December 31, 1996 has been derived from
the audited General Instrument financial statements at that date and condensed.
See notes to consolidated financial statements.
-2-
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ -------------------------------------
1997 1996 1997 1996
--------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 95,568 $ 84,650 $ 276,448 $ 282,554
--------------- ---------------- ----------------- ---------------
OPERATING COSTS AND EXPENSES:
Cost of sales 64,906 54,037 219,445 174,662
Selling, general and administrative 10,291 7,325 32,868 28,654
Research and development 1,673 1,414 4,923 4,329
Amortization of excess of cost over fair value
of net assets acquired 1,286 1,286 3,857 3,869
--------------- ---------------- ----------------- ---------------
Total operating costs and expenses 78,156 64,062 261,093 211,514
--------------- ---------------- ----------------- ---------------
OPERATING INCOME 17,412 20,588 15,355 71,040
Other income (expense)-net 65 (40) 76 (65)
Interest expense-net (3,976) (2,520) (9,316) (7,722)
--------------- ---------------- ----------------- ---------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 13,501 18,028 6,115 63,253
Provision for income taxes (4,995) (7,337) (6,318) (25,744)
---------------- ---------------- ----------------- ---------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 8,506 10,691 (203) 37,509
DISCONTINUED OPERATIONS
Income (Loss) from discontinued operations, net of
income tax benefit of $1,258 and expense of $22,073
in 1997 and income tax expense of $19,368 and benefit (21,149) 31,431 (2,939) (22,310)
of $8,714 in 1996 ---------------- ---------------- ----------------- ---------------
NET INCOME (LOSS) $ (12,643) $ 42,122 $ (3,142) $ 15,199
================ ================ ================= ===============
Weighted Average Shares Outstanding:
Primary 36,704 34,380 35,172 32,704
Fully diluted 37,118 36,855 36,924 36,884
Primary earnings (loss) per share:
Continuing operations $ 0.23 $ 0.31 $ (0.01) $ 1.15
Discontinued operations (0.57) 0.92 (0.08) (0.68)
----------------- ---------------- ----------------- -------------
Net income (loss) $ (0.34) $ 1.23 $ (0.09) $ 0.47
================= ================ ================= ===============
Fully diluted earnings per share:
Continuing operations $ 0.30 $ 1.08
Discontinued operations 0.89 ================
----------------
Net income $ 1.19
================
</TABLE>
Fully diluted earnings (loss) per share from continuing operations for 1997, and
discontinued operations and net income (loss) for 1997 and the nine months ended
September 30, 1996 are not reported herein as the effect of such computations
are anti-dilutive.
See notes to consolidated financial statements.
-3-
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
Total
Common Stock Additional Unrealized Common Unearned Stock-
---------------- Paid-In Retained Gain On Stock In Compen- holders'
Shares Amount Capital Earnings Investment Treasury sation Equity
------ ------ ---------- -------- ---------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 34,286 $ 343 $ 926,194 $254,552 $ - $ (7,271) $ (665) $ 1,173,153
Net loss for the nine months
ended September 30, 1997 (3,142) (3,142)
Exercise of stock options and
related tax benefit 200 2 19,361 19,363
Conversion of Convertible
Junior Subordinated Notes 2,397 24 226,626 226,660
Amortization of unearned
compensation 243 243
Unrealized gain on investment,
net of tax 22,018 22,018
Treasury stock transactions (100) (100)
Distribution of NextLevel and CommScope (1,172,191) (166,805) (22,018) 422 (1,360,592)
Common stock issued 4 55 55
------ ------ ---------- ------- ---------- --------- -------- ------------
BALANCE, SEPTEMBER 30, 1997 36,887 $ 369 $ 55 $84,605 $ - $ (7,371) $ - $ 77,658
====== ====== ========== ======= ========== ========= ======== ============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1997 1996
-------------- ---------------
OPERATING ACTIVITIES:
<S> <C> <C>
Income (Loss) from continuing operations $ (203) $ 37,509
Adjustments to reconcile to net cash
provided by continuing operating activities:
Depreciation and amortization 18,202 16,147
Changes in assets and liabilities:
Accounts receivable (13,294) 14,553
Inventories 2,273 (6,643)
Prepaid expenses and other current assets (4,635) 82
Other non-current assets (1,488) (4)
Deferred income taxes (3,831) 26,538
Accounts payable and accrued expenses 11,730 (23,859)
Other non-current liabilities 4,296 (3,802)
Other (104) 207
-------------- ---------------
Net cash provided by continuing operating activities 12,946 60,728
-------------- ---------------
Cash provided by (used in) discontinued operations 144,970 (160,813)
-------------- ---------------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (18,347) (45,226)
Proceeds from sale of short-term investments 24,972 -
Proceeds from sale of assets - 4,368
-------------- ---------------
Net cash provided by (used in) investing activities 6,625 (40,858)
-------------- ---------------
FINANCING ACTIVITIES:
Costs associated with the issuance of debt and Common Stock (1,049) (882)
Net (repayments of ) proceeds from revolving credit facilities (185,000) 154,330
Redemption of Convertible Junior Subordinated Notes (245) (6,440)
Principal repayment of debt (2,155) (2,155)
Exercise of stock options 18,305 2,486
-------------- ---------------
Net cash (used in) provided by financing activities (170,144) 147,339
-------------- ---------------
Increase (decrease) in cash and cash equivalents (5,603) 6,396
-------------- ---------------
Cash and cash equivalents, beginning of period 20,252 36,382
-------------- ---------------
Cash and cash equivalents, end of period $ 14,649 $ 42,778
============== ===============
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(All amounts in thousands, except share and per share data)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
General Semiconductor, Inc. (the "Company" or "General Semiconductor") is a
world leader in the discrete segment of the semiconductor industry. The Company
designs, manufactures and sells low-to-medium-power rectifiers, small signal
transistors and transient voltage suppression ("TVS") components in axial,
bridge, surface mount and array packages. Power rectifiers and TVS products are
semiconductors that are essential components of most electronic devices and
systems. Rectifiers convert alternating current (AC) into direct current (DC)
which can be utilized by electronic equipment. TVS devices provide protection
from electrical surges, ranging from electrostatic discharge to induced
lightning. Small signal transistors amplify or switch low level currents. The
Company's products are primarily targeted for use in the computer, automotive,
telecommunications and consumer electronics industries.
General Instrument Corporation ("General Instrument") (i) transferred all the
assets and liabilities relating to the manufacture and sale of broadband
communications products used in the cable television, satellite, and
telecommunications industries to its wholly-owned subsidiary NextLevel Systems,
Inc. ("NextLevel Systems"), and all the assets and liabilities relating to the
manufacture and sale of coaxial, fiber optic and other electric cable used in
the cable television, satellite and other industries to its wholly-owned
subsidiary CommScope, Inc. ("CommScope") and (ii) distributed all of the
outstanding shares of capital stock of each of NextLevel Systems and CommScope
to its stockholders on a pro rata basis as a dividend (the "Distribution") in a
transaction that was finalized on July 28, 1997 (the "Distribution Date"). On
the Distribution Date, NextLevel Systems and CommScope began operating as
independent entities with publicly traded common stock. General Instrument
retained no ownership interest in either NextLevel Systems or CommScope.
Concurrent with the Distribution, General Instrument changed its name to General
Semiconductor, Inc. and effected a one for four reverse stock split.
In this report, all share and per share amounts have been retroactively restated
to reflect the reverse stock split. In addition, the number of common shares
issued have been adjusted to reflect the reverse stock split and an amount equal
to the par value of the reduction of the shares has been transferred from common
stock to additional paid-in capital as of September 30, 1997.
The revenues, costs and expenses, assets and liabilities and cash flows of the
businesses transferred to the NextLevel Systems and CommScope segments (the
"Discontinued Operations"), have been excluded from the respective captions in
the Consolidated Statements of Operations, Condensed Consolidated Balance Sheets
and Consolidated Statements of Cash Flows and have been reported through the
Distribution Date as "Income (Loss) from discontinued operations", net of
applicable income taxes; as "Net assets of discontinued operations"; and as
"Cash flow from discontinued operations" for all periods presented. For the
purpose of governing certain of the ongoing relationships among General
Semiconductor, NextLevel Systems and CommScope after the Distribution, these
entities entered into various agreements that provide for an orderly transition,
the separation and distribution of the operating assets and liabilities and
pension plan assets and liabilities of General Instrument, as well as tax
sharing, and other matters.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all necessary adjustments (consisting of normal
recurring adjustments) and present fairly the Company's financial position as of
September 30, 1997, the results of its operations for the three and nine months
ended September 30, 1997 and 1996, and its cash flows for the nine months ended
September 30, 1997 and 1996 in conformity with generally accepted accounting
principles for interim financial information applied on a consistent basis.
There were no adjustments of a non-recurring nature recorded during the nine
months ended September 30, 1997 and 1996 except for the charges discussed in
Note 2 below. The results of operations for the nine months ended September 30,
1997, are not necessarily indicative of the results to be expected for the full
year. For further information, refer to the consolidated financial statements
and footnotes thereto included in the General Instrument Annual Report on Form
10-K for the year ended December 31, 1996 and the General Instrument Proxy
Statement dated June 13, 1997.
-6-
<PAGE>
Certain reclassifications have been made to the prior year consolidated
financial statements to conform with the current year presentation.
2. DISCONTINUED OPERATIONS
Net sales for the Discontinued Operations included in the statement of
operations were $143.1 million and $577.6 million for the three months ended
September 30, 1997 and 1996, respectively, and $1.3 billion and $1.7 billion for
the nine months ended September 30, 1997 and 1996, respectively.
Discontinued operations also includes $20.8 million and $52.9 million, net of
applicable income taxes, for the three and nine months ended September 30, 1997,
respectively, for costs incurred primarily related to the separation of the
Taiwan operations of General Instrument between General Semiconductor and
NextLevel Systems and for professional fees and certain other administrative and
financing costs incurred directly related to the Distribution. As of September
30, 1997 $21.3 million remains to be paid by General Semiconductor.
In connection with the Distribution, the Company also recorded in income (loss)
from continuing operations a pre-tax charge of $32.7 million to cost of sales
during the nine months ended September 30, 1997. These costs relate to employees
of General Semiconductor and were incurred in connection with the separation of
the Taiwan operations between General Semiconductor and NextLevel Systems. As of
September 30, 1997 $18.4 million remains unpaid.
Net assets of Discontinued Operations as of December 31, 1996 are:
Accounts receivable $ 494,801
Inventories 304,965
Prepaid expenses 18,944
Deferred income taxes 94,968
Property, plant and equipment 368,770
Intangible and other non-current assets 140,323
Deferred income taxes, non-current 32,499
Goodwill 654,351
Current liabilities (434,926)
Flexible term notes (10,800)
Other non-current liabilities (219,161)
---------
$1,444,734
==========
The Distribution of the net assets of discontinued businesses reduced
shareholders' equity by $1.4 billion of which $1.2 billion was allocated to
additional paid-in capital and $0.2 million to retained earnings.
3. PRO FORMA INFORMATION
Giving effect to the Distribution as of January 1, 1996 pro forma results of
operations for General Semiconductor, Inc. would have been as follows:
Pro Forma Pro Forma
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -----------------
1997 1996 1997 1996
----- ---- ---- ----
Income (Loss) from
continuing operations $8,009 $9,239 $(3,510) $33,252
====== ====== ======== =======
Earnings (loss) per share $ 0.22 $ 0.25 $( 0.10) $ 0.90
====== ====== ======== =======
-7-
<PAGE>
The pro forma results assumes the conversion of the outstanding General
Instrument Convertible Junior Subordinated Notes, a net debt level of $275.0
million through the Distribution Date and interest expense of $4.8 million and
$14.6 million for the three and nine months ended September 30, 1997 and $4.9
million and $14.7 million for the three and nine months ended September 30,
1996, respectively.
4. INVENTORIES
Inventories consist of:
September 30, 1997 December 31, 1996
------------------ -----------------
Raw materials $ 5,449 $ 6,616
Work in process 10,892 11,813
Finished goods 12,937 13,122
------- -------
$29,278 $31,551
======= =======
5. LONG-TERM DEBT
Long-term debt consists of:
September 30, 1997 December 31, 1996
------------------ -----------------
Senior indebtedness:
Revolving credit facilities $229,000 $414,000
Taiwan loan 48,229 50,384
Convertible Junior
Subordinated Notes - 227,951
-------- -------
277,229 692,335
Less: current maturities 4,310 4,310
-------- -------
$272,919 $688,025
======== ========
During 1997 the remaining Convertible Junior Subordinated Notes outstanding were
converted into General Instrument common stock resulting in the issuance of 2.4
million shares. In connection with the conversion, the Company charged
approximately $1.5 million to additional paid-in capital for unamortized
deferred financing costs (net of $1.0 million of accrued interest forfeited and
net of applicable income taxes). The Company also repaid the General Instrument
revolving credit facility in July 1997 utilizing a combination of the bank
credit facility described below and amounts received from NextLevel Systems and
CommScope at the Distribution Date totaling $170.1 million.
In July 1997, the Company entered into a bank credit agreement (the "Credit
Agreement") which provides for a $350.0 million secured revolving credit
facility that matures on December 31, 2002. The Credit Agreement requires the
Company to pay a facility fee on the total commitment. The Credit Agreement
permits the Company to choose between two interest rate options: the Adjusted
Base Rate (as defined in the Credit Agreement), which is based on the highest of
(i) the rate of interest publicly announced by The Chase Manhattan Bank as its
prime rate, (ii) 1% per annum above the secondary market rate for three-month
certificates of deposit and (iii) the federal funds effective rate from time to
time plus 0.5%, or a Eurodollar rate (LIBOR) plus a margin which varies based on
the Company's ratio of indebtedness to earnings before income taxes,
depreciation and amortization as defined in the Credit Agreement. The facility
fee also varies based on that ratio. The Company is also able to set interest
rates through a competitive bid procedure. The Credit Agreement contains
financial and operating covenants, including limitations on guarantee
obligations, liens, sale of assets, indebtedness, investments, capital
expenditures, payment of dividends and leases, and requires the maintenance of
certain financial ratios. In addition, certain changes in control of the Company
would cause an event of default under the Credit Agreement.
-8-
<PAGE>
In September 1997 the Company entered into two interest rate swap transactions
pursuant to which it will pay a fixed interest rate averaging 5.96% on a
notional amount of $100 million. The Company will receive interest on the $100
million notional amount based on a three month LIBOR rate set quarterly
beginning on January 22, 1998. The agreements begin on January 22, 1998 and
mature one year later. The effect of these agreements to the Company is to
reduce the amount of debt subject to floating interest rates.
Net interest expense included in the Consolidated Statements of Operations
through the Distribution Date represents an allocation based upon General
Semiconductor's net assets as a percentage of total assets of General
Instrument.
6. INCOME TAXES
General Semiconductor, NextLevel Systems and CommScope entered into a tax
sharing agreement (the "Tax Sharing Agreement") that defines the parties' rights
and obligations with respect to federal, state and other income or franchise
taxes relating to the businesses of General Instrument for tax periods prior to,
including and following the Distribution and with respect to certain other tax
matters. In general, NextLevel Systems will be responsible for consolidated
federal income taxes, consolidated or combined state income taxes and separate
state income taxes of General Instrument and its subsidiaries and preparation
and filings of the applicable returns through July 25, 1997. Such liability will
be determined assuming a closing of the books on July 25, 1997. Liability for
foreign income taxes and other taxes will generally be allocated to the legal
entity on which such taxes are imposed except that liability for taxes relating
to the transferred businesses (as defined in the Tax Sharing Agreement) will
generally be allocated to NextLevel Systems.
Notwithstanding the above, each of NextLevel, CommScope and General
Semiconductor will be responsible for any such taxes to the extent that such
taxes are attributable to action taken by that entity or its affiliates after
the Distribution that is inconsistent with the tax treatment contemplated in the
Tax Ruling received from the Internal Revenue Service. The Company believes that
the Tax Sharing Agreement is fair to each of the parties and contains terms
which generally are comparable to those which would have been reached at
arms-length negotiations with unaffiliated parties.
The provision for income taxes for the three and nine months ended September 30,
1997 and 1996 was computed utilizing the Company's expected annual effective
income tax rate and the tax effects of restructuring charges recorded during
1997 at the applicable rates.
The tax effects of temporary differences that give rise to the deferred tax
assets at September 30, 1997 and December 31, 1996 consist principally of
accrued employee benefits and environmental liabilities. Deferred tax
liabilities for the periods presented primarily relate to foreign tax
withholding liabilities.
7. LITIGATION
A securities class action is presently pending in the United States District
Court for the Northern District of Illinois, Eastern Division, In Re General
Instrument Corporation Securities Litigation. This action, which consolidates
numerous class action complaints filed in various courts between October 10 and
October 27, 1995, is brought by plaintiffs, on their own behalves and as
representatives of a class of purchasers of General Instrument common stock
during the period March 21, 1995 through October 18, 1995. The complaint alleges
that General Instrument and certain of its officers and directors, as well as
Forstmann Little & Co. and certain related entities violated the federal
securities laws, namely, Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934, as amended, by allegedly making false and misleading statements and
failing to disclose material facts about General Instrument's planned shipments
in 1995 of its CFT-2200 and DigiCipher II products. The plaintiffs have moved
for class certification. Also pending in the same court, under the same name, is
a derivative action brought on behalf of General Instrument. The derivative
action alleges that the members of General Instrument's Board of Directors,
several of its officers and Forstmann Little & Co. and related entities had
breached their fiduciary duties by reason of the matter complained of in the
class action and the defendants' alleged use of material non-public information
to sell shares of the Company's stock for personal gain. On September 23, 1997
the district court dismissed the Consolidated Amended Class Action Complaint and
the derivative complaint, without prejudice, and the plantiffs were given until
November 7, 1997 to amend their complaints. On November 7, 1997 plaintiffs
served the defendents with amended complaints, which contain allegations
substantially similar to those in the original complaint.
-9-
<PAGE>
An action entitled BKP Partners, L.P. v. General Instrument Corp. was brought in
February 1996 by shareholders of NextLevel Communications, which was merged into
General Instrument in September 1995. The action was originally filed in the
Northern District of California and was subsequently transferred to the Northern
District of Illinois. The complaint alleges that the General Instrument common
stock, which was received by the plaintiffs as a result of the merger, was
overpriced because of the matters complained of in the class action and General
Instrument's failure to disclose information concerning a significant reduction
in its gross margins. On September 23, 1997 the district court dismissed the
complaint, without prejudice, and the plantiffs were given until November 7,
1997 to amend their complaints. On November 7, 1997, plantiffs served the
defendents with amended complaints, which contain allegations substantially
similar to those in the original complaint.
An action entitled BroadBand Technologies, Inc. vs. General Instrument Corp. was
brought in March 1997 in the United States District Court for the Eastern
District of North Carolina. The complaint alleges that General Instrument
infringes BroadBand Technologies, Inc.'s ("BBT") U.S. Patent No. 5,457,560,
covering an electronic communications system which delivers television signals,
and seeks monetary damages and injunctive relief. On June 13, 1997, General
Instrument's motion to dismiss the complaint for lack of jurisdiction was
denied.
NextLevel Systems has agreed to indemnify the Company in respect of its
obligations, if any, arising out of or in connection with the In Re General
Instrument Corporation Securities Litigation, the BKP Partners, L.P., v. General
Instrument Corp. litigation and the action entitled Broadband Technologies, Inc.
v. General Instrument Corp.
General Semiconductor is a not a party to any pending legal proceedings other
than various claims and lawsuits arising in the normal course of business and
those for which they are indemnified. Management is of the opinion that such
litigation or claims will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
8. EMPLOYEE BENEFITS AND POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
In connection with the Distribution, the Company, NextLevel Systems and
CommScope have entered into an Employee Benefits Allocation Agreement (the
"Agreement"). The Agreement provides that the Company generally will assume or
retain, as the case may be, all liabilities under employee benefits plans
maintained by General Instrument or any of its subsidiaries with respect to
employees of General Semiconductor or any of its retained subsidiaries and
employees of previously divested operations other than the liabilities related
to employees of NextLevel Systems or CommScope subsequent to the Distribution.
The Company believes that the Agreement is fair to each of the parties and
contains terms which generally are comparable to those which would have been
reached at arms-length negotiations with unaffiliated parties.
The General Instrument Corporation Pension Plan for Salaried and Hourly Paid
Non-Union Employees (the "GI Pension Plan") intends to effect a spin-off of the
assets and liabilities pertaining to all active employees and former employees
(as defined in the Agreement) of NextLevel Systems and its subsidiaries to the
NextLevel Systems defined benefit pension plan by December 31, 1997. The GI
Pension Plan will retain the remainder of the assets and liabilities.
Other non-current liabilities includes $33.3 million and $30.6 million at
September 30, 1997 and December 31, 1996, respectively, for employee benefits
and postretirement and postemployment benefits other than pensions.
-10-
<PAGE>
9. SUBSEQUENT EVENT
On October 1, 1997 the Company purchased certain assets and assumed certain
liabilities related to the discrete semiconductor business of ITT Industries,
Inc. for $8.0 million. The acquisition will be accounted for as a purchase
transaction. By broadening the Company's served market to include small signal
transistors and zener products, this acquisition will enable the Company to
participate in approximately 59% of the $13.0 billion worldwide discrete
semiconductor market compared to the 20% in which the Company participated prior
to the acquisition.
On a pro forma basis, this transaction is not expected to have a material impact
on the Company's results of operations, financial position or cash flows for the
year ended December 31, 1997.
10. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share ("SFAS No. 128"), which will be adopted by the Company
on December 31, 1997. SFAS No. 128, which supersedes Accounting Principles Board
Opinion No. 15, Earnings per Share, ("APB No. 15") replaces primary and fully
diluted earnings per share with basic and diluted earnings per share,
respectively. The Company does not expect the result to be materially different
from that reported under APB No. 15.
-11-
<PAGE>
GENERAL SEMICONDUCTOR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management discussion and analysis pertains to the continuing
operations of General Semiconductor, Inc., unless otherwise noted, and describes
material changes in the Company's financial condition since December 31, 1996.
RESULTS OF OPERATIONS:
- ---------------------
NET SALES
- ---------
Net sales for the three and nine months ended September 30, 1997 of $95.6
million and $276.4 million compares to $84.7 million and $282.6 million for the
corresponding prior year periods. The 12.9% increase for the three months ended
September 30, 1997 relates to increased volume shipments offset, in part, by a
15% decline in average selling prices. The 2.2% decrease for the nine months
ended September 30, 1997 resulted from lower average selling prices than in the
prior year due to industry wide excess capacity, partly offset by the
aforementioned increased volume shipments. Order levels increased almost 50% for
the three months ended September 30, 1997 over the depressed levels of the
comparable prior year period. Foreign exchange rate fluctuations unfavorably
impacted net sales by 3.7% and 3.2% for the three and nine months ended
September 30, 1997 over the comparable prior year periods.
COST OF SALES
- -------------
Cost of sales of $64.9 million and $219.4 million for the three and nine months
ended September 30, 1997 compares to $54.0 million and $174.7 million for the
corresponding prior year periods. For the three months ended September 30, 1997,
cost of sales increased $10.9 million or 20.1% due principally to the increased
volume. Excluding pre-tax costs of $32.7 million for the nine months ended
September 30, 1997, primarily related to the separation of the Taiwan operations
of General Instrument, cost of sales increased 6.9% to $186.7 million. This
increase resulted from the increased volume offset, in part, by improved factory
performance and foreign exchange fluctuation.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses of $10.3 million and $32.9 million
for the three and nine months ended September 30, 1997 increased from $7.3
million and $28.7 million for the comparable prior year periods. The $3.0
million increase for the three months ended September 30, 1997 relates primarily
to higher selling costs and compensation associated with increased revenues. For
the nine months ended September 30, 1997 and 1996, excluding a pre-tax charge in
1997 of $1.1 million related to the Distribution, selling, general and
administrative expenses total $31.8 million and $28.7 million.
RESEARCH AND DEVELOPMENT EXPENSES
- ---------------------------------
Research and development expenses of $1.7 million and $4.9 million for the three
and nine months ended September 30, 1997 increased from $1.4 million and $4.3
million for the comparable prior year periods. As a percentage of net sales,
research and development expenses approximate 1.8% for the three and nine months
ended September 30, 1997 compared with 1.6% for the three and nine months ended
September 30, 1996. The increased level of spending reflects the continued
development of new products as well as the modification of existing products.
NET INTEREST EXPENSE
- --------------------
Net interest expense increased to $4.0 million and $9.3 million for the three
and nine months ended September 30, 1997 from $2.5 million and $7.7 million for
the corresponding prior year periods. Net interest expense represents an
allocation based upon General Semiconductor's net assets as a percentage of
total assets of General Instrument for 1996 and through the Distribution Date
for 1997. Pro forma net interest expense, assuming a net debt level of $275.0
million through the Distribution Date and amortization of debt issuance costs
associated with the new borrowings, would have been $4.8 million and $14.6
million for the three and nine months ended September 30, 1997 and $4.9 million
and $14.7 million for the comparable prior year periods, respectively.
-12-
<PAGE>
INCOME TAXES
- ------------
The provision for income taxes for the three and nine months ended September 30,
1997 was computed utilizing the Company's expected annual effective income tax
rate of 37% and the tax effects of restructuring charges recorded during 1997 at
the applicable rates. The decrease in the effective rate from 40.7% for 1996
relates primarily to increased income of foreign subsidiaries taxed at rates
lower than U.S. rates.
DISCONTINUED OPERATIONS
- -----------------------
The net operating results of the businesses transferred to NextLevel Systems and
CommScope have been reported, net of applicable income taxes, as "Income (Loss)
from discontinued operations".
Discontinued operations also includes $20.8 million and $52.9 million, net of
applicable income taxes, for the three and nine months ended September 30, 1997,
respectively, for costs incurred primarily related to the separation of the
Taiwan operations of General Instrument between General Semiconductor and
NextLevel Systems, and for professional fees and certain other administrative
and financing costs incurred directly related to the Distribution.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital at September 30, 1997 was $18.9 million, compared to $69.6
million at December 31, 1996. The working capital decrease of $50.7 million
resulted primarily from the liquidation of short-term investments. As a result,
the current ratio decreased to 1.2 to 1 at September 30, 1997 compared with 1.7
to 1 at December 31, 1996.
During the nine months ended September 30, 1997, the Company invested $18.3
million in property, plant and equipment compared with $45.2 million for the
corresponding prior year period to expand capacity to meet anticipated future
production demands including the construction of the manufacturing facility in
Tianjin, China. The Company does not have any material commitments for capital
expenditures.
Long-term debt, excluding current maturities, was $272.9 million at September
30, 1997 compared to $688.0 million at December 31, 1996. During 1997 the
remaining Convertible Junior Subordinated Notes outstanding were converted into
General Instrument common stock resulting in the issuance of 2.4 million shares.
In connection with the conversion, the Company charged approximately $1.5
million to additional paid-in capital for unamortized deferred financing costs
(net of $1.0 million of accrued interest forfeited and net of applicable income
taxes). The Company also repaid the General Instrument revolving credit facility
in July 1997 utilizing a combination of the bank credit facility described below
and amounts received from NextLevel Systems and CommScope at the Distribution
Date totaling $170.1 million.
In July 1997, the Company entered into a bank credit agreement (the "Credit
Agreement") which provides for a $350.0 million secured revolving credit
facility that matures on December 31, 2002. The Credit Agreement requires the
Company to pay a facility fee on the total commitment. The Credit Agreement
permits the Company to choose between two interest rate options: the Adjusted
Base Rate (as defined in the Credit Agreement), which is based on the highest of
(i) the rate of interest publicly announced by The Chase Manhattan Bank as its
prime rate, (ii) 1% per annum above the secondary market rate for three-month
certificates of deposit and (iii) the federal funds effective rate from time to
time plus 0.5%, or a Eurodollar rate (LIBOR) plus a margin which varies based on
the Company's ratio of indebtedness to earnings before income taxes,
depreciation and amortization as defined in the Credit Agreement. The facility
fee also varies based on that ratio. The Company is also able to set interest
rates through a competitive bid procedure. The Credit Agreement contains
financial and operating covenants, including limitations on guarantee
obligations, liens, sale of assets, indebtedness, investments, capital
expenditures, payment of dividends and leases, and requires the maintenance of
certain financial ratios. In addition, certain changes in control of the Company
would cause an event of default under the Credit Agreement.
-13-
<PAGE>
As of September 30, 1997 approximately $40.0 million remains accrued for
restructuring and spin-off related costs charged to the results of the
operations. Approximately half of such payments are expected to be made in 1997
and the remainder will be made in April 1998.
The Company believes that it has adequate liquidity to meet its current and
anticipated needs from the results of its operations, working capital and the
existing credit facility. The Company intends to repay its remaining
indebtedness primarily with cash flow from operations. There can be no
assurance, however, that future industry-specific developments or general
economic trends will not adversely affect the Company's operations or its
ability to meet its cash requirements.
-14-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
A securities class action is presently pending in the United States District
Court for the Northern District of Illinois, Eastern Division, In Re General
Instrument Corporation Securities Litigation. This action, which consolidates
numerous class action complaints filed in various courts between October 10 and
October 27, 1995, is brought by plaintiffs, on their own behalves and as
representatives of a class of purchasers of General Instrument Common Stock
during the period March 21, 1995 through October 18, 1995. The complaint alleges
that General Instrument and certain of its officers and directors, as well as
Forstmann Little & Co. and certain related entities violated the federal
securities laws, namely, Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934, as amended, by allegedly making false and misleading statements and
failing to disclose material facts about General Instrument's planned shipments
in 1995 of its CFT-2200 and DigiCipher II products. The plaintiffs have moved
for class certification. Also pending in the same court, under the same name, is
a derivative action brought on behalf of General Instrument. The derivative
action alleges that the members of General Instrument's Board of Directors,
several of its officers and Forstmann Little & Co. and related entities had
breached their fiduciary duties by reason of the matter complained of in the
class action and the defendants' alleged use of material non-public information
to sell shares of the Company's stock for personal gain. On September 23, 1997
the district court dismissed the Consolidated Amended Class Action Complaint and
the derivative complaint, without prejudice, and the plantiffs were given until
November 7, 1997 to amend their complaints. On November 7, 1997, plantiffs
served the defendents with amended complaints, which contain allegations
substantially similar to those in the original complaint.
An action entitled BKP Partners, L.P. v. General Instrument Corp. was brought in
February 1996 by shareholders of NextLevel Communications, which was merged into
General Instrument in September 1995. The action was originally filed in the
Northern District of California and was subsequently transferred to the Northern
District of Illinois. The complaint alleges that the General Instrument common
stock, which was received by the plaintiffs as a result of the merger, was
overpriced because of the matters complained of in the class action and General
Instrument's failure to disclose information concerning a significant reduction
in its gross margins. On September 23, 1997 the district court dismissed the
complaint, without prejudice, and the plantiffs were given until November 7,
1997 to amend their complaints. On November 7, 1997, plantiffs served the
defendents with amended complaints, which contain allegations substantially
similar to those in the original complaint.
An action entitled BroadBand Technologies, Inc. vs. General Instrument Corp. was
brought in March 1997 in the United States District Court for the Eastern
District of North Carolina. The complaint alleges that General Instrument
infringes BroadBand Technologies, Inc.'s ("BBT") U.S. Patent No. 5,457,560,
covering an electronic communications system which delivers television signals,
and seeks monetary damages and injunctive relief. On June 13, 1997, General
Instrument`s motion to dismiss the complaint for lack of jurisdiction was
denied.
NextLevel Systems has agreed to indemnify the Company in respect of its
obligations, if any, arising out of or in connection with the In Re General
Instrument Corporation Securities Litigation, the BKP Partners, L.P., v. General
Instrument Corp. litigation and the action entitled Broadband Technologies, Inc.
v. General Instrument Corp.
General Semiconductor is not a party to any pending legal proceedings other than
various claims and lawsuits arising in the normal course of business and those
for which they are indemnified. Management is of the opinion that such
litigation or claims will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
See also Exhibit 99 to this Form 10-Q.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Effective as of July 25, 1997, the General Instrument Certificate of
Incorporation was amended to (i) change the name of the Company from
General Instrument Corporation to General Semiconductor, Inc. and
(ii) effect a one for four reverse stock split of the Company's
common stock.
-15-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
General Instrument held a combined Annual and Special Meeting of
Stockholders on July 23, 1997.
1. The stockholders approved the Distribution by a vote of:
112,708,544 for, 114,241 against and 134,846 abstaining:
2. The stockholders approved an amendment to General Instrument's
Certificate of Incorporation to change the name of the company
to General Semiconductor, Inc. by a vote of: 112,981,562 for,
80,750 against and 132,283 abstaining.
3. The stockholders approved an amendment to General Instrument's
Certificate of Incorporation to effect a one for four reverse
stock split of the General Semiconductor common stock by a vote
of:112,866,616 for, 168,950 against and 159,029 abstaining.
4. The stockholders approved an amendment to General Instrument's
Certificate of Incorporation to declassify the Board of
Directors and provide for the annual election of all directors
by a vote of: 112,231,959 for, 506,000 against and 220,122
abstaining.
5. The stockholders approved the election of four directors. The
votes cast for each nominee were as follows:
FOR ABSTAIN
--- -------
Lynn Forester 120,329,437 1,604,949
Nicholas Forstmann 119,478,267 2,456,119
Richard S. Friedland 119,476,550 2,457,836
J. Tracy O'Rourke 120,324,042 1,610,344
In connection with the Distribution the above named directors (and all other
General Instrument directors except Steven B. Klinsky) resigned on July 25, 1997
and five new directors were appointed to the Company's Board of Directors:
Ronald A. Ostertag; Ronald Rosenzweig; Peter A. Schwartz; Samuel L. Simmons; Dr.
Gerald T. Wrixon. Steven B. Klinsky remains a member of the Board of Directors.
Item 6. Exhibits
--------
(a) Exhibits
--------
10.10 Form of Stay Incentive and Severance Protection Agreement
between General Semiconductor and certain of its executive
officers.
10.11 Form of Severance Protection Agreement between General
Semiconductor, Inc. and certain of its executive officers.
11 Computation of Earnings Per Share
27 Financial Data Schedule
99 Forward Looking Information
(b) Report on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
three months ended September 30, 1997.
-16-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL SEMICONDUCTOR, INC.
November 13, 1997 /s/Andrew M. Caggia
- ----------------- --------------------
Date Andrew M. Caggia
Sr. Vice President and Chief Financial Officer
Signing both in his capacity as Sr. Vice President
on behalf of the Registrant and as Chief
Financial Officer of the Registrant
-17-
FORM OF
STAY INCENTIVE AND SEVERANCE PROTECTION AGREEMENT
THIS AGREEMENT made as of the 28th day of July, 1997, by and
between General Semiconductor, Inc. (the "Corporation"),_____________ and (the
"Executive").
WHEREAS, the Board of Directors of the Corporation (the "Board")
recognizes that the possibility of a Change in Control (as hereinafter defined)
exists and that the threat or the occurrence of a Change in Control can result
in significant distraction of the Corporation's key management personnel because
of the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in
the best interest of the Corporation and its stockholders for the Corporation to
retain the services of the Executive in the event of a threat or occurrence of a
Change in Control and to ensure the Executive's continued dedication and efforts
in such event without undue concern for the Executive's personal financial and
employment security; and
WHEREAS, in order to induce the Executive to remain in the
employ of the Corporation, particularly in the event of a threat or the
occurrence of a Change in Control, the Corporation desires to enter into this
Agreement with the Executive to provide the Executive with certain benefits in
the event the Executive's employment is terminated under circumstances described
herein.
NOW, THEREFORE, in consideration of the respective agreements of
the parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of July
28, 1997 (the "Effective Date"), and shall continue in effect until December 31,
1999 (the "Term"); provided, however, that on January 1, 1999, and on each
January 1 thereafter, the Term shall automatically be extended for one (1) year
unless either the Executive or the Corporation shall have given written notice
to the other at least ninety (90) days prior thereto that the Term shall not be
so extended; provided, further, however, that following the occurrence of a
Change in Control, the Term shall not expire prior to the expiration of
twenty-four (24) months after such occurrence.
2. Stay Incentive. If the Executive remains employed by the
Corporation until May 31, 1998, the Executive will receive a stay incentive in
the amount of $__________ (the "Stay Incentive"). The Stay Incentive will be
paid in a single lump sum within ten days of May 31, 1998. The Stay Incentive
will also be paid to the Executive if the Executive's employment with the
Corporation is terminated by the Corporation other than for Cause (as defined in
Section 14.6) any time after the Effective Date and prior to May 31, 1998, in
which case the Stay Incentive will be paid upon the Executive's termination of
employment.
3. Termination of Employment. If, during the Term, the
Executive's employment with the Corporation and its Affiliates shall be
terminated within twenty-four (24) months following a Change in Control, the
Executive shall be entitled to the following compensation and benefits:
(a) If the Executive's employment with the Corporation and
its Affiliates shall be terminated (1) by the Corporation for Cause or
Disability, (2) by reason of the Executive's death, or (3) by the Executive
other than for Good Reason, the Corporation shall pay to the Executive his
Accrued Compensation. In addition to the foregoing, if the Executive's
employment is terminated by the Corporation for Disability or by reason of the
Executive's death, the Corporation shall pay to the Executive or his
beneficiaries a Pro Rata Bonus. The Executive's entitlement to any other
compensation or benefits shall be determined in accordance with the
Corporation's employee benefits plans and other applicable programs and
practices then in effect.
(b) If the Executive's employment with the Corporation and
its Affiliates shall be terminated for any reason other than as specified in
Section 3(a), the Executive shall be entitled to the following
(1) the Corporation shall pay the Executive all
Accrued Compensation and a Pro Rata Bonus;
(2) the Corporation shall pay the Executive as
severance pay and in lieu of any further compensation for periods subsequent to
the Termination Date, an amount equal to times the sum of (A) the Executive's
Base Amount and (B) the Executive's Bonus Amount;
(3) for _____ months after such termination (the
"Continuation Period"), the Corporation shall at its expense continue on behalf
of the Executive and his dependents and beneficiaries the life insurance,
disability, medical, dental and hospitalization coverages and benefits provided
to the Executive immediately prior to the Change in Control or, if greater, the
coverages and benefits provided at any time thereafter. The coverages and
benefits (including deductibles and costs) provided in this Section 3(b)(3)
during the Continuation Period shall be no less favorable to the Executive and
his dependents and beneficiaries, than the most favorable of such coverages and
benefits referred to above. The Corporation's obligation hereunder with respect
to the foregoing coverages and benefits shall be reduced to the extent that the
Executive obtains any such coverages and benefits pursuant to a subsequent
employer's benefit plans, in which case the Corporation may reduce any of the
coverages or benefits it is required to provide the Executive hereunder so long
as the aggregate coverages and benefits of the combined benefit plans is no less
favorable to the Executive than the coverages and benefits required to be
provided hereunder. This Section 3(b)(3) shall not be interpreted so as to limit
any benefits to which the Executive, his dependents or beneficiaries may be
entitled under any of the Corporation's employee benefit plans, programs or
practices following the Executive's termination of employment, including without
limitation, retiree medical and life insurance benefits;
(4) If, at the end of the Continuation Period, the
Executive is not employed by another employer (including self-employment), the
Executive will receive for up to six months, an amount equal to one-twelfth
(1/12) of the sum of (A) the Executive's Base Amount and (B) the Executive's
Bonus Amount, payable at the end of each of the six (6) calendar months
following the end of the Continuation Period; provided, however, that such
payments will immediately cease upon the Executive's employment (including
self-employment) by a subsequent employer. In addition, the coverages and
benefits described in Section 3(b)(3) shall be continued until the earlier of
(x) six (6) months after the end of the Continuation Period or (y) such time
that the Executive obtains any such coverages or benefits pursuant to a
subsequent employer's benefit plans;
(5) the Corporation shall pay or reimburse the
Executive for the costs, fees and expenses of outplacement assistance services
(not to exceed twenty-five (25%) of the sum of (A) the Executive's Base Amount
and (B) the Executive's Bonus Amount) provided by any outplacement agency
selected by the Executive;
(6) the Corporation shall pay or reimburse the
Executive up to $2,000 for tax and financial planning services in respect of the
calendar year in which the payments provided for in Section 3(b)(2) are paid to
the Executive; and
(7) the Corporation shall pay or reimburse the
Executive for the cost of relocation (in accordance with the Corporation's
relocation policy) to the Executive's place of residence immediately prior to
any relocation the Executive made for purposes of employment by the Corporation
or General Instrument Corporation after July 1, 1995.
(c) If the Executive's employment is terminated by the
Corporation without Cause (1) within six (6) months prior to a Change in Control
or (2) at any time prior to the date of a Change in Control but the Executive
reasonably demonstrates that such termination (A) was at the request of a third
party who has indicated an intention or taken steps reasonably calculated to
effect a Change in Control (a "Third Party") and who effectuates a Change in
Control or (B) otherwise arose in connection with, or in anticipation of, a
Change in Control which has been threatened or proposed and which actually
occurs, such termination shall be deemed to have occurred after a Change in
Control, provided a Change in Control shall actually have occurred.
(d) (1) Gross-Up Payment. In the event it shall be
determined that any payment (other than the payment provided for in this Section
3(d)) or distribution of any type to or for the benefit of the Executive, by the
Corporation, any Affiliate of the Corporation, any Person who acquires ownership
or effective control of the Corporation or ownership of a substantial portion of
the Corporation's assets (within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder)
or any Affiliate of such Person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the "Total
Payments"), is or will be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including any income tax, employment tax or
Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments
(2) Determination By Accountant. All mathematical
determinations, and all determinations as to whether any of the Total Payments
are "parachute payments" (within the meaning of Section 280G of the Code), that
are required to be made under this Section 3(d), including determinations as to
whether a Gross-Up Payment is required, the amount of such Gross-Up Payment and
amounts relevant to the last sentence of this Section 3(d)(2), shall be made by
an independent accounting firm selected by the Executive from among the six (6)
largest accounting firms in the United States (the "Accounting Firm"), which
shall provide its determination (the "Determination"), together with detailed
supporting calculations regarding the amount of any Gross-Up Payment and any
other relevant matter, both to the Corporation and the Executive by no later
than ten (10) days following the Termination Date, if applicable, or such
earlier time as is requested by the Corporation or the Executive (if the
Executive reasonably believes that any of the Total Payments may be subject to
the Excise Tax). If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive and the Corporation with an
opinion reasonably acceptable to the Executive and the Corporation that no
Excise Tax is payable (including the reasons therefor) and that the Executive
has substantial authority not to report any Excise Tax on his federal income tax
return. If a Gross-Up Payment is determined to be payable, it shall be paid to
the Executive within twenty (20) days after the Determination (and all
accompanying calculations and other material supporting the Determination) is
delivered to the Corporation by the Accounting Firm. Any determination by the
Accounting Firm shall be binding upon the Corporation and the Executive, absent
manifest error. As a result of uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments not made by the Corporation
should have been made ("Underpayment"), or that Gross-Up Payments will have been
made by the Corporation which should not have been made ("Overpayments"). In
either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of an Underpayment,
the amount of such Underpayment (together with any interest and penalties
payable by the Executive as a result of such Underpayment) shall be promptly
paid by the Corporation to or for the benefit of the Executive. In the case of
an Overpayment, the Executive shall, at the direction and expense of the
Corporation, take such steps as are reasonably necessary (including the filing
of returns and claims for refund), follow reasonable instructions from, and
procedures established by, the Corporation, and otherwise reasonably cooperate
with the Corporation to correct such Overpayment, provided, however, that (i)
the Executive shall not in any event be obligated to return to the Corporation
an amount greater than the net after-tax portion of the Overpayment that he has
retained or has recovered as a refund from the applicable taxing authorities and
(ii) this provision shall be interpreted in a manner consistent with the intent
of Section 3(d)(1), which is to make the Executive whole, on an after-tax basis,
from the application of the Excise Tax, it being understood that the correction
of an Overpayment may result in the Executive repaying to the Corporation an
amount which is less than the Overpayment. The fees and expenses of the
Accounting Firm shall be paid by the Corporation.
(e) The amounts provided for in Sections 3(a) and 3(b)(1)
and (2) shall be paid in a single lump sum cash payment within ten (10) days
after the Executive's Termination Date (or earlier, if required by applicable
law).
(f) The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment
except as provided in Sections 3(b)(3) and 3(b)(4).
(g) The severance pay and benefits provided for in this
Section 3 shall be in lieu of any other severance pay to which the Executive may
be entitled under any severance plan or any other plan, agreement or arrangement
of the Corporation or any of its Affiliates.
4. Notice of Termination. Following a Change in Control, any
intended termination of the Executive's employment by the Corporation shall be
communicated by a Notice of Termination from the Corporation to the Executive,
and any intended termination of the Executive's employment by the Executive for
Good Reason shall be communicated by a Notice of Termination from the Executive
to the Corporation.
5. Fees and Expenses. The Corporation shall pay all legal fees
and related expenses (including the costs of experts, evidence and counsel)
incurred by the Executive as they become due as a result of (a) the termination
of the Executive's employment by the Corporation or by the Executive for Good
Reason (including all such fees and expenses, if any, incurred in contesting,
defending or disputing the basis for any such termination of employment), (b)
the Executive's hearing before the Board of Directors of the Corporation as
contemplated in Section 14.6 of this Agreement or (c) the Executive seeking to
obtain or enforce any right or benefit provided by this Agreement or by any
other plan or arrangement maintained by the Corporation under which the
Executive is or may be entitled to receive benefits.
6. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including any Notice of
Termination) shall be in writing, shall be signed by the Executive if to the
Corporation or by a duly authorized officer of the Corporation if to the
Executive, and shall be deemed to have been duly given when personally delivered
or sent by certified mail, return receipt requested, postage prepaid, addressed
to the respective addresses last given by each party to the other, provided that
all notices to the Corporation shall be directed to the attention of the Board
with a copy to the Secretary of the Corporation. All notices and communications
shall be deemed to have been received on the date of delivery thereof or on the
third business day after the mailing thereof, except that notice of change of
address shall be effective only upon receipt.
7. Nature of Rights. Except as provided in Section 3(g), nothing
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Corporation or any Affiliate of the Corporation and for which the
Executive may qualify, nor shall anything herein limit or reduce such rights as
the Executive may have under any other agreements with the Corporation or any
Affiliate of the Corporation. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan or program of the
Corporation or any Affiliate of the Corporation shall be payable in accordance
with such plan or program, except as explicitly modified by this Agreement.
8. Settlement of Claims. The Corporation's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, defense, recoupment, or other
right which the Corporation may have against the Executive or others.
9. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and the Corporation. No waiver
by either party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No agreement or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by any party which are not expressly set
forth in this Agreement.
10. Successors; Binding Agreement.
(a) This Agreement shall be binding upon and shall inure
to the benefit of the Corporation and its respective Successors and Assigns. The
Corporation shall require its respective Successors and Assigns to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession or assignment had taken place.
(b) Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Executive, his
beneficiaries or legal representatives, except by will or by the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
11. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the conflict of laws principles thereof. Any action
brought by any party to this Agreement shall be brought and maintained in a
court of competent jurisdiction in the State of New York.
12. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto, and supersedes all prior agreements,
understandings and arrangements, oral or written, between the parties hereto,
with respect to the subject matter hereof, including, without limitation, the
Stay and Sale Incentive and Special Severance Arrangement, dated January 10,
1997, between the Executive and General Instrument Corporation.
14. Definitions.
14.1. Accrued Compensation. For purposes of this
Agreement, "Accrued Compensation" shall mean all amounts of compensation for
services rendered to the Corporation or any of its Affiliates that have been
earned or accrued through the Termination Date but that have not been paid as of
the Termination Date including (a) base salary, (b) reimbursement for reasonable
and necessary business expenses incurred by the Executive on behalf of the
Corporation or of its Affiliates of the Corporation during the period ending on
the Termination Date, (c) vacation pay and (d) bonuses and incentive
compensation; provided, however, that Accrued Compensation shall not include any
amounts described in clause (a) or clause (d) that have been deferred pursuant
to any salary reduction or deferred compensation elections made by the
Executive.
14.2. Affiliate. For purposes of this Agreement,
"Affiliate" means, with respect to any Person, any entity, directly or
indirectly, controlled by, controlling or under common control with such Person.
14.3. Base Amount. For purposes of this Agreement, "Base
Amount" shall mean the Executive's annual base salary at the rate in effect as
of the date of a Change in Control or, if greater, at any time thereafter,
determined without regard to any salary reduction or deferred compensation
elections made by the Executive.
14.4. "Beneficial Owner," "Beneficially Owned" and
"Beneficially Owning" shall have the meanings applicable under Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended.
14.5. Bonus Amount. For purposes of this Agreement, "Bonus
Amount" shall mean the target annual bonus payable to the Executive under the
Incentive Plan in respect of the fiscal year of the Corporation immediately
prior to that in which the Termination Date occurs.
14.6. Cause. For purposes of this Agreement, a termination
of employment is for "Cause" if the Executive has been convicted of a felony or
the termination is evidenced by a resolution adopted in good faith by two-thirds
of the Board of Directors of the Corporation that the Executive:
(a) intentionally and continually failed
substantially to perform his reasonably assigned duties with the Corporation and
its Affiliates (other than a failure resulting from the Executive's incapacity
due to physical or mental illness or from the assignment to the Executive of
duties that would constitute Good Reason) which failure continued for a period
of at least thirty (30) days after a written notice of demand for substantial
performance, signed by a duly authorized officer of the Corporation, has been
delivered to the Executive specifying the manner in which the Executive has
failed substantially to perform, or
(b) intentionally engaged in conduct which is
demonstrably and materially injurious to the Corporation and its Affiliates;
provided, however, that no termination of the Executive's employment shall be
for Cause as set forth in this Section 14.6(b) until (1) there shall have been
delivered to the Executive a copy of a written notice, signed by a duly
authorized officer of the Corporation, setting forth that the Executive was
guilty of the conduct set forth in this Section 14.6(b) and specifying the
particulars thereof in detail, and (2) the Executive shall have been provided an
opportunity to be heard in person by the Board of Directors of the Corporation
(with the assistance of the Executive's counsel if the Executive so desires).
No act, nor failure to act, on the Executive's part,
shall be considered "intentional" unless the Executive has acted, or failed to
act, with a lack of good faith and with a lack of reasonable belief that the
Executive's action or failure to act was in the best interest of the Corporation
and its Affiliates. Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by the Executive after a Notice of Termination
is given to the Corporation by the Executive shall constitute Cause for purposes
of this Agreement.
14.7. Change in Control. "Change in Control" shall mean
any of the following:
(a) the acquisition by any Person, other than
Instrument Partners or Forstmann Little & Co. Subordinated Debt and Equity
Management Buyout Partnership-IV or any of their Affiliates (collectively, the
"Forstmann Little Companies") of Beneficial Ownership of Voting Securities
which, when added to the Voting Securities then Beneficially Owned by such
Person, would result in such Person Beneficially Owning (1) 33% or more of the
combined Voting Power of the Corporation's then outstanding Voting Securities
and (2) a number of Voting Securities greater than the aggregate number of
Voting Securities then Beneficially Owned by the Forstmann Little Companies;
provided, however, that for purposes of this paragraph (a), a Person shall not
be deemed to have made an acquisition of Voting Securities if such Person: (A)
acquires Voting Securities as a result of a stock split, stock dividend or other
corporate restructuring in which all stockholders of the class of such Voting
Securities are treated on a pro rata basis; (B) acquires the Voting Securities
directly from the Corporation; (C) becomes the Beneficial Owner of 33% or more
of the combined Voting Power of the Corporation's then outstanding Voting
Securities solely as a result of the acquisition of Voting Securities by the
Corporation or any Subsidiary which, by reducing the number of Voting Securities
outstanding, increases the proportional number of shares Beneficially Owned by
such Person, provided that if (x) a Person would own at least such percentage as
a result of the acquisition by the Corporation or any Subsidiary and (y) after
such acquisition by the Corporation or any Subsidiary, such Person acquires
Voting Securities, then an acquisition of Voting Securities shall have occurred;
(D) is the Corporation or any corporation or other Person of which a majority of
its voting power or its equity securities or equity interest is owned directly
or indirectly by the Corporation (a "Controlled Entity"); or (E) acquires Voting
Securities in connection with a "Non-Control Transaction" (as defined in
paragraph (c) below); or
(b) the individuals who, as of the Effective Date,
are members of the Board (the "Incumbent Board") cease for any reason to
constitute at least two-thirds of the Board; provided, however, that if either
the election of any new director or the nomination for election of any new
director by the Corporation's stockholders was approved by a vote of at least
two-thirds of the Incumbent Board prior to such election or nomination, such new
director shall be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board (a "Proxy
Contest") including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(c) approval by stockholders of the Corporation of:
(1) a merger, consolidation or reorganization
involving the Corporation (a "Business Combination"), unless
(A) the stockholders of the Corporation,
immediately before the Business Combination, own, directly or indirectly
immediately following the Business Combination, at least a majority of the
combined voting power of the outstanding voting securities of the corporation
resulting from the Business Combination (the "Surviving Corporation") in
substantially the same proportion as their ownership of the Voting Securities
immediately before the Business Combination, and
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement providing
for the Business Combination constitute at least a majority of the members of
the Board of Directors of the Surviving Corporation, and
(C) no Person (other than the Corporation
or any Controlled Entity, a trustee or other fiduciary holding securities under
one or more employee benefit plans or arrangements (or any trust forming a part
thereof) maintained by the Corporation, the Surviving Corporation or any
Controlled Entity, or any Person who, immediately prior to the Business
Combination, had Beneficial Ownership of 33% or more of the then outstanding
Voting Securities) has Beneficial Ownership of 33% or more of the combined
voting power of the Surviving Corporation's then outstanding voting securities
(a Business Combination satisfying the conditions of clauses (A), (B) and (C) of
this subparagraph (1) shall be referred to as a "Non-Control Transaction");
(2) a complete liquidation or dissolution of the
Corporation; or
(3) the sale of other disposition of all or
substantially all of the assets of the Corporation (other than a transfer to a
Controlled Entity).
Notwithstanding the foregoing, a Change of Control shall
not be deemed to occur solely because 33% or more of the then outstanding Voting
Securities is Beneficially Owned by (x) a trustee or other fiduciary holding
securities under one or more employee benefit plans or arrangements (or any
trust forming a part thereof) maintained by the Corporation or any Controlled
Entity or (y) any corporation which, immediately prior to its acquisition of
such interest, is owned directly or indirectly by the stockholders of the
Corporation in the same proportion as their ownership of stock in the
Corporation immediately prior to such acquisition.
14.8. Corporation. For purposes of this Agreement, all
references to the Corporation shall include its Successors and Assigns.
14.9. Disability. For purposes of this Agreement,
"Disability" shall mean a physical or mental infirmity which impairs the
Executive's ability to substantially perform his duties with the Corporation for
six (6) consecutive months, and within the time period set forth in a Notice of
Termination given to the Executive (which time period shall not be less than
thirty (30) days), the Executive shall not have returned to full-time
performance of his duties; provided, however, that if the Corporation's Long
Term Disability Plan, or any successor plan (the "Disability Plan"), is then in
effect, the Executive shall not be deemed disabled for purposes of this
Agreement unless the Executive is also eligible for "Total Disability" (as
defined in the Disability Plan) benefits (or similar benefits in the event of a
successor plan) under the Disability Plan.
14.10. Good Reason. (a) For purposes of this Agreement,
"Good Reason" shall mean the occurrence after a Change in Control of any of the
following events or conditions:
(1) a change in the Executive's status, title,
position or responsibilities (including reporting responsibilities) which, in
the Executive's reasonable judgment, represents an adverse change from his
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Executive of any duties or responsibilities
which, in the Executive's reasonable judgment, are inconsistent with his status,
title, position or responsibilities; or any removal of the Executive from or
failure to reappoint or reelect him to any of such offices or positions, except
in connection with the termination of his employment for Disability, Cause, as a
result of his death or by the Executive other than for Good Reason;
(2) a reduction in the Executive's annual base
salary below the Base Amount;
(3) the relocation of the offices of the
Corporation at which the Executive is principally employed to a location more
than twenty-five (25) miles from the location of such offices immediately prior
to the Change in Control, or the Corporation's requiring the Executive to be
based anywhere other than such offices, except to the extent the Executive was
not previously assigned to a principal location and except for required travel
on the Corporation's business to an extent substantially consistent with the
Executive's business travel obligations at the time of the Change in Control;
(4) the failure by the Corporation to pay to the
Executive any portion of the Executive's current compensation or to pay to the
Executive any portion of an installment of deferred compensation under any
deferred compensation program of the Corporation in which the Executive
participated, within seven (7) days of the date such compensation is due;
(5) the failure by the Corporation to (A)
continue in effect (without reduction in benefit level, and/or reward
opportunities) any material compensation or employee benefit plan in which the
Executive was participating immediately prior to the Change in Control,
including, but not limited to, any of the plans listed in Appendix A hereto,
unless a substitute or replacement plan has been implemented which provides
substantially identical compensation or benefits to the Executive or (B) provide
the Executive with compensation and benefits, in the aggregate, at least equal
(in terms of benefit levels and/or reward opportunities) to those provided for
under each other compensation or employee benefit plan, program and practice in
which the Executive was participating immediately prior to the Change in
Control;
(6) the failure of the Corporation to obtain
from its Successors or Assigns the express assumption and agreement required
under Section 10 hereof; or
(7) any purported termination of the Executive's
employment by the Corporation which is not effected pursuant to a Notice of
Termination satisfying the terms set forth in the definition of Notice of
Termination (and, if applicable, the terms set forth in the definition of
Cause).
(b) Any event or condition described in Section
14.10(a)(1) through (7) which occurs (1) within six (6) months prior to a Change
in Control or (2) at any time prior to a Change in Control but which the
Executive reasonably demonstrates (A) was at the request of a Third Party or (B)
otherwise arose in connection with, or in anticipation of a Change in Control
which has been threatened or proposed and which actually occurs, shall
constitute Good Reason for purposes of this Agreement notwithstanding that it
occurred prior to a Change in Control.
14.11. Incentive Plan. For purposes of this Agreement,
"Incentive Plan" shall mean the General Semiconductor, Inc. Annual Incentive
Plan, or any successor annual incentive plan, maintained by the Corporation.
14.12. Notice of Termination. For purposes of this
Agreement, following a Change in Control, "Notice of Termination" shall mean a
written notice of termination of the Executive's employment, signed by the
Executive if to the Corporation or by a duly authorized officer of the
Corporation if to the Executive, which indicates the specific termination
provision in this Agreement, if any, relied upon and which sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
14.13. Person. For purposes of this Agreement, "Person"
shall mean a person within the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended.
14.14. Pro Rata Bonus. For purposes of this Agreement,
"Pro Rata Bonus" shall mean the Bonus Amount multiplied by a fraction of the
numerator of which is the number of days in the year in which an Executive's
Termination Date occurs through the termination date and the denominator of
which is 365.
14.15. Subsidiary. For purposes of this Agreement,
"Subsidiary" shall mean a corporation as defined in Section 424(f) (or a
successor provision to such section) of the Internal Revenue Code of 1986, as
amended, and regulations and rulings thereunder, with the Corporation being
treated as the employer corporation for purposes of this definition.
14.16. Successors and Assigns. For purposes of this
Agreement, "Successors and Assigns" shall mean, with respect to the Corporation
or the Corporation, a corporation or other entity acquiring all or substantially
all the assets and business of the Corporation or the Corporation, as the case
may be (including this Agreement) whether by operation of law or otherwise.
14.17. Termination Date. For purposes of this Agreement,
"Termination Date" shall mean (a) in the case of the Executive's death, his date
of death, (b) if the Executive's employment is terminated for Disability, thirty
(30) days after Notice of Termination is given (provided that the Executive
shall not have returned to the performance of his duties on a full-time basis
during such thirty (30) day period) and (c) if the Executive's employment is
terminated for any other reason, the date specified in the Notice of Termination
(which, in the case of a termination for Cause shall not be less than thirty
(30) days, and in the case of a termination for Good Reason shall not be more
than sixty (60) days, from the date such Notice of Termination is given);
provided, however, that if within thirty (30) days after any Notice of
Termination is given the party receiving such Notice of Termination in good
faith notifies the other party that a dispute exists concerning the basis for
the termination, the Termination Date shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, or by the
final judgment, order or decree of a court of competent jurisdiction (the time
for appeal therefrom having expired and no appeal having been taken).
Notwithstanding the pendency of any such dispute, the Corporation shall continue
to pay the Executive his Base Amount and continue the Executive as a participant
in all compensation, incentive, bonus, pension, profit sharing, medical,
hospitalization, dental, life insurance and disability benefit plans in which he
was participating when the notice giving rise to the dispute was given, until
the dispute is finally resolved in accordance with this Section 14.17 whether or
not the dispute is resolved in favor of the Corporation, and the Executive shall
not be obligated to repay to the Corporation any amounts paid or benefits
provided pursuant to this sentence.
14.18. Voting Power. For purposes of this Agreement,
"Voting Power" shall mean the combined voting power of the then outstanding
Voting Securities.
14.19. Voting Securities. For purposes of this Agreement,
"Voting Securities" shall mean, with respect to the Corporation or any
Subsidiary, any securities issued by the Corporation or such Subsidiary,
respectively, which generally entitle the holder thereof to vote for the
election of directors of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to
be executed by their duly authorized officers and the Executive has executed
this Agreement as of the day and year first above written.
GENERAL SEMICONDUCTOR, INC.
By:________________________
By:________________________
FORM OF
SEVERANCE PROTECTION AGREEMENT
------------------------------
THIS AGREEMENT made as of the ____ day of _______ , by and
between General Semiconductor, Inc. (the "Corporation"), and ________ (the
"Executive").
WHEREAS, the Board of Directors of the Corporation (the "Board")
recognizes that the possibility of a Change in Control (as hereinafter defined)
exists and that the threat or the occurrence of a Change in Control can result
in significant distraction of the Corporation's key management personnel because
of the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in
the best interest of the Corporation and its stockholders for the Corporation to
retain the services of the Executive in the event of a threat or occurrence of a
Change in Control and to ensure the Executive's continued dedication and efforts
in such event without undue concern for the Executive's personal financial and
employment security; and
WHEREAS, in order to induce the Executive to remain in the
employ of the Corporation, particularly in the event of a threat or the
occurrence of a Change in Control, the Corporation desires to enter into this
Agreement with the Executive to provide the Executive with certain benefits in
the event the Executive's employment is terminated under circumstances described
herein.
NOW, THEREFORE, in consideration of the respective agreements of
the parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of
____________ (the "Effective Date"), and shall continue in effect until December
31, 1999 (the "Term"); provided, however, that on January 1, 1999, and on each
January 1 thereafter, the Term shall automatically be extended for one (1) year
unless either the Executive or the Corporation shall have given written notice
to the other at least ninety (90) days prior thereto that the Term shall not be
so extended; provided, further, however, that following the occurrence of a
Change in Control, the Term shall not expire prior to the expiration of
twenty-four (24) months after such occurrence.
2. Termination of Employment. If, during the Term, the
Executive's employment with the Corporation and its Affiliates shall be
terminated within twenty-four (24) months following a Change in Control, the
Executive shall be entitled to the following compensation and benefits:
(a) If the Executive's employment with the Corporation and
its Affiliates shall be terminated (1) by the Corporation for Cause or
Disability, (2) by reason of the Executive's death, or (3) by the Executive
other than for Good Reason, the Corporation shall pay to the Executive his
Accrued Compensation. In addition to the foregoing, if the Executive's
employment is terminated by the Corporation for Disability or by reason of the
Executive's death, the Corporation shall pay to the Executive or his
beneficiaries a Pro Rata Bonus. The Executive's entitlement to any other
compensation or benefits shall be determined in accordance with the
Corporation's employee benefits plans and other applicable programs and
practices then in effect.
(b) If the Executive's employment with the Corporation and
its Affiliates shall be terminated for any reason other than as specified in
Section 2(a), the Executive shall be entitled to the following:
(1) the Corporation shall pay the Executive all
Accrued Compensation and a Pro Rata Bonus;
(2) the Corporation shall pay the Executive as
severance pay and in lieu of any further compensation for periods subsequent to
the Termination Date, an amount equal to times the sum of (A) the Executive's
Base Amount and (B) the Executive's Bonus Amount;
(3) for ___ after such termination (the "Continuation
Period"), the Corporation shall at its expense continue on behalf of the
Executive and his dependents and beneficiaries the life insurance, disability,
medical, dental and hospitalization coverages and benefits provided to the
Executive immediately prior to the Change in Control or, if greater, the
coverages and benefits provided at any time thereafter. The coverages and
benefits (including deductibles and costs) provided in this Section 2(b)(3)
during the Continuation Period shall be no less favorable to the Executive and
his dependents and beneficiaries, than the most favorable of such coverages and
benefits referred to above. The Corporation's obligation hereunder with respect
to the foregoing coverages and benefits shall be reduced to the extent that the
Executive obtains any such coverages and benefits pursuant to a subsequent
employer's benefit plans, in which case the Corporation may reduce any of the
coverages or benefits it is required to provide the Executive hereunder so long
as the aggregate coverages and benefits of the combined benefit plans is no less
favorable to the Executive than the coverages and benefits required to be
provided hereunder. This Section 2(b)(3) shall not be interpreted so as to limit
any benefits to which the Executive, his dependents or beneficiaries may be
entitled under any of the Corporation's employee benefit plans, programs or
practices following the Executive's termination of employment, including without
limitation, retiree medical and life insurance benefits;
(4) If, at the end of the Continuation Period, the
Executive is not employed by another employer (including self-employment), the
Executive will receive for up to six months, an amount equal to one-twelfth
(1/12) of the sum of (A) the Executive's Base Amount and (B) the Executive's
Bonus Amount, payable at the end of each of the six (6) calendar months
following the end of the Continuation Period; provided, however, that such
payments will immediately cease upon the Executive's employment (including
self-employment) by a subsequent employer. In addition, the coverages and
benefits described in Section 2(b)(3) shall be continued until the earlier of
(x) six (6) months after the end of the Continuation Period or (y) such time
that the Executive obtains any such coverages or benefits pursuant to a
subsequent employer's benefit plans;
(5) the Corporation shall pay or reimburse the
Executive for the costs, fees and expenses of outplacement assistance services
(not to exceed twenty-five (25%) of the sum of (A) the Executive's Base Amount
and (B) the Executive's Bonus Amount) provided by any outplacement agency
selected by the Executive;
(6) the Corporation shall pay or reimburse the
Executive up to $2,000 for tax and financial planning services in respect of the
calendar year in which the payments provided for in Section 2(b)(2) are paid to
the Executive; and
(7) the Corporation shall pay or reimburse the
Executive for the cost of relocation (in accordance with the Corporation's
relocation policy) to the Executive's place of residence immediately prior to
any relocation the Executive made for purposes of employment by the Corporation
or General Instrument Corporation after July 1, 1995.
(c) If the Executive's employment is terminated by the
Corporation without Cause (1) within six (6) months prior to a Change in Control
or (2) at any time prior to the date of a Change in Control but the Executive
reasonably demonstrates that such termination (A) was at the request of a third
party who has indicated an intention or taken steps reasonably calculated to
effect a Change in Control (a "Third Party") and who effectuates a Change in
Control or (B) otherwise arose in connection with, or in anticipation of, a
Change in Control which has been threatened or proposed and which actually
occurs, such termination shall be deemed to have occurred after a Change in
Control, provided a Change in Control shall actually have occurred.
(d) (1) Gross-Up Payment. In the event it shall be
determined that any payment (other than the payment provided for in this Section
2(d)) or distribution of any type to or for the benefit of the Executive, by the
Corporation, any Affiliate of the Corporation, any Person who acquires ownership
or effective control of the Corporation or ownership of a substantial portion of
the Corporation's assets (within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder)
or any Affiliate of such Person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the "Total
Payments"), is or will be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including any income tax, employment tax or
Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments.
(2) Determination By Accountant. All mathematical
determinations, and all determinations as to whether any of the Total Payments
are "parachute payments" (within the meaning of Section 280G of the Code), that
are required to be made under this Section 2(d), including determinations as to
whether a Gross-Up Payment is required, the amount of such Gross-Up Payment and
amounts relevant to the last sentence of this Section 2(d)(2), shall be made by
an independent accounting firm selected by the Executive from among the six (6)
largest accounting firms in the United States (the "Accounting Firm"), which
shall provide its determination (the "Determination"), together with detailed
supporting calculations regarding the amount of any Gross-Up Payment and any
other relevant matter, both to the Corporation and the Executive by no later
than ten (10) days following the Termination Date, if applicable, or such
earlier time as is requested by the Corporation or the Executive (if the
Executive reasonably believes that any of the Total Payments may be subject to
the Excise Tax). If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive and the Corporation with an
opinion reasonably acceptable to the Executive and the Corporation that no
Excise Tax is payable (including the reasons therefor) and that the Executive
has substantial authority not to report any Excise Tax on his federal income tax
return. If a Gross-Up Payment is determined to be payable, it shall be paid to
the Executive within twenty (20) days after the Determination (and all
accompanying calculations and other material supporting the Determination) is
delivered to the Corporation by the Accounting Firm. Any determination by the
Accounting Firm shall be binding upon the Corporation and the Executive, absent
manifest error. As a result of uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments not made by the Corporation
should have been made ("Underpayment"), or that Gross-Up Payments will have been
made by the Corporation which should not have been made ("Overpayments"). In
either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of an Underpayment,
the amount of such Underpayment (together with any interest and penalties
payable by the Executive as a result of such Underpayment) shall be promptly
paid by the Corporation to or for the benefit of the Executive. In the case of
an Overpayment, the Executive shall, at the direction and expense of the
Corporation, take such steps as are reasonably necessary (including the filing
of returns and claims for refund), follow reasonable instructions from, and
procedures established by, the Corporation, and otherwise reasonably cooperate
with the Corporation to correct such Overpayment, provided, however, that (i)
the Executive shall not in any event be obligated to return to the Corporation
an amount greater than the net after-tax portion of the Overpayment that he has
retained or has recovered as a refund from the applicable taxing authorities and
(ii) this provision shall be interpreted in a manner consistent with the intent
of Section 2(d)(1), which is to make the Executive whole, on an after-tax basis,
from the application of the Excise Tax, it being understood that the correction
of an Overpayment may result in the Executive repaying to the Corporation an
amount which is less than the Overpayment. The fees and expenses of the
Accounting Firm shall be paid by the Corporation.
(e) The amounts provided for in Sections 2(a) and 2(b)(1)
and (2) shall be paid in a single lump sum cash payment within ten (10) days
after the Executive's Termination Date (or earlier, if required by applicable
law).
(f) The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment
except as provided in Sections 2(b)(3) and 2(b)(4).
(g) The severance pay and benefits provided for in this
Section 2 shall be in lieu of any other severance pay to which the Executive may
be entitled under any severance plan or any other plan, agreement or arrangement
of the Corporation or any of its Affiliates.
3. Notice of Termination. Following a Change in Control, any
intended termination of the Executive's employment by the Corporation shall be
communicated by a Notice of Termination from the Corporation to the Executive,
and any intended termination of the Executive's employment by the Executive for
Good Reason shall be communicated by a Notice of Termination from the Executive
to the Corporation.
4. Fees and Expenses. The Corporation shall pay all legal fees
and related expenses (including the costs of experts, evidence and counsel)
incurred by the Executive as they become due as a result of (a) the termination
of the Executive's employment by the Corporation or by the Executive for Good
Reason (including all such fees and expenses, if any, incurred in contesting,
defending or disputing the basis for any such termination of employment), (b)
the Executive's hearing before the Board of Directors of the Corporation as
contemplated in Section 13.6 of this Agreement or (c) the Executive seeking to
obtain or enforce any right or benefit provided by this Agreement or by any
other plan or arrangement maintained by the Corporation under which the
Executive is or may be entitled to receive benefits.
5. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including any Notice of
Termination) shall be in writing, shall be signed by the Executive if to the
Corporation or by a duly authorized officer of the Corporation if to the
Executive, and shall be deemed to have been duly given when personally delivered
or sent by certified mail, return receipt requested, postage prepaid, addressed
to the respective addresses last given by each party to the other, provided that
all notices to the Corporation shall be directed to the attention of the Board
with a copy to the Secretary of the Corporation. All notices and communications
shall be deemed to have been received on the date of delivery thereof or on the
third business day after the mailing thereof, except that notice of change of
address shall be effective only upon receipt.
6. Nature of Rights. Except as provided in Section 2(g), nothing
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Corporation or any Affiliate of the Corporation and for which the
Executive may qualify, nor shall anything herein limit or reduce such rights as
the Executive may have under any other agreements with the Corporation or any
Affiliate of the Corporation. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan or program of the
Corporation or any Affiliate of the Corporation shall be payable in accordance
with such plan or program, except as explicitly modified by this Agreement.
7. Settlement of Claims. The Corporation's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, defense, recoupment, or other
right which the Corporation may have against the Executive or others.
8. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and the Corporation. No waiver
by either party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No agreement or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by any party which are not expressly set
forth in this Agreement.
9. Successors; Binding Agreement.
(a) This Agreement shall be binding upon and shall inure
to the benefit of the Corporation and its respective Successors and Assigns. The
Corporation shall require its respective Successors and Assigns to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession or assignment had taken place.
(b) Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Executive, his
beneficiaries or legal representatives, except by will or by the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
10. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the conflict of laws principles thereof. Any action
brought by any party to this Agreement shall be brought and maintained in a
court of competent jurisdiction in the State of New York.
11. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
12. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto, and supersedes all prior agreements, if
any, understandings and arrangements, oral or written, between the parties
hereto, with respect to the subject matter hereof.
13. Definitions.
13.1. Accrued Compensation. For purposes of this
Agreement, "Accrued Compensation" shall mean all amounts of compensation for
services rendered to the Corporation or any of its Affiliates that have been
earned or accrued through the Termination Date but that have not been paid as of
the Termination Date including (a) base salary, (b) reimbursement for reasonable
and necessary business expenses incurred by the Executive on behalf of the
Corporation or of its Affiliates of the Corporation during the period ending on
the Termination Date, (c) vacation pay and (d) bonuses and incentive
compensation; provided, however, that Accrued Compensation shall not include any
amounts described in clause (a) or clause (d) that have been deferred pursuant
to any salary reduction or deferred compensation elections made by the
Executive.
13.2. Affiliate. For purposes of this Agreement,
"Affiliate" means, with respect to any Person, any entity, directly or
indirectly, controlled by, controlling or under common control with such Person.
13.3. Base Amount. For purposes of this Agreement, "Base
Amount" shall mean the Executive's annual base salary at the rate in effect as
of the date of a Change in Control or, if greater, at any time thereafter,
determined without regard to any salary reduction or deferred compensation
elections made by the Executive.
13.4. "Beneficial Owner," "Beneficially Owned" and
"Beneficially Owning" shall have the meanings applicable under Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended.
13.5. Bonus Amount. For purposes of this Agreement, "Bonus
Amount" shall mean the target annual bonus payable to the Executive under the
Incentive Plan in respect of the fiscal year of the Corporation immediately
prior to that in which the Termination Date occurs.
13.6. Cause. For purposes of this Agreement, a termination
of employment is for "Cause" if the Executive has been convicted of a felony or
the termination is evidenced by a resolution adopted in good faith by two-thirds
of the Board of Directors of the Corporation that the Executive:
(a) intentionally and continually failed
substantially to perform his reasonably assigned duties with the Corporation and
its Affiliates (other than a failure resulting from the Executive's incapacity
due to physical or mental illness or from the assignment to the Executive of
duties that would constitute Good Reason) which failure continued for a period
of at least thirty (30) days after a written notice of demand for substantial
performance, signed by a duly authorized officer of the Corporation, has been
delivered to the Executive specifying the manner in which the Executive has
failed substantially to perform, or
(b) intentionally engaged in conduct which is
demonstrably and materially injurious to the Corporation and its Affiliates;
provided, however, that no termination of the Executive's employment shall be
for Cause as set forth in this Section 13.6(b) until (1) there shall have been
delivered to the Executive a copy of a written notice, signed by a duly
authorized officer of the Corporation, setting forth that the Executive was
guilty of the conduct set forth in this Section 13.6(b) and specifying the
particulars thereof in detail, and (2) the Executive shall have been provided an
opportunity to be heard in person by the Board of Directors of the Corporation
(with the assistance of the Executive's counsel if the Executive so desires).
No act, nor failure to act, on the Executive's part,
shall be considered "intentional" unless the Executive has acted, or failed to
act, with a lack of good faith and with a lack of reasonable belief that the
Executive's action or failure to act was in the best interest of the Corporation
and its Affiliates. Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by the Executive after a Notice of Termination
is given to the Corporation by the Executive shall constitute Cause for purposes
of this Agreement.
13.7. Change in Control. "Change in Control" shall mean
any of the following:
(a) the acquisition by any Person, other than
Instrument Partners or Forstmann Little & Co. Subordinated Debt and Equity
Management Buyout Partnership-IV or any of their Affiliates (collectively, the
"Forstmann Little Companies") of Beneficial Ownership of Voting Securities
which, when added to the Voting Securities then Beneficially Owned by such
Person, would result in such Person Beneficially Owning (1) 33% or more of the
combined Voting Power of the Corporation's then outstanding Voting Securities
and (2) a number of Voting Securities greater than the aggregate number of
Voting Securities then Beneficially Owned by the Forstmann Little Companies;
provided, however, that for purposes of this paragraph (a), a Person shall not
be deemed to have made an acquisition of Voting Securities if such Person: (A)
acquires Voting Securities as a result of a stock split, stock dividend or other
corporate restructuring in which all stockholders of the class of such Voting
Securities are treated on a pro rata basis; (B) acquires the Voting Securities
directly from the Corporation; (C) becomes the Beneficial Owner of 33% or more
of the combined Voting Power of the Corporation's then outstanding Voting
Securities solely as a result of the acquisition of Voting Securities by the
Corporation or any Subsidiary which, by reducing the number of Voting Securities
outstanding, increases the proportional number of shares Beneficially Owned by
such Person, provided that if (x) a Person would own at least such percentage as
a result of the acquisition by the Corporation or any Subsidiary and (y) after
such acquisition by the Corporation or any Subsidiary, such Person acquires
Voting Securities, then an acquisition of Voting Securities shall have occurred;
(D) is the Corporation or any corporation or other Person of which a majority of
its voting power or its equity securities or equity interest is owned directly
or indirectly by the Corporation (a "Controlled Entity"); or (E) acquires Voting
Securities in connection with a "Non-Control Transaction" (as defined in
paragraph (c) below); or
(b) the individuals who, as of the Effective Date,
are members of the Board (the "Incumbent Board") cease for any reason to
constitute at least two-thirds of the Board; provided, however, that if either
the election of any new director or the nomination for election of any new
director by the Corporation's stockholders was approved by a vote of at least
two-thirds of the Incumbent Board prior to such election or nomination, such new
director shall be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board (a "Proxy
Contest") including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(c) approval by stockholders of the Corporation of:
(1) a merger, consolidation or reorganization
involving the Corporation (a "Business Combination"), unless
(A) the stockholders of the Corporation,
immediately before the Business Combination, own, directly or indirectly
immediately following the Business Combination, at least a majority of the
combined voting power of the outstanding voting securities of the corporation
resulting from the Business Combination (the "Surviving Corporation") in
substantially the same proportion as their ownership of the Voting Securities
immediately before the Business Combination, and
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement providing
for the Business Combination constitute at least a majority of the members of
the Board of Directors of the Surviving Corporation, and
(C) no Person (other than the Corporation
or any Controlled Entity, a trustee or other fiduciary holding securities under
one or more employee benefit plans or arrangements (or any trust forming a part
thereof) maintained by the Corporation, the Surviving Corporation or any
Controlled Entity, or any Person who, immediately prior to the Business
Combination, had Beneficial Ownership of 33% or more of the then outstanding
Voting Securities) has Beneficial Ownership of 33% or more of the combined
voting power of the Surviving Corporation's then outstanding voting securities
(a Business Combination satisfying the conditions of clauses (A), (B) and (C) of
this subparagraph (1) shall be referred to as a "Non-Control Transaction");
(2) a complete liquidation or dissolution of the
Corporation; or
(3) the sale of other disposition of all or
substantially all of the assets of the Corporation (other than a transfer to a
Controlled Entity).
Notwithstanding the foregoing, a Change of Control shall
not be deemed to occur solely because 33% or more of the then outstanding Voting
Securities is Beneficially Owned by (x) a trustee or other fiduciary holding
securities under one or more employee benefit plans or arrangements (or any
trust forming a part thereof) maintained by the Corporation or any Controlled
Entity or (y) any corporation which, immediately prior to its acquisition of
such interest, is owned directly or indirectly by the stockholders of the
Corporation in the same proportion as their ownership of stock in the
Corporation immediately prior to such acquisition.
13.8. Corporation. For purposes of this Agreement, all
references to the Corporation shall include its Successors and Assigns.
13.9. Disability. For purposes of this Agreement,
"Disability" shall mean a physical or mental infirmity which impairs the
Executive's ability to substantially perform his duties with the Corporation for
six (6) consecutive months, and within the time period set forth in a Notice of
Termination given to the Executive (which time period shall not be less than
thirty (30) days), the Executive shall not have returned to full-time
performance of his duties; provided, however, that if the Corporation's Long
Term Disability Plan, or any successor plan (the "Disability Plan"), is then in
effect, the Executive shall not be deemed disabled for purposes of this
Agreement unless the Executive is also eligible for "Total Disability" (as
defined in the Disability Plan) benefits (or similar benefits in the event of a
successor plan) under the Disability Plan.
13.10. Good Reason. (a) For purposes of this Agreement,
"Good Reason" shall mean the occurrence after a Change in Control of any of the
following events or conditions:
(1) a change in the Executive's status, title,
position or responsibilities (including reporting responsibilities) which, in
the Executive's reasonable judgment, represents an adverse change from his
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Executive of any duties or responsibilities
which, in the Executive's reasonable judgment, are inconsistent with his status,
title, position or responsibilities; or any removal of the Executive from or
failure to reappoint or reelect him to any of such offices or positions, except
in connection with the termination of his employment for Disability, Cause, as a
result of his death or by the Executive other than for Good Reason;
(2) a reduction in the Executive's annual base
salary below the Base Amount;
(3) the relocation of the offices of the
Corporation at which the Executive is principally employed to a location more
than twenty-five (25) miles from the location of such offices immediately prior
to the Change in Control, or the Corporation's requiring the Executive to be
based anywhere other than such offices, except to the extent the Executive was
not previously assigned to a principal location and except for required travel
on the Corporation's business to an extent substantially consistent with the
Executive's business travel obligations at the time of the Change in Control;
(4) the failure by the Corporation to pay to the
Executive any portion of the Executive's current compensation or to pay to the
Executive any portion of an installment of deferred compensation under any
deferred compensation program of the Corporation in which the Executive
participated, within seven (7) days of the date such compensation is due;
(5) the failure by the Corporation to (A)
continue in effect (without reduction in benefit level, and/or reward
opportunities) any material compensation or employee benefit plan in which the
Executive was participating immediately prior to the Change in Control,
including, but not limited to, any of the plans listed in Appendix A hereto,
unless a substitute or replacement plan has been implemented which provides
substantially identical compensation or benefits to the Executive or (B) provide
the Executive with compensation and benefits, in the aggregate, at least equal
(in terms of benefit levels and/or reward opportunities) to those provided for
under each other compensation or employee benefit plan, program and practice in
which the Executive was participating immediately prior to the Change in
Control;
(6) the failure of the Corporation to obtain
from its Successors or Assigns the express assumption and agreement required
under Section 9 hereof; or
(7) any purported termination of the Executive's
employment by the Corporation which is not effected pursuant to a Notice of
Termination satisfying the terms set forth in the definition of Notice of
Termination (and, if applicable, the terms set forth in the definition of
Cause).
(b) Any event or condition described in Section
13.10(a)(1) through (7) which occurs (1) within six (6) months prior to a Change
in Control or (2) at any time prior to a Change in Control but which the
Executive reasonably demonstrates (A) was at the request of a Third Party or (B)
otherwise arose in connection with, or in anticipation of a Change in Control
which has been threatened or proposed and which actually occurs, shall
constitute Good Reason for purposes of this Agreement notwithstanding that it
occurred prior to a Change in Control.
13.11. Incentive Plan. For purposes of this Agreement,
"Incentive Plan" shall mean the General Semiconductor, Inc. Annual Incentive
Plan, or any successor annual incentive plan, maintained by the Corporation.
13.12. Notice of Termination. For purposes of this
Agreement, following a Change in Control, "Notice of Termination" shall mean a
written notice of termination of the Executive's employment, signed by the
Executive if to the Corporation or by a duly authorized officer of the
Corporation if to the Executive, which indicates the specific termination
provision in this Agreement, if any, relied upon and which sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
13.13. Person. For purposes of this Agreement, "Person"
shall mean a person within the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended.
13.14. Pro Rata Bonus. For purposes of this Agreement,
"Pro Rata Bonus" shall mean the Bonus Amount multiplied by a fraction of the
numerator of which is the number of days in the year in which an Executive's
Termination Date occurs through the termination date and the denominator of
which is 365.
13.15. Subsidiary. For purposes of this Agreement,
"Subsidiary" shall mean a corporation as defined in Section 424(f) (or a
successor provision to such section) of the Internal Revenue Code of 1986, as
amended, and regulations and rulings thereunder, with the Corporation being
treated as the employer corporation for purposes of this definition.
13.16. Successors and Assigns. For purposes of this
Agreement, "Successors and Assigns" shall mean, with respect to the Corporation
or the Corporation, a corporation or other entity acquiring all or substantially
all the assets and business of the Corporation or the Corporation, as the case
may be (including this Agreement) whether by operation of law or otherwise.
13.17. Termination Date. For purposes of this Agreement,
"Termination Date" shall mean (a) in the case of the Executive's death, his date
of death, (b) if the Executive's employment is terminated for Disability, thirty
(30) days after Notice of Termination is given (provided that the Executive
shall not have returned to the performance of his duties on a full-time basis
during such thirty (30) day period) and (c) if the Executive's employment is
terminated for any other reason, the date specified in the Notice of Termination
(which, in the case of a termination for Cause shall not be less than thirty
(30) days, and in the case of a termination for Good Reason shall not be more
than sixty (60) days, from the date such Notice of Termination is given);
provided, however, that if within thirty (30) days after any Notice of
Termination is given the party receiving such Notice of Termination in good
faith notifies the other party that a dispute exists concerning the basis for
the termination, the Termination Date shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, or by the
final judgment, order or decree of a court of competent jurisdiction (the time
for appeal therefrom having expired and no appeal having been taken).
Notwithstanding the pendency of any such dispute, the Corporation shall continue
to pay the Executive his Base Amount and continue the Executive as a participant
in all compensation, incentive, bonus, pension, profit sharing, medical,
hospitalization, dental, life insurance and disability benefit plans in which he
was participating when the notice giving rise to the dispute was given, until
the dispute is finally resolved in accordance with this Section 13.17 whether or
not the dispute is resolved in favor of the Corporation, and the Executive shall
not be obligated to repay to the Corporation any amounts paid or benefits
provided pursuant to this sentence.
13.18. Voting Power. For purposes of this Agreement,
"Voting Power" shall mean the combined voting power of the then outstanding
Voting Securities.
13.19. Voting Securities. For purposes of this Agreement,
"Voting Securities" shall mean, with respect to the Corporation or any
Subsidiary, any securities issued by the Corporation or such Subsidiary,
respectively, which generally entitle the holder thereof to vote for the
election of directors of the Corporation.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to
be executed by their duly authorized officers and the Executive has executed
this Agreement as of the day and year first above written.
GENERAL SEMICONDUCTOR, INC.
By:________________________
By:________________________
GENERAL SEMICONDUCTOR, INC.
EXHIBIT 11 - CALCULATION OF EARNINGS (LOSS) PER SHARE
(in Thousands Except Per Share Amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
PRIMARY:
<S> <C> <C> <C> <C>
Income (loss) from continuing operations ............................... $ 8,506 $ 10,691 $ (203) $ 37,509
Income (loss) from discontinued operations - net ....................... (21,149) 31,431 (2,939) (22,310)
--------- --------- --------- ---------
Net income (loss) ...................................................... $(12,643) $ 42,122 $ (3,142) $ 15,199
========= ========= ========= =========
Weighted average common shares outstanding ............................. 36,374 34,216 34,957 32,495
Incremental shares under stock option plans ............................ 330 164 215 208
--------- --------- --------- ---------
Weighted average common and common equivalent
shares outstanding ................................................ 36,704 34,380 35,172 32,704
========= ========= ========= =========
Primary earnings (loss) per share:
Continuing operations ................................................. $ 0.23 $ 0.31 $ (0.01) $ 1.15
Discontinued operations ............................................... (0.57) 0.92 (0.08) (0.68)
--------- --------- --------- ---------
$ (0.34) $ 1.23 $ (0.09) $ 0.47
========= ========= ========= =========
FULLY DILUTED:
Income (loss) from continuing operations ................................$ 8,506 $ 10,691 $ (203) $ 37,509
Interest and amortization of debt issuance costs related to the
Convertible Junior Subordinated Notes, net of income tax effects ..... 71 424 900 2,209
--------- --------- --------- ---------
Adjusted income (loss) from continuing operations .................... $ 8,577 $ 11,115 $ 697 $ 39,718
========= ========= ========= =========
Income (loss) from discontinued operations - net ........................$(21,149) $ 31,431 $ (2,939) $(22,310)
Interest and amortization of debt issuance costs related to the
Convertible Junior Subordinated Notes, net of income tax effects ..... 280 1,463 3,213 7,775
--------- --------- --------- ---------
Adjusted income (loss) from discontinued operations - net .............$(20,869) $ 32,894 $ 274 $(14,535)
========= ========= ========= =========
Weighted average common shares outstanding ............................. 36,374 34,216 34,957 32,495
Incremental shares under stock option plans ............................ 332 164 230 208
Incremental shares attributable to Convertible
Junior Subordinated Notes ............................................. 412 2,475 1,737 4,181
--------- --------- --------- ---------
Adjusted weighted average shares outstanding ........................... 37,118 36,855 36,924 36,884
========= ========= ========= =========
Fully Diluted earnings (loss) per share:
Continuing operations ................................................. $ 0.23 $ 0.30 $ 0.02 $ 1.08
Discontinued operations ............................................... (0.56) 0.89 0.01 (0.39)
--------- --------- --------- ---------
$ (0.33) $ 1.19 $ 0.03 $ 0.68
========= ========= ========= =========
</TABLE>
Note:The computations of primary and fully diluted earnings (loss) per share
assume incremental shares under stock option plans using the treasury stock
method
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the General
Semiconductor, Inc. financial statements for the nine months ended September 30,
1997 and is qualified in its entirety by references to such financial
statements.
</LEGEND>
<CIK> 0000040656
<NAME> GENERAL SEMICONDUCTOR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 14,649
<SECURITIES> 0
<RECEIVABLES> 54,036
<ALLOWANCES> 763
<INVENTORY> 29,278
<CURRENT-ASSETS> 120,359
<PP&E> 208,118
<DEPRECIATION> 0
<TOTAL-ASSETS> 542,259
<CURRENT-LIABILITIES> 101,450
<BONDS> 0
0
0
<COMMON> 369
<OTHER-SE> 77,289
<TOTAL-LIABILITY-AND-EQUITY> 542,259
<SALES> 276,448
<TOTAL-REVENUES> 276,448
<CGS> 219,445
<TOTAL-COSTS> 261,093
<OTHER-EXPENSES> (76)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,316
<INCOME-PRETAX> 6,115
<INCOME-TAX> 6,318
<INCOME-CONTINUING> (203)
<DISCONTINUED> (2,939)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,142)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> 0
</TABLE>
GENERAL SEMICONDUCTOR, INC. (THE "COMPANY")
EXHIBIT 99 - FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. The Company's Form 10-K, the Company's
Annual Report to Stockholders, any other Form 10-Q or Form 8-K of the Company,
or any other oral or written statements made by or on behalf of the Company, may
include forward-looking statements which reflect the Company's current views
with respect to future events and financial performance. These forward-looking
statements are identified by their use of such terms and phrases as "intends,"
"intend," "intended," "goal," "estimate," "estimates," "expects," "expect,"
"expected," "project," "projects," "projected," "projections," "plans,"
"anticipates," "anticipated," "should," "designed to," "foreseeable future,"
"believe," "believes" and "scheduled" and similar expressions. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date the statement was made. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
The actual results of the Company may differ significantly from the results
discussed in forward-looking statements. Factors that might cause such a
difference include, but are not limited to, (a) the general political, economic
and competitive conditions in the United States, Taiwan (Republic of China), the
People's Republic of China, Ireland, Germany, France and other markets where the
Company operates; (b) changes in capital availability or costs, such as changes
in interest rates, market perceptions of the industry in which the Company
operates, or security ratings; (c) uncertainties relating to customer plans and
commitments; (d) employee workforce factors; (e) authoritative generally
accepted accounting principles or policy changes from such standard-setting
bodies as the Financial Accounting Standards Board and the Securities and
Exchange Commission and the factors set forth below.
Factors Relating to the Distribution
GI (i) transferred all the assets and liabilities relating to the
manufacture and sale of broadband communications products used in the cable
television, satellite, and telecommunications industries (the "Communications
Business") to its wholly-owned subsidiary NextLevel Systems, Inc. ("NextLevel
Systems") and all the assets and liabilities relating to the manufacture and
sale of coaxial, fiber optic and other electric cable used in the cable
television, satellite and other industries (the "Cable Manufacturing Business")
to its wholly-owned subsidiary CommScope, Inc. ("CommScope") and (ii) then
distributed all of the ordinary shares of capital stock of each of NextLevel
Systems and CommScope to its shareholders on a pro rata basis as a dividend (the
"Distribution"), in a transaction that was consummated on July 28, 1997. The
Company retained all the assets and liabilities relating to the manufacture and
sale of discrete power rectifiers and transient voltage suppression components
used in telecommunications, automotive and consumer electronics products. The
Company prior to the Distribution, which was named General Instrument
Corporation, is referred to herein as "GI".
The Company is a smaller and less diversified company than GI was prior to
the Distribution. The ability of the Company to satisfy its obligations and
maintain profitability is solely dependent upon its own future performance, and
the Company is no longer able to rely on the capital resources and cash flows of
the businesses of NextLevel Systems or CommScope. The future performance and
cash flows of the Company will be subject to prevailing economic conditions and
to financial, business and other factors affecting the business operations of
the Company, including factors beyond its control.
The Distribution Agreement dated as of June 12, 1997, among GI, NextLevel
Systems and CommScope (the "Distribution Agreement") and certain other
agreements executed in connection with the Distribution (collectively, the
"Ancillary Agreements") allocate among the Company, NextLevel Systems, and
CommScope and their respective subsidiaries responsibility for various
indebtedness, liabilities and obligations. It is possible that a court would
disregard this contractual allocation of indebtedness, liabilities and
obligations among the parties and require the Company or its subsidiaries to
assume responsibility for obligations allocated to another party, particularly
if such other party were to refuse or was unable to pay or perform any of its
allocated obligations.
Pursuant to the Distribution Agreement and certain of the Ancillary
Agreements, the Company has agreed to indemnify the other parties (and certain
related persons) from and after consummation of the Distribution with respect to
certain indebtedness, liabilities and obligations, which indemnification
obligations could be significant.
Although GI has received a favorable ruling from the Internal Revenue
Service, if the Distribution were not to qualify as a tax free spin-off under
Section 355 of the Internal Revenue Code of 1986, as amended, then, in general,
a corporate tax would be payable by the consolidated group of which the Company
was the common parent based upon the difference between the fair market value of
the stock distributed and the distributing corporation's adjusted basis in such
stock. The corporate level tax would be payable by the Company and could
substantially exceed the net worth of the Company. However, under certain
circumstances, NextLevel Systems and CommScope have agreed to indemnify the
Company for such tax liability. In addition, under the consolidated return
rules, each member of the consolidated group (including NextLevel Systems and
CommScope) is severally liable for such tax liability.
Leverage; Certain Restrictions Under Credit Facilities
The Company is substantially more leveraged than GI was prior to the
Distribution. The degree to which the Company is leveraged could have important
consequences, including the following: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
product development, acquisitions, general corporate purposes or other purposes
may be impaired; (ii) a portion of the Company's and its subsidiaries' cash flow
from operations must be dedicated to the payment of the principal of and
interest on its indebtedness; (iii) the Credit Agreement, dated as of July 23,
1997, among the Company, certain banks, and The Chase Manhattan Bank, as
Administrative Agent contains certain restrictive financial and operating
covenants, including, among others, requirements that the Company satisfy
certain financial ratios; (iv) a significant portion of the Company's borrowings
will be at floating rates of interest, causing the Company to be vulnerable to
increases in interest rates; (v) the Company's degree of leverage may make it
more vulnerable to a downturn in general economic conditions; and (vi) the
Company's degree of leverage may limit its flexibility in responding to changing
business and economic conditions.
In addition, in a lawsuit by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy, a court may be asked to void the
Distribution (in whole or in part) as a fraudulent conveyance and to require
that the stockholders return the special dividend (in whole or in part) to the
Company or require the Company to fund certain liabilities of NextLevel Systems
and CommScope for the benefit of creditors.
Competition
The Company operates in the discrete segment of the semiconductor business.
Its products are commodity-like in nature and are subject to cyclical variations
in pricing. The market segment in which the Company competes is presently
experiencing a pricing downturn and general over capacity.
In the fourth quarter of 1997, the Company entered into a new line of
business, small signal transistors, through an acquisition from ITT Industries.
There can be no assurance that the Company will be able to compete successfully
with this new product line.
The Company is subject to competition from a substantial number of foreign
and domestic companies, some of which have greater financial, engineering,
manufacturing and other resources, or offer a broader product line, than the
Company. The Company's competitors can be expected to continue to improve the
design and performance of their products and to introduce new products with
competitive price and performance characteristics. Although the Company believes
that it enjoys certain technological and other advantages over its competitors,
realizing and maintaining such advantages will require continued investment by
the Company in engineering, research and development, marketing and customer
service and support. There can be no assurance that the Company will have
sufficient resources to continue to make such investments or that the Company
will be successful in maintaining such advantages.
International Operations; Foreign Currency Risks
A significant portion of the Company's products are manufactured or
assembled in Taiwan (Republic of China), the People's Republic of China,
Ireland, Germany, and France. These foreign operations are subject to the usual
risks inherent in situating operations abroad, including risks with respect to
currency exchange rates, economic and political destabilization, restrictive
actions by foreign governments, nationalizations, the laws and policies of the
United States affecting trade, foreign investment and loans, and foreign tax
laws. The Company's cost-competitive status relative to other competitors could
be adversely affected if the New Taiwan dollar or another relevant currency
appreciates relative to the U.S. dollar. In addition, a substantial portion of
the annual sales of the Company's business are outside of the United States.
Environment
The Company is subject to various federal, state, local and foreign
laws and regulations governing the use, discharge and disposal of hazardous
materials. The Company's manufacturing facilities are believed to be in
substantial compliance with current laws and regulations. Complying with current
laws and regulations has not had a material adverse effect on the Company's
financial condition. The Company is involved in remediation programs,
principally with respect to former manufacturing sites, which are proceeding in
connection with federal and state regulatory oversight. In addition, the Company
is currently named as a "potentially responsible party" with respect to the
disposal of hazardous wastes at nine hazardous waste sites located in six
states.
The Company has engaged independent consultants to assist management in
evaluating potential liabilities related to environmental matters. The Company's
management assesses the input from these independent consultants along with
other information known to the Company in its effort to continually monitor
these potential liabilities. Management assesses its environmental exposure on a
site-by-site basis, including those sites where the Company has been named a
"potentially responsible party." Such assessments include the Company's share of
remediation costs, information known to the Company concerning the size of the
hazardous waste sites, their years of operation and the number of past users and
their financial viability. Although the Company estimates, based on assessments
and evaluations made by management, that its exposure with respect to these
environmental matters could be as high as $56.9 million, the Company believes
that the reserve for environmental matters of $36.0 million at September 30,
1997 is reasonable and adequate. However, there can be no assurance that the
ultimate resolution of these matters will approximate the amount reserved.
In connection with the Distribution, the Company retained the
obligations with respect to environmental matters relating to the Company's
discontinued operations and its status as a "potentially responsible party."
Based on the factors discussed above, capital expenditures and expenses for the
Company's remediation programs, and the proportionate share of the cost of the
necessary investigation and eventual remedial work that may be needed to be
performed at the sites for which the Company has been named as a "potentially
responsible party," are not expected to have a material adverse effect on the
financial statements of the Company. The Company's present and past facilities
have been in operation for many years, and over that time in the course of those
operations, such facilities have used substances which are or might be
considered hazardous, and the Company has generated and disposed of wastes which
are or might be considered hazardous. Therefore, it is possible that additional
environmental issues may arise in the future which the Company cannot now
predict.
