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 June 30, 1999
--------------------------------------------
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
------
General Semiconductor, Inc.
---------------------------
(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
-----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(516) 847-3000
--------------
(Registrant's telephone number, including area code)
----------------------------------------------------------------
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 latest practicable date.
Class Outstanding at July 22, 1999
- ----------------------------- ----------------------------
Common Stock, par value $0.01 36,820,778
<PAGE>
GENERAL SEMICONDUCTOR, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGES
-----
PART I. FINANCIAL INFORMATION
---------------------
Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 1999 (unaudited) and December 31, 1998 2
Consolidated Statements of Operations for the Three and
Six Months ended June 30, 1999 and 1998 (unaudited) 3
Consolidated Statements of Cash Flows for the Three and
Six Months ended June 30, 1999 and 1998 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5-10
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-15
PART II. OTHER INFORMATION
-----------------
Legal Proceedings 16
Submission of Matters to a Vote of Stockholders 16
Exhibits 16
SIGNATURE 17
<PAGE>
PART I
FINANCIAL INFORMATION
GENERAL SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Stock Par Value)
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Current Assets:
Cash $ 4,708 $ 3,225
Accounts receivable, less allowance for doubtful accounts of $687
and $769, respectively 61,118 59,643
Inventories 43,383 39,514
Prepaid expenses and other current assets 12,004 12,010
Deferred income taxes 10,951 13,738
------------ ------------
Total current assets 132,164 128,130
Property, plant and equipment - net 225,109 223,743
Excess of cost over fair value of net assets acquired, less accumulated
amortization of $46,500 and $43,929, respectively 160,180 162,751
Deferred income taxes, net of valuation allowance 29,370 29,376
Intangibles and other assets, less accumulated amortization of $11,908 and
$11,099, respectively 18,869 19,447
============ ============
TOTAL ASSETS $ 565,692 $ 563,447
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 26,171 $ 31,343
Accrued expenses 35,856 45,084
----------- -----------
Total current liabilities 62,027 76,427
Long-term debt 295,000 286,000
Deferred income taxes 20,842 21,390
Other non-current liabilities 73,116 74,283
----------- -----------
Total liabilities 450,985 458,100
----------- -----------
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; 36,925
shares issued and 36,821 outstanding 369 369
Retained earnings 121,202 111,842
Other stockholder's equity (6,864) (6,864)
----------- -----------
114,707 105,347
=========== ===========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 565,692 $ 563,447
=========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -----------------------
1999 1998 1999 1998
---------- --------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 101,583 $ 98,762 $198,544 $205,159
OPERATING COSTS AND EXPENSES:
Cost of sales 75,020 70,115 147,497 141,223
Selling, general and administrative 11,583 10,286 22,546 23,250
Research and development 1,659 1,463 3,119 2,963
Amortization of excess of cost over fair value
of net assets acquired 1,285 1,286 2,571 2,572
--------- ------- -------- --------
Total operating costs and expenses 89,547 83,150 175,733 170,008
--------- ------- -------- --------
OPERATING INCOME 12,036 15,612 22,811 35,151
Other income (expense) - net 47 (12) (11) (81)
Interest expense-net (5,273) (5,067) (10,321) (9,974)
---------- --------- -------- --------
INCOME BEFORE INCOME TAXES 6,810 10,533 12,479 25,096
Provision for income taxes (1,702) (3,687) (3,119) (8,785)
========== ========= ======== ========
NET INCOME $ 5,108 $ 6,846 $ 9,360 $ 16,311
========== ========= ======== ========
Weighted Average Shares Outstanding:
Basic 36,820 36,813 36,820 36,802
Diluted 36,902 36,965 36,873 36,934
Earnings per share:
Basic $ 0.14 $ 0.19 $ 0.25 $ 0.44
Diluted $ 0.14 $ 0.19 $ 0.25 $ 0.44
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Income from continuing operations $ 9,360 $ 16,311
Adjustments to reconcile to net cash
from continuing operating activities:
Depreciation and amortization 13,632 12,116
Changes in assets and liabilities:
Accounts receivable (1,475) 579
Inventories (3,869) (3,563)
Prepaid expenses and other current assets 6 (2,413)
Other non-current assets (229) (669)
Deferred income taxes 2,245 (658)
Accounts payable and accrued expenses (10,028) (9,494)
Restructuring (4,372) -
Other non-current liabilities (1,167) (1,474)
Other 107 26
---------- ----------
Net cash provided by continuing operating activities 4,210 10,761
---------- ----------
Cash used in discontinued operations - (25,130)
---------- ----------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (11,727) (8,794)
---------- ----------
Net cash used in investing activities (11,727) (8,794)
---------- ----------
FINANCING ACTIVITIES:
Net proceeds from revolving credit facilities 9,000 70,000
Principal repayment of debt - (46,074)
Exercise of stock options - 423
---------- ----------
Net cash provided by financing activities 9,000 24,349
---------- ----------
Increase in cash and cash equivalents 1,483 1,186
---------- ----------
Cash and cash equivalents, beginning of period 3,225 5,192
---------- ----------
Cash and cash equivalents, end of period $ 4,708 $ 6,378
========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(All amounts in thousands, except per share data)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
General Semiconductor, Inc. ("General Semiconductor" or the "Company") is a
market leader in the discrete segment of the semiconductor industry. The Company
designs, manufactures and sells low-to medium-power rectifiers, transient
voltage suppressors ("TVS"), small signal diodes, and transistors and zener
diodes in axial, bridge, power and surface mount packages. Power rectifiers,
small signal devices 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 devices
amplify or switch low level currents. The Company's products are primarily
targeted for use in the computer, automotive, telecommunications, lighting and
consumer electronics industries.
In the opinion of management, the accompanying unaudited consolidated financial
statements include all necessary adjustments (consisting of normal recurring
adjustments) and present fairly the Company's financial position as of June 30,
1999, the results of its operations for the three and six months ended June 30,
1999 and 1998, and its cash flows for the three and six months ended June 30,
1999 and 1998 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 three and six months
ended June 30, 1999 and 1998. The results of operations for the three and six
months ended June 30, 1999 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 General Semiconductor's
Annual Report on Form 10-K/A for the year ended December 31, 1998.
2. INVENTORIES
Inventories consist of:
June 30, 1999 December 31, 1998
------------- -----------------
Raw materials $ 6,529 $ 5,139
Work in process 12,299 14,181
Finished goods 24,555 20,194
------- -------
$43,383 $39,514
======= =======
3. LONG-TERM DEBT
The Company entered into its $350 million credit facility in July 1997 in
connection with the Distribution. In December 1998, the credit facility was
amended to modify several financial covenants to provide flexibility to execute
the 1998 restructuring. In June 1999, the credit facility was amended to modify
several financial covenants to provide greater financial flexibility. The
Company is evaluating market conditions and is planning a subordinated note
offering in the range of $200 million which may be completed in 1999. The
Company expects to use the proceeds of any such offering to repay outstanding
indebtedness under the credit facility and the credit facility will be
permanently reduced by 50% of the gross proceeds of the subordinated note
offering.
The credit facility requires the Company to pay a facility fee on the
total commitment. The credit facility permits the Company to choose between two
interest rates options: the adjusted base rate or eurodollar rate (LIBOR) plus a
margin which varies based on the Company's ratio of indebtedness to EBITDA 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 facility contains financial and operating covenants,
including limitations on guarantee obligations, liens, sale of assets,
indebtedness and investments. At June 30, 1999 the interest rate on outstanding
borrowings was 6.89% per annum.
<PAGE>
4. LITIGATION
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 as described below. Management is of the opinion
that such litigation or claims will not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
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 behalf and as
representatives of a class of purchasers of General Instrument Corporation (the
Company's predecessor, "GI") common stock during the period March 21, 1995
through October 18, 1995. The complaint alleges that prior to the distribution
(the "Distribution") in July 1997 of the capital stock of NextLevel Systems,
Inc. and CommScope, Inc., GI 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 (the "Exchange Act"), by allegedly making false and
misleading statements and failing to disclose material facts about GI's planned
shipments in 1995 of its CFT-2200 and DigiCipher II products. Also pending in
the same court, under the same name, is a derivative action brought on behalf of
GI. The derivative action alleges that the members of GI's Board of Directors,
several of its officers and Forstmann Little & Co. and related entities have
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 GI common stock for personal gain.
An action entitled BKP Partners, L.P. v. General Instrument Corp. was brought in
February 1996 by certain holders of preferred stock of Next Level Communications
("NLC"), which was merged into a subsidiary of GI 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 plaintiffs allege that the
defendants violated federal securities laws by making misrepresentations and
omissions and breached fiduciary duties to NLC in connection with the
acquisition of NLC by GI. Plaintiffs seek, among other things, unspecified
compensatory and punitive damages and attorney's fees and costs.
In connection with the Distribution, General Instrument (formerly "NextLevel
Systems, Inc.") agreed to indemnify the Company with respect to its obligations,
if any, arising out of or relating to In Re General Instrument Corporation
Securities Litigation (including the derivative action), and the BKP Partners,
L.P. v. General Instrument Corp. litigation. Therefore, management is of the
opinion that the resolution of these matters will have no effect on the
Company's consolidated financial position, results of operations or cash flows.
5. COMMITMENTS AND CONTINGENCIES
The Company is subject to various federal, state, local and foreign laws and
regulations governing environmental matters, including 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. In connection with the
Distribution, the Company retained the obligations with respect to environmental
matters relating to its discontinued operations and its status as a "potentially
responsible party." The Company is presently engaged in the remediation of eight
discontinued operations in six states, and is a de minimus "potentially
responsible party" at five hazardous waste sites in four states.
The Company has engaged independent consultants to assist management in
evaluating potential liabilities related to environmental matters. 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 as 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. The Company has a reserve recorded for environmental
matters of $31.3 million at June 30, 1999 ($31.9 million at December 31, 1998).
While the ultimate outcome of these matters cannot be determined, management
does not believe that the final disposition of these matters will have a
material adverse effect on the Company's financial position, results of
operations or cash flows beyond the amounts previously provided for in the
financial statements.
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.
6. EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the applicable periods. Diluted earnings per share computations are based on net
income divided by the weighted average number of common shares outstanding
adjusted for the dilutive effect of stock options. The diluted earnings per
share calculation assumes the exercise of stock options using the treasury stock
method.
Set forth below are reconciliations of the numerators and denominators of the
basic and diluted per share computations for the three and six months ended June
30, 1999 and 1998.
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended June 30, 1999 Ended June 30, 1998
-------------------- --------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common stockholders $5,108 36,820 $0.14 $6,846 36,813 $0.19
===== =====
Effect of Dilutive Securities
Options -- 82 -- 152
------ ------ ------ ------
Diluted EPS
Income available to
common stockholders $5,108 36,902 $0.14 $6,846 36,965 $0.19
====== ====== ===== ====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
For the Six Months For the Six Months
Ended June 30, 1999 Ended June 30, 1998
------------------- -------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common stockholders $9,360 36,820 $0.25 $16,311 36,802 $0.44
===== =====
Effect of Dilutive Securities
Options -- 53 -- 132
------ ------ ------- ------
Diluted EPS
Income available to
common stockholders $9,360 36,873 $0.25 $16,311 36,934 $0.44
====== ====== ===== ======= ====== =====
</TABLE>
<PAGE>
7. GEOGRAPHIC SEGMENT INFORMATION
General Semiconductor is engaged in one industry segment, specifically, the
design, manufacture and sale of discrete semiconductors. The Company manages its
business on a geographic basis. Summarized financial information for the
Company's reportable geographic segments is presented in the following table.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies in the Company's Annual Report on
Form 10K/A for the year ended December 31, 1998. Net sales by reportable
geographic segment reflect the originating source of the unaffiliated sale.
Intercompany transfers represent the originating geographic source of the
transfer and principally reflect product assembly which is accounted for at cost
plus a nominal profit. In determining earnings before provision for income taxes
for each geographic segment, sales and purchases between areas have been
accounted for on the basis of internal transfer prices set by the Company.
<TABLE>
<CAPTION>
United
States Europe Far East China Corporate Consolidated
------ ------ -------- ----- --------- ------------
Three months ended
June 30, 1999:
<S> <C> <C> <C> <C> <C> <C>
Net sales (a) ............ $54,143 $32,928 $14,512 $ - $ - $101,583
Intercompany transfers.... 31,936 34,606 42,299 9,789 (118,630) -
------- ------- ------- ------ ---------- --------
Net sales............... 86,079 67,534 56,811 9,789 (118,630) $101,583
======= ======= ======= ====== ========== ========
Interest income........... - (4) 9 3 7 15
Interest expense.......... - 68 10 - 5,210 5,288
Depreciation and
amortization expense.... 2,499 1,365 2,208 820 - 6,892
Earnings before
provision for
income taxes............ 2,523 515 2,326 1,446 - 6,810
Income tax expense........ $ 1,776 $ (336) $ 258 $ 4 $ - $ 1,702
Three months ended
June 30, 1998:
Net sales (a)............. $55,311 $36,791 $ 6,660 $ - $ - $ 98,762
Intercompany transfers.... 24,908 37,730 38,642 7,163 (108,443) -
------- ------- ------- ------ ---------- --------
Net sales............... 80,219 74,521 45,302 7,163 (108,443) 98,762
======= ======= ======= ====== ========== ========
Interest income........... - 4 11 9 78 102
Interest expense.......... - 69 7 - 5,093 5,169
Depreciation and
amortization expense.... 2,181 1,095 2,160 606 - 6,042
Earnings before
provision for
income taxes............ 822 3,608 3,983 2,120 - 10,533
Income tax expense........ $ 855 $ 1,207 $ 1,515 $ 110 $ - $ 3,687
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
United
States Europe Far East China Corporate Consolidated
------ ------ -------- ----- --------- ------------
Six months ended
June 30, 1999:
<S> <C> <C> <C> <C> <C> <C>
Net sales (a)............. $103,830 $ 65,849 $ 28,865 $ - $ - $198,544
Intercompany transfers.... 63,542 67,965 82,312 18,928 (232,747) -
-------- -------- -------- ------- ---------- --------
Net sales............... 167,372 133,814 111,177 18,928 (232,747) 198,544
======== ======== ======== ======= ========== ========
Interest income........... - 17 10 8 6 41
Interest expense.......... - 134 20 - 10,208 10,362
Depreciation and
amortization expense.... 4,848 2,711 4,447 1,626 - 13,632
provision for
income taxes............ 2,131 1,146 6,393 2,809 - 12,479
Income tax expense........ $ 1,265 $ 125 $ 1,717 $ 12 $ - $ 3,119
Six months ended
June 30, 1998:
Net sales (a)............. $117,976 $ 74,635 $ 12,548 $ - $ - $205,159
Intercompany transfers.... 51,381 74,408 79,779 12,522 (218,090) -
-------- -------- -------- ------- ---------- --------
Net sales............... 169,357 149,043 92,327 12,522 (218,090) 205,159
======== ======== ======== ======= ========== ========
Interest income........... - (11) 11 16 156 172
Interest expense.......... - 119 553 - 9,474 10,146
Depreciation and
amortization expense.... 4,348 2,275 4,303 1,190 - 12,116
Earnings before
provision for
income taxes............ 11,319 5,191 5,463 3,123 - 25,096
Income tax expense........ $ 4,472 $ 1,858 $ 2,345 $ 110 $ - $ 8,785
</TABLE>
(a) Included in United States net sales are export sales as follows:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
Taiwan $15,890 $18,725 $29,717 $40,464
China 8,913 7,554 17,445 15,210
------- ------- ------- -------
$24,803 $26,279 $47,162 $55,674
======= ======= ======= =======
Net sales, by country, within the European geographic segment are:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
France $ 3,319 $ 3,415 $ 6,529 $ 7,214
Germany 13,387 16,318 29,097 32,371
Italy 3,581 4,246 7,266 8,343
U.K. 4,744 4,041 7,933 8,557
Other 7,898 8,771 15,024 18,150
------- ------- ------- -------
$32,928 $36,791 $65,849 $74,635
======= ======= ======= =======
<PAGE>
8. RECENT ACCOUNTING PRONOUNCEMENTS
During 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities and
requires that an entity recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. SFAS 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. The
Company is evaluating the impact SFAS 133 will have on its financial statements.
<PAGE>
GENERAL SEMICONDUCTOR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis pertains to the continuing
operations of General Semiconductor, Inc., unless otherwise noted, and describes
changes in the Company's financial condition since December 31, 1998.
The following table sets forth items included in the statements of income as a
percentage of net sales:
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 73.9 71.0 74.3 68.8
----- ----- ----- -----
Gross profit 26.1 29.0 25.7 31.2
Selling, general and administrative 11.4 10.4 11.4 11.3
Research and development 1.6 1.5 1.6 1.4
Amortization of excess of cost over
fair value of net assets acquired 1.3 1.3 1.3 1.3
----- ----- ----- -----
Operating income 11.8 15.8 11.5 17.2
Other income (expense) - net - - - -
Interest expense - net 5.2 5.1 5.2 4.9
----- ----- ----- -----
Income before income tax 6.7 10.7 6.3 12.3
Provision for income tax 1.7 3.7 1.6 4.3
----- ----- ----- -----
Net income 5.0% 6.9% 4.7% 8.0%
===== ===== ===== =====
RESULTS OF OPERATIONS:
- ---------------------
NET SALES
- ---------
Net sales of $101.6 million for the three months ended June 30, 1999 increased
$2.8 million from $98.8 million for the comparable prior year period. The
increase is primarily due to an approximate 18% increase in unit volume sales
partly offset by lower worldwide average selling prices (approximating 15%). For
the six months ended June 30, 1999 net sales decreased to $198.5 million from
$205.2 million for the comparable prior year period. Increased worldwide unit
volume sales was offset by lower worldwide average selling prices (approximately
15%).
COST OF SALES
- -------------
Cost of sales for the three and six months ended June 30, 1999 of $75.0 million
and $147.5 million compares to $70.1 million and $141.2 million for the
corresponding prior year period. Cost of sales increased $4.9 million for the
three months and $6.3 million for the six months principally due to an increase
in unit volume sales, partly, offset by cost savings achieved from the 1998
restructuring.
Accordingly, gross margin for the three and six months ended June 30, 1999
represents 26.1% and 25.7% of net sales, respectively, compared with 29.0% and
31.2% in the corresponding prior year period. This decrease relates to an
erosion of worldwide average selling prices partially offset by a change in the
mix of products sold, continued cost controls, savings achieved from the 1998
restructuring and improved factory utilization.
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
- ---------------------------------
Research and development expenses of $1.7 million and $3.1 million for the three
and six months ended June 30, 1999 increased from $1.5 million and $3.0 million
for the comparable prior year periods due to the hiring of the power MOSFET
product line engineers offset, in part, by cost savings achieved from the 1998
restructuring. Research and development spending reflects the modification of
existing products as well as the continued development of new products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses of $11.6 million for the three
months ended June 30, 1999 increased from $10.3 million for the comparable prior
year period. The $1.3 million increase is due to the timing of incentive costs
and the settlement of an environmental matter in 1998, offset by cost savings
achieved in 1999 from the 1998 restructuring. For the six months ended June 30,
1999 selling, general and administrative expenses of $22.5 million decreased
from $23.2 million. The $0.7 million decrease relates to lower commissions
corresponding with lower revenues, cost savings achieved from the 1998
restructuring and lower bad debt expense.
NET INTEREST EXPENSE
- --------------------
Net interest expense increased to $5.3 million and $10.3 million for the three
and six months ended June 30, 1999 from $5.1 million and $10.0 million for the
corresponding prior year period. While the average debt balance outstanding was
higher during the three and six months ended June 30, 1999 compared with the
corresponding prior year period, borrowing rates were lower resulting in
relatively stable net interest expense. Interest expense will increase for the
second half of 1999 due to amendments to the existing credit facility discussed
below.
INCOME TAXES
- ------------
The provision for income taxes is computed utilizing the Company's expected
annual effective income tax rate. The Company's effective tax rate for the six
months ended June 30, 1999 decreased to 25% from 35% for the six months ended
June 30, 1998 due primarily to an increased proportion of income of foreign
subsidiaries taxed at rates lower than the U.S. rate.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital at June 30, 1999 was $70.1 million compared to $51.7 million at
December 31, 1998. The working capital increase of $18.4 million resulted
primarily from increases in accounts receivable in support of a higher revenue
base, inventory resulting from additional consignment stock and a decrease in
accrued expenses due to the payment of restructuring costs accrued as of
December 31, 1998. As a result, the current ratio increased to 2.1 to 1 at June
30, 1999 compared with 1.7 to 1 at December 31, 1998.
During the six months ended June 30, 1999 the Company invested $11.7 million in
property, plant and equipment compared with $8.8 million for the corresponding
prior year period. The Company currently plans to invest approximately $30.0
million in capital expenditures for the year ended December 31, 1999 principally
for automation, new products, quality and system enhancements and selected
capacity increases for key lines where capacity is currently constrained.
At June 30, 1999 there were $11.0 million of letters of credit outstanding that
reduce the amount that can be borrowed against the Company's $350.0 million
credit facility.
The Company entered into its $350 million credit facility in July 1997 in
connection with the Distribution. In December 1998, the credit facility was
amended to modify several financial covenants to provide flexibility to execute
the 1998 restructuring. In June 1999, the credit facility was amended to modify
several financial covenants to provide greater financial flexibility.
The Company is evaluating market conditions and is planning a subordinated
note offering in the range of $200 million which may be completed in 1999. The
Company expects to use the proceeds of any such offering to repay outstanding
indebtedness under the credit facility and the credit facility will be
permanently reduced by 50% of the gross proceeds of the subordinated note of
offering.
<PAGE>
The credit facility requires the Company to pay a facility fee on the total
commitment. The credit facility permits the Company to choose between two
interest rates options: the adjusted base rate or eurodollar rate (LIBOR) plus a
margin which varies based on the Company's ratio of indebtedness to EBITDA 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 facility contains financial and operating covenants,
including limitations on guarantee obligations, liens, sale of assets,
indebtedness and investments.
General Semiconductor's primary cash needs on both a short and long-term basis
are for capital expenditures and other general corporate purposes. The Company
believes that it has adequate liquidity to meet its current and anticipated cash
flow needs from the results of its operations, working capital and available
sources of financing. 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.
EBITDA
- ------
EBITDA represents earnings before interest, taxes, depreciation and
amortization, EDITDA is presented because we believe it is frequently used by
securities analysts, investors and other interested parties in the evaluation of
companies in our industry. However, other companies in our industry may
calculate EBITDA differently than we do. EBITDA is not a measurement of
financial performance under generally accepted accounting principles and should
not be considered as an alternative to cash flow from operating activities or as
a measure of liquidity or as an alternative to net income as indicators of our
operating performance or any other measures of performance derived in accordance
with generally accepted accounting principles. See the statements of cash flow
included in the Company's consolidated financial statements.
Three months Six months
ended June 30, ended June 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Income from continuing operations $ 5,108 $ 6,846 $ 9,360 $16,311
Interest 5,273 5,067 10,321 9,974
Taxes 1,702 3,687 3,119 8,785
Depreciation and amortization(1) 6,794 5,967 13,565 11,966
------- ------- ------- -------
EBITDA $18,877 $21,567 $36,365 $47,036
======= ======= ======= =======
(1) Amortization of deferred financing fees is excluded from "Depreciation and
amortization" and included in "Interest".
The $2.7 million and $10.7 million decrease in EBITDA for the three and six
months ended June 30, 1999, respectively, compared with the corresponding prior
year periods is due primarily to worldwide price erosion.
YEAR 2000
- ---------
The Company recognizes the importance of ensuring that neither its customers nor
its business operations are disrupted as a result of the Year 2000 phenomenon.
This phenomenon is a result of computer programs having been written using two
digits (rather than four) to define the applicable year. Any information
technology ("IT") systems that have time sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000, which could result in
miscalculations and systems failures. The problem also extends to many "non-IT"
systems such as operating and control systems that rely on embedded chip
systems. The Company, with the assistance of outside consulting resources, is
centrally coordinating activities directed toward achieving global Year 2000
compliance. The primary areas of potential impact include business application
systems, production equipment systems, suppliers, financial institutions,
government agencies and environmental support organizations. None of the
Company's products contain date sensitive or date processing logic.
In 1996 the Company began an upgrade of its business applications software which
includes the implementation of the full suite of JD Edwards ("JDE") financial,
distribution and manufacturing applications. The JDE software was selected to
add worldwide functionality and efficiency to the business processes of the
Company as well as address Year 2000 exposure. The JDE financial and
distribution modules have been installed and are Year 2000 compliant. The JDE
manufacturing module will be installed in 2000. The Company has completed the
modification of the existing manufacturing applications with each of its six
factories.
Since the Company's financial, distribution and manufacturing applications are
Year 2000 compliant, incremental costs associated with achieving Year 2000
compliance beyond the scope of this project (estimated at less than $1.0
million) should not have a material effect on the Company's financial condition
or results of operations and are being expensed as incurred.
The Company has surveyed its suppliers, financial institutions, government
agencies and others with which it does business to determine their Year 2000
readiness and coordinate conversion efforts. Approximately 90% of third party
suppliers have responded to the Company's surveys. At the current time,
respondents critical to the operations of the Company have indicated that they
are, or reasonably believe that they will be, Year 2000 compliant. If a material
risk arises, the Company is prepared to perform on-site visits to validate the
accuracy of the information received and will test such systems where
appropriate and possible. Additionally, the Company has established programs to
ensure that future purchases of equipment and software are Year 2000 compliant.
Costs incurred have been insignificant to date.
The Company does not expect Year 2000 issues to have a material adverse effect
on its products, services, competitive position, financial condition or results
of operations. If, however, any of the Company systems are not Year 2000
compliant or if government agencies, the Company's customers, or suppliers fail
to achieve Year 2000 compliance, the Company may experience adverse consequences
including the following: (i) customers may be unable to place orders due either
to the Company's or customers system failures; (ii) the Company may be unable to
maintain adequate production scheduling, inventory cost accounting and other
elements of its business that are dependent upon computer systems; and (iii) the
Company may be unable to deliver its products on a timely basis.
<PAGE>
The disclosures contained herein constitute Year 2000 Readiness Statements
pursuant to the Year 2000 Information and Readiness Disclosure Act, Public Law
105-271.
NEW EUROPEAN CURRENCY
- ---------------------
A new European currency (Euro) was introduced in January 1999 to replace the
separate currencies of eleven individual countries. The Company will need to
modify its payroll, benefits and pension systems, contracts with suppliers and
customers, and internal financial reporting systems to be able to process
transactions in the new currency. A three-year transition period is given during
which transactions may be made in the old currencies. This may require dual
currency processes until the conversion is complete. The Company is identifying
the issues involved and intends to develop and implement solutions. The cost of
this effort is not expected to be material and will be expensed as incurred.
There can be no assurance, however, that all problems will be foreseen and
corrected, or that no material disruption of the Company's business will occur.
The conversion to the Euro may have competitive implications on the Company's
pricing and marketing strategies; however, any such impact is not known at this
time.
FORWARD LOOKING STATEMENTS
- --------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward looking statements. The Company's Form 10-K/A for the year ended
December 31, 1998, the Company's 1998 Annual Report to Stockholders, this and
any other Form 10-Q or Form 8-K of the Company, or any 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", "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.
Reference is made to the cautionary statements contained in Exhibit 99 to this
Form 10-Q for a discussion of the factors that may cause actual results to
differ from the results discussed in these forward looking statements.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
See Part I, Note 4 to the Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Stockholders
-----------------------------------------------
General Semiconductor held an Annual Meeting of Stockholders on May
12, 1999.
1. The stockholders approved the election of five directors. The votes
cast for each nominee were as follows:
FOR WITHHELD
--- --------
Ronald A. Ostertag 33,655,958 44,093
Ronald Rosenzweig 33,668,356 31,695
Peter A. Schwartz 33,668,241 31,810
Samuel L. Simmons 33,663,606 36,445
Dr. Gerard T. Wrixon 33,665,781 34,270
2. The stockholders ratified the appointment of Deloitte & Touche
LLP as independent auditor for the Company for the 1999 fiscal
year by a vote of 33,679,133 shares in favor of the
appointment; 12,368 shares against the appointment and 8,550
shares abstaining.
Item 6. Exhibits
--------
(a) Exhibits
--------
10.7.2 Second Amendment to the Credit Agreement, dated as of June
22, 1999 among General Semiconductor, Inc., The Chase
Manhattan Bank as Administrative Agent, the Banks from
time to time parties thereto, and the financial
institutions named therein as co-agents for the Banks.
10.8.2 Restated General Semiconductor, Inc. Annual Incentive Plan
adopted July 21, 1999.
27 Financial Data Schedule
99 Forward Looking Information
99.1 Press release dated July 21, 1999 regarding the Company's
sales and earnings.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Registrant during
the three months ended June 30, 1999.
<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.
July 23, 1999 /s/Andrew M. Caggia
- ------------- -------------------
Date Andrew M. Caggia
Senior Vice President and Chief Financial Officer
Signing both in his capacity as Senior Vice
President on behalf of the Registrant and as Chief
Financial Officer of the Registrant
SECOND AMENDMENT TO THE CREDIT AGREEMENT
SECOND AMENDMENT, dated as of June 22, 1999 (this "Second
Amendment"), to the Credit Agreement, dated as of July 23, 1997 (as amended,
supplemented, or otherwise modified from time to time, the "Credit Agreement"),
among GENERAL SEMICONDUCTOR, INC., a Delaware corporation (the "Company"), the
several lenders from time to time parties thereto (the "Banks"), THE CHASE
MANHATTAN BANK, a New York banking corporation, as administrative agent for the
Banks (in such capacity, the "Administrative Agent"), and the financial
institutions named therein as co-agents for the Banks (in such capacity,
collectively, the "Co-Agents"; each, individually, a "Co-Agent").
W I T N E S S E T H:
WHEREAS, the Company, the Banks, the Administrative Agent and
the Co-Agents are parties to the Credit Agreement;
WHEREAS, the Company has requested that the Banks amend the
Credit Agreement as set forth herein;
WHEREAS, the Banks, the Administrative Agent and the Co-Agents
are willing to agree to such amendment to the Credit Agreement, subject to the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the Company, the Banks, the Administrative Agent and
the Co-Agents hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein,
capitalized terms which are defined in the Credit Agreement are used herein as
therein defined.
2. Amendments to Credit Agreement. (a) Subsection 1.1
of the Credit Agreement is hereby amended by deleting the definition of
"Applicable Margin" and substituting therefor the following:
"Applicable Margin": for each Eurodollar Loan, each ABR Loan,
the Facility Fee and the Standby L/C fees, the rate per annum determined from
time to time based upon the Leverage Ratio determined as of the last day of the
most recent fiscal quarter for which the Company has delivered financial
statements pursuant to subsections 6.1(a) and (b) and the related certificate of
the chief financial officer of the Company referred to in subsection 6.2 as set
forth under the relevant column heading below opposite such Leverage Ratio:
<PAGE>
(in basis points)
Eurodollar ABR Loan Standby
Leverage Ratio Applicable Applicable Facility L/C
Margin Margin Fee Fee
Less than 1.5 to 1.0 36.25 0 18.75 36.25
Less than 2.0 to 1.0 but
greater than or equal to 1.5
to 1.0 42.50 20.00 42.50
Less than 2.25 to 1.0 but
greater than or equal to 2.0
to 1.0 52.50 0 22.50 52.50
Less than 2.75 to 1.0 but
greater than or equal to 2.25
to 1.0 60.00 0 25.00 60.00
Less than 3.0 to 1.0 but
greater than or equal to 2.75
to 1.0 70.00 0 30.00 70.00
Less than 3.5 to 1.0 but
greater than or equal to 3.0 to
1.0 112.50 12.5 37.50 112.50
Less than 3.75 to 1.0 but
greater than or equal to 3.5
to 1.0 130.00 30.0 45.00 130.00
Less than 4.0 to 1.0 but
greater than or equal to 3.75
to 1.0 150.00 50.0 50.00 150.00
Less than 4.25 to 1.0 but
greater than or equal to 4.0
175.00 75.0 50.00 175.00
Greater than or equal to 4.25
to 1.0 200.00 100.0 50.00 200.00
<PAGE>
For the purpose of this Agreement, any change in the Eurodollar Loan Applicable
Margin, the ABR Loan Applicable Margin, the Facility Fee and the Standby L/C
fees shall become effective on the day following the delivery to the
Administrative Agent by the Company of the financial statements referred to in
subsections 6.1(a) and (b) and the related certificate of the chief financial
officer of the Company referred to in subsection 6.2 indicating the Leverage
Ratio as of the last day of such period. If the Company shall fail to deliver
the financial statements referred to in subsections 6.1(a) and (b) and the
related certificate of the chief financial officer of the Company referred to in
subsection 6.2 indicating the Leverage Ratio as of such last day, then the
Applicable Margin, Facility Fee and Standby L/C fee shall automatically, and
without further act of the Administrative Agent, the Co-Agents or any Bank,
equal the highest Applicable Margin, Facility Fee and Standby L/C fee set forth
above until such statements are delivered. In addition, the Applicable Margin
for Eurodollar Loans and ABR Loans and the Standby L/C fee shall increase (i) by
.50% per annum on the Effective Date (as defined in the Second Amendment dated
as of June 22, 1999 to this Agreement) and (ii) by an additional .50% per annum
on November 16, 1999, provided that all increases in the Applicable Margin
pursuant to this sentence shall cease to be effective on and after the Senior
Subordinated Note Trigger Date.
(b) The definition of "Consolidated EBITDA" in subsection
1.1 of the Credit Agreement is hereby amended (other than for purposes of
calculating the Applicable Margin) by (i) amending the phrase "and (e)"
appearing therein to read A, (e)" and (ii) inserting the following new clause at
the end thereof:
and (f) if the Senior Subordinated Note Trigger Date has
occurred, all of the Company's restructuring and other charges principally
associated with a restructuring of a portion of the Company's European
operations in an aggregate amount not to exceed $9,000,000 for the two fiscal
quarter period ended December 31, 1999;
(c) Subsection 1.1 of the Credit Agreement is hereby amended
by deleting the definition of "Obligations" and substituting therefor the
following:
"Obligations": the collective reference to (i) the unpaid
principal of and interest on the Loans and all other obligations and liabilities
of the Company to the Administrative Agent, the Co-Agents or the Banks, whether
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter incurred, which may arise under, out of, or in connection with,
this Agreement, the other Credit Documents, any Letter of Credit or L/C
Application, any agreements between the Company and any Bank or any Affiliate of
a Bank relating to interest rate, currency or similar swap and hedging
arrangements or any other document made, delivered or given in connection
therewith, whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses (including, without limitation, all fees and
disbursements of counsel to the Administrative Agent, the Co-Agents or any Bank)
or otherwise and (ii) all overdrafts, overdraft charges, ACH charges and similar
amounts owed by the Company or any of its Subsidiaries to the Administrative
Agent, any Co-Agent or any Bank (the obligations referred to in this clause
(ii), the "Overdraft Obligations").
(d) Subsection 1.1 of the Credit Agreement is amended by
adding the following definitons in proper alphabetical order:
<PAGE>
"Security Documents": the Pledge Agreements and each other
security agreement, mortgage, pledge agreement or other collateral security
document delivered by the Company or any of its Subsidiaries which purports to
create a lien or security interest to secure any of the Obligations or any
guarantee thereof.
"Senior Leverage Ratio": as of the last day of any fiscal
quarter the ratio of (a) Consolidated Total Indebtedness less the aggregate
principal amount of the Senior Subordinated Notes then outstanding on a
consolidated basis for the Company and its Subsidiaries on such day to (b)
Consolidated EBITDA for the period of four consecutive fiscal quarters of the
Company ending on such day.
"Senior Subordinated Note Indenture": the Indenture to be
entered into by the Company and certain of its Subsidiaries in connection with
the issuance of the Senior Subordinated Notes, together with all instruments and
other agreements entered into by the Company or such Subsidiaries in connection
therewith, as the same may be amended, supplemented or otherwise modified from
time to time in accordance with subsection 7.19.
"Senior Subordinated Note Issuance Date": the first date on
which the Senior Subordinated Notes are issued.
"Senior Subordinated Note Trigger Date": the first date on
which the Company has received at least $150,000,000 in gross cash proceeds from
the issuance of the Senior Subordinated Notes.
"Senior Subordinated Notes": the subordinated notes
(including any exchange notes) of the Company to be issued pursuant to the
Senior Subordinated Note Indenture.
(e) Subsection 3.6 of the Credit Agreement is amended by
deleting from paragraph (b) the phrase ", provided ..." to the end of such
paragraph and substituting therefor the phrase "plus the Applicable Margin for
"BR Loans."
(f) Section 4 of the Credit Agreement is amended by adding
the following new subsections 4.20 and 4.21 at the end thereof:
4.20 Seniority. On and after the Senior Subordinated Note
Issuance Date, the Obligations will constitute "Senior Indebtedness" of the
Company under and as defined in the Senior Subordinated Note Indenture. The
obligations of each Subsidiary Guarantor under each Credit Document to which it
is a party constitute "Senior Indebtedness" of such Subsidiary Guarantor under
and as defined in the Senior Subordinated Note Indenture.
<PAGE>
4.21. Year 2000 Matters. Any reprogramming required to
permit the proper functioning, in and following the year 2000, of the Company's
computer systems and equipment containing embedded microchips, and the testing
of all such systems and equipment, as so reprogrammed, will be completed by
September 30, 1999. The testing of all such systems and equipment, as so
reprogrammed, will be accomplished in a manner and by a date that could not
reasonably be expected to result in a Material Adverse Effect. The cost to the
Company of any such reprogramming and testing and of the reasonably foreseeable
consequences of year 2000 to the Company (including, without limitation,
reprogramming errors and the failure of others' systems or equipment) could not
reasonably be expected to result in a Default or a Material Adverse Effect.
Except for such of the reprogramming referred to in the preceding sentence as
may be necessary, the computer and management information systems of the Company
and its Subsidiaries will be and, with ordinary course upgrading and
maintenance, will continue to be, sufficient to permit the Company to conduct
its business without Material Adverse Effect. The foregoing representation shall
be qualified as to the status of year 2000 matters with respect to third parties
that, to the knowledge of the Company after reasonable inquiry, such matters
could not be reasonably expected to result in a
Material Adverse Effect.
(g) Subsection 6.2(a) of the Credit Agreement is amended by
deleting the phrase "and 7.9" in clause (i) thereof and substituting in lieu
thereof the phrase ",7.9 and 7.20".
(h) Subsection 6.2(b) of the Credit Agreement is amended by
deleting the phrase "and 7.9" in clause (ii) thereof and substituting in lieu
thereof the phrase ",7.9 and 7.20".
(i) Section 6 of the Credit Agreement is amended by deleting
subsection 6.8 and substituting therefor the following:
6.8 Additional Collateral, etc. (a) Cause each Domestic
Subsidiary to execute and deliver a Subsidiary Guarantee in favor of the
Administrative Agent in substantially the form of Exhibit D, each of which
Subsidiary Guarantees shall be accompanied by such resolutions, incumbency
certificates and legal opinions as are reasonably requested by the
Administrative Agent and its counsel.
<PAGE>
(b) With respect to any property owned or acquired by the
Company or any of its Subsidiaries (other than (x) any property described in
paragraph (c), (d) or (e) below, (y) any property subject to a Lien expressly
permitted by subsection 7.2(g), (i), (n) or (o) and (z) property owned or
acquired by any Foreign Subsidiary) as to which the Administrative Agent, for
the benefit of the Lenders, does not have a perfected Lien, promptly take all
actions necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a perfected first priority security interest (subject to
Liens permitted by subsection 7.2 which may have priority, if any) in such
property, including the filing of Uniform Commercial Code financing statements
in such jurisdictions as may be requested by the Administrative Agent; provided,
that the Company and its Subsidiaries shall not be required to grant any such
security interest in any contract, agreement, license or instrument, in each
case to the extent, and only to the extent, the grant by the Company or such
Subsidiary of a security interest pursuant to any Security Document in its
right, title and interest in such contract, agreement, license or instrument is
prohibited by such contract, agreement, license or instrument without the
consent of any other party thereto, would give any other party to such contract,
agreement, license or instrument the right to terminate its obligations
thereunder, or is permitted with consent if all necessary consents to such grant
of a security interest have been obtained from the other parties thereto (it
being understood that the foregoing shall not be deemed to obligate the Company
or such Subsidiary to obtain such consents); provided further, that the
foregoing limitation shall not affect, limit, restrict or impair the grant of by
the Company or such Subsidiary of a security interest pursuant to this Agreement
in any receivable or any money or other amounts due or to become due under any
such contract, agreement, license or instrument.
(c) With respect to any interest in real property having a
value (together with improvements thereof) of at least $500,000 individually or
$2,000,000 in the aggregate owned or acquired by the Company or any of its
Subsidiaries (other than (w) leasehold interests set forth on Schedule 6.8
unless the consent of the applicable landlord is obtained to the granting of a
Lien thereon pursuant to this subsection, (x) any such real property subject to
a Lien expressly permitted by subsection 7.2(g) or (n) and (y) real property
owned or acquired by any Foreign Subsidiary), promptly (i) execute and deliver a
first priority mortgage or deed of trust in the Administrative Agent's customary
form therefor, in favor of the Administrative Agent, for the benefit of the
Lenders, covering such real property, (ii) if requested by the Administrative
Agent, provide the Lenders with (x) title and extended coverage insurance
covering such real property in an amount at least equal to the purchase price of
such real property (or such other amount as shall be reasonably specified by the
Administrative Agent) as well as a current ALTA survey thereof, together with a
surveyor's certificate and (y) any consents or estoppels reasonably deemed
necessary or advisable by the Administrative Agent in connection with such
mortgage or deed of trust, including (other than with respect to the leasehold
interests set forth in Schedule 6.8) lessor and landlord consents in the
Administrative Agent's customary forms therefor, each of the foregoing in form
and substance reasonably satisfactory to the Administrative Agent and (iii) if
requested by the Administrative Agent, deliver to the Administrative Agent legal
opinions relating to the matters described above, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent.
<PAGE>
(d) With respect to any Subsidiary (other than a Foreign
Subsidiary) owned or acquired by the Company (which, for the purposes of this
paragraph (d), shall include any existing Subsidiary that ceases to be a Foreign
Subsidiary), the Company or any of its Subsidiaries, promptly (i) execute and
deliver to the Administrative Agent such pledge agreements in the Administrative
Agent's customary form therefor as the Administrative Agent deems necessary or
advisable to grant to the Administrative Agent, for the benefit of the Lenders,
a perfected first priority security interest in the Capital Stock of such new
Subsidiary that is owned by the Company or any of its Subsidiaries, (ii) deliver
to the Administrative Agent the certificates representing such Capital Stock,
together with undated stock powers, in blank, executed and delivered by a duly
authorized officer of the Company or such Subsidiary, as the case may be, (iii)
cause such Subsidiary to take such actions necessary or advisable to grant to
the Administrative Agent for the benefit of the Lenders a perfected first
priority security interest in substantially all of its assets, including the
filing of Uniform Commercial Code financing statements in such jurisdictions as
may be requested by the Administrative Agent and (iv) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Administrative
Agent.
(e) With respect to any Foreign Subsidiary owned or acquired
by the Company or any of its Subsidiaries (other than a Foreign Subsidiary),
promptly (i) execute and deliver to the Administrative Agent such pledge
agreement in the Administrative Agent's customary form therefor as the
Administrative Agent deems necessary or advisable to grant to the Administrative
Agent, for the benefit of the Lenders, a perfected first priority security
interest in the Capital Stock of such Foreign Subsidiary that is owned by the
Company or any of such Subsidiaries (provided that in no event shall more than
65% of the total outstanding Capital Stock of any such Foreign Subsidiary be
required to be so pledged), (ii) deliver to the Administrative Agent the
certificates representing such Capital Stock, together with undated stock
powers, in blank, executed and delivered by a duly authorized officer of the
Company or such Subsidiary, as the case may be, and take such other action as
may be necessary or, in the opinion of the Administrative Agent, desirable to
perfect the Administrative Agent's security interest therein, and (iii) if
requested by the Administrative Agent, deliver to the Administrative Agent legal
opinions relating to the matters described above, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent.
(f) In the event that there shall be a Change in Law which
eliminates the adverse tax consequences from (A) the pledge of more than 65% of
the total outstanding Capital Stock any Foreign Subsidiary or (B) any Foreign
Subsidiary granting any of the Liens or guaranteeing payment of the Obligations
on the same terms as required for Domestic Subsidiaires in the preceding
paragraphs (a) through (d), the Company shall promptly thereafter (i) pledge and
deliver, or shall cause to be pledged and delivered, to the Administrative Agent
such additional stock as can be so pledged without adverse tax consequences and
(ii) cause any such Foreign Subsidiary that has not previously granted such
Liens or executed and delivered a Guarantee because of such adverse tax
consequences to grant such Liens and deliver Security Documents and a Guarantee
to the Administrative Agent to the extent any such Security Documents and
Guarantee can be so executed and delivered without adverse tax consequences to
the Company or any of its Subsidiaries.
(j) Notwithstanding the foregoing provisions of this
subsection 6.8, upon the reasonable request of the Administrative Agent, the
Company shall, and shall cause its Subsidiaries to:
<PAGE>
(i) Prior to the Senior Subordinated Note Trigger
Date (A) pledge more than 65% of the total outstanding Capital Stock of any
Foreign Subsidiary and (B) cause its Foreign Subsidiaries to deliver guarantees
and grant Liens on their assets to the extent that Domestic Subsidiaries are
required to do so pursuant to paragraphs (a) through (d) above, if the
Administrative Agent believes that the cost (including incremental tax costs) to
the Company and its Subsidiaries in doing so are not disproportionate to the
benefits to be obtained (including the benefits of any purported Liens)
therefrom by the Banks.
(ii) On and after the Senior Subordinated Note
Trigger Date (A) pledge more than 65% of the total outstanding Capital Stock of
any Foreign Subsidiary and (B) cause its Foreign Subsidiaries to deliver
guarantees and grant Liens on their assets to the extent that Domestic
Subsidiaries are required to do so pursuant to paragraphs (a) through (d) above,
if the Company and the Administrative Agent mutually agree, acting in a
commercially reasonable manner, that the cost (including incremental tax costs)
to the Company and its Subsidiaries in doing so are not disproportionate to the
benefits to be obtained (including the benefits of any purported Liens)
therefrom by the Banks.
(k) Upon the request of the Administrative Agent, promptly
perform or cause to be performed any and all acts and execute or cause to be
executed any and all documents (including, without limitation, financing
statements and continuation statements) for filing under the provisions of any
Requirement of Law which are necessary or advisable to maintain in favor of the
Administrative Agent, for the benefit of the Banks, Liens on any collteral
under the Security Documents that are duly accepted in accordance with all
applicable Requirements of Law.
(l) Subsection 7.2 of the Credit Agreement is hereby amended
by (i) deleting the word "and" from the end of clause (m), (ii) deleting the
period at the end of clause (n) and substituting therefor the phrase "; and" and
(iii) adding the following new clause (o):
(o) Liens on inventory consigned by the Borrower
and Domestic Subsidiaries having a book value not in excess of $3,000,000.
(m) Subsection 7.3 of the Credit Agreement is amended by
(i) deleting the word "and" from the end of clause (f), (ii) deleting the period
at the end of clause (g) and substituting therefor the phrase "and" and (iii)
adding thereto the following new clause (h):
(h) Guarantee Obligations of the Subsidiary
Guarantors in respect of the Senior Subordinated Notes, provided that such
Guarantee Obligations are subordinated to the Subsidiary Guarantees to the same
extent as the obligations of the Borrower in respect of the Senior Subordinated
Notes are subordinated to the Obligations.
(n) Subsection 7.6 of the Credit Agreement is amended by
adding the following at the end of paragraph (c) thereof:
and provided further, no acquisition may be made
pursuant to this paragraph (c) until the Senior Subordinated Note Trigger Date
has occurred;
<PAGE>
(o) Subsections 7.8 and 7.9 of the Credit Agreement are
amended by deleting such subsections and substituting therefor the following:
7.8 Maintenance of Interest Coverage. Prior to the Senior
Subordinated Note Issuance Date, permit the Interest Coverage Ratio on the last
day of any fiscal quarter, commencing with the fiscal quarter ending June 30,
1999, to be less than 3.0:1.0.
7.9 Maintenance of Leverage Ratio. Prior to the Senior
Subordinated Notes Issuance Date, permit, as of the last day of any fiscal
quarter occuring during any period set forth below, the Leverage Ratio to be
greater than the ratio set forth opposite such period:
Period Ratio
April 1, 1999 - September 30, 1999 4.60:1.0
October 1, 1999 - December 31, 1999 4.35:1.0
January 1, 2000 - March 31, 2000 4.00:1.0
April 1, 2000 - June 30, 2000 3.75:1.0
July 1, 2000 and thereafter 3.50:1.0
(p) Subsection 7.14 of the Credit Agreement is hereby amended
by deleting clause (b) and substituting therefor the following:
(b) Indebtedness of the Company consisting of the Senior
Subordinated Notes as long as (i) the aggregate principal amount of the Senior
Subordinated Notes does not exceed $250,000,000, (ii) the Senior Subordinated
Notes are issued at par or at a discount or premium not giving rise to original
issue discount under the Code, (iii) the Senior Subordinated Notes contain
covenants, events of default and remedies as are then customary for senior
subordinated unsecured debt securities issued in a public offering or a Rule
144A transaction and in any event no more restrictive than those contained
herein, (iv) the Senior Subordinated Notes have no scheduled principal payments
prior to the seventh anniversary of the date of issuance thereof and are subject
to no mandatory prepayments or redemptions or offers to purchase except for
those based on a change of control or asset sales on terms as are then customary
for senior unsecured debt securities issued in a public offering or a Rule 144A
transaction and (v) the Senior Subordinated Notes contain subordination
provisions satisfactory to the Administrative Agent (the Senior Subordinated
Notes shall be deemed to comply with this paragraph (b) unless the Required
Banks or the Administrative Agent notify the Company within five Business Days
after their receipt of the preliminary offering memorandum (or any draft thereof
containing substantially the same terms as are set forth in such preliminary
offering memorandum) for the Senior Subordinated Notes that the senior
subordinated notes described therein do not comply with this paragraph (b), the
Company hereby agreeing to distribute such preliminary offering memorandum to
the Banks promptly following the printing thereof);
<PAGE>
(q) Subsection 7.18 of the Credit Agreement is hereby amended
by (i) deleting the phrase "or (c)" and substituting therefor the phrase ",(c)"
and (ii) adding at the end of clause (c) the phrase:
or (d) the Senior Subordinated Note Indenture (in which case, any
prohibition or limitation shall not limit the ability of the Company and its
Subsidiaries to provide collateral security for the Obligations and guarantees
thereof or limit the ability of Subsidiaries to make payments to the Company)
(r) Section 7 of the Credit Agreement is hereby amended by
adding the following new subsections 7.19 and 7.20:
7.19 Optional Payments and Modifications of Senior
Subordinated Note Indenture. (a) Make or offer to make any optional or
voluntary payment, prepayment, repurchase or redemption of or otherwise
optionally or voluntarily defease or segregate funds with respect to the Senior
Subordinated Notes, (b) amend, modify, waive or otherwise change, or consent or
agree to any amendment, modification, waiver or other change to, any of the
terms of the Senior Subordinated Notes (other than any such amendment,
modification, waiver or other change that (i) would extend the maturity or
reduce the amount of any payment of principal thereof or reduce the rate or
extend any date for payment of interest thereon and (ii) does not involve the
payment of a consent fee), or (c) designate any Indebtedness (other than
obligations of the Loan Parties pursuant to the Credit Documents) as "Designated
Senior Indebtedness" for the purposes of the Senior Subordinated Note Indenture.
7.20 Financial Covenants On and After Senior Subordinated
Note Issuance Date. On and after the Senior Subordinated Note Issuance Date:
(a) Maintenance of Interest Coverage. Permit the
Interest Coverage Ratio on the last day of any fiscal quarter to the be less
than 2.5:1.0.
(b) Maintenance of Leverage Ratio. Permit, as of
the last day of any fiscal quarter occuring during any period set forth below,
the Leverage Ratio to be greater than the ratio set forth opposite such period:
Period Ratio
April 1, 1999 - December 31, 1999 5.00:1.0
January 1, 2000 - June 30, 2000 4.50:1.0
July 1, 2000 and thereafter 4.00:1.0
(c) Maintenance of Senior Leverage Ratio. Permit,
as of the last day of any fiscal quarter occuring during any period set forth
below, the Senior Leverage Ratio to be greater than the ratio set forth opposite
such period:
<PAGE>
Period Ratio
April 1, 1999 - December 31, 1999 2.50:1.0
January 1, 2000 - June 30, 2000 2.25:1.0
July 1, 2000 and thereafter 2.00:1.0
(s) Section 8 of the Credit Agreement is hereby amended by
deleting from paragraph (i) each reference to "Pledge Agreement" and
substituting therefor each time the phrase "Security Document".
(t) Section 8 of the Credit Agreement is amended by adding
the following at the end of paragraph (j):
or (iii) a change of control, however denominated, shall occur under
the Senior Subordinated Note Indenture; or
(u) Section 8 of the Credit Agreement is amended by adding
the following new paragraph (k) at the end thereof:
(k) on and after the Senior Subordinated Note Issuance Date,
the Senior Subordinated Notes or the guarantees thereof shall cease, for any
reason, to be validly subordinated to the Obligations or the obligations of the
Subsidiary Guarantors under the Credit Documents, as the case may be, as
provided in the Senior Subordinated Note Indenture, or any Loan Party, any
Affiliate of any Loan Party, the trustee in respect of the Senior Subordinated
Notes or the holders of at least 25% in aggregate principal amount of the Senior
Subordinated Notes shall so assert;
(v) The Company agrees that no amendment, supplement or
modification of any Credit Document shall release any Subsidiary from any
Security Document to which it is a party without the written consent of the
Release Banks, except as otherwise provided, notwithtstanding any provisions to
the contrary set forth in subsection 10.1 of the Credit Agreement.
(w) Section 10 of the Credit Agreement is amended by adding
thereto the following new subsection 10.14:
<PAGE>
10.14 Overdraft Obligations. The Banks (for
themselves and their respective Affiliates) agree that it is their intention
that only $3,000,000 of the Overdraft Obligations be guaranteed and secured
ratably and on a pari passu basis with the other Obligations (i.e., those
described in clause (i) of the definiton of Obligations) (the "Primary
Obligations") and that the balance of the Overdraft Obligations in excess of
$3,000,000 be subordinated to the Primary Obligations. To the extent the
Overdraft Obligations exceed $3,000,000 each Bank's (and its Affiliates')
Overdraft Obligations shall be entitled to share ratably and on a pari passu
basis in the Subsidiary Guarantees and collateral under the Security Documents
with the Primary Obligations in an amount equal to the product of (a) $3,000,000
and (b) the decimal equivalent of (i) the amount of the Overdraft Obligations
owed to such Bank and its Affiliates divided by (ii) the aggregate amount of all
Overdraft Obligations. Payment of any Overdraft Obligations pursuant to any
Subsidiary Guarantee or from any collateral under the Security Documents shall
be subordinated to the prior payment of the Primary Obligations except to the
extent set forth in the two preceding sentences.
3. Reduction of Revolving Credit Commitments. The
aggregate Revolving Credit Commitments shall automatically and irrevocably be
reduced on each day on which Senior Subordinated Notes are issued by an amount
equal to 50% of the gross cash proceeds of such Senior Subordinated Notes, on
the tems set forth in subsection 3.3 of the Credit Agreement.
4. Obligations to Issue Senior Subordinated Notes.
The Company agrees to use its commercially reasonable efforts to issue at least
$200,000,000 aggregate principal amount of Senior Subordinated Notes on or prior
to November 15, 1999. The Company agrees to engage one or more investment banks
(collectively, the "Investment Bank") reasonably satisfactory to the
Administrative Agent to publicly sell or privately place up to $250,000,000
aggregate principal amount of Senior Subordinated Notes of the Company on or
prior to November 15, 1999.
5. Representations and Warranties. The Company hereby
confirms, reaffirms and restates the representations and warranties set forth in
Section 4 of the Credit Agreement, as amended by this Second Amendment. The
Company represents and warrants that, after giving effect to this Second
Amendment, no Default or Event of Default has occurred and is continuing.
6. Effectiveness. Upon receipt by the Administrative
Agent of counterparts of this Second Amendment duly executed by the Company and
the Required Banks, this Second Amendment shall become effective as of the date
(the "Effective Date") of receipt by the Administrative Agent of such
counterparts. The Applicable Margin on and after the Effective Date shall be
recalculated to give effect to the amendment to the Credit Agreement set forth
in Section 2(a) above.
7. Delivery of Collateral. Notwithstanding the
requirement of subsection 6.8 of the Credit Agreement, as amended by this Second
Amendment, the failure of the Company and its Subsidiaries to take any action
required by such subsection, as so amended, prior to the day which is 60 days
after the Effective Date shall not constitute a Default to the extent that the
taking of such action was not required under such subsection prior to the
effectiveness of this Second Amendment.
8. Amendment Fee. The Company will pay to the
Administrative Agent, for the account of each Lender which executes and returns
this Second Amendment to the Administrative Agent on or prior to the Effective
Date, an amendment fee equal to .25% of the Revolving Credit Commitment of such
Lender in effect on the Effective Date, such fee to be payable on the Effective
Date.
<PAGE>
9. Continuing Effect of the Credit Agreement. This
Second Amendment shall not constitute an amendment of any other provision of the
Credit Agreement not expressly referred to herein and shall not be construed as
a waiver or consent to any further or future action on the part of the Company
that would require a waiver or consent of the Banks, the Administrative Agent or
the Co-Agents. Except as expressly amended hereby, the provisions of the Credit
Agreement are and shall remain in full force and effect.
10. Counterparts. This Second Amendment may be executed
by the parties hereto in any number of separate counterparts (including
telecopied counterparts), each of which shall be deemed to be an original, and
all of which taken together shall be deemed to constitute one and the same
instrument.
11. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Second Amendment to be duly executed and delivered in New York, New York by
their respective proper and duly authorized officers as of the day and year
first above written.
GENERAL SEMICONDUCTOR, INC.
By:Michael C. Smiley
Title: Vice President, Treasurer
THE CHASE MANHATTAN BANK, as
Administrative Agent, as a Co-Agent
and as a Bank
By:Steven J.Faliski
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as a Co-Agent and as a Bank
By: Roger Fleischmann
Title: Managing Director
BANK OF MONTREAL, as a Co-Agent and as a Bank
By: Richard McClorey
Title: Director
THE BANK OF NOVA SCOTIA, as a Co-Agent
and as a Bank
By: J. Alan Edwards
Title: Authorized Signatory
<PAGE>
CIBC INC., as a Co-Agent and as a Bank
By: Paul J. Chakmak
Title: Managing Director CIBC World Markets Corp.,
As Agent
CREDIT LYONNAIS NEW YORK BRANCH, as
a Co-Agent and as a Bank
By: Scott R. Chappelka
Title: Vice President
FLEET NATIONAL BANK, as a Co-Agent and as a Bank
By: Daniel Head Jr.
Title: Senior Vice President
WACHOVIA BANK, N.A., as a Co-Agent and as a Bank
By: Jane C. Deaver
Title: Senior Vice President
THE BANK OF NEW YORK
By: Eliza Adams
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By: Jim Brown
Title: Vice President
<PAGE>
BANKBOSTON, N.A.
By: Lynn Schade
Title: Vice President
BANQUE NATIONALE DE PARIS
By: Richard Pace Thomas George
Title: Vice President Vice President
PARIBAS
By: Duane Helkowski Scott C. Sergeant
Title: Vice Preisdent Associate
CREDIT AGRICOLE INDOSUEZ
By: Sarah McClintock
Title: Vice President
By: Rene LeBlanc
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By: Jun Ebihara
Title: Deputy General Manager
<PAGE>
THE SANWA BANK LIMITED, CHICAGO BRANCH
By: Kenneth C. Eichwald
Title: First Vice President and
Assistant General Manager
SOCIETE GENERALE, NEW YORK BRANCH
By: Jerry Parisi
Title: Director
THE SUMITOMO BANK, LTD., CHICAGO BRANCH
By: John H. Kemper
Title: Senior Vice President
<PAGE>
Schedule 6.8
Leased Properties
10 Melville Park Road
Melville, N.Y.
455A Union Avenue
Westbury, N.Y.
436 Maple Avenue
Melville, N.Y.
172 Spruce Street (14,000 sq.ft.)
Melville, N.Y.
172 Spruce Street (15 ft. strip)
Melville, N.Y.
48521 Warm Springs Blvd.
Freemont, CA (Sublease)
GENERAL SEMICONDUCTOR, INC.
RESTATED 1999 ANNUAL INCENTIVE PLAN
1. Purpose
The purpose of the 1999 Annual Incentive Plan is to
enhance the ability of General Semiconductor, Inc. to attract, motivate, reward
and retain key employees, to strengthen their commitment to the success of the
Company and to align their interests with those of the Company's stockholders by
providing additional compensation to designated key employees of the Company
based on the achievement of performance objectives. To this end, the 1999 Annual
Incentive Plan provides a means of annually rewarding participants primarily
based on the performance of the Company and its subsidiaries and secondarily
based on the achievement of personal performance objectives.
2. Eligibility
Participation in the Plan for a Performance Period
shall be limited to those key Employees who, because of their significant impact
on the current and future success of the Company, the CEO selects, in accordance
with Section 4, to participate in the Plan for that Performance Period.
Notwithstanding the foregoing, Officers shall participate in the Plan in every
Performance Period
To be eligible to participate in the Plan in any
Performance Period an Employee shall have had at least three months active
tenure during such Performance Period and be actively employed by the Company on
the Award payment date (except as provided in Sections 6 and 7).
Employees shall participate in only one annual cash or
sales incentive plan for any specific period in time. For example, an individual
may not participate in both the Plan and the Company's sales incentive plan at
the same time. An individual may participate in this Plan and another Plan
sequentially during any Performance Period because of promotion or reassignment,
provided that participation in each such plan is pro-rated to reflect (to the
nearest weekly increment) the period during which he or she participated in each
plan.
3. Administration
The administration of the Plan shall be consistent with
the purpose and the terms of the Plan. The Plan shall be administered by the
Committee with respect to Officers and by the CEO with respect to all other
Participants. The Committee and the CEO, as the case may be, shall have full
authority to establish the rules and regulations relating to the Plan, to
interpret the Plan and those rules and regulations, to select Participants in
the Plan, to determine each Participant's Target Award Percentage, to approve
all Awards, to decide the facts in any case arising under the Plan and to make
all other determinations and to take all other actions necessary or appropriate
for the proper administration of the Plan, including the delegation of such
authority or power, where appropriate; provided, however, that only the
Committee shall have authority to amend or terminate the Plan. The Committee's
and the CEO's administration of the Plan, including all such rules and
regulations, interpretations, selections, determinations, approvals, decisions,
delegations, amendments, terminations and other actions, shall be final and
binding on the Company, their respective stockholders and all employees of the
Company, including the Participants and their respective beneficiaries.
4. Determination of Awards
Prior to, or as soon as practicable following, the
commencement of each Performance Period, the CEO with respect to Employees other
than Officers shall determine the Employees who shall be Participants during
that Performance Period and determine each Participant's Target Award Percentage
and the Committee shall determine each Officer's Target Award Percentage. The
Company shall prepare schedules, which will be treated as part of the Plan for
that Performance Period, setting forth (a) the Participants during that
Performance Period, (b) each Participant's Target Award Percentage for that
Performance Period, and (c) the EPS Target for that Performance Period (which
shall be established within 90 days after the commencement of such Performance
Period). The Company shall notify each Participant of his or her Target Award
Percentage.
A Participant earns an Award for a Performance Period
based on (i) the Company's achievement of the EPS Target, and (ii) in the case
of Participants other than Officers of the Company, his or her achievement of
personal performance goals. An Award will be earned only if the Company achieves
at least 90% of the EPS Target for the Performance Period. The award of each
Participant who is not an Officer shall be adjusted based on the Participant's
achievement of his or her personal performance goals. The calculation of Awards
is more fully set forth in this Section 5.
Awards shall be earned by Participants in accordance
with the following formula:
Personal
Target EPS Performance
Base Award Award Percentage
Salary X Percentage X Earned X (Other than Officers)
(a) EPS Award Earned. The EPS Award Earned is determined in accordance with the
following table:
EPS as EPS
% of Plan Award Earned
90% 90%
100% 100%
110% 110%
120% 120%
130% 130%
140% 140%
150% 150%
Straight line interpolation shall be used to determine the EPS Award Earned
with respect to performance between the levels specified in the EPS Award Earned
Table.
(b) Personal Performance Percentage. Officers are not eligible for an
adjustment based on personal performance. Other Participant's performance shall
be evaluated and a Personal Performance Percentage for such Participant shall be
recommended to the CEO. The Personal Performance Percentage may range from 80
percent to 120 percent to reflect the achievement of the Participant's personal
performance goals during the Performance Period, provided, however, that the
application of this Section 5(b) shall not result in the Participant's Award
exceeding 150 percent of his or her Base Salary times his or her Target Award
Percentage for the Performance Period.
5. Changes to the Target
The Committee, with respect to Officers, and the CEO,
with respect to all other Participants, may at any time prior to the final
determination of Awards change the Target Award Percentage of any Participant or
assign a different Target Award Percentage to a Participant to reflect any
change in the Participant's responsibility level or position during the course
of the Performance Period.
The Committee, with respect to Officers, and the CEO,
with respect to all other Participants, may at any time prior to the final
determination of Awards change the EPS Target to reflect a change in corporate
capitalization, such as a stock split or stock dividend, or a corporate
transaction, such as a merger, consolidation, separation, reorganization or
partial or complete liquidation, or to equitably reflect changed business
circumstances during the Performance Period, the occurrence of any extraordinary
event, any change in applicable accounting rules or principles, any change in
the Company's method of accounting, any change in applicable law, any change due
to any merger, consolidation, acquisition, reorganization, stock split, stock
dividend combination of shares or other changes in the Company's corporate
structure or shares, or any other change of a similar nature.
6. Payment of Awards
As soon as practicable after the close of a Performance
Period, the Committee, with respect to Officers, and the CEO, with respect to
all other Participants, shall review and approve each Participant's Award.
Subject to the provisions of Section 8, each Award to the extent earned shall be
paid in a single lump sum cash payment, as soon as practicable after the close
of the Performance Period, but no later than 120 days after the close of the
Performance Period. The Committee shall certify in writing the amount of each
Officer's Award prior to payment thereof.
If a Change in Control occurs, the Company shall,
within 60 days thereafter, pay to each Participant in the Plan immediately prior
to the Change in Control (regardless of whether the Participant remains employed
after the Change in Control) an Award which is calculated assuming that all
performance percentages are 100 percent, and such Award shall be prorated to the
date of the Change in Control based on the Participant's Base Salary earned to
the date of the Change in Control.
7. Limitations on Rights to Payment of Awards
No Participant shall have any right to receive payment
of an Award under the Plan for a Performance Period unless the Participant
remains in the employ of the Company through the Award payment date, except as
provided in the last paragraph of Section 6. However, if the Participant has
active service with the Company for at least three months during any Performance
Period, a Participant's employment with the Company terminates due to the
Participant's death, Disability or Retirement (or, in the event of the
Participant's death, the Participant's estate, beneficiary or beneficiaries as
determined under Section 8) shall remain eligible to receive a prorated portion
of any earned Award, based on the number of weeks that the Participant was
actively employed and performed services during such Performance Period.
8. Designation of Beneficiary
A Participant may designate a beneficiary or
beneficiaries who, in the event of the Participant's death prior to full payment
of any Award hereunder, shall receive payment of any Award due under the Plan.
Such designation shall be made by the Participant on a form prescribed by the
Committee. The Participant may, at any time, change or revoke such designation.
A beneficiary designation, or revocation of a prior beneficiary designation,
will be effective only if it is made in writing on a form provided by the
Company, signed by the Participant and received by the Company's Human Resources
Department. If the Participant does not designate a beneficiary or the
beneficiary dies prior to receiving any payment of an Award, Awards payable
under the Plan shall be paid to the Participant's estate.
<PAGE>
9. Amendment and Termination
(a) The Committee may at any time, or from time
to time, amend, in whole or in part, the Plan. However, no amendment or
termination of the Plan shall adversely affect any Participant's right to or
interest in an Award earned prior to the date of such amendment, unless the
Participant agrees in writing thereto.
(b) The Committee may terminate the Plan, in
whole or in part; however, each Participant shall receive an amount equal to the
amount of the Award that would have been paid for the Performance Period,
prorated for the number of weeks in the Performance Period prior to the date of
termination of the Plan.
10. Miscellaneous Provisions
(a) This Plan is not a contract between the
Company and the Employees or the Participants. Neither the establishment of this
Plan, nor any action taken hereunder, shall be construed as giving any Employee
or any Participant any right to be retained in the employ of the Company. The
Company is under no obligation to continue the Plan.
(b) A Participant's right and interest under the
Plan may not be assigned or transferred, except as provided in Section 8, and
any attempted assignment or transfer shall be null and void and shall
extinguish, in the Company's sole discretion, the Company's obligation under the
Plan to pay Awards with respect to the Participant.
(c) The Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund, or to make any
other segregation of assets, to assure payment of Awards.
(d) The Company shall have the right to deduct
from Awards paid, any taxes or other amounts required by law to be withheld.
(e) Nothing contained in the Plan shall limit
or affect in any manner or degree the normal and usual powers of management,
exercised by the Officers and the Board of Directors or committees thereof, to
change the duties or the character of employment of any employee of the Company
or to remove the individual from the employment of the Company at any time, all
of which rights and powers are expressly reserved.
(f) The Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of New York,
without giving effect to conflict of law principles thereof.
<PAGE>
11. Definitions
(a) "Award" shall mean the incentive award
earned by a Participant under the Plan for any Performance Period.
(b) "Base Salary" shall mean the Participant's
annual base salary, paid in the performance period. Annual base salary does not
include Awards under the Plan, long-term incentive awards, imputed income from
such programs as executive life insurance or nonrecurring earnings such as
moving expenses and is based on salary before reductions for such items as
contributions under Sections 401(k) or 125 of the Internal Revenue Code of 1986,
as amended, and Company-sponsored deferred compensation arrangements.
(c) "Beneficial Owner", "Beneficially Owned" and
"Beneficially Owning" shall have the meanings applicable under Rule 13d-3
promulgated under the 1934 Act.
(d) "Board" shall mean the Board of Directors
of the Company.
(e) "CEO" shall mean the Chief Executive
Officer of the Company.
(f) "Change in Control" shall mean any of the
following:
(1) 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 (A) 33% or more of the
combined Voting Power of the Corporation's then outstanding Voting Securities
and (B) 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 (1), a Person shall not
be deemed to have made an acquisition of Voting Securities if such Person: (i)
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; (ii) acquires the Voting Securities
directly from the Corporation; (iii) 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;
(iv) 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 (v)
acquires Voting Securities in connection with a "Non-Control Transaction" (as
defined in paragraph (3) below); or
(2) 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 Exchange 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
(3) approval by stockholders of the
Corporation of:
(A) a merger, consolidation or
reorganization involving the Corporation (a "Business Combination"), unless
(i) 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
(ii) 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
(iii) 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 (i),
(ii) and (iii) of this subparagraph (A) shall be referred to as a "Non-Control
Transaction");
(B) a complete liquidation or
dissolution of the Corporation; or
(C) the sale or 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 in 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.
(g) "Committee" shall mean the Compensation
Committee of the Board.
(h) "Company" shall mean General Semiconductor,
Inc., and any Subsidiary which has adopted the Plan.
(i) "Disability" shall mean permanent
disability, as defined in the Company's long-term disability plan.
(j) "Earnings Per Share", for any Performance
Period, shall mean the income per share of the Company's common stock on a
diluted basis, before extraordinary items, effects of changes in accounting
principles and other similar adjustments, as reflected in the Company's final
consolidated financial statements for such Performance Period.
(k) "Effective Date" shall mean January 1, 1999.
(l) "Employee" shall mean any person (including
an officer) employed by the Company or any of its subsidiaries in a management
position on a full-time salaried basis.
(m) "EPS Award Earned," for any Performance
Period, shall mean the percentage based on the achievement of the EPS Target as
determined in accordance with the table set forth in Section 5(a).
(n) "EPS Target," for any Performance Period,
shall mean the Earnings Per Share goal for such Performance Period, as
established by the Committee.
(o) "1934 Act" shall mean the Securities
Exchange Act of 1934, as amended.
(p) "Officer" shall mean the CEO and an
officer of the Company elected by the Board.
(q) "Participant," for any Performance Period,
shall mean an Employee selected to participate in the Plan for such Performance
Period.
(r) "Performance Period" shall mean the fiscal
year of the Company or any other period designated by the Committee with respect
to which an Award is earned.
(s) "Person" shall mean a person within the
meaning of Sections 13(d) and 14(d) of the 1934 Act.
(t) "Personal Performance Percentage," with
respect to Participants (other than Officers) for any Performance Period, shall
mean the percentage based on the achievement of personal performance goals, as
determined in accordance with Section 5(b).
(u) "Plan" shall mean this General
Semiconductor, Inc. 1999 Annual Incentive Plan, as from time to time amended and
in effect.
(v) "Retirement" shall mean retirement at or
after age 65 or early retirement with the prior written approval of the Company.
(w) "Subsidiary" shall mean a corporation as
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, with
the Company being treated as the employer corporation for purposes of this
definition.
(x) "Target Award Percentage" for any
Participant with respect to any Performance Period, shall mean the percentage of
the Participant's Base Salary that the Participant would earn as an Award for
that Performance Period if the EPS Target Award Earned and Personal Performance
Percentage (if applicable) for that Performance Period is 100%, and shall be
determined by the Committee with respect to Officers and the CEO with respect to
all other Participants, based on the Participant's responsibility level or the
position or positions held during the Performance Period.
(y) "Voting Power" shall mean the combined
voting power of the then outstanding Voting Securities.
(z) "Voting Securities" shall mean, with
respect to the Company or any Subsidiary, any securities issued by the Company
or such Subsidiary, respectively, which generally entitle the holder thereof to
vote for the election of directors of the Company or such Subsidiary,
respectively.
Adopted: July 21, 1999
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<NAME> General Semiconductor. Inc.
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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/A for the year ended
December 31, 1998, the Company's 1998 Annual Report to Stockholders, any 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
On January 7, 1997, the Board of Directors of General Instrument
Corporation'("GI") approved a plan to divide GI into three separate public
companies. To effect the transaction, 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 and all rights to the related GI trademarks 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)
then distributed all of the ordinary 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 consummated on July 28,
1997 (the "Distribution Date"). 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. On the Distribution Date,
NextLevel Systems and CommScope began operating as independent entities with
publicly traded common stock. GI retained no ownership interest in either
NextLevel Systems or CommScope. Concurrently with the Distribution, GI changed
its name to General Semiconductor, Inc. and effected a one for four reverse
stock split. On February 2, 1998, NextLevel Systems changed its name to General
Instrument Corporation.
The Distribution Agreement dated as of June 12, 1997, among GI, General
Instrument Corporation, and CommScope (the "Distribution Agreement") and certain
other agreements executed in connection with the Distribution (collectively, the
"Ancillary Agreements") allocate among the Company, General Instrument
Corporation 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 (either because
of the nature of the Distribution or because of events occurring after the
Distribution) under Section 355 of the Internal Revenue Code of 1986, as
amended, then, in general, a corporate tax would be payable by the consolidated
group of which the 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, General Instrument Corporation
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 General Instrument Corporation and CommScope) is severally
liable for such tax liability.
Leverage; Certain Restrictions Under Credit Facilities
The Company is substantially leveraged. 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
Company Credit Agreement, dated as of July 23, 1997 as amended with 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 are 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. The Company is evaluating market conditions and is planning a
subordinated note offering in the range of $200 million which would provide the
Company additional liquidity and financial flexibility. The offering may be
completed in 1999. The Company expects to use the proceeds of any such offering
to repay outstanding indebtedness under the credit facility and the credit
facility will be permanently reduced by 50% of the gross proceeds of the
subordinated note of offering. The issuance of the notes would cause interest
expense to increase.
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 and capacity utilization levels. 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.
<PAGE>
Industry Price Declines
The discrete segment of the semiconductor industry has recently experienced
unusually large price declines and may experience such declines in the future.
During 1998 and the first quarter 1999, average selling prices of the Company's
products weakened at rates beyond those historically experienced due to
continued excess capacity in the industry. The excess capacity resulted from a
combination of factors, including industry expansion in 1996, economic
difficulties in Southeast Asia, the economic slowdown in Japan and difficulties
in the computer and computer peripherals industry. During this period, the
Company's manufacturing facilities were underutilized. The underutilization of
the Company's facilities for an extended period in the future could result in
production inefficiencies and cause a reduction in the Company's operating
margins. In the second quarter of 1999, the rate of price decline decreased.
There can be no assurance that the discrete segment of the semiconductor
industry will not experience future pricing declines which could have a material
adverse effect on the Company's business, results of operations and liquidity.
International Operations
Almost all 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 Company experiences unfavorable movements in foreign
currency rates. In addition, a substantial portion of the annual sales of the
Company's business are outside of the United States.
International sales generally represent 70% of the Company's worldwide sales.
Sales to the Asia Pacific region accounted for approximately 35% of the
Company's worldwide sales for the year ended December 31, 1998. The Company's
order trends and average selling prices weakened significantly in 1998,
reflecting the economic difficulties in Southeast Asia, the economic slowdown in
Japan and the difficulties in the computer and computer peripherals industry. In
the first half of 1999, the Company has benefited from improving economic
conditions in Southeast Asia. The Company's financial performance in the future
may be adversely affected by international economic conditions.
Environment
The Company is subject to various federal, state, local and foreign laws and
regulations governing environmental matters, including 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 responsible for
obligations with respect to environmental matters relating to the Company's
discontinued operations and its status as a "potentially responsible party." The
Company is presently engaged in the remediation of eight discontinued operations
in six states, and is a de minimus "potentially responsible party" at five
hazardous waste sites in four states.
The Company has engaged independent consultants to assist management in
evaluating potential liabilities related to environmental matters. 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. The Company has recorded a reserve for environmental
matters of $31.3 million at June 30, 1999 ($31.6 million at March 31, 1999).
While the ultimate outcome of these matters cannot be determined, management
does not believe that the final disposition of these matters will have a
material adverse affect on the Company's financial position, results of
operations or cash flows beyond the amounts previously provided for in the
financial statements.
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.
Year 2000
The Company recognizes the importance of ensuring that neither its customers nor
its business operations are disrupted as a result of the Year 2000 phenomenon.
This phenomenon is a result of computer programs having been written using two
digits (rather than four) to define the applicable year. Any information
technology ("IT") systems that have time sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000, which could result in
miscalculations and systems failures. The problem also extends to many "non-IT"
systems such as operating and control systems that rely on embedded chip
systems. The Company, with the assistance of outside consulting resources, is
centrally coordinating activities directed toward achieving global Year 2000
compliance. The primary areas of potential impact include business application
systems, production equipment systems, suppliers, financial institutions,
government agencies and environmental support organizations. None of the
Company's products contain date sensitive or date processing logic.
In 1996 the Company began an upgrade of its business applications software which
includes the implementation of the full suite of JD Edwards ("JDE") financial,
distribution and manufacturing applications. The JDE software was selected to
add worldwide functionality and efficiency to the business processes of the
Company as well as address Year 2000 exposure. The JDE financial and
distribution modules have been installed and are Year 2000 compliant. The JDE
manufacturing module will be installed in 2000. The Company has completed the
modification of the existing manufacturing applications with each of its six
factories.
Since the Company's financial, distribution and manufacturing applications are
Year 2000 compliant, incremental costs associated with achieving Year 2000
compliance beyond the scope of this project (estimated at less than $1.0
million) should not have a material effect on the Company's financial condition
or results of operations and are being expensed as incurred.
The Company has surveyed its suppliers, financial institutions, government
agencies and others with which it does business to determine their Year 2000
readiness and coordinate conversion efforts. Approximately 90% of third party
suppliers have responded to the Company's surveys. At the current time,
respondents critical to the operations of the Company have indicated that they
are, or reasonably believe that they will be, Year 2000 compliant. If a material
risk arises, the Company is prepared to perform on-site visits to validate the
accuracy of the information received and will test such systems where
appropriate and possible. Additionally, the Company has established programs to
ensure that future purchases of equipment and software are Year 2000 compliant.
Costs incurred have been insignificant to date.
The Company does not expect Year 2000 issues to have a material adverse effect
on its products, services, competitive position, financial condition or results
of operations. If, however, any of the Company systems are not Year 2000
compliant or if government agencies, the Company's customers, or suppliers fail
to achieve Year 2000 compliance, the Company may experience adverse consequences
including the following: (i) customers may be unable to place orders due either
to the Company's or customers system failures; (ii) the Company may be unable to
maintain adequate production scheduling, inventory cost accounting and other
elements of its business that are dependent upon computer systems; and (iii) the
Company may be unable to deliver its products on a timely basis.
The disclosures contained herein constitute Year 2000 Readiness Statements
pursuant to the Year 2000 Information nt to the Year 2000 Information and
Readiness Disclosure Act, Public Law 105-271.and Readiness Disclosure Act,
Public Law 105-271.
FOR IMMEDIATE RELEASE CONTACT: Pam Jameson
(516) 847-3169
GENERAL SEMICONDUCTOR ANNOUNCES SECOND QUARTER 1999 EARNINGS
MELVILLE, NY (July 21, 1999)-General Semiconductor, Inc. (NYSE:SEM), a leading
manufacturer of discrete semiconductors, today reported net sales for the
quarter ended June 30, 1999 of $101.6 million, compared with $98.8 million
reported for the second quarter of 1998. Operating income in the quarter was
$12.0 million compared with $15.6 million in the comparable quarter of 1998,
while earnings per share were $0.14 versus $0.19 in the year-earlier period.
On a sequential basis, these figures represent improvement from first quarter
1999 net sales of $97.0 million, operating income of $10.8 million and earnings
per share of $0.12.
For the six month period ended June 30, net sales in 1999 were $198.5 million
compared with $205.2 million in 1998. Operating income was $22.8 million versus
$35.2 million in 1998, due to lower average selling prices. The discrete
semiconductor industry has remained extremely price competitive over the past 12
months. Earnings per share in the first half of 1999 were $0.25 compared with
$0.44 in the year earlier period.
During the second quarter of 1999, however, sales, orders and backlog increased
in most major market areas and the rate of price decline has started to show
signs of slowing. On a global basis, average selling prices were down 4%
sequentially while unit sales were up 13%. For the first six months of 1999,
prices were down 15% from the comparable year ago period while unit sales were
up 10%.
On a geographic basis, Asia had the strongest period to period comparisons and
North America has started to improve, but Europe has remained soft. End-use
markets that exhibited particular strength in the quarterly year-over-year
comparison included computer/computer peripheral, lighting, contract
manufacturing and automotive.
In June, General Semiconductor's credit agreement was amended to improve the
Company's financial flexibility and better position the Company to pursue its
business strategy. The amendment will result in additional interest charges
estimated at approximately $0.03 per share per quarter causing earnings for the
full year to fall below the $0.74 per share, before restructuring charges,
earned in 1998. Under the terms of the amendment, the Company is planning to
issue senior subordinated notes in an offering which may be completed in 1999.
The proceeds of the offering are expected to be used to repay existing
borrowings.
"We are particularly pleased with the accomplishments of the Company during the
quarter," stated Ronald A. Ostertag, Chairman and Chief Executive Officer of
General Semiconductor. "With the amendment of our credit agreement and the
support of our bank group, we will be able to further our plans to improve our
cost structure and broaden our product portfolio. Based on the strengthening
fundamentals in the industry and improving economies of Asia Pacific, we are
optimistic about operations for the remainder of 1999 and expect to report
sequential improvement in earnings, despite the additional interest charge," he
added.
General Semiconductor, Inc. is a market leader in the discrete segment of the
semiconductor industry with manufacturing facilities in China, France, Germany,
Ireland, Taiwan and the United States. The Company provides customers with a
broad array of power rectifiers, transient voltage suppressors and small signal
transistors and diodes. It has a diversified customer base, in terms of
geography and end-use markets. Customers include leading manufacturers, located
around the globe, of consumer electronics, lighting, telecommunications
equipment, computers, automotive and automotive aftermarket products.
The information set forth above includes "forward-looking" information and,
accordingly, the cautionary statements contained in Exhibit 99 to the Company's
Form 10-K/A and Form 10-Q filings with the Securities and Exchange Commission
are incorporated herein by reference. General Semiconductor's actual results
could differ materially from the "forward-looking" information in this press
release.
Visit General Semiconductor on the web at www.gensemi.com
