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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 2000
REGISTRATION NO. 333-94513
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GENERAL SEMICONDUCTOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 13-3575653
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
10 Melville Park Road
Melville, New York 11747
(631) 847-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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Stephen B. Paige, Esq.
Senior Vice President, General Counsel and Secretary
GENERAL SEMICONDUCTOR, INC.
10 Melville Park Road
Melville, New York 11747
(631) 847-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
Lois Herzeca, Esq.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
One New York Plaza
New York, New York 10004
(212) 859-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. /_/
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. /_/
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /_/
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /_/
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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PROSPECTUS
GENERAL SEMICONDUCTOR, INC.
$172,500,000 of 5 3/4% Convertible Subordinated Notes due 2006 and
11,093,248 Shares of Common Stock Issuable upon Conversion of the Notes
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This prospectus relates to 5 3/4 % Convertible Subordinated Notes due
December 15, 2006 of General Semiconductor, Inc., a Delaware corporation, held
by certain security holders who may offer for sale the notes and the shares of
our common stock into which the notes are convertible at any time at market
prices prevailing at the time of sale or at privately negotiated prices. The
selling security holders may sell the notes or the common stock directly to
purchasers or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions.
The holders of the notes may convert the notes into shares of our
common stock at any time at a conversion rate of 64.3087 shares per $1,000
principal amount of notes. On or after December 15, 2002, we may redeem the
notes, in whole or in part, at the redemption prices set forth in the section
entitled "Description of the Notes--Redemption at the Company's Option."
In the event of a Change of Control, as defined in the section entitled
"Description of the Notes--Repurchase of Notes at the Option of the Holder Upon
a Change in Control," each holder of the notes may require us to repurchase the
notes at 100% of the principal amount of the notes plus accrued interest.
The notes are general, unsecured obligations that are subordinated in
right of payment to all of our existing and future senior indebtedness and
effectively subordinate to all existing and future liabilities of our
subsidiaries. See "Description of the Notes--Subordination."
On February 10, 2000 the last reported sale price of our common stock,
listed under the symbol "SEM", on the New York Stock Exchange ("NYSE") was
$18 5/8 per share.
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INVESTING IN OUR COMMON STOCK OR OUR CONVERTIBLE SUBORDINATED NOTES
INVOLVES RISK. PLEASE CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE
4 OF THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS FEBRUARY 11, 2000
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TABLE OF CONTENTS
<TABLE>
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PAGE
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Summary......................................................... 1
Risk Factors.................................................... 4
Use of Proceeds................................................. 10
Price Range of Common Stock and Dividend Policy................. 10
Ratio of Earnings to Fixed Charges.............................. 11
Business........................................................ 12
Description of Notes............................................ 24
Description of Credit Facility.................................. 42
Description of Capital Stock.................................... 45
Certain United States Federal Tax Consequences.................. 49
Selling Securityholders......................................... 54
Plan of Distribution............................................ 58
Experts......................................................... 59
Validity of the Securities...................................... 59
Where You Can Find More Information............................. 60
Incorporation by Reference...................................... 60
Forward Looking Statements...................................... 61
Index to Financial Statements................................... F-1
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CERTAIN INFORMATION
On July 28, 1997, General Instrument Corporation spun-off to its
shareholders NextLevel Systems, Inc., its broadband communication business, and
CommScope, Inc., its coaxial and other cable business, as two independent public
companies. At the time of the spin-off, General Instrument Corporation changed
its name to General Semiconductor, Inc. and effected a one-for-four reverse
stock split. After the spin-off, NextLevel Systems, Inc. changed its name to
General Instrument Corporation. Unless the context otherwise requires,
references in this prospectus to "General Semiconductor," the "Company," "we,"
"us" or "our" are to General Semiconductor, Inc. and its direct and indirect
subsidiaries on a consolidated basis since the spin-off and to the business
conducted by the Power Semiconductor Division of General Instrument Corporation
prior to the spin-off.
This prospectus includes statistical data regarding the discrete
semiconductor industry and other industries which was obtained from industry
publications, including reports of Worldwide Semiconductor Trade Statistics
("WSTS"), which are published by the Semiconductor Industry Association ("SIA"),
and reports published by International Data Corporation ("IDC"). These industry
publications generally indicate that they have obtained information from sources
believed to be reliable, but do not guarantee the accuracy and completeness of
their information. While we believe these industry publications to be reliable,
we have not independently verified their data, and we do not guarantee the
accuracy or completeness of the information, nor can we provide any assurance
that our future performance will follow industry projections.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF THE MORE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN
ALL THE INFORMATION YOU SHOULD CONSIDER. YOU SHOULD READ THIS ENTIRE DOCUMENT
CAREFULLY, INCLUDING THE "RISK FACTORS."
THE COMPANY
We are a market leader in the discrete segment of the semiconductor
industry. We design and manufacture a broad array of discrete semiconductors,
including power rectifiers, transient voltage suppressors, small signal
transistors and small signal diodes. We are a world leader in the power
rectifier and transient voltage suppressor markets, which products represented
87% of our 1998 net sales, with an approximate 16% market share as measured by
net sales in 1998. Our products condition current and voltage, protect
electrical circuits from power surges, amplify and switch small electrical
signals and regulate voltage levels in circuits. Our products are essential
components of most electronic devices and systems and are used throughout a wide
range of industries, including the computer, automotive, telecommunications and
consumer electronics industries. We operate six production facilities located in
China, France, Germany, Ireland, Taiwan and New York, and we produce an average
of 35 million units per day.
During our 39 years of operation, we have focused on the design and
manufacture of discrete semiconductors. Our discrete semiconductor products are
different from integrated circuit semiconductor products because discrete
semiconductors are single function products and are generally characterized by:
- longer product life cycles;
- lower research and development investment requirements;
- a less complex and less costly fabrication process; and
- lower capital needs.
We believe the characteristics of the discrete semiconductor market and
our competitive strengths contribute to our stable and consistent operating
income. In 1998, 65% of our net sales were derived from the sale of four product
families, each of which we first introduced more than 20 years ago.
COMPANY STRENGTHS
We believe the characteristics of the discrete semiconductor market and
our competitive strengths contribute to our stable and consistent operating
income.
LONG-STANDING RELATIONSHIPS WITH DIVERSE, BLUE CHIP CUSTOMERS. During
our 39-year operating history, we have developed long-standing relationships
with many customers. We serve more than 500 customers worldwide, with no single
customer accounting for more than 6% of our 1998 net sales. Each of our ten
largest customers has been our customer for more than 25 years. Customers in our
end use markets include leading global manufacturers such as Robert Bosch
Corporation, Ford Motor Company, General Motors Corporation, Lucent
Technologies, Matsushita Electric Industrial Co. Ltd., Motorola Inc., Nokia
Corp., Phillips NV, Siemens AG, Samsung Electronics Co. Ltd. and Sony
Corporation.
GLOBAL, LOW COST OPERATIONS. We presently operate six production
facilities and 13 sales offices located in North America, Europe and Asia. We
believe that our global operations permit us to maintain our position as a low
cost, high quality manufacturer. All of our facilities have achieved ISO 9001 or
ISO 9002 certification status as to quality, and our five facilities that
manufacture products for the automotive industry have received the automotive
industry's QS 9000 certification. QS 9000 certification is a more stringent
quality system developed by Ford, Chrysler and General Motors to recognize the
outstanding overall performance of selected suppliers. Our
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Macroom, Ireland facility has received ISO 14001 certification. ISO 14001 is an
international certification awarded after extensive site audits demonstrate
compliance to the Environmental Management System Standards. We are continuously
engaged in cost reduction programs, primarily through reduced pricing of our raw
materials, improved material utilization, increased use of automation and other
manufacturing efficiencies.
HIGH QUALITY CUSTOMER SERVICE. Because we are an independent company
focused on the discrete segment of the semiconductor industry, all of our
service and support efforts are tailored to meet our customers' needs. We employ
approximately 200 sales, marketing and field applications engineers in 13
offices throughout North America, Europe and Asia. We target high growth end-use
markets and focus our sales efforts on our customers' design engineers and
purchasing managers in the automotive, computer, consumer and telecommunications
markets. Because we work closely with our original equipment manufacturer
customers in the design of their products, our products are frequently "designed
in" to the specifications of new products. We believe these close relationships
provide us with a substantial competitive advantage and further strengthen our
long-term customer relationships. Our customers require a high quality, reliable
source of supply, often in high volumes and with short lead times. They also
demand quick responses to technical questions and seek support in designing new
applications which will use our products.
DIVERSE END USE MARKETS. We have a diversified customer base in terms
of both geography and end use markets. We believe that this diversity minimizes
the impact of a loss in sales due to an economic slowdown in any geographic area
or end use market.
EXPERIENCED, COMMITTED MANAGEMENT TEAM. Our senior management team
consists of ten individuals who have an average of 14 years of experience with
us and 18 years of experience in the semiconductor industry. Ronald A. Ostertag,
our Chairman, President and Chief Executive Officer, has been with us for 21
years and has 27 years of experience in the semiconductor industry.
Our executive offices are located at 10 Melville Park Road, Melville,
New York 11747, and our telephone number is (631) 847-3000.
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THE OFFERING
Offering............................. $172,500,000 in principal amount
of 5 3/4% Convertible Subordinated
Notes due 2006 (and 11,093,248
shares of common stock issuable
upon conversion of the notes) by
selling securityholders.
Issuer............................... General Semiconductor, Inc.
Maturity............................. December 15, 2006.
Interest............................. Annual rate: 5 3/4 %
Payment frequency: Every six months
on June 15 and December 15.
First payment: June 15, 2000.
Conversion Rights.................... The notes are convertible, at your
option, at any time prior to
maturity, into our common stock, at
a conversion price of $15.55 per
share of common stock, subject to
adjustment (the conversion ratio is
64.3087 shares of our common stock
per $1,000 principal amount of
notes).
Change of Control.................... We will be required to offer to
purchase the notes at 100% of their
principal amount, plus interest and
liquidated damages, if any, if a
change of control of our company
occurs.
Optional Redemption.................. On or after December 15, 2002, we
may redeem some or all of the notes
at any time at the redemption prices
listed in "Description of
Notes-Redemption at the Company's
Option."
Ranking.............................. The notes are subordinated,
unsecured general debts. They are
junior to all of our existing and
future senior indebtedness and
effectively subordinate to all
existing and future liabilities of
our subsidiaries.
As of December 31, 1999 the notes
were junior to $140.0 million of
senior indebtedness and effectively
subordinate to $64.0 million of
liabilities of our subsidiaries.
Use of Proceeds...................... We will not receive any proceeds
from the sale of the notes or the
shares of common stock offered in
this prospectus. See "Selling
Security holders."
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RISK FACTORS
OUR SUBSTANTIAL INDEBTEDNESS COULD RESTRICT OUR OPERATIONS, MAKE US MORE
VULNERABLE TO ADVERSE ECONOMIC CONDITIONS AND MAKE IT MORE DIFFICULT FOR US TO
MAKE PAYMENTS ON THE NOTES.
We have had and will continue to have a substantial amount of
outstanding indebtedness with significant debt service requirements. As of
December 31, 1999, we had $276.5 million of outstanding indebtedness, and our
pro forma ratio of earnings to fixed charges (giving effect to the issuance
of the notes and the application of the proceeds) for the twelve months ended
December 31, 1999 was 2.5 to 1.0. In the future, we may incur additional
indebtedness.
OUR SUBSTANTIAL CURRENT AND FUTURE INDEBTEDNESS COULD HAVE IMPORTANT
CONSEQUENCES TO YOU. FOR EXAMPLE, IT COULD:
- impair our ability to obtain additional financing in the future;
- reduce funds available to us for other purposes, including working
capital, capital expenditures, research and development, strategic
acquisitions and other general corporate purposes;
- restrict our ability to introduce new products or exploit business
opportunities;
- increase our vulnerability to economic downturns and competitive
pressures in the industry in which we operate;
- increase our vulnerability to interest rate increases to the
extent debt under our credit facility is not hedged because the
interest rates under our credit facility are variable;
- limit our ability to dispose of assets;
- make it more difficult for us to satisfy our obligations with
respect to the notes; and
- place us at a competitive disadvantage.
WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH TO SERVICE OUR DEBT. OUR ABILITY TO
GENERATE CASH DEPENDS UPON MANY FACTORS BEYOND OUR CONTROL.
We will require a significant amount of cash to service our
indebtedness and to fund our operations. Based on our current level of
operations, we believe that our cash flow from operations and our available
financing will be adequate to meet our anticipated requirements for operating
our business and servicing our debt. Our ability to generate cash depends upon,
among other things, our future operating performance. To a large extent, this
depends upon economic, financial, competitive and other factors beyond our
control. If we cannot generate enough cash from operations to make payments on
our indebtedness, we will need to refinance our indebtedness, obtain additional
financing or sell assets. We cannot assure you that we would be able to do so or
do so without additional expense.
WE MAY BE ABLE TO INCUR SIGNIFICANTLY MORE DEBT IN THE FUTURE, WHICH WILL
INCREASE THE RISKS RELATED TO OUR INDEBTEDNESS.
We may be able to incur substantial additional indebtedness in the
future. The indenture does not prohibit us or our subsidiaries from incurring
indebtedness. Our credit facility would permit additional borrowing of up to
$148.8 million as of December 31, 1999, subject to customary borrowing
conditions.
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HOLDERS OF SENIOR INDEBTEDNESS WILL BE PAID BEFORE HOLDERS OF THE NOTES ARE
PAID.
The notes will be subordinated to our existing and future senior
indebtedness and will be structurally subordinated to all liabilities,
including trade payables, of our subsidiaries. As of December 31, 1999, the
notes were junior to $64.0 million of outstanding senior indebtedness and
effectively junior to $104.0 million of trade payables and other liabilities
of our subsidiaries. If we become bankrupt, liquidate or dissolve, our assets
would be available to pay obligations on the notes only after our senior
indebtedness has been paid. We cannot assure you that there will be
sufficient assets to pay amounts due on the notes. See "Description of
Notes--General and "--Subordination."
If we fail to pay any of our designated senior indebtedness, we may
make payments on the notes only if we cure the default or the holders of the
senior indebtedness waive the default. Moreover, if any non-payment default
exists under our designated senior indebtedness and the holders of the
designated senior indebtedness elect to exercise their rights, we may not make
any cash payments on the notes for a period of up to 179 days in any 365 day
period, unless we cure the default, the holders of the senior indebtedness waive
the default or rescind acceleration of the indebtedness, or we repay the
indebtedness in full. See "Description of Notes -- Subordination."
THE RESTRICTIONS IMPOSED BY OUR CREDIT FACILITY COULD NEGATIVELY AFFECT OUR
BUSINESS. OUR FAILURE TO COMPLY WITH THESE RESTRICTIONS COULD RESULT IN A
DEFAULT UNDER OUR DEBT INSTRUMENTS.
Our credit facility contains covenants that restrict our ability and
our subsidiaries' ability to:
- dispose of assets;
- incur additional indebtedness;
- incur liens on property or assets;
- repay other indebtedness;
- pay dividends;
- enter into certain investments or transactions;
- repurchase or redeem capital stock;
- engage in mergers or consolidations; or
- engage in certain transactions with subsidiaries and affiliates
and otherwise restrict corporate activities.
In addition, the credit facility contains financial covenants,
including:
- a total debt to EBITDA ratio;
- a senior debt to EBITDA ratio;
- a net worth maintenance test; and
- an interest expense coverage ratio.
In December 1998 and June 1999, we amended our credit facility to
provide greater flexibility under the covenants in light of our anticipated
financial performance and business plans. We cannot assure you that we will be
able to amend our credit facility in the future, should it be necessary or
advisable to do so. Our compliance with our covenants in the future may be
affected by events beyond our control. Our breach or failure to comply with any
of
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the covenants could result in a default under the credit facility or the
indenture. If we default under the credit facility, the lenders could cause all
of our outstanding debt obligations under the credit facility to become due and
payable, require us to apply all of our available cash to repay the indebtedness
or prevent us from making debt service payments on any other indebtedness we
owe. If we are unable to repay any borrowings when due, the lenders under the
credit facility could proceed against their collateral. If a default under the
indenture occurs, the holders of the notes could elect to declare those notes
due and payable. A significant payment default under the credit facility or any
Event of Default under the indenture would be a cross default under the other
instrument and could result in the acceleration of the indebtedness under both
instruments. If the indebtedness under the credit facility or these notes is
accelerated, we may not have sufficient assets to repay amounts due under the
credit facility, these notes or any other debt securities then outstanding.
WE WILL DEPEND ON THE CASH FLOW OF OUR SUBSIDIARIES TO SATISFY OUR OBLIGATIONS
UNDER THE NOTES.
Our subsidiaries conduct a substantial portion of our manufacturing
operations and also own a substantial portion of our consolidated assets. Our
subsidiaries also contribute a significant portion of our sales. Consequently,
our operating cash flow and our ability to service our debt, including the
notes, depend, in part, upon the operating cash flow of our subsidiaries and the
payment of funds by them to us in the form of purchases or otherwise. These
payments may not be adequate to pay interest and principal on the notes when
due. In addition, the ability of our subsidiaries to make payments to us depends
on applicable law and restrictions under the credit facility and other present
and future debt instruments to which they are a party, which may include
requirements to maintain minimum levels of working capital and other assets.
WE OPERATE IN AN INDUSTRY THAT HAS RECENTLY EXPERIENCED UNUSUALLY LARGE PRICE
DECLINES AND FUTURE PRICING DECLINES MAY ADVERSELY AFFECT OUR BUSINESS, RESULTS
OF OPERATIONS AND LIQUIDITY.
The discrete segment of the semiconductor industry has recently
experienced unusually large price declines and may experience such declines in
the future. During 1998 and the first quarter of 1999, average selling prices of
our products weakened at rates beyond those historically experienced due to
continued excess capacity in the industry. The excess capacity resulted from a
combination of factors, including industry capacity expansion in 1996, economic
difficulties in Southeast Asia, the economic slowdown in Japan and difficulties
in the computer and computer peripherals industry. During this period, our
production facilities were underutilized. The underutilization of our facilities
for an extended period in the future could result in production inefficiencies
and cause a reduction in our operating margins. We cannot assure you that our
industry will not experience future price declines which could have a material
adverse effect on our business, results of operations and liquidity.
WE FACE SIGNIFICANT COMPETITION IN THE DISCRETE SEGMENT OF THE SEMICONDUCTOR
INDUSTRY, WHICH MAY ADVERSELY AFFECT US.
We are 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 we do.
Our 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 we believe that we enjoy certain
technological and other advantages over our competitors, realizing and
maintaining such advantages will require continued investment by us in
engineering, research and development, marketing and customer service and
support. We cannot assure you that we will have sufficient resources to continue
to make such investments or that we will be successful in maintaining our
advantages.
OUR BUSINESS IS SUBJECT TO THE ECONOMIC AND POLITICAL RISKS OF OPERATING OUR
FACILITIES AND SELLING OUR PRODUCTS IN FOREIGN COUNTRIES.
Almost all of our 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 risks inherent in situating
operations abroad, including risks with respect to currency exchange rates,
economic and political destabilization, restrictive actions by foreign
governments, nationalizations, natural events such as severe weather,
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floods and earthquakes, the laws and policies of the United States affecting
trade, foreign investment and loans, and foreign tax laws. Our cost-competitive
status could be adversely affected if, relative to our competitors, we
experience unfavorable movements in foreign currency exchange rates.
In addition, international sales of our products generally represent
approximately 70% of our annual sales. During 1998, sales to the Asia/Pacific
region accounted for approximately 35% of our annual sales. Our order trends
and average selling prices weakened significantly in 1998, reflecting the
economic difficulties in Southeast Asia, the economic slowdown in Japan and
the difficulties in the computer and computer peripherals industry. In the
first nine months of 1999, we have benefited from improving economic
conditions in Southeast Asia but conditions in Europe softened in the first
half of 1999. Our financial performance in the future may be adversely
affected by international economic conditions.
POTENTIAL ENVIRONMENTAL LIABILITIES, INCLUDING THOSE RELATING TO FORMER
OPERATIONS, MAY ADVERSELY IMPACT OUR FINANCIAL POSITION.
We are subject to various federal, state, local and foreign laws and
regulations governing environmental matters, including the use, discharge and
disposal of hazardous materials. We are presently engaged in the remediation of
sites associated with eight discontinued operations in six states, and we are a
"potentially responsible party" at five hazardous waste sites in four states. We
have recorded a reserve for environmental matters of $30.6 million at September
30, 1999. While the ultimate outcome of these matters cannot be determined, we
do not believe that the final disposition of these matters will have a material
adverse effect on our financial position, results of operations or cash flows
beyond the amounts previously provided for in our financial statements.
Our present and past facilities have been in operation for many
years, and, over that time, these facilities have used substances which are
or might be considered hazardous, and we have generated and disposed of
wastes which are or might be considered hazardous. In addition, new
environmental legislation or regulations may be enacted in the future.
Therefore, it is possible that additional environmental issues may arise in
the future which we cannot now predict.
WE MAY NOT BE ABLE TO SUCCESSFULLY MAKE ACQUISITIONS.
As part of our business strategy, we intend to make acquisitions. We
evaluate potential acquisitions on an ongoing basis; however, we do not
currently have any understanding or arrangements for a specific acquisition.
We may not be able to complete any acquisition in the future or
identify those candidates that would result in a successful transaction. In
addition, we may not be able to complete future acquisitions at acceptable
prices and terms, and increased competition for acquisition candidates could
result in fewer acquisition opportunities and higher acquisition prices. The
magnitude, timing and nature of future acquisitions will depend upon various
factors, including:
- the availability of suitable acquisition candidates;
- competition with others for suitable acquisitions;
- the negotiation of acceptable terms;
- our access to capital;
- the availability of skilled employees to manage and operate the
acquired companies; and
- general economic and business conditions.
We expect to finance acquisitions with cash on hand, through issuance
of debt or equity securities and through borrowings under credit arrangements,
including pursuant to our credit facility, subject to the restrictions set forth
in the credit facility. See "Description of Credit Facility." The ability to
obtain debt or equity financing is
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subject to market conditions and to limitations imposed on us by our credit
facility. Therefore, we may not be able to obtain additional financing in order
to finance future acquisitions. Our operating and financial flexibility could be
substantially limited if we use cash to complete acquisitions.
YEAR 2000 FAILURES MAY ADVERSELY IMPACT OUR OPERATIONS.
Our business could be adversely affected by information technology
issues related to the Year 2000 issue. The Year 2000 issue is a broad business
issue, whose impact extends to possible failure of our financial, distribution
and manufacturing systems, as well as to those of third parties. None of our
products contain date sensitive or date processing logic. The ability of third
parties with whom we do business to address adequately their Year 2000 issues is
outside our control. However, if any of our systems are not Year 2000 compliant
or if our customers, our suppliers or government agencies fail to achieve Year
2000 compliance, we may experience the following adverse consequences,
including:
- our customers may be unable to place orders with us due either to
our or their system failures;
- we may be unable to maintain adequate production scheduling,
inventory cost accounting and other elements of our business that
are dependent upon computer systems; and
- we may be unable to deliver our products on a timely basis.
WE MAY NOT BE ABLE TO REPURCHASE NOTES UPON A CHANGE OF CONTROL WHICH WOULD BE
AN EVENT OF DEFAULT UNDER THE INDENTURE.
Upon the occurrence of specified change of control events, we could be
required to purchase all outstanding notes at a price equal to 100% of their
principal amount, plus accrued interest to the repurchase date. Under our credit
facility, a change of control is an event of default, and, therefore, it
restricts us from repurchasing the notes without the approval of the lenders. We
cannot assure you that we will have sufficient funds available or will be
permitted by the lenders under the credit facility to repurchase the notes upon
a change of control. Our failure to repurchase the notes would constitute an
event of default under the indenture. See "Description of Notes--Repurchase of
Notes at the Option of the Holder Upon a Change of Control."
YOU MAY BE UNABLE TO SELL YOUR NOTES IF A TRADING MARKET FOR THE NOTES DOES NOT
DEVELOP.
The liquidity of any market for the notes will depend on the number of
holders of the notes, the interest of securities dealers in making a market in
the notes and other factors. Accordingly, we cannot assure you as to the
development or liquidity of any market for the notes. If an active trading
market for the notes does not develop, the market price and liquidity of the
notes may be adversely affected. If the notes are traded, they may trade at a
discount from their initial offering price depending upon prevailing interest
rates, the market for similar securities, our performance and certain other
factors.
THERE MAY BE VOLATILITY OF THE MARKET PRICE OF THE NOTES AND OUR COMMON STOCK.
The market price of our common stock has fluctuated in the past and may
continue to fluctuate. In addition, the securities markets have experienced
significant price and volume fluctuations. Factors such as political and
economic conditions in foreign countries, quarterly fluctuations in our
operating results and changes in our industry and our competitors may have a
significant impact on the market price of the notes and common stock into which
the notes are convertible. In particular, if we were to report operating results
which did not meet the expectations of research analysts, the market price of
the notes and our common stock could be materially adversely affected.
-8-
<PAGE>
WE CANNOT PREDICT THE EFFECT OF FUTURE SALES OF NOTES OR SHARES OF COMMON STOCK
ON THE MARKET PRICE OF OUR COMMON STOCK.
We cannot predict the effect, if any, that future sales of notes or
shares of our common stock will have on the market price of our common stock
prevailing from time to time. Sales of substantial amounts of our common stock,
including shares issued upon the conversion of the notes, or the perception that
such sales could occur, may adversely affect prevailing market prices for our
common stock. If all the notes were converted, approximately 11.1 million shares
of our common stock would be issuable upon conversion, which represents
approximately 26% of our common stock currently outstanding.
ANTI-TAKEOVER PROVISIONS COULD DELAY OR PREVENT A CHANGE IN CONTROL OR ADVERSELY
IMPACT THE PRICE OF OUR COMMON STOCK.
Provisions of our certificate of incorporation and provisions of the
Delaware General Corporation Law could have the effect of deterring hostile
takeovers or delaying, deterring or preventing a change in control of our
company, including transactions in which stockholders might otherwise receive a
premium for their shares over current market prices. See "Description of Capital
Stock."
-9-
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of the notes or the
shares of common stock offered hereby. See "Selling Security Holders."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Since the spin-off in July 1997, our 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
during each of the periods below.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
YEAR ENDING DECEMBER 31, 1997
July 28 through September 30 .......................... $17 1/2 $12 3/8
Fourth Quarter......................................... 13 9 7/8
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
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>
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
YEAR ENDING DECEMBER 31, 1999
First Quarter.......................................... $9 7/16 $5 15/16
Second Quarter......................................... 9 3/4 6 3/8
Third Quarter.......................................... 12 5/8 7 7/8
Fourth Quarter......................................... 15 1/8 8 11/16
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
YEAR ENDING DECEMBER 31, 2000
First Quarter through February 10, 2000................ $18 5/8 $12 3/4
</TABLE>
As of December 31, 1999, there were 418 holders of record of our
common stock.
We have not paid any cash dividends since the spin-off. We do not
currently intend to pay dividends in the foreseeable future, but to reinvest
earnings in our business. Our ability to pay cash dividends on our common stock
is limited by certain covenants contained in our credit agreement.
-10-
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges
for each of the years ended December 31, 1994, 1995, 1996, 1997 and 1998 and for
the nine months ended September 30, 1998 and 1999.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------------------------------
1994 1995 1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(1)................. 3.8x 9.6x 6.9x 4.5x 2.8x 3.0x 2.1x
</TABLE>
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
are divided by fixed charges. Earnings represent the aggregate of pre-tax
income before non-recurring items and fixed charges, less capitalized
interest. Non-recurring charges for the year ended December 31, 1997
include $33.8 million incurred in connection with the spin-off, primarily
related to the separation of General Instrument Corporation's Taiwan
operations. Non-recurring charges for the year ended December 31, 1998
include $12.3 million incurred in the fourth quarter of 1998 related to
workforce reductions, the cost of early retirement programs, the closing of
two sales offices and the writing off of assets related to an unprofitable
product that was discontinued. Fixed charges represent interest and the
portion of rental expenses we consider representative of the interest
factor (one-third of rent expenses).
-11-
<PAGE>
BUSINESS
We are a market leader in the discrete segment of the semiconductor
industry. We design and manufacture a broad array of discrete semiconductors,
including power rectifiers, transient voltage suppressors, small signal
transistors and small signal diodes. We are a world leader in the power
rectifier and transient voltage suppressor markets, which products represented
87% of our 1998 net sales, with an approximate 16% market share as measured by
net sales in 1998. Our products condition current and voltage, protect
electrical circuits from power surges, amplify and switch small electrical
signals and regulate voltage levels in circuits. Our products are essential
components of most electronic devices and systems and are used throughout a wide
range of industries, including the computer, automotive, telecommunications and
consumer electronics industries. We operate six production facilities located in
China, France, Germany, Ireland, Taiwan and New York, and we produce an average
of 35 million units per day. For the LTM Period, we reported net sales of $403.1
million, operating income of $37.2 million, net income of $11.8 million and
Adjusted EBITDA of $76.3 million.
During our 39 years of operation, we have focused on the design and
manufacture of discrete semiconductors. Our discrete semiconductor products are
different from integrated circuit semiconductor products because discrete
semiconductors are single function products and are generally characterized by:
- longer product life cycles;
- lower research and development investment requirements;
- a less complex and less costly fabrication process; and
- lower capital needs.
We believe the characteristics of the discrete semiconductor market and
our competitive strengths contribute to our stable and consistent operating
income. In 1998, 65% of our net sales were derived from the sale of four product
families, each of which we first introduced more than 20 years ago.
Worldwide semiconductor market revenue was $125.6 billion in 1998,
according to WSTS. The discrete segment of this market accounted for $11.9
billion, or approximately 9.5%, of the total semiconductor market and the
sectors in which we compete accounted for $7.9 billion of this market. The
following charts illustrate the principal sectors of the semiconductor market
and the discrete segment by product category and highlight the areas in which we
compete:
1988 SEMICONDUCTOR MARKET
$125.6 BILLION
[Pie Chart]
Memory 18%
Logic ICs 15%
Analog 15%
Discretes 9%
Optical ICs 4%
Microcomponets 3.8%
Bipolar ICs 1%
1998 DISCRETE MARKET
$11.9 BILLION
[PIE CHART]
Power Transistors 22%
Small Signal Transisters 20%
MOSFETs 17%
Rectifiers 16%
Diodes 13%
Thyristors 7%
Other Discrete Devices 5%
-12-
<PAGE>
COMPANY STRENGTHS
We believe the characteristics of the discrete semiconductor market and
our competitive strengths contribute to our stable and consistent operating
income.
LONG-STANDING RELATIONSHIPS WITH DIVERSE, BLUE CHIP CUSTOMERS. During
our 39-year operating history, we have developed long-standing relationships
with many customers. We serve more than 500 customers worldwide, with no single
customer accounting for more than 6% of our 1998 net sales. Each of our ten
largest customers has been our customer for more than 25 years. Customers in our
end use markets include leading global manufacturers such as Robert Bosch
Corporation, Ford Motor Company, General Motors Corporation, Lucent
Technologies, Matsushita Electric Industrial Co., Ltd., Motorola Inc., Nokia
Corp., Phillips NV, Siemens AG, Samsung Electronics Co. Ltd. and Sony
Corporation.
GLOBAL, LOW COST OPERATIONS. We presently operate six production
facilities and 13 sales offices located in North America, Europe and Asia. We
believe that our global operations permit us to maintain our position as a low
cost, high quality manufacturer. All of our facilities have achieved ISO 9001 or
ISO 9002 certification status as to quality and our five facilities that
manufacture products for the automotive industry have received the automotive
industry's QS 9000 certification. QS 9000 certification is a more stringent
quality system developed by Ford, Chrysler and General Motors to recognize the
outstanding overall performance of selected suppliers. Our Macroom, Ireland
facility has received ISO 14001 certification. ISO 14001 is an international
certification awarded after extensive site audits demonstrate compliance to the
Environmental Management System Standards. We are continuously engaged in cost
reduction programs, primarily through reduced pricing of our raw materials,
improved material utilization, increased use of automation and other
manufacturing efficiencies.
HIGH QUALITY CUSTOMER SERVICE. Because we are an independent company
focused on the discrete segment of the semiconductor industry, all of our
service and support efforts are tailored to meet our customers' needs. We employ
approximately 200 sales, marketing and field applications engineers in 13
offices throughout North America, Europe and Asia. We target high growth end-use
markets and focus our sales efforts on our customers' design engineers and
purchasing managers in the automotive, computer, consumer and telecommunications
markets. Because we work closely with our original equipment manufacturer
customers in the design of their products, our products are frequently "designed
in" to the specifications of new products. We believe these close relationships
provide us with a substantial competitive advantage and further strengthen our
long-term customer relationships. Our customers require a high quality, reliable
source of supply, often in high volumes and with short lead times. They also
demand quick responses to technical questions and seek support in designing new
applications which will use our products.
DIVERSE END USE MARKETS. We have a diversified customer base in terms
of both geography and end use markets. The following charts illustrate our 1998
net sales by geographic area and by end use market:
1998 NET SALES BY GEOGRAPHIC AREA
[Pie Chart]
<TABLE>
<S> <C>
Europe 34%
North America 31%
Southeast Asia 21%
China 8%
Japan 6%
</TABLE>
1998 NET SALES BY END USE MARKET
[Pie Chart]
<TABLE>
<S> <C>
Distributors (1) 30%
Computer/Power Supply 24%
Automotive 18%
Consumer Products 13%
Telecom 6%
Other 9%
</TABLE>
-13-
<PAGE>
(1) Distributors sell our products to diverse end use markets, including
all those shown in the chart.
We believe that this diversity minimizes the impact of a potential loss
of sales due to an economic slowdown in any geographic area or end use market.
EXPERIENCED, COMMITTED MANAGEMENT TEAM. Our senior management team
consists of ten individuals who have an average of 14 years of experience with
us and 18 years of experience in the semiconductor industry. Ronald A. Ostertag,
our Chairman, President and Chief Executive Officer, has been with us for 21
years and has 27 years of experience in the semiconductor industry.
BUSINESS STRATEGY
Our objective is to maintain and strengthen our position as a leading
supplier of discrete semiconductors and, as a result, to achieve growth in net
sales and earnings. The principal elements of our strategy are:
BROADEN PRODUCT BASE THROUGH NEW PRODUCT INTRODUCTIONS. We seek to
build on our base of long-lived, well established products to introduce new
products that meet our customers' needs. We employ approximately 60 full-time
personnel in our research and development laboratories in Ireland, Taiwan, New
York and California. We spent $6.1 million on research and development in 1998
and $4.9 million during the nine months ended September 30, 1999.
In 1998 we introduced a number of new products to better meet our
customers' needs, including the surface mount high energy automotive transient
voltage suppressor device, the fast recovery mini-bridge and the high voltage
transient voltage suppressor products. The new surface mount high energy
automotive transient voltage suppressor device is designed to protect automotive
electronic systems from high energy surges. These products use our patented
PAR-TM- construction that ensures 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. We have extended the voltage range of our
TRANSZORB-TM- transient voltage suppressor devices up to 550 volts, which is the
highest avalanche voltage currently offered in the industry. This new product
was specially designed to work in conjunction with newly developed integrated
circuits that provide much greater efficiencies to computer products. See
"--Research and Development."
To further broaden our product base, we recently opened a design center
for power MOSFET products with experienced MOSFET engineers. MOSFETs are
semiconductor devices that switch and/or amplify current and are used
principally by our computer, automotive and telecommunications customers. Our
strategy is to use a "fabless" approach, in which we will outsource the wafer
fabrication process, to manufacture this product. We recently entered into
manufacturing agreements with established foundries in Asia, which we believe
will enable us to enter the power MOSFET market more quickly than we otherwise
would be able to and with minimal capital requirements. We expect to address
this $2.0 billion market by combining our design expertise and customer service
orientation with this manufacturing. Although we believe that sales from this
product will be relatively small initially, we anticipate that power MOSFET
sales could be an important component of our future growth.
MAKE STRATEGIC, SYNERGISTIC ACQUISITIONS. We continually evaluate
candidates for strategic acquisitions and joint ventures that will permit us to
broaden our product offerings and increase our presence in our existing product
lines. Acquisitions will also permit us to leverage our existing sales and
distribution channels, including a sales force of more than 1,000 worldwide,
comprised of sales representatives, distributors, and approximately 200 direct
sales and technical personnel. For example, we acquired the small signal
products business of ITT Industries, Inc. in October 1997 for $9.0 million,
including direct acquisition costs. This business also contributed $53.1 million
to our sales in 1998. It also provided us entry to the small signal transistor,
zener diode and small signal diode sectors of the discrete products market,
collectively a $3.7 billion market in 1998.
-14-
<PAGE>
CONTINUE TO ACHIEVE COST SAVINGS. We are committed to being a low-cost
producer of our products. In order to achieve this, we continuously engage in
cost reduction programs. These cost reduction programs are made possible in part
by technological advancements in material sciences, wafer production processes
and packaging techniques. As a result of these advancements and through various
investments, we have been able to reduce costs in a number of ways, including,
but not limited to:
- automating production lines to reduce labor costs and increase
product quality;
- improving production processes to increase production yields;
- modifying product designs to reduce the amount of raw material
required to produce products;
- reducing raw material costs through negotiations with our vendors;
and
- moving higher labor cost processes to lower labor cost locations.
Our ability to reduce our costs has allowed us to maintain our earnings
and competitive position while satisfying our customers' requirements for
low-cost, high-quality products.
-15-
<PAGE>
PRODUCTS AND CUSTOMERS
The table below identifies our end markets and the percentage of our
1998 net sales attributable to each, and the principal products, representative
applications and major customers for those end markets.
<TABLE>
<CAPTION>
END MARKETS COMPUTER AUTOMOTIVE CONSUMER TELECOMMUNICATIONS LIGHTING DISTRIBUTORS
<S> <C> <C> <C> <C> <C> <C>
% OF NET SALES(1) 24% 18% 13% 6% 4% 30%
PRODUCTS Bridge Rectifiers Superectifiers Bridge Rectifiers Fast Efficient Bridge Rectifier All
Fast Efficient Small Signal Fast Efficient Rectifiers Fast Efficient
Rectifiers Diodes Rectifiers Small Signal Rectifiers
Schottky Rectifiers Small Signal Small Signal Diodes Superectifiers
Small Signal Transistors Diodes Small Signal
Diodes Transient Voltage Small Signal Transistors
Suppressors Transistors Superectifiers
Zener Diodes Zener Diodes Transient Voltage
Suppressors
REPRESENTATIVE CD ROM drive ABS Brake Cable Boxes Cordless Phone Compact All
APPLICATIONS Computer Battery System CD Player Internet Line Fluorescent
Charger Active DVD Card Lamp
Disk Drive Suspension Entertainment ISDN Board Electronic
Monitor Airbag Module Center Mobile Phone Ballast
Motherboard Collision Home Appliances/ Modems Energy Saving
PC Scanner Warning/ White Goods Pager Ballast
Printer Avoidance Home Satellite Satellite HID Ballast
Switch Mode System Dish Transmission Inverter Light
Power Supply Cruise Control Microwave Switching Ballast
Module Playstation/ Systems Neon Light
Engine Nintendo Projector
Management TV Ballast
Entertainment
Module
GPS Navigation
Systems
MAJOR SECTION Acer Bosch BOSE Alcatel Delta Arrow/Spoerle
CUSTOMERS API Delphi Braun Ericsson MagneTek Array
Astec Ford Daewoo Hughes Motorola Avnet
Delta Hella General Instrument Lucent Philips Distrel
LG Mitsubishi LG Motorola Siemens/Osram Eurodis
Phihong Motorola AIEG Matsushita Nokia Future
Philips Nadex Philips Nortel Networks Nadex
Samsung Nippon Ryoden Sagem Rutroik
SCI Denso/Denso Samsung Siemens Ryoden
SONY Siemens SONY Taitron
Valeo
</TABLE>
(1) These products do not equal 100% of our net sales because we also sell
miscellaneous products to various other end markets equal to
approximately 5% of our net sales.
PRINCIPAL PRODUCTS
We design, manufacture and sell a broad array of discrete
semiconductors, including:
- low- to medium-power rectifiers;
- transient voltage suppressors;
-16-
<PAGE>
- small signal diodes and transistors; and
- zener diodes.
We manufacture these products in a variety of packages, including
axial, bridge, power and surface mount packages.
RECTIFIERS. Rectifiers conduct electricity in one direction and block
it in the "reverse" direction. They are used to convert alternating current (AC)
into direct current (DC) which is used to power electronic equipment. The
current carried over power lines and into homes, offices and factories is
alternating current; however, most electronic equipment requires direct current
to operate. We offer a wide selection of rectifier products including bridge
rectifiers, fast efficient rectifiers, glass-passivated rectifiers, plastic
rectifiers, Schottky rectifiers and SUPERECTIFIERS-TM-.
Bridge rectifiers are essential for the vast majority of electronic
equipment that plugs into an electrical outlet. A bridge rectifier is comprised
of four separate rectifier components configured into a single package that
converts alternating current into full wave direct current. We manufacture a
complete line of bridge rectifiers that meet the power and case style
requirements of most electronic equipment.
The SUPERECTIFIER-TM- is a highly reliable and cost effective component
that incorporates several of our unique technologies. The SUPERECTIFIER-TM-
glass- plastic construction combines the superior reliability of spherical glass
constructed rectifiers with plastic cases that allow easier mass handling as
well as lower costs. The automotive and computer peripheral markets are the
principal markets for this product.
Our Schottky rectifier is designed for use in high-speed applications
such as computer and computer related products. Its design results in nearly
zero reverse recovery times (the speed at which the device can go from a state
of conducting current to a blocking mode) and very low forward voltage drop
which allows for low power losses. Our manufacturing process creates a highly
reliable Schottky product.
Fast efficient rectifiers are an extension of our Schottky product
portfolio. These products offer reverse recovery 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. Fast efficient rectifiers are principally used for
computer and computer related applications.
TRANSIENT VOLTAGE SUPPRESSORS. Transient voltage suppressors are
similar to circuit breakers with the advantage that they do not have to be reset
or replaced. They are silicon-based semiconductors designed to provide
protection against all types of transient threats, ranging from electrostatic
discharge to induced lightning. These voltage clamping devices absorb large
amounts of energy for short periods of time. We offer a broad range of
state-of-the-art transient voltage suppressor devices for use in most modern
electronic equipment. In 1998, we introduced a line of patented transient
voltage suppressor devices specifically designed for automotive applications.
These include avalanche alternator rectifiers and a surface mount high-energy
transient voltage suppressor device.
SMALL SIGNAL DIODES. Small signal diodes perform various functions such
as signal blocking, routing and switching at lower current levels. These
components are used in a variety of products, including telecommunications
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 most modern
electronic systems.
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 electrostatic
discharge threats. Zener diodes are also used in most modern electronic systems
and end use markets.
-17-
<PAGE>
MARKETS AND CUSTOMERS
Our customer base is diverse, both geographically and by end use of our
products. We target our products primarily for use in the automotive, computer,
consumer electronics, telecommunications and lighting industries.
AUTOMOTIVE. Our discrete components are found in critical and "creature
comfort" systems throughout automotive design. Automotive customers seek highly
reliable components. Our components are used in many automotive applications
including airbag modules, global positioning satellite navigation systems,
catalytic converter heaters, climate control modules, engine cooling systems and
ignition modules.
COMPUTER. All computers and their associated peripherals require
sophisticated, controlled electrical energy. We provide the power rectifying
element for all computer electronic systems to transform unmanaged, raw electric
power into the controlled energy source modern digital systems require. Our
products also protect computer systems from transient threats, such as
electrostatic discharge and induced lightning. Our products are sold to computer
and computer component manufacturers in numerous applications, including switch
mode power supplies, computer battery chargers, modem cards, P.C.A. boards,
logic boards, laser printers, computer processors and monitors.
CONSUMER ELECTRONICS. Consumer appliances that plug into a wall outlet
or transmit a signal generally require discrete semiconductors. Our products are
placed in a broad range of consumer products, including refrigerators, garage
door openers, home satellite systems, washers, dryers and microwaves.
TELECOMMUNICATIONS. Our products perform various functions for the
telecommunications market. Because of the often critical nature of
telecommunications applications and the increasing demand for portability, these
applications require a very high degree of reliability and small size. Also,
device efficiencies are very important in battery operated products to minimize
power drain on batteries and maximize run time. For this reason, customers pay a
premium for components that operate with the least amount of energy loss.
Applications using our products include cordless phones, pagers, cellular base
stations, Integrated Services Digital Network (ISDN) boards and satellite
dishes.
LIGHTING. New electronic ballast systems, which have been replacing
older magnetic ballast systems and incandescent bulbs, provide greater
efficiency and significantly reduce operating costs. Most light fixtures require
alternating current (AC) to be converted into direct current (DC) in order to
function. Historically, this has been achieved through an array of twisted
copper wires known as magnetic ballast. Recently, as a result of the demand for
more efficient light fixtures, magnetic ballasts have been replaced in many
applications by electronic ballasts which use discrete semiconductors. Because
the new electronic ballast systems typically are priced at a relative premium,
these systems must be extremely reliable in order to justify the higher initial
cost. In addition to a high degree of reliability, electronic ballast
manufacturers require their components to be priced affordably and be compact.
We sell to all major applications within this end use market.
DISTRIBUTORS. Distributors meet the needs of customers with lower
volume requirements. Distributors serve all of our markets in all of our
regions, but our primary distributor sales are in North America and Europe.
SALES CHANNELS. Our products are sold through a direct sales force,
distributors and sales representatives. In each of the years ended December 31,
1996, 1997 and 1998, sales to customers in North America, Europe and Southeast
Asia each represented approximately 30% of our net sales. Sales to customers in
Japan represented the majority of the balance. Our customer base incorporates a
wide array of the world's largest manufacturers. No single customer accounted
for 6% or more of our sales during the years ended December 31, 1996, 1997 or
1998.
We have a sales force of more than 1,000 worldwide, comprised of sales
representatives, distributors and approximately 200 direct sales and technical
personnel to support our worldwide sales and distribution efforts. We maintain
13 sales offices located in Melville, New York; Carlsbad, California; Arlington
Heights, Illinois; Duluth, Georgia; Paris, France; Munich, Germany; Tokyo and
Osaka, Japan; Seoul, Korea; Taipei, Taiwan; Singapore; and Shanghai and Hong
Kong, China.
-18-
<PAGE>
Additionally, we use information technology to develop and maintain
strong customer relationships. For example, electronic data interchange is used
by many of our major customers to facilitate the order through delivery process.
In addition to electronic data interchange, we intend to expand upon the scope
of services provided through the Internet, extranets and other electronic means
to provide broader services to the marketplace. We expect that these services
will provide improved technical support, on-line order access and e-commerce
capability. The use of improved information technology, combined with strong
technical marketing and broad sales channels has helped us obtain new product
approvals and increase our market share with many of our major customers.
MANUFACTURING
Semiconductor manufacturing involves two phases of production: wafer
fabrication and assembly (or packaging). Wafer fabrication subjects silicon
wafers to various thermal, metallurgical and chemical process steps that change
their electrical and physical properties. These process steps define cells or
circuits within numerous individual devices (termed "dies" or "chips") on each
wafer. Assembly is the sequence of production steps that divide the wafer into
individual chips and enclose the chips in structures (termed "packages") that
make them usable in a circuit. Both wafer fabrication and assembly phases
incorporate wafer level and device level electrical testing to ensure that
device design integrity has been achieved.
Discrete semiconductors generally use process technology and equipment
already proven in the manufacturing of integrated circuits. The cost of discrete
semiconductor wafer fabrication facilities varies greatly, depending upon the
number and sophistication of the process steps required to produce the desired
electrical performance and functions. For example, while Schottky and transistor
products require complex and technically sophisticated process flows, the
capital requirements of these products are significantly less than for
integrated circuits. This is due, in part, to the fewer number of process steps
required to manufacture discrete semiconductor wafers and, therefore, the
requirement of less process equipment. Additionally, because the discrete
semiconductor manufacturing process is based on well established technology,
less expensive process equipment is required.
The entire manufacturing process has evolved over time, and labor
intensive processes have given way to more reliable automated processes. The
change to automated procedures has, in part, allowed us to reduce our
manufacturing costs, significantly improve product quality and reduce the impact
of declining prices.
We own or lease six production facilities in China, Taiwan, Ireland,
Germany, France and New York. In addition, we have manufacturing supply
agreements with various companies located in Asia. Our facilities are as
follows:
LOCATION PRODUCTS
WAFER FABRICATION ONLY:
Freiburg, Germany Small signal products
Westbury, New York Epitaxial wafers
WAFER FABRICATION AND ASSEMBLY:
Taipei, Taiwan Standard rectifiers
Schottky rectifiers
Fast efficient rectifiers
Transient voltage suppressors
Macroom, Ireland Transient voltage suppressors
Bridges
Standard rectifiers
Fast efficient rectifiers
ASSEMBLY ONLY:
Tianjin, China Rectifiers
Bridges
-19-
<PAGE>
Colmar, France Small signal products
All factories have received the quality certification designations
ISO9001 or ISO9002 and all factories except the factory located in Westbury, New
York, which does not manufacture end products for the automotive industry, have
received the quality certification designation QS9000. Our Macroom, Ireland
facility has received ISO 14001 certification. ISO 14001 is an international
certification awarded after extensive site audits demonstrate compliance to the
Environmental Management System Standards.
RESEARCH AND DEVELOPMENT
We plan to use the technology found in our long-lived, well-established
products to introduce new products that meet our customers' needs. We employ
approximately 60 full-time personnel in our research and development
laboratories in Ireland, Taiwan, Fremont, California and Westbury, New York. The
research and development laboratories in Ireland and Taiwan focus primarily on
the development of new packaging technology, and the development laboratory in
Westbury, New York focuses on applied material sciences.
Research and development expenditures totaled $5.8 million in 1996,
$6.0 million in 1997, $6.1 million in 1998 and $4.9 million for the nine months
ended September 30, 1999. Research and development expenditures reflect
continued development and the advancement of new product and packaging
technologies targeted for the automotive, telecommunications and computer end
use market applications.
We recently opened a design center in Fremont, California for power
MOSFET products with experienced senior MOSFET engineers, and have entered into
related manufacturing agreements with two established foundries in China and
Taiwan. MOSFETs are semiconductor devices that switch and/or amplify current
through changes in voltage.
In 1998 we introduced the surface mount high energy automotive
transient voltage suppressor device, the fast recovery mini-bridge and the high
voltage transient voltage suppressor products. The new surface mount high energy
automotive transient voltage suppressor device is designed to protect automotive
electronic systems from high energy surges. These products use our patented
PAR-TM- construction that ensures 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. We have extended the voltage range of our
TRANSZORB-TM- transient voltage suppressor devices up to 550 volts, which is the
highest avalanche voltage currently offered in the industry. This new product
was specially designed to work in conjunction with newly developed integrated
circuits that provide much greater efficiencies to computer products.
PATENTS
We actively seek patents for new products and designs. At September 30,
1999, we held 59 U.S. patents. Although we believe our patents provide a
competitive advantage, no single patent is material to our business. We also
rely on our proprietary knowledge and continuing technological innovation to
develop and maintain our competitive position.
BACKLOG
At September 30, 1999, we had an order backlog of approximately $143.3
million compared with $121.8 million at December 31, 1998 and $130.7 million at
September 30, 1998. 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. Therefore, it is impossible to
predict accurately the amount of backlog orders that will result in sales.
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<PAGE>
Our backlog at any particular date may not be representative of actual
sales for any succeeding period. The lead times for the release of purchase
orders depend upon the scheduling practices of individual customers. The
delivery times of new or non-standard products can be affected by scheduling
factors and other manufacturing considerations. The rate of booking new orders
can also vary significantly from month to month, and there is the possibility of
customer changes in delivery schedules or order cancellations.
COMPETITION
The discrete semiconductor industry is highly competitive. We compete
with companies worldwide, some of which have greater financial, marketing and
management resources than we do. We believe that our principal competitors
include ON Semiconductor, Philips Electronics N.V., ST Microelectronics N.V.,
Fairchild Semiconductor Corporation, Shindengen Electric Manufacturing Co.,
Ltd., Sanken Electric Co., Ltd. and a number of Taiwanese and Japanese
manufacturers.
EMPLOYEES
At September 30, 1999, we employed approximately 5,100 people
worldwide. We believe that our relations with both our union and non-union
employees are satisfactory.
RAW MATERIALS
Silicon ingots, molding compound and lead frames typically account for
approximately two-thirds of our raw material expense. We believe that our
relations with our suppliers are good, and we do not anticipate any supply
shortages in the foreseeable future.
We believe that the loss of any supplier would not have a long-term
material negative effect on our business because components and supplies are
generally available from a variety of sources. However, we could have set-up
costs and delays if we change suppliers. In the past, delays in delivery of
components have not had a material negative effect on shipments of our products.
PROPERTIES
Our principal administrative, production and research and development
facilities are located in the following locations:
<TABLE>
<CAPTION>
LOCATION LEASED OR OWNED SQUARE FEET
<S> <C> <C>
Melville, New York............................... Leased, Expires 2004 52,000
Westbury, New York............................... Leased, Expires 2005 (1) 18,000
Taipei, Taiwan................................... Owned 350,000
Macroom, Ireland................................. Owned 120,000
Tianjin, China................................... Ground Lease, Expires 2045 (2) 120,000
Freiburg, Germany................................ Leased, Expires 2007 (3) 55,000
Colmar, France................................... Owned 63,000
</TABLE>
- ----------
(1) We have an option to extend this lease until 2010.
(2) We own the facilities; however, the land upon which it is constructed is
leased.
(3) We have the right to terminate this lease beginning in 2000.
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<PAGE>
We believe that our facilities around the world, whether owned or
leased, are well-maintained. Our manufacturing facilities contain sufficient
production capacity to meet our needs for the foreseeable future.
ENVIRONMENT
We are committed to operate worldwide in a manner which respects and
protects the environment. We use hazardous substances and generate solid and
hazardous waste in the ordinary course of our business. As a result, we are
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 our business, we incur costs to
comply with environmental laws. Although we believe we are in substantial
compliance with environmental requirements, we cannot assure you that our costs
to comply with environmental requirements will not increase in the future. We
cannot predict the kind of legislation or regulations that may be adopted in the
future with respect to environmental protection and waste disposal. To date, our
compliance with existing legislation and regulations has not had a material
negative effect on us and we do not expect future compliance to have a material
negative effect on our financial position, results of operations or cash flows.
In connection with the spin-off in 1997, we retained the obligations
with respect to environmental matters relating to our discontinued operations
and their status as a "potentially responsible party" with respect to the
offsite disposal of wastes. We are engaged in the remediation of eight
discontinued operations in six states, and are a "potentially responsible party"
at five hazardous waste sites in four states. Based on several factors,
including capital expenditures and expenses for our 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 we have
been named as a "potentially responsible party," these matters are not expected
to have a material adverse effect on our financial position, results of
operations or cash flows.
Our present and past facilities have been in operation for many years,
and over that time in the course of those operations, these facilities have used
substances which are or might be considered hazardous. Additionally, we have
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 we cannot predict.
INTERNATIONAL OPERATIONS
We manufacture or assemble most of our products 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. Our
cost-competitive status could be negatively affected if, relative to our
competitors, we experience unfavorable movements in foreign currency exchange
rates such as the appreciation of the New Taiwan dollar in relation to the U.S.
dollar.
International sales represent approximately 70% of our sales. Sales
to the Asia/Pacific region accounted for approximately 35% of our worldwide
sales in 1998. During 1998, order trends and average selling prices weakened
significantly reflecting the economic difficulties in Southeast Asia, the
economic slowdown in Japan and the difficulties in the computer and computer
peripherals industries. However, approximately 50% of our production is
located in Taiwan, the cost of which benefited from the weakening of the New
Taiwan Dollar in relation to the U.S. dollar in 1998. We cannot assure you as
to the extent or duration of the impact of these events on our financial
position, results of operations or cash flows. In the first nine months of
1999, we benefited from improving economic conditions in Southeast Asia, but
conditions in Europe softened in the first half of 1999.
LEGAL PROCEEDINGS
In connection with the spin-off in 1997, General Instrument Corporation
(formerly NextLevel Systems, Inc.) agreed to indemnify us with respect to
certain legal proceedings relating to the business transferred to General
Instrument Corporation, including the obligations, if any, arising out of or
relating to the two securities
-22-
<PAGE>
litigations described below. Therefore, we are of the opinion that the
resolution of these matters will not have an effect on our consolidated
financial position, results of operations or cash flows.
The action captioned IN RE GENERAL INSTRUMENT CORPORATION SECURITIES
LITIGATION pending in the U.S. District Court for the Northern District of
Illinois, Eastern Division, consolidates numerous class action complaints
(including the derivative action) filed in various courts between October 10 and
October 27, 1995, and is brought by plaintiffs, on their own behalf and as
representatives of a class of purchasers of General Instrument Corporation
common stock during the period March 21 through October 18, 1995. The complaint
alleges that prior to the spin-off, General Instrument Corporation and certain
of its officers and directors, as well as Forstmann Little & Co. and certain
related entities, violated the federal securities laws, namely Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, as amended, by allegedly
making false and misleading statements and failing to disclose material facts
about General Instrument Corporation'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 General Instrument Corporation. The
derivative action alleges that the members of General Instrument Corporation'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 General Instrument Corporation common
stock for personal gain.
The action captioned BKP PARTNERS, L.P. V. GENERAL INSTRUMENT CORP. was
brought in February 1996 by certain holders of preferred stock of NextLevel
Communications, which was merged into a subsidiary of General Instrument
Corporation in September 1995. The action was originally filed in the Northern
District of California and was later 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
NextLevel in connection with the acquisition of NextLevel by General Instrument
Corporation. Plaintiffs seek, among other things, unspecified compensatory and
punitive damages and attorneys' fees and costs.
We are 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
we are indemnified. We are of the opinion that these litigations or claims will
not have a material negative effect on our consolidated financial position,
results of operations or cash flows.
-23-
<PAGE>
DESCRIPTION OF NOTES
Set forth below is a summary of certain provisions of the notes. The
notes were issued pursuant to an indenture (the "Indenture") dated as of
December 14, 1999 by and between us and The Bank of New York, as trustee (the
"Trustee"). The following summary of the notes, the Indenture and the
Registration Rights Agreement (as defined below) does not purport to be complete
and is qualified by reference to all of the provisions of the Indenture and the
Registration Rights Agreement, including the definitions of certain terms which
agreements are filed as exhibits to the Registration Statement of which this
prospectus is a part. Capitalized terms used herein without definition have the
meanings ascribed to them in the Indenture or the Registration Rights Agreement,
as appropriate. As used in this section, the "Company" refers to General
Semiconductor, Inc., exclusive of its subsidiaries. Wherever particular
provisions or defined terms of the Indenture (or the form of note which is a
part thereof) or the Registration Rights Agreement are referred to in this
summary, such provisions or defined terms are incorporated by reference as a
part of the statements made and such statements are qualified in their entirety
by such reference. Certain definitions of terms used in the following summary
are set forth under "Certain Definitions."
GENERAL
The notes are general, unsecured obligations of the Company, limited in
aggregate principal amount to $172.5 million. The notes and related obligations
are subordinated in right of payment to all existing and future Senior
Indebtedness and effectively junior to all existing and future trade payables
and other liabilities of the Company's Subsidiaries, as described under
"Subordination" below. The notes were issued only in fully registered form,
without coupons, in denominations of $1,000 and integral multiples of such
amount.
The notes mature on December 15, 2006. The notes bear interest at
the rate per annum of 5 3/4% from their date of issuance, or from the most
recent interest payment date to which interest has been paid or provided for,
payable semi-annually in cash in arrears on June 15 and December 15 of each
year, commencing June 15, 2000, to the Persons in whose names such notes are
registered at the close of business on June 1 and December 1 immediately
preceding such interest payment dates. Principal of, premium, if any, on,
interest on, and Liquidated Damages (as defined in "Registration Rights;
Liquidated Damages"), if any, with respect to, the notes is payable, the
notes are convertible and the notes may be presented for registration of
transfer or exchange, at the office or agency of the Company maintained for
such purpose, which office or agency shall be maintained in New York, New
York. Interest on the notes is calculated on the basis of a 360-day year
consisting of twelve 30-day months.
At the option of the Company, payment of interest and Liquidated
Damages, if any, may be made by check mailed to the holders of the notes at the
addresses set forth upon the registry books of the Company. No service charge
will be made for any registration of transfer or exchange of notes, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Until otherwise designated
by the Company, the Company's office or agency will be the corporate trust
office of the Trustee presently located at 101 Barclay Street, New York, New
York 10286.
The Indenture does not contain any financial covenants or any
restrictions on the payment of dividends, the issuance or repurchase of
securities of the Company or the incurrence of Indebtedness, including Senior
Indebtedness. The Indenture contains no covenants or other provisions to afford
protection to holders of notes in the event of a highly leveraged transaction or
a change of control of the Company, except to the limited extent described under
"Repurchase of Notes at the Option of the Holder Upon a Change of Control."
CONVERSION RIGHTS
Each holder of notes has the right at any time prior to the close of
business on the Stated Maturity of the notes, unless previously redeemed or
repurchased, at the holder's option, to convert any portion of the principal
amount thereof that is $1,000 or an integral multiple of such amount into shares
of common stock at the conversion price of $15.55 per share of common stock,
subject to adjustment as described below (the conversion ratio is 64.3087 shares
of our common stock per $1,000 principal amount of notes). The right to convert
a note called for
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<PAGE>
redemption or delivered for repurchase and not withdrawn will terminate at the
close of business on two Business Days immediately prior to the Redemption Date
or Repurchase Date, as applicable, for such note, unless the Company
subsequently fails to pay the applicable Redemption Price or Repurchase Price,
as the case may be.
If any notes are converted during the period after any record date but
before the next interest payment date, interest on such notes will be paid on
the next interest payment date, notwithstanding such conversion, to the holder
of record on the record date of those notes. Any notes that are, however,
delivered to us for conversion after any record date but before the next
interest payment date must, except as described in the next sentence, be
accompanied by a payment equal to the interest payable on such interest payment
date on the principal amount of notes being converted. We will not require the
payment to us described in the preceding sentence if, during that period between
a record date and the next interest payment date, a conversion occurs on or
after the date that we have issued a redemption notice and prior to the date of
redemption. If any notes are converted after an interest payment date but on or
before the next record date, no interest will be paid on those notes. No
fractional shares will be issued upon conversion, but a cash adjustment will be
made for any fractional share.
The conversion price will be subject to adjustment in certain events,
including:
- any payment of a dividend or other distribution, payable in common
stock on any class of Capital Stock of the Company;
- any issuance to all or substantially all holders of our common
stock of rights, options or warrants entitling them to subscribe
for or purchase common stock at less than the then current market
price of our common stock, determined in accordance with the
Indenture; provided, however, that if such rights, options or
warrants are only exercisable upon the occurrence of certain
triggering events, then the conversion price will not be adjusted
until such triggering events occur;
- certain subdivisions, combinations or reclassifications of our
common stock;
- any distribution to all or substantially all holders of our common
stock of evidences of indebtedness, shares of Capital Stock (other
than common stock), cash or other assets (including securities,
but excluding those dividends, rights, options, warrants and
distributions referred to above and distributions in connection
with the liquidation, dissolution or winding up of the Company and
excluding dividends and distributions paid exclusively in cash and
in mergers and consolidations to which the penultimate paragraph
of this section applies);
- any distribution consisting exclusively of cash (excluding any
cash portion of distributions referred to above, or cash
distributed upon a merger or consolidation to which the
penultimate paragraph of this section applies) to all or
substantially all holders of our common stock in an aggregate
amount that, combined together with (A) all other such all-cash
distributions made within the then preceding 12 months in respect
of which no adjustments have been made and (B) any cash and the
fair market value of other consideration paid or payable in
respect of any tender offer by the Company or any of its
Subsidiaries for common stock concluded within the preceding 12
months in respect of which no adjustment has been made, exceeds
15.0% of the Company's market capitalization (defined as being the
product of the then current market price of our common stock
multiplied by the number of shares of our common stock then
outstanding) on the record date of such distribution; and
- the completion of a tender offer made by the Company or any of its
Subsidiaries for common stock to the extent that the aggregate
consideration, together with (A) any cash and other consideration
payable in a tender offer by the Company or any of its
Subsidiaries for common stock expiring within the 12 months
preceding the expiration of such tender offer in respect of which
no adjustment has been made and (B) the aggregate amount of any
such all-cash distributions referred to above to all holders of
our common stock within the 12 months preceding the expiration of
such tender offer in respect of which no adjustments have been
made, exceeds 15.0% of the Company's market capitalization on the
expiration of such tender offer.
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<PAGE>
In the event of a distribution to all or substantially all of the
holders of our common stock of rights, warrants or options to subscribe for or
purchase any securities (other than those referred to above), the Company may,
instead of making an adjustment in the conversion price, provide that each
holder of a note, who converts the note after the record date for such
distribution and prior to the expiration of such rights, shall be entitled to
receive upon such conversion of the note, in addition to shares of common stock,
an appropriate number of such rights, warrants or options. No adjustment of the
conversion price will be required to be made until the cumulative adjustments
amount to one percent or more of the conversion price as last adjusted;
PROVIDED, HOWEVER, that any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in a subsequent adjustment.
No adjustment of the conversion price will result in zero or in a negative
number or will reduce the conversion price below the then par value of the
common stock (in which case the conversion price would be reduced to such par
value), unless the common stock has no par value at such time (in which case the
conversion price would be reduced to $.01 per share).
The Company, from time to time and to the extent permitted by law, may
reduce the Conversion Price by any amount for any period of at least 20 Business
Days, in which case the Company shall give at least 15 days notice of such
reduction to the Trustee and the holders, if the Board of Directors has made a
determination that such reduction would be in the best interests of the Company,
which determination shall be conclusive. The Company may, at its option, make
such reductions in the Conversion Price, in addition to those set forth above,
as the Board of Directors deems advisable to avoid or diminish any income tax to
holders of common stock resulting from any dividend or distribution of stock (or
rights to acquire stock) or from any event treated as such for United States
Federal income tax purposes. See "Certain United States Federal Tax
Consequences."
In case of any reclassification or change of outstanding shares of
common stock issuable upon conversion of the notes (other than certain changes
in par value) or consolidation or merger of the Company with or into another
Person or any consolidation or merger of another Person with or into the Company
(with certain exceptions), or in case of any sale, transfer or conveyance of all
or substantially all of the assets of the Company, each note then outstanding
will, without the consent of any holder of notes, become convertible only into
the kind and amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, sale, transfer or conveyance by
a holder of the number of shares of common stock into which such note was
convertible immediately prior thereto after giving effect to any adjustment
required to be made as set forth above; PROVIDED that if the kind or amount of
securities, cash and other property is not the same for each share of our common
stock held immediately prior to such reclassification, change, consolidation,
merger, sale, transfer or conveyance, any holder who fails to exercise any right
of election shall receive per share the kind and amount of securities, cash or
other property received per share by a plurality of such shares.
The Company will use all reasonable efforts to cause all registrations
to be made with, and to obtain any approvals by, any governmental authority
under any Federal or state law of the United States that may be required on the
part of the Company in connection with the conversion of the notes into common
stock. If at any time during the two-year period following the date of the
original issuance of the notes a registration statement under the Securities Act
covering the shares of common stock issuable upon conversion of the notes is not
effective or is otherwise unavailable for effecting resales of such shares,
shares of common stock issued upon conversion of the notes may not be sold or
otherwise transferred except in accordance with or pursuant to an exemption
from, or otherwise in a transaction not subject to, the registration
requirements of the Securities Act.
SUBORDINATION
The notes are subordinated to the Company's existing and future Senior
Indebtedness and will be structurally subordinated to all liabilities, including
trade payables, of the Company's Subsidiaries. As of December 31, 1999, the
notes were junior to $104.0 million of outstanding Senior Indebtedness and
effectively junior to $64.0 million of trade payables and other liabilities of
our Subsidiaries. If we become bankrupt, liquidate or dissolve, our assets would
be available to pay obligations on the notes only after our Senior Indebtedness
has been paid. The Indenture does not restrict the incurrence of Senior
Indebtedness or other Indebtedness by the Company or its Subsidiaries or the
ability of the Company to transfer assets or business operations to its
Subsidiaries, subject to the
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provisions described under "Repurchase of Notes at the Option of the holder Upon
a Change of Control" and "Limitation on Merger, Sale or Consolidation."
The Indenture provides that no payment or distribution, by setoff or
otherwise, may be made by or on behalf of the Company, directly or through any
Subsidiary, on account of the principal of, premium, if any, or interest on and
Liquidated Damages or any other obligations under or with respect to, the notes,
or to acquire, redeem or defease any of the notes, including repurchases of
notes at the option of the holder, for cash, securities or property, other than
Junior Securities, or on account of the redemption provisions of the notes,
collectively, the "Subordinated Obligations:"
- upon the maturity of any Senior Indebtedness, by lapse of time,
acceleration (unless waived) or otherwise, unless and until all
principal of, premium, if any, and interest on, and fees, charges,
expenses, indemnifications and all other amounts payable in
respect of Senior Indebtedness are first paid in full in cash, or
- in the event of default in the payment of any principal of,
premium, if any, or interest on, any Designated Senior
Indebtedness when it becomes due and payable, whether at maturity
or at a date fixed for prepayment or by declaration or otherwise
(including the events described in the preceding paragraph,
collectively, a "Payment Default"), unless and until such Payment
Default has been cured or waived or otherwise has ceased to exist.
The payment of cash, property or securities, other than Junior
Securities, upon conversion of a note will constitute payment on a
note and therefore will be subject to the subordination provisions
in the Indenture.
Upon
- the happening of an event of default, other than a Payment
Default, that permits, or would permit with the passage of time or
the giving of notice, the holders of any Designated Senior
Indebtedness or their representative immediately to accelerate the
maturity of such Designated Senior Indebtedness (collectively, a
"Non-Payment Default") and
- written notice of such Non-Payment Default being given to the
Company and the Trustee by the holders of such Designated Senior
Indebtedness or their representative (a "Blockage Notice"), then,
unless and until such Non-Payment Default has been cured or waived
or otherwise has ceased to exist, no payment or distribution, by
setoff or otherwise, redemption, defeasance or acquisition may be
made by or on behalf of the Company, directly or through any
Subsidiary, on account of the Subordinated Obligations.
Notwithstanding the foregoing and if no Payment Default then exists, at
the end of the Payment Blockage Period, the Company shall be required to pay to
the holders of the notes all regularly scheduled payments on the notes that were
not paid during the Payment Blockage Period due to the foregoing prohibitions
(and upon the making of such payments any acceleration of the notes made or
other remedies commenced during the Payment Blockage Period shall be of no
further force or effect) and to resume all other payments as and when due on the
notes. Not more than one Blockage Notice may be given in any consecutive 365-day
period, irrespective of the number of defaults with respect to Senior
Indebtedness during that period. In no event, however, may the total number of
days during which any Payment Blockage Period is or Payment Blockage Periods are
in effect exceed 179 days in the aggregate during any consecutive 365-day
period.
Upon any distribution of assets or securities of the Company upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Company, whether voluntary or involuntary, in bankruptcy, insolvency,
receivership or a similar proceeding or upon assignment for the benefit of the
creditors or any marshaling of assets or liabilities:
- the holders of all Senior Indebtedness will first be entitled to
receive payment in full in cash (including cash collateralization
of outstanding letters of credit) before the holders of the notes
are entitled to
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<PAGE>
receive any payment or distribution, other than Junior Securities,
on account of the Subordinated Obligations and
- any payment or distribution of assets or securities of the Company
of any kind or character, whether in cash, property or securities,
other than Junior Securities, to which the holders of the notes or
the Trustee on behalf of the holders would be entitled, by setoff
or otherwise, except for the subordination provisions contained in
the Indenture, will be paid by the liquidating trustee or agent or
other person making such a payment or distribution directly to the
holders of Senior Indebtedness or their representative to the
extent necessary to make payment in full in cash of all such
Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to the
holders of such Senior Indebtedness.
In the event that any payment or distribution of assets or securities
of the Company or any Subsidiary, other than Junior Securities, is received by
the holders of the notes or the Trustee on behalf of the holders or any Paying
Agent at a time when the payment or distribution is prohibited, the payment or
distribution will be held in trust for the benefit of the holders of Senior
Indebtedness. The payment or distribution will be paid or delivered by the
holders or the Trustee or the Paying Agent, as the case may be, to the holders
of the Senior Indebtedness remaining unpaid or their representatives, or to the
trustees under any indenture pursuant to which any instruments evidencing any of
the Senior Indebtedness may have been issued. The amount of such payment or
distribution will be made ratably according to the aggregate amounts remaining
unpaid on account of the Senior Indebtedness held or represented by each, for
application to the payment of all Senior Indebtedness remaining unpaid
(including cash collateralization of outstanding letters of credit), to the
extent necessary to pay all Senior Indebtedness in full in cash after giving
effect to any concurrent payment or distribution, or provision therefor, to the
holders of Senior Indebtedness.
No provision contained in the Indenture or the notes affects the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, and interest on the notes. The subordination
provisions of the Indenture and the notes does not prevent the occurrence of any
Event of Default under the Indenture or limit the rights of the Trustee or any
holder of any notes, subject to the preceding paragraphs, to pursue any other
rights or remedies with respect to the notes.
The Company conducts a substantial portion of its operations through
its Subsidiaries. Accordingly, the Company's ability to meet its cash
obligations in the future in part will be dependent upon the ability of its
Subsidiaries to make cash distributions to the Company. The ability of its
Subsidiaries to make distributions to the Company is and will continue to be
restricted by, among other limitations, applicable provisions of the laws of
national and state governments and may be restricted by contractual provisions.
The Indenture does not limit the ability of the Company's Subsidiaries to incur
such contractual restrictions in the future. The right of the Company to receive
distributions in respect of the assets of any Subsidiary, and thus the ability
of holders of the notes to benefit indirectly from such assets, is generally
subject to the prior claims of creditors, including trade creditors, of that
Subsidiary except to the extent that the Company itself is recognized as a
creditor of such Subsidiary, in which case the Company's claims would still be
subject to any security interest of other non-subordinated or PARI PASSU
creditors of such Subsidiary. The notes, therefore, are effectively subordinated
to obligations to creditors, including trade creditors, of Subsidiaries of the
Company with respect to the assets of the Subsidiaries against which such
creditors have a more direct claim. An acceleration of Subsidiary debt or a
failure to pay the same at the maturity thereof will not constitute an Event of
Default under the Indenture.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any of its Subsidiaries or a marshaling of assets or liabilities of the Company
and its Subsidiaries, holders of notes may receive ratably less than other
creditors.
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REDEMPTION AT THE COMPANY'S OPTION
The notes are not be subject to redemption prior to December 15, 2002
and are redeemable on and after such date at the option of the Company, in whole
or in part, upon not less than 30 days' nor more than 60 days' notice to each
holder, at the following Redemption Prices, expressed as percentages of the
principal amount, if redeemed during the 12-month period commencing December 15
of the years indicated below, in each case, subject to the right of holders of
record on a record date to receive interest due on an interest payment date that
is on or prior to such Redemption Date, together with accrued and unpaid
interest and Liquidated Damages, if any, to, but excluding, the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002......................................... 103.286%
2003......................................... 102.464%
2004......................................... 101.643%
2005 and thereafter.......................... 100.821%
</TABLE>
In the case of a partial redemption, the Trustee will select the notes
or portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The notes may be redeemed in part in
integral multiples of $1,000 only.
Notice of any redemption will be sent, by first-class mail, at least 30
days and not more than 60 days prior to the date fixed for redemption (the
"Redemption Date"), to the holder of each note to be redeemed to such holder's
last address as then shown upon the registry books of the Registrar. The notice
of redemption must state the Redemption Date, the Redemption Price and the
amount of accrued interest and Liquidated Damages, if any, to be paid. Any
notice that relates to a note to be redeemed in part only must state the portion
of the principal amount to be redeemed and must state that on and after the
Redemption Date, upon surrender of such note, a new note or notes in principal
amount equal to the unredeemed portion thereof will be issued. On and after the
Redemption Date, interest will cease to accrue on the notes or portions thereof
called for redemption, unless the Company defaults in its obligations with
respect thereto. The notes do not have the benefit of any sinking fund.
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF
CONTROL
The Indenture provides that in the event that a Change of Control has
occurred, each holder of notes will have the right, at such holder's option,
pursuant to an irrevocable and unconditional offer by the Company (the
"Repurchase Offer") to purchase all notes on the date (the "Repurchase Date")
that is no later than 45 Business Days, except as described below, after the
occurrence of such Change of Control, or, at the Company's option, prior to such
Change of Control but after the public announcement thereof, at a cash price
(the "Repurchase Price") equal to 100% of the principal amount thereof, together
with accrued and unpaid interest and Liquidated Damages, if any, to, but
excluding, the Repurchase Date. A holder of notes may accept the Repurchase
Offer with respect to all or a portion of its notes, PROVIDED that the principal
amount of such notes must be in integral multiples of $1,000. The Repurchase
Offer shall be made within 25 Business Days following a Change of Control and
shall remain open for 20 Business Days following its commencement except to the
extent that a longer period is required by applicable law, the "Repurchase Offer
Period." Upon expiration of the Repurchase Offer Period, the Company will
purchase all notes tendered in response to the Repurchase Offer. If required by
applicable law, the Repurchase Date and the Repurchase Offer Period may be
extended as so required.
On or before the Repurchase Date, the Company will:
- accept for payment notes or portions of notes properly tendered
pursuant to the Repurchase Offer,
- deposit with the Paying Agent cash sufficient to pay the
Repurchase Price, together with accrued and unpaid interest and
Liquidated Damages, if any, of all notes so tendered and
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- deliver to the Trustee the notes so accepted, together with an
officers' certificate listing the notes or portions of notes being
purchased by the Company.
The Paying Agent will promptly mail to the holders of notes so accepted
payment in an amount equal to the Repurchase Price, together with accrued and
unpaid interest and Liquidated Damages, if any, and the Trustee will promptly
authenticate and mail or deliver to such holders a new note or notes equal in
principal amount to any unpurchased portion of the notes surrendered. Any notes
not so accepted will be promptly mailed or delivered by the Company to the
holder thereof. The Company will announce publicly the results of the Repurchase
Offer on or as soon as practicable after the Repurchase Date.
The phrase "all or substantially all" of the assets of the Company, as
included in the definition of Change of Control, is likely to be interpreted by
reference to applicable state law at the relevant time, and will be dependent on
the facts and circumstances existing at such time. As a result, there may be a
degree of uncertainty in ascertaining whether a sale or transfer of "all or
substantially all" of the assets of the Company has occurred.
The Change of Control purchase feature of the notes may make more
difficult or discourage a takeover of the Company, and, thus, the removal of
incumbent management. The Change of Control purchase feature resulted from
negotiations between the Company and the Initial Purchasers.
The provisions of the Indenture relating to a Change of Control may not
afford the holders of the notes protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger, spin-off or similar
transaction that may adversely affect holders, if such transaction does not
constitute a Change of Control. Moreover, certain events with respect to the
Company which may involve an actual change of control of the Company may not
constitute a Change of Control for purposes of the Indenture.
The right to require the Company to repurchase notes as a result of the
occurrence of a Change of Control could create an event of default under Senior
Indebtedness as a result of which any repurchase could be blocked by the
subordination provisions of the notes. Failure of the Company to repurchase the
notes when required would result in an Event of Default with respect to the
notes whether or not such repurchase is permitted by the subordination
provisions. See "Subordination."
Except as described herein, no modification of the Indenture regarding
the provisions on repurchase at the option of any holder of a note upon a Change
of Control that adversely affects a holder is permissible without the consent of
the holder of the note so affected. In the event of a Change of Control, if
holders of in excess of two-thirds of the outstanding aggregate principal amount
of the notes so determine at any time following the occurrence of such Change of
Control and before the close of business on the Business Day immediately
preceding the Repurchase Date, such event shall not be treated as a Change of
Control for purposes of the Indenture. In such event, (1) the Company will not
be required to make the Repurchase Offer, (2) to the extent the Repurchase Offer
has already been made, such Repurchase Offer will be deemed revoked and (3) to
the extent any notes have been tendered in response to any such revoked
Repurchase Offer, such tender will be rescinded and the notes so tendered will
be promptly returned to the holders of the notes. For purposes of any such
determination by the holders of the outstanding notes, notes held by the Company
or an Affiliate of the Company (including any Person that would become an
Affiliate of the Company (or its successor) as a consequence of the event or
series of events that otherwise would be treated as a Change of Control for
purposes of the Indenture) shall be disregarded.
To the extent applicable, the Company will comply with the provisions
of Rules 13e-4 and 14e-1 or any other tender offer rules under the Exchange Act
and any other securities laws, and will file a Schedule 13e-4 or any other
schedule if required under such rules, in connection with any offer by the
Company to repurchase notes at the option of the holders upon a Change of
Control.
The Credit Agreement contains a "change of control" provision that in
relevant part is similar to the provision in the Indenture relating to a Change
of Control, and the occurrence of such a "change of control" would constitute a
default under the Credit Agreement. The Company's obligations under the Credit
Agreement are senior in right of payment to the notes and the Credit Agreement
will not permit the purchase of the notes absent consent
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of the lenders under the Credit Agreement in the event of a Change of Control,
even though the failure by the Company to comply with its obligations in the
event of a Change of Control would constitute an Event of Default under the
Indenture. In addition, the exercise by the holders of their right to require
the Company to repurchase the notes could cause a default under the Credit
Agreement, even if the Change of Control itself does not, due to the financial
effect of such repurchase on the Company. If the Company is unable to obtain the
requisite consents and/or repay all Indebtedness which prohibits the repurchase
of the notes upon the occurrence of a Change of Control, the Company would
remain prohibited by such Indebtedness from purchasing any notes and, as a
result, the Company could not commence a Change of Control Offer to purchase the
notes, which would constitute an Event of Default under the Indenture. Such an
Event of Default under the Indenture would also constitute an Event of Default
under the Credit Agreement which would permit the lenders thereunder to
accelerate all of the Company's Indebtedness under the Credit Agreement. If a
Change of Control were to occur, there can be no assurance that the Company
would have sufficient assets to first satisfy its obligations under the Credit
Agreement or other agreements relating to any Indebtedness, if accelerated, and
then to purchase all of the notes that might be delivered by holders seeking to
accept a Change of Control Offer.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture provides that the Company may not, directly or
indirectly, consolidate with or merge with or into, or sell, lease or otherwise
dispose of all or substantially all of its assets, on a consolidated basis,
whether in a single transaction or a series of related transactions, to another
Person or group of affiliated Persons, other than to its Wholly Owned
Subsidiaries, unless:
(1) either
(a) in the case of a merger or consolidation, the Company is the
surviving entity or
(b) the resulting, surviving or transferee entity is a corporation
organized under the laws of the United States, any state thereof or the
District of Columbia and expressly assumes by supplemental indenture
all of the obligations of the Company in connection with the notes and
the Indenture; and
(2) no Default or Event of Default shall exist immediately before or
after giving effect on a pro forma basis to such transaction.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with the foregoing,
the successor corporation formed by such consolidation or into which the Company
is merged or to which such transfer is made, shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if such successor corporation had been
named therein as the Company, and the Company will be released from its
obligations under the Indenture and the notes, except as to any obligations that
arise from or as a result of such transaction.
For purposes of the foregoing, the transfer, by lease, assignment, sale
or otherwise, of all or substantially all of the properties and assets of one or
more Subsidiaries, which properties and assets, if held by the Company instead
of such Subsidiary, would constitute all or substantially all of the properties
and assets of the Company, shall be deemed to be the transfer of all or
substantially all of the properties and assets of the Company. This "Limitation
on Merger, Sale or Consolidation" covenant will not apply to a sale, assignment,
transfer, conveyance or other disposition of assets between or among the Company
and any of its Wholly Owned Subsidiaries.
REPORTS
Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the
Trustee, within 15 days after it is or would have been required to file such
with the SEC annual and quarterly consolidated financial statements
substantially equivalent to financial statements that would have been included
in reports filed with the SEC if the Company were subject to the requirements of
Section 13 or 15(d) of the Exchange Act, including, with respect to annual
information only, a
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report thereon by the Company's certified independent public accountants as such
would be required in such reports to the SEC and, in each case, together with a
management's discussion and analysis of financial condition and results of
operations as such would be so required. In addition, for so long as the notes
or the common stock into which they are convertible are Transfer Restricted
Securities (as defined), and if the Company ceases to have a class of equity
securities registered under Section 12(b) or 12(g) of the Exchange Act, or
ceases to be subject to Section 15(d) of the Exchange Act, the Company will
continue to provide to the holders the information specified by Rule 144A(d)(4).
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as:
- the failure by the Company to pay any installment of interest on,
or Liquidated Damages with respect to, the notes as and when due
and payable, whether or not prohibited by the subordination
provisions of the Indenture, and the continuance of any such
failure for 30 days,
- the failure by the Company to pay all or any part of the principal
of, or premium, if any, on the notes when and as the same become
due and payable at maturity, redemption, by acceleration or
otherwise, including, without limitation, pursuant to any
Repurchase Offer, whether or not prohibited by the subordination
provisions of the Indenture,
- the failure of the Company to perform its covenants and agreements
regarding any conversion of notes required under the Indenture and
the continuance of any such failure for 30 days,
- the failure by the Company to observe or perform any other
covenant or agreement contained in the notes or the Indenture and,
subject to certain exceptions, the continuance of such failure for
a period of 60 days after written notice is given to the Company
by the Trustee or to the Company and the Trustee by the holders of
at least 25% in aggregate principal amount of the notes
outstanding,
- certain events of bankruptcy, insolvency or reorganization in
respect of the Company or any of its Significant Subsidiaries,
- failure to make any payment at final stated maturity, including
any applicable grace period, in respect of Indebtedness of the
Company (other than non-recourse obligations) in an amount in
excess of $10 million, and continuance of such failure for 30 days
after written notice is given to the Company by the Trustee or to
the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of notes outstanding,
- default with respect to any Indebtedness of the Company (other
than non-recourse obligations), which default results in the
acceleration of Indebtedness in an amount in excess of $10 million
without such Indebtedness having been discharged or such
acceleration having been rescinded or annulled for 30 days after
written notice is given to the Company by the Trustee or to the
Company and the Trustee by the holders of at least 25% in
aggregate principal amount of notes outstanding and
- final unsatisfied judgments not covered by insurance aggregating
in excess of $5 million (net of any insurance or indemnity
payments actually received in respect thereof prior to or within
60 days from the date of such final judgment), at any one time
rendered against the Company or any of its Significant
Subsidiaries and not stayed, bonded or discharged within 60 days.
The Indenture provides that if a Default occurs and is continuing, the
Trustee must, within 90 days after the Trustee's receiving actual notice of
occurrence of such Default, give to the holders notice of such Default, but the
Trustee shall be protected in withholding such notice if it in good faith
determines that the withholding of such notice is in the interest of the
holders, except in the case of a Default in the payment of the principal of,
premium, if any, or interest on any of the notes when due or in the payment of
any redemption or repurchase obligation.
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The Indenture provides that if an Event of Default occurs and is
continuing (other than an Event of Default caused by certain events of
bankruptcy, insolvency, or reorganization with respect to the Company), then in
every such case, unless the principal of all of the notes shall have already
become due and payable, either the Trustee or the holders of at least 25% in
aggregate principal amount of the notes then outstanding, by notice in writing
to the Company (and to the Trustee if given by holders), may declare all
principal, premium, if any, accrued interest and Liquidated Damages, if any, on
or with respect to the notes to be due and payable immediately. If an Event of
Default caused by certain events of bankruptcy, insolvency, or reorganization
with respect to the Company occurs, all principal, premium, if any, accrued
interest and Liquidated Damages, if any, will be immediately due and payable on
all outstanding notes without any declaration or other act on the part of the
Trustee or the holders. The holders of no less than a majority in aggregate
principal amount of notes generally are authorized to rescind such acceleration
if all existing Events of Default, other than the non-payment of the principal
of, premium, if any, and interest on, and Liquidated Damages, if any, with
respect to, the notes that have become due solely by such acceleration, have
been cured or waived. If any Designated Senior Indebtedness is outstanding at
the time of any acceleration of the notes, the Company shall not make any
payment with respect to the notes until five Business Days after the holders of
such Designated Senior Debt receive notice of such acceleration.
Prior to the declaration of acceleration of the maturity of the notes,
the holders of a majority in aggregate principal amount of the notes at the time
outstanding may waive on behalf of all the holders any default, except a default
in the payment of principal of, interest on, or Liquidated Damages with respect
to, any note not yet cured, or a default with respect to any covenant or
provision that cannot be modified or amended without the consent of the holder
of each outstanding note affected. Subject to the provisions of the Indenture
relating to the duties of the Trustee, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request,
order or direction of any of the holders, unless such holders have offered to
the Trustee security or indemnity satisfactory to the Trustee. Subject to all
provisions of the Indenture and applicable law, the holders of a majority in
aggregate principal amount of the notes at the time outstanding will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee.
The Indenture provides that no holder may pursue any remedy under the
Indenture, except for a default in the payment of principal of, premium, if any,
or interest on, or Liquidated Damages, if any, with respect to, the notes unless
the holders of at least 25% in principal amount of the outstanding notes make a
written request to the Trustee to pursue the remedy, such holders offer to the
Trustee indemnity satisfactory to the Trustee against any loss, liability or
expense, the Trustee does not comply with the request within 60 days after the
receipt of the request and the offer of indemnity, and the Trustee shall not
have received a contrary direction from the holders of a majority in principal
amount of the outstanding notes.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company and the
Trustee to enter into a supplemental indenture for certain purposes without the
consent of the holders. With the consent of the holders of not less than a
majority in aggregate principal amount of the notes at the time outstanding, the
Company and the Trustee are permitted to amend or supplement the Indenture or
any supplemental indenture or modify or waive the rights of the holders;
PROVIDED that no such modification may, without the consent of each holder
affected thereby:
- change the Stated Maturity of any note or reduce the principal
amount thereof or the rate (or extend the time for payment) of
interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the coin or
currency in which, any note or any premium or the interest thereon
is payable, or impair the right to institute suit for the
conversion of any note or the enforcement of any such payment on
or after the due date thereof (including, in the case of
redemption, on or after the Redemption Date), or reduce the
Repurchase Price, or alter the Repurchase Offer (other than as set
forth herein) or redemption provisions in a manner adverse to the
holders, or
- reduce the percentage in principal amount of the outstanding
notes, the consent of whose holders is required for any such
amendment, supplemental indenture or waiver provided for in the
Indenture or
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- adversely affect the right of such holder to convert notes or
alter, in a manner that adversely affects the right of such
holder, the provisions relating to anti-dilution protection in
respect thereof.
A supplemental indenture entered into in compliance with the
"Limitation on Merger, Sale or Consolidation" covenant would not require the
consent of the holders of the notes.
NO PERSONAL LIABILITY OF SHAREHOLDERS, OFFICERS, DIRECTORS AND
EMPLOYEES
The Indenture provides that no shareholder, employee, officer, director
or partner, as such, past, present or future, of the Company or any successor
corporation shall have any personal liability in respect of the obligations of
the Company under the Indenture or the notes by reason of his, her or its status
as such shareholder, employee, officer, director or partner.
TRANSFER AND EXCHANGE
A holder may transfer or exchange the notes in accordance with the
Indenture. The Company or the Trustee may require a holder, among other things,
to furnish appropriate endorsements, legal opinions and transfer documents, and
to pay any taxes and fees required by law or permitted by the Indenture. The
Company is not required to transfer or exchange any notes selected for
redemption. Also, the Company is not required to transfer or exchange any notes
for a period of 15 days before the mailing of a Repurchase Offer or notice of
redemption.
The registered holder of a note may be treated as the owner of it for
all purposes.
BOOK ENTRY, DELIVERY AND FORM
The notes are evidenced by one or more global notes (the "Global
Note"), which have been deposited with, or on behalf of, the Depositary and
registered in the name of Cede & Co. ("Cede") as the Depositary's nominee.
Except as set forth below, the Global Note may be transferred, in whole or in
part, only to another nominee of the Depositary or to a successor of the
Depositary or its nominee.
Purchaser's of notes under this prospectus may hold their interests in
the Global Note directly through the Depositary if such holders are participants
in the Depositary, or indirectly through organizations which are participants in
the Depositary (the "Participants"). Transfers between Participants will be
effected in accordance with the Depositary's rules and will be settled in
same-day funds.
The Depositary has advised the Company that it is a limited-purpose
trust company that was created to hold securities for its Participants and to
facilitate the clearance and settlement of transactions in such securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depositary's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, "Indirect Participants") that clear through or maintain
a custodial relationship with a Participant, either directly or indirectly.
Ownership of the notes evidenced by the Global Notes will be shown on,
and the transfer of ownership the notes will be effected only through, records
maintained by the Depositary (with respect to the interests of Participants),
the Participants and the Indirect Participants. The laws of some states require
that certain Persons take physical delivery in definitive form of securities
that they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer notes evidenced by the Global Notes will
be limited to such extent.
So long as the Depositary or its nominee is the registered owner of a
note, the Depositary or such nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by the Global Notes for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in a Global Note will not be entitled to have notes represented by
such Global Note registered in their names, will not receive or be entitled to
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receive physical delivery of certificated notes, and will not be considered the
owners or holders thereof under the Indenture for any purpose, including with
respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. As a result, the ability of a Person having a beneficial
interest in notes represented by a Global Note to pledge such interest to
Persons that do not participate in the Depositary's system, or to otherwise take
actions with respect to such interest, may be affected by the lack of a physical
certificate evidencing such interest.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of notes by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such notes.
Payments with respect to the principal of, premium, if any, interest
on, and Liquidated Damages with respect to, any note represented by a Global
Note registered in the name of the Depositary or its nominee on the applicable
record date will be payable by the Trustee to or at the direction of the
Depositary or its nominee in its capacity as the registered holder of the Global
Notes representing such notes under the Indenture. Under the terms of the
Indenture, the Company and the Trustee may treat the Persons in whose names the
notes, including the Global Notes, are registered as the owners of the notes for
the purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of notes (including, principal, premium, if any, interest, or Liquidated
Damages with respect thereto), or immediately to credit the accounts of the
relevant Participants with such payment, in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the Global
Notes as shown on the records of the Depositary. Payments by the Participants
and the Indirect Participants to the beneficial owners of notes will be governed
by standing instructions and customary practice and will be the responsibility
of the Participants or the Indirect Participants.
Holders who desire to convert their notes into our common stock
pursuant to the terms of the notes should contact their brokers or other
Participants or Indirect Participants to obtain information on procedures,
including proper forms and cut-off times, for submitting such requests.
If (1) the Company notifies the Trustee in writing that the Depositary
is no longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (2) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of notes in
definitive form under the Indenture, then, upon surrender by the Depositary of
the Global Notes, certificated notes will be issued to each Person that the
Depositary identifies as the beneficial owner of the notes represented by the
Global Notes. In addition, subject to certain conditions, any Person having a
beneficial interest in a Global Note may, upon request to the Trustee, exchange
such beneficial interest for notes in the form of certificated notes. Upon any
such issuance, the Trustee is required to register such certificated notes in
the name of such Person or Persons (or the nominee of any thereof), and cause
the same to be delivered to such Person.
Neither the Company nor the Trustee shall be liable for any delay by
the Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the notes, and the Company and the Trustee may conclusively
rely on, and shall be protected in relying on, instructions from the Depositary
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the notes to be issued).
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
We entered into the Registration Rights Agreement with Donaldson,
Lufkin & Jenrette, Chase Securities, Inc. and Morgan Stanley Dean Witter
(the "Initial Purchasers") (the "Registration Rights Agreement"). According
to the Registration Rights Agreement, we agreed to file with the Securities
and Exchange Commission (the "Commission") on or prior to 90 days after
December 14, 1999 (the "Closing Date") a shelf registration statement under
the Securities Act on Form S-3 or another appropriate form to cover resales
of Transfer Restricted Securities (as defined below) by the holders of notes
who satisfy certain conditions relating to the provision of information.
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We have agreed to use our reasonable best efforts to keep the shelf
registration statement effective until the earlier of such date that is two
years after the Closing Date or the date all Transfer Restricted Securities
covered by the shelf registration statement have been sold or there cease to
be outstanding any Transfer Restricted Securities.
For purposes of the foregoing, "Transfer Restricted Securities" means
each note and share of common stock issued upon conversion thereof until the
earlier of the date on which such note or share of our common stock has been
effectively registered under the Securities Act and disposed of in accordance
with the shelf registration statement or the date on which such note or share of
our common stock is distributed to the public pursuant to Rule 144 under the
Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act
or any similar provisions then in force.
The Registration Rights Agreement provides that if the shelf
registration statement is filed and declared effective but shall thereafter
cease to be effective or the prospectus contained therein ceases to be usable
for its intended purpose without being succeeded immediately by a
post-effective amendment to such shelf registration statement that cures such
failure and that is itself declared effective immediately (each such event, a
"Registration Default" and each period during which a Registration Default
has occurred and is continuing, a "Registration Default Period"), then we
will accrue liquidated damages ("Liquidated Damages") in favor of each holder
of Transfer Restricted Securities, in an amount (and if such Transfer
Restricted Securities are comprised of common stock, such amount shall be
calculated on the basis of the principal amount of notes from which such
Transfer Restricted Securities had been converted) which shall accrue at a
per annum rate of:
- 0.25% for the first 90 days of the Registration Default Period,
- 0.50% for the second 90 days of the Registration Default Period,
- 0.75% for the third 90 days of the Registration Default Period,
and
- 1.0% thereafter for the remaining portion of the Registration
Default Period.
All accrued Liquidated Damages shall be paid to the holders of notes or
shares of our common stock (as applicable) in the same manner as interest
payments on the notes on semi-annual payment dates which correspond to interest
payment dates for the notes.
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Following the cure of a Registration Default, Liquidated Damages will
cease to accrue with respect to such Registration Default.
We may suspend offerings and sales under the shelf registration
statement for up to 60 days in each year during which such shelf registration
statement is required to be effective, upon the occurrence of certain material
acquisitions or dispositions or other transactions.
We have agreed to:
- provide to each holder of Transfer Restricted Securities included
in the shelf registration statement copies of the prospectus
contained in the shelf registration statement,
- notify each such holder when the shelf registration statement has
become effective and
- take certain other actions as are required to permit resales of
the Transfer Restricted Securities.
A holder who elects to sell any Transfer Restricted Securities pursuant
to the shelf registration statement will be required to be named as a selling
security holder in the related prospectus, may be required to deliver a
prospectus to purchasers, may be subject to certain civil liability provisions
under the Securities Act in connection with those sales and will be bound by the
provisions of the Registration Rights Agreement that apply to a holder making
such an election, including certain indemnification provisions.
We have mailed the Notice of Registration Statement and Selling
Securityholder Questionnaire to the holders of Transfer Restricted Securities
not less than 20 business days prior to the time we intend in good faith to have
the shelf registration statement declared effective (the "Effective Time").
Holders of the Transfer Restricted Securities will be required to make
certain representations to us as described in the Registration Rights Agreement
and will be required to deliver promptly information to be used in connection
with this shelf registration statement in order to have their Transfer
Restricted Securities included in this shelf registration statement. If a holder
fails to provide such information within the prescribed time periods, the
Transfer Restricted Securities of such holder will not be included in this shelf
registration statement and the holder will not be entitled to any Liquidated
Damages. By acquiring Transfer Restricted Securities, a holder will be deemed to
have agreed to indemnify us against certain losses arising out of information
furnished by such holder in writing for inclusion in any shelf registration
statement. Holders of notes will also be required to suspend their use of the
prospectus included in a shelf registration statement under certain
circumstances upon receipt of written notice to that effect from us. A holder's
ability to sell such Transfer Restricted Securities may be limited or the price
at which such Transfer Restricted Securities can be sold may be adversely
affected if the Transfer Restricted Securities are not included in the shelf
registration statement.
GOVERNING LAW
The Indenture and the notes and the Registration Rights Agreement
provide that they are to be governed in accordance with the laws of the State of
New York, without regard to choice of laws provisions.
THE TRUSTEE
The Bank of New York is the Trustee under the Indenture. A successor
Trustee may be appointed in accordance with the terms of the Indenture.
The Indenture contains certain limitations on the rights of the
Trustee, in the event it becomes a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions with the Company and its Subsidiaries; PROVIDED,
HOWEVER, that if it acquires any conflicting interest (as defined), it must
eliminate such conflict or resign.
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In case an Event of Default shall occur and shall not be cured or
waived, the Trustee will be required to use the degree of care of a prudent
person in the conduct of its own affairs in the exercise of its powers. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any of the holders of
notes, unless they shall have offered to the Trustee reasonable security or
indemnity.
CERTAIN DEFINITIONS
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the
beneficial ownership of any particular "person" (as that term is used in
Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have
beneficial ownership of all securities that such "person" has the right to
acquire by conversion or exercise of other securities, whether such right is
currently exercisable or is exercisable only upon the occurrence of a
subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned"
shall have a corresponding meaning.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligation
of such Person to pay rent or other amounts under a lease to which such Person
is a party that is required to be classified and accounted for as a capital
lease obligation under Generally Accepted Accounting Principles.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
indebtedness), warrants, options, participation or other equivalents of or
interests (however designated) in stock issued by that Person.
"CHANGE OF CONTROL" means the occurrence of any of the following:
- the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one
or a series of related transactions, of all or substantially all
of the properties or assets of the Company and its Subsidiaries
taken as a whole to any "person" (as that term is used in Section
13(d)(3) of the Exchange Act);
- the adoption of a plan relating to the liquidation or dissolution
of the Company;
- the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is
that any "person" (as defined above) becomes the Beneficial Owner,
directly or indirectly, of more than 50% of the Voting Stock of
the Company, measured by the total voting power of all classes of
voting stock rather than number of shares; or
- the first day on which a majority of the members of the board of
directors of the Company are not Continuing Directors.
"COMMODITY PRICE PROTECTION AGREEMENT" means any forward contract,
commodity swap, commodity option or other similar financial agreement or
arrangement relating to, or the value which is dependent upon, fluctuations in
commodity prices.
"CONTINUING DIRECTOR" means, at any date of determination, any
member of the Board of Directors of the Company
(1) who was a member of such board on the date of initial issuance of
the notes or
(2) who was nominated for election or elected to such Board of
Directors by at least a majority of the directors who were such
Continuing Directors at the time of such nomination or election or
whose
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election to the Company's Board of Directors was recommended or
endorsed by at least a majority of the directors who were such
Continuing Directors at the time of such nomination or election.
"CREDIT AGREEMENT" means that certain Credit Agreement dated as of July
23, 1997, as amended as of December 31, 1998 and June 30, 1999, by and among the
Company and the lenders party thereto from time to time and The Chase Manhattan
Bank, as Administrative Agent, and the other financial institutions named
therein as Co-Agents, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, restated, modified, increased, renewed, refunded, replaced
or refinanced from time to time, whether or not with the same parties.
"CURRENCY HEDGING AGREEMENTS" means any spot or forward foreign
exchange agreements and currency swap, currency option or other similar
financial agreements or arrangements entered into by any Person or any of its
Subsidiaries in the ordinary course of business and designed to protect against
or manage exposure to fluctuations in foreign currency exchange rates.
"DESIGNATED SENIOR INDEBTEDNESS" means
(1) Senior Indebtedness outstanding under the Credit Agreement and
(2) any Senior Indebtedness the principal amount of which is $10
million or more and that has been designated by the Company as
"Designated Senior Indebtedness."
"HEDGING OBLIGATIONS" means, with respect to any specified Person,
the obligations of such Person under
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements;
(2) other agreements or arrangements designed solely to protect such
Person against fluctuations in interest rates; and
(3) Commodity Price Protection Agreements and Currency Hedging
Agreements.
"INDEBTEDNESS" of any Person means, without duplication,
(a) all liabilities and obligations, contingent or otherwise, of any
such Person,
(1) in respect of borrowed money (whether or not the lender has
recourse to all or any portion of the assets of such Person),
(2) evidenced by credit or loan agreements, bonds, notes,
debentures or similar instruments (including, without
limitation, notes or similar instruments given in connection
with the acquisition of any business, properties or assets of
any kind),
(3) evidenced by bankers' acceptances or similar instruments
issued or accepted by banks,
(4) for the payment of money relating to a Capitalized Lease
Obligation or
(5) evidenced by a letter of credit, bank guarantee or a
reimbursement obligation of such Person with respect to any
letter of credit;
(b) all obligations of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary
course of business);
(c) all net obligations of such Person under Hedging Obligations;
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(d) all liabilities of others of the kind described in the preceding
clauses (a), (b) or (c) that such Person has guaranteed or that is
otherwise its legal liability, or which is secured by a lien on
property of such Person; and
(e) any and all deferrals, renewals, extensions, modifications,
replacements, restatements, refinancings and refundings (whether
direct or indirect) of, or any indebtedness or obligation issued
in exchange for, any liability of the kind described in any of the
preceding clauses (a), (b), (c) or (d), or this clause (e),
whether or not between or among the same parties.
The term "Indebtedness" shall not include the incurrence of any
indebtedness in respect of bid, performance or surety bonds issued for the
account of the Company or any of its Subsidiaries in the ordinary course of
business, including guarantees or obligations of the Company or any Subsidiary
thereof with respect to letters of credit (other than letters of credit issued
under the Credit Agreement) supporting such bid, performance or surety
obligations, and guarantees made in the ordinary course of business by the
Company or any of its Subsidiaries of performance of any contractual obligation
by the Company, a Subsidiary or any other entity in which the Company or a
Subsidiary owns an Equity Interest (in each case other than for an obligation
for money borrowed).
"JUNIOR SECURITIES" means non-mandatorily redeemable Capital Stock in
the Company and any Indebtedness of the Company, in each case that
(1) is authorized and issued pursuant to a plan of reorganization of
the Company (which authorization states that it gives effect to
the subordination of such Junior Securities to all Senior
Indebtedness) as long as such plan of reorganization is approved
by the holders of Senior Indebtedness under the Credit Agreement,
(2) is subordinated to all Senior Indebtedness (and any debt
securities issued in exchange for Senior Indebtedness) to
substantially the same extent as, or to a greater extent than, the
Notes are subordinated to Senior Indebtedness pursuant to the
Indenture and has a stated maturity at least one year after (and
does not provide for principal payments prior to) the stated
maturity of any Senior Indebtedness and any debt securities issued
in exchange for Senior Indebtedness, and
(3) contains terms, provisions, covenants and default provisions not
more beneficial to the holders of the notes as compared to the
holders of the Senior Indebtedness on the issue date of the notes.
"SENIOR INDEBTEDNESS" means all obligations of the Company to pay the
principal of, premium, if any, interest (including all interest accruing
subsequent to the commencement of any bankruptcy or similar proceeding, whether
or not a claim for post-petition interest is allowed as a claim in any such
proceeding) and rent payable on or in connection with, and all letters of
credit, reimbursement obligations and fees, costs, expenses and other amounts
and liabilities accruing or payable on or in connection with, and Hedging
Obligations issued by parties to (and their affiliates), the Credit Agreement
and any other Indebtedness of the Company, whether outstanding on the date of
the Indenture or thereafter created, incurred, assumed, guaranteed or in effect
guaranteed by the Company, unless the instrument creating or evidencing such
Indebtedness expressly provides that such Indebtedness is not senior or superior
in right of payment to the notes or is PARI PASSU with, or subordinated to, the
notes; PROVIDED that in no event shall Senior Indebtedness include
(1) Indebtedness of the Company owed to any Subsidiary of the Company,
(2) Indebtedness of the Company representing any trade account payable
incurred in the ordinary course of business,
(3) any liability for taxes owed or owing by the Company or any
Subsidiary of the Company or
(4) the notes.
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"SIGNIFICANT SUBSIDIARY" means as of any date of determination,
(1) any Subsidiary of the Company that has aggregate total assets in
an amount in excess of 10% of the consolidated total assets of the
Company and its Subsidiaries at such date of determination and
(2) any Subsidiary of the Company for which the net income of such
Subsidiary and its Subsidiaries, determined on a consolidated
basis in accordance with generally accepted accounting principles,
during the four fiscal quarters most recently ended preceding the
date of determination, exceeded 10% of the net income of the
Company and its Subsidiaries during such period.
"STATED MATURITY" when used with respect to any note, means
December 15, 2006.
"SUBSIDIARY" with respect to any Person, means
(1) a corporation a majority of whose Capital Stock with voting power
normally entitled to vote in the election of directors is at the
time, directly or indirectly, owned by such Person, by such Person
and one or more Subsidiaries of such Person or by one or more
Subsidiaries of such Person,
(2) a partnership in which such Person or a Subsidiary of such Person
is, at the time, a general partner and owns alone or together with
one or more Subsidiaries of such Person a majority of the
partnership interests, or
(3) any other Person (other than a corporation) in which such Person,
one or more Subsidiaries of such Person or such Person and one or
more Subsidiaries of such Person, directly or indirectly, at the
date of determination thereof, has at least a majority ownership
interest.
"VOTING STOCK" of any Person as of any date means the Capital Stock
of such Person that is at the time entitled to vote in the election of the
board of directors of such Person.
"WHOLLY OWNED SUBSIDIARY" of any specified Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
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DESCRIPTION OF CREDIT FACILITY
THE FOLLOWING SUMMARY OF OUR CREDIT FACILITY DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE CREDIT AGREEMENT
DESCRIBED BELOW, INCLUDING THE DEFINITIONS OF CERTAIN CAPITALIZED TERMS USED
HEREIN. ANY TERMS NOT DEFINED IN THIS SECTION ARE DEFINED IN THE CREDIT
FACILITY. SEE "WHERE YOU CAN FIND MORE INFORMATION."
In July 1997, we entered into a bank credit agreement, which was
amended in December 1998 and in June 1999 (as amended the "credit agreement"),
which provides for a $350.0 million secured revolving credit facility that
matures on December 31, 2002. As required by the credit facility, we entered
into a guarantee and collateral agreement in August 1999 under which we have
pledged substantially all of our domestic assets and a portion of the capital
stock of our foreign subsidiaries to our lenders. The commitment amount under
the credit agreement will be permanently reduced by 50% of the gross proceeds
from sale of the notes. The borrowings under the credit facility rank senior to,
and will be repaid prior to, any subordinated indebtedness, including the notes.
INTEREST RATE CALCULATIONS. Interest is payable quarterly, or at the
end of the relevant interest period, if earlier, at a per annum rate equal to
the Adjusted Base Rate for ABR Loans, or a Eurodollar Rate for Eurodollar
(LIBOR) Loans, plus in each case, the relevant applicable margin. We are also
able to set interest rates through a competitive bid procedure.
The Adjusted Base Rate is a fluctuating rate calculated on a daily
basis as the highest of:
- the rate of interest publicly announced by The Chase Manhattan
Bank for the date of determination;
- 1% over the sum of (a) the product of the secondary market rate
for three month certificates of deposit and a fraction of the
percentage for determining the reserve requirement for a
depositary institution, and (b) the net annual assessment rate
payable on such day to the FDIC for insuring time deposits; and
- 0.5% over the weighted average of the rates on overnight Federal
Funds transactions with members of the Federal Reserve System as
arranged by Federal Funds brokers on the date of determination.
The Eurodollar Base Rate is the per annum rate determined by the
administrative agent to be the arithmetic mean of the offered rates for deposits
in dollars with a term comparable to the interest period that appears on the
Telerate British Bankers Association Interest Settlement Rates Page. The
Eurodollar Rate is the Eurodollar Base Rate adjusted for reserve requirements.
On December 31, 1999, the borrowings under the credit facility had a weighted
average interest rate of 9.09%.
The credit agreement requires us to pay the following fees:
- a quarterly commitment fee based upon our leverage ratio;
- a fee to each lender based upon our leverage ratio in proportion
to the lender's standby letter of credit liability;
- an issuing fee of 0.125% per annum on the face amount of each
letter of credit; and
- an administrative fee to The Chase Manhattan Bank for its services
as administrative agent under the credit agreement.
COVENANTS AND CONDITIONS. In addition to specific customary covenants,
the credit agreement includes covenants that restrict our ability and our
subsidiaries' ability to:
- dispose of assets;
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- incur additional indebtedness;
- incur liens on property or assets;
- repay other indebtedness;
- pay dividends;
- enter into certain investments or transactions;
- repurchase or redeem capital stock;
- engage in mergers or consolidations;
- make acquisitions; or
- engage in certain transactions with subsidiaries and affiliates
and otherwise restrict corporate activities.
In addition, we may not prepay, redeem, defease or repurchase any
subordinated indebtedness or the notes except for regularly scheduled mandatory
payments of interest and certain other exceptions.
The credit facility contains financial covenants under which we are
required to maintain:
- a Leverage Ratio of (a) Consolidated Total Indebtedness to (b)
Consolidated EBITDA equal to or below 5.0 to 1.0 currently,
decreasing over time to 4.0 to 1.0;
- an Interest Coverage Ratio of (a) Consolidated EBITDA to (b)
Consolidated Interest Expense greater than or equal to 2.5 to 1.0;
- a Senior Debt Leverage Ratio of (a) Consolidated Total
Indebtedness less the aggregate principal amount of the notes to
(b) Consolidated EBITDA equal to or below 2.5 to 1.0 upon the
issuance of the notes, decreasing over time to 2.0 to 1.0; and
- a specified minimum net worth of at least the sum of (a) $65.0
million and (b) 50% of our cumulative Consolidated Net Income from
the date of the agreement.
CERTAIN PREPAYMENTS. The credit agreement requires that the committed
amount under the credit facility be permanently reduced upon the completion of
the following transactions by an amount equal to:
- 100% of the proceeds from certain asset dispositions, if we have
not reinvested those proceeds within one year of receipt, provided
that we may elect not to reduce commitments by up to $50.0 million
of such proceeds from such asset sales;
- 100% of the proceeds of all equity issuances; and
- 100% of the proceeds from the issuance of other debt issuances.
The credit agreement, however, provides that in no event shall such
a reduction reduce the commitment amount below $200.0 million.
SECURITY. Our obligations under the credit facility are be secured,
jointly and severally, by:
- a first priority lien on and security interest in all our domestic
assets and the assets of our direct and indirect domestic
subsidiaries; and
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- a first priority lien on 100% (65% for first tier foreign
subsidiaries) of the equity or other ownership interests of our
currently owned or hereafter acquired direct and indirect
subsidiaries.
In addition, substantially all of our Domestic Subsidiaries guarantee
the obligations under the credit facility.
EVENTS OF DEFAULT. The credit agreement contains customary events of
default, which include a default in the payment of principal or interest on debt
aggregating $10.0 million or more. If any event of default occurs, our
obligations under the credit agreement could be accelerated and the lenders
could foreclose on the collateral securing these obligations, with material
adverse results to the holders of the notes.
AMENDMENTS. The December 1998 amendment amended certain covenant
compliance calculations to provide us with greater flexibility to execute the
restructuring announced on November 6, 1998. In June 1999, we amended our credit
facility to make the following modifications:
- it permitted us to issue the notes;
- it required us to reduce the commitment amount by half of the
gross proceeds received from the sale of the notes;
- it provided us additional financial flexibility by modifying
certain financial covenants; and
- it modified the applicable margin to increase interest costs if
our debt to EBITDA ratio exceeds certain levels.
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DESCRIPTION OF CAPITAL STOCK
This summary highlights certain provisions of our certificate of
incorporation, as amended to date, and our by-laws. The following description of
our capital stock is not complete and is qualified in its entirety by the
provisions of our certificate of incorporation, our by-laws, our stockholders
rights plan and applicable law. See "Where You Can Find More Information."
Our certificate of incorporation provides that our authorized capital
stock consists of 400 million shares of common stock, par value $.01 per share,
and 20 million shares of preferred stock, par value $.01 per share.
COMMON STOCK
As of December 31, 1999, 37,056,759 shares of our common stock were
outstanding. All of the issued and outstanding shares of our common stock are
fully paid and non-assessable. The common stock issuable upon conversion of the
notes will be, when issued and paid for, fully paid and non-assessable. Each
holder of shares of our common stock is entitled to one vote per share on all
matters to be voted on by stockholders generally, including the election of
directors. There are no cumulative voting rights. Our board of directors is not
classified, and all of our directors are elected annually.
The holders of our common stock are entitled to dividends and other
distributions as may be declared from time to time by our board of directors out
of legally available funds, if any. See "Price Range of Common Stock and
Dividend Policy." Upon our liquidation, dissolution or winding up, holders of
our common stock would be entitled to share ratably in the distribution of all
of our assets remaining available for distribution after satisfaction of all our
liabilities and the payment of the liquidation preference of any outstanding
preferred stock as described below.
The holders of our common stock have no preemptive or other
subscription rights to purchase shares of our stock, nor are holders entitled to
the benefits of any redemption or sinking fund provisions.
PREFERRED STOCK
Our authorized capital stock includes 20 million shares of preferred
stock, none of which is currently outstanding. Our board of directors has the
authority, without further action by our stockholders, to divide the preferred
stock into series and to fix the rights, preferences, privileges and
restrictions of any series, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series or the designation of that series. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change of control.
STOCKHOLDER RIGHTS PLAN
We have adopted a stockholder rights plan to protect stockholders from
various abusive takeover tactics, including attempts to acquire control of our
company at an inadequate price. Under the rights plan:
- our board of directors declared a dividend of one preferred stock
purchase right (a "Right") for each outstanding share of our
common stock; and
- each Right entitles the registered holder to purchase from us one
one-thousandth of a share of Series A Junior Participating
Preferred Stock, par value $.01 per share (the "Participating
Preferred Stock"), at a price of $100.
The description and terms of the Rights are described in a rights plan
between us and ChaseMellon Shareholder Services, L.L.C., as rights agent. The
description presented below is intended as a summary only and is qualified in
its entirety by reference to the rights plan.
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The Rights become exercisable and will begin to trade separately from
the common stock upon the earlier of:
- 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 below, has acquired beneficial ownership of 15%
or more of the outstanding common stock, or
- ten 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 holder 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 our company is
acquired through a merger or other business combination transaction, other than
a Permitted Offer, 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. We 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.
A "Permitted Offer" is a tender or exchange offer for all of our
outstanding common stock which is at a price and on terms determined, prior to
the purchase of shares under the tender or exchange offer, by at least a
majority of the board of directors to be adequate and otherwise in the best
interests of our company and our stockholders (other than the person or any
affiliate or associate thereof on whose basis the offer is being made) taking
into account all factors that the board of directors may deem relevant.
In connection with the stockholder rights plan, the board of directors
approved the creation of, out of the authorized but unissued shares of our
preferred stock, the Participating Preferred Stock, consisting of 400,000 shares
with a par value of $0.01 per share. The holders of the Participating Preferred
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, nor convertible
into our common stock or any of our other securities.
LIMITATION OF DIRECTOR LIABILITY
Our certificate of incorporation limits the liability of our directors
to us and our stockholders to the fullest extent permitted by Delaware law.
Specifically, our directors will not be personally liable for money damages for
breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law, which
concerns unlawful payments of dividends, stock purchases or
redemptions; and
- for any transaction from which the director derived an improper
personal benefit.
DELAWARE ANTI-TAKEOVER LAW AND VARIOUS CHARTER AND BY-LAWS PROVISIONS
DELAWARE LAW. We must comply with the provisions of Section 203 of the
Delaware General Corporation Law. In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner.
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A "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns, or, in some cases, within three years prior, did own, 15% or
more of the corporation's voting stock. Under Section 203, a business
combination between the Company and an interested stockholder is prohibited
unless it satisfies one of the following three conditions:
- our board of directors must have previously approved either the
business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of our voting stock outstanding at
the time the transaction commenced, excluding, for purposes of
determining the number of shares outstanding, shares owned by (1)
persons who are directors and also officers and (2) employee stock
plans, in some instances; and
- the business combination is approved by our board of directors and
authorized at an annual or special meeting of the stockholders by
the affirmative vote of the holders of at least 66 2'3% of the
outstanding voting stock that is not owned by the interested
stockholder.
SPECIAL MEETINGS. Our by-laws provide that special meetings of
stockholders for any purpose or purposes can be called only upon the request of
our chairman of the board, our president, our board of directors, or the holders
of shares entitled to at least a majority of the votes at the meeting.
AMENDMENT OF OUR BY-LAWS. To adopt, repeal, alter or amend the
provisions of our by-laws, our by-laws require the affirmative vote of either
the holders of at least a majority of the voting power of all of the issued and
outstanding shares of our capital stock entitled to vote on the matter or our
board of directors.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS.
Our by-laws establish advance notice procedures for stockholders to make
nominations of candidates for election as directors, or bring other business
before an annual meeting of our stockholders.
These procedures provide that only persons who are nominated by or at
the direction of our board of directors, or by a stockholder who has given
timely written notice to our secretary before the meeting at which directors are
to be elected, will be eligible for election as one of our directors. Further,
these procedures provide that at an annual meeting, the only business that may
be conducted is the business that has been specified in the notice of the
meeting given by, or at the direction of, our board or by a stockholder who has
given timely written notice to our secretary of such stockholder's intention to
bring that business before the meeting.
Under these procedures, notice of stockholder nominations to be made or
business to be conducted at an annual meeting must be received by us not less
than 60 days nor more than 90 days before the date of the meeting, or, if less
than 70 days' notice or prior public disclosure of the date of the meeting is
given or made to the stockholders, the tenth day following the earlier of (1)
the day notice was mailed or (2) the day public disclosure was made. Under these
procedures, notice of a stockholder nomination to be made at a special meeting
at which directors are to be elected must be received by us not later than the
close of business on the tenth 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 occurs first.
Under our by-laws, a stockholder's notice nominating a person for
election as a director must contain specific information about the proposed
nominee and the nominating stockholder. If our chairman of the board determines
that a nomination was not made in the manner described in our by-laws, the
nomination will be disregarded. Similarly, a stockholder's notice proposing the
conduct of business must contain specific information about the business and
about the proposing stockholder. If our chairman of the board determines that
business was not properly brought before the meeting in the manner described in
our by-laws, the business will not be conducted.
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By requiring advance notice of nominations by stockholders, our by-laws
afford our board an opportunity to consider the qualifications of the proposed
nominee and, to the extent deemed necessary or desirable by our board, to inform
stockholders about these qualifications. By requiring advance notice of other
proposed business, our by-laws also provide an orderly procedure for conducting
annual meetings of stockholders and, to the extent deemed necessary or desirable
by our board, provides our board with an opportunity to inform stockholders,
before meetings, of any business proposed to be conducted at the meetings,
together with any recommendations as to our board's position regarding action to
be taken with respect to the business, so that stockholders can better decide
whether to attend a meeting or to grant a proxy regarding the disposition of any
business.
The foregoing provisions may have the effect of precluding a contest
for the election of directors or the consideration of stockholder proposals if
the proper procedures are not followed, and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of these nominees or proposals might be harmful or beneficial to
us and our stockholders.
WRITTEN CONSENT PROVISIONS. Our by-laws provide that any action
required or permitted to be taken by the holders of capital stock at any meeting
of our stockholders may be taken without a meeting only by the holders of
outstanding capital stock having not less than the minimum number of votes that
would be necessary to authorize or take the action at a meeting at which all
shares entitled to vote were present and voted.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
The following is a summary of certain U.S. federal income tax
consequences and, in the case of Non-U.S. holders, as described below,
certain U.S. federal estate tax consequences, of the acquisition, ownership
and disposition of the notes and of the common stock into which the notes may
be converted by beneficial owners of the notes, but it is not intended as and
does not purport to be a complete analysis of all the potential U.S. federal
income, estate tax or other tax considerations which may be relevant to
certain investors in light of their particular investment or other
circumstances. In addition, we do not discuss any U.S. state or local income
or foreign income or other tax consequences. This summary is based upon the
provisions of the Internal Revenue Code of 1986, as amended, Treasury
Regulations and administrative and judicial interpretations thereof, all as
in effect as of the date of this prospectus and all of which are subject to
change or differing interpretation, possibly with retroactive effect. The
discussion below deals only with notes and common stock held as capital
assets which are, generally, property held for investment, and does not
address holders of notes or common stock that may be subject to special
rules, including, without limitation, certain U.S. expatriates, financial
institutions, insurance companies, tax-exempt entities, dealers in securities
or currencies, traders in securities that elect mark-to-market accounting
treatment, and persons who hold the notes or common stock as part of a
straddle, hedge, conversion or other integrated transaction. You should
consult your own tax advisor regarding the particular U.S. federal, state and
local and foreign income and other tax consequences of acquiring, owning and
disposing of the notes and common stock that may be applicable to you.
Certain Federal Income Tax Consequences to U.S. Holders
For purposes of the following discussion, a "U.S. holder" means a
beneficial owner of a note or common stock that is, for U.S. federal income tax
purposes,
(1) a citizen or individual resident of the United States,
(2) a corporation or partnership (unless the Internal Revenue Service
provides otherwise) created or organized in or under the laws of
the United States or of any political subdivision thereof,
(3) an estate the income of which is subject to U.S. federal income
taxation regardless of its source, or
(4) a trust if, in general, the trust is subject to the supervision of
a court within the United States and the control of one or more
United States persons as described in section 7701(a)(30) of the
Internal Revenue Code.
TAXATION OF STATED INTEREST. In general, stated interest paid on a
note will be taxable to a U.S. holder as ordinary income at the time it is
received or accrued in accordance with the U.S. holder's regular method of
accounting for federal income tax purposes.
LIQUIDATED DAMAGES. As more fully described above under "Descriptions
of Notes--Registration Rights; Liquidated Damages," in the event a registration
statement is not filed or does not become effective as provided in the
Registration Rights Agreement, we will be required to pay liquidated damages to
U.S. holders of the notes. Under the Treasury Regulations regarding contingent
payment debt instruments, any payment subject to a remote or incidental
contingency (i.e., there is a remote likelihood that the payment will be
required or the potential amount of the payment is insignificant relative to the
remaining payments on the debt instrument) is not considered a contingent
payment and is ignored for purposes of computing original issue discount
accruals. We believe that the liquidated damage payments with respect to the
notes are subject to either a remote or incidental contingency. Accordingly, a
U.S. holder of a note should be required to report any liquidated damage payment
as interest for U.S. federal income tax purposes only at the time the payment is
made or properly accrued under the U.S. holder's method of accounting.
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<PAGE>
MARKET DISCOUNT. The resale of notes may be adversely affected
by the impact on a purchaser of the "market discount" provisions of the
Code. For this purpose, the market discount on a note generally will be equal
to the amount, if any, by which the stated redemption price at maturity of
the note immediately after its acquisition (other than at original issue)
exceeds the U.S. holder's adjusted tax basis in the note. Subject to a
de minimis exception, these provisions generally require a U.S. holder
who acquires a note at a market discount to treat as ordinary income any gain
recognized on the disposition of that note to the extent of the "accrued
market discount" on such note at the time of disposition, unless the U.S.
holder elects to include accrued market discount in income currently. This
election to include market discount in income currently, once made, applies
to all market discount obligations acquired on or after the first taxable
year to which the election applies and may not be revoked without the consent
of the IRS. In general, market discount will be treated as accruing on a
straight-line basis over the remaining term of the note at the time of
acquisition, or, at the election of the U.S. holder, under a constant yield
method. A U.S. holder who acquires a note at a market discount and who does
not elect to include accrued market discount in income currently may be
required to defer the deduction of a portion of the interest on any
indebtedness incurred or maintained to purchase or carry the note until the
note is disposed of in a taxable transaction. If a U.S. holder acquires a
note with market discount and receives common stock upon conversion of the
note, the amount of accrued market discount not previously included in income
with respect to the converted note through the date of conversion will be
treated as ordinary income upon the disposition of the common stock.
AMORTIZABLE BOND PREMIUM. If a U.S. holder of a note acquires the
note at a cost that is in excess of the amount payable at maturity (after
reducing that cost by an amount equal to the value of the conversion option),
the U.S. holder may elect under Section 171 of the Code to amortize the
excess cost (as an offset to interest income) on a constant interest rate
basis over the term of the note. However, because the notes may be redeemed
at our option at a price in excess of their principal amount, a U.S. holder
may be required to amortize any bond premium based on the earlier call date
and the call price payable at that time. If the U.S. holder makes an election
to amortize bond premium, the tax basis of all the U.S. holder's notes will
be reduced by the allowable bond premium amortization. The amortization
election would apply to all debt instruments held or subsequently acquired by
the electing purchaser and cannot be revoked without permission from the IRS.
On conversion of a note into conversion shares, no additional amortization of
any bond premium would be allowed, and any remaining premium would be added
to the U.S. holder's tax basis in the common stock received.
DISPOSITIONS. Upon the sale, exchange or retirement of a note or
upon the sale of a share of common stock, a U.S. holder generally will
recognize taxable gain or loss in an amount equal to the difference, if any,
between the amount realized on the disposition (excluding any amount received
that is attributable to accrued but unpaid interest) and the U.S. holder's
adjusted tax basis in the note or common stock. A U.S. holder's adjusted tax
basis in a note will generally equal the cost of such note to that holder,
less any principal payments received by that holder and increased by any
market discount previously included in income by that holder. A holder's tax
basis in the common stock received on conversion of a note will be the same
as the holder's adjusted tax basis in the note at the time of the conversion,
reduced by any basis allocable to a fractional share paid in cash. Gain or
loss recognized by a U.S. holder on the sale, exchange or retirement of a
note or upon the sale of a share of common stock generally will be capital
gain or loss and will be long-term capital gain or loss if the note or common
stock was held for more than one year. Long-term capital gain recognized by a
non-corporate U.S. holder generally will be subject to a maximum tax rate of
20%. Subject to certain limited exceptions, capital losses cannot be used to
offset ordinary income.
CONVERSION OF THE NOTES. A U.S. holder generally will not recognize any
income, gain or loss upon conversion of a note into common stock, except with
respect to cash received in lieu of a fractional share of common stock. The
holder's tax basis in the common stock received on conversion of a note will be
the same as the holder's adjusted tax basis in the note at the time of
conversion (reduced by any basis allocable to a fractional share), and the
holding period for the common stock received on conversion will generally
include the holding period of the note converted.
Cash received in lieu of a fractional share of common stock upon
conversion should be treated as a payment in exchange for the fractional share
of common stock. Accordingly, the receipt of cash in lieu of a fractional share
of common stock generally should result in capital gain or loss (measured by the
difference between the cash received for the fractional share and the U.S.
holder's adjusted tax basis in the fractional share).
DISTRIBUTIONS ON THE COMMON STOCK. The amount of any distribution
by us in respect of the common stock (including any liquidated damages in
respect of common stock as described above under "Description of Notes--
Registration Rights; Liquidated Damages") will be equal to the amount of cash
and the fair market value, on the date of distribution, of any property
distributed. Generally, distributions will be treated as a dividend, subject
to a tax as ordinary income, to the extent of our current or accumulated
earnings and profits, then as a tax-free return of capital to the extent of
the holder's tax basis in the common stock and thereafter as gain from the
sale or exchange of the stock.
ADJUSTMENT OF CONVERSION PRICE. If at any time we make a distribution
of property to stockholders that would be taxable to those stockholders as a
dividend (e.g., distributions of evidences of indebtedness or assets of our
company, but generally not stock dividends or rights to subscribe for common
stock) for U.S. federal income tax purposes and, in accordance with the
antidilution provisions of the notes, the conversion price of the notes is
decreased, the amount of that decrease may be deemed to be the payment of a
taxable dividend to holders of the notes. As a result, U.S. holders of notes
could recognize taxable income as a result of an event pursuant to which they
receive no cash or property.
BACKUP WITHHOLDING AND INFORMATION REPORTING. We are required to
furnish to record holders of the notes, other than corporations and other exempt
holders, and to the IRS, information with respect to interest paid on the notes
and dividends paid on the common stock.
In general, "backup withholding" at a rate of 31% may apply to payments
of principal and interest made on a note, payments of dividends on common stock,
and to the payment of the proceeds of a sale or exchange of common stock or of a
note before maturity, that are made to a non-corporate U.S. holder if such
holder fails to provide a correct taxpayer identification number or otherwise
comply with applicable requirements of the backup withholding rules. The backup
withholding tax is not an additional tax and may be credited against a U.S.
holder's U.S. federal income tax liability, provided that correct information is
provided to the Internal Revenue Service.
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CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO NON-U.S.
HOLDERS
For purposes of the following discussion, a "Non-U.S. holder" is a
beneficial owner of a note or common stock that is not, for U.S. federal income
tax purposes, a U.S. holder. An individual may, subject to certain exceptions,
be deemed to be a resident alien, as opposed to a non-resident alien, by virtue
of being present in the United States on at least 31 days in the calendar year
and for an aggregate of at least 183 days during a three-year period ending in
the current calendar year, counting for these purposes all of the days present
in the current year, one-third of the days present in the immediately preceding
year, and one-sixth of the days present in the second preceding year. Resident
aliens are subject to U.S. federal tax as if they were U.S. citizens.
Under present U.S. federal income and estate tax law and subject to the
discussions below concerning income effectively connected with a trade or
business in the United States and backup withholding:
- payments of principal, premium, if any, and interest on a note by
us or any of our agents to any Non-U.S. holder will not be subject
to withholding of U.S. federal income tax, provided that in the
case of interest
(1) the Non-U.S. holder does not directly or indirectly, actually or
constructively, own 10 percent or more of the total combined voting power of all
classes of our stock entitled to vote,
(2) the Non-U.S. holder is not
(A) a controlled foreign corporation that is related to us through
sufficient stock ownership, or
(B) a bank receiving interest described in Section 881(c)(3)(A) of the
Internal Revenue Code, and
(3) either
(A) the beneficial owner of the note certifies to us or our paying
agent, under penalties of perjury, that it is not a "United States person", as
defined in the Internal Revenue Code and provides its name, address, and U.S.
Taxpayer identification number, if any or
(B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "financial institution") and holds the note on behalf of the
beneficial owner certifies to us or our paying agent under penalties of perjury
that it, or the financial institution between it and the beneficial owner, has
received from the beneficial owner the certificate described in (A) above and
provides us or our paying agent with a copy of this certificate;
- payments of dividends on the common stock to a Non-U.S. holder
will be subject to withholding of U.S. federal income tax at a 30%
rate unless that rate is reduced by an applicable income tax
treaty. Dividends that are effectively connected with the holder's
conduct of a trade or business in the U.S. are generally subject
to U.S. federal income tax at regular rates, but are not generally
subject to the 30% withholding tax if the Non-U.S. holder files a
properly executed Form W-8ECI or currently a Form 4224 or
successor form with the payor;
- a Non-U.S. holder will not be subject to U.S. federal income tax
on any gain or income realized on the sale or other disposition of
common stock, or the sale, exchange, redemption, retirement at
maturity or other disposition of a note; provided that, in the
case of proceeds representing accrued interest, the conditions
described in the first bullet paragraph above are met, unless
(1) the Non-U.S. holder is an individual who is present in the United
States for 183 days or more during the taxable year of gain and certain other
conditions are met, or
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(2) the gain is effectively connected with the conduct of a U.S. trade
or business by such Non-U.S. holder, or if an income tax treaty applies, is
generally attributable to a U.S. "permanent establishment" maintained by the
Non-U.S. holder;
- interest on notes not excluded from U.S. withholding tax as
described in the first bullet paragraph above will be subject to
U.S. withholding at a 30% rate, except where an applicable tax
treaty provides for the reduction or elimination of such
withholding tax;
- a note held by an individual who at the time of death is not a
citizen or resident of the United States will not be subject to
U.S. federal estate tax as a result of such individual's death if,
at the time of the individual's death,
(1) the individual did not directly or indirectly, actually or
constructively, own 10 percent or more of the total combined voting power of all
classes of our stock entitled to vote, and
(2) the income on the note would not have been effectively connected
with the conduct of a trade or business by the individual in the United States;
and
- common stock owned or treated as owned by an individual who at the
time of death is not a citizen or resident of the United States
will be subject to U.S. federal estate tax unless otherwise
provided by an applicable estate tax treaty.
If a Non-U.S. holder of a note is engaged in a trade or business in the
United States and interest on or gain realized on the sale of the note is
effectively connected with the conduct of such trade or business or, if an
income tax treaty applies, and the Non-U.S. holder maintains a U.S. "permanent
establishment" to which the interest or gain is generally attributable, the
Non-U.S. holder, although exempt from the withholding tax discussed in the first
bullet paragraph above, provided that such holder furnishes a properly executed
United States Internal Revenue Service Form W-8ECI or currently a Form 4224 or
successor form on or before any payment date to claim such exemption, may be
subject to U.S. federal income tax on such interest, as well as on gain or
income discussed in the third bullet paragraph above, on a net basis in the same
manner as if it were a U.S. holder.
In addition, a foreign corporation that is a holder of a note or common
stock may be subject to a branch profits tax equal to 30% of its effectively
connected earnings and profits for the taxable year, subject to some
adjustments, unless it qualifies for a lower rate under an applicable income tax
treaty. For this purpose, interest on a note, dividends on common stock or gain
recognized on the disposition of a note or common stock will be treated as
effectively connected earnings and profits if that interest, dividend or gain is
effectively connected with the conduct by the foreign corporation of a trade or
business in the United States.
Treasury Regulations generally effective for payments made after
December 31, 2000 will provide alternative methods for satisfying the
certification requirement described in clause (3) of the first bullet paragraph
above and may also require a Non-U.S. holder claiming the benefit of an income
tax treaty to provide its U.S. taxpayer identification number.
These regulations generally also will require, in the case of a note or common
stock held by a foreign partnership, that
(1) in the case of interest, the certification described in clause (3)
of the first bullet paragraph above be provided by the partners and in the case
of dividends, the partners certify entitlement to a reduced rate of withholding
under an applicable treaty and
(2) the partnership provide certain information, including a U.S.
taxpayer identification number.
A look-through rule will apply in the case of tiered partnerships.
Under current Treasury Regulations, backup withholding at a rate of 31%
and information reporting will not apply to payments of interest or dividends
made by us or our paying agent, in its capacity as such, to a Non-U.S.
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holder of a note or common stock if such holder has provided the required
certification as set forth above or has otherwise established an exemption,
provided that neither we nor our paying agent has actual knowledge that the
holder is a United States person or that the conditions of any other exemption
are not in fact satisfied. We or our paying agent may, however, report payments
of interest or dividends on the notes or common stock. Payments of the proceeds
from a disposition by a Non-U.S. holder of a note or common stock made to or
through a foreign office of a broker will not be subject to information
reporting or backup withholding, except that information reporting may apply to
such payments if the broker is
(1) a United States person,
(2) a controlled foreign corporation for U.S. federal income tax
purposes,
(3) a foreign person 50% or more of whose gross income is effectively
connected with a U.S. trade or business for a specified three-year period,
unless the Non-U.S. holder is an exempt recipient or such broker has evidence
that the payee is a Non-U.S. holder and no actual knowledge that such evidence
is false and certain other conditions are met, or
(4) with respect to payments made after December 31, 2000, a foreign
partnership, if at any time during its tax year, one or more of its partners are
U.S. persons, as defined in Treasury Regulations, who in the aggregate hold more
than 50% of the income or capital interest in the partnership or if, at any time
during its tax year, such foreign partnership is engaged in a U.S. trade or
business.
Payments of the proceeds from a disposition by a Non-U.S. holder of a
note or common stock made to or through the U.S. office of a broker is subject
to information reporting and backup withholding unless the holder or beneficial
owner certifies under penalties of perjury that he or she is not a United States
person and satisfies certain other conditions or otherwise establishes an
exemption from information reporting and backup withholding.
Any amounts withheld under the backup withholding rules from a payment
to a Non-U.S. holder would be allowed as a refund or a credit against such
holder's U.S. federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
Non-U.S. holders should consult their tax advisors regarding U.S.
federal, state, local and foreign tax consequences to non-U.S. holders of
purchasing, holding and disposing of the notes or common stock.
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SELLING SECURITYHOLDERS
The notes were originally issued by us and sold by the Initial
Purchasers in a transaction exempt from the registration requirements of the
Securities Act to persons reasonably believed by the Initial Purchasers to be
qualified institutional buyers. Selling holders, including their transferees,
pledgees or donees or their successors, may from time to time offer and sell
pursuant to this prospectus any or all of the notes and common stock into which
the notes are convertible.
The following table sets forth information with respect to the
selling holders and the principal amounts of notes, and shares of common
stock, beneficially owned by each selling holder that may be offered under
this prospectus. The information is based on information provided by or on
behalf of the selling holders. The selling holders may offer all, some or
none of the notes or common stock into which the notes are convertible.
Because the selling holders may offer all or some portion of the notes or the
common stock, no estimate can be given as to the amount of the notes or the
common stock that will be held by the selling holders upon termination of any
sales. In addition, the selling holders identified below may have sold,
transferred or otherwise disposed of all or a portion of their notes since
the date on which they provided the information regarding their notes in
transactions exempt from the registration requirements of the Securities Act.
<TABLE>
<CAPTION>
COMMON
STOCK COMMON
PRINCIPAL ISSUABLE STOCK
AMOUNT OF UPON OWNED
NOTES CONVERSION AFTER
BENEFICIALLY OF THE COMPLETION
OWNED AND NOTES AND OF THE
NAME OFFERED HEREBY OFFERED HEREBY OFFERING(1)
---- -----------------------------------------------------
<S> <C> <C> <C>
AAM/Zazove Institutional Income Fund, L.P. $1,000,000 64,308 -
American Master Fund "AG Absolute Return 705,000 45,337 -
Series" Ltd.
Argent Classic Convertible Arbitrage Fund 6,000,000 385,852 -
(Bermuda) L.P.
Associated Electric & Gas Insurance Services Limited 300,000 19,292 -
Bank Austria Cayman Islands, Ltd. 4,820,000 309,967 -
Bank of America Pension Plan 2,000,000 128,617 -
Bankers Trust, Trustee for Daimler Corp. 3,595,000 231,189 -
Empl. #1 Pension Plan dated 4/1/89
CALAMOS Market Neutral Fund - CALAMOS Investment 2,000,000 12,861 -
Trust
Christian Science Trustees for Gifts & Endowments 570,000 36,655 -
Circlet (IMA) Limited 1,000,000 64,308 -
Clinton Riverside Convertible Portfolio Limited 2,000,000 128,617 -
Conseco Direct Life Ins. 400,000 25,723 -
Consulting Group Capital Markets Funds 330,000 21,221 -
Donaldson Lufkin & Jenrette Securities Corp. 28,500,000 1,832,797 -
Duckbill & Co. 2,000,000 128,617 -
Employee Benefit Convertible Securities Fund 275,000 17,684 -
Franklin & Marshall College 270,000 17,363 -
General Motors Welfare Benefit Trust 1,600,000 102,893 -
GLG Global Converible Funds 4,425,000 284,565 -
GLG Global Convertible UCITS Funds 1,075,000 69,131 -
GLG Market Neutral Fund 10,000,000 643,086 -
Grace Brothers, Ltd. 3,750,000 241,157 -
Lehman Brothers, Inc. 2,000,000 128,617 -
LLT Limited 200,000 12,861 -
Massachusetts Mutual Life Insurance Company 2,280,000 146,623 -
MassMutual Corporate Value Partners Limited 1,350,000 86,816 -
MassMutual High Yield Partners II LLC 2,250,000 144,694 -
McMahan Securities Company, LP 750,000 48,231 -
Michael Angelo, L.P. 1,750,000 112,540 -
Nations Capital Income Fund 4,100,000 263,665 -
Paloma Securities 650,000 41,800 -
Paloma Securities, LLC 2,000,000 128,617 -
Paladia Strategic Securities Limited 500,000 32,154 -
Penn Treaty Network America Insurance Co. 240,000 15,434 -
Peoples Benefit Life Insurance Company 3,900,000 250,803 -
PGEP, III LLC 400,000 45,723 -
Ramus Capital Group Holdings, LTD. 500,000 32,154 -
Raphael II, Ltd. 705,000 45,337 -
RCG Multi-Strategy Account, L.P. 2,115,000 136,012 -
Saar Holdings CDO Limited 450,000 28,938 -
San Diego County Employers Retirement Assoc. 1,200,000 77,170 -
Southport Management Partners, L.P. 600,000 38,585 -
Southport Partners International, Ltd. 1,200,000 77,170 -
State Street Bank, Custodian for 1,895,000 121,865 -
GE Pension Trust
Summer Hill Global Partners L.P. 180,000 11,575 -
Triarc Companies, Inc. 705,000 45,337 -
Tribecca Investments, LLC 17,500,000 1,125,401 -
Value Line Convertible Fund, Inc. 500,000 32,154 -
</TABLE>
(1) Assumes that all notes, and common stock issuable upon conversion of the
notes, are sold in the offering.
None of the selling holders nor any of their affiliates, officers,
directors or principal equity holders has held any position or office or has
had any material relationship with us within the past three years except that
Donaldson, Lufkin & Jenrette Securities Corporation was an Initial Purchaser.
The selling holders purchased all of the notes in private transactions on or
after December 14, 1999. All of the notes were "restricted securities" under
the Securities Act prior to this registration.
Information concerning the selling holders may change from time to time
and any changed information will be set forth in supplements to this prospectus
if and when necessary. In addition, the conversion rate and therefore, the
number of shares of common stock issuable upon conversion of the notes, is
subject to adjustment under certain circumstances. Accordingly, the aggregate
principal amount of notes and the number of shares of common stock into which
the notes are convertible may increase or decrease.
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PLAN OF DISTRIBUTION
The selling holders and their successors, including their transferees,
pledgees or donees or their successors, may sell the notes and the common stock
into which the notes are convertible directly to purchasers or through
underwriters, broker-dealers or agents, who may receive compensation in the form
of discounts, concessions or commissions from the selling holders or the
purchasers. These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the
types of transactions involved.
The notes and the common stock into which the notes are convertible may
be sold in one or more transactions at fixed prices, at prevailing market prices
at the time of sale, at prices related to the prevailing market prices, at
varying prices determined at the time of sale, or at negotiated prices. These
sales may be effected in transactions, which may involve crosses or block
transactions:
- on any national securities exchange or U.S. inter-dealer system of
a registered national securities association on which the notes or
the common stock may be listed or quoted at the time of sale;
- in the over-the-counter market;
- in transactions otherwise than on these exchanges or systems or in
the over-the-counter market;
- through the writing of options, whether the options are listed on
an options exchange or otherwise; or
- through the settlement of short sales.
In connection with the sale of the notes and the common stock into
which the notes are convertible or otherwise, the selling holders may enter into
hedging transactions with broker-dealers or other financial institutions, which
may in turn engage in short sales of the notes or the common stock into which
the notes are convertible in the course of hedging the positions they assume.
The selling holders may also sell the notes or the common stock into which the
notes are convertible short and deliver these securities to close out their
short positions, or loan or pledge the notes or the common stock into which the
notes are convertible to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling holders from the sale of the
notes or common stock into which the notes are convertible offered by them will
be the purchase price of the notes or common stock less discounts and
commissions, if any. Each of the selling holders reserves the right to accept
and, together with their agents from time to time, to reject, in whole or in
part, any proposed purchase of notes or common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering.
Our outstanding common stock is listed for trading on the New York
Stock Exchange. We do not intend to list the notes for trading on any national
securities exchange or on the New York Stock Exchange and can give no assurance
about the development of any trading market for the notes.
In order to comply with the securities laws of some states, if
applicable, the notes and common stock into which the notes are convertible may
be sold in these jurisdictions only through registered or licensed brokers or
dealers. In addition, in some states the notes and common stock into which the
notes are convertible may not be sold unless they have been registered or
qualified for sale or an exemption from registration or qualification
requirements is available and is complied with.
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the notes and common stock into which the notes are
convertible may be "underwriters" within the meaning of Section 2(11) of the
Securities Act. Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and commissions under the
Securities Act. Selling holders who are "underwriters" within the meaning of
Section 2(11) of the Securities Act will be subject to the prospectus delivery
requirements of the
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Securities Act. The selling holders have acknowledged that they understand their
obligations to comply with the provisions of the Exchange Act and the rules
thereunder relating to stock manipulation, particularly Regulation M.
In addition, any securities covered by this prospectus that qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus. A selling holder
may not sell any notes or common stock described in this prospectus and may not
transfer, devise or gift these securities by other means not described in this
prospectus.
To the extent required, the specific notes or common stock to be sold,
the names of the selling holders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement of which this prospectus
is a part.
We entered into a registration rights agreement for the benefit of
holders of the notes to register their notes and common stock under applicable
federal and state securities laws under specific circumstances and at specific
times. The registration rights agreement provides for cross-indemnification of
the selling holders and us and their and our respective directors, officers and
controlling persons against specific liabilities in connection with the offer
and sale of the notes and the common stock, including liabilities under the
Securities Act. We will pay substantially all of the expenses incurred by the
selling holders incident to the offering and sale of the notes and the common
stock.
EXPERTS
The consolidated financial statements included in this prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
VALIDITY OF THE SECURITIES
The validity of the notes and the common stock being offered by this
prospectus is being passed upon for us by Fried, Frank, Harris, Shriver &
Jacobson (a partnership including professional corporations), New York, New
York.
-56-
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Our principal executive offices are located at 10 Melville Park Road,
Melville, NY 11747 (telephone (631) 847-3000). We also maintain an Internet home
page at www.gensemi.com.
We have filed with the Securities and Exchange Commission a
registration statement on Form S-3 to register the securities offered by this
prospectus. However, this prospectus does not contain all of the information
contained in the registration statement and the exhibits and schedules to the
registration statement. We strongly encourage you to carefully read the
registration statement and the exhibits and schedules to the registration
statement. We also file annual, quarterly and special reports, proxy statements
and other information with the SEC.
You may inspect and copy such material at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the SEC's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. You may also obtain copies of such
material from the SEC at prescribed rates by writing to the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Our SEC filings are also available to the public from
the SEC's web site at www.sec.gov.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information
contained in documents that we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus. Information in this prospectus supersedes information incorporated
by reference that we filed with the SEC prior to the date of this prospectus,
while information that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the documents listed
below:
1. Our Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1998, including all material incorporated by reference in that
report (except for Item 8 which is included herein);
2. Our Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1999, June 30, 1999 and September 30, 1999, including all material
incorporated by reference in each of those reports;
3. Our Current Reports on Form 8-K filed on December 1, 1999,
December 14, 1999 and February 4, 2000;
4. Our Definitive Proxy Statement on Schedule 14A, filed on March 24,
1999, excluding the sections captioned "Report of the Compensation Committee"
and "Performance Graph";
5. All other reports filed by us pursuant to Section 13(a) or 15(d) of
the Exchange Act since December 31, 1998, including all material incorporated by
reference in such reports; and
6. The description of the common stock contained in our Registration
Statement on Form 8-A, dated April 17, 1992, as amended.
In addition, we also incorporate by reference any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 (other than the information filed in response to
Items 402(k) and (l) of Regulation S-K). You may request a copy of these
filings, at no cost to you, by writing or telephoning us at: General
Semiconductor, Inc.: Attention: Investor Relations: 10 Melville Park Road,
Melville, NY 11747 (telephone (631) 847-3000).
-57-
<PAGE>
Our common stock is quoted on the NYSE under the symbol "SEM."
The last reported sales price of the common stock on the NYSE on February 10,
2000 was $18 5/8 per share. You may inspect reports and other information
concerning us at the offices of the NYSE, 20 Broad Street, New York, New York
10004.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have authorized no one to provide you with
different information. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
document.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Statements
that are predictive in nature, that depend upon or refer to future events or
conditions or that include the words "expects," "anticipates," "intends,"
"plans," "believes," "estimates," "thinks" and similar expressions are
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors, including general political, legislative,
regulatory and economic uncertainties as well as the specific factors
described above, that may cause our actual results and performance to be
materially different from any future results or performance expressed or
implied by these forward-looking statements. Although we believe that these
statements are based upon reasonable assumptions, we cannot assure you that
our expectations will actually occur. These forward-looking statements are
made as of the date of this prospectus, and we assume no obligation to update
or revise them, whether as a result of new information, future events or
otherwise.
-58-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheet--December 31, 1997 and 1998 and
September 30, 1999 (unaudited)............................ F-3
Consolidated Statements of Operations for the Three Years
Ended December 31, 1998 and the Nine Months Ended
September 30, 1998 and 1999 (unaudited)................... F-4
Consolidated Statements of Stockholders' Equity for the
Three Years Ended December 31, 1998 and the Nine Months
Ended September 30, 1999 (unaudited)...................... F-5
Consolidated Statement of Cash Flows for the Three Years
Ended December 31, 1998 and the Nine Months Ended
September 30, 1998 and 1999 (unaudited)................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
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, 1997 and 1998, 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, 1997 and 1998, 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 (June 30, 1999 as to Note 18)
F-2
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT STOCK PAR VALUE)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 5,192 $ 3,225 $ 5,846
Accounts receivable, less allowance for doubtful
accounts of $825, $769 and $809, respectively......... 54,077 59,643 62,460
Inventories............................................. 34,309 39,514 40,636
Prepaid expenses and other current assets............... 9,890 12,010 12,680
Deferred income taxes................................... 14,263 13,738 10,720
-------- -------- --------
Total current assets................................ 117,731 128,130 132,342
Property, plant and equipment--net...................... 218,752 223,743 228,568
Excess of cost over fair value of net assets acquired,
less accumulated amortization of $38,784, $43,929 and
$47,875, respectively................................. 167,895 162,751 158,895
Deferred income taxes................................... 26,509 29,376 28,980
Intangibles and other assets, less accumulated
amortization of $9,228, $11,099 and $12,484,
respectively.......................................... 19,418 19,447 19,201
-------- -------- --------
TOTAL ASSETS............................................ $550,305 $563,447 $567,986
-------- -------- --------
-------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................ $ 38,332 $ 31,343 $ 23,609
Accrued expenses........................................ 58,352 45,084 37,091
Current portion of long-term debt....................... 4,310 -- --
-------- -------- --------
Total current liabilities........................... 100,994 76,427 60,700
Long-term debt.......................................... 263,764 286,000 290,000
Deferred income taxes................................... 21,710 21,390 23,919
Other non-current liabilities........................... 77,476 74,283 72,349
-------- -------- --------
Total liabilities................................... 463,944 458,100 446,968
-------- -------- --------
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, $0.01 par value; 20,000 shares
authorized; no shares issued.......................... -- -- --
Common Stock, $0.01 par value; 400,000 shares authorized;
36,887, 36,925 and 36,960 shares issued,
respectively.......................................... 369 369 370
Additional paid-in capital.............................. 55 507 609
Retained earnings....................................... 93,308 111,842 127,410
-------- -------- --------
93,732 112,718 128,389
Less--Treasury stock, at cost, 104 shares............... (7,371) (7,371) (7,371)
-------- -------- --------
Total stockholders' equity.......................... 86,361 105,347 121,018
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $550,305 $563,447 $567,986
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------ --------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
NET SALES................................ $361,891 $380,038 $401,144 $302,382 $304,300
-------- -------- -------- -------- --------
OPERATING COSTS AND EXPENSES:
Cost of sales.......................... 230,687 289,313 283,582 211,720 224,418
Selling, general and administrative.... 42,594 44,668 46,802 34,769 33,542
Research and development............... 5,838 5,998 6,104 4,466 4,908
Amortization of excess of cost over
fair value of net assets acquired.... 5,154 5,143 5,145 3,858 3,856
Restructuring.......................... -- -- 12,324 -- --
-------- -------- -------- -------- --------
Total operating costs and expenses... 284,273 345,122 353,957 254,813 266,724
-------- -------- -------- -------- --------
OPERATING INCOME......................... 77,618 34,916 47,187 47,569 37,576
Other expense--net....................... (51) (42) (71) (84) 58
Interest expense--net.................... (10,396) (14,353) (20,026) (15,213) (16,876)
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES........................... 67,171 20,521 27,090 32,272 20,758
Provision for income taxes............... (27,407) (11,649) (8,556) (10,005) (5,190)
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS........ 39,764 8,872 18,534 22,267 15,568
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of
income tax expense of $20,026 in 1996
and income tax benefit of $22,073 in
1997................................... (41,628) (2,939) -- -- --
-------- -------- -------- -------- --------
NET INCOME (LOSS)........................ $ (1,864) $ 5,933 $ 18,534 $ 22,267 $ 15,568
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic.................................. 32,924 35,414 36,811 36,808 36,821
Diluted................................ 36,852 35,576 36,899 36,898 36,934
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations.................. $ 1.20 $ 0.25 $ 0.50 $ 0.60 $ 0.42
Discontinued operations................ (1.26) (0.08) -- -- --
-------- -------- -------- -------- --------
Net income (loss)...................... $ (0.06) $ 0.17 $ 0.50 $ 0.60 $ 0.42
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations.................. $ 1.15 $ 0.25 $ 0.50 $ 0.60 $ 0.42
Discontinued operations................ (0.88) (0.08) -- -- --
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income............................. $ 0.27 $ 0.17 $ 0.50 $ 0.60 $ 0.42
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
--------------------
COMMON STOCK ADDITIONAL UNREALIZED
------------------- PAID-IN RETAINED TREASURY UNEARNED GAIN ON
SHARES AMOUNT CAPITAL EARNINGS STOCK COMPENSATION INVESTMENT
-------- -------- ----------- -------- -------- ------------ --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996.... 31,509 $316 $ 667,134 $256,416 $(7,246) $(1,277) $ --
Exercise of stock options
and related tax benefit... 40 -- 3,475 -- -- -- --
Comprehensive income:
Net loss.................... -- -- -- (1,864) -- -- --
Total comprehensive
income.................... -- -- -- -- -- -- --
Amortization of unearned
compensation.............. -- -- -- -- -- 612 --
Treasury stock
transactions.............. -- -- -- -- (25) -- --
Conversion of Convertible
Junior Subordinated
Notes--net................ 2,737 27 255,585 -- -- -- --
------- ---- ----------- -------- ------- ------- --------
BALANCE, DECEMBER 31,
1996...................... 34,286 343 926,194 254,552 (7,271) (665) --
Exercise of stock options
and related tax benefit... 200 2 19,361 -- -- -- --
Comprehensive income:
Net income.................. -- -- -- 5,933 -- -- --
Unrealized gain on
investment, net of tax.... -- -- -- -- -- -- 22,018
Total comprehensive
income.................... -- -- -- -- -- -- --
Amortization of unearned
compensation.............. -- -- -- -- -- 243 --
Treasury stock
transactions.............. -- -- -- -- (100) -- --
Conversion of Convertible
Junior Subordinated
Notes--net................ 2,397 24 226,636 -- -- -- --
Distribution of General
Instrument and Commscope.. -- -- (1,172,191) (167,177) -- 422 (22,018)
Common stock issued......... 4 -- 55 -- -- -- --
------- ---- ----------- -------- ------- ------- --------
BALANCE, DECEMBER 31,
1997...................... 36,887 369 55 93,308 (7,371) -- --
Exercise of stock options
and related tax benefit... 38 -- 452 -- -- -- --
Comprehensive income:
Net income.................. -- -- -- 18,534 -- -- --
Total comprehensive
income.................... -- -- -- -- -- -- --
------- ---- ----------- -------- ------- ------- --------
BALANCE, DECEMBER 31,
1998...................... 36,925 369 507 111,842 (7,371) -- --
Exercise of stock options
and related tax benefit... 35 1 102 -- -- -- --
Comprehensive income:
Net income (unaudited)...... -- -- -- 15,568 -- -- --
Total comprehensive
income.................... -- -- -- -- -- -- --
------- ---- ----------- -------- ------- ------- --------
BALANCE, SEPTEMBER 30, 1999
(UNAUDITED)............... 36,960 $370 $ 609 $127,410 $(7,371) $ -- $ --
------- ---- ----------- -------- ------- ------- --------
------- ---- ----------- -------- ------- ------- --------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE, JANUARY 1, 1996.... $ 915,343
Exercise of stock options
and related tax benefit... 3,475
Comprehensive income:
Net loss.................... --
Total comprehensive
income.................... (1,864)
Amortization of unearned
compensation.............. 612
Treasury stock
transactions.............. (25)
Conversion of Convertible
Junior Subordinated
Notes--net................ 255,612
-----------
BALANCE, DECEMBER 31,
1996...................... 1,173,153
Exercise of stock options
and related tax benefit... 19,363
Comprehensive income:
Net income.................. --
Unrealized gain on
investment, net of tax.... --
Total comprehensive
income.................... 27,951
Amortization of unearned
compensation.............. 243
Treasury stock
transactions.............. (100)
Conversion of Convertible
Junior Subordinated
Notes--net................ 226,660
Distribution of General
Instrument and Commscope.. (1,360,964)
Common stock issued......... 55
-----------
BALANCE, DECEMBER 31,
1997...................... 86,361
Exercise of stock options
and related tax benefit... 452
Comprehensive income:
Net income.................. --
Total comprehensive
income.................... 18,534
-----------
BALANCE, DECEMBER 31,
1998...................... 105,347
Exercise of stock options
and related tax benefit... 103
Comprehensive income:
Net income (unaudited)...... --
Total comprehensive
income.................... 15,568
-----------
BALANCE, SEPTEMBER 30, 1999
(UNAUDITED)............... $ 121,018
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
GENERAL SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------ --------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES:
Income from continuing operations............... $ 39,764 $ 8,872 $18,534 $22,267 $15,568
Adjustments to reconcile income from continuing
operations to net cash provided by continuing
operating activities:
Depreciation and amortization................. 22,613 24,232 24,982 18,424 20,534
Asset write-off in conjunction with
restructuring............................... -- -- 3,865 -- --
Changes in assets and liabilities, net of
effect of business acquired:
Accounts receivable......................... 9,190 (13,335) (5,565) (1,045) (2,817)
Inventories................................. (8,028) 2,465 (5,204) (1,761) (1,122)
Prepaid expenses and other current assets... 663 (3,208) (2,694) (2,903) (670)
Other non-current assets.................... 44 666 (766) (1,726) (1,136)
Deferred income taxes....................... 14,736 (1,236) (2,662) 528 5,943
Accounts payable and accrued expenses....... (12,655) 9,274 5,151 (14,702) (15,727)
Other non-current liabilities............... (222) 1,685 (3,193) (2,302) (1,934)
Other......................................... 2,014 (331) (689) (327) (628)
-------- -------- ------- ------- -------
Net cash provided by continuing operating
activities.................................... 68,119 29,084 31,759 16,453 18,011
-------- -------- ------- ------- -------
Cash (used in) provided by discontinued
operations.................................... (225,227) 145,452 (25,177) (25,177) --
-------- -------- ------- ------- -------
INVESTING ACTIVITIES:
Expenditures for property, plant and
equipment................................... (60,299) (29,208) (26,898) (17,780) (19,492)
Proceeds from sale (purchases) of short-term
investments................................. (24,974) 24,974 -- -- --
Proceeds from sale of assets.................. 4,368 3,000 -- -- --
Payment for business acquired................. -- (8,982) -- -- --
-------- -------- ------- ------- -------
Net cash used in investing activities........... (80,905) (10,216) (26,898) (17,780) (19,492)
-------- -------- ------- ------- -------
FINANCING ACTIVITIES:
Costs associated with the issuance of debt and
Common Stock................................ (1,053) (1,130) -- -- --
Net proceeds from (repayments of) revolving
credit facilities........................... 231,000 (192,000) 64,000 71,000 4,000
Redemption of Convertible Junior Subordinated
Notes....................................... (6,440) (245) -- -- --
Principal repayment of debt................... (4,310) (4,310) (46,074) (46,074) --
Proceeds from exercise of stock options....... 2,686 18,305 423 423 102
-------- -------- ------- ------- -------
Net cash provided by (used in) financing
activities.................................... 221,883 (179,380) 18,349 25,349 4,102
-------- -------- ------- ------- -------
Decrease in cash and cash equivalents........... (16,130) (15,060) (1,967) (1,155) 2,621
Cash and cash equivalents, beginning of
period........................................ 36,382 20,252 5,192 5,192 3,225
-------- -------- ------- ------- -------
Cash and cash equivalents, end of year period... $ 20,252 $ 5,192 $ 3,225 $ 4,037 $ 5,846
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
SUPPLEMENTAL CASH FLOW INFORMATION, RELATING TO
CONTINUING AND DISCONTINUED OPERATIONS:
Income taxes paid............................. $ 55,647 $ 37,224 $ 9,776 $14,276 $ 3,128
Interest paid................................. $ 41,766 $ 32,033 $19,677 $15,286 $18,902
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
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.
In the opinion of management, the accompanying unaudited consolidated
financial statements include all necessary adjustments (consisting of normal
recurring adjustments) and present fairly the Company's financial position as of
September 30, 1999, the results of its operations for the nine months ended
September 30, 1998 and 1999 and its cash flows for the nine months ended
September 30, 1998
F-7
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
and 1999 in conformity with generally accepted accounting principles for
interim financial information applied on a consistent basis. There were no
adjustments of a non-recurring nature recorded during the nine months ended
September 30, 1998 and 1999. The results of operations for the nine months
ended September 30, 1999 are not necessarily indicative of the results to be
expected for the full year.
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 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.
F-8
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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,
1996 and 1997.
F-9
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
4. INVENTORIES
<TABLE>
<CAPTION>
INVENTORIES CONSIST OF: DECEMBER 31, 1997 DECEMBER 31, 1998 SEPTEMBER 30, 1999
- ----------------------- ----------------- ----------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............... $ 7,181 $ 5,139 $ 5,881
Work in process............. 12,052 14,181 12,568
Finished goods.............. 15,076 20,194 22,187
------- ------- -------
Total....................... $34,309 $39,514 $40,636
------- ------- -------
------- ------- -------
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Land and land improvements.................. $ 76,328 $ 76,321
Buildings, improvements and leasehold
improvements.............................. 63,485 64,106
Machinery and equipment..................... 208,067 232,690
--------- ---------
347,880 373,117
Accumulated depreciation.................... (129,128) (149,374)
--------- ---------
Property, plant and equipment, net.......... $ 218,752 $ 223,743
--------- ---------
--------- ---------
</TABLE>
Depreciation expense aggregated $14.4 million, $16.8 million and $18.0
million for 1996, 1997 and 1998, respectively.
6. ACCRUED EXPENSES
Accrued expenses consist of:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Salaries and compensation liabilities....... $14,849 $14,355
Distribution and reorganization
liabilities............................... 18,734 --
Restructuring liabilities................... -- 7,809
Benefit plan liabilities.................... 4,916 7,709
Other....................................... 19,853 15,211
------- -------
Total....................................... $58,352 $45,084
------- -------
------- -------
</TABLE>
In connection with the Distribution, the Company recorded in income 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 related to employees of General
Semiconductor and were incurred in connection with the separation of the Taiwan
operations between General Semiconductor and General Instrument.
F-10
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
6. ACCRUED EXPENSES (CONTINUED)
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 of 1998
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, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Environmental liabilities................... $32,415 $29,363
Benefit plan liabilities.................... 36,070 35,596
Other....................................... 8,991 9,324
------- -------
Total....................................... $77,476 $74,283
------- -------
------- -------
</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.
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,
------------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Domestic......................................... $62,084 $16,354 $ 8,141
Foreign.......................................... 5,087 4,167 18,949
------- ------- -------
Total............................................ $67,171 $20,521 $27,090
------- ------- -------
------- ------- -------
</TABLE>
F-11
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
8. INCOME TAXES (CONTINUED)
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Current:
Federal........................................... $ 9,477 $ 4,691 $3,848
Foreign........................................... 2,842 2,754 6,539
State............................................. 922 2,200 831
------- ------- ------
13,241 9,645 11,218
------- ------- ------
Deferred:
Federal........................................... 9,472 3,066 (11)
Foreign........................................... 3,129 (1,325) (2,478)
State............................................. 2,015 263 (173)
------- ------- ------
14,616 2,004 (2,662)
------- ------- ------
Net change in valuation allowance................. (450) -- --
------- ------- ------
Provision for income taxes........................ $27,407 $11.649 $8,556
------- ------- ------
------- ------- ------
</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,
------------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Federal income tax provision at 35%.............. $23,510 $ 7,182 $ 9,482
Valuation allowance benefit...................... (450) -- --
State income taxes-net of federal benefit........ 1,909 1,601 428
Foreign operations............................... 1,805 1,470 (2,166)
Non-deductible expenses.......................... 1,844 914 1,945
Other-net........................................ (1,211) 482 (1,133)
------- ------- -------
Provision for income taxes....................... $27,407 $11,649 $ 8,556
------- ------- -------
------- ------- -------
Effective income tax rate........................ 40.8% 56.8% 31.6%
</TABLE>
Income taxes related to foreign operations in 1996, 1997 and 1998 reflect
the Company's ability to recognize the benefit of foreign tax credits.
F-12
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
8. INCOME TAXES (CONTINUED)
Deferred income taxes recorded in the accompanying consolidated balance
sheets are comprised of:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------------ ------------------------------
ASSET LIABILITY NET ASSET LIABILITY NET
-------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Current Deferred Income Taxes:
Accounts receivable and inventory
reserves................................ $ 2,177 $ -- $ 2,177 $ 3,845 $ -- $ 3,845
Product and warranty liabilities.......... 437 -- 437 332 -- 332
Employee benefits......................... 5,576 -- 5,576 5,213 -- 5,213
Other current............................. 6,073 -- 6,073 4,348 -- 4,348
-------- ------- -------- -------- ------- --------
$ 14,263 $ -- $ 14,263 $ 13,738 $ -- $ 13,738
-------- ------- -------- -------- ------- --------
-------- ------- -------- -------- ------- --------
Non-Current Deferred Income Taxes:
Domestic capital loss carryforwards....... $ 17,518 $ -- $ 17,518 $ 17,518 $ -- $ 17,518
Fixed and intangible assets............... (4,745) 1,081 (5,826) (6,041) -- (6,041)
Environmental liabilities................. 12,318 -- 12,318 11,158 -- 11,158
Employee benefits......................... 12,535 205 12,330 12,188 -- 12,188
Other non-current......................... 8,660 20,424 (11,764) 14,330 21,390 (7,060)
Valuation allowance....................... (19,777) -- (19,777) (19,777) -- (19,777)
-------- ------- -------- -------- ------- --------
$ 26,509 $21,710 $ 4,799 $ 29,376 $21,390 $ 7,986
-------- ------- -------- -------- ------- --------
-------- ------- -------- -------- ------- --------
</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 $9.9 million and $14.3 million in 1997 and 1998,
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.
F-13
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
9. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Senior bank indebtedness:
Revolving credit facility................. $222,000 $286,000
Taiwan loan............................... 46,074 --
-------- --------
268,074 286,000
Less current maturities..................... 4,310 --
-------- --------
Long-term debt.............................. $263,764 $286,000
-------- --------
-------- --------
</TABLE>
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.
F-14
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
9. LONG-TERM DEBT (CONTINUED)
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, 1997 and 1998 was 6.6% and 5.8%, respectively.
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 $2.9 million, $3.3 million and $5.4 million in
1996, 1997 and 1998, 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
"potentially responsible party" at five hazardous waste sites in four states.
F-15
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 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
F-16
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
Net periodic pension cost consists of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------------
1996 1997 1998
------------------- ------------------- -------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN DOMESTIC FOREIGN
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost..................................... $ 325 $2,968 $ 407 $2,746 $ 482 $2,513
Interest......................................... 4,616 3,503 5,117 3,301 5,209 3,040
Expected return on plan assets................... (5,670) (1,663) (5,620) (1,185) (5,979) (853)
Transition (asset) obligation.................... -- -- -- 188 -- 160
Amortization of prior service costs.............. 878 906 (12) -- (12) --
Recognized actuarial (gain) or loss.............. -- -- 2 756 198 522
------ ------ ------ ------ ------ ------
Net periodic pension cost (income)............... $ 149 $5,714 $ (106) $5,806 $ (102) $5,382
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
F-17
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
11. EMPLOYEE BENEFITS (CONTINUED)
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, 1997 DECEMBER 31, 1998
------------------- -------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year.................. $65,431 $ 60,586 $75,741 $ 46,863
Service cost........................................... 407 2,746 482 2,513
Interest cost.......................................... 5,117 3,301 5,209 3,040
Actuarial (gain) or loss............................... 9,034 2,086 4,499 (174)
Impact of foreign exchange............................. -- (8,119) -- 885
Benefits paid.......................................... (4,248) (151) (5,646) (2,540)
Curtailment loss....................................... -- 3,272 -- --
Settlement payment..................................... -- (16,858) -- --
------- -------- ------- --------
Benefit obligation at end of year........................ 75,741 46,863 80,285 50,587
------- -------- ------- --------
Change in Plan Assets
Fair value of plan assets at beginning of year........... 67,599 23,944 78,539 11,018
Actual return on plan assets (net of expenses)......... 15,188 999 13,012 1,132
Employer contributions................................. -- 6,568 -- 2,543
Impact of foreign exchange............................. -- (3,484) -- 155
Benefits paid.......................................... (4,248) (17,009) (5,646) (2,540)
------- -------- ------- --------
Fair value of plan assets at end of year................. 78,539 11,018 85,905 12,308
------- -------- ------- --------
Reconciliation of the Funded Status
Funded status.......................................... 2,798 (35,845) 5,620 (38,279)
Unrecognized transition (asset) or obligation.......... -- 1,670 -- 1,523
Unrecognized prior service cost........................ (77) -- (65) --
Unrecognized actuarial (gain) or loss.................. (834) 12,451 (3,567) 11,496
------- -------- ------- --------
Asset (liability) recognized at year-end............... $ 1,887 $(21,724) $ 1,988 $(25,260)
------- -------- ------- --------
Actuarial assumptions:
Discount rate............................................ 7.00% 6.75% 6.75% 6.75%
Investment return........................................ 9.00% 7.00% 9.00% 7.00%
Compensation increases................................... 4.75% 6.00% 4.75% 6.00%
</TABLE>
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"). Contributions to the
plan in 1996 were $3.8 million. The Company made no contributions to the plan in
1997 or 1998. 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.
F-18
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
11. EMPLOYEE BENEFITS (CONTINUED)
DEFINED CONTRIBUTION PLANS. The Company maintains defined contribution plans
covering all domestic non-union employees and employees in Ireland and France.
Company contributions were $0.4 million in 1996 and $0.7 million in 1997 and
1998.
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,
------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Service cost.......................................... $ 78 $ 87 $ 91
Interest.............................................. 872 891 918
Amortization of prior service cost.................... (383) (383) (383)
Recognized actuarial (gain) or loss................... -- 12 135
---- ---- ----
Net periodic postretirement benefit cost.............. $567 $607 $761
---- ---- ----
</TABLE>
The status of the Plan and the related amounts recorded in the accompanying
consolidated balance sheets are:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------ ------------------
<S> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year................... $ 11,888 $ 13,286
Service cost............................................ 87 91
Interest cost........................................... 891 918
Actuarial (gain) or loss................................ 1,932 2,056
Benefits paid........................................... (1,512) (2,424)
-------- --------
Benefit obligation at end of year......................... 13,286 13,927
-------- --------
Change in Plan Assets
Fair value of plan assets at beginning of year............ -- --
Actual return on plan assets............................ -- --
Employer contributions.................................. 1,512 2,424
Benefits paid........................................... (1,512) (2,424)
-------- --------
Fair value of plan assets at end of year.................. -- --
-------- --------
Reconciliation of the Funded Status
Funded status............................................. (13,286) (13,927)
Unrecognized transition (asset) or obligation............. -- --
Unrecognized prior service cost........................... (5,217) (4,834)
Unrecognized actuarial (gain) or loss..................... 3,033 4,955
-------- --------
Accrued benefit liability at year end..................... $(15,470) $(13,806)
-------- --------
-------- --------
Actuarial assumptions:
Discount rate............................................. 7.00% 6.75%
Expected return on plan assets............................ N/A N/A
</TABLE>
F-19
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
11. EMPLOYEE BENEFITS (CONTINUED)
The assumed rate of future increases in health care costs for 1997 and 1998
was 12.5% and 11.25%, respectively, for pre-age 65 retirees, and 10% and 9%,
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 $1.3 million and $1.4
million, respectively, for 1997 and 1998.
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, 1997 and 1998 $0.9 million and $1.0
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
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.
F-20
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
12. STOCKHOLDERS' EQUITY (CONTINUED)
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>
WEIGHTED-
NUMBER 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
----------------------------------- ---------------------
WEIGHTED-
NUMBER AVERAGE NUMBER
OUTSTANDING REMAINING WEIGHTED- EXERCISABLE WEIGHTED-
AT CONTRACTUAL AVERAGE AT AVERAGE
RANGE OF DECEMBER 31, TERM EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1998 (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, 1997 and 1998, 0.7 million shares and 3.8 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, 1996, 1997 and 1998 in the amount of $0.8 million, $1.1 million,
and $0.1 million, respectively, were recorded in stockholders' equity as
additional paid-in capital.
F-21
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
12. STOCKHOLDERS' EQUITY (CONTINUED)
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 options granted under the
LTIP Plans in 1996, 1997 and 1998 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 $21.9 million, $27.1 million and $5.4 million in 1996, 1997 and 1998,
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 ($0.46) per share for 1996, $(10.9) million and $(0.31) per share
for 1997 and $15.2 million and $0.41 per share for 1998. The estimated
weighted-average per share fair value of the options granted during 1996 was
$10.80, was $9.70 January 1, 1997 through the Distribution Date, $6.38 for the
remainder of 1997 and $4.18 for 1998, on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Expected life (years).................................. 4.0 4.0 4.0
Risk-free interest rate................................ 6.18% 6.39% 4.81%
Expected volatility-pre-Distribution................... 43% 43% N/A
Expected volatility-post-Distribution.................. N/A 45% 54%
Expected dividend yield................................ 0% 0% 0%
</TABLE>
The pro forma effect on net income (loss) and earnings (loss) per share for
1996, 1997 and 1998 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%
F-22
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
12. STOCKHOLDERS' EQUITY (CONTINUED)
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 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 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 per share is computed by dividing income from continuing
operations by the weighted-average number of common shares outstanding during
the applicable periods. For the year ended December 31, 1998 and the nine months
ended September 30, 1998 and 1999, 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. For the year
ended December 31, 1996 and 1997, the diluted earnings per share computations
are based on income from continuing operations 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 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, 1996, 1997 and 1998 and the nine months ended September 30, 1998
and 1999.
F-23
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
13. EARNINGS PER SHARE (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income from continuing operations......................... $39,764 32,924 $1.20
EFFECT OF DILUTIVE SECURITIES
Options................................................... -- 171 --
Convertible debt.......................................... 2,658 3,757 --
------- ------ -----
DILUTED EPS
Income from continuing operations plus assumed
conversions............................................. $42,422 36,852 $1.15
------- ------ -----
------- ------ -----
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income from continuing operations......................... $8,872 35,414 $0.25
EFFECT OF DILUTIVE SECURITIES
Options................................................... -- 162 --
------ ------ -----
DILUTED EPS
Income from continuing operations plus assumed
conversions............................................. $8,872 35,576 $0.25
------ ------ -----
------ ------ -----
</TABLE>
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.
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------
<TABLE>
<CAPTION>
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
Net income plus assumed conversions....................... $18,534 36,899 $0.50
------- ------ -----
------- ------ -----
</TABLE>
F-24
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
13. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 ENDED SEPTEMBER 30, 1999
---------------------------------- ----------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
--------- ----------- -------- --------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Net income...................... $22,267 36,808 $0.60 $15,568 36,821 $0.42
EFFECT OF DILUTIVE SECURITIES
Options......................... -- 90 -- -- 113 --
------- ------ ----- ------- ------ -----
DILUTED EPS
Net income plus assumed
conversions................... $22,267 36,898 $0.60 $15,568 36,934 $0.42
------- ------ ----- ------- ------ -----
------- ------ ----- ------- ------ -----
</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.
F-25
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
14. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (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, 1997
and 1998, the Company had outstanding forward and purchased option contracts in
the amounts of $19.9 million and $21.3 million, respectively, comprised of
foreign currencies which were to be sold and $23.2 million and $79.6 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>
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>
New Taiwan Dollar............. 33.03 NTD/US (22,161) $ 600
</TABLE>
Deferred gains or losses on the above contracts at December 31, 1997 and
1998 were not significant. Foreign currency transaction gains included in income
from continuing operations were $0.9 million, $3.8 million and $1.6 million in
1996, 1997 and 1998, 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.
F-26
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
14. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (CONTINUED) 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.
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, 1997 and 1998 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
F-27
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
15. GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
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, 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
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 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
</TABLE>
F-28
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
15. GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
<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
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED):
Net sales (a)....................... $170,856 $105,251 $ 26,275 $ -- $ -- $302,382
Intercompany transfers.............. 85,100 105,514 123,708 20,575 (334,897) --
-------- -------- -------- ------- --------- --------
Net sales......................... 255,956 210,765 149,983 20,575 (334,897) 302,382
-------- -------- -------- ------- --------- --------
-------- -------- -------- ------- --------- --------
Interest income..................... -- 15 11 21 200 247
Interest expense.................... -- 216 579 -- 14,665 15,460
Depreciation and amortization
expense........................... 6,512 3,378 6,615 1,919 -- 18,424
Earnings before provision for income
taxes............................. 12,108 7,394 8,370 4,400 -- 32,272
Income tax expense.................. $ 3,571 $ 2,214 $ 4,100 $ 120 $ -- $ 10,005
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED):
Net sales (a)....................... $159,425 $ 97,913 $ 46,962 $ -- $ -- $304,300
Intercompany transfers.............. 97,263 103,963 124,192 30,806 (356,224) --
-------- -------- -------- ------- --------- --------
Net sales......................... 256,688 201,876 171,154 30,806 (356,224) 304,300
-------- -------- -------- ------- --------- --------
-------- -------- -------- ------- --------- --------
Interest income..................... -- 27 10 9 13 59
Interest expense.................... -- 187 31 -- 16,717 16,935
Depreciation and amortization
expense........................... 7,075 4,248 6,735 2,476 -- 20,534
Earnings before provision for income
taxes............................. 1,677 3,699 11,072 4,310 -- 20,758
Income tax expense.................. $ 2,655 $ 499 $ 2,005 $ 31 $ -- $ 5,190
</TABLE>
F-29
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
15. GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
(a) Included in United States net sales are export sales as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Taiwan.................................. $ 93,718 $ 99,134 $ 69,156 $54,088 $45,407
China................................... 23,792 28,602 32,904 24,224 28,127
-------- -------- -------- ------- -------
$117,510 $127,736 $102,060 $78,312 $73,534
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
</TABLE>
Net sales, by destination, within the European geographic segment are:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
France.................................. $ 9,550 $ 9,988 $ 12,993 $ 10,174 $ 9,542
Germany................................. 39,285 41,265 59,326 47,563 42,692
Italy................................... 12,172 12,662 14,272 11,496 9,742
U.K..................................... 12,697 13,457 15,315 12,226 12,940
Other................................... 25,217 25,509 33,341 23,792 22,997
------- -------- -------- -------- -------
$98,921 $102,881 $135,247 $105,251 $97,913
------- -------- -------- -------- -------
------- -------- -------- -------- -------
</TABLE>
(b) Earnings before provision for income taxes in 1998 includes restructuring
charges of $12.3 million ($8.5 million net of tax).
(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, 1996, 1997 and 1998.
F-30
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly data for 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED 1997
---------------------------------------------------
MARCH 31(A) JUNE 30(B) 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(c)
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
<CAPTION>
QUARTER ENDED 1998
-----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31(D)
--------- -------- ------------ ---------------
<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>
- ----------
(a) 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.
(b) 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.
(c) 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.
(d) Includes restructuring charges of $12.3 million ($8.5 million or $0.23 per
share net of tax).
17. DISCONTINUED OPERATIONS
Net sales for the Discontinued Operations included in the Consolidated
Statement of Operations were $2.3 billion and $1.3 billion for the years ended
December 31, 1996 and 1997, respectively.
Discontinued operations includes $2.7 million and $52.9 million, net of
applicable income taxes, for the years ended December 31, 1996 and 1997,
respectively, for costs incurred primarily related to the
F-31
<PAGE>
GENERAL SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
17. DISCONTINUED OPERATIONS (CONTINUED)
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.
18. SUBSEQUENT EVENT
Effective June 30, 1999, the Company's $350 million credit facility
(discussed in Note 9) was amended to modify several financial covenants to
provide greater financial flexibility. The Company is considering a convertible
subordinated debt offering which may be completed in 1999. The Company expects
to use the proceeds of any such offering to repay outstanding indebtedness under
the credit facility and the credit facility will be permanently reduced by 50%
of the gross proceeds of the convertible subordinated debt offering.
F-32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE
YOU WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS
TO MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE
THAT WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR OUR AFFAIRS HAVE NOT
CHANGED SINCE THE DATE HEREOF.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL SEMICONDUCTOR, INC.
$172,500,000 of 5 3/4% Convertible
Subordinated Notes and 11,093,248 shares of
Common Stock Issuable upon Conversion of
the Notes
----------------------------
PROSPECTUS
----------------------------
February 11, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of expenses of the Registrant in
connection with the securities being registered. All of the expenses are
estimated, except for the registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $45,540
Legal fees and expenses....................................... $25,000
Accounting fees and expenses.................................. $15,000
New York Stock Exchange Supplemental Listing fee.............. $3,000
--------
Miscellaneous................................................. $1,460
--------
Total........................................................ $90,000
--------
--------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify its directors and officers, as well as
other employees and individuals (each an "Indemnified Party," and collectively,
"Indemnified Parties"), against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement in connection with specified actions,
suits, or proceedings, whether civil, criminal, administrative, or
investigative, other than in connection with actions by or in the right of the
corporation (a "derivative action"), if an Indemnified Party acted in good faith
and in a manner such Indemnified Party reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his or
her conduct was unlawful. A similar standard is applicable in the case of
derivative actions, except that a corporation may only indemnify an Indemnified
Party for expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such derivative action. Additionally, in the context of
a derivative action, DGCL Section 145 requires court approval before there can
be any indemnification where an Indemnified Party has been found liable to the
corporation. The statute provides that it is not exclusive of other
indemnification arrangements that may be granted pursuant to a corporation's
charter, by-laws, disinterested director vote, stockholder vote, agreement, or
otherwise.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for (i) any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) any willful or negligent declaration of an
unlawful dividend, stock purchase or redemption, or (iv) any transaction from
which the director derived an improper personal benefit.
The Certificate of Incorporation and By-Laws of the Registrant provide
that directors and officers of the Registrant shall not, to the fullest extent
permitted by the DGCL, be liable to the Registrant or any of its stockholders
for monetary damages for any breach of fiduciary duty as a director or officer,
as the case may be. The Certificate of Incorporation and By-Laws of the
Registrant also provide that if the DGCL is amended to permit further
elimination or limitation of the personal liability of directors and officers,
then the liability of the directors and officers of the Registrant shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended.
The Registrant has entered into agreements to indemnify its directors
and officers in addition to the indemnification provided for in its Certificate
of Incorporation and By-Laws. These agreements, among other things, indemnify
the Registrant's directors and officers to the fullest extent permitted by
Delaware law for certain expenses (including attorney's fees), liabilities,
judgments, fines and settlement amounts incurred by such person
II-1
<PAGE>
arising out of or in connection with such person's service as a director or
officer of the Registrant or an affiliate of the Registrant.
The Registrant maintains directors' and officers' liability insurance,
under which its directors and officers are insured, within the limits and
subject to the limitations of the policies, against certain expenses in
connection with the defense of, and certain liabilities which might be imposed
as a result of, actions, suits or proceedings to which directors and officers
are parties by reason of being or have been directors or officers of the
Registrant, as the case may be.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<S> <C>
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
4.4+ Purchase Agreement dated December 8, 1999 between
General Semiconductor, Inc. and the Initial Purchasers
4.5+ Indenture, dated as of December 14, 1999 between General
Semiconductor, Inc. and The Bank of New York, as
Trustee
4.6+ Registration Rights Agreement, dated December 14, 1999
between General Semiconductor, Inc. and the Initial
Purchasers.
4.7**** Specimen Stock Certificate.
5.1+ Opinion of Fried, Frank, Harris, Shriver & Jacobson
12 Statements re: Computations of Ratios
23.1+ Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 5.1)
23.2 Independent Auditors' Consent of Deloitte & Touche LLP
24+ Powers of Attorney (included on the signature page
hereof)
25+ Statement of Eligibility of the Trustee on Form T-1
</TABLE>
- ---------------
* Incorporated herein by reference from the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1998 filed March 25, 1999
(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 July 20, 1998 (File No. 333-9190).
+ Previously filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that the undertakings set forth in paragraphs (1)(i)
and (ii) above do not apply if the information required to be included in
a post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a
II-3
<PAGE>
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No.1 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Melville, State of
New York, on February 11, 2000.
GENERAL SEMICONDUCTOR, INC.
By: /s/ Ronald A. Ostertag
------------------------------
Ronald A. Ostertag
Chairman, President and
Chief Executive Officer
Each of the undersigned hereby appoints Stephen B. Paige and Andrew M.
Caggia. and each of them (with full power to act alone), as attorney and agents
for the undersigned, with full power of substitution, for and in the name, place
and stead of the undersigned, to sign and file with the Commission under the
Securities Act any and all amendments and exhibits to this Registration
Statement and any and all applications, instruments and other documents to be
filed with the Commission pertaining to the registration of the securities
covered hereby, with full power and authority to do and perform any and all acts
and things whatsoever requisite or desirable.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
--------- ------------------------ ----
/s/ Ronald A. Ostertag Chairman, President and February 11, 2000
- ----------------------- Chief Executive Officer
Ronald A. Ostertag (Principal Executive Officer)
/s/ Robert J. Gange Vice President, Controller and February 11, 2000
- ---------------------- Acting Chief Financial Officer
Robert J. Gange (Principal Financial and
Accounting Officer)
* Director February 11, 2000
- ----------------------
C. Scott Kulicke
* Director February 11, 2000
- ----------------------
Ronald Rosenzweig
* Director February 11, 2000
- ----------------------
Peter A. Schwartz
* Director February 11, 2000
- ----------------------
Samuel L. Simmons
* Director February 11, 2000
- ----------------------
Gerard T. Wrixon
*By: /s/Stephen B. Paige
---------------------
Stephen B. Paige
Attorney-in-Fact
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<S> <C>
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
4.4+ Purchase Agreement dated December 8, 1999 between
General Semiconductor, Inc. and the Initial Purchasers
4.5+ Indenture, dated as of December 14, 1999 between General
Semiconductor, Inc. and The Bank of New York, as
Trustee
4.6+ Registration Rights Agreement, dated December 14, 1999
between General Semiconductor, Inc. and the Initial
Purchasers.
4.7**** Specimen Stock Certificate.
5.1+ Opinion of Fried, Frank, Harris, Shriver & Jacobson
12 Statements re: Computations of Ratios
23.1+ Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 5.1)
23.2 Independent Auditors' Consent of Deloitte & Touche LLP
24+ Powers of Attorney (included on the signature page
hereof)
25+ Statement of Eligibility of the Trustee on Form T-1
</TABLE>
- --------------
* Incorporated herein by reference from the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1998 filed March 25, 1999
(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 July 20, 1998 (File No. 333-9190).
+ Previously filed.
<PAGE>
EXHIBIT 12.01
GENERAL SEMICONDUCTOR, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months
Fiscal Years Ended Ended
------------------------------------------------------------------- ----------------------------
December 31, December 31, December 31, December 31, December 31, September 30, September 30,
1998 1997 1996 1995 1994 1999 1998
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income
taxes and restructuring 39,414(1) 54,321(2) 67,171 88,043 40,008 20,758 32,272
Add total fixed charges
deducted from earnings 21,826 15,453 11,363 10,194 14,183 18,192 16,413
------ ------ ------ ------ ------ ------ ------
Earnings available for
payment of fixed charges 61,240 69,774 78,534 98,237 54,191 38,950 48,685
------ ------ ------ ------ ------ ------ ------
Fixed charges:
Portion of minimum lease
rental deemed to be
interest 1,800 1,100 967 733 1,051 1,316 1,200
Interest expense 20,026 14,353 10,396 9,461 13,132 16,876 15,213
------ ------ ------ ------ ------ ------ ------
Total fixed charges 21,826 15,453 11,363 10,194 14,183 18,192 16,413
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Ratio of earnings to
fixed charges 2.8 4.5 6.9 9.6 3.8 2.1 3.0
</TABLE>
(1) Includes pretax restructuring charges of $12,324.
(2) Includes pretax charges of $33,800 incurred in connection with the spin-off.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No.1 to the Registration Statement
No. 333-94513 of General Semiconductor, Inc. on Form S-3 of our report dated
February 3, 1999 (June 30, 1999 as to Note 18), appearing in the Prospectus,
which is part of such Registration Statement and to the reference to us under
the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Jericho, New York
February 8, 2000
