SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM JULY 2, 1995 TO DECEMBER 30, 1995
COMMISSION FILE NUMBER 0-13941
__________________________
AST RESEARCH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3525565
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
16215 ALTON PARKWAY
IRVINE, CALIFORNIA 92718
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 727-4141
__________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
COMMON STOCK, PAR VALUE $.01
__________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
_
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the registrant's voting Common Stock
held by non-affiliates of the registrant was approximately $159,890,926
(computed using the closing price of $6.50 per share of Common Stock on
March 1, 1996 as reported by NASDAQ, based on the assumption that directors
and officers and more than 10% shareholders are affiliates). There were
44,685,900 shares of the registrant's Common Stock, par value $.01 per
share, outstanding on March 1, 1996.
__________________________
This Transition Report on Form 10-K includes certain forward-looking
statements, the realization of which may be impacted by certain important
factors discussed in "Additional Factors That May Affect Future Results." under
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
PART I
ITEM 1.BUSINESS
GENERAL
AST Research, Inc. ("AST" or "Company") was incorporated in California on
July 25, 1980 and reincorporated as a Delaware corporation effective July 1,
1987. The Company designs, manufactures, markets, services and supports a broad
line of personal computers including desktop, notebook and server computer
systems marketed under the Advantage!(R), BravoTM, PremmiaTM, AscentiaTM, and
ManhattanTM brand names. The Company's products feature advanced design
characteristics while remaining compatible with established industry standards.
The Company currently markets its products through an extensive worldwide
distribution network of retail computer dealers, consumer retailers,
international and regional distributors, value added dealers ("VADs") and value
added resellers ("VARs"). See further discussions under Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Additional Factors That May Affect Future Results" therein.
SIGNIFICANT BUSINESS DEVELOPMENTS IN TRANSITION PERIOD 1995
Pursuant to a Stock Purchase Agreement ("Purchase Agreement") between the
Company and Samsung Electronics Co. Ltd. ("Samsung"), dated February 27, 1995,
as amended, Samsung purchased 6.44 million newly issued shares of common stock
from the Company, representing 19.9% of the then outstanding shares of common
stock, at $19.50 per share and commenced a cash tender offer to purchase 5.82
million shares of common stock from the Company's shareholders, representing 18%
of the then outstanding shares of common stock, at $22 per share. Concurrently
with the acceptance of the shares for purchase under the tender offer, Samsung
also purchased 5.63 million additional newly issued shares of common stock from
the Company at $22 per share so that its aggregate ownership interest in the
Company, after completion of all of the purchases, was approximately 40%. On
July 31, 1995, the transaction was completed and the Company received net
proceeds of approximately $240 million.
On October 26, 1995, the Company changed its fiscal year-end from the
Saturday closest to June 30 to the Saturday closest to December 31. The change
was made in order to align the Company's year-end with that of its largest
shareholder, Samsung. The change in fiscal year-end was effective for the six
months ended December 30, 1995 ("transition period" or "transition period
1995").
On December 21, 1995, the Company signed an Additional Support Agreement with
Samsung that provides additional financial support to the Company, principally
including a guaranty by Samsung of a line of credit of up to $200 million
through December 1997 and a vendor line of credit with Samsung of $100 million
through November 1997 for component purchases. In exchange for the additional
financial support, the Company issued a five-year option to Samsung to purchase
4.4 million shares of the Company's common stock at an exercise price of $.01
per share, and allowed Samsung to add a sixth member to the Company's eleven
member Board of Directors. The issuance of the option, which could be exercised
as early as July 1996, would increase Samsung's ownership in the Company to
approximately 45%.
On December 27, 1995, the Company entered into a $100 million revolving
credit agreement, guaranteed by Samsung as part of the Additional Support
Agreement, with a final maturity date of December 25, 1996. On March 6, 1996,
the total amount available for borrowings under the facility and guaranteed by
Samsung was increased to $200 million. See further discussion included in
"Liquidity and Capital Resources" under Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
In the second quarter of transition period 1995, the Company implemented a
restructuring plan designed to increase its utilization of third-party board
manufacturing and design and to realign its Asia Pacific manufacturing
operations. In connection with this plan, the Company recorded a restructuring
charge of $13.0 million.
INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment: the manufacture and sale of
personal computers, including desktop, notebook, and server computer systems.
The Company currently markets its products through retail computer dealers,
consumer retailers, international and regional distributors, VADs and VARs. A
summary of the Company's operations by geographic area including net sales,
operating income (loss) and identifiable assets is incorporated herein by
reference from Note 13 of the Notes to Consolidated Financial Statements.
BUSINESS STRATEGY AND MARKET
The Company has recently revised its business strategy to focus on being
first to bring leading-edge personal computer technology to market within the
indirect sales channel, thereby positioning the Company's products to gain a
competitive advantage. By concentrating its efforts on bringing new products to
market first, the Company will also utilize its technological expertise,
worldwide manufacturing capabilities, brand name recognition and distribution
channels to offer its customers a variety of personal computers to meet diverse
user needs. In support of this goal, the Company is also focusing its efforts
on creating and maintaining short and flexible supply lines to become the most
reliable supplier to the indirect sales channel. The Company believes that the
success of this strategy depends upon the ability to identify products and
product features required by customers and to design and bring to market ahead
of its competitors high quality, innovative products compatible with industry
standards at competitive prices. The foregoing forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially. See "Additional Factors That May Affect Future Results" under Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
As new technology and faster, more powerful microprocessors have become
available, the Company is concentrating its efforts on working closely with
various industry leading component suppliers, including Samsung, to enable it to
achieve its goal of being first to deliver new products to the indirect channel.
These efforts include working together on technology issues as well as working
to shorten the supply lines and making supply arrangements more flexible. In
addition to its goal of becoming the most reliable supplier to the indirect
sales channel, the Company is also attempting to leverage its worldwide
distribution activities such that it can become the supplier of choice for the
world's multinational corporations, delivering consistently high quality
products worldwide. The foregoing forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially. See
"Additional Factors That May Affect Future Results" under Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's business strategy is focused on serving the indirect sales
channel worldwide, since the Company believes that the indirect sales channel is
the method by which the most users choose to purchase personal computers. The
Company also believes that the indirect sales channel offers the highest level
of service and support to the purchaser and will continue to play the key role
in expanding the use of computers throughout the world. The foregoing forward-
looking statements involve risks and uncertainties that could cause actual
results to differ materially. See "Additional Factors That May Affect Future
Results" under Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company's business strategy focuses on the continued introduction of new
products that are aggressively priced to highlight the price and performance
advantages of the Company's products. The personal computer industry is
characterized by intense price competition and the Company believes that the
price and performance features of its products are key factors in the purchase
decisions of its customers. The Company intends for its products to maintain
their price/performance advantage and therefore generally adjusts its prices as
needed to maintain its advantage.
In pursuing its business strategy, the Company has maintained its multi-
channel and multi-brand distribution approach to target a variety of price
points and user requirements, including the Advantage! computer product lines,
which are designed for the consumer retail market; the value oriented Bravo and
high performance Premmia business desktop lines; the Manhattan server line; and
the Ascentia line of notebook computers. Within these multiple brands, the
Company offers a variety of products, including 486-based desktop systems, high-
end Pentium(R) and Pentium(R) Pro processor-based desktop systems and servers,
and color notebooks. The Company's personal computers incorporate either
Industry Standard Architecture ("ISA"), Extended Industry Standard Architecture
("EISA"), or Peripheral Component Interconnect ("PCI") Bus Architecture and are
compatible with major industry standard operating systems including MS-DOS(R),
UNIX/XENIX, SCO UNIX, Novell NetWare(R), OS/2(R) and Windows NTTM. The Company
continues to pursue a strategy whereby its products retain their compatibility
with new major industry standards as they are developed.
The Company believes that its strategy of establishing a worldwide presence
in countries with established markets and those with developing markets for
computer products and of providing products that meet local needs, such as
customized systems and local language documentation, has provided significant
opportunity for revenue growth in these international markets. The foregoing
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially. See "Additional Factors That May Affect
Future Results" under Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations." In transition period 1995, international
revenues increased 26% over the comparable prior year period and contributed 55%
of total revenues. International revenues contributed 44%, 35% and 39% of total
revenues in the fiscal years ended July 1, 1995 ("fiscal year 1995"), July 2,
1994 ("fiscal year 1994") and July 3, 1993 ("fiscal year 1993"), respectively.
PRODUCTS
The Company's business strategy is to be first to market with leading-edge
technologies, which allows the Company's computer reseller and dealer customers
to provide attractive, profitable alternatives to the Company's indirect channel
competitors, as well as direct market competitors including mail order
companies. The Company's products range from mobile systems to file servers
under the Advantage!, Bravo, Premmia, Ascentia and Manhattan brand names.
Products within these families are designed to meet multiple performance levels
and price points. During fiscal year 1996, the Company intends to continue to
enhance its desktop computer product lines with faster processing power and
enhanced features to satisfy the complex needs of the home, small-business and
corporate user. The Company also plans to expand its mobile computing solutions
with high-performance, leading-edge notebook solutions and value-based consumer
oriented models. In addition, the Company intends to continue to introduce new
server products, technologies and computing solutions for the network
environment. The foregoing forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially. See
"Additional Factors That May Affect Future Results" under Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Advantage!
Designed for the consumer retail market, the Company's Advantage! PCs include
the industry's leading educational and entertainment multimedia software titles
with the latest in hardware technologies, including Intel Pentium(R) processors
up to 166 MHz. Systems are configured for ease of use, complete with CD stereo,
full-motion video, telephone answering and voice mail systems, high-speed
fax/data modems and a selection of pre-installed software titles, which include
on-line services. These enhanced information and communications systems also
feature AST Works II, one of the industry's most comprehensive and easy-to-use
software interfaces that combines on-screen video help, numerous productivity
tools, and telephony capabilities.
Bravo
The Bravo desktop line is the Company's value-based price/performance leader
providing entry-level to high-performance systems which are designed to handle
today's business applications including word processing, electronic mail,
database management, spreadsheet calculations, Computer Aided Design ("CAD"),
graphics, and financial/statistical analysis. The mid-size Bravo MS series
offers users both minitower and low-profile configurations which the Company
believes are competitively priced with traditional desktop systems. The Bravo
MS-T 6150 was the first desktop system based on Intel's Pentium(R) Pro processor
to ship to the indirect channel. The Bravo LC line of business desktops
features powerful Pentium(R) processors, local-bus accelerated graphics, and
greater cache memory expandability.
Premmia
The Premmia family of personal computer systems, which are competitively
priced against traditional workstations, provides customers with versatile,
solution-oriented platforms to run complex applications, such as Computer Aided
Design/Computer Aided Manufacturing ("CAD/CAM"), graphics and engineering
programs. Supporting dual processing, 64-bit accelerated graphics, on-board
accelerated 3D hardware, integrated Fast-SCSI-2 and integrated Ethernet, these
systems are designated for advanced 32-bit operating system environments such as
Windows NTTM and SCO UNIX.
Ascentia
The Company's line of Ascentia notebook computers provides traveling
professionals with a wide variety of total mobile computing solutions that
include the latest technologies such as full-size keyboards, large screens and
long-lasting lithium ion batteries. The Ascentia 950N combines Intel's powerful
75 MHz, 90 MHz and 120 MHz Pentium(R) processors with high resolution displays,
full 16-bit audio support, and up to 1.2 GB hard drives.
In February 1996, the Company announced its new line of notebook products,
the Ascentia P Series and Ascentia J Series notebooks. These new notebook
systems incorporate leading-edge technologies, including Intel's 100-MHz and
133-MHz Pentium(R) processors and 82430MX chipset, PCI bus, high-resolution SVGA
displays, 256KB of level 2 cache and CD-ROM drives on selected models, and are
expected to be released in spring 1996. The foregoing forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially. See "Additional Factors That May Affect Future Results"
under Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Manhattan Servers
The Company's Manhattan server products support a range of local area network
and enterprise applications. The Company surrounds its hardware offerings with
easy-to-use software management tools, specialized service programs and
peripherals that are tested and optimized for the Company's systems. The
Company's Manhattan P and Manhattan V mid-range multiprocessor servers meet the
needs of the fast-growing client/server market with features such as Pentium(R)
dual processing capability, PCI and EISA bus, FastSCSI disk controllers, RAID
support options and fault tolerant features.
Other Markets
The Company's monitor line includes the ASTVisionTM 4I, 5L, 5M, 5V, 7L and
20H models. These monitors consist of low-radiation, multi-sync color and are
designed to VESA DPMS (Display Power Management Signaling) standards. ASTVision
offers personal computer users who operate with graphic-intensive Windows(R)
software applications a choice of high quality displays available in various
popular sizes.
PRODUCT DEVELOPMENT
Due to the rapid pace of advances in personal computer technology, the
Company's success depends on, among other things, the timely introduction of new
products that are accepted in the marketplace. Accordingly, the Company is
actively engaged in the design and development of new products and the
enhancement of existing products. During transition period 1995, the Company's
engineering and development expenses were $19,608,000. During fiscal year 1995,
fiscal year 1994 and fiscal year 1993, the Company's engineering and development
expenses were $36,383,000, $38,858,000 and $31,969,000, respectively.
The Company's long standing relationships with major hardware and software
developers such as Intel Corporation, Microsoft Corporation and Novell Inc.
assist the Company in quickly bringing new technologies to the marketplace. The
Company has recently placed an increased focus on working with these developers
to test the compatibility of new hardware and software and to design software
support programs enabling the Company to introduce products incorporating the
latest hardware technology that are capable of operating the most current
software available in the marketplace.
The Company maintains its firm commitment to the establishment of industry
standards and actively participates in their development. The Company was one
of the nine original high technology companies which participated in the
development of EISA and also played a key role as a steering committee member in
the development of the Desktop Management Interface (DMI) specification. The
Company has also incorporated some of industry's latest technologies, including
the Pentium(R) and Pentium(R) Pro processors and PCI bus, across all product
lines.
The Company believes that its technical expertise is a key factor in its
development of new and innovative products. The Company's engineering staff
uses the latest tools to assist in the development of new products and enable
faster adaptation of the latest technologies within the manufacturing process.
In addition, the Company has begun to utilize third-party printed circuit boards
in the majority of its product lines in order to support its quick-to-market
business strategy.
MANUFACTURING
The Company's manufacturing operations include procurement and inspection of
components, assembly and testing of printed circuit boards ("PCB"), and
assembly, testing and packaging of finished products. The Company's
manufacturing and warehouse facilities include over 1.30 million square feet of
capacity and are located in Fort Worth, Texas, the People's Republic of China
("PRC"), Taiwan and Limerick, Ireland.
During transition period 1995, the Company continued to alter its demand
fulfillment strategies in an effort to realize additional manufacturing
efficiencies. The Company completed the closure of its Fountain Valley,
California facility in fiscal year 1995 and consolidated its manufacturing for
mobile computers, a high-growth segment of the personal computer market, in the
Company's Taiwan facility as part of a restructuring plan. Desktop and server
products are manufactured in facilities located in Texas, Ireland, and the PRC
to better serve the Americas, Europe and Asia Pacific regions' desktop and
server product demand with lower costs and expedited time-to-market. The
foregoing forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially. See "Additional Factors That May
Affect Future Results" under Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
In support of its worldwide systems manufacturing, the Company completed the
closure of its Texas PCB assembly facility in fiscal year 1995 and consolidated
the manufacture of PCB assemblies in Hong Kong and the PRC. In transition
period 1995, the Company implemented a new restructuring plan designed to
significantly increase its utilization of third-party board manufacturing and
design and to realign its Asia Pacific manufacturing operations. In connection
with this plan, the Company will close its Hong Kong PCB assembly operation and
transfer its function to the PRC. The Company will continue to perform limited
PCB assembly in the PRC and expects the realignment to be completed in the
second quarter of fiscal year 1996. Despite these recent changes, the Company
will continue to assess its worldwide manufacturing facilities and their
capacity in an effort to continue to increase efficiencies, reduce costs and
improve product deliveries. The foregoing forward-looking statements involve
risks and uncertainties that could cause actual results to differ materially.
See "Additional Factors That May Affect Future Results" under Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company currently procures all of its components from outside suppliers
including Samsung and its related companies. The Company's factory sites are in
close proximity to many key international vendors. Source inspections are
conducted at the plants of selected strategic suppliers, while some other parts
are sampled for inspection upon receipt at the Company's manufacturing
facilities.
Increases in demand for personal computers have created industrywide
shortages, which at times have resulted in premium prices being paid for key
components, such as flat panel video display screens, Dynamic Random Access
Memory chips ("DRAMs"), Static Random Access Memory chips, CD-ROM drives and
monitors. These shortages have occasionally resulted in the Company's inability
to procure these components in sufficient quantities to meet demand for its
products. In addition, a number of the Company's products include certain
components, such as microprocessors, video chips, core logic, lithium ion
batteries, modems, Static Random Access Memory chips and Application Specific
Integrated Circuits, that are currently purchased from single sources due to
availability, price, quality or other considerations. Component suppliers and
single source suppliers vary over time. The Company purchases components
pursuant to purchase orders placed in the ordinary course of business and has no
guaranteed supply arrangements with single source suppliers. Reliance on
suppliers generally involves risks, including the possibility of defective
parts, a shortage of components, an increase in component costs and disruptions
in delivery of components. Should delays, defects or shortages re-occur or
component costs significantly increase, the Company's net sales and
profitability could be adversely affected. The Company attempts to mitigate
these potential risks by working closely with major suppliers on product plans
and coordinated product introductions. Although no assurances can be given, the
strategic relationship formed with Samsung could further reduce the risk
associated with the procurement of some of these components.
The Company has manufacturing capacity within the PRC which has a history of
political instability. The Company attempts to reduce this potential risk
through a centralized management organization coordinated within its Hong Kong
operation. The Company also has manufacturing capacity in Taiwan and utilizes
various notebook subcontractors in Taiwan. Political tensions between the PRC
and Taiwan could adversely affect the Company's operations, particularly its
notebook production.
Quality and reliability are emphasized in the development, design and
manufacture of the Company's products. The Company continues to focus on new
product introductions through a process of concurrent product and process design
efforts, which attempt to simplify and streamline the manufacturing process in
the earliest stages of product design. Products undergo quality inspection and
testing throughout the manufacturing process. Additional manufacturing
verification and testing programs include root cause analysis, as well as
customer audit programs that consist of extended diagnostic, software and early
life reliability testing of products randomly taken from finished goods. The
Company's goal is to continuously enhance its manufacturing procedures to
include comprehensive quality management processes.
In transition period 1995, the Company achieved and/or maintained
certification and registration under ISO 9000, section 9002, for the quality
systems used in manufacturing operations at its subsidiary in Taiwan, its
service center in the United Kingdom and its manufacturing facility in Limerick,
Ireland. In addition, the Company's Hong Kong manufacturing operations, which
are being closed as part of a restructuring plan, have been certified and
registered under ISO 9000, section 9001. The Company is currently pursuing ISO
certification at its remaining non-certified locations in the PRC and at its
Fort Worth, Texas facility.
MARKETING AND SALES
The Company employs a worldwide multi-channel indirect distribution strategy
which allows it to reach a variety of customers in most major market segments.
Each channel provides the Company with access to specific market and customer
segments. The Company's strategy is to differentiate itself from others by
being the first to bring leading-edge products to market through its established
network of authorized dealers and resellers. The Company believes that its
success in building its network of dealers and resellers is largely due to the
Company's product line breadth, the quality and reliability of its products, its
dedication to the channel, the responsiveness of its employees, and the high
level of service and support provided by the Company. Building on the Company's
past success within these channels, the Company continues to focus on broadening
its distribution channels to further its growth objectives. If the Company is
unable to deliver leading edge products to its channel on a timely basis, its
net sales and profitability will be adversely affected.
The Company's worldwide sales organization is organized into three major
geographical groups: the Americas, which includes the United States and Canada;
Europe; and Asia Pacific, which includes Asia, the Pacific Rim and the Middle
East.
Americas Distribution
The Company's Americas indirect distribution channels include authorized
independent resellers and dealers, national reseller organizations, national and
regional distributors and aggregators, systems integrators and consumer
retailers. The Company sells directly and indirectly to large VADs and VARs
that typically purchase personal computers and add enhancement hardware,
software and service to provide the total system solution, which are then sold
in a variety of vertical and horizontal markets. The Company's national
reseller organization accounts include customers such as CompuCom Systems,
MicroAge, ENTEX Information Services, Inc. and Intelligent Electronics, Inc.
The Company also sells its products to smaller dealers and resellers through
major national distributors including Ingram Micro, Merisel and Tech Data
Corporation.
The Company's Advantage! line is designed for small office and home use and
is marketed primarily by consumer retail chains including Computer City
Supercenters; Price/Costco Wholesale Club Stores; Sam's Wholesale Club and Wal-
Mart Stores.
Transition period 1995 Americas revenues declined 34% to $453 million from
$688 million for the comparable prior year period. This overall decline
occurred primarily in the Company's consumer retail channel and was the result
of the Company's decision to temporarily de-emphasize this channel. Sales
through the Company's VAD/VAR and consumer retail channels represented 73% and
27%, respectively, of total Americas revenues in transition period 1995.
International Distribution
The Company operates internationally through subsidiaries and sales offices
in 48 locations worldwide. In countries where the Company does not have
subsidiary operations, products are sold to retail dealers and distributors.
The Company plans to continue to expand its international business within the
Europe and the Asia Pacific regions during fiscal year 1996. The Company may
also pursue limited expansion plans within certain developing countries as
opportunities arise.
Success and profitability of international operations could be adversely
affected by conditions that may not impact the Americas region, including local
economic conditions, political instability, tax laws and changes in the value of
the U.S. dollar. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Additional Factors That May Affect
Future Results" therein.
In transition period 1995, international revenues rose 26% over the
comparable prior year period, from $448 million to $563 million. This increase
in international revenues was attributable to the Company's broad product
selection and its ability to deliver product from regionalized facilities
located in Ireland, Hong Kong, Taiwan and the PRC. Europe region revenues in
transition period 1995 were up 26% to $383 million from $304 million in the
comparable prior year period and represented 38% and 27% of total revenues for
each of the two periods, respectively. Sales in the Company's Asia Pacific
region grew 25% to $180 million and accounted for 18% of total transition period
1995 worldwide revenue compared to $144 million and 13% of total revenue in the
comparable prior year period.
Service and Support
The Company believes that customer support, service and training are crucial
to maintaining strong relationships with its customers and that the high level
of its service and support helps differentiate it from other manufacturers in
the personal computer industry. The Company provides a comprehensive collection
of services for its products through its "Customer Care" program. AST Customer
Care offers technical support to resellers, dealers and end-users through access
to toll-free telephone lines; AST-Lifeline, an interactive technical support
system that incorporates Radish Communications Systems VoiceView(R) TALK SHOPTM
integrated voice and data protocol with custom AST technical support software;
AST On-Line!, a 24-hour electronic bulletin board system; AST Info-Fax, which
allows access to a broad selection of technical support documentation via
facsimile 24-hours a day; AST Pronto! Pro, a CD-ROM based reference utility
program; and a technical support alliance with leading network and operating
system suppliers for one-stop support in multi-vendor networked environments.
In addition, the AST On-Line! service has been expanded to be available through
the CompuServe(R) 24 hour on-line information service, Prodigy(R) interactive
network, America OnLine(R) service, and the bulletin board system which includes
Remote Imaging Protocol (RIPscrip). The Company's support services are further
augmented by the new AST InfoLINE, an interactive voice response system which
includes automated problem diagnostics as well as automated fax-response
diagnostics. Finally, corporate customers seeking additional software support
for their systems can contact Stream International, a fee-based third-party
software support organization.
Parts and labor warranties on the Company's computers range from one to three
years in length, depending on product type. Service is provided by AST
authorized dealers, third-party maintenance organizations and the Company's in-
house service and support organization. Trained service technicians are
available in more than 1,500 AST authorized service centers. Included among
these service centers are more than 800 Authorized Service Centers (ASC), over
100 Advanced System Support Centers (ASSC) and at least 400 third-party
maintenance locations. In addition, international customers can be serviced on
a carry-in basis by any of the authorized AST Service Providers located in more
than 30 countries around the world. AST Customer Care also provides
comprehensive protection for notebook users through the ExeCare PlusSM service
program. Expedited repair of any AST notebook product anywhere in the
continental United States is available under the ExeCare PlusSM service program.
The Company offers the AST Premium Plus Support program to end-users who have a
large installed base of AST computers and internal information centers providing
service and support within the organization. The Premium Plus support program
features priority toll-free technical support and a video-based core service
training program.
Many of the Customer Care services provided in the U.S. are open to and used
by the Company's customers from around the world. In addition, the Company's
international subsidiaries have developed service and support programs adapted
to the specific needs of local markets. With a significant installed base of
system products and growth in sales throughout the Europe region, the Company
has supplemented these local initiatives by establishing a centralized service
and support capability within its European Operations Center in Limerick,
Ireland. The European Call Center provides multi-lingual help line services and
technical support to resellers, service providers and end-users throughout the
region. The Company's network of over 500 ASCs and Independent Service
Providers in Europe provides warranty repair and enhanced systems support
services for end-users. Spare parts and repairs for the Company's Service
Channel are provided by the European Logistics Center in Limerick, which
utilizes express courier and freight handling companies to ensure prompt
delivery of replacement parts throughout the region.
Within the Asia Pacific region, service is provided by AST authorized
dealers, third-party maintenance organizations and the Company's in-house
service and support organization. Trained service technicians are available
throughout the Asia Pacific region in more than 150 ASCs and AST authorized
dealers, over 30 of which are inside the PRC. Express courier and freight
handling companies are also utilized in the Asia Pacific region to ensure prompt
delivery of replacement parts throughout the region. In addition, Asia Pacific
customers can be serviced on a carry-in basis by any of the authorized AST
Service Providers located in more than 30 countries around the world. AST
Customer Care in the Asia Pacific region also provides comprehensive protection
for notebook users through the ExeCare service program.
European Resellers and Authorized Service Providers are required to
participate in Training and Certification programs delivered through local
subsidiaries and can also take advantage of the high level product and customer
support resources of Systems and Field Engineers based in the subsidiaries. The
Company maintains AST On-Line! bulletin boards in many countries in both the
Europe region and the Asia Pacific region ensuring ease of access to software
drivers and technical bulletins as well as providing a forum for distributing
more localized information.
Advertising
The Company advertises its product domestically and internationally in
selected computer trade, business and consumer publications and via selected
broadcast and display mediums throughout the world. Through the Company's
cooperative advertising programs, the Company encourages its channel partners to
advertise and promote the Company's products by funding a portion of joint
advertising and promotion efforts. The Company also participates in major
computer and business trade shows and field seminars around the world.
Beginning in fiscal year 1996, the Company is embarking on aggressive new
marketing initiatives to increase demand for the Company's products including a
new U.S. television advertising campaign that will be airing on selected
domestic cable networks, and an outdoor advertising campaign in major U.S.
cities and airports. The foregoing forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially. See
"Additional Factors That May Affect Future Results" under Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Major Customers
During transition period 1995, no single customer accounted for more than 10%
of the Company's net sales.
BACKLOG
The Company orders raw materials and components to manufacture products
according to its forecast of near-term demand and maintains inventories of
finished products in advance of receipt of orders from its customers. Orders
from retail accounts are usually placed by the customer on an as-needed basis
and are usually shipped by the Company shortly after receipt. Unfilled orders
can be, and often are, canceled or rescheduled to an earlier or later date with
little or no penalty. For these reasons, the Company's backlog at any
particular time is generally not indicative of the future level of sales. In
addition, cancellations and rescheduling can adversely impact the Company's
revenue and profitability.
PATENTS AND LICENSES
The Company relies on a combination of contract, patent, copyright, trademark
and trade secret laws to protect its proprietary interests in its products. The
Company owns trademark registrations in the United States and other countries
for many of its trademarks. The Company owns numerous patents and patent
applications throughout the world relating to various aspects of its products.
The Company has license agreements for various products, including operating
system software for its personal computer systems with Microsoft Corporation and
IBM Corporation, for which the Company makes payments. In addition, the Company
has a patent cross-licensing agreement with IBM Corporation, that extends over
the life of the covered patents, which is prepaid and is being amortized over
the life of the patents. The Company has a patent cross-licensing agreement
with Texas Instruments Inc., that expires December 31, 2000, for which the
Company makes periodic royalty payments. The Company also has various license
agreements for application software which it distributes with its products, many
of which require the Company to make payments to the licensor. Pursuant to the
Strategic Alliance Agreement with Samsung, the Company entered into a patent
cross-license agreement with Samsung that expires on July 31, 2005, for which no
payments are required.
COMPETITION
Intense competition in the personal computer industry continued during
transition period 1995 and was characterized by frequent product introductions
and an aggressive pricing environment. The Company's primary competitors are
other computer companies that offer a full range of personal computing
solutions, including IBM, Compaq Computer Corporation, Hewlett-Packard Company,
Digital Equipment Corporation, Dell Computer Corporation, Gateway 2000, Inc. and
Packard Bell.
The Company believes that one of its competitive advantages has been and
continues to be the Company's commitment to its indirect channel partners. This
indirect channel focus, in addition to product branding, product line breadth
and service and support, has enabled the Company's products to remain
competitive within the highly competitive personal computer marketplace. The
Company's new focus on being the first to bring leading-edge products to the
indirect channel should further strengthen its competitive position and improve
its relationship with the indirect sales channel. The foregoing forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially. See "Additional Factors That May Affect Future Results"
under Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The personal computer market continues to be intensely competitive. As a
result, significant price reductions were required across all product lines
during transition period 1995, contributing to a decline in gross profit
margins. Characteristic of the past few years, the Company expects these
pricing pressures to continue. The ongoing introduction of new technologies
across all of the Company's product lines is intended to enable the Company to
keep pace with rapid market changes and to minimize the effect of continued
competitive pricing. However, there can be no assurance that the Company will
have the financial resources, marketing and distribution capability, or the
technological knowledge to compete successfully. In addition, the Company's
results of operations could be adversely impacted if it is unable to effectively
implement its technological and marketing alliances with other companies, such
as Microsoft and Intel, and manage the competitive risks associated with these
relationships.
REGULATORY COMPLIANCE
FCC Regulations
The Federal Communications Commission ("FCC") in October 1979 and April 1980
adopted regulations imposing radio frequency emanation standards for computing
equipment. The regulations distinguish between computing devices marketed for
use primarily in a commercial, industrial or business environment (designated
class A) and computing devices marketed for use primarily in a residential
environment (designated class B). All of the Company's products are designed to
comply with applicable FCC standards.
European Regulations
Effective December 31, 1995, all products entering the European Union ("EU")
or European Economic Area ("EEA") are required to bear the CE marking. This
marking signifies compliance with the harmonized Euro-Norm ("EN") standards
that are required for trade within the EU/EEA as adopted by CENELEC, the
European Committee for Electrotechnical Standardization. On December 31, 1995,
the Electro-Magnetic Capability ("EMC") directive for Information Technology
Equipment ("ITE") became a mandatory standard and all other conflicting national
standards were withdrawn. The Company tests all products sold into the European
community to verify compliance. The regulations also require the maintenance of
a technical construction file, which generally consists of a collection of
information describing the products and how they conform to the European
requirements. The Company maintains this file in its Ireland manufacturing
facility. All required testing for the CE mark program is performed in-house
using a recently enhanced test chamber and testing site.
Effects of Environmental Laws
Compliance with laws enacted for the protection of the environment to date
has had no material effect upon the Company's capital expenditures, earnings or
competitive position. The Company has successfully been involved in such
programs as the Environmental Protection Agency's Energy Star program. Although
the Company does not anticipate any material adverse effects in the future based
on the nature of its operations, there can be no assurance that such laws will
not have a material adverse effect on the Company. To its knowledge, the
Company was not named as a defendant in any environmental lawsuits during
transition period 1995.
EMPLOYEES
As of December 30, 1995, the Company had 6,006 employees, 3,136 of whom were
employed in manufacturing, 293 in engineering and 2,577 in the areas of general
management, sales, marketing and administration. Of the total, 2,372 were
employed in the Company's Americas region, 2,277 were employed in the Asia
Pacific region and 1,357 were employed in the Europe region. The Company
believes that it has been successful to date in attracting and retaining
qualified personnel, but believes its future success will depend in part on its
continued ability to attract and retain highly qualified engineers, technicians
and marketing and management personnel. To assist in attracting qualified
employees at all levels, the Company has adopted stock option, performance based
incentive compensation, profit sharing and other benefit plans. There can be no
assurance that this strategy will not require significant new grants or be
effective in any case, particularly in the event of a prolonged decline in the
price of the Company's common stock. The Company considers its employee
relations to be good. No employee of the Company is represented by a union.
BUSINESS SEASONALITY
Although the Company does not consider its business to be highly seasonal, it
has historically experienced seasonally higher sales in the consumer retail
channel in the quarter ended in December, compared to other quarters, due to
strong holiday demand for some of its products.
ITEM 2.PROPERTIES
The Company owns and occupies its worldwide headquarters facility in Irvine,
California. The 232,000 square foot facility accommodates the Company's
executive, finance and administrative functions, the Americas region sales
organization, and the product divisions. The Company owns and occupies a
212,000 square foot manufacturing facility in Fort Worth, Texas, with an
adjacent 202 acres of undeveloped land. The Company leases an additional
291,000 square feet of manufacturing, engineering, and customer support and
warehouse space in the Fort Worth area. The Company also leases approximately
72,000 square feet for regional sales offices and 138,000 square feet for
warehouse and distribution space for its Americas sales operations. The Company
is currently obligated under a ten-year lease agreement for a 246,000 square
foot facility in Fountain Valley, California, which expires in 1999. This
facility was closed in February 1995 as part of a restructuring plan; 101,000
square feet of the facility are being subleased with the remainder being
marketed for sublease.
The Company owns a 340,000 square foot manufacturing facility in Limerick,
Ireland, which supplies nearly all the desktop requirements for the Europe
region. In addition, the Company also leases approximately 281,000 square feet
of sales, marketing, administration and warehouse facilities in various other
countries throughout Europe.
The Company leases an aggregate of 390,000 square feet of manufacturing space
in the PRC to service the domestic PRC and other Asia Pacific region markets.
The Company's Taiwanese manufacturing operations include 72,000 square feet of
leased property, which includes manufacturing, warehouse and office space. In
addition, the Company leases approximately 114,000 square feet for sales,
marketing and administration offices and warehouse facilities in the Asia
Pacific region. The Company entered into a two-year agreement for the sale and
leaseback of its 68,000 square foot manufacturing facility in Hong Kong that
expires in June 1996, and the Company leases an additional 67,000 and 31,000
square feet for warehouse and manufacturing activities and office space,
respectively, in Hong Kong. In transition period 1995, the Company implemented
a new restructuring plan designed to increase its utilization of third-party
board manufacturing and design and to realign its Asia Pacific manufacturing
operations. In connection with this restructuring, the Company will close its
Hong Kong PCB assembly operation. The 68,000 square foot facility in Hong Kong
will be closed, along with an additional 73,000 square feet of manufacturing,
warehouse and office space. The Company also leases 32,000 square feet for
warehouse and office space in the Middle East with an additional 182,000 square
feet available for possible expansion.
ITEM 3.LEGAL PROCEEDINGS
On March 3 and March 14, 1994, complaints were filed by two shareholders
against the Company and certain of its officers and directors requesting
certification of class action, asserting claims under state and federal
securities laws based on allegations that the Company made inadequate and false
disclosures and seeking unspecified compensatory damages and related fees and
costs. The complaints were filed in the United States District Court for the
Central District of California. On September 12, 1994, a complaint was filed by
a shareholder against the Company and certain of its officers and directors
requesting certification of class action, asserting claims under state and
federal securities laws based on allegations that the Company made inadequate
and false disclosures and seeking unspecified compensatory damages and related
fees and costs. The September 12, 1994 complaint was filed in the United States
District Court for the Central District of California under the case name Steven
A. Kornfeld v. James L. Forquer, et al. On October 6, 1994, a complaint was
filed by a shareholder in the United States District Court for the Central
District of California. The October 6, 1994 complaint named the Company and
certain of its officers and directors as defendants, asserted claims under
state and federal securities laws based on allegations that the Company
made inadequate and false disclosures, and sought unspecified compensatory
damages and related fees and costs. The cases with complaints filed on March 3,
1994, March 14, 1994 and October 6, 1994 were consolidated under the case name
In re AST Research Securities Litigation. The In re AST Research Securities
Litigation and Kornfeld cases were treated as related cases by the court. A
settlement agreement dated August 28, 1995 was signed to end the In re AST
Research Securities Litigation and Kornfeld cases, and was preliminarily
approved by the court. It required the payment of $12.5 million by the
defendants to the plaintiffs. Such amounts were paid in November 1995. Of the
settlement amount of $12.5 million, approximately $10.4 million was funded by
three insurance carriers. Final approval of the settlement was ordered by the
court, but further proceedings are occurring to determine the portion of the
settlement amount that will be distributed to class members.
The Internal Revenue Service ("IRS") is currently examining the Company's
1989, 1990 and 1991 federal income tax returns. In addition, the IRS has
completed its examination of the Company's 1987 and 1988 federal income tax
returns and has proposed adjustments to the Company's federal tax liabilities
for such years of approximately $8.3 million, excluding interest, relating to
the allocation of income between the Company and its foreign subsidiaries.
Management believes that the Company's position has substantial merit and
intends to vigorously contest these proposed adjustments. Management further
believes that any liability that may result upon the final resolution of the
proposed adjustments for 1987 and 1988 or current examinations of 1989, 1990 and
1991 will not have a material adverse effect on the Company's consolidated
financial position or results of operations. The foregoing forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially. See "Additional Factors That May Affect Future Results"
under Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company has been named as a defendant or co-defendant, generally with
other personal computer manufacturers, including such companies as IBM, AT&T,
Unisys, Digital Equipment Corporation, NEC, Olivetti, NCR, Panasonic, and
Matsushita, in eighteen similar lawsuits each of which alleges as a factual
basis the occurrence of carpal tunnel syndrome or repetitive stress injuries.
The suits naming the Company are just a few of the many lawsuits of this type
which have been filed, often naming IBM and other major computer companies. The
claims against the Company total in excess of $100 million in compensatory
damages and punitive damages and additional unspecified amounts. The Company
has denied or is in the process of denying the claims and intends to vigorously
defend the suits. The Company is unable at this time to predict the ultimate
outcome of these suits. Ultimate resolution of the litigation against the
Company may depend on progress in resolving this type of litigation overall.
Before consideration of any potential insurance recoveries, the Company believes
that the claims in the suits filed against it will not have a material impact on
the Company's consolidated financial position or results of operations; however,
the Company is unable to estimate the amount of any loss that may be realized in
the event of an unfavorable outcome. The Company has maintained various
liability insurance policies during the periods covering the claims filed above.
While such policies may limit coverage under certain circumstances, the Company
believes that it is adequately insured. The foregoing forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially. See "Additional Factors That May Affect Future Results"
under Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Should the Company not be successful in defending
against such lawsuits or not be able to claim compensation under its liability
insurance policies, the Company's profitability and financial condition may be
adversely affected.
The Company was named, along with twelve other personal computer companies,
as a defendant in a lawsuit filed on March 27, 1995 in the Superior Court for
the County of Merced, California. The case name for this March 27, 1995 filing
is People v. Acer, et al., and the complaint alleges that the Company has
engaged in deceptive advertising and unlawful business practices in relation to
computer monitor screen measurements. The People v. Acer lawsuit was resolved
by a Stipulated Judgment that the Company signed along with representatives of
all other defendants. The Company was named, along with three other personal
computer or monitor companies, as a defendant in a class action lawsuit filed on
May 2, 1995 in the Superior Court for the County of Marin, California. The case
name for this May 2, 1995 filing is Kaplan, et al. v. Viewsonic, et al., and
alleges that the defendants have engaged in unfair business practices, false
advertising and breach of implied warranty concerning the advertisement of the
size of computer monitor screens. The Company was named, along with 37 other
defendants, in a class action lawsuit, Long v. Packard Bell, et al., filed on
August 21, 1995 in the Superior Court for the County of Orange, California,
which alleges certain claims concerning the advertising of the sizes of computer
monitors. The Company was named, along with nine other defendants, in a class
action lawsuit, Randy Davis, Ph.D., Inc. v. AST Research, et al., filed on
August 23, 1995 in Superior Court for the County of Orange, California, which
alleges certain claims concerning the advertising of the sizes of computer
monitors. The Company was named, along with 35 other defendants, in a class
action lawsuit, Sutter v. Acer, et al., filed on September 7, 1995 in the
Superior Court for the County of Sacramento, California, which alleges certain
claims concerning the advertising of the sizes of computer monitors. The
Company was named, along with 41 other defendants, in a class action lawsuit,
Shapiro v. ADI Systems, Inc., et al, filed on August 14, 1995 in Santa Clara
County, California, which alleges certain claims concerning the advertising of
the sizes of computer monitors. The Company was named, along with 29 other
defendants, in a class action lawsuit, Maizes & Maizes, et al, v. Apple
Computer Inc., et al, filed on December 15, 1995 in Essex County, New Jersey,
which alleges certain claims concerning the advertising of the sizes of computer
monitors. Management does not believe that the outcome of these disputes will
have a material adverse impact on the Company's consolidated financial position
or results of operations; however, the Company is unable to estimate the amount
of any loss that may be realized in the event of an unfavorable outcome. The
foregoing forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially. See "Additional Factors That May
Affect Future Results" under Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company is also subject to other legal proceedings and claims that arise
in the normal course of business. While the outcome of these proceedings and
claims cannot be predicted with certainty, management does not believe that the
outcome of any of these matters will have a material adverse effect on the
Company's consolidated financial position or results of operations. The
foregoing forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially. See "Additional Factors That May
Affect Future Results" under Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the three
months ended December 30, 1995.
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AST's common stock is traded on the over-the-counter market (NASDAQ National
Market System) under the symbol ASTA. Set forth below are the high and low
closing sales prices for the Company's common stock for the periods indicated.
On October 26, 1995, the Company changed its fiscal year-end from the Saturday
closest to June 30 to the Saturday closest to December 31. The change was made
in order to align the Company's year-end with that of its largest shareholder,
Samsung. The change in fiscal year-end was effective for the six months ended
December 30, 1995.
- - - --------------------------------------------------------------------------------
HIGH LOW
Six months ended December 30, 1995:
1st Quarter $16 - 3/8 $10
2nd Quarter 10 - 1/16 7 - 7/8
Fiscal year ended July 1, 1995:
1st Quarter $19 - 1/4 $12
2nd Quarter 16 - 1/4 10 - 3/8
3rd Quarter 17 13 - 1/8
4th Quarter 19 - 1/8 13 - 1/2
Fiscal year ended July 2, 1994:
1st Quarter $18 - 1/2 $13 - 3/4
2nd Quarter 25 - 1/2 16 - 3/4
3rd Quarter 33 20 - 1/4
4th Quarter 22 - 1/2 12 - 1/2
- - - --------------------------------------------------------------------------------
There were approximately 995 security holders of record as of March 1, 1996.
The Company has not paid dividends to date and intends to retain earnings for
use in the business for the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following data has been derived from consolidated financial statements
that have been audited by Ernst & Young LLP, independent auditors. The
information set forth below is not necessarily indicative of the results of
future operations and should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Annual Report
on Form 10-K.
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------------------------------------------------------
As of or for the As of or for the Fiscal Year Ended
Six Months Ended ------------------------------------------------------------------------------
(In thousands, except December 30, July 1, July 2, July 3, June 27, June 28,
per share amounts) 1995 1995 1994 1993 1992 1991
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 1,016,283 $ 2,467,783 $ 2,367,274 $ 1,412,150 $ 944,079 $ 688,477
Gross profit (loss) (16,875) 245,675 347,733 285,698 293,260 248,347
Operating income (loss) (215,196) (3) (105,690) 53,989 (2) (64,578) (1) 97,526 94,083
Net income (loss) (225,006) (99,309) 31,309 (53,738) (4) 68,504 64,724
Net income (loss) per share (5) $ (5.27) $ (3.07) $ 0.96 $ (1.72) $ 2.16 $ 2.13
Shares used in computing net
income (loss) per share (5) 42,721 32,371 32,548 31,289 31,758 30,413
- - - ---------------------------------------------------------------------------------------------------------------------------------
Cash and short-term investments $ 125,387 $ 95,825 $ 153,118 $ 121,600 $ 140,705 $ 153,305
Working capital 223,546 306,872 444,974 301,046 (4) 332,793 282,678
Total assets 1,056,042 1,021,501 1,005,620 886,159 (4) 580,613 485,431
Long-term debt 125,540 219,224 215,294 92,258 (4) 2,431 30,110
Total shareholders' equity $ 310,882 $ 263,238 $ 361,762 $ 318,806 $ 363,267 $ 282,162
Shares outstanding at end of
period 44,679 32,413 32,334 31,579 30,787 30,228
- - - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes a $125 million pretax restructuring charge. See Note 3 of Notes
to Consolidated Financial Statements.
(2) Includes a $12.5 million pretax credit from the reversal of excess
restructuring charge amounts not utilized. See Note 3 of Notes to
Consolidated Financial Statements.
(3) Includes a $13 million pretax restructuring charge. See Note 3 of Notes
to Consolidated Financial Statements.
(4) Effective June 30, 1993, the Company purchased certain net assets of Tandy
Corporation's personal computer business. The Company's Consolidated
Statements of Operations do not include the revenues and expenses of the
acquired business until fiscal year 1994. See Note 3 of Notes to
Consolidated Financial Statements.
(5) Fully diluted earnings (loss) per share and shares used in computing fully
diluted earnings (loss) per share were not materially different from
primary earnings (loss) per share and shares used in computing primary
earnings (loss) per share, except in fiscal year 1994 when such amounts
were $0.95 and 34,866 shares, respectively.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Amounts in tables in thousands, except per share amounts)
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 30, DECEMBER 31,
RESULTS OF OPERATIONS 1995 CHANGE 1994
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 1,016,283 (11%) $ 1,135,605
Gross profit (loss) $ (16,875) (116%) $ 103,617
Percentage of net sales (1.7%) 9.1%
Operating expenses (excluding
restructuring charges) $ 185,354 8% $ 171,899
Percentage of net sales 18.2% 15.1%
Restructuring charges $ 12,967 100% $ -
Percentage of net sales 1.3% -%
Net loss $ (225,006) 268% $ (61,130)
Net loss per share, fully diluted $ (5.27) 179% $ (1.89)
- - - ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED
------------------------------------------------------------------------
JULY 1, JULY 2, JULY 3,
RESULTS OF OPERATIONS 1995 CHANGE 1994 CHANGE 1993
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 2,467,783 4% $ 2,367,274 68% $ 1,412,150
Gross profit $ 245,675 (29%) $ 347,733 22% $ 285,698
Percentage of net sales 10.0% 14.7% 20.2%
Operating expenses (excluding
restructuring charges (credits)) $ 351,365 15% $ 306,244 36% $ 225,276
Percentage of net sales 14.2% 12.9% 16.0%
Restructuring charges (credits) $ - (100%) $ (12,500) (110%) $ 125,000
Percentage of net sales - (0.5%) 8.9%
Net income (loss) $ (99,309) (417%) $ 31,309 158% $ (53,738)
Net income (loss) per share,
fully diluted $ (3.07) (423%) $ 0.95 155% $ (1.72)
- - - ------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 30, 1995 AND DECEMBER 31, 1994
Net Sales
Net sales for the six months ended December 30, 1995 ("transition period
1995") decreased 11% to $1.016 billion from $1.136 billion for the six months
ended December 31, 1994 ("comparable prior year period"). The decrease in
transition period 1995 revenues was primarily due to lower 486-based desktop and
notebook system sales, partially offset by higher Pentium(R) processor-based
desktop systems sales. In transition period 1995, the Company's worldwide unit
shipments decreased 17% to 584,000 from 707,000 in the comparable prior year
period. The decrease in revenues resulting from decreased unit shipments was
partially offset by increased shipments of Pentium(R) processor-based desktop
systems, which generally sell at a higher value per unit.
Revenues from desktop system products decreased 2% to $753 million in
transition period 1995 from $765 million in the comparable prior year period.
The decrease can primarily be attributed to lower 486-based desktop system sales
including the Advantage! and Bravo 486DX and 486SX systems. Also contributing
to the decline was lower revenue per unit on older products as the Company
sought to aggressively sell these products. These declines were partially
offset by higher revenue per unit on Pentium(R) processor-based Advantage! and
Bravo desktop systems. Decreased sales of the Company's 486-based desktop
systems in transition period 1995 are consistent with the shift in demand toward
the Pentium(R) processor-based desktop systems, which accounted for 78% of
total desktop systems sales dollars and 68% of total desktop system units in
transition period 1995 versus 18% and 9%, respectively, in the comparable prior
year period.
The Company's notebook computer product revenues decreased 28% to $168
million in transition period 1995 from $235 million in the comparable prior year
period. The decrease in net sales of notebook computers reflects a 39% decrease
in unit shipments to 70,000 in transition period 1995 from 115,000 in the
comparable prior year period. The decline in notebook systems sales occurred in
the Advantage! and Bravo notebook product lines. Declines in sales in the
Company's 486-based Ascentia notebook computer line were generally offset by
increased sales of Pentium(R) processor-based Ascentia notebook computers, which
have higher revenue per unit. The 39% decrease in unit shipments was partially
offset by higher revenue per unit on the Pentium(R) processor-based based
Ascentia notebook computer line, leading to the overall notebook revenue decline
of 28%. Revenues from the Company's notebook computer products represented 17%
and 21% of net sales for transition period 1995 and the comparable prior year
period, respectively.
Americas revenues, which include the United States and Canada, decreased 34%
to $453 million in transition period 1995, compared to $688 million in the
comparable prior year period. Sales to the independent reseller/dealer channel
for transition period 1995 decreased 24% compared to the comparable prior year
period, and accounted for 73% of total Americas revenues. Sales to the consumer
retail channel decreased 51% compared with the comparable prior year period due
to lower Tandy branded system sales and the Company's decision to temporarily
re-assess its position within the consumer retail channel.
International revenues increased 26% to $563 million in transition period
1995 from $448 million in the comparable prior year period. International
revenues represented 55% and 39% of net sales in transition period 1995 and the
comparable prior year period, respectively. Europe region revenues increased
26% over the comparable prior year period. The United Kingdom and Sweden
continued to be major contributors of total Europe region revenues with
significant transition period 1995 revenue growth also occurring in France,
Norway and Denmark. The Company's Ireland manufacturing facility supplied
nearly all of the desktop product requirements for the Europe region. The
Company believes that its localized manufacturing, centralized distribution and
service operation in Limerick, Ireland has continued to contribute to its
European regional growth.
Revenues from the Company's Asia Pacific region, which includes Asia, the
Pacific Rim, and the Middle East, combined to contribute to a 25% increase in
transition period 1995 sales over the comparable prior year period. The
increase in transition period 1995 sales was attributable to revenue growth in
the People's Republic of China ("PRC"), Australia and Singapore. Sales into the
PRC accounted for approximately 7% of the Company's total transition period 1995
revenues, compared with approximately 5% in the comparable prior year period.
Although the PRC has historically provided the Company with significant
revenues, future sales of the Company's products into the PRC are highly
dependent upon continuing favorable trade relations between the United States
and the PRC and the general economic and political stability of the region.
Economic and political risks in the countries in this geographical area could
have a corresponding impact on future sales and operating results. Economic
factors such as competitive pricing, a lower margin customer mix and changes in
manufacturing strategies have all impacted sales and operating results. The
Company believes that these factors will continue to impact future sales and
operating results.
The Company experienced product development and production delays throughout
transition period 1995, which in part have contributed to lower desktop and
notebook systems sales. In addition, continued industrywide competitive pricing
pressures have prompted aggressive pricing adjustments that have further reduced
desktop and notebook system revenues. The Company anticipates that additional
pricing actions will be necessary as it attempts to maintain its competitive
price and performance product profile; however, there can be no assurance that
future pricing actions will be effective in stimulating sales growth.
The results of the Company's international operations are subject to currency
fluctuations. As the value of the U.S. dollar weakens relative to other
currencies, revenues from sales in those currencies convert to more U.S.
dollars; conversely, when the value of the U.S. dollar strengthens relative to
other currencies, revenues from sales in those countries convert to fewer U.S.
dollars. The Company's net sales were increased by 2.3% in transition period
1995 compared to an increase of 2.0% in the comparable prior year period, due to
fluctuations in the average value of the U.S. dollar relative to other
currencies.
Gross Profit (Loss)
The Company's transition period 1995 gross loss was 1.7% compared to a gross
profit of 9.1% in the comparable prior year period. The decrease in the
Company's gross margin resulted primarily from product development and
production delays which led to delays in shipment of the Company's fall product
lines in transition period 1995, as well as continued intense industrywide
competitive pricing pressures. In addition, gross margins were negatively
impacted due to the Company's aggressive inventory reduction efforts which
resulted in both lower average selling prices and lower margins. The Company's
margins were also negatively impacted by increased warranty and service
inventory provisions. Increased levels of service inventory reserves were
required due to the continued accelerated rate of product transitions and the
resulting reduction in service inventory valuations. The increase in the
warranty provision was due to an increase in both the cost and volume of
warranty claims compared with the prior year.
The Company believes that the industry will continue to be characterized by
rapid technological advances and short product life-cycles resulting in
continued risk of product obsolescence. If the Company's products become
technically obsolete, the Company's net sales and profitability may be adversely
affected.
The personal computer industry continues to experience significant pricing
pressures and the Company believes that industry consolidation and restructuring
will continue to result in an aggressive pricing environment and continued
pressure on the Company's gross profit margins during fiscal year 1996. During
transition period 1995, the Company and the majority of its competitors
continued to introduce new, lower-priced, higher-performance personal computers
resulting in continued pricing pressures on both new and older technology
products. Future pricing actions by the Company and its competitors may
continue to adversely impact the Company's gross margins and profitability,
which could also result in decreased liquidity and adversely affect the
Company's financial position.
The effect of foreign currency fluctuations on revenue has a corresponding
impact on gross profit, as the Company's production costs are incurred primarily
in U.S. dollars. When comparing transition period 1995 to the comparable prior
year period, the U.S. dollar declined against nearly all European currencies.
This period-to-period currency fluctuation resulted in an approximate two
percentage point increase in gross margin in transition period 1995 compared to
the comparable prior year period. If the value of the U.S. dollar strengthens
in the future, gross margins of the Company will be negatively impacted.
Operating Expenses
</TABLE>
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
(Unaudited)
Six Months Six Months
Ended Ended
December 30, December 31,
1995 Change 1994
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Selling and marketing $ 117,560 6% $ 110,413
Percentage of net sales 11.6% 9.7%
</TABLE>
Total transition period 1995 selling and marketing expenses rose by $7.1
million and represented 11.6% of net sales, compared to 9.7% in the comparable
prior period. Continued expansion into new and existing international markets,
new product introductions and a greater emphasis on advertising, sales and
marketing programs contributed to increased media advertising, marketing
promotion, sales literature, cooperative advertising expenses and technical
support costs.
Beginning in fiscal year 1996, the Company is embarking on aggressive new
marketing initiatives to increase demand for the Company's products including a
new U.S. television advertising campaign that will be airing on selected
domestic cable networks, and an outdoor advertising campaign in major U.S.
cities and airports. The new marketing initiatives are expected to have a
corresponding increase in selling and marketing expenses in fiscal year 1996.
The foregoing forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially. See "Additional Factors That
May Affect Future Results" herein.
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
(Unaudited)
Six Months Six Months
Ended Ended
December 30, December 31,
1995 Change 1994
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General and administrative $ 48,186 12% $ 42,936
Percentage of net sales 4.7% 3.8%
</TABLE>
In transition period 1995, general and administrative expenses increased in
absolute dollars and as a percentage of net sales to 4.7% from 3.8% in the
comparable prior year period. The increase can primarily be attributed to one-
time severance payments of approximately $4.1 million to executive officers
pursuant to severance compensation agreements. Also contributing to the higher
costs were consulting fees incurred in connection with the preparation of the
Company's turnaround plan and professional fees associated with the change in
the Company's fiscal year-end.
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
(Unaudited)
Six Months Six Months
Ended Ended
December 30, December 31,
1995 Change 1994
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Engineering and development $ 19,608 6% $ 18,550
Percentage of net sales 1.9% 1.6%
</TABLE>
Transition period 1995 engineering and development costs increased in
absolute dollars and as a percentage of net sales due to higher engineering
materials expense related to new product introductions. Products introduced in
transition period 1995 included additions to the Advantage!, Bravo, Premmia,
Ascentia, and Manhattan product lines.
The personal computer industry is characterized by increasingly rapid product
life cycles. Accordingly, the Company is committed to continued investment in
research and development and believes that the timely introduction of enhanced
products with favorable price/performance features is critical to the Company's
future growth and competitive position in the marketplace. However, there can
be no assurance that the Company's products will continue to be commercially
successful or technically advanced, or that it will be able to deliver
commercial quantities of new products in a timely manner.
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
(Unaudited)
Six Months Six Months
Ended Ended
December 30, December 31,
1995 Change 1994
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Restructuring charge $ 12,967 100% $ -
Percentage of net sales 1.3% -%
</TABLE>
In the second quarter of transition period 1995, the Company implemented a
restructuring plan designed to increase its utilization of third-party board
manufacturing and design and realign its Asia Pacific manufacturing operations.
As a result, the Company recorded a restructuring charge of $13.0 million during
the second quarter of transition period 1995. Costs included in the
restructuring charge consist primarily of employee severance, asset write-downs,
vendor cancellation charges and lease write-offs for closed offices. The
employee severance includes approximately 1,500 employees primarily in semi-
skilled and skilled manufacturing positions. Approximately $7.6 million of the
charge is expected to involve cash disbursements with the remaining costs
primarily relating to reductions in net asset values. During transition period
1995, the Company incurred cash expenditures of approximately $.8 million
related to severance payments to terminated employees. At December 30, 1995,
approximately $12.2 million of the original restructuring accrual remained on
the Company's consolidated balance sheet. The Company expects that the majority
of the restructuring plan will be completed by June 1996.
Although the Company believes that the restructuring activities were
necessary in order to implement its strategy of increased utilization of third-
party board manufacturing and to realign its Asia Pacific manufacturing
operations, no assurance can be given that these restructuring actions or its
strategy will be successful or that similar actions will not be required in the
future.
Other Income and Expense
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
(Unaudited)
Six Months Six Months
Ended Ended
December 30, December 31,
1995 Change 1994
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and other expense, net $ (9,810) 28% $ (7,656)
</TABLE>
In transition period 1995, the Company had net interest expense of $6.0
million compared to $5.9 million in the comparable prior year period. Interest
expense increased by $1.7 million as a result of higher short-term borrowings
from the Company's bank revolving credit facilities as well as from short-term
loans during transition period 1995, which were utilized to fund the Company's
transition period 1995 operations. Also contributing to higher interest expense
were higher average interest rates on those short-term borrowings as well as
amortization of the Samsung credit line guaranty of $.5 million, which was
recorded during transition period 1995. The increase in interest expense was
partially offset by an increase in interest income of $1.6 million due to higher
average cash balances during transition period 1995 due to the Samsung
investment.
In transition period 1995, the Company recognized net other expense of $3.8
million compared to net other expense of $1.8 million in the comparable prior
year period. Other expense relates primarily to net foreign currency
transaction and remeasurement gains and losses and the costs associated with the
Company's foreign currency hedging activities. The increase in transition
period 1995 was primarily due to losses incurred as a result of the unfavorable
movement of the U.S. dollar relative to other currencies in transition period
1995 over the comparable prior year period. The Company utilizes a limited
hedging strategy which is designed to minimize the effect of remeasuring the
local currency balance sheets of its foreign subsidiaries on the Company's
consolidated financial position and results of operations. See further
discussion included under "Liquidity and Capital Resources."
Income Tax Provision (Benefit)
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
(Unaudited)
Six Months Six Months
Ended Ended
December 30, December 31,
1995 Change 1994
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax provision (benefit) $ - 100% $ (14,808)
Effective tax rate -% (19.5%)
</TABLE>
The Company recorded an effective income tax provision (benefit) rate of 0%
and (19.5%) in transition period 1995 and for the comparable prior year period,
respectively. The decrease in the transition period 1995 effective tax benefit
rate was primarily due to the Company's provision of a 100% valuation allowance
against additional deferred tax assets (including loss carryforwards) that arose
during the transition period.
The Company recorded net deferred tax assets of $63.5 million at December 30,
1995. Realization of the deferred tax assets, which primarily relate to net
operating loss carryforwards, inventory reserves and other accrued liabilities,
is dependent on the Company generating approximately $141 million of future
taxable income. Although the Company is primarily relying on certain tax
planning strategies to generate such future taxable income, such income could
also arise from reversals of existing taxable temporary differences and/or sales
of new and existing products. The timing and amount of such future taxable
income may be impacted by a number of factors, including those discussed below
under "Additional Factors That May Affect Future Results." To the extent that
estimates of future taxable income are reduced or not realized, the amount of
the deferred tax asset considered realizable could be adversely affected.
FISCAL YEARS ENDED JULY 1, 1995, JULY 2, 1994 AND JULY 3, 1993
Net Sales
Net sales increased to $2.468 billion in fiscal year 1995 from $2.367 billion
in fiscal year 1994 and $1.412 billion in fiscal year 1993. The slight
improvement in fiscal year 1995 revenues was due to higher Pentium(R) processor-
based desktop systems sales partially offset by lower 386 and 486 desktop
systems sales and decreased shipments of the Company's notebook system products.
The Company's net sales (expressed in U.S. dollars) were also increased by 2.3%
in fiscal year 1995 compared with decreases of 2.7% and 1.3% in fiscal years
1994 and 1993, respectively, due to fluctuations in the average value of the
U.S. dollar relative to its average value in the comparable periods of the prior
years. In fiscal year 1995, the Company's worldwide unit shipments increased 5%
to 1,503,000, compared with a 78% increase in unit volume for fiscal year 1994.
The Company experienced product development and production delays throughout
fiscal year 1995, which in part have contributed to lower desktop and notebook
systems sales. In addition, continued industrywide competitive pricing
pressures prompted aggressive pricing adjustments that further reduced desktop
and notebook system revenues, particularly in the domestic marketplace.
Revenues from desktop system products increased 15% to $1.741 billion in
fiscal year 1995 from $1.509 billion in fiscal year 1994, compared with an
increase of 56% in fiscal year 1994 over fiscal year 1993. Major contributors
to the improved year-over-year revenue performance included the Company's
Pentium(R) processor-based desktop systems and selected 486-based desktop
systems including the Advantage! and Bravo 486DX. Despite the overall increase,
a decline in the fiscal year 1995 revenue growth rate compared to the prior year
was primarily due to declines in Premmia 486-based and Tandy branded desktop
systems sales. Decreased sales of the Company's 486-based desktop systems in
fiscal year 1995 are consistent with the shift in demand toward the Pentium(R)
processor-based desktop systems, which accounted for 35% of total desktop
systems sales in fiscal year 1995 versus 3% in fiscal year 1994.
The Company's notebook computer product revenues decreased 11% to $464
million in fiscal year 1995 from $519 million in fiscal year 1994, compared to
an increase of 79% in fiscal year 1994 over fiscal year 1993. The decline in
notebook revenues is primarily attributable to the expiration of two large OEM
notebook agreements and the Company's decision to de-emphasize the OEM channel.
The decrease in net sales of notebook computers reflects a 19% decrease in unit
shipments to 218,000 in fiscal year 1995 from 268,000 in fiscal year 1994
compared to a 74% unit volume increase in fiscal year 1994 over fiscal year
1993. The fiscal year 1995 decline in notebook systems sales occurred in the
Advantage!, Bravo and PowerExecTM notebook product lines, which was partially
offset by a significant increase in the Ascentia notebook computer line.
Revenues from the Company's notebook computer products represented 19%, 22% and
21% of net sales for fiscal years 1995, 1994 and 1993, respectively.
Americas revenues, which includes the United States and Canada, decreased 10%
to $1.387 billion in fiscal year 1995, compared with an increase of 81% in
fiscal year 1994 over fiscal year 1993. As previously noted, the fiscal year
1995 revenue decline was due primarily to the completion of two large OEM
contracts in the fourth quarter of fiscal year 1994. Total OEM channel revenues
decreased to one percent of total fiscal year 1995 Americas revenues compared to
11% in fiscal year 1994 and 14% in fiscal year 1993. Sales to the independent
reseller/dealer channel for fiscal year 1995 decreased 2% compared to fiscal
year 1994 and accounted for 63% of total Americas revenues. Within the overall
decrease in Americas revenues, sales to the consumer retail channel grew
slightly, increasing 2% over the prior year compared with an increase of 218% in
fiscal year 1994 over 1993. The decline in the fiscal year 1995 growth rate was
attributable to lower revenues related to Tandy branded systems sales in the
United States.
International revenues increased 32% to $1.081 billion in fiscal year 1995
from $821 million in fiscal year 1994, compared to a 47% growth rate in fiscal
year 1994 over fiscal year 1993. International revenues represented 44%, 35%,
and 39% of net sales in fiscal years 1995, 1994 and 1993, respectively.
Revenues for the Europe region increased 40% over the prior year, compared with
an increase of 79% in fiscal year 1994 over fiscal year 1993. The United
Kingdom and Sweden continued to be major contributors of total Europe region
revenues with significant fiscal year 1995 revenue growth also occurring in
Italy, Norway and Switzerland. Commencing during the second quarter of fiscal
year 1995, the Company's Ireland manufacturing facility supplied nearly all of
the desktop product requirements for the Europe region. The Company believes
that it's localized manufacturing, centralized distribution and service
operation in Limerick, Ireland contributed to its Europe region growth.
Revenues from the Company's Asia Pacific region, which includes Asia, the
Pacific Rim, and the Middle East, combined to contribute to a 17% increase in
fiscal year 1995 sales, compared with an 11% increase in fiscal year 1994 sales
over 1993. The increase in the fiscal year 1995 growth rate was attributable to
higher revenue growth in Australia, Singapore, Taiwan and the Middle East,
partially offset by a reduction in revenues into the PRC due to significantly
increased competition and lower fiscal year 1995 sales to one of the Company's
major customers in the PRC. Sales into the PRC accounted for approximately 5%
of the Company's total fiscal year 1995 revenues, compared with approximately 6%
and 11% in fiscal year 1994 and 1993, respectively.
Gross Profit
The Company's fiscal year 1995 gross profit margins of 10.0% declined from
14.7% in fiscal year 1994 and 20.2% in fiscal year 1993. The downward trend in
gross profit margins resulted primarily from product development and production
delays, manufacturing related costs associated with product transitions and
continued intense industrywide competitive pricing pressures, particularly in
the consumer retail sector of the market. Further contributing to reduced gross
profit margins in fiscal year 1995 was the increased percentage of revenues
generated by the consumer retail channel (including sales to Tandy's retail
operations) which typically yields lower gross margins. The consumer retail
channel increased to 37% of total fiscal year 1995 Americas revenues versus 32%
in fiscal year 1994 and 19% in fiscal year 1993.
During fiscal year 1995, the Company and the majority of its competitors
continued to introduce new, lower-priced, higher-performance personal computers
resulting in continued pricing pressures on both new and older technology
products.
The effect of foreign currency fluctuations on revenue has a corresponding
impact on gross profit, as the Company's production costs are incurred primarily
in U.S. dollars. When comparing fiscal year 1995 to fiscal year 1994, the U.S.
dollar declined against nearly all European currencies. This year-to-year
currency fluctuation resulted in an approximate two percentage point gross
margin increase in fiscal year 1995 results compared to fiscal year 1994, versus
an approximate two percentage point reduction in fiscal year 1994 results
compared to fiscal year 1993.
Operating Expenses
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
Fiscal Year Ended
----------------------------------------------------------------
July 1, July 2, July 3,
1995 Change 1994 Change 1993
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selling and marketing $ 233,524 21% $ 193,053 36% $ 141,752
Percentage of net sales 9.5% 8.2% 10.0%
</TABLE>
Total fiscal year 1995 selling and marketing expenses rose by $40.5 million
and represented 9.5% of net sales compared to 8.2% in fiscal year 1994 and 10.0%
in fiscal year 1993. Expanded worldwide sales and marketing efforts in both new
and existing subsidiary locations resulted in higher payroll and payroll-related
expenses. Entry into new international markets, new product introductions and a
greater emphasis on advertising, sales and marketing programs contributed to
increased media advertising, marketing promotion, sales literature and
cooperative advertising expenses.
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
Fiscal Year Ended
------------------------------------------------------------
July 1, July 2, July 3,
1995 Change 1994 Change 1993
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
General and administrative $ 81,458 10% $ 74,333 44% $ 51,555
Percentage of net sales 3.3% 3.1% 3.7%
</TABLE>
In fiscal year 1995, general and administrative expenses increased in
absolute dollars and as a percentage of net sales to 3.3% from 3.1% in fiscal
year 1994 and 3.7% in fiscal year 1993. During fiscal year 1995, the Company
continued to expand its Asia Pacific and Europe region operations. Costs
associated with this international expansion resulted in increased expenses for
staffing, telephone service, insurance, and outside professional services. The
Company also incurred higher legal fees due to increased litigation activity.
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
Fiscal Year Ended
-------------------------------------------------------------
July 1, July 2, July 3,
1995 Change 1994 Change 1993
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Engineering and development $ 36,383 (6%) $ 38,858 22% $ 31,969
Percentage of net sales 1.5% 1.6% 2.3%
</TABLE>
Fiscal year 1995 engineering and development costs decreased in absolute
dollars and as a percentage of net sales due to lower payroll and engineering
materials expense as compared to 1994. Products introduced in fiscal year 1995
included additions to the Advantage!, Bravo, Premmia, Ascentia, and Manhattan
product lines. Engineering and development costs increased in absolute dollars
in fiscal year 1994 as compared to fiscal year 1993 due to net additions to the
Company's engineering staff and higher costs for engineering materials as the
Company invested in the development of new products and in enhancements to
existing products. Such costs declined as a percentage of net sales in fiscal
year 1994 compared to fiscal year 1993 due to significant revenue growth in
fiscal year 1994 over 1993.
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
Fiscal Year Ended
-----------------------------------------------------------------
July 1, July 2, July 3,
1995 Change 1994 Change 1993
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Restructuring charges (credits) $ - (100%) $ (12,500) (110%) $ 125,000
Percentage of net sales -% (0.5%) 8.9%
</TABLE>
In June 1993, the Company acquired certain assets and assumed certain
liabilities relating to Tandy Corporation's ("Tandy") personal computer
manufacturing operations and the GRiD North American and European sales
divisions. On September 1, 1993, the Company also purchased certain assets and
assumed certain liabilities of Tandy/GRiD France. The total purchase price
(including Tandy/GRiD France) was $111.7 million and included a cash payment of
$15 million and a three-year promissory note in the principal amount of $96.7
million. Restructuring charges of $125 million were recorded in June 1993 in
connection with the Company's acquisition of Tandy's personal computer
manufacturing and engineering operations and GRiD's North American and European
sales and marketing operations.
During fiscal year 1994, the Company completed most of its previously
identified restructuring activities and incurred asset write-downs of $50
million and cash expenditures of $47 million related directly to its fiscal year
1994 restructuring activities. The Company recorded a $12.5 million credit in
the fourth quarter of fiscal year 1994 after concluding that most of its
restructuring activities had been completed or were adequately provided for
within the remaining restructuring accrual. At July 2, 1994, $15.2 million of
the restructuring accrual remained on the Company's consolidated balance sheet.
During fiscal year 1995, the Company completed the consolidation of its
worldwide mobile computing manufacturing in Taiwan and the concurrent closure of
its Fountain Valley, California manufacturing facility. During fiscal year
1995, the Company incurred cash expenditures of approximately $4.7 million
related primarily to the closure of its Fountain Valley, California
manufacturing facility. At July 1, 1995, approximately $10.5 million of the
original restructuring accrual remained, consisting primarily of amounts
provided for the net present value of minimum lease payments for facilities that
have been closed and the write-down to net realizable value of related leasehold
improvements.
The Company believes that its restructuring activities were necessary in
order to reorganize its worldwide manufacturing, engineering, sales and service
operations as well as to reposition its product lines after the June 1993
acquisition of Tandy's personal computer operations. However, no assurance can
be given that these restructuring actions will be successful or that similar
actions will not be required in the future.
Other Income and Expense
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
Fiscal Year Ended
-------------------------------------------------------------
July 1, July 2, July 3,
1995 Change 1994 Change 1993
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest and other expense, net $ (17,675) 130% $ (7,677) 1,063% $ (660)
</TABLE>
In fiscal year 1995, the Company had net interest expense of $15.1 million
compared to $7.8 million in fiscal year 1994 and net interest income of $2.1
million in fiscal year 1993. Interest expense increased as a result of the
increased utilization of the Company's bank revolving credit facilities during
fiscal year 1995, which were utilized to fund the Company's fiscal year 1995
operations. Interest expense for fiscal year 1995 also increased due to a full
year's inclusion of interest on the Company's Liquid Yield OptionTM Notes, which
were originally issued in December 1993, generating slightly less than seven
months of interest expense for fiscal year 1994. Additionally, interest expense
for fiscal year 1995 increased due to the increase in the interest rate on the
note payable to Tandy Corporation from 3.75% to 4.94%, effective July 1994.
In fiscal year 1995, the Company recognized net other expense of $2.6 million
compared to net other income of $.1 million in fiscal year 1994 and net other
expense of $2.7 million in fiscal year 1993. The fiscal year 1994 other income
was attributable to the one-time $4.3 million pretax gain from the sale of the
Company's Hong Kong manufacturing facility in June 1994. Other expenses relate
primarily to foreign currency transaction and remeasurement gains and losses and
the costs associated with the Company's foreign currency hedging activities.
The Company utilizes a limited hedging strategy which is designed to minimize
the effect of remeasuring the local currency balance sheets of its foreign
subsidiaries on the Company's consolidated financial position and results of
operations. See further discussion included under "Liquidity and Capital
Resources."
Income Tax Provision (Benefit)
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------------------------------------
Fiscal Year Ended
-------------------------------------------------------------
July 1, July 2, July 3,
1995 Change 1994 Change 1993
- - - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income tax provision (benefit) $ (24,056) (260%) $ 15,003 230% $ (11,500)
Effective tax rate (19.5%) 32.4% (17.6%)
</TABLE>
In fiscal years 1995, 1994 and 1993, the Company recorded an effective income
tax provision (benefit) of (19.5%), 32.4% and (17.6%), respectively. The
decrease in the fiscal year 1995 effective tax rate was attributable to changes
in the proportion of income earned or losses sustained within various taxing
jurisdictions and the tax rates in the locations in which those earnings or
losses were generated, as well as the Company's inability to benefit certain
deferred tax assets that include loss carryforwards. The increase in the fiscal
1994 effective tax rate was attributable to the one percent increase in the
federal income tax rate and changes in the proportion of income earned within
various taxing jurisdictions. The Company recorded net deferred tax assets of
$65.6 million and $40.2 million at July 1, 1995 and July 2, 1994, respectively.
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES
- - - ------------------------------------------------------------------------------------------------------------
As of or for the As of or for the Fiscal Year Ended
Six Months Ended -----------------------------------------
December 30, July 1, July 2, July 3,
1995 1995 1994 1993
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 125,387 $ 95,825 $ 153,118 $ 121,600
Working capital 223,546 306,872 444,974 301,046
Cash provided by (used in):
Operating activities (107,328) (119,774) (40,260) (68,418)
Investing activities (11,849) (33,628) (35,856) 32,523
Financing activities 153,728 106,417 107,798 63,010
- - - ------------------------------------------------------------------------------------------------------------
</TABLE>
During transition period 1995, the Company's working capital decreased $83.3
million primarily due to increases in current liabilities and a decrease in
inventory. Current liabilities increased as a result of a reclassification of
the note payable to Tandy Corporation from long-term debt to the current portion
of long-term debt, higher accrued warranty balances due to increases in both the
cost and volume of warranty claims and an increase in accrued restructuring
charges related to the Company's Asia Pacific restructuring plan. These
increases in current liabilities were partially offset by lower short-term
borrowings. The Company had short-term borrowings of $75.0 million and $156.0
million at December 30, 1995 and July 1, 1995, respectively.
In transition period 1995, the net cash used in operating activities of $107.3
million was primarily due to the Company's operating loss, partially offset by
lower inventory levels and increases in certain accrued liabilities.
Improvement in cash flow from operations in fiscal year 1996 is dependent upon
the Company's ability to improve both its operating results and asset management
ratios.
Net cash used in investing activities of $11.8 million during transition
period 1995 was primarily due to capital expenditures. Capital expenditures
totaled $10.6 million in transition period 1995 and consisted primarily of
additions to plant and production equipment at the Company's Fort Worth, Texas
and Ireland manufacturing facilities. The Company expects its fiscal year 1996
capital expenditures to be somewhat greater than those incurred in transition
period 1995, annualized for a full year of expenditures. The foregoing forward-
looking statement involves risks and uncertainties that could cause actual
results to differ materially. See "Additional Factors That May Affect Future
Results" herein.
Net cash provided by financing activities of $153.7 million was primarily due
to the proceeds of approximately $240 million received in connection with the
issuance of common stock to Samsung as part of a stock purchase agreement,
partially offset by the repayment of short-term borrowings and long-term debt.
The Company regularly reviews its cash funding requirements on a consolidated
basis and attempts to meet those requirements through a combination of cash on
hand, cash provided by operations, available borrowings under any revolving
credit facilities and possible future public or private debt and/or equity
offerings. The Company utilizes a centralized approach for its cash management
activities and attempts to maximize the use of its consolidated cash resources
so as to minimize additional debt requirements while complying with any legal or
other restrictions upon the free flow of funds from one segment, division or
subsidiary to another. The Company invests its excess cash in investment grade
short-term money market instruments.
During fiscal year 1995, the Company had a $225 million revolving credit
facility secured by a pledge of all of the Company's domestic U.S. assets with a
final maturity date of September 30, 1996. At July 1, 1995, $116 million was
outstanding as drawings under this credit facility and $67.7 million outstanding
in the form of a letter of credit issued to Tandy Corporation in support of the
acquisition note payable. On July 21, 1995, the Company amended the $225
million credit facility and reduced the size of the credit facility to $185
million. On August 1, 1995, the Company repaid all amounts outstanding under
the $185 million credit facility and reduced the amount of the facility to $68
million. On August 28, 1995, the Company canceled the letter of credit issued
to Tandy Corporation under the credit facility and terminated the credit
agreement on August 31, 1995.
On February 9, 1995, the Company and four of its foreign subsidiaries entered
into a $50 million revolving credit agreement provided by one bank with an
expiration date of August 9, 1995. As of July 1, 1995, there was $40 million
outstanding as drawings under this credit facility. On July 21, 1995, the
Company amended the $50 million credit facility and extended the maturity date
to August 31, 1995. On August 1, 1995, the Company repaid all amounts
outstanding under the $50 million credit facility and terminated the agreement.
On February 27, 1995, the Company entered into a Stock Purchase Agreement
("Purchase Agreement") with Samsung providing for a significant minority
ownership interest in the Company of approximately 40%. On June 30, 1995, the
Company's shareholders approved the strategic investment and all regulatory
approval was received as of July 1, 1995. Under the terms of the Purchase
Agreement, as amended by Amendment No. 1 thereto dated June 1, 1995, and
Amendment No. 2 thereto dated July 29, 1995, Samsung purchased 6.44 million
newly issued shares of common stock from the Company, representing 19.9% of the
then outstanding shares of common stock, at $19.50 per share and commenced a
cash tender offer to purchase 5.82 million shares of common stock from the
Company's shareholders, representing 18% of the then outstanding shares of
common stock, at $22 per share. Concurrently with the acceptance of the shares
for purchase under the tender offer, Samsung also purchased 5.63 million
additional newly issued shares of common stock from the Company at $22 per share
so that its aggregate ownership interest in the Company, after completion of all
of the purchases, was approximately 40%. On July 31, 1995, the transaction was
completed and the Company received net proceeds of approximately $240 million.
The proceeds received from the Samsung investment were utilized to repay the
amounts outstanding under both the $185 million and $50 million revolving credit
facilities. The remaining proceeds were utilized for working capital and
capital expenditure requirements.
On November 22, 1995, Samsung provided a $50 million short-term loan to the
Company at an interest rate of 7.3125% per annum. The Company repaid this loan
on December 28, 1995 with proceeds from the credit agreement guaranteed by
Samsung as part of the Additional Support Agreement, discussed below.
On December 21, 1995, the Company signed an Additional Support Agreement with
Samsung that provides additional financial support to the Company, principally
including a guaranty by Samsung of a line of credit of up to $200 million
through December 1997 and a vendor line of credit with Samsung of $100 million
through November 1997 for component purchases. In exchange for the additional
financial support, the Company issued an option to Samsung to purchase 4.4
million shares of the Company's common stock at an exercise price of $.01 per
share, exercisable between July 1, 1996 and June 30, 2001, and allowed Samsung
to add an additional member to the Company's Board of Directors. The issuance
of the option increases Samsung's potential ownership in the Company to
approximately 45%. The benefits received in exchange for the option were
recorded in "Other assets" based on the fair value of the option at the date of
issuance, or $31 million. In connection with this agreement, the Company
incurred professional fees of approximately $2 million, which were also
capitalized. This other asset will be amortized on a straight-line basis to
interest expense over the benefit period ending December 1997.
On December 27, 1995, the Company entered into a $100 million revolving
credit agreement, guaranteed by Samsung as part of the Additional Support
Agreement, with a final maturity date of December 25, 1996. The revolving
credit agreement allows the Company to borrow at a rate of LIBOR plus .25% per
annum, or the bank's reference rate, at the Company's option. The Company is
required to pay a commitment fee equal to .125% per annum based on the average
daily unused portion of the facility. The fee is payable quarterly in arrears.
At December 30, 1995, there was $75 million outstanding as borrowings under this
credit facility at an interest rate of 8.50% per annum. On March 6, 1996, the
total amount available for borrowings under the facility and guaranteed by
Samsung was increased to $200 million. All other terms of the credit agreement
remained unchanged.
In connection with the Tandy acquisition, the Company issued a $96.7 million
promissory note to Tandy Corporation which is due on July 11, 1996. Interest
due related to fiscal year 1995 was paid on July 11, 1995 at a rate of 4.94% per
annum. The interest rate was adjusted to 5.00%, effective July 11, 1995, based
on the lower of either 5% or the "lowest three month rate" within the meaning of
Section 1274(d)(2) of the Internal Revenue Code of 1986 as of July 11, 1995.
Interest is paid once per year on July 11th and there are no sinking fund
requirements. The note also required the Company to maintain a standby letter
of credit payable to Tandy in the amount of 70% of the face value of the note or
$67.7 million. Upon maturity of the note, up to 50% of the initial principal
amount of the promissory note was convertible, at the option of the Company,
into common stock of the Company based upon its then fair market value, as
defined in the promissory note. Under the terms of the Stock Purchase
Agreement, Samsung agreed to provide a letter of credit to support the
promissory note due to Tandy Corporation replacing the Company's letter of
credit and to provide funds to satisfy $75 million of the note obligation upon
maturity of the note.
On August 23, 1995, the Company and Tandy Corporation amended the terms of the
$96.7 million promissory note. Pursuant to such amendments, the Company paid
$6.7 million on August 25, 1995, thereby reducing the note balance to $90
million. Tandy allowed the substitution of a letter of guarantee from both
Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. for the
letter of credit previously required from the Company. Additionally, the
maximum principal amount of the note that may be converted, at the option of the
Company, into common stock of the Company upon maturity of the note, based upon
its then fair market value as defined in the note, was reduced to $30 million.
All other terms of the promissory note remained unchanged. Although the Company
has made no decision as to the source of funds to be used to repay this note, or
whether it will exercise its option to repay a portion of the note through the
issuance of common stock, the Company currently expects to fund the repayment
through cash from operations and/or through a borrowing from Samsung of up to
$75 million that is available to the Company upon maturity of the note pursuant
to the Stock Purchase Agreement with Samsung.
On December 14, 1993, the Company issued $315 million par value of Liquid
Yield Option Notes ("LYONs") due December 14, 2013 and received total proceeds
of approximately $111.7 million. The LYONs are zero coupon convertible
subordinated notes which were sold at a significant discount from par value with
a yield to maturity of 5.25% and a total value at maturity of $315 million
payable in cash. There are no periodic payments of interest on the LYONs. Each
$1,000 principal amount at maturity of LYONs is convertible into 12.993 shares
of the Company's common stock at any time. Upon conversion of a LYON, the
Company may elect to deliver shares of common stock at the conversion rate or
cash equal to the market value of the shares of common stock into which the
LYONs are convertible. The holder of a LYON may require the Company to purchase
all or a portion of its LYONs on December 14, 1998, December 14, 2003 and
December 14, 2008 (the "Purchase Dates"), and such payments may reduce the
liquidity of the Company. However, the Company may, subject to certain
exceptions, elect to pay the purchase price on any of the three Purchase Dates
in cash or shares of common stock based upon its then fair market value as
defined in the indenture, or any combination thereof. The Company has made no
decision as to whether it will meet these future purchase obligations in cash,
common stock, or any combination thereof. Such decision will be based on market
conditions at the time a decision is required, as well as management's view of
the liquidity of the Company at such time. In addition, as of 35 business days
after the occurrence of any change in control of the Company occurring on or
prior to December 14, 1998, each LYON will be purchased for cash by the Company,
at the option of the holder, for a change in control purchase price equal to the
issue price of the LYONs plus accrued original issue discount through the date
set for such purchase. A change in control of the Company is deemed to have
occurred under the terms of the LYONs at such time as any person, other than the
Company, has become the beneficial owner of 50% or more of the Company's common
stock or the Company is not the surviving corporation of any consolidation or
merger of the Company. The Stock Purchase Agreement and ownership by Samsung of
approximately 40% of the common stock of the Company does not have any impact on
the terms of the LYON securities. In addition, the potential increase in
ownership by Samsung to 45% assuming exercise of its option on 4.4 million
shares of common stock as part of the Additional Support Agreement would not
have any impact on the terms of the LYONs.
The Company's ability to fund its activities from operations is directly
dependent upon its rate of growth, ability to effectively manage its inventory,
the terms under which suppliers extend credit to the Company, the terms under
which the Company extends credit to its customers and its ability to collect
under such terms, the manner in which it finances any capital expansion, and the
Company's ability to access external sources of financing. While the Company
currently has adequate sources of external financing available to meet its
current operating requirements, the majority of these sources of external
financing are supported by a guarantee provided to the Company by Samsung. The
Company has not determined what steps it will take when the existing additional
support agreements terminate in December 1997. The Company believes that it
will have adequate time prior to the expiration of the support agreements to
arrange for new sources of external financing. The foregoing forward-looking
statement involves risks and uncertainties that could cause actual results to
differ materially. See "Additional Factors That May Affect Future Results"
herein. However, if the Company is unable to arrange for external financing in
December 1997, there would be a material adverse effect on the Company's
business, financial position and results of operations.
Foreign Exchange Hedging
In the ordinary course of business and as part of the Company's asset and
liability management, the Company enters into various types of transactions that
involve contracts and financial instruments with off-balance sheet risk. The
Company utilizes foreign exchange contracts and foreign currency borrowings to
hedge its exposure to foreign exchange rate fluctuations impacting its U.S.
dollar consolidated financial statements. The Company attempts to minimize its
exposure to foreign currency transaction and remeasurement gains and losses due
to the effect of remeasuring the local currency balance sheets of its foreign
subsidiaries on the Company's consolidated financial position and results of
operations by utilizing a limited hedging strategy which includes the use of
foreign currency borrowings, the netting of foreign currency assets and
liabilities and forward exchange contracts. The actual gain or loss associated
with forward exchange contracts are limited to the contract amount multiplied by
the value of the exchange rate differential between the time the contract is
entered into and the time it matures. The Company typically holds all of its
contracts until maturity and enters forward contracts ranging in maturity dates
from one to nine months. Realized and unrealized gains and losses on the
forward contracts are recognized currently in the consolidated statement of
operations, and any premium or discount is recognized over the life of the
contract. Some foreign locations, such as the People's Republic of China
("PRC"), do not allow open market hedging of their currencies and, therefore,
the Company is not able to hedge all of its exposure to foreign currency
fluctuations.
The Company held forward exchange contracts maturing at various dates through
April 1996 with a face value of approximately $162.0 million at December 30,
1995, $162.0 million at July 1, 1995 and $143.0 million at July 2, 1994, which
approximate the Company's hedgeable net monetary asset exposure to foreign
currency fluctuations at those respective dates. For the transition period
1995, and for fiscal years 1995, 1994 and 1993, a net foreign currency
transaction loss of $2.9 million, gain of $1.7 million, loss of $2.1 million and
gain of $.6 million, respectively, is included in the caption "Other income
(expense), net" in the accompanying consolidated statements of operations.
Foreign currency borrowings at December 30, 1995, July 1, 1995 and July 2, 1994,
totaled $4.0 million, $4.2 million and $3.8 million, respectively.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
Future operating results may be impacted by a number of factors that could
cause actual results to differ materially from those stated herein, which
reflect management's current expectations. These factors include worldwide
economic and political conditions, industry specific factors, the Company's
ability to maintain access to external financing sources and its financial
liquidity, the Company's ability to timely develop and produce commercially
viable products at competitive prices, the availability and cost of components,
the Company's ability to manage expense levels, the continued financial strength
of the Company's dealers and distributors, and the Company's ability to
accurately anticipate customer demand.
The Company's future success will be highly dependent upon its ability to
develop, produce and market products that incorporate new technology, are priced
competitively and achieve significant market acceptance. There can be no
assurance that the Company's products will be technically advanced or
commercially successful due to the rapid improvements in computer technology and
resulting product obsolescence. There is also no assurance that the Company
will be able to deliver commercial quantities of new products in a timely
manner. The success of new product introductions is dependent on a number of
factors, including market acceptance, the Company's ability to manage risks
associated with product transitions, the effective management of inventory
levels in line with anticipated product demand and the timely manufacturing of
products in appropriate quantities to meet anticipated demand. The Company
regularly introduces new products designed to replace existing products. While
the Company attempts to closely monitor new product introductions and product
obsolescence, there can be no assurance that such transitions will occur without
adversely affecting the Company's net sales, cash flow and profitability, as
occurred in transition period 1995. In addition, if the Company is unable to
successfully anticipate and manage shifts in personal computer technology, the
Company's product life cycles could be negatively impacted and may continue to
have a material adverse effect on the Company's net sales, cash flow and
profitability.
Increases in demand for personal computers have created industrywide
shortages, which at times have resulted in premium prices being paid for key
components, such as flat panel display screens, Dynamic Random Access Memory
chips ("DRAMs"), Static Random Access Memory chips, CD-ROM drives and monitors.
These shortages have occasionally resulted in the Company's inability to procure
these components in sufficient quantities to meet demand for its products. In
addition, a number of the Company's products include certain components, such as
microprocessors, video chips, core logic, modems, lithium ion batteries, Static
Random Access Memory chips and Application Specific Integrated Circuits, that
are currently purchased from single sources due to availability, price, quality
or other considerations. The Company purchases components pursuant to purchase
orders placed in the ordinary course of business and has no guaranteed supply
arrangements with single source suppliers. Reliance on suppliers generally
involves risks, including the possibility of defective parts, a shortage of
components, an increase in component costs and disruptions in delivery of
components. Should delays, defects or shortages re-occur or component costs
significantly increase, the Company's net sales and profitability could be
adversely affected.
Effective July 31, 1995, the Company and Samsung entered into strategic
agreements covering a broad range of commercial relationships including, among
others, component supply agreements for certain critical components manufactured
by Samsung and used by the Company in the manufacture of personal computers and
a joint procurement agreement providing a mechanism for Samsung and the Company
to coordinate their purchases from third parties in order to obtain more
favorable pricing. However, as Samsung is a supplier of critical components in
a highly competitive marketplace, other suppliers may be less likely to extend
attractive terms to or to do business with the Company. In addition, because
Samsung has other business involvements typical of large, multi-national
companies and is not based in the U.S., it is possible that some additional
suppliers, customers, employees and others will not react favorably to Samsung's
investment in the Company.
In the second quarter of transition period 1995, the Company implemented a
restructuring plan designed to increase its utilization of third-party board
manufacturing and design and to realign its Asia Pacific manufacturing
operations. The Company's increased reliance on third-party board manufacturers
involves risks, including the possibility of defective boards, a shortage of
boards, an increase in board costs and disruptions in delivery of boards.
Should delays, defects or shortages occur or board costs significantly increase,
the Company's net sales and profitability could be adversely affected. Although
the Company believes that the restructuring activities were necessary, no
assurance can be given that the restructuring action will be successful or that
similar action will not be required in the future.
The ongoing introduction of new technologies across all of the Company's
product lines is intended to enable the Company to keep pace with rapid market
changes and to minimize the effect of continued competitive pricing. However,
there can be no assurance that the Company will have the financial resources,
marketing and distribution capability, or the technological knowledge to compete
successfully. In addition, the Company's results of operations could be
adversely impacted if it is unable to effectively implement its technological
and marketing alliances with other companies, such as Microsoft and Intel, and
manage the competitive risks associated with these relationships.
The Company participates in a highly competitive and volatile industry that
is characterized by dynamic customer demand patterns, rapid introduction of new
products, technological advances and product obsolescence resulting in an
extremely competitive pricing environment with downward pressure on gross
margins. The Company anticipates that the personal computer industry will
continue to experience intense price competition and dramatic price reductions
during fiscal year 1996. There can be no assurance that future pricing actions
by the Company and its competitors will not adversely impact the Company's net
sales and profitability.
On March 21, 1996, the Company announced that it has encountered excess
competitor inventory in the channel, overall lower demand for PCs and greater
pricing pressures than originally anticipated through the first two months of
fiscal year 1996. There can be no assurance that these trends will not continue
and will not adversely impact the Company's net sales and profitability.
The Company's ability to compete is largely dependent upon its financial
strength and its ability to adequately fund its operations. Many of the
Company's competitors are significantly larger and have significantly greater
financial resources than the Company. The Company's sources of financing
include cash on hand, cash provided by operations, available borrowings under
its revolving credit facilities and possible future public or private debt
and/or equity offerings. The Company's future success is highly dependent upon
its continued access to sources of financing which it believes are necessary for
the continued growth of the Company. The Company currently has a $200 million
revolving credit facility guaranteed by Samsung. However, in the event the
Company is unable to maintain access to its existing financing sources, there
would be a material adverse effect on the Company's business, financial position
and results of operations.
Consistent with industry practice, the Company provides certain of its larger
distributors, consumer retailers and dealers with stock re-balancing and price
protection rights that permit these distributors, retailers and dealers to
return slow-moving products to the Company for credit or to receive price
adjustments if the Company lowers the price of selected products within certain
time periods. Stock re-balancing and price protection credits represented 4.2%
of net sales during transition period 1995, compared to 4.0% for fiscal year
1995, 2.1% in fiscal year 1994, and 2.8% in fiscal year 1993. If sales and
pricing trends experienced in the current year continue or accelerate, there can
be no assurance that the Company will not experience rates of return or price
protection adjustments that could adversely impact on the Company's net sales
and profitability in the future.
The Company believes that its production capacity should be sufficient to
support anticipated unit volumes for the foreseeable future. However, if the
Company is unable to obtain certain key components, or to effectively forecast
customer demand or manage its inventory, increased inventory obsolescence or
reduced utilization of production capacity could adversely impact the Company's
gross margins and results of operations.
General economic conditions have an impact on the Company's business and
financial results. From time to time, the markets in which the Company sells
its products experience weak economic conditions that may negatively affect
sales of the Company's products. Although the Company does not consider its
business to be highly seasonal, it has historically experienced seasonally
higher sales in the consumer retail channel in the quarter ended in December due
to strong holiday demand for some of its products in certain regions. The
Company's international operations are also affected by foreign currency
fluctuations. The financial statements of the Company's foreign subsidiaries
are remeasured into the United States dollar functional currency for
consolidated reporting purposes. Gains and losses resulting from this
remeasurement process are recognized currently in the consolidated results of
operations. The Company attempts to minimize the impact of these remeasurement
gains and losses by utilizing a limited hedging strategy which includes the use
of foreign currency borrowings, the netting of foreign currency assets and
liabilities, and forward exchange contracts. The Company's exposure to currency
fluctuations will continue to increase as a result of the expansion of its
international operations. Significant fluctuations in currency values could
have an adverse effect on the Company's net sales, gross margins and
profitability.
The Company's international operations may also be affected by changes in
United States trade relationships, increased competition and the economic
stability of the locations in which sales occur. The Company operates in
foreign locations, such as the PRC, where future sales may be dependent upon
continuing favorable trade relations. Additionally, foreign locations such as
the PRC and Taiwan may experience changes in their general economic stability
due to such factors as increased inflation and political turmoil. Also,
political tensions between the PRC and Taiwan could adversely affect the
Company's operations, particularly its notebook production. Any significant
change in United States trade relations or the economic or political stability
of foreign locations in which the Company operates could have an adverse effect
on the Company's net sales and profitability.
The personal computer industry presents risks for claims of infringement of
patents, trademarks and copyrights. From time to time, the Company is notified
that certain of its products may infringe upon the intellectual property rights
of others. The Company generally evaluates all such notices on a case-by-case
basis to determine whether licenses are necessary or desirable. If such claims
are made, there can be no assurance that licenses will be available on
commercially reasonable terms or that retroactive royalty payments on sales of
the Company's computer products will not be required. In addition, substantial
costs may be incurred in disputing such claims. The Company believes that the
actions it takes to avoid or minimize the impact to the Company of such claims
are prudent; however, there can be no assurance that such claims will not occur
or, if successful, would not have a material adverse effect on the Company's
business operations and profitability. Pursuant to its Strategic Alliance
Agreement with Samsung Electronics Co., Ltd. dated February 27, 1995, the
Company has a patent cross license agreement with Samsung dated July 31, 1995
that expires on July 31, 2005.
The Company's primary means of distribution continues to be third-party
computer resellers and consumer retailers. While the Company continuously
monitors and manages the credit it extends to its customers to limit its credit
risk, the Company's business could be adversely affected in the event that the
financial condition of its customers weakens. In the event of the financial
failure of a major customer, the Company would experience disruptions in its
distribution as well as the loss of the unsecured portion of any outstanding
accounts receivable.
In determining the amount of the valuation allowance required to be
established against deferred tax assets in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", the Company has primarily relied upon its ability to generate future
taxable income using certain available tax planning strategies. The amount of
taxable income that could actually be generated from such tax planning
strategies is dependent upon the Company being able to sell certain appreciated
assets at the current estimated fair market value. Although the Company has
utilized an outside valuation firm to determine the current estimated fair
market value of such assets, changes in market conditions could result in a
reduction of the estimated fair market value of these assets that would
adversely affect the amount of the valuation allowance and reduce the amount of
net deferred tax assets considered realizable.
The Company's corporate headquarters facility, at which the majority of its
research and development activities are conducted, is located near major
earthquake faults which have experienced earthquakes in the past. While the
Company does carry insurance at levels management believes to be prudent, in the
event of a major earthquake or other disaster affecting one or more of the
Company's facilities, it is likely that insurance proceeds would not cover all
of the costs incurred and, therefore, the operations and operating results of
the Company could be adversely affected.
Because of these and other factors affecting the Company's operating results,
past financial performance should not be considered a reliable indicator of
future performance, and investors should not use historical trends to anticipate
results or trends in future periods. In addition, the Company's participation
in the highly competitive personal computer industry often results in
significant volatility in the Company's common stock price.
This Transition Report on Form 10-K contains certain forward-looking
statements that are based on current expectations. In light of the important
factors that can materially affect results, including those set forth above and
elsewhere in this Form 10-K, the inclusion of forward-looking information herein
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved. The Company may
encounter competitive, technological, financial and business challenges making
it more difficult than expected to continue to develop, market, manufacture and
ship new products on a timely basis; competitive conditions within the personal
computer industry may change adversely; demand for the Company's products may
weaken; the market may not accept the Company's new products; the Company may be
unable to retain existing key management personnel; inventory risks may rise due
to shifts in market demand; the Company's forecasts may not accurately
anticipate market demand; and there may be other material adverse changes in the
Company's operations or business. Certain important factors affecting the
forward looking statements made herein include, but are not limited to (i)
timely identifying, designing, and delivering new products as well as enhancing
existing products, (ii) implementing current restructuring plans, (iii)
improving efficiencies in world wide distribution activities, (iv) predicting
the significance of the indirect sales channel, (v) defending positions with the
IRS and in the legal proceedings described above, (vi) accurately forecasting
capital expenditures, and (vii) obtaining new sources of external financing
prior to the expiration of existing support arrangements entered into with
Samsung. Assumptions relating to budgeting, marketing, advertising, product
development and other management decisions are subjective in many respects and
thus susceptible to interpretations and periodic revisions based on actual
experience and business developments, the impact of which may cause the Company
to alter its marketing, capital expenditure or other budgets, which may in turn
affect the Company's financial position and results of operations.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements:
Report of Independent Auditors.
Consolidated Balance Sheets at December 30, 1995, July 1, 1995 and July
2, 1994.
Consolidated Statements of Operations for the six months ended December
30, 1995 and for the years ended July 1, 1995, July 2, 1994 and
July 3, 1993.
Consolidated Statements of Shareholders' Equity for the six months ended
December 30, 1995 and for the years ended July 1, 1995, July 2,
1994 and July 3, 1993.
Consolidated Statements of Cash Flows for the six months ended December
30, 1995 and for the years ended July 1, 1995, July 2, 1994 and
July 3, 1993.
Notes to Consolidated Financial Statements.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
AST Research, Inc.
We have audited the accompanying consolidated balance sheets of AST Research,
Inc. as of December 30, 1995, July 1, 1995 and July 2, 1994, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the six months ended December 30, 1995 and for each of the three years in the
period ended July 1, 1995. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AST Research, Inc.
at December 30, 1995, July 1, 1995 and July 2, 1994, and the consolidated
results of its operations and its cash flows for the six months ended December
30, 1995 and for each of the three years in the period ended July 1, 1995, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
Orange County, California
January 23, 1996, except for Note 5,
as to which the date is March 6, 1996
AST RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
December 30, July 1, July 2,
(In thousands, except share amounts) 1995 1995 1994
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 125,387 $ 95,825 $ 153,118
Accounts receivable, net of allowance for doubtful
accounts of $18,629, $17,452 and $17,564 at December
30, 1995, July 1, 1995 and July 2, 1994, respectively 392,598 394,927 326,057
Inventories 252,339 311,469 333,729
Deferred income taxes 19,495 31,973 43,266
Other current assets 47,802 6,938 9,797
- - - ------------------------------------------------------------------------------------------------------------
Total current assets 837,621 841,132 865,967
Property and equipment 170,897 165,261 159,530
Accumulated depreciation and amortization (72,172) (64,006) (56,089)
- - - ------------------------------------------------------------------------------------------------------------
Net property and equipment 98,725 101,255 103,441
Other assets 119,696 79,114 36,212
- - - ------------------------------------------------------------------------------------------------------------
$ 1,056,042 $ 1,021,501 $ 1,005,620
============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 75,000 $ 156,000 $ 50,000
Accounts payable, including payable to related
party of $31,562 at December 30, 1995 199,346 213,202 209,579
Accrued salaries, wages and employee benefits 19,827 17,760 21,465
Other accrued liabilities 200,639 119,689 112,096
Income taxes payable 26,902 25,189 27,455
Current portion of long-term debt 92,361 2,420 398
- - - ------------------------------------------------------------------------------------------------------------
Total current liabilities 614,075 534,260 420,993
Long-term debt 125,540 219,224 215,294
Other non-current liabilities 5,545 4,779 7,571
Commitments and contingencies
Shareholders' equity:
Common stock, par value $.01; 200,000,000 shares
authorized, 44,679,400, 32,412,500 and 32,333,750
shares issued and outstanding at December 30, 1995,
July 1, 1995 and July 2, 1994, respectively 447 324 323
Additional capital 414,735 142,208 141,424
Retained earnings (deficit) (104,300) 120,706 220,015
- - - -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 310,882 263,238 361,762
- - - -----------------------------------------------------------------------------------------------------------
$ 1,056,042 $ 1,021,501 $ 1,005,620
===========================================================================================================
</TABLE>
See accompanying notes.
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
Six Months
Ended ----------------------------------------------
December 30, July 1, July 2, July 3,
(In thousands, except per share amounts) 1995 1995 1994 1993
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,016,283 $ 2,467,783 $ 2,367,274 $ 1,412,150
Cost of sales 1,033,158 2,222,108 2,019,541 1,126,452
- - - ------------------------------------------------------------------------------------------------------------
Gross profit (loss) (16,875) 245,675 347,733 285,698
Selling and marketing expenses 117,560 233,524 193,053 141,752
General and administrative expenses 48,186 81,458 74,333 51,555
Engineering and development expenses 19,608 36,383 38,858 31,969
Restructuring charge (credit) 12,967 - (12,500) 125,000
- - - ------------------------------------------------------------------------------------------------------------
Total operating expenses 198,321 351,365 293,744 350,276
- - - ------------------------------------------------------------------------------------------------------------
Operating income (loss) (215,196) (105,690) 53,989 (64,578)
Interest income 2,631 2,362 2,125 3,341
Interest expense (8,634) (17,436) (9,937) (1,269)
Other income (expense), net (3,807) (2,601) 135 (2,732)
- - - ------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (225,006) (123,365) 46,312 (65,238)
Income tax provision (benefit) - (24,056) 15,003 (11,500)
- - - ------------------------------------------------------------------------------------------------------------
Net income (loss) $ (225,006) $ (99,309) $ 31,309 $ (53,738)
============================================================================================================
Net income (loss) per share:
Primary $ (5.27) $ (3.07) $ 0.96 $ (1.72)
Fully diluted $ (5.27) $ (3.07) $ 0.95 $ (1.72)
============================================================================================================
Shares used in computing net income
(loss) per share:
Primary 42,721 32,371 32,548 31,289
Fully diluted 42,721 32,371 34,866 31,289
============================================================================================================
</TABLE>
See accompanying notes.
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
Common Stock Additional Retained
(In thousands) Shares Amount Capital Earnings
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at June 27, 1992 30,787 $ 308 $ 120,515 $ 242,444
Exercise of stock options 867 9 4,939 -
Tax benefit related to employee stock options - - 3,980 -
Vesting of restricted stock - - 450 -
Cancellation of restricted stock (75) (1) (100) -
Net loss - - - (53,738)
- - - ------------------------------------------------------------------------------------------------------------
Balance at July 3, 1993 31,579 316 129,784 188,706
Exercise of stock options and warrants 755 7 9,554 -
Tax benefit related to employee stock options - - 1,823 -
Vesting of restricted stock - - 263 -
Net income - - - 31,309
- - - ------------------------------------------------------------------------------------------------------------
Balance at July 2, 1994 32,334 323 141,424 220,015
Exercise of stock options 79 1 784 -
Net loss - - - (99,309)
- - - ------------------------------------------------------------------------------------------------------------
Balance at July 1, 1995 32,413 324 142,208 120,706
Issuance of common stock to related party,
net of issuance costs of $8,876 12,070 121 240,443 -
Issuance of stock option to related party in
exchange for additional support - - 31,045 -
Exercise of stock options 196 2 1,039 -
Net loss - - - (225,006)
- - - ------------------------------------------------------------------------------------------------------------
Balance at December 30, 1995 44,679 $ 447 $ 414,735 $ (104,300)
============================================================================================================
</TABLE>
See accompanying notes.
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
Six Months Fiscal Year Ended
Ended ---------------------------------------------
December 30, July 1, July 2, July 3,
(In thousands) 1995 1995 1994 1993
- - - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 1,052,845 $ 2,423,705 $ 2,274,978 $ 1,322,831
Cash paid to suppliers and employees (1,152,385) (2,537,459) (2,294,380) (1,373,528)
Interest received 2,441 2,428 2,052 4,583
Interest paid (7,717) (9,937) (3,149) (1,373)
Income tax refunds received 210 6,099 1,989 -
Income taxes paid (913) (9,895) (22,210) (13,008)
Other cash received (paid) (1,809) 5,285 460 (7,923)
- - - --------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (107,328) (119,774) (40,260) (68,418)
Cash flows from investing activities:
Purchases of capital equipment (10,649) (26,080) (30,045) (20,894)
Proceeds from disposition of capital equipment 1,611 4,474 10,673 1,146
Purchases of other assets (2,811) (12,022) (1,484) (560)
Payment related to Tandy/GRiD acquisition - - (15,000) -
Purchases of short-term investments - - - (35,155)
Proceeds from short-term investments - - - 87,986
- - - --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (11,849) (33,628) (35,856) 32,523
Cash flows from financing activities:
Short-term borrowings, net (81,000) 106,000 (9,217) 58,417
Repayment of long-term debt (6,877) (391) (520) (355)
Proceeds from issuance of long-term debt - 23 107,974 -
Proceeds from issuance of common stock:
To related party 240,564 - - -
Other 1,041 785 9,561 4,948
- - - --------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 153,728 106,417 107,798 63,010
Effect of exchange rate changes on cash and
cash equivalents (4,989) (10,308) (164) 6,611
- - - --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 29,562 (57,293) 31,518 33,726
Cash and cash equivalents at beginning of year 95,825 153,118 121,600 87,874
- - - --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 125,387 $ 95,825 $ 153,118 $ 121,600
==========================================================================================================================
</TABLE>
See accompanying notes.
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------------------------------------------------
Six Months
Ended -----------------------------------------
December 30, July 1, July 2, July 3,
(In thousands) 1995 1995 1994 1993
- - - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
USED IN OPERATING ACTIVITIES:
Net income (loss) $ (225,006) $ (99,309) $ 31,309 $ (53,738)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 15,270 25,311 25,861 13,222
Provision (benefit) for deferred income taxes 2,047 (25,318) 8,983 (55,438)
Gain on sale of capital equipment (435) (870) (4,286) -
Pen-based inventory write-off - - 33,600 -
Change in operating assets and liabilities, net
of effects of acquisition:
Accounts receivable 4,620 (58,714) (86,290) (97,059)
Inventories 59,130 22,260 (19,808) (59,809)
Other current assets (17,318) 12,798 3,317 (552)
Accounts payable and accrued expenses 22,557 1,446 (14,093) 137,496
Income taxes payable 1,713 (2,266) (17,377) 28,230
Other current liabilities 27,187 6,546 (3,573) 19,785
Exchange (gains) losses 2,907 (1,658) 2,097 (555)
- - - --------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities $ (107,328) $ (119,774) $ (40,260) $ (68,418)
==========================================================================================================================
</TABLE>
See accompanying notes.
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------------------------------------------------
Six Months Fiscal Year Ended
Ended --------------------------------------
December 30, July 1, July 2, July 3,
(In thousands) 1995 1995 1994 1993
- - - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Issuance to related party of a five-year option to
purchase 4.4 million shares of common stock at an
exercise price of $.01 per share principally in
exchange for a guaranty on a two-year $200 million
line of credit, and a two-year vendor line of $100
million $ 31,045 $ - $ - $ -
==========================================================================================================================
The Company purchased certain assets relating to
Tandy Corporation's personal computer operations
effective June 30, 1993. In addition, the Company
purchased certain assets relating to Tandy/GRiD
France's personal computer operations effective
September 1, 1993. In conjunction with the
acquisitions, liabilities were assumed as follows:
Fair value of assets acquired $ - $ - $ 16,571 $ 151,000
Note payable and cash due Tandy - - (6,720) (105,000)
- - - --------------------------------------------------------------------------------------------------------------------------
Liabilities assumed $ - $ - $ 9,851 $ 46,000
==========================================================================================================================
Tax benefit of employee stock options $ - $ - $ 1,823 $ 3,980
==========================================================================================================================
</TABLE>
See accompanying notes.
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
AST Research, Inc. ("Company") and its wholly and majority owned subsidiaries.
All intercompany accounts and transactions have been eliminated in
consolidation. Accounts denominated in foreign currencies have been remeasured
into the functional currency in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation," using the
U.S. dollar as the functional currency.
The preparation of 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 revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Business
The Company designs, manufactures, markets, services and supports a variety
of personal computers, including desktop, notebook, and server systems marketed
under the Advantage!, Bravo, Premmia, Ascentia and Manhattan brand names.
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash, certificates of deposit,
time deposits, commercial paper, short-term government obligations and other
money market instruments. The Company invests its excess cash in deposits with
major international banks, government securities and money market securities of
investment grade companies from a variety of industries and, therefore, bears
minimal risk. These securities have original maturity dates not exceeding three
months.
Fair Values of Financial Instruments
Fair values of cash and cash equivalents, short-term borrowings and the
current portion of long-term debt approximate cost due to the short period of
time to maturity. Fair values of long-term debt are based on quoted market
prices or on borrowing rates currently available to the Company for loans with
similar terms or maturity. The carrying amounts of the forward exchange
contracts equal their fair value and are adjusted at each balance sheet date for
changes in exchange rates. The estimated fair value amounts disclosed in Note 8
have been determined by the Company using available market information.
However, considerable judgment is necessary in interpreting market data to
develop estimates of fair value. Accordingly, the estimates presented are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. Changes in assumptions could significantly affect the
estimates.
Inventories
Inventories are stated at the lower of cost, determined on a first-in, first-
out basis, or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
provided on the straight-line method over the following estimated useful lives:
<TABLE>
- - - -------------------------------------------------------------------------------------------------
<S> <S>
Buildings 40 years
Machinery and equipment 3-5 years
Furniture and fixtures 5 years
Leasehold improvements Shorter of 5 years or remaining term of the lease
- - - -------------------------------------------------------------------------------------------------
</TABLE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
Goodwill, representing the excess of the purchase price over the fair value
of the net assets of the acquired entities, is being amortized on a straight-
line basis over the period of expected benefit of ten years. Patents are
amortized using the straight-line method over the lives of the patents.
Licenses are amortized on a straight-line basis over the estimated economic
lives of the related assets. During the fiscal year ended July 1, 1995, the
Company elected the early adoption of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Prior to the adoption of SFAS No. 121, the carrying value of goodwill was
reviewed periodically based on the undiscounted cash flows of the entity
acquired over the remaining amortization period.
In accordance with SFAS No. 121, long-lived assets and certain identifiable
intangibles held and used by the Company will be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The recoverability test is performed at a
consolidated level based on undiscounted net cash flows since the assets being
tested do not have identifiable cash flows that are largely independent of other
asset groupings. Based upon the Company's analysis under SFAS No. 121, the
Company believes that no impairment of the carrying value of its long-lived
assets inclusive of goodwill existed at December 30, 1995. The Company's
analysis at December 30, 1995 has been based on an estimate of future
undiscounted cash flows using forecasts contained in the Company's operating
plan. Should the results of the operating plan not be achieved, future analyses
may indicate insufficient future undiscounted net cash flows to recover the
carrying value of the Company's long-lived assets, in which case SFAS No. 121
would require the carrying value of such assets to be written down to fair value
if lower than the carrying value. The Company would then be required to make a
determination of the fair value of its long-lived assets. The Company is unable
to predict whether any write-down would be required in such circumstances. The
Company's historical results of operations and its cash flows in transition
period 1995 and in fiscal years 1995, 1994 and 1993 indicate that it is at least
reasonably possible that such circumstances could arise in fiscal year 1996.
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment.
The Company has established programs which, under specified conditions, provide
price protection rights and/or enable its customers to return product. The
effect of these programs is estimated and current period sales and cost of sales
are reduced accordingly.
Engineering and Development
Engineering and development costs are expensed as incurred. Substantially
all engineering and development expenses are related to developing new products
and designing significant improvements to existing products.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the six
months ended December 30, 1995, and for the years ended July 1, 1995, July 2,
1994 and July 3, 1993 was $32,795,000, $59,262,000, $41,138,000 and $28,582,000,
respectively.
Warranty Costs
The Company provides, by a current charge to income, an amount it estimates
will be needed to cover future warranty obligations for products sold during the
year. The accrued liability for warranty costs is included in the caption
"Other accrued liabilities" in the accompanying consolidated balance sheets.
Deferred Grants
During fiscal year 1994, the Company obtained various grants from the
Industrial Development Authority of the Republic of Ireland. These grants
include employment, training and capital grants and extend through December
1996. Employment grants are amortized into income over a period of one year.
Employee training grants are recognized in income in the period in which the
training costs are incurred by the Company. Grants for the acquisition of
property and equipment are deferred and recognized in income on the same basis
as the related property and equipment is depreciated.
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During the six months ended December 30, 1995, fiscal year 1995 and fiscal
year 1994, the Company recorded approximately $2.1 million, $8.0 million and
$5.1 million, respectively, in grant funds received or receivable. The amount
deferred under these grants at December 30, 1995, July 1, 1995 and July 2, 1994
was $6.0 million, $6.7 million and $4.5 million, respectively, and is included
in "Other accrued liabilities" in the accompanying consolidated balance sheets.
Total grant amounts amortized into income during the six-month period ended
December 30, 1995, fiscal year 1995 and fiscal year 1994 were $2.8 million, $5.8
million and $0.6 million, respectively.
The Company has a ten year contingent liability to repay, in whole or in
part, grants received under certain circumstances pursuant to the Capital and
Employment Grant Agreements which began February 1994. In addition, the Company
has a five year contingent liability under the Employment Grant Agreement from
the date of first payment to repay employment grants paid in respect to any job
if such job remains vacant for a period in excess of six months. At December
30, 1995, the Company also has eight years remaining on a one million Irish
pounds (U.S. $1.6 million) ten year contingent liability related to the purchase
of the manufacturing facility which began in November 1993 and is payable in the
event that the Company terminates operations in Ireland.
Income Taxes
The income tax provision (benefit) is computed on the pretax income (loss) of
the consolidated entities located within each taxing country based on the
current tax law. Deferred taxes result from the future tax consequences
associated with temporary differences between the amount of assets and
liabilities recorded for tax and financial accounting purposes. A valuation
allowance for deferred tax assets is recorded to the extent the Company cannot
determine, in accordance with the provisions of SFAS No. 109, "Accounting for
Income Taxes," that the ultimate realization of net deferred tax assets is more
likely than not. In making such determination, the Company considers estimated
future reversals of existing taxable temporary differences, estimated future
earnings and available tax planning strategies. To the extent that the
estimates of these items are reduced or not realized, the amount of the deferred
tax assets considered realizable could be adversely affected.
Incremental United States income taxes have not been provided on $84.3
million of cumulative undistributed earnings of the Company's foreign
subsidiaries. These earnings, which reflect full provision for non-U.S. income
taxes, are expected to be reinvested indefinitely in non-U.S. operations or to
be remitted substantially free of additional tax. Accordingly, no material
provision has been made for taxes that might be payable upon remittance of such
earnings nor is it practicable to determine the amount of this liability. As a
result of the restructuring plan completed in the second quarter of the six-
month period ended December 30, 1995 (Note 3), the Company provided for U.S.
taxes on $98.9 million of undistributed foreign earnings that management
believes will no longer be indefinitely reinvested in non-U.S. operations.
During fiscal year 1993, the Company elected the early adoption of the asset
and liability method of accounting for income taxes pursuant to SFAS No. 109,
"Accounting for Income Taxes." This change had no material effect on the net
loss previously reported in fiscal year 1993.
Per Share Information
Primary and fully diluted loss per share have been computed based upon the
weighted average number of common shares outstanding.
Primary net income per common share has been computed based upon the weighted
average number of common and common equivalent shares outstanding. Common
equivalent shares result from the assumed exercise of outstanding stock options
that have a dilutive effect when applying the treasury stock method. The fully
diluted per share calculation assumes, in addition to the above, that the
Company's Liquid Yield Option Notes were converted from the date of issuance
with earnings being increased for interest expense, net of taxes, that would not
have been incurred had conversion taken place.
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Option Plans
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," ("APB 25"), and related Interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The Company follows the practice of recording amounts received upon the
exercise of options by crediting common stock and additional capital. The
Company realizes an income tax benefit from the exercise or early disposition of
certain stock options. This benefit results in a decrease in current income
taxes payable and an increase in additional capital.
NOTE 2. CHANGE IN FISCAL YEAR-END
The Company operates within a conventional 52/53 week accounting fiscal year.
On October 26, 1995, the Company changed its fiscal year-end from the Saturday
closest to June 30 to the Saturday closest to December 31, with the exception of
certain foreign subsidiaries that will operate on a December 31 fiscal year-end.
The change was made in order to align the Company's year-end with that of its
largest shareholder, Samsung Electronics Co. Ltd. ("Samsung"). The change in
fiscal year is effective for the six months ended December 30, 1995 ("transition
period" or "transition period 1995"). Transition period 1995 included 26 weeks.
The fiscal years ended July 1, 1995, July 2, 1994 and July 3, 1993 included 52,
52 and 53 weeks, respectively.
The following sets forth the results of operations for the transition period
ended December 30, 1995, and the unaudited results of operations for the six
months ended December 31, 1994, the prior period comparable to the transition
period:
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------
(Unaudited)
Six Months Six Months
Ended Ended
December 30, December 31,
(In thousands, except per share amounts) 1995 1994
- - - ------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 1,016,283 $ 1,135,605
Gross profit (loss) (16,875) 103,617
Operating loss (215,196) (68,282)
Loss before income taxes (225,006) (75,938)
Income tax benefit - (14,808)
Net loss (225,006) (61,130)
Net loss per share $ (5.27) $ (1.89)
- - - ------------------------------------------------------------------------------
</TABLE>
NOTE 3. ACQUISITIONS AND RESTRUCTURING
In June 1993, the Company acquired certain assets and assumed certain
liabilities relating to Tandy Corporation's ("Tandy") personal computer
manufacturing operations and the GRiD North American and European sales
divisions. In September 1993, the Company also purchased certain assets and
assumed certain liabilities of Tandy/GRiD France. The total purchase price
(including Tandy/GRiD France) was $111.7 million and included a cash payment of
$15 million and a three-year promissory note in the principal amount of $96.7
million. The acquisitions were accounted for in accordance with the purchase
method of accounting and, accordingly, the net assets acquired were included in
the Company's consolidated balance sheets based upon their estimated fair values
at the transactions' effective dates. The Company's consolidated statements of
operations include the revenues and expenses of the acquired businesses after
the effective dates of the respective transactions.
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. ACQUISITIONS AND RESTRUCTURING (CONTINUED)
Restructuring charges of $125 million were recorded in June 1993 in connection
with the Company's acquisition of Tandy's personal computer manufacturing and
engineering operations and GRiD's North American and European sales and
marketing operations. During fiscal year 1994, the Company completed most of
its restructuring activities and incurred asset write-downs of $50 million and
cash expenditures of $47 million related directly to its fiscal year 1994
restructuring activities. The Company recorded a $12.5 million credit in the
fourth quarter of fiscal year 1994 after concluding that most of its
restructuring activities had been completed or were adequately provided for
within the remaining restructuring accrual. At July 2, 1994, $15.2 million of
restructuring accrual remained on the Company's consolidated balance sheet.
During fiscal year 1995, the Company completed the consolidation of its
worldwide mobile computing manufacturing in Taiwan and the concurrent closure of
its Fountain Valley, California manufacturing facility. During fiscal year
1995, the Company incurred cash expenditures of approximately $4.7 million
related primarily to the closure of its Fountain Valley, California
manufacturing facility. At July 1, 1995, approximately $10.5 million of the
original restructuring accrual remained on the Company's consolidated balance
sheet. During transition period 1995, the Company incurred cash expenditures of
approximately $1.3 million related primarily to the closure of its Fountain
Valley, California manufacturing facility and at December 30, 1995, $9.2 million
of the restructuring accrual remained on the Company's consolidated balance
sheet. The remaining accrual consists of amounts provided for the net present
value of minimum lease payments for facilities that have been closed and the
write-down to net realizable value of related leasehold improvements being
disposed of. The Company believes that these restructuring activities were
necessary in order to reorganize its worldwide manufacturing, engineering, sales
and service operations as well as reposition its product lines after the June
1993 acquisition of Tandy's personal computer operations.
In the second quarter of transition period 1995, the Company implemented a
restructuring plan, separate and apart from the June 1993 charge, designed to
increase its utilization of third party board manufacturing and design and to
realign its Asia Pacific manufacturing operations. In accordance with this
plan, the Company recorded a restructuring charge of $13.0 million. Costs
included in the restructuring charge consist primarily of employee severance,
asset write-downs, vendor cancellation charges and lease write-offs for closed
offices. The employee severance will include approximately 1,500 employees
primarily in semi-skilled and skilled manufacturing positions. Approximately
$7.6 million of the charge is expected to involve cash disbursements with the
remaining costs primarily relating to reductions in net asset values. During
transition period 1995, the Company incurred cash expenditures of approximately
$.8 million related to severance payments to terminated employees. At December
30, 1995, approximately $12.2 million of the original restructuring accrual
remained on the Company's consolidated balance sheet.
Although the Company believes that the restructuring activities were
necessary, no assurance can be given that these restructuring actions will be
successful or that similar actions will not be required in the future.
NOTE 4. COMPOSITION OF SELECTED BALANCE SHEET ACCOUNTS
Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------
December 30, July 1, July 2,
(In thousands) 1995 1995 1994
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchased parts $ 73,012 $ 67,296 $ 99,959
Work in process 33,823 36,686 53,765
Finished goods 145,504 207,487 180,005
- - - --------------------------------------------------------------------------------
Total $ 252,339 $ 311,469 $ 333,729
================================================================================
</TABLE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4. COMPOSITION OF SELECTED BALANCE SHEET ACCOUNTS (CONTINUED)
Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------
December 30, July 1, July 2,
(In thousands) 1995 1995 1994
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 15,961 $ 15,961 $ 15,729
Buildings 34,253 34,824 35,547
Machinery and equipment 93,990 88,476 84,004
Furniture and fixtures 13,519 12,860 11,926
Leasehold improvements 13,174 13,140 12,324
- - - --------------------------------------------------------------------------------
Total $ 170,897 $ 165,261 $ 159,530
================================================================================
</TABLE>
Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------------------------------
December 30, July 1, July 2,
(In thousands) 1995 1995 1994
- - - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred income taxes $ 44,016 $ 33,585 $ -
Credit line guaranty, less accumulated amortization of $506
at December 30, 1995 32,519 - -
Goodwill, less accumulated amortization of $8,218, $6,615
and $3,479 at December 30, 1995, July 1, 1995 and
July 2, 1994, respectively 24,250 25,853 29,220
Patents, licenses and other intangibles, less accumulated
amortization of $3,672, $2,130 and $436 at December
30, 1995, July 1, 1995 and July 2, 1994, respectively 10,890 11,382 1,179
Other, net 8,021 8,294 5,813
- - - --------------------------------------------------------------------------------------------------------
Total $ 119,696 $ 79,114 $ 36,212
========================================================================================================
</TABLE>
Other Current Accounts
Prepaid value added taxes of $22.2 million were included in "Other current
assets," and amounts payable for value added taxes of $45.3 million were
included in "Other accrued liabilities" at December 30, 1995.
NOTE 5. FINANCING ARRANGEMENTS
On December 27, 1995, the Company entered into a $100 million revolving
credit agreement, guaranteed by Samsung as part of the Additional Support
Agreement (Note 7), with a final maturity date of December 25, 1996. The
revolving credit agreement allows the Company to borrow at a rate of LIBOR plus
.25% per annum, or the bank's reference rate, at the Company's option. The
Company is required to pay a commitment fee equal to .125% per annum based on
the average daily unused portion of the facility. The fee is payable quarterly
in arrears. At December 30, 1995, there was $75 million outstanding as
borrowings under this credit facility at an interest rate of 8.50% per annum.
The weighted average interest rate on total short-term borrowings as of December
30, 1995, July 1, 1995 and July 2, 1994 was 8.50%, 8.22% and 7.01%,
respectively. On March 6, 1996, the total amount available for borrowings
under the facility and guaranteed by Samsung was increased to $200 million. All
other terms of the credit agreement remained unchanged.
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------------------------
December 30, July 1, July 2,
(In thousands) 1995 1995 1994
- - - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Liquid Yield Option Notes (zero coupon convertible subordinated notes) due
2013, less original issue discount of $191,063, $194,232 and $200,334,
at December 30, 1995, July 1, 1995 and July 2, 1994, respectively,
5.25% yield to maturity $ 123,937 $ 120,768 $ 114,666
Promissory note payable, interest due annually at current rate
of 5.00%, principal due July 1996 90,000 96,720 96,720
Other notes payable due in various installments through April 2002 3,964 4,156 4,306
- - - ----------------------------------------------------------------------------------------------------------------------
217,901 221,644 215,692
Less current portion of long-term debt (92,361) (2,420) (398)
- - - ----------------------------------------------------------------------------------------------------------------------
Long-term debt $ 125,540 $ 219,224 $ 215,294
======================================================================================================================
</TABLE>
On December 14, 1993, the Company issued $315 million par value of Liquid
Yield Option Notes ("LYONs") due December 14, 2013 and received total proceeds
of approximately $111.7 million. The LYONs are zero coupon convertible
subordinated notes which were sold at a significant discount from par value with
a yield to maturity of 5.25% and a total value at maturity of $315 million
payable in cash. There are no periodic payments of interest on the LYONs. Each
$1,000 principal amount at maturity of LYONs is convertible into 12.993 shares
of the Company's common stock at any time. Upon conversion of a LYON, the
Company may elect to deliver shares of common stock at the conversion rate or
cash equal to the market value of the shares of common stock into which the
LYONs are convertible. The holder of a LYON may require the Company to purchase
all or a portion of its LYONs on December 14, 1998, December 14, 2003 and
December 14, 2008 (the "Purchase Dates"), and such payments may reduce the
liquidity of the Company. However, the Company may, subject to certain
exceptions, elect to pay the purchase price on any of the three Purchase Dates
in cash or shares of common stock based upon its then fair market value as
defined in the indenture, or any combination thereof. The Company has made no
decision as to whether it will meet these future purchase obligations in cash,
common stock, or any combination thereof. Such decision will be based on market
conditions at the time a decision is required, as well as management's view of
the liquidity of the Company at such time. In addition, as of 35 business days
after the occurrence of any change in control of the Company occurring on or
prior to December 14, 1998, each LYON will be purchased for cash by the Company,
at the option of the holder, for a change in control purchase price equal to the
issue price of the LYONs plus accrued original issue discount through the date
set for such purchase. A change in control of the Company is deemed to have
occurred under the terms of the LYONs at such time as any person, other than the
Company, has become the beneficial owner of 50% or more of the Company's
common stock or the Company is not the surviving corporation of any
consolidation or merger of the Company. The Stock Purchase Agreement and
ownership by Samsung of approximately 40% of the common stock of the Company
(Note 7) does not have any impact on the terms of the LYON securities. In
addition, the potential increase in ownership by Samsung to 45% assuming
exercise of its option on 4.4 million shares of common stock (Note 7) would not
have any impact on the terms of the LYONs.
In connection with the Tandy acquisition, the Company issued a $96.7 million
promissory note to Tandy Corporation which is due on July 11, 1996. Interest
due related to fiscal year 1995 was paid on July 11, 1995 at a rate of 4.94% per
annum. The interest rate was adjusted to 5.00%, effective July 11, 1995, based
on the lower of either 5% or the "lowest three month rate" within the meaning of
Section 1274(d)(2) of the Internal Revenue Code of 1986 as of July 11, 1995.
Interest is paid once per year on July 11th and there are no sinking fund
requirements. The note also required the Company to maintain a standby letter
of credit payable to Tandy in the amount of 70% of the face value of the note or
$67.7 million. Upon maturity of the note, up to 50% of the initial principal
amount of the promissory note was convertible, at the option of the Company,
into common stock of the Company based upon its then fair market value, as
defined in the promissory note. Under the terms of the Stock Purchase Agreement
(Note 7), Samsung agreed to provide a letter of credit to support the
promissory note due to Tandy Corporation replacing the Company's letter of
credit and to provide funds to satisfy $75 million of the note obligation upon
maturity of the note.
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6. LONG-TERM DEBT (CONTINUED)
On August 23, 1995, the Company and Tandy Corporation amended the terms of the
$96.7 million promissory note. Pursuant to such amendments, the Company paid
$6.7 million on August 25, 1995, thereby reducing the note balance to $90
million. Tandy allowed the substitution of a letter of guarantee from both
Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. for the
letter of credit previously required from the Company. Additionally, the
maximum principal amount of the note that may be converted, at the option of the
Company, into common stock of the Company upon maturity of the note, based upon
its then fair market value as defined in the note, was reduced to $30 million.
All other terms of the promissory note remained unchanged.
Principal repayments on long-term debt required in fiscal years 1996, 1997,
1998, 1999 and 2000 are $92,361,000, $307,000, $302,000, $302,000 and $302,000,
respectively.
NOTE 7. SHAREHOLDERS' EQUITY TRANSACTIONS
On February 27, 1995, the Company entered into a Stock Purchase Agreement
("Purchase Agreement") with Samsung providing for a significant minority
ownership interest in the Company of approximately 40%. On June 30, 1995, the
Company's shareholders approved the strategic investment and all regulatory
approval was received as of July 1, 1995. Under the terms of the Purchase
Agreement, as amended by Amendment No. 1 thereto dated June 1, 1995, and
Amendment No. 2 thereto dated July 29, 1995, Samsung purchased 6.44 million
newly issued shares of common stock from the Company, representing 19.9% of the
then outstanding shares of common stock, at $19.50 per share and commenced a
cash tender offer to purchase 5.82 million shares of common stock from the
Company's shareholders, representing 18% of the then outstanding shares of
common stock, at $22 per share. Concurrently with the acceptance of the shares
for purchase under the tender offer, Samsung also purchased 5.63 million
additional newly issued shares of common stock from the Company at $22 per share
so that its aggregate ownership interest in the Company, after completion of all
of the purchases, was approximately 40%. On July 31, 1995, the transaction was
completed and the Company received net proceeds of approximately $240 million.
On December 21, 1995, the Company signed an Additional Support Agreement with
Samsung that provides additional financial support to the Company, principally
including a guaranty by Samsung of a line of credit of up to $200 million
through December 1997 and a vendor line of credit with Samsung of $100 million
through November 1997 for component purchases. In exchange for the additional
financial support, the Company issued an option to Samsung to purchase 4.4
million shares of the Company's common stock at an exercise price of $.01 per
share, exercisable between July 1, 1996 and June 30, 2001, and allowed Samsung
to add an additional member to the Company's Board of Directors. The issuance
of the option increases Samsung's potential ownership in the Company to
approximately 45%. The benefits received in exchange for the option were
recorded in "Other assets" based on the fair value of the option at the date of
issuance, or $31 million. In connection with this agreement, the Company
incurred professional fees of approximately $2 million, which were also
capitalized. This other asset will be amortized on a straight-line basis to
interest expense over the benefit period ending December 1997. During
transition period 1995, approximately $.5 million was amortized to interest
expense.
NOTE 8. FINANCIAL INSTRUMENTS
Foreign Currency Contracts
In the ordinary course of business and as part of the Company's asset and
liability management, the Company enters into various types of transactions that
involve contracts and financial instruments with off-balance sheet risk. The
Company utilizes foreign exchange contracts and foreign currency borrowings to
hedge its exposure to foreign exchange rate fluctuations impacting its U.S.
dollar consolidated financial statements. The Company attempts to minimize its
exposure to foreign currency transaction and remeasurement gains and losses due
to the effect of remeasuring the local currency balance sheets of its foreign
subsidiaries on the Company's consolidated financial position and results of
operations by utilizing a limited hedging strategy which includes the use of
foreign currency borrowings, the netting of foreign currency assets and
liabilities and forward exchange contracts. The actual gain or loss associated
with forward exchange contracts are limited to the contract amount multiplied by
the value of the exchange rate differential between the time the contract is
entered into and the time it matures. The Company typically holds all of its
contracts until maturity and enters forward contracts ranging in maturity dates
from one
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 8. FINANCIAL INSTRUMENTS (CONTINUED)
to nine months. Realized and unrealized gains and losses on the forward
contracts are recognized currently in the consolidated statement of operations,
and any premium or discount is recognized over the life of the contract. Some
foreign locations, such as the People's Republic of China ("PRC"), do not allow
open market hedging of their currencies and, therefore, the Company is not able
to hedge all of its exposure to foreign currency fluctuations.
The Company held forward exchange contracts maturing at various dates through
April 1996 with a face value of approximately $162.0 million at December 30,
1995, $162.0 million at July 1, 1995 and $143.0 million at July 2, 1994, which
approximate the Company's hedgeable net monetary asset exposure to foreign
currency fluctuations at those respective dates. For the transition period
ended December 30, 1995, and for the fiscal years ended July 1, 1995, July 2,
1994 and July 3, 1993, a net foreign currency transaction loss of $2.9 million,
gain of $1.7 million, loss of $2.1 million and gain of $.6 million,
respectively, is included in the caption "Other income (expense), net" in the
accompanying consolidated statements of operations. Foreign currency borrowings
at December 30, 1995, July 1, 1995 and July 2, 1994, totaled $4.0 million, $4.2
million and $3.8 million, respectively.
Fair Values of Financial Instruments
The estimated fair values of financial instruments are as follows:
<TABLE>
<CAPTION>
- - - -------------------------------------------------------------------------------------------------------------------
December 30, 1995 July 1, 1995 July 2,1994
------------------------ ----------------------- ----------------------
Carrying Estimated Carrying Estimated Carrying Estimated
(In thousands) Amount Fair Value Amount Fair Value Amount Fair Value
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 125,387 $ 125,387 $ 95,825 $ 95,825 $ 153,118 $ 153,118
Short-term borrowings (75,000) (75,000) (156,000) (156,000) (50,000) (50,000)
Current portion of long-term debt (92,361) (92,361) (2,420) (2,420) (398) (398)
Long-term debt:
Liquid Yield Option Notes (123,937) (107,100)(a) (120,768) (103,950)(a) (114,666) (91,350)(a)
Other (1,603) (1,603) (98,456) (98,456) (100,628) (100,628)
Forward exchange contract liability (370) (370) (611) (611) (4,830) (4,830)
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on quoted market price as required by SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments." While the Company's Liquid
Yield Option Notes ("LYONs") are publicly traded debt instruments (NASDAQ
symbol "ASTAL"), actual trading volume in the LYONs has been very small and
the Company does not believe that prices quoted by the NASDAQ National
Market System accurately reflect the true cost of repurchasing the LYONs.
The Company also does not believe that a significant number of LYONs would
be available for sale at prices quoted on the NASDAQ System. There are a
total of 315,000 par value LYONs issued and outstanding at December 30,
1995. Additionally, under the terms of the LYONs, the holder of a LYON may
require the Company to purchase its LYONs on the Purchase Dates, as
defined, or 35 business days after the occurrence of any change in control
of the Company (Note 6), at a price equal to the original issue price plus
accrued original issue discount through each such date. Therefore, while
the quoted market price of the LYONs can vary due to changes in the
Company's common stock price impacting the value assigned to the conversion
feature of the LYONs, the Company believes that a better representation of
the estimated fair value of the debt associated with the LYONs is equal to
the original issue price of the LYONs plus the accrued original issue
discount at the stated rate of 5.25%, compounded semi-annually. Thus, the
Company believes a better estimate of the fair value of the LYONs at
December 30, 1995, July 1, 1995 and July 2, 1994 is $123.9 million, $120.8
million and $114.7 million, respectively.
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 8. FINANCIAL INSTRUMENTS (CONTINUED)
Concentrations of Credit Risk
The Company's foreign exchange instruments, along with cash and cash
equivalents and accounts receivable, involve elements of market and credit risk.
The counterparties to financial instruments consist of a number of major
financial institutions. In addition to limiting the amount of agreements and
contracts it enters into with any one party, the Company monitors the credit
quality of the financial institutions which are counterparties to these
financial instruments. The Company does not believe that there is significant
risk of nonperformance by the counterparties.
The Company distributes its products through various distribution channels,
including independent resellers, dealers, national distributors, national
reseller organizations, OEMs, U.S. Government approved dealers and consumer
retailers. Concentrations of credit risk are generally limited due to the
Company's broad range of distribution channels and the Company's geographically
diverse customer base. However, sales in certain European countries and into
the PRC are to a more limited customer base comprised primarily of larger
entities which may be affected by, among other things, the economic conditions
and/or political occurrences within the region. Sales into the PRC for
transition period 1995, fiscal year 1995, fiscal year 1994 and fiscal year 1993
accounted for approximately 7%, 5%, 6% and 11%, respectively, of the Company's
total revenues.
The Company's sales are primarily to customers whose activities are related
to the retail, consumer electronics or personal computer industries. Therefore,
the Company's ability to collect trade receivables may be adversely affected by
changes or conditions impacting these industries. Credit limits, credit
insurance, ongoing credit evaluations and account monitoring procedures are
utilized to various degrees to attempt to reduce the risk of loss on the
Company's accounts receivable. No single customer accounted for more than 10%
of the Company's net sales for transition period 1995, or for fiscal years 1995,
1994 or 1993.
NOTE 9. INCOME TAXES
The income tax provision (benefit) is based on income (loss) before income taxes
as follows:
<TABLE>
<CAPTION>
- - - -------------------------------------------------------------------------------------
Six Months Fiscal Year Ended
Ended --------------------------------------
December 30, July 1, July 2, July 3,
(In thousands) 1995 1995 1994 1993
- - - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. $ (139,438) $ (103,930) $ 16,534 $ (63,255)
Foreign (85,568) (19,435) 29,778 (1,983)
- - - -------------------------------------------------------------------------------------
$ (225,006) $ (123,365) $ 46,312 $ (65,238)
=====================================================================================
</TABLE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------
Six Months Fiscal Year Ended
Ended ------------------------------------
December 30, July 1 , July 2, July 3,
(In thousands) 1995 1995 1994 1993
- - - ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $ 2,033 $ (700) $ (2,781) $ 36,461
State 107 (124) (201) 1,116
Foreign (4,187) 2,086 9,002 6,361
- - - ---------------------------------------------------------------------------------
(2,047) 1,262 6,020 43,938
- - - ---------------------------------------------------------------------------------
Deferred:
Federal (249) (19,971) 8,532 (54,424)
State (50) (3,722) 105 (3,108)
Foreign 2,346 (1,625) 346 2,094
- - - ---------------------------------------------------------------------------------
2,047 (25,318) 8,983 (55,438)
- - - ---------------------------------------------------------------------------------
$ - $ (24,056) $ 15,003 $ (11,500)
=================================================================================
</TABLE>
Deferred taxes reflect the impact of future tax consequences associated with
temporary differences between the amount of assets and liabilities recorded for
tax and financial accounting purposes. These temporary differences are
determined in accordance with SFAS No. 109. Temporary differences and
carryforwards which give rise to a significant portion of deferred tax assets
and liabilities as of December 30, 1995, July 1, 1995 and July 2, 1994 are as
follows:
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------------------------
December 30, 1995 July 1, 1995 July 2,1994
---------------------- ----------------------- -----------------------
(In thousands) Assets Liabilities Assets Liabilities Assets Liabilities
- - - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Inventory reserves $ 12,726 $ - $ 11,178 $ - $ 16,968 $ -
Accrued liabilities 14,367 - 14,834 - 14,224 -
Undistributed foreign earnings,
net of foreign tax credit - (21,976) - - - -
Restructuring charge 3,671 - 4,055 - 5,365 -
Warranty reserves 9,868 - 4,857 - 5,201 -
State income taxes - (1,031) - (1,750) - (914)
Goodwill and intangibles amortization - (1,441) - (1,762) - (2,524)
Net operating loss carryforwards 147,684 - 72,362 - 27,366 -
Other 14,488 (244) 10,488 (422) 9,352 (274)
- - - -----------------------------------------------------------------------------------------------------------------------
Total deferreds 202,804 (24,692) 117,774 (3,934) 78,476 (3,712)
Valuation allowance (114,601) - (48,282) - (34,524) -
- - - -----------------------------------------------------------------------------------------------------------------------
$ 88,203 $ (24,692) $ 69,492 $ (3,934) $ 43,952 $ (3,712)
=======================================================================================================================
</TABLE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
The Company has established a valuation allowance against its deferred tax
assets at December 30, 1995, July 1, 1995 and July 2, 1994 of $114.6 million,
$48.3 million and $34.5 million, respectively, in accordance with the provisions
of SFAS No. 109. The $66.3 million increase in this valuation allowance is
primarily the result of management's determination that it is more likely than
not that the increased deferred tax asset resulting from the transition period
operating loss will not be realized.
In determining the actual amount of the valuation allowance required to be
established, the Company has primarily relied upon its ability to generate
future taxable income using available tax planning strategies involving the
potential sale of certain appreciated assets. Although the Company has utilized
an outside valuation firm to determine the current estimated fair market value
of such assets, changes in market conditions could result in a reduction of the
estimated fair market value of these assets that would adversely affect the
amount of the valuation allowance and reduce the amount of net deferred tax
assets considered realizable.
The income tax provision (benefit) differs from the amounts computed by
applying the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------------------------------------
Six Months Fiscal Year Ended
Ended --------------------------------------
December 30, July 1, July 2, July 3,
(In thousands) 1995 1995 1994 1993
- - - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statutory federal income tax provision (benefit) $ (78,752) $ (43,178) $ 16,209 $ (22,181)
Increase (decrease) in taxes resulting from:
State income taxes, net of federal benefit 43 (2,208) (137) (1,312)
Tax on undistributed foreign earnings 34,631 - - -
Foreign income taxed at different rates 5,642 5,692 (10,005) (7,635)
Losses producing no current tax benefit 38,870 15,916 8,589 8,307
Adjustment to deferred assets and liabilities for
change in tax rate - - (1,266) -
Restructuring charge producing no current tax benefit - - - 12,748
Other, net (434) (278) 1,613 (1,427)
- - - ---------------------------------------------------------------------------------------------------------------
$ - $ (24,056) $ 15,003 $ (11,500)
===============================================================================================================
</TABLE>
The Company's manufacturing operations in Taiwan and the PRC operate under
complete or partial tax holidays which expire in 1997 and 1999, respectively.
The aggregate dollar amount and per share effect of these tax holidays were
immaterial for transition period 1995 and for fiscal years 1995, 1994 and 1993.
In determining the provision (benefit) for income taxes for transition period
1995, the Company has utilized approximately $4 million of prior year net
operating loss ("NOL") carryforwards to reduce the amount of taxes otherwise
payable for such year. The Company has $389 million of remaining NOL
carryforwards which it expects will be available to offset future taxable
income. Approximately $158 million of such carryforwards relate to foreign
operations in various taxing jurisdictions of which $76 million expire in years
1996 through 2005 and $82 million have no expiration date. The remaining $231
million of such carryforwards relate to U.S. operations and expire in the years
2010 and 2011. Utilization of these U.S. NOL carryforwards to offset future
taxable income in any particular year could be limited should the Company
undergo a 50% "ownership change," as defined under Section 382 of the Internal
Revenue Code of 1986, within a three year measurement period. Any limitation
pursuant to these provisions would be effective for all tax years starting with
the year of ownership change. As of December 30, 1995, the Company has
experienced an ownership change for purposes of this limitation of approximately
40% as a direct result of the investment by Samsung pursuant to the Stock
Purchase Agreement (Note 7).
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
The Internal Revenue Service ("IRS") is currently examining the Company's
1989, 1990 and 1991 federal income tax returns. In addition, the IRS has
completed its examination of the Company's 1987 and 1988 federal income tax
returns and has proposed adjustments to the Company's federal tax liabilities
for such years of approximately $8.3 million, excluding interest, relating to
the allocation of income between the Company and its foreign subsidiaries.
Management believes that the Company's position has substantial merit and
intends to vigorously contest these proposed adjustments. Management further
believes that any liability that may result upon the final resolution of the
proposed adjustments for 1987 and 1988 or current examinations of 1989, 1990 and
1991 will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
NOTE 10. BENEFIT PLANS
Profit Sharing Plan
During 1983, the Company established a profit sharing plan for all employees.
The plan is a noncontributory, defined contribution plan that provides for
contributions from the Company based on eligible compensation. The Company's
contributions are determined at the discretion of the Board of Directors and are
not to exceed income before provision for income taxes and profit sharing
expense. The Company did not contribute to the plan for transition period 1995
or for the years ended July 1, 1995, July 2, 1994 and July 3, 1993.
In 1987, the Company approved a modification to the profit sharing plan that
added a 401(k) employee savings program. Under the 401(k) plan, the Company is
obligated to contribute matching amounts for employee contributions equal to
100% on the first 2% of employee salary contributions and 50% on the next 4% of
employee salary contributions. Company contributions generally vest over five
years from the date of the employee's eligibility to participate. The Company
contributed approximately $1,061,000 to the plan for the transition period ended
December 30, 1995. The Company's contributions for the years ended July 1,
1995, July 2, 1994 and July 3, 1993 amounted to $2,456,000, $2,064,000 and
$1,679,000, respectively.
Employee Bonus Plans
Pursuant to the Employee Bonus Plan, all employees of the Company are
eligible to receive, on a quarterly basis, a percentage of their base
compensation as a cash bonus. The percentage paid is at the discretion of
management and is limited to a maximum of 15% of the respective employee's base
quarterly compensation. For transition period 1995 and fiscal year 1995, no
bonuses were paid. Bonuses paid for the fiscal years ended July 2, 1994 and
July 3, 1993 were $1,954,000 and $1,568,000, respectively.
The Company also has a performance based management incentive plan for
officers and key employees. Bonuses under the plan are distributed to officers
and key employees of the Company based upon performance related criteria
determined at the discretion of the Compensation Committee of the Board of
Directors. For transition period 1995 and fiscal year 1995, no bonuses were
paid. Bonuses paid for the fiscal years ended July 2, 1994 and July 3, 1993
were $1,920,000 and $3,928,000, respectively.
Stock Plans
The Company has four employee stock plans, adopted in 1983, 1985, 1989 and
1995, and two non-employee director stock plans adopted in 1991 and 1994 (the
"Plans"). The Incentive Stock Option, Non-Qualified Stock Option and Restricted
Stock Purchase Plan - 1983 (the "1983 Plan"), as amended in 1984, 1985 and 1987,
provided for the granting of options or rights to purchase up to an aggregate of
3,600,000 shares of the Company's common stock to officers, directors, employees
and others. The 1983 Plan expired in November 1993, except as to options then
outstanding. At December 30, 1995, 17,400 options remained outstanding at
exercise prices ranging from $18.75 to $21.50 per share.
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 10. BENEFIT PLANS (CONTINUED)
Stock Plans (continued)
In 1985, the Company adopted the Chief Executives' Plan (the "CE Plan"). The
CE Plan, as amended in 1987, provided for an aggregate of 1,200,000 shares of
the Company's common stock to be available to the chief executive officers,
which include the president and executive vice presidents of the Company, and
such other officers that the Board of Directors might specifically designate as
a "chief executive officer" for purposes of the CE Plan. In 1995, the CE Plan
was terminated, except as to options then outstanding. At December 30, 1995,
200,000 options remained outstanding and were exercisable at an exercise price
of $3.50 per share.
The 1989 Long-Term Incentive Program (the "1989 Program"), as amended in
1992, provides for the granting of stock options, stock appreciation rights,
restricted stock and performance units. The amendment, as adopted by the Board
and approved by a shareholder vote, annually increases shares authorized to be
issued by 2% of the number of common shares outstanding at each fiscal year-end.
Under the 1989 Program, options granted become exercisable at the discretion of
the Board of Directors or Compensation Committee and expire ten years from the
date of grant. No stock appreciation rights or performance units have been
granted under the 1989 Program.
The Company's 1991 Stock Option Plan for Non-Employee Directors (the "Non-
Employee Option Plan"), as amended in 1995, provides for an initial grant of
options to purchase 20,000 shares of the Company's common stock to each newly
appointed non-employee director. In addition, on January 1 each year, each
participant will receive an option to purchase 12,000 shares of common stock.
The aggregate number of shares that may be issued under the Plan is 500,000.
Options vest equally over four years commencing on the first anniversary of the
date of grant. Each option is exercisable at 100% of the common stock's fair
market value on the date of grant.
In 1994, the Company adopted the AST Research, Inc. 1994 One-Time Grant Stock
Option Plan for Non-Employee Directors. The Plan, as amended in 1995, provided
for the grant of an option to purchase 50,000 shares of common stock to each
non-employee member of the Company's Board of Directors on July 1, 1994. At
December 30, 1995, 150,000 options remained outstanding and were exercisable at
an exercise price of $14.25 per share.
In 1995, the Company adopted the President's Plan. The President's Plan
provides for an aggregate of 1,000,000 shares of the Company's common stock to
be available to the President of the Company. At December 30, 1995, non-
statutory options covering 1,000,000 shares have been granted to the President
of the Company at the closing market price on the date of grant. Of the options
granted, 300,000 vest equally over four years commencing on the first
anniversary of the date of grant. The remaining 700,000 options vest equally
over eight years commencing on the first anniversary of the date of grant, with
acceleration of vesting possible in the event of certain Company stock price
performance targets are achieved.
The following table summarizes transition period 1995 stock option activity
under all of the stock plans:
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------
Number of Options
Price range --------------------------
of shares Under Available for
under option grant future grant
- - - ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at July 1, 1995 $ 3.50 - $ 31.63 4,481,975 1,652,631
Authorized - - 2,143,588
Granted 8.38 - 15.88 2,579,425 (2,579,425)
Exercised 3.50 - 11.44 (196,900) -
Canceled 5.50 - 28.75 (1,345,625) 1,345,625
Plan shares expired - - (794,675)
- - - ------------------------------------------------------------------------------------
Outstanding at December 30, 1995 $ 3.50 - $ 31.63 5,518,875 1,767,744
====================================================================================
Exercisable at December 30, 1995 $ 3.50 - $ 31.63 2,183,574 -
====================================================================================
</TABLE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 10. BENEFIT PLANS (CONTINUED)
Stock Plans (continued)
At December 30, 1995, 7,286,619 shares of the Company's common stock were
reserved for issuance under the stock option plans.
In December 1990, the Board of Directors authorized the issuance of warrants
to purchase an aggregate of 80,000 shares of the Company's common stock to its
then non-employee directors. At December 30, 1995, 40,000 of these warrants
remained outstanding and were exercisable at an exercise price of $13.88 per
share. On July 27, 1992, the Board of Directors authorized the issuance of
warrants to purchase 50,000 shares of the Company's common stock to the
Company's then Chairman of the Board. At December 30, 1995, 37,500 of these
warrants remained outstanding and were exercisable at an exercise price of
$13.50 per share.
As a result of completing the transaction with Samsung effective July 31,
1995 (Note 7), unvested options granted to executive officers to purchase
754,500 shares of common stock under the 1989 Program at prices ranging from
$11.44 to $21.50 became immediately exercisable. In addition, unvested options
granted to non-employee directors to purchase 175,000 shares of common stock
under the 1994 One-Time Grant Stock Option Plan for Non-Employee Directors at
$14.25 per share and warrants issued on July 27, 1992 to purchase 25,000 shares
of common stock at $13.50 per share became immediately exercisable.
On October 26, 1995, all outstanding stock options held by employees other
than corporate officers or Board members were repriced with a new exercise price
of $9.38 per share, the closing market price on that date, subject to the
condition that the options are not exercised and employment is not terminated
prior to October 26, 1996. The number of shares and vesting schedule of the new
option grants is the same as that of the old options replaced. The Company
initiated this repricing arrangement in order to retain and motivate key
employees as part of an effort to successfully implement the Company's
turnaround plan. In conjunction with the repricing, all affected options
outstanding under the 1983 Plan were made available for cancellation and
reissuance under the 1989 Program. A total of 2,108,173 options with exercise
prices ranging from $12.75 to $31.63 were repriced.
NOTE 11. SHAREHOLDER RIGHTS PLAN
On June 30, 1989, the Board of Directors adopted a Shareholder Rights Plan
which is intended to protect shareholders from unfair takeover practices. Under
the Plan, each share of common stock carries one right to obtain additional
stock or other property according to terms provided in the Plan. The rights are
not exercisable or separable from the common stock until another party acquires
at least 15% of the Company's then outstanding common stock or commences a
tender offer for at least 15% of the Company's then outstanding common stock.
In the event the Company is acquired in a merger or other business
combination transaction in which the Company is not the surviving corporation or
50% or more of its consolidated assets or earning power are sold or
transferred, each right will entitle its holder to receive, at the then current
exercise price, common stock of the acquiring company having a market value
equal to two times the exercise price of the right. If a person or entity were
to acquire 15% or more of the outstanding shares of the Company's common stock,
or if the Company is the surviving corporation in a merger and its common stock
is not changed or exchanged, each right will entitle the holder to receive, at
the then current exercise price, common stock having a market value equal to two
times the exercise price of the right. Until a right is exercised, the holder
of a right, as such, will have no rights as a shareholder of the Company,
including, without limitation, the rights to vote as a shareholder or receive
dividends. The rights, which expire on June 30, 1999, may be redeemed by the
Company at a price of $0.01 per right. At December 30, 1995, 500,000 of the
1,000,000 authorized but unissued preferred shares of the Company are reserved
for issuance upon exercise of these rights.
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 11. SHAREHOLDER RIGHTS PLAN (CONTINUED)
As a condition to entering into the Purchase Agreement with Samsung, the
Company amended the Shareholder Rights Plan to allow Samsung, in accordance with
the terms and conditions of the Stockholder Agreement between the Company and
Samsung dated July 31, 1995, to acquire, without additional Board or Stockholder
approval and without triggering the Plan, up to 49.9% of the common stock during
the first four years of its investment, and after the standstill period, which
now ends December 15, 1998, up to 66.67% of the common stock except that such
limits shall not apply to any acquisition by Samsung made pursuant to a cash
tender offer for all equity securities not owned by Samsung and/or its
affiliates.
NOTE 12. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its field offices, certain equipment, automobiles and most
of its operating facilities under operating lease agreements. The Company also
has capital leases for certain equipment. Future minimum lease payments under
these leases approximate the following amounts:
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------
Lease Obligations
(In thousands) -------------------------
Fiscal Year Capital Operating
- - - --------------------------------------------------------------------------------
<S> <C> <C>
1996 $ 302 $ 14,538
1997 302 10,803
1998 302 8,380
1999 302 4,986
2000 302 2,075
Thereafter 390 18,771
- - - --------------------------------------------------------------------------------
Total minimum lease payments $ 1,900 $ 59,553
================================================================================
</TABLE>
At December 30, 1995, the net present value of obligations under capital
leases totaled $1,900,000 and are included in long-term and/or current portion
of long-term debt in the accompanying consolidated balance sheet. At December
30, 1995, the assets held under capital leases total $3,754,000, net of $134,000
in accumulated depreciation, and are included in land and buildings in the
accompanying consolidated balance sheet.
Rent expense for transition period 1995, and for the fiscal years ended July
1, 1995, July 2, 1994 and July 3, 1993, was approximately $5,070,000,
$11,125,000, $10,588,000 and $9,215,000, respectively.
Royalty Commitments
The Company has commitments for minimum guaranteed royalties under various
licensing agreements which are payable over periods ranging from one to five
years. The Company has been notified that certain of its products may also
require licenses under patents held by others. The Company evaluates these
licensing proposals on a case-by-case basis to determine whether licenses are
necessary or desirable. Although these evaluations continue, management is
accruing amounts that, in its judgment, represent the potential royalties and/or
legal costs of resolving these claims.
Employment Contracts
Effective July 27, 1993, the Company entered into a separate employment
contract (Founder's Agreement) with founder and Chairman of the Board, Safi U.
Qureshey, who was then serving as the Company's Chief Executive Officer. The
Founder's Agreement provides for five years of salary, health and welfare
benefits, two years of bonus, acceleration of stock options and certain other
benefits if active employment is terminated by the Company or by Mr. Qureshey
under specified conditions. The maximum contingent liability under this
agreement is approximately $4 million.
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Contracts (continued)
The Company maintains Severance Compensation Agreements with its executive
officers and its non-officer vice presidents. Such agreements provide for (i)
lump sum payments comprised of up to two years of salary and bonus and certain
other benefits for executive officers, or one year of salary and bonus and
certain other benefits for vice presidents who are not executive officers and
(ii) acceleration of the vesting of stock options upon a "change of control" of
the Company and termination of the covered employee for reasons specified in the
contract. The aggregate commitment under these Severance Compensation Agreements
should all covered employees be terminated is approximately $7.8 million.
The Company has a severance policy for its executive officers which, in the
event of an involuntary termination other than in connection with a "change in
control," generally requires the Company to pay its President severance equal to
two years of salary and its other executive officers' severance equal to six
months of salary plus an additional month of salary for each year of employment
with the Company, up to a maximum of 12 months. Benefits are also continued
during this period.
Other Contingencies
On March 3 and March 14, 1994, complaints were filed by two shareholders
against the Company and certain of its officers and directors requesting
certification of class action, asserting claims under state and federal
securities laws based on allegations that the Company made inadequate and false
disclosures and seeking unspecified compensatory damages and related fees and
costs. The complaints were filed in the United States District Court for the
Central District of California. On September 12, 1994, a complaint was filed by
a shareholder against the Company and certain of its officers and directors
requesting certification of class action, asserting claims under state and
federal securities laws based on allegations that the Company made inadequate
and false disclosures and seeking unspecified compensatory damages and related
fees and costs. The September 12, 1994 complaint was filed in the United States
District Court for the Central District of California under the case name Steven
A. Kornfeld v. James L. Forquer, et al. On October 6, 1994, a complaint was
filed by a shareholder in the United States District Court for the Central
District of California. The October 6, 1994 complaint named the Company and
certain of its officers and directors as defendants, asserted claims under
state and federal securities laws based on allegations that the Company
made inadequate and false disclosures, and sought unspecified compensatory
damages and related fees and costs. The cases with complaints filed on March 3,
1994, March 14, 1994 and October 6, 1994 were consolidated under the case name
In re AST Research Securities Litigation. The In re AST Research Securities
Litigation and Kornfeld cases were treated as related cases by the court. A
settlement agreement dated August 28, 1995 was signed to end the In re AST
Research Securities Litigation and Kornfeld cases, and was preliminarily
approved by the court. It required the payment of $12.5 million by the
defendants to the plaintiffs. Such amounts were paid in November 1995. Of the
settlement amount of $12.5 million, approximately $10.4 million was funded by
three insurance carriers. Final approval of the settlement was ordered by the
court, but further proceedings are occurring to determine the portion of the
settlement amount that will be distributed to class members.
The Company has been named as a defendant or co-defendant, generally with
other personal computer manufacturers, including such companies as IBM, AT&T,
Unisys, Digital Equipment Corporation, NEC, Olivetti, NCR, Panasonic, and
Matsushita, in eighteen similar lawsuits each of which alleges as a factual
basis the occurrence of carpal tunnel syndrome or repetitive stress injuries.
The suits naming the Company are just a few of the many lawsuits of this type
which have been filed, often naming IBM and other major computer companies. The
claims against the Company total in excess of $100 million in compensatory
damages and punitive damages and additional unspecified amounts. The Company
has denied or is in the process of denying the claims and intends to vigorously
defend the suits. The Company is unable at this time to predict the ultimate
outcome of these suits. Ultimate resolution of the litigation against the
Company may depend on progress in resolving this type of litigation overall.
Before consideration of any potential insurance recoveries, the Company believes
that the claims in the suits filed against it will not have a material impact on
the Company's consolidated financial position or results of operations; however,
the Company is unable to estimate the amount of any loss that may be realized in
the event of an unfavorable outcome. The Company has maintained various
liability insurance policies during the periods covering the claims filed above.
While such policies may limit coverage under certain circumstances, the
Company believes that it is adequately insured. Should the Company not be
successful in defending against such lawsuits or not be able to claim
compensation under its liability insurance policies, the Company's profitability
and financial condition may be adversely affected.
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Other Contingencies (continued)
The Company was named, along with twelve other personal computer companies, as
a defendant in a lawsuit filed on March 27, 1995 in the Superior Court for the
County of Merced, California. The case name for this March 27, 1995 filing is
People v. Acer, et al., and the complaint alleges that the Company has engaged
in deceptive advertising and unlawful business practices in relation to computer
monitor screen measurements. The People v. Acer lawsuit was resolved by a
Stipulated Judgment that the Company signed along with representatives of all
other defendants. The Company was named, along with three other personal
computer or monitor companies, as a defendant in a class action lawsuit filed on
May 2, 1995 in the Superior Court for the County of Marin, California. The case
name for this May 2, 1995 filing is Kaplan, et al. v. Viewsonic, et al., and
alleges that the defendants have engaged in unfair business practices, false
advertising and breach of implied warranty concerning the advertisement of the
size of computer monitor screens. The Company was named, along with 37 other
defendants, in a class action lawsuit, Long v. Packard Bell, et al., filed on
August 21, 1995 in the Superior Court for the County of Orange, California,
which alleges certain claims concerning the advertising of the sizes of computer
monitors. The Company was named, along with nine other defendants, in a class
action lawsuit, Randy Davis, Ph.D., Inc. v. AST Research, et al., filed on
August 23, 1995 in Superior Court for the County of Orange, California, which
alleges certain claims concerning the advertising of the sizes of computer
monitors. The Company was named, along with 35 other defendants, in a class
action lawsuit, Sutter v. Acer, et al., filed on September 7, 1995 in the
Superior Court for the County of Sacramento, California, which alleges certain
claims concerning the advertising of the sizes of computer monitors. The
Company was named, along with 41 other defendants, in a class action lawsuit,
Shapiro v. ADI Systems, Inc., et al, filed on August 14, 1995 in Santa Clara
County, California, which alleges certain claims concerning the advertising of
the sizes of computer monitors. The Company was named, along with 29 other
defendants, in a class action lawsuit, Maizes & Maizes, et al, v. Apple
Computer Inc., et al, filed on December 15, 1995 in Essex County, New Jersey,
which alleges certain claims concerning the advertising of the sizes of computer
monitors. Management does not believe that the outcome of these disputes will
have a material adverse impact on the Company's consolidated financial position
or results of operations; however, the Company is unable to estimate the amount
of any loss that may be realized in the event of an unfavorable outcome.
The Company is also subject to other legal proceedings and claims that arise
in the normal course of business. While the outcome of these proceedings and
claims cannot be predicted with certainty, management does not believe that the
outcome of any of these matters will have a material adverse effect on the
Company's consolidated financial position or results of operations.
NOTE 13. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment: the manufacture and sale of
personal computers, including desktop, server, and notebook computer systems.
The Company currently markets its products through retail computer dealers,
consumer retailers, international and regional distributors, value added
dealers, and value added resellers.
At the end of fiscal year 1995, the Company reorganized its worldwide sales
organization and internal reporting structure into three major geographical
groups: The Americas, which includes the United States and Canada; Europe; and
Asia Pacific, which includes Asia, the Pacific Rim and the Middle East. Prior
period geographic information has been reclassified in accordance with this new
organization.
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 13. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
A summary of the Company's operations by geographic area is as follows:
<TABLE>
<CAPTION>
Six months ended December 30, 1995
- - - --------------------------------------------------------------------------------------------------
Asia
(In thousands) Americas Europe Pacific Eliminated Consolidated
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 453,054 $ 383,304 $ 179,925 $ - $ 1,016,283
Transfers between
geographic areas 140,797 378,420 419,466 (938,683) -
- - - --------------------------------------------------------------------------------------------------
Net sales $ 593,851 $ 761,724 $ 599,391 $ (938,683) $ 1,016,283
==================================================================================================
Operating income (loss) $ (149,180) $ (47,481) $ (18,974) $ 439 $ (215,196)
==================================================================================================
Identifiable assets $ 491,243 $ 380,769 $ 184,030 $ - $ 1,056,042
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended July 1, 1995
- - - --------------------------------------------------------------------------------------------------
Asia
(In thousands) Americas Europe Pacific Eliminated Consolidated
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 1,387,442 $ 743,561 $ 336,780 $ - $ 2,467,783
Transfers between
geographic areas 375,500 628,831 902,319 (1,906,650) -
- - - --------------------------------------------------------------------------------------------------
Net sales $ 1,762,942 $ 1,372,392 $ 1,239,099 $ (1,906,650) $ 2,467,783
==================================================================================================
Operating income (loss) $ (91,738) $ (6,362) $ (7,619) $ 29 $ (105,690)
==================================================================================================
Identifiable assets $ 508,714 $ 287,218 $ 225,569 $ - $ 1,021,501
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended July 2, 1994
- - - --------------------------------------------------------------------------------------------------
Asia
(In thousands) Americas Europe Pacific Eliminated Consolidated
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 1,546,010 $ 532,921 $ 288,343 $ - $ 2,367,274
Transfers between
geographic areas 404,582 251,605 904,204 (1,560,391) -
- - - --------------------------------------------------------------------------------------------------
Net sales $ 1,950,592 $ 784,526 $ 1,192,547 $ (1,560,391) $ 2,367,274
==================================================================================================
Operating income (loss) $ 22,786 $ (20,027) $ 44,025 $ 7,205 $ 53,989
==================================================================================================
Identifiable assets $ 541,469 $ 257,098 $ 207,053 $ - $ 1,005,620
==================================================================================================
</TABLE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 13. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Year ended July 3, 1993
- - - --------------------------------------------------------------------------------------------------
Asia
(In thousands) Americas Europe Pacific Eliminated Consolidated
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 854,929 $ 297,312 $ 259,909 $ - $ 1,412,150
Transfers between
geographic areas 234,815 55,690 752,408 (1,042,913) -
- - - --------------------------------------------------------------------------------------------------
Net sales $ 1,089,744 $ 353,002 $ 1,012,317 $ (1,042,913) $ 1,412,150
==================================================================================================
Operating income (loss) $ (69,677) $ (45,569) $ 42,458 $ 8,210 $ (64,578)
==================================================================================================
Identifiable assets $ 574,801 $ 173,028 $ 138,330 $ - $ 886,159
==================================================================================================
</TABLE>
In determining operating income (loss) for each geographic area, sales and
purchases between geographic areas have been accounted for on the basis of
internal transfer prices set by the Company. Identifiable assets are those
tangible and intangible assets used in operations in each geographic area. The
fiscal year 1993 restructuring charge of $125 million is included in operating
income (loss) in the geographic areas in which the actual restructuring costs
are expected to be incurred. This amount is comprised of $93.3 million in the
Americas segment, $25.6 million in the Europe segment and $6.1 million in the
Asia Pacific segment. The fiscal year 1994 restructure credit of $12.5 million
relates to and is included in the Americas operating income. The transition
period 1995 restructuring charge of $13 million relates to and is included in
the Asia Pacific operating loss.
NOTE 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The tables below set forth selected quarterly financial information for
transition period 1995, and for fiscal years 1995 and 1994 (in thousands, except
per share amounts).
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------------------------------
Six months ended December 30, 1995 First Quarter Second Quarter
- - - ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 403,357 $ 612,926
Gross loss (6,769) (10,106)
Net loss (96,382) (128,624)
Net loss per share $ (2.36) $ (2.88)
- - - ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------------------------------
Year ended July 1, 1995 First Quarter Second Quarter Third Quarter Fourth Quarter
- - - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 495,446 $ 640,159 $ 670,176 $ 662,002
Gross profit 37,299 66,318 86,942 55,115
Net loss (39,406) (21,724) (6,548) (31,631)
Net loss per share $ (1.22) $ (.67) $ (.20) $ (.98)
- - - ---------------------------------------------------------------------------------------------------------
</TABLE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------------------------------
Year ended July 2, 1994 First Quarter Second Quarter Third Quarter Fourth Quarter
- - - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 514,409 $ 677,011 $ 591,349 $ 584,505
Gross profit 85,900 114,566 101,106 46,161
Net income (loss) 8,232 17,933 13,214 (8,070)
Net income (loss) per share:
Primary $ .26 $ .55 $ .40 $ (.25)
Fully diluted $ .26 $ .54 $ .38 $ (.25)
- - - ---------------------------------------------------------------------------------------------------------
</TABLE>
In transition period 1995 and fiscal year 1995, fully diluted per share
information is anti-dilutive. In transition period 1995, the quarterly per
share amounts do not sum to the per share amounts for the six-month period due
to differences in the weighted average number of shares outstanding in each
quarterly reporting period versus the weighted average number of shares
outstanding for the six-month reporting period. In fiscal year 1994, the
quarterly per share amounts do not sum to the per share amounts for the annual
reporting period due to differences in the weighted average number of shares
outstanding determined by applying the treasury stock method to each quarterly
reporting period versus applying the treasury stock method to the annual
reporting period. In the fourth quarter of fiscal year 1994, the Company
recorded a pretax restructuring credit of $12.5 million.
NOTE 15. RELATED PARTY TRANSACTIONS
On July 31, 1995, the Company completed the sale of 12.07 million shares of
the Company's common stock to Samsung, receiving net proceeds of approximately
$240 million (Note 7).
On November 22, 1995, Samsung provided a $50 million short-term loan to the
Company at an interest rate of 7.3125% per annum. The Company repaid this loan
on December 28, 1995.
On December 21, 1995, the Company issued a five year option to Samsung to
purchase 4.4 million shares of the Company's common stock at an exercise price
of $.01 per share and allowed Samsung to add an additional member to the
Company's Board of Directors, in exchange for additional financial support,
principally including a guaranty on a two-year $200 million line of credit and a
two-year vendor line of $100 million for component purchases (Note 7).
During transition period 1995, the Company purchased $144.7 million of
components and products from Samsung. Amounts payable to Samsung at December
30, 1995 were $31.6 million.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
HOON CHOO, 50, was appointed a director in July 1995. Currently, Mr. Choo is
a consultant to Samsung Semiconductors Inc., a U.S. subsidiary of Samsung. Most
recently, Mr. Choo founded A-Cube Systems, in Cupertino, California in July 1994
and continues to provide consulting services to such company. Prior to A-Cube
Systems, Mr. Choo served as an Executive Vice President of Hyundai Electronics
America from September 1986 to April 1994. In addition, Mr. Choo was Director
of Computer Engineering of the Samsung Electronics Computer Division in Korea
from December 1981 to August 1986.
IAN W. DIERY, 46, was named President and Chief Executive Officer and was
appointed to the Company's Board of Directors in November 1995. Prior to
joining the Company, Mr. Diery served at Apple Computer for six years, most
recently as the company's Executive Vice President and General Manager for the
Personal Computer Division. Mr. Diery also served as Executive Vice President,
Worldwide Sales and Marketing at Apple from July 1992 to July 1993, and Senior
Vice President and President of Apple Pacific Division from October 1989 to July
1992. Prior to his tenure at Apple, from August 1978 to August 1989, Mr. Diery
served in various executive roles at Wang Laboratories, Inc., including
Executive Vice President, Worldwide Field Operations, Senior Vice President, USA
Sales Operations, and Senior Vice President, Europe.
RICHARD J. GOEGLEIN, 61, has served as a director since May 1987. Mr.
Goeglein is founder and principal of Gaming Associates, a casino management
company which develops and operates hotels/casinos at selected locations in the
United States. Mr. Goeglein served as President and Chief Executive Officer of
Dakin, Inc. from April 1990 through September 1991. Since January 1988, Mr.
Goeglein has also been the Chairman of ConServ International, a consulting and
real estate development business. From 1984 to his retirement date of December
31, 1987, Mr. Goeglein was the President and Chief Operating Officer of Holiday
Corporation, the holding company of Holiday Inns, Inc. Mr. Goeglein also served
on the Board of Directors of Holiday Corporation from 1978 to 1988. Mr.
Goeglein currently serves as a director of Boomtown Hotels and Casinos and
Platinum Software Corporation.
KWANG-HO KIM, 56, was appointed a director in July 1995. Since November
1994, Mr. Kim has served as Vice Chairman, President and Chief Executive Officer
of Samsung. Mr. Kim first joined Samsung when Tongyang Broadcasting Co. merged
into the Samsung Group in January 1969. In 1978, Mr. Kim was one of the
founders of the semiconductor business of Samsung, and was named Vice President
in charge of the Research and Development Center for the semiconductor business
at Samsung in March 1987. Throughout his career at Samsung, Mr. Kim has held a
number of positions in research and development, manufacturing, plant and
division management, where he was named President and Chief Executive Officer of
the semiconductor business in March 1990, and named President and Chief
Executive Officer of Samsung in December 1992. Mr. Kim is currently Chairman of
the Korea Semiconductor Industry Association (KSIA).
YOUNG SOO KIM, 61, was appointed a director in July 1995. Since January
1993, Mr. Kim has served as Corporate Vice President of Samsung. He joined
Samsung in August 1987 as Vice President of the semiconductor business and in
June 1989 was named President of the Computer and Systems Business. Before
joining Samsung, Mr. Kim was Vice President of Honeywell in charge of its Solid
State Electronics Division from December 1974 to August 1987.
JACK W. PELTASON, 72, has served as a director since July 1993. Mr. Peltason
has served as President of the University of California from 1992 to 1995,
following an eight-year tenure as Chancellor of the University of California,
Irvine, a seven-year term as President of the American Council on Education, and
a ten-year term as Chancellor at the University of Illinois at Urbana-Champaign.
Mr. Peltason is currently on the Board of Directors of Irvine Apartment
Communities and serves as a member of the Board of Trustees for the FHP
Foundation, Irvine Health Foundation, and Teachers Insurance and Annuity
Association.
SAFI U. QURESHEY, 45, a Company founder, has served as a director since the
Company's inception and served as President from the Company's inception through
July 1994. In July 1988, Mr. Qureshey was elected Chief Executive Officer and
served as such until November 1995. He served as Co-Chairman of the Board from
1988 through June 1992, and was elected Chairman of the Board in November 1993.
Mr. Qureshey is currently a member of the President's Export Council (PEC).
This premier national committee advises President Clinton on government policies
and programs that affect U.S. trade performance and promotes export expansion.
In addition, Mr. Qureshey was awarded the 1995 UCI Medal, the University of
California, Irvine's highest honor, for his service and commitment to the
university.
CARMELO J. SANTORO, PH.D., 54, served as Chairman of the Board from June 1992
until November 1993 and has served as a director since September 1990. In
November 1993, Dr. Santoro was elected Vice Chairman of the Board and served as
such through December 1995. Dr. Santoro is Chairman and Chief Executive Officer
of Platinum Software Corporation. Dr. Santoro was President and Chief Executive
Officer of Silicon Systems, Inc. from 1982 through 1991 and was Chairman from
1984 through 1989, when Silicon Systems, Inc. was acquired by TDK Corporation of
Tokyo, Japan. From 1980 to 1982, Dr. Santoro was Vice President, Integrated
Circuits at the Solid State Division of RCA. In addition to Platinum Software
Corporation, Dr. Santoro is currently a director of Dallas Semiconductor
Corporation, S3, Inc. and Smartflex Systems, Inc.
BO-SOON SONG, 48, was appointed a director in January 1996. Since January
1995, Mr. Song has served as President and Chief Executive Officer of Samsung
North America, the U.S. headquarters of the Samsung Group. Mr. Song was Chief
Executive Officer of Samsung Electronics America Holding Company ("SEA"). Prior
to being appointed as Chief Executive Officer in September 1993, Mr. Song had
been Chief Finance Officer of SEA from 1991, and earlier served as Finance
Director of Samsung from 1988. From 1984 to 1988, Mr. Song was Treasurer of
Samsung Trading Co. in London England. Mr. Song joined Samsung in 1980 as an
Assistant General Manager for the Samsung Group Chairman Office's International
Finance Division.
WON SUK YANG, 52, was appointed a director in July 1995. Since April 1995,
Mr. Yang has served as Senior Executive Managing Director of Samsung. He joined
the Samsung Group through an affiliated company, Cheil Industries, in 1970. He
later was named Director of Finance from April 1979 to March 1983 of Samsung
Petrochemical Co., Ltd. In April 1983, he was named Executive Vice President of
Samsung Semiconductor Inc., a U.S. subsidiary of Samsung. From June 1991 to
December 1992, Mr. Yang was General Manager of the Planning and Administrative
Office of Samsung and in January 1993 was made General Manager of the Corporate
Administrative Office for an affiliated company, Cheil Synthetics Industries.
HEE DONG YOO, 50, was appointed a director in July 1995. Since April 1994,
Mr. Yoo has served as Executive Vice President and General Manager of the
information products business of Samsung. He joined Samsung as manager of
Samsung Petrochemicals in July 1974 and later became President of Samsung Tokyo
Headquarters in February 1977. In February 1983, he was made Director of the
Overseas Operations Division of Samsung and later was named Managing Director of
the International Operations Office from March 1987 to January 1991. From
January 1991 to April 1994, Mr. Yoo was President of Samsung Electronics Europe.
EXECUTIVE OFFICERS
The following table sets forth the name and age of each executive officer of
the Company at March 1, 1996, his positions and offices with the Company and the
period during which he has served as an executive officer of the Company:
- - - --------------------------------------------------------------------------------
EXECUTIVE
OFFICER
NAME AGE POSITION(S) SINCE
- - - --------------------------------------------------------------------------------
Ian W. Diery 46 President and 1995
Chief Executive Officer
Gerald T. Devlin 50 Senior Vice President, Americas 1995
Dennis R. Leibel 51 Senior Vice President, Legal, 1986
Administration and Secretary
Gary D. Weaver 53 Senior Vice President, Worldwide 1995
Manufacturing Operations
Michael Willcocks 47 Senior Vice President, 1996
Asia Pacific Region
Mark P. de Raad 36 Vice President, Controller, 1995
and Principal Accounting Officer
- - - --------------------------------------------------------------------------------
For information on the business background of Mr. Diery see "Directors"
above.
GERALD T. DEVLIN rejoined the Company in September 1995 as Senior Vice
President, Americas. Mr. Devlin was Vice President of Worldwide Sales for Xerox
Corporation from July 1994 to September 1995. Mr. Devlin was first employed
with the Company as Vice President, U.S. Sales from January 1993 and Vice
President, Sales, Americas from August 1993 to July 1994. Prior to joining the
Company in January 1993, he was employed for twelve years by Apple Computer
where he served most recently as Vice President and General Manager of Sales.
DENNIS R. LEIBEL joined the Company in December 1985 as Treasurer and in
March 1988 was elected Vice President, Administration and General Counsel. In
January 1989, Mr. Leibel was elected Vice President, Legal and Treasury
Operations and Secretary and was promoted to Senior Vice President, Legal and
Treasury Operations in January 1995 and Senior Vice President, Legal,
Administration and Secretary in October 1995. Prior to joining the Company, Mr.
Leibel was employed for over seven years by Smith International, Inc., where he
served as Director of Taxes, Vice President, Tax and Financial Planning and
subsequently as Vice President, Finance. Mr. Leibel currently serves on the
Executive Committee of the Board of Directors of the World Trade Center
Association of Orange County and the Advisory Board of Directors of Court
Appointed Special Advocates of Orange County (CASA).
GARY D. WEAVER joined the Company in December 1994 as Vice President,
Americas Manufacturing and in September 1995 was elected Senior Vice President,
Worldwide Manufacturing Operations. Immediately prior to joining the Company,
he served as Vice President Operations at Ioptex Research from May 1990 to
November 1994 with responsibility for human resources, engineering,
manufacturing, quality and distribution. Mr. Weaver has also held various other
positions throughout his career including Worldwide Vice President of
Manufacturing at Cipher Data Products, Senior Vice President, Manufacturing at
Irwin Magnetics and Managing Director for Atari Far East, where he was
responsible for high volume operations in the Company's Taipei facility.
MICHAEL WILLCOCKS joined the Company in March 1996 as Senior Vice President,
Asia Pacific Middle East Region. Prior to joining the Company, Mr. Willcocks
served at Apple Computer from May 1993 to January 1996 where he held positions
of Vice President, Global Accounts and Vice President, Worldwide Enterprise and
Government Marketing. Mr. Willcocks also held positions as General Manager,
Northern Europe Operations and Managing Director, United Kingdom for Interleaf,
Inc., a pioneer in the electronic publishing market, from November 1989 to May
1993. From 1975 to 1989, Mr. Willcocks was employed at Wang Laboratories in
various sales and marketing positions covering Europe, Africa, Middle East and
Asia Pacific.
MARK P. DE RAAD joined the Company in May 1987 as Manager, Financial
Reporting. In February 1989, Mr. de Raad was promoted to Assistant Controller
and to Controller in August 1990. In February 1994, Mr. de Raad was named Vice
President, Worldwide Controller, in August 1994 assumed the title Vice
President, Financial Operations and in July 1995 was elected Vice President,
Controller and Principal Accounting Officer. Prior to joining the Company in
May 1987, Mr. de Raad was employed by Tandem Computer, Inc. and KPMG Peat
Marwick LLP.
ITEM 11. EXECUTIVE COMPENSATION
The following tables present information concerning the cash compensation and
stock options provided to Mr. Diery, the Company's current Chief Executive
Officer, Mr. Qureshey, who served as the Company's Chief Executive Officer until
November 2, 1995, the four other most highly compensated executive officers and
two additional highly compensated former executive officers (collectively, the
"Named Executive Officers") during transition period 1995 ("TP95"), which
consists of the six months ended December 30, 1995 by reason of a change in the
Company's fiscal year-end, and during the fiscal years ended July 1, 1995, July
2, 1994, and July 3, 1993. The notes to these tables provide more specific
information regarding compensation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
------------------------------------------------------ ---------------
Awards
------
Transition Securities
Period or Other Annual Underlying All Other
Name and Fiscal Salary Bonus Compensation Options/SARS Compensation
Principal Position Year ($) (S) ($) (a) (#) ($)
- - - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ian W. Diery (b) TP95 101,323 - - 1,000,000 -
President and 1995 - - - - -
Chief Executive Officer 1994 - - - - -
1993 - - - - -
Safi U. Qureshey (b) TP95 289,313 - 632 25,000 67,434 (c)
Chairman of the Board 1995 656,172 - 24,448 50,000 145,107
1994 623,076 236,221 36,465 125,000 148,119
1993 543,700 514,298 93,960 60,000 184,580
Gerald T. Devlin (d) TP95 116,577 116,000 (e) - 100,000 462 (f)
Senior Vice President, 1995 - - - - -
Americas 1994 279,821 - - 7,500 5,815
1993 97,048 31,315 - 80,000 -
Dennis R. Leibel TP95 115,400 - - 10,000 4,060 (f)
Senior Vice President, Legal 1995 217,820 - - 16,000 5,339
Administration and Secretary 1994 200,414 30,000 32 6,000 6,454
1993 181,008 79,567 7,320 10,000 5,532
Gary D. Weaver (d) TP95 104,100 - 84,308 (g) 50,000 3,123 (f)
Senior Vice President, 1995 - - - - -
Worldwide Manufacturing 1994 - - - - -
Operations 1993 - - - - -
Mark P. de Raad (d) TP95 92,877 - - 4,000 1,278 (f)
Vice President, Controller and 1995 - - - - -
Principal Accounting Officer 1994 - - - - -
1993 - - - - -
James T. Schraith (h) TP95 149,088 - - 25,000 (h) 1,478,150 (h)
President and Chief 1995 444,262 - 520 140,000 2,677
Operating Officer 1994 314,009 130,191 - 65,000 9,173
1993 228,256 124,168 1,095 20,000 5,673
Bruce C. Edwards (i) TP95 183,258 - - 15,000 (i) 961,662 (i)
Executive Vice President 1995 310,800 - 2,063 30,000 3,577
and Chief Financial Officer 1994 297,337 80,137 3,496 75,000 7,021
1993 251,873 256,454 4,980 30,000 6,283
_________
</TABLE>
SUMMARY COMPENSATION TABLE (CONTINUED)
Notes to Summary Compensation Table
(a) Other Annual Compensation generally includes reimbursement for medical
expenses and/or tax and estate planning expenses. Mr. Weaver's Other Annual
Compensation also includes amounts denoted in (g) below. The amounts shown
for transition period 1995 and for fiscal 1995 represent reimbursement for
tax and estate planning only.
(b) Mr. Qureshey resigned as Chief Executive Officer effective November 2, 1995,
but remains an employee of the Company and Chairman of the Board. Mr. Diery
was named President and Chief Executive Officer on November 2, 1995. Mr.
Diery's employment agreement is described under "Employment Contracts and
Termination of Employment and Change in Control Arrangements."
(c) The Company maintains an aggregate of $24,000,000 of split dollar life
insurance policies insuring the survivor of Mr. Qureshey and his spouse.
The portion of the premium paid for term life insurance coverage in
transition period 1995 was $19,004. The portion of the premium paid for
non-term coverage, valued in accordance with requirements of the Securities
and Exchange Commission as an interest-free loan to Mr. Qureshey, was
$61,434. Also included is the Company's 401(k) Plan matching contribution
in the amount of $6,000.
(d) Mr. Devlin, Mr. Weaver, and Mr. de Raad were named as executive officers
during transition period 1995. Only compensation for the full transition
period or fiscal year during which they served as an executive officer is
included in the above summary compensation table. Mr. Devlin was also an
executive officer in fiscal 1994 and 1993, before resigning and re-joining
the Company in transition period 1995.
(e) Amount represents a signing bonus paid to Mr. Devlin upon rejoining the
Company in September 1995.
(f) Amount represents the Company's matching contribution to the Company's
401(k) Plan.
(g) The Company paid $84,308 for Mr. Weaver's relocation expenses.
(h) Mr. Schraith's employment with the Company terminated on September 11, 1995.
In connection therewith, the options granted to Mr. Schraith during
transition period 1995 expired without being exercised on the date of such
termination. Pursuant to a Severance Compensation Agreement with the
Company, Mr. Schraith was paid a lump sum payment of $1,472,500, which is
included in All Other Compensation. Also included in All Other Compensation
is the Company's matching contribution to the Company's 401(k) Plan in the
amount of $5,650.
(i) Mr. Edwards' employment with the Company terminated on December 28, 1995.
In connection therewith, the options granted to Mr. Edwards during
transition period 1995 expired without being exercised on the date of such
termination. Pursuant to a Severance Compensation Agreement with the
Company, Mr. Edwards was paid a lump sum payment of $958,200, which is
included in All Other Compensation. Also included in All Other Compensation
is the Company's matching contribution to the Company's 401(k) Plan in the
amount of $3,462.
OPTION/SAR GRANTS IN TRANSITION PERIOD
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term (b)
- - - --------------------------------------------------------------------------------- ----------------------------
Number of
Securities % of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or
Granted (a) Employees in Base Price Expiration
Name (#) Transition Period ($/Share) Date 5% ($) 10% ($)
- - - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ian W. Diery 300,000 11.63% 9.375 11/02/05 1,768,766 4,482,401
700,000 (c) 27.14% 9.375 11/02/05 4,127,121 10,458,935
Safi U. Qureshey 25,000 0.97% 15.125 08/01/05 237,801 602,634
Gerald T. Devlin 100,000 3.88% 11.500 09/12/05 723,229 1,832,804
Dennis R. Leibel 10,000 0.39% 15.125 08/01/05 95,120 241,054
Gary D. Weaver 50,000 1.94% 10.750 09/19/05 338,031 856,637
Mark P. de Raad 4,000 0.16% 15.125 08/01/05 38,048 96,421
James T. Schraith (d) 25,000 0.97% 15.125 08/01/05 (d) - -
Bruce C. Edwards (d) 15,000 0.58% 15.125 08/01/05 (d) - -
_________
</TABLE>
(a) All option grants were new and not granted in connection with an option
repricing transaction. Options expire 10 years from date of grant.
(b) The potential gains shown are net of the option exercise price and do not
include the effect of any taxes associated with exercise. The amounts shown
are for the assumed rates of appreciation only, do not constitute
projections of future stock price performance, and may not necessarily be
realized. Actual gains, if any, on stock option exercises depend on the
future performance of the Company's common stock, continued employment of
the optionee through the term of the option, and other factors.
(c) Accelerated vesting of these options is possible in the event that certain
Company stock price performance targets are achieved.
(d) Mr. Schraith's employment with the Company terminated on September 11, 1995,
and Mr. Edwards' employment with the Company terminated on December 28,
1995. In connection therewith, the options listed above expired without
being exercised on the date of termination of their employment.
AGGREGATED OPTION/SAR EXERCISES IN
TRANSITION PERIOD AND TRANSITION PERIOD-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Value Transition Period-End Transition Period-End
Acquired on Realized -------------------------------- --------------------------------
Name Exercise (#) ($) Exercisable / Unexercisable Exercisable / Unexercisable
- - - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ian W. Diery - - - 1,000,000 (a) - -
Safi U. Qureshey 150,000 1,781,250 695,000 25,000 1,355,000 -
Gerald T. Devlin - - - 100,000 - -
Dennis R. Leibel - - 99,000 10,000 88,750 -
Gary D. Weaver - - 7,500 72,500 - -
Mark P. de Raad - - 20,750 23,250 2,000 -
James T. Schraith (b) - - - - - -
Bruce C. Edwards (b) - - 50,000 (b) - 221,875 -
_________
</TABLE>
(a) Accelerated vesting for 700,000 of these options is possible in the event
that certain Company stock price performance targets are achieved.
(b) Mr. Schraith's employment with the Company terminated on September 11, 1995
and Mr. Edwards' employment with the Company terminated on December 28,
1995. In connection therewith, their outstanding options will generally
expire six months from the date of termination of their employment provided,
however, that certain of such options expired on the date of termination of
employment. See note (d) to the table describing "Option/SAR Grants in
Transition Period."
COMPENSATION OF DIRECTORS
Mr. Qureshey receives an annual salary of $325,000 in his capacities as an
employee of the Company and as Chairman of the Board. This represents a
voluntary reduction in salary until the Company returns to profitability and was
effective November 2, 1995. For purposes of his employment contract, all other
terms of Mr. Qureshey's Founders Agreement (as defined below), including his
annual base salary of $650,000, are deemed to be in effect and unchanged by this
voluntary salary reduction. See "Employment Contracts and Termination of
Employment and Change in Control Arrangements."
The directors of the Company serve until their successors are elected and
duly qualified. Non-employee directors receive annual retainers of $30,000 paid
at the rate of $2,500 per month and additional committee meeting fees of $2,000
per meeting for the Chairman and $1,000 per meeting per committee member.
Beginning November 1993, Dr. Carmelo J. Santoro, who served as Vice Chairman of
the Board through December 1995, received an additional annual retainer of
$95,000 for services in such capacity. Except as provided above with respect to
Mr. Qureshey, directors who are also employees of the Company do not currently
receive fees for service in their capacity as a director.
The 1991 Stock Option Plan for Non-Employee Directors, as amended in 1995,
provides for an initial grant of options to purchase 20,000 shares of common
stock to each newly elected or appointed non-employee director. In addition, on
January 1 of each year, each participant will receive an option to purchase an
additional 12,000 shares of common stock. The aggregate number of shares that
may be issued under the Plan is 500,000. Options vest equally over four years
commencing on the first anniversary of the date of grant. Each option is
exercisable at 100% of the common stock's fair market value on the date of
grant.
In 1994, the Company adopted the 1994 One-Time Grant Stock Option Plan for
Non-Employee Directors. The Plan, as amended in 1995, provided for the grant of
an option to purchase 50,000 shares of common stock to each non-employee member
of the Company's Board of Directors on July 1, 1994. As a result of completing
the initial transactions with Samsung, effective July 31, 1995, unvested options
to purchase 175,000 shares of common stock at $14.25 per share became
immediately exercisable. At December 30, 1995, 150,000 options remained
outstanding and were exercisable at an exercise price of $14.25 per share.
In December 1990, the Board of Directors authorized the issuance of warrants
to purchase an aggregate of 80,000 shares of the Company's common stock to its
then non-employee directors. At December 30, 1995, 40,000 of these warrants
remained outstanding and were exercisable at $13.88 per share. On July 27,
1992, the Board of Directors authorized the issuance of warrants to purchase
50,000 shares of the Company's common stock to Dr. Santoro, the Company's then
Chairman of the Board. At December 30, 1995, 37,500 of these warrants remained
outstanding and were exercisable at $13.50 per share. As a result of completing
the initial transactions with Samsung, effective July 31, 1995, unvested
warrants to purchase 25,000 shares of common stock at $13.50 per share became
immediately exercisable.
Pursuant to the Stockholder Agreement between the Company and Samsung, those
directors appointed by Samsung who are also officers, employees, or consultants
of Samsung (the "Samsung Employee Director Designees") are entitled to receive,
in their capacities as directors of the Company, only such fees, options and
other awards and expense reimbursements, if any, as may be provided to employee
directors of the Company generally in their capacity as directors. In Samsung's
discretion, any such amounts payable to the Samsung Employee Director Designees
will be paid to Samsung rather than to the Samsung Employee Director Designees.
Those directors appointed by Samsung who are not officers, employees, or
consultants of Samsung are entitled to receive all benefits to which other non-
employee directors of the Company are entitled, and no such amounts may be paid
or transferred to Samsung.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Goeglein, Mr. Peltason, Mr. Yang and Delbert W. Yocam served on the
Compensation Committee during transition period 1995. Mr. Yocam resigned as a
member of the Board of Directors on September 21, 1995 and was replaced on the
Compensation Committee by Mr. Yang. Mr. Goeglein now serves as Chairman of the
Compensation Committee. None of these persons is or has been an officer of the
Company or any of its subsidiaries. In addition to serving on the Company's
Board of Directors, Mr. Goeglein and Dr. Santoro serve on the Board of Directors
of Platinum Software Corporation ("Platinum"), which designs, manufactures and
markets accounting software systems. At Platinum, Dr. Santoro is also an
executive officer and Mr. Goeglein serves on the Compensation Committee. In
such capacities, each of Dr. Santoro and Mr. Goeglein has influence over the
fees, equity participation and other compensation paid to others by Platinum.
Mr. Goeglein, as a member of the Company's Board of Directors and Compensation
Committee, had direct influence over the equity participation awards and
compensation paid to Mr. Edwards in his capacity as an executive officer of the
Company. Mr. Edwards resigned as Chief Financial Officer and a Board member on
December 28, 1995. As continuing Board members, Dr. Santoro and Mr. Goeglein
will continue to have influence over the fees, equity participation and
compensation paid to others by the Company. Prior to either Dr. Santoro's or
Mr. Goeglein's joining the Platinum Board of Directors, the Company purchased
certain accounting software systems from Platinum. The Company believes that
the terms and conditions of its purchase relationship with Platinum are as
favorable to the Company as those that could have been obtained from any other
third-party vendor of similar products and services.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On November 2, 1995, the Company entered into an employment agreement with
Ian W. Diery, President and Chief Executive Officer. Under the agreement, Mr.
Diery's annual salary is $700,000. In addition, Mr. Diery is eligible to
participate in the Company's profit sharing plan, 401(k) plan, management
incentive plan and quarterly bonus plan. Under this agreement, Mr. Diery
receives annually an automobile allowance of $12,000, a medical allowance of
$20,000, and a financial planning allowance of $10,000. Mr. Diery also received
a relocation allowance of up to $500,000 and an income tax gross up on such
allowance, for moving expenses and to reimburse him for the amount of any loss
incurred upon disposal of his prior residence.
Mr. Diery received a grant of an option to purchase 300,000 shares of the
Company's common stock having an exercise price equal to $9.375 per share, the
closing price of the common stock on November 2, 1995. The option vests at the
rate of 25% per year, commencing November 2, 1996. Also on November 2, 1995,
Mr. Diery received an additional grant of an option to purchase 700,000 shares
of common stock having an exercise price equal to $9.375 per share, vesting at
the rate of 12.5% per year, with accelerated vesting possible in the event that
certain Company stock price performance targets are achieved. If the daily
closing price of the common stock averages $21, $30, and $40 over any three-
month period within the option term, respectively, one-third of these options
not otherwise vested will vest at the end of each such three-month period.
On July 27, 1993, the Company entered into a five-year revolving term
employment agreement with Mr. Qureshey ("Agreement" or "Founder's Agreement"),
which provides in certain circumstances for a possible consulting term and other
post-termination benefits. All post-termination benefits are conditioned upon
Mr. Qureshey not undertaking competing employment and his not soliciting away
Company employees. In addition, Mr. Qureshey agreed that he will vote his
shares along with the other shareholders in the election of directors and will
not join or participate against the Board of Directors in any proxy
solicitation, and will offer the Company a right of first refusal on any 100,000
or more share blocks proposed to be sold by him in any private sale. If Mr.
Qureshey should accept non-competing but substantial employment with any other
company or firm during any period of active employment, consulting, or post-
termination benefits under the Founder's Agreement, the Company may elect that
Mr. Qureshey cease to be an employee or consultant and be entitled to receive an
aggregate lump sum equal to 50% of the salary and/or bonus, if any, which he is
then receiving and which he otherwise would be entitled to receive for the
remaining balance of the employment or post-termination benefit or consulting
period, as described below; however, all other benefits would cease and Mr.
Qureshey would continue to be bound by the restrictions concerning competing
employment, non-solicitation of employees, the voting of shares and the right of
first refusal. At any time following one year from a date of employment
termination, Mr. Qureshey may elect to terminate the foregoing restrictions upon
90 days' written notice, in which event all Company obligations and benefits
payable under the Founder's Agreement would cease, all stock option acceleration
would be rescinded and any outstanding loans to Mr. Qureshey would have to be
repaid to the Company within 90 days. Nevertheless, Mr. Qureshey would continue
to be bound by the provisions of the Founder's Agreement pertaining to the
Company's confidential and proprietary information.
If Mr. Qureshey's employment is terminated for "cause," the Company will be
obligated to pay him only such severance compensation as shall have vested and
as the Board otherwise deems appropriate, or none at all, and the Company's
obligations under the Founder's Agreement will be null and void. If Mr.
Qureshey becomes disabled, upon the expiration of six consecutive months of
disability, Mr. Qureshey's employment may be terminated by the Company. In such
event or in the event of Mr. Qureshey's death, in addition to amounts paid from
insurance policies, Mr. Qureshey or his estate will be entitled to receive his
base salary and bonus for at least one year, the restriction period on all
restricted stock granted to him under Company plans shall lapse and all stock
options or other such rights which otherwise would have vested within two years
of such event will accelerate and become fully vested and remain exercisable in
accordance with their respective terms.
During employment, Mr. Qureshey will receive his salary, bonus and all other
benefits, including a $25,000 financial planning allowance and a gross-up for
income tax on such allowance, consistent with past practices. If Mr. Qureshey's
active employment is terminated by him for "good reason" or by the Company
without "cause," Mr. Qureshey shall continue to receive his base salary for a
benefit period of five years following termination. In either event, (a) Mr.
Qureshey shall be entitled to receive his annual bonus for the year in which
termination occurs, pro rated to the date of termination, as well as bonuses for
the two fiscal years following termination, such bonus amounts being determined
by taking the average of the bonuses paid to Mr. Qureshey in the preceding two
years; (b) all stock options shall accelerate and become exercisable and all
restrictions on restricted stock awards shall lapse; (c) the benefits allowance
for death or disability shall continue for a period of five years from the date
of termination; and (d) all of his benefits payable under the Company's tax-
qualified employee benefit plans or other programs pertaining to deferred
compensation, retirement, profit sharing, 401(k), or employee stock ownership
(if any) will be paid. In addition, if Mr. Qureshey enters into loan agreements
for the purpose of exercising options or other rights to acquire securities, the
Company will guarantee such loans (up to $3,000,000) and pay the interest on
them for a period ending 13 months after the date of the event causing tax
liability to be incurred by reason of such exercise.
In the event of Mr. Qureshey's disability or of his termination by the
Company without "cause" or termination of employment by Mr. Qureshey for "good
reason," Mr. Qureshey will also be entitled to receive additional benefits
during the first five-year post-termination benefit period including an office,
health and welfare benefits, continued use of a Company automobile followed by
transfer of title of such automobile to Mr. Qureshey at the end of the five-year
period, and up to $25,000 per year (grossed up for income taxes) for estate, tax
and financial planning services.
Following such five-year post-termination benefits period, provided Mr.
Qureshey has not and does not undertake substantial or competing employment, the
Company indefinitely will provide continued health and welfare benefits, with
Mr. Qureshey paying or reimbursing the Company the average cost of such
coverage, and Mr. Qureshey will have the title Vice Chairman. For a period of
up to five years following the first five-year post-termination benefits period,
Mr. Qureshey may elect to become a consultant and receive 60% of his former base
salary and be entitled to receive the additional benefits described in the
foregoing paragraph. If prior to any termination Mr. Qureshey undertakes an
"early retirement" from active employment and otherwise is not receiving the
post-termination benefits enumerated above, he may at his election become a
consultant to the Company and become subject to the restrictions under the
Founder's Agreement and also become entitled to receive 80% of his then base
salary for a period of five years, as well as the additional benefits listed
above. Bonus amounts will not be required during any consulting period.
Mr. Qureshey resigned as President and Chief Executive Officer effective
November 2, 1995, but remains an employee and Chairman of the Board. Effective
November 2, 1995, Mr. Qureshey agreed to a voluntary reduction in salary to
$325,000 per year until the Company returns to profitability, and agreed not to
currently enforce the terms of the existing agreement with respect to
termination for "good reason." However, all other terms, including his annual
base salary of $650,000, of the Founder's Agreement are deemed to be in effect
and all rights are reserved thereunder by Mr. Qureshey.
Mr. Qureshey's benefits under the Founder's Agreement are in addition to and
not in lieu of the benefits payable to him under his Severance Compensation
Agreement (see below). Following a change in control of the Company, Mr.
Qureshey is generally entitled to all of the benefits specified in the Severance
Compensation Agreement, whether or not his active employment is terminated,
provided, however, that Samsung's stock purchase will not constitute a change in
control for purposes of Mr. Qureshey's Severance Compensation Agreement unless
Samsung's interest in the Company becomes in excess of 49.9%. Mr. Qureshey will
not otherwise participate in the officer involuntary termination policy
described below.
At the Annual Meeting of Stockholders held in May 1987, the shareholders
authorized and approved an indemnification program for corporate officers and
directors under which the Company and each corporate officer and director
entered into an Indemnification Agreement, substantially in the form approved by
the shareholders.
The Company has entered into Severance Compensation Agreements with each of
its executive officers. Under the agreements, following a "change in control"
of the Company, which included the Samsung transaction for then existing
officers, if either the Company terminates the officer's employment without
cause or the officer terminates his employment for good reason, each as defined
in the agreements, then (a) the Company will pay the officer severance
compensation equal to two years' salary and bonuses; (b) all stock options held
by the officer, to the extent that they would become exercisable within two
years of the change in control, will immediately become exercisable for a period
of six months following termination; and (c) the officer will receive continued
welfare benefits for a period of two years. Under the agreements, the Company
will indemnify the officer with respect to payment of excise taxes on excess
"parachute payments" imposed under Section 4999 of the Internal Revenue Code.
Such an agreement was entered into with Mr. Diery on November 2, 1995, provided
that a change in control will be deemed to occur with respect to the Samsung
transaction only if Samsung's percentage ownership of the Company should exceed
49.9 percent. Similarly, all agreements entered into after the original Samsung
investment have a 49.9% trigger. Similar agreements have also been entered into
with thirteen vice presidents, except that the vice presidents' severance
benefits include only one year of salary, bonus and welfare benefits
continuation, and only options otherwise vesting within one year of the change
in control will accelerate.
The Company has a severance policy for its executive officers which, in the
event of an involuntary termination other than in connection with a "change in
control," as defined in the Severance Policy, requires the Company to pay its
President severance equal to two years salary and its other executive officers
severance equal to six months salary plus an additional month of salary for each
year of employment with the Company, up to a maximum of twelve months. Welfare
benefits are also continued during this period.
Mr. Schraith's employment with the Company terminated on September 11, 1995.
Pursuant to a Severance Compensation Agreement with the Company, Mr. Schraith
was paid a lump sum payment of $1,472,500.
Scott A. Smith's employment as Vice President and General Manager, Desktop
Products was terminated on September 11, 1995. Pursuant to a Severance
Compensation Agreement with the Company, Mr. Smith was paid a lump sum payment
of $477,500.
James D. Wittry's employment as Senior Vice President, Americas was
terminated on September 11, 1995. Pursuant to a Severance Compensation
Agreement with the Company, Mr. Wittry was paid a lump sum payment of $461,600.
Richard P. Ottaviano's employment as Senior Vice President, Administration
terminated on October 20, 1995. Pursuant to a Severance Compensation Agreement
with the Company, Mr. Ottaviano was paid a lump sum payment of $720,100.
Mr. Edwards' employment with the Company terminated on December 28, 1995.
Pursuant to a Severance Compensation Agreement with the Company, Mr. Edwards was
paid a lump sum payment of $958,200 on January 3, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 1, 1996, with
respect to all those known by the Company to be the beneficial owners of more
than 5% of its outstanding common stock, each director, the Chief Executive
Officer and the other Named Executive Officers, and all directors and executive
officers of the Company as a group. Unless otherwise noted, each of the
shareholders listed owns less than 1% of the outstanding common stock and has
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by him, subject to community property laws where
applicable, and the information contained in the footnotes to this table. The
Company had 44,685,900 shares outstanding at March 1, 1996.
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------------------
NUMBER OF SHARES
---------------------------- PERCENTAGE OF
NAME OF BENEFICIAL OWNER OPTIONS (A) TOTAL SHARES OUTSTANDING
- - - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Samsung Electronics Co., Ltd. (b) - 17,890,000 40.03%
Richard J. Goeglein 120,000 137,000 -
Carmelo J. Santoro, Ph.D. 111,500 111,500 -
Jack W. Peltason 69,000 69,300 -
Safi U. Qureshey (c) 695,000 2,869,870 6.32%
Dennis Leibel 99,000 104,026 -
Gary D. Weaver 7,500 7,500 -
Mark P. de Raad 20,750 20,850 -
James T. Schraith (d) - 5,213 -
Bruce C. Edwards (e) 50,000 91,288 -
All directors and executive 1,122,750 3,320,046 7.25%
officers as a group (f)
____________________
</TABLE>
(a) Includes shares which executive officers and directors have the right to
acquire within 60 days of March 1, 1996, under stock option and warrant
agreements.
(b) These shares are beneficially owned by Samsung and its wholly owned
subsidiary, Samsung Electronics America, Inc. c/o 105 Challenger Road,
Ridgefield Park, New Jersey 07660.
(c) Includes 104,812 shares held by Nancy Marshall as custodian for minor
children of Mr. Qureshey and 3,289 shares held by Nancy Marshall, Ishrat
Qureshey and Iubna Bokhari, co-trustees of Irrevocable Trusts established
for the benefit of Mr. Qureshey's minor children, to which Mr. Qureshey
claims no beneficial interest.
(d) Mr. Schraith's employment with the Company terminated on September 11,
1995.
(e) Mr. Edward's employment with the Company terminated on December 28, 1995.
Amount includes 803 shares held by Mary Pat DeMayo Buskard as trustee for
minor children of Mr. Edwards to which Mr. Edwards disclaims any beneficial
interest.
(f) None of the following directors and executive officers beneficially own
any shares of the Company's common stock or any shares that they have the
right to exercise within 60 days: Hoon Choo, Gerald T. Devlin, Ian W.
Diery, Kwang-Ho Kim, Young Soo Kim, Bo-Soon Song, Won Suk Yang, and Hee
Dong Yoo. Amounts shown for "All directors and executive officers as a
group" exclude Messrs. Schraith and Edwards due to their termination prior
to March 1, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1995, the Company loaned Mr. Qureshey $1,156,453 to exercise options
to purchase 150,000 shares of the Company's common stock granted under the Chief
Executives' Plan, evidenced by a promissory note secured by a stock certificate.
The loan was issued interest free and is payable in full on or before April 30,
1996. At December 30, 1995, the entire amount remained outstanding.
In September 1993, the Company loaned Vice President and General Manager,
Desktop Products, Scott A. Smith $100,000 for the purchase of a primary
residence, evidenced by a promissory note secured by a deed of trust. The loan
was issued interest free and is payable in full in September 1996. At December
30, 1995, the entire amount remained outstanding.
See "Compensation Committee Interlocks and Insider Participation" above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
See Index to Consolidated Financial Statements at Item 8 on Page 30 of
this report.
(2) Financial Statement Schedule
II - Consolidated Valuation and Qualifying Accounts and Reserves
Financial statement schedules other than the schedule listed above have
been omitted since they are either not required, not applicable, or the
information is otherwise included.
(3) Exhibits
Exhibit
Number Description
2.1 Agreement for Purchase and Sale of Assets dated June 30, 1993 between
AST Research, Inc. and Tandy Corporation, TE Electronics, Inc. and GRiD
Systems Corporation. The Schedules have been omitted and are as
described in the Agreement (incorporated by reference to referenced
exhibit number of the Company's Current Report on Form 8-K as filed with
the Securities and Exchange Commission on July 28, 1993, Commission
File No. 0-13941).
2.1.1 Sales Agreement dated July 13, 1993 between AST Research, Inc. and Tandy
Corporation pursuant to the Agreement for the Purchase and Sale of
Assets dated June 30, 1993 (incorporated by reference to referenced
exhibit number of the Company's Annual Report on Form 10-K for the
fiscal year ended July 3, 1993, Commission File No. 0-13941).
2.1.2 Circuit Board Purchase Agreement dated July 13, 1993 between AST
Research, Inc. and TE Electronics Inc. pursuant to the Agreement for the
Purchase and Sale of Assets dated June 30, 1993 (incorporated by
reference to referenced exhibit number of the Company's Annual Report on
Form 10-K for the fiscal year ended July 3, 1993, Commission File No.
0-13941).
2.1.3 Agreement of Sale of Going Business (English translation) between AST
Research France and Tandy GRiD France, effective September 1, 1993
(incorporated by reference to referenced exhibit number of the Company's
Current Report on Form 8-K as filed with the Securities and Exchange
Commission on October 29, 1993, Commission File No. 0-13941).
2.2 Agreement of Stock Purchase dated as of February 27, 1995 between AST
Research, Inc. and Samsung Electronics Company Ltd. (incorporated by
reference to referenced exhibit number of the Company's Current Report
on Form 8-K as filed with the Securities and Exchange Commission on
March 3, 1995, Commission File No. 0-13941).
2.2.1 Amendment No. 1 to Stock Purchase Agreement dated as of June 1, 1995
between AST Research, Inc. and Samsung Electronics Co., Ltd.
(incorporated by reference to referenced exhibit number of the Company's
Solicitation/Recommendation Statement on Amendment No. 1 to Schedule
14D-9 as filed with the Securities and Exchange Commission on June 8,
1995, SEC File No. 005-44159).
2.2.2 Amendment No. 2 to Stock Purchase Agreement dated as of July 29, 1995
between AST Research, Inc. and Samsung Electronics Co., Ltd.
(incorporated by reference to referenced exhibit number of the Company's
Current Report on Form 8-K as filed with the Securities and Exchange
Commission on August 7, 1995, Commission File No. 0-13941).
3.1 Certificate of Incorporation of AST Research, Inc., a Delaware
Corporation, as amended (incorporated by reference to referenced exhibit
number of the Company's Current Report on Form 8-K as filed with the
Securities and Exchange Commission on August 7, 1995 , Commission File
No. 0-13941).
3.2 Bylaws of AST Research, Inc., a Delaware corporation, as amended
(incorporated by reference to referenced exhibit number of the Company's
Current Report on Form 8-K as filed with the Securities and Exchange
Commission on December 22, 1995, Commission File No. 0-13941).
Exhibit
Number Description
4.1 Form of Amended and Restated Rights Agreement dated as of January 28,
1994 between the Company and American Stock Transfer & Trust Co., as
Successor Rights Agent (incorporated by reference to referenced exhibit
number of the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended January 1, 1994), and Certificate of Designation of
Preferred Stock and Rights Certificate and Summary of Terms of the
Company's Shareholder Rights Plan which were included as exhibits to the
original Rights Agreement dated as of August 15, 1989 (incorporated by
reference to Exhibit 1 of the Company's Registration Statement on Form
8-A as filed with the Securities and Exchange Commission on August 14,
1989, Commission File No. 0-13941).
4.1.1 Amendment to Rights Plan dated as of March 1, 1995 between AST Research,
Inc. and American Stock Transfer & Trust Co. (incorporated by reference
to referenced exhibit number of the Company's Current Report on Form 8-K
as filed with the Securities and Exchange Commission on March 3, 1995,
Commission File No. 0-13941).
10.1 Lease Agreement dated November 1, 1985 pertaining to AST Europe Limited
premises at Goat Wharf, Brentford in the London Borough of Hounslow
(incorporated by reference to referenced exhibit number of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1986,
Commission File No. 0-13941).
10.2 Lease commencing September 29, 1986 pertaining to AST Europe Limited's
premises in Brentford, Middlesex (incorporated by reference to
referenced exhibit number of the Company's Registration Statement on
Form S-1, Registration No. 33-14131).
10.3 Agreement dated September 5, 1987 for the purchase of AST Research (Far
East) Limited's premises in Hong Kong and Mortgage of such premises to
Bank of China, Hong Kong Branch, dated September 11, 1987 (incorporated
by reference to referenced exhibit number of the Company's Registration
Statement on Form S-2, Registration No. 33-21729).
10.4 Lease dated August 11, 1989, pertaining to premises located in Fountain
Valley, California (incorporated by reference to referenced exhibit
number of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1989, Commission File No. 0-13941).
10.5 License Agreement with Tomcat Computer Corporation, dated October 16,
1989 (incorporated by reference to referenced exhibit number of the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1990, Commission File No. 0-13941).
10.6 Cross-License Agreement with International Business Machines (IBM)
Corp., dated January 1, 1990 (incorporated by reference to referenced
exhibit number of the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1990, Commission File No.
0-13941).
10.7 Promissory Note dated as of July 12, 1993 between AST Research, Inc. and
Tandy Corporation (incorporated by reference to referenced exhibit
number of the Company's Current Report on Form 8-K as filed with the
Securities and Exchange Commission on July 28, 1993, Commission File No.
0-13941).
10.8 First Amendment dated September 22, 1993 to Promissory Note dated July
12, 1993 between AST Research, Inc. and Tandy Corporation (incorporated
by reference to referenced exhibit number of the Company's Annual Report
on Form 10-K for the fiscal year ended July 3, 1993, Commission File No.
0-13941).
10.9 Second Amendment dated October 14, 1993 to Promissory Note dated July
12, 1993 between AST Research, Inc. and Tandy Corporation (incorporated
by reference to referenced exhibit number of the Company's Current
Report on Form 8-K as filed with the Securities and Exchange Commission
on October 29, 1993, Commission File No. 0-13941).
10.10 Third Amendment dated December 30, 1993 to Promissory Note dated July
12, 1993 between AST Research, Inc. and Tandy Corporation (incorporated
by reference to referenced exhibit number of the Company's Current
Report on Form 8-K/A as filed with the Securities and Exchange
Commission on January 10, 1994, Commission File No. 0-13941).
10.11 Joint Venture Contract dated September 7, 1993 between Tianjin Economic
- Technological Development Area Business Development Co. and AST
Research (Far East) Limited (incorporated by reference to referenced
exhibit number of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended April 2, 1994, Commission File No. 0-13941).
10.12 Employment Grant Agreement dated November 9, 1993 between the Industrial
Development Authority, AST Ireland Limited and AST Research, Inc.
(confidential treatment is requested with respect to portions of this
exhibit) (incorporated by reference to referenced exhibit number of the
Company's Annual Report on Form 10-K for the fiscal year ended July 2,
1994, Commission File No. 0-13941).
Exhibit
Number Description
10.13 Capital Grant Agreement dated November 9, 1993 between the Industrial
Development Authority, AST Ireland Limited and AST Research, Inc.
(confidential treatment is requested with respect to portions of this
exhibit) (incorporated by reference to referenced exhibit number of the
Company's Annual Report on Form 10-K for the fiscal year ended July 2,
1994, Commission File No. 0-13941).
10.14 Settlement Agreement and Release dated January 1, 1995, between AST
Research, Inc. and Texas Instruments Incorporated (confidential
treatment is requested with respect to portions of this exhibit)
(incorporated by reference to referenced exhibit number of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended April 1,
1995, Commission File No. 0-13941).
10.15 Strategic Alliance Agreement dated February 27, 1995 between AST
Research, Inc., and Samsung Electronics Company, Ltd. (incorporated by
reference to referenced exhibit number of the Company's Current Report
on Form 8-K as filed with the Securities and Exchange Commission on
March 3, 1995, Commission File No. 0-13941).
10.16 Confidentiality Agreement dated December 21, 1994 between AST Research,
Inc. and Samsung Electronics Co., Ltd. (incorporated by reference to
referenced exhibit number of the Company's Solicitation/Recommendation
Statement on Schedule 14D-9 as filed with the Securities and Exchange
Commission on March 6, 1995, SEC File No. 005-44159).
10.17 Letter of Credit Agreement dated July 31, 1995 between AST Research,
Inc., and Samsung Electronics Company, Ltd. (incorporated by reference
to referenced exhibit number of the Company's Current Report on Form 8-K
as filed with the Securities and Exchange Commission on August 7, 1995,
Commission File No. 0-13941).
10.18 Registration Rights Agreement dated July 31, 1995 between AST Research,
Inc. and Samsung Electronics Company, Ltd. (incorporated by reference to
referenced exhibit number of the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on August 7, 1995,
Commission File No. 0-13941).
10.19 Stockholder Agreement dated July 31, 1995 between AST Research, Inc. and
Samsung Electronics Company, Ltd. (incorporated by reference to
referenced exhibit number of the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on August 7, 1995,
Commission File No. 0-13941).
10.20 Amendment to Stockholder Agreement dated December 21, 1995 to
Stockholder Agreement dated July 31, 1995 between AST Research, Inc. and
Samsung Electronics Company Co., Ltd. (incorporated by reference to
referenced exhibit number of the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on December 22, 1995,
Commission File No. 0-13941).
10.21 Component Sales Agreement dated July 31, 1995 between AST Research, Inc.
and Samsung Electronics Co., Ltd. (incorporated by reference to
referenced exhibit number of the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on August 7, 1995,
Commission File No. 0-13941).
10.22 Cooperative Procurement Agreement dated July 31, 1995 between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to referenced exhibit number of the Company's Current Report
on Form 8-K as filed with the Securities and Exchange Commission on
August 7, 1995, Commission File No. 0-13941).
10.23 Marketing Cooperation Agreement dated July 31, 1995 between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to referenced exhibit number of the Company's Current Report
on Form 8-K as filed with the Securities and Exchange Commission on
August 7, 1995, Commission File No. 0-13941).
10.24 AST OEM Supply to SEC Agreement dated July 31, 1995 between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to referenced exhibit number of the Company's Current Report
on Form 8-K as filed with the Securities and Exchange Commission on
August 7, 1995, Commission File No. 0-13941).
10.25 SEC OEM Supply to AST Agreement dated July 31, 1995 between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to referenced exhibit number of the Company's Current Report
on Form 8-K as filed with the Securities and Exchange Commission on
August 7, 1995, Commission File No. 0-13941).
10.26 Joint Development and Technical Cooperation Agreement dated July 31,
1995 between AST Research, Inc. and Samsung Electronics Co., Ltd.
(incorporated by reference to referenced exhibit number of the Company's
Current Report on Form 8-K as filed with the Securities and Exchange
Commission on August 7, 1995, Commission File No. 0-13941).
10.27 Patent Cross License Agreement dated July 31, 1995 between AST Research,
Inc. and Samsung Electronics Co., Ltd. (incorporated by reference to
referenced exhibit number of the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on August 7, 1995,
Commission File No. 0-13941).
10.28 Employee Exchange Agreement dated July 31, 1995 between AST Research,
Inc. and Samsung Electronics Co., Ltd. (incorporated by reference to
referenced exhibit number of the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on August 7, 1995,
Commission File No. 0-13941).
Exhibit
Number Description
10.29 General Terms Agreement dated July 31, 1995 between AST Research, Inc.
and Samsung Electronics Co., Ltd. (incorporated by reference to
referenced exhibit number of the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on August 7, 1995,
Commission File No. 0-13941).
10.30 Letter Agreement dated July 31, 1995 between AST Research, Inc. and
Samsung Electronics Co., Ltd. (incorporated by reference to referenced
exhibit number of the Company's Current Report on Form 8-K as filed with
the Securities and Exchange Commission on August 7, 1995, Commission
File No. 0-13941).
10.31 Stipulation of Settlement Agreement dated August 16, 1995 between AST
Research, Inc. and class actions (incorporated by reference to
referenced exhibit number of the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on September 6, 1995,
Commission File No. 0-13941).
10.32 Additional Support Agreement dated December 21, 1995 between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to referenced exhibit number of the Company's Current Report
on Form 8-K as filed with the Securities and Exchange Commission on
December 22, 1995, Commission File No. 0-13941).
10.33 # Loan Agreement and Promissory Note dated November 20, 1995 between AST
Research, Inc. and Samsung Electronics America, Inc.
10.34 # Credit Agreement dated December 27, 1995 among AST Research, Inc., Bank
of America NT & SA as agent and the other financial institutions party
hereto.
10.35 # First Amendment to Credit Agreement dated February 29, 1996 among AST
Research, Inc., Bank of America NT & SA as agent and the other financial
institutions party hereto.
Executive Compensation Plans and Arrangements
10.36* 1987 Employee Bonus Plan (incorporated by reference to referenced
exhibit number of the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1986, Commission File No. 0-13941).
10.37* Form of Indemnification Agreement, as amended to date.
10.38* Form of Indemnification Trust Agreement (incorporated by reference to
referenced exhibit number of the Company's Registration of Securities of
Certain Successor Issuers on Form 8-B, Commission File No. 0-13941).
10.39* 1989 Long-Term Incentive Program (incorporated by reference to exhibit
number S 4.1, 4.2, 4.3 and 4.4 of the Company's Registration Statement
on Form S-8, Registration No. 33-29345).
10.40* Amendment to 1989 Long-Term Incentive Program related to increase in
number of shares (incorporated by reference to referenced exhibit number
of the Company's Annual Report on Form 10-K for the fiscal year ended
June 27, 1992, Commission File No. 0-13941).
10.41* Nonqualified Common Stock Option Agreement for officers under the 1989
Long-Term Incentive Program, approved by Compensation Committee January
23, 1992 pursuant to administrative authority under such plan
(incorporated by reference to referenced exhibit number in the Company's
Annual Report on Form 10-K for the fiscal year ended June 27, 1992,
Commission File No. 0-13941).
10.42* Amendment to Officers Nonqualified Common Stock Option Agreement,
approved by Compensation Committee January 23, 1992 pursuant to
administrative authority under such plan (incorporated by reference to
referenced exhibit number in the Company's Annual Report on Form 10-K
for the fiscal year ended June 27, 1992, Commission File No. 0-13941).
10.43* Amendment to AST Research, Inc. 1989 Long-Term Incentive Program
(incorporated by reference to referenced exhibit number of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended January 1,
1994, Commission File No. 0-13941).
10.44* Supplemental Medical Plan for Executives of AST Research, Inc.
(incorporated by reference to referenced exhibit number of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1989,
Commission File No. 0-13941).
10.45* Form of Warrant Certificate issued to Non-Employee Directors in December
1990 (incorporated by reference to referenced exhibit number of the
Company's Annual Report on Form 10-K for the fiscal year ended June 28,
1991, Commission File No. 0-13941).
10.46* Form of Warrant Certificate issued to Non-Employee Director in July 1992
(incorporated by reference to referenced exhibit number of the Company's
Annual Report on Form 10-K for the fiscal year ended June 27, 1992,
Commission File No. 0-13941).
10.47* Form of Amendment to Warrant Certificate dated as of February 27, 1995
(incorporated by reference to referenced exhibit number of the
Company's Solicitation/Recommendation Statement on Schedule 14D-9 as
filed with the Securities and Exchange Commission on March 6, 1995, SEC
File No. 005-44159).
Exhibit
Number Description
10.48* 1991 Stock Option Plan for Non-Employee Directors (incorporated by
reference to referenced exhibit number of the Company's Annual Report on
Form 10-K for the fiscal year ended June 28, 1991, Commission File No.
0-13941).
10.49* Form of Nonqualified Stock Option agreement under 1991 Stock Option Plan
for Non-Employee Directors (incorporated by reference to referenced
exhibit number of the Company's Annual Report on Form 10-K for the
fiscal year ended June 28, 1991, Commission File No. 0-13941).
10.50* Amendment to AST Research, Inc. 1991 Stock Option Plan for Non-Employee
Directors (incorporated by reference to referenced exhibit number of the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
January 1, 1994, Commission File No. 0-13941).
10.51* Amendment to the AST Research, Inc. 1991 Stock Option Plan for Non-
Employee Directors dated February 27, 1995 (incorporated by reference to
referenced exhibit number of the Company's Solicitation and
Recommendation Statement on Schedule 14D-9 as filed with the Securities
and Exchange Commission on March 6, 1995, SEC File No. 005-44159).
10.52* Amendment to AST Research, Inc. 1991 Stock Option Plan for Non-Employee
Directors (comprised of resolutions adopted by the Board of Directors on
July 27, 1995) (incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on January 26, 1996, Registration
No. 333-00489).
10.53* Employment Agreement dated as of July 27, 1993 between Safi U. Qureshey
and AST Research, Inc. (incorporated by reference to referenced exhibit
number of the Company's Annual Report on Form
10-K for the fiscal year ended July 3, 1993, Commission File No.
0-13941).
10.54* Amendment to and Clarification of Employment Agreement dated as of
February 27, 1995 between AST Research Inc. and Safi U. Qureshey
(incorporated by reference to referenced exhibit number of the Company's
Current Report on Form 8-K as filed with the Securities and Exchange
Commission on March 3, 1995, Commission File No. 0-13941).
10.55* Form of Severance Compensation Agreement (incorporated by reference to
referenced exhibit number of the Company's Annual Report on Form 10-K
for the fiscal year ended July 3, 1993, Commission File No. 0-13941).
10.56* Form of Amendment to Executive Officer Severance Compensation Agreement
(incorporated by reference to referenced exhibit number of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 as filed with
the Securities and Exchange Commission on March 6, 1995, SEC File No.
005-44159).
10.57* Form of Amendment to Vice President Severance Compensation Agreement
(incorporated by reference to referenced exhibit number of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 as filed with
the Securities and Exchange Commission on March 6, 1995, SEC File No.
005-44159).
10.58* Amendment to Severance Compensation Agreement dated February 27, 1995
between AST Research, Inc. and Safi U. Qureshey (incorporated by
reference to referenced exhibit number of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 as filed with
the Securities and Exchange Commission on March 6, 1995, SEC File No.
005-44159).
10.59* Involuntary Termination Policy dated September 2, 1994 (incorporated by
reference to referenced exhibit number of the Company's Annual Report on
Form 10-K for the fiscal year ended July 2, 1994, Commission File No. 0-
13941).
10.60* AST Research, Inc. 1994 One-Time Grant Stock Option Plan for Non-
Employee Directors (incorporated by reference to referenced exhibit
number of the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended January 1, 1994, Commission File No. 0-13941).
10.61* Option Agreement Under AST Research, Inc. 1994 One-Time Grant Stock
Option Plan for Non-Employee Directors (incorporated by reference to
referenced exhibit number of the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended January 1, 1994, Commission File No.
0-13941).
10.62* Amendment to the AST Research, Inc. 1994 One-Time Grant Stock Option
Plan for Non-Employee Directors dated February 27, 1995 (incorporated by
reference to referenced exhibit number of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 as filed with
the Securities and Exchange Commission on March 6, 1995, SEC File No.
005-44159).
10.63* Form of Acknowledgment/Consent to Waiver of Rights under the 1991 Stock
Option Plan for Non-Employee Directors and/or AST Research Inc. 1994
One-Time Grant Stock Option Plan for Non-Employee Directors
(incorporated by reference to referenced exhibit number of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 as filed with
the Securities and Exchange Commission on March 6, 1995, SEC File No.
005-44159).
Exhibit
Number Description
10.64* Performance Based Annual Management Incentive Plan (incorporated by
reference to referenced exhibit number of the Company's Annual Report on
Form 10-K for the fiscal year ended July 2, 1994, Commission File No.
13941).
10.65* President's Plan (comprised of resolutions adopted by the Board of
Directors on November 2, 1995) (incorporated by reference to Exhibit
4.1 of the Company's Registration Statement on Form S-8 as filed with
the Securities and Exchange Commission on January 26, 1996, Registration
No. 333-00487).
10.66* Form of Nonqualified Stock Option Agreement pertaining to the
President's Plan (incorporated by reference to Exhibit 4.2 of the
Company's Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on January 26, 1996, Registration No.
333-00487).
10.67*# AST Research, Inc. Profit Sharing Plus Plan, amended and restated as of
July 1, 1993.
10.68*# First Amendment to the AST Research, Inc. Profit Sharing Plus Plan
effective January 1, 1996.
10.69*# Employment Agreement dated as of November 2, 1995 between Ian Diery and
AST Research, Inc.
11. # Statement re computation of per share earnings.
21. # Subsidiaries of the registrant.
23. # Consent of Independent Auditors.
24. # Power of Attorney (included on the signature pages of this Annual Report
on Form 10-K).
27. # Financial Data Schedule.
# Filed herewith
* Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Annual Report on Form 10-K
pursuant to Item 14(c).
(b) Reports on Form 8-K
On November 6, 1995, the Company filed a report on Form 8-K reporting,
under Item 8 thereof, the change of the Company's fiscal year-end to the
Saturday closest to December 31 from the Saturday closest to June 30. The
Company also announced its intention to file a Form 10-K for the transition
period covering July 2, 1995 to December 30, 1995.
On November 8, 1995, the Company filed a report on Form 8-K reporting,
under Item 5 thereof, that it signed a letter of intent with Samsung
Electronics Co., Ltd. ("Samsung") pursuant to which Samsung will provide
certain additional financial support to the Company as consideration for
such number of shares of common stock as would increase its ownership to
49.9 percent, subject to definitive documentation and approvals. The
Company also announced the appointment of Ian Diery as President and Chief
Executive Officer and as a member of the Board of Directors. In addition,
the Company announced the results of operations for the quarter ended
September 30, 1995.
On November 22, 1995, the Company filed a report on Form 8-K reporting,
under Item 5 thereof, the resignation of Bruce C. Edwards, executive vice
president, chief financial officer and a board member, effective at the
conclusion of the quarter ended December 30, 1995.
On December 22, 1995, the Company filed a report on Form 8-K reporting,
under Item 5 thereof, that it signed an agreement with Samsung that will
provide additional financial support to the Company as consideration for an
option to purchase 4.4 million shares of the Company's common stock at an
exercise price of $.01 per share, exercisable after June 30, 1996 and
expiring June 30, 2001.
AST Advantage!, AST Premium, AST Research, GRiDPAD, GRiD, Victor and PalmPad are
registered trademarks of AST Research, Inc. AST Computer, the AST Computer
logo, AST Works, Ascentia, ASTVision, Pronto!, Pronto! Pro, Percepta, Bravo,
Convertible, ExeCare, Manhattan, PowerExec, and Premmia are trademarks of AST
Research, Inc. OverDrive and Pentium are registered trademarks of Intel
Corporation. Pentium Pro is a trademark of Intel Corporation. OS/2 is a
registered trademark of International Business Machines Corporation. NetWare is
a registered trademark of Novell, Inc. MS-DOS is a registered trademark and
Encarta is a trademark of Microsoft Corporation. Radio Shack is a registered
service mark of Tandy Corporation. Prodigy is a registered trademark of the
Prodigy Services Corporation. America Online is a registered service mark of
America Online, Inc. CompuServe is a registered service mark of CompuServe,
Inc. Liquid Yield Option and LYON are trademarks of Merrill Lynch & Co. All
other product or service names mentioned herein may be trademarks or registered
trademarks of their respective owners. Reference to the "Energy Star" program
does not represent EPA endorsement of any product or service. Copyright (C)1996
AST Research, Inc. All Rights Reserved.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Irvine,
State of California, on March 27, 1996.
AST RESEARCH, INC.
Date: March 27, 1996 By: \s\Ian W. Diery
Ian W. Diery
President and
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of AST Research, Inc., do hereby
constitute and appoint Safi U. Qureshey our true and lawful attorney-in-fact and
agent, with full power of substitution to do any and all acts and things in our
name and behalf in our capacities as directors and officers and to execute any
and all instruments for us and in our names in the capacities indicated below,
which said attorney-in-fact and agent may deem necessary or advisable to enable
said corporation to comply with the Securities Exchange Act of 1934, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Annual Report on Form 10-K, including
specifically but without limitation, power and authority to sign for us or any
of us in our names in the capacities indicated below, any and all amendments
(including post-effective amendments) hereto; and we do hereby ratify and
confirm all that said attorney-in-fact and agent shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Title Date
\s\Ian W. Diery President, Chief Executive March 27, 1996
Ian W. Diery Officer and Director
(Principal Executive Officer)
(Acting Principal Financial
Officer)
\s\Mark P. de Raad Vice President, Controller and March 27, 1996
Mark P. de Raad Principal Accounting Officer
\s\Safi U. Qureshey Chairman of the Board and March 27, 1996
Safi U. Qureshey Director
\s\Hoon Choo Director March 27, 1996
Hoon Choo
\s\Richard J. Goeglein Director March 27,1996
Richard J. Goeglein
\s\Kwang-Ho Kim Director March 27, 1996
Kwang-Ho Kim
\s\Young Soo Kim Director March 27, 1996
Young Soo Kim
\s\Jack W. Peltason Director March 27, 1996
Jack W. Peltason
\s\Carmelo J. Santoro Director March 27, 1996
Carmelo J. Santoro, Ph.D.
\s\Won Suk Yang Director March 27, 1996
Won Suk Yang
\s\Hee Dong Yoo Director March 27, 1996
Hee Dong Yoo
\s\Bo-Soon Song Director March 27, 1996
Bo-Soon Song
SCHEDULE II
AST RESEARCH, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
AT AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995, AND AT AND FOR THE
YEARS ENDED JULY 1, 1995, JULY 2, 1994 AND JULY 3, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
- - - ----------------------------------------------------------------------------------------
Six Months Fiscal Year Ended
Ended -----------------------------------
December 30, July 1, July 2, July 3,
1995 1995 1994 1993
- - - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance, beginning of period $ 17,452 $ 17,564 $ 11,671 $ 9,831
Additions charged to expense 2,321 6,091 13,219 6,089
Reductions (1,144) (6,203) (7,326) (4,249)
- - - ----------------------------------------------------------------------------------------
Balance, end of period $ 18,629 $ 17,452 $ 17,564 $ 11,671
========================================================================================
ALLOWANCE FOR SALES RETURNS
Balance, beginning of period $ 19,514 $ 15,137 $ 9,120 $ 10,109
Net additions (reductions)
charged to sales 6,719 4,377 6,017 (989)
- - - ----------------------------------------------------------------------------------------
Balance, end of period $ 26,233 $ 19,514 $ 15,137 $ 9,120
========================================================================================
RESERVE FOR EXCESS OR OBSOLETE INVENTORY
Balance, beginning of period $ 45,536 $ 65,268 $ 35,595 $ 14,529
Inventory acquired in the
Tandy acquisition - - - 20,535
Allocation of restructure
reserves to identified
inventory exposure - - 693 -
Net additions (reductions)
charged to expense 3,815 (19,732) 28,980 531
- - - ----------------------------------------------------------------------------------------
Balance, end of period $ 49,351 $ 45,536 $ 65,268 $ 35,595
========================================================================================
</TABLE>
EXHIBIT 10.33
November 14, 1995
AST Research, Inc.
16215 Alton Parkway
Irvine, California 92718
U.S.A.
Dear Sirs:
Samsung Electronics America, Inc. (the "Lender") hereby agrees to make a
loan to AST Research, Inc. (the "Borrower") in the principal amount of
US$50,000,000 (the "Loan") according to the terms of this letter agreement
(hereinafter referred to as the "agreement").
The Loan shall be evidenced by a promissory note of the Borrower
substantially in the form of Exhibit A hereto (as amended, supplemented or
modified from time to time, the "Note"), which shall represent the Borrower's
obligation to pay to the Lender the principal amount of US$50,000,000, with
interest thereon as prescribed below.
The Note shall bear interest at a fluctuating rate per annum equal to the
rate (the "Interest Rate") which is the sum of (i) one and a half of one
percent (1.5%) and (ii) either (a) the rate per annum determined by the Lender
to be the rate equal to the rate quoted on the Telerate Screen Page 3750 (or
equivalent successor to such page) for a period of one (1) month at or about
11:00 p.m. (London time) on the day which is one business day prior to the date
of the borrowing on which dealings in deposits are carried on in the London
interbank market or (b) if no rate appears on such page, such rate per annum
determined by the Lender at its sole discretion as representing the cost of the
Lender of funding the outstanding principal amount of the Loan calculated on the
basis of a 360-day year of twelve 30-day months. Interest shall be calculated
on the basis of a 360 day year for actual days elapsed.
Any principal amount of the Loan that is not paid when due (whether as
stated or otherwise) shall thereafter bear interest at a rate per annum equal to
2% above the Interest Rate until paid in full (both before and after judgment).
The Lender shall be authorized to endorse the date and amount of the Loan
and all payments of principal on the Note on the Schedule attached thereto and
made a part thereof. The Lender's records shall constitute prima facie evidence
of the accuracy of the information so recorded, provided however, that the
failure to make any such endorsement shall not affect the obligation of the
Borrower under the Note. The Note shall be used to record the Loan and all
payments of principal under the Note until the Note is surrendered to the
Borrower by the Lender and the Note shall continue to be used and to be in full
force and effect even though there may be periods prior to surrender when no
amount of principal or interest is owing thereunder.
The Loan is payable in full on the earlier to occur of (a) December 20,
1995, (b) such date as the Borrower shall make a drawing under a line of credit
to be provided or supported by the Lender, (as contemplated by that certain
Letter of Intent dated November 2, 1995, between the Borrower and the Lender) or
(c) such time as the Lender declares the entire amount of the Loan due and
payable in accordance with the provisions of Section 4 of the Note.
The Borrower agrees (a) to pay or reimburse the Lender for all its costs
and expenses incurred in connection with the enforcement or preservation of any
rights under this agreement, the Note and any document or instrument executed
and delivered in connection therewith, including without limitation, fees and
disbursements of counsel to the Lender and (b) to pay, indemnify and hold the
Lender harmless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this agreement and the Note.
This agreement shall be governed by and construed in accordance with the
laws of the State of California without regard to its conflict-of-laws
principals. The Borrower and the Lender agree that (a) any legal action or
proceeding arising out of or in connection with this Note or the transactions
contemplated hereby shall be brought exclusively in the courts of the State of
California or the Federal Courts of the United States of America sitting in
California, (ii) each irrevocably submits to the jurisdiction of each such
court, and (iii) any summons, pleading, judgment, memorandum of law, or other
paper relevant to any such action or proceeding shall be sufficiently served if
delivered to the recipient thereof by certified or registered mail (with return
receipt) at its address set forth in Section 7 of the Note. Nothing in the
preceding sentence shall affect the right of any party to proceed in any
jurisdiction for the enforcement or execution of any judgment, decree or order
made by a court specified in said sentence.
It is the intent of the Borrower and the Lender in the execution of this
Note and in all transactions related hereto to comply with the usury laws of the
State of California (or the usury laws of any other state that might be
determined by a court of competent jurisdiction to be applicable notwithstanding
such choice of law, hereinafter collectively referred to as "Usury Laws"). In
the event that, for any reason, it should be determined that the Usury Laws
apply to the Loan, the Borrower and the Lender stipulate and agree that none of
the terms and provisions contained herein shall ever be construed to create a
contract for use, forbearance or detention of money requiring payment of
interest at a rate in excess of the maximum interest rate permitted to be
charged by the Usury Laws, all such sums or property deemed to constitute
interest in excess of such maximum rate shall, at the option of the Lender, be
credited to the payment of the principal sum due hereunder.
If you agree with the terms of this agreement, please indicate your
agreement by signing below.
SAMSUNG ELECTRONICS AMERICA, INC.
By: /s/Bo Soon Song
Name: Bo Soon Song
Title: Chief Executive Officer
ACCEPTED AND AGREED:
AST RESEARCH, INC.
By: /s/Bruce C. Edwards
Name: Bruce C. Edwards
Title: Executive Vice President and Chief Financial Officer
By: /s/Dennis R. Leibel
Name: Dennis R. Leibel
Title: Senior Vice President, Legal and Administration
PROMISSORY NOTE
November 20, 1995
Irvine, California
$50,000,000
FOR VALUE RECEIVED, AST Research, Inc., a Delaware corporation
("Borrower"), hereby unconditionally promises to pay to Samsung Electronics
America, Inc., a New York corporation ("Lender"), or assigns, at the address set
forth in Section 7 below, or at such other place as the holder hereof may from
time to time notify Borrower in writing, the principal sum of Fifty Million
DOLLARS ($50,000,000), together with interest from the date hereof, on the
outstanding principal amount at the rate set forth herein below, on the Maturity
Date as (defined below). Lender has lent to Borrower the sum of Fifty Million
DOLLARS ($50,000,000) on the date hereof.
1. The outstanding principal amount of this Note shall bear interest at
the rate per annum which is the sum of (i) one and a half of one percent (1.5%)
and (ii) either (a) the rate per annum determined by the Lender to be the rate
equal to the rate quoted on the Telerate Screen Page 3750 (or the equivalent
successor to such page) for a period of one (1) month at or about 11:00 p.m.
(London time) on the day which is one business day prior to the date hereof on
which dealings in deposits are carried on in the London interbank market or (b)
if no rate appears on such page, such rate per annum determined by the Lender at
its sole discretion as representing the cost of the Lender of funding the
outstanding principal amount hereof calculated on the basis of a 360-day year of
twelve 30-day months.
2. The principal sum of this Note, together with all accrued and unpaid
interest hereon and all other amounts due hereunder, shall be due and payable in
full on the earlier to occur of (a) December 20, 1995, (b) such date as Borrower
shall make a drawing under a line of credit to be provided or supported by
Lender, (as contemplated by that certain Letter of Intent dated November 2, 1995
between Borrower and Lender) or (c) such time as Lender declares the entire
amount of this Note due and payable in accordance with the provisions of Section
4 hereof (such earlier date, the "Maturity Date").
3. Principal and interest and all other amounts due hereunder shall be
payable in lawful money of the United States of America. Payments shall be
applied first to interest on past due interest, second to current due interest,
third to accrued interest, fourth to all other amounts (other than principal)
due hereunder , and fifth to principal. The undersigned may prepay all or part
of this Note at any time and from time to time without penalty.
4. An event of default ("Event of Default") hereunder shall occur if:
a. Borrower shall fail to pay any amount hereunder as and when due;
b. There shall be a default under any evidence of indebtedness for
borrowed money of Borrower or any of its subsidiaries having a
principal amount in excess of $2 million (i) resulting from the
failure to pay principal at maturity or (ii) as a result of which the
maturity of such indebtedness has been accelerated prior to its stated
maturity;
c. Borrower shall admit in writing its inability to pay or shall be
unable to pay its debts as they become due, or shall apply for a
receiver, trustee or similar officer with respect to all or a
substantial part of its property or shall institute by petition,
application, answer, consent or otherwise, any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debts, dissolution,
liquidation or similar proceedings relating to Borrower under the laws
of any jurisdiction; or
d. Any creditor of Borrower shall apply for a receiver, trustee or
similar officer with respect to all or a substantial part of
Borrower's property or shall institute by petition, application,
answer, consent or otherwise, any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debts, dissolution,
liquidation or similar proceedings relating to Borrower under the laws
of any jurisdiction, and such petition, bankruptcy, or other
proceeding shall not be stayed, bonded or discharged within sixty (60)
days.
Upon the occurrence of any Event of Default, and at such time as any Event
of Default is continuing, (i) if such event is an Event of Default specified in
clause (c) or (d) above, this Note shall automatically and immediately become
due and payable and (ii) if such event is any other Event of Default, the
holder hereof, at its option, may declare all sums due hereunder immediately due
and payable by sending a notice of default to Borrower.
5. No failure or delay on the part of the holder of this Note or the
failure to exercise any power or right under this Note shall operate as a waiver
of such power or right or preclude other or further exercise thereof or the
exercise of any other power or right. No waiver by the holder of this Note will
be effective unless and until it is in writing and signed by such holder. No
waiver of any condition or performance will operate as a waiver of any
subsequent condition or obligation. Except as provided herein, the undersigned
hereby waives diligence, presentment, demand for payment, notice of dishonor or
acceleration, protest and notice of protest, and any and all other notices or
demands in connection with delivery, acceptance, performance, default or
enforcement of this Note.
6. In the event that any action, suit or other proceeding is instituted
concerning or arising out of this Note, the prevailing party shall recover all
of such party's costs, and reasonable attorneys' fees incurred in each and every
such action, suit, or other proceeding, including any and all appeals or
petitions therefrom.
7. Notices required or permitted to be given under this Note to any party
hereto by any other party shall be in writing and shall be deemed to have been
duly delivered and given when personally delivered to the party (including by
express courier service) or sent by facsimile transmission at the address or
number set forth below, or any such other address or number as shall be given in
writing by the respective party to all other parties:
Borrower: AST Research, Inc.
16215 Alton Parkway
Irvine, California 92718
Attention: Treasurer
Fax Number: (714) 727-8584
With a copy to: AST Research, Inc.
16215 Alton Parkway
Irvine, California 92718
Attention: General Counsel
Lender: Samsung Electronics America Inc.
105 Challenger Road
Ridgefield Park
New Jersey 07660
Attention: Finance Manager
Fax No. (201) 229-7030
With a copy to: Samsung Electronics America Inc.
105 Challenger Road
Ridgefield Park
New Jersey 07660
Attention: Un Suk Ko
Fax No. (201) 229-7030
8. This Note, its validity, construction and effect, shall be governed
by, construed under and enforced in accordance with, the laws of the State of
California without regard to its conflict-of-laws principals. Borrower and
Lender agree that (i) any legal action or proceeding arising out of or in
connection with this Note or the transactions contemplated hereby shall be
brought exclusively in the courts of the State of California or the Federal
Courts of the United States of America sitting in California, (ii) each
irrevocably submits to the jurisdiction of each such court, and (iii) any
summons, pleading, judgment, memorandum of law, or other paper relevant to any
such action or proceeding shall be sufficiently served if delivered to the
recipient thereof by certified or registered mail (with return receipt) at its
address set forth in Section 7 hereof. Nothing in the preceding sentence shall
affect the right of any party to proceed in any jurisdiction for the enforcement
or execution of any judgment, decree or order make by a court specified in said
sentence.
9. It is the intent of Borrower and Lender in the execution of this Note
and in all transactions related hereto to comply with the usury laws of the
State of California (or the usury laws of any other state that might be
determined by a court of competent jurisdiction to be applicable notwithstanding
such choice of law, hereinafter collectively referred to as "Usury Laws"). In
the event that, for any reason, it should be determined that the Usury Laws
apply to the loan evidenced hereby, Borrower and Lender stipulate and agree that
none of the terms and provisions contained herein shall ever be construed to
create a contract for use, forbearance or detention of money requiring payment
of interest at a rate in excess of the maximum interest rate permitted to be
charged by the Usury Laws. In such event, if Lender shall collect monies or
other property which are deemed to constitute interest which would otherwise
increase the effective interest rate on this Note to a rate in excess of the
maximum rate permitted to be charged by the Usury Laws, all such sums or
property deemed to constitute interest in excess of such maximum rate shall, at
the option of Lender, be credited to the payment of the principal sum due
hereunder.
10. This Note shall not be assignable by Borrower. This Note shall be
assignable by Lender and all provisions of this Note shall inure to the benefit
of Lender and all of its successors and assigns.
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed and delivered as of the day and year first above written.
AST RESEARCH, INC.
By: /s/Bruce C. Edwards
Name: Bruce C. Edwards
Title: Executive Vice President and Chief Financial Officer
By: /s/Dennis R. Leibel
Name: Dennis R. Leibel
Title: Senior Vice President, Legal and Administration
EXHIBIT 10.34
CREDIT AGREEMENT
DATED AS OF DECEMBER 27, 1995
AMONG
AST RESEARCH, INC.,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS AGENT,
AND
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
ARRANGED BY
BA SECURITIES, INC.
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS 1
1.01 Certain Defined Terms 1
1.02 Other Interpretive Provisions 15
1.03 Accounting Principles 16
ARTICLE II
THE CREDITS 16
2.01 Amounts and Terms of Commitments 16
2.02 Loan Accounts 17
2.03 Procedure for Borrowing 17
2.04 Conversion and Continuation Elections 18
2.05 Voluntary Termination or Reduction of Commitments 19
2.06 Optional Prepayments 20
2.07 Repayment 20
2.08 Interest 20
2.09 Fees 21
(a) Arrangement, Agency Fees 21
(b) Commitment Fees 21
2.10 Computation of Fees and Interest 22
2.11 Payments by the Company 22
2.12 Payments by the Banks to the Agent 22
2.13 Sharing of Payments, Etc. 23
2.14 Extension of Termination Date 24
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY 24
3.01 Taxes 24
3.02 Illegality 27
3.03 Increased Costs and Reduction of Return 28
3.04 Funding Losses 29
3.05 Inability to Determine Rates 29
3.06 Invoices of Banks 30
3.07 Survival 30
3.08 Replacement Bank 30
ARTICLE IV
CONDITIONS PRECEDENT 31
4.01 Conditions of Initial Loans 31
(a) Credit Agreement and Notes 31
(b) Resolutions; Incumbency 31
(c) Organization Documents; Good Standing 32
(d) Legal Opinions 32
(e) Payment of Fees 32
(f) Certificate 32
(g) Guaranty 33
(h) Consents 33
(i) Other Documents 33
4.02 Conditions to All Borrowings 33
(a) Notice of Borrowing 33
(b) Continuation of Representations and
Warranties 33
(c) No Existing Default 33
ARTICLE V
REPRESENTATIONS AND WARRANTIES 33
5.01 Corporate Existence and Power 33
5.02 Corporate Authorization; No Contravention 34
5.03 Governmental Authorization 34
5.04 Binding Effect 34
5.05 Litigation 35
5.06 No Default 35
5.07 ERISA Compliance 35
5.08 Use of Proceeds; Margin Regulations 37
5.09 Title to Properties 37
5.10 Taxes 37
5.11 Financial Condition; No Material Adverse Change 37
5.12 Environmental Matters 38
5.13 Regulated Entities 38
5.14 No Burdensome Restrictions 39
5.15 Solvency 39
5.16 Copyrights, Patents, Trademarks and Licenses, Etc. 39
5.17 Subsidiaries 39
5.18 Full Disclosure 39
ARTICLE VI
AFFIRMATIVE COVENANTS 40
6.01 Financial Statements 40
6.02 Certificates; Other Information 40
6.03 Notices 41
6.04 Preservation of Corporate Existence, Etc. 42
6.05 Maintenance of Property 42
6.06 Insurance 42
6.07 Payment of Obligations 43
6.08 Compliance with Laws 43
6.09 Compliance with ERISA 43
6.10 Inspection of Property and Books and Records 44
6.11 Environmental Laws 44
6.12 Use of Proceeds 44
ARTICLE VII
NEGATIVE COVENANTS 44
7.01 Limitation on Liens 44
7.02 Disposition of Assets 46
7.03 Consolidations and Mergers 47
7.04 Loans and Investments 48
7.05 Transactions With Affiliates 49
7.06 Compliance With ERISA 49
7.07 Restricted Payments 50
7.08 Use of Proceeds 50
7.09 Change in Business 50
7.10 Accounting Changes 51
ARTICLE VIII
EVENTS OF DEFAULT 51
8.01 Event of Default 51
(a) Non-Payment 51
(b) Representation or Warranty 51
(c) Specific Defaults 51
(d) Other Defaults 51
(e) Cross-Default 51
(f) Insolvency; Voluntary Proceedings 52
(g) Involuntary Proceedings 52
(h) ERISA 52
(i) Monetary Judgments 53
(j) Non-Monetary Judgments 53
(k) Change of Control 53
(l) Guarantor Defaults 53
8.02 Remedies 53
8.03 Rights Not Exclusive 54
ARTICLE IX
THE AGENT 54
9.01 Appointment and Authorization; "Agent" 54
9.02 Delegation of Duties 54
9.03 Liability of Agent 55
9.04 Reliance by Agent 55
9.05 Notice of Default 56
9.06 Credit Decision 56
9.07 Indemnification of Agent 56
9.08 Agent in Individual Capacity 57
9.09 Successor Agent 57
9.10 Withholding Tax 58
ARTICLE X
MISCELLANEOUS 59
10.01 Amendments and Waivers 59
10.02 Notices 60
10.03 No Waiver; Cumulative Remedies 61
10.04 Costs and Expenses 61
10.05 Company Indemnification 62
10.06 Payments Set Aside 62
10.07 Successors and Assigns 62
10.08 Assignments, Participations, Etc. 62
10.09 Confidentiality 64
10.10 Set-off 65
10.11 Notification of Addresses, Lending Offices, Etc. 65
10.12 Counterparts 65
10.13 Severability 65
10.14 No Third Parties Benefited 66
10.15 Governing Law and Jurisdiction 66
10.16 Waiver of Jury Trial 66
10.17 Entire Agreement 66
SCHEDULES
Schedule 2.01 Commitments
Schedule 5.05 Litigation
Schedule 5.07 ERISA
Schedule 5.12 Environmental Matters
Schedule 5.17(a) Subsidiaries
Schedule 5.17(b) Affiliates
Schedule 7.01 Permitted Liens
Schedule 7.05 Transactions with Affiliates
Schedule 7.09 Permitted Changes in Business
Schedule 10.02 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Legal Opinion of Company's California Counsel
Exhibit E Form of Legal Opinion of Guarantor's California Counsel
Exhibit F Form of Legal Opinion of Guarantor's Korea Counsel
Exhibit G Form of Assignment and Acceptance
Exhibit H Form of Promissory Note
Exhibit I Form of Guaranty
Exhibit J Form of Satisfaction of Conditions Certificate
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of December 20, 1995, among AST
Research, Inc., a Delaware corporation (the "Company"), the several financial
institutions from time to time party to this Agreement (collectively, the
"Banks"; individually, a "Bank"), and Bank of America National Trust and Savings
Association, as agent for the Banks.
WHEREAS, the Banks have agreed to make available to the Company a revolving
credit facility upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
DEFINITIONS
Certain Defined Terms The following terms have the following meanings:
"Acquiree" means any Person, control of which is to be acquired
in, or who is the target of, or will or having a division or business
that will be acquired in, an Acquisition.
"Acquisition" means any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly, in
(a) the acquisition of all or substantially all of the assets of a Person,
or of any business or division of a Person, (b) the acquisition of in
excess of 50% of the capital stock, partnership interests, membership
interests or equity of any Person, or otherwise causing any Person to
become a Subsidiary, or (c) a merger or consolidation or any other
combination with another Person (other than a Person that is a Subsidiary)
provided that the Company or the Subsidiary is the surviving entity.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. A Person shall be deemed to control
another Person if the controlling Person possesses, directly or indirectly,
the power to direct or cause the direction of the management and policies
of the other Person, whether through the ownership of voting securities,
membership interests, by contract, or otherwise.
"Agent" means BofA in its capacity as agent for the Banks hereunder,
and any successor agent arising under Section 9.09.
"Agent-Related Persons" means BofA and any successor agent arising
under Section 9.09, together with their respective Affiliates (including,
in the case of BofA, the Arranger), and the officers, directors, employees,
agents and attorneys-in-fact of such Persons and Affiliates.
"Agent's Payment Office" means the address for payments set forth on
Schedule 10.02 or such other address as the Agent may from time to time
specify.
"Agreement" means this Credit Agreement.
"Applicable Margin" means
with respect to Base Rate Loans, 0%; and
with respect to Offshore Rate Loans, .25%.
"Arranger" means BA Securities, Inc., a Delaware corporation.
"Assignee" has the meaning specified in subsection 10.08(a).
"Attorney Costs" means and includes all reasonable fees and
disbursements of any law firm or other external counsel, the allocated cost
of internal legal services and all disbursements of internal counsel.
"Bank" has the meaning specified in the introductory clause hereto.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978
(11 U.S.C. Section101, et seq.).
"Base Rate" means, for any day, the higher of: (a) 0.50% per annum
above the latest Federal Funds Rate; and (b) the rate of interest in effect
for such day as publicly announced from time to time by BofA in San
Francisco, California, as its "reference rate." (The "reference rate" is a
rate set by BofA based upon various factors including BofA's costs and
desired return, general economic conditions and other factors, and is used
as a reference point for pricing some loans, which may be priced at, above,
or below such announced rate.)
Any change in the reference rate announced by BofA shall take effect
at the opening of business on the day specified in the public announcement
of such change.
"Base Rate Loan" means a Loan that bears interest based on the Base
Rate.
"BofA" means Bank of America National Trust and Savings Association,
a national banking association.
"Borrowing" means a borrowing hereunder consisting of Loans of the
same Type made to the Company on the same day by the Banks under Article
II, and, other than in the case of Base Rate Loans, having the same
Interest Period.
"Borrowing Date" means any date on which a Borrowing occurs under
Section 2.03.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York City or San Francisco are
authorized or required by law to close and, if the applicable Business Day
relates to any Offshore Rate Loan, means such a day on which dealings are
carried on in the applicable offshore dollar interbank market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each
case, regarding capital adequacy of any bank or of any corporation
controlling a bank.
"Capital Lease Obligations" means all monetary obligations of the
Company or any of its Subsidiaries under any leasing or similar arrangement
which, in accordance with GAAP, is classified as a capital lease.
"Change of Control" means when (a) the Guarantor and it Subsidiaries
shall cease to own directly or indirectly at least 40% of the outstanding
capital stock of the Company which is entitled to vote in the election of
directors or (b) any Person other than the Guarantor and its Subsidiaries
(i) shall own, directly or indirectly, 30% or more of the outstanding
capital stock of the Company which is entitled to vote in the election of
directors or (ii) shall have the ability to elect a majority of the board
of directors of the Company.
"Closing Date" means the date on which all conditions precedent set
forth in Section 4.01 are satisfied or waived by all Banks (or, in the case
of subsection 4.01(e), waived by the Person entitled to receive such
payment).
"Code" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
"Commitment," as to each Bank, has the meaning specified in
Section 2.01.
"Company," has the meaning specified in the introductory paragraph
hereof.
"Compliance Certificate" means a certificate substantially in the
form of Exhibit C.
"Consolidated Subsidiaries" means, at any time, those
Subsidiaries of the Company that in accordance with GAAP would be
consolidated with the Company for financial reporting purposes.
"Consolidated Total Assets" means, as of any date of determination,
the aggregate amount of all assets of the Company and its Subsidiaries that
would, in accordance with GAAP, be required to be shown as assets on a
consolidated balance sheet of the Company and its Subsidiaries as of such
date.
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability of that Person with respect to any
Indebtedness, lease, dividend, letter of credit or other obligation
(the "primary obligation") of another Person (the "primary obligor"),
including any obligation of that Person, whether or not contingent,
(a) to purchase, repurchase or otherwise acquire such primary
obligations or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or
discharge of any such primary obligation, or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to main
tain the net worth or solvency or any balance sheet item, level of
income or financial condition of the primary obligor, or (c) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation set forth above of
the ability of the primary obligor to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the holder of
any such primary obligation against loss in respect thereof. The
amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the primary obligation
outstanding at any point in time in respect of which such Contingent
Obligation is made or, if not stated or if indeterminable, the maximum
anticipated liability in respect thereof as reasonably determined by
the Company in accordance with past practices.
"Contractual Obligation" means, as to any Person, any provision of
any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument, document
or agreement to which such Person is a party or by which it or any of its
property is bound.
"Controlled Group" means the Company and all Persons (whether
or not incorporated) under common control or treated as a single
employer with the Company pursuant to Section 414(b), (c), (m) or (o)
of the Code.
"Conversion/Continuation Date" means any date on which, under
Section 2.04, the Company (a) converts Loans of one Type to another Type,
or (b) continues as Loans of the same Type, but with a new Interest Period,
Loans having Interest Periods expiring on such date.
"Credit" means the Loans and Commitments extended hereunder.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"Dollars," "dollars" and "$" each mean lawful money of the United
States.
"Eligible Assignee" means (a) a commercial bank organized under the
laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $1,000,000,000; (b) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having a combined capital
and surplus of at least $1,000,000,000, provided that such bank is acting
through a branch or agency located in the country in which it is organized
or another country which is also a member of the OECD; and (c) a Person
that is primarily engaged in the business of commercial banking and that is
(i) a Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a Bank
is a Subsidiary, or (iii) a Person of which a Bank is a Subsidiary.
"Environmental Claims" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or
injury to the environment.
"Environmental Laws" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any
Governmental Authorities, in each case relating to environmental, health,
safety and land use matters.
"Environmental Permits" has the meaning specified in subsection
5.12(b).
"ERISA" means the Employee Retirement Income Security Act of 1974,
and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code
for purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
cessation of operations which is treated as such a withdrawal under
Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the
Company or any ERISA Affiliate from a Multiemployer Plan or notification
that a Multiemployer Plan is in reorganization; (d) the filing of a notice
of intent to terminate, the treatment of a Plan amendment as a termination
under Section 4041 or 4041A of ERISA, or the commencement of proceedings by
the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or
condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the
imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon the
Company or any ERISA Affiliate.
"Eurodollar Reserve Percentage" has the meaning specified in the
definition of "Offshore Rate".
"Event of Default" means any of the events or circumstances
specified in Section 8.01.
"Exchange Act" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including
any such successor, "H.15(519)") on the preceding Business Day opposite the
caption "Federal Funds (Effective)"; or, if for any relevant day such rate
is not so published on any such preceding Business Day, the rate for such
day will be the arithmetic mean as determined by the Agent of the rates for
the last transaction in overnight Federal funds arranged prior to 9:00 a.m.
(New York City time) on that day by each of three leading brokers of
Federal funds transactions in New York City selected by the Agent.
"Fee Letter" has the meaning specified in subsection 2.09(a).
"FRB" means the Board of Governors of the Federal Reserve System,
and any Governmental Authority succeeding to any of its principal
functions.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial Accounting Standards
Board (or agencies with similar functions of comparable stature and
authority within the U.S. accounting profession), which are applicable to
the circumstances as of the date of determination.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Guarantor" means Samsung Electronics Co., Ltd., a Korean
corporation.
"Guaranty" means the Guaranty of the Guarantor in substantially the
form of Exhibit I.
"Hazardous Materials" means all those substances which are
regulated by, or which may form the basis of liability under, any
Environmental Law, including all substances identified under any
Environmental Law as a pollutant, contaminant, waste, solid waste,
hazardous waste, hazardous constituent, special waste, hazardous
substance, hazardous material, or toxic substance, or petroleum or
petroleum derived substance or waste.
"Indebtedness" of any Person means, without duplication,
(a) all indebtedness for borrowed money; (b) all obligations issued,
undertaken or assumed as the deferred purchase price of property or
services (other than ordinary course trade payables); (c) all
reimbursement obligations with respect to surety bonds, letters of
credit, bankers' acceptances and similar instruments (in each case,
whether or not matured); (d) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property,
assets or businesses; (e) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred
as financing, in either case with respect to property acquired by the
Person (even though the rights and remedies of the seller or bank
under such agreement in the event of default are limited to
repossession or sale of such property; provided, however, in such case
the indebtedness shall be limited to the fair market value of such
property); (f) all Capital Lease Obligations; (g) all indebtedness
referred to in paragraphs (a) through (f) above secured by (or for
which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in
property (including accounts and contracts rights) owned by such
Person, even though such Person has not assumed or become liable for
the payment of such Indebtedness; and (h) all direct or indirect
guaranties in respect of and obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, indebtedness or obligations of others of
the kinds referred to in paragraphs (a) through (f) above. The amount
of any Indebtedness of the kind set forth in paragraph (h) above shall
be deemed to be an amount equal to the stated or determinable amount
of Indebtedness outstanding at any point in time in respect of which
such guarantee is made or, if not stated or if indeterminable, the
amount reasonably determined by the Company in accordance with past
practices.
"Indemnified Liabilities" has the meaning specified in
Section 10.05.
"Indemnified Person" has the meaning specified in Section 10.05.
"Independent Auditor" has the meaning specified in subsection
6.01(a).
"Insolvency Proceeding" means, with respect to any Person, (a) any
case, action or proceeding with respect to such Person before any court or
other Governmental Authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial
portion of its creditors; undertaken under U.S. Federal, state or foreign
law, including the Bankruptcy Code.
"Interest Payment Date" means, as to any Loan other than a Base Rate
Loan, the last day of each Interest Period applicable to such Loan and, as
to any Base Rate Loan, the last Business Day of each calendar quarter and
each date such Loan is converted into another Type of Loan.
"Interest Period" means, as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending on the date one, two, three
or six months thereafter or on such other dates as the Agent and the Banks
in their sole discretion may agree to;
provided that:
(i) if any Interest Period would otherwise end on a day
that is not a Business Day, that Interest Period shall be extended
to the following Business Day unless, in the case of an Offshore
Rate Loan, the result of such extension would be to carry such
Interest Period into another calendar month, in which event such
Interest Period shall end on the preceding Business Day;
(ii) any Interest Period pertaining to an Offshore Rate
Loan that begins on the last Business Day of a calendar month (or on
a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the
last Business Day of the calendar month at the end of such Interest
Period; and
(iii) no Interest Period for any Loan shall extend beyond
the Revolving Termination Date.
"Investments" has the meaning specified in Section 7.04.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"Joint Venture" means a single-purpose corporation, partnership,
limited liability company, joint venture or other similar legal arrangement
(whether created by contract or conducted through a separate legal entity)
now or hereafter formed by the Company or any of its Subsidiaries with
another Person in order to conduct a common venture or enterprise with such
Person.
"Lending Office" means, as to any Bank, the office or offices of
such Bank specified as its "Lending Office" or "Domestic Lending Office" or
"Offshore Lending Office", as the case may be, on Schedule 10.02, or such
other office or offices as such Bank may from time to time notify the
Company and the Agent.
"LIBOR" means the rate of interest per annum determined by the Agent
from Telerate page 3750 to be the arithmetic mean (rounded upward to the
next 1/16th of 1%) of the rates of interest per annum at which dollar
deposits in the approximate amount of the amount of the Loan to be made or
continued as, or converted into, an Offshore Rate Loan and having a
maturity comparable to such Interest Period would be offered to major banks
in the London interbank market at their request at approximately 11:00 a.m.
(London time) two Business Days prior to the commencement of such Interest
Period. If no such quotations are available, LIBOR shall be determined by
the Agent to be the arithmetic mean, rounded upward to the nearest 1/16th
of one percent of the rates of interest per annum at which deposits in an
amount approximately equal to the aggregate amount of such Offshore Loan
requested to be borrowed, and having a maturity equal to such Interest
Period are offered to the Agent in the London Interbank Market at or about
11:00 a.m. (London time) on the second Business Day before (and for value
on) the commencement of such Interest Period.
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising
under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease, any financing
lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of the
asset to which such lien relates as debtor, under the Uniform Commercial
Code or any comparable law) and any contingent or other agreement to
provide any of the foregoing, but not including the interest of a lessor
under an operating lease.
"Loan" means an extension of credit by a Bank to the Company under
Article II, and may be a Base Rate Loan or an Offshore Rate Loan (each, a
"Type" of Loan).
"Loan Documents" means this Agreement, any Notes, the Guaranty, the
Fee Letter and all other documents delivered to the Agent or any Bank in
connection herewith.
"Majority Banks" means at any time Banks then holding at least
66-2/3% of the then aggregate unpaid principal amount of the Loans, or, if
no such principal amount is then outstanding, Banks then having at least
66-2/3% of the Commitments.
"Margin Stock" means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
"Marketable Investments" means investments held by the Company
or any of its Subsidiaries in the form of cash equivalents or short-
term marketable securities.
"Material Adverse Effect" means (a) a material adverse change in, or
a material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of the Guarantor, the
Company or the Company and its Subsidiaries taken as a whole; (b) a
material impairment of the ability of the Guarantor or the Company to
perform under any Loan Document without default; or (c) a material adverse
effect upon the legality, validity, binding effect or enforceability
against the Company or the Guarantor of any Loan Document.
"Material Subsidiary" means any Subsidiary of the Company for which,
based upon the Company's most recent annual or quarterly consolidated and
consolidating financial statements delivered to the Agent and the Banks
pursuant to Section 6.01, the total assets of such Subsidiary exceeds five
percent of the consolidated assets of the Company and its Consolidated
Subsidiaries.
"Multiemployer Plan" means a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, to which the Company or any ERISA
Affiliate makes, is making, or is obligated to make contributions or,
during the preceding three calendar years, has made, or been obligated to
make, contributions.
"Note" means a promissory note executed by the Company in favor of a
Bank pursuant to subsection 2.02(b), in substantially the form of Exhibit
H.
"Notice of Borrowing" means a notice in substantially the form of
Exhibit A.
"Notice of Conversion/Continuation" means a notice in substantially
the form of Exhibit B.
"Notice of Lien" means any "notice of lien" or similar document
intended to be filed or recorded with any court, registry, recorder's
office, central filing office or Governmental Authority for the
purpose of evidencing, creating, perfecting or preserving the priority
of a Lien securing obligations owing to a Governmental Authority.
"Notice of Substitution" has the meaning specified in Section 3.08.
"Obligations" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by the Company
to any Bank, the Agent, or any Indemnified Person, whether direct or
indirect (including those acquired by assignment), absolute or contingent,
due or to become due, now existing or hereafter arising.
"Offshore Rate" means, for any Interest Period, with respect to
Offshore Rate Loans comprising part of the same Borrowing, the rate of
interest per annum determined by the Agent by reference to LIBOR.
"Offshore Rate Loan" means a Loan that bears interest based on the
Offshore Rate.
"Organization Documents" means, for any corporation, the certificate
or articles of incorporation, the bylaws, any certificate of determination
or instrument relating to the rights of preferred shareholders of such
corporation, any shareholder rights agreement, and all applicable
resolutions of the board of directors (or any committee thereof) of such
corporation.
"Other Taxes" has the meaning specified in Section 3.01(b).
"Participant" has the meaning specified in subsection 10.08(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under
ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Company sponsors, maintains,
or to which it makes, is making, or is obligated to make contributions, or
in the case of a multiple employer plan (as described in Section 4064(a) of
ERISA) has made contributions at any time during the immediately preceding
five (5) plan years.
"Permitted Liens" has the meaning specified in Section 7.01.
"Permitted Waiver" means, in respect of any default or event of
default under any instrument or agreement evidencing any Indebtedness or
Contingent Obligation, a written waiver (including by amendment), duly
executed and delivered by the applicable creditor, permanently waiving such
default or event of default.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Company sponsors or maintains or to which the Company
makes, is making, or is obligated to make contributions and includes any
Pension Plan.
"Pro Rata Share" means, as to any Bank at any time, the percentage
equivalent (expressed as a decimal, rounded to the ninth decimal place) at
such time of such Bank's Commitment divided by the combined Commitments of
all Banks.
"Qualified Plan" means a pension plan (as defined in Section 3(2) of
ERISA) intended to be tax-qualified under Section 401(a) of the Code and
which any member of the Controlled Group sponsors, maintains, or to which
it makes, is making or is obligated to make contributions, or in the case
of a multiple employer plan (as described in Section 4064(a) of ERISA) has
made contributions at any time during the immediately preceding period
covering at least five (5) plan years, but excluding any Multiemployer
Plan.
"Removed Bank" has the meaning specified in Section 3.08.
"Replacement Bank" has the meaning specified in Section 3.08.
"Reportable Event" means, any of the events set forth in
Section 4043(c) of ERISA or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been waived
in regulations issued by the PBGC.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of
a Governmental Authority, in each case applicable to or binding upon the
Person or any of its property or to which the Person or any of its property
is subject.
"Responsible Officer" means the chief executive officer, chief
financial officer, senior vice president, treasurer or the president of the
Company.
"Revolving Termination Date" means the earlier to occur of:
(a) December 31, 1996;
(b) 364 days after the Closing Date; and
(c) the date on which the Commitments terminate in
accordance with the provisions of this Agreement.
"Solvent" means, as to any Person at any time, that (a) the fair
value of the property of such Person is greater than the amount of such
Person's liabilities (including disputed, contingent and unliquidated
liabilities) as such value is established and liabilities evaluated for
purposes of Section 101(31) of the United States Bankruptcy Code (12 U.S.C.
Section 101 et seq.); (b) the present fair saleable value of the property
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured; (c) taking into account all of such Person's then-available
sources of liquidity, including borrowings, such Person is able to realize
upon its property and pay its debts and other liabilities (including
disputed, contingent and unliquidated liabilities) as they mature in the
normal course of business; and (d) such Person does not intend to, and does
not believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock, membership interests or
other equity interests (in the case of Persons other than corporations), is
owned or controlled directly or indirectly by the Person, or one or more of
the Subsidiaries of the Person, or a combination thereof. Unless the
context otherwise clearly requires, references herein to a "Subsidiary"
refer to a Subsidiary of the Company.
"Surety Instruments" means all letters of credit (including standby
and commercial), banker's acceptances, bank guaranties, shipside bonds,
surety bonds and similar instruments.
"Tangible Net Worth" means, at any time of determination, in
respect of the Company and its Subsidiaries, determined on a consoli
dated basis, total assets (exclusive of goodwill, licensing
agreements, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and premium, deferred
charges and other like intangibles) less total liabilities (including
accrued and deferred income taxes), at such time.
"Taxes" has the meaning specified in Section 3.01(a).
"Type" has the meaning specified in the definition of "Loan."
"Unfunded Pension Liability" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of
that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
"United States" and "U.S." each means the United States of America.
"Voluntary Lien" means any security agreement, pledge, assignment,
hypothecation, charge or deposit arrangement, grant of mortgage, grant of
deed of trust and any and all other Liens intentionally or voluntarily
entered into or incurred by the Company or any of its Subsidiaries.
"Wholly-Owned Subsidiary" means any corporation in which (other than
directors' qualifying shares required by law) 100% of the capital stock of
each class having ordinary voting power, and 100% of the capital stock of
every other class, in each case, at the time as of which any determination
is being made, is owned, beneficially and of record, by the Company, or by
one or more of the other Wholly-Owned Subsidiaries, or both.
Other Interpretive Provisions. (a) The meanings of defined terms
are equally applicable to the singular and plural forms of the defined terms.
The words "hereof," "herein," "hereunder" and similar words
refer to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
The term "including" is not limiting and means "including
without limitation."
In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including"; the
words "to" and "until" each mean "to but excluding", and the word "through"
means "to and including."
Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this Agreement.
This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.
Accounting Principles. (a) Unless the context otherwise clearly
requires, all accounting terms not expressly defined herein shall be construed,
and all financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
References herein to "fiscal year" and "fiscal quarter" refer
to such fiscal periods of the Company.
THE CREDITS
Amounts and Terms of Commitments Each Bank severally agrees, on the terms
and conditions set forth herein, to make Loans to the Company from time to time
on any Business Day during the period from the Closing Date to the Revolving
Termination Date, in an aggregate amount not to exceed at any time outstanding
the amount set forth on Schedule 2.01 (such amount, as the same may be reduced
under Section 2.05 or as a result of one or more assignments under
Section 10.08, the Bank's "Commitment"); provided, however, that, after giving
effect to any Borrowing, the aggregate principal amount of all outstanding Loans
shall not at any time exceed the combined Commitments. Within the limits of
each Bank's Commitment, and subject to the other terms and conditions hereof,
the Company may borrow under this Section 2.01, prepay under Section 2.06 and
reborrow under this Section 2.01.
Loan Accounts (a) The Loans made by each Bank shall be evidenced by one
or more loan accounts or records maintained by such Bank in the ordinary course
of business. The loan accounts or records maintained by the Agent and each Bank
shall be conclusive absent manifest error of the amount of the Loans made by the
Banks to the Company and the interest and payments thereon. Any failure so to
record or any error in doing so shall not, however, limit or otherwise affect
the obligation of the Company hereunder to pay any amount owing with respect to
the Loans.
Upon the request of any Bank made through the Agent, the Loans
made by such Bank may be evidenced by one or more Notes, instead of or in
addition to loan accounts. Each such Bank shall endorse on the schedules
annexed to its Note(s) the date, amount and maturity of each Loan made by it and
the amount of each payment of principal made by the Company with respect
thereto. Each such Bank is irrevocably authorized by the Company to endorse its
Note(s) and each Bank's record shall be conclusive absent manifest error;
provided, however, that the failure of a Bank to make, or an error in making, a
notation thereon with respect to any Loan shall not limit or otherwise affect
the obligations of the Company hereunder or under any such Note to such Bank.
Procedure for Borrowing. (a) Each Borrowing shall be made upon the
Company's irrevocable written (or irrevocable notice via telephone confirmed
immediately by a facsimile provided such notice is confirmed with an original
written notice sent by mail or courier) notice delivered to the Agent in the
form of a Notice of Borrowing (which notice must be received by the Agent prior
to 9:00 a.m. (San Francisco time) (i) three Business Days prior to the requested
Borrowing Date, in the case of Offshore Rate Loans; and (ii) on the Business Day
that is the requested Borrowing Date, in the case of Base Rate Loans,
specifying:
the amount of the Borrowing, which shall be in an
aggregate minimum amount of $1,000,000 or any multiple of $100,000
in excess thereof;
the requested Borrowing Date, which shall be a
Business Day;
the Type of Loans comprising the Borrowing; and
the duration of the Interest Period applicable to
such Loans included in such notice. If the Notice of Borrowing
fails to specify the duration of the Interest Period for any
Borrowing comprised of Offshore Rate Loans, such Interest Period
shall be three months.
provided, however, that with respect to the Borrowing to be made on the Closing
Date, the Notice of Borrowing shall be delivered to the Agent not later than
1:00 p.m. (San Francisco time) one Business Day before the Closing Date and such
Borrowing will consist of Base Rate Loans only.
The Agent will promptly notify each Bank of its receipt of any
Notice of Borrowing and of the amount of such Bank's Pro Rata Share of that
Borrowing.
Each Bank will make the amount of its Pro Rata Share of each
Borrowing available to the Agent for the account of the Company at the Agent's
Payment Office by 11:00 a.m. (San Francisco time) on the Borrowing Date
requested by the Company in funds immediately available to the Agent. The
proceeds of all such Loans will then be made available to the Company by the
Agent at such office by crediting the account of the Company on the books of
BofA with the aggregate of the amounts made available to the Agent by the Banks
and in like funds as received by the Agent.
After giving effect to any Borrowing, unless the Agent shall
otherwise consent, there may not be more than eight different Interest Periods
in effect.
Conversion and Continuation Elections (a) The Company may, upon
irrevocable written notice (or irrevocable notice via telephone confirmed
immediately by a facsimile provided such notice is confirmed with an original
written notice sent by mail or courier) to the Agent in accordance with
subsection 2.04(b):
elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in the case
of any other Type of Loans, to convert any such Loans (or any part thereof
in an amount not less than $1,000,000, or that is in an integral multiple
of $100,000 in excess thereof) into Loans of any other Type; or
elect, as of the last day of the applicable Interest Period,
to continue any Loans having Interest Periods expiring on such day (or any
part thereof in an amount not less than $1,000,000, or that is in an
integral multiple of $100,000 in excess thereof);
provided, that if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $1,000,000, such Offshore Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the right
of the Company to continue such Loans as, and convert such Loans into, Offshore
Rate Loans shall terminate.
The Company shall deliver a Notice of Conversion/Continuation
to be received by the Agent not later than 9:00 a.m. (San Francisco time) at
least (i) three Business Days in advance of the Conversion/Continuation Date, if
the Loans are to be converted into or continued as Offshore Rate Loans; and
(ii) on the Business Day that is the Conversion/Continuation Date, if the Loans
are to be converted into Base Rate Loans, specifying:
the proposed Conversion/Continuation Date;
the aggregate amount of Loans to be converted or
continued;
the Type of Loans resulting from the proposed
conversion or continuation; and
other than in the case of conversions into Base Rate
Loans, the duration of the requested Interest Period.
If upon the expiration of any Interest Period applicable to
Offshore Rate Loans, the Company has failed to select timely a new Interest
Period to be applicable to such Offshore Rate Loans, or, subject to Subsection
2.04(e) wherein the Majority Banks may direct otherwise, if any Default or Event
of Default then exists, the Company shall be deemed to have elected to convert
such Offshore Rate Loans into Base Rate Loans effective as of the expiration
date of such Interest Period.
The Agent will promptly notify each Bank of its receipt of a
Notice of Conversion/Continuation, or, if no timely notice is provided by the
Company, the Agent will promptly notify each Bank of the details of any
automatic conversion. All conversions and continuations shall be made ratably
according to the respective outstanding principal amounts of the Loans with
respect to which the notice was given held by each Bank.
Unless the Majority Banks otherwise consent, during the
existence of a Default or Event of Default, the Company may not elect to have a
Loan converted into or continued as an Offshore Rate Loan.
After giving effect to any conversion or continuation of Loans,
unless the Agent shall otherwise consent, there may not be more than eight
different Interest Periods in effect.
Voluntary Termination or Reduction of Commitments. The Company may, upon
not less than five Business Days' prior notice to the Agent, terminate the
Commitments, or permanently reduce the Commitments by an aggregate minimum
amount of $5,000,000 or any multiple of $1,000,000 in excess thereof; unless,
after giving effect thereto and to any prepayments of Loans made on the
effective date thereof, the then-outstanding principal amount of the Loans would
exceed the amount of the combined Commitments then in effect. Once reduced in
accordance with this Section, the Commitments may not be increased. Any
reduction of the Commitments shall be applied to each Bank according to its Pro
Rata Share. All accrued commitment fees to, but not including the effective
date of any termination of Commitments, shall be paid on the effective date of
such termination.
Optional PrepaymentsSubject to Section 3.04, the Company may, at any
time or from time to time, upon not less than (a) three Business Days' (in the
case of Offshore Rate Loans) and (b) the same Business Day's (in the case of
Base Rate Loans) irrevocable notice to the Agent, ratably prepay Loans in whole
or in part, in minimum amounts of $1,000,000 or any multiple of $100,000 in
excess thereof. Such notice of prepayment shall specify the date and amount of
such prepayment and the Type(s) of Loans to be prepaid. The Agent will promptly
notify each Bank of its receipt of any such notice, and of such Bank's Pro Rata
Share of such prepayment. If such notice is given by the Company, the Company
shall make such prepayment and the payment amount specified in such notice shall
be due and payable on the date specified therein, together with accrued interest
to each such date on the amount prepaid and any amounts required pursuant to
Section 3.04.
RepaymentThe Company shall repay to the Banks on the Revolving Termination
Date the aggregate principal amount of Loans outstanding on such date.
Interest (a) Each Loan shall bear interest on the outstanding
principal amount thereof from the applicable Borrowing Date at a rate per annum
equal to the Offshore Rate or the Base Rate, as the case may be (and subject to
the Company's right to convert to other Types of Loans under Section 2.04), plus
the Applicable Margin.
Interest on each Loan shall be paid in arrears on each Interest
Payment Date. Interest shall also be paid on the date of any prepayment of
Loans under Section 2.06 for the portion of the Loans so prepaid and upon
payment (including prepayment) in full thereof and, during the existence of any
Event of Default, interest shall be paid on demand of the Agent at the request
or with the consent of the Majority Banks.
Notwithstanding subsection (a) of this Section, while any Event
of Default exists or after acceleration, the Company shall pay interest (after
as well as before entry of judgment thereon to the extent permitted by law) on
the principal amount of all outstanding Obligations, at a rate per annum which
is determined by adding 1.50% per annum to the Applicable Margin then in effect
for such Loans and, in the case of Obligations not subject to an Applicable
Margin, at a rate per annum equal to the Base Rate plus 1.50%; provided,
however, that, on and after the expiration of any Interest Period applicable to
any Offshore Rate Loan outstanding on the date of occurrence of such Event of
Default or acceleration, the principal amount of such Loan shall, during the
continuation of such Event of Default or after acceleration, bear interest at a
rate per annum equal to the Base Rate plus 1.50%.
Anything herein to the contrary notwithstanding, the
obligations of the Company to any Bank hereunder shall be subject to the
limitation that payments of interest shall not be required for any period for
which interest is computed hereunder, to the extent (but only to the extent)
that contracting for or receiving such payment by such Bank would be contrary to
the provisions of any law applicable to such Bank limiting the highest rate of
interest that may be lawfully contracted for, charged or received by such Bank,
and in such event the Company shall pay such Bank interest at the highest rate
permitted by applicable law.
Fees a) Arrangement, Agency Fees. The Company shall pay an
arrangement fee to the Arranger for the Arranger's own account, and shall pay an
agency fee to the Agent for the Agent's own account, as required by the letter
agreement ("Fee Letter") between the Company and the Arranger and Agent dated
December 13, 1995.
Commitment FeesThe Company shall pay to the Agent for the
account of each Bank a commitment fee on the average daily unused portion of
such Bank's Commitment, computed on a quarterly basis in arrears on the last
Business Day of each calendar quarter based upon the daily utilization for that
quarter as calculated by the Agent, equal to .125 percent per annum. Such
commitment fee shall accrue from the Closing Date to the Revolving Termination
Date and shall be due and payable quarterly in arrears on the last Business Day
of each calendar quarter commencing on March 31, 1996 through the Revolving
Termination Date, with the final payment to be made on the Revolving Termination
Date; provided that, in connection with any reduction or termination of
Commitments under Section 2.05, the accrued commitment fee calculated for the
period ending on such date shall also be paid on the date of such reduction or
termination, with the following quarterly payment being calculated on the basis
of the period from such reduction or termination date to such quarterly payment
date. The commitment fees provided in this subsection shall accrue at all times
after the above-mentioned commencement date, including at any time during which
one or more conditions in Article IV are not met.
Computation of Fees and Interest. (a) All computations of fees and
interest for Base Rate Loans when the Base Rate is determined by BofA's
"reference rate" shall be made on the basis of a year of 365 or 366 days, as the
case may be, and actual days elapsed. All other computations of interest shall
be made on the basis of a 360-day year and actual days elapsed (which results in
more interest being paid than if computed on the basis of a 365-day year).
Interest and fees shall accrue during each period during which interest or such
fees are computed from the first day thereof to the last day thereof.
Each determination of an interest rate by the Agent shall be
conclusive and binding on the Company and the Banks in the absence of manifest
error.
Payments by the Company (a) All payments to be made by the Company
shall be made without set-off, recoupment or counterclaim. Except as otherwise
expressly provided herein, all payments by the Company shall be made to the
Agent for the account of the Banks at the Agent's Payment Office, and shall be
made in dollars and in immediately available funds, no later than 10:00 a.m.
(San Francisco time) on the date specified herein. The Agent will promptly
distribute to each Bank its Pro Rata Share (or other applicable share as
expressly provided herein) of such payment in like funds as received. Any
payment received by the Agent later than 10:00 a.m. (San Francisco time) shall
be deemed to have been received on the following Business Day and any applicable
interest or fee shall continue to accrue.
Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
Unless the Agent receives notice from the Company prior to the
date on which any payment is due to the Banks that the Company will not make
such payment in full as and when required, the Agent may assume that the Company
has made such payment in full to the Agent on such date in immediately available
funds and the Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Bank on such due date an amount equal to the
amount then due such Bank. If and to the extent the Company has not made such
payment in full to the Agent, each Bank shall repay to the Agent on demand such
amount distributed to such Bank, together with interest thereon at the Federal
Funds Rate for each day from the date such amount is distributed to such Bank
until the date repaid.
Payments by the Banks to the Agent (a) Unless the Agent receives
notice from a Bank on or prior to the Closing Date or, with respect to any
Borrowing after the Closing Date, at least by 9:30 a.m. (San Francisco time) on
the date of such Borrowing, that such Bank will not make available as and when
required hereunder to the Agent for the account of the Company the amount of
that Bank's Pro Rata Share of the Borrowing, the Agent may assume that each Bank
has made such amount available to the Agent in immediately available funds on
the Borrowing Date and the Agent may (but shall not be so required), in reliance
upon such assumption, make available to the Company on such date a corresponding
amount. If and to the extent any Bank shall not have made its full amount
available to the Agent in immediately available funds and the Agent in such
circumstances has made available to the Company such amount, that Bank shall on
the Business Day following such Borrowing Date make such amount available to the
Agent, together with interest at the Federal Funds Rate for each day during such
period. A notice of the Agent submitted to any Bank with respect to amounts
owing under this subsection (a) shall be conclusive, absent manifest error. If
such amount is so made available, such payment to the Agent shall constitute
such Bank's Loan on the date of Borrowing for all purposes of this Agreement.
If such amount is not made available to the Agent on the Business Day following
the Borrowing Date, the Agent will notify the Company of such failure to fund
and, upon demand by the Agent, the Company shall pay such amount to the Agent
for the Agent's account, together with interest thereon for each day elapsed
since the date of such Borrowing, at a rate per annum equal to the interest rate
applicable at the time to the Loans comprising such Borrowing.
The failure of any Bank to make any Loan on any Borrowing Date
shall not relieve any other Bank of any obligation hereunder to make a Loan on
such Borrowing Date, but no Bank shall be responsible for the failure of any
other Bank to make the Loan to be made by such other Bank on any Borrowing Date.
Sharing of Payments, Etc If, other than as expressly provided
elsewhere herein, any Bank shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its ratable share (or other share
contemplated hereunder), such Bank shall immediately (a) notify the Agent of
such fact, and (b) purchase from the other Banks such participations in the
Loans made by them as shall be necessary to cause such purchasing Bank to share
the excess payment pro rata with each of them; provided, however, that if all or
any portion of such excess payment is thereafter recovered from the purchasing
Bank, such purchase shall to that extent be rescinded and each other Bank shall
repay to the purchasing Bank the purchase price paid therefor, together with an
amount equal to such paying Bank's ratable share (according to the proportion of
(i) the amount of such paying Bank's required repayment to (ii) the total amount
so recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. The
Company agrees that any Bank so purchasing a participation from another Bank
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to Section 10.10) with respect to
such participation as fully as if such Bank were the direct creditor of the
Company in the amount of such participation. The Agent will keep records (which
shall be conclusive and binding in the absence of manifest error) of
participations purchased under this Section and will in each case notify the
Banks following any such purchases or repayments.
Extension of Termination Date. Upon (a) the written request of the
Company, received by the Agent not sooner than ninety (90) days nor later than
sixty (60) days prior to the first anniversary of the Closing Date (and, if
extended, thereafter at any time during the third month prior to the then
current Revolving Termination Date), and (b) the written concurrence of all the
Banks (in the sole discretion of each Bank) which is received by the Agent not
later than thirty (30) days prior to the then current Revolving Termination
Date, the Revolving Termination Date shall be extended for an additional one-
year period commencing on the then current Revolving Termination Date. In the
event such written concurrence from each and every one of the Banks is not
received by the Agent on or before thirty (30) days prior to the then current
Revolving Termination Date (after receipt by the Agent of such request from the
Company), the Revolving Termination Date shall not be extended. The Agent will
promptly notify each Bank of the receipt by it of a request under this
subsection.
TAXES, YIELD PROTECTION AND ILLEGALITY
Taxes (a) Subject to subsection 3.01(g), any and all payments by the
Company to each Bank or the Agent under this Agreement shall be made free and
clear of, and without deduction or withholding for, any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Bank and the
Agent, such taxes (including income taxes or franchise taxes including any
interest or penalties thereon) as are imposed on or measured by each Bank's net
income by any jurisdiction (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes").
In addition, the Company shall pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Loan Documents (hereinafter referred to as "Other Taxes").
Subject to subsection 3.01(g), the Company shall indemnify and
hold harmless each Bank and the Agent for the full amount of Taxes or Other
Taxes (including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 3.01) paid by the Bank or the
Agent and any liability (including penalties, interest, additions to tax and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. Payment under this
indemnification shall be made within 30 days from the date the Bank or the Agent
makes written demand therefor.
If the Company shall be required by law to deduct or withhold
any Taxes or Other Taxes from or in respect of any sum payable hereunder to any
Bank or the Agent, then, subject to subsection 3.01(g):
the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable
to additional sums payable under this Section 3.01) and giving effect
to the tax benefits such Bank or the Agent of such deduction or
withholding (to the extent such benefits are reasonably determined
without undue effort by the Agent or such Bank) such Bank or the
Agent, as the case may be, receives an amount equal to the sum it
would have received had no such deductions been made;
the Company shall make such deductions, and
the Company shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with
applicable law.
Within 30 days after the date of any payment by the Company of
Taxes or Other Taxes, the Company shall furnish to the Agent the original or a
certified copy of a receipt evidencing payment thereof, or other evidence of
payment satisfactory to the Agent.
Each Bank which is a foreign Person (i.e., a Person other than
a United States Person for United States federal income tax purposes) agrees
that:
it shall, no later than the Closing Date (or, in the
case of a Bank which becomes a party hereto pursuant to Section 10.08
after the Closing Date, the date upon which the Bank becomes a party
hereto), deliver to the Company through the Agent two accurate and
complete signed originals of Internal Revenue Service Form 4224 or any
successor thereto ("Form 4224"), or two accurate and complete signed
originals of Internal Revenue Service Form 1001 or any successor
thereto ("Form 1001"), as appropriate, in each case indicating that
the Bank is on the date of delivery thereof entitled to receive
payments of principal, interest and fees under this Agreement free
from withholding of United States federal income tax;
if at any time the Bank makes any changes necessitating
a new form, it shall with reasonable promptness deliver to the Company
through the Agent in replacement for, or in addition to, the forms
previously delivered by it hereunder, two accurate and complete signed
originals of Form 4224, or two accurate and complete signed originals
of Form 1001, as appropriate, in each case indicating that the Bank is
on the date of delivery thereof entitled to receive payments of
principal, interest and fees under this Agreement free from
withholding of United States federal income tax;
it shall, before or promptly after the occurrence of any
event (including the passing of time but excluding any event mentioned
in (ii) above) requiring a change in the most recent Form 4224 or Form
1001 previously delivered by such Bank and if the delivery of the same
be lawful, deliver to the Company through the Agent two accurate and
complete original signed copies of Form 4224 or Form 1001 in
replacement for the forms previously delivered by the Bank; and
it shall, promptly upon the Company's reasonable request
to that effect, deliver to the Company such other forms or similar
documentation as may be required from time to time by any applicable
law, treaty, rule or regulation in order to establish such Bank's tax
status for withholding purposes.
The Company will not be required to pay any additional amounts
in respect of United States federal income tax pursuant to subsection 3.01(d) to
any Bank for the account of any Lending Office of such Bank:
if the obligation to pay such additional amounts would
not have arisen but for a failure by such Bank to comply with its
obligations under subsection 3.01(f) in respect of such Lending
Office;
if such Bank shall have delivered to the Company a Form
4224 in respect of such Lending Office pursuant to subsection
3.01(f)(i), and such Bank shall not at any time be entitled to
exemption from deduction or withholding of United States federal
income tax in respect of payments by the Company hereunder for the
account of such Lending Office for any reason other than a change in
United States law or regulations or in the official interpretation of
such law or regulations by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the
force of law) after the date of delivery of such Form 4224; or
if the Bank shall have delivered to the Company a Form
1001 in respect of such Lending Office pursuant to subsection
3.01(f)(i), and such Bank shall not at any time be entitled to
exemption from deduction or withholding of United States federal
income tax in respect of payments by the Company hereunder for the
account of such Lending Office for any reason other than a change in
United States law or regulations or any applicable tax treaty or
regulations or in the official interpretation of any such law, treaty
or regulations by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the
force of law) after the date of delivery of such Form 1001.
If the Company is required to pay additional amounts to any
Bank or the Agent pursuant to subsection 3.01(d), then such Bank shall use its
reasonable best efforts (consistent with legal and regulatory restrictions) to
change the jurisdiction of its Lending Office so as to eliminate any such addi
tional payment by the Company which may thereafter accrue if such change in the
judgment of such Bank is not otherwise disadvantageous to such Bank.
The agreements and obligations of the Company contained in this
Section 3.01 shall survive the payment in full of all other Obligations.
Illegality (a) If any Bank determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for any Bank or its applicable Lending Office to make
Offshore Rate Loans, then, on notice thereof by the Bank to the Company through
the Agent, any obligation of that Bank to make Offshore Rate Loans shall be
suspended until the Bank notifies the Agent and the Company that the
circumstances giving rise to such determination no longer exist.
If a Bank determines that it is unlawful to maintain any
Offshore Rate Loan, the Company shall, upon its receipt of notice of such fact
and demand from such Bank (with a copy to the Agent), prepay in full such
Offshore Rate Loans of that Bank then outstanding, together with interest
accrued thereon and amounts required under Section 3.04, either on the last day
of the Interest Period thereof, if the Bank may lawfully continue to maintain
such Offshore Rate Loans to such day, or immediately, if the Bank may not
lawfully continue to maintain such Offshore Rate Loan. If the Company is
required to so prepay any Offshore Rate Loan, then concurrently with such
prepayment, the Company shall borrow from the affected Bank, in the amount of
such repayment, a Base Rate Loan.
If the obligation of any Bank to make or maintain Offshore Rate
Loans has been so terminated or suspended, the Company may elect, by giving
notice to the Bank through the Agent that all Loans which would otherwise be
made by the Bank as Offshore Rate Loans shall be instead Base Rate Loans.
Before giving any notice to the Agent under this Section, the
affected Bank shall designate a different Lending Office with respect to its
Offshore Rate Loans if such designation will avoid the need for giving such
notice or making such demand and will not, in the judgment of the Bank, be
illegal or otherwise disadvantageous to the Bank.
Increased Costs and Reduction of (a) If any Bank determines that, due to
either (i) the introduction of or any change (other than any change by way of
imposition of or increase in reserve requirements included in the calculation of
the Offshore Rate or in respect of the assessment rate payable by any Bank to
the FDIC for insuring U.S. deposits) in or in the interpretation of any law or
regulation or (ii) the compliance by that Bank with any guideline or request
from any central bank or other Governmental Authority (whether or not having the
force of law), there shall be any increase in the cost to such Bank of agreeing
to make or making, funding or maintaining any Offshore Rate Loans, then the
Company shall be liable for, and shall from time to time, upon demand (with a
copy of such demand to be sent to the Agent), pay to the Agent for the account
of such Bank, additional amounts as are sufficient to compensate such Bank for
such increased costs.
If any Bank shall have determined that (i) the introduction of
any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Governmental Authority
charged with the interpretation or administration thereof, or (iv) compliance by
the Bank (or its Lending Office) or any corporation controlling the Bank with
any Capital Adequacy Regulation, affects or would affect the amount of capital
required or expected to be maintained by the Bank or any corporation controlling
the Bank and (taking into consideration such Bank's or such corporation's
policies with respect to capital adequacy and such Bank's desired return on
capital) determines that the amount of such capital is increased as a
consequence of its Commitment, loans, credits or obligations under this
Agreement, then, upon written demand of such Bank to the Company through the
Agent, the Company shall pay to the Bank, from time to time as specified by the
Bank, additional amounts sufficient to compensate the Bank for such increase.
Any such Bank shall notify the Company in writing of its intent to demand such
compensation under this Section 3.03.
Funding LossesThe Company agrees to reimburse each Bank and to hold each
Bank harmless from any loss or expense which the Bank may sustain or incur as
follows:
upon the failure of the Company to borrow (including for
purposes of continuing or converting) any Offshore Rate Loan after the Company
has given a Notice of Borrowing with respect to Loans for any reason (including
the occurrence of a Default or an Event of Default), the Company shall, on
demand by each Bank, pay such Bank the amount (if any) by which (i) the interest
which would have been payable on such Bank's Pro Rata Share of the amount the
Company failed to borrow had such Bank's Pro Rata Share of such amount been
borrowed and outstanding for the Interest Period specified in the request for
such Borrowing exceeds (ii) the interest which would have been recoverable by
such Bank by placing such unborrowed amount on deposit in the LIBOR markets for
the Interest Period specified in the request for such Borrowing;
upon the failure of the Company to make any prepayment of a
Loan after the Company has given notice in accordance with Section 2.06 for any
reason, the Company agrees to reimburse each such Bank on demand for any loss,
cost or expense which such Bank may sustain or incur, including any such loss,
cost or expense arising from the liquidation or reemployment of funds obtained
by it to maintain its Offshore Rate Loans hereunder or from fees payable to
terminate the deposits from which such funds were obtained;
upon the conversion of an Offshore Rate Loan or the prepayment
of an Offshore Rate Loan in each case on a day which is not the last day of the
Interest Period with respect thereto for any reason (including conversions
pursuant to subsection 3.02(b)), the Company shall, on demand by such Bank, pay
such Bank the amount (if any) by which (i) the additional interest which would
have been payable on the amount so received had it not been received until the
last day of such Interest Period exceeds (ii) the interest which would have been
recoverable by such Bank by placing the amount so received on deposit in the
LIBOR markets for a period starting on the date on which it was so received and
ending on the last day of such Interest Period.
This covenant shall survive the payment in full of all other
Obligations.
Inability to Determine Rates If the Majority Banks determine that for any
reason adequate and reasonable means do not exist for determining the Offshore
Rate for any requested Interest Period with respect to a proposed Offshore Rate
Loan, or that the Offshore Rate applicable pursuant to subsection 2.08(a) for
any requested Interest Period with respect to a proposed Offshore Rate Loan does
not adequately and fairly reflect the cost to the Banks of funding such Loan,
the Agent will promptly so notify the Company and each Bank. Thereafter, the
obligation of the Banks to make or maintain Offshore Rate Loans, as the case may
be, hereunder shall be suspended until the Agent, upon the instruction of the
Majority Banks, revokes such notice in writing. Upon receipt of such notice,
the Company may revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If the Company does not revoke
such Notice, the Banks shall make, convert or continue the Loans, as proposed by
the Company, in the amount specified in the applicable notice submitted by the
Company, but such Loans shall be made, converted or continued as Base Rate Loans
instead of Offshore Rate Loans.
Invoices of BanksAny Bank claiming reimbursement or compensation under this
Article III shall deliver to the Company (with a copy to the Agent) a written
invoice of all such amounts as may be due together with a reasonably detailed
calculation and explanation of the amount payable to the Bank hereunder, which
amount shall be paid by the Company within 30 days of the date of invoice
provided, however, that the Company shall have no liability for any amounts
attributable to a period more than three months prior to invoice date in respect
thereof.
SurvivalThe agreements and obligations of the Company in this
Article III shall survive the payment of all other Obligations.
Replacement Bank (a) If any Bank demands compensation under
Section 3.01, 3.02 or 3.03, the Company may, subject to the provisions of
subsections (b) and (c) of this Section 3.08, remove such Bank ("Removed Bank")
and designate another bank acceptable to the Agent, or, if BofA is the Removed
Bank, acceptable to the Banks ("Replacement Bank"), to purchase the Removed
Bank's share of the Credit, and to assume all of the Removed Bank's obligations
under this Agreement.
Each substitution under subsection 3.08(a) shall be made upon
the irrevocable written notice of the Company received by Agent and Removed Bank
at least ten days prior to the date thereof (a "Notice of Substitution"). The
Notice of Substitution shall identify the Removed Bank, the Replacement Bank and
the effective date of the substitution.
The substitution specified in each Notice of Substitution shall
take effect as of the date specified in such Notice of Substitution subject to
the conditions precedent that the following are complied with or exist on and as
of such date:
No Loan is to be made on the effective date of the
substitution and there is no pending request for a Loan;
The Replacement Bank has purchased all of Removed Bank's
share of the Credit and interest in this Agreement for a price equal
to all principal, interest and commitment fees outstanding on such
Removed Bank's share of the Credit on and as of the effective date of
the substitution;
The Replacement Bank has assumed by an agreement in form
and substance satisfactory to Removed Bank and Agent, or, if BofA is
the Removed Bank in form and substance satisfactory to the Banks, all
of Removed Bank's commitment to extend credit and other obligations
under this Agreement; and
There exists no Default or Event of Default.
CONDITIONS PRECEDENT
Conditions of Initial Loans. The obligation of each Bank to make
its initial Loan hereunder is subject to the condition that the Agent shall have
received on or before the Closing Date all of the following, in form and
substance satisfactory to the Agent and its counsel (the existence of which
satisfaction will be confirmed to the Company by delivery of a Certificate of
the Agent in the form of Exhibit J), and in sufficient copies for each Bank:
Credit Agreement and Notes. This Agreement and the Notes
executed by each party thereto;
Resolutions; Incumbency.
Copies of the resolutions of the board of directors of
(A) the Company authorizing the transactions contemplated hereby and
(B) the Guarantor authorizing the transactions contemplated by the
Guaranty, each certified as of the Closing Date by the Secretary or an
Assistant Secretary or other duly authorized officer of such Person; and
A certificate of the Secretary or Assistant Secretary or
other duly authorized officer of each of the Company and the Guarantor
certifying the names and true signatures of the officers of the Company and
the Guarantor, respectively, authorized to execute, deliver and perform, as
applicable, this Agreement, and all other Loan Documents to be delivered by
it, respectively, hereunder;
Organization Documents; Good Standing. Each of the following
documents:
the certificate of incorporation and the bylaws of the
Company as in effect on the Closing Date, certified by the Secretary or
Assistant Secretary of the Company as of the Closing Date; and
a good standing certificate for the Company from the
Secretary of State (or similar, applicable Governmental Authority) of its
state of incorporation and each state where the Company is qualified to do
business as a foreign corporation as of a recent date;
Legal Opinions
an opinion of Stradling, Yocca, Carlson & Rauth, California
counsel to the Company and addressed to the Agent and the Banks,
substantially in the form of Exhibit D;
an opinion of Gibson, Dunn & Crutcher, California counsel to
the Guarantor and addressed to the Agent and the Banks, substantially in
the form of Exhibit E;
an opinion of Shin & Kim, Korea counsel to the Guarantor and
addressed to the Agent and the Banks, substantially in the form of Exhibit
F;
Payment of FeesEvidence of payment by the Company of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with Attorney Costs of BofA to the extent invoiced
prior to the Closing Date; including any such costs, fees and expenses arising
under or referenced in Sections 2.09 and 10.04;
CertificateA certificate signed by a Responsible Officer, dated
as of the Closing Date, stating that:
the representations and warranties contained in Article V are
true and correct on and as of such date, as though made on and as of such
date;
no Default or Event of Default exists or would result from
the initial Borrowing; and
there has occurred since September 30, 1995, no event or
circumstance that has resulted or could reasonably be expected to result in
a Material Adverse Effect other than as previously disclosed in writing to
the Agent and the Banks;
GuarantyThe Guaranty executed and delivered by the Guarantor;
ConsentsCopies of all consents of any Governmental Authority
required in connection with the Loan Documents; and
Other DocumentsSuch other approvals, opinions, documents or
materials as the Agent or any Bank may request.
Conditions to All Borrowings. The obligation of each Bank to make
any Loan to be made by it is subject to the satisfaction of the following
conditions precedent on the relevant Borrowing Date:
Notice of Borrowing. The Agent shall have received a Notice of
Borrowing;
Continuation of Representations and WarrantiesThe
representations and warranties in Article V shall be true and correct on and as
of such Borrowing Date with the same effect as if made on and as of such
Borrowing Date (except to the extent such representations and warranties
expressly refer to an earlier date, in which case they shall be true and correct
as of such earlier date); and
No Existing DefaultNo Default or Event of Default shall exist
or shall result from such Borrowing.
Each Notice of Borrowing submitted by the Company hereunder shall constitute a
representation and warranty by the Company hereunder, as of the date of each
such notice and as of each Borrowing Date, that the conditions in this
Section 4.02 are satisfied.
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Agent and each Bank that:
Corporate Existence and PowerThe Company and each of its Material
Subsidiaries:
is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its business
and to execute, deliver and perform its obligations under the Loan Documents;
is duly qualified as a foreign corporation, licensed and in
good standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
except where the failure to so qualify would not have a Material Adverse Effect;
and
is in compliance in all material respects with all Requirements
of Law of any Governmental Authority having jurisdiction over it and its
business (including the Federal Fair Labor Standards Act), except such as may be
contested in good faith, as to which a bona fide dispute may exist or which
could not reasonably be expected to have a Material Adverse Effect.
Corporate Authorization; No ContraventionThe execution and delivery
of, and receipt of Loans and payment thereof and thereon and of other fees and
expenses as provided for in, this Agreement and any other Loan Document to which
the Company is party have been duly authorized by all necessary corporate action
and do not and will not:
contravene the terms of the Company's certificate of
incorporation, bylaws or other organizational document;
conflict with or result in any breach or contravention of, or
the creation of any Lien under, any indenture, agreement, lease, instrument,
Contractual Obligation, injunction, order, decree or undertaking to which the
Company is a party; or
violate any Requirement of Law.
Governmental AuthorizationNo approval, consent, exemption, authorization,
or other action by, or notice to, or filing with, any Governmental Authority is
necessary or required in connection with the execution, delivery, performance or
enforcement against the Company of this Agreement or any other Loan Document or
any other instrument or agreement required hereunder to be made by the Company.
Binding EffectThis Agreement and each other Loan Document to which
the Company or any of its Subsidiaries is a party constitute the legal, valid
and binding obligations of the Company, enforceable against such Person in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency or similar laws affecting the enforcement
of creditors' rights generally or by equitable principles relating to
enforceability.
Litigation
Except as specifically set forth in Schedule 5.05 hereto, there
are no actions, suits, proceedings, claims or disputes pending, or to the best
knowledge of any Responsible Officer or the general counsel of the Company or
any person holding a similar position within the Company, threatened or
contemplated at law, in equity, in arbitration or before any Governmental
Authority, against the Company, or its Subsidiaries or any of their respective
properties which: (i) purport to affect or pertain to this Agreement, or any
Loan Document, or any of the transactions contemplated hereby or thereby; or
(ii) if determined adversely to the Company, or its Subsidiaries, could
reasonably be expected to have a Material Adverse Effect.
No injunction, writ, temporary restraining order or any order
of any nature has been issued by any court or other Governmental Authority
purporting to enjoin or restrain the execution, delivery and performance of this
Agreement or any other Loan Document, or directing that the transactions
provided for herein or therein not be consummated as herein or therein provided.
No DefaultNo Default or Event of Default exists or would result from the
incurring of obligations by the Company under this Agreement or any other Loan
Document. Neither the Company, nor any of its Subsidiaries, is in default under
or with respect to any Contractual Obligation in any respect which, individually
or together with all such defaults, would have a Material Adverse Effect.
ERISA Compliance
Schedule 5.07 lists all Plans and separately identifies Plans
intended to be Qualified Plans and Multiemployer Plans.
Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law,
including all requirements under the Code or ERISA for filing reports (which are
true and correct in all material respects as of the date filed), and benefits
have been paid in accordance with the provisions of the Plan except where
failure to comply would not have a Material Adverse Effect.
With respect to each Plan intended to qualify under the Code,
the Company or a member of its Controlled Group has applied to the Internal
Revenue Service for an advance determination letter to the effect that such Plan
and related trust are so qualified and, to the best knowledge of the Company, no
circumstances exist that would adversely affect the issuance of such letter or
such qualification (other than changes required to be made pursuant to the Tax
Reform Act of 1986 and subsequent laws and regulations, which will be made
within the applicable remedial amendment period under section 401(b) of the
Code).
Except as set forth on Schedule 5.07, no Plan subject to Title
IV of ERISA has any Unfunded Pension Liability.
Except as set forth in Schedule 5.07, no member of the
Controlled Group has ever represented, promised or contracted (whether in oral
or written form) to any current or former employee (either individually or to
employees as a group) that such current or former employee(s) would be provided,
at any cost to any member of the Controlled Group, with life insurance or
employee welfare plan benefits (within the meaning of Section 3(1) of ERISA)
following retirement or termination of employment. To the extent that any
member of the Controlled Group has made any such representation, promise or
contract, such member has expressly reserved the right to amend or terminate
such life insurance or employee welfare plan benefits with respect to claims not
yet incurred.
Members of the Controlled Group have complied in all material
respects with the notice and continuation coverage requirements of Section 4980B
of the Code.
Except as set forth in Schedule 5.07, no ERISA Event has
occurred or is reasonably expected to occur with respect to any Plan.
There are no pending or, to the best knowledge of the Company,
threatened claims, actions or lawsuits, other than routine claims for benefits
in the usual and ordinary course and claims that are not reasonably likely to
have a Material Adverse Effect, asserted or instituted against (i) any Plan
maintained or sponsored by the Company or its assets, (ii) any member of the
Controlled Group with respect to any Qualified Plan, or (iii) any fiduciary with
respect to any Plan for which the Company may be directly or indirectly liable,
through indemnification obligations or otherwise.
Except as set forth in Schedule 5.07, neither the Company nor
any ERISA Affiliate has incurred nor reasonably expects to incur (i) any
liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Section 4201 or
4243 of ERISA with respect to a Multiemployer Plan or (ii) any liability under
Title IV of ERISA (other than premiums due and not delinquent under Section 4007
of ERISA) with respect to a Plan.
Except as set forth in Schedule 5.07, neither the Company nor
any ERISA Affiliate has transferred any Unfunded Pension Liability outside of
the Controlled Group or otherwise engaged in a transaction that could be subject
to Section 4069 or 4212(c) of ERISA.
No member of the Controlled Group has engaged, directly or
indirectly, in a non-exempt prohibited transaction (as defined in Section 4975
of the Code or Section 406 of ERISA) in connection with any Plan which has a
reasonable likelihood of having a Material Adverse Effect.
Use of Proceeds; Margin RegulationsThe proceeds of the Loans are to be used
solely for the purposes set forth in and permitted by Section 6.12 and
Section 7.08. Neither the Company nor any Subsidiary is generally engaged in
the business of purchasing or selling Margin Stock or extending credit for the
purpose of purchasing or carrying Margin Stock.
Title to PropertiesThe Company and each of its Subsidiaries has good record
and marketable title in all their real property, except for Permitted Liens and
such defects in title as could not, individually or in the aggregate, have a
Material Adverse Effect.
Taxes. The Company and its Subsidiaries have filed all federal and
other material tax returns and reports required to be filed and have paid all
federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets other
wise due and payable except those which are being contested in good faith by
appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP and no Notice of Lien has been filed or recorded. There is
no proposed tax assessment against the Company or any of its Subsidiaries which
would, if the assessment were made, have a Material Adverse Effect.
Financial Condition; No Material Adverse Change
The unaudited consolidated financial statements of financial
condition of the Company and its Subsidiaries dated September 30, 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the fiscal period ended on that date:
were prepared in accordance with GAAP consistently
applied throughout the period covered thereby, except as otherwise
expressly noted therein;
are complete, accurate and fairly present the financial
condition of the Company and its Subsidiaries as of the date thereof
and results of operations for the period covered thereby, subject to
normal year-end audit adjustments; and
show all material indebtedness and other material
liabilities, direct or contingent, of the Company and its consolidated
Subsidiaries as of the date thereof (including material liabilities
for taxes and material commitments) all as required by GAAP for year-
end reporting in accordance with the Company's past practices.
Except as disclosed in writing to the Agent and the Banks prior
to the Closing Date, since September 30, 1995, there has occurred no event or
circumstance that has resulted or will result (assuming for this purpose that no
unanticipated mitigating circumstances will arise) in a material adverse change
with respect to any of (i) the operations, business, properties or condition
(financial or otherwise) of the Company and its Consolidated Subsidiaries taken
as a whole; (ii) the ability of the Company to perform its obligations under the
Loan Documents without default; or (iii) the legality, validity, binding effect
or enforceability of any Loan Document.
Environmental Matters. Except as specifically identified in
Schedule 5.12:
the operations of the Company and each of its Subsidiaries
comply in all respects with all Environmental Laws except such non-compliance
which would not result in liability in excess, in the aggregate, of 5% of the
Company's Tangible Net Worth;
the Company and each of its Subsidiaries have obtained all
licenses, permits, authorizations and registrations required under any
Environmental Law ("Environmental Permits") necessary for their operations, and
all such Environmental Permits are in good standing, and the Company and each of
its Subsidiaries are in compliance with all terms and conditions of such
Environmental Permits, except such Environmental Permits of which the failure to
obtain could not reasonably be expected to have a Material Adverse Effect; and
as of the Closing Date, neither the Company, nor any of its
Subsidiaries or any of their present property or operations is in violation of
any outstanding written order from or agreement with any Governmental Authority
or other Person which expressly mentions the Company or such Subsidiary, nor
subject to any judicial or docketed administrative proceeding, respecting any
Environmental Law, Environmental Claim or Hazardous Material. After the Closing
Date, other than violations or proceedings which could not reasonably be
expected to have a Material Adverse Effect, neither the Company, nor any of its
Subsidiaries or any of their present property or operations is in violation of
any outstanding written order from or agreement with any Governmental Authority
or other Person which expressly mentions the Company or such Subsidiary, nor
subject to any judicial or docketed administrative proceeding, respecting any
Environmental Law, Environmental Claim or Hazardous Material.
Regulated Entities. None of the Company, any Person controlling the
Company, or any Subsidiaries of the Company, (a) is an "Investment Company"
within the meaning of the Investment Company Act of 1940; or (b) is limited in
its ability to incur Indebtedness under the Public Utility Holding Company Act
of 1935, the federal Power Act, the Interstate Commerce Act, any state public
utilities code or any other federal or state statute or regulation.
No Burdensome RestrictionsNeither the Company, nor any of its
Subsidiaries is a party to or bound by any Contractual Obligation or subject to
any charter or corporate restriction or any Requirement of Law which would
probably be expected to have a Material Adverse Effect.
SolvencyThe Company is Solvent.
Error! Bookmark not defined. Copyrights, Patents, Trademarks and Licenses,
Etc. The Company or any of its Consolidated Subsidiaries owns or is licensed or
otherwise has the right to use all of the patents, trademarks, service marks,
trade names, copyrights, franchises, authorizations and other rights the absence
of which could not reasonably be expected to have a Material Adverse Effect on
the operation of their respective businesses. As of the Closing Date, except
where such infringement would not have a Material Adverse Effect, to the best
knowledge of the Company, no slogan or other advertising device, product,
process, method, substance, part or other material now employed, or now
contemplated to be employed by the Company or any of its Subsidiaries infringes
upon any rights owned by any other Person. Except as set forth on Schedule
5.05, as of the Closing Date, no claim or litigation regarding any of the
foregoing is pending or threatened, and no patent, invention, device,
application, principle or any statute, law, rule, regulation, standard or code
is pending or, to the knowledge of the Company, proposed, which, in either case,
would be likely to result in a Material Adverse Effect.
SubsidiariesAs of the Closing Date, the Company has no Subsidiaries other
than those listed on Schedule 5.17(a) hereto, and has no equity investments in
any other corporation or entity that would constitute an Affiliate (other than
Subsidiaries listed on Schedule 5.17(a)) except as listed on Schedule 5.17(b)
hereto.
Full DisclosureNone of the representations or warranties made by the
Company or any of its Subsidiaries in the Loan Documents as of the date of such
representations and warranties, and none of the statements contained in each
Exhibit, Schedule, report, statement or certificate furnished by or on behalf of
the Company or any of its Subsidiaries in connection with the Loan Documents,
contains any untrue statement of a material fact or omits any material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they are made, not misleading.
AFFIRMATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Majority Banks
waive compliance in writing:
Financial StatementsThe Company shall deliver to the Agent, in form
and detail satisfactory to the Agent and the Majority Banks, with sufficient
copies for each Bank:
as soon as available, but not later than 90 days after the end
of each fiscal year, a copy of the audited consolidated balance sheet of the
Company and its Subsidiaries as at the end of such year and the related
consolidated statements of income or operations, shareholders' equity and cash
flows for such year, setting forth in each case in comparative form the figures
for the previous fiscal year, and accompanied by the opinion of Ernst & Young
LLP or another nationally-recognized independent public accounting firm
("Independent Auditor") which report shall state that such consolidated
financial statements present fairly the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years. Such opinion shall not be qualified or limited because of a restricted
or limited examination by the Independent Auditor of any material portion of the
Company's or any Material Subsidiary's records; and
as soon as available, but not later than 50 days after the end
of each of the first three fiscal quarters of each fiscal year (commencing with
the fiscal quarter ended March 30, 1996), a copy of the unaudited consolidated
balance sheet of the Company and its Subsidiaries as of the end of such quarter
and the related consolidated statements of income, shareholders' equity and cash
flows for the period commencing on the first day and ending on the last day of
such quarter, and certified by a Responsible Officer as fairly presenting, in
accordance with GAAP (subject to ordinary, good faith year-end audit
adjustments), the financial position and the results of operations of the
Company and the Subsidiaries; provided, however, that such financial statements
need not include footnotes and certain other financial presentations customarily
presented only for audited year-end statements under GAAP.
Certificates; Other InformationThe Company shall furnish to the
Agent, with sufficient copies for each Bank:
within 90 days of the delivery of the financial statements
referred to in subsection 6.01(a), and within 50 days of the delivery of the
financial statements referred to in subsection 6.01(b), a Compliance Certificate
executed by a Responsible Officer;
promptly (and in any event no later than 5 days after filing
with the Securities and Exchange Commission), copies of all financial statements
and reports that the Company sends to or files with the Securities and Exchange
Commission; and
promptly, such additional information regarding the Company as
the Agent, at the request of any Bank, may from time to time reasonably request.
NoticesThe Company shall promptly notify the Agent and each Bank:
of the occurrence of any Default or Event of Default, and of
the occurrence or existence of any event or circumstance that, to the knowledge
of any Responsible Officer, will become a Default or Event of Default;
of any matter that has resulted or may be reasonably likely to
result in a Material Adverse Effect, including (i) breach or non-performance of,
or any default under, a Contractual Obligation of the Company or any Subsidiary;
(ii) any dispute, litigation, investigation, proceeding or suspension between
the Company or any Subsidiary and any Governmental Authority; or (iii) the
commencement of, or any material development in, any litigation or proceeding
affecting the Company or any Subsidiary; including pursuant to any applicable
Environmental Laws;
of the occurrence of any of the following events affecting the
Company or any ERISA Affiliate (but in no event more than 10 days after such
event), and deliver to the Agent and each Bank a copy of any notice with respect
to such event that is filed with a Governmental Authority and any notice
delivered by a Governmental Authority to the Company or any ERISA Affiliate with
respect to such event:
an ERISA Event;
a material increase in the Unfunded Pension Liability of any
Pension Plan;
the adoption of, or the commencement of contributions to, any
Plan subject to Section 412 of the Code by the Company or any ERISA
Affiliate; or
the adoption of any amendment to a Plan subject to
Section 412 of the Code, if such amendment results in a material increase
in contributions or Unfunded Pension Liability; or
of any material change in accounting policies or financial
reporting practices by the Company or any of its Consolidated Subsidiaries.
Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action the Company or any affected
Subsidiary proposes to take with respect thereto and at what time. Each notice
under subsection 6.03(a) shall describe with particularity any and all clauses
or provisions of this Agreement or other Loan Document that have been (or
foreseeably will be) breached or violated.
Preservation of Corporate Existence, Etc. The Company shall and
(with respect to clauses (a), (b) and (c)) shall cause each of its Material
Subsidiaries to:
with respect to the Company, preserve and maintain in full
force and effect its corporate existence and good standing under the laws of its
state or jurisdiction of incorporation and, with respect to the Material
Subsidiaries, preserve and maintain in full force and effect the corporate
existence and good standing under the laws of each state or jurisdiction of
incorporation except where failure to take such actions could not reasonably be
expected to have a Material Adverse Effect;
preserve and maintain in full force and effect all rights,
privileges, qualifications, permits, licenses and franchises necessary or
desirable in the normal conduct of its business except in connection with
(i) dispositions of assets permitted by Section 7.02, (ii) transactions
permitted by Section 7.03, and (iii) dissolution or abandonment of any
Subsidiary in compliance with either Section 7.02 or 7.03, and the failure to
maintain such rights, privileges, qualifications, permits, licenses and
franchises would not have a Material Adverse Effect; provided, however, nothing
set forth herein shall limit the application of Section 7.02 or 7.03;
preserve or renew all of its registered trademarks, trade names
and service marks, the non-preservation of which could have a Material Adverse
Effect; and
use its reasonable efforts, in the ordinary course, to preserve
its business and the goodwill of its business.
Maintenance of PropertyThe Company shall maintain, and shall cause
each Subsidiary to maintain, and preserve all its property which is used or
useful in its business in good working order and condition, ordinary wear and
tear excepted, except as permitted by Section 7.02. The Company and each
Subsidiary shall use the standard of care typical in the industry in the
operation and maintenance of its facilities.
InsuranceThe Company shall maintain, and shall cause each Subsidiary
to maintain, with financially sound and reputable insurers, insurance with
respect to its properties and business against loss or damage of the kinds
customarily insured against by Persons engaged in the same or similar business,
of such types and in such amounts as are customarily carried under similar
circumstances by such other Persons; provided, however, the Company and its
Subsidiaries may, with the prior consent of the Majority Banks (which consent
may be withheld in their reasonable credit judgment in light of prevailing
credit standards), substitute for or augment any insurance with self-insurance;
provided, further, that such self-insurance is adequate in view of the risks and
financial condition of the Company and its Subsidiaries at such time and is in
accordance with customary industry standards; and provided, further, that, for
the purposes of this Section 6.06, the self-insurance programs of the Company
for employee medical insurance and disability insurance in effect as of the
Closing Date are approved.
Payment of ObligationsThe Company shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including:
all material tax liabilities, assessments and governmental
charges or levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary;
all lawful claims which, if unpaid, would by law become a Lien
upon its property, other than Permitted Liens; and
all Indebtedness, as and when due and payable, but subject to
any subordination provisions contained in any instrument or agreement evidencing
such Indebtedness, except (i) where the amount or validity thereof is being
contested in good faith by appropriate proceedings or as to which a bona fide
dispute may exist and provision has been made in conformity with GAAP with
respect thereto, or (ii) to the extent the failure to pay is due to a good faith
error omission and will not in any event have a Material Adverse Effect.
Compliance with Laws. The Company shall comply, and shall cause each
Subsidiary to comply, in all material respects with all Requirements of Law of
any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
Compliance with ERISA. The Company shall, and shall cause each of its
ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
Inspection of Property and Books and Records. The Company shall
maintain and shall cause each Subsidiary to maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of the Company and such Subsidiary. The
Company shall permit representatives and independent contractors of the Agent or
any Bank to visit and inspect any of their respective properties, to examine
their respective corporate, financial and operating records, and make copies
thereof or abstracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective directors, officers, and independent
public accountants, at such reasonable times during normal business hours and as
often as may be reasonably desired, upon reasonable advance notice to the
Company; provided, however, when an Event of Default exists the Agent or any
Bank may do any of the foregoing at the expense of the Company at any time
during normal business hours and without advance notice.
Environmental LawsThe Company shall, and shall cause each Subsidiary
to, conduct its operations and keep and maintain its property in compliance with
all Environmental Laws.
Use of Proceeds. The Company shall use the proceeds of the Loans for
working capital not in contravention of any Requirement of Law or of any Loan
Document.
NEGATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Majority Banks
waive compliance in writing:
Limitation on LiensThe Company shall not, nor shall it permit any of
its Subsidiaries to, directly or indirectly, make, create, incur, assume or
suffer to exist any Lien upon or with respect to any part of its property or
assets, whether now owned or hereafter acquired, or agree to do so, other than
the following ("Permitted Liens"):
any Lien existing on the property of the Company on the Closing
Date as set forth in Schedule 7.01 securing Indebtedness outstanding on such
date;
any Lien created under any Loan Document;
Liens for taxes, fees, assessments or other governmental
charges which are not yet delinquent or remain payable without penalty, or to
the extent that non-payment thereof is permitted by Section 6.07, provided that
(i) no Notice of Lien has been filed or recorded in the United States of America
and (ii) no Notice of Lien has been filed or recorded in any other jurisdiction
except such Notices of Lien which would not have a Material Adverse Effect;
carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary course
of business which are not delinquent or remain payable without penalty or which
are being contested in good faith and by appropriate proceedings;
Liens (other than any Lien imposed by ERISA) on the property of
the Company or any of its Subsidiaries incurred, or pledges or deposits required
in connection with worker's compensation, unemployment insurance, other social
security legislation and Liens consisting of deposits placed with insurance
companies for health insurance created in the ordinary course of business;
Liens on the property of the Company or any of its Subsidiaries
securing (i) the performance of bids, trade contracts (other than for borrowed
money), leases, subleases, statutory obligations and regulatory or other
governmentally imposed obligations, and (ii) obligations on surety, appeal,
performance or similar bonds, and (iii) other obligations of a like nature
incurred in the ordinary course of business provided all such Liens in the
aggregate would not have a Material Adverse Effect;
easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Company and its Subsidiaries;
purchase money security interests on any real or personal
property acquired or held by the Company in the ordinary course of business,
securing Indebtedness incurred or assumed for the purpose of financing all or
any part of the cost of acquiring such property or Capital Lease Obligations;
provided that any such Lien attaches to such property concurrently with or
within 30 days after the acquisition or refinancing thereof;
Liens on property existing prior to the acquisition of such
property by the Company or its Subsidiaries and not created in anticipation of
such acquisition;
Extensions and renewals of any Lien described in
subsection 7.01(a), (b), (f), (h), (i) or (k);
Liens which constitute rights of set-off of a customary nature
or bankers' Liens with respect to amounts on deposit, whether arising by
operation of law or by contract, in connection with working capital facilities,
operational services, lines of credit, term loans, or other credit facilities
and similar arrangements entered into with banks in the ordinary course of
business;
Other Liens incidental to the conduct of the business of the
Company or any of its Subsidiaries or the ownership of their property which are
incurred in the ordinary course of business (and are not security for borrowed
money); provided such Liens do not exceed $10,000,000 in the aggregate; and
Liens arising in connection with any sale of accounts
receivable permitted under Section 7.02; provided, that the Lien does not extend
beyond the accounts receivable so sold or discounted except to the extent
reasonably required by any purchaser of such accounts receivable.
Disposition of AssetsThe Company shall not, nor shall it permit any
of its Subsidiaries to, directly or indirectly, sell, assign, lease, convey,
transfer or otherwise dispose of (whether in one or a series of transactions)
any of its material assets, business or property (including accounts and notes
receivable (with or without recourse) and equipment sale-leaseback
transactions), or enter into any agreement to do any of the foregoing, except:
dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business and other dispositions of
property (i) not necessary to the normal operations of the Company and its
Subsidiaries taken as a whole as contemplated by this Agreement and (ii) which
would not have a Material Adverse Effect;
the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement equipment
or the proceeds of such sale are promptly applied to the purchase price of such
replacement equipment;
dispositions in connection with Investments permitted under
Section 7.04, provided that full, fair and reasonable consideration is received
in return for any assets disposed of to acquire such Investments;
dispositions of any Investments, provided that fair and
reasonable consideration is received in connection therewith as reasonably
determined by the Company;
abandonments or dispositions for less than reasonably
equivalent value, resulting from any seizure, forfeiture or taking, or any
threatened or imminent seizure, forfeiture or taking, of licenses, franchises or
properties of Subsidiaries located outside of the United States, so long as all
such abandonments and other dispositions will not, in the aggregate, have a
Material Adverse Effect;
the sale or discounting of accounts receivable by the Company
or any Subsidiary, without restriction;
sale of trade-related instruments arising in foreign countries, in the
ordinary course of business, with or without recourse to the Company or any of
its Subsidiaries, to banks or other financial service institutions, for fair
value, provided that (i) the amount of any fees, discounts and other considera
tion received by such banks or other financial service institutions is normal
and customary, and (ii) such sales are customary business practices in the
country where such activity takes place;
the sale or discounting of accounts receivable through asset-
backed securitizations so long as fair market value is received for such
accounts and so long as there would be no Material Adverse Effect;
disposition of the Company's headquarters building located at
the address set forth in Section 10.02 in a sale-leaseback transaction so long
as the Company receives fair market value for its ownership interest in its
headquarters;
dispositions not otherwise permitted hereunder which are made
for fair market value; provided, that (i) at the time of any disposition, no
Event of Default shall exist or shall result from such disposition, (ii) the
aggregate sales price from such disposition shall be paid in cash, and (iii) the
aggregate value of all assets so sold by the Company and its Subsidiaries,
together, shall not exceed in any fiscal year 15% of Consolidated Total Assets;
and
such other dispositions as the Agent and the Majority Banks
shall agree to in their sole discretion.
Consolidations and MergersExcept as provided in Section 7.02, the Company
shall not, and shall not permit any of its Material Subsidiaries to, merge,
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whether now owned or hereafter acquired) to any Person,
except:
any Subsidiary of the Company may merge, consolidate or combine
with or into, or transfer assets to the Company (provided that the Company shall
be the continuing or surviving corporation) or with any one or more Subsidiaries
of the Company (provided that if any transaction shall be between a Subsidiary
and a Material Subsidiary that is a Wholly-Owned Subsidiary, the Wholly-Owned
Subsidiary shall be the continuing or surviving corporation);
any Subsidiary of the Company may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to the Company or another Wholly-Owned Subsidiary of the Company if,
immediately after giving effect thereto, no Default or Event of Default would
exist; and
the Company or any of its Subsidiaries may enter into any
partnership or joint venture.
Loans and InvestmentsThe Company shall not, directly or indirectly,
purchase or acquire, or permit any of its Subsidiaries to purchase or acquire,
or make any commitment therefor, any capital stock, equity interest, assets,
obligations or other securities of or any interest in, any Person (including by
merger), or make any advance, loan, extension of credit or capital contribution
to or any other investment in, any Person including any Affiliate of the Company
("Investments"), except for:
Investments in Marketable Investments;
extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business and ordinary course rescheduling of such amounts in
connection with the collection thereof;
extensions of credit or capital contributions by the Company to
any of its Subsidiaries or by any of its Subsidiaries to another of its
Subsidiaries;
loans to officers or employees of the Company or any Subsidiary
of the Company to the extent permitted by applicable law, charter and by-law
provisions and which do not exceed in the aggregate amount outstanding at any
time for the Company and its Subsidiaries $5,000,000 and are not for the purpose
of an Acquisition;
Investments in connection with Acquisitions in the capital
stock, assets, obligations or other securities of or interest in other Persons,
provided, in each case, (i) the amount of consideration payable (including by
assumption of liabilities) by the Company or its Subsidiary, when added to
similar amounts for all transactions entered into after the Closing Date by the
Company or any of its Subsidiaries, does not exceed $50,000,000; and (ii) (x) if
any Acquiree is subject to Section 12 of the Exchange Act or subject to the
requirements of Section 15(d) of such Act, the prior, effective written consent
of the board of directors or equivalent governing body of the Acquiree is
obtained and delivered to the Agent, or (y) if the Acquiree does not meet the
qualifications set forth in clause (x) of this subclause (ii) of
subsection 7.04(e), the prior effective written consent of the board of
directors or equivalent governing body and the percent of any and all classes of
stock or other equity of such Acquiree the consent of which, notwithstanding any
provisions in the charter or by-laws of the Acquiree to the contrary, is
required by applicable statute to consummate the Acquisition, is obtained and
delivered to the Agent;
purchases or redemptions of debt obligations of the Company or
its Subsidiaries so long as no Default or Event of Default exists and is
continuing or would occur as a result thereof;
Investments for transactions permitted under subsection 7.03(c)
hereof; and
other Investments not described above and that are not pro
hibited elsewhere in this Agreement, to the extent such Investments do not
exceed $25,000,000 outstanding at any one time and are not used for the purpose
of an Acquisition.
Notwithstanding any provision in this Section 7.04 to the contrary, none of the
following shall constitute "Investments" for purposes of this Section 7.04:
Any distributions paid or made in respect of the stock of the
Company or any Subsidiary of the Company (whether in cash, property or
stock of the Company or any such Subsidiary), or
Any payments (whether in cash, property or stock of the
Company or any Subsidiary) to redeem, purchase or otherwise acquire any
stock of the Company or any Subsidiary of the Company;
provided, in each case, (A) that any such distribution or payment is otherwise
permitted under the terms of this Agreement, and (B) if any such distribution or
payment is changed from the form in which it was received, it must comply with
the provisions of this Section 7.04. For purposes of the preceding sentence,
the term "stock" shall include warrants, options and other rights to purchase
stock.
Transactions With Affiliates. Except as set forth on Schedule 7.05,
the Company shall not and shall not permit any of its Subsidiaries to enter into
any transaction with any Affiliate of the Company or of any such Subsidiary
except as contemplated by this Agreement or in the ordinary course of business
and pursuant to the reasonable requirements of the business of the Company or
such Subsidiary and upon fair and reasonable terms no less favorable to the
Company or such Subsidiary than would obtain in a comparable arm's-length
transaction with a Person not an Affiliate of the Company or such Subsidiary.
Compliance With ERISAExcept with the specific written consent of the
Majority Banks, which consent shall not unreasonably be withheld, the Company
shall not directly or indirectly and shall not permit any ERISA Affiliate
directly or indirectly (i) to terminate any Plan subject to Title IV of ERISA so
as to result in any material (in the opinion of the Majority Banks) liability to
the Company or any ERISA Affiliate, (ii) to permit to exist any ERISA Event or
any other event or condition which presents the risk of a material (in the
opinion of the Majority Banks) liability of the Company or any ERISA Affiliate,
or (iii) to make a complete or partial withdrawal (within the meaning of ERISA
section 4201) from any Multiemployer Plan so as to result in any material (in
the opinion of the Majority Banks) liability to the Company or any ERISA
Affiliate, (iv) to enter into any new Plan or modify any existing Plan so as to
increase its obligations thereunder (except in the ordinary course of business
consistent with past practice) which could result in any material (in the
opinion of the Majority Banks) liability to any member of the Controlled Group,
or (v) permit the present value of all nonforfeitable benefits (within the
meaning of ERISA section 4001(a)(8)) under each Plan (using the actuarial assump
tions utilized by the PBGC upon termination of a Plan) materially (in the
opinion of the Majority Banks) to exceed the fair market value of Plan assets
allocable to such benefits, all determined as of the most recent valuation date
for each such Plan.
Restricted Payments. The Company shall not declare or make any
dividend payment or other distribution of assets, properties, cash, rights,
obligations or securities on account of any shares of any class of its capital
stock or purchase, redeem or otherwise acquire for value any shares of its
capital stock or any warrants, rights or options to acquire such shares, now or
hereafter outstanding; except that the Company and its Subsidiaries may:
declare and make dividend payments or other distributions
payable solely in its common stock;
purchase, redeem or otherwise acquire shares of its common
stock or warrants or options to acquire any such shares from employees
terminating employment with the Company, pursuant to the Company's customary
policies and procedures relating to such matters, up to a maximum aggregate
amount of $5,000,000 in any fiscal year of the Company; and
purchase or redeem debt obligations convertible into Common
Stock.
Use of Proceeds. The Company shall not, and shall not suffer or permit any
Subsidiary to, use any portion of the Loan proceeds, directly or indirectly, (i)
to purchase or carry Margin Stock, (ii) to repay or otherwise refinance
Indebtedness of the Company or others incurred to purchase or carry Margin
Stock, (iii) to extend credit for the purpose of purchasing or carrying any
Margin Stock, or (iv) to acquire any security in any transaction that is subject
to Section 13 or 14 of the Exchange Act.
Change in Business. The Company shall not, and shall not suffer or
permit any of its Material Subsidiaries to, engage in any material line of
business which accounts for a substantial portion of the business or assets of
the Company and its Subsidiaries as a whole which is substantially different
from those lines of business carried on by it on the date hereof; provided,
however, the specific activities listed on Schedule 7.09 hereto will not be
deemed to be substantially different; provided, further, no inference as to the
character of any other activities may be drawn from Schedule 7.09. The Company
and its Consolidated Subsidiaries shall not cease to be primarily engaged in the
manufacture or assembly of personal computers, and shall not voluntarily cease
to operate its business as a manufacturer or assembler of personal computers for
a significant period of time.
Accounting ChangesThe Company shall not make any significant or material
change in accounting treatment and reporting practices, except in accordance
with GAAP.
EVENTS OF DEFAULT
Event of Default. Any of the following shall constitute an "Event
of Default":
Non-PaymentThe Company fails to pay, (i) when and as required
to be paid herein, any amount of principal of any Loan, or (ii) within 10 days
after the same becomes due, any interest, fee or any other amount payable
hereunder or under any other Loan Document; or
Representation or Warranty. Any representation or warranty by
the Company or any Subsidiary made or deemed made herein, in any other Loan
Document, or which is contained in any certificate, document or financial or
other statement by the Company, any Subsidiary, or any Responsible Officer,
furnished at any time under this Agreement, or in or under any other Loan
Document, is incorrect in any material respect on or as of the date made or
deemed made; or
Specific Defaults. The Company fails to perform or observe any
term, covenant or agreement contained in any of Section 6.03 or in Article VII
(except for Section 7.01 to the extent Liens are not Voluntary Liens and
Section 7.06); or
Other Defaults. The Company fails to perform or observe any
other term or covenant contained in this Agreement or any other Loan Document,
and such default shall continue unremedied for a period of 20 days after the
earlier of (i) the date upon which a Responsible Officer knew or reasonably
should have known of such failure or (ii) the date upon which written notice
thereof is given to the Company by the Agent or any Bank; or
Cross-DefaultThe Company or any of its Subsidiaries (i) fails
to make any payment in respect of any Indebtedness or Contingent Obligation,
having an aggregate principal amount (including unused commitments and
outstanding amounts) of more than $25,000,000, when due (whether by scheduled
maturity, required prepayment, acceleration, demand, or otherwise) and, in the
case of payments other than in respect of principal, such failure continues
without any Permitted Waiver for the duration of any grace period specified in
the applicable document as of the time such failure occurs; or (ii) fails to
perform or observe any other condition or covenant or any other event shall
occur or condition exist under any agreement or instrument relating to any such
Indebtedness or Contingent Obligation if same has an aggregate principal amount
more than $25,000,000, and such failure continues without any Permitted Waiver
for the duration of any grace period specified in the applicable document as of
the time such failure occurs, if the effect of such event or condition is to
cause, or to permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause, such Indebtedness
to be declared to be due and payable prior to its stated maturity or such
Contingent Obligation to become payable (immediately or after expiration of any
grace period); or
Insolvency; Voluntary Proceedings. The Company or any Material
Subsidiary (i) ceases or fails to be Solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise; (ii)
voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
Involuntary Proceedings (i) Any involuntary Insolvency Proceeding is
commenced or filed against the Company or any Subsidiary, or any writ, judgment,
warrant of attachment, execution or similar process, is issued or levied against
a substantial part of the Company's or any Material Subsidiary's properties, and
any such proceeding or petition shall not be dismissed, or such writ, judgment,
warrant of attachment, execution or similar process shall not be released,
vacated or fully bonded within 60 days after commencement, filing or levy; (ii)
the Company or any Material Subsidiary admits the material allegations of a
petition against it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or
(iii) the Company or any Material Subsidiary acquiesces in the appointment of a
receiver, trustee, custodian, conservator, liquidator, mortgagee in possession
(or agent therefor), or other similar Person for itself or a substantial portion
of its property or business; or
ERISA (i) An ERISA Event shall occur with respect to a Pension
Plan or Multiemployer Plan which has resulted or could reasonably be expected to
result in liability of the Company under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of $25,000,000;
(ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans
at any time exceeds $25,000,000; or (iii) the Company or any ERISA Affiliate
shall fail to pay when due, after the expiration of any applicable grace period,
any installment payment with respect to its withdrawal liability under
Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in
excess of $25,000,000; or
Monetary Judgments. One or more non-interlocutory judgments,
non-interlocutory orders, decrees or arbitration awards is entered against the
Company or any Material Subsidiary involving in the aggregate a liability (to
the extent not covered by third-party insurance) as to any single or related
series of transactions, incidents or conditions, of 10% of Tangible Net Worth or
more, and the same shall remain unsatisfied, unvacated and unstayed pending
appeal for a period of 45 consecutive days after the entry thereof; or
Non-Monetary Judgments. Any non-monetary judgment, order or decree
is entered against the Company or any Subsidiary which does or would reasonably
be expected to have a Material Adverse Effect, and there shall be any period of
30 consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or
Change of Control. There occurs any Change of Control; or
Guarantor Defaults. The Guarantor fails in any material
respect to perform or observe any term, covenant or agreement in the Guaranty,
or the Guaranty is for any reason partially (including with respect to future
advances) or wholly revoked or invalidated, or otherwise ceases to be in full
force and effect, or the Guarantor or any other Person contests in any manner
the validity or enforceability thereof or denies that it has any further
liability or obligation thereunder, or any event described at subsections (f) or
(g) of this Section occurs with respect to the Guarantor, or the Guarantor fails
to promptly obtain the payment authorization of the Guarantor's designated
foreign exchange bank, which is currently Hanil Bank, required for payment under
the Guaranty, or the Guarantor fails to maintain the approval of such designated
foreign exchange bank that has approved the issuance, execution, delivery and
performance of the Guaranty by the Guarantor or to promptly (and in any event
within 15 days after a request for payment under the Guaranty) obtain the
approval of such designated foreign exchange bank to any assignment of, or
amendment to, the Guaranty.
Remedies. If any Event of Default occurs, the Agent shall, at the request
of, or may, with the consent of, the Majority Banks,
declare the Commitment of each Bank to make Loans to be
terminated, whereupon such Commitments shall be terminated;
declare the unpaid principal amount of all outstanding Loans,
all interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Company; and
exercise on behalf of itself and the Banks all rights and
remedies available to it and the Banks under the Loan Documents or applicable
law;
provided, however, that upon the occurrence of any event specified in subsection
(f) or (g) of Section 8.01 (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each Bank
to make Loans shall automatically terminate and the unpaid principal amount of
all outstanding Loans and all interest and other amounts as aforesaid shall
automatically become due and payable without further act of the Agent or any
Bank.
Rights Not ExclusiveThe rights provided for in this Agreement and
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
THE AGENT
Appointment and Authorization; "Agent. Each Bank hereby irrevocably
(subject to Section 9.09) appoints, designates and authorizes the Agent to take
such action on its behalf under the provisions of this Agreement and each other
Loan Document and to exercise such powers and perform such duties as are
expressly delegated to it by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set tc forth herein, nor shall the
Agent have or be deemed to have any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent. Without limiting the generality of the
foregoing sentence, the use of the term "agent" in this Agreement with reference
to the Agent is not intended to connote any fiduciary or other implied (or
express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
Delegation of Duties. The Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
Liability of Agent. None of the Agent-Related Persons shall (i) be liable
for any action taken or omitted to be taken in good faith by any of them under
or in connection with this Agreement or any other Loan Document or the
transactions contemplated hereby (except for its own gross negligence or willful
misconduct), or (ii) be responsible in any manner to any of the Banks for any
recital, statement, representation or warranty made by the Company or any
Subsidiary or Affiliate of the Company, or any officer thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document, or
the validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of the Company or any
other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Bank
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Company or any
of the Company's Subsidiaries or Affiliates.
Reliance by Agent. (a) The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to the Company), independent accountants and other experts selected by the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Majority Banks as it deems appropriate
and, if it so requests, it shall first be indemnified to its satisfaction by the
Banks against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or consent of
the Majority Banks and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Banks.
For purposes of determining compliance with the conditions
specified in Section 4.01, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the Agent to such Bank for consent,
approval, acceptance or satisfaction, or required thereunder to be consented to
or approved by or acceptable or satisfactory to the Bank.
Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default, except with
respect to defaults in the payment of principal, interest and fees required to
be paid to the Agent for the account of the Banks, unless the Agent shall have
received written notice from a Bank or the Company referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". The Agent will promptly notify the Banks of its receipt of
any such notice. The Agent shall take such action with respect to such Default
or Event of Default as may be requested by the Majority Banks in accordance with
Article VIII; provided, however, that unless and until the Agent has received
any such request, the Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable or in the best interest of the
Banks.
Credit Decision. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Agent hereinafter taken, including any review of the affairs of the
Company and its Subsidiaries, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Bank. Each Bank represents to
the Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and credit worthiness of the
Guarantor, the Company and its Subsidiaries, and all applicable bank regulatory
laws relating to the transactions contemplated hereby, and made its own decision
to enter into this Agreement and to extend credit to the Company hereunder.
Each Bank also represents that it will, independently and without reliance upon
any Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and credit worthiness of the Company and the Guarantor.
Except for notices, reports and other documents expressly herein required to be
furnished to the Banks by the Agent, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or credit worthiness of the Company which may come into the possession
of any of the Agent-Related Persons.
Indemnification of Agent. The Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Company and without limiting the obligation of the Company to do so), pro rata,
from and against any and all Indemnified Liabilities; provided, however, that no
Bank shall be liable for the payment to the Agent-Related Persons of any portion
of such Indemnified Liabilities resulting solely from such Person's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Bank shall reimburse the Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including Attorney Costs) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Company. The undertaking in
this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of the Agent.
Agent in Individual Capacity. BofA and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Company and its
Subsidiaries and Affiliates as though BofA were not the Agent hereunder and
without notice to or consent of the Banks. The Banks acknowledge that, pursuant
to such activities, BofA or its Affiliates may receive information regarding the
Company or its Affiliates (including information that may be subject to
confidentiality obligations in favor of the Company or such Subsidiary) and
acknowledge that the Agent shall be under no obligation to provide such
information to them. With respect to its Loans, BofA shall have the same rights
and powers under this Agreement as any other Bank and may exercise the same as
though it were not the Agent, and the terms "Bank" and "Banks" include BofA in
its individual capacity.
Successor AgentThe Agent may, and at the request of the Majority
Banks shall, resign as Agent upon 30 days' notice to the Banks. If the Agent
resigns under this Agreement, the Majority Banks shall appoint from among the
Banks a successor agent for the Banks. If no successor agent is appointed prior
to the effective date of the resignation of the Agent, the Agent may appoint,
after consulting with the Banks and the Company, a successor agent from among
the Banks. Upon the acceptance of its appointment as successor agent hereunder,
such successor agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor agent and the
retiring Agent's appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Article IX and Sections 10.04 and 10.05 shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by the date
which is 30 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective and
the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Majority Banks appoint a successor agent as provided for
above.
Withholding Tax (a) If any Bank is a "foreign corporation,
partnership or trust" within the meaning of the Code and such Bank claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the Code, such Bank agrees with and in favor of the Agent, to deliver to
the Agent:
if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, two properly completed
and executed copies of IRS Form 1001 before the payment of any interest in
the first calendar year and before the payment of any interest in each
third succeeding calendar year during which interest may be paid under this
Agreement;
if such Bank claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Bank, two properly
completed and executed copies of IRS Form 4224 before the payment of any
interest is due in the first taxable year of such Bank and in each
succeeding taxable year of such Bank during which interest may be paid
under this Agreement; and
(iii) such other form or forms as may be required under the
Code or other laws of the United States as a condition to exemption from,
or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
If any Bank claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such Bank
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of the Company to such Bank, such Bank agrees to notify the
Agent of the percentage amount in which it is no longer the beneficial owner of
Obligations of the Company to such Bank. To the extent of such percentage
amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid.
If any Bank claiming exemption from United States withholding
tax by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of the
Company to such Bank, such Bank agrees to undertake sole responsibility for
complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Bank
an amount equivalent to the applicable withholding tax after taking into account
such reduction. However, if the forms or other documentation required by
subsection (a) of this Section are not delivered to the Agent, then the Agent
may withhold from any interest payment to such Bank not providing such forms or
other documentation an amount equivalent to the applicable withholding tax
imposed by Sections 1441 and 1442 of the Code, without reduction.
If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Bank (because the
appropriate form was not delivered or was not properly executed, or because such
Bank failed to notify the Agent of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason) such Bank shall indemnify the Agent fully for all amounts paid, directly
or indirectly, by the Agent as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Banks under this subsection
shall survive the payment of all Obligations and the resignation or replacement
of the Agent.
MISCELLANEOUS
Amendments and Waivers. No amendment or waiver of any provision of this
Agreement or any other Loan Document, and no consent with respect to any
departure by the Company therefrom, shall be effective unless the same shall be
in writing and signed by the Majority Banks (or by the Agent at the written
request of the Majority Banks) and the Company and acknowledged by the Agent,
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
no such waiver, amendment, or consent shall, unless in writing and signed by all
the Banks and the Company and acknowledged by the Agent, do any of the
following:
increase or extend the Commitment of any Bank (or reinstate any
Commitment terminated pursuant to Section 8.02);
postpone or delay any date fixed by this Agreement or any other Loan
Document for any payment of principal, interest, fees or other amounts due to
the Banks (or any of them) hereunder or under any other Loan Document;
reduce the principal of, or the rate of interest specified herein on
any Loan, or (subject to clause (ii) below) any fees or other amounts payable
hereunder or under any other Loan Document;
change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Loans which is required for the Banks or any of them to
take any action hereunder;
amend this Section, or Section 2.13, or any provision herein
providing for consent or other action by all Banks;
modify the definition of "Majority Banks"; or
waive any Event of Default under Sections 8.01(k) or (l);
and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Majority Banks or all the
Banks, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document, and (ii) the Fee Letter may be amended, or
rights or privileges thereunder waived, in a writing executed by the parties
thereto.
Notices. (a) Except as set forth in subsection 10.02(c), all notices,
requests, consents, approvals, waivers and other communications shall be in
writing (including, unless the context expressly otherwise provides, by
facsimile transmission, provided that any matter transmitted by the Company by
facsimile shall be followed promptly by delivery of a hard copy original
thereof) and mailed, faxed or delivered, to the address or facsimile number
specified for notices on Schedule 10.02; or, as directed to the Company or the
Agent, to such other address as shall be designated by such party in a written
notice to the other parties, and as directed to any other party, at such other
address as shall be designated by such party in a written notice to the Company
and the Agent. All notices to the Company shall be sent to 16215 Alton Parkway,
Irvine, CA 92718, Attention: Treasurer (telecopy: 714-727-8584; telephone:
714-727-7717).
Except as set forth in subsection 10.02(c), all such notices,
requests and communications shall, when transmitted by overnight delivery, or
faxed, be effective when delivered for overnight (next-day) delivery, or
transmitted in legible form by facsimile machine, respectively, or if mailed,
upon the third Business Day after the date deposited into the U.S. mail, or if
delivered, upon delivery; except that notices pursuant to Article II or IX to
the Agent shall not be effective until actually received by the Agent.
Notwithstanding anything to the contrary herein, the Company may
borrow, continue or convert Loans via telephonic communication so long as such
telephonic communication is followed by facsimile confirmation thereof by no
later than 11:00 a.m. ( San Francisco time) on the same day.
Any agreement of the Agent and the Banks herein to receive certain
notices by telephone or facsimile is solely for the convenience and at the
request of the Company. The Agent and the Banks shall be entitled to rely on
the authority of any Person purporting to be a Person authorized by the Company
to give such notice and the Agent and the Banks shall not have any liability to
the Company or other Person on account of any action taken or not taken by the
Agent or the Banks in reliance upon such telephonic or facsimile notice except
for gross negligence or willful misconduct on the part of the Agent and the
Banks. The obligation of the Company to repay the Loans shall not be affected
in any way or to any extent by any failure by the Agent and the Banks to receive
written confirmation of any telephonic or facsimile notice or the receipt by the
Agent and the Banks of a confirmation which is at variance with the terms
understood by the Agent and the Banks to be contained in the telephonic or
facsimile notice.
No Waiver; Cumulative Remedies. No failure to exercise and no delay
in exercising, on the part of the Agent or any Bank, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
Costs and ExpensesThe Company shall:
pay or reimburse BofA (including in its capacity as Agent) promptly
after written demand (subject to subsection 4.01(f)) for all reasonable costs
and expenses incurred by BofA (including in its capacity as Agent) in connection
with the administration and any amendment, supplement, waiver or modification to
(in each case, whether or not consummated), this Agreement, any Loan Document
and any other documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby, including
reasonable Attorney Costs incurred by BofA (including in its capacity as Agent)
with respect thereto; and
pay or reimburse the Agent, the Arranger and each Bank promptly
after written demand (subject to subsection 4.01(f)) for all reasonable costs
and expenses (including Attorney Costs) incurred by them in connection with the
enforcement, attempted enforcement, or preservation of any rights or remedies
under this Agreement or any other Loan Document during the existence of an Event
of Default or after acceleration of the Loans (including in connection with any
"workout" or restructuring regarding the Loans, and including in any Insolvency
Proceeding or appellate proceeding).
Company IndemnificationThe Company shall indemnify, defend and hold the
Agent-Related Persons, and each Bank and each of its respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans and the termination, resignation or replacement of the
Agent or replacement of any Bank) be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of this Agreement
or any document contemplated by or referred to herein, or the transactions
contemplated hereby, or any action taken or omitted by any such Person under or
in connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any Insolvency Proceeding or
appellate proceeding) related to or arising out of this Agreement or the Loans
or the use of the proceeds thereof, whether or not any Indemnified Person is a
party thereto (all the foregoing, collectively, the "Indemnified Liabilities");
provided, that the Company shall have no obligation hereunder to any Indemnified
Person with respect to Indemnified Liabilities resulting solely from the gross
negligence or willful misconduct of such Indemnified Person. The agreements in
this Section shall survive payment of all other Obligations.
Payments Set Aside. To the extent that the Company makes a payment to
the Agent or the Banks, or the Agent or the Banks exercise their right of set-
off, and such payment or the proceeds of such set-off or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required (including pursuant to any settlement entered into by the Agent or
such Bank in its discretion) to be repaid to a trustee, receiver or any other
party, in connection with any Insolvency Proceeding or otherwise, then (a) to
the extent of such recovery the obligation or part thereof originally intended
to be satisfied shall be revived and continued in full force and effect as if
such payment had not been made or such set-off had not occurred, and (b) each
Bank severally agrees to pay to the Agent upon demand its pro rata share of any
amount so recovered from or repaid by the Agent.
Successors and Assigns. The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agent and each Bank.
Assignments, Participations, Etc. (a) Any Bank may, with the written
consent of the Company at all times other than during the existence of an Event
of Default and the Agent, which consent of the Company and the Agent shall not
be unreasonably withheld, at any time assign and delegate to one or more
Eligible Assignees (provided that no written consent of the Company or the Agent
shall be required in connection with any assignment and delegation by a Bank to
an Eligible Assignee that is an Affiliate of such Bank) (each an "Assignee")
all, or any ratable part of all, of the Loans, the Commitments and the other
rights and obligations of such Bank hereunder, in a minimum amount of
$10,000,000; provided, however, that the Company and the Agent may continue to
deal solely and directly with such Bank in connection with the interest so
assigned to an Assignee until (i) written notice of such assignment, together
with payment instructions, addresses and related information with respect to the
Assignee, shall have been given to the Company and the Agent by such Bank and
the Assignee; (ii) such Bank and its Assignee shall have delivered to the
Company and the Agent an Assignment and Acceptance in the form of Exhibit G
("Assignment and Acceptance") together with any Note or Notes subject to such
assignment and (iii) the assignor Bank or Assignee has paid to the Agent a
processing fee in the amount of $3,500.
From and after the date that the Agent notifies the assignor Bank
that it has received (and provided its consent with respect to) an executed
Assignment and Acceptance and payment of the above-referenced processing fee,
(i) the Assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall have the rights and obligations of a Bank under
the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights
and obligations hereunder and under the other Loan Documents have been assigned
by it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Loan Documents.
Within ten Business Days after its receipt of notice by the Agent
that it has received an executed Assignment and Acceptance and payment of the
processing fee, (and provided that it consents to such assignment in accordance
with subsection 10.08(a)), the Company shall execute and deliver to the Agent,
new Notes evidencing such Assignee's assigned Loans and Commitment and, if the
assignor Bank has retained a portion of its Loans and its Commitment,
replacement Notes in the principal amount of the Loans retained by the assignor
Bank (such Notes to be in exchange for, but not in payment of, the Notes held by
such Bank). Immediately upon each Assignee's making its processing fee payment
under the Assignment and Acceptance, this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Bank pro tanto.
Any Bank may at any time sell to one or more commercial banks or
other Persons not Affiliates of the Company (a "Participant") participating
interests in any Loans, the Commitment of that Bank and the other interests of
that Bank (the "originating Bank") hereunder and under the other Loan Documents;
provided, however, that (i) the originating Bank's obligations under this
Agreement shall remain unchanged, (ii) the originating Bank shall remain solely
responsible for the performance of such obligations, (iii) the Company and the
Agent shall continue to deal solely and directly with the originating Bank in
connection with the originating Bank's rights and obligations under this
Agreement and the other Loan Documents, and (iv) no Bank shall transfer or grant
any participating interest under which the Participant has rights to approve any
amendment to, or any consent or waiver with respect to, this Agreement or any
other Loan Document, except to the extent such amendment, consent or waiver
would require unanimous consent of the Banks as described in the first proviso
to Section 10.01. In the case of any such participation, the Participant shall
not have any rights under this Agreement, or any of the other Loan Documents,
and all amounts payable by the Company hereunder shall be determined as if such
Bank had not sold such participation; except that, if amounts outstanding under
this Agreement are due and unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Bank under this Agreement.
Notwithstanding any other provision in this Agreement, any Bank may
at any time create a security interest in, or pledge, all or any portion of its
rights under and interest in this Agreement and the Note held by it in favor of
any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S.
Treasury Regulation 31 CFR Section203.14, and such Federal Reserve Bank may
enforce such pledge or security interest in any manner permitted under
applicable law.
ConfidentialityEach Bank agrees to take and to cause its Affiliates to take
normal and reasonable precautions and exercise due care to maintain the
confidentiality of all non-public information provided to it by the Company or
any Subsidiary, or by the Agent on the Company's or such Subsidiary's behalf,
under this Agreement or any other Loan Document, and neither it nor any of its
Affiliates shall use any such information other than in connection with or in
enforcement of this Agreement and the other Loan Documents or in connection with
other business now or hereafter existing or contemplated with the Company or any
Subsidiary; except to the extent such information (i) was or becomes generally
available to the public other than as a result of disclosure by the Bank, or
(ii) was or becomes available on a non-confidential basis from a source other
than the Company, provided that such source is not bound by a confidentiality
agreement with the Company known to the Bank; provided, however, that any Bank
may disclose such information (A) at the request or pursuant to any requirement
of any Governmental Authority to which the Bank is subject or in connection with
an examination of such Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent, any
Bank or their respective Affiliates may be party; (E) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Loan Document; (F) to such Bank's independent auditors and other
professional advisors who are bound by an ethical obligation of confidentiality
(it being understood that no written confidentiality agreements are required to
be obtained from such auditors or other professional advisors); (G) to any
Participant or Assignee, actual or potential, provided that such Person agrees
in writing to keep such information confidential to the same extent required of
the Banks hereunder; (H) as to any Bank or its Affiliate, as expressly permitted
under the terms of any other document or agreement regarding confidentiality to
which the Company or any Subsidiary is party or is deemed party with such Bank
or such Affiliate; and (I) to its Affiliates.
Set-offIn addition to any rights and remedies of the Banks provided by
law, if an Event of Default exists or the Loans have been accelerated, each Bank
is authorized at any time and from time to time, without prior notice to the
Company, any such notice being waived by the Company to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, such Bank to or for the credit or the account
of the Company against any and all Obligations owing to such Bank, now or
hereafter existing, irrespective of whether or not the Agent or such Bank shall
have made demand under this Agreement or any Loan Document and although such
Obligations may be contingent or unmatured. Each Bank agrees promptly to notify
the Company and the Agent after any such set-off and application made by such
Bank; provided, however, that the failure to give such notice shall not affect
the validity of such set-off and application. All set-offs shall benefit each
Bank in accordance with its Pro Rata Share and the Banks shall share any set-
offs among the Banks accordingly.
Notification of Addresses, Lending Offices, Etc. Each Bank shall
notify the Agent in writing of any changes in the address to which notices to
the Bank should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.
CounterpartsThis Agreement may be executed in any number of separate
counterparts, each of which, when so executed, shall be deemed an original, and
all of said counterparts taken together shall be deemed to constitute but one
and the same instrument.
SeverabilityThe illegality or unenforceability of any provision of
this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
No Third Parties BenefitedThis Agreement is made and entered into for
the sole protection and legal benefit of the Company, the Banks, the Agent and
the Agent-Related Persons, and their permitted successors and assigns, and no
other Person shall be a direct or indirect legal beneficiary of, or have any
direct or indirect cause of action or claim in connection with, this Agreement
or any of the other Loan Documents.
Governing Law and Jurisdiction (a) THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
CALIFORNIA; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS
ARISING UNDER FEDERAL LAW.
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR
OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE BANKS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND THE BANKS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND
THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.
Waiver of Jury TrialTHE COMPANY, THE BANKS AND THE AGENT EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE BANKS AND THE
AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
Entire AgreementThis Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Company,
the Banks and the Agent, and supersedes all prior or contemporaneous agreements
and understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in San Francisco, California by their proper and
duly authorized officers as of the day and year first above written.
AST RESEARCH, INC.
By: /s/ Dennis R. Leibel
Title: Senior Vice President, Legal,
Administration and Secretary
By: /s/Mark P. de Raad
Title: Vice President, Controller
and Principal Accounting Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/Wendy M. Young
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
By: /s/Kevin McMahon
Title: Vice President
ROYAL BANK OF CANADA
By: /s/Tom J. Oberaigner
Title: Manager
BANQUE NATIONALE DE PARIS
By: /s/Clive Bettles
Title: Senior Vice President and Manager
By: /s/Tjalling Terpstra
Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By: /s/Edwin J. Davis Jr.
Title: Senior Vice President
SCHEDULE 2.01
COMMITMENTS
AND PRO RATA SHARES
Pro Rata
Bank Commitment Share
Bank of America National
Trust and Savings
Association $ 25,000,000 25%
Royal Bank of Canada $ 25,000,000 25%
Banque Nationale de Paris $ 25,000,000 25%
NationsBank of Texas, N.A. $ 25,000,000 25%
TOTAL $100,000,000 100%
EXHIBIT 10.35
Annex 3
FIRST AMENDMENT
THIS FIRST AMENDMENT ("Amendment"), dated as of February 29, 1996, is
entered into by and among AST Research, Inc., a Delaware corporation (the
"Company"), the several financial institutions party to this Amendment
(collectively, the "Banks"; individually, a "Bank"), and Bank of America
National Trust and Savings Association, as Agent for the Banks.
RECITALS
A. The Company, the Agent and certain of the Banks are party to a
Credit Agreement dated as of December 20, 1995 (the "Credit Agreement"), which
Credit Agreement became effective on December 27, 1995.
B. The Company has requested that (i) several new financial
institutions become parties to, and be deemed to be "Banks" in connection with,
the Credit Agreement and (ii) the Banks, among other things, agree to amend the
Credit Agreement to increase the aggregate Commitments of the Banks. The Agent
and the Banks are willing to so amend the Credit Agreement subject to the terms
and conditions in this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings, if any, assigned to them in the
Credit Agreement.
2. Amendments.
(a) The term "Banks" in the introductory paragraph of the
Credit Agreement is amended to refer to all Banks executing this Amendment and
all of the duties and obligations of the Borrower and the Guarantor under the
Loan Documents in existence prior to the date hereof (to which they are
respectively parties) shall be deemed to be duties and obligations to the Agent
and all of the Banks executing this Amendment.
(b) Section 1.01 of the Credit Agreement is amended by
deleting the phrase "and each date such Loan is converted into another Type of
Loan" in the definition of "Interest Payment Date."
(c) Section 2.08(b) of the Credit Agreement is amended by
adding in the second sentence the phrase "Offshore Rate" before each occurrence
of the word "Loans" and by adding the phrase "on all Loans" after the phrase
"Event of Default."
(d) Schedule 2.01 to the Credit Agreement is amended by
deleting said Schedule 2.01 in its entirety and by inserting in lieu thereof the
form of Schedule 2.01 attached hereto as Annex 1.
(e) Schedule 10.02 to the Credit Agreement is amended by
deleting said Schedule 10.02 in its entirety and by inserting in lieu thereof
the form of Schedule 10.02 attached hereto as Annex 2.
3. Representations and Warranties. The Company hereby
represents and warrants to the parties hereto as follows:
(a) No Defaults or Events of Default have occurred and are
continuing under the Loan Documents.
(b) The execution, delivery and performance by the Company
of this Amendment have been duly authorized by all necessary corporate and other
action and do not and will not require any registration with, consent or
approval of, notice to or action by, any Person (including any Governmental
Authority) in order to be effective and enforceable.
(c) This Amendment and the Loan Documents, as amended by
this Amendment, constitute the legal, valid and binding obligations of the
Company, enforceable against it in accordance with their respective terms,
without defense, counterclaim or offset.
(d) All representations and warranties of the Company
contained in the Loan Documents are true and correct.
(e) The Company is entering into this Amendment on the
basis of its own investigation and for its own reasons, without reliance upon
the Agent, the Banks or any other Person.
4. Effective Date. This Amendment will become effective on the
date ("Effective Date") that each of the following conditions precedent has been
satisfied and that all of the following documents required to be delivered are
in form and substance satisfactory to the Agent and the Banks:
(a) All representations and warranties contained herein are
true and correct as of the Effective Date.
(b) All Loans outstanding under the Credit Agreement shall
bear interest at the Base Rate.
(c) The Agent shall have received for its own account, or
for the account of the applicable Bank, as the case may be, all payments due on
the Effective Date from any Bank in respect of the Loans assigned pursuant to
Section 5 and all fees, costs and expenses due and payable pursuant to Section
2.09(b) of the Credit Agreement, if then invoiced.
(d) The Agent has received all fees and expenses required
to be paid by the Company in connection with the Amendment other than such fees
and expenses for which the Company has not received bills from the applicable
Person or Persons.
(e) The Agent has received from the Company and each of the
Banks a duly executed copy of this Amendment.
(f) The Agent has received from the Company duly executed
copies of the new Notes for all the Banks reflecting the new Commitments of the
Banks.
(g) The Agent has received:
(i) copies of the resolutions of the board of directors
of (A) the Company authorizing the transactions contemplated hereby and (B) the
Guarantor authorizing the transactions contemplated by the Guarantor
Acknowledgment and Consent executed by the Guarantor in the form attached hereto
as Annex 3 (the "Consent") and the Guaranty, each certified as of the Effective
Date by the Secretary or an Assistant Secretary or other duly authorized officer
of such Person; and
(ii) a certificate of the Secretary or Assistant Secretary
or other duly authorized officer of each of the Company and the Guarantor
certifying (A) the names and true signatures of the officers of the Company
and the Guarantor, respectively, authorized to execute, deliver and
perform, as applicable, this Amendment, and all other Loan Documents to be
delivered by it, respectively, hereunder, and (B) that the respective
charter documents of the Company and the Guarantor provided to the Banks at
the time of the execution and delivery of the Credit Agreement are in full
force and effect and are unchanged from the versions of such documents
provided to the Banks at the time of the execution and delivery of the
Credit Agreement.
(h) The Agent has received:
(i) an opinion of Stradling, Yocca, Carlson & Rauth,
California counsel to the Company, addressed to the Agent and the Banks;
(ii) an opinion of Gibson, Dunn & Crutcher, California
counsel to the Guarantor, addressed to the Agent and the Banks; and
(iii) an opinion of Shin & Kim, Korea counsel to the
Guarantor, addressed to the Agent and the Banks.
(i) The Agent has received a duly executed copy of the
Consent.
(j) The Agent has received copies of all consents
(including, without limitation, the consent of Hanil Bank) required in
connection with the execution of this Amendment and the Consent.
5. Certain Effective Date Transitional Matters.
(a) On the Effective Date, each Bank hereby sells and
assigns, without recourse, an amount of Loans equal to the product of (i) the
excess (if any) of its Original Percentage over its Effective Date Percentage
times (ii) the aggregate principal amount of Loans outstanding on such date and
each Bank hereby purchases an amount of Loans equal to the product of (i) the
excess (if any) of its Effective Date Percentage over its Original Percentage
times (ii) the aggregate principal amount of Loans outstanding on such date.
Each Bank selling Loans hereunder shall be deemed to have sold (and each Bank
purchasing Loans shall be deemed to have purchased) a pro rata portion (based on
the aggregate principal amount of Loans then outstanding) of each of such
selling Bank's Loans. Payments by each Bank purchasing Loans hereunder shall be
made to the Agent not later than 9:00 a.m., San Francisco time in immediately
available funds, without setoff, deduction or counterclaim, for the pro rata
account (based upon the outstanding principal amount of Loans being sold) of
each selling Bank in an amount equal to the aggregate principal amount of
outstanding Loans purchased by such Bank.
(b) On and after the Effective Date, each Bank shall be
entitled to receive commitment fees under Section 2.09(b) of the Credit
Agreement and interest on Loans and on any other amount due under any Loan
Document, in each case, (i) accrued and unpaid before the Effective Date in
accordance with its Original Percentage and (ii) accrued on and after the
Effective Date in accordance with its Effective Date Percentage.
(c) On and after the Effective Date, to the extent that any
commitment and the other rights and obligations of any Bank existing at the time
immediately preceding the Effective Date have been assigned or delegated, as
applicable, to any Bank hereunder, such Bank hereby assumes such commitment
and other obligations and shall have the rights and obligations of a Bank
hereunder and under the other Loan Documents and, to the extent that any
commitment and other obligations of any Bank existing at the time immediately
preceding the Effective Date have been delegated by any Bank pursuant to this
Agreement, such Bank shall be released from such commitment and its obligations
thereunder and under the other Loan Documents.
For purposes of this Section 5, (i) "Original Percentage" means,
relative to any Bank, the percentage set forth with respect to such Bank on the
schedule attached hereto as Annex 4 and (ii) "Effective Date Percentage" means,
relative to any Bank, the percentage set forth with respect to such Bank on the
schedule attached hereto as Annex 4.
6. Reservation of Rights. The Company acknowledges and agrees
that the execution and delivery by the parties hereto of this Amendment shall
not be deemed to create a course of dealing or an obligation to execute similar
waivers or amendments under the same or similar circumstances in the future.
7. Miscellaneous.
(a) Except as herein expressly amended, all terms,
covenants and provisions of the Loan Documents are and shall remain in full
force and effect, without defense, offset or counterclaim. All references
therein shall henceforth refer to the Loan Documents as amended by this
Amendment. This Amendment shall be deemed incorporated into, and a part of, the
Loan Documents.
(b) This Amendment shall be binding upon and inure to the
benefit of the parties hereto and thereto and their respective successors and
assigns. No third party beneficiaries are intended in connection with this
Amendment.
(c) This Amendment shall be governed by and construed in
accordance with the law of the State of California; provided that the Agent and
the Banks shall retain all rights arising under federal law.
(d) This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this Amendment (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by the Agent of a facsimile transmitted document purportedly
bearing the signature of a Bank will have the same force and effect as the
delivery of a hard copy original. Any failure by the Agent to receive the hard
copy executed original of such document shall not diminish the binding effect of
receipt of the facsimile transmitted executed original of such document of the
party whose hard copy page was not received by the Agent.
(e) This Amendment contains the entire and exclusive
agreement of the parties hereto with reference to the matters discussed
herein and therein. This Amendment supersedes all prior drafts and
communications with respect thereto. This Amendment may not be amended except
in accordance with the provisions of Section 10.01 of the Credit Agreement.
(f) If any term or provision of this Amendment shall be
deemed prohibited by or invalid under any applicable law, such provision shall
be invalidated without affecting the remaining provisions of this Amendment or
the Loan Documents, respectively.
(g) The Company covenants to pay to or reimburse the Agent
and the Banks, upon demand, for all reasonable costs and expenses (including
allocated costs of in-house counsel) incurred in connection with the
development, preparation, negotiation, execution and delivery of this Amendment.
(h) Reasonably promptly after the satisfaction of the
conditions set forth in Section 4, the Agent will certify such satisfaction in
writing to the Company
and the Banks.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered in San Francisco, California, by their proper and
duly authorized officers as of the day and year first above written.
AST RESEARCH, INC.
By: /s/Dennis R. Leibel
Title: Senior Vice President,
Legal and Administration
By: /s/Mark P. deRaad
Title: Vice President/Controller
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Agent
By: /s/Dietmar Schiel
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By: /s/Kevin McMahon
Title: Vice President
ROYAL BANK OF CANADA
By: /s/Michael A. Cole
Title: Manager
BANQUE NATIONALE DE PARIS
By: /s/Clive Bettles
Title: Senior Vice President & Manager
By: /s/Tjalling Terpstra
Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By: /s/Edwin J. Davis Jr.
Title: Senior Vice President
COMMERZBANK AKTIENGESELLSCHAFT,
LOS ANGELES BRANCH
By: /s/Jeffrey A. Lamia
Title: Senior Vice President
By: /s/Juergen Boysen
Title: Senior Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/J.W. Park
Title: Vice President
ABN AMRO BANK N.V.,
LOS ANGELES INTERNATIONAL BRANCH
By: ABN AMRO NORTH AMERICA, INC.,
as agent therefor
By: /s/Paul K. Stimpfl
Title: Vice President
By: /s/John A. Miller
Title: Group Vice President/Director
THE BANK OF NOVA SCOTIA
By: /s/James S. York
Title: Vice President
COMMITMENTS
AND PRO RATA SHARES
Pro Rata
Bank Commitment Share
Bank of America National $ 40,000,000 20%
Trust and Savings
Association
Royal Bank of Canada $ 25,000,000 12.5%
Banque of Nacionale de Paris $ 25,000,000 12.5%
Nationsbank of Texas, N.A. $ 25,000,000 12.5%
ABN AMRO Band N.V. $ 25,000,000 12.5%
Los Angeles International Branch
The First National Bank $ 10,000,000 5%
of Chicago
Commerzbank Aktiengesellschaft $ 25,000,000 12.5%
Los Angeles Branch
The Bank of Nova Scotia $ 25,000,000 12.5%
TOTAL $200,000,000 100%
GUARANTOR ACKNOWLEDGMENT AND CONSENT
The undersigned, the guarantor with respect to AST Research, Inc.'s (the
"Company") obligations to the Agent and the Banks under the Credit Agreement,
hereby (a) acknowledges and consents to the execution, delivery and performance
by Company of the First Amendment to Credit Agreement dated as of February 29,
1996, a copy of which is attached hereto (the "Amendment"), (b) reaffirms and
agrees that the Guaranty and all other documents and agreements executed and
delivered by the undersigned to the Agent and the Banks in connection with the
Credit Agreement are in full force and effect, without defense, offset or
counterclaim and, (c) reaffirms and agrees that all of the provisions of the
Guaranty are applicable to, and enforceable by the Agent and all Banks party to
the Amendment against, the undersigned with respect to the increased Commitments
aggregating $200,000,000 under the Credit Agreement.
The undersigned hereby represents and warrants to the Agent and the Banks
on the date hereof and as of the Effective Date as follows:
(i) the execution, delivery and performance by the undersigned of the
Guaranty and this Guarantor Acknowledgment and Consent have been duly authorized
by all necessary corporate and other action and do not and will not require any
registration with, consent or approval of, notice to or action by, any Person
(including any Governmental Authority) in order to be effective and enforceable,
except as have been previously obtained and delivered to the Agent and the
Banks;
(ii) the Guaranty and this Guarantor Acknowledgment and Consent constitute
the legal, valid and binding obligations of the undersigned, enforceable against
it, in accordance with their respective terms, without defense, counterclaim or
offset;
(iii) all representations and warranties of the undersigned contained in
the Guaranty are true and correct; and
(iv) the undersigned is entering into this Guarantor Acknowledgment and
Consent on the basis of its own investigations, and for its own reasons, without
reliance upon the Agent, the Banks or any other Person.
Capitalized terms used herein have the meanings specified in the Amendment.
SAMSUNG ELECTRONICS CO., LTD
Dated: March 5, 1996 By: /s/Myoung Soo Hong
Title: Senior Vice President
Sales and Marketing
EXHIBIT 10.67
AST RESEARCH, INC.
PROFIT SHARING PLUS PLAN
Amended and Restated
July 1, 1993
TABLE OF CONTENTS
<TABLE>
<S> <S> <C>
Page
INTRODUCTION 1
SECTION 1 - DEFINITIONS 2
1.1 Account 2
1.2 Administrative Committee 2
1.3 Affiliated Companies 2
1.4 Beneficiary 2
1.5 Board of Directors 3
1.6 Code 3
1.7 Disabled 3
1.8 Effective Date 3
1.9 Eligible Compensation 3
1.10 Eligible Employee 3
1.11 Employee 4
1.12 Employer 4
1.13 Employer Discretionary Contribution Account 4
1.14 Employer Discretionary Contributions 4
1.15 Employer Matching Contributions 4
1.16 Employer Matching Contribution Account 4
1.17 Employment Commencement Date 4
1.18 Entry Date 5
1.19 ERISA 5
1.20 Fiscal Year 5
1.21 Highly Compensated Employee 5
1.22 Hour of Service 6
1.23 Normal Retirement Date 6
1.24 Participant 6
1.25 Period of Service 6
1.26 Period of Severance 7
1.27 Plan 7
1.28 Plan Administrator 7
1.29 Plan Year 7
1.30 Pre-tax Contribution Account 7
1.31 Pre-tax Contribution 7
1.32 Rollover Account 8
1.33 Rollover Contribution 8
1.34 Separation from Service 8
1.35 Severance From Service Date 8
1.36 Service 8
1.37 Temporarily Terminated 9
1.38 Trust or Trust Fund 9
1.39 Trustee 9
1.40 Valuation Date 9
1.41 Additional Definitions in Plan 9
SECTION 2 - PARTICIPATION AND SERVICE 10
2.1 Participation 10
2.2 Duration and Re-employment After Termination 10
2.3 Inactive Participant 10
2.4 Employees in a Bargaining Unit 10
2.5 Service 11
SECTION 3 - SALARY DEFERRAL 12
3.1 Salary Deferral Agreement 12
3.2 Participant Modification of Salary Deferral Agreement 12
3.3 Procedure for Making and Revoking Salary Deferral
Agreement 13
3.4 Non-Discrimination Test For Deferrals (ADP Test) 13
SECTION 4 - PLAN CONTRIBUTIONS 14
4.1 Participant and Employer Contributions 14
4.2 Non-Discrimination Test for Employer Matching
Contributions (ACP Test) 15
4.3 Multiple Use of Alternative Limitations Under ADP
and ACP Tests 16
4.4 Corrective Procedures to Satisfy Discrimination Tests 16
4.5 Return of Contributions 17
SECTION 5 - ACCOUNT ADMINISTRATION 20
5.1 Types of Accounts 20
5.2 Investment of Contributions 20
5.3 Valuation of the Trust Fund 21
5.4 Allocation of Trust Fund Earnings and Losses to
Participant Account 21
5.5 Account Statements 21
5.6 Disposition of Forfeitures 21
SECTION 6 - BENEFITS AND FORMS OF PAYMENT 22
6.1 Benefits Upon Termination 22
6.2 Time of Benefit Commencement 22
6.3 Form of Payment 23
6.4 Withdrawals Prior to Termination 23
6.5 Loans 25
6.6 Death Benefits 25
6.7 Direct Rollovers 26
SECTION 7 - VESTING 28
7.1 Vesting 28
7.2 Forfeitures 28
7.3 Vesting Upon Reemployment 29
SECTION 8 - LIMITATION ON CONTRIBUTIONS 30
8.1 Maximum Annual Contribution to the Plan 30
8.2 Additional Limitation Relating to Defined Benefit Plans 31
SECTION 9 - TOP HEAVY PROVISIONS 33
9.1 Scope 33
9.2 Top Heavy Status 33
9.3 Minimum Contribution 35
9.4 Limitation to Annual Additions in Top Heavy Plan 36
9.5 Vesting 36
SECTION 10 - ADMINISTRATION OF THE PLAN 37
10.1 Plan Administrator 37
10.2 Organization and Procedures 37
10.3 Duties and Authority of Administrative Committee 37
10.4 Expenses and Assistance 38
10.5 Bonding and Insurance 38
10.6 Commencement of Benefits 38
10.7 Appeal Procedure 39
10.8 Plan Administration - Miscellaneous 40
10.9 Domestic Relations Orders 42
10.10 Plan Qualification 43
10.11 Deductible Contribution 43
10.12 Rollovers 43
SECTION 11 - AMENDMENT AND TERMINATION 45
11.1 Amendment - General 45
11.2 Amendment - Consolidation or Merger 45
11.3 Termination of the Plan 45
11.4 Allocation of the Trust Fund on Termination of Plan 45
SECTION 12 - FUNDING 46
12.1 Contributions to the Trust Fund 46
12.2 Trust Fund for Exclusive Benefit of Participants 46
12.3 Trustee 46
12.4 Investment Manager 46
SECTION 13 - FIDUCIARIES 47
13.1 Limitation of Liability of the Employer and Others 47
13.2 Indemnification of Fiduciaries 47
13.3 Scope of Indemnification 47
INTRODUCTION
This Plan was originally adopted on June 29, 1983, by AST Research, Inc., a
California corporation, hereinafter sometimes called the "Company". The
Company desires to encourage loyalty, efficiency, continuity of service and
productivity of its Employees. In order to accomplish these purposes, the
Company established this Plan to provide incentives for its Employees and
their Beneficiaries and to assist them in building financial security.
The Plan is hereby amended and restated in its entirety to be generally
effective July 1, 1989, in order to incorporate several amendments and to comply
with the requirements of the Tax Reform Act of 1986, the Omnibus Budget
Reconciliation Act of 1986, the Omnibus Budget Reconciliation Act of 1987, the
Technical and Miscellaneous Revenue Act of 1988, and the Omnibus Budget
Reconciliation Act of 1989, legislative tax changes occurring during 1992/1993
and the Omnibus Budget Reconciliation Act of 1993. Certain provisions of this
restated Plan have effective dates of July 1, 1987.
DEFINITIONS
The following terms when used herein, shall have the following meaning,
unless a different meaning is plainly required by the context. Capitalized
terms are used throughout the Plan text for terms defined by this and other
sections.
.0 Account
"Account" means a Participant's Pre-tax Contribution Account (which
includes a Participant's basic and voluntary contributions from the prior
plan), Employer Matching Contribution Account, Employer Discretionary
Contribution Account and Rollover Contribution Account.
.1 Administrative Committee
"Administrative Committee" means the Committee as from time to time
constituted and appointed by the Employer to administer the Plan.
.2 Affiliated Companies
"Affiliated Companies" means
( ) the Employer,
(a) any other corporation which is a member of a controlled group of
corporations which includes the Employer (as defined in Section 414(b)
of the Code),
(b) any other trade or business under common control with the
Employer (as defined in Section 414(c) of the Code), or
(c) an affiliated service group which includes the Employer (as
defined in Section 414(m) of the Code).
For purposes of the limitation on benefits in Section 8, the
determination of whether a corporation is an Affiliated Company will be
made by modifying Sections 414(b) and (c) of the Code as specified in
Section 415(h).
.3 Beneficiary
"Beneficiary" means the person or persons designated to be the
Beneficiary by the Participant in writing to the Administrative
Committee. In the event a married Participant designates someone other
than his or her spouse as Beneficiary, such initial designation or
subsequent change shall be invalid unless the spouse has consented on a
form provided by the Administrative Committee, and such consent has
been notarized or witnessed by a Plan representative. If a Participant
fails to designate a Beneficiary or if no properly designated
Beneficiary survives the Participant, benefits payable under the Plan
as a result of the death of the Participant shall be made payable to
the Participant's estate.
.4 Board of Directors
"Board of Directors" shall mean the Board of Directors of AST
Research, Inc.
.5 Code
"Code" means the Internal Revenue Code of 1986, as amended.
.6 Disabled
"Disabled" means a physical or mental condition of an Employee which
results from a bodily injury or disease or mental disease or mental
disorder which renders him or her unable or incapable of engaging in
any substantial gainful activity which impairment can be expected to
result in death or be of a long continued and indefinite duration. The
determination of a "Disabled" Employee shall be made by the
Administrative Committee based upon medical authority.
.7 Effective Date
"Effective Date" means July 1, 1989 as amended and restated. This
Plan was originally effective June 29, 1983.
.8 Eligible Compensation
Beginning on July 1, 1994, "Eligible Compensation," for any Plan Year
for purposes of determining the Pre-tax Contributions and Employer Matching
Contributions means base pay including Participant Pre-tax Contributions to
this Plan and Employee elective contributions to a cafeteria plan under
Code Section 125, plus overtime, shift premium, and salary continuation,
but excluding reimbursements or other expense allowances, fringe
benefits (cash or non-cash), commissions, severance pay and bonuses. In
no event shall Eligible Compensation include any compensation paid for
services prior to the date the Employee becomes a Participant or after
his or her Severance from Service Date. Prior to July 1, 1994,
"Eligible Compensation" means a Participant's base pay paid by the
Employer and excludes overtime and any bonuses or commissions.
Notwithstanding the foregoing, Eligible Compensation in excess of
$200,000 shall be disregarded. This $200,000 limit shall be automatically
adjusted to the maximum permissible dollar limitation permitted by the
Commissioner of the Internal Revenue Service under IRC Code Section
401(a)(17). Effective for Plan Years beginning on or after December,
1993, Eligible Compensation shall be limited to $150,000. The $150,000
limit shall be automatically adjusted to the maximum permissible dollar
amount. In determining Eligible Compensation of an Employee for
purposes of this limitation, earnings
of the spouse and any lineal descendants under age 19 shall be
attributed to the Employee in accordance with Section 414(q)(6) of the
Code.
.9 Eligible Employee
"Eligible Employee" means any Employee who meets the eligibility
requirement of Section 2.1 and this section. "Eligible Employee" excludes
any Employee who is a leased employee, piece work subcontractor, or covered
under a collective bargaining agreement where retirement benefits were the
subject of good faith bargaining which does not provide for retirement
benefits under this Plan, or an Employee not on United States payroll.
.10 Employee
"Employee" means any person who is employed by the Employer as a
common law Employee and any leased employee within the meaning of Code
Section 414(n)(2); provided, however, if leased employees constitute
twenty percent or less of the Employer's non-highly compensated work
force, the term "Employee" shall not include a leased employee who is
covered by a plan maintained by the leasing organization which meets
the requirements of Code Section 414(n)(5).
.11 Employer
"Employer" means AST Research, Inc. or any Affiliated Company, which
by resolution of the Board of Directors and with approval of the Affiliated
Company has adopted this Plan as its own.
.12 Employer Discretionary Contribution Account
"Employer Discretionary Contribution Account" means an account
established and maintained by the Employer to receive a Participant's
share of Employer Discretionary Contributions to the Plan.
.13 Employer Discretionary Contributions
"Employer Discretionary Contributions" means the contribution made by
the Employer to the Trust pursuant to Section 4.1(c).
.14 Employer Matching Contributions
"Employer Matching Contributions" means the contributions made by the
Employer to the Trust pursuant to Section 4.1(b).
.15 Employer Matching Contribution Account
"Employer Matching Contribution Account" means an account established
and maintained by the Trustee to receive a Participant's share of Employer
Matching Contributions to the Plan.
.16 Employment Commencement Date
"Employment Commencement Date" means the latest of:
( ) the Employee's most recent date of employment (the day on
which he or she is first credited with an Hour of Service) with the
Employer; or
(a) the date on which the Employee is first credited with an Hour of
Service for the Employer during the current period of employment; or
(b) the Employee's re-employment date if he or she incurs a
Break-in-Service and is treated as a new Employee Pursuant to Section
2.2.
In addition to the above, the Administrative Committee in its
discretion may grant Service credit to any group of persons who
become Employees as a result of the acquisition of any asset,
corporation, or other trade or business, for so much of their
service with a previous employer as the Administrative Committee
may specify.
For Employees who were prior employees of the Tandy Electronics
and GRiD Systems Divisions of Tandy Corporation as of the acquisition
date, "Employment Commencement Date" shall be the later of the
acquisition date or July 1, 1993.
.17 Entry Date
"Entry Date" means the first day of the month following an Employee
meeting the eligibility requirements of Section 2.1.
.18 ERISA
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and including all regulations promulgated pursuant thereto.
.19 Fiscal Year
"Fiscal Year" means the 52/53 week period ending on the Saturday
closest to June 30.
.20 Highly Compensated Employee
"Highly Compensated Employee" means an Employee who, during the Plan
Year or the twelve-month period preceding the Plan Year, is included in
one of the following categories within the meaning of Section 414(q) of
the Code and regulations thereunder:
(a) an Employee who was at any time a 5% owner of the Employer;
(b) an Employee who received aggregate compensation from all the
Affiliated Companies in excess of the dollar limitation under Section
414(q)(1)(B) of the Code (as indexed);
(c) an Employee who received aggregate compensation from all the
Affiliated Companies in excess of the dollar limitation contained
in Section 414(q)(1)(C) of the Code (as indexed) and was in the
"top paid group" as defined in Section 414(q)(4) of the Code; or
( ) an officer of an Employer whose annual compensation exceeds
50% of the dollar limitation under Section 415(b)(1)(A) of the Code
(as indexed).
An Employee described in subparagraphs (b) through (d) above for the
Plan Year in question, who is not one of the 100 highest paid Employees in
the current Plan Year, will not be considered a Highly Compensated
Employee for the current year unless he or she was a Highly Compensated
Employee in the preceding Plan Year.
No more than 50 Employees shall be considered officers or if less, no
more than the greater of (i) 3 or (ii) 10% of all Employees shall be
considered officers. If all officers earn less than the Eligible
Compensation threshold in subparagraph (d) above, then the highest paid
officer shall be considered highly compensated.
A former Employee shall be considered a Highly Compensated Employee if
he or she was a Highly Compensated Employee when he or she separated from
service or at any time after attaining age 55.
Effective July 1, 1989, the Employer may elect to use the "Calendar
Year calculation election" as permitted under IRS Temporary Regulation
Section 1.414(q)-1T Q&A14(3)(b).
The definition of "compensation" for purposes of this Section 1.21 is
Section 415 wages paid for services rendered including overtime,
commissions, bonuses and Employee Pre-tax Contributions to this Plan or to
a cafeteria plan described in Code Section 125.
.21 Hour of Service
"Hour of Service" means each hour for which an Employee is paid or
entitled to payment by for the performance of duties for the Employer or
any Affiliated Company.
.22 Normal Retirement Date
"Normal Retirement Date" means the day the Participant reaches age 55
and is credited with five years of Service.
.23 Participant
"Participant" means any Eligible Employee who qualifies for
participation pursuant to Section 2.1. A non-vested Participant shall
cease to be a Participant on the date he or she terminates employment.
A vested Participant shall cease to be a Participant when his or her
benefit payments are completed.
.24 Period of Service
"Period of Service" means the period of time commencing with the
Employment Commencement Date and ending on the Severance From Service
Date. Non-successive periods are aggregated to determine the Employee's
total Period of Service. For vesting and participation purposes, an
Employee's Period of Service shall also include the following:
( ) Periods not in Service due to Temporary Termination; and
(a) Periods of Service required by Section 414(a)(1) of the Code
or under Treasury Regulations issued pursuant to Section 414(a)(2) of
the Code, and Service with Affiliated Companies. Where the
Employer maintains the plan or predecessor employer, service for
such predecessor employer shall be treated as service for the
Employer, as required by the Code.
In addition to the above, the Administrative Committee in its
discretion may grant to any group of persons who become Employees as a
result of the acquisition of any asset, corporation, or other trade or
business, for so much of their service with a previous employer as the
Administrative Committee may specify. For Employees who were prior
employees of the Tandy Electronics and GRiD System Divisions of Tandy
Corporation as of the acquisition date, "Employment Commencement Date"
shall be the later of the acquisition date or July 1, 1993.
.25 Period of Severance
"Period of Severance" means the period of time commencing at the
Severance From Service Date and ending on the date the Employee again
performs an Hour of Service for the Employer. However, such period
shall commence one year later if a male or female Employee is absent due
to pregnancy, birth or adoption of a child, or caring for a child
immediately following birth or adoption. A one-year Period of Severance
means a 12-consecutive month period beginning on the Severance from
Service date and ending on the first anniversary of such date, provided
that the Employee does not perform an Hour of Service for an Employer.
.26 Plan
"Plan" means the AST Research, Inc. Profit Sharing Plus Plan either in
its previous or present form or as amended from time to time.
.27 Plan Administrator
"Plan Administrator" means the person or entity designated in Section
10 to administer the Plan.
.28 Plan Year
"Plan Year" means the twelve month period commencing each July 1, and
ending each June 30, from and after the Effective Date. However, for the
period beginning June 27, 1992 and ending June 26, 1993, Plan Year means
the 52/53 week period ending on that Saturday, June 26, 1993.
.29 Pre-tax Contribution Account
"Pre-tax Contribution Account" means an account established and
maintained by the Trustee to receive a Participant's pre-tax
contributions to the Plan.
.30 Pre-tax Contribution
"Pre-tax Contribution" means the amount a Participant elects to
contribute pursuant to Section 3.1.
.31 Rollover Account
"Rollover Account" means an account established and maintained by the
Trustee to hold a Participant's rollover contribution to the Plan.
.32 Rollover Contribution
"Rollover Contribution" means the amount a Participant elects to
transfer to this Plan from another qualified plan pursuant to the terms set
forth in Section 10.12 herein.
.33 Separation from Service
"Separation from Service" shall mean any termination of the employment
relationship between an Employee and the Employer or an Affiliated Company,
and shall be deemed to occur upon the earlier of:
(1) the date upon which the Employee quits, is discharged, retires,
or dies; or
(2) the first anniversary of the first day of a period in which
the employee is (and remains) absent from the service of the employer
or an Affiliated Company for any reason (such as vacation, sickness,
layoff, or leave of absence granted by the Employer or an Affiliate
Company) not enumerated in paragraph (1) above.
An Employee who transfers to a nonparticipating Affiliated Company
shall not be treated as having a Separation from Service. An employee
who is on leave of absence from work with the Employer or an Affiliated
Company in order to serve in the Armed Forces of the United States shall
not have a Separation from Service unless he fails to report for work at
the end of such leave and prior to expiration of the period in which he
has reemployment rights under law. The absence of any employee who
fails to return to work within the allocated time shall be subject to
the provisions of paragraph (2) above.
.34 Severance From Service Date
"Severance From Service Date" means the earlier of the date on which
an Employee quits, retires, is discharged or dies, or the first
anniversary of absence from work for any other reason.
.35 Service
"Service" with the Employer means periods for which an Employee is
paid or entitled to payment for the performance of duties for the
Employer as set forth in Section 2.4.
The Administrative Committee shall also have the discretion to grant
Service credit to any group of persons who become Employees as a result
of the acquisition of any asset, corporation or other trade or business,
for so much of their service with a previous Employer as the
Administrative Committee may specify.
For Employees who were prior employees of the Tandy Electronics and
GRiD Systems Divisions of Tandy Corporation as of the acquisition date,
"Employment Commencement Date" shall be the later of the acquisition
date or July 1, 1993.
.36 Temporarily Terminated
Termination is deemed "Temporary" if the Employee is rehired and in
Service within one year of the initial date of absence from work.
.37 Trust or Trust Fund
"Trust or Trust Fund" means the trust fund into which shall be paid
all contributions and from which all benefits shall be paid under this
Plan. The Trust Fund includes the Aggressive Stock Fund, the Balanced
Fund, the Guaranteed Contract Fund and any other funds as may be
established under the Plan.
.38 Trustee
"Trustee" means the trustee or trustees who receive, hold, invest, and
disburse the assets of the Trust in accordance with the terms and
provisions set forth in a trust agreement.
.39 Valuation Date
"Valuation Date" means each day the New York Stock Exchange is open.
.40 Additional Definitions in Plan
The following terms are defined in the following section of the Plan.
Section
ACP Test 4.2
ADP Test 3.4
Aggregate Account 9.2 (e)
Aggregation Group 9.2 (h)
Annual Additions 8.1 (b)
Determination Date 9.2 (c)
Domestic Relations Orders
10.9
Key Employee 9.2 (g)
Lump Sum 6.3 (c)
1 - PARTICIPATION AND SERVICE
.0 Participation
An Eligible Employee, as defined in Section 1.10, shall become a
Participant in this Plan on the later of the Effective Date or the Entry
Date on or after the latest of:
( ) attaining age 18;
(a) a date that is six months (prior to January 1, 1991, twelve
months) after the date an Employee first performs an Hour of Service
with the Employer and is still an Eligible Employee on such date; and
(b) becoming an Eligible Employee.
.1 Duration and Re-employment After Termination
An Employee who becomes a Participant shall remain a Participant (or
an inactive Participant) until he or she has a Separation from Service (as
defined in Section 1.34), and shall continue to be a former Participant
thereafter as long as he or she is entitled to receive any benefits.
After a Period of Severance, upon the reemployment of a former
Participant as an Eligible Employee, he or she shall immediately become a
Participant.
An Employee who has a Period of Severance prior to becoming a
Participant or prior to becoming eligible to participate and is later
reemployed shall become eligible to participate and become a Participant
upon rehire as an Eligible Employee on the Entry Date on or after the date
such individual fulfills the requirements of Section 2.1.
.2 Inactive Participant
Any Participant who transfers to an employment status with the
Employer or an Affiliated Company in which he or she is no longer an
Eligible Employee shall become an inactive Participant. An inactive
Participant shall not be eligible to make Pre-tax contributions based on
pay earned after the date of his or her transfer during the period he or
she is an Employee. If a Participant becomes an inactive Participant, his
or her Account shall continue to be held under the Plan until he or she
becomes entitled to a distribution under Section 6.
.3 Employees in a Bargaining Unit
An Employee belonging to a collective bargaining unit, which has
entered an agreement with the Employer that does not provide for retirement
benefits under this Plan, shall not qualify for participation. If such an
Employee is a Participant when such an agreement is entered, the Employee
shall cease active participation on the effective date of the bargaining
agreement. If such an agreement provides for Plan participation, a covered
Employee may continue or resume participation.
.4 Service
Service is used to determine an Employee's eligibility and vesting
under the Plan. An Employee shall be credited with Service for the period
of time during which the employment relationship exists between the
Employee and the Company or an Affiliated Company, the length of which
shall be determined, in completed years and months, by counting the number
of anniversaries of the date on which credit for Service begins during the
following periods of time:
( ) Credit shall be given to an Employee for the period of time
beginning on the first day on which he or she first performs an
Hour of Service and ending on the date of such Employee's
Severance from Service Date.
(a) Credit shall be given to an Employee for each period beginning
upon the Severance from Service Date and ending upon the first day
on which he or she first performs an Hour of Service thereafter but
only if the Employee is reemployed and performs such Hour of Service
within 12 months of the date of such Severance from Service Date
and prior to incurring a five year Period of Severance. In the case
of an Employee who is absent from employment under circumstances such
as vacation, sickness, layoff or leave of absence granted by the
Employer or an Affiliated Company, and then quits, is discharged, or
Retires, the first day of such absence shall be considered the
Severance from Service Date for purposes of the preceding sentence.
(b) Credit shall be given to an Employee after the Severance from
Service Date for any period beginning on the day on which the
Employee first performs an Hour of Service after his rehire and
ending on the date the Employee has a Severance from Service Date
thereafter.
(c) Whenever the total number of years of Service of an Employee must
be ascertained under this Plan, all noncontinuous periods of Service
which are credited to such Employee under paragraphs (a), (b), and (c)
above, shall be aggregated. For purposes of aggregating such years of
Service, the Employer shall calculate an adjusted hire date upon
each rehire so that the Participant's entire period of Service can
be determined by reference thereto.
(d) Notwithstanding the foregoing provisions of this section, the
Administrative Committee in its discretion may grant Service credit to
any group of persons who become Employees as a result of the
acquisition of any asset, corporation, or other trade or business,
for so much of their service with a previous employer as the
Administrative Committee may specify. For purposes of eligibility
to participate, employees of the Tandy Electronics and GRiD Systems
Divisions of Tandy Corporation shall receive credit for all prior
service with Tandy Corporation. For purposes of vesting, however,
such employees shall only receive credit for service from the later
of the date of acquisition or July 1, 1993.
2 -SALARY DEFERRAL
.0 Salary Deferral Agreement
( ) A Participant may enter into a salary deferral agreement with the
Employer. Such agreement shall authorize the Employer to make payroll
deductions equal to a whole percentage of Eligible Compensation from
1% up to and including 12%, designated as Pre-tax Contributions.
The salary deferral agreement shall be effective on the first day
of the payroll period coinciding with or following the Entry Date, which
coincides with or next follows completion of the agreement, and shall remain in
effect until such agreement is superseded by a subsequent agreement or revoked.
Deferrals shall be deducted from a Participant's Eligible Compensation each
payroll period (every two weeks), except for those periods in which the deferral
amount exceeds the amount remaining after other payroll deductions. In the
event a deduction is not taken in a payroll period, the Administrative
Committee, with sole discretion, shall determine whether there will be a make-up
deduction in a subsequent payroll period.
(a) Maximum Dollar Contribution
Notwithstanding the foregoing, Pre-tax Contributions for any
calendar year shall not exceed the maximum dollar limitation on elective
deferrals under Section 402(g) of the Code as indexed.
.1 Participant Modification of Salary Deferral Agreement
The payroll deduction percentages designated in the Participant's
salary deferral agreement shall continue in effect regardless of changes in
Eligible Compensation until the Participant elects in writing to change the
percentage. A Participant may suspend and/or stop making deferrals at any time
by advising the Administrative Committee in writing. Such written notice shall
become effective on the date specified on the notice which could be up to 30
days after the notice has been received by the Administrative Committee. A
Participant's salary deferral agreement shall automatically be canceled upon a
Participant's Severance from Service Date.
A Participant may increase or decrease salary deferrals each calendar
quarter or during an announced enrollment period by completing a new salary
deferral agreement which must be filed with the Administrative Committee at
least 30 days prior to the calendar quarter for which the Participant desires
the change to become effective. Any such new agreement shall become effective
on the first day of such calendar quarter. Completion of a salary deferral
agreement shall automatically revoke all prior salary deferral agreements
entered into by a Participant.
For a voluntary suspension of contributions, a Participant may resume
contributions effective on the first day of any calendar quarter by completing a
new salary deferral agreement and submitting it to the Administrative Committee
at least thirty (30) days before the effective date. If suspension was imposed
as a result of a hardship distribution, then a Participant may resume
contributions on the first calendar quarter after the imposed suspension by
completing a new salary deferral agreement and submitting it to the
Administrative Committee at least thirty (30) days before the effective date.
.2 Procedure for Making and Revoking Salary Deferral Agreement
The salary deferral agreement and any modification or revocation
thereof shall be made by the Participant on such form, within such time and in
accordance with such rules and procedures as prescribed by the Administrative
Committee.
.3 Non-Discrimination Test For Deferrals (ADP Test)
For each Plan Year beginning on or after July 1, 1987, the Plan must
meet one of the actual deferral percentage (hereinafter "ADP") tests described
below to satisfy the non-discrimination requirement. For purposes of this ADP
test, Eligible Employees who do not qualify for participation pursuant to
Section 2 shall not be considered.
( ) The ADP for the group of Eligible Employees who are Highly Compensated
Employees does not exceed the ADP for all other Eligible Employees multiplied by
1.25; or
(a) The ADP for the group of Eligible Employees who are Highly Compensated
Employees (i) is not more than two percentage points higher than the ADP for all
other Eligible Employees and (ii) does not exceed the ADP for all other Eligible
Employees multiplied by 2.
The ADP for a specified group of Eligible Employees shall be the
average of the ratios (calculated separately for each Employee in the group to
the nearest one-hundredth of one percent of the Employee's compensation as
defined in Code Section 415(c)(3)) of (i) Participant Pre-tax Contributions to
(ii) the Employee's compensation, determined in accordance with Code Section
401(k) and regulations pursuant thereto.
In applying the foregoing tests, compensation as defined in Code
Section 415(c)(3) paid to and pre-tax contributions on behalf of eligible family
members (as defined in Code Section 414(q)(6)(B)) of a Highly Compensated
Employee who is a 5% owner or in the group consisting of the ten Highly
Compensated Employees paid the greatest compensation shall be combined and deter
mined as one and attributed to the Highly Compensated Employee, and such family
member shall not be considered a separate employee.
If, for any Plan Year, a Highly Compensated Employee is also eligible
to participate in another cash or deferred arrangement maintained by any
Affiliated Company, then the ADP of such Highly Compensated Employee shall be
determined by treating all the cash or deferred arrangements in which he or she
is eligible to participate and this Plan as one arrangement.
3 -PLAN CONTRIBUTIONS
.0 Participant and Employer Contributions
( ) Participant Payroll Deduction Contributions
The Employer shall make a Participant contribution on behalf of
each active Participant in an amount equal to 100% of the salary deferral amount
pursuant to the Participant's salary deferral agreement for each payroll period.
Participant contributions shall be credited to the Participant's Pre-tax
Contribution Account.
The Employer shall pay at least monthly the Participant
contribution for each payroll period in cash to the Trustee.
(a) Employer Matching Contributions
The Employer may make an Employer Matching Contribution in an
amount equal to 100% up to the first 2% of Eligible Compensation deferred and
50% of the amount from 2% up to 6% of Eligible Compensation deferred as a
Participant's Pre-tax Contributions not to exceed during the Plan Year the limit
contained in Section 3.1(b). Only actual Eligible Compensation earned while an
Employee was eligible to Participate in the Plan and actively participating
shall be used for determining a Participant's Employer Matching Contribution.
A Participant shall receive an Employer Matching Contribution on
contributions made during the calendar month in the event the Plan Administrator
suspends Participant Pre-tax Contributions to avoid failing IRS
nondiscrimination tests or such contributions are suspended voluntarily by the
Employee. The Employer Matching Contribution shall be determined and credited
to the Participant's Employer Matching Contribution Account monthly.
The Employer shall pay the Employer Matching Contributions for
each month to the Trustee within a reasonable time as set forth in subsection
(d) below.
(b) Employer Discretionary Contributions
The Employer may also make an Employer Discretionary Contribution
for any Plan Year. An Employer Discretionary Contribution may be made on behalf
of each eligible Participant who is employed on the earlier of the last day of
the Plan Year or the last day of the Employer's Fiscal Year, regardless of
whether such eligible Participant has been making Participant contributions to
the Plan.
In no event shall the Employer Discretionary Contribution be
allocated on any compensation for services prior to the date the Employee
becomes a Participant or after the date the Employee ceases to be a Participant.
Notwithstanding the foregoing, for purposes of this section, Eligible
Compensation in excess of $200,000 shall be disregarded. This $200,000 limit
shall be automatically adjusted to the maximum permissible dollar limitation
permitted by the Commissioner of the Internal Revenue Service. Effective for
the Plan Year beginning on or after December 1993, this limit is $150,000 as
adjusted.
Employer Discretionary Contributions are allocated on the basis
of the ratio each Participant's Eligible Compensation for the Plan Year bears to
the total Eligible Compensation for the Plan Year of all Participant's eligible
to receive a contribution. Only actual Eligible Compensation earned while an
Employee was eligible to participate in the Plan shall be used for allocation.
The Employer Discretionary Contribution shall be made regardless of whether a
Participant makes salary deferral contributions.
(c) Time of Contribution
The Employer shall pay the Employer Contributions for a Plan Year
to the Trustee within a reasonable time after such Plan Year but in no event
later than the due date for filing the Employer's federal income tax return plus
any extensions.
.1 Non-Discrimination Test for Employer Matching Contributions (ACP Test)
For each Plan Year beginning on or after July 1, 1987, the Plan must
meet one of the average contribution percentage (hereinafter "ACP") tests
described below to satisfy this non-discrimination requirement. For purposes of
this ACP test, Eligible Employees who do not qualify for Participation pursuant
to Section 2 shall not be considered.
( ) The ACP for the group of Eligible Employees who are Highly Compensated
Employees does not exceed the ACP for all other Eligible Employees multiplied by
1.25; or
(a) The ACP for the group of Eligible Employees who are Highly Compensated
Employees (i) is not more than two percentage points higher than the ACP for all
other Eligible Employees and (ii) does not exceed the ACP for all other Eligible
Employees multiplied by 2.
The ACP for a specified group of Eligible Employees shall be the
average of the ratios (calculated separately for each Employee in the group to
the nearest one-hundredth of one percent of the Employee's compensation as
defined in Code Section 415(c)(3)) of Employer Matching Contributions on behalf
of each such Employee to (ii) the Employee's Eligible Compensation (as defined
in Code Section 415(c)(3)) determined in accordance with Code Section 401(m) and
regulations pursuant thereto.
In applying the foregoing tests, Eligible Compensation paid to and
Employer Matching Contributions on behalf of family members (as defined in Code
Section 414(q)(6)(B) of a Highly Compensated Employee who is a 5% owner or in
the group consisting of the ten Highly Compensated Employees paid the greatest
Eligible Compensation shall be attributed to the Highly Compensated Employee,
and such family member shall not be considered a separate Employee.
If, for any Plan Year, a Highly Compensated Employee is also eligible
to participate in another plan offering employer matching contributions
maintained by any Affiliated Company, the ACP of such Highly Compensated
Employee shall be determined by aggregating all such contributions.
.2 Multiple Use of Alternative Limitations Under ADP and ACP Tests
If the sum of the ADP and ACP for Highly Compensated Employees
determined under Section 3.4 and Section 4.2, respectively, after correcting any
excess deferrals or contributions pursuant to Section 4.5, exceeds the Aggregate
Limit defined below, then Highly Compensated Employee contributions shall be
further limited pursuant to this section. This multiple use limitation shall be
applied in accordance with the provisions of Proposed Treas. Reg. Sections
1.401(m)-1 and 1.401(m)-2.
The Aggregate Limit means the sum of:
( ) 1.25 multiplied by the greater of (i) the ACP, or (ii) the ADP for the
group of all Eligible Employees who are not Highly Compensated Employees, and
(a) the lessor of:
( ) two plus the lesser of (i) the ACP, or (ii) the ADP for the group
of all Eligible Employees who are not Highly Compensated Employees; or
(i) two multiplied by the lesser of (i) the ACP, or (ii) the ADP for
the group of all Eligible Employees who are not Highly Compensated Employees; or
(b) the sum of:
( ) 1.25 multiplied by the lesser of (i) the ACP, or (ii) the ADP for
the group of all Eligible Employees who are not Highly Compensated Employees;
and
(c) the lesser of:
( ) two plus the greater of (i) the ACP, or (ii) the ADP for the
group of all Eligible Employees who are not Highly Compensated Employees; or
(i) two multiplied by the greater of (i) the ACP, or (ii) the ADP for
the group of all Eligible Employees who are not Highly Compensated Employees.
In the event contributions exceed this Aggregate Limit, unmatched
Participant Pre-tax Contributions and then matched pre-tax contributions shall
be considered excess contributions pursuant to the applicable subparagraph of
Section 4.5 and shall be returned to Highly Compensated Employees pursuant
thereto.
.3 Corrective Procedures to Satisfy Discrimination Tests
If at any time during a Plan Year the Administrative Committee
determines on a projected basis that it is necessary to reduce the Participant
Pre-tax Contributions or Employer Matching Contributions to satisfy the dollar
limit on annual deferrals, the ADP non-discrimination test, the ACP non-
discrimination test, or the multiple use of alternative limitations test, it
shall have the authority to do so in such amounts and for such periods of time
as it shall deem necessary under the circumstances.
The Administrative Committee may, in its sole discretion, elect to
aggregate Employer Matching Contributions and/or Employer Discretionary
Contributions with Participant Pre-tax Contributions to the extent necessary to
satisfy the ADP discrimination test provided such aggregation does not itself
result in discrimination. Notwithstanding any Plan provisions to the contrary,
any Employer contributions so aggregated shall be 100% vested, may not be
withdrawn upon hardship, and the ACP test must be passed without taking such
Employer contributions into account.
The Administrative Committee may also, in its sole discretion, elect
to aggregate Employer Discretionary Contributions with Employer Matching
Contributions to the extent necessary to satisfy the ACP discrimination test,
provided such aggregation does not itself result in discrimination.
.4 Return of Contributions
( ) Nondeductibility or Mistake of Fact
The amount of contribution made to the Plan by the Employer for
any Plan Year shall be conditioned upon its deductibility. If nondeductible, or
if the contribution is in excess of the amount required under Section 4.1 and
such excess payment is due to mistake of fact, the Employer shall recover such
nondeductible or excess contribution within one year after the date the
contribution is made to the Trustee. The return of a contribution shall be
permitted hereunder only if the amount so returned (i) is the excess of the
amount actually contributed over the amount which would have otherwise been
deductible or contributed, (ii) does not include the earnings attributable to
such contribution, and (iii) is reduced by any losses attributable to such
contribution.
(a) Contributions in Excess of Dollar Limitation
An excess deferral exists if pre-tax contributions under this
Plan together with any other plans subject to the deferral limit in Code Section
402(g) (as indexed) exceed such dollar limitation for any calendar year
beginning on or after January 1, 1987.
In the event an excess deferral exists in plans maintained by the
Employer, and any other employer, and a Participant submits a written request
for a return of excess deferrals by March 1, following the calendar year in
which an excess deferral occurs, the Administrative Committee shall distribute
such excess deferral, adjusted for investment gains or losses, less amounts
previously returned pursuant to subparagraph (c), no later than April 15,
following the calendar year in which the excess deferral occurred. Such written
request shall contain information which the Administrative Committee may
require.
(b) Adjustment for Income
An excess deferral distributed to a Participant shall be adjusted
for income or loss by calculating the total income or loss allocable to the
Participant's Pre-Tax Contribution Account for the calendar year multiplied by a
fraction, the numerator of which is such Participant's excess deferrals for the
Plan Year and the denominator is the balance in the Participant's Pre-tax
Contributions Account without regard to any income or loss occurring during such
calendar year or by any other such reasonable formula as determined by the
Administrative Committee.
The Administrative Committee may, in its discretion and
consistent for all affected Participants, pay income calculated at the rate of
ten percent of the amount determined under (i) multiplied by the number of whole
calendar months between the end of the year and the date of distribution,
counting the month of distribution if distribution occurs after the 15th of such
month.
(c) ADP Excess Contribution
An ADP excess contribution exists if contributions under this
Plan on behalf of Highly Compensated Employees fail to meet the ADP test
described in Section 3.4. Within twelve months after the end of the Plan Year
for which there is an excess, contributions which exceed the ADP limitation
adjusted for earnings and losses (using the method described in Section 4.5(b)
above) less amounts previously returned pursuant to subparagraph (b), shall be
distributed to Highly Compensated Employees by reducing each Highly Compensated
Employee's deferral in order of deferral percentages beginning with the highest.
Pre-tax Contributions distributed under this provision shall not be eligible for
Employer Matching Contributions.
(d) ACP Excess Contribution
An ACP excess contribution exists if contributions under this
Plan on behalf of Highly Compensated Employees fail to meet the ACP test
described in Section 4.2. The amount of the ACP excess contribution to be
either forfeited or distributed under (i) or (ii) below for each Participant
whose Eligible Compensation and Employer Matching Contributions are aggregated
with family members shall be determined in accordance with Treasury Regulation
Section 1.401(m)-1(e)(2)(iii). "Family member" means a Participant's spouse and
linear ascendants or descendants and the spouses of such ascendants or
descendants. Within twelve months after the end of the Plan Year for which
there is an excess, Employer Matching Contributions of Highly Compensated
Employees which exceed the ACP limitation shall be reduced, taking the highest
contribution percentage first, as follows:
( ) Any amount reduced from Employer Matching Contributions shall be
forfeited, with related earnings, to the extent of any unvested balance in the
Employer Matching Contribution Account of the Employee to whom it applies. The
unvested balance shall be determined before the reduction. Amounts so forfeited
shall be administered in accordance with Section 5.6.
(i) Any amount reduced from Employer Matching Contributions not
forfeited under (i) above shall be distributed, with related earnings, to the
Employee to whom it applies.
(ii) For purposes of this Section 4.5(d), related earnings shall be
calculated using the method described in Section 4.5(b) above.
4 -ACCOUNT ADMINISTRATION
.0 Types of Accounts
All contributions shall be made to the Trust Fund which will have the
following types of accounts for each Participant:
( ) Pre-tax Contribution Account
(a) Employer Matching Contribution Account
(b) Employer Discretionary Contribution Account
(c) Rollover Contribution Account
.1 Investment of Contributions
The Trust Fund shall be divided into one or more investment subfunds.
Effective July 1, 1991, there shall be five subfunds: the GIC Managed Income
Portfolio (previously the GIC Open-End Portfolio), Fidelity Balanced Fund,
Fidelity Equity-Income Fund, Fidelity Magellan Fund, and Fidelity Growth Company
Fund. Effective August 1, 1995, the Administrative Committee shall, from time
to time, select a diversified group of investment subfunds for the investment of
the Trust Fund. The Administrative Committee shall furnish descriptions of the
subfunds to Participants which describe the features of the subfund. Any
subfund may hold for investment any assets permitted by the terms of the Trust
agreement, including without limitation, cash or other types of short-term
investments. Additional subfunds may be established by agreement between the
Administrative Committee and the Trustee.
Each Participant may direct investment of his or her Accounts among
the available investment subfunds subject to the rules of the Administrative
Committee and other provisions of this Plan. An investment request shall remain
effective with regard to all subsequent amounts credited to a Participant's
Account, until changed in accordance with the provisions of this section.
( ) When Participation Commences
A Participant may allocate initial contributions to his or her
Account among the investment subfunds, in 1% increments, by giving written
direction to the Administrative Committee. Contributions for which a
Participant does not make a valid direction will be allocated to a subfund
designated by the Administrative Committee that best protects the principal
from market fluctuations.
(a) Changing Future Contributions
A Participant may change his or her investment election with
respect to future contributions at any time by telephone access to Fidelity in
accordance with the procedures established by the Administrative Committee.
Future contributions must be allocated among the investment subfunds in 1% incre
ments.
(b) Changing Existing Contributions
A Participant may change his or her investment election with
respect to an existing Account at any time by telephone access to Fidelity in
accordance with the procedures established by the Administrative Committee.
Existing account balances may be changed among the various investment options in
1% increments so that the total value of the Participant's Accounts equals 100%.
.2 Valuation of the Trust Fund
The fair market value of the Trust Fund shall be determined as of each
Valuation Date and at any time specifically requested by the Plan Administrator
in its sole discretion. Any portion of the Trust Fund held under an insurance
contract in which asset values are only maintained on a book value basis, shall
have that portion of the Trust Fund valued at book value rather than market
value.
.3 Allocation of Trust Fund Earnings and Losses to Participant Accounts
As of each Valuation Date, any increase or decrease in the fair market
value (including interest, dividends, realized and unrealized gains and losses)
of any subfund shall be allocated among the Participant Accounts on the basis of
the Participant's balance compared to the balance for all Participants in the
particular subfund held in the Accounts as of that day.
.4 Account Statements
Each Participant shall be provided with a statement of his or her
Accounts under the Plan showing the Account values at least quarterly. If
within thirty (30) days after the statement is mailed the Participant makes no
objection to the statement, it shall become binding and conclusive on the
Participant and any Beneficiary.
.5 Disposition of Forfeitures
As of each Valuation Date, amounts forfeited during the Plan Year by
any Participant shall first be used to restore Employer Matching Contribution
Accounts and then Employer Discretionary Contribution Accounts of rehired
Participants to the extent required by Section 7, and then to reduce equally the
Employer Matching Contributions and then Employer Discretionary Contributions of
all Employers (regardless of which Employers employed Participants who incurred
the forfeitures) for the calendar quarter. If the amount of forfeitures
occurring in a calendar quarter exceeds the amount of Employer Matching and
Employer Discretionary Contributions for such calendar quarter, the excess (if
any) shall be held in a suspense account and allocated in lieu of Employer
Matching and Employer Discretionary Contributions in the succeeding calendar
quarter. No further Employer Matching and Employer Discretionary Contributions
shall be made until any balance in the suspense account is exhausted. If the
Plan is terminated while a balance exists, the balance shall be allocated to the
Employer Matching and Employer Discretionary Contribution Accounts of
Participants per capita to the extent of the maximum amount permitted under
Section 8.1.
5 -BENEFITS AND FORMS OF PAYMENT
.0 Benefits Upon Termination
A Participant shall be eligible to receive a distribution of his or
her Accounts, to the extent vested, upon termination of employment, death or
Disability.
Notwithstanding the foregoing, in the event a Participant again
becomes an Employee before benefits commence, he or she shall no longer be
eligible to receive a distribution.
.1 Time of Benefit Commencement
( ) Benefit Commencement
Benefits shall be paid as soon as practicable following a request
for benefit commencement and determination of the amount of payment under
Section 6.2(b). The precise timing of any distribution is subject to normal
processing delays and other administrative urgencies or special circumstances
affecting the distribution and cannot be guaranteed. No interest or investment
gains or losses will be allocated for the processing period with respect to an
amount that is distributed. Furthermore, unless the Participant otherwise
elects according to the terms of the Plan, payment of a Participant's benefit
must begin no later than the 60th day after the close of the Plan Year in which
occurs the latest of (1) the Participant's attaining age 65; (2) the 10th
anniversary of the year in which the Participant commenced participation in the
Plan; or (3) the Participant's Severance from Service Date. Participants and
Beneficiaries may request benefit commencement as described below.
( ) Participant
A Participant who is eligible for benefits may request
benefit commencement by written notice to the Administrative Committee.
Benefits may commence at any time following termination and on or before the
date the Participant attains or would have attained age 70-1/2. If such a
Participant fails to request benefit commencement, he or she shall be deemed to
have requested that benefits commence at Normal Retirement Date, but not later
than on the date the Participant attains or would have attained age 70-1/2.
(i) Beneficiary
A Beneficiary who is eligible for benefits shall
receive benefits within a reasonable time following the date of the
Participant's death unless the Beneficiary elects to postpone commencement of
benefits to the first day of any month on or before the Participant's Normal
Retirement Date determined as if he or she survived.
(ii) Age 70-1/2 Limitation
In no event shall benefits commence later than April 1,
following the calendar year in which the Participant attains age 70-1/2,
regardless of whether the Participant continues in Service after that date.
(a) Amount of Payment
The amount distributed shall be based on the Account balance
determined as of the later of: (1) the Valuation Date coinciding with or
following the date the Participant terminates employment, or (ii) any later
Valuation Date which next precedes the date benefits commence as the
Administrative Committee, in its sole discretion, shall determine.
(b) Small Benefits
Notwithstanding any election to commence benefits or lack
thereof, the Administrative Committee shall distribute a benefit which is
$3,500.00 or less, in a lump sum as soon as practicable following termination of
employment, death or Disability, without Participant or Beneficiary consent.
Normal tax withholding rules will be applied as required upon distribution.
(d) Outstanding Loans
If at the time of benefit commencement a Participant has as
outstanding loan balance, such balance shall be due and payable in full upon
Separation from Service. Any portion of the outstanding balance not paid in
full shall be deemed a distribution, regardless of whether the Account balance
is greater than $3,500.
.2 Form of Payment
Benefits shall be payable in the form of a lump sum cash payment. A
Lump Sum distribution shall be a single sum cash payment which represents the
Participant's entire interest in the Plan. Normal tax withholding rules will be
applied as required upon distribution.
.3 Withdrawals Prior to Termination
( ) General Withdrawals
A Participant who has attained age 59-1/2 may withdraw up to the
balance of his vested Participant Pre-tax Contribution and Rollover Contribution
Accounts (valued as of the next Valuation Date) as a single sum distribution by
submitting a written request to the Administrative committee.
(a) Hardship Withdrawal
A Participant may apply to the Administrative Committee for a
hardship withdrawal prior to termination of employment of his or her:
( ) Pre-tax Contributions Account balance as of the Valuation Date
closest to, but preceding July 1, 1989;
(i) Pre-tax Contributions after June 30, 1989, excluding earnings
thereon; and
(iii) Rollover Account balance.
A hardship distribution shall be deducted first from the category
of available amount described in (b)(ii) herein and then from the category of
available amounts described in (b)(i) herein. Any amount remaining in a
Participant's Pre-Tax Contribution Account after a hardship withdrawal shall be
distributed in accordance with the terms of the Plan.
Effective July 1, 1994, only one hardship withdrawal shall be
permitted during the Plan Year.
All hardship withdrawals are subject to Administrative Committee
approval. A hardship withdrawal shall only be approved if it is for a specific
type of expense and if it is necessary to satisfy such expense. Hardship
withdrawals are available only to pay for the following expenses:
(i) medical expenses in Code Section 213(d) incurred by the
Participant, or his or her spouse or dependents (as defined in Code Section
152);
(ii) purchase (excluding mortgage payments) of a principal
residence for the Participant;
(iii) tuition and related educational fees for the next
twelve months of post-secondary education for the Participant, his or her
spouse, children, or dependents; or
(iv) preventing eviction of the Participant from his or her
principal residence or foreclosure on the mortgage of the Participant's
principal residence.
A distribution shall be deemed to be necessary to satisfy an
expense described in (i) through (IV) above if both of the following
requirements are satisfied:
(i) the distribution is not in excess of the amount of such
expense; and
(ii) the Participant has obtained all distributions (other
than hardship distributions), and all nontaxable loans currently available under
all plans maintained by the Employer.
Participant pre-tax contributions to this or any other qualified
retirement plan or non-qualified deferred compensation plan maintained by the
Employer shall be suspended for six (6) months after a hardship withdrawal.
Following a 6-month suspension, the Participant may resume contributions pur
suant to Section 3.1. Effective for hardship withdrawals requested on or after
July 1, 1994, the suspension period shall be twelve (12) months after a hardship
withdrawal.
In addition, the Participant may not make a pre-tax contribution
to the Plan or any other plan maintained by the Employer for the Participant's
taxable year immediately following the taxable year of the hardship withdrawal,
in excess of pre-tax contributions allowable in Section 3.1 for the next taxable
year less the amount of such Participant's pre-tax contributions for the taxable
year of the hardship withdrawal.
Notwithstanding the foregoing, a Participant whose contributions
have been suspended for six (6) months [twelve (12) months effective July 1,
1994] due to a hardship withdrawal shall be deemed to be an Eligible Employee
for purposes of the ADP test in Section 3.4, ACP test in Section 4.2, and
multiple use test in Section 4.3.
.4 Loans
A Participant may apply to the Administrative Committee for a loan
from his or her vested Accounts prior to termination. All policies and
procedures concerning the granting of loans shall be governed by the AST
Research, Inc. Profit Sharing Plus Plan Loan Policy and Procedure Statement
(hereinafter, "Loan Policy and Procedure Statement"). The Loan Policy and
Procedure Statement is incorporated in full herein by this reference as though
set forth in full.
The Participant's vested nonforfeitable right to his or her Accounts
shall be determined without regard to any accumulated deductible employee
contributions as the term is defined in Code section 72(o). Loan amounts shall
be deducted from each vested Account pursuant to the terms of the Loan Policy
and Procedure Statement.
.5 Death Benefits
If a Participant dies prior to the commencement of benefits, the
Beneficiary shall receive a distribution of the Participant's Accounts at the
time and in the form described below.
( ) Benefit Commencement
Benefits for a non-spouse Beneficiary shall commence as soon as
practical following the Valuation Date coinciding with or next following the
Participant's death.
A spouse Beneficiary who is eligible for death benefits may
request benefit commencement by written notice to the Administrative Committee.
Benefits may commence at any time after the Participant's death and on or before
April 1, following the calendar year in which the Participant would have
attained age 70-1/2. Benefits shall be paid as soon as practicable following a
request for payment and in any event not later than one year after the
Participant's death.
If the spouse Beneficiary fails to request benefit commencement,
benefits shall commence on or immediately preceding April 1, following the
calendar year in which the Participant would have attained age 70-1/2 if he or
she had survived.
(a) Form of Payment
Death benefits for a Beneficiary shall be paid in the form of a
lump sum cash payment.
(b) Amount of Payment
The amount distributed shall be based on the Account balance
determined as of the later of: (i) the Valuation Date coinciding with or next
following the date of the Participant's death, or (ii) any later Valuation Date
which next precedes the date benefits commence.
(c) Small Benefits
Notwithstanding any request for benefit commencement, or lack
thereof, the Administrative Committee shall distribute any benefit which is
$3,500.00 or less pursuant to Section 6.3(c).
(e) Outstanding Loans
If a Participant dies prior to the commencement of benefits with
an outstanding loan balance, such balance shall be due and payable in full from
the Account payable to the Beneficiary. Any portion of the outstanding balance
not paid in full shall be deemed a distribution, regardless of whether the
Account balance is greater than $3,500.
Direct Rollovers
This Section applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the plan to the contrary that would
otherwise limit a Distributee's election under this Section, a Distributee may
elect, at the time and in the manner prescribed by the Plan Administrator, to
have any portion of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan specified by the Distributee in a direct rollover.
( ) Definitions
(i) Eligible Rollover Distribution. An Eligible
Rollover Distribution is any distribution of all or any portion
of the balance to the credit of the Distributee, except that an
Eligible Rollover Distribution does not include: any
distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the Distributee or the joint
lives (or joint life expectancies) of the Distributee and the
Distributee's designated beneficiary, or for a specified period
of ten years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and
the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(ii) Eligible Retirement Plan. An Eligible Retirement Plan
is an individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an Eligible Rollover
Distribution to the surviving spouse, an Eligible Retirement Plan is an
individual retirement account or individual retirement annuity.
(iii) Distributee. A Distributee includes an employee
or former employee. In addition, the employee's or former employee's surviving
spouse and the employee's or former employee's spouse or former spouse who is
the alternate payee under a qualified domestic relations order, as defined in
section 414(p) of the Code, are Distributees with regard to the interest of the
spouse or former spouse.
(iv) Direct Rollovers. A Direct Rollover is a payment by
the plan to the eligible retirement plan specified by the Distributee.
6 -VESTING
.0 Vesting
( ) Participant Pre-tax Contribution Account and Rollover Contribution
Account
Each Participant shall have a 100% vested, nonforfeitable right
to his or her Pre-tax Contribution Account and Rollover Contribution Account.
(a) Employer Matching Contribution Account and Employer Discretionary
Contribution Account
Each Participant shall have a vested, nonforfeitable right to his
or her Employer Matching Contribution Account and Employer Discretionary
Contribution Account based on his or her Service multiplied by the appropriate
vesting percentage in accordance with the following table:
Completed Periods of Service Vesting Percentage
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%
In addition, each Participant shall have a 100% vested,
nonforfeitable right to his or her Employer Matching Contribution Account and
Employer Discretionary Contribution Account upon reaching age 65, death, or
Disability, provided he or she is an Employee on such date.
For purposes of vesting, service with the Tandy Electronics and
GRiD Systems Divisions of Tandy Corporation prior to an Employee's Employment
Commencement Date shall not be counted.
.1 Forfeitures
In the event a Participant terminates prior to becoming 100% vested in
his or her Employer Matching Contribution Account and Employer Discretionary
Contribution Account, the non-vested portion shall be forfeited at the earlier
of the following dates:
( ) the date the Participant receives a distribution of his or her vested
portion of the Account (and for this purpose a totally non-vested Participant
shall be deemed to receive a zero distribution upon termination of employment)
and
(a) the occurrence of a five year Period of Severance.
The amount forfeited shall equal the non-vested balance. Forfeitures
shall first be used to restore Account balances as provided in Section 5.6.
.2 Vesting Upon Reemployment
( ) Periods of Service
If a nonvested Participant incurs a five year Period of
Severance, his or her Periods of Service preceding the Period of Severance,
shall be disregarded, and any amounts contributed to the Employer Matching
Contribution Account and Employer Discretionary Contribution Account prior to
the Periods of Severance shall be forfeited. If a vested Participant incurs a
Period of Severance of any length, all Periods of Service before and after the
Period of Severance shall be aggregated for vesting purposes.
(a) Repayment
If a Participant forfeited all or a portion of his or her
Employer Matching Contribution Account and/or Employer Discretionary
Contribution Account upon termination and he or she returns to Service prior to
incurring a five year Period of Severance, effective July 1, 1994, the
Participant may elect to repay the amount previously distributed from his or her
Employer Matching Contribution Account and/or Employer Discretionary
Contribution Account. Such Participant may elect to repay his or her prior
distribution before five years after the date of reemployment. The forfeited
amount shall be restored upon such repayment pursuant to Section 5.6. Amounts
repaid shall be 100% vested and shall be invested in the same manner as future
contributions. The Participant's Vesting Percentage will also apply to the
amounts restored.
If the Participant is reemployed as an Employee after incurring a
five year Period of Severance, any amounts forfeited under this Article shall
not be restored, separate Accounts will be established for all contributions
allocated after the Participant's reemployment date, and the Participant's
Period of Service after his reemployment date shall not increase the Vesting
Percentage in his pre-Period of Severance Employer Matching Contribution Account
and/or Employer Discretionary Contribution Account.
7 -LIMITATION ON CONTRIBUTIONS
.0 Maximum Annual Contribution to the Plan
For purposes of this Section 8, the Employer and any Affiliated
Companies shall be considered a single employer, to the extent required by the
Code.
( ) Primary Rule
Notwithstanding any other Plan provision to the contrary, the
Annual Additions to a Participant's Accounts in this Plan and any other defined
contribution plan maintained by the Employer shall not exceed the lesser of
$30,000 or 25% of the Participant's compensation as defined in Code Section
415(c)(3) for purposes of this Section 8 in any Plan Year.
(a) Annual Additions Defined
For purposes of Section 8, the term "Annual Additions" for any
Participant in any Plan Year means the sum of:
( ) the amount of Employer contributions and Participant Pre-tax
Contributions and/or any after-tax contributions (if applicable) allocated to a
Participant's Accounts;
(i) forfeitures allocated to the Participant's Accounts; and
(ii) with respect only to the $30,000 limitation, amounts attributable
to retiree medical benefits on behalf of a Key Employee in a separate account in
a welfare fund subject to Code Section 419A.
(b) Cost of Living
The $30,000 limit prescribed above shall be automatically
adjusted for cost-of-living increases, to the maximum permissible dollar
limitation determined by the Commissioner of Internal Revenue. The dollar
amount applicable in computing the maximum contribution for any Participant
shall be the dollar amount in effect for the calendar year in which the
contribution is made.
(c) Remedy
If, for any Plan Year, the Annual Additions exceed the foregoing
limitations as a result of the allocation of forfeitures, a reasonable error in
estimating a Participant's annual Eligible Compensation, or under limited facts
and circumstances which the Commissioner of Internal Revenue finds justifies the
availability of the remedy set forth in this subsection, the Annual Additions
for a particular Participant which cause the limitation of Section 415
applicable to that limitation for the Limitation Year to be exceeded, the excess
amount shall not be deemed Annual Additions in that Limitation Year, but rather
shall be treated as follows:
( ) The excess amounts in the Participant's Account shall first be
distributed or forfeited to the extent required herein.
(i) Next, any excess due to Participant Pre-tax Contributions and any
gain thereon shall be distributed to the extent required to satisfy the
limitation of Section 415.
(ii) Next, any additional excess due to the Participant's Pre-tax
Contributions shall be used to reduce the Participant's Pre-tax Contributions
for the next Limitation Year (and succeeding Limitation Years, as necessary) for
that Participant if that Participant is covered by the Plan as of the end of the
Limitation Year.
(iii) Finally, any amounts of such excess attributable to Employer
contributions shall be used to reduce Employer contributions for the next
Limitation Year (and succeeding Limitation Years, as necessary) for that
Participant if that Participant is covered by the Plan as of the end of the
Limitation Year. However, if that Participant is not covered by the Plan as of
the end of the Limitation Year, then the excess amounts must be held unallocated
in a suspense account for the Limitation Year and allocated and reallocated in
the next Limitation Year to all of the remaining Participants in the Plan.
Furthermore, the excess amounts must be used to reduce Employer Contributions
for the next Limitation Year (and succeeding Limitation Years, as necessary) for
all of the remaining Participants in the Plan.
In the event the Plan terminates before all amounts remaining in
the suspense account have been fully allocated to Participants' Accounts, the
balance of the suspense Account shall be distributed to the Employer.
.1 Additional Limitation Relating to Defined Benefit Plans
( ) For Participants who participate in the Plan and a defined benefit
plan maintained by the Employer, the sum of (1) and (2) below for any calendar
year may not exceed 1.0, as determined by the Administrative Committee.
(1) The defined benefit plan fraction for any year is equal
to the quotient of (i) divided by (ii) below expressed as a fraction:
(i) The projected annual benefit, (determined by
projecting service, but not earnings, to normal retirement age) of the
Participant under the Plan determined as of the close of the year.
(ii) The lesser of: (a) 1.25 multiplied by the
dollar limitation in effect for defined benefit plans under Section 415 of the
Code for such year, or (b) 1.4 multiplied by 100% of the Participant's average
annual Eligible Compensation from the Employer for the consecutive calendar
years (not in excess of three such years) during which he was an active
Participant in the Plan and for which such average is highest.
(2) The defined contribution plan fraction for any year is
equal to the quotient of (i) divided by (ii) below expressed as a fraction:
(i) The sum of the Annual Additions to the
Participant's Accounts for the current year, as of the close of the year, and
for all prior years from and after the Employment Commencement Date.
(ii) The sum of the lesser of the following
amounts for such year and for each prior year of Service with the Employer
(regardless of whether a plan was in existence during those years): (a) 1.25
multiplied by the dollar limitation in effect for defined contribution plans
under Section 415 of the Code for such year, or (b) 1.4 multiplied by 25% of a
Participant's Eligible Compensation for such year.
(a) Remedy
If such sum exceeds 1.0, the benefit under the defined benefit
plan shall be reduced to the extent necessary to satisfy the limitations of this
section.
8 -TOP HEAVY PROVISIONS
.0 Scope
Notwithstanding any Plan provision to the contrary, for any Plan Year
in which the Plan is Top Heavy within the meaning of Section 416(g) of the Code,
the provisions of this Section 9 shall govern to the extent they conflict with
or specify additional requirements to the Plan provisions governing to the Plan
provisions governing Plan Years which are not Top Heavy.
.1 Top Heavy Status
( ) Top Heavy
This Plan shall be "Top Heavy" if, as of the Determination Date,
(1) the Present Value of Accrued Benefits of Key Employees, or (2) the sum of
the Aggregate Accounts of Key Employees under this Plan and any plan of an
Aggregation Group, exceeds sixty percent (60%) of the Present Value of the
contributions to the Aggregation Group determined in accordance with Code
Section 416(g) and regulations thereunder.
The Present Value of Accrued Benefits and/or Aggregate Account
balance of a Participant who was previously a Key Employee but is no longer a
Key Employee (or his or her Beneficiary), shall not be taken into account for
purposes of determining Top Heavy status. Further, a Participant's Present
Value of Accrued Benefits and/or Aggregate Account balance shall not be taken
into account if he or she has not performed services for the Affiliated
Companies as any time during the five year period ending on the Determination
Date.
(a) Super Top Heavy
This Plan shall be "Super Top Heavy" if, as of the Determination
Date, (1) the Present Value of Accrued Benefits of Key Employees, or (2) the sum
of the Aggregate Accounts of Key Employees under this Plan and any plan of an
Aggregation Group, exceeds (90%) of the Present Value of the contributions to
the Aggregate Accounts of all Participants under this Plan of an Aggregation
Group.
(b) Determination Date
Whether the Plan is Top Heavy for any Plan Year shall be
determined as of the Determination Date. "Determination Date" means (a) the
last day of the preceding Plan Year, or (b) in the case of the first Plan Year,
the last day of such Plan Year.
(c) Valuation Date
"Valuation Date" means, for purposes of determining Top
Heaviness, the Determination Date instead of the meaning set forth in Section 1.
(d) Aggregate Account
"Aggregate Account" means, with respect to a Participant, the sum
of:
( ) his or her account balances as of the Valuation Date;
(i) contributions after the Valuation Date due as of the
Determination Date;
(ii) distributions prior to the Valuation Date, made during the Plan
Year that contains the Determination Date and the four preceding Plan Years.
(e) Present Value of Accrued Benefits
The "Present Value of Accrued Benefits" with respect to a defined
benefit plan shall be determined under the method used for accrual purposes in
all defined benefit plans of the Affiliated Companies, or if there is no such
method, as if such benefit accrued not more rapidly than the slowest accrual
rate permitted under Section 411(b)(i)C) of the Code.
(f) Key Employee
"Key Employee" means an Employee or former Employee (and his or
her Beneficiaries) who, at any time during the Plan Year containing the
Determination Date or any of the four preceding Plan years, is included in one
of the of the following categories as within the meaning of Section 411(i)(l) of
the Code and regulations thereunder:
( ) an officer of the employer whose annual aggregate Eligible
Compensation from the Affiliated Companies exceeds 50% of the dollar limitation
under Code Section 415(b)(1)(A) (as indexed), provided that no more than 50
Employees shall be considered officers, or if less, the greater of 10% of the Em
ployees or 3,
(i) one of the ten Employees owning the largest interest in the
Employer who owns more than a 0.5% interest of the Employer, and whose annual
aggregate Eligible Compensation from the Affiliated Companies exceeds the dollar
limitation under Section 415(c)(1)(A) of the Code (as indexed),
(ii) an Employee who owns more than 5% of the Employer, or
(iii) an Employee who owns more than 1% of the Employer with annual
aggregate Eligible Compensation from the Affiliated Companies that exceeds
$150,000.
(g) Aggregation Group
"Aggregation Group" means the group of plans that must be
considered as a single plan for purposes of determining whether the plans within
the group are Top Heavy (Required Aggregation Group), or the group of plans that
may be aggregated for purposes of Top Heavy testing (Permissive Aggregation
Group). The Determination date for each plan must fall within the same calendar
year in order to aggregate the plans.
( ) The Required Aggregation Group includes each plan of the
Affiliated Companies in which a Key Employee is a participant in the Plan Year
containing the Determination Date or any or the four preceding Plan Years, and
each other plan of the Affiliated Companies which, during this period, enables
any plan in which a Key Employee participates to meet the minimum participation
standards or non-discriminatory contribution requirements of Code Sections
401(a)(4) and 410.
(i) A Permissive Aggregation group may include any plan sponsored by
an Affiliated Company, provided the group as a whole continues to satisfy the
minimum participation standards and non-discriminatory contribution requirements
of Code Sections 401(a)(4) and 410.
Each plan belonging to a Required Aggregation Group shall be
deemed Top Heavy, or non-Top Heavy in accordance with the group's status. In a
Permissive Aggregation Group that is determined Top Heavy only those plans that
are required to be aggregated shall be Top Heavy. In a Permissive Aggregation
Group that is not Top Heavy, no plan in the group shall be Top Heavy.
.2 Minimum Contribution
( ) General Rule
For any Plan Year in which the Plan is Top Heavy, the total
Employer contribution under Section 4.1 and any forfeitures allocated to any non-
key Participant's account shall not be less than 3% of such Participant's
Eligible Compensation. Participant contributions under Section 4.1(a) are not
Eligible Compensation. Participant contributions under Section 4.1(a) are not
considered when determining whether this 3% requirement is satisfied.
However, in the event the Employer contributions and forfeitures
allocated to each Key Employee's account do not exceed 3% of his or her Eligible
Compensation, such Employer contributions and forfeitures for non-Key Employees
are only required to equal the highest percentage of Eligible Compensation,
including Participant Pre-tax Contributions under Section 4.1(a), allocated to
any Key Employee's accounts for that Plan Year under any defined contribution
plans sponsored by the Affiliated Companies.
The minimum contribution must be made on behalf of all non-Key
Participants who are employed on the last day of the Plan Year including non-Key
Employees who (1) failed to complete a Year of Service, or (2) declined to make
any mandatory contributions to the Plan or enter a salary deferral agreement.
(a) Special Two Plan Rule
Where this Plan and a defined benefit plan belong to an
Aggregation Group that is determined Top Heavy, the minimum contribution
required under paragraph (a) above shall be increased to 5%.
.3 Limitation to Annual Additions in Top Heavy Plan
For any Top Heavy Plan Year in which the Employer does not make the
extra minimum allocation provided below, 1.0 shall replace the 1.25 factor found
in the denominators of the defined benefit and defined contribution plan
fractions for purposes of calculating the combined limitation on benefits under
a defined benefit and defined contribution plan pursuant to Section 415(e) of
the Code (see Section 8.2).
If this Plan is Top Heavy, but is not Super Top Heavy, the above
referenced fractions set forth in Section 8.2 shall remain unchanged provided
the Employer makes an extra minimum allocation for non-Key Participants. The
extra allocation (in addition to the minimum contribution set forth in Section
9.3) shall equal at least one percent (1%) of a non-Key Participant's
compensation.
.4 Vesting
( ) Top Heavy Schedule
For any Top Heavy Plan Year, each Participant who completes an
Hour of Service in such Year shall become vested and have a nonforfeitable right
to retirement benefits he or she has earned under the Plan in accordance with
the vesting schedule set forth in Section 7.1(b).
(a) Return to Non-Top Heavy Status
If the Plan becomes Top Heavy and ceases to be Top Heavy in any
subsequent Plan year, the vesting schedule shall automatically revert to the
vesting schedule in effect before the Plan became Top Heavy. Such reversion
shall be treated as a Plan amendment pursuant to the terms of the Plan, and
shall not cause a reduction of any Participant's nonforfeitable interest in the
Plan on the date of such amendment.
A Participant with three or more Years of Service with the
Employer as of the end of the election period, may elect to remain covered by
the Top Heavy vesting schedule. The Participant's election period shall
commence on the adoption date of the amendment and shall end 60 days after the
latest of:
( ) the adoption date of the amendment
(i) the effective date of the amendment, or
(ii) the date the Participant receives written notice of the amendment
from the Administrative Committee.
9 -ADMINISTRATION OF THE PLAN
.0 Plan Administrator
The Plan Administrator shall be the Employer which shall appoint an
Administrative Committee composed of three or more persons which shall carry out
the general administration of the Plan. No Administrative Committee member who
is an Employee shall receive compensation with respect to his or her services on
the Administrative Committee. Any member of the Administrative Committee may
resign by delivering written resignation to the Board of Directors and to the
Administrative Committee. The Employer may remove or replace any member of the
Administrative Committee at any time.
.1 Organization and Procedures
The Employer shall designate a chairman from the members of the
Administrative Committee. The Administrative Committee shall appoint a
secretary, who may or may not be a member of the Administrative Committee. The
secretary shall have the primary responsibility for keeping a record of all
meetings and acts of the Administrative Committee and shall have custody of all
documents, the preservation of which shall be necessary or convenient to the
efficient functioning of the Administrative Committee. The chairman of the
Administrative Committee shall be the agent of the Plan for service of process.
All reports required by law may be signed by the chairman or another member of
the Administrative Committee designated by the Committee, on behalf of all
members of the Administrative Committee.
The Administrative Committee shall act by a majority of its members in
office and may adopt such by-laws and regulations as it deems desirable for the
conduct of its affairs.
.2 Duties and Authority of Administrative Committee
( ) Administrative Duties
The Administrative Committee shall perform all such duties as are
necessary to supervise the administration of the Plan and to control its
operation in accordance with the terms thereof, including, but not limited to,
the following:
( ) Make and enforce such rules and regulations as it shall deem
necessary or proper for the efficient administration of the Plan;
(i) Interpret the provisions of the Plan and determine any question
arising under the Plan, or in connection with the administration or operation
thereof;
(ii) Determine all considerations affecting the eligibility of any
Employee to be or become a Participant;
(iii) Determine eligibility for and amount of retirement benefits for
any Participant;
(iv) Authorize and direct the Trustee with respect to all
disbursements of benefits under the Plan;
(v) Employ and engage such persons, counsel and agents and to obtain
such administrative, clerical, medical, legal, audit and actuarial services as
it may deem necessary in carrying out the provisions of the Plan.
(a) Investment Authority
The Administrative Committee shall have the responsibility and
authority with respect to the management, acquisition, disposition or investment
of Plan assets to the extent such responsibility and authority is not delegated
to an Investment Manager or Trustee, provided, however, that to the maximum
extent permitted by applicable law, if Participants are entitled to direct
investments from various investment subfunds, then the Administrative Committee
shall not be responsible with respect to the designation of investments as among
the available investment subfunds.
(b) General Authority
The Administrative Committee shall have all powers necessary or
appropriate to carry out its duties, including the full discretionary authority
to interpret the provisions of the Plan and the facts and circumstances of
claims for benefits. Any interpretation or construction of or action by the
Administrative Committee with respect to the Plan and its administration shall
be conclusive and binding upon any and all parties and persons affected hereby,
subject to the exclusive appeal procedure set forth in Section 10.7.
.3 Expenses and Assistance
All reasonable expenses which are necessary to operate and administer
the Plan may be deducted from the Trust Fund or, at the election of the
Employer, paid directly by the Employer.
.4 Bonding and Insurance
To the extent required by law, every Administrative Committee member,
every fiduciary of the Plan and every person handling Plan funds shall be
bonded. The Administrative Committee shall take such steps as are necessary to
assure compliance with applicable bonding requirements. The Administrative
Committee may apply for and obtain fiduciary liability insurance insuring the
Plan against damages by reason of breach of fiduciary responsibility at the
Plan's expense and insuring each fiduciary against liability to the extent
permissible by law at the Employer's expense.
.5 Commencement of Benefits
( ) Conditions of Payment
Benefit payments under the Plan shall not be payable prior to the
fulfillment of the following conditions:
( ) The Administrative Committee (or its delegatee) has been
furnished with such applications, consents, proofs of birth, address, form of
benefit election, spousal consent if required and other information the
Administrative Committee deems necessary;
(i) The Participant is eligible to receive benefits under the Plan as
determined by the Administrative Committee.
The amount of benefit payable to a Participant of Beneficiary
shall be determined under the terms of the Plan in effect at the time the
Participant terminates employment. The valuation of accounts after such
employment termination shall be made in accordance with the terms of the Plan on
each succeeding Valuation Date. The time benefits commence to a Participant or
Beneficiary and the form of payment shall be determined under the terms of the
Plan in effect at the time benefits commence.
(a) Commencement of Payment
Unless a Participant elects otherwise, the payment of benefits
shall commence no later than 60 days after the end of the Plan Year in which the
latest of the following occurs:
( ) the date the Participant attains age 65,
(i) the tenth anniversary of the year in which the Participant
commenced participation in the Plan, or
(ii) the Participant terminates employment with the Employer;
provided that payments shall not commence later than April 1,
following the calendar year in which the Participant attains age 70-1/2,
regardless of whether he or she remains in service after that date.
If the information required in subparagraph (a) above is not
available prior to the dates specified in subsections (i) through (iii) above,
then the commencement of payments shall be delayed until no more than 60 days
after the date the amount of such payment is ascertainable, but in no event
shall payment be delayed beyond April 1 of the year following the calendar year
in which the Participant attains age 70-1/2.
.6 Appeal Procedure
( ) A claim for benefit payment shall be considered filed when an
application form is submitted to the Administrative Committee (or its
delegatee).
(a) Notice of Denial
Any time a claim for benefits is wholly or partially denied, the
Participant or Beneficiary (hereinafter "Claimant") shall be given written
notice of such action within 90 days after the claim is filed, unless special
circumstances require an extension of time for processing. If there is an
extension, the Claimant shall be notified of the extension and the reason for
the extension within the initial 90 day period. The extension shall not exceed
180 days after the claim is filed. Such notice will indicate the reason for
denial, the pertinent provisions of the Plan on which the denial is based, an
explanation of the claims appeal procedure set forth herein, and a description
of any additional material or information necessary to perfect the claim and an
explanation of why such material or information is necessary.
(b) Right to Request Review
Any person who has had a claim for benefits denied by the
Administrative Committee, or is otherwise adversely affected by action of the
Administrative Committee, shall have the right to request review by the
Administrative Committee. Such request must be in writing, and must be made
within 60 days after such person is advised of the Administrative Committee's
action. If written request for review is not made within such 60-day period,
the Claimant shall forfeit his or her right to review. The Claimant or a duly
authorized representative of the Claimant may review all pertinent documents and
submit issues and comments in writing.
(c) Review of Claim
The Administrative Committee shall then review the claim. It may
hold a hearing if it deems it necessary and shall issue a written decision
reaffirming, modifying or setting aside its former action within 60 days after
receipt of the written request for review, or 120 days if special circumstances,
such as a hearing, require an extension. The Claimant shall be notified in
writing of any such extension within 60 days following the request for review.
A copy of the decision shall be furnished to the Claimant. The decision shall
set forth its reasons and pertinent plan provisions on which it is based. The
decision shall be final and binding upon the Claimant and the Administrative
Committee and all other persons involved.
.7 Plan Administration - Miscellaneous
( ) Limitations on Assignments
Benefits under the Plan may not be assigned, sold, transferred,
or encumbered, and any attempt to do so shall be void. The interest of a
Participant in benefits under the Plan shall not be subject to debts or
liabilities of any kind and shall not be subject to attachment, garnishment or
other legal process, except as provided in Section 10.9 relating to Domestic
Relations Orders, or otherwise permitted by law.
(a) Masculine and Feminine, Singular and Plural
Whenever used herein, pronouns shall include the opposite gender,
and the singular shall include the plural, and the plural shall include the
singular, whenever the context shall plainly so require.
(b) No Additional Rights
No person shall have any rights in or to the Trust Fund, or any
part thereof, or under the Plan, except as, and only to the extent, expressly
provided for in the Plan. Neither the establishment of the Plan, the granting
of a retirement allowance nor any action of the Employer or the Administrative
Committee shall be held or construed to confer upon any person any right to be
continued as an Employee, or, upon dismissal, any right or interest in the Trust
Fund other than as herein provided. The Employer expressly reserves the right
to discharge any Employee at any time.
(c) Governing Law
This Plan shall be construed in accordance with applicable
federal law and the laws of the State of California.
(d) Severability
If any provision of this Plan shall be held illegal or invalid
for any reason, such determination shall not affect the remaining provisions of
this Plan which shall be construed as if said illegal or invalid provision had
never been included.
(e) Facility of Payment
In the event any benefit under this Plan shall be payable to a
person who is under legal disability or is in any way incapacitated so as to be
unable to manage his or her financial affairs, the Administrative Committee may
direct payment of such benefit to a duly appointed guardian, committee or other
legal representative of such person or in the absence of a guardian or legal
representative, to a custodian for such person under a Uniform Gift to Minors
Act or to any relative of such person by blood or marriage, for such person's
benefit. Any payment made in good faith pursuant to this provision shall fully
discharge the Employer, the Administrative Committee and the Plan of any
liability to the extent of such payment.
(f) Correction of Errors
Any Employer contribution to the Trust Fund made under a mistake
of fact (or investment proceeds of such contribution if a lesser amount) shall
be returned to the Employer within one year after payment of the contribution.
In the event an incorrect amount is paid to a Participant or
Beneficiary, any remaining payments may be adjusted to correct the error. The
Administrative Committee may take such other action it deems necessary and
equitable to correct any such error.
(g) Missing Persons
In the event a distribution is required to commence under Section
6.1 and the Participant or Beneficiary cannot be located, the Participant's
Account shall be forfeited on the last day of the Plan Year following the Plan
Year in which distribution was supposed to commence pursuant to Section 5.6.
If the affected Participant or Beneficiary later contacts the
Employer, his or her Account shall be reinstated and distributed as soon as
practical. The Employer shall reinstate the amount forfeited by making a
special Employer contribution equal to such amount and allocating it to the
affected Participant's or Beneficiary's Account. Such reinstatement shall not
be considered an annual addition for purposes of the limitations on
contributions on benefits pursuant to Code Section 415.
Prior to forfeiting any Account, the Employer shall attempt to
contact the Participant or Beneficiary by return receipt mail at his or her last
known address according to the Employer's records, and by the letter forwarding
services offered through the Internal Revenue Service, or the Social Security
Administration, or such other means as the Administrative Committee deems
appropriate.
(h) Spousal Consent
In the event spousal consent is required for any Plan purpose,
such consent shall acknowledge the effect of the consent, the consent must be in
writing, and it must be witnessed by a notary public or a plan representative;
provided, written consent will not be required if the Participant establishes to
the satisfaction of the Employer that no spouse exists, or the spouse cannot be
located.
.8 Domestic Relations Orders
Notwithstanding any Plan provisions to the contrary, benefits under
the Plan may be paid to someone other than the Participant or Beneficiary
pursuant to a Qualified Domestic Relations Order, in accordance with Section
414(p) of the Code. A Qualified Domestic Relations Order is a judgement,
decree, or order ("Order") (including approval of a property settlement
agreement) that:
( ) relates to the provision of child support, alimony payments or marital
property rights to a spouse, former spouse, child or other dependent of a
Participant;
(a) is made pursuant to a state domestic relations law (including a
community property law);
(b) creates or recognizes the existence of alternative payee's right to,
or assigns to an alternate payee the right to, receive all or a portion of the
benefits payable to a Participant under the Plan;
(c) specifies the name and last known address of the Participant and each
alternate payee;
(d) specifies the amount or method of determining the amount of benefit
payable to an alternate payee;
(e) names each plan to which the order applies;
(f) does not require any form, type or amount of benefit not otherwise
provided under the Plan;
(g) does not conflict with a prior Domestic Relations Order that meets the
other requirements of this section.
Payments to an alternate payee pursuant to a Qualified Domestic
Relations Order may commence at any time as set forth in the order, regardless
of the Participant's age or whether the Participant terminates or continues
employment.
The Administrative Committee shall determine whether an order meets
the requirements of this section within a reasonable period after receiving an
order. The Administrative Committee shall notify the Participant and any
alternate payee that an order has been received. Any amounts which are to be
paid pursuant to the order, during the period while its qualified status is
being determined, shall be held in a separate account under the Plan for any
alternate payee pending determination that an order meets the requirements of
this section. After receiving and determining an order to be a Qualified
Domestic Relations Order as described above, the Administrative Committee shall
instruct the Trustee to make an immediate distribution to the alternate payee of
the benefits due under the terms of the order. If within eighteen months after
such a separate account is established, the order has not been determined to be
a qualified Order, the amount in the separate account shall be distributed to or
credited back to the account of the individual who would have been entitled to
such amount had there been no order.
.9 Plan Qualification
Any modification or amendment of the Plan may be made retroactive, as
necessary or appropriate, to establish and maintain a "qualified plan" pursuant
to Section 401 of the Code, and ERISA and regulations thereunder and exempt
status of the Trust Fund under Section 501 of the Code.
.10 Deductible Contribution
Notwithstanding anything herein to the contrary, any contribution by
the Employer to the Trust Fund is conditioned upon the deductibility of the
contribution by the Employer under the Code and, to the extent any such
deduction is disallowed, the Employer may within one year following a final
determination of the disallowance, demand repayment of such disallowed
contribution and the Trustee shall return such contribution less any losses
attributable thereto to the Employer within one year following the disallowance.
.11 Rollovers
An Employee may request in writing that the Administrative Committee
permit acceptance of a rollover amount which was distributed from another quali
fied plan or conduit Individual Retirement Account (IRA). The amount must be
rolled over by the Employee within 60 days of receiving the distribution from
the other plan or conduit IRA. The Administrative Committee shall have total
discretion over acceptance of such amounts into this Plan; provided, rollovers
of any type of property other than cash will not be accepted. In the event an
Employee is permitted to contribute a rollover amount, such amount shall be
allocated to a separate, fully vested account and subject to the same terms of
the Plan as other amounts in a Pre-Tax Contribution Account. An Employee shall
elect at the time of the rollover, the investment fund from the currently
available funds in the plan into which such rollover amount shall be invested
pursuant to the terms set forth in Section 5.2.
If the Employee never satisfies the requirements of Section 1.10 and
Section 2, the Employee shall be considered a Participant only with respect to
the rollover amount, and such amount shall be distributed in a lump sum upon
termination of employment.
10 -AMENDMENT AND TERMINATION
.0 Amendment - General
The Employer shall have the right to amend, terminate, or partially
terminate this Plan at any time subject to any advance notice or other
requirements of ERISA.
.1 Amendment - Consolidation or Merger
In the event the Plan's assets and liabilities are merged into,
transferred to or otherwise consolidated with any other retirement plan, then
such action must be accomplished so as to ensure that each Participant would (if
the other retirement plan then terminated) receive a benefit immediately after
the merger, transfer or consolidation, which is equal to or greater than the
benefit the Participant would have been entitled to receive immediately before
the merger, transfer or consolidation (as if the Plan had then terminated).
This provision shall not be construed as limiting the powers of the Employer to
appoint a successor Trustee.
.2 Termination of the Plan
The termination of the Plan shall not cause or permit any part of the
Trust Fund to be diverted to purposes other than for the exclusive benefit of
the Participants and their Beneficiaries, or cause or permit any portion of the
Trust Fund to revert to or become the property of the Employer at any time prior
to the satisfaction of all liabilities with respect to the Participants, except
as otherwise provided by applicable law.
Upon termination of this Plan, the Administrative Committee shall
continue to act for the purpose of complying with the preceding paragraph and
shall have all power necessary or convenient to the winding up and dissolution
of the Plan as herein provided. While so acting, the Administrative Committee
shall be in the same status and position with respect to other persons as if the
Plan remained in existence.
.3 Allocation of the Trust Fund on Termination of Plan
In the event of a complete or partial termination of the Plan, or upon
complete discontinuance of contributions under the Plan, with respect to all
Participants or a specified group or groups of Participants, the Trustee shall
allocate and segregate a proportionate interest in the Trust Fund for the
benefit of affected Participants.
All Accounts accrued by the affected Participants shall be 100% vested
and non-forfeitable. The Administrative Committee shall direct the Trustee to
allocate the assets of the Trust Fund to those affected Participants.
11 -FUNDING
.0 Contributions to the Trust Fund
As a part of this Plan the Employer shall maintain a Trust Fund. From
time to time, the Employer shall make contributions to the Trust Fund in
accordance with Section 4.
.1 Trust Fund for Exclusive Benefit of Participants
The Trust Fund is for the exclusive benefit of Participants. Except
as provided in Sections 4.5 (Return of Contributions), 10.9 (Domestic Relations
Orders) and 10.11 (Deductible Contribution), no portion of the Trust Fund shall
be diverted to purposes other than this or revert to or become the property of
the Employer at any time prior to the satisfaction of all liabilities with
respect to the Participants.
.2 Trustee
As a part of this Plan, the Employer has entered into an agreement
with a Trustee who is designated by the Board of Directors. The Employer has
the power and duty to appoint the Trustee and it shall have the power to remove
the Trustee and appoint successors at any time. As a condition to exercising
its power to remove any Trustee hereunder, the Employer must first enter into an
agreement with a successor Trustee.
.3 Investment Manager
The Administrative Committee has the power to appoint, remove or
change from time to time an Investment Manager to direct the investment of all
or a portion of the Trust Fund held by the Trustee. For purposes of this
section "Investment Manager" shall mean any fiduciary (other than the Trustee)
who:
( ) has the power to manage, acquire, or dispose of any asset of the Plan;
(a) is either:
( ) registered as an investment advisor under the Investment Advisors
Act of 1940, or
(i) is a bank, or
(ii) is an insurance company qualified under the laws of more than one
state to perform the services described in subparagraph (a); and
(b) has acknowledged in writing that he, she or it is a fiduciary with
respect to the Plan.
12 -FIDUCIARIES
.0 Limitation of Liability of the Employer and Others
To the extent permitted by law, no Participant shall have any claim
against the Employer, or the Administrative Committee, or against their
directors, officers, members, agents or representatives, for any benefits under
the Plan, and such benefits shall be payable solely from the Trust Fund; nor
shall the Employer, nor the Administrative Committee or their directors,
officers, members, agents or representatives incur any liability to any person
for any action taken or suffered or omitted to be taken by them under the Plan
in good faith.
.1 Indemnification of Fiduciaries
In order to facilitate the recruitment of competent fiduciaries, the
Employer adopting this Plan agrees to provide the indemnification as described
herein. This provision shall apply to Employees who are considered Plan
fiduciaries including without limitation, Administrative Committee members, any
agent of the Administrative Committee, or any other officers, directors or
Employees. Notwithstanding the preceding, this provision shall not apply and
indemnification will not be provided for any Trustee or Investment Manager
appointed as provided in this Plan.
.2 Scope of Indemnification
The Employer agrees to indemnify an Employee fiduciary as described
above for all acts taken in good faith in carrying out his or her
responsibilities under the terms of this Plan or other responsibilities imposed
upon such fiduciary by ERISA. This indemnification for all acts is
intentionally broad but shall not provide indemnification for embezzlement or
diversion of Plan assets for the benefit of the Employee fiduciary. The
Employer agrees to indemnify Employee fiduciaries described herein for all ex
penses of defending an action by a Participant, Beneficiary or government
entity, including all legal fees for counsel selected with the consent of the
Employer and other costs of such defense. The Employer will also reimburse an
Employee fiduciary for any monetary recovery in any court or arbitration
proceeding. In addition, if the claim is settled out of court with the concur
rence of the Employer, the Employer will indemnify an Employee fiduciary for any
monetary liability under said settlement. The Employer shall have the right,
but not the obligation, to conduct the defense of such persons in any proceeding
to which this Section 13.3 applies. The Employer may satisfy its obligations
under this Section 13.3 in whole or in part through the purchase of a policy or
policies of insurance providing equivalent protection.
The AST Research, Inc., Profit Sharing Plus Plan is amended and restated
effective as set forth herein.
IN WITNESS WHEREOF, the Employer has caused this Plan to be duly executed
on this 13th day of December 1995.
</TABLE>
AST RESEARCH, INC.
By: \s\Dennis Leibel
Title: Senior Vice President,
Legal, Administration
and Secretary
EXHIBIT 10.68
FIRST AMENDMENT TO THE
AST RESEARCH, INC.
PROFIT SHARING PLUS PLAN
This Amendment by AST Research, Inc. (hereinafter referred to as the
"Company") is made with reference to the following facts:
Effective July 1, 1989, the Company adopted the amended and restated AST
Research, Inc. Profit Sharing Plus Plan (hereinafter the "Plan") which reserves
to the Company the right to amend the Plan (Section 11.1 thereof). The Company
has executed this Amendment for purposes of amending the Plan in the manner
hereinafter provided.
NOW, THEREFORE, the Plan is hereby amended as follows:
I.
Effective January 1, 1996, Section 1.20 of the Plan is amended in its
entirety as follows:
"Beginning January 1, 1996, and each Fiscal Year thereafter, `Fiscal Year'
means the 52/53 week period ending on the Saturday closest December 31. Prior
to January 1, 1996, `Fiscal Year' means the 52/53 week ending on the Saturday
closest to June 30."
II.
Effective January 1, 1996, Section 1.29 of the Plan is amended in its
entirety as follows:
"Beginning January 1, 1996, and each calendar year thereafter, `Plan Year'
means the calendar year. Prior to January 1, 1996, Plan Year means the twelve
month period commencing each July 1 and ending each June 30 from and after July
1, 1989. The period June 30, 1995, through December 31, 1995, shall be a short
Plan Year period. For the period beginning June 27, 1992, and ending June 26,
1993, Plan Year means the 52/53 week period ending on that Saturday, June 26,
1993."
IN WITNESS WHEREOF, AST Research, Inc. has executed this First Amendment
effective as set forth herein.
Dated: 3/20/96 AST RESEARCH, INC.
By: /s/Dennis R. Leibel
Title: Senior Vice President,
Legal, Administration and
Secretary
EXHIBIT 10.69
October 31, 1995
Mr. Ian Diery
4175 Woodside Road
Woodside, CA 94062
Dear Ian,
On behalf of the Board of Directors of AST Research, Inc., I am pleased to offer
you the position of President and Chief Executive Officer. The terms of this
employment offer are:
- - - - BASE SALARY: $700,000.00 annualized, paid on a bi-weekly basis.
- - - - STOCK OPTIONS: Stock options will be granted to you as follows:
A) A non-qualified stock option or warrant, priced at fair market
value (FMV) on the date of grant, for 300,000 shares.
- Term of ten years.
- Vesting over time on a cumulative basis at the rate of
25% per year commencing on the first anniversary of
the date of grant.
B) A non-qualified performance-based stock option or warrant,
priced at FMV on date of grant, for 700,000 shares.
- Term of ten years.
- Options vest and become exercisable as follows:
. 1/3 of the shares upon the company stock price
reaching (and sustaining for a three-month
average) at $21.00 per share;
. 1/3 of the shares upon the company stock price
reaching (and sustaining for a three-month
average) at least $30.00 per share;
. 1/3 of the shares upon the company stock price
reaching (and sustaining for a three-month
average) at least $40.00 per share.
Mr. Ian Diery
October 31, 1995
Page 2
- - - - MANAGEMENT BONUS: You will be eligible for consideration in AST's
Management Bonus Program for FY'96 on a prorated basis. This program
provides for discretionary bonuses paid to management after the close of
each fiscal year. Any bonuses paid are at the discretion of the Board of
Directors of AST Research, Inc.
- - - - QUARTERLY BONUS: Upon meeting the eligibility requirements, you will be
eligible to participate in the discretionary Employee Quarterly Bonus Plan.
Any bonus percentage is based upon the performance of the Company and is at
the discretion of the Board of Directors of AST Research, Inc.
- - - - PROFIT SHARING/401K: Effective the first day of the month following your
employment, you will be eligible to participate in AST's Profit Sharing
Plus Plan. Any profit sharing contribution is based upon the financial
preference of the Company and is at the discretion of the Board of
Directors of AST Research,Inc. In addition, you may choose to save 1% to
12% of your base salary with pre-tax dollars. The Company will match a
portion of your contributions.
- - - - INSURANCE: You will receive Medical, Dental, Life Insurance coverage
effective the first day of the month concurrent with or following your date
of hire. AST Research, Inc. pays a portion of the premiums for yourself
and any eligible dependent that you wish to cover under the plans.
- - - - RELOCATION: A relocation allowance of up to $500,000 will be provided to
cover moving expenses, as well as any costs and/or loss on the disposition
of your existing residence.
- - - - TERMINATION: In case of involuntary termination other than for willful
cause, i.e., fraud, gross misconduct, you will be provided with a severance
package equal to two years base salary and target bonus, benefits
continuance, plus the accelerated vesting of any options that would have
vested by the passage of time during the two-year period. You will also be
given a change of control agreement which will have a double trigger with
the first trigger being pulled when any party acquires more than a 50%
voting interest in the company and the second trigger being pulled when you
are involuntarily terminated or your responsibilities, pay or benefits,
etc. are negatively impacted. These agreements are mutually exclusive;
however, in case of termination, whichever agreement would provide the
greater benefit to you would control.
Mr. Ian Diery
October 31, 1995
Page 3
As a senior executive and officer of AST, there are a number of other benefits
that will be forthcoming. The car allowance, mentioned above is set at the
"officer" rate. In addition, you will be eligible for a $20,000.00 per year
medical reimbursement plan that will cover deductibles and co-payments (but not
bi-weekly deductions). You will be eligible for Tax Planning/Preparation
reimbursement of up to $10,000.00 per year. As an officer, you may also
participate in our Executive Health Program which covers an extensive physical
checkup once per year. Lastly, if you choose optional employee paid LTD, AST
will furnish at no cost to you additional officer coverage over the standard
employee program up to a maximum of 66-2/3% of your base salary.
In accordance with the Immigration Reform & Control Act of 1986, you will be
required to provide documentation which establishes your identity and employment
eligibility on your first day of employment.
It is AST's policy to maintain a drug-free workplace. All employment offers are
conditioned upon your consenting to and successfully passing a pre-employment
drug screen.
Employment is on an at-will basis and can be terminated by you or the Company at
any time, for any reason, with or without cause, with or without advance notice.
You have told us about arrangements that you had with prior employers, and we
are satisfied that they do not create an obstacle to your coming to work for AST
as CEO. AST will retain and pay for attorneys if any of your prior employers
claim that you cannot come to work for AST as CEO, and AST will pay amounts
required by a court or arbitrator in that circumstance.
This letter constitutes the entire agreement between the parties; it supersedes
any and all prior agreements or understandings, and it cannot be changed except
in writing signed by both of the parties.
Please date, sign and return the original of this letter to provide written
confirmation of your acceptance of our offer.
Mr. Ian Diery
October 31, 1995
Page 4
I look forward to speaking with you further tomorrow morning. I am confident
that you can lead AST to achieve its true potential and rise to new heights.
Yours sincerely,
/s/Safi Qureshey
Safi Qureshey
Chairman and CEO
cc: Dennis R. Leibel
By my signature below, I accept this offer on the terms stated above and will
commence work on or before November 3, 1995.
/s/ Ian Diery 10/31/95
Ian Diery
Signature Date
EXHIBIT 11
AST RESEARCH, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
FOR THE SIX MONTHS ENDED DECEMBER 30, 1995, AND FOR THE YEARS
ENDED JULY 1, 1995, JULY 2, 1994 AND JULY 3, 1993
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------------
Six Months Fiscal Year Ended
Ended -------------------------------------
December 30, July 1, July 2, July 3,
(In thousands, except per share amounts) 1995 1995 1994 1993
- - - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary earnings (loss) per share
- - - ---------------------------------
Shares used in computing primary earnings (loss) per share:
Weighted average shares of common stock outstanding 42,721 32,371 31,921 31,289
Effect of stock options treated as equivalents under
the treasury stock method - - 627 -
- - - ------------------------------------------------------------------------------------------------------------------
Weighted average common and common equivalent
shares outstanding 42,721 32,371 32,548 31,289
==================================================================================================================
Net income (loss) $ (225,006) $ (99,309) $ 31,309 $ (53,378)
==================================================================================================================
Earnings (loss) per share - primary $ (5.27) $ (3.07) $ 0.96 $ (1.72)
==================================================================================================================
Fully diluted earnings (loss) per share
- - - ---------------------------------------
Shares used in computing fully diluted earnings (loss)
per share:
Weighted average shares of common stock outstanding 42,721 32,371 31,921 31,289
Effect of stock options treated as equivalents under
the treasury stock method - - 685 -
Shares assumed issued on conversion of
Liquid Yield Option Notes - - 2,260 -
- - - ------------------------------------------------------------------------------------------------------------------
Total fully diluted shares outstanding 42,721 32,371 34,866 31,289
==================================================================================================================
Net income (loss) - fully diluted earnings per share:
Net income (loss) - primary earnings per share $ (225,006) $ (99,309) $ 31,309 $ (53,738)
Adjustment for interest on LYONs, net of tax - - 1,950 -
- - - ------------------------------------------------------------------------------------------------------------------
Adjusted net income (loss) $ (225,006) $ (99,309) $ 33,259 $ (53,738)
==================================================================================================================
Earnings (loss) per share - fully diluted $ (5.27) $ (3.07) $ 0.95 $ (1.72)
==================================================================================================================
</TABLE>
EXHIBIT 21
LIST OF SUBSIDIARIES
Jurisdiction of
Name Organization
---- ---------------
AST Europe Limited United Kingdom
AST Research (Far East) Limited Hong Kong
AST Computer (China) Limited People's Republic of China
AST Research France S.A.R.L. France
AST Research Deutschland GmbH Germany
AST Taiwan Ltd. Taiwan
AST Research (Japan) K.K. Japan
AST Research (Switzerland) S.A. Switzerland
AST Australia Pty. Limited Australia
AST Research Italia S.p.A. Italy
AST Canada Inc. Canada
AST Middle East Limited United Arab Emirates (Dubai)
AST de Mexico S.A. de C.V. Mexico
AST Benelux N.V. Belgium
AST Research Spain, S.L. Spain
AST Singapore Pte. Ltd. Singapore
AST Sweden AB Sweden
AST Denmark A/S Denmark
AST Finland OY Finland
AST Holdings Ireland Limited Ireland
AST Ireland Limited Ireland
AST Distribution Ireland Limited Ireland
AST New Zealand Limited New Zealand
AST Norway AS Norway
AST Korea Ltd. Korea
AST Computer and Services (M) Sdn. Bhd. Malaysia
AST Computer Netherlands B.V. The Netherlands
AST Innovations, Inc. United States
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-96552 and 33-1112) pertaining to the AST Research, Inc.
Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase
Plan - 1983 (as amended); in the Registration Statements (Form S-8 Nos. 33-1111
and 33-30666) pertaining to the Chief Executives' Plan (as amended); in the
Registration Statements (Form S-8 Nos. 33-29345, 33-57234 and 333-00485)
pertaining to the 1989 Long-Term Incentive Program (as amended); in the
Registration Statements (Form S-8 Nos. 33-52482 and 333-00489) pertaining to the
Non-Employee Directors' Common Stock Purchase Warrants and 1991 Stock Option
Plan for Non-Employee Directors; in the Registration Statement (Form S-8 No. 33-
55241) pertaining to the AST Research, Inc. 1994 One-Time Grant Stock Option
Plan for Non-Employee Directors; and in the Registration Statement (Form S-8 No.
333-00487) pertaining to the President's Plan of AST Research, Inc. of our
report dated January 23, 1996, except for Note 5, as to which the date is March
6, 1996, with respect to the consolidated financial statements and schedule of
AST Research, Inc. included in this Transition Report (Form 10-K) for the six
months ended December 30, 1995.
Ernst & Young LLP
Orange County, California
March 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying Consolidated Balance Sheets and Consolidated Statements of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1995<F1>
<PERIOD-END> DEC-30-1995
<CASH> 125,387
<SECURITIES> 0
<RECEIVABLES> 411,227
<ALLOWANCES> 18,629
<INVENTORY> 252,339
<CURRENT-ASSETS> 837,621
<PP&E> 170,897
<DEPRECIATION> 72,172
<TOTAL-ASSETS> 1,056,042
<CURRENT-LIABILITIES> 614,075
<BONDS> 125,540
0
0
<COMMON> 447
<OTHER-SE> 310,435
<TOTAL-LIABILITY-AND-EQUITY> 1,056,042
<SALES> 1,016,283
<TOTAL-REVENUES> 1,016,283
<CGS> 1,033,158
<TOTAL-COSTS> 1,033,158
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,321
<INTEREST-EXPENSE> 8,634
<INCOME-PRETAX> (225,006)
<INCOME-TAX> 0
<INCOME-CONTINUING> (225,006)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (225,006)
<EPS-PRIMARY> (5.27)
<EPS-DILUTED> (5.27)
<FN>
<F1>The Company changed its fiscal year-end from the Saturday closest to June 30 to
the Saturday closest to December 31. The change in fiscal year-end was
effective for the six months ended December 30, 1995, and resulted in the
attached Transition Report on Form 10-K.
</FN>
</TABLE>
