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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 13-3575653
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10 MELVILLE PARK ROAD, MELVILLE, NEW YORK 11747
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (516) 847-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $203.1 million as of February 26, 1999 (based
on the closing price of the Common Stock on the New York Stock Exchange on that
date). For purposes of this computation, shares held by affiliates and by
directors and officers of the registrant have been excluded. Such exclusion of
shares to be held by directors and officers is not intended, nor shall it be
deemed, to be an admission that such persons are affiliates of the registrant.
Number of shares of Common Stock, par value $.01 per share, outstanding as
of February 26, 1999: 36,819,898.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement to be used in conjunction with
the Annual Meeting of Stockholders to be held on May 12, 1999 are incorporated
by reference in Part III.
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PART I
ITEM I. BUSINESS
GENERAL
General Semiconductor, Inc. ("General Semiconductor" or the "Company"), a
Delaware corporation, 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 of
consumer electronics, lighting, telecommunications equipment, computers,
automotive and automotive after-market products located around the globe.
1997 COMPANY REORGANIZATION
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) distributed all of the
outstanding shares of capital stock of each of NextLevel Systems and CommScope
to its stockholders on a pro rata basis as a dividend (the "Distribution") in a
transaction that was finalized on July 28, 1997 (the "Distribution Date"). On
the Distribution Date, NextLevel Systems and CommScope began operating as
independent entities with publicly traded common stock. GI retained no ownership
interest in either NextLevel Systems or CommScope. Concurrent with the
Distribution, GI changed its name to General Semiconductor, Inc. and effected a
one for four reverse stock split (the "Stock Split"). On February 2, 1998
NextLevel Systems changed its name to General Instrument Corporation ("General
Instrument").
PRINCIPAL PRODUCTS
General Semiconductor designs, manufactures and sells a broad array of
discrete semiconductors. These products are used throughout industry to
condition current and voltage, to protect electrical circuits from power surges,
to amplify and switch small electrical signals and to regulate voltage levels in
circuits. Products sold include 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.
Discrete semiconductors, unlike integrated circuits (IC's), are single
function components. Power rectifiers, TVS and small signal products are
essential components of most electronic devices and systems. Unlike most IC's,
the Company's discrete semiconductor products are generally characterized by
long product life cycles. As an example, General Semiconductor has been
manufacturing the SUPERECTIFIER(R) for over 25 years. This long life cycle
allows the Company to spend less on equipment and research and development than
higher technology IC semiconductor manufacturers that produce products with
shorter life cycles.
Rectifiers. Rectifiers convert alternating current (AC) into direct
current (DC) which can be used to power electronic equipment. General
Semiconductor offers the widest selection of rectifier products in the world.
Rectifiers offered by the Company include: bridges, fast efficient rectifiers,
glass passivated rectifiers, plastic rectifiers, Schottky rectifiers and
SUPERECTIFIERS(R).
Bridge rectifiers are essential for any electronic equipment which plugs
into an electrical outlet. A bridge rectifier is comprised of four separate
rectifier components configured into a "bridge" arrangement in a single package.
Bridge assemblies convert alternating current (AC) into full wave direct current
(DC) which can be
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utilized by electronic equipment. General Semiconductor manufactures a complete
line of bridge rectifiers that meet the power and case style requirements of
most electronic equipment.
The SUPERECTIFIER(R) is a highly reliable and cost effective component that
incorporates several of the Company's unique technologies. The SUPERECTIFIER(R)
glass-plastic construction provides improved durability and handling
characteristics which makes this product effective in a broad range of end
markets.
General Semiconductor's Schottky rectifier is designed for use in
high-speed and low-power load applications such as computer and computer related
products. Its metal-silicon junctions and majority carrier conduction result in
nearly zero reverse recovery times and very low forward voltage drop. The
Company's unique sputtered metallization process and ion-implanted guard ring
technology create a highly reliable Schottky product. The Company produces
Schottky rectifiers in axial, power and surface mount packages.
Fast efficient rectifiers are a natural extension of the Company's Schottky
product portfolio. These products offer reverse times as low as 25 nanoseconds
at voltage levels as high as 1,000 volts while maintaining the efficiencies of a
lower forward voltage loss. The Company produces fast efficient rectifiers in
axial, power and surface mount packages. Fast efficient rectifiers, like
Schottky rectifiers, are principally used for computer and computer related
applications.
Transient Voltage Suppressors. TVS devices, like fuses, are designed to
provide protection against all types of transient threats, ranging from
electrostatic discharge ("ESD") to induced lightning. Based on controlled
avalanche technology, these voltage clamping devices absorb large amounts of
energy for short periods of time. The Company offers a broad range of
state-of-the-art TVS devices for use in most modern electronic equipment. In
1998, the Company introduced a line of TVS devices specifically designed for
automotive applications. These include the avalanche alternator rectifier and
the surface mount automotive high energy TVS device.
Small Signal Diodes. Small signal diodes perform various functions such as
signal blocking, routing and switching at lower current levels. Product usage
includes telecommunication equipment, personal computer motherboards, automotive
systems, power supplies and consumer electronics.
Small Signal Transistors. Small signal transistors deliver amplification
and switching functions. These products provide the critical switching and
amplification functions that are essential to any modern electronic system.
Zener Diodes. Zener product lines provide a wide variety of specialized
functions for complex electronic circuits. These devices are used as voltage
regulators, voltage reference and voltage suppressors against ESD threats. Zener
diodes are also used in most modern electronic systems and end markets.
END MARKETS AND CUSTOMERS
The Company has a diversified customer base in terms of both geography and
end-use markets. The Company's products are primarily targeted for use in the
automotive, computer, consumer electronics, telecommunications and lighting
industries. The Company's customers are located throughout the world.
The demand for discrete semiconductors has grown as product performance has
been enhanced and size and cost have decreased. In addition, system users and
designers demand systems with more functionality, higher levels of performance,
greater reliability and shorter design cycles, all in smaller packages and at
lower costs. This demand has resulted in increased semiconductor content as a
percentage of overall system content.
Automotive. General Semiconductor's discrete components are found in
critical systems and creature comfort systems throughout automotive design.
Automotive customers seek highly reliable components. The Company's components
are used in many automotive applications including: air conditioning modules,
catalytic converter heaters, climate control modules, engine cooling systems and
ignition modules.
The automotive industry represented 18% of the Company's 1998 sales. Major
automotive customers include Robert Bosch Corporation, Ford Motor Company,
General Motors Corporation and Siemens AG.
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Computer. All computers and their associated peripherals require
sophisticated, controlled electrical energy. General Semiconductor provides the
power rectifying element required in all computer electronic systems to
transform unmanaged, raw electric power into the controlled energy source modern
digital systems require. The Company's products also protect computer systems
from transient threats, such as ESD and induced lightning.
The computer market represented 24% of the Company's 1998 sales. General
Semiconductor's products are sold to computer and computer component
manufacturers in numerous applications, including: switch mode power supplies,
modem cards, P.C.A. boards, logic boards, laser printers, computer processors
and monitors. Major computer customers include Philips NV, Samsung Electronics
Co. Ltd., Acer Incorporated and LG International Corp.
Consumer electronics. General Semiconductor's products are found in a
broad range of consumer products, including: refrigerators, garage door openers,
hair dryers, washers and dryers, microwaves and more. The consumer end market
represented 13% of the Company's 1998 sales. Sony Corporation, Philips NV, LG
International Corp., and Daewoo Corporation represent a few of the Company's
customers in the consumer market.
Telecommunications. General Semiconductor's products perform various
functions for the telecommunications market. Applications using the Company's
products include cordless phones, pagers, cellular base stations, ISDN boards,
satellite dishes and more. This end-market represented 6% of General
Semiconductor's 1998 sales. Major telecommunications customers include Siemens
AG, Lucent Technologies, Nokia Electronics and Nortel Networks.
Lighting. Electronic ballast systems have been replacing older and less
efficient magnetic ballast systems and incandescent bulbs. This, in part, has
increased the demand for the Company's products which are used in electronic
ballasts. Lighting represented 4% of the Company's 1998 sales. Major customers
in this end market include Philips NV, MagneTek Inc., Siemens AG and Motorola,
Inc.
Distributors. Distributors meet the needs of customers with lower volume
requirements. Distributors serve all the Company's end-use markets described
above in all regions. Sales to distributors represented 30% of the Company's
1998 sales. Major distributors include Future Electronics, Inc., Arrow
Electronics Inc., Rutronik Elektron and Taitron Components Inc.
BUSINESS STRATEGY
As a leading manufacturer of discrete semiconductors, the Company's
strategy is to increase its market share in the $12 billion discrete
semiconductor market. This strategy is based on the following:
- Focus on Value-Added Investment and Manufacturing. General Semiconductor
intends to continue to focus on value-added investments in capital, sales
and marketing and research and development. The Company's value-added
manufacturing strategy is based on its high-volume, highly automated
operations, which is currently capable of producing approximately 45
million units per day and gives the Company the competitive advantage of
being a low cost producer. This strategy is characterized by high-quality
and very low-defect output.
- Product Breadth Expansion. General Semiconductor believes that a key
driver in its growth will be new product introduction and expansion in
the breadth of its product portfolio. The Company expects to realize this
growth by internal research and development efforts, strategic
partnerships and strategic acquisitions. The acquisition of ITT
Industries, Inc.'s discrete semiconductor business in October 1997
expanded the Company's product offerings by adding zener diodes, signal
diodes and small signal transistors to the General Semiconductor
portfolio.
- Capitalize on Global Sales and Distribution Capabilities. General
Semiconductor will continue to capitalize on its international presence.
International sales represented approximately 70% of the Company's 1998
sales. The Company currently maintains 10 sales offices worldwide and
utilizes a worldwide sales force of over 1,000 persons, including sales
agents, distributors and representatives.
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Additionally, the Company has approximately 60 direct sales and technical
personnel with over ten years average sales experience in the industry.
General Semiconductor intends to continue its strategy of utilizing
direct and indirect sales forces on a global scale.
- Maintain and Expand Strong Customer Relationships. The Company's
products occupy a segment of the semiconductor industry characterized by
long product life cycles, relatively low research and development
investments and utilization of proven wafer fabrication technology.
General Semiconductor maintains ongoing relationships with major
computer, telecommunications, automotive and consumer electronics
companies worldwide. The Company intends to continue to build upon these
strong relationships to grow with its customers and to increase its
market share.
Management of General Semiconductor believes that future demand for
discrete semiconductors will be driven over time by several factors including
(i) increased electronic content in a broad range of products, devices and
systems, including automotive, consumer products and industrial equipment; (ii)
greater demand for voice and data communications products; (iii) growth in
personal computers and peripheral products; (iv) the rapid replacement of
heavier and less efficient magnetic lighting ballasts with electronic ballasts;
and (v) increasing demand in new international markets. There can be no
assurance, however, that increased competition, excess industry capacity or
technical developments will not adversely affect the Company's revenue and
profitability by causing it to reduce prices or by reducing demand for the
Company's products.
SALES AND DISTRIBUTION
General Semiconductor products are sold primarily to the automotive,
computer, consumer electronics, telecommunications, and lighting industries via
a direct sales force, through distributors and sales representatives. In each of
the years ended December 31, 1998, 1997 and 1996, sales to customers in North
America, Europe and Southeast Asia each represented approximately 30% of the
Company's net sales. Sales to customers in Japan represented the majority of the
balance. General Semiconductor's customer base incorporates a wide array of the
world's largest manufacturers. No single customer accounted for more than 10% of
the Company's sales during the years ended December 31, 1998, 1997 and 1996.
To support its worldwide sales and distribution, General Semiconductor
utilizes more than 1,000 sales personnel worldwide, including sales
representatives, distributors and approximately 60 direct sales and technical
personnel. The Company maintains 10 sales offices located in Melville, New York;
Carlsbad, California; Arlington Heights, Illinois; Norcross, Georgia; Hong Kong;
Munich, Germany; Tokyo and Osaka, Japan; Taipei, Taiwan; and Singapore.
Additionally, the Company leverages information technology to develop and
maintain strong customer relationships. Examples such as electronic data
interchange ("EDI") are used by many of its major customers to facilitate the
order through delivery process. In addition to EDI, the Company intends to
expand upon the scope of services provided via Internet, Extranets and other
electronic means to provide broader services to the marketplace. These services
will provide, among others, improved technical support, on-line order access,
and e-commerce. The use of improved information technology, combined with strong
technical marketing and broad sales channels has helped the Company obtain new
product approvals and market share gains at major customers.
RESEARCH AND DEVELOPMENT
General Semiconductor conducts an internally funded research and
development program and employs approximately 70 full-time research and
development personnel. The Company operates research and development labs in
Ireland and Taiwan that focus primarily on the development of new packaging
technology and a third research and development lab in Westbury, New York which
focuses on applied material sciences. In addition to its in-house research and
development efforts, the Company funds dedicated research through a grant
program with the National Microelectronics Research Center at the University
College, Cork in Ireland.
Research and development expenditures totaled $6.1 million, $6.0 million
and $5.8 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Research and development expenditures reflect
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continued development and the advancement of new product and packaging
technologies targeted for the automotive, telecommunications and computer
end-market applications.
In 1998 the Company introduced the surface mount high energy automotive TVS
device, the fast recovery mini-bridge and the high voltage TVS products. The new
surface mount automotive high energy TVS device is designed to protect
automotive electronic systems from high energy surges. These products use
General Semiconductor's patented PAR(TM) construction that insures superior high
temperature operation, which is critical for automotive applications. The
fast-recovery mini-bridge is a low-current surface mount bridge rectifier with
fast switching characteristics. This device saves space on printed circuit
boards when compared to standard bridges. The fast recovery time of this device
reduces energy losses for fast switching power supply applications. The Company
has extended the voltage range of its TRANSZORB(TM) TVS devices up to 550 volts,
which is the highest avalanche voltage offered in the market today. These are
offered in both axial and surface-mount packages. Applications for these higher
voltage TVS devices include lighting ballast.
PATENTS
The Company pursues an active policy of seeking patents for new products
and designs. As of December 31, 1998, the Company held 58 U.S. patents. Although
management believes that the Company's patents provide a competitive advantage,
no single patent is material to its business and General Semiconductor intends
to continue to rely on its proprietary knowledge and continuing technological
innovation to develop and maintain its competitive position.
BACKLOG
At December 31, 1998, the Company had an order backlog of approximately
$121.8 million compared with $168.1 million as of December 31, 1997. Order
backlog includes only orders for products scheduled to be shipped within six
months. Orders may be revised or canceled, either pursuant to their terms or as
a result of negotiations; consequently, it is impossible to predict accurately
the amount of backlog orders that will result in sales. While 1998 order levels
have been depressed industry wide due to the global economic conditions, order
backlog has also declined during 1998 in part due to shortened customer lead
times. The Company's backlog may not necessarily be indicative of sales for any
succeeding period.
COMPETITION
The discrete semiconductor industry is highly competitive. General
Semiconductor competes with companies worldwide, some of which have greater
financial, marketing and management resources than the Company. Management
believes, however, that the Company competes favorably on the basis of its
continued commitment to global distribution and customer service, value-added
manufacturing, technological leadership and new product innovation. There can be
no assurance, however, that the Company will have sufficient resources to
continue to make such investments or that the Company will be successful in
maintaining such advantages. The Company believes that its principal competitors
include Motorola, Inc., Philips Electronics N.V., ST Microelectronics N.V., and
a number of Taiwanese and Japanese manufacturers.
EMPLOYEES
As of December 31, 1998, General Semiconductor employed approximately 5,000
people worldwide. Management believes that the Company's relations with both its
union and non-union employees are satisfactory.
RAW MATERIALS
Silicon ingots, molding compound and lead frames typically account for
approximately two-thirds of General Semiconductor's raw material expense.
Management believes that the Company's relations with its suppliers are good and
does not anticipate any supply shortages in the near term.
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Due to the general availability of components and supplies, the Company
does not believe that the loss of any supplier would have a long-term material
adverse effect on its business although set-up costs and delays could occur if
the Company changes suppliers. In the past, delays in delivery of components
have not had a material adverse effect on shipments of the Company's products.
ENVIRONMENT
General Semiconductor is committed to operate worldwide in a manner which
respects and protects the environment. The Company uses hazardous substances and
generates solid and hazardous waste in the ordinary course of its business.
Consequently, 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. Because of the nature of its
business, the Company incurs costs relating to compliance with such
environmental laws. Although General Semiconductor's management believes that
the Company is in substantial compliance with such environmental requirements
there can be no assurance that General Semiconductor's cost to comply with such
requirements will not increase in the future. Although General Semiconductor is
unable to predict what legislation or regulations may be adopted in the future
with respect to environmental protection and waste disposal, compliance with
existing legislation and regulations has not had a material adverse effect on
the Company and is not expected to have a material adverse effect on the
Company's financial position, results of operations or cash flows.
In connection with the Distribution, General Semiconductor retained the
obligations with respect to environmental matters relating to the Company's
discontinued operations and its status as a "potentially responsible party" with
respect to the offsite disposal of wastes. 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. Based on several factors including capital expenditures and expenses for
the Company's remediation programs, and the proportionate share of the cost of
the necessary investigation and eventual remedial work that may be needed to be
performed at the sites for which the Company has been named as a "potentially
responsible party," these matters are not expected to have a material adverse
effect on the financial position, results of operations or cash flows of General
Semiconductor. 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. Reference
is made to Note 10 to the consolidated financial statements and the cautionary
statements contained in Exhibit 99 to this Form 10-K for further information
regarding environmental matters.
INTERNATIONAL OPERATIONS
A significant portion of the Company's products are manufactured or
assembled in Taiwan (Republic of China), the People's Republic of China,
Ireland, Germany and France. These foreign operations are subject to the usual
risks inherent in operating overseas, including risks with respect to
fluctuations in 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 its
competitors could be adversely affected if the New Taiwan dollar appreciates
relative to the U.S. dollar or if the Company experiences other unfavorable
movements in foreign currency rates.
International sales generally represent 70% of the Company's worldwide
sales. Sales to the entire Asia/ Pacific region accounted for approximately 35%
of the Company's worldwide sales for the year ended December 31, 1998. During
1998 order trends and average selling prices weakened significantly reflecting
the current economic and currency difficulties in Southeast Asia, the economic
slowdown in Japan and the difficulties in the computer and computer peripherals
industries. However, approximately 50% of the Company's production is currently
in Taiwan, the cost of which has benefited from the weakened New Taiwan Dollar
in relation to the U.S. dollar. Extended underutilization of the Company's
manufacturing facilities,
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resulting in production inefficiency, could result in margin deterioration.
There can be no assurance as to the extent or duration of the impact of these
events on the Company.
For detailed financial information concerning foreign and domestic
operations and export sales, reference is made to Note 15 to the consolidated
financial statements included in Part II of this Form 10-K.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to the executive
officers of the Company as of December 31, 1998.
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NAME AND TITLE AGE BUSINESS EXPERIENCE
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Ronald A. Ostertag.................. 58 Ronald A. Ostertag has been Chairman, President
Chairman, President and and Chief Executive Officer of General
Chief Executive Officer Semiconductor since the Distribution.
Previously, he held the position of Vice
President of GI since February 1989 and
President of GI's Power Semiconductor Division
since September 1990.
Andrew M. Caggia.................... 50 Andrew M. Caggia has been Senior Vice President
Senior Vice President and and Chief Financial Officer of General
Chief Financial Officer Semiconductor since the Distribution.
Previously, he held the position of Senior Vice
President of Finance at GI's Power Semiconductor
Division since September 1990.
Robert J. Gange..................... 43 Robert J. Gange has been Vice President and
Vice President and Controller of General Semiconductor since the
Controller Distribution and Vice President and Controller
of GI's Power Semiconductor Division since May
1997. From 1995 to 1997, he was Director of
Finance and from 1993 to 1995, Assistant
Controller of GI's Power Semiconductor Division.
Vincent M. Guercio.................. 45 Vincent M. Guercio has been Senior Vice
Senior Vice President, e-commerce President, e-commerce of General Semiconductor
since November 1998. From the Distribution to
November 1998 he was Senior Vice President,
Worldwide Sales and Marketing. Previously, he
had been responsible for this function at GI's
Power Semiconductor Division since January 1992.
W. John Nelson...................... 44 W. John Nelson has been President, Asia/Pacific
President, Operations of General Semiconductor since
Asia/Pacific Operations November 1998. From the Distribution to November
1998 he was Senior Vice President, Asia/Pacific
Operations. Previously, he had been responsible
for this function at GI's Power Semiconductor
Division since March 1994. From 1991 to 1994, he
was President of GI Taiwan.
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NAME AND TITLE AGE BUSINESS EXPERIENCE
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Stephen B. Paige.................... 51 Stephen B. Paige has been Senior Vice President,
Senior Vice President, General General Counsel and Secretary of General
Counsel and Secretary Semiconductor since the Distribution.
Previously, he was Senior Vice President and
General Counsel for GI's Power Semiconductor
Division since May 1997. From April 1995 to May
1997, he was Vice President and General Counsel
of Monsanto Business Services, Chicago Region.
From January 1992 to April 1995, he was Vice
President, General Counsel and Secretary of The
NutraSweet Company, a wholly-owned subsidiary of
Monsanto Company.
Linda S. Perry...................... 48 Linda S. Perry has been Senior Vice President,
Senior Vice President, Human Resources of General Semiconductor since
Human Resources September 1997 and its Vice President, Human
Resources since the Distribution. Previously,
she held the position of Vice President, Human
Resources at GI's Power Semiconductor Division
and has had responsibility for this function
since 1988.
John P. Phillips.................... 53 John P. Phillips has been President, Europe and
President, Europe and North America Operations of General
North America Operations Semiconductor since November 1998. From the
Distribution to November 1998 he was Senior Vice
President, European Operations. Previously, he
was Senior Vice President of Worldwide
Technology for GI's Power Semiconductor Division
and had responsibility for this function since
March 1992.
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ITEM 2. PROPERTIES
The Company's administrative, production and research and development
facilities are located in Melville and Westbury, New York; Taipei, Taiwan;
Macroom, Ireland; Tianjin, China; Freiburg, Germany; and Colmar, France.
The Melville, New York facility occupies approximately 52,000 square feet
pursuant to a lease expiring in 2004 and is General Semiconductor's worldwide
headquarters. The Company has two additional five year options to renew the
lease.
The Westbury, New York facility occupies approximately 18,000 square feet
pursuant to leases expiring in 2005 with an option to extend the leases for an
additional five years. The Westbury facility is the location of the Company's
epitaxial silicon wafer manufacturing operations and its applied material
sciences research and development laboratory.
The Taipei, Taiwan land and facility is owned and occupies approximately
350,000 square feet. At the Taiwan facility, the Company manufactures standard,
Schottky and fast efficient rectifiers and TVS devices. The Company also
maintains a research and development laboratory at its Taiwan facility.
The Company owns approximately 120,000 square feet of manufacturing space
in Macroom, Ireland. The Company manufactures standard rectifiers, fast
efficient rectifiers, TVS devices and bridge assemblies and maintains a research
and development laboratory at the Ireland facility.
The Company owns an approximately 120,000 square foot manufacturing
facility in Tianjin, China. The China facility is located on land that is leased
by the Company pursuant to a ground lease expiring in 2045. The Company
manufactures rectifiers and bridges at this facility which opened in the third
quarter of 1997.
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The Freiburg, Germany facility occupies approximately 55,000 square feet
pursuant to a lease expiring in 2000 and is the location of the Company's small
signal product, die and wafer manufacturing operations. The Company has the
right to continue the lease until October 2007.
The Colmar, France facility performs the assembly function for the
Company's small signal products product line. This highly automated 63,000
square foot plant is situated on approximately six acres of land owned by the
Company.
Utilization of the Company's facilities vary with economic and other
business conditions. At the present time, the Company has excess capacity for
certain of its products. Management believes that the Company's facilities and
equipment generally are well maintained, in good operating condition and
adequate for its present and anticipated near term operating needs.
ITEM 3. LEGAL PROCEEDINGS
A securities class action is presently pending in the United States
District Court for the Northern District of Illinois, Eastern Division, In Re
General Instrument Corporation Securities Litigation. This action, which
consolidates numerous class action complaints filed in various courts between
October 10 and October 27, 1995, is brought by plaintiffs, on their own behalf
and as representatives of a class of purchasers of GI common stock during the
period March 21, 1995 through October 18, 1995. The complaint alleges that prior
to the Distribution, 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.
General Semiconductor is not a party to any pending legal proceedings other
than various claims and lawsuits arising in the normal course of business and
those for which they are indemnified. Management is of the opinion that such
litigation or claims will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
9
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to the Distribution on July 28, 1997, GI's Common Stock was traded on
the New York Stock Exchange under the symbol GIC. The information set forth
below relating to the period preceding the Distribution represents market data
of GI and has not been adjusted to reflect the Distribution or the one for four
reverse stock split effected in connection with the Distribution. Since the
Distribution, the Company's Common Stock has been traded on the New York Stock
Exchange under the symbol SEM. The following table sets forth the high and low
sale prices as reported by the New York Stock Exchange for each of the years
ended December 31, 1997 and 1998.
<TABLE>
<CAPTION>
"GIC":
----------------------
HIGH LOW
--------- ---------
<S> <C> <C>
YEAR ENDING DECEMBER 31, 1997
First Quarter............................................... $25 5/8 $21 1/2
Second Quarter.............................................. 28 3/8 21 1/4
Third Quarter (through July 25th)........................... 28 7/16 25 7/16
"SEM":
----------------------
HIGH LOW
--------- ---------
YEAR ENDING DECEMBER 31, 1997
July 28th through September 30th............................ $17 1/2 $12 3/8
Fourth Quarter.............................................. 13 9 7/8
HIGH LOW
--------- ---------
YEAR ENDING DECEMBER 31, 1998
First Quarter............................................... $14 3/4 $10 5/8
Second Quarter.............................................. 14 3/4 9 7/8
Third Quarter............................................... 10 1/8 6
Fourth Quarter.............................................. 10 11/16 5 15/16
</TABLE>
As of February 26, 1999, there were 466 holders of record of the Company's
Common Stock.
The Company does not currently intend to pay dividends in the foreseeable
future, but to reinvest earnings in the Company's business. The Company's
ability to pay cash dividends on its Common Stock is limited by certain
covenants contained in a credit agreement to which the Company is a party. See
Note 9 to the Consolidated Financial Statements included in Part II of this Form
10-K.
10
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical financial data of General
Semiconductor at the dates and for each of the periods indicated. The financial
data as of December 31, 1998 and 1997 and for each of the three years in the
period ended December 31, 1998 has been derived from the audited General
Semiconductor consolidated financial statements included elsewhere herein. The
financial data as of December 31, 1996, 1995 and 1994 and for the two years
ended December 31, 1995 has been derived from the previously audited
consolidated financial statements not included herein, as adjusted to give
effect to the Distribution. The selected financial data should be read in
conjunction with the Company's consolidated financial statements and notes
thereto included elsewhere herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations". Historical consolidated
financial data may not be indicative of General Semiconductor's future
performance.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997(a) 1996 1995 1994
-------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales........................... $401,144 $380,038 $ 361,891 $ 414,269 $ 315,688
Cost of sales....................... 283,582 289,313 230,687 254,991 208,452
Selling, general and
administrative.................... 46,802 44,668 42,594 51,225 45,253
Research and development............ 6,104 5,998 5,838 5,068 3,454
Restructuring....................... 12,324 -- -- -- --
Operating income.................... 47,187 34,916 77,618 97,776 53,140
Interest expense -- net............. (20,026) (14,353) (10,396) (9,461) (13,132)
Income from continuing
operations(b)..................... 18,534 8,872 39,764 57,316 19,541
Net income (loss)................... 18,534 5,933 (1,864) 123,782 246,535
BASIC EARNINGS (LOSS) PER SHARE:
Income from continuing operations... $ 0.50 $ 0.25 $ 1.20 $ 1.86 $ 0.65
Net income (loss)................... 0.50 0.17 (0.06) 4.01 8.15
DILUTED EARNINGS PER SHARE:
Income from continuing operations... $ 0.50 $ 0.25 $ 1.15 $ 1.68 $ 0.65
Net income.......................... 0.50 0.17 0.27 3.86 7.54
CONSOLIDATED BALANCE SHEET DATA:
Accounts receivable................. $ 59,643 $ 54,077 $ 49,629 $ 58,819 $ 49,837
Inventories......................... 39,514 34,309 31,551 23,524 19,510
Property, plant and equipment....... 223,743 218,752 202,281 156,714 135,120
Net assets of discontinued
operations........................ -- -- 1,444,734 1,265,345 1,107,063
Total assets........................ 563,447 550,305 2,057,162 1,799,387 1,633,122
Long-term debt, including current
maturities........................ 286,000 268,074 692,335 732,079 796,849
</TABLE>
- ---------------
(a) Includes charges of $33.8 million ($25.3 million net of tax), or $0.69 per
share, primarily related to the separation of GI's Taiwan operations. These
costs include $32.7 million charged to cost of sales and $1.1 million
charged to selling, general and administrative expense.
(b) Income from continuing operations excludes the impact of the cumulative
effect of a change in accounting principle of $1.9 million for 1994, as it
was not practicable to allocate such amounts between continuing and
discontinued operations. This amount is included in net income.
11
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1998 COMPANY RESTRUCTURING
On November 6, 1998, the Company announced a restructuring plan designed to
enhance the interface of operations and customers, to improve its cost
structure, efficiency and its competitive position and to accelerate growth. The
restructuring included reducing the workforce by decentralizing certain
purchasing, marketing, finance and research and development functions and
providing early retirement to a group of employees, closing two sales offices
and writing off assets related to an unprofitable product that will no longer be
manufactured. Restructuring charges recorded in the fourth quarter included
approximately $8.4 million in charges primarily related to severance and early
retirement costs and $3.9 million in non-cash charges for asset write-offs.
1997 COMPANY REORGANIZATION
On January 7, 1997 the Board of Directors of GI approved a plan to divide
GI into three separate public companies in a transaction that was finalized on
July 28, 1997. Concurrent with the Distribution, GI changed its name to General
Semiconductor, Inc. and effected a one for four reverse stock split. Following
the Distribution, General Semiconductor began operations as a stand-alone
publicly held company. The revenues, costs and expenses and cash flows of the
businesses transferred to the General Instrument and CommScope segments (the
"Discontinued Operations"), have been excluded from the respective captions in
the Consolidated Statements of Operations and Consolidated Statements of Cash
Flows and have been reported through the Distribution Date as: "Income (Loss)
from discontinued operations", net of applicable income taxes and as "Cash (used
in) provided by discontinued operations" for all periods presented in the
Company's consolidated financial statements included elsewhere herein. Unless
otherwise noted, the following Management's Discussion and Analysis pertains to
the continuing operations of General Semiconductor.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 WITH
THE YEAR ENDED DECEMBER 31, 1997
NET SALES
Net sales for the year ended December 31, 1998 of $401.1 million increased
$21.1 million from $380.0 million for the year ended December 31, 1997. The 5.6%
increase reflects a 7% increase in unit volume as well as the inclusion of small
signal product sales (business acquired on October 1, 1997), partially offset by
an approximate 10% decline in worldwide average selling prices. International
sales, including export sales from the U.S., represented approximately 70% of
net sales in each of the years ended December 31, 1998 and 1997.
COST OF SALES
Cost of sales for the year ended December 31, 1998 of $283.6 million
decreased 2% from $289.3 million for 1997. Excluding 1997 pre-tax charges of
$32.7 million primarily related to the separation of the Taiwan operations of
GI, cost of sales increased $27.0 million or 10.5% principally due to increased
costs related to higher operating levels and the full year effect of the small
signal products acquisition offset, in part, by improved factory performance and
cost reduction. Cost of sales, as a percentage of net sales, was 70.7% for 1998
compared to 67.5% for 1997, excluding the 1997 pre-tax charges discussed above.
This increase primarily results from the decline in average selling prices
discussed above.
Accordingly, gross margin for the year ended December 31, 1998 represents
29.3% of net sales compared with 32.5% for the comparable prior year period,
excluding the 1997 pre-tax charges discussed above. This decrease reflects the
margin percentage reduction that was expected due to the full year effect of the
small signal products acquisition and erosion of average selling prices,
partially offset by improved factory performance. Without the small signal
products acquisition, the year over year decrease in gross margin would have
been less than one percentage point.
12
<PAGE> 14
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense increased to $46.8 million for
the year ended December 31, 1998 compared to $44.7 million in 1997 and
represented 11.7% and 11.8% of sales, respectively. The $2.1 million increase
includes higher selling costs to support increased sales. No other expense
increase is individually significant.
RESEARCH AND DEVELOPMENT
Research and development expense for the year ended December 31, 1998 was
$6.1 million compared to $6.0 million in 1997 and represented 1.6% of sales in
each period. Research and development expenditures reflect the continued
development of new products and modifications of existing products and
manufacturing technologies to achieve cost reductions.
NET INTEREST EXPENSE
Net interest expense increased $5.6 million, to $20.0 million for the year
ended December 31, 1998 from $14.4 million in 1997. Net interest expense in 1997
represents an allocation based upon General Semiconductor's net assets as a
percentage of total assets of GI through the Distribution Date and actual
interest expense thereafter. Pro forma net interest expense, assuming a net debt
level of $275.0 million through the Distribution Date and amortization of debt
issuance costs associated with the new borrowings, would have been $19.6 million
for the year ended December 31, 1997.
INCOME TAXES
The Company's effective income tax rate was 31.6% for 1998 compared with
56.8% for 1997 (37.0% excluding the tax effects, at the applicable rates, of the
costs incurred to separate the GI Taiwan operations). The decrease from the
37.0% described above, relates primarily to increased income of foreign
subsidiaries taxed at rates lower than U.S. rates.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 WITH
THE YEAR ENDED DECEMBER 31, 1996
NET SALES
Net sales for the year ended December 31, 1997 of $380.0 million increased
$18.1 million from $361.9 million for the year ended December 31, 1996. The 5%
increase reflects increased unit volume as well as the inclusion of small signal
product sales resulting from the Company's October 1, 1997 acquisition,
partially offset by an approximate 15% decline in average selling prices.
Foreign exchange rate changes negatively affected sales by approximately 3%.
Orders increased almost 77% in 1997; 1996 orders were depressed due to industry
wide excess capacity. International sales, including export sales from the U.S.,
represented approximately 70% of net sales in each of the years ended December
31, 1997 and 1996.
COST OF SALES
Cost of sales for the year ended December 31, 1997 of $289.3 million
increased 25.4% from $230.7 million for 1996. Excluding pre-tax charges of $32.7
million primarily related to the separation of the Taiwan operations of GI, cost
of sales increased $25.9 million or 11.2% principally due to increased costs
related to higher operating levels offset, in part, by improved factory
performance. Cost of sales, as a percentage of net sales, was 76.1% for 1997
(67.5% excluding the pre-tax charges discussed above) compared to 63.7% for
1996. This increase primarily results from the decline in average selling prices
discussed above.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense increased to $44.7 million for
the year ended December 31, 1997 compared to $42.6 million in 1996 and
represented 11.8% of sales in each period. The increase primarily relates to
higher selling costs and compensation expense associated with increased sales.
13
<PAGE> 15
RESEARCH AND DEVELOPMENT
Research and development expense for the year ended December 31, 1997 was
$6.0 million compared to $5.8 million in 1996 and represented 1.6% of sales in
each period. Research and development expenditures reflect the continued
development of new products and modifications of existing products and
manufacturing technologies to achieve cost reductions.
NET INTEREST EXPENSE
Net interest expense increased $4.0 million, to $14.4 million for the year
ended December 31, 1997 from $10.4 million in 1996. Net interest expense
represents an allocation based upon General Semiconductor's net assets as a
percentage of total assets of GI for 1996 and through the Distribution Date for
1997. Pro forma net interest expense, assuming a net debt level of $275.0
million through the Distribution Date and amortization of debt issuance costs
associated with the new borrowings, would have been $19.6 million for the years
ended December 31, 1997 and 1996.
INCOME TAXES
The Company's effective income tax rate was 56.8% for 1997 (37.0% excluding
the tax effects, at the applicable rates, of the costs incurred to separate the
GI Taiwan operations) compared with 40.8% for 1996. The decrease in the
effective rate, excluding the tax effects of the costs described above, relates
primarily to increased income of foreign subsidiaries taxed at rates lower than
U.S. rates.
DISCONTINUED OPERATIONS
The net operating results of the businesses transferred to General
Instrument and CommScope have been reported, net of applicable income taxes, as
"Income (Loss) from discontinued operations".
Discontinued operations includes $52.9 million and $2.7 million, net of
applicable income taxes, for the years ended December 31, 1997 and December 31,
1996, respectively, for costs incurred primarily related to the separation of
the Taiwan operations of GI between General Semiconductor and General
Instrument, and for professional fees and certain other administrative and
financing costs incurred directly related to the Distribution.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, working capital was $51.7 million, compared to $16.7
million at December 31, 1997. The working capital increase of $35.0 million
resulted primarily from the payment during the first half of 1998 of the $25.2
million remaining liability at December 31, 1997 related to the Distribution, an
increase in accounts receivable associated with increased days outstanding,
increased inventories, repayment of the Taiwan loan discussed below and a
reduction in income taxes payable. As of December 31, 1998 approximately $7.8
million remains accrued for costs related to the 1998 restructuring. Such
amounts are expected to be substantially paid by June 30, 1999. As a result the
current ratio increased to 1.7 to 1 at December 31, 1998 from 1.2 to 1 at
December 31, 1997.
During the year ended December 31, 1998, the Company invested $26.9 million
in property, plant and equipment principally directed to strategic initiatives
and automation compared with $29.2 million and $60.3 million in 1997 and 1996,
respectively. The higher level of capital spending incurred during 1996 was
primarily attributable to equipment for capacity expansion to meet expected
future demand and the construction of the manufacturing facility in Tianjin,
China. While the Company does not have any material commitments for capital
expenditures it does expect to invest approximately $30.0 million in 1999
principally directed at strategic initiatives and automation.
At December 31, 1998, long-term debt was $286.0 million, compared to $263.8
million at December 31, 1997. At December 31, 1997 the Company had a $60 million
loan agreement with a consortium of banks in Taiwan. On February 26, 1998, the
Company consolidated its debt and repaid the entire Taiwan loan balance
14
<PAGE> 16
of $46.1 million with proceeds from borrowings under its $350.0 million credit
facility which matures on December 31, 2002.
In July 1997, the Company entered into a bank credit agreement, which was
amended in December 1998, (as amended the "Credit Agreement") which provides for
a $350.0 million secured revolving credit facility that matures on December 31,
2002. The Credit Agreement requires the Company to pay a facility fee on the
total commitment. The Credit Agreement permits the Company to choose between two
interest rate options: the Adjusted Base Rate (as defined in the Credit
Agreement), or a Eurodollar rate (LIBOR) plus a margin which varies based on the
Company's ratio of indebtedness to earnings before interest, taxes, depreciation
and amortization as defined in the Credit Agreement. The facility fee also
varies based on that ratio. The Company is also able to set interest rates
through a competitive bid procedure. The Credit Agreement contains financial and
operating covenants, including limitations on guarantee obligations, liens, sale
of assets, indebtedness, investments, capital expenditures, payment of dividends
and leases, and requires the maintenance of certain financial ratios. In
addition, certain changes in control of the Company would cause an event of
default under the Credit Agreement. The December 1998 amendment amended certain
covenant compliance calculations to provide the Company with greater flexibility
to execute the restructuring announced on November 6, 1998. At December 31,
1998, the Company was in compliance with all such amended covenants.
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 the existing credit facility. The Company intends to repay its remaining
indebtedness primarily with cash flow from operations. There can be no
assurance, however, that future industry-specific developments or general
economic trends will not adversely affect the Company's operations or its
ability to meet its cash requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GENERAL
The following discussion and the estimated amounts generated from the
sensitivity analyses referred to below include forward-looking statements of
market risk which assume for analytical purposes that certain adverse market
conditions may occur. Actual future market conditions may differ materially from
such assumptions because the amounts noted below are the result of analyses used
for the purpose of assessing possible risks and the mitigation thereof.
Accordingly, the forward-looking statements should not be considered projections
by General Semiconductor of future events or losses.
The Company's cash flows and earnings are subject to fluctuations resulting
from changes in foreign currency exchange rates and interest rates. The Company
manages its exposure to these market risks through internally established
policies and procedures and, when deemed appropriate, through the use of
derivative financial instruments. The Company's policy does not allow
speculation in derivative instruments for profit or execution of derivative
instrument contracts for which there are no underlying exposures. The Company
does not use financial instruments for trading purposes and is not a party to
any leveraged derivatives. The Company monitors its underlying market risk
exposures on an ongoing basis and believes that it can modify or adapt its
hedging strategies as needed.
The Company measured its market risk, related to its holdings of financial
instruments based on changes in interest and foreign exchange rates, utilizing a
sensitivity analysis. The sensitivity analysis measures the potential loss in
fair values, cash flows or earnings based on a hypothetical 10% change in
interest and foreign exchange rates. The Company used current market rates on
its market risk sensitive assets and liabilities to perform the sensitivity
analysis. Certain items such as obligations for pension and post retirement
benefits were not included in the analysis.
The Company is exposed to credit risk in the event of non-performance by
the counterparties to its foreign exchange-forward contracts. The Company
believes that the various counterparties with which the Company enters into
these agreements consist of only financially sound institutions and,
accordingly, believes that the credit risk for non-performance of these
contracts is not significant.
15
<PAGE> 17
Additional information regarding the Company's financial instruments is
contained in Notes 9 and 14 to the Consolidated Financial Statements included in
Part II of this Form 10-K.
FOREIGN CURRENCY RISK
Almost all of General Semiconductor's products are manufactured in
Southeast Asia and Europe and a significant portion are sold internationally.
Therefore, the Company is subject to market risk related to changes in foreign
exchange rates. On a selective basis, the Company enters into forward and
purchased option contracts designed to hedge the currency exposure of
contractual and other firm commitments denominated in foreign currencies and the
currency exposure of anticipated but not yet committed transactions expected to
be denominated in foreign currencies.
The Company's principal foreign currency exposures are in the New Taiwan
Dollar, the Japanese Yen and in the major European currencies (Irish Punt,
German Mark, French Franc and the British Pound). The Company's committed
exposures relate primarily to trade payables, accounts receivable and employee
compensation. At December 31, 1998, the Company had committed exposures of $51.8
million.
As of December 31, 1998 and 1997, the Company had outstanding forward and
purchased option contracts in the amounts of $21.3 million and $19.9 million,
respectively, comprised of foreign currencies which were to be sold, and $79.6
million and $23.2 million, respectively, comprised of foreign currencies which
were to be purchased. All outstanding forward and purchased option contracts at
December 31, 1998 mature within twelve months and have an aggregate fair value
of $1.1 million.
At December 31, 1998, the impact of a hypothetical 10% adverse change in
exchange rates on the fair value of foreign exchange forward contracts and
purchased options is a reduction in fair value of $8.1 million. This impact
would be offset, in part, by an increase in the fair value of the Company's
committed exposures of $8 million.
INTEREST RATE RISK
The Company is exposed to changes in U.S. dollar LIBOR interest rates on
its floating rate revolving credit facility. At December 31, 1998, the
outstanding balance under this facility was $286 million. On a selective basis,
the Company from time to time enters into interest rate swap or cap agreements
to reduce the potential negative impact increases in interest rates could have
on its outstanding variable rate debt. The impact of interest rate instruments
on the Company's results of operations in each of the three years ended December
31, 1998 was not significant.
In 1998, the Company entered into two interest rate swap transactions with
a term of one year beginning in January, 1998. Pursuant to these agreements, the
Company paid a fixed interest rate averaging 5.96% on a notional amount of $100
million and received interest on the $100 million notional amount based on a
three month LIBOR rate set quarterly beginning in January, 1998. The fair value
of these swap transactions at December 31, 1998 was not significant.
In February 1998, the Company also purchased two interest rate caps with a
notional amount of $50 million each. The caps became effective in April and
June, 1998, with terms of nine and six months, respectively. Under the terms of
the caps, the Company was paid an amount equal to the excess, if any, of three
month LIBOR above 6%, multiplied by the notional amounts. The cost of the caps
was not material.
A hypothetical 10% increase in interest rates would adversely affect the
Company's pretax earnings and cash flow by $1.6 million annually, due to the
Company's floating rate debt. Earnings and cash flows would not be significantly
impacted by the Company's interest rate swaps or cap agreements existing at
December, 31 1998, due to a 10% adverse change in interest rates.
INTERNATIONAL MARKETS
Management believes that a significant amount of General Semiconductor's
sales in 1999 will continue to come from international markets.
16
<PAGE> 18
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. During 1998
order trends and average selling prices weakened significantly reflecting the
current economic and currency difficulties in Southeast Asia, the economic
slowdown in Japan and the difficulties in the computer and computer peripherals
industries. However, approximately 50% of the Company's production is currently
in Taiwan, the cost of which has benefited from the weakened New Taiwan Dollar
in relation to the U.S. dollar. Extended underutilization of the Company's
manufacturing facilities, resulting in production inefficiency, could result in
margin deterioration. There can be no assurance as to the extent or duration of
the impact of these events on the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
During 1998 the Financial Accounting Standards Board issued 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, 1999. The Company is evaluating the impact SFAS 133 will have on its
financial statements.
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 modules will be installed in 2000. The Company is currently
modifying its existing manufacturing applications and expects them to be Year
2000 compliant by June 30, 1999.
Since the Company's financial, distribution and manufacturing applications
are expected to be 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 65% 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. At the current time, it is
difficult for the Company to specifically identify its most reasonably likely
worst case Year 2000 scenario.
17
<PAGE> 19
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. However, the Company can give no assurance that the
systems of other companies or government agencies on which the Company relies
will be converted on time or that a failure to convert by another company or a
conversion that is incompatible with the Company's systems would not have a
material adverse effect on the Company.
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 our pricing and
marketing strategies; however, any such impact is not known at this time.
EFFECT OF INFLATION
General Semiconductor attempts to minimize the effect of inflation on
earnings by controlling its operating costs and selling prices. In the opinion
of management, the rate of inflation has not had a material impact on the
Company's results of operations.
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 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 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.
Reference is made to the cautionary statements contained in Exhibit 99 to
this Form 10-K for a discussion of the factors that may cause actual results to
differ from the results discussed in these forward looking statements.
18
<PAGE> 20
19
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of General Semiconductor, Inc.
Management's Responsibility for Financial Statements...... 21
Independent Auditors' Report.............................. 22
Consolidated Financial Statements:
Consolidated Balance Sheets -- as of December 31, 1998
and 1997.............................................. 23
Consolidated Statements of Operations -- Years ended
December 31, 1998, 1997 and 1996..................... 24
Consolidated Statements of Stockholders'
Equity -- Years ended
December 31, 1998, 1997 and 1996..................... 25
Consolidated Statements of Cash Flows -- Years ended
December 31, 1998, 1997 and 1996..................... 26
Notes to Consolidated Financial Statements....... 27 through 47
</TABLE>
20
<PAGE> 22
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and accuracy of the
consolidated financial statements and other information included in this report.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles using, where appropriate, management's
best estimates and judgments.
In meeting its responsibility for the reliability of the consolidated
financial statements, management has developed and relies on the Company's
system of internal accounting control. The system is designed to provide
reasonable assurance that assets are safeguarded and that transactions are
executed as authorized and are properly recorded. The system is augmented by
written policies and procedures and an internal audit department.
The Board of Directors reviews the consolidated financial statements and
reporting practices of the Company through its Audit Committee, which is
composed entirely of directors who are not officers or employees of the Company.
The Audit Committee meets with the independent auditors, the internal auditor
and management to discuss audit scopes and results and to consider internal
control and financial reporting matters. Both the independent and internal
auditors have direct unrestricted access to the Audit Committee. The entire
Board of Directors reviews the Company's financial performance and financial
plan.
<TABLE>
<S> <C>
Ronald A. Ostertag Andrew M. Caggia
Chairman, President and Senior Vice President and
Chief Executive Officer Chief Financial Officer
</TABLE>
21
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
General Semiconductor, Inc.
Melville, New York
We have audited the accompanying consolidated balance sheets of General
Semiconductor, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of General Semiconductor, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Jericho, New York
February 3, 1999
22
<PAGE> 24
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT STOCK PAR VALUE)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 3,225 $ 5,192
Accounts receivable, less allowance for doubtful accounts of
$769 and $825, respectively............................... 59,643 54,077
Inventories................................................. 39,514 34,309
Prepaid expenses and other current assets................... 12,010 9,890
Deferred income taxes....................................... 13,738 14,263
-------- --------
Total current assets.............................. 128,130 117,731
Property, plant and equipment -- net........................ 223,743 218,752
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $43,929 and $38,784,
respectively.............................................. 162,751 167,895
Deferred income taxes....................................... 29,376 26,509
Intangibles and other assets, less accumulated amortization
of $11,099 and $9,228, respectively....................... 19,447 19,418
-------- --------
TOTAL ASSETS................................................ $563,447 $550,305
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................ $ 31,343 $ 38,332
Accrued expenses............................................ 45,084 58,352
Current portion of long-term debt........................... -- 4,310
-------- --------
Total current liabilities......................... 76,427 100,994
Long-term debt.............................................. 286,000 263,764
Deferred income taxes....................................... 21,390 21,710
Other non-current liabilities............................... 74,283 77,476
-------- --------
Total liabilities................................. 458,100 463,944
-------- --------
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 and 36,887 shares issued, respectively............. 369 369
Additional paid-in capital.................................. 507 55
Retained earnings........................................... 111,842 93,308
-------- --------
112,718 93,732
Less -- Treasury stock, at cost, 104 shares................. (7,371) (7,371)
-------- --------
Total stockholders' equity........................ 105,347 86,361
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $563,447 $550,305
======== ========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 25
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
NET SALES.................................................. $401,144 $380,038 $361,891
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Cost of sales............................................ 283,582 289,313 230,687
Selling, general and administrative...................... 46,802 44,668 42,594
Research and development................................. 6,104 5,998 5,838
Amortization of excess of cost over fair value of net
assets acquired....................................... 5,145 5,143 5,154
Restructuring............................................ 12,324 -- --
-------- -------- --------
Total operating costs and expenses............... 353,957 345,122 284,273
-------- -------- --------
OPERATING INCOME........................................... 47,187 34,916 77,618
Other expense-net.......................................... (71) (42) (51)
Interest expense-net....................................... (20,026) (14,353) (10,396)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES........................................ 27,090 20,521 67,171
Provision for income taxes................................. (8,556) (11,649) (27,407)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS.......................... 18,534 8,872 39,764
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of income tax
expense of $22,073 in 1997 and income tax benefit of
$20,026 in 1996.......................................... -- (2,939) (41,628)
-------- -------- --------
NET INCOME (LOSS).......................................... $ 18,534 $ 5,933 $ (1,864)
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic.................................................... 36,811 35,414 32,924
Diluted.................................................. 36,899 35,576 36,852
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations.................................... $ 0.50 $ 0.25 $ 1.20
Discontinued operations.................................. -- (0.08) (1.26)
-------- -------- --------
Net income (loss)........................................ $ 0.50 $ 0.17 $ (0.06)
======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations.................................... $ 0.50 $ 0.25 $ 1.15
Discontinued operations.................................. -- (0.08) (0.88)
-------- -------- --------
Net income............................................... $ 0.50 $ 0.17 $ 0.27
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 26
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
-------------------- TOTAL
COMMON STOCK ADDITIONAL UNEARNED UNREALIZED STOCK-
--------------- PAID-IN RETAINED TREASURY COMPEN- GAIN ON HOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK SATION INVESTMENT EQUITY
------ ------ ----------- --------- -------- -------- -------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996... 31,509 $316 $ 667,134 $ 256,416 $(7,246) $(1,277) $ -- $ 915,343
Exercise of stock options
and related tax
benefit.................. 40 -- 3,475 -- -- -- -- 3,475
Comprehensive income:
Net loss................. -- -- -- (1,864) -- -- -- --
Total comprehensive
income................... -- -- -- -- -- -- -- (1,864)
Amortization of unearned
compensation............. -- -- -- -- -- 612 -- 612
Treasury stock
transactions............. -- -- -- -- (25) -- -- (25)
Conversion of Convertible
Junior Subordinated
Notes -- net............. 2,737 27 255,585 -- -- -- -- 255,612
------ ---- ----------- --------- ------- ------- -------- -----------
BALANCE, DECEMBER 31,
1996..................... 34,286 343 926,194 254,552 (7,271) (665) -- 1,173,153
Exercise of stock options
and related tax
benefit.................. 200 2 19,361 -- -- -- -- 19,363
Comprehensive income:
Net income............... -- -- -- 5,933 -- -- -- --
Unrealized gain on
investment, net of
tax.................... -- -- -- -- -- 22,018 --
Total comprehensive
income................... -- -- -- -- -- -- -- 27,951
Amortization of unearned
compensation............. -- -- -- -- -- 243 -- 243
Treasury stock
transactions............. -- -- -- -- (100) -- -- (100)
Conversion of Convertible
Junior Subordinated
Notes -- net............. 2,397 24 226,636 -- -- -- -- 226,660
Distribution of General
Instrument and
Commscope................ -- -- (1,172,191) (167,177) -- 422 (22,018) (1,360,964)
Common stock issued........ 4 -- 55 -- -- -- -- 55
------ ---- ----------- --------- ------- ------- -------- -----------
BALANCE, DECEMBER 31,
1997..................... 36,887 369 55 93,308 (7,371) 0 0 86,361
Exercise of stock options
and related tax
benefit.................. 38 -- 452 -- -- -- -- 452
Comprehensive income:
Net income............... -- -- -- 18,534 -- -- -- --
Total comprehensive
income................... 18,534
------ ---- ----------- --------- ------- ------- -------- -----------
BALANCE, DECEMBER 31,
1998..................... 36,925 $369 $ 507 $ 111,842 $(7,371) $ -- $ -- $ 105,347
====== ==== =========== ========= ======= ======= ======== ===========
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 27
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income from continuing operations......................... $ 18,534 $ 8,872 $ 39,764
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operating
activities:
Depreciation and amortization.......................... 24,982 24,232 22,613
Asset write-off in conjunction with restructuring...... 3,865 -- --
Changes in assets and liabilities, net of effect of
business acquired:
Accounts receivable.................................. (5,565) (13,335) 9,190
Inventories.......................................... (5,204) 2,465 (8,028)
Prepaid expenses and other current assets............ (2,694) (3,208) 663
Other non-current assets............................. (766) 666 44
Deferred income taxes................................ (2,662) (1,236) 14,736
Accounts payable and accrued expenses................ 5,151 9,274 (12,655)
Other non-current liabilities........................ (3,193) 1,685 (222)
Other.................................................. (689) (331) 2,014
-------- --------- ---------
Net cash provided by continuing operating activities........ 31,759 29,084 68,119
-------- --------- ---------
Cash (used in) provided by discontinued operations.......... (25,177) 145,452 (225,227)
-------- --------- ---------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment............ (26,898) (29,208) (60,299)
Proceeds from sale (purchases) of short-term
investments............................................ -- 24,974 (24,974)
Proceeds from sale of assets.............................. -- 3,000 4,368
Payment for business acquired............................. -- (8,982) --
-------- --------- ---------
Net cash used in investing activities....................... (26,898) (10,216) (80,905)
-------- --------- ---------
FINANCING ACTIVITIES:
Costs associated with the issuance of debt and Common
Stock.................................................. -- (1,130) (1,053)
Net proceeds from (repayments of ) revolving credit
facilities............................................. 64,000 (192,000) 231,000
Redemption of Convertible Junior Subordinated Notes....... -- (245) (6,440)
Principal repayment of debt............................... (46,074) (4,310) (4,310)
Proceeds from exercise of stock options................... 423 18,305 2,686
-------- --------- ---------
Net cash provided by (used in) financing activities......... 18,349 (179,380) 221,883
-------- --------- ---------
Decrease in cash and cash equivalents....................... (1,967) (15,060) (16,130)
Cash and cash equivalents, beginning of year................ 5,192 20,252 36,382
-------- --------- ---------
Cash and cash equivalents, end of year...................... $ 3,225 $ 5,192 $ 20,252
======== ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION, RELATING TO CONTINUING AND DISCONTINUED OPERATIONS:
Income taxes paid......................................... $ 9,776 $ 37,224 $ 55,647
Interest paid............................................. $ 19,677 $ 32,033 $ 41,766
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 28
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
General Semiconductor, Inc. ("General Semiconductor" or the "Company") is a
world leader in the discrete segment of the semiconductor industry. The Company
designs, manufactures and sells low-to-medium-power rectifiers, small signal
transistors and transient voltage suppression ("TVS") components in axial,
bridge, surface mount and array packages. Power rectifiers, 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.
General Instrument Corporation ("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"), and all the assets and
liabilities relating to the manufacture and sale of coaxial, fiber optic and
other electric cable used in the cable television, satellite and other
industries to its wholly-owned subsidiary CommScope, Inc. ("CommScope") and (ii)
distributed all of the outstanding shares of capital stock of each of NextLevel
and CommScope to its stockholders on a pro rata basis as a dividend (the
"Distribution") in a transaction that was finalized on July 28, 1997 (the
"Distribution Date"). On the Distribution Date, NextLevel and CommScope began
operating as independent entities with publicly traded common stock. GI retained
no ownership interest in either NextLevel or CommScope. Concurrent with the
Distribution, GI changed its name to General Semiconductor, Inc. and effected a
one for four reverse stock split (the "Stock Split"). On February 2, 1998
NextLevel changed its name to General Instrument Corporation ("General
Instrument").
In this report, all share and per share amounts have been retroactively
restated to reflect the Stock Split. In addition, the number of common shares
issued have been adjusted to reflect the Stock Split and an amount equal to the
par value of the reduction of the shares has been transferred from common stock
to additional paid-in capital as of January 1, 1996, the earliest period
reported.
The revenues, costs and expenses and cash flows of the businesses
transferred to General Instrument and CommScope (the "Discontinued Operations"),
have been excluded from the respective captions in the Consolidated Statements
of Operations and Consolidated Statements of Cash Flows and have been reported
through the Distribution Date as "Income (Loss) from discontinued operations",
net of applicable income taxes and as "Cash (used in) provided by discontinued
operations" for all periods presented. For the purpose of governing certain of
the ongoing relationships among General Semiconductor, General Instrument and
CommScope after the Distribution, these entities entered into various agreements
that provide for an orderly transition, the separation and distribution of the
operating assets and liabilities and pension plan assets and liabilities of GI,
as well as tax sharing, and other matters.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of General Semiconductor and its wholly-owned
subsidiaries. All intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates. The preparation of the accompanying consolidated
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the
27
<PAGE> 29
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
date of the financial statements and the reported amounts of sales and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents. The Company considers all highly liquid investments with
a maturity of three months or less at the date of purchase to be cash
equivalents.
Inventories. Inventories are stated at the lower of cost, determined on a
first-in, first-out ("FIFO") basis, or market.
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Provisions for depreciation are based on estimated useful lives of the
assets using the straight-line method. Useful lives are 12 to 40 years for
buildings and improvements; estimated useful life or lease term, whichever is
shorter, for leasehold improvements and 3 to 10 years for machinery and
equipment. The cost of maintenance and repairs is charged to operations as
incurred.
Intangible Assets. Intangible assets consist primarily of patents which
are amortized on a straight-line basis over their useful lives not exceeding 20
years.
Excess of Cost Over Fair Value of Net Assets Acquired. The excess of cost
over fair value of net assets acquired is being amortized on a straight-line
basis over 40 years. Management periodically evaluates the appropriateness of
both the carrying value and remaining life of the excess of cost over fair value
of net assets acquired by assessing recoverability based on forecasted operating
cash flows, on an undiscounted basis, and other factors.
Long-Lived Assets. In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," the Company evaluates long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying values of such assets may not be recoverable. The Company evaluates
the carrying values of such assets using future undiscounted cash flows.
Revenue Recognition. The Company recognizes revenue when products are
shipped with appropriate provisions for uncollectible accounts and credits for
returns.
Foreign Currency Translation. The Company has determined the U.S. dollar
to be the functional currency of all foreign subsidiaries. Accordingly, gains
and losses recognized as a result of translating foreign subsidiaries' monetary
assets and liabilities from local foreign currencies to U.S. dollars are
reflected in the accompanying consolidated statements of operations.
Research and Development. The Company charges research and development
expenses to operations as incurred.
Environmental Liabilities. The Company accounts for environmental
expenditures in accordance with Statement of Position 96-1, "Environmental
Remediation Liabilities". Accordingly, the Company accrues for environmental
expenses resulting from existing conditions that relate to past operations when
the costs are probable and reasonably estimable.
Income Taxes. Deferred income taxes reflect the future tax consequences of
differences between the financial reporting and income tax bases of assets and
liabilities. Deferred income taxes are provided for the income tax liabilities
to be incurred on the repatriation of undistributed earnings of the Company's
foreign subsidiaries, except for locations where the Company has designated
earnings to be permanently reinvested.
Comprehensive Income. In 1998 the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". This statement establishes rules for the reporting of
comprehensive income and its components. Comprehensive income is presented in
the Consolidated Statement of Stockholders' Equity. The adoption of
28
<PAGE> 30
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS 130 had no impact on total stockholders' equity. Prior year financial
statements have been reclassified to conform to the SFAS 130 requirements.
Reclassifications. Certain prior year amounts have been reclassified to
conform to the current year presentation.
3. ACQUISITION
On October 1, 1997 the Company purchased certain assets and assumed certain
liabilities related to the discrete semiconductor business of ITT Industries,
Inc. for $8.0 million plus $1.0 million in direct transaction costs. The
acquisition was accounted for as a purchase transaction and, accordingly, the
results of operations are included in the Consolidated Statement of Operations
since the date of acquisition. The pro forma effects, assuming this transaction
was effective January 1, 1996, were not material to the Company's results of
operations, financial position or cash flows for the years ended December 31,
1997 and 1996.
4. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Raw materials...................................... $ 5,139 $ 7,181
Work in process.................................... 14,181 12,052
Finished goods..................................... 20,194 15,076
------- -------
Total.............................................. $39,514 $34,309
======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Land and land improvements......................... $ 76,321 $ 76,328
Buildings, improvements and leasehold
improvements..................................... 64,106 63,485
Machinery and equipment............................ 232,690 208,067
--------- ---------
373,117 347,880
Accumulated depreciation........................... (149,374) (129,128)
--------- ---------
Property, plant and equipment, net................. $ 223,743 $ 218,752
========= =========
</TABLE>
Depreciation expense aggregated $18.0 million, $16.8 million and $14.4
million for 1998, 1997 and 1996, respectively.
29
<PAGE> 31
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses consist of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Salaries and compensation liabilities.............. $14,355 $14,849
Distribution and reorganization liabilities........ -- 18,734
Restructuring liabilities.......................... 7,809 --
Benefit plan liabilities........................... 7,709 4,916
Other.............................................. 15,211 19,853
------- -------
Total.............................................. $45,084 $58,352
======= =======
</TABLE>
In connection with the Distribution, the Company recorded in income (loss)
from continuing operations a pre-tax charge of $32.7 million to cost of sales
and $1.1 million to selling, general and administrative expenses during the year
ended December 31, 1997. These costs relate to employees of General
Semiconductor and were incurred in connection with the separation of the Taiwan
operations between General Semiconductor and General Instrument.
On November 6, 1998 the Company announced a restructuring plan designed to
enhance the interface of operations and customers, to improve its cost
structure, efficiency and its competitive position and to accelerate growth. The
restructuring included reducing the workforce by decentralizing certain
purchasing, marketing, finance and research and development functions and
providing early retirement to a group of employees, closing two sales offices
and writing off assets related to an unprofitable product that will no longer be
manufactured. Restructuring charges recorded in the fourth quarter included
approximately $8.4 million in charges primarily related to severance and early
retirement costs and $3.9 million in non-cash charges for asset write-offs.
7. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Environmental liabilities.......................... $29,363 $32,415
Benefit plan liabilities........................... 35,596 36,070
Other.............................................. 9,324 8,991
------- -------
Total.............................................. $74,283 $77,476
======= =======
</TABLE>
8. INCOME TAXES
General Semiconductor, General Instrument and CommScope entered into a tax
sharing agreement (the "Tax Sharing Agreement") that defines the parties' rights
and obligations with respect to federal, state and other income or franchise
taxes related to the businesses of GI for tax periods prior to, including and
following the Distribution and with respect to certain other tax matters.
General Instrument is responsible for consolidated federal income taxes,
consolidated or combined state income taxes and separate state income taxes of
GI and its subsidiaries and preparation and filings of the applicable returns
through July 25, 1997. Such liability was determined assuming a closing of the
books on July 25, 1997. Liability for foreign income taxes and other taxes was
generally allocated to the legal entity on which such taxes were imposed except
that liability for taxes relating to the transferred businesses (as defined in
the Tax Sharing Agreement) were generally allocated to General Instrument.
30
<PAGE> 32
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notwithstanding the above, each of General Instrument, CommScope and
General Semiconductor is responsible for any such taxes to the extent that such
taxes are attributable to action taken by that entity or its affiliates after
the Distribution that is inconsistent with the tax treatment contemplated in the
tax ruling received from the Internal Revenue Service. The Company believes that
the Tax Sharing Agreement is fair to each of the parties and contains terms
which generally are comparable to those which would have been reached at
arms-length negotiations with unaffiliated parties.
The domestic and foreign components of income from continuing operations
before income taxes is:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Domestic.............................................. $ 8,141 $16,354 $62,084
Foreign............................................... 18,949 4,167 5,087
------- ------- -------
Total................................................. $27,090 $20,521 $67,171
======= ======= =======
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................... $ 3,848 $ 4,691 $ 9,477
Foreign............................................... 6,539 2,754 2,842
State................................................. 831 2,200 922
------- ------- -------
11,218 9,645 13,241
------- ------- -------
Deferred:
Federal............................................... (11) 3,066 9,472
Foreign............................................... (2,478) (1,325) 3,129
State................................................. (173) 263 2,015
------- ------- -------
(2,662) 2,004 14,616
------- ------- -------
Net change in valuation allowance..................... -- -- (450)
------- ------- -------
Provision for income taxes............................ $ 8,556 $11,649 $27,407
======= ======= =======
</TABLE>
The following table presents the principal reasons for the difference
between the actual income tax provision and the tax provision computed by
applying the U.S. federal statutory income tax rate to income from continuing
operations before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Federal income tax provision at 35%................... $ 9,482 $ 7,182 $23,510
Valuation allowance benefit........................... -- -- (450)
State income taxes-net of federal benefit............. 428 1,601 1,909
Foreign operations.................................... (2,166) 1,470 1,805
Non-deductible expenses............................... 1,945 914 1,844
Other-net............................................. (1,133) 482 (1,211)
------- ------- -------
Provision for income taxes............................ $ 8,556 $11,649 $27,407
======= ======= =======
Effective income tax rate............................. 31.6% 56.8% 40.8%
</TABLE>
31
<PAGE> 33
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes related to foreign operations in 1998, 1997 and 1996 reflect
the Company's ability to recognize the benefit of foreign tax credits.
Deferred income taxes recorded in the accompanying consolidated balance
sheets are comprised of:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------- -------------------------------
ASSET LIABILITY NET ASSET LIABILITY NET
-------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Current Deferred Income Taxes:
Accounts receivable and inventory
reserves........................... $ 3,845 $ -- $ 3,845 $ 2,177 $ -- $ 2,177
Product and warranty liabilities..... 332 -- 332 437 -- 437
Employee benefits.................... 5,213 -- 5,213 5,576 -- 5,576
Other current........................ 4,348 -- 4,348 6,073 -- 6,073
-------- ------- -------- -------- ------- --------
$ 13,738 $ -- $ 13,738 $ 14,263 $ -- $ 14,263
======== ======= ======== ======== ======= ========
Non-Current Deferred Income Taxes:
Domestic capital loss
carryforwards...................... $ 17,518 $ -- $ 17,518 $ 17,518 $ -- $ 17,518
Fixed and intangible assets.......... (6,041) -- (6,041) (4,745) 1,081 (5,826)
Environmental liabilities............ 11,158 -- 11,158 12,318 -- 12,318
Employee benefits.................... 12,188 -- 12,188 12,535 205 12,330
Other non-current.................... 14,330 21,390 (7,060) 8,660 20,424 (11,764)
Valuation allowance.................. (19,777) -- (19,777) (19,777) -- (19,777)
-------- ------- -------- -------- ------- --------
$ 29,376 $21,390 $ 7,986 $ 26,509 $21,710 $ 4,799
======== ======= ======== ======== ======= ========
</TABLE>
In accordance with the Tax Sharing Agreement, approximately $17.8 million
of deferred tax assets related to the Company were allocated to General
Instrument in connection with the Distribution.
Deferred taxes have not been provided on undistributed earnings of certain
foreign operations of $14.3 million and $9.9 million in 1998 and 1997,
respectively, as those earnings are considered to be permanently reinvested.
Determining the tax liability that would arise if these amounts were remitted is
not practicable.
The valuation allowance at December 31,1998 relates principally to domestic
capital loss carryforwards, which expire in 2002. The valuation allowance will
be reduced when and if the Company generates domestic capital gains.
During 1996 the Company settled certain tax matters which resulted in
credits to excess of cost over fair value of net assets acquired of $1.8 million
since such matters related to the period prior to August 1990, when affiliates
of Forstmann Little & Co., a private investment firm, acquired the Company.
9. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Senior bank indebtedness:
Revolving credit facility................ $286,000 $222,000
Taiwan loan.............................. -- 46,074
-------- --------
286,000 268,074
Less current maturities.................... -- 4,310
-------- --------
Long-term debt............................. $286,000 $263,764
======== ========
</TABLE>
32
<PAGE> 34
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1997, the Company entered into a bank credit agreement, which was
amended in December 1998, (as amended, the "Credit Agreement") which provides
for a $350.0 million secured revolving credit facility that matures on December
31, 2002. The Credit Agreement requires the Company to pay a facility fee on the
total commitment. The Credit Agreement permits the Company to choose between two
interest rate options: the Adjusted Base Rate (as defined in the Credit
Agreement), or a Eurodollar rate (LIBOR) plus a margin which varies based on the
Company's ratio of indebtedness to earnings before interest, taxes, depreciation
and amortization as defined in the Credit Agreement. The facility fee also
varies based on that ratio. The Company is also able to set interest rates
through a competitive bid procedure. The Credit Agreement, contains financial
and operating covenants, including limitations on guarantee obligations, liens,
sale of assets, indebtedness, investments, capital expenditures, payment of
dividends and leases, and requires the maintenance of certain financial ratios.
In addition, certain changes in control of the Company would cause an event of
default under the Credit Agreement. The December 1998 amendment amended certain
covenant compliance calculations to provide the Company with greater flexibility
to execute the restructuring announced on November 6, 1998. At December 31, 1998
the Company was in compliance with all such amended covenants.
At December 31, 1997 the Company had a $60 million loan agreement with a
consortium of banks in Taiwan. On February 26, 1998 the Company consolidated its
debt and repaid the entire Taiwan loan balance of $46.1 million with proceeds
from borrowings under the Credit Agreement.
In May 1996, the Company issued a notice to redeem $250 million in
principal amount of its 5% Convertible Junior Subordinated Notes (the "Notes").
Of the Notes called, $244 million in principal amount were converted into the
Company's Common Stock prior to the redemption date, with the remaining $6
million redeemed for cash. Additionally, $16 million and $6 million in principal
amount of Notes that were not called for redemption were also converted into GI
Common Stock during 1996 and 1995, respectively. These conversions resulted in
the issuance of 2.8 million shares of Common Stock. In connection with the
Common Stock conversions, $4.4 million was charged to additional paid-in
capital, net of the related tax benefit, for unamortized deferred financing
costs and accrued but unpaid interest related to the converted Notes. During
1997 the remaining Notes outstanding were converted into GI Common Stock at a
conversion price of $23.75 per share (unadjusted for the Distribution and Stock
Split) resulting in the issuance of 2.4 million shares, and $0.2 million in
principal amount of Notes were redeemed. In connection with the conversion, GI
charged approximately $1.5 million to additional paid-in capital, net of the
related tax benefit, for unamortized deferred financing costs and accrued but
unpaid interest related to the converted Notes.
The Company repaid the GI revolving credit facility in July 1997 utilizing
a combination of the bank credit facility described above and amounts received
from General Instrument and CommScope at the Distribution Date totaling $170.1
million.
The Company entered into two interest rate swap transactions with a term of
one year beginning on January 22, 1998. Pursuant to these agreements it paid a
fixed interest rate averaging 5.96% on a notional amount of $100 million and
received interest on the $100 million notional amount based on a three month
LIBOR rate set quarterly beginning on January 22, 1998. The fair value of the
swaps as of December 31, 1998 was $(0.2) million. During February 1998, the
Company purchased two interest rate caps each with a notional amount of $50
million. The caps became effective on April 27, 1998 and June 29, 1998 with
terms of nine months and six months, respectively. Under the terms of the caps,
the Company was paid an amount equal to the excess, if any, of three month LIBOR
above 6% multiplied by the notional amounts. The cost of the caps was
immaterial. The purpose of the swap agreement and the caps is to reduce its
amount of debt subject to floating interest rates.
The weighted average interest rate on the Company's long-term debt at
December 31, 1998 and 1997 was 5.8% and 6.6%, respectively.
33
<PAGE> 35
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net interest expense included in the 1996 and 1997 Consolidated Statement
of Operations through the Distribution Date represents an allocation based upon
General Semiconductor's net assets as a percentage of total assets of GI.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office space, manufacturing facilities and
transportation and other equipment under operating leases which expire at
various dates through the year 2004. Rent expense was $5.4 million, $3.3 million
and $2.9 million in 1998, 1997 and 1996, respectively.
Future minimum lease payments required under operating leases as of
December 31, 1998 are:
<TABLE>
<S> <C>
1999...................................................... $4,454
2000...................................................... 3,028
2001...................................................... 1,853
2002...................................................... 1,255
2003...................................................... 1,119
Thereafter................................................ 295
</TABLE>
The Company has approximately $11.0 million in letters of credit
outstanding at December 31, 1998.
Environmental Matters. 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 $31.9 million at December 31, 1998 ($34.9 million at December 31,
1997). 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.
Litigation. A securities class action is presently pending in the United
States District Court for the Northern District of Illinois, Eastern Division,
In Re General Instrument Corporation Securities Litigation. This action, which
consolidates numerous class action complaints filed in various courts between
October 10 and October 27, 1995, is brought by plaintiffs, on their own behalf
and as representatives of a class of
34
<PAGE> 36
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchasers of GI common stock during the period March 21, 1995 through October
18, 1995. The complaint alleges that prior to the Distribution, 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.
General Semiconductor is not a party to any pending legal proceedings other
than various claims and lawsuits arising in the normal course of business and
those for which they are indemnified. Management is of the opinion that such
litigation or claims will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
11. EMPLOYEE BENEFITS
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132 "Employer' Disclosures about Pensions and Other Post-Retirement
Benefits -- an amendment of FASB Statement No. 87, 88 and 106." SFAS 132 revises
employers' disclosures about pension and other post-retirement benefit plans. It
does not change the measurement of recognition of those plans. The Company has
adopted the provisions of SFAS 132 in their disclosures below.
Pension Plans. In connection with the Distribution, the Company, General
Instrument and CommScope entered into an Employee Benefits Allocation Agreement
(the "Agreement"). The Agreement provides that the Company generally will assume
or retain, as the case may be, all liabilities under employee benefits plans
maintained by GI or any of its subsidiaries with respect to employees of General
Semiconductor or any of its retained subsidiaries and employees of previously
divested operations other than the liabilities related to employees of General
Instrument or CommScope subsequent to the Distribution.
35
<PAGE> 37
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension cost consists of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN DOMESTIC FOREIGN
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost.................... $ 482 $2,513 $ 407 $ 2,746 $ 325 $ 2,968
Interest........................ 5,209 3,040 5,117 3,301 4,616 3,503
Expected return on plan
assets........................ (5,979) (853) (5,620) (1,185) (5,670) (1,663)
Transition (asset) obligation... -- 160 -- 188 -- --
Amortization of prior service
costs......................... (12) -- (12) -- 878 906
Recognized actuarial (gain) or
loss.......................... 198 522 2 756 -- --
------- ------ ------- ------- ------- -------
Net periodic pension cost
(income)...................... $ (102) $5,382 $ (106) $ 5,806 $ 149 $ 5,714
======= ====== ======= ======= ======= =======
</TABLE>
The status of the Company's continuing pension plans and the related
amounts recorded in the accompanying consolidated balance sheets are:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year......... $75,741 $ 46,863 $65,431 $ 60,586
Service cost................................. 482 2,513 407 2,746
Interest cost................................ 5,209 3,040 5,117 3,301
Actuarial (gain) or loss..................... 4,499 (174) 9,034 2,086
Impact of foreign exchange................... -- 885 -- (8,119)
Benefits paid................................ (5,646) (2,540) (4,248) (151)
Curtailment loss............................. -- -- -- 3,272
Settlement payment........................... -- -- -- (16,858)
------- -------- ------- --------
Benefit obligation at end of year............... 80,285 50,587 75,741 46,863
------- -------- ------- --------
Change in Plan Assets
Fair value of plan assets at beginning of
year......................................... 78,539 11,018 67,599 23,944
Actual return on plan assets (net of
expenses).................................. 13,012 1,132 15,188 999
Employer contributions....................... -- 2,543 -- 6,568
Impact of foreign exchange................... -- 155 -- (3,484)
Benefits paid................................ (5,646) (2,540) (4,248) (17,009)
------- -------- ------- --------
Fair value of plan assets at end of year........ 85,905 12,308 78,539 11,018
------- -------- ------- --------
Reconciliation of the Funded Status
Funded status................................... 5,620 (38,279) 2,798 (35,845)
Unrecognized transition (asset) or obligation... -- 1,523 -- 1,670
Unrecognized prior service cost................. (65) -- (77) --
Unrecognized actuarial (gain) or loss........... (3,567) 11,496 (834) 12,451
------- -------- ------- --------
Asset (liability) recognized at year-end........ $ 1,988 $(25,260) $ 1,887 $(21,724)
======= ======== ======= ========
Actuarial assumptions:
Discount rate................................... 6.75% 6.75% 7.00% 6.75%
Investment return............................... 9.00% 7.00% 9.00% 7.00%
Compensation increases.......................... 4.75% 6.00% 4.75% 6.00%
</TABLE>
36
<PAGE> 38
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The domestic pension plans consist principally of a qualified retirement
plan which has satisfied the full funding limitation requirements under the
Employee Retirement Income Security Act of 1974 ("ERISA"). The Company made no
contributions to the plan in 1998 or 1997. Contributions to the plan in 1996
were $3.8 million. Domestic plan assets consist of fixed income and equity
securities. The Company also has an unfunded supplemental retirement plan for
certain members of management. Net pension cost and accrued pension obligations
for this plan are included in the amounts above.
The foreign pension plans consist principally of a Taiwan and a German
pension plan which are funded in accordance with statutory requirements. Foreign
pension contributions were $2.7 million in 1996. Foreign plan assets principally
consist of fixed income securities.
Defined Contribution Plans. The Company maintains defined contribution
plans covering all domestic non-union employees and employees in Ireland and
France. Company contributions were $0.7 million in 1998 and 1997 and $0.4
million in 1996.
Postretirement Benefits other than Pensions. The Company maintains an
unfunded contributory group medical plan (the "Plan") for all full-time U.S.
employees not covered by a collective bargaining agreement who meet defined age
and service requirements. The Company recognizes the cost of providing and
maintaining postretirement benefits during employees' active service periods.
The Plan is the primary provider of benefits for retirees up to age 65. After
age 65, Medicare becomes the primary provider. Net periodic postretirement
benefit cost consists of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Service cost............................................... $ 91 $ 87 $ 78
Interest................................................... 918 891 872
Amortization of prior service cost......................... (383) (383) (383)
Recognized actuarial (gain) or loss........................ 135 12 --
----- ----- -----
Net periodic postretirement benefit cost................... $ 761 $ 607 $ 567
===== ===== =====
</TABLE>
The status of the Plan and the related amounts recorded in the accompanying
consolidated balance sheets are:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year.................. $ 13,286 $ 11,888
Service cost.......................................... 91 87
Interest cost......................................... 918 891
Actuarial (gain) or loss.............................. 2,056 1,932
Benefits paid......................................... (2,424) (1,512)
-------- --------
Benefit obligation at end of year........................ 13,927 13,286
-------- --------
Change in Plan Assets
Fair value of plan assets at beginning of year........... -- --
Actual return on plan assets.......................... -- --
Employer contributions................................ 2,424 1,512
Benefits paid......................................... (2,424) (1,512)
-------- --------
Fair value of plan assets at end of year................. -- --
-------- --------
</TABLE>
37
<PAGE> 39
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Reconciliation of the Funded Status
Funded status............................................ (13,927) (13,286)
Unrecognized transition (asset) or obligation............ -- --
Unrecognized prior service cost.......................... (4,834) (5,217)
Unrecognized actuarial (gain) or loss.................... 4,955 3,033
-------- --------
Accrued benefit liability at year end.................... $(13,806) $(15,470)
======== ========
Actuarial assumptions:
Discount rate............................................ 6.75% 7.00%
Expected return on plan assets........................... N/A N/A
</TABLE>
The assumed rate of future increases in health care costs for 1998 and 1997
was 11.25% and 12.5%, respectively, for pre-age 65 retirees, and 9% and 10%,
respectively, for post-age 65 retirees, and is expected to decline to 6% by the
year 2003 for pre-age 65 retirees and by the year 2005 for post-age 65 retirees,
respectively. Under the Plan, the actuarially determined effect of a one
percentage point increase in the assumed health care cost trend rate on annual
net postretirement benefit cost and the APBO would be $1.4 million and $1.3
million, respectively, for 1998 and 1997.
In accordance with the Employee Benefits Allocation Agreement,
approximately $8.0 million of net pension liabilities related to the Company
were transferred to General Instrument in connection with the Distribution for
the year ended December 31, 1997.
Postemployment Benefits other than Pensions. The postemployment benefits
obligation relates principally to medical costs for former employees on
long-term disability. As of December 31, 1998 and 1997 $1.0 million and $0.9
million was accrued for postemployment benefits, respectively.
12. STOCKHOLDERS' EQUITY
Distribution. GI distributed all of its outstanding shares of capital
stock of each of General Instrument and CommScope to its stockholders on a pro
rata basis as a dividend in a transaction that was consummated on July 28, 1997.
Approximately 147.3 million shares of General Instrument Common Stock, based on
a ratio of one for one, were distributed to GI's stockholders of record on July
25, 1997. On July 28, 1997 approximately 49.1 million shares of CommScope Common
Stock, based on a ratio of one for three, were distributed to General Instrument
stockholders of record on that date. General Semiconductor (formerly GI)
retained no ownership interest in either General Instrument or CommScope.
Additionally, immediately following the Distribution, General Semiconductor
effected a one for four reverse stock split.
Stock Option Plan. Following the Distribution, the Company continued in
effect the 1993 Long-Term Incentive Plan, renamed the Amended and Restated
General Semiconductor, Inc. 1993 Long-Term Incentive Plan (the "1993 LTIP") as
adjusted to reflect the Distribution and Stock Split. Stock options granted
generally vest ratably over a three year period beginning on the first
anniversary from the date granted, expire after ten years and have exercise
prices equal to the market value of the Company's common stock at the date of
grant.
In May 1998, the stockholders of the Company approved the adoption of the
General Semiconductor, Inc. 1998 Long-Term Incentive Plan (the "1998 LTIP")
which provides for the granting of stock options, stock appreciation rights,
restricted stock, performance units, performance shares and phantom stock to
employees of the Company and its subsidiaries and the granting of stock options
to directors of the Company. The 1998 LTIP replaces the Company's 1993 LTIP. No
further awards or options were granted pursuant to the 1993 LTIP. All shares
available for future grant under the 1993 LTIP and those shares in respect of
38
<PAGE> 40
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options or awards granted or issued pursuant to the 1993 LTIP which are
subsequently forfeited, expired or otherwise terminate without having been
exercised will be added to the number of shares available for grant under the
1998 LTIP.
The following table summarizes stock option activity relating to the
Company's 1993 LTIP and 1998 LTIP (collectively, the "LTIP Plans") since the
Distribution.
<TABLE>
<CAPTION>
NUMBER WEIGHTED-
OF AVERAGE
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Outstanding at Distribution Date...................... 2,838 $11.77
Granted............................................... 195 14.94
Cancelled............................................. (17) 12.00
-----
Options outstanding at December 31, 1997.............. 3,016 $11.98
Granted............................................... 1,715 8.96
Exercised............................................. (38) 11.28
Cancelled............................................. (69) 12.03
-----
Options outstanding at December 31, 1998.............. 4,624 $10.86
=====
</TABLE>
For the period January 1, 1997 through the Distribution, 8,422 options to
purchase GI common stock were granted, 798 options were exercised and 4,032
options were canceled. The weighted-average exercise price of these options
(unadjusted for the Distribution and Stock Split) was $23.14, $22.95 and $29.50,
respectively. At the Distribution Date, all unexercised GI stock options held by
General Semiconductor employees and certain Directors of GI were converted into
General Semiconductor stock options. For the holders of unexercised General
Semiconductor stock options, the number of options was adjusted and all exercise
prices were decreased immediately following the Distribution to preserve the
economic value of the options that existed prior to the Distribution Date.
The following table summarizes information about stock options outstanding
and exercisable under the Company's LTIP Plans.
<TABLE>
<CAPTION>
SHARES UNDER OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- -------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE WEIGHTED- EXERCISABLE WEIGHTED-
AT REMAINING AVERAGE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1998 TERM (YEARS) PRICE 1998 PRICE
- --------------- ------------ ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$1.48 to $11.60...... 1,382 8.7 $ 7.37 258 $ 8.35
$11.75 to $12.06..... 1,613 8.0 $11.75 705 $11.75
$12.36 to $14.94..... 1,629 7.4 $12.94 907 $13.02
----- -----
4,624 8.0 $10.86 1,870 $11.90
===== =====
</TABLE>
At December 31, 1998 and 1997, 3.8 million shares and 0.7 million shares,
respectively, were reserved for future awards under the Company's LTIP Plans.
The tax benefits arising from stock options exercised during the years ended
December 31, 1998, 1997 and 1996 in the amount of $0.1 million, $1.1 million,
and $0.8 million, respectively, were recorded in stockholders' equity as
additional paid-in capital.
In addition, under the provisions of the Incentive Plan, the Company issued
4 thousand shares of Common Stock to certain members of its Board of Directors
during the year ended December 31, 1997.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its LTIP Plans. Since the exercise price of all stock
39
<PAGE> 41
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options granted under the LTIP Plans in 1998, 1997 and 1996 was equal to the
closing price of the Common Stock on the New York Stock Exchange on the date of
grant, no compensation expense has been recognized by the Company for its
stock-based compensation plan during these years other than for restricted stock
agreements. Compensation expense, relating to both continuing and discontinued
operations, would have been $5.4 million, $27.1 million and $21.9 million in
1998, 1997 and 1996, respectively, had compensation cost for stock options
awarded during these years under the Company's stock option agreements been
determined based upon the fair value at the grant date consistent with the
methodology prescribed under SFAS No. 123, "Accounting for Stock-Based
Compensation". The Company's pro forma net income (loss) and diluted earnings
(loss) per share would have been $15.2 million and $0.41 per share for 1998,
$(10.9) million and $(0.31) per share for 1997 and $(15.2) million and $(0.46)
per share for 1996. The estimated weighted-average per share fair value of the
options granted during 1998 was $4.18, was $9.70 January 1, 1997 through the
Distribution Date, $6.38 for the remainder of 1997 and $10.80 for 1996, on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected life (years)....................................... 4.0 4.0 4.0
Risk-free interest rate..................................... 4.81% 6.39% 6.18%
Expected volatility-pre-Distribution........................ N/A 43% 43%
Expected volatility-post-Distribution....................... 54% 45% N/A
Expected dividend yield..................................... 0% 0% 0%
</TABLE>
The pro forma effect on net income (loss) and earnings (loss) per share for
1998, 1997 and 1996 may not be representative of the pro forma effect in future
years because it includes compensation cost on a straight-line basis over the
vesting periods of the grants and does not take into consideration the pro forma
compensation costs for grants made prior to 1995.
Stockholder Rights Plan. On January 6, 1997 the Board of Directors adopted
a stockholder rights plan designed to protect stockholders from various abusive
takeover tactics, including attempts to acquire control of the Company at an
inadequate price. Under the rights plan, which was amended in March 1999, each
stockholder, subsequent to the distribution date of January 24, 1997, receives a
dividend of one right for each outstanding share of Common Stock. The rights are
attached to, and presently only trade with, the Common Stock and currently are
not exercisable. Except as specified below, upon becoming exercisable, all
rights holders will be entitled to purchase from the Company one one-thousandth
of a share of Series A Junior Participating Preferred Stock ("Participating
Preferred Stock") at a price of $100.
The rights become exercisable and will begin to trade separately from the
Common Stock upon the earlier of (i) the first date of public announcement that
a person or group (other than an existing 15% stockholder or pursuant to a
Permitted Offer, as defined) has acquired beneficial ownership of 15% or more of
the outstanding Common Stock, or (ii) 10 business days following a person's or
group's commencement of, or announcement of, an intention to commence a tender
or exchange offer, the consummation of which would result in beneficial
ownership of 15% or more of the Common Stock. The rights will entitle holders to
purchase Common Stock having a market value (immediately prior to such
acquisition) of twice the exercise price of the right in lieu of purchasing the
Participating Preferred Stock. If the Company is acquired through a merger or
other business combination transaction (other than a Permitted Offer, as
defined), each right will entitle the holder to purchase common stock of the
surviving company having a market value (immediately prior to such acquisition)
of twice the exercise price of the right. The Company may redeem the rights for
$0.01 each at any time prior to such acquisition. The rights will expire on
January 6, 2007, unless earlier redeemed.
In connection with the stockholder rights plan, the Board of Directors
approved the creation of, out of the authorized but unissued shares of preferred
stock of the Company, the Participating Preferred Stock, consisting of 0.4
million shares with a par value of $0.01 per share. The holders of the
Participating Preferred
40
<PAGE> 42
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock are entitled to receive dividends, if declared by the Board of Directors,
from funds legally available. Each share of Participating Preferred Stock is
entitled to one thousand votes on all matters submitted to stockholder vote. The
shares of Participating Preferred Stock are not redeemable by the Company nor
convertible into Common Stock or any other security of the Company.
13. EARNINGS (LOSS) PER SHARE
The Company adopted SFAS No. 128 "Earnings per Share" during 1997. In
accordance with this pronouncement, the Company retroactively adopted this
standard and restated all historical earnings per share data contained in this
report. SFAS 128 requires presentations of "basic" and "diluted" earnings per
share.
Basic earnings (loss) per share is computed by dividing income (loss)
available to common stockholders by the weighted-average number of common shares
outstanding during the applicable periods. In 1998, the diluted earnings per
share computation is based on net income divided by the weighted-average number
of common shares outstanding adjusted for the dilutive effect of stock options.
In 1997 and 1996, the diluted earnings (loss) per share computations are based
on net income (loss) adjusted for interest and amortization of debt issuance
costs related to convertible debt, if dilutive, divided by the weighted-average
number of common shares outstanding adjusted for the dilutive effect of stock
options and convertible securities. The diluted earnings (loss) per share
calculations assume 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 each of the years ended
December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income available to common stockholders........ $18,534 36,811 $0.50
=====
EFFECT OF DILUTIVE SECURITIES
Options...................................... -- 88
------- ------
DILUTED EPS
Income available to common stockholders plus
assumed conversions.......................... $18,534 36,899 $0.50
======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income from continuing operations available to
common stockholders.......................... $8,872 35,414 $0.25
=====
EFFECT OF DILUTIVE SECURITIES
Options...................................... -- 162
------ ------
DILUTED EPS
Income from continuing operations available to
common stockholders plus assumed
conversions.................................. $8,872 35,576 $0.25
====== ====== =====
</TABLE>
41
<PAGE> 43
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effect of the Notes outstanding through the Distribution is excluded
from the above computation of diluted earnings per share because the impact was
anti-dilutive. Had the impact of the weighted-average shares outstanding related
to the Notes of 1,305 shares been included in the diluted calculation, the
diluted weighted-average shares outstanding of as December 31, 1997 would have
been 36,881 shares.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income from continuing operations available to
common stockholders.......................... $39,764 32,924 $1.20
=====
EFFECT OF DILUTIVE SECURITIES
Options...................................... -- 171
Convertible debt............................. 2,658 3,757
------- ------
DILUTED EPS
Income from continuing operations available to
common stockholders plus assumed
conversions.................................. $42,422 36,852 $1.15
======= ====== =====
</TABLE>
14. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
Derivative instruments are primarily used by the Company to reduce
financial risk arising from changes in foreign exchange and interest rates. The
Company does not use derivative instruments for trading purposes, nor does it
engage in currency or interest rate speculation. Derivatives used by the Company
consist of foreign exchange, interest rate and other instruments. The Company
believes that the various counterparties with which the Company enters into
these agreements consist of only financially sound institutions and,
accordingly, believes that the credit risk for non-performance of these
contracts is not significant. The Company monitors its underlying market risk
exposures on an ongoing basis and believes that it can modify or adapt its
hedging strategies as needed.
Foreign Exchange Instruments. The Company enters into forward contracts on
a month-to-month basis to minimize the effect of foreign currency fluctuations
with regard to certain monetary assets and liabilities denominated in currencies
other than the U.S. dollar. Gains and losses on these contracts generally
offset, in the same period, gains and losses resulting from the translation of
monetary assets and liabilities to U.S. dollars on a monthly basis, reducing the
risk of exchange rate movements in the Company's results of operations.
On a selective basis, the Company enters into forward contracts and
purchased option contracts designed to hedge the currency exposure of
contractual and other firm commitments denominated in foreign currencies and the
currency exposure of anticipated, but not yet committed, transactions expected
to be denominated in foreign currencies. The purpose of these activities is to
protect the Company from the risk that the eventual net cash flows in U.S.
dollars from foreign receivables and payables will be adversely affected by
changes in exchange rates. Gains and losses on all purchased options and those
forward contracts which hedge contractual and other firm commitments are
deferred and recognized in the Company's results of operations in the same
period as the gain or loss from the underlying transactions. Gains and losses on
forward contracts used to hedge anticipated, but not yet committed, transactions
are recognized in the Company's results of operations as changes in exchange
rates for the applicable foreign currencies occur. Historically, foreign
contracts with respect to contractual and other firm commitments and
anticipated, but not yet committed, transactions have been short-term in nature.
In addition, purchased options have had no intrinsic value at the time of
purchase.
42
<PAGE> 44
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company settles foreign exchange contracts generally at maturity and at
prevailing market rates. The Company recognizes in its results of operations
over the life of the contract the amortization of contract premium on purchased
options. The amortization of these premiums during each of the three years in
the period ended December 31, 1998 was not significant. As of December 31, 1998
and 1997, the Company had outstanding forward and purchased option contracts in
the amounts of $21.3 million and $19.9 million, respectively, comprised of
foreign currencies which were to be sold and $79.6 million and $23.2 million,
respectively, comprised of foreign currencies which were to be purchased. All
outstanding forward and purchased option contracts as of December 31, 1998
mature within twelve months.
As of December 31, 1998 the Company owned the following forward and option
contracts:
FORWARD CONTRACTS:
<TABLE>
<CAPTION>
US DOLLAR (000'S)
AVERAGE US DOLLAR (000'S) FAIR
CURRENCY RATE PURCHASE/(SELL) VALUE
- -------- ------- ----------------- -----------------
<S> <C> <C> <C> <C>
New Taiwan Dollar................. 32.57 NTD/US $(54,283) $ 545
German Marks...................... 1.67 DM/US 11,392 60
Japanese Yen...................... 115.62 JPY/US 8,779 (155)
Irish Punt........................ 1.49 US/IEP (3,125) (5)
British Pounds.................... 1.68 US/BPS 1,093 5
</TABLE>
PURCHASED OPTIONS:
<TABLE>
<CAPTION>
US DOLLAR (000'S)
AVERAGE US DOLLAR (000'S) FAIR
CURRENCY RATE PURCHASE/(SELL) VALUE
- -------- ------- ----------------- -----------------
<S> <C> <C> <C> <C>
New Taiwan Dollar................. 33.03 NTD/US (22,161) $ 600
</TABLE>
Deferred gains or losses on the above contracts at December 31, 1998 and
1997 were not significant. Foreign currency transaction gains included in income
from continuing operations were $1.6 million, $3.8 million and $0.9 million in
1998, 1997 and 1996, respectively. As of December 31, 1997 the Company had no
purchased option contracts outstanding. All outstanding forward contracts at
December 31, 1997 matured within three months, and the fair values of the
contracts were not material. Fair values are based on quoted market prices.
Interest Rate Derivative Instruments. On a selective basis, the Company
from time to time enters into interest rate cap or swap agreements to reduce the
potential negative impact of increases in interest rates on its outstanding
variable-rate debt under the Credit Agreement. The Company recognizes in its
results of operations over the term of the contract, as interest expense, the
amortization of contract premiums incurred from purchasing interest rate caps.
Net payments or receipts resulting from these agreements are recorded as
adjustments to interest expense. The effect of interest rate instruments on the
Company's results of operations in each of the three years in the period ended
December 31, 1998 was not significant.
The Company entered into two interest rate swap transactions with a term of
one year beginning on January 22, 1998. Pursuant to these agreements it paid a
fixed interest rate averaging 5.96% on a notional amount of $100 million and
received interest on the $100 million notional amount based on a three month
LIBOR rate set quarterly beginning on January 22, 1998. During February 1998,
the Company purchased two interest rate caps each with a notional amount of $50
million. The caps became effective on April 27, 1998 and June 29, 1998 with
terms of nine months and six months, respectively. Under the terms of the caps,
the Company was paid an amount equal to the excess, if any, of three month LIBOR
above 6% multiplied by the notional amounts. The cost of the caps was
immaterial.
43
<PAGE> 45
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998 the Company held the following interest rate
derivative instruments:
<TABLE>
<CAPTION>
INSTRUMENT NOTIONAL AMOUNT FIXED RATE FLOATING RATE FAIR VALUE
- ---------- --------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Interest Rate Cap........... $50,000 6.000% 3-month LIBOR --
Floating to Fixed Swap...... 50,000 5.953% 3-month LIBOR (100)
Floating to Fixed Swap...... 50,000 5.966% 3-month LIBOR (100)
</TABLE>
Fair values are based on quoted market prices.
Other Financial Instruments. As of December 31, 1998 and 1997 the carrying
value of cash and cash equivalents, trade accounts receivable and trade accounts
payable approximates fair value because of the immediate or short-term maturity
of these financial instruments. The carrying amount of the Company's senior bank
indebtedness approximates fair value because the underlying instruments have
variable interest rates that adjust to market on a short-term basis.
Concentration of credit risk. The Company's accounts receivable are
generated from sales to customers in a variety of end-use markets that are
geographically and economically dispersed and payment is generally due within 30
days. Accordingly, the Company does not believe it is subject to any significant
concentration of credit risk.
15. 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. Net sales by reportable geographic
segment reflects 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 (loss) 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.
Corporate assets consist of patents, the excess of cost over fair value of net
assets acquired and deferred financing costs. Long-lived assets in the European
and Far East geographic segments are related primarily to Ireland and Taiwan,
respectively.
<TABLE>
<CAPTION>
UNITED
STATES EUROPE FAR EAST CHINA CORPORATE CONSOLIDATED
-------- -------- -------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1998:
Net sales(a)................ $225,711 $135,247 $ 40,186 $ -- $ -- $401,144
Intercompany transfers...... 114,833 136,993 170,568 28,956 (451,350) --
-------- -------- -------- ------- --------- --------
Net sales................. 340,544 272,240 210,754 28,956 (451,350) $401,144
======== ======== ======== ======= ========= ========
Interest income............. -- 48 26 29 273 376
Interest expense............ -- 297 588 -- 19,517 20,402
Depreciation and
amortization expense...... 8,770 4,654 8,913 2,645 -- 24,982
Earnings before provision
for income taxes(b)....... 6,614 3,802 11,061 5,613 -- 27,090
Income tax expense.......... 3,073 3,364 1,989 130 -- 8,556
Long-lived assets........... 93,691 52,931 57,264 29,049 173,007 405,942
Capital expenditures........ $ 2,731 $ 14,042 $ 7,532 $ 2,593 $ -- $ 26,898
</TABLE>
44
<PAGE> 46
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNITED
STATES EUROPE FAR EAST CHINA CORPORATE CONSOLIDATED
-------- -------- -------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1997:
Net sales(a)................ $245,772 $102,881 $ 31,385 $ -- $ -- $380,038
Intercompany transfers...... 102,966 84,301 137,293 4,752 (329,312) --
-------- -------- -------- ------- --------- --------
Net sales................. 348,738 187,182 168,678 4,752 (329,312) $380,038
======== ======== ======== ======= ========= ========
Interest income............. -- 224 58 26 -- 308
Interest expense............ -- 223 3,561 -- 10,877 14,661
Depreciation and
amortization expense...... 9,711 4,323 9,514 684 -- 24,232
Earnings (loss) before
provision for income
taxes(c).................. 14,535 630 8,328 (2,972) -- 20,521
Income tax expense.......... 5,452 1,042 5,155 -- -- 11,649
Long-lived assets........... 94,670 47,360 59,827 27,094 177,112 406,063
Capital expenditures........ $ 7,106 $ 1,039 $ 8,100 $12,963 $ -- $ 29,208
YEAR ENDED DECEMBER 31,
1996:
Net sales(a)................ $232,902 $ 98,921 $ 30,068 $ -- $ -- $361,891
Intercompany transfers...... 90,855 41,369 133,981 -- (266,205) --
-------- -------- -------- ------- --------- --------
Net sales................. 323,757 140,290 164,049 -- (266,205) $361,891
======== ======== ======== ======= ========= ========
Interest income............. -- 419 127 43 -- 589
Interest expense............ -- 286 3,780 -- 6,919 10,985
Depreciation and
amortization expense...... 10,136 3,831 8,435 211 -- 22,613
Earnings(loss) before
provision for income
taxes..................... 60,364 2,464 8,009 (3,666) -- 67,171
Income tax expense.......... 21,840 4,508 1,059 -- -- 27,407
Long-lived assets........... 90,836 47,220 60,904 12,258 190,219 401,437
Capital expenditures........ $ 9,049 $ 20,504 $ 21,225 $ 9,521 $ -- $ 60,299
</TABLE>
- ---------------
(a) Included in United States net sales are export sales as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Taiwan....................................... $ 69,156 $ 99,134 $ 93,718
China........................................ 32,904 28,602 23,792
-------- -------- --------
$102,060 $127,736 $117,510
======== ======== ========
</TABLE>
Net sales, by country, within the European geographic segment are:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
France........................................ $ 20,742 $ 16,485 $15,057
Germany....................................... 92,058 66,811 62,890
U.K. ......................................... 22,447 19,585 20,974
-------- -------- -------
$135,247 $102,881 $98,921
======== ======== =======
</TABLE>
(b) Earnings before provision for income taxes in 1998 includes restructuring
charges of $12.3 million ($8.5 million net of tax).
45
<PAGE> 47
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Earnings before provision for income taxes in 1997 includes charges of $33.8
million, ($25.3 million net of tax), primarily related to the separation of
GI's Taiwan operations.
No single customer accounted for more than 10% of the Company's sales during the
years ended December 31, 1998, 1997 and 1996.
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly data for 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED 1998
--------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 December 31(a)
----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Net sales............................. $106,397 $98,762 $ 97,223 $ 98,762
Gross profit.......................... 35,289 28,647 26,726 26,900
Net income(loss)...................... 9,466 6,846 5,956 (3,734)
Earnings(loss) per share
Basic:.............................. $ 0.26 $ 0.19 $ 0.16 $ (0.10)
Diluted:............................ 0.26 0.19 0.16 (0.10)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED 1997
--------------------------------------------------------
MARCH 31(B) JUNE 30(C) SEPTEMBER 30 DECEMBER 31
----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Net sales............................. $ 85,369 $95,511 $ 95,568 $103,590
Gross profit.......................... 19,426 6,915 30,662 33,722
Income(loss) from continuing
operations.......................... 707 (9,416) 8,506 9,075
Net income(loss)...................... 17,683 (8,182) (12,643) 9,075
Earnings(loss) per share(d)...........
Basic:
Continuing operations............ $ 0.02 $ (0.27) $ 0.23 $ 0.25
Net income(loss)................. 0.52 (0.24) (0.35) 0.25
Diluted:
Continuing operations............ $ 0.02 $ (0.27) $ 0.23 $ 0.25
Net income(loss)................. 0.51 (0.24) (0.33) 0.25
</TABLE>
- ---------------
(a) Includes restructuring charges of $12.3 million ($8.5 million or $0.23 per
share net of tax).
(b) Includes charges of $7.4 million ($5.5 million or $0.15 per share net of
tax) primarily related to the separation of GI's Taiwan operations. These
costs include $7.3 million charged to cost of sales and $0.1 million charged
to selling, general and administrative expense.
(c) Includes charges of $26.4 million ($19.8 million or $0.54 per share net of
tax) primarily related to the separation of GI's Taiwan operations. These
costs include $25.4 million charged to cost of sales and $1.0 million
charged to selling, general and administrative expense.
(d) Earnings (loss) per share data has been adjusted to reflect the one for four
reverse stock split and restated in conformance with SFAS No. 128.
46
<PAGE> 48
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. DISCONTINUED OPERATIONS
Net sales for the Discontinued Operations included in the Consolidated
Statement of Operations were $1.3 billion and $2.3 billion for the years ended
December 31, 1997 and 1996, respectively.
Discontinued operations includes $52.9 million and $2.7 million, net of
applicable income taxes, for the years ended December 31, 1997 and 1996,
respectively, for costs incurred primarily related to the separation of the
Taiwan operations between General Semiconductor and General Instrument and for
professional fees and certain other administrative and financing costs incurred
directly related to the Distribution.
The distribution of the net assets of discontinued businesses reduced
stockholders' equity by $1.4 billion of which $1.2 billion was allocated to
additional paid-in capital and $0.2 billion to retained earnings.
47
<PAGE> 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors:
The sections captioned "Election of Directors" and "The Board of
Directors and Committees of the Board" contained in the Company's
1999 Proxy Statement are hereby incorporated by reference.
(b) Identification of Executive Officers:
See Part I of this Form 10-K
(c) Compliance with Section 16(a) of the Securities Exchange Act of 1934,
as amended:
The section captioned "Section 16(a) Beneficial Ownership
Reporting Compliance" contained in the Company's 1999 Proxy
Statement is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is contained in the sections captioned
"Compensation of Executive Officers", and "Severance Protection and Other
Agreements", in the Company's 1999 Proxy Statement and is incorporated by
reference herein. The sections captioned "Report of the Compensation Committee"
and "Performance Graph" in the Company's 1999 Proxy Statement are not
incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is contained in the sections captioned
"Security Ownership of Certain Beneficial Owners and Management of the Company"
and "Compensation of Executive Officers-Stock Options" in the Company's 1999
Proxy Statement and is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is contained in the section captioned
"Certain Related Party Transactions" in the Company's 1999 Proxy Statement and
is incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
1. Financial Statements
Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Balance Sheets -- as of December 31, 1998 and 1997
Consolidated Statements of Operations -- Years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity -- Years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows -- Years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
48
<PAGE> 50
See item 8 of this Form 10-K for Consolidated Financial Statements
2. Financial Statement Schedules. Schedules are omitted because they
are not applicable or the required information is shown in the
financial statements or notes thereto.
3. Exhibits. The exhibits required by Item 601 of Regulation S-K filed
as part of, or incorporated by reference in, this report are listed
in (c) below.
(b) Reports on Form 8-K
The Company filed a Form 8-K with the SEC, dated November 6, 1998, to
report under Item 5 of that Form that a press release was issued on
November 6, 1998 regarding a restructuring plan the Company adopted. A
copy of the press release was filed as an exhibit to the Form 8-K.
(c) Item 601 Exhibits
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
2.1* Agreement of Merger, dated as of July 25, 1997, between
General Instrument Corporation and General Instrument
Corporation of Delaware
3.1 Restated Certificate of Incorporation of General
Semiconductor, Inc. (including Certificate of Designation,
Preferences and Rights of Series A Junior Participating
Preferred Stock)
3.2 Amended and Restated By-Laws of General Semiconductor, Inc.
4.1** Rights Agreement, dated January 6, 1997, between General
Semiconductor, Inc. and ChaseMellon Shareholder Services,
LLC
4.2*** Amendment No. 1 to the Rights Agreement, dated as of March
10, 1999 between General Semiconductor, Inc. and ChaseMellon
Shareholder Services, LLC
10.1* Employee Benefits Allocation Agreement, dated as of July 25,
1997, among NextLevel Systems, Inc., CommScope, Inc. and
General Semiconductor, Inc.
10.2* Debt and Cash Allocation Agreement, dated as of July 25,
1997, among NextLevel Systems, Inc., CommScope, Inc. and
General Semiconductor, Inc.
10.3* Insurance Agreement, dated as of July 25, 1997, among
NextLevel Systems, Inc., CommScope, Inc. and General
Semiconductor, Inc.
10.4* Tax Sharing Agreement, dated as of July 25, 1997, among
NextLevel Systems, Inc., CommScope, Inc. and General
Semiconductor, Inc.
10.5* Trademark License Agreement, dated as of July 25, 1997,
among NextLevel Systems, Inc., CommScope, Inc. and General
Semiconductor, Inc.
10.6* Transition Services Agreement, dated as of July 25, 1997,
among NextLevel Systems, Inc., CommScope, Inc. and General
Semiconductor, Inc.
10.7* Credit Agreement, dated as of July 23, 1997, among NextLevel
Systems, Inc., and General Semiconductor, Inc., Certain
Banks, The Chase Manhattan Bank as Administrative Agent and
The Chase Manhattan Bank, Bank of America National Trust and
Savings Association, Bank of Montreal, The Bank of Nova
Scotia, CIBC, Inc. Credit Lyonnais New York Branch, Fleet
National Bank and Wachovia Bank, N.A. as Co-Agents
10.7.1 First Amendment to the Credit Agreement, dated as of
December 31, 1998 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*+ Amended and Restated General Semiconductor, Inc. 1993
Long-Term Incentive Plan
10.8.1****+ General Semiconductor, Inc. 1998 Long-Term Incentive Plan
10.9*+ Form of Indemnification Agreement between General
Semiconductor, Inc. and certain executive officers
10.10+ Amended and Restated Severance Protection Agreement, dated
October 29, 1998, between General Semiconductor, Inc. and
Ronald A. Ostertag
10.11+ Form of Amended and Restated Severance Protection Agreement
between General Semiconductor, Inc. and certain of its
executive officers (other than the Chief Executive Officer)
21. Subsidiaries of the Registrant
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
23. Independent Auditors' Consent
27. Financial Data Schedule
99. Forward-Looking Information
</TABLE>
- ---------------
* Incorporated herein by reference from the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1997 (File No. 1-5442).
** Incorporated herein by reference from the Registration Statement on Form
8-A filed January 10, 1997 (File No. 1-5442).
*** Incorporated herein by reference from the Amendment to the Registration
Statement on Form 8-A/A filed March 16, 1999 (File No. 1-5442).
**** Incorporated herein by reference from the Company's Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on July 20,
1998 (Reg. No. 333-22861).
+ Management compensation.
50
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
GENERAL SEMICONDUCTOR, INC.
The undersigned, Stephen B. Paige, certifies that he is the
Senior Vice President, General Counsel and Secretary of General Semiconductor,
Inc., a corporation organized and existing under the laws of the State of
Delaware (the "Corporation"), and does hereby further certify as follows:
(1) The name of the corporation is General Semiconductor, Inc.
The Corporation was originally incorporated under the name FLGI Holding Corp.
(2) The original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware on
June 28, 1990.
(3) A Certificate of Amendment was filed with the Secretary of
State of the State of Delaware on August 9, 1990, a Restated Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
November 13,1990, a Certificate of Amendment was filed with the Secretary of
State of the State of Delaware on February 26, 1992, an Amended and Restated
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on March 30, 1992, an Amended and Restated Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
May 4, 1992, a Certificate of Correction was filed with the Secretary of State
of the State of Delaware on June 16, 1992, an Amended and Restated Certificate
of Incorporation was filed with the Secretary of State of the State of Delaware
on June 2, 1993, and an Amended and Restated Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on July 21, 1997.
(4) This Restated Certificate of Incorporation restates and
integrates the provisions of the original Certificate of Incorporation of the
Corporation as heretofore amended or supplemented and has been duly adopted in
accordance with Section 245 of the General Corporation Law of Delaware (the
"GCL").
(5) Pursuant to Section 103(d) of the GCL, this Restated
Certificate of Incorporation shall become effective immediately upon filing with
the Secretary of State of the State of Delaware (the "Effective Date").
(6) The text of the Restated Certificate of Incorporation of
the Corporation is again restated to read in its entirety as follows:
FIRST: The name of the Corporation is General
Semiconductor, Inc.
SECOND: The address of the Corporation's registered
office in the State of Delaware is Corporation Trust Center,
1209 Orange Street in the City of Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at
such address is The Corporation Trust Company.
<PAGE> 2
THIRD: The purpose of the Corporation is to engage in
any lawful act or activity for which corporations may be
organized under the GCL as set forth in Title 8 of the
Delaware Code.
FOURTH: The aggregate number of shares of all classes
of capital stock which the Corporation shall have authority to
issue is (i) 400,000,000 shares of common stock, par value
$.01 per share (the "New Common Stock"), and (ii) 20,000,000
shares of preferred stock, par value $.01 per share (the
"Preferred Stock").
At 5:15 p.m., on July 25, 1997 (the "Effective
Time"), each four shares of the common stock, par value $.01
per share, issued and outstanding immediately prior to the
Effective Time (the "Old Common Stock"), shall automatically,
without further action on the part of the Corporation or any
holder of such Old Common Stock, be reclassified as and
converted into one fully paid and nonassessable share of New
Common Stock as herein authorized (the "Reverse Stock Split"),
subject to the treatment of fractional share interests as
described below. Such reclassification and conversion of Old
Common Stock into New Common Stock shall not change the par
value per share of the shares reclassified and converted,
which par value shall remain $.01 per share. The
reclassification of the Old Common Stock into New Common
Stock, will be deemed to occur at the Effective Time,
regardless of when the certificates representing such Old
Common Stock are physically surrendered to the Corporation.
After the Effective Time, certificates representing the Old
Common Stock will, until such shares are surrendered to the
Corporation, represent the number of shares of New Common
Stock into which such Old Common Stock shall have been
converted pursuant hereto. The Corporation is authorized to
use a book-entry transfer facility to reflect ownership of the
New Common Stock; however, upon request and in accordance with
the procedures of any such book-entry transfer facility and
Delaware law, stockholders shall be entitled to receive a
certificate representing shares of New Common Stock.
Fractional shares of New Common Stock shall not be
issued in connection with the Reverse Stock Split. Fractional
shares of New Common Stock shall be aggregated into whole
shares of New Common Stock and shall be sold in the open
market at prevailing prices on behalf of holders who otherwise
would be entitled to receive fractional share interests of New
Common Stock, such holders shall then receive a cash payment
equal to the amount of their pro rata share of the total sale
proceeds.
Following the Effective Time, the capital of the
Corporation shall be reduced to reflect the change in the
outstanding shares of the Corporation.
Shares of the Preferred Stock of the Corporation may
be issued from time to time in one or more classes or series,
each of which class or series shall have such distinctive
designation or title as shall be fixed by the Board of
Directors of the Corporation (the "Board of Directors") prior
to the issuance of any shares thereof. Each such class or
series of Preferred Stock shall have such voting powers, full
or limited, or no voting powers, and such preferences and
relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as
shall be stated in such resolution or resolutions providing
for the issue of such class or series of Preferred Stock as
may be adopted from time to time by the Board of Directors
prior to the issuance of any shares thereof pursuant to the
authority hereby expressly vested in it, all in accordance
with the laws of the State of Delaware.
FIFTH: The business and affairs of the Corporation
shall be managed under the direction of the Board of
Directors. The number of directors of the Corporation shall be
from time to time fixed by, or in the manner provided in, the
By-laws of the
2
<PAGE> 3
Corporation.
SIXTH: Subject to the rights, if any, of the holders
of shares of Preferred Stock then outstanding, any or all of
the directors of the Corporation may be removed from office,
with or without cause, at any time by the affirmative vote of
the holders of a majority of the outstanding shares of the
Corporation then entitled to vote generally in the election of
directors, considered for purposes of this Article SIXTH as
one class.
SEVENTH: A director of the Corporation shall not be
personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director,
provided, however, that the foregoing shall not eliminate or
limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the GCL, or (iv) for any
transaction from which the director derived an improper
personal benefit. If the GCL is hereafter amended to permit
further elimination or limitation of the personal liability of
directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted
by the GCL as so amended. Any repeal or modification of this
Article SEVENTH by the stockholders of the Corporation or
otherwise shall not apply to or have any effect on the
liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment or repeal.
EIGHTH: The Corporation shall, to the fullest extent
permitted by Delaware law, indemnify any person (the
"Indemnitee") who is or was involved in any manner (including,
without limitation, as a party or a witness) in any
threatened, pending or completed investigation, claim, action,
suit or proceeding, whether civil, criminal, administrative or
investigative (including, without limitation, any action, suit
or proceeding brought by or in the right of the Corporation to
procure judgement in its favor) (a Proceeding") by reason of
the fact that the Indemnitee is or was a director or officer
of the Corporation, or is or was serving another entity in
such capacity at the request of the Corporation, against all
expenses and liabilities actually and reasonably incurred by
the Indenmitce in connection with the defense or settlement of
such Proceeding (including attorneys' fees).
NINTH: The Corporation reserves the right to rescind,
amend, alter, change, or repeal any provision contained in
this Restated Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this
reservation.
TENTH: In furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is
expressly authorized to adopt, repeal, alter, amend or rescind
the By-laws of the Corporation. In addition, the By-laws of
the Corporation may be adopted, repealed, altered, amended or
rescinded by the affirmative vote of a majority of the
outstanding stock of the Corporation entitled to vote thereon.
ELEVENTH: Whenever a compromise or arrangement is
proposed between this Corporation and its creditors or any
class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the
application in a summary way of this Corporation or of any
creditor or stockholder thereof or on the application of any
receiver or receivers appointed for this Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or
on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under the
provisions of Section 279 of Title 8 of the Delaware Code
order a
3
<PAGE> 4
meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as
the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as a
consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall,
if sanctioned by the court to which said application has been
made, be binding on all the creditors or class of creditors,
and/or on all of the stockholders or class of stockholders, of
this Corporation, as the case may be, and also on this
Corporation
TWELFTH: Elections of directors need not be by
written ballot unless the By-laws of the Corporation shall
otherwise provide.
IN WITNESS WHEREOF, General Semiconductor, Inc. has
caused this Restated Certificate of Incorporation to be signed
by Stephen B. Paige, its Senior Vice President, General
Counsel and Secretary, this 10th day of March, 1999.
GENERAL SEMICONDUCTOR, INC.
By: /s/ Stephen B. Paige
----------------------------------------
Stephen B. Paige Senior Vice President,
General Counsel and Secretary
4
<PAGE> 5
GENERAL SEMICONDUCTOR, INC.
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A JUNIOR PARTICIPATING
PREFERRED STOCK
(Pursuant to Section 151
of the General Corporation Law of the State of Delaware)
I, Stephen B. Paige, Senior Vice President, General Counsel
and Secretary of General Semiconductor, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), in accordance with the provisions of Section 103 thereof, do
hereby certify:
That pursuant to the authority conferred upon the Board of
Directors by the Corporation's Certificate of Incorporation (the "Certificate of
Incorporation"), the Board of Directors on January 6, 1997, adopted the
following resolution creating a series of 400,000 shares of Preferred Stock
designated as Series A Junior Participating Preferred Stock:
WHEREAS, the Certificate of Incorporation provides that the
Corporation is authorized to issue 20,000,000 shares of preferred stock, none of
which are outstanding, now therefore it is.
RESOLVED, that pursuant to the authority vested in the Board
of Directors of the Corporation by Article FOURTH of the Certificate of
Incorporation, a series of Preferred Stock of the Corporation be, and it hereby
is, created out of the authorized but unissued shares of the capital stock of
the Corporation, such series to be designated Series A Junior Participating
Preferred Stock (the "Participating Preferred Stock"), to consist of four
hundred thousand (400,000) shares, par value $.01 per share, of which the
preferences and relative and other rights, and the qualifications, limitations
or restrictions thereof, shall be as follows:
1. Future Increase or Decrease. Subject of paragraph
4(e) of this resolution, the number of shares of said
series may at any time or from time to time be
increased or decreased by the Board of Directors
notwithstanding that shares of such series may be
outstanding at such time of increase or decrease.
2. Dividend Rate.
(a) The holders of shares of Participating Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of each November, February, May and August in
each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Participating Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $10.00 or (b) 1,000 times the aggregate per share amount of all cash
dividends and 1,000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, par
value $.01 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Participating Preferred Stock.
(b) On or after the first issuance of any share or
fractional share of Participating Preferred Stock, no dividend on Common Stock
shall be declared unless concurrently therewith a dividend or distribution is
declared on the Participating Preferred Stock as provided in paragraph (a)
above; and the declaration of any such dividend on the Common Stock shall be
expressly conditioned
5
<PAGE> 6
upon payment or declaration of and provision for a dividend on the Participating
Preferred Stock as above provided. In the event no dividend or distribution
shall have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $10.00 per share on the Participating Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(c) Dividends shall begin to accrue and be cumulative
on outstanding shares of Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of
Participating Preferred Stock, unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares of
Participating Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. The Board of
Directors may fix a record date for the determination of holders of shares of
Participating Preferred Stock entitled to receive payment of a dividend
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.
3. Dissolution, Liquidation and Winding Up. In the event of
any voluntary or involuntary dissolution, liquidation or winding up of the
affairs of the Corporation (hereinafter referred to as a "Liquidation"), the
holders of Participating Preferred Stock shall receive at least $100.00 per
share, plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, provided that the
holders of shares of Participating Preferred Stock shall be entitled to receive
at least an aggregate amount per share equal to 1,000 times the aggregate amount
to be distributed per share to holders of Common Stock (the "Participating
Preferred Liquidation Preference").
4. Voting Rights. The holders of shares of Participating
Preferred Stock shall have the following voting rights:
(a) Each share of Participating Preferred Stock shall
entitle the holder thereof to one thousand (1,000) votes on all matters
submitted to a vote of the stockholders of the Corporation.
(b) Except as otherwise provided herein, or by law,
the Certificate of Incorporation or the Amended and Restated By-laws of the
Corporation (the "By-laws"), the holders of shares of Participating Preferred
Stock and the holders of shares of Common Stock shall vote together as one class
on all matters submitted to a vote of stockholders of the Corporation.
(c) If and whenever dividends on the Participating
Preferred Stock shall be in arrears in an amount equal to six quarterly dividend
payments, then and in such event the holders of the Participating Preferred
Stock, voting separately as a class (subject to the provisions of subparagraph
(d) below), shall be entitled at the next annual meeting of the stockholders or
at any special meeting to elect two (2) directors. Each share of Participating
Preferred Stock shall be entitled to one vote, and holders of fractional shares
shall have the right to a fractional vote. Upon election, such directors shall
become additional directors of the Corporation and the authorized number of
directors of the Corporation shall thereupon be automatically increased by such
number of directors. Such right of the holders of Participating Preferred Stock
to elect directors may be exercised until all dividends in default on the
Participating Preferred Stock shall have been paid in full, and dividends for
the current dividend period declared and funds therefor set apart, and when so
paid and set apart, the right of the holders of Participating Preferred Stock to
elect such number of directors shall cease, the term of such directors shall
thereupon terminate, and the authorized number of directors of the Corporation
shall thereupon return to the number of authorized directors otherwise in
effect, but subject always to the same provisions for the vesting of such
special voting rights in the case of any such future dividend default or
defaults. The fact that dividends have been paid and set apart as required by
the preceding sentence shall be evidenced by a
6
<PAGE> 7
certificate executed by the President and the chief financial officer of the
Corporation and delivered to the Board of Directors. The directors so elected by
holders of Participating Preferred Stock shall serve until the certificate
described in the preceding sentence shall have been delivered to the Board of
Directors or until their respective successors shall be elected or appointed and
qualify.
At any time when such special voting rights have been so
vested in the holders of the Participating Preferred Stock, the Secretary of the
Corporation may, and upon the written request of the holders of record of 10% or
more of the number of shares of the Participating Preferred Stock then
outstanding addressed to such Secretary at the principal office of the
Corporation in the State of New York, shall, call a special meeting of the
holders of the Participating Preferred Stock for the election of the directors
to be elected by them as hereinabove provided, to be held in the case of such
written request within forty (40) days after delivery of such request, and in
either case to be held at the place and upon the notice provided by law and in
the By-laws of the Corporation for the holding of meetings of stockholders;
provided, however, that the Secretary shall not be required to call such a
special meeting (i) if any such request is received less than ninety (90) days
before the date fixed for the next ensuing annual or special meeting of
stockholders or (ii) if at the time any such request is received, the holders of
Participating Preferred Stock are not entitled to elect such directors by reason
of the occurrence of an event specified in the third sentence of subparagraph
(d) below.
(d) if, at any time when the holders of Participating
Preferred Stock are entitled to elect directors pursuant to the foregoing
provisions of this paragraph 4, the holders of any one or more additional series
of Preferred Stock are entitled to elect directors by reason of any default or
event specified in the Certificate of Incorporation, as in effect at the time of
the certificate of designation for such series, and if the terms for such other
additional series so permit, the voting rights of the two or more series then
entitled to vote shall be combined (with each series having a number of votes
proportional to the aggregate liquidation preference of its outstanding shares).
In such case, the holders of Participating Preferred Stock and of all such other
series then entitled so to vote, voting as a class, shall elect such directors.
If the holders of any such other series have elected such directors prior to the
happening of the default or event permitting the holders of Participating
Preferred Stock to elect directors, or prior to a written request for the
holding of a special meeting being received by the Secretary of the Corporation
from the holders of not less than 10% of the then outstanding shares of
Participating Preferred Stock, then such directors so previously elected will be
deemed to have been elected by and on behalf of the holders of Participating
Preferred Stock as well as such other series, without prejudice to the right of
the holders of Participating Preferred Stock to vote for directors if such
previously elected directors shall resign, cease to serve or fail to stand for
reelection while the holders of Participating Preferred Stock are entitled to
vote. If the holders of any such other series are entitled to elect in excess of
two (2) directors, the Participating Preferred Stock shall not participate in
the election of more than two (2) such directors, and those directors whose
terms first expire shall be deemed to be the directors elected by the holders of
Participating Preferred Stock; provided that, if at the expiration of such terms
the holders of Participating Preferred Stock are entitled to vote in the
election of directors pursuant to the provisions of this paragraph 4, then the
Secretary of the Corporation shall call a meeting (which meeting may be the
annual meeting or special meeting of stockholders referred to in subparagraph
(c)) of holders of Participating Preferred Stock for the purpose of electing
replacement directors (in accordance with the provisions of this paragraph 4) to
be held on or prior to the time of expiration of the expiring terms referred to
above.
(e) Except as otherwise set forth herein or required
by law, the Certificate of Incorporation or the By-laws, holders of
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for the taking of any
corporate action. No consent of the holders of outstanding shares of
Participating Preferred Stock at any time outstanding shall be required in order
to permit the Board of Directors to: (i) increase the number of authorized
shares of Participating Preferred Stock or to decrease such number to a number
not below the sum of the number of shares of Participating Preferred Stock then
outstanding and the number of shares with respect to which there are outstanding
rights to
7
<PAGE> 8
purchase; or (ii) to issue Preferred Stock which is senior to the Participating
Preferred Stock, junior to the Participating Preferred Stock or on a parity with
the Participating Preferred Stock.
5. Redemption. The shares of Participating Preferred Stock
shall not be redeemable.
6. Conversion Rights. The Participating Preferred Stock is not
convertible into Common Stock or any other security of the Corporation.
IN WITNESS WHEREOF, the undersigned Senior Vice President,
General Counsel and Secretary of the Corporation declares under penalty of
perjury the truth, to the best of his knowledge, of this Certificate of
Designation, Preferences and Rights of Series A Junior Participating Preferred
Stock.
Executed this 10th day of March, 1999 in Melville, New York
By: /s/ Stephen B. Paige
----------------------------------
Stephen B. Paige,
Senior Vice President,
General Counsel and Secretary
8
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS OF
GENERAL SEMICONDUCTOR, INC.
(hereinafter called the "Corporation")
(As of March 10, 1999)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
within the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The Corporation may also have an office or
offices other than said registered office at such place or places, either within
or without the State of Delaware, as the Board of Directors shall from time to
time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders for the
election of directors or for any other purpose shall be held at any such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting or in a duly
executed waiver thereof. At such annual meetings, the stockholders shall elect
by a plurality vote the directors standing for election and transact such other
business as may properly be brought before the meeting in accordance with these
Amended and Restated By-Laws.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any
purpose or purposes, unless otherwise prescribed by statute may be called by the
Board of Directors, the Chairman of the Board of Directors, if one shall have
been elected, or the President and shall be called by the Secretary upon the
request in writing of a stockholder or stockholders holding of record at least a
majority of the voting power of the issued and outstanding shares of capital
stock of the Corporation entitled to vote at such meeting.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise expressly required
by statute, written notice of each annual and special meeting of stockholders
stating the date, place and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder of record entitled to vote thereat not less than ten nor
more than sixty days before the date of the meeting. Business transacted at any
special meeting of stockholders shall be
<PAGE> 2
limited to the purposes stated in the notice. Notice shall be given personally
or by mail and, if by mail, shall be sent in a postage prepaid envelope,
addressed to the stockholder at such stockholder's address as it appears on the
records of the Corporation. Notice by mail shall be deemed given at the time
when the same shall be deposited in the United States mail, postage prepaid.
Notice of any meeting shall not be required to be given to any person who
attends such meeting, except when such person attends the meeting in person or
by proxy for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened, or who, either before or after the meeting, shall submit a signed
written waiver of notice, in person or by proxy. Neither the business to be
transacted at, nor the purpose of, an annual or special meeting of stockholders
need be specified in any written waiver of notice.
SECTION 5. ORGANIZATION. At each meeting of stockholders, the Chairman
of the Board, if one shall have been elected, or, in such person's absence or if
one shall not have been elected, the President, shall act as chairman of the
meeting. The Secretary or, in such person's absence or inability to act, the
person whom the chairman of the meeting shall appoint secretary of the meeting,
shall act as secretary of the meeting and keep the minutes thereof.
SECTION 6. CONDUCT OF BUSINESS. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seems to him or her in order. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced at the meeting.
SECTION 7. QUORUM, ADJOURNMENTS. The holders of a majority of the
voting power of the issued and outstanding shares of capital stock of the
Corporation entitled to vote thereat, present in person or represented by proxy,
shall constitute a quorum for the transaction of business at all meetings of
stockholders, except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum shall not be present or represented by
proxy at any meeting of stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented by proxy. At such
adjourned meeting at which a quorum shall be present or represented by proxy,
any business may be transacted which might have been transacted at the meeting
as originally called. If the adjournment is for more than thirty days, or, if
after adjournment a new record date is set, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
SECTION 8. VOTING. Except as otherwise provided by statute or the
Certificate of Incorporation and these Amended and Restated By-Laws, each
stockholder of the Corporation shall be entitled at each meeting of stockholders
to one vote for each share of capital stock of the Corporation standing in such
stockholder's name on the record of stockholders of the Corporation:
(a) on the date fixed pursuant to the provisions of Section 7
of Article V of these Amended and Restated By-Laws as the record date
for the determination of the stockholders who shall be entitled to
notice of and to vote at such meeting; or
(b) if no such record date shall have been so fixed, then at
the close of business on the day next preceding the day on which notice
thereof shall be given, or, if notice is waived, at the close of
business on the date next preceding the day on which the meeting is
held.
Each stockholder entitled to vote at any meeting of
stockholders may authorize another person or persons to act for such stockholder
by a proxy signed by such stockholder or such stockholder's attorney-in-fact,
but no proxy shall be voted after three years from its date, unless the proxy
provides for a longer period. Any such proxy shall be delivered to the secretary
of the meeting at or prior to the time designated in the order of business for
so delivering such proxies. When a quorum is present at any
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meeting, the affirmative vote of the holders of a majority of the voting power
of the capital stock of the Corporation which is entitled to vote thereon and
which is present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of statute or of the Certificate of Incorporation or of these Amended
and Restated By-Laws, a different vote is required, in which case such express
provision shall govern and control the decision of such question. Unless
required by statute, or determined by the chairman of the meeting to be
advisable, the vote on any question need not be by ballot. On a vote by ballot,
each ballot shall be signed by the stockholder voting, or by such stockholder's
proxy, if there be such proxy.
SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. At least ten days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder shall be prepared. Such list shall be open to the examination
of any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city, town or village where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
SECTION 10. INSPECTORS. The Board of Directors shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may appoint one or more
inspectors. Each inspector, before entering upon the discharge of such
inspector's duties, shall take and sign an oath faithfully to execute the duties
of inspector at such meeting with strict impartiality and according to the best
of such inspector's ability. The inspectors shall determine the number of shares
of capital stock of the Corporation outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as an inspector of an
election of directors. Inspectors need not be stockholders.
SECTION 11. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided by statute or in the Certificate of Incorporation, any action
required to be taken or which may be taken at any annual or special meeting of
the stockholders of the Corporation may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of any such corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 12. ADVANCE NOTICE PROVISIONS FOR ELECTION OF DIRECTORS. Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 12 and on the record date for the
determination of stockholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this Section 12.
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In addition to any other applicable requirements, for a nomination to
be made by a stockholder such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
(a) in the case of an annual meeting, not less than 60 days nor more than 90
days prior to the date of the annual meeting; provided, however, that in the
event that less than 70 days' notice or prior public disclosure of the date of
the annual meeting is given or made to stockholders, notice by the stockholder
in order to be timely must be so received not later than the close of business
on the 10th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the 10th day following the day on which notice of the date
of the special meeting was mailed or public disclosure of the date of the
special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to be named as
a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 12. If the chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
SECTION 13. ADVANCE NOTICE PROVISIONS FOR BUSINESS TO BE TRANSACTED AT
ANNUAL MEETING. No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (i) who
is a stockholder of record on the date of the giving of the notice provided for
in this Section 13 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 13.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
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To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
not less than 60 days nor more than 90 days prior to the date of the annual
meeting; provided, however, that in the event that less than 70 days' notice or
prior public disclosure of the date of the annual meeting is given or made to
stockholders, notice by the stockholder in order to be timely must be so
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 13, provided, however, that, once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 13 shall be deemed to preclude discussion by
any stockholder of any such business. If the chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER, QUALIFICATION, ELECTION AND TERM OF DIRECTORS.
Subject to the rights, if any, of holders of Preferred Stock of the Corporation,
the Board of Directors shall consist of not less than one (1) nor more than
twenty-one (21) members, the exact number of which shall be fixed from time to
time by affirmative vote of a majority of the entire Board of Directors. Except
as otherwise provided by Section 2 of this Article III, the directors standing
for election shall be elected by a plurality of the votes cast at annual
meetings of stockholders, and each director so elected shall hold office until
such directors' successor shall have been elected and qualified, or until such
directors' death, or until such directors shall have resigned, or have been
removed, as hereinafter provided by these By-Laws or the Certificate of
Incorporation. Directors need not be stockholders.
SECTION 2. VACANCIES. Any vacancy in the Board of Directors, whether
arising from death, resignation, removal (with or without cause), an increase in
the number of directors or any other cause, may be filled by the vote of a
majority of the directors then in office, though less than a quorum, or by the
sole remaining director or by the stockholders at the next annual meeting
thereof or at a special meeting thereof. Each director so elected shall hold
office until such director's successor shall have been elected and qualified.
SECTION 3. DUTIES AND POWERS. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and
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do all such lawful acts and things as are not by statute or by the Certificate
of Incorporation or by these Amended and Restated By-Laws directed or required
to be exercised or done by the stockholders.
SECTION 4. PLACE OF MEETINGS. Meetings of the Board of Directors shall
be held at such place or places, within or without the State of Delaware, as the
Board of Directors may from time to time determine or as shall be specified in
the notice of any such meeting.
SECTION 5. ANNUAL MEETING.. The annual meeting of the Board of
Directors may be held at such time or place (within or without the State of
Delaware) as shall be specified in a notice thereof given as hereinafter
provided in Section 8 of this Article III. SECTION 6. REGULAR MEETINGS. Regular
meetings of the Board of Directors shall be held at such time and place as the
Board of Directors may fix. If any day fixed for a regular meeting shall be a
legal holiday at the place where the meeting is to be held, then the meeting
which would otherwise be held on that day shall be held at the same hour on the
next succeeding business day.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, if one shall have been elected, or
by two or more directors of the Corporation or by the President.
SECTION 8. NOTICE OF MEETINGS. Notice of regular meetings of the Board
of Directors need not be given except as otherwise required by law or these
Amended and Restated By-Laws. Notice of each special meeting of the Board of
Directors for which notice shall be required, shall be given by the Secretary as
hereinafter provided in this Section 8, in which notice shall be stated the time
and place of the meeting. Except as otherwise required by these Amended and
Restated By-Laws, such notice need not state the purposes of such meeting.
Notice of any special meeting, and of any regular or annual meeting for which
notice is required, shall be given to each director at least (a) four hours
before the meeting if by telephone or by being personally delivered or sent by
telex, telecopy, or similar means or (b) two days before the meeting if
delivered by mail to the director's residence or usual place of business. Such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage prepaid, or when transmitted if sent by telex,
telecopy, or similar means. Neither the business to be transacted at, nor the
purpose of, any special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting. Any director may waive notice of
any meeting by a writing signed by the director entitled to the notice and filed
with the minutes or corporate records. The attendance at or participation of the
director at a meeting shall constitute waiver of notice of such meeting, unless
the director at the beginning of the meeting or promptly upon such director's
arrival objects to holding the meeting or transacting business at the meeting.
SECTION 9. ORGANIZATION. At each meeting of the Board of Directors, the
Chairman of the Board, if one shall have been elected, or, in the absence of the
Chairman of the Board or if one shall not have been elected, the President (or,
in the President's absence, another director chosen by a majority of the
directors present) shall act as chairman of the meeting and preside thereat. The
Secretary or, in such person's absence, any person appointed by the chairman
shall act as secretary of the meeting and keep the minutes thereof.
SECTION 10. QUORUM AND MANNER OF ACTING. A majority of the entire Board
of Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and, except as otherwise expressly required
by statute or the Certificate of Incorporation or these Amended and Restated
By-Laws, the affirmative vote of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of Directors.
In the absence of a quorum at any meeting of the Board of Directors, a majority
of the directors present thereat may adjourn such meeting to another time and
place. Notice of the time and place of any such adjourned meeting shall be given
to all of the directors unless such time and place were announced at the meeting
at which the adjournment was taken, in which case such notice need only be given
to the directors who were not present thereat. At any
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adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called. The
directors shall act only as a Board and the individual directors shall have no
power as such.
SECTION 11. ACTION BY CONSENT. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of the
proceedings of the Board of Directors or such committee, as the case may be.
SECTION 12. TELEPHONIC MEETING. Unless restricted by the Certificate of
Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.
SECTION 13. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, including an executive committee, each committee to consist of one
or more of the directors of the Corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence of disqualification of any member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not
such members constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Each such committee, to the extent provided in the
resolution creating it, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which require it; provided, however, that no such committee shall have
the power or authority in reference to the following matters: (a) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by the General Corporation Law of Delaware to be submitted to
stockholders for approval or (b) adopting, amending or repealing any by-law of
the Corporation. Each such committee shall serve at the pleasure of the Board of
Directors and have such name as may be determined from time to time by
resolution adopted by the Board of Directors. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors.
SECTION 14. FEES AND COMPENSATION. Directors and members of committees
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board of
Directors. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
SECTION 15. RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice of such director's resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon its receipt. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 16. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because such person's or
persons' votes are counted for such purposes if (a) the material facts as to
such person's or persons' relationship or interest and as to the
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contract or transaction are disclosed or are known to the directors or committee
who then in good faith authorizes the contract or transaction by the affirmative
vote of a majority of the disinterested directors, even though the disinterested
directors be less than a quorum, (b) the material facts as to such person's or
persons' relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders or (c) the contract or transaction is fair as to the Corporation as
of the time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof or the stockholders. Interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen by
the Board of Directors and shall include a President, one or more Vice
Presidents (including Senior, Executive or other classifications of Vice
Presidents) and a Secretary. The Board of Directors, in its discretion, may also
choose as an officer of the Corporation a Chairman of the Board and a Vice
Chairman of the Board and may choose other officers (including a Treasurer, one
or more Assistant Secretaries and one or more Assistant Treasurers) as may be
necessary or desirable. Such officers as the Board of Directors may choose shall
perform such duties and have such powers as from time to time may be assigned to
them by the Board of Directors. The Board of Directors may delegate to any
officer of the Corporation the power to choose such other officers and to
proscribe their respective duties and powers. Any number of offices may be held
by the same person, unless otherwise prohibited by law, the Certificate of
Incorporation or these Amended and Restated By-Laws. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the case
of the Chairman of the Board and Vice Chairman of the Board of Directors, need
such officers be directors of the Corporation.
SECTION 2. TERM. All officers of the Corporation shall hold office
until their successors are chosen and qualified, or until their earlier
resignation or removal. Any vacancy occurring in any office of the Corporation
shall be filled by the Board of Directors.
SECTION 3. RESIGNATIONS. Any officer of the Corporation may resign at
any time by giving written notice of such officer's resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon receipt. Unless otherwise specified therein, the
acceptance of any such resignation shall not be necessary to make it effective.
SECTION 4. REMOVAL. Any officer may be removed at any time by the Board
of Directors with or without cause.
SECTION 5. COMPENSATION. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that such officer is also a
director of the Corporation.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
shall have been elected, shall be a member of the Board, an officer of the
Corporation and, if present, shall preside at each meeting of the Board of
Directors or the stockholders. The Chairman of the Board shall advise and
counsel with the President, and in the President's absence with other executives
of the Corporation, and shall perform such other duties as may from time to time
be assigned to the Chairman of the Board by the Board of Directors.
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ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. STOCK CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the Chairman of the Board or a Vice Chairman of the Board or the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation, certifying the
number of shares owned by such holder in the Corporation. If the Corporation
shall be authorized to issue more than one class of stock or more than one
series of any class, the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restriction of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock,
provided that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each stockholder who so requests the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 2. FACSIMILE SIGNATURES. Any or all of the signatures on a
certificate may be a facsimile, engraved or printed. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if such person was such officer, transfer
agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate or certificates, or the owner's legal representative, to
give the Corporation a bond in such sum as it may direct sufficient to indemnify
it against any claim that may be made against the Corporation on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
SECTION 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its records; provided, however, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
SECTION 5. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.
SECTION 6. REGULATIONS. The Board of Directors may make such additional
rules and regulations, not inconsistent with these Amended and Restated By-Laws,
as it may deem expedient concerning the issue, transfer and registration of
certificates for shares of stock of the Corporation.
SECTION 7. FIXING THE RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
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dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 8. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its records as the
owner of shares of stock to receive dividends and to vote as such owner, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares of stock on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by law.
ARTICLE VI
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 1. GENERAL. Each person who was or is made a party or is
threatened to be made a party to or is involved (including, without limitation,
as a witness) in any threatened, pending or completed action, suit, arbitration,
alternative dispute resolution mechanism, investigation, administrative hearing
or any other proceeding, whether civil, criminal, administrative or
investigative ("Proceeding") brought by reason of the fact that such person (the
"Indemnitee") is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan, whether the basis of
such Proceeding is alleged action in an official capacity as a director or
officer or in any other capacity while serving as such a director or officer,
shall be indemnified and held harmless by the Corporation to the full extent
authorized by the General Corporation Law of Delaware, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), or by other applicable law as then in effect, against all expenses,
liabilities, losses and claims (including attorneys' fees, judgments, fines,
excise taxes under the Employee Retirement Income Security Act of 1974, as
amended from time to time, penalties and amounts to be paid in settlement)
actually incurred or suffered by such Indemnitee in connection with such
Proceeding (collectively, "Losses").
SECTION 2. DERIVATIVE ACTIONS. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to or is
involved (including, without limitation, as a witness) in any Proceeding brought
by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person (also an "Indemnitee") is or was a director
or officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan, against Losses actually incurred or suffered by the
Indemnitee in connection with the defense or settlement of such action or suit
if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably
believed to be in or not opposed to the best interests of the Corporation,
provided that no indemnification shall be made in respect of any claim, issue or
matter as to which Delaware law expressly prohibits such indemnification by
reason of an adjudication of liability of the Indemnitee unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
the Indemnitee is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
SECTION 3. INDEMNIFICATION IN CERTAIN CASES. Notwithstanding any other
provision of this Article VI, to the extent that an Indemnitee has been wholly
successful on the merits or otherwise in any
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<PAGE> 11
Proceeding referred to in Sections 1 or 2 of this Article VI on any claim, issue
or matter therein, the Indemnitee shall be indemnified against Losses actually
incurred or suffered by the Indemnitee in connection therewith. If the
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Corporation shall indemnify the Indemnitee,
against Losses actually incurred or suffered by the Indemnitee in connection
with each successfully resolved claim, issue or matter. In any review or
Proceeding to determine such extent of indemnification, the Corporation shall
bear the burden of proving any lack of success and which amounts sought in
indemnity are allocable to claims, issues or matters which were not successfully
resolved. For purposes of this Section 3 and without limitation, the termination
of any such claim, issue or matter by dismissal with or without prejudice shall
be deemed to be a successful resolution as to such claim, issue or matter.
SECTION 4. PROCEDURE. (a) Any indemnification under Sections 1 and 2 of
this Article VI (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the Indemnitee is proper (except that the right of the
Indemnitee to receive payments pursuant to Section 5 of this Article VI shall
not be subject to this Section 4) in the circumstances because the Indemnitee
has met the applicable standard of conduct. Such determination shall be made
promptly, but in no event later than 60 days after receipt by the Corporation of
the Indemnitee's written request for indemnification. The Secretary of the
Corporation shall, promptly upon receipt of the Indemnitee's request for
indemnification, advise the Board of Directors that the Indemnitee has made such
request for indemnification.
(b) The entitlement of the Indemnitee to indemnification shall be
determined in the specific case (1) by the Board of Directors by a majority vote
of the directors who are not parties to such Proceeding, even though less than a
quorum (the "Disinterested Directors"), or (2) if there are no Disinterested
Directors, or if such Disinterested Directors so direct, by independent legal
counsel, or (3) by the stockholders.
(c) In the event the determination of entitlement is to be made by
independent legal counsel, such independent legal counsel shall be selected by
the Board of Directors and approved by the Indemnitee. Upon failure of the Board
of Directors to so select such independent legal counsel or upon failure of the
Indemnitee to so approve, such independent legal counsel shall be selected by
the American Arbitration Association in New York, New York or such other person
as such Association shall designate to make such selection.
(d) If the Board of Directors or independent legal counsel shall have
determined that the Indemnitee is not entitled to indemnification to the full
extent of the Indemnitee's request, the Indemnitee shall have the right to seek
entitlement to indemnification in accordance with the procedures set forth in
Section 6 of this Article VI.
(e) If the person or persons empowered pursuant to Section 4(b) of this
Article VI to make a determination with respect to entitlement to
indemnification shall have failed to make the requested determination within 60
days after receipt by the Corporation of such request, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and the Indemnitee shall be absolutely entitled to such indemnification,
absent (i) misrepresentation by the Indemnitee of a material fact in the request
for indemnification or (ii) a final judicial determination that all or any part
of such indemnification is expressly prohibited by law.
(f) The termination of any proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, adversely affect the rights of the Indemnitee to indemnification
hereunder except as may be specifically provided herein, or create a presumption
that the Indemnitee did not act in good faith and in a manner which the
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Corporation or create a presumption that (with respect to any
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<PAGE> 12
criminal action or proceeding) the Indemnitee had reasonable cause to believe
that the Indemnitee's conduct was unlawful.
(g) For purposes of any determination of good faith hereunder, the
Indemnitee shall be deemed to have acted in good faith if the Indemnitee's
action is based on the records or books of account of the Corporation or an
affiliate, including financial statements, or on information supplied to the
Indemnitee by the officers of the Corporation or an affiliate in the course of
their duties, or on the advice of legal counsel for the Corporation or an
affiliate or on information or records given or reports made to the Corporation
or an affiliate by an independent certified public accountant or by an appraiser
or other expert selected with reasonable care to the Corporation or an
affiliate. The Corporation shall have the burden of establishing the absence of
good faith. The provisions of this Section 4(g) of this Article VI shall not be
deemed to be exclusive or to limit in any way the other circumstances in which
the Indemnitee may be deemed to have met the applicable standard of conduct set
forth in these Amended and Restated By-Laws.
(h) The knowledge and/or actions, or failure to act, of any other
director, officer, agent or employee of the Corporation or an affiliate shall
not be imputed to the Indemnitee for purposes of determining the right to
indemnification under these Amended and Restated By-Laws.
SECTION 5. ADVANCES FOR EXPENSES AND COSTS. All expenses (including
attorneys' fees) incurred by or on behalf of the Indemnitee (or reasonably
expected by the Indemnitee to be incurred by the Indemnitee within three months)
in connection with any Proceeding shall be paid by the Corporation in advance of
the final disposition of such Proceeding within twenty days after the receipt by
the Corporation of a statement or statements from the Indemnitee requesting from
time to time such advance or advances whether or not a determination to
indemnify has been made under Section 4 of this Article VI. The Indemnitee's
entitlement to such advancement of expenses shall include those incurred in
connection with any Proceeding by the Indemnitee seeking an adjudication or
award in arbitration pursuant to these Amended and Restated By-Laws. The
financial ability of an Indemnitee to repay an advance shall not be a
prerequisite to the making of such advance. Such statement or statements shall
reasonably evidence such expenses incurred (or reasonably expected to be
incurred) by the Indemnitee in connection therewith and shall include or be
accompanied by a written undertaking by or on behalf of the Indemnitee to repay
such amount if it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified therefor pursuant to the terms of this Article VI.
SECTION 6. REMEDIES IN CASES OF DETERMINATION NOT TO INDEMNIFY OR TO
ADVANCE EXPENSES. (a) In the event that (i) a determination is made that the
Indemnitee is not entitled to indemnification hereunder, (ii) advances are not
made pursuant to Section 5 of this Article VI or (iii) payment has not been
timely made following a determination of entitlement to indemnification pursuant
to Section 4 of this Article VI, the Indemnitee shall be entitled to seek a
final adjudication either through an arbitration proceeding or in an appropriate
court of the State of Delaware or any other court of competent jurisdiction of
the Indemnitee's entitlement to such indemnification or advance.
(b) In the event a determination has been made in accordance with the
procedures set forth in Section 4 of this Article VI, in whole or in part, that
the Indemnitee is not entitled to indemnification, any judicial proceeding or
arbitration referred to in paragraph (a) of this Section 6 shall be de novo and
the Indemnitee shall not be prejudiced by reason of any such prior determination
that the Indemnitee is not entitled to indemnification, and the Corporation
shall bear the burdens of proof specified in Sections 3 and 4 of this Article VI
in such proceeding.
(c) If a determination is made or deemed to have been made pursuant to
the terms of Sections 4 or 6 of this Article VI that the Indemnitee is entitled
to indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration in the absence of (i) a misrepresentation of
a material fact by the Indemnitee or (ii) a final judicial determination that
all or any part of such indemnification is expressly prohibited by law.
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<PAGE> 13
(d) To the extent deemed appropriate by the court, interest shall be
paid by the Corporation to the Indemnitee at a reasonable interest rate for
amounts which the Corporation indemnifies or is obliged to indemnify the
Indemnitee for the period commencing with the date on which the Indemnitee
requested indemnification (or reimbursement or advancement of expenses) and
ending with the date on which such payment is made to the Indemnitee by the
Corporation.
SECTION 7. RIGHTS NON-EXCLUSIVE. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Sections of this
Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
law, by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office.
SECTION 8. INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan, against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
Article VI.
SECTION 9. DEFINITION OF CORPORATION. For purposes of this Article VI,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan, shall stand in the same position under this Article VI with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued.
SECTION 10. OTHER DEFINITIONS. For purposes of this Article VI,
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article VI.
SECTION 11. SURVIVAL OF RIGHTS. The indemnification and advancement of
expenses provided by, or granted pursuant to this Article VI shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person. No
amendment, alteration, rescission or replacement of these Amended and Restated
By-Laws or any provision hereof shall be effective as to an Indemnitee with
respect to any action taken or omitted by such Indemnitee in Indemnitee's
position with the Corporation or any other entity which the Indemnitee is or was
serving at the request of the Corporation prior to such amendment, alteration,
rescission or replacement.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION.
The Corporation may, by action of the Board of Directors from time to time,
grant rights to indemnification and advancement of expenses to employees and
agents of the Corporation with the same scope and effect as the provisions of
this Article VI with respect to the indemnification of directors and officers of
the Corporation.
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<PAGE> 14
SECTION 13. SAVINGS CLAUSE. If this Article VI or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each person entitled to
indemnification under the first paragraph of this Article VI as to all losses
actually and reasonably incurred or suffered by such person and for which
indemnification is available to such person pursuant to this Article VI to the
full extent permitted by any applicable portion of this Article VI that shall
not have been invalidated and to the full extent permitted by applicable law.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the provisions of statute and the
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of stock of the
Corporation, unless otherwise provided by statute or the Certificate of
Incorporation.
SECTION 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserve in the manner in which it was created.
SECTION 3. SEAL. The seal of the Corporation shall be in such form as
shall be approved by the Board of Directors.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed, and once fixed, may thereafter be changed, by resolution of the Board of
Directors.
SECTION 5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
SECTION 6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors
may authorize any officer or officers, agent or agents, in the name and on
behalf of the Corporation to enter into or execute and deliver any and all
deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 7. VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board or
the President, from time to time, may (or may appoint one or more attorneys or
agents to) cast the votes which the Corporation may be entitled to cast as a
shareholder or otherwise in any other corporation, any of whose shares or
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. In the event one or more
attorneys or agents are appointed, the Chairman of the Board or the President
may instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chairman of the Board or the President may, or
may instruct the attorneys or agents appointed to, execute or cause to be
executed in the name and on behalf of the Corporation and under its seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the circumstances.
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<PAGE> 15
ARTICLE VIII
AMENDMENTS
These Amended and Restated By-Laws may be repealed, altered, amended or
rescinded in whole or in part, or new By-Laws may be adopted by either the
affirmative vote of the holders of at least a majority of the voting power of
all of the issued and outstanding shares of capital stock of the Corporation
entitled to vote thereon or by the Board of Directors.
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<PAGE> 1
EXHIBIT 10.7.1
FIRST AMENDMENT TO THE CREDIT AGREEMENT
FIRST AMENDMENT, dated as of December 31, 1998 (this "First
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 Agreements 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 clause (b) from the definition of
"Available Revolving Credit Commitments" and substituting therefor the phrase
"(b) the Aggregate Extensions of Credit".
(b) The definitions 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) deleting the proviso clause, (ii)
amending the phrase "and (d)" appearing therein to read ", (d)" and (iii)
inserting the following new clause at the end thereof.
and (e) all of the Company's restructuring and other charges
associated with the restructuring of the Company's operations
in an aggregate amount not to exceed $14 million for the
quarter ending December 31, 1998;
(c) Subsection 1.1 of the Credit Agreement is hereby amended
by deleting from the definition of "Consolidated Total Indebtedness" the phrase
", excluding to the extent otherwise included the Taiwan Mortgage Indebtedness"
and deleting the comma after the word "GAAP" and substituting in lieu thereof a
period.
(d) Subsection 1.1 of the Credit Agreement is amended by
deleting the definitions "Taiwan Mortgage Indebtedness" and "Taiwan Mortgaged
Real Property".
<PAGE> 2
2
(e) Subsection 5.2 of the Credit Agreement is hereby amended
by deleting from paragraph (e) thereof the phrase ", other than the Taiwan
Mortgage Indebtedness".
(f) Subsection 7.2 of the Credit Agreement is amended by
deleting clause (h) and substituting therefor the phrase "(h) INTENTIONALLY
OMITTED;".
(g) Subsection 7.6 of the Credit Agreement is hereby amended
by deleting from paragraph (c) the amounts "$100,000,000" and "$250,000,000" and
substituting therefor the amounts "$30,000,000" and "$100,000,000",
respectively.
(h) Subsection 7.9 of the Credit Agreement is hereby amended
by deleting such subsection and substituting therefor the following:
7.9 Maintenance of Leverage Ratio. Permit (a) as of the last
day of any fiscal quarter ending on or before March 31, 1999, the
Leverage Ratio to be greater than 4.0 to 1.0, (b) as of the last day of
the fiscal quarter ending June 30, 1999, the Leverage Ratio to be
greater than 3.85 to 1.0 and (c) as of the last day of any fiscal
quarter ending after June 30, 1999, the Leverage Ratio to be greater
than 3.5 to 1.0.
(i) Subsection 7.14 of the Credit Agreement is hereby amended
by deleting clause (b) and substituting therefor the phrase "(b) INTENTIONALLY
OMITTED;".
3. Representations and Warranties. The Company hereby
confirms, reaffirms and restates the representations and warranties set forth in
Section 4 of the Credit Agreement. The Company represents and warrants that,
after giving effect to this First Amendment, no Default or Event of Default has
occurred and is continuing.
4. Effectiveness. Upon receipt of the Administrative Agent of
counterparts of this First Amendment duly executed by the Company and the
Required Banks, this First Amendment shall become effective as of the date (the
"Effective Date") that is the later of (i) the date of receipt by the
Administrative Agent of such counterparts, and (ii) December 31, 1998.
5. Amendment Fee. The Borrower will pay to the Administrative
Agent, for the account of each Lender which executes and returns this First
Amendment to the Administrative Agent on or prior to the Effective Date, an
amendment fee equal to .15% of the Revolving Credit Commitment of such Lender,
such fee to be payable on the Effective Date.
6. Continuing Effect of the Credit Agreement. This First
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 of 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.
7. Counterparts. This First Amendment may be executed by the
parties hereto in any member 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.
8. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
<PAGE> 3
3
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS FIRST
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: /S/ MICHAEL C. SMILEY
-----------------------------------------
TITLE: VICE PRESIDENT AND TREASURER
THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE
AGENT, AS A CO-AGENT AND AS A BANK
BY: /S/ STEVEN J. FALKSTEAD
-----------------------------------------
TITLE: VICE PRESIDENT
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, AS A CO-AGENT AND AS A
BANK
BY: /S/
-----------------------------------------
TITLE:
BANK OF MONTREAL, AS A CO-AGENT AND AS A BANK
BY: /S/
-----------------------------------------
TITLE:
THE BANK OF NOVA SCOTIA, AS A CO-AGENT AND AS
A BANK
BY: /S/
-----------------------------------------
TITLE:
<PAGE> 4
4
CIBC INC., AS A CO-AGENT AND AS A BANK
BY: /S/
-----------------------------------------
TITLE:
CREDIT LYONNAIS NEW YORK BRANCH, AS A CO-
AGENT AND AS A BANK
BY: /S/
-----------------------------------------
TITLE:
FLEET NATIONAL BANK, AS A CO-AGENT AND AS A
BANK
BY: /S/
-----------------------------------------
TITLE:
WACHOVIA BANK, N.A., AS A CO-AGENT AND AS A
BANK
BY: /S/
-----------------------------------------
TITLE:
THE BANK OF NEW YORK
BY: /S/
-----------------------------------------
TITLE:
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
BY: /S/
-----------------------------------------
TITLE:
<PAGE> 5
5
BANKBOSTON, N.A.
BY: /S/
-----------------------------------------
TITLE:
BANQUE NATIONALE DE PARIS
BY: /S/
-----------------------------------------
TITLE:
PARIBAS
BY: /S/
-----------------------------------------
TITLE:
CREDIT AGRICOLE INDOSUEZ
BY: /S/
-----------------------------------------
TITLE:
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
BY: /S/
-----------------------------------------
TITLE:
<PAGE> 6
6
THE SANWA BANK LIMITED, CHICAGO BRANCH
BY: /S/
-----------------------------------------
TITLE:
SOCIETE GENERALE, NEW YORK BRANCH
BY: /S/
-----------------------------------------
TITLE:
THE SUMITOMO BANK, LTD., CHICAGO BRANCH
BY: /S/
-----------------------------------------
TITLE:
<PAGE> 1
EXHIBIT 10.10
AMENDED AND RESTATED
SEVERANCE PROTECTION AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT made as of the ____ day of
___________, 1997, by and between General Semiconductor, Inc. (the
"Corporation"), and __________ (the "Executive"), hereby amends and restates the
[Stay Incentive and] Severance Protection Agreement between the Corporation and
the Executive, dated [ , 1997].
WHEREAS, the Board of Directors of the Corporation (the "Board")
recognizes that the possibility of a Change in Control (as hereinafter defined)
exists and that the threat or the occurrence of a Change in Control can result
in significant distraction of the Corporation's key management personnel because
of the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Corporation and its stockholders for the Corporation to retain
the services of the Executive in the event of a threat or occurrence of a Change
in Control and to ensure the Executive's continued dedication and efforts in
such event without undue concern for the Executive's personal financial and
employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Corporation, particularly in the event of a threat or the occurrence of a
Change in Control, the Corporation desires to enter into this Agreement with the
Executive to provide the Executive with certain benefits in the event the
Executive's employment is terminated under circumstances described herein.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of October 23,
1998, and shall continue in effect until [December 31, 1999], (the "Term");
provided, however, that on [January 1, 1999,] and on each January 1 thereafter,
the Term shall automatically be extended for one (1) year unless either the
Executive or the Corporation shall have given written notice to the other at
least ninety (90) days prior thereto that the Term shall not be so extended;
provided, further, however, that following the occurrence of a Change in
Control, the Term shall not expire prior to the expiration of twenty-four (24)
months after such occurrence.
2. Termination of Employment. If, during the Term, the Executive's
employment with the Corporation and its Affiliates shall be terminated within
twenty-four (24) months following a Change in Control, the Executive shall be
entitled to the following compensation and benefits:
(a) If the Executive's employment with the Corporation and its
Affiliates shall be terminated (1) by the Corporation for Cause or Disability,
(2) by reason of the Executive's death, or (3) by the Executive other than for
Good Reason, the Corporation shall pay to the Executive his Accrued
Compensation. In addition to the foregoing, if the Executive's employment is
terminated by the Corporation for Disability or by reason of the Executive's
death, the Corporation shall pay to the Executive or his beneficiaries a Pro
Rata Bonus. The Executive's entitlement to any other compensation or benefits
shall be determined in accordance with the Corporation's employee benefits plans
and other applicable programs and practices then in effect.
<PAGE> 2
(b) If the Executive's employment with the Corporation and its
Affiliates shall be terminated for any reason other than as specified in Section
2(a), the Executive shall be entitled to the following:
(1) the Corporation shall pay the Executive all
Accrued Compensation and a Pro Rata Bonus;
(2) the Corporation shall pay the Executive as
severance pay and in lieu of any further compensation for periods subsequent to
the Termination Date, an amount equal to two (2) times the sum of (A) the
Executive's Base Amount and (B) the Executive's Bonus Amount;
(3) for twenty-four (24) months after such
termination (the "Continuation Period"), the Corporation shall at its expense
continue on behalf of the Executive and his dependents and beneficiaries the
life insurance, disability, medical, dental and hospitalization coverages and
benefits provided to the Executive immediately prior to the Change in Control
or, if greater, the coverages and benefits provided at any time thereafter. The
coverages and benefits (including deductibles and costs) provided in this
Section 2(b)(3) during the Continuation Period shall be no less favorable to the
Executive and his dependents and beneficiaries, than the most favorable of such
coverages and benefits referred to above. The Corporation's obligation hereunder
with respect to the foregoing coverages and benefits shall be reduced to the
extent that the Executive obtains any such coverages and benefits pursuant to a
subsequent employer's benefit plans, in which case the Corporation may reduce
any of the coverages or benefits it is required to provide the Executive
hereunder so long as the aggregate coverages and benefits of the combined
benefit plans is no less favorable to the Executive than the coverages and
benefits required to be provided hereunder. This Section 2(b)(3) shall not be
interpreted so as to limit any benefits to which the Executive, his dependents
or beneficiaries may be entitled under any of the Corporation's employee benefit
plans, programs or practices following the Executive's termination of
employment, including without limitation, retiree medical and life insurance
benefits;
(4) the Corporation shall pay or reimburse the
Executive for the costs, fees and expenses of outplacement assistance services
(not to exceed twenty-five (25%) of the sum of (A) the Executive's Base Amount
and (B) the Executive's Bonus Amount) provided by any outplacement agency
selected by the Executive;
(5) the Corporation shall pay or reimburse the
Executive up to $2,000 for tax and financial planning services in respect of the
calendar year in which the payments provided for in Section 2(b)(2) are paid to
the Executive; and
(6) the Corporation shall pay or reimburse the
Executive for the cost of relocation (in accordance with the Corporation's
relocation policy) to the Executive's place of residence immediately prior to
any relocation the Executive made for purposes of employment by the Corporation
after July 1, 1995.
(c) If the Executive's employment is terminated by the
Corporation without Cause (1) within six (6) months prior to a Change in Control
or (2) at any time prior to the date of a
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Change in Control but the Executive reasonably demonstrates that such
termination (A) was at the request of a third party who has indicated an
intention or taken steps reasonably calculated to effect a Change in Control (a
"Third Party") and who effectuates a Change in Control or (B) otherwise arose in
connection with, or in anticipation of, a Change in Control which has been
threatened or proposed and which actually occurs, such termination shall be
deemed to have occurred after a Change in Control, provided a Change in Control
shall actually have occurred.
(d) (1) Effect of Section 280G of the Internal Revenue
Code. Except as provided in Section 2(d)(2), in the event it shall be determined
that any payment (other than the payment provided for in this Section 2(d)) or
distribution of any type to or for the benefit of the Executive, by the
Corporation, any Affiliate of the Corporation, any Person who acquires ownership
or effective control of the Corporation or ownership of a substantial portion of
the Corporation's assets (within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder)
or any Affiliate of such Person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the
"Payments"), is or will be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including any income tax, employment tax or
Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(2) Notwithstanding Section 2(d)(1) or any other
provision of this Agreement to the contrary, in the event that the Payments
(other than the payment provided for in this Section 2(d)) exceed by less than
$10,000 an amount where no Payment to be made or benefit to be provided to the
Executive would be subject to an Excise Tax, the Executive will not be entitled
to a Gross-Up Payment and the Payments shall be reduced (but not below zero) to
the extent necessary so that no Payment to be made or benefit to be provided to
the Executive shall be subject to the Excise Tax. Unless the Executive shall
have given prior written notice specifying a different order to the Corporation
to effectuate the foregoing, the Corporation shall reduce or eliminate the
Payments, by first reducing or eliminating the portion of the Payments which are
not payable in cash and then by reducing or eliminating cash payments, in each
case in reverse order beginning with payments or benefits which are to be paid
the farthest in time from the "Determination" (as defined below). Any notice
given by the Executive pursuant to the preceding sentence shall take precedence
over the provisions of any other plan, arrangement or agreement governing the
Executive's rights and entitlements to any benefits or compensation.
(3) The determination of whether the Payments shall
be reduced pursuant to this Agreement and the amount of such reduction, all
mathematical determinations, and all determinations as to whether any of the
Payments are "parachute payments" (within the meaning of Section 280G of the
Code), that are required to be made under this Section 2(d), including
determinations as to whether a Gross-Up Payment is required, the amount of such
Gross-Up Payment and amounts relevant to the last sentence of this Section
2(d)(3), shall be made by an independent accounting firm selected by the
Executive from among the five (5) largest accounting firms in the United States
(the "Accounting Firm"), which shall provide its determination (the
"Determination"), together with detailed supporting calculations regarding the
amount of any Gross-Up Payment and any other relevant matter, both to the
Corporation and the Executive by no later than ten (10) days following the
Termination Date, if applicable, or such earlier time as is requested by the
Corporation or the Executive (if the Executive reasonably believes that any of
the Payments may be subject to the Excise Tax). If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive and the Corporation with an opinion reasonably acceptable to the
Executive and the Corporation that no Excise Tax is payable (including the
reasons therefor) and that the Executive has
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substantial authority not to report any Excise Tax on his federal income tax
return. If a Gross-Up Payment is determined to be payable, it shall be paid to
the Executive within twenty (20) days after the Determination (and all
accompanying calculations and other material supporting the Determination) is
delivered to the Corporation by the Accounting Firm. Any determination by the
Accounting Firm shall be binding upon the Corporation and the Executive, absent
manifest error. As a result of uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments not made by the Corporation
should have been made ("Underpayment"), or that Gross-Up Payments will have been
made by the Corporation which should not have been made ("Overpayments"). In
either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of an Underpayment,
the amount of such Underpayment (together with any interest and penalties
payable by the Executive as a result of such Underpayment) shall be promptly
paid by the Corporation to or for the benefit of the Executive. In the case of
an Overpayment, the Executive shall, at the direction and expense of the
Corporation, take such steps as are reasonably necessary (including the filing
of returns and claims for refund), follow reasonable instructions from, and
procedures established by, the Corporation, and otherwise reasonably cooperate
with the Corporation to correct such Overpayment, provided, however, that (i)
the Executive shall not in any event be obligated to return to the Corporation
an amount greater than the net after-tax portion of the Overpayment that he has
retained or has recovered as a refund from the applicable taxing authorities and
(ii) if a Gross-Up Payment is determined to be payable, this provision shall be
interpreted in a manner consistent with an intent to make the Executive whole,
on an after-tax basis, from the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in the Executive
repaying to the Corporation an amount which is less than the Overpayment. The
cost of all such determinations made pursuant to this Section 2(d) shall be paid
by the Corporation.
(e) The amounts provided for in Sections 2(a) and 2(b)(1) and
(2) shall be paid in a single lump sum cash payment within ten (10) days after
the Executive's Termination Date (or earlier, if required by applicable law).
(f) The Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment
except as provided in Section 2(b)(3).
(g) The severance pay and benefits provided for in this
Section 2 shall be in lieu of any other severance pay to which the Executive may
be entitled under the General Semiconductor, Inc. Employee Severance Plan or any
other plan, agreement or arrangement of the Corporation or any of its
Affiliates.
3. Notice of Termination. Following a Change in Control, any intended
termination of the Executive's employment by the Corporation shall be
communicated by a Notice of Termination from the Corporation to the Executive,
and any intended termination of the Executive's employment by the Executive for
Good Reason shall be communicated by a Notice of Termination from the Executive
to the Corporation.
4. Fees and Expenses. The Corporation shall pay all legal fees and
related expenses (including the costs of experts, evidence and counsel) incurred
by the Executive as they become due as a result of (a) the termination of the
Executive's employment by the Corporation or by the Executive for Good Reason
(including all such fees and expenses, if any, incurred in contesting, defending
or disputing the basis for any such termination of employment), (b) the
Executive's hearing before the Board of Directors of the Corporation as
contemplated in Section 13.6 of this Agreement or
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(c) the Executive seeking to obtain or enforce any right or benefit provided by
this Agreement or by any other plan or arrangement maintained by the Corporation
under which the Executive is or may be entitled to receive benefits.
5. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including any Notice of
Termination) shall be in writing, shall be signed by the Executive if to the
Corporation or by a duly authorized officer of the Corporation if to the
Executive, and shall be deemed to have been duly given when personally delivered
or sent by certified mail, return receipt requested, postage prepaid, addressed
to the respective addresses last given by each party to the other, provided that
all notices to the Corporation shall be directed to the attention of the Board
with a copy to the Secretary of the Corporation. All notices and communications
shall be deemed to have been received on the date of delivery thereof or on the
third business day after the mailing thereof, except that notice of change of
address shall be effective only upon receipt.
6. Nature of Rights. Except as provided in Section 2(g), nothing in
this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Corporation or any Affiliate of the Corporation and for which the
Executive may qualify, nor shall anything herein limit or reduce such rights as
the Executive may have under any other agreements with the Corporation or any
Affiliate of the Corporation. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan or program of the
Corporation or any Affiliate of the Corporation shall be payable in accordance
with such plan or program, except as explicitly modified by this Agreement.
7. Settlement of Claims. The Corporation's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, defense, recoupment, or other right which
the Corporation may have against the Executive or others.
8. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Corporation. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreement or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by any party which are not expressly set
forth in this Agreement.
9. Successors; Binding Agreement.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the Corporation and its respective Successors and Assigns. The
Corporation shall require its respective Successors and Assigns to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession or assignment had taken place.
(b) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.
10. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without giving
effect to the conflict of laws principles thereof. Any action brought by any
party to this Agreement shall be brought and maintained in a court of competent
jurisdiction in the State of New York.
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11. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
12. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto, and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto,
with respect to the subject matter hereof, including without limitation, the
[Stay Incentive and] Severance Protection Agreement, dated [ , 1997],
between the Executive and the Corporation.
13. Definitions.
13.1. Accrued Compensation. For purposes of this Agreement,
"Accrued Compensation" shall mean all amounts of compensation for services
rendered to the Corporation or any of its Affiliates that have been earned or
accrued through the Termination Date but that have not been paid as of the
Termination Date including (a) base salary, (b) reimbursement for reasonable and
necessary business expenses incurred by the Executive on behalf of the
Corporation or of its Affiliates of the Corporation during the period ending on
the Termination Date, (c) vacation pay and (d) bonuses and incentive
compensation; provided, however, that Accrued Compensation shall not include any
amounts described in clause (a) or clause (d) that have been deferred pursuant
to any salary reduction or deferred compensation elections made by the
Executive.
13.2. Affiliate. For purposes of this Agreement, "Affiliate"
means, with respect to any Person, any entity, directly or indirectly,
controlled by, controlling or under common control with such Person.
13.3. Base Amount. For purposes of this Agreement, "Base
Amount" shall mean the Executive's annual base salary at the rate in effect as
of the date of a Change in Control or, if greater, at any time thereafter,
determined without regard to any salary reduction or deferred compensation
elections made by the Executive.
13.4. "Beneficial Owner," "Beneficially Owned" and
"Beneficially Owning" shall have the meanings applicable under Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
13.5. Bonus Amount. For purposes of this Agreement, "Bonus
Amount" shall mean the target annual bonus payable to the Executive under the
Incentive Plan in respect of the fiscal year of the Corporation during which the
Termination Date occurs or, if greater, the target annual bonus payable to the
Executive under the Incentive Plan in respect of the fiscal year of the
Corporation during which the Change in Control occurs.
13.6. Cause. For purposes of this Agreement, a termination of
employment is for "Cause" if the Executive has been convicted of a felony or the
termination is evidenced by a resolution adopted in good faith by two-thirds of
the Board of Directors of the Corporation that the Executive:
(a) intentionally and continually failed
substantially to perform his reasonably assigned duties with the Corporation and
its Affiliates (other than a failure resulting from the Executive's incapacity
due to physical or mental illness or from the assignment to the Executive of
duties that would constitute Good Reason) which failure continued for a period
of at least thirty (30) days after a written notice of demand for substantial
performance, signed by a duly authorized officer of the Corporation, has been
delivered to the Executive specifying the manner in which the Executive has
failed substantially to perform, or
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(b) intentionally engaged in conduct which is
demonstrably and materially injurious to the Corporation and its Affiliates;
provided, however, that no termination of the Executive's employment shall be
for Cause as set forth in this Section 13.6(b) until (1) there shall have been
delivered to the Executive a copy of a written notice, signed by a duly
authorized officer of the Corporation, setting forth that the Executive was
guilty of the conduct set forth in this Section 13.6(b) and specifying the
particulars thereof in detail, and (2) the Executive shall have been provided an
opportunity to be heard in person by the Board of Directors of the Corporation
(with the assistance of the Executive's counsel if the Executive so desires).
No act, nor failure to act, on the Executive's part,
shall be considered "intentional" unless the Executive has acted, or failed to
act, with a lack of good faith and with a lack of reasonable belief that the
Executive's action or failure to act was in the best interest of the Corporation
and its Affiliates. Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by the Executive after a Notice of Termination
is given to the Corporation by the Executive shall constitute Cause for purposes
of this Agreement.
13.7. Change in Control. "Change in Control" shall mean any of
the following:
(a) the acquisition by any Person, other than
Instrument Partners or Forstmann Little & Co. Subordinated Debt and Equity
Management Buyout Partnership-IV or any of their Affiliates (collectively, the
"Forstmann Little Companies") of Beneficial Ownership of Voting Securities
which, when added to the Voting Securities then Beneficially Owned by such
Person, would result in such Person Beneficially Owning (1) 33% or more of the
combined Voting Power of the Corporation's then outstanding Voting Securities
and (2) a number of Voting Securities greater than the aggregate number of
Voting Securities then Beneficially Owned by the Forstmann Little Companies;
provided, however, that for purposes of this paragraph (a), a Person shall not
be deemed to have made an acquisition of Voting Securities if such Person: (A)
acquires Voting Securities as a result of a stock split, stock dividend or other
corporate restructuring in which all stockholders of the class of such Voting
Securities are treated on a pro rata basis; (B) acquires the Voting Securities
directly from the Corporation; (C) becomes the Beneficial Owner of 33% or more
of the combined Voting Power of the Corporation's then outstanding Voting
Securities solely as a result of the acquisition of Voting Securities by the
Corporation or any Subsidiary which, by reducing the number of Voting Securities
outstanding, increases the proportional number of shares Beneficially Owned by
such Person, provided that if (x) a Person would own at least such percentage as
a result of the acquisition by the Corporation or any Subsidiary and (y) after
such acquisition by the Corporation or any Subsidiary, such Person acquires
Voting Securities, then an acquisition of Voting Securities shall have occurred;
(D) is the Corporation or any corporation or other Person of which a majority of
its voting power or its equity securities or equity interest is owned directly
or indirectly by the Corporation (a "Controlled Entity"); or (E) acquires Voting
Securities in connection with a "Non-Control Transaction" (as defined in
paragraph (c) below); or
(b) the individuals who, as of the Effective Date,
are members of the Board (the "Incumbent Board") cease for any reason to
constitute at least two-thirds of the Board; provided, however, that if either
the election of any new director or the nomination for election of any new
director by the Corporation's stockholders was approved by a vote of at least
two-thirds of the Incumbent Board prior to such election or nomination, such new
director shall be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 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
(c) approval by stockholders of the Corporation of:
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(1) a merger, consolidation or
reorganization involving the Corporation (a "Business Combination"), unless
(A) the stockholders of the
Corporation, immediately before the Business Combination, own, directly or
indirectly immediately following the Business Combination, at least a majority
of the combined voting power of the outstanding voting securities of the
corporation resulting from the Business Combination (the "Surviving
Corporation") in substantially the same proportion as their ownership of the
Voting Securities immediately before the Business Combination, and
(B) the individuals who were
members of the Incumbent Board immediately prior to the execution of the
agreement providing for the Business Combination constitute at least a majority
of the members of the Board of Directors of the Surviving Corporation, and
(C) no Person (other than the
Corporation or any Controlled Entity, a trustee or other fiduciary holding
securities under one or more employee benefit plans or arrangements (or any
trust forming a part thereof) maintained by the Corporation, the Surviving
Corporation or any Controlled Entity, or any Person who, immediately prior to
the Business Combination, had Beneficial Ownership of 33% or more of the then
outstanding Voting Securities) has Beneficial Ownership of 33% or more of the
combined voting power of the Surviving Corporation's then outstanding voting
securities (a Business Combination satisfying the conditions of clauses (A), (B)
and (C) of this subparagraph (1) shall be referred to as a "Non-Control
Transaction");
(2) a complete liquidation or dissolution of
the Corporation; or
(3) the sale 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 of Control shall not
be deemed to occur solely because 33% or more of the then outstanding Voting
Securities is Beneficially Owned by (x) a trustee or other fiduciary holding
securities under one or more employee benefit plans or arrangements (or any
trust forming a part thereof) maintained by the Corporation or any Controlled
Entity or (y) any corporation which, immediately prior to its acquisition of
such interest, is owned directly or indirectly by the stockholders of the
Corporation in the same proportion as their ownership of stock in the
Corporation immediately prior to such acquisition.
13.8. Corporation. For purposes of this Agreement, all
references to the Corporation shall include its Successors and Assigns.
13.9. Disability. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs the Executive's ability
to substantially perform his duties with the Corporation for six (6) consecutive
months, and within the time period set forth in a Notice of Termination given to
the Executive (which time period shall not be less than thirty (30) days), the
Executive shall not have returned to full-time performance of his duties;
provided, however, that if the Corporation's Long Term Disability Plan, or any
successor plan (the "Disability Plan"), is then in effect, the Executive shall
not be deemed disabled for purposes of this Agreement unless the Executive is
also eligible for "Total Disability" (as defined in the Disability Plan)
benefits (or similar benefits in the event of a successor plan) under the
Disability Plan.
13.10. Good Reason. (a) For purposes of this Agreement, "Good
Reason" shall mean the occurrence after a Change in Control of any of the
following events or conditions:
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(1) a change in the Executive's status,
title, position or responsibilities (including reporting responsibilities)
which, in the Executive's reasonable judgment, represents an adverse change from
his status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Executive of any duties or responsibilities
which, in the Executive's reasonable judgment, are inconsistent with his status,
title, position or responsibilities; or any removal of the Executive from or
failure to reappoint or reelect him to any of such offices or positions, except
in connection with the termination of his employment for Disability, Cause, as a
result of his death or by the Executive other than for Good Reason;
(2) a reduction in the Executive's annual
base salary below the Base Amount;
(3) the relocation of the offices of the
Corporation at which the Executive is principally employed to a location more
than twenty-five (25) miles from the location of such offices immediately prior
to the Change in Control, or the Corporation's requiring the Executive to be
based anywhere other than such offices, except to the extent the Executive was
not previously assigned to a principal location and except for required travel
on the Corporation's business to an extent substantially consistent with the
Executive's business travel obligations at the time of the Change in Control;
(4) the failure by the Corporation to pay to
the Executive any portion of the Executive's current compensation or to pay to
the Executive any portion of an installment of deferred compensation under any
deferred compensation program of the Corporation in which the Executive
participated, within seven (7) days of the date such compensation is due;
(5) the failure by the Corporation to (A)
continue in effect (without reduction in benefit level, and/or reward
opportunities) any material compensation or employee benefit plan in which the
Executive was participating immediately prior to the Change in Control,
including, but not limited to, any of the plans listed in Appendix A hereto,
unless a substitute or replacement plan has been implemented which provides
substantially identical compensation or benefits to the Executive or (B) provide
the Executive with compensation and benefits, in the aggregate, at least equal
(in terms of benefit levels and/or reward opportunities) to those provided for
under each other compensation or employee benefit plan, program and practice in
which the Executive was participating immediately prior to the Change in
Control;
(6) the failure of the Corporation to obtain
from its Successors or Assigns the express assumption and agreement required
under Section 9 hereof; or
(7) any purported termination of the
Executive's employment by the Corporation which is not effected pursuant to a
Notice of Termination satisfying the terms set forth in the definition of Notice
of Termination (and, if applicable, the terms set forth in the definition of
Cause).
(b) Any event or condition described in Section
13.10(a)(1) through (7) which occurs (1) within six (6) months prior to a Change
in Control or (2) at any time prior to a Change in Control but which the
Executive reasonably demonstrates (A) was at the request of a Third Party or (B)
otherwise arose in connection with, or in anticipation of a Change in Control
which has been threatened or proposed and which actually occurs, shall
constitute Good Reason for purposes of this Agreement notwithstanding that it
occurred prior to a Change in Control.
13.11. Incentive Plan. For purposes of this Agreement,
"Incentive Plan" shall mean the General Semiconductor, Inc. Annual Incentive
Plan, or any successor annual incentive plan, maintained by the Corporation.
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13.12. Notice of Termination. For purposes of this Agreement,
following a Change in Control, "Notice of Termination" shall mean a written
notice of termination of the Executive's employment, signed by the Executive if
to the Corporation or by a duly authorized officer of the Corporation if to the
Executive, which indicates the specific termination provision in this Agreement,
if any, relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
13.13. Person. For purposes of this Agreement, "Person" shall
mean a person within the meaning of Sections 13(d) and 14(d) of the Exchange
Act.
13.14. Pro Rata Bonus. For purposes of this Agreement, "Pro
Rata Bonus" shall mean the Bonus Amount multiplied by a fraction of the
numerator of which is the number of days in the year in which an Executive's
Termination Date occurs through the termination date and the denominator of
which is 365.
13.15. Subsidiary. For purposes of this Agreement,
"Subsidiary" shall mean a corporation as defined in Section 424(f) (or a
successor provision to such section) of the Internal Revenue Code of 1986, as
amended, and regulations and rulings thereunder, with General Semiconductor,
Inc. being treated as the employer corporation for purposes of this definition.
13.16. Successors and Assigns. For purposes of this Agreement,
"Successors and Assigns" shall mean, with respect to the Corporation or the
Corporation, a corporation or other entity acquiring all or substantially all
the assets and business of the Corporation or the Corporation, as the case may
be (including this Agreement) whether by operation of law or otherwise.
13.17. Termination Date. For purposes of this Agreement,
"Termination Date" shall mean (a) in the case of the Executive's death, his date
of death, (b) if the Executive's employment is terminated for Disability, thirty
(30) days after Notice of Termination is given (provided that the Executive
shall not have returned to the performance of his duties on a full-time basis
during such thirty (30) day period) and (c) if the Executive's employment is
terminated for any other reason, the date specified in the Notice of Termination
(which, in the case of a termination for Cause shall not be less than thirty
(30) days, and in the case of a termination for Good Reason shall not be more
than sixty (60) days, from the date such Notice of Termination is given);
provided, however, that if within thirty (30) days after any Notice of
Termination is given the party receiving such Notice of Termination in good
faith notifies the other party that a dispute exists concerning the basis for
the termination, the Termination Date shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, or by the
final judgment, order or decree of a court of competent jurisdiction (the time
for appeal therefrom having expired and no appeal having been taken).
Notwithstanding the pendency of any such dispute, the Corporation shall continue
to pay the Executive his Base Amount and continue the Executive as a participant
in all compensation, incentive, bonus, pension, profit sharing, medical,
hospitalization, dental, life insurance and disability benefit plans in which he
was participating when the notice giving rise to the dispute was given, until
the dispute is finally resolved in accordance with this Section 13.17 whether or
not the dispute is resolved in favor of the Corporation, and the Executive shall
not be obligated to repay to the Corporation any amounts paid or benefits
provided pursuant to this sentence.
13.18. Voting Power. For purposes of this Agreement, "Voting
Power" shall mean the combined voting power of the then outstanding Voting
Securities.
13.19. Voting Securities. For purposes of this Agreement,
"Voting Securities" shall mean, with respect to General Semiconductor, Inc. or
any Subsidiary, any securities issued by General Semiconductor, Inc. or such
Subsidiary, respectively, which generally entitle the holder thereof to vote for
the election of directors of General Semiconductor, Inc.
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IN WITNESS WHEREOF, the Corporation and has caused this Agreement to be
executed by their duly authorized officers and the Executive has executed this
Agreement as of the day and year first above written.
GENERAL SEMICONDUCTOR, INC.
By:
--------------------------------------
[ ]
By:
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Executive
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EXHIBIT 10.11
AMENDED AND RESTATED
SEVERANCE PROTECTION AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT made as of the 29th day of October,
1998, by and between General Semiconductor, Inc. (the "Corporation"), and Ronald
A. Ostertag (the "Executive"), hereby amends and restates the Stay Incentive and
Severance Protection Agreement between the Corporation and the Executive, dated
July 28, 1997.
WHEREAS, the Board of Directors of the Corporation (the "Board")
recognizes that the possibility of a Change in Control (as hereinafter defined)
exists and that the threat or the occurrence of a Change in Control can result
in significant distraction of the Corporation's key management personnel because
of the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Corporation and its stockholders for the Corporation to retain
the services of the Executive in the event of a threat or occurrence of a Change
in Control and to ensure the Executive's continued dedication and efforts in
such event without undue concern for the Executive's personal financial and
employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Corporation, particularly in the event of a threat or the occurrence of a
Change in Control, the Corporation desires to enter into this Agreement with the
Executive to provide the Executive with certain benefits in the event the
Executive's employment is terminated under circumstances described herein.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of October 23,
1998, and shall continue in effect until December 31, 1999, (the "Term");
provided, however, that on January 1, 1999, and on each January 1 thereafter,
the Term shall automatically be extended for one (1) year unless either the
Executive or the Corporation shall have given written notice to the other at
least ninety (90) days prior thereto that the Term shall not be so extended;
provided, further, however, that following the occurrence of a Change in
Control, the Term shall not expire prior to the expiration of twenty-four (24)
months after such occurrence.
2. Termination of Employment. If, during the Term, the Executive's
employment with the Corporation and its Affiliates shall be terminated within
twenty-four (24) months following a Change in Control, the Executive shall be
entitled to the following compensation and benefits:
(a) If the Executive's employment with the Corporation and its
Affiliates shall be terminated (1) by the Corporation for Cause or Disability,
or (2) by reason of the Executive's death, the Corporation shall pay to the
Executive his Accrued Compensation. In addition to the foregoing, if the
Executive's employment is terminated by the Corporation for Disability or by
reason of the Executive's death, the Corporation shall pay to the Executive or
his beneficiaries a Pro Rata Bonus. The Executive's entitlement to any other
compensation or benefits shall be determined in accordance with the
Corporation's employee benefits plans and other applicable programs and
practices then in effect.
(b) If the Executive's employment with the Corporation and its
Affiliates shall be terminated (1) by the Corporation for other than Cause,
Disability or the Executive's death, (2) by the Executive for any reason, the
Executive shall be entitled to the following:
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(1) the Corporation shall pay the Executive all
Accrued Compensation and a Pro Rata Bonus;
(2) the Corporation shall pay the Executive as
severance pay and in lieu of any further compensation for periods subsequent to
the Termination Date, an amount equal to two and one-half (2 and 1/2) times the
sum of (A) the Executive's Base Amount and (B) the Executive's Bonus Amount;
(3) for thirty (30) months after such termination
(the "Continuation Period"), the Corporation shall at its expense continue on
behalf of the Executive and his dependents and beneficiaries the life insurance,
disability, medical, dental and hospitalization coverages and benefits provided
to the Executive immediately prior to the Change in Control or, if greater, the
coverages and benefits provided at any time thereafter. The coverages and
benefits (including deductibles and costs) provided in this Section 2(b)(3)
during the Continuation Period shall be no less favorable to the Executive and
his dependents and beneficiaries, than the most favorable of such coverages and
benefits referred to above. The Corporation's obligation hereunder with respect
to the foregoing coverages and benefits shall be reduced to the extent that the
Executive obtains any such coverages and benefits pursuant to a subsequent
employer's benefit plans, in which case the Corporation may reduce any of the
coverages or benefits it is required to provide the Executive hereunder so long
as the aggregate coverages and benefits of the combined benefit plans is no less
favorable to the Executive than the coverages and benefits required to be
provided hereunder. This Section 2(b)(3) shall not be interpreted so as to limit
any benefits to which the Executive, his dependents or beneficiaries may be
entitled under any of the Corporation's employee benefit plans, programs or
practices following the Executive's termination of employment, including without
limitation, retiree medical and life insurance benefits;
(4) the Corporation shall pay or reimburse the
Executive for the costs, fees and expenses of outplacement assistance services
(not to exceed twenty-five (25%) of the sum of (A) the Executive's Base Amount
and (B) the Executive's Bonus Amount) provided by any outplacement agency
selected by the Executive;
(5) the Corporation shall pay or reimburse the
Executive up to $2,000 for tax and financial planning services in respect of the
calendar year in which the payments provided for in Section 2(b)(2) are paid to
the Executive; and
(6) the Corporation shall pay or reimburse the
Executive for the cost of relocation (in accordance with the Corporation's
relocation policy) to the Executive's place of residence immediately prior to
any relocation the Executive made for purposes of employment by the Corporation
after July 1, 1995.
(c) If the Executive's employment is terminated by the
Corporation without Cause (1) within six (6) months prior to a Change in Control
or (2) at any time prior to the date of a Change in Control but the Executive
reasonably demonstrates that such termination (A) was at the request of a third
party who has indicated an intention or taken steps reasonably calculated to
effect a Change in Control (a "Third Party") and who effectuates a Change in
Control or (B) otherwise arose in connection with, or in anticipation of, a
Change in Control which has been threatened or proposed and which actually
occurs, such termination shall be deemed to have occurred after a Change in
Control, provided a Change in Control shall actually have occurred.
(d) (1) Effect of Section 280G of the Internal Revenue Code.
Except as provided in Section 2(d)(2), in the event it shall be determined that
any payment (other than the payment provided for in this Section 2(d)) or
distribution of any type to or for the benefit of the Executive, by the
Corporation, any Affiliate of the Corporation, any Person who acquires ownership
or effective control of the Corporation or ownership of a substantial portion of
the Corporation's assets (within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations
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thereunder) or any Affiliate of such Person, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (the "Payments"), is or will be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any income tax,
employment tax or Excise Tax, imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(2) Notwithstanding Section 2(d)(1) or any other
provision of this Agreement to the contrary, in the event that the Payments
(other than the payment provided for in this Section 2(d)) exceed by less than
$10,000 an amount where no Payment to be made or benefit to be provided to the
Executive would be subject to an Excise Tax, the Executive will not be entitled
to a Gross-Up Payment and the Payments shall be reduced (but not below zero) to
the extent necessary so that no Payment to be made or benefit to be provided to
the Executive shall be subject to the Excise Tax. Unless the Executive shall
have given prior written notice specifying a different order to the Corporation
to effectuate the foregoing, the Corporation shall reduce or eliminate the
Payments, by first reducing or eliminating the portion of the Payments which are
not payable in cash and then by reducing or eliminating cash payments, in each
case in reverse order beginning with payments or benefits which are to be paid
the farthest in time from the "Determination" (as defined below). Any notice
given by the Executive pursuant to the preceding sentence shall take precedence
over the provisions of any other plan, arrangement or agreement governing the
Executive's rights and entitlements to any benefits or compensation.
(3) The determination of whether the Payments shall
be reduced pursuant to this Agreement and the amount of such reduction, all
mathematical determinations, and all determinations as to whether any of the
Payments are "parachute payments" (within the meaning of Section 280G of the
Code), that are required to be made under this Section 2(d), including
determinations as to whether a Gross-Up Payment is required, the amount of such
Gross-Up Payment and amounts relevant to the last sentence of this Section
2(d)(3), shall be made by an independent accounting firm selected by the
Executive from among the five (5) largest accounting firms in the United States
(the "Accounting Firm"), which shall provide its determination (the
"Determination"), together with detailed supporting calculations regarding the
amount of any Gross-Up Payment and any other relevant matter, both to the
Corporation and the Executive by no later than ten (10) days following the
Termination Date, if applicable, or such earlier time as is requested by the
Corporation or the Executive (if the Executive reasonably believes that any of
the Payments may be subject to the Excise Tax). If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive and the Corporation with an opinion reasonably acceptable to the
Executive and the Corporation that no Excise Tax is payable (including the
reasons therefor) and that the Executive has substantial authority not to report
any Excise Tax on his federal income tax return. If a Gross-Up Payment is
determined to be payable, it shall be paid to the Executive within twenty (20)
days after the Determination (and all accompanying calculations and other
material supporting the Determination) is delivered to the Corporation by the
Accounting Firm. Any determination by the Accounting Firm shall be binding upon
the Corporation and the Executive, absent manifest error. As a result of
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments not made by the Corporation should have been made
("Underpayment"), or that Gross-Up Payments will have been made by the
Corporation which should not have been made ("Overpayments"). In either such
event, the Accounting Firm shall determine the amount of the Underpayment or
Overpayment that has occurred. In the case of an Underpayment, the amount of
such Underpayment (together with any interest and penalties payable by the
Executive as a result of such Underpayment) shall be promptly paid by the
Corporation to or for the benefit of the Executive. In the case of an
Overpayment, the Executive shall, at the direction and expense of the
Corporation, take such steps as are reasonably necessary (including the filing
of returns and claims for refund), follow reasonable instructions from, and
procedures established by, the Corporation, and otherwise reasonably cooperate
with the Corporation to correct such Overpayment,
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provided, however, that (i) the Executive shall not in any event be obligated to
return to the Corporation an amount greater than the net after-tax portion of
the Overpayment that he has retained or has recovered as a refund from the
applicable taxing authorities and (ii) if a Gross-Up Payment is determined to be
payable, this provision shall be interpreted in a manner consistent with an
intent to make the Executive whole, on an after-tax basis, from the application
of the Excise Tax, it being understood that the correction of an Overpayment may
result in the Executive repaying to the Corporation an amount which is less than
the Overpayment. The cost of all such determinations made pursuant to this
Section 2(d) shall be paid by the Corporation.
(e) The amounts provided for in Sections 2(a) and 2(b)(1) and
(2) shall be paid in a single lump sum cash payment within ten (10) days after
the Executive's Termination Date (or earlier, if required by applicable law).
(f) The Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment
except as provided in Section 2(b)(3).
(g) The severance pay and benefits provided for in this
Section 2 shall be in lieu of any other severance pay to which the Executive may
be entitled under the Corporation's Severance Plan or any other plan, agreement
or arrangement of the Corporation or any of its Affiliates.
3. Notice of Termination. Following a Change in Control, any intended
termination of the Executive's employment by the Corporation shall be
communicated by a Notice of Termination from the Corporation to the Executive,
and any intended termination of the Executive's employment by the Executive
shall be communicated by a Notice of Termination from the Executive to the
Corporation.
4. Fees and Expenses. The Corporation shall pay all legal fees and
related expenses (including the costs of experts, evidence and counsel) incurred
by the Executive as they become due as a result of (a) the termination of the
Executive's employment by the Corporation or by the Executive (including all
such fees and expenses, if any, incurred in contesting, defending or disputing
the basis for any such termination of employment), (b) the Executive's hearing
before the Board of Directors of the Corporation as contemplated in Section 13.6
of this Agreement or (c) the Executive seeking to obtain or enforce any right or
benefit provided by this Agreement or by any other plan or arrangement
maintained by the Corporation under which the Executive is or may be entitled to
receive benefits.
5. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including any Notice of
Termination) shall be in writing, shall be signed by the Executive if to the
Corporation or by a duly authorized officer of the Corporation if to the
Executive, and shall be deemed to have been duly given when personally delivered
or sent by certified mail, return receipt requested, postage prepaid, addressed
to the respective addresses last given by each party to the other, provided that
all notices to the Corporation shall be directed to the attention of the Board
with a copy to the Secretary of the Corporation. All notices and communications
shall be deemed to have been received on the date of delivery thereof or on the
third business day after the mailing thereof, except that notice of change of
address shall be effective only upon receipt.
6. Nature of Rights. Except as provided in Section 2(g), nothing in
this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Corporation or any Affiliate of the Corporation and for which the
Executive may qualify, nor shall anything herein limit or reduce such rights as
the Executive may have under any other agreements with the Corporation or any
Affiliate of the Corporation. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan or program of the
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Corporation or any Affiliate of the Corporation shall be payable in accordance
with such plan or program, except as explicitly modified by this Agreement.
7. Settlement of Claims. The Corporation's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, defense, recoupment, or other right which
the Corporation may have against the Executive or others.
8. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Corporation. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreement or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by any party which are not expressly set
forth in this Agreement.
9. Successors; Binding Agreement.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the Corporation and its respective Successors and Assigns. The
Corporation shall require its respective Successors and Assigns to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession or assignment had taken place.
(b) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.
10. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without giving
effect to the conflict of laws principles thereof. Any action brought by any
party to this Agreement shall be brought and maintained in a court of competent
jurisdiction in the State of New York.
11. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
12. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto, and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto,
with respect to the subject matter hereof, including without limitation, the
Stay Incentive and Severance Protection Agreement, dated July 28, 1997, between
the Executive and the Corporation.
13. Definitions.
13.1. Accrued Compensation. For purposes of this Agreement,
"Accrued Compensation" shall mean all amounts of compensation for services
rendered to the Corporation or any of its Affiliates that have been earned or
accrued through the Termination Date but that have not been paid as of the
Termination Date including (a) base salary, (b) reimbursement for reasonable and
necessary business expenses incurred by the Executive on behalf of the
Corporation or of its Affiliates of the Corporation during the period ending on
the Termination Date, (c) vacation pay and (d) bonuses and
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incentive compensation; provided, however, that Accrued Compensation shall not
include any amounts described in clause (a) or clause (d) that have been
deferred pursuant to any salary reduction or deferred compensation elections
made by the Executive.
13.2. Affiliate. For purposes of this Agreement, "Affiliate"
means, with respect to any Person, any entity, directly or indirectly,
controlled by, controlling or under common control with such Person.
13.3. Base Amount. For purposes of this Agreement, "Base
Amount" shall mean the Executive's annual base salary at the rate in effect as
of the date of a Change in Control or, if greater, at any time thereafter,
determined without regard to any salary reduction or deferred compensation
elections made by the Executive.
13.4. "Beneficial Owner," "Beneficially Owned" and
"Beneficially Owning" shall have the meanings applicable under Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
13.5. Bonus Amount. For purposes of this Agreement, "Bonus
Amount" shall mean the target annual bonus payable to the Executive under the
Incentive Plan in respect of the fiscal year of the Corporation during which the
Termination Date occurs or, if greater, the target annual bonus payable to the
Executive under the Incentive Plan in respect of the fiscal year of the
Corporation during which the Change in Control occurs.
13.6. Cause. For purposes of this Agreement, a termination of
employment is for "Cause" if the Executive has been convicted of a felony or the
termination is evidenced by a resolution adopted in good faith by two-thirds of
the Board of Directors of the Corporation that the Executive:
(a) intentionally and continually failed
substantially to perform his reasonably assigned duties with the Corporation and
its Affiliates (other than a failure resulting from the Executive's incapacity
due to physical or mental illness or from the assignment to the Executive of
duties inconsistent with those he performs as of a Change in Control) which
failure continued for a period of at least thirty (30) days after a written
notice of demand for substantial performance, signed by a duly authorized
officer of the Corporation, has been delivered to the Executive specifying the
manner in which the Executive has failed substantially to perform, or
(b) intentionally engaged in conduct which is
demonstrably and materially injurious to the Corporation and its Affiliates;
provided, however, that no termination of the Executive's employment shall be
for Cause as set forth in this Section 13.6(b) until (1) there shall have been
delivered to the Executive a copy of a written notice, signed by a duly
authorized officer of the Corporation, setting forth that the Executive was
guilty of the conduct set forth in this Section 13.6(b) and specifying the
particulars thereof in detail, and (2) the Executive shall have been provided an
opportunity to be heard in person by the Board of Directors of the Corporation
(with the assistance of the Executive's counsel if the Executive so desires).
No act, nor failure to act, on the Executive's part,
shall be considered "intentional" unless the Executive has acted, or failed to
act, with a lack of good faith and with a lack of reasonable belief that the
Executive's action or failure to act was in the best interest of the Corporation
and its Affiliates. Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by the Executive after a Notice of Termination
is given to the Corporation by the Executive shall constitute Cause for purposes
of this Agreement.
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13.7. Change in Control. "Change in Control" shall mean any of
the following:
(a) the acquisition by any Person, other than
Instrument Partners or Forstmann Little & Co. Subordinated Debt and Equity
Management Buyout Partnership-IV or any of their Affiliates (collectively, the
"Forstmann Little Companies") of Beneficial Ownership of Voting Securities
which, when added to the Voting Securities then Beneficially Owned by such
Person, would result in such Person Beneficially Owning (1) 33% or more of the
combined Voting Power of the Corporation's then outstanding Voting Securities
and (2) a number of Voting Securities greater than the aggregate number of
Voting Securities then Beneficially Owned by the Forstmann Little Companies;
provided, however, that for purposes of this paragraph (a), a Person shall not
be deemed to have made an acquisition of Voting Securities if such Person: (A)
acquires Voting Securities as a result of a stock split, stock dividend or other
corporate restructuring in which all stockholders of the class of such Voting
Securities are treated on a pro rata basis; (B) acquires the Voting Securities
directly from the Corporation; (C) becomes the Beneficial Owner of 33% or more
of the combined Voting Power of the Corporation's then outstanding Voting
Securities solely as a result of the acquisition of Voting Securities by the
Corporation or any Subsidiary which, by reducing the number of Voting Securities
outstanding, increases the proportional number of shares Beneficially Owned by
such Person, provided that if (x) a Person would own at least such percentage as
a result of the acquisition by the Corporation or any Subsidiary and (y) after
such acquisition by the Corporation or any Subsidiary, such Person acquires
Voting Securities, then an acquisition of Voting Securities shall have occurred;
(D) is the Corporation or any corporation or other Person of which a majority of
its voting power or its equity securities or equity interest is owned directly
or indirectly by the Corporation (a "Controlled Entity"); or (E) acquires Voting
Securities in connection with a "Non-Control Transaction" (as defined in
paragraph (c) below); or
(b) the individuals who, as of the Effective Date,
are members of the Board (the "Incumbent Board") cease for any reason to
constitute at least two-thirds of the Board; provided, however, that if either
the election of any new director or the nomination for election of any new
director by the Corporation's stockholders was approved by a vote of at least
two-thirds of the Incumbent Board prior to such election or nomination, such new
director shall be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 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
(c) approval by stockholders of the Corporation of:
(1) a merger, consolidation or
reorganization involving the Corporation (a "Business Combination"), unless
(A) the stockholders of the
Corporation, immediately before the Business Combination, own, directly or
indirectly immediately following the Business Combination, at least a majority
of the combined voting power of the outstanding voting securities of the
corporation resulting from the Business Combination (the "Surviving
Corporation") in substantially the same proportion as their ownership of the
Voting Securities immediately before the Business Combination, and
(B) the individuals who were
members of the Incumbent Board immediately prior to the execution of the
agreement providing for the Business Combination constitute at least a majority
of the members of the Board of Directors of the Surviving Corporation, and
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(C) no Person (other than the
Corporation or any Controlled Entity, a trustee or other fiduciary holding
securities under one or more employee benefit plans or arrangements (or any
trust forming a part thereof) maintained by the Corporation, the Surviving
Corporation or any Controlled Entity, or any Person who, immediately prior to
the Business Combination, had Beneficial Ownership of 33% or more of the then
outstanding Voting Securities) has Beneficial Ownership of 33% or more of the
combined voting power of the Surviving Corporation's then outstanding voting
securities (a Business Combination satisfying the conditions of clauses (A), (B)
and (C) of this subparagraph (1) shall be referred to as a "Non-Control
Transaction");
(2) a complete liquidation or dissolution of
the Corporation; or
(3) the sale 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 of Control shall not
be deemed to occur solely because 33% or more of the then outstanding Voting
Securities is Beneficially Owned by (x) a trustee or other fiduciary holding
securities under one or more employee benefit plans or arrangements (or any
trust forming a part thereof) maintained by the Corporation or any Controlled
Entity or (y) any corporation which, immediately prior to its acquisition of
such interest, is owned directly or indirectly by the stockholders of the
Corporation in the same proportion as their ownership of stock in the
Corporation immediately prior to such acquisition.
13.8. Corporation. For purposes of this Agreement, all
references to the Corporation shall include its Successors and Assigns.
13.9. Disability. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs the Executive's ability
to substantially perform his duties with the Corporation for six (6) consecutive
months, and within the time period set forth in a Notice of Termination given to
the Executive (which time period shall not be less than thirty (30) days), the
Executive shall not have returned to full-time performance of his duties;
provided, however, that if the Corporation's Long Term Disability Plan, or any
successor plan (the "Disability Plan"), is then in effect, the Executive shall
not be deemed disabled for purposes of this Agreement unless the Executive is
also eligible for "Total Disability" (as defined in the Disability Plan)
benefits (or similar benefits in the event of a successor plan) under the
Disability Plan.
13.10. Incentive Plan. For purposes of this Agreement,
"Incentive Plan" shall mean the General Semiconductor, Inc. Annual Incentive
Plan, or any successor annual incentive plan, maintained by the Corporation.
13.11. Notice of Termination. For purposes of this Agreement,
following a Change in Control, "Notice of Termination" shall mean a written
notice of termination of the Executive's employment, signed by the Executive if
to the Corporation or by a duly authorized officer of the Corporation if to the
Executive, which indicates the specific termination provision in this Agreement,
if any, relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
13.12. Person. For purposes of this Agreement, "Person" shall
mean a person within the meaning of Sections 13(d) and 14(d) of the Exchange
Act.
13.13. Pro Rata Bonus. For purposes of this Agreement, "Pro
Rata Bonus" shall mean the Bonus Amount multiplied by a fraction of the
numerator of which is the number of days in the
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year in which an Executive's Termination Date occurs through the termination
date and the denominator of which is 365.
13.14. Subsidiary. For purposes of this Agreement,
"Subsidiary" shall mean a corporation as defined in Section 424(f) (or a
successor provision to such section) of the Internal Revenue Code of 1986, as
amended, and regulations and rulings thereunder, with the Corporation being
treated as the employer corporation for purposes of this definition.
13.15. Successors and Assigns. For purposes of this Agreement,
"Successors and Assigns" shall mean, with respect to the Corporation or the
Corporation, a corporation or other entity acquiring all or substantially all
the assets and business of the Corporation or the Corporation, as the case may
be (including this Agreement) whether by operation of law or otherwise.
13.16. Termination Date. For purposes of this Agreement,
"Termination Date" shall mean (a) in the case of the Executive's death, his date
of death, (b) if the Executive's employment is terminated for Disability, thirty
(30) days after Notice of Termination is given (provided that the Executive
shall not have returned to the performance of his duties on a full-time basis
during such thirty (30) day period) and (c) if the Executive's employment is
terminated for any other reason, the date specified in the Notice of Termination
(which, in the case of a termination for Cause shall not be less than thirty
(30) days, and in the case of a termination by the Executive shall not be more
than sixty (60) days, from the date such Notice of Termination is given);
provided, however, that if within thirty (30) days after any Notice of
Termination is given the party receiving such Notice of Termination in good
faith notifies the other party that a dispute exists concerning the basis for
the termination, the Termination Date shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, or by the
final judgment, order or decree of a court of competent jurisdiction (the time
for appeal therefrom having expired and no appeal having been taken).
Notwithstanding the pendency of any such dispute, the Corporation shall continue
to pay the Executive his Base Amount and continue the Executive as a participant
in all compensation, incentive, bonus, pension, profit sharing, medical,
hospitalization, dental, life insurance and disability benefit plans in which he
was participating when the notice giving rise to the dispute was given, until
the dispute is finally resolved in accordance with this Section 13.17 whether or
not the dispute is resolved in favor of the Corporation, and the Executive shall
not be obligated to repay to the Corporation any amounts paid or benefits
provided pursuant to this sentence.
13.17. Voting Power. For purposes of this Agreement, "Voting
Power" shall mean the combined voting power of the then outstanding Voting
Securities.
13.18. Voting Securities. For purposes of this Agreement,
"Voting Securities" shall mean, with respect to with respect to General
Semiconductor, Inc. or any Subsidiary, any securities issued by General
Semiconductor, Inc. or such Subsidiary, respectively, which generally entitle
the holder thereof to vote for the election of directors of General
Semiconductor, Inc.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by their duly authorized officers and the Executive has executed this
Agreement as of the day and year first above written.
GENERAL SEMICONDUCTOR, INC.
By: /s/ ANDREW M. CAGGIA
------------------------------------
Andrew M. Caggia
Chief Financial Officer
By: /s/ RONALD A. OSTERTAG
------------------------------------
Ronald A. Ostertag
9
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the Company's subsidiaries as of December 31, 1998,
except for unnamed subsidiaries which, considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary.
General Semiconductor (China) Co., Ltd. (Peoples Republic of China)
General Semiconductor (Deutschland) GmbH (Germany)
General Semiconductor France (France)
General Semiconductor of Taiwan, Ltd. (Taiwan)
General Semiconductor Ireland (Ireland)
General Semiconductor Japan, Ltd. (Japan)
General Semiconductor (UK) Limited (United Kingdom)
General Semiconductor (Singapore) Pte. Ltd. (Singapore)
General Semiconductor (Europe) Limited
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 33-60498, 33-61820, 33-50911, 33-52189, 33-55595, 33-57737, 333-22861 and
333-09190 of General Semiconductor, Inc. (formerly General Instrument
Corporation) each on Form S-8 of our report dated February 3, 1999, appearing in
this Annual Report on Form 10-K of General Semiconductor, Inc. for the year
ended December 31, 1998.
/s/DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Jericho, New York
March 19, 1999
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<PAGE> 1
EXHIBIT 99
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 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.
1
<PAGE> 2
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 more leveraged than GI was prior to the
Distribution. The degree to which the Company is leveraged could have important
consequences, including the following: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
product development, acquisitions, general corporate purposes or other purposes
may be impaired; (ii) a portion of the Company's and its subsidiaries' cash flow
from operations must be dedicated to the payment of the principal of and
interest on its indebtedness; (iii) the Credit Agreement, dated as of July 23,
1997 and amended in December 1998, among the Company, certain banks, and The
Chase Manhattan Bank, as Administrative Agent, contains certain restrictive
financial and operating covenants, including, among others, requirements that
the Company satisfy certain financial ratios; (iv) a significant portion of the
Company's borrowings 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.
In addition, in a lawsuit by an unpaid creditor or representative of creditors,
such as a trustee in bankruptcy, a court may be asked to void the Distribution
(in whole or in part) as a fraudulent conveyance and to require that the
stockholders return the special dividend (in whole or in part) to the Company or
require the Company to fund certain liabilities of General Instrument
Corporation and CommScope for the benefit of creditors.
COMPETITION
The Company operates in the discrete segment of the semiconductor business. Its
products are commodity-like in nature and are subject to cyclical variations in
pricing 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.
2
<PAGE> 3
INTERNATIONAL OPERATIONS
A significant portion of the Company's products are manufactured or assembled in
Taiwan (Republic of China), the People's Republic of China, Ireland, Germany,
and France. These foreign operations are subject to the usual risks inherent in
situating operations abroad, including risks with respect to currency exchange
rates, economic and political destabilization, restrictive actions by foreign
governments, nationalizations, the laws and policies of the United States
affecting trade, foreign investment and loans, and foreign tax laws. The
Company's cost-competitive status relative to other competitors could be
adversely affected if the 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. During 1998
order trends and average selling prices weakened significantly reflecting the
current economic and currency difficulties in Southeast Asia, the economic
slowdown in Japan and the difficulties in the computer and computer peripherals
industries. However, approximately 50% of the Company's production is currently
in Taiwan, the cost of which has benefited from the weakened New Taiwan Dollar
in relation to the U.S. dollar. Additionally, extended underutilization of the
Company's manufacturing facilities, resulting in production inefficiency, could
result in margin deterioration. There can be no assurance as to the extent or
duration of the impact of these events on the Company.
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. In connection with the
Distribution, the Company retained the obligations with respect to environmental
matters relating to the Company's discontinued operations and its status as a
"potentially responsible party." 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 $31.9 million at December 31, 1998 ($34.9 million at December 31,
1997). 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.
3
<PAGE> 4
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 modules will be installed in 2000. The Company
is currently modifying its existing manufacturing applications and expects them
to be Year 2000 compliant by June 30, 1999.
Since the Company's financial, distribution and manufacturing
applications are expected to be 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 65% 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. At the current time,
it is difficult for the Company to specifically identify its most reasonably
likely worst case Year 2000 scenario.
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. However, the Company can give no assurance that the
systems of other companies or government agencies on which the Company relies
will be converted on time or that a failure to convert by another company or a
conversion that is incompatible with the Company's systems would not have a
material adverse effect on the Company.
The disclosures contained herein constitute Year 2000 Readiness
Statements pursuant to the Year 2000 Information and Readiness Disclosure Act,
Public Law 105-271.
4
