<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
AST RESEARCH, INC.
(NAME OF SUBJECT COMPANY)
AST RESEARCH, INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(INCLUDING THE ASSOCIATED RIGHTS)
(TITLE OF CLASS OF SECURITIES)
001907104
(CUSIP NUMBER OF CLASS OF SECURITIES)
RANDALL G. WICK, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
AST RESEARCH, INC.
16215 ALTON PARKWAY
IRVINE, CALIFORNIA 92718
(714) 727-7777
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING STATEMENT)
WITH A COPY TO:
<TABLE>
<S> <C>
GARY J. SINGER, ESQ. HENRY LESSER, ESQ.
O'MELVENY & MYERS LLP IRELL & MANELLA LLP
610 NEWPORT CENTER DRIVE 333 SOUTH HOPE STREET
SUITE 1700 SUITE 3300
NEWPORT BEACH, CALIFORNIA 92660-6429 LOS ANGELES, CALIFORNIA 90071
(714) 760-9600 (213) 620-1555
</TABLE>
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- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is AST Research, Inc., a Delaware
corporation (the "Company"), and the address of the principal executive
offices of the Company is 16215 Alton Parkway, Irvine, California 92718. The
title of the class of equity securities to which this statement relates is the
common stock, par value $.01 per share, of the Company (the "Common Stock"),
including the associated preferred stock purchase rights (the "Rights" and
together with the Common Stock, the "Shares") issued pursuant to the Company's
Amended and Restated Rights Agreement, dated January 28, 1994, between AST
Research, Inc. and American Stock Transfer and Trust Company, as Successor
Rights Agent, as amended by the First Amendment to Rights Agreement, dated as
of March 1, 1995, and the Second Amendment to Rights Agreement, dated as of
April 15, 1997.
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer (the "Offer") by Samsung
Electronics Co., Ltd., a Korean corporation ("Purchaser" or "Samsung"),
disclosed in a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-
1"), dated April 21, 1997, to purchase all outstanding Shares not owned by
Samsung or its affiliates at $5.40 per Share (the "Offer Price"), net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated April 21, 1997, of the Purchaser (the "Offer to
Purchase"), which is attached hereto and incorporated by reference herein, and
the related Letter of Transmittal. The Offer is being made pursuant to the
terms of an Agreement and Plan of Merger, dated as of April 14, 1997 (the
"Merger Agreement"), by and among Purchaser, AST Acquisition, Inc., a Delaware
corporation and wholly-owned subsidiary of Purchaser, and the Company.
According to the Schedule 14D-1, the address of the principal executive
offices of Purchaser is 250, 2-Ka, Taepyung-Ro, Chung-Ku, Seoul, Korea 100-
742. All cross-references herein and in Schedule I hereto ("Schedule I"),
except as otherwise noted, are to the Offer to Purchase. Capitalized terms
used and not otherwise defined herein (including Schedule I) have the meanings
set forth in the Offer to Purchase.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b)(1) Certain contracts, agreements, arrangements and understandings
between the Company and certain of its directors, executive officers and
affiliates are described in Schedule I, which is incorporated herein by this
reference.
(b)(2) Certain contracts, agreements, arrangements and understandings
between the Company and Purchaser are described in Schedule I, which is
incorporated herein by this reference. See also "INTRODUCTION," "SPECIAL
FACTORS--Recommendations of the Special Committee and the Board; Fairness of
the Offer and the Merger," "SPECIAL FACTORS--Purpose and Structure of the
Offer and the Merger; Reasons of Purchaser for the Offer and the Merger,"
"SPECIAL FACTORS--The Merger Agreement," "SPECIAL FACTORS--Interests of
Certain Persons in the Offer and the Merger" and "THE TENDER OFFER--10.
Certain Transactions Between Purchaser and the Company" for a description of
certain contracts, agreements, arrangements, understandings and potential
conflicts of interest among the Company, Purchaser and certain affiliates of
the Company and Purchaser.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a)-(b) See "SPECIAL FACTORS--Background of the Offer and the Merger,"
"SPECIAL FACTORS--Recommendations of the Special Committee and the Board;
Fairness of the Offer and the Merger" and "SPECIAL FACTORS--Opinion of
Financial Advisor to the Special Committee," and Annex B to the Offer to
Purchase, for a description of the nature and the reasons for the
recommendation of the Special Committee and the Board that the Non-Samsung
Stockholders accept the Offer.
1
<PAGE>
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
See "SPECIAL FACTORS--Recommendations of the Special Committee and the
Board; Fairness of the Offer and the Merger" and "SPECIAL FACTORS--Opinion of
Financial Advisor to the Special Committee" for a description of the retention
by the Special Committee of Morgan Stanley to act as financial advisor to the
Special Committee.
Neither the Company nor any person acting on its behalf has employed,
retained or compensated any person to make solicitations or recommendations to
stockholders with respect to the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth in the Offer to Purchase or Schedule I or as
described in Item 3(b)(1) above (the provisions of each of which are hereby
incorporated herein by reference), no transactions in the Common Stock have
been effected during the past 60 days by the Company or, to the best of the
Company's knowledge, by any executive officer, director, affiliate or
subsidiary of the Company.
(b) See "INTRODUCTION" for a description of the present intent, to the
extent known by the Company, of the directors and executive officers of the
Company to tender pursuant to the Offer any Shares which are held of record or
beneficially owned by such persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a)-(b) None, except as set forth in "SPECIAL FACTORS--Background of the
Offer and the Merger," "SPECIAL FACTORS--The Merger Agreement" and "SPECIAL
FACTORS--Certain Litigation."
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Any necessary additional information is set forth in the Offer to Purchase.
2
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following exhibits are filed herewith:
Exhibit 1 Offer to Purchase, dated April 21, 1997.*
Exhibit 2 Letter of Transmittal, dated April 21, 1997.*
Exhibit 3 Agreement and Plan of Merger, dated April 14, 1997, by and among
Samsung Electronics Co., Ltd., AST Acquisition, Inc., and AST
Research, Inc. (included as Annex A to the Offer to Purchase).*
Exhibit 4 Letter to Stockholders of AST Research, Inc., dated April 21, 1997.*
Exhibit 5 Opinion of Morgan Stanley & Co. Incorporated, dated April 14, 1997
(included as Annex B to the Offer to Purchase).*
Exhibit 6 Press Release, dated April 15, 1997, issued by AST Research, Inc.
and Samsung Electronics Co., Ltd. (incorporated by reference to the
Company's Current Report on Form 8-K as filed with the Securities
and Exchange Commission on April 16, 1997).
Exhibit 7 Amended and Restated Rights Agreement, dated January 28, 1994,
between AST Research, Inc. and American Stock Transfer and Trust
Company, as Successor Rights Agent (incorporated by reference to 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 the Company's Registration Statement on Form 8-A as
filed with the Securities and Exchange Commission on August 14,
1989).
Exhibit 8 First Amendment to Rights Agreement, dated as of March 1, 1995,
between AST Research, Inc. and American Stock Transfer and Trust
Company, as Successor Rights Agent (incorporated by reference to the
Company's Current Report on Form 8-K as filed with the Securities
and Exchange Commission on March 3, 1995).
Exhibit 9 Second Amendment to Rights Agreement, dated as of April 15, 1997,
between AST Research, Inc. and American Stock Transfer and Trust
Company, as Successor Rights Agent.
Exhibit 10 Stock Purchase Agreement, dated as of February 27, 1995, by and
between AST Research, Inc. and Samsung Electronics Co., Ltd.
(incorporated by reference to the Company's Current Report on Form
8-K as filed with the Securities and Exchange Commission on March
3, 1995).
Exhibit 11 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 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).
Exhibit 12 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 the Company's Current Report on Form
8-K as filed with the Securities and Exchange Commission on August
7, 1995).
Exhibit 13 Strategic Alliance Agreement, dated February 27, 1995, between AST
Research, Inc., and Samsung Electronics Co., Ltd. (incorporated by
reference to the Company's Current Report on Form 8-K as filed with
the Securities and Exchange Commission on March 3, 1995).
Exhibit 14 Confidentiality Agreement, dated December 21, 1994, between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to the Company's Solicitation/Recommendation Statement on
Schedule 14D-9 as filed with the Securities and Exchange Commission
on March 6, 1995).
3
<PAGE>
Exhibit 15 Registration Rights Agreement, dated July 31, 1995, between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to the Company's Current Report on Form 8-K as filed with
the Securities and Exchange Commission on August 7, 1995).
Exhibit 16 Stockholder Agreement, dated July 31, 1995, between AST Research,
Inc. and Samsung Electronics Co., Ltd. (incorporated by reference
to the Company's Current Report on Form 8-K as filed with the
Securities and Exchange Commission on August 7, 1995).
Exhibit 17 Amendment to Stockholder Agreement, dated December 21, 1995, to
Stockholder Agreement, dated July 31, 1995, between AST Research,
Inc. and Samsung Electronics Co., Ltd. (incorporated by reference
to the Company's Current Report on Form 8-K as filed with the
Securities and Exchange Commission on December 22, 1995).
Exhibit 18 Component Sales Agreement, dated July 31, 1995, between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to the Company's Current Report on Form 8-K as filed with
the Securities and Exchange Commission on August 7, 1995).
Exhibit 19 Cooperative Procurement Agreement, dated July 31, 1995, between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to the Company's Current Report on Form 8-K as filed with
the Securities and Exchange Commission on August 7, 1995).
Exhibit 20 Marketing Cooperation Agreement, dated July 31, 1995, between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to the Company's Current Report on Form 8-K as filed with
the Securities and Exchange Commission on August 7, 1995).
Exhibit 21 AST OEM Supply to SEC Agreement, dated July 31, 1995, between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to the Company's Current Report on Form 8-K as filed with
the Securities and Exchange Commission on August 7, 1995).
Exhibit 22 SEC OEM Supply to AST Agreement, dated July 31, 1995, between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to the Company's Current Report on Form 8-K as filed with
the Securities and Exchange Commission on August 7, 1995).
Exhibit 23 Joint Development and Technical Cooperation Agreement, dated July
31, 1995, between AST Research, Inc. and Samsung Electronics Co.,
Ltd. (incorporated by reference to the Company's Current Report on
Form 8-K as filed with the Securities and Exchange Commission on
August 7, 1995).
Exhibit 24 Patent Cross License Agreement, dated July 31, 1995, between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to the Company's Current Report on Form 8-K as filed with
the Securities and Exchange Commission on August 7, 1995).
Exhibit 25 Employee Exchange Agreement, dated July 31, 1995, between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to the Company's Current Report on Form 8-K as filed with
the Securities and Exchange Commission on August 7, 1995).
Exhibit 26 General Terms Agreement, dated July 31, 1995, between AST Research,
Inc. and Samsung Electronics Co., Ltd. (incorporated by reference
to the Company's Current Report on Form 8-K as filed with the
Securities and Exchange Commission on August 7, 1995).
Exhibit 27 Letter Agreement, dated July 31, 1995, between AST Research, Inc.
and Samsung Electronics Co., Ltd. (incorporated by reference to the
Company's Current Report on Form 8-K as filed with the Securities
and Exchange Commission on August 7, 1995).
4
<PAGE>
Exhibit 28 Additional Support Agreement, dated December 21, 1995, between AST
Research, Inc. and Samsung Electronics Co., Ltd. (incorporated by
reference to the Company's Current Report on Form 8-K as filed with
the Securities and Exchange Commission on December 22, 1995).
Exhibit 29 Server Technology Transfer Agreement, dated February 22, 1996,
between AST Ireland Limited and Samsung Electronics Co., Ltd.
(incorporated by reference to the Company's Transition Report on
Form 10-K for the fiscal year ended December 30, 1995).
Exhibit 30 Strategic Consulting Agreement, dated February 22, 1996, between
AST Ireland Limited and Samsung Electronics Co., Ltd. (incorporated
by reference to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 30, 1996).
Exhibit 31 Intellectual Property Assignment Agreement, dated June 27, 1996,
between AST Research, Inc. and Samsung Electronics Co., Ltd.
(incorporated by reference to the Company's Current Report on Form
8-K as filed with the Securities and Exchange Commission on June
28, 1996).
Exhibit 32 Second Additional Support Agreement, dated December 13, 1996,
between AST Research, Inc. and Samsung Electronics Co., Ltd.
(incorporated by reference to the Company's' Current Report on Form
8-K as filed with the Securities and Exchange Commission on
December 26, 1996).
Exhibit 33 First Intellectual Property Option Exercise, dated December 17,
1996, between AST Research and Samsung Electronics Co., Ltd.
(incorporated by reference to the Company's Current Report on Form
8-K as filed with the Securities and Exchange Commission on
December 26, 1996).
Exhibit 34 Form of Indemnification Agreement, as amended to date (incorporated
by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 1996).
Exhibit 35 Form of Severance Compensation Agreement (incorporated by reference
to the Company's Annual Report on Form 10-K for the fiscal year
ended July 3, 1993).
Exhibit 36 Form of Amendment to Executive Officer Severance Compensation
Agreement (incorporated by reference to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 as filed
with the Securities and Exchange Commission on March 6, 1995).
Exhibit 37 Form of Amendment to Vice President Severance Compensation
Agreement (incorporated by reference to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 as filed
with the Securities and Exchange Commission on March 6, 1995).
Exhibit 38 1987 Employee Bonus Plan (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1986).
Exhibit 39 Form of Indemnification Trust Agreement (incorporated by reference
to the Company's Registration of Securities of Certain Successor
Issuers on Form 8-B).
Exhibit 40 1989 Long-Term Incentive Program (incorporated by reference to the
Company's Registration Statement on Form S-8, Registration No. 33-
29345).
Exhibit 41 Amendment to 1989 Long-Term Incentive Program related to increase
in number of shares (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended June 27,
1992).
5
<PAGE>
Exhibit 42 Amendment to AST Research, Inc. 1989 Long-Term Incentive Program
(incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended January 1, 1994).
Exhibit 43 Form of Warrant Certificate issued to Non-Employee Directors in
December 1990 (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 28, 1991).
Exhibit 44 Form of Warrant Certificate issued to Non-Employee Director in July
1992 (incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended June 27, 1992).
Exhibit 45 Form of Amendment to Warrant Certificate dated as of February 27,
1995 (incorporated by reference to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 as filed
with the Securities and Exchange Commission on March 6, 1995).
Exhibit 46 1991 Stock Option Plan for Non-Employee Directors (incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended June 28, 1991).
Exhibit 47 Amendment to AST Research, Inc. 1991 Stock Option Plan for Non-
Employee Directors (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended January
1, 1994).
Exhibit 48 Amendment to the AST Research, Inc. 1991 Stock Option Plan for Non-
Employee Directors, dated February 27, 1995 (incorporated by
reference to the Company's Solicitation and Recommendation
Statement on Schedule 14D-9 as filed with the Securities and
Exchange Commission on March 6, 1995).
Exhibit 49 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 the
Company's Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on January 26, 1996).
Exhibit 50 Employment Agreement, dated as of July 27, 1993, between Safi U.
Qureshey and AST Research, Inc. (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended July
3, 1993).
Exhibit 51 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 the Company's Current Report on Form
8-K as filed with the Securities and Exchange Commission on March
3, 1995).
Exhibit 52 Amendment to Severance Compensation Agreement, dated February 27,
1995, between AST Research, Inc. and Safi U. Qureshey (incorporated
by reference to the Company's Solicitation/Recommendation Statement
on Schedule 14D-9 as filed with the Securities and Exchange
Commission on March 6, 1995).
Exhibit 53 Implementation Supplement to Employment Agreement, dated April 19,
1997, between AST Research, Inc. and Safi U. Qureshey.
Exhibit 54 Involuntary Termination Policy, dated September 2, 1994
(incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended July 2, 1994).
Exhibit 55 AST Research, Inc. 1994 One-Time Grant Stock Option Plan for Non-
Employee Directors (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended January
1, 1994).
Exhibit 56 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 the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 as filed
with the Securities and Exchange Commission on March 6, 1995).
6
<PAGE>
Exhibit 57 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 the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 as filed
with the Securities and Exchange Commission on March 6, 1995).
Exhibit 58 1996 Non-Employee Director Plan (comprised of resolutions adopted
by the Board of Directors on November 26, 1996) (incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 1996).
Exhibit 59 President's Plan (comprised of resolutions adopted by the Board of
Directors on November 2, 1995) (incorporated by reference to the
Company's Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on January 26, 1996).
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* Included in copies mailed to stockholders.
7
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
Dated: April 21, 1997 AST RESEARCH, INC.
By: /s/ Y.S. Kim
-----------------------------------
Name: Y.S. Kim
Title: President and Chief
Executive Officer
8
<PAGE>
SCHEDULE I
INFORMATION WITH RESPECT TO THE COMPANY
OUTSTANDING VOTING STOCK
There were 57,964,830 Shares outstanding on April 14, 1997, and each Share
is entitled to one vote on each matter presented to the stockholders for a
vote.
BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth certain information, as of April 14, 1997,
with respect to all persons or entities known by the Company to be the
beneficial owners of more than 5% of its outstanding Shares, each director,
the Chief Executive Officer and the four other most highly compensated
executive officers and two additional highly compensated former executive
officers, and all directors and executive officers of the Company as a group.
Unless otherwise noted, each of the stockholders listed has sole voting and
investment power with respect to all Shares shown as beneficially owned by
such stockholder, subject to community property laws where applicable and the
information contained in the footnotes to this table:
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------
PERCENTAGE
OPTIONS OF SHARES
NAME OF BENEFICIAL OWNER (1) TOTAL OUTSTANDING
------------------------ --------- ---------- -----------
<S> <C> <C> <C>
Samsung Electronics Co., Ltd. (2)............. 4,400,000 30,789,336 49.4%
Tandy Corporation (3)......................... -- 4,498,594 7.8%
Richard J. Goeglein........................... 132,000 149,000 *
Jack W. Peltason.............................. 83,000 83,300 *
Safi U. Qureshey (4).......................... 501,250 2,857,576 4.9%
Gary D. Weaver................................ 31,250 31,250 *
Mark P. de Raad............................... 10,500 10,600 *
Dennis R. Leibel.............................. 101,500 106,526 *
All directors and executive officers as a
group (14 persons) (5)........................ 859,500 3,238,252 5.5%
</TABLE>
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* Less than 1%.
(1) Includes Shares which executive officers and directors have the right to
acquire within 60 days of April 14, 1997, under stock option and warrant
agreements (without giving effect to the acceleration of Options provided
for in the Merger Agreement).
(2) Includes 14,019,000 Shares beneficially owned by Purchaser through its
wholly-owned subsidiary, Samsung Electronics America, Inc., 105 Challenger
Road, Ridgefield Park, New Jersey 07660. The address for Samsung
Electronics Co., Ltd. is 250, 2-Ka, Taepyung-Ro, Chung-Ku, Seoul, Korea
100-742. Purchaser also owns 500,000 shares of the Company"s non-voting
Series A Redeemable Preferred Stock.
(3) These Shares are beneficially owned by Tandy Corporation, 1800 One Tandy
Center, P.O. Box 17180, Fort Worth, TX 76102.
(4) Includes 72,834 Shares held by Nancy Marshall as custodian for minor
children of Mr. Qureshey and 3,289 Shares held by U.S. Trust, as trustee
for Skyline Crut I and Skyline Crut II established for the benefit of Mr.
Qureshey's minor children, to which Mr. Qureshey disclaims any beneficial
interest.
(5) None of the following current or former directors and executive officers
of the Company beneficially owns any Shares or any convertible securities
that they have the right to exercise within 60 days of April 14, 1997
(without giving effect to the acceleration of Options provided for in the
Merger Agreement): Noh Byung Park, Scott Bower, Roger W. Johnson, Ho Moon
Kang, Kwang-Ho Kim, Young Soo Kim, Bo-Soon Song, Yong-Ro Song, Won Suk
Yang, Hee Dong Yoo, Gerald T. Devlin, and Ian W. Diery. See "Interests of
Certain Persons in the Offer and the Merger."
I-1
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BOARD OF DIRECTORS
The following table provides certain relevant information as of April 14,
1997, concerning the directors and their principal occupations:
DIRECTORS
RICHARD J. GOEGLEIN, 62, 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, Inc.
and Platinum Software Corporation.
ROGER W. JOHNSON, 62, was appointed a director in October 1996. Mr. Johnson
is a business advisor, teacher and author. Mr. Johnson served as the
Administrator of the U.S. General Services Administration ("GSA") from 1993 to
1996. The GSA sets federal policy in the areas of information technology,
telecommunications and automated data processing, supply and service
procurement, and real property management and acquisition. In addition, Mr.
Johnson is a member of the Executive Committee for the American Entrepreneurs
for Economic Growth. Prior to his tenure at the GSA, Mr. Johnson was Chairman
and Chief Executive Officer of Western Digital Corporation from 1982 to 1993.
Mr. Johnson currently serves on the Boards of Directors of The Needham Funds,
Inc., JTS Corporation, Group Technologies, Inc., Insolectro, Inc., Elexsys
International, Inc., and Array Microsystems.
HO MOON KANG, 47, was appointed a director in February 1997. Mr. Kang joined
Samsung in 1975 and has held a number of positions in the Semiconductor
Division. In March 1990, Mr. Kang was named Managing Director of MICRO Export
Team. In January 1994, Mr. Kang was named General Manager of MICRO Division
and in January 1995 was named General Manager of MICRO Business. Currently,
Mr. Kang serves as Senior Vice President and General Manager of Samsung
Electronics Computer Division.
KWANG-HO KIM, 57, was appointed a director in July 1995, and since June
1996, Mr. Kim has served as Chairman of the Board of the Company. 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, President and Chief Executive Officer of
Samsung in December 1992 and Vice Chairman and Chief Executive Officer of
Samsung from 1994 to 1996. In January 1997, Mr. Kim was named Chairman and
Chief Executive Officer of Samsung Americas.
YOUNG SOO KIM, 62, was appointed a director in July 1995 and since August
1996 has served as the Company's President and Chief Executive Officer. Before
joining Samsung, Mr. Kim was Vice President of Honeywell in charge of its
Solid State Electronics Division from December 1974 to August 1987. 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. From
January 1993 to August 1996, Mr. Kim served as Corporate Vice President of
Samsung.
I-2
<PAGE>
JACK W. PELTASON, 73, 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 Infotec, 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, 46, 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 served as Chairman of the Board
from November 1993 to June 1996, when he was assumed the title Chairman
Emeritus. Mr. Qureshey is currently a member of the President's Export
Council. 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. Mr. Qureshey is currently on the Board of
Directors of ObjectAutomation.
YONG-RO SONG, 51, was appointed a director in February 1997. Mr. Song joined
Samsung through an affiliated company, Cheil Petrochemical, Co., Ltd., in
1981. He later was named Senior Managing Director of Samsung Electronics
planning department in 1988 and Senior Managing Director of Samsung
Electronics corporate supporting office in 1993. From April 1994 to June 1995,
Mr. Song served as Executive Vice President of the Joongang Ilbo (a Samsung
affiliate). Mr. Song served as Executive Vice President and General Manager of
Samsung Electronics from July 1995 to December 1996. Since January 1997, Mr.
Song has served as Executive Vice President and Chief Executive Officer of
Samsung's Corporate Planning Office.
BO-SOON SONG, 48, was appointed a director in January 1996. In January 1997,
Mr. Song was named President of Samsung Americas, and from 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") from
1993 to 1995. Prior to being appointed as Chief Executive Officer of SEA in
September 1993, Mr. Song had been Chief Finance Officer of SEA from 1991 to
1993, and earlier served as Finance Director of Samsung from 1988 to 1991.
From 1984 to 1988, Mr. Song was Treasurer of Samsung Trading Co. in London,
England. Mr. Song joined Samsung in 1980 as a Senior Manager for the Samsung
Group Chairman Office's International Finance Division.
WON SUK YANG, 53, was appointed a director in July 1995 and has served as
the Company's Senior Vice President and Chief Financial Officer since
September 1996. 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.
BOARD COMMITTEES
The Board is responsible for the overall affairs of the Company. Authority
with respect to certain matters of the Company has been delegated to standing
committees of the Board, which are the Executive Committee, Audit Committee
and Compensation Committee. The Board does not have a standing Nominating
Committee.
I-3
<PAGE>
The Executive Committee is empowered to act for and on behalf of the Board
and its committees, but may not undertake actions reserved in the Bylaws to
the Board itself, such as filling vacancies on the Board and declaring certain
dividends to stockholders. Actions by the Executive Committee are to be
reported for review and ratification by written consent or at a subsequent
meeting of the Board. Mr. Qureshey, Mr. Y.S. Kim and Dr. Carmelo Santoro
served on the Executive Committee from January 1996 until June 1996, at which
time the Executive Committee was re-formulated and Mr. K.H. Kim, Mr. H.G. Kim,
Mr. Yoo, Mr. Ian Diery and Mr. Goeglein were elected. Mr. Diery resigned from
the Executive Committee in August 1996. Mr. Y.S. Kim was elected to the
Executive Committee in November 1996. In December 1996, the remaining members
of the Board not then on the Executive Committee were elected to the Executive
Committee. During fiscal 1996, the Executive Committee held 6 meetings.
The Audit Committee has the responsibility of recommending to the Board the
appointment of the Company's outside auditors, reviewing the auditors'
reports, management reports and various audit criteria, and consulting with
the auditors concerning the adequacy of internal accounting controls.
Mr. Goeglein, Mr. Peltason, Mr. Yang and Dr. Santoro served on the Audit
Committee during fiscal 1996. Dr. Santoro resigned in July 1996 and Mr. Yang
resigned in September 1996. Mr. H.G. Kim was elected to the Audit Committee in
November 1996. No meetings were held in fiscal 1996.
The Compensation Committee is empowered to review and administer the
Company's compensation practices and policies, which include administering the
Company's incentive compensation plans, reviewing compensation levels of the
Company's officers and directors, reviewing the Company's long-range plans for
management development and examining the Company's compensation structure as
it relates to industry practices. Messrs. Goeglein, Peltason and Yang served
on the Compensation Committee during fiscal 1996. Mr. Yang resigned in
September 1996 and Mr. B.S. Song was elected in November 1996. During fiscal
1996, the Compensation Committee held 4 meetings.
ATTENDANCE AT MEETINGS
During fiscal 1996, the Board held a total of 7 meetings, of which 3 were
special meetings conducted by telephone. During fiscal 1996, each member of
the Board attended 75 percent or more, in the aggregate, of the meetings of
the Board during the period in which he was a director and meetings of the
Committees of which he was a member.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Goeglein, Peltason and Yang served on the Compensation Committee
until September 1996, when Mr. Yang was appointed Chief Financial Officer of
the Company and resigned from the Compensation Committee. Mr. B.S. Song was
elected to the Compensation Committee in November 1996 to replace Mr. Yang. No
member of the Compensation Committee is an officer or an employee of the
Company.
DIRECTORS COMPENSATION
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. Directors who are also employees of the Company do not currently
receive fees for service in their capacity as a director. For information
regarding compensation of Mr. Qureshey, see "Employment Contracts and
Termination of Employment and Change-in-Control Arrangements" in this Schedule
I.
I-4
<PAGE>
Pursuant to the Stockholder Agreement, 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. At 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 Samsung Employee Director Designees
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.
The 1991 Stock Option Plan for Non-Employee Directors, as amended, provides
for an initial grant of options to purchase 20,000 Shares 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. The aggregate number of Shares that may be issued under this 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
Share'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, as amended. This plan provides for the one-time grant
of an option to purchase 50,000 Shares to each non-employee member of the
Board 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
at $14.25 per share became immediately exercisable. At December 28, 1996,
options to purchase 100,000 Shares remained outstanding and were exercisable
at an exercise price of $14.25 per Share.
In 1996, the Company adopted the 1996 Non-Employee Director Plan. This plan
provides for an aggregate of 500,000 Shares to be available for option grants
to the non-employee members of the Board. In fiscal 1996, options to purchase
190,000 Shares were granted to the non-employee directors. These options vest
ratably over a period of four years from the date of grant.
In December 1990, the Board authorized the issuance of warrants to purchase
an aggregate of 80,000 Shares to its then non-employee directors. At December
28, 1996, 40,000 of these warrants remained outstanding and were exercisable
at $13.88 per share. On July 27, 1992, the Board authorized the issuance of
warrants to purchase 50,000 Shares to Dr. Santoro, the Company's then Chairman
of the Board. At December 28, 1996, 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 at $13.50 per Share became
immediately exercisable.
Each of Messrs. Johnson, Peltason and Goeglein, as members of the Special
Committee, has received for their services on the Special Committee during the
pendency of the Acquisition Proposal and any other proposal by or transaction
with Purchaser that pursuant to the terms of the Stockholder Agreement would
be subject to the approval of the Independent Directors, a fee of $50,000
(payable $25,000 on January 30, 1997 and $25,000 on March 30, 1997), plus
reimbursement of expenses reasonably incurred in connection with their
services on the Special Committee.
I-5
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth the name and age of each executive officer of
the Company at April 14, 1997, his positions and offices with the Company and
the period during which he has served as an executive officer of the Company:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME AGE POSITION(S) SINCE
---- --- ----------- ---------
<C> <C> <S> <C>
Young Soo Kim 62 President and Chief Executive Officer 1996
Senior Vice President and Chief Financial
Won Suk Yang 53 Officer (Acting) 1996
Noh Byung Park 42 Senior Vice President, Worldwide Product
Development and Manufacturing 1996
Gary D. Weaver 54 Senior Vice President, Worldwide Operations 1995
Mark P. de Raad 37 Vice President, Finance, Treasurer and
Principal Accounting Officer 1995
Scott Bower 46 Vice President, Sales and Marketing, Americas 1997
</TABLE>
For information on the business background of Mr. Y.S. Kim and Mr. Yang see
"Directors" above.
NOH BYUNG PARK joined the Company as a member of the Board of Directors in
1996. In September 1996, Mr. Park resigned from the Board and was named Senior
Vice President of Worldwide Product Development and Manufacturing. Mr. Park
first joined Samsung Electronics' Personal Computer division in 1975. From
1981 to 1985, Mr. Park completed his Ph.D. in computer engineering. Between
1985 and 1990, he taught computer engineering and computer science at the
University of California, Irvine. In March 1990, he rejoined Samsung as the
Director of Research and Development and was subsequently named General
Manager of Samsung Electronics' Personal Computer Division.
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.
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.
SCOTT BOWER was named an officer and Senior Vice President of Sales and
Marketing, Americas in January 1997. Prior to joining the Company, from June
1995 to December 1996, Mr. Bower was Vice President of Sales and Marketing for
Samsung's Information Systems Division in the United States. Prior to joining
Samsung, Mr. Bower served 23 years with IBM, where he held various executive
positions including Director of Mobile Computing Marketing, Director of PC
Product Line Planning and Director of Software Sales.
I-6
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On July 27, 1993, the Company entered into a five-year revolving term
employment agreement with Mr. Qureshey (the "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 him not soliciting away
Company employees. In addition, Mr. Qureshey agreed that he will vote his
shares along with the other stockholders in the election of directors and will
not join or participate against the Board 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. However, in the Merger
Agreement the Company has waived its rights of first refusal with respect to
the tender and purchase of Shares pursuant to the Offer and the consummation
of the Merger. 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 from the Company
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
accelerations 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.
Mr. Qureshey resigned as President and Chief Executive Officer effective
November 2, 1995, but remained 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. However, all other terms, including his annual
base salary of $650,000, of the Founder's Agreement were deemed to be in
effect and all rights are reserved thereunder by Mr. Qureshey.
On June 28, 1996, the Company elected Mr. K.H. Kim as Chairman of the Board
and named Mr. Qureshey Chairman Emeritus, which would have resulted in Mr.
Qureshey's being entitled to certain compensation and benefits had Mr.
Qureshey not agreed to defer effectiveness of the Founder's Agreement to some
future date of his choice.
On February 4, 1997 Mr. Qureshey elected to terminate his employment for
"good reason." In connection with this termination, Mr. Qureshey's base salary
was reinstated at $650,000 per year. Mr. Qureshey will continue to receive his
base salary for a benefit period of five years following termination. In
addition to receiving his salary: (i) Mr. Qureshey will receive his annual
bonus for fiscal year 1997, pro rated to the date of termination, as well as
annual bonuses of $100,000 for the two fiscal years following termination;
(ii) the vesting of all of Mr. Qureshey's stock options accelerated, and such
options became exercisable and all restrictions on restricted stock awards
lapsed; (iii) Mr. Qureshey's benefits allowance for death or disability will
continue for a period of five years from the date of termination; and (iv) all
of Mr. Qureshey's 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
become payable. In addition, if Mr. Qureshey enters into loan agreements for
the purpose of exercising options or other rights to acquire securities of the
Company, 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.
I-7
<PAGE>
Under the Founder's Agreement, Mr. Qureshey is 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 following termination, and up to $25,000 per
year (grossed up for income taxes) for estate, tax and financial planning
services. Pursuant to an Implementation Supplement to Employment Agreement
entered into on April 19, 1997, the Company agreed to pay Mr. Qureshey monthly
payments equal to $10,000 during such first five-year period and to transfer
currently certain office furniture to him in order to implement the office,
secretarial and automobile provisions of the Founder's Agreement (described
above).
Following such five-year post-termination benefits period, provided Mr.
Qureshey has not undertaken substantial or competing employment during such
period, the Company indefinitely will provide continued health and welfare
benefits, with Mr. Qureshey paying or reimbursing the Company for 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 payable during any
consulting period.
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). On April 18, 1997, the Company paid Mr. Qureshey the
sum of $1,538,658 in fulfillment of the Company's obligations under Mr.
Qureshey's Severance Compensation Agreement. Mr. Qureshey does not otherwise
participate in the officer involuntary termination policy described below.
At the Annual Meeting of Stockholders held in May 1987, the stockholders
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 stockholders. Such agreements provide for each indemnified officer and
director to be indemnified by the Company to the fullest extent permitted by
its Certificate of Incorporation, Bylaws and applicable law against all
expenses, liabilities and losses suffered by the indemnified officer or
director in connection with any present or future claim or proceeding to which
the indemnified officer or director is a party by reason of his capacity as an
officer or director.
The Company has entered into Severance Compensation Agreements with certain
of its executive officers. Under the agreements, following a "change in
control" of the Company, 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: (i) the Company will pay the
officer severance compensation equal to two years' salary and bonuses; (ii)
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 (iii)
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 Code. For all agreements entered into after the original Samsung
investment in the Company, a "change in control" will be deemed to occur with
respect to Samsung's investment in, and relationship with, the Company only if
Samsung's percentage ownership of the Company's Shares exceeds 49.9%. Similar
agreements have also been entered into with four 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.
I-8
<PAGE>
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
certain of its 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. Executive officers who have entered into Severance Compensation
Agreements do not otherwise participate in this severance policy.
If the benefits to be paid under the Severance Compensation Agreements or
the severance policy for executive officers were triggered, payments in the
following approximate amounts would be made to the following executive
officers and vice presidents: Won Suk Yang--$320,000, Gary D. Weaver--
$270,400, Scott Bower--$500,000, Sean Corkery--$242,000, Gary Mullinix-
$250,100, Robert Parmelee--$234,800, Rodney Rodericks--$404,200.
In addition, the Company has entered into an Agreement dated January 16,
1997, as amended on April 18, 1997 (the "Resignation Agreement"), with Mark P.
de Raad which replaced the Severance Compensation Agreement between the
Company and Mr. de Raad and which exclusively governs the severance
compensation and benefits payable upon Mr. de Raad's termination from
employment with the Company, which will be May 16, 1997 (the "Date of
Termination"). Following the date of termination, Mr. de Raad shall be paid a
lump sum amount of $496,701.92, less withholding. Furthermore, under the
Resignation Agreement all of the non-qualified stock options held by Mr. de
Raad will become fully exercisable as of the Date of Termination. In addition,
for a period not to exceed two years from the Date of Termination, Mr. de Raad
will be permitted to participate in the Company's medical, dental, long-term
disability and life insurance plans and certain other benefit programs on the
same basis as such benefits are available to other senior executive officers
of the Company.
Mr. Diery's employment with the Company terminated on August 26, 1996.
Pursuant to a Severance Compensation Agreement with the Company, Mr. Diery was
paid a lump sum payment of $2,100,000.
Mr. Leibel's employment with the Company terminated on October 7, 1996.
Pursuant to a Severance Compensation Agreement with the Company, Mr. Leibel
was paid a lump sum payment of $605,078.
Michael Willcocks' employment as Senior Vice President, Asia Pacific and
Middle East terminated on November 11, 1996. Pursuant to a Severance
Compensation Agreement with the Company, Mr. Willcocks was paid a lump sum
payment of $120,000.
I-9
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following tables present information concerning the cash compensation
and stock options provided to the Company's Chief Executive Officer, a former
Chief Executive Officer, and the four other most highly compensated executive
officers and two additional highly compensated former executive officers of
the Company during fiscal year 1996 (collectively, the "Named Executive
Officers") for the fiscal year ended December 28, 1996, the transition period
ended December 30, 1995 ("TP 95"), and the fiscal years ended July 1, 1995 and
July 2, 1994. The notes to these tables provide more specific information
regarding compensation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------- ------------
SECURITIES
TRANSITION OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PERIOD OR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION (A) FISCAL YEAR ($) ($) ($) (#) ($)
---------------------- ----------- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Young Soo Kim (b) 1996 70,800 -- -- 200,000 2,723 (c)
President and TP95 -- -- -- -- --
Chief Executive Officer 1995 -- -- -- -- --
1994 -- -- -- -- --
Ian W. Diery (d) 1996 508,064 70,000 90,104 (d) -- 2,100,000 (d)
President and TP95 101,323 -- -- 1,000,000 --
Chief Executive Officer 1995 -- -- -- -- --
1994 -- -- -- -- --
Gary D. Weaver (e) 1996 244,234 18,960 -- 15,000 3,366 (c)
Senior Vice President, TP95 104,100 -- 84,308 (f) 50,000 3,123 (c)
Worldwide Manufacturing 1995 -- -- -- -- --
Operations 1994 -- -- -- -- --
Mark P. de Raad (e) 1996 205,851 -- -- 10,000 2,926 (c)
Vice President, Controller and TP95 92,877 -- -- 4,000 1,278 (c)
Principal Accounting Officer 1995 -- -- -- -- --
1994 -- -- -- -- --
Gerald T. Devlin (e) 1996 330,038 -- -- 25,000 6,462 (c)
Senior Vice President, TP95 116,577 -- 116,000 (g) 100,000 462 (c)
Americas 1995 -- -- -- --
1994 279,821 -- -- 7,500 5,815 (c)
Dennis R. Leibel 1996 241,191 50,000 30,096 (h) 30,000 611,227 (h)
Senior Vice President, Legal, TP95 115,400 -- -- 10,000 4,060 (c)
Administration and Secretary 1995 217,820 -- -- 16,000 5,339 (c)
1994 200,414 30,000 -- 6,000 6,454 (c)
</TABLE>
- --------
(a) Compensation for Mr. Park and Mr. Yang was paid by Samsung; therefore,
they are not included in the Summary Compensation Table. Mr. Park's annual
salary was $250,000, and Mr. Yang's annual salary was $250,000, each of
which was paid by Samsung in fiscal year 1996.
(b) Mr. Y.S. Kim was named President and Chief Executive Officer on August 26,
1996. Mr. Kim's annual salary is $300,000, of which he was paid
approximately $105,000 in fiscal 1996. Of that amount, approximately
$34,000 was paid by Samsung.
I-10
<PAGE>
(c) Amount represents the Company's matching contribution to the Company's
401(k) Plan.
(d) Mr. Diery was named President and Chief Executive Officer on November 2,
1995. Other Annual Compensation in fiscal 1996 includes $88,181 in
relocation expenses and reimbursement for tax and estate planning. Mr.
Diery's employment with the Company terminated on August 26, 1996.
Pursuant to a Severance Compensation Agreement with the Company, Mr. Diery
was paid a lump sum payment of $2,100,000, which is included in All Other
Compensation.
(e) 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. For further information regarding
the compensation of Mr. de Raad, see "Employment Contracts and Termination
of Employment and Change-in-Control Arrangements" above in this Schedule
I.
(f) The Company paid $84,308 for Mr. Weaver's relocation expenses in
transition period 1995.
(g) Amount represents a signing bonus paid to Mr. Devlin upon rejoining the
Company in September 1995.
(h) Other Annual Compensation includes payments to cover taxes on Mr. Leibel's
bonus payment. Mr. Leibel's employment with the Company terminated on
October 7, 1996. Pursuant to a Severance Compensation Agreement with the
Company, Mr. Leibel was paid a lump sum payment of $605,078, which is
included in All Other Compensation. All Other Compensation also includes
the Company's matching contribution to the Company's 401(k) plan of
$6,149.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
NUMBER OF PRICE
SECURITIES % OF TOTAL EXERCISE APPRECIATION
UNDERLYING OPTIONS/SARS OR FOR OPTION
OPTIONS/SARS GRANTED TO BASE TERM(B)
GRANTED(A) EMPLOYEES IN PRICE EXPIRATION -----------------
NAME (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
---- ------------ ------------ -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Young Soo Kim 200,000 10.3% 4.69 12/23/06 589,589 1,494,134
Ian W. Diery -- -- -- -- -- --
Gary D. Weaver 15,000 0.8% 8.63 01/09/06 81,363 206,190
Mark P. de Raad 10,000 0.5% 8.63 01/09/06 54,242 137,460
Gerald T. Devlin 25,000 1.3% 8.63 01/09/06(c) 135,605 343,651
Dennis R. Leibel 30,000 1.5% 8.63 01/09/06(c) 162,726 412,381
</TABLE>
- --------
(a) All option grants were new and not granted in connection with an option
repricing transaction. Options vest ratably over four years, commencing on
the first anniversary of the date of grant, and 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 Shares, continued employment of the
optionee through the term of the option, and other factors.
(c) Mr. Devlin's employment with the Company terminated on October 11, 1996,
and Mr. Leibel's employment with the Company terminated on October 7,
1996, and as a result the options listed above have expired according to
their terms.
I-11
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN
FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT
YEAR END (#) FISCAL YEAR END ($)
------------------------- -------------------------
SHARES
ACQUIRED ON VALUE
EXERCISE REALIZED
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Young Soo Kim -- -- -- 200,000 -- --
Ian W. Diery -- -- -- -- -- --
Gary D. Weaver -- -- 27,500 67,500 -- --
Mark P. de Raad -- -- 41,000 13,000 -- --
Gerald T. Devlin(a) -- -- 25,000 -- -- --
Dennis R. Leibel(a) 20,000 25,626 101,500 -- -- --
</TABLE>
- --------
(a) Mr. Devlin's employment with the Company terminated on October 11, 1996,
and Mr. Leibel's employment with the Company terminated on October 7,
1996, and as a result the options listed above have expired according to
their terms.
CERTAIN TRANSACTIONS
In September 1993, the Company loaned Scott A. Smith, Vice President and
General Manager, Desktop Products, $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 was paid in full on November 15, 1996.
In July 1995, the Company loaned Mr. Qureshey $1,156,453 to exercise options
to purchase 150,000 Shares granted under the AST Research, Inc. Chief
Executive's Plan, evidenced by a promissory note secured by a stock
certificate. The loan was repaid on August 21, 1996.
On December 21, 1995, the Company issued a five-year option to Samsung to
purchase 4.4 million Shares at an exercise price of $.01 per Share and allowed
Samsung to add an additional member to the Board in exchange for additional
financial support, principally including a two-year $200 million credit
guarantee and a two-year vendor credit line of $100 million for selected
component purchases.
On February 22, 1996, the Company entered into a Server Technology Transfer
Agreement and a Strategic Consulting Agreement with Samsung. The Server
Technology Transfer Agreement grants Samsung a royalty-free license through
July 31, 2000 to use the technical information supplied by the Company to
produce server technology products. The Strategic Consulting Agreement grants
Samsung a royalty-free license through July 31, 2000 to use various marketing
and sales planning studies provided by the Company. Under each agreement,
Samsung paid $5 million to the Company. These amounts are not refundable under
any circumstance and are not contingent upon the rendering of future services
by the Company. As a result of these agreements, $10 million was recorded as
revenue from related party in fiscal 1996.
On June 27, 1996, the Company entered into an Intellectual Property
Assignment Agreement with Samsung. Under the Intellectual Property Assignment
Agreement, the Company assigned certain intellectual property rights to
Samsung in consideration of $15 million, and granted Samsung an option to
purchase further intellectual property rights at a price to be determined at
the time of exercise of the option. On December 17, 1996, Samsung exercised
its option to purchase such intellectual property from the Company. The agreed
upon consideration was $10 million, which was paid in fiscal 1997.
I-12
<PAGE>
On July 11, 1996, the Company paid the $90 million promissory note due to
Tandy Corporation ("Tandy") related to the Company's 1993 acquisition of
Tandy's personal computer manufacturing operations. Payment was in the form of
4,498,594 Shares (then valued at $30 million) and $60 million in cash.
Subsequent to the issuance of shares to Tandy, also on July 11, 1996, the
Company issued 8,499,336 Shares to Samsung in exchange for $60 million in cash
that was used to pay Tandy. The issuance of the Common Stock to Samsung was
made pursuant to the 1995 Letter of Credit Agreement between the Company and
Samsung.
On October 11, 1996, Samsung provided a $50 million short-term loan to the
Company at an interest rate of 5.9% per annum. The Company repaid the loan,
including interest of $600,000, on December 19, 1996.
On December 13, 1996, the Company signed the Second Additional Support
Agreement with Samsung pursuant to which Samsung agreed to provide certain
additional financial support to the Company in consideration for 500,000
shares of non-voting preferred stock. The shares are not subject to mandatory
redemption, but each share is redeemable at the Company's option for cash of
$100.75 or 13.11 Shares, beginning in January 1999. The preferred shares carry
a quarterly cumulative dividend, beginning in 1999, at the annual rate of
$4.72 per share, with annual increases to a maximum rate of $7.96 per share in
the year 2004 and thereafter.
In January 1997, the Company loaned Mr. Qureshey $790,753 to exercise
options to purchase 200,000 Shares granted under the Chief Executive's Plan,
evidenced by a promissory note secured by a stock certificate. The loan was
issued interest free and is to be repaid on or before February 27, 1998.
During fiscal year 1996, Samsung paid the salaries of certain employees of
the Company, including Mr. Y.S. Kim, Mr. Yang and Mr. Park. The Company
recorded a capital contribution of $1 million, which represents the estimated
compensation expense of all employees paid by Samsung.
Samsung and certain of its subsidiaries supply components such as DRAMs
(Dynamic Random Access Memory chips) and monitors to the Company pursuant to
customary commercial arrangements. Sales of such components by Samsung and its
subsidiaries to the Company aggregated approximately $304.7 million, $144.7
million, $65 million and $46 million, respectively, for the Company's 1996
fiscal year, the transition period ended December 30, 1995, and the 1995 and
1994 fiscal years. The amount payable to Samsung at December 28, 1996 was
$58.4 million. Sales to Samsung in fiscal year 1996 totalled $17.9 million.
SECTION 16 COMPLIANCE
Based solely upon its review of Forms 3, 4 and 5 and any amendments thereto
furnished to the Company, or written representations from certain reporting
persons that no other reports were required, the Company is not aware of any
person who failed to file on a timely basis any reports required under Section
16(a) of the Securities Exchange Act of 1934, as amended.
I-13
<PAGE>
EXHIBIT 99.1
Offer to Purchase, dated April 21, 1997
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(Including the Associated Rights)
OF
AST RESEARCH, INC.
AT
$5.40 NET PER SHARE
BY
SAMSUNG ELECTRONICS CO., LTD.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON MONDAY, MAY 19, 1997, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE SATISFACTION OR
WAIVER OF CERTAIN CONDITIONS TO THE OBLIGATIONS OF PURCHASER AND THE COMPANY
TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING
RECEIPT BY PURCHASER AND THE COMPANY OF CERTAIN GOVERNMENTAL AND REGULATORY
APPROVALS. THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED.
THE BOARD OF DIRECTORS OF THE COMPANY, BASED ON THE UNANIMOUS RECOMMENDATION
OF A SPECIAL COMMITTEE OF THE INDEPENDENT DIRECTORS OF THE COMPANY, HAS
DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE OFFER AND THE MERGER, TAKEN TOGETHER, ARE IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF THE COMPANY (OTHER THAN PURCHASER AND ITS
AFFILIATES), HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, AND RECOMMENDS THAT
THE STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES HEREUNDER.
---------------
IMPORTANT
Any stockholder desiring to tender Shares (as defined herein) should either
(1) complete and sign the Letter of Transmittal, or a facsimile copy thereof,
in accordance with the instructions in the Letter of Transmittal, mail or
deliver it and any other required documents to the Depositary and either
deliver the certificates for such Shares to the Depositary along with the
Letter of Transmittal or tender such Shares pursuant to the procedure for
book-entry transfer set forth in Section 2 of this Offer to Purchase or (2)
request such stockholder's broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for the stockholder. Stockholders
having Shares registered in the name of a broker, dealer, commercial bank,
trust company or other nominee must contact such broker, dealer, commercial
bank, trust company or other nominee if they desire to tender such Shares.
A stockholder who desires to tender Shares and whose certificates for Shares
are not immediately available, or who cannot comply with the procedures for
book-entry transfer described in this Offer to Purchase on a timely basis, may
tender such Shares by following the procedure for guaranteed delivery set
forth in Section 2.
Questions and requests for assistance, or for additional copies of this
Offer to Purchase, the Letter of Transmittal or other tender offer materials,
may be directed to the Dealer Manager or the Information Agent at their
respective addresses and telephone numbers set forth on the back cover of this
Offer to Purchase. Holders of Shares may also contact brokers, dealers,
commercial banks or trust companies for assistance concerning the Offer.
---------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT.ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
---------------
The Dealer Manager for the Offer is:
SALOMON BROTHERS INC
The date of this Offer to Purchase is April 21, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION............................................................. 1
SPECIAL FACTORS.......................................................... 3
Background of the Offer and the Merger................................. 3
Recommendations of the Special Committee and the Board; Fairness of the
Offer and the Merger.................................................. 14
Opinion of Financial Advisor to the Special Committee.................. 21
Position of Purchaser Regarding the Fairness of the Offer and the
Merger................................................................ 26
Analysis of Financial Advisor to Purchaser............................. 26
Purpose and Structure of the Offer and the Merger; Reasons of Purchaser
for the Offer and the Merger.......................................... 28
Plans for the Company After the Offer and the Merger; Certain Effects
of the Offer
and the Merger........................................................ 29
Rights of Stockholders in the Merger................................... 30
The Merger Agreement................................................... 31
Interests of Certain Persons in the Offer and the Merger............... 35
Beneficial Ownership of Shares......................................... 36
Certain Financial Projections.......................................... 37
Certain Litigation..................................................... 40
THE TENDER OFFER......................................................... 42
1. Terms of The Offer; Expiration Date.................................. 42
2. Procedure for Accepting the Offer and Tendering Shares............... 43
3. Withdrawal Rights.................................................... 46
4. Acceptance for Payment and Payment for Shares........................ 47
5. Certain Federal Income Tax Consequences.............................. 48
6. Price Range of the Shares............................................ 49
7. Certain Information Concerning the Company........................... 49
8. Certain Information Concerning Purchaser............................. 52
9. Financing of the Offer and the Merger................................ 53
10. Certain Transactions Between Purchaser and the Company............... 53
11. Dividends and Distributions.......................................... 54
12. Effects of the Offer on the Market for Shares; NASDAQ National Market
System and Exchange Act Registration................................ 55
13. Certain Conditions of the Offer...................................... 56
14. Certain Legal Matters; Regulatory Approvals.......................... 57
15. Fees and Expenses.................................................... 59
16. Miscellaneous........................................................ 61
Schedule I Directors and Executive Officers of Purchaser................. I-1
Schedule II Directors and Executive Officers of the Company.............. II-1
Schedule IIIAudited Financial Statements (and Related Notes) for the
Company for
the Fiscal Year Ended December 28, 1996, the Six-Month Period
Ended December 30, 1995 and the Fiscal Year Ended July 1,
1995......................................................... III-1
Annex A Agreement and Plan of Merger dated as of April 14, 1997 by and
among Purchaser, Sub and the Company .......................... A-1
Annex B Opinion of Morgan Stanley & Co. Incorporated................... B-1
Annex C Text of Section 262 of the Delaware General Corporation Law.... C-1
</TABLE>
<PAGE>
To the Holders of Common Stock (including the Associated Rights) of
AST Research, Inc.:
INTRODUCTION
Samsung Electronics Co., Ltd., a Korean corporation ("Purchaser"), hereby
offers to purchase all outstanding shares of common stock, par value $.01 per
share (the "Common Stock"), of AST Research, Inc., a Delaware corporation (the
"Company"), and the associated preferred stock purchase rights (the "Rights"
and, together with the Common Stock, the "Shares") issued pursuant to the
Amended and Restated Rights Agreement dated as of January 28, 1994 between the
Company and American Stock Transfer & Trust Company, as amended (the "Rights
Agreement"), upon the terms and subject to the conditions set forth in this
Offer to Purchase and in the related Letter of Transmittal (which together
constitute the "Offer"), at the purchase price of $5.40 per Share (the "Offer
Price"), net to the tendering stockholder in cash.
The Offer is being made pursuant to the terms of the Agreement and Plan of
Merger, dated as of April 14, 1997 (the "Merger Agreement"), by and among the
Company, Purchaser and AST Acquisition, Inc., a Delaware corporation and
wholly owned subsidiary of Purchaser ("Sub"). The Merger Agreement provides,
among other things, for the making of the Offer by Purchaser, and further
provides that, following the purchase of Shares pursuant to the Offer and
promptly after the satisfaction or waiver of certain other conditions, Sub
will be merged with and into the Company (the "Merger"). The Company will
continue as the surviving corporation after the Merger (the "Surviving
Corporation"). At the effective time of the Merger, each outstanding Share
(except for Shares owned by Purchaser or any subsidiary of Purchaser and
Shares held by stockholders exercising their appraisal rights under the
Delaware General Corporation Law (the "DGCL")) will be converted into the
right to receive the Offer Price, net to the holder in cash, without interest.
THE BOARD OF DIRECTORS OF THE COMPANY ("THE BOARD"), BASED ON THE UNANIMOUS
RECOMMENDATION OF A SPECIAL COMMITTEE OF THE INDEPENDENT DIRECTORS OF THE
COMPANY (THE "SPECIAL COMMITTEE"), HAS DETERMINED THAT THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER,
TAKEN TOGETHER, ARE IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY
OTHER THAN PURCHASER AND ITS AFFILIATES (THE "NON-SAMSUNG STOCKHOLDERS"), HAS
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER, AND RECOMMENDS THAT THE STOCKHOLDERS
ACCEPT THE OFFER AND TENDER THEIR SHARES HEREUNDER.
MORGAN STANLEY & CO. INCORPORATED ("MORGAN STANLEY"), FINANCIAL ADVISOR TO
THE SPECIAL COMMITTEE, HAS DELIVERED A WRITTEN OPINION TO THE SPECIAL
COMMITTEE, DATED APRIL 14, 1997 (THE "MORGAN STANLEY OPINION"), TO THE EFFECT
THAT, AS OF THAT DATE, THE CONSIDERATION TO BE RECEIVED BY THE NON-SAMSUNG
STOCKHOLDERS PURSUANT TO THE MERGER AGREEMENT WAS FAIR FROM A FINANCIAL POINT
OF VIEW TO SUCH STOCKHOLDERS. SEE "SPECIAL FACTORS--OPINION OF FINANCIAL
ADVISOR TO THE SPECIAL COMMITTEE." THE FULL TEXT OF THE MORGAN STANLEY OPINION
IS ATTACHED HERETO AS ANNEX B. STOCKHOLDERS ARE URGED TO READ SUCH OPINION
CAREFULLY AND IN ITS ENTIRETY FOR ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS OF THE REVIEW OF MORGAN STANLEY.
The Offer is conditioned upon, among other things, the satisfaction or
waiver of certain conditions to the obligations of Purchaser and the Company
to consummate the transactions contemplated by the Merger Agreement, including
receipt by Purchaser and the Company of certain governmental and regulatory
approvals. The Offer is not conditioned on any minimum number of shares being
tendered. See "THE TENDER OFFER--13. Certain Conditions of the Offer."
1
<PAGE>
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY MEETING OF
THE COMPANY'S STOCKHOLDERS. ANY SUCH SOLICITATION WOULD BE MADE ONLY PURSUANT
TO SEPARATE PROXY MATERIALS COMPLYING WITH THE REQUIREMENTS OF SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
The Offer will expire at 5:00 P.M. New York City time, on Monday, May 19,
1997, unless extended.
Tendering stockholders will not be obligated to pay brokerage commissions,
solicitation fees or, subject to Instruction 6 of the Letter of Transmittal,
stock transfer taxes on the purchase of Shares by Purchaser pursuant to the
Offer. However, any tendering stockholder or other payee who fails to complete
and sign the Substitute Form W-9 that is included in the Letter of Transmittal
may be subject to a required backup federal income tax withholding of 31% of
the gross proceeds payable to such stockholder or other payee pursuant to the
Offer. See "THE TENDER OFFER--5. Certain Federal Income Tax Consequences."
Purchaser will pay all charges and expenses of Salomon Brothers Inc, as Dealer
Manager (in such capacity, the "Dealer Manager"), Citibank, N.A., as
Depositary (in such capacity, the "Depositary"), and MacKenzie Partners, Inc.,
as Information Agent (in such capacity, the "Information Agent"), incurred in
connection with the Offer. For a description of the fees and expenses to be
paid by Purchaser, see "THE TENDER OFFER--15. Fees and Expenses."
Consummation of the Merger is subject to a number of conditions, including
approval by the stockholders of the Company if such approval is required by
applicable law. See "THE TENDER OFFER--14. Certain Legal Matters; Regulatory
Approvals." If Purchaser acquires a majority of the outstanding Shares it will
have sufficient voting power to approve and adopt the Merger Agreement and the
Merger without the vote of any other stockholder of the Company. If Purchaser
acquires at least 90% of the outstanding Shares, Purchaser intends to approve
and consummate the Merger without any action by, or any further prior notice
to, the other stockholders of the Company pursuant to the short-form merger
provisions of the DGCL.
The Company has informed Purchaser that as of April 14, 1997 there were
57,964,830 Shares issued and outstanding and 8,611,326 Shares reserved for
issuance upon the exercise of outstanding stock options and warrants. As a
result of transactions referred to under "SPECIAL FACTORS--Background of the
Offer and the Merger," Purchaser and its affiliates beneficially own
26,389,336 Shares, representing approximately 45.5% of the outstanding Shares,
and hold an option to acquire an additional 4.4 million Shares which, if
exercised, would result in Purchaser and its affiliates owning approximately
49.4% of the then-outstanding Shares.
The Company has informed Purchser that, as of April 14, 1997, all of the
executive officers and directors (including directors nominated by Purchaser)
of the Company as a group owned 2,378,752 Shares and held options or warrants
to purchase 859,500 Shares (which are exercisable within 60 days of April 14,
1997 without giving effect to the acceleration of Options provided for in the
Merger Agreement). The Company has advised Purchaser that, to the best of the
Company's knowledge, and subject to applicable securities laws, all directors
and executive officers of the Company presently intend to tender pursuant to
the Offer all Shares owned by such persons. See "SPECIAL FACTORS--Interests of
Certain Persons in the Offer and the Merger."
The Company has also informed Purchaser that as of April 14,1997 there were
4,092,795 Shares reserved for issuance upon the conversion of the Liquid Yield
Option Notes of the Company due December 14, 2013 (the "LYONs"). Purchaser is
not offering to purchase any of the LYONs. To accept the Offer, LYONs holders
must convert in accordance with the terms and provisions thereof and
subsequently tender their Shares pursuant to the terms and conditions of the
Offer. However, because the conversion price of the LYONs is substantially in
excess of the Offer Price, Purchaser does not anticipate that any such
conversion will occur. If, following consummation of the Offer, Purchaser owns
2
<PAGE>
at least 50% or more of the Shares, the holders of the LYONs will have the
right to require the Company to redeem the LYONs at their issue price plus
accrued original discount through the date set for such redemption. If all
holders of LYONs exercise such right, the aggregate amount payable to such
holders would be approximately $135 million. Following consummation of the
Offer, holders of LYONs will be notified of their right of redemption.
Purchaser has represented to the Company in the Merger Agreement that
Purchaser has available to it credit lines or other sources of financing to,
among other things, fund the Company's redemption obligations with respect to
the LYONs.
The information contained in this Offer to Purchase concerning the Company
was supplied by the Company. Purchaser takes no responsibility for the
accuracy of such information. The information contained in this Offer to
Purchase concerning the Offer, the Merger, and Purchaser was supplied by
Purchaser. The Company takes no responsibility for the accuracy of such
information.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS
MADE WITH RESPECT TO THE OFFER. ALSO SEE "THE TENDER OFFER--16. MISCELLANEOUS"
FOR INFORMATION REGARDING CERTAIN ADDITIONAL DOCUMENTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") IN CONNECTION WITH THE
OFFER.
SPECIAL FACTORS
BACKGROUND OF THE OFFER AND THE MERGER
The personal computer industry is highly competitive and is characterized
by intense price competition, rapid technological change and short product
life cycles. As a result of these external factors, as well as the Company's
lack of success in consistently bringing to market in a timely fashion
competitive products, in 1994 the Company began more actively to explore
alternatives to strengthen its position in the personal computer industry and
to enhance the long-term viability of the Company, including obtaining
additional sources of financing. Beginning in late summer 1994, the Company's
financial advisors began contacting prospective investors, including
Purchaser, to solicit their interest in the Company. Numerous prospective
purchasers were contacted by or on behalf of the Company. During this period,
the Company pursued each indication of interest it received from potential
investors, met with or provided information to several potentially interested
parties and engaged in preliminary discussions with another computer company
regarding a possible business combination. Such discussions never advanced to
a more serious level in light of the parties' inability to reach a tentative
framework for an acceptable valuation.
On several occasions during November and December 1994, representatives of
the Company and Purchaser met to discuss a possible significant investment by
Purchaser in the Company, coupled with a strategic alliance. During January
and February 1995, the parties and their financial and legal advisors engaged
in extensive negotiations concerning the terms of the proposed transaction,
and on February 27, 1995 the Company and Purchaser entered into a Stock
Purchase Agreement and Strategic Alliance Agreement, with the closing of the
transaction conditioned on, among other things, approval by the Company's
stockholders, which was obtained on June 30, 1995.
In July 1995, prior to the closing of the transactions contemplated by the
Stock Purchase Agreement, the Company informed Purchaser that the Company had
incurred a larger than expected loss for the fourth quarter ended July 1, 1995
and that it anticipated a net loss for the fiscal year ended July 1, 1995 of
approximately $100 million. As a condition to Purchaser 's agreement to
proceed with its investment in the Company, the parties agreed that, promptly
following the closing, the Company would retain a nationally recognized
management consulting firm to, among other things, determine
3
<PAGE>
the causes of the fiscal 1995 operating loss and the Company's failure to
achieve results consistent with its business plan. Pursuant to such agreement,
the Company retained The Boston Consulting Group and received a report from
such firm.
Pursuant to the Stock Purchase Agreement, on July 31, 1995 Purchaser and a
subsidiary together purchased approximately 40% of the outstanding Shares,
consisting of 6.44 million Shares purchased from the Company at $19.50 per
share, 5.82 million Shares purchased from the Company's stockholders pursuant
to a tender offer at $22.00 per Share, and 5.63 million Shares purchased from
the Company at $22.00 per Share (the "Initial Purchaser Investment").
In connection with the Initial Purchaser Investment, the Company and
Purchaser also entered into a Stockholder Agreement, dated as of July 31, 1995
(the "Stockholder Agreement"), which established certain terms and conditions
concerning Purchaser's acquisition or disposition of the Company's securities
and certain matters of corporate governance. The standstill provisions of the
Stockholder Agreement, among other things, prohibit Purchaser and its
affiliates from acquiring more than 49.9% of the Company's outstanding voting
securities unless such acquisition has been approved by a majority of the
Company's "Independent Directors" (i.e., members of the Board who are not
either affiliated with Purchaser or employed or formerly employed by the
Company) and would result in Purchaser and/or its affiliates owning 100% of
the Company's voting stock. Such standstill provisions originally extended
until July 31, 1999, but in Amendment No. 1 to the Stockholder Agreement, the
expiration date of the standstill provisions was shortened to December 15,
1998. The Stockholder Agreement also originally provided that Purchaser would
have the right to designate the number of directors of the Company that is one
fewer than a majority of the authorized number of directors.
Following the closing of the Initial Purchaser Investment, the Company, with
Purchaser's support and assistance, sought to address the operating problems
causing its poor financial performance. However, losses continued ($96.4
million and $128.6 million, respectively, for the last two quarters of
calendar 1995). As a result of these continuing operating losses and the
resulting decline in cash balances, the Company required additional financing.
Given the Company's financial condition, the Company's management recognized
that the Company's cost of borrowing would be very high and that these costs
could be considerably lowered if Purchaser were to guaranty the proposed
credit facility. Accordingly, the Company requested that Purchaser provide
such a guaranty, and on December 21, 1995, Purchaser and the Company entered
into an Additional Support Agreement (the "Additional Support Agreement")
pursuant to which Purchaser agreed to guaranty a bank credit line for the
Company of up to $200 million and to increase the Company's vendor line with
Purchaser to up to $100 million through November 30, 1997. In consideration of
such additional support from Purchaser, the Company granted to Purchaser an
option (the "Purchaser Option") to purchase an additional 4.4 million Shares
at $.01 per Share. The Option is exercisable at any time until June 30, 2001.
Concurrently with the execution of the Additional Support Agreement,
Purchaser and the Company entered into Amendment No. 1 to the Stockholder
Agreement, the primary effect of which was to shorten the standstill period as
described above and to permit Purchaser to vote its shares of the Common Stock
for as many director nominees as it shall determine, subject to the
requirement that at least three directors are Independent Directors.
Accordingly, as a result of Purchaser's Share ownership, it is in a position
to designate and elect a majority of the Board. As of the date hereof, six of
the ten members of the Board are employees of Purchaser or one of its
subsidiaries, including Mr. K.H. Kim, who serves as Chairman of the Board. In
addition, Mr. Y.S. Kim, a director and the Company's President and Chief
Executive Officer, and Mr. Won Yang, a director and the Company's Acting Chief
Financial Officer, were employees of Purchaser or one of its subsidiaries
prior to their appointment during 1996 as officers of the Company.
4
<PAGE>
The terms of the Additional Support Agreement and Amendment No. 1 to the
Stockholder Agreement were approved by the Independent Directors, who were
advised by an investment banking firm that such terms were fair to the Company
from a financial point of view.
In connection with the Initial Purchaser Investment and pursuant to the
terms of a Letter of Credit Agreement dated as of July 31, 1995 (the "Letter
of Credit Agreement"), Purchaser agreed to advance to the Company $60 million
for the purpose of partially repaying a $90 million promissory note (the
"Tandy Note") due to Tandy Corporation ("Tandy") related to the 1993
acquisition by the Company of Tandy's personal computer manufacturing
operations. On July 11, 1996, Purchaser advanced $60 million to the Company
and, under the terms of the Letter of Credit Agreement, elected to receive
Shares in full repayment of the $60 million advance. Accordingly, the Company
issued to Purchaser 8,499,336 Shares at a per Share price of $7.06 (the
average per Share closing price of the Common Stock for the 20 consecutive
trading days ended July 10, 1996). As a result of such issuance, and the
issuance to Tandy by the Company of 4,498,594 Shares in repayment of the
remaining $30 million balance of the Tandy Note, Purchaser and its affiliates
beneficially own 26,389,336 Shares, representing approximately 45.5% of the
outstanding Shares, and hold the Purchaser Option, which covers 4.4 million
Shares and, if exercised, would result in Purchaser and its affiliates owning
approximately 49.4% of the then-outstanding Shares.
As a result of quarterly losses of $115.8 million, $98.7 million and $135.3
million, respectively, during the first three quarters of calendar 1996,
management of the Company determined that additional financing was necessary
and that such financing could not, as a practical matter, be obtained by the
Company except pursuant to a further guaranty by Purchaser. Purchaser agreed
to consider the Company's request and thereafter entered into negotiations
with the Independent Directors and their financial advisor during November and
early December 1996 with respect to the terms of further support by Purchaser.
On December 13, 1996, Purchaser and the Company entered into a Second
Additional Support Agreement pursuant to which Purchaser agreed to guaranty a
$100 million bank line of credit starting December 13, 1996 and to guaranty an
additional $100 million bank line of credit starting April 1, 1997, both
extending through December 31, 1998. The additional financial support is in
addition to the existing guaranty by Purchaser of a $200 million credit
facility provided pursuant to the Additional Support Agreement. The Second
Additional Support Agreement also included a one-year extension of the
guaranty provided under the Additional Support Agreement, which results in all
guarantees expiring on December 31, 1998.
As consideration for such additional support under the Second Additional
Support Agreement, the Company issued to Purchaser 500,000 shares of non-
voting preferred stock. Such shares are not subject to mandatory redemption,
but each share is redeemable at the Company's option for $100.75 in cash or
13.11 shares of the Company's Common Stock, beginning in 1999. The preferred
shares carry a quarterly cumulative dividend, beginning in 1999, at the annual
rate of $4.72 per share, with annual increases to the rate of $7.96 per share
in the year 2004 and thereafter. The terms of the Second Additional Support
Agreement were approved by the Independent Directors, who were advised by an
investment banking firm that such terms were fair to the Company from a
financial point of view.
As the result of the above transactions, by year-end 1996 Purchaser's
initial investment of under $400 million had grown to a total investment and
credit commitments in excess of $900 million. In addition, it had become
apparent to Purchaser that the continuing heavy losses from operations of the
Company had created a serious risk that by mid-year 1997: (i) the Common Stock
would cease to be eligible for quotation on The National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"); and (ii)
without substantial additional financial support from Purchaser the Company
could become insolvent. Recognizing these facts, in late 1996 Purchaser began
to give serious consideration to its alternatives with respect to its
investment in the Company, including the possible acquisition of 100% of the
Company's outstanding equity and closer integration of the
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Company with the management and operations of Purchaser than could be
accomplished if the Company continued to have publicly-owned stock.
In early January 1997, Purchaser requested Salomon Brothers Inc ("Salomon")
to prepare a financial analysis of the Company in order to assist Purchaser in
evaluating its alternatives with respect to its investment in the Company,
including the possibility of acquiring 100% of the equity of the Company.
Salomon presented its financial analysis of the Company to senior executives
of Purchaser on January 27, 1997. See "Analysis of Financial Advisor to
Purchaser." Following such presentation, management of Purchaser requested
further analysis by Salomon and also consulted with its legal advisors
concerning legal issues relating to such a possible acquisition. After
completion of such financial and legal analysis, senior management of
Purchaser authorized J.Y. Yun, President and Chief Executive Officer of
Purchaser to inform the Independent Directors that Purchaser wished to
commence negotiations to acquire the remaining equity interest in the Company
at $5.10 per Share.
By letter dated January 30, 1997, Mr. Yun notified the Independent Directors
of Purchaser's desire to commence negotiations with respect to the acquisition
by Purchaser of all of the outstanding Shares not currently owned by Purchaser
or its affiliates at a price of $5.10 per Share (the "Acquisition Proposal").
The letter also indicated that consummation of the proposed acquisition would
be subject to several conditions, including approval of the transaction by the
Independent Directors and receipt of all required United States and Korean
governmental approvals.
Upon receipt of the Acquisition Proposal on January 30, 1997, the Board
formed a Special Committee consisting of all of the Independent Directors,
namely Messrs. Roger W. Johnson, Jack W. Peltason and Richard J. Goeglein,
with Mr. Johnson designated as Chairman, to evaluate the Acquisition Proposal,
and to consider other options available to the Company, after consultation
with appropriate legal and financial advisors. Later that morning, the Special
Committee met informally to preliminarily identify issues related to its
responsibilities in relation to the Acquisition Proposal. Resolutions formally
establishing the Special Committee were subsequently prepared by counsel to
the Special Committee in February 1997, reviewed by the Company and its
counsel, and adopted by Unanimous Written Consent of the Board, dated as of
January 30, 1997 (the "Board's Consent"). Under the terms of the Board's
Consent, the Special Committee was authorized to consider the Acquisition
Proposal and to take all action in connection therewith as it deemed
necessary, appropriate or advisable, it being expressly understood that the
Special Committee was authorized to reject the Acquisition Proposal or any
other transaction proposed by Purchaser if the Special Committee determined
that such Acquisition Proposal or other transaction was not in the best
interests of the Non-Samsung Stockholders. The Board's Consent also provided
that each member of the Special Committee would receive for his services on
the Special Committee during the pendency of the Acquisition Proposal and any
other proposal by or transaction with Purchaser that pursuant to the terms of
the Stockholder Agreement would be subject to the approval of the Independent
Directors, a fee of $50,000 (payable $25,000 on January 30, 1997 and $25,000
on March 30, 1997), plus reimbursement of expenses reasonably incurred in
connection with their services on the Special Committee.
On January 30, 1997, the Company publicly announced its results of
operations for the fourth quarter of fiscal year 1996, including a net loss of
$68 million, as well as the Acquisition Proposal and the formation of the
Special Committee.
On January 31, 1997 and in the days following shortly thereafter, the
Company was named along with Purchaser and certain current and former members
of the Board, as a defendant in eleven stockholder class action lawsuits filed
in the Court of Chancery in New Castle County, Delaware (as subsequently
consolidated, the "Delaware Action"). A separate class action complaint was
filed (but not served) on January 31, 1997 in the Superior Court for the
County of Orange, California (as
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subsequently amended, the "California Action"). For further information
regarding the Delaware Action and the California Action, see "Certain
Litigation."
Within a few days of January 30, 1997, the Special Committee met informally
by telephone to discuss the process of selecting an independent financial
advisor for the Special Committee's deliberations. The Special Committee
identified five investment banking firms (including certain firms which had,
and certain firms which had not, previously advised the Company or the
Independent Directors in connection with transactions between the Company and
Purchaser) which it would invite to make a presentation to the Special
Committee, if they were interested.
On February 5, 1997, on behalf of the Special Committee, Mr. Johnson
interviewed and decided to retain the law firm of Irell & Manella LLP as
counsel to the Special Committee. Within a few days, such firm retained
Delaware counsel for the Special Committee.
On February 14, 1997, the Company announced in a press release that it had
received numerous inquiries from stockholders, customers, investors and others
expressing interest in the Acquisition Proposal and that it had forwarded
those inquiries to the Special Committee. The press release also stated that
the Company would accept on behalf of the Special Committee written
communications from stockholders relating to the Acquisition Proposal and
would forward them to the Special Committee.
From February 7, 1997 to February 11, 1997, the Special Committee
interviewed representatives of five investment banking firms regarding their
interest in serving as financial advisors to the Special Committee in
connection with its evaluation of the Acquisition Proposal. On February 12,
1997, after discussions among the members of the Special Committee and its
counsel, the Special Committee decided to invite two of the investment banking
firms to expand on their previous presentations. On February 14, 1997, the
Special Committee held further discussion with the two firms and on
February 19, 1997, the Special Committee determined to retain Morgan Stanley &
Co., Incorporated ("Morgan Stanley") as its exclusive financial advisor. The
terms of Morgan Stanley's engagement by the Special Committee were finalized
by a letter agreement dated February 21, 1997. The Company issued a press
release on February 25, 1997 announcing the Special Committee's engagement of
Morgan Stanley.
During the period between the engagement of its legal and financial advisors
and the recommendation of the Merger Agreement to the Board on April 14, 1997,
the Special Committee regularly received reports on its advisors' work, which
included a review of various matters relevant to the Special Committee's
deliberations, including their meeting or speaking with a number of present
and former employees and directors of the Company and representatives from
various shareholder groups, and periodic discussions between counsel for the
Special Committee and counsel to Purchaser and counsel to the Company,
respectively, concerning the Special Committee's activities; received advice
pertaining to the Special Committee's deliberations; and conferred regularly
with its advisors in formal meetings and informal discussions through Mr.
Johnson, the Special Committee Chairman.
On March 12, 1997, the Special Committee met with representatives of Bain &
Company, Inc. ("Bain"), which firm had previously been retained by the Company
in the fall of 1996 to provide the Company with strategic consulting services
unrelated to any possible acquisition transaction. Although Bain's services
had been completed, the Special Committee invited the Bain representatives to
the March 12 meeting to share with the Special Committee their strategic
assessment of the Company (which had previously been presented to members of
the Company's senior management).
On March 17, 1997, the Special Committee, together with its legal and
financial advisors, met with several individual stockholders who were invited
by the Special Committee to present their views
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regarding the Acquisition Proposal. The Special Committee met with Mr. Daniel
Sigler (the plaintiff in the California Action) and Dr. Ahmed Kooros, each of
whom stated that he owned approximately 250,000 Shares. The Special Committee
also spoke with Mr. Saeid Hariri, the chairperson of an organization named the
"AST Concern Share Holders Rights Committee," who stated that he represented
approximately 3.2 million Shares. The same day, the Special Committee and its
advisors met with Mr. Safi Qureshey, the Company's co-founder and the chairman
of the Board at the time Purchaser made the Initial Purchaser Investment in
1995 and thereafter until he became chairman emeritus in June 1996, in order
to receive his views as a stockholder of the Company owning approximately
2.7 million Shares, with respect to the Acquisition Proposal and other aspects
of the relationship between the Company and Purchaser.
On March 18, 1997, the Special Committee met with its legal advisors to
review discussions the Special Committee's legal advisors had held with
counsel for the plaintiffs in the Delaware Action (the "Delaware Plaintiffs").
Prior to this meeting, counsel for the Delaware Plaintiffs had expressed to
the Special Committee's counsel their interest in meeting with the Special
Committee in order to share with the Special Committee their views as to the
Acquisition Proposal.
On or about March 18, 1997, Mr. Johnson, on behalf of the Special Committee,
forwarded to the individual members of the Board a copy of a letter the
Special Committee had received on February 27, 1997 from Mr. Hariri. In his
letter, Mr. Hariri expressed his views of the Company's relationship with
Purchaser and concluded his letter by purporting to demand that the Special
Committee initiate litigation against Purchaser. In his letter forwarding Mr.
Hariri's letter to the individual members of the Board, Mr. Johnson suggested
that, irrespective of whether Mr. Hariri's letter constituted a formal demand,
any consideration of the allegations contained in Mr. Hariri's letter (and his
"demand" for the initiation of litigation against Purchaser) be tabled until
the Special Committee completed its deliberations regarding the Acquisition
Proposal. (The Board accepted the recommendation of the Special Committee at
its meeting on April 14, 1997.) Mr. Johnson also indicated that the Special
Committee would consider Mr. Hariri's allegations in connection with its
ongoing deliberations.
On March 19, 1997, Mr. Johnson was contacted by representatives of Bain who
informed him that they knew of a third-party investment group which might be
interested in an acquisition of all or part of the Company and that Bain was
evaluating whether to approach the third party to determine whether it would
be interested in learning more about the Company. On the same day, Mr. Johnson
conferred with the Special Committee's legal and financial advisors regarding,
among other things, this communication from Bain.
By letter dated March 20, 1997, Mr. Johnson, on behalf of the Special
Committee, authorized Bain to release to potentially interested parties,
approved by the Special Committee, certain information that Bain had obtained
or developed during its engagement by the Company subject to certain
confidentiality restrictions. (No such information was ever released by Bain,
which ultimately concluded that it was highly unlikely that any third party
would be interested in receiving the information without confirmation that
Purchaser was interested in entertaining bids for the Company.)
On March 20, 1997, counsel for Purchaser met with counsel for the Special
Committee to exchange views regarding the preliminary thinking of their
respective clients regarding the Acquisition Proposal, including issues
concerning the pending litigation and the views expressed by several
individual stockholders, including those views expressed to the Special
Committee during its March 17, 1997 meeting with stockholders and the views
expressed by Mr. Hariri in his February 27, 1997 letter. Counsel for Purchaser
expressed Purchaser's strong disagreement with the assertions of such
stockholders.
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On March 21, 1997, at a meeting of the Executive Committee of the Board, the
directors (including the members of the Special Committee) were shown
projections of the Company's cash flow and short-term borrowing and were
informed that the Company was projecting a net loss of $102 million for the
first quarter of 1997 compared to an internally budgeted net loss of $46
million and a net loss of $72 million for the second quarter of 1997 compared
to an internally budgeted net loss of $46 million (see "Certain Financial
Projections").
After the Executive Committee meeting on March 21, 1997, and after meeting
with the Special Committee's legal and financial advisors, Messrs. Johnson and
Peltason met with Mr. Y.S. Kim and Mr. B.S. Song (who is a senior executive of
Purchaser and one of Purchaser's designees to the Board) to advise them that
the preliminary view of the Special Committee was that the Acquisition
Proposal price of $5.10 per Share was inadequate and that an agreement
regarding Purchaser's acquisition of the Shares owned by the Non-Samsung
Stockholders could only be accomplished if the price offered by Purchaser were
"dollars more." During this discussion, Mr. Song indicated to Messrs. Johnson
and Peltason that Purchaser was not interested in selling its Shares.
At a meeting on March 26, 1997, the Special Committee received a
presentation from Morgan Stanley regarding its preliminary analysis of the
Acquisition Proposal and the alternatives available to the Special Committee
in evaluating and responding to it. Following a general discussion, the
Special Committee directed Morgan Stanley to contact Purchaser's investment
banker, Salomon, as soon as possible to organize a meeting at which Morgan
Stanley was to convey to Salomon the Special Committee's desire to achieve a
substantially higher price than $5.10 per Share.
By letter dated March 26, 1997, Mr. Johnson, on behalf of the Special
Committee, forwarded to the individual members of the Board copies of
correspondence the Special Committee had received from two individual
stockholders. The first item forwarded with Mr. Johnson's March 26 letter was
a copy of a letter addressed to the Special Committee, dated March 11, 1997,
from Dr. Kooros. In the last paragraph of his letter, Dr. Kooros purported to
demand that the Special Committee initiate, subject to certain conditions
precedent, legal proceedings against Purchaser for the reasons set forth in
his letter. The second item of correspondence forwarded by Mr. Johnson with
his March 26 letter was a "suggested" derivative action complaint drafted by
Mr. Sigler asserting claims against Purchaser purportedly on behalf of the
Company. In the letter forwarding Mr. Sigler's draft complaint, Mr. Johnson
informed the members of Board that Mr. Sigler had informed the Special
Committee that he did not expect the suggested complaint to be pursued during
the Special Committee's process of evaluating the Acquisition Proposal. In his
letter, Mr. Johnson communicated to the members of the Board that the Special
Committee decided to forward the correspondence to the Board's attention in
order that, if and when the Board took the action the Special Committee had
recommended with respect to Mr. Hariri's February 27 letter (namely, to defer
action until after the Special Committee has completed its deliberations
regarding the Acquisition Proposal), the same treatment could be afforded to
each of these two items of correspondence. (The Board accepted the
recommendation of the Special Committee at its meeting on April 14, 1997.)
Also on March 26, 1997, counsel for Purchaser forwarded a draft merger
agreement to counsel for the Special Committee.
On March 28, 1997, the Special Committee, together with its legal and
financial advisors, again met with Mr. Qureshey for further discussions
regarding the Acquisition Proposal and other aspects of the relationship
between the Company and Purchaser.
On March 31, 1997, the Special Committee, together with its legal and
financial advisors, met with Dr. Carmello Santoro, a former director, who had
resigned from the Board in July 1996, in order to receive his views on the
Acquisition Proposal and other aspects of the relationship between the Company
and Purchaser.
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That same day, representatives of Morgan Stanley and Salomon met to discuss
the Acquisition Proposal and to each express to the other their general,
preliminary views with regard to the Acquisition Proposal. The Salomon
representatives informed the Morgan Stanley representatives (among other
things) that Purchaser considered its offer of $5.10 per Share to be a full
and fair price, reflective not only of a premium above the market price of the
Common Stock but also substantially in excess of what the Common Stock was
worth; and that Purchaser would consider reevaluating its willingness to
negotiate concerning an acquisition of the Non-Samsung Stockholders' Shares at
$5.10 and, instead, consider lowering its offer, if a negotiated acquisition
could not be finalized in the relatively near future. Morgan Stanley informed
Salomon that (among other things) although, depending upon the assumptions
adopted, conventional valuation methods could support a broad range of prices
per Share, Morgan Stanley believed that a fair price under all of the relevant
circumstances, including the Company's turnaround plan, would have to be
significantly in excess of the $5.10 price contained in the Acquisition
Proposal to elicit the Special Committee's approval.
On April 1, 1997, the Special Committee met with its financial and legal
advisors and received a report concerning the state of discussions between
Salomon and Morgan Stanley. After a general discussion regarding the
Acquisition Proposal, Mr. Johnson reported that, since the March 26, 1997
meeting of the Special Committee, Bain had told him that they had concluded it
would not be productive to investigate the possible interest of the third-
party investment group in considering an acquisition of the Company unless and
until Purchaser indicated that it was interested in entertaining acquisition
proposals for the Company from third parties.
Also on April 1, 1997, the general counsel of Purchaser, Mr. J.C. Lee,
addressed a letter to Mr. Johnson in which he responded to Mr. Hariri's letter
of February 27, 1997 and stated that it was Purchaser's position that, in
light of the massive operational problems of the Company at the time of the
Initial Purchaser Investment, the Company's very existence would be in serious
doubt but for the financial and business support which Purchaser had provided.
Mr. Lee's letter set forth Purchaser's position: (i) that, while the Company's
performance prior to Purchaser's agreement to invest in February 1995 had been
"checkered," with a loss of $54 million in 1993, a profit of $31 million in
1994 and a loss of $62 million in the first six months of 1995, Purchaser's
decision to invest was on the basis of assurances on behalf of the Company
that it was in the process of a turnaround, with profitable operations
forecast for the second half of the fiscal year ending in June 1996; (ii) that
the promised turnaround proved a complete illusion; (iii) that, while the true
facts began to emerge prior to the closing of the Initial Purchaser
Investment, they were "only the tip of the iceberg;" and (iv) that, as
demonstrated by the report of the Boston Consulting Group, "far from being in
the process of a turnaround--AST was a grievously sick company." Mr. Lee's
letter concluded:
Samsung fully believes that the transaction which it has proposed to
AST is in the best interests of all AST stockholders and provides a
decent chance of saving the company, while returning to shareholders
fair consideration for the value of their investment. Since the
proposal was made by Samsung, two months ago, AST's disastrous results
of operations have only served to underscore this. For these reasons,
we are confident that we will be able to reach agreement with the
Special Committee and that Samsung's offer will be accepted by
shareholders. If, however, the transaction is unreasonably delayed or
not completed, it would be a serious mistake to assume that Samsung
will continue to support AST, as it has in the past, with additional
expenditures or credit beyond those to which it has contractually
committed. Like any other sound business, all of our investments must
be justified by the prospect of a reasonable return; we cannot continue
indefinitely spending "good money after bad."
Mr. Johnson responded the same day with a letter to Mr. Lee in which he
thanked Mr. Lee for supplying the Special Committee with Purchaser's views;
informed Mr. Lee that several of the stockholders with whom the Special
Committee had met had equally strong and different views on the
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Company's relationship with Purchaser; and that the clear and overriding
objective of the Special Committee was to reach a result that was in the best
interests of the Non-Samsung Stockholders.
On April 2, 1997, following a discussion with Mr. Johnson, Morgan Stanley
again spoke with Salomon to discuss the Acquisition Proposal. Morgan Stanley
advised Salomon that the Special Committee would agree to a price of $6.10 per
Share, conditioned on an appropriate merger agreement. In a meeting that same
day between counsel for the Special Committee and counsel for Purchaser to
discuss, preliminarily, comments regarding the draft merger agreement
circulated by Purchaser's counsel, counsel for the Special Committee conveyed
the Special Committee's requirement that any agreement concerning Purchaser's
acquisition of the Company be conditioned upon Purchaser's receiving, at a
minimum, the tender of the majority of the Shares held by the Non-Samsung
Stockholders. Purchaser's counsel indicated that before Purchaser would be
willing to execute a merger agreement at any price in excess of $5.10 per
Share, it would need to receive assurance of a satisfactory settlement of the
Delaware Action.
On April 3, 1997, representatives of Salomon informed Morgan Stanley that
Purchaser was willing to increase its offer to $5.30 per Share. However,
Salomon indicated that Purchaser objected to the "minimum tender" requirement
proposed by the Special Committee and continued to require settlement of the
Delaware Action as a precondition for executing a merger agreement at the
increased price.
That same day, the Special Committee, together with its legal and financial
advisors, held a meeting at which representatives of the Delaware Plaintiffs
were invited to make a presentation of their views regarding desirable terms
for a negotiated agreement between the Company and Purchaser.
After the representatives of the Delaware Plaintiffs left the meeting,
counsel to the Special Committee reported to the Special Committee on
discussions that had taken place since the last meeting of the Special
Committee between the Special Committee's counsel and counsel to Purchaser
(including a report that the Special Committee's counsel had received from
Purchaser's counsel regarding their discussion with the representatives of the
Delaware Plaintiffs the previous day). Morgan Stanley then reported on
discussions that had taken place since the last meeting between Morgan Stanley
and Salomon. Mr. Johnson was asked by the other members of the Special
Committee to represent the Special Committee in any principal-level
negotiations that might take place before the next meeting of the Special
Committee (it being noted that representatives of Purchaser, who had been
characterized by Purchaser's counsel as having negotiating authority, had
arrived from South Korea earlier that day).
On April 4, 1997, after receiving authorization from Mr. Johnson, Morgan
Stanley contacted Salomon and indicated that the Special Committee was
disappointed with Purchaser's decision to counter the Special Committee's
proposal with an offer of $5.30 per Share. Morgan Stanley informed Salomon
that the Special Committee could support a per Share price of $6.05 with the
understanding that this proposal would be conditioned upon the tender of the
majority of the Shares held by the Non-Samsung Stockholders and would not be
conditioned on a settlement of the Delaware Action. Later the same day,
Salomon contacted Morgan Stanley to reject the Special Committee's $6.05
counterproposal while at the same time indicating that there was a potential
for Purchaser to exhibit flexibility concerning issues other than price.
On April 7, 1997, the members of the Board, including the individual members
of the Special Committee, were informed that there would be a special meeting
of the Board on April 14, 1997 in order to consider a reorganization plan
proposed by the Company's management (the "Reorganization Plan") designed to
reduce (regardless of the possibility that Purchaser might acquire the entire
equity interest in the Company) the Company's anticipated cash outflow during
1997 and to establish the goal of achieving break-even operations for the
Company during 1998.
11
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Subsequently, the Special Committee met with its legal and financial
advisors. During the meeting, the Special Committee received a report from
Morgan Stanley regarding the April 4 meeting between Morgan Stanley and
Salomon. After consulting with its advisors, the Special Committee instructed
Morgan Stanley to contact Salomon and tell Salomon that the Special Committee
would accept an offer of $5.90 per Share, conditioned upon the tender of the
majority of the Shares held by the Non-Samsung Stockholders and without any
conditions connecting the signing of a merger agreement to the settlement of
the Delaware Action. The Special Committee also instructed Morgan Stanley to
inform Salomon that Mr. Johnson wished to meet with Purchaser's negotiating
team as soon as possible.
Later that day, Morgan Stanley relayed the Special Committee's position to
Salomon. Salomon responded that they felt that a meeting of the two parties'
principals would be premature and unproductive in light of the significant gap
between the two parties' proposed prices. Salomon further indicated that they
believed Purchaser would be willing to attend such a meeting if the Special
Committee made a proposal that closed the gap between the parties further.
Contemporaneously, counsel for Purchaser informed the Special Committee's
counsel that Purchaser saw no rational basis for further increasing its offer
price and believed that a meeting of the principals would not be productive
unless the Special Committee was willing to demonstrate flexibility with
respect to their proposed price or other material terms of the proposed
transaction.
The Special Committee's financial and legal advisors reported the results of
these discussions to Mr. Johnson the same day. After consultation with the
Special Committee's advisors, Mr. Johnson instructed them to contact their
respective Purchaser counterparts and inform them that the Special Committee
believed that any transaction would require that Purchaser agree to pay a
premium of more than 10% above the Acquisition Proposal of $5.10 per Share in
order for the Special Committee to agree to it. Mr. Johnson also instructed
the Special Committee's advisors to inform their respective Purchaser
counterparts that he was still willing and able to meet with Purchaser's
negotiating team.
Later that day, Salomon informed Morgan Stanley that it was encouraged by
the Special Committee's latest position and that, accordingly, Purchaser now
believed that a meeting between the Special Committee and Purchaser's
negotiating team would be productive. However, Salomon reported that Purchaser
remained opposed to conditioning the transaction on the tender of the majority
of the Shares held by the Non-Samsung Stockholders and that Purchaser still
insisted that the execution of any merger agreement be conditioned upon the
settlement of the Delaware Action.
On April 8, 1997, Mr. Johnson, together with the Special Committee's counsel
and financial advisor, met with Purchaser's negotiating team, who attended
with Purchaser's counsel and its financial advisor. Mr. Johnson made a
presentation during which he outlined the Special Committee's deliberative
process and the factors the Special Committee considered relevant to the
Acquisition Proposal, including the Company's financial condition and the
views and expectations of certain substantial stockholders. Mr. Johnson then
indicated that the Special Committee was prepared to accept and recommend a
price of $5.75 per Share, assuming other terms of the transaction could be
worked out by the parties.
Mr. W.R. Choi (Purchaser's Executive Director of International Finance)
responded to Mr. Johnson with a presentation of Purchaser's analysis of the
situation, including its view of the value of the Company and alternatives
available to Purchaser in the event a transaction could not be reached at an
acceptable price. Mr. Choi indicated that although Purchaser did not believe
an offer in excess of $5.30 per Share was warranted by objective factors,
Purchaser was willing to increase its offer to the Offer Price of $5.40 in an
effort to reach a compromise with the Special Committee, that there would be
no further increases in Purchaser's offer price, and that this final offer was
subject to three conditions: (1) the merger agreement governing the
transaction would not include any requirement that the transaction be
conditioned upon the tender of the majority of the Shares held by the Non-
Samsung
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Stockholders; (2) the execution of a merger agreement would be conditioned
upon Purchaser's reaching a satisfactory settlement in the Delaware Action;
and (3) the proposed transaction would have the full support of the Special
Committee.
After consultation with its counsel and financial advisor, and after
indicating that he would have to consult with the other members of the Special
Committee to confirm that they concurred with his position, Mr. Johnson
indicated he could support the Offer Price. However, Mr. Johnson told
Purchaser's representatives that he could not recommend conditioning the
execution of a merger agreement on a settlement in the Delaware Action (or
with other stockholders) because such a condition could subject the
transaction to indeterminate delay, and that he could only agree to the
transaction at the Offer Price if negotiations over other terms would conclude
and a merger agreement would be signed in the near future. If such an
agreement could be reached in a short time frame, Mr. Johnson believed the
Special Committee would be willing to solicit the support of the Non-Samsung
Stockholders, but without warranting that such support would be obtained.
After hearing Mr. Johnson's response, Purchaser's representatives responded
that they were willing to negotiate the remaining terms of the merger
agreement in accordance with the views expressed by Mr. Johnson, with the
understanding that they would continue to pursue a settlement in the Delaware
Action in a manner that would not delay the timely negotiation and execution
of the merger agreement.
Later that day and the following day, conversations took place between Mr.
Johnson and Messrs. Y.S. Kim and Qureshey, respectively, between Mr. Kim and
Mr. Qureshey, and between the Special Committee's counsel and Purchaser's
counsel, and Mr. Qureshey's counsel, respectively, regarding the status of
negotiations between the Special Committee and Purchaser and the fact that a
merger agreement between Purchaser and the Company might be ready for
consideration by the Board at its April 14, 1997 meeting previously scheduled
to consider the Reorganization Plan.
On April 9, 1997, Mr. Johnson discussed with Messrs. Peltason and Goeglein
the events of the day before and they agreed with the position he had taken
during the negotiations with Purchaser. That same day, counsel for Purchaser
and for the Special Committee conferred regarding the timing of the proposed
merger agreement and tentatively agreed to attempt to have a fully negotiated
merger agreement that they could recommend to their respective clients on
Monday, April 14, 1997.
On April 9, 1997, Purchaser's counsel contacted the representatives of the
Delaware Plaintiffs regarding the possibility of settling the Delaware Action
in connection with the execution of a merger agreement negotiated on the basis
discussed with Mr. Johnson. These discussions continued through April 14,
1997, on which date agreement was reached between Purchaser and the plaintiffs
in the Delaware Action regarding the principal terms of the settlement (see
"Certain Litigation").
On April 10, 1997, counsel for Purchaser forwarded a revised draft merger
agreement to the Special Committee's counsel and negotiations commenced
between counsel concerning such draft. During the period between April 11 and
April 14, 1997, counsel for the Special Committee and counsel for Purchaser
continued to discuss the draft Merger Agreement.
On April 11, 1997, counsel for the Company distributed to the members of the
Board materials in preparation for the Board's meeting on April 14, 1997 to
consider the draft Merger Agreement (which at that time was still being
negotiated) and the Reorganization Plan.
On April 14, 1997, the Special Committee met with its financial and legal
advisors to review the draft Merger Agreement and to discuss the terms of the
transactions contemplated thereby. During the meeting, Morgan Stanley made a
presentation regarding the basis for, and read the text of, a fairness opinion
it was prepared to render (see "Opinion of Financial Adviser to the Special
Committee"). At
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the conclusion of the Special Committee's deliberations, it decided
unanimously to recommend the Offer to the Company's stockholders (see
"Recommendations of the Special Committee and the Board; Fairness of the Offer
and the Merger--The Special Committee").
Also on April 14, 1997, the entire Board met and received a report from Mr.
Johnson regarding the Special Committee's recommendation. The Board
unanimously accepted the Special Committee's recommendation, adopted and
approved the Merger Agreement, and determined to recommend the Offer to the
Non-Samsung Stockholders (see "Recommendations of the Special Committee and
the Board; Fairness of the Offer and the Merger--The Board"). The Board also
heard a presentation from management regarding the Reorganization Plan,
authorized management to finalize the details of the reduction-in-force
component thereof (involving a reduction of approximately 25% of the Company's
worldwide work force, which the Board approved by written consent dated
April 18, 1997 and which the Company publicly announced on April 21, 1997; see
"THE TENDER OFFER--7. Certain Information Concerning the Company") and
deferred action on the other components thereof in order to give management
additional time to refine the details of those other components. For further
information regarding the Reorganization Plan, see "Certain Financial
Projections."
On April 14, 1997, following the conclusion of the Board meeting, the Merger
Agreement was executed and the execution thereof was announced in a joint
press release of Purchaser and the Company issued the following day.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD; FAIRNESS OF THE OFFER
AND THE MERGER
THE SPECIAL COMMITTEE. At a meeting on April 14, 1997, each member of the
Special Committee, in his respective capacity as an Independent Director,
approved the Offer and the Merger pursuant to the Stockholder Agreement (the
"Stockholder Agreement Approval"). At the same meeting, the Special Committee
unanimously determined, pursuant to the authority conferred on it by the
Board's Consent, to recommend (the "Special Committee Recommendation") to the
Board (which recommendation was made and accepted at a meeting of the Board
held later the same day, see --"The Board") that the Board (a) determine that
the Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, taken together, are in the best interests of the Non-
Samsung Stockholders, (b) adopt and approve the Merger Agreement and authorize
the execution thereof by the Company, and (c) recommend that the Non-Samsung
Stockholders accept the Offer, tender their Shares thereunder to Purchaser
and, if required by applicable law, adopt and approve the Merger Agreement.
In deciding to give the Stockholder Agreement Approval and make the Special
Committee Recommendation, the Special Committee considered the factors listed
below. The following discussion of the factors considered by the Special
Committee is not intended to be exhaustive but summarizes all material factors
considered. The Special Committee did not assign any relative or specific
weights to the following factors nor did it specifically characterize any
factor as positive or negative (except as described below) and individual
members of the Special Committee may have given differing weights to differing
factors and may have viewed certain factors more positively or negatively than
others. Throughout its deliberations, the Special Committee received the
advice of its financial and legal advisors.
Insofar as the following discussion of the factors considered by the Special
Committee: (a) refers to information that came to the Special Committee's
attention during its evaluation of the Acquisition Proposal and the
negotiations conducted with Purchaser and its advisors, as well as existing
agreements between the Company and Purchaser, reference is also made to the
more detailed information contained under "Background of the Offer and the
Merger;" (b) refers to provisions of the Merger Agreement (including the
conditions to the Merger), reference is also made to the more
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detailed information contained under "The Merger Agreement;" (c) refers to the
historical and projected financial results of the Company (including the
Reorganization Plan, as defined below), reference is also made to the more
detailed information contained under "Certain Financial Projections," and "THE
TENDER OFFER--7. Certain Information Concerning the Company" and Schedule III
hereto;
(d) refers to the opinion of Morgan Stanley, reference is also made to
"Opinion of Financial Advisor to the Special Committee" and Annex B hereto;
and (e) refers to the conditions of the Offer, including required governmental
and regulatory approvals, reference is also made to "THE TENDER OFFER--
13. Certain Conditions of the Offer" and "--14. Certain Legal Matters;
Regulatory Approvals."
1. The Company's Deteriorating Financial Condition. The Special Committee
considered the financial condition and prospects of the Company, including (in
addition to the detailed financial information that had been regularly
furnished to the members of the Special Committee, in their respective
capacities as members of the Board, by the Company's senior management and
their general familiarity with the affairs of the Company) the fact that the
Company had incurred substantial operating losses during each of the previous
twelve fiscal quarters, and was projecting that it would continue to incur
substantial losses, notwithstanding: (i) the financial support provided by
Purchaser (in the form of credit guarantees aggregating $400 million and a
vendor credit line in the amount of $100 million) since July 1995; (ii) the
various strategic alliance agreements that had been entered into between the
Company and Purchaser in July 1995 in conjunction with the Initial Purchaser
Investment in the Company and which had been anticipated to produce
significant synergistic benefits for the Company; and (iii) the various
changes that had occurred in the Company's senior management, partly at
Purchaser's initiative, since that initial investment. The Special Committee
also noted that the Company's deteriorating financial condition had generated
concern on the part of the Company and its advisors that the Company might
cease to meet the standards for continued admission of the Common Stock to
quotation on NASDAQ without an additional substantial cash infusion or a
significant improvement in its cash flow through operating revenues or cost-
cutting measures.
The Special Committee also considered the fact that the Company's senior
management had developed, and was proposing to review with the Board later
that day, the Reorganization Plan (for additional information regarding the
Reorganization Plan and action taken by the Board and the Company in
connection therewith, see "Certain Financial Projections"). The Special
Committee took note of the fact that the Company had, over the past several
years, adopted other restructuring plans that had not prevented the Company
from continuing to incur substantial losses. The Special Committee determined
that, while the successful implementation of the Reorganization Plan should
alleviate the Company's deteriorating financial condition and mitigate the
risk (reflected in projections furnished to the Board by management earlier in
1997) of the Company running out of cash in mid-1997 in the absence of further
financial support from Purchaser, there was substantial uncertainty as to the
extent and timing of the intended positive effects of the Reorganization Plan.
The Special Committee also noted that, even if the Reorganization Plan were
successfully implemented, it did not contemplate the Company eliminating its
net operating loss during 1997. For these reasons, the Special Committee
considered that the possibility of the Company successfully implementing the
Reorganization Plan did not warrant any delay in acting on the Merger
Agreement.
2. Absence of Preferable Alternatives. The Special Committee noted that,
under the standstill provisions of the Stockholder Agreement, if it rejected
Purchaser's proposal for a transaction on the terms of the Merger Agreement
and Purchaser proved unwilling (as it had indicated it would be; see below
under this sub-caption 2) to offer improved terms, no other transaction prior
to December 15, 1998, involving Purchaser's acquisition of the Non-Samsung
Stockholders' Shares could be
consummated without the approval of the Independent Directors. The Special
Committee concluded that, under these provisions, if it was unable to reach
terms with Purchaser and negotiations for an acquisition by Purchaser of the
Shares held by the Non-Samsung Stockholders terminated, there was no assurance
that Purchaser would make any other proposal for consideration by the Special
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Committee (and there was reason to believe that Purchaser would not make any
such proposal; see below under this sub-caption 2) and, accordingly, there was
a significant risk to the Non-Samsung Stockholders that no such acquisition
would occur in the foreseeable future.
The Special Committee also concluded that, in the absence of a transaction
that afforded the Non-Samsung Stockholders the opportunity to sell or exchange
their Shares for cash at the Offer Price, and taking into account the risk
that no other proposal for the acquisition of those Shares would be
forthcoming from Purchaser in the foreseeable future, the Non-Samsung
Stockholders were confronted with two disadvantageous alternatives, namely:
(i) retaining their Shares and subjecting themselves to the risk that their
Shares might decline in value, might become illiquid in the event that the
Common Stock ceased to be admitted to trading on NASDAQ, and might conceivably
be rendered virtually worthless in the event that the Company was forced to
reorganize through a bankruptcy proceeding if its financial condition did not
significantly improve (see sub-caption 1 above) and significant additional
outside financial support was not forthcoming, which it was not likely to be
(see below under this sub-caption 2); or (ii) selling their Shares into a
market which, in the absence of the pendency of the Acquisition Proposal, and
having regard to the Company's continuing substantial losses as reflected in
its first quarter 1997 results (see "THE TENDER OFFER--7. Certain Information
Concerning the Company") and the uncertainties that the market was likely to
perceive in the extent and timing of the positive effects of the
Reorganization Plan (see sub-caption 1 above), might fall to below the level
(namely, $4.625) at which the Shares were trading immediately prior to the
January 30, 1997 public announcement of the Acquisition Proposal and might
conceivably fall to substantially below that level if the Company continued to
report losses.
The Special Committee determined that a transaction with Purchaser at the
Offer Price of $5.40 (see sub-caption 3 below) and on the other terms set
forth in the Merger Agreement (see sub-caption 4 below), was a preferable
alternative that subjected the Non-Samsung Stockholders to substantially less
risk than would be created by rejecting the Acquisition Proposal and
discontinuing negotiations with Purchaser.
In concluding that no preferable alternative to the Offer and the Merger had
emerged, the Special Committee also took note of the following factors:
. The fact that the Special Committee had been successful, through
vigorous negotiations conducted on an arm's-length basis, in obtaining
an increase of $.30 per Share in the price offered by Purchaser from the
amount initially proposed, despite Purchaser's strongly expressed
objection to any increase in the original price.
. The fact that, since the public announcement of the Acquisition Proposal
on January 30, 1997, no unsolicited expressions of interest had been
received by the Special Committee or Morgan Stanley from any third
party. (At certain stages in its own discussions with one substantial
stockholder, such stockholder had indicated that such stockholder was
evaluating the possibility of putting together a transactional
alternative to the Acquisition Proposal at a price per Share of $7.50
and the Special Committee had encouraged such stockholder to submit any
viable and credible proposal but no proposal had been received.)
. The fact that Bain had informed Mr. Johnson that it had decided it would
not be productive to investigate the possibility of a third-party
investment group being approached to consider an acquisition of the
Company unless and until Purchaser indicated that it was interested in
entertaining acquisition proposals for the Company and that Mr. Johnson
had been informed by a Purchaser representative, on March 21, 1997, that
Purchaser had no such interest.
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. The fact that the Special Committee had concluded, from information
obtained through a combination of sources, that: (a) Purchaser had no
interest in withdrawing from participation in the management of the
Company in order to facilitate the appointment of a new management team
unaffiliated with Purchaser; and (b) unless a negotiated acquisition by
Purchaser of the Shares held by the Non-Samsung Stockholders could be
accomplished, there could be no assurance that Purchaser would (i)
provide additional financial support to the Company beyond that which it
was contractually bound to provide under current agreements, or (ii)
agree to any financial support being provided to the Company by third
parties on terms which would dilute Purchaser's equity interest in the
Company.
. The fact that there was no apparent source of financing to substitute
for Purchaser's credit support in the event that Purchaser decided not
to extend its own support. (At one stage in its own discussions with one
substantial stockholder, such stockholder had indicated that such
stockholder might be in a position to put together a bank financing to
replace Purchaser's credit support and the Special Committee had
encouraged such stockholder to submit any viable and credible proposal
but the Special Committee was subsequently informed that such a
possibility had been found by such stockholder to be non-viable.)
. The fact that Purchaser's negotiating team had informed Mr. Johnson on
April 8, 1997, that $5.40 per Share was Purchaser's final offer and that
this price exceeded the offer price that Purchaser considered justified
by objective factors.
The Special Committee concluded that, in light of the Company's
deteriorating financial condition (see sub-caption 1 above), the risks to the
Non-Samsung Stockholders from rejecting Purchaser's final offer and
discontinuing the negotiations outweighed the seemingly remote possibility
that Purchaser might be willing to continue negotiations and that such
continued negotiations might result in improved terms.
The Special Committee took note of the fact that certain stockholders,
representing in the aggregate a substantial number of Shares, had indicated to
the Special Committee that, rather than accept the Acquisition Proposal at
$5.10 per Share, they would prefer to retain their Shares, and thereby
preserve the possibility of an increase in the value of their investment if
the Company's turnaround efforts were successful, while considering the
possibility of pursuing litigation against Purchaser on various legal
theories. Although the Special Committee and its advisors communicated this
viewpoint to Purchaser on several occasions during the negotiations, the
Special Committee decided, for the reasons set forth herein and based upon the
information available to the Special Committee regarding the litigation
theories being considered by these stockholders and the reaction of Samsung's
representatives thereto, that this was a riskier alternative for the Non-
Samsung Stockholders at large than recommending a transaction in which they
would receive the Offer Price of $5.40 in cash based on the terms of the
Merger Agreement.
3. Fairness of the Offer Price. The Special Committee took into account the
oral opinion of Morgan Stanley (which Morgan Stanley indicated it was willing
to confirm, and which it did confirm, in writing in the Morgan Stanley
Opinion) that, as of April 14, 1997 (the date on which the Special Committee
gave the Stockholder Agreement Approval and made the Special Committee
Recommendation), the consideration to be received by the Non-Samsung
Stockholders pursuant to the Merger Agreement was fair from a financial point
of view to such Non-Samsung Stockholders. A copy of the Morgan Stanley
Opinion, setting forth the assumptions made, matters considered and review
undertaken is attached hereto as Annex B. The full text of such opinion is
incorporated herein by reference and the foregoing description thereof is
qualified in its entirety by such reference. Stockholders are urged to read
such opinion carefully in its entirety.
The Special Committee also took account of the methodology employed by
Morgan Stanley as a basis for the Morgan Stanley Opinion, including the
financial data presented to Morgan Stanley by the
17
<PAGE>
Company to assist in Morgan Stanley's analysis. Among other things, the Special
Committee noted that it was unlikely that the market price of the Common Stock
would attain the $5.40 level of the Offer Price unless and until the Company
began to generate operating profits at levels that far exceeded the Company's
performance over the past three years and the attainment of which was therefore
subject to substantial uncertainty, even assuming the Company were able to
implement the Reorganization Plan (see sub-caption 1 above).
On the basis of this information and Morgan Stanley's oral opinion, and
taking into account the fact that the Offer Price represented a premium of
approximately 16.8% over the closing price of a share on NASDAQ's National
Market System on the day preceding the public announcement of the Acquisition
Proposal, the Special Committee concluded that the Offer Price, while
disappointing in relation to the price that the Special Committee had initially
hoped to be able to negotiate, was a fair price under all of the relevant
circumstances, including the Company's deteriorating financial condition (see
sub-caption 1 above), the lack of preferable alternatives (see sub-caption 2
above) and the likelihood of consummation (see sub-caption 4 below).
4. Likelihood of Consummation. The Special Committee took into consideration
the totality of the terms of the Merger Agreement and concluded that they were
such as to maximize the likelihood of the consummation of the transaction.
Among other things, the Special Committee took note of the following:
. The fact that Purchaser was willing to effect the transaction through a
first-step tender offer, under the terms of which it was willing to
accept any and all validly tendered Shares, followed by a second-step
merger at the same price. Although the Special Committee recognized that
the need for certain regulatory approvals might preclude Purchaser from
consummating the Offer on the earliest date permitted by the tender
offer rules promulgated by the Commission (see "THE TENDER OFFER--14.
Certain Legal Matters; Regulatory Approvals"), the Special Committee
noted that Purchaser was willing to represent in the Merger Agreement
that it had no reason to believe that all required governmental
approvals would not be obtained in a timely fashion and that, by reason
of Purchaser's willingness to make the Offer, there was a reasonable
possibility that Non-Samsung Stockholders could sell their Shares to
Purchaser at the Offer Price earlier than if the transaction were
effected as a one-step merger.
. The fact that the conditions to Purchaser's obligations to consummate
the Offer were customary and, in the assessment of the Special
Committee, not unduly onerous. Among other things, the Special Committee
noted that: (a) although Purchaser's obligation to consummate the Offer
would be conditioned on there not having occurred, after the execution
of the Merger Agreement, any events or changes reasonably likely to have
a material adverse effect on the Company and its subsidiaries taken as a
whole, Purchaser had agreed to a
provision in the Merger Agreement whereby any determination regarding
the applicability of this condition was to be made (i) in comparison to
the Company's net losses and declining equity over the past thirteen
fiscal quarters, the current trend with respect thereto, and all
developments resulting therefrom, and (ii) disregarding any changes
resulting from any actions of the Company approved on or after April 14,
1997 by the Board (including the Executive Committee thereof) or its
chief executive officer; and (b) Purchaser was willing to agree that any
determination made by it as to whether or not the failure to satisfy any
of the conditions to its obligation to consummate the Offer made it
inadvisable for Purchaser to proceed with the Offer or the acceptance
for payment of or payment for Shares thereunder, and therefore permitted
it to decline to consummate the Offer, would be required to be made in
its reasonable and good faith judgment.
. The fact that Purchaser was willing, pursuant to the Merger, to pay the
Offer Price for all Shares not purchased pursuant to the Offer and that,
if the Offer were consummated, there would be no conditions to
Purchaser's obligation to consummate the Merger other than the absence
of a legal prohibition or failure to obtain a material governmental
approval.
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. The fact that Purchaser had agreed not to insist that the consummation
of the Offer be conditioned on any court approval of the settlement that
Purchaser had negotiated with the Delaware Plaintiffs nor otherwise
linked to any litigation brought in connection with the execution of the
Merger Agreement (absent a court order of a kind entitling Purchaser to
terminate the Offer; see "THE TENDER OFFER--13. Certain Conditions of
the Offer")).
. The fact that, to the extent that any Non-Samsung Stockholders chose not
to tender their Shares into the Offer or accept the Offer Price pursuant
to the Merger but, rather, exercised statutory appraisal rights under
Delaware law (see "Plans for the Company After the Offer and the Merger;
Certain Effects of the Offer and the Merger"), such exercise would not
impair Purchaser's obligation to consummate the Merger provided the
Offer was consummated. Accordingly, those Non-Samsung Stockholders who
believed that the exercise of statutory appraisal rights would yield
them a greater per Share amount than the Offer Price would be free to
pursue such exercise without adversely affecting the ability of the
other Non-Samsung Stockholders to receive the Offer Price for their
Shares.
The Special Committee took into account the fact that it had been unable to
elicit Purchaser's agreement to a provision whereby, unless the Special
Committee otherwise directed, Purchaser would not purchase Shares pursuant to
the Offer if the number of Shares purchased pursuant to the Offer represented
less than a majority of the Shares held by the Non-Samsung Stockholders. The
Special Committee also noted that, in the absence of such a minimum tender
condition, Purchaser would have the ability under Delaware law, provided its
purchases of Shares pursuant to the Offer resulted in its and its affiliates'
aggregate ownership increasing from 49% (assuming exercise of the Purchaser
Option, which entitles Purchaser to purchase 4.4 million unissued Shares at
$.01 per Share) to in excess of 50%, to cause the Merger to be consummated
irrespective of the votes of any other stockholders (see "Purpose and
Structure of the Offer and the Merger; Reasons of Purchaser for the Offer and
the Merger"). However, the Special Committee concluded that the absence of
such a minimum tender condition did not warrant the Special Committee
withholding its approval and recommendation of the Merger Agreement because
(i) as noted above, the Offer Price to be been paid in the Merger was the same
as the Offer Price, and the Merger was not subject to any conditions other
than the consummation of the Offer, the absence of a legal prohibition or
failure to obtain a material governmental approval, and (ii) the absence of
such a minimum tender condition meant that the failure of substantial Non-
Samsung Stockholders to accept the Offer would not preclude the ability of
other Non-Samsung Stockholders to sell their Shares pursuant to the Offer if
they desired to do so.
The Special Committee also took note of the fact that the limitations to be
imposed by the Merger Agreement on the conduct of business by the Company
prior to the consummation of the Offer would not preclude the Company from
proceeding with the Reorganization Plan or implementing other
measures to improve its operating results during the pendency of the Offer
(and thus would not subject the Non-Samsung Stockholders to an undesirable
risk that if the Merger Agreement were terminated the Company would be in
worse financial condition by reason of the very execution of the Merger
Agreement) because those conditions would not apply to actions which either
(a) were approved by Purchaser, the Board (including the Executive Comittee
thereof) or the Company's chief executive officer, or (b) were in the ordinary
and usual course of the Company's business, taking into account the Company's
current financial condition, results of operations and cash flow.
The Special Committee also took account of the fact that Purchaser was
willing to represent, in the Merger Agreement, that it had available sources
of financing to consummate the Offer and the Merger, as well as to fund the
Company's repurchase obligations under the LYONs, without resort to the
Company's assets or borrowings. Accordingly, the financing of the Offer and
the Merger would not be dependent on, or adversely affected by any further
deterioration in, the Company's financial condition.
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The Special Committee also took into consideration the fact that Purchaser
was willing to agree that all of the rights of the Company under the Merger
Agreement (including, without limitation, rights of waiver and enforcement)
would be vested exclusively in the Special Committee and would be exercisable
only with the consent of, or at the express direction, of the Special
Committee. In the view of the Special Committee, this provision was
significant in ensuring that the fact that Purchaser's nominees constitute a
majority of the Board and that members of the Company's present senior
management were designated by Purchaser would not preclude the Company,
through the Special Committee, from taking such action as might be appropriate
to seek to ensure that Purchaser's obligations under the Merger Agreement were
satisfied and the Company's rights thereunder were enforced.
FOR THE FOREGOING REASONS, ON APRIL 14, 1997, EACH INDEPENDENT DIRECTOR
APPROVED THE OFFER AND THE MERGER FOR ALL PURPOSES OF THE STOCKHOLDER
AGREEMENT AND THE SPECIAL COMMITTEE UNANIMOUSLY RECOMMENDED THAT THE BOARD
APPROVE AND ADOPT THE MERGER AGREEMENT AND RECOMMEND THAT NON-SAMSUNG
STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES TO PURCHASER PURSUANT
THERETO.
THE BOARD. At a meeting on April 14, 1997, immediately following the Special
Committee meeting (see "--The Special Committee"), the Board unanimously (a)
determined that the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, taken together, are in the best
interests of the Non-Samsung Stockholders, (b) adopted and approved the Merger
Agreement and authorized the execution thereof by the Company, and (c) decided
to recommend that the Non-Samsung Stockholders accept the Offer and tender
their Shares thereunder to Purchaser.
In reaching its decision, the Board considered the factors listed below. The
following discussion of the factors considered by the Board is not intended to
be exhaustive but summarizes all material factors considered, except that (i)
in the case of the three members of the Board who are also members of the
Special Committee, reference is also made to the discussion above regarding
the factors considered by the Special Committee (see "--The Special
Committee"), and (ii) in the case of the six members of the Board (comprising
a majority of the entire Board) who are designees of Purchaser pursuant to the
Stockholder Agreement, reference is also made to the discussion below with
respect to Purchaser's position regarding the fairness of the Offer to the
Non-Samsung Stockholders (see "Position of Purchaser Regarding the Fairness of
the Offer and the Merger"). The Board did not assign any relative or specific
weights to the following factors nor did it specifically characterize any
factor as positive or negative and individual members of the Board may have
given differing weights to differing factors and may have viewed certain
factors more positively or negatively than others. Throughout its
deliberations, the Board received the advice of counsel to the Company.
The Board took into consideration the report it had received during its
April 14, 1997 meeting from Mr. Johnson regarding the Special Committee's
recommendation regarding the Merger Agreement, the Offer and the Merger (see
"--The Special Committee"), and regarding the nature and scope of the Special
Committee's work underlying that recommendation, including (among other
things) the Special Committee's negotiations with Purchaser, the respective
positions taken by the parties during those negotiations, and the fact that
the Special Committee had received from Morgan Stanley an oral opinion, which
Morgan Stanley had indicated it was willing to confirm in writing, that, as of
April 14, 1997, the consideration to be received by the Non-Samsung
Stockholders pursuant to the Merger Agreement was fair from a financial point
of view to such Non-Samsung Stockholders.
The Board also took into consideration the provisions of the Merger
Agreement, the detailed financial information that had been regularly
furnished to the members of the Board by the Company's senior management and
the general familiarity of each member of the Board with the affairs of the
Company.
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Based on the foregoing, the Board concluded that it was appropriate to
accept the Special Committee's recommendation regarding the Merger Agreement,
the Offer and the Merger.
FOR THE FOREGOING REASONS, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE NON-
SAMSUNG STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES THEREUNDER TO
PURCHASER.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
On February 21, 1997, the Special Committee retained Morgan Stanley to act
as its financial advisor in connection with its evaluation of the Acquisition
Proposal (or such other offers as may be received) and the other alternatives
available to the Company.
At the April 14, 1997 meeting of the Special Committee, Morgan Stanley
delivered its oral opinion to the Special Committee that, as of such date and
subject to the various considerations set forth in its opinion, the
consideration to be received by the Non-Samsung Stockholders pursuant to the
Merger Agreement was fair from a financial point of view to such Non-Samsung
Stockholders. Morgan Stanley subsequently delivered to the Special Committee
the Morgan Stanley Opinion dated April 14, 1997 confirming its oral opinion.
THE FULL TEXT OF THE MORGAN STANLEY OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND REVIEW
UNDERTAKEN BY MORGAN STANLEY, IS ATTACHED HERETO AS ANNEX B AND IS
INCORPORATED HEREIN BY REFERENCE. HOLDERS OF COMMON STOCK ARE URGED TO, AND
SHOULD, READ THE MORGAN STANLEY OPINION CAREFULLY AND IN ITS ENTIRETY. THE
MORGAN STANLEY OPINION IS DIRECTED TO THE SPECIAL COMMITTEE AND ADDRESSES ONLY
THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE
RECEIVED BY THE NON-SAMSUNG STOCKHOLDERS PURSUANT TO THE MERGER AGREEMENT, AND
IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE AN
OPINION OR A RECOMMENDATION AS TO WHETHER ANY HOLDER OF COMMON STOCK SHOULD
ACCEPT THE OFFER OR AS TO HOW SUCH HOLDER SHOULD VOTE WITH RESPECT TO THE
MERGER, IF ANY VOTE IS REQUIRED. THE SUMMARY OF THE MORGAN STANLEY OPINION SET
FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
SUCH OPINION.
In arriving at its opinion, Morgan Stanley, among other things: (i) reviewed
certain publicly available financial statements and other information of the
Company; (ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by the management
of the Company; (iii) reviewed certain financial projections prepared by the
management of the Company, including a draft of the Reorganization Plan which
contains projections with respect to restructuring actions that the Company's
management has proposed and long-term targets for the Company's operating
margins; (iv) discussed the past and current operations and financial
condition
and the prospects of the Company with certain past and present senior
executives and outside consultants of the Company; (v) reviewed certain
strategic and financial studies of the Company prepared by third parties at
the direction of the Company; (vi) reviewed the reported prices and trading
activity for the Common Stock; (vii) compared the financial performance of the
Company and the prices and trading activity of the Common Stock with that of
certain other broadly comparable publicly-traded companies and their
securities; (viii) reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions; (ix) considered the
future liquidity needs of the Company, including Morgan Stanley's
understanding, based on information provided to Morgan Stanley by members of
the Special Committee and representatives of Purchaser as to statements made
by Purchaser to such members and representatives, respectively, that if the
Merger is not consummated, there is no assurance that Purchaser will provide
any additional financial support to the Company other than that which
Purchaser is contractually obligated to provide, nor be willing to have its
existing ownership interest diluted by third party financing; (x) considered
statements made by Purchaser's representatives that Purchaser intends to
continue its active participation in the management of the Company; (xi)
participated in discussions and negotiations among representatives of the
Special
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Committee, the Company and Purchaser and their financial and legal advisors;
(xii) reviewed certain agreements between Purchaser and the Company in
existence prior to the date of the Morgan Stanley Opinion; (xiii) reviewed the
Merger Agreement and certain related documents; and (xiv) considered such
other factors as Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of the Morgan Stanley Opinion. In
addition, Morgan Stanley assumed that the financial projections and targets
provided to it by the management of the Company, including those contained in
the Reorganization Plan, were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial
performance of the Company. Morgan Stanley did not make any independent
valuation or appraisal of the assets or liabilities of the Company, nor was it
furnished with any such appraisals. The Morgan Stanley Opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to it as of, the date of the Morgan Stanley
Opinion. Morgan Stanley also relied on advice of counsel to the Special
Committee as to certain legal matters regarding the Company.
The Morgan Stanley Opinion notes Morgan Stanley's understanding, based on
information provided to it by members of the Special Committee and
representatives of Purchaser as to statements made by Purchaser to such
members and representatives, respectively, that Purchaser does not intend to
sell its ownership interest in the Company to a third party. Accordingly, in
arriving at the Morgan Stanley Opinion, Morgan Stanley did not solicit
interest from any party with respect to the acquisition of the Company or any
of its assets, nor did Morgan Stanley receive any indication of interest in
such an acquisition from any party other than Purchaser.
The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the Special Committee on April 14, 1997 in
connection with the preparation of the Morgan Stanley Opinion and with its
oral presentation to the Special Committee on such date:
Common Stock Performance. Morgan Stanley's analysis of Common Stock
performance consisted of a historical analysis of closing prices and
trading volumes from January 1, 1994 through April 11, 1997 (the last full
day of trading prior to the date of the Morgan Stanley Opinion), and a
comparison of such performance to the indexed price performance of (i)
Apple Computer, Inc.; (ii) the Standard & Poors industrial average of 500
stocks (the "S&P 500"); and (iii) a composite of the following computer
companies: Advanced Logic Research, Inc., Compaq Computer Corporation, Dell
Computer Corporation, Gateway 2000, Inc., Sequent Computer Systems, Inc.,
Silicon Graphics, Inc. and Sun Microsystems, Inc. (collectively, the
"Computer Composite"). Morgan Stanley observed that over the periods from
January 1, 1994 to April 11, 1997 and from April 11, 1996 to April 11,
1997, the Common Stock underperformed each of Apple Computer, Inc., the S&P
500 and the Computer Composite. In the twelve months ended April 11, 1997,
the Common Stock closed at a high of $8.50 per Share and a low of $3.94 per
Share. Morgan Stanley noted that the Offer Price represented a premium of
16.8% over both the closing price for the Common Stock on the last full day
of trading prior to the public announcement of the Acquisition Proposal and
the closing price on April 11, 1997.
Comparable Company Analysis. As part of its analysis, Morgan Stanley
compared certain financial information of the Company with that of Advanced
Logic Research Inc., Apple Computer, Inc., Compaq Computer Corporation,
Dell Computer Corporation and Gateway 2000, Inc. (the "Comparable
Companies"), which are publicly traded computer companies that Morgan
Stanley considered comparable in certain respects with the Company. Morgan
Stanley's analysis included, among other things, a review, for each of the
Company and the Comparable Companies, of (i) their respective aggregate
values (market value of equity plus net debt and preferred stock) expressed
as a multiple of their respective latest 12 months ("LTM") sales and (ii)
the closing price
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on April 11, 1997 of each companies' common stock expressed as a multiple
of their respective estimated earnings per share ("EPS") for the calendar
year 1998 (based on Institutional Brokers Estimate System ("I/B/E/S")
estimates as of April 11, 1997). Applying this analysis, Morgan Stanley
derived a range of implied prices per Share, based on ranges of multiples
of 0.20x to 0.30x the Company's 1996 LTM sales and 8.0x to 10.0x the
Company's 1998 EPS (based on I/B/E/S estimates as of April 11, 1997), of
$0.96 to $4.35 and $1.60 to $2.00, respectively. Because the Company has
been considering discontinuing consumer sales, Morgan Stanley also
determined that the same multiple range for 1996 LTM sales excluding
consumer sales would imply a range of prices per share of Common Stock of
($0.00) to $0.12. Considering each of the value ranges implied by the
Company's 1996 LTM sales with consumer sales, the Company's 1996 LTM sales
without consumer sales and the Company's 1998 EPS together, Morgan Stanley
derived an aggregate implied range of prices per Share of $1.00 to $4.00.
No company utilized as a comparison in the comparable company analysis is
identical to the Company. In evaluating the Comparable Companies, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other
matters, many of which are beyond the control of the Company, such as the
impact of competition on the Company and the industry generally, industry
growth and the absence of any adverse material change in the financial
condition and prospects of the Company or the industry or in the financial
markets in general.
Precedent Transaction Analysis. Using publicly available information,
Morgan Stanley reviewed and analyzed certain recent precedent transactions
in the computer hardware industry (the "Comparable Transactions"), as
listed below, which, in Morgan Stanley's judgment, were deemed to be the
most comparable to the Offer and the Merger for purposes of calculating a
valuation range for the Common Stock. These Comparable Transactions
included NEC Corporation's pending acquisition of a 19.99% equity interest
in Packard Bell Electronics, Inc., Purchaser's 1995 acquisition of a 40.25%
equity interest in the Company, Hyundai Electronics Industries' acquisition
of all outstanding equity of Maxtor Corporation, Fujitsu-ICL's acquisition
of Nokia Data, Channel International Corp.'s acquisition of Wyse
Technology, Inc. and Groupe Bull's acquisition of Zenith Computer Group
from Zenith Electronics Corporation. Morgan Stanley reviewed the prices
paid in these transactions, including analysis of the aggregate value of
such transactions expressed as multiples of publicly available estimates of
1996 LTM sales. The aggregate value for these transactions expressed as a
multiple of 1996 LTM sales ranged from a low of 0.30x for NEC Corporation's
acquisition of Packard Bell Electronics, Inc. stock to a high of 0.51x for
Channel International Corp.'s acquisition of Wyse Technology, Inc. Applying
this analysis, Morgan Stanley derived a range of implied prices per Share,
based on a multiple range of .30x to .40x 1996 LTM sales for the Company,
of $4.35 to $7.49. Because the Company has been considering discontinuing
consumer sales, Morgan Stanley also determined that the same multiple range
for the Company's 1996 LTM sales excluding consumer sales would imply a
range of prices per Share of $0.12 to $2.09. Considering each of the value
ranges implied by the Company's 1996 LTM sales with consumer sales and the
Company's 1996 LTM sales without consumer sales together, Morgan Stanley
derived an aggregate implied range of prices per Share of $3.00 to $7.50.
No transaction utilized in the precedent transaction analysis is
identical to the Offer and the Merger. In evaluating the precedent
transactions, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of the
Company, such as the impact of competition on the Company and the industry
generally, industry growth and the absence of any adverse material change
in the financial condition and prospects of the Company or the industry or
in the financial markets in general. Mathematical analysis (such as
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determining the average or median) is not in itself a meaningful method of
using comparable transaction data.
Discounted Equity Analysis. Morgan Stanley performed an analysis of the
present value per Share of the Company's future trading price based on a
range of multiples of EPS estimates for the Company for calendar years 1999
and 2000, using an illustrative range of multiples of EPS from 10.0x to
13.0x and an illustrative discount rate of 17.5% based on Morgan Stanley's
estimate of the theoretical return required by stockholders of the Company.
Morgan Stanley based its discounted equity analysis on a number of
financial and operating factors, including, but not limited to: (i) the
Company's historical financial performance for calendar years 1994, 1995
and 1996; (ii) the first quarter of 1997 preliminary financial results
provided to Morgan Stanley by the Company; (iii) a comparison of the
Company's January 1997 annual budget with the significantly worse
preliminary results for the first quarter of 1997, and the reduced
financial outlook for the remainder of the 1997 fiscal year; (iv) the
preliminary revised forecast provided in the Reorganization Plan for the
remainder of the 1997 fiscal year (including sales and margin targets); and
(v) a set of general guidelines for the Company's goal to achieve break-
even profitability for the 1998 fiscal year.
Based on the information described above, Morgan Stanley developed and
analyzed a range of potential earnings estimates for calendar years 1999
and 2000, and calculated a range of potential present value per Share using
an illustrative discount rate of 17.5% and forward price-to-earnings
multiples of 10.0x to 13.0x. Applying such estimates, Morgan Stanley
calculated approximate ranges of implied values per Share of $0.73 to $0.95
for estimated 1999 EPS, and $1.25 to $1.62 for estimated 2000 EPS.
In addition, Morgan Stanley developed financial forecasts and operating
scenarios for the years 1999 and 2000 that demonstrate the EPS of the
Company that would be necessary to achieve a present value market price of
$5.40 per Share, calculated using an illustrative discount rate of 17.5%
and a forward price-to-earnings multiple of 11.0x. Morgan Stanley estimated
the required level of such EPS to be approximately $0.68 and $0.80 in 1999
and 2000, respectively.
Liquidation Analysis. Morgan Stanley analyzed the Company's need for
additional financing to fund losses projected by the Company's management
to continue through the fourth quarter of 1998 and, in light of such need
and the uncertainty of the Company being able to obtain such financing if
the Offer and the Merger are not consummated, Morgan Stanley prepared a
liquidation analysis of the price that would be realized by holders of
Common Stock upon a liquidation of the Company's assets. Using the book
value (excluding depreciation) of the Company's assets at February 28, 1997
provided by the Company's management, Morgan Stanley calculated the total
assets of the Company in a liquidation under three scenarios using
different assumptions regarding the discount applied to the value of
particular types of assets in a liquidation context. Applying the three
scenarios (one of which values the Company's assets at 100% of their book
value), Morgan Stanley calculated that the Company would have from
approximately $644.8 million to $382.6 million total assets available in a
liquidation to satisfy approximately $565.5 million in existing
indebtedness of the Company (including indebtedness owed to Purchaser and
its affiliates) and approximately $32.5 million of liquidation preference
payable on account of the Company's Series A Redeemable Preferred Stock
(owned by Purchaser), leaving, under the best case scenario, approximately
$46.2 million, or $0.74 per Share, to be distributed on account of the
Common Stock. Morgan Stanley calculated that, if Purchaser's claims were
equitably subordinated (which, Morgan Stanley was advised, was unlikely
based on applicable law and available facts), holders of Common Stock would
receive, depending on the assumptions made as to how certain types of
assets are discounted, from approximately $6.24 to $2.01 per Share.
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The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the
results of all of its analyses as a whole and did not attribute any particular
weight to any particular analysis or factor considered by it. Furthermore,
selecting any portions of Morgan Stanley's analyses, without considering all
analyses, would create an incomplete view of the process underlying the Morgan
Stanley Opinion. In addition, Morgan Stanley may have deemed various
assumptions more or less probable than other assumptions, so that the ranges
of valuations resulting for any particular analysis described above should not
be taken to be Morgan Stanley's view of the actual value of the Company.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the Company. Where
appropriate, Morgan Stanley discounted comparable industry and/or company data
to reflect the Company's current and projected operating performance in
relation to that of the relevant industry or comparable company group. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as a part of Morgan
Stanley's analysis of whether the consideration to be received by the Non-
Samsung Stockholders pursuant to the Merger Agreement is fair from a financial
point of view to such Non-Samsung Stockholders, and were conducted in
connection with the delivery of the Morgan Stanley Opinion. The analyses do
not purport to be appraisals or to reflect the prices at which the Company
might actually be sold.
As described above (see "Recommendations of the Special Committee and the
Board; Fairness of the Offer and the Merger"), the Morgan Stanley Opinion and
the information provided by Morgan Stanley to the Special Committee were two
of a number of factors taken into consideration by the Special Committee in
making its determination to recommend approval of the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger.
Consequently, the Morgan Stanley analyses described above should not be viewed
as determinative of the opinion of the Special Committee, the Board or the
view of the management with respect to the value of the Company.
The summary set forth above does not purport to be a complete description of
Morgan Stanley's analyses. A copy of written materials distributed by Morgan
Stanley to the Special Committee on April 14, 1997 in connection with Morgan
Stanley's analyses has been filed as an exhibit to the Schedule 13E-3 filed by
the Company and Purchaser with the Commission. Copies thereof will be made
available for inspection and copying at the principal executive offices of the
Company during regular business hours by any interested stockholder of the
Company, or his or her representative who has been so designated in writing,
and may also be obtained in the manner described in "THE TENDER OFFER--16.
Miscellaneous" (except that copies will not be available at regional offices
of the Commission).
The Special Committee retained Morgan Stanley based upon its experience and
expertise. Morgan Stanley is an internationally recognized investment banking
and advisory firm. As part of its investment banking business, Morgan Stanley
is regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes. Morgan Stanley is a full-service securities firm engaged in
securities trading and brokerage activities, as well as providing investment
banking and financial advisory services. In the ordinary course of its trading
and brokerage activities, Morgan Stanley or its affiliates may at any time
hold long or short positions, and may trade or otherwise effect transactions,
for its own account or the accounts of customers, in securities of the Company
or Purchaser.
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<PAGE>
Pursuant to a letter agreement dated February 21, 1997, Morgan Stanley has
earned an advisory fee of $1,250,000, of which $150,000 was paid upon signing
of such letter agreement and $1,100,000 became payable on April 14, 1997, the
date on which the Special Committee made its final recommendation to the
Board. In addition, under such letter agreement, Purchaser has agreed to pay
Morgan Stanley an additional transaction fee, payable upon consummation of the
Merger, of approximately $50,000, which is based on the additional
consideration to be received by the Non-Samsung Stockholders above $5.10 per
Share (the price per Share offered in the Acquisition Proposal). In addition,
the Company agreed to reimburse Morgan Stanley for its expenses, including the
fees and expenses of its counsel, and to indemnify Morgan Stanley for
liabilities and expenses arising out of the engagement and the transactions in
connection therewith, including liabilities under federal securities laws.
POSITION OF PURCHASER REGARDING THE FAIRNESS OF THE OFFER AND THE MERGER
Purchaser believes that the consideration to be received by the Non-Samsung
Stockholders pursuant to the Offer and the Merger is fair to such
stockholders. Purchaser bases its belief on the following factors: (i) the
Special Committee, consisting of directors who are neither designees of
Purchaser nor officers of the Company, was appointed to represent the
interests of the Non-Samsung Stockholders; (ii) the Special Committee retained
and was advised by independent legal and financial advisors; (iii) the Special
Committee and the Board each determined that the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, taken
together, are in the best interests of the Non-Samsung Stockholders, approved
the Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, and recommended that the Non-Samsung Stockholders accept
the Offer and tender their Shares; (iv) the parties' awareness that, because
the Stockholder Agreement imposes substantial restrictions on Purchaser's
ability to acquire additional Shares prior to December 15, 1998, Purchaser
would generally be unable to acquire any additional Shares prior to such date
other than in a negotiated transaction approved by the Independent Directors;
(v) the Offer Price of $5.40 per Share to be paid in the Offer and the Merger
and the other terms and conditions of the Merger Agreement resulted from
active arm's-length bargaining between representatives of the Special
Committee, on the one hand, and Purchaser, on the other; (vi) the
consideration to be paid in the Offer and the Merger represents a premium of
approximately 16.8% over the reported closing price for the Shares on the last
trading day prior to the public announcement of the Acquisition Proposal; and
(vii) the historical financial performance of the Company and its financial
results, which include substantial accumulated losses. Purchaser has reviewed
the factors considered by the Special Committee and the Board in support of
their decisions, as described above (see "Recommendations of the Special
Committee and the Board; Fairness of the Offer and the Merger"), and has no
basis to question their consideration of or reliance on such factors. In
reaching its conclusion, Purchaser also considered generally the current and
historical market prices for the Shares. Purchaser did not find it practicable
to assign, nor did it assign, relative weights to the individual factors
considered in reaching its conclusion as to fairness.
ANALYSIS OF FINANCIAL ADVISOR TO PURCHASER
Salomon was retained by Purchaser as its financial advisor to evaluate a
possible acquisition of the interests in the Company not owned by Purchaser
based on Salomon's prior investment banking relationship and familiarity with
Purchaser. Salomon was not requested to, and did not, render an opinion with
respect to the fairness of the consideration to be paid pursuant to the Offer.
No special instructions were given to Salomon related to its evaluation, and
neither Purchaser nor any of its affiliates imposed any limitations on the
scope thereof.
In a meeting on January 27, 1997 with senior executives of Purchaser,
Salomon made a presentation regarding the proposed transaction (the "Salomon
Presentation"). The following is a summary of the Salomon Presentation.
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Overview of the Company. Salomon reviewed the history of the Company's
business and operating results, as well as its stock price performance. In
addition, Salomon also summarized the views of industry and financial
research analysts with respect to the personal computer ("PC") industry
generally and of the Company specifically.
Preliminary Valuation Analysis. Salomon calculated reference ranges of
equity value for the Company using three separate valuation methodologies--
a public market valuation, an acquisition transaction analysis and a
discounted cash flow ("DCF") analysis. Salomon noted, however, that the
Company's current operating losses and projected 1997 net losses, together
with the historic volatility of the PC industry, may adversely affect the
reliability of any such valuation methodology.
ANALYSIS OF SELECTED PUBLICLY TRADED PC MANUFACTURERS. Salomon applied
ranges of multiples of projected revenues and net income obtained from
publicly available financial information with respect to certain other
PC manufacturers to certain projected financial information prepared
with respect to the Company (solely using certain operating assumptions
which were based upon industry forecasts and judgments made solely by
Salomon regarding the Company's financial conditions and prospects).
These companies included Dell Computer Corporation ("Dell"), Gateway
2000, Inc. ("Gateway 2000"), Compaq Computer Corporation ("Compaq") and
Apple Computer, Inc. In its analysis, Salomon discounted the multiples
to reflect the Company's weak current and projected operating
performance (margins, working capital management, growth rate in
earnings per share, etc.) relative to that of Dell, Gateway 2000, and
Compaq. No change in Purchaser's ongoing role as a significant
shareholder and source of potential financing was assumed. Based on
this analysis, Salomon calculated a reference equity value range of
$2.10 to $5.34 per Share.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Salomon also reviewed the
financial terms of four acquisition transactions since 1993 involving
PC manufacturing companies (the "Precedent Transactions"). The
Precedent Transactions reviewed, in reverse chronological order by
announcement date, were the following: (a) the acquisition of Zenith
Data Systems by Packard Bell Electronics, Inc., (b) the acquisition by
Purchaser of its initial equity position in the Company, (c) the
acquisition of Packard Bell Electronics, Inc. by NEC Corporation and
(d) the acquisition of the PC business of Tandy by the Company. From
this information Salomon determined ranges of multiples of acquisition
value to historical revenue with respect to the Precedent Transactions,
and applied them to the historical revenue of the Company. As in the
case of the analysis of publicly traded PC manufacturers, Salomon
discounted the industry multiples to reflect the Company's current and
projected operating performance relative to that of the target
companies at the times of the transactions. Based on this analysis,
Salomon calculated a reference equity value range of $2.75 to $5.69 per
Share.
DISCOUNTED CASH FLOW ANALYSIS. Salomon calculated reference ranges of
equity value for the Company based upon the value discounted to the
present of its projected five-year stream of unlevered cash flows plus
a range of terminal values based upon a range of multiples of its
projected earnings before interest, taxes, depreciation and
amortization ("EBITDA") for fiscal year 2001, all as prepared by
Salomon in its sole judgment, less net debt of the Company (net debt is
total debt less cash). In addition, Salomon's discounted cash flow
model was based on industry projections for unit growth and price
movements, adjusted based upon assumptions regarding the Company's
growth and pricing potential, and assumed that the Company would
gradually become profitable over a 24-month period. The principal
drivers in the return to profitability were assumed to be a combination
of meaningful revenue growth and significant margin improvement. In
conducting its analysis, Salomon made certain assumptions with regard
to the Company's operations and working capital and applied discount
rates reflecting a weighted average cost of capital ranging from 13.5%
to 15.5% and terminal multiples ranging from 6.0x to 8.0x for EBITDA
for fiscal year 2001. Based on this analysis, Salomon determined a
reference equity value range for the Company of $1.50 to $4.72 per
Share.
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Salomon also noted that, in its view based on the aforementioned analyses,
the market value of the Shares appeared to reflect a trading premium in
anticipation of the prospect that Purchaser would eventually offer to purchase
the Shares held by Non-Samsung Stockholders at a price representing a premium
to what would be the prevailing market price for the Shares in the absence of
Purchaser as a significant stockholder of the Company.
The summary set forth above does not purport to be a complete description of
the Salomon Presentation. A copy of the Salomon Presentation has been filed as
an exhibit to the Schedule 13E-3 filed by the Company and Purchaser with the
Commission. Copies thereof will be made available for inspection and copying
at the principal executive offices of the Company during regular business
hours by any interested stockholder of the Company, or his or her
representative who has been so designated in writing, and may also be obtained
in the manner described in "THE TENDER OFFER-- 16. Miscellaneous" (except that
copies will not be available at regional offices of the Commission).
No company utilized in the above analyses as a comparison is identical to
the Company. Accordingly, an analysis of the results of the foregoing is not
purely mathematical. Rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the PC
manufacturers and the companies involved in the Precedent Transactions and
other factors that could affect the public trading values of PC manufacturers
or the transaction values reflected in the Precedent Transactions to which the
Company is being compared.
In performing its analyses, Salomon neither had access to the Company's
projections or business plan nor had an opportunity to conduct a due diligence
review of the Company or its business. In addition, Purchaser has not provided
to Salomon any projections or views with respect to the development of the
personal computer industry or the Company's business. Accordingly, the
analyses performed by Salomon which depend upon the use of projections or
forecasts are inherently less reliable than they would have been if they had
been based upon projections or forecasts reflecting the best available
estimates and judgments of the Company's management.
Salomon also made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Purchaser and the Company. Salomon's analyses were
necessarily based on market, industry and other conditions as in effect on,
and the information made available to Salomon as of, the date of its
presentation. Any estimates contained in the analyses performed by Salomon are
not necessarily indicative of actual values or actual future results, which
may be significantly more or less favorable than suggested by such analyses.
In addition, analyses relating to the value of the Company do not purport to
be appraisals or to reflect the prices at which the Company may actually be
sold. Because such estimates are inherently subject to uncertainty, neither
Purchaser nor Salomon nor any other person assumes responsibility for their
accuracy.
As described above, the Salomon Presentation was one of many factors taken
into consideration by Purchaser in making its determination to make the Offer.
Consequently, the Salomon Presentation should not be viewed as determinative
of Purchaser's decision to proceed with the Offer.
In the ordinary course of business, Salomon actively trades in securities of
the Company and Purchaser for its own account and for the account of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER; REASONS OF PURCHASER FOR
THE OFFER AND THE MERGER
Purpose and Structure. The purpose of the Offer is for Purchaser to acquire
the entire equity interest in the Company. The purpose of the Merger is for
Purchaser to acquire all of the equity interest
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in the Company not acquired pursuant to the Offer. Upon consummation of the
Merger, the Company will become a wholly owned subsidiary of Purchaser. The
acquisition of the entire equity interest in the Company has been structured
as a cash tender offer followed by a cash merger in order to provide a prompt
and orderly transfer of ownership of the equity interest in the Company held
by the Non-Samsung Stockholders from them to Purchaser and to provide them
with cash for all of their Shares.
Under the DGCL, the approval of the Board and, under certain circumstances,
the affirmative vote of the holders of a majority of the outstanding Shares
are required to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger. If Purchaser acquires a majority
of the Shares, it will have sufficient voting power to cause the approval and
adoption of the Merger Agreement and the transactions contemplated thereby
without the affirmative vote of any other stockholder of the Company.
In the Merger Agreement, the Company has agreed to take all action necessary
to convene a special meeting of its stockholders as promptly as practicable
after the consummation of the Offer for the purpose of considering and taking
action on the Merger Agreement and the transactions contemplated thereby, if
such action is required under the DGCL. Purchaser has agreed that all Shares
owned by it and any of its affiliates will be voted in favor of the Merger
Agreement and the transactions contemplated thereby.
Under the DGCL, if, following consummation of the Offer, Purchaser owns at
least 90% of the Shares then outstanding, Purchaser will be able to cause the
Merger to occur without a vote of the Company's stockholders. In such event,
Purchaser and the Company have agreed to take all necessary and appropriate
action to cause the Merger to become effective as soon as reasonably
practicable after consummation of the Offer without a meeting of the Company's
stockholders. If, following consummation of the Offer, Purchaser owns less
than 90% of the Shares then outstanding, a vote of the Company's stockholders
will be required under the DGCL to approve the Merger, and a significantly
longer period of time will be required to effect the Merger. See "THE TENDER
OFFER--13. Certain Conditions of the Offer." However, in the event that
following consummation of the Offer, Purchaser owns less than 90% of the
Shares then outstanding, Purchaser reserves the right to purchase additional
Shares in the open market and, if it has not previously done so, exercise the
Purchaser Option to purchase 4.4 million Shares at $.01 per Share.
Reasons of Purchaser for the Offer and the Merger. In light of the Company's
continuing operating losses, Purchaser believes that significant further
support from Purchaser will be necessary in order for the Company to survive
and continue as a viable competitor in the PC industry. The acquisition of
100% ownership of the Company by Purchaser will give the Company direct access
to Purchaser's resources and, Purchaser believes, will provide the Company
with the best reasonably available way to return to profitability. Without
Purchaser's ongoing operational and financial support, the Company's ability
to survive as an independent company is questionable, and Purchaser's
willingness to continue to support the Company as it has in the past, with
additional expenditures and credit, is dependent upon Purchaser's owning 100%
of the equity of the Company. Accordingly, Purchaser believes the Offer and
the Merger are in the best interests not only of the Non-Samsung Stockholders,
but all of the Company's constituents, including its employees, customers and
suppliers.
PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER; CERTAIN EFFECTS OF THE
OFFER AND THE MERGER
Pursuant to the Merger Agreement, promptly upon completion of the Offer, the
Company and Purchaser intend to effect the Merger in accordance with the terms
of the Merger Agreement. See "The Merger Agreement."
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Purchaser's management has begun, and intends to continue, a review of the
Company and its assets, corporate structure, capitalization, operations,
properties, policies, management and personnel to determine what changes would
be desirable in order best to organize and integrate the activities of the
Company and Purchaser. Purchaser expressly reserves the right to make any
changes that it deems necessary or appropriate in light of its review or in
light of future developments or that would be desirable to permit Purchaser to
manage the Company. Except as otherwise disclosed in this Offer to Purchase,
Purchaser has no present plans or proposals that would result in an
extraordinary corporate transaction involving the Company or any of its
subsidiaries, such as a merger, reorganization, liquidation, relocation of
operations, or sale or transfer of a material amount of assets.
As a result of the Offer, the interest of Purchaser in the Company's net
book value and net earnings will increase in proportion to the number of
Shares acquired in the Offer. If the Merger is consummated, Purchaser's
interest in such items and in the Company's equity generally will increase to
100% and Purchaser and its subsidiaries will be entitled to all benefits
resulting from that interest, including all income generated by the Company's
operations and any future increase in the Company's value. Similarly,
Purchaser will also bear the risk of losses generated by the Company's
operations and any decrease in the value of the Company after the Merger.
Subsequent to the Merger, Non-Samsung Stockholders will cease to have any
equity interest in the Company, will not have the opportunity to participate
in any earnings and growth of the Company after the Merger and will not have
any right to vote on corporate matters. Similarly, stockholders will not face
the risk of losses generated by the Company's operations or decline in the
value of the Company after the Merger.
The Shares are currently traded on NASDAQ's National Market System. See "THE
TENDER OFFER--6. Price Range of the Shares." Following the consummation of the
Merger, the Shares will no longer be quoted on NASDAQ and the registration of
the Shares under the Exchange Act will be terminated. Accordingly, after the
Merger there will be no publicly traded equity securities of the Company
outstanding and the Company will no longer be required to file periodic
reports with the Commission. See "THE TENDER OFFER--12. Effects of the Offer
on the Market for Shares; NASDAQ National Market System and Exchange Act
Registration." It is expected that if Shares are not accepted for payment by
Purchaser pursuant to the Offer and the Merger is not consummated, the
Company's current management, under the general direction of the Board, will
continue to manage the Company as an ongoing business.
RIGHTS OF STOCKHOLDERS IN THE MERGER
No appraisal rights are available in connection with the Offer. If the
Merger is consummated, however, stockholders of the Company who have not sold
their Shares will have certain rights under the DGCL to dissent and demand
appraisal of, and to receive payment in cash of the fair value of, their
Shares. Stockholders who perfect such rights by complying with the procedures
set forth in Section 262 of the DGCL ("Section 262") will have the fair value
of their Shares (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) determined by the Delaware Court
of Chancery and will be entitled to receive a cash payment equal to such fair
value from the Surviving Corporation. In addition, such dissenting
stockholders would be entitled to receive payment of a fair rate of interest
from the date of consummation of the Merger on the amount determined to be the
fair value of their Shares. In determining the fair value of the Shares, the
court is required to take into account all relevant factors. Accordingly, such
determination could be based upon considerations other than, or in addition
to, the market value of the Shares, including, among other things, asset
values and earning capacity. In Weinberger v. UOP, Inc., the Delaware Supreme
Court stated that "proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in an appraisal proceeding. The
Weinberger court also noted that under Section 262, fair value is to be
determined "exclusive of any element of value arising from the accomplishment
or expectation of the merger." In
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<PAGE>
Cede & Co. v. Technicolor, Inc., however, the Delaware Supreme Court stated
that, in the context of a two-step cash merger, "to the extent that value has
been added following a change in majority control before cash-out, it is still
value attributable to the going concern," to be included in the appraisal
process. As a consequence of the foregoing, the fair value determined in any
appraisal proceeding could be the same as or more or less than the Merger
Consideration.
Purchaser does not intend to object, assuming the proper procedures are
followed, to the exercise of appraisal rights by any stockholder and the
demand for appraisal of, and payment in cash for the fair value of, the
Shares.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY
STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SECTION 262
INCLUDED HEREWITH IN ANNEX C. THE PRESERVATION AND EXERCISE OF APPRAISAL
RIGHTS ARE CONDITIONED ON STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE
DGCL.
Several decisions by Delaware courts have held that, in certain
circumstances, a controlling stockholder of a company involved in a merger has
a fiduciary duty to other stockholders that requires that the merger be
"entirely fair" to such other stockholders. In determining whether a merger is
fair to minority stockholders, Delaware courts have considered, among other
things, the type and amount of consideration to be received by the
stockholders and whether there was fair dealing among the parties. The
Delaware Supreme Court stated in Weinberger and in Rabkin v. Philip A. Hunt
Chemical Corp. that although the remedy ordinarily available to minority
stockholders is the right to appraisal described above, monetary damages,
injunctive relief or such other relief as the court may fashion may be
available if a merger is found to be the product of procedural unfairness,
including fraud, misrepresentation or other misconduct.
THE MERGER AGREEMENT
The following summary of certain provisions of the Merger Agreement is
presented only as a summary and is qualified in its entirety by reference to
the Merger Agreement, a copy of which is attached hereto as Annex A.
The Offer. The Merger Agreement provides for the making of the Offer.
Purchaser's obligation to accept for payment or pay for Shares is subject to
the satisfaction of the conditions that are described in "THE TENDER OFFER--
13. Certain Conditions of the Offer." Pursuant to the Merger Agreement,
Purchaser expressly reserves the right to waive any of the conditions to the
Offer, to the extent permitted by applicable law, and to make any change in
the terms or conditions of the Offer; provided that, without the written
consent of the Company (acting through the Special Committee), Purchaser may
not decrease the Offer Price, change the form of consideration payable,
decrease the number of Shares sought, add additional conditions to the Offer
or make any other change in the terms or conditions of the Offer set forth in
the Merger Agreement in any manner that is materially adverse to the holders
of Shares. Notwithstanding the foregoing, Purchaser may, in its sole
discretion, (i) extend the expiration date from time to time if all conditions
to the Offer have not been satisfied or waived (ii) extend the Offer for any
period required by any rule, regulation, interpretation or position of the
Commission applicable to the Offer and (iii) extend the Offer for any reason
on one or more occasions for an aggregate period of not more than ten (10)
business days beyond the latest Expiration Date that would otherwise be
permitted under clauses (i) or (ii) of this sentence. Subject to the other
conditions
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<PAGE>
of the Offer and the provisions of the Merger Agreement, Purchaser intends to
extend the Offer from time to time until all governmental and regulatory
approvals have been obtained.
The Merger. As soon as practicable after the satisfaction or waiver of the
conditions to the Merger, Sub or another direct or indirect wholly owned
subsidiary of Purchaser will be merged with and into the Company, as a result
of which the separate corporate existence of Sub or of such other subsidiary
of Purchaser, as the case may be, will cease and the Company will continue as
the Surviving Corporation. The Effective Time will occur at the date and time
that a certificate of merger in such form as is required by, and executed in
accordance with, the relevant provisions of the Delaware Law (the "Certificate
of Merger") is filed with the Secretary of State of the State of Delaware. The
Surviving Corporation shall continue its corporate existence under the laws of
the State of Delaware. In the Merger, each outstanding Share (other than
Shares held by Purchaser, Sub or any other subsidiary of Purchaser or held in
the treasury of the Company or by any subsidiary of the Company, which will be
cancelled and retired without any payment with respect thereto, or Shares with
respect to which the holder properly exercises such holder's dissenters'
rights under the DGCL) will be converted into the right to receive the Offer
Price, without interest thereon, pursuant to the Offer (the "Merger
Consideration"). Each share of common stock of Sub issued and outstanding
immediately prior to the Effective Time will be converted into one share of
common stock of the Surviving Corporation. The Certificate of Incorporation
and Bylaws of the Company at the Effective Time will be the Certificate of
Incorporation and Bylaws of the Surviving Corporation until modified in
accordance with applicable law. The directors of Sub at the Effective Time
will be the directors of the Surviving Corporation until their successors are
duly elected and qualified and the officers of the Company at the Effective
Time will be the officers of the Surviving Corporation until replaced in
accordance with the Bylaws of the Surviving Corporation.
Stock Options, SAR's. Pursuant to the Merger Agreement, each outstanding
stock option and warrant and any related stock appreciation right
(collectively, "Options") granted under any stock incentive plan or
arrangement of the Company will be cancelled immediately prior to the
Effective Time. The Merger Agreement provides that, not less than 30 days
prior to the Effective Time, each outstanding Option will become fully
exercisable and vested. The Merger Agreement further provides that, upon the
earlier of September 23, 1997 or the acceptance for payment and purchase of
Shares pursuant to the Offer, the exercise price of each outstanding Option
granted under the AST Research, Inc. 1989 Long-Term Incentive Program (the
"1989 Program") held by non-officer/director employees who are employed by the
Company on such date and which is subject to the Company's action on September
23, 1996 to reprice the exercise price of certain Options to $4.625 per Share,
will be adjusted to $4.625 per Share. Each holder of a vested Option shall be
entitled to receive from the Company, as of the Effective Time, for each Share
subject to such Option an amount in cash in cancellation of such Option equal
to the excess, if any, of the Merger Consideration over the per Share exercise
price of such Option, less any applicable tax withholding. Notwithstanding the
foregoing, Options held by Purchaser will not require any payment but instead
will be cancelled as of the Effective Time, unless previously exercised.
The Merger Agreement provides that, with respect to employees laid off on or
after the date thereof and prior to the Effective Time, each outstanding
Option held by such former employee will become immediately fully exercisable
and vested. The Merger Agreement further provides that, if the former employee
was a non-officer/director employee, the exercise price of each outstanding
Option granted under the 1989 Program which is held by the former employee and
which is subject to the Company's action on September 23, 1996 to reprice the
exercise price of certain Options to $4.625 per Share, will be adjusted to
$4.625 per Share as of the acceptance for payment and purchase of Shares
pursuant to the Offer, and that such former employees will be entitled to
receive from the Company, as of the Effective Time, for each Share subject to
such Option, an amount in cash in cancellation of such Option equal to the
excess, if any, of the Merger Consideration over the per Share
32
<PAGE>
exercise price of such Option, less any applicable tax withholding. The
Company will thereafter cancel, immediately prior to the Effective Time, each
outstanding Option held by laid-off employees.
Stockholders' Meeting. The Merger Agreement provides that, if required by
applicable law and subject to the fiduciary duties of the Board, the Company,
acting through the Board, will call a meeting of its stockholders to be held
as promptly as practicable following the acceptance for payment and purchase
of Shares pursuant to the Offer for the purpose of considering and voting on
the approval of the Merger and adoption of the Merger Agreement. Under the
Merger Agreement, Purchaser has agreed to vote, or cause to be voted, at any
such meeting all Shares owned by it, Sub or any other affiliate of Purchaser
in favor of the Merger.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties of the Company with respect to corporate
existence and power, capitalization, subsidiaries, corporate authorization
relative to the Merger Agreement, governmental consents and approvals,
Commission reports, financial statements, documents relating to the Offer and
the Merger, and other matters. Purchaser and Sub have also made certain
representations and warranties with respect to corporate existence and power,
corporate authorization relative to the Merger Agreement, governmental
consents and approvals, documents relating to the Offer and the Merger,
financing of the Offer and the Merger, and other matters.
Conduct of Business Pending the Merger. The Company has agreed that, prior
to the acceptance for payment and purchase of Shares pursuant to the Offer,
unless Purchaser shall otherwise agree in writing, or as shall have otherwise
been approved by the chief executive officer of the Company, or as otherwise
contemplated in the Merger Agreement, (i) the business of the Company and its
subsidiaries will be conducted only in the ordinary and usual course (taking
into account the Company's current financial condition, results of operations
and cash flow), (ii) the Company will not (a) sell or pledge or agree to sell
or pledge any stock owned by it in any of its subsidiaries, (b) amend its
Certificate of Incorporation or Bylaws, or (c) split, combine or reclassify
the outstanding Shares or declare, set aside or pay any dividend payable in
cash, stock or property with respect to the Shares, and (iii) neither the
Company nor any of its subsidiaries will (a) issue or agree to issue any
additional shares of, or rights of any kind to acquire any shares of, its
capital stock of any class other than Shares issuable pursuant to presently
outstanding Options or pursuant to the Rights, or (b) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing.
The parties to the Merger Agreement have agreed to use all reasonable
efforts to effect the transactions contemplated by the Merger Agreement.
Indemnification. Pursuant to the Merger Agreement, Purchaser has agreed
that, for a period of six years after the Effective Time, it will cause the
Surviving Corporation (or any successor) to indemnify, defend and hold
harmless the present and former officers, directors, employees and agents of
the Company and its subsidiaries against all losses, claims, damages,
liabilities, fees, costs and expenses arising out of actions or omissions
occurring at or prior to the Effective Time to the full extent permitted under
Delaware law, subject to the Company's Certificate of Incorporation, Bylaws
and indemnification agreements, all as in effect on the date of the Merger
Agreement, including provisions relating to advancement of expenses incurred
in the defense of any action or suit. Purchaser has further agreed that, for
not less than four years after the Effective Time, Purchaser or the Surviving
Corporation shall maintain the Company's existing officers' and directors'
liability insurance (subject to certain maximum premium payments). Purchaser
has also agreed to cause the Surviving Corporation to comply with the
Company's existing indemnification agreements with the Company's directors and
executive officers. Purchaser has unconditionally guaranteed all of the
Surviving Corporation's indemnification, insurance and advancement-of-expenses
obligations under the Merger Agreement.
33
<PAGE>
Conditions to the Merger. The obligation of each of the Company, Purchaser
and Sub to consummate the Merger is subject to the satisfaction or waiver (to
the extent permitted by law), of each of the following conditions: (i) the
Merger Agreement and the transactions contemplated thereby shall have been
approved and adopted by the requisite vote of the stockholders, if such vote
is required by applicable law, (ii) no statute, rule, regulation, decree,
order or injunction shall have been promulgated, enacted, entered or enforced
by any United States or Korean governmental agency or authority or court which
remains in effect and prohibits, restrains, enjoins or restricts the
consummation of the Merger or makes the acquisition or holding by Purchaser,
its subsidiaries or affiliates of the Shares or the shares of common stock of
the Surviving Corporation illegal, (iii) any governmental consents or
approvals required to consummate the Merger shall have been obtained (except
where the failure to obtain such consents or approvals would not have a
material adverse effect on (a) the Company and its subsidiaries, taken as a
whole, or (b) Parent's ability to consummate the transactions contemplated by
the Merger Agreement), and (iv) Purchaser shall have purchased Shares pursuant
to the Offer.
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after stockholder approval thereof, (i) by
the mutual consent of Purchaser and the Company (with the consent of the
Special Committee), (ii) by either Purchaser or the Company (with the consent
of the Special Committee) if Purchaser shall not have purchased Shares
pursuant to the Offer by December 31, 1997, (iii) by the Company (with the
consent, and at the discretion of, the Special Committee) if, prior to the
purchase of Shares pursuant to the Offer, the Special Committee decides that
the Company should enter into a definitive agreement providing for an
acquisition of the Company by a third party on terms determined by the Special
Committee to be superior to the Offer, (iv) by the Company (with the consent,
and at the direction of, the Special Committee) if, prior to the purchase of
Shares pursuant to the Offer, Purchaser breaches or fails in any material
respect to perform or comply with any of the material covenants and agreements
in the Merger Agreement or breaches its representations and warranties in any
material respect, (v) by the Company (with the consent, and at the direction
of, the Special Committee) if the Offer shall have expired, or shall have been
withdrawn, abandoned or terminated, without Purchaser purchasing any Shares
pursuant to the Offer, provided that the Company is not in material breach of
the Merger Agreement, (vi) by Purchaser if, prior to the purchase of Shares
pursuant to the Offer, the Special Committee shall have withdrawn, or modified
or changed in a manner adverse to Purchaser, its approval or recommendation of
the Offer, the Merger Agreement or the Merger or shall have recommended
another transaction or offer, or the Company shall have executed an agreement
in principle (or similar agreement) or definitive agreement providing for a
tender offer or exchange offer for any shares of capital stock of the Company,
or a merger, consolidation or other business combination with a person or
entity other than Purchaser or its affiliates (or the Special Committee
resolves to do any of the foregoing), or (vii) by Purchaser if it shall have
terminated the Offer without purchasing any Shares thereunder, provided that
Purchaser has not failed to purchase the Shares in the Offer in breach of the
terms thereof.
Amendment and Waiver. The Merger Agreement may be amended by the parties
thereto in an instrument in writing signed on behalf of each of the parties
thereto and approved by the Special Committee, provided that after approval of
the Merger Agreement by the stockholders of the Company, no amendment may be
made without the further approval of such stockholders which reduces the
Merger Consideration or in any way adversely affects the rights of the holders
of Shares. At any time prior to the Effective Time, any of Purchaser, Sub or
the Company (acting through the Special Committee) may, in an instrument in
writing signed on behalf of such party, (i) extend the time for performance of
obligations of any other party, (ii) waive inaccuracies in representations,
warranties or documents delivered pursuant to the Merger Agreement and (iii)
waive compliance with any agreements or conditions contained in the Merger
Agreement. Without limiting the effect of any other provision of the Merger
Agreement that confers authority upon the Special Committee with respect to
the Merger Agreement, all of the rights of the Company under the Merger
Agreement (including, without limitation, rights of waiver and enforcement)
are vested exclusively in the Special Committee
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<PAGE>
and may be exercised by the Company only with the consent, or at the express
direction, of the Special Committee.
Expenses. The Merger Agreement provides that, whether or not the Merger is
consummated, all costs and expenses incurred in connection with the Offer, the
Merger Agreement and the transactions contemplated thereby will be paid by the
party incurring such expenses.
Elimination of Role of Independent Directors. Concurrently with the
acceptance for payment and purchase of Shares by Purchaser pursuant to the
Offer, each agreement between the Company and Purchaser (other than the Merger
Agreement) which contains any provision requiring the approval of Independent
Directors for any transaction between the Company and Purchaser or any of its
affiliates, including but not limited to the Stockholder Agreement, shall
automatically be amended to delete any such requirement.
INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER
Consummation of the Offer and the Merger will have certain effects under
certain compensation and incentive plans and arrangements in which officers
and directors of the Company are participants, as summarized below.
Acceleration of Stock Options. The Company maintains (i) the AST Research,
Inc. 1989 Long-Term Incentive Program (the "1989 Plan"), (ii) the AST
Research, Inc. 1991 Stock Option Plan for Non-Employee Directors (the "1991
Plan"), (iii) the 1994 One-Time Grant Stock Option Plan for Non-Employee
Directors of AST Research, Inc. (the "1994 Plan"), (iv) the 1996 Non-Employee
Directors Plan of AST Research, Inc. (the "1996 Plan"), (v) the AST Research,
Inc. Warrant Certificate for Non-Employee Directors (the "Warrants") and (vi)
the AST Research, Inc. President's Plan (the "President's Plan," and together
with the 1989 Plan, the 1991 Plan, the 1994 Plan, the 1996 Plan, and the
Warrants, the "Plans"). On April 14, 1997, the Board adopted a resolution
which provided that pursuant to the terms of the Plans and outstanding Option
agreements, each outstanding Option under the Plans becomes fully exercisable
effective as of the date the Company provides notice of acceleration to the
Option holder, such notice to be provided at least 30 days prior to the
Effective Time (as defined in the Merger Agreement), and will remain
exercisable until the Effective Time and will thereafter expire. The Board
further resolved to pay to each Option holder, in connection with the
termination of his or her outstanding Options, an amount equal to the number
of unexercised vested Shares subject to the Option multiplied by the positive
difference between the per Share exercise price of the Option (determined with
regard to the repricing described below) and the Offer Price, less all
applicable tax withholding, unless the Option holder objects in writing.
On September 23, 1996, the Compensation Committee of the Board authorized
the repricing of outstanding Options granted under the 1989 Plan held by non-
officer/director employees effective as of September 23, 1997 (the "Repricing
Date") for Option holders who remained employed by the Company through
September 22, 1997. Pursuant to the September 23, 1996 actions, the per Share
exercise price of the repriced Options was changed to $4.625. On April 14,
1997, the Board resolved that the effective date of the prior action of the
Compensation Committee regarding the repricing of Options granted under the
1989 Plan should be accelerated so that the repriced per Share exercise price
of outstanding Options granted under the 1989 Plan held by non-
officer/director employees of $4.625 per Share would be effective as of the
earlier of (i) the date (the "Acceptance Date") upon which Purchaser accepts
for payment and purchases Shares pursuant to the Offer or (ii) September 23,
1997, provided that in either case the optionee remains employed by the
Company through the Acceptance Date or September 22, 1997, as applicable.
On April 14, 1997, the Board further resolved that in the event that an
employee is laid off by the Company prior to the Effective Time, (i) each
outstanding Option held by such employee will become
35
<PAGE>
immediately fully exercisable and vested, (ii) if the employee is a non-
officer/director employee, the repricing of the exercise price of each
outstanding Option granted under the 1989 Plan which is held by the employee
and which is subject to the Compensation Committee's prior action on
September 23, 1996 to reprice stock Options (described above), will be
adjusted to $4.625 per Share as of the Acceptance Date, (iii) the employee
will be entitled to receive from the Company, as of the Effective Time, an
amount equal to the number of unexercised vested Shares subject to the Option
multiplied by the positive difference between the per Share exercise price of
the Option and the Offer Price, less all applicable tax withholding, unless
the Option holder objects in writing, and (iv) the employee's outstanding
Options will thereafter be cancelled.
Repurchase Rights. Consummation of the Offer will trigger certain repurchase
obligations of the Company with respect to vested Options held by certain
directors granted under the 1991 Plan, the 1994 Plan and the 1996 Plan and the
Warrants.
Severance Compensation Agreements. The Company maintains severance
agreements (the "Severance Compensation Agreements") with four of its
executive officers and four non-executive officer vice-presidents
(collectively, the "Covered Executives"), which generally provide for the
payment of certain benefits in the event of the termination of any Covered
Executive's employment following a "change in control" (as defined in the
Severance Compensation Agreements), either by the Company "without cause" or
by any of the Covered Executives for "good reason" (as defined in the
Severance Compensation Agreements). The consummation of the Offer by the
Purchaser will constitute a "change in control" for purposes of the Severance
Compensation Agreements.
The table below sets forth information for each director or executive
officer who will be entitled to receive cash compensation in connection with
the Offer or the Merger with respect to Shares owned or Options to purchase
Shares.
SHARE AND OPTION AMOUNTS WITH RESPECT
TO THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS(1)
<TABLE>
<CAPTION>
DOLLAR AMOUNT DOLLAR AMOUNT
AT OFFER PRICE AT OFFER
SHARES FOR SHARES NUMBER OF OPTIONS PRICE FOR TOTAL CASH
OWNED OWNED IN-THE-MONEY OPTIONS CONSIDERATION
NAME (#) ($) (#) ($) ($)
---- --------- -------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Young Soo Kim........... -- -- 200,000 142,500 142,500
Safi U. Qureshey........ 2,356,326 12,724,160 80,000 107,000 12,831,160
Mark P. de Raad......... 100 540 42,000 37,800 38,340
Scott Bower............. -- -- 150,000 88,125 88,125
Jack W. Peltason........ 300 1,620 82,000 108,175 109,795
Richard J. Goeglein..... 17,000 91,800 82,000 108,175 199,975
Roger W. Johnson........ -- -- 82,000 96,925 96,925
</TABLE>
- --------
(1) Except as set forth in the table above, no director or executive officer
is entitled to receive any cash compensation in connection with the Offer
or the Merger for Shares owned or options to purchase Shares.
In addition, the Merger Agreement contains certain provisions with respect
to indemnification of directors and executive officers, advancement of
expenses and maintenance of directors' and officers' liability insurance
subsequent to the Effective Time. See "The Merger Agreement."
BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth certain information, as of April 14, 1997,
with respect to all persons or entities known by the Company to be the
beneficial owners of more than 5% of its outstanding Shares, each director,
the Chief Executive Officer and the four other most highly compensated
36
<PAGE>
executive officers and two additional highly compensated former executive
officers, and all directors and executive officers of the Company as a group.
Unless otherwise noted, each of the stockholders listed has sole voting and
investment power with respect to all Shares shown as beneficially owned by
such stockholder, subject to community property laws where applicable and the
information contained in the footnotes to this table:
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------
PERCENTAGE
OPTIONS OF SHARES
NAME OF BENEFICIAL OWNER (1) TOTAL OUTSTANDING
------------------------ --------- ---------- -----------
<S> <C> <C> <C>
Samsung Electronics Co., Ltd. (2)............. 4,400,000 30,789,336 49.4%
Tandy Corporation (3)......................... -- 4,498,594 7.8%
Richard J. Goeglein........................... 132,000 149,000 *
Jack W. Peltason.............................. 83,000 83,300 *
Safi U. Qureshey (4).......................... 501,250 2,857,576 4.9%
Gary D. Weaver................................ 31,250 31,250 *
Mark P. de Raad............................... 10,500 10,600 *
Dennis R. Leibel.............................. 101,500 106,526 *
All directors and executive officers as a
group (14 persons) (5)........................ 859,500 3,238,252 5.5%
</TABLE>
- --------
* Less than 1%.
(1) Includes Shares which executive officers and directors have the right to
acquire within 60 days of April 14, 1997, under stock option and warrant
agreements (without giving effect to the acceleration of Options provided
for in the Merger Agreement).
(2) Includes 14,019,000 Shares beneficially owned by Purchaser through its
wholly-owned subsidiary, Samsung Electronics America, Inc., 105 Challenger
Road, Ridgefield Park, New Jersey 07660. The address for Samsung
Electronics Co., Ltd. is 250, 2-Ka, Taepyung-Ro, Chung-Ku, Seoul, Korea
100-742. Purchaser also owns 500,000 shares of the Company"s non-voting
Series A Redeemable Preferred Stock.
(3) These Shares are beneficially owned by Tandy Corporation, 1800 One Tandy
Center, P.O. Box 17180, Fort Worth, TX 76102.
(4) Includes 72,834 Shares held by Nancy Marshall as custodian for minor
children of Mr. Qureshey and 3,289 Shares held by U.S. Trust, as trustee
for Skyline Crut I and Skyline Crut II established for the benefit of Mr.
Qureshey's minor children, to which Mr. Qureshey disclaims any beneficial
interest.
(5) None of the following current or former directors and executive officers
of the Company beneficially owns any Shares or any convertible securities
that they have the right to exercise within 60 days of April 14, 1997
(without giving effect to the acceleration of Options provided for in the
Merger Agreement): Noh Byung Park, Scott Bower, Roger W. Johnson, Ho Moon
Kang, Kwang-Ho Kim, Young Soo Kim, Bo-Soon Song, Yong-Ro Song, Won Suk
Yang, Hee Dong Yoo, Gerald T. Devlin, and Ian W. Diery. See "Interests of
Certain Persons in the Offer and the Merger."
CERTAIN FINANCIAL PROJECTIONS
General. The Company does not as a matter of course make public forecasts or
projections as to its future financial performance. However, the Company
regularly prepares internal projections, which it provides to the Board.
Solely because (i) such projections have been prepared with the participation
of, or reviewed by, individuals who have been designated as members of the
Company's senior management or the Board by Purchaser, and (ii) such
projections were also provided to Morgan Stanley in connection with its
services as financial advisor to the Special Committee (see "Opinion of
Financial Advisor to Special Committee"), a summary of the most recent
versions of such projections, presented on a consolidated basis, is included
herein.
37
<PAGE>
THE PROJECTIONS SET FORTH BELOW WERE NOT PREPARED WITH A VIEW TO PUBLIC
DISCLOSURE OR IN COMPLIANCE WITH PUBLISHED GUIDELINES OF THE COMMISSION
REGARDING PROJECTIONS OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE
OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS.
THE PROJECTIONS, WHILE PRESENTED WITH NUMERICAL SPECIFICITY, ARE FORWARD-
LOOKING STATEMENTS THAT ARE BASED ON MYRIAD ESTIMATES AND ASSUMPTIONS,
INCLUDING, BUT NOT LIMITED TO, THOSE LISTED BELOW, WHICH INVOLVE JUDGMENTS
WITH RESPECT TO, AMONG OTHER THINGS, FUTURE ECONOMIC AND COMPETITIVE
CONDITIONS, INFLATION RATES AND FUTURE BUSINESS CONDITIONS. THESE ESTIMATES
AND ASSUMPTIONS MAY NOT BE REALIZED AND ARE INHERENTLY SUBJECT TO SIGNIFICANT
BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE
CONTROL OF THE COMPANY, AS WELL AS TO THE INHERENT UNCERTAINTIES RESULTING
FROM THE COMPANY'S DETERIORATING FINANCIAL CONDITION. THEREFORE, THERE CAN BE
NO ASSURANCE THAT THE PROJECTIONS SET FORTH BELOW WILL PROVE TO BE RELIABLE
ESTIMATES OF PROBABLE FUTURE PERFORMANCE. IT IS QUITE LIKELY THAT ACTUAL
RESULTS WILL VARY MATERIALLY FROM THESE ESTIMATES. IN LIGHT OF THE
UNCERTAINTIES INHERENT IN PROJECTIONS OF ANY KIND, THE INCLUSION OF
PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS A REPRESENTATION BY ANY PARTY
THAT THE ESTIMATED RESULTS WILL BE REALIZED. THERE CAN BE NO ASSURANCES IN
THIS REGARD. THE PROJECTIONS WERE NOT PREPARED IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES AND WERE NOT AUDITED OR REVIEWED BY ANY
INDEPENDENT ACCOUNTING FIRM, NOR DID ANY INDEPENDENT ACCOUNTING FIRM PERFORM
ANY OTHER SERVICES WITH RESPECT THERETO AND NONE OF THE COMPANY, PURCHASER,
SUB, SALOMON, MORGAN STANLEY, THE DEALER MANAGER, THE INFORMATION AGENT NOR
ANY OTHER PERSON ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OF SUCH
PROJECTIONS.
March 1997 Operation Review Projections. Each month, the Executive Committee
of the Board (the "Executive Committee") participates in a monthly operation
review with members of the Company's management. The most recent such review
preceding the execution of the Merger Agreement occurred at an Executive
Committee meeting held on March 21, 1997. In connection with such review, the
Executive Committee was provided with (among other information) the following
outlook for the second quarter of 1997 as well as a comparison of that outlook
with the actual results for the second quarter of 1996:
Q2 97 OUTLOOK (AS OF MARCH 21, 1997)
(IN MILLIONS)
<TABLE>
<CAPTION>
CURRENT
ORIGINAL Q2 97
Q2 96 Q2 97 BDGT OUTLOOK
----- ---------- -------
<S> <C> <C> <C>
Revenue............................................... $ 539 $572 $470
Patent Revenue........................................ 15 -- --
----- ---- ----
Total Revenue....................................... $ 554 $572 $470
Gross Margin.......................................... 19 67 36
Op Expense............................................ (110) (96) (93)
----- ---- ----
Profit from Operations.............................. (91) (29) (57)
Other................................................. (8) (15) (15)
----- ---- ----
Net Loss.............................................. $ (99) $(44) $(72)
===== ==== ====
</TABLE>
38
<PAGE>
The corresponding projections prepared in April 1997, but without giving
effect to the Reorganization Plan, showed a decline in revenue and total
revenue from $470 million to $412 million and in gross margin from $36 million
to $16 million and an increase in net loss from $72 million to $83 million.
In addition, on March 21, 1997, the Executive Committee was provided with
the following "Q2 97 Borrowing Outlook," showing the Company's actual to-date
and anticipated borrowings through the end of the second quarter of 1997 in
relation to the $400 million of Purchaser credit supports available for
Company borrowings:
Q2 97 BORROWING OUTLOOK (AS OF MARCH 21, 1997)
[PROJECTION CHART APPEARS HERE]
[THE PROJECTION CHART SETS FORTH THREE LINE GRAPHS
DEPICTING THE DATA IN THE FOLLOWING TABLE.]
<TABLE>
<CAPTION>
($ IN MILLIONS)
CREDIT AVAILABLE
LINE CREDIT LINE ACTUAL
------- ----------- ------
<S> <C> <C> <C>
Dec 96 $300 -- $175
Jan 97 $300 -- $253
Feb 97 $300 -- $254
Mar 97 $300 -- $275
Apr 97 $390 $390 $325
May 97 $390 $390 $350
Jun 97 $390 $390 $355
</TABLE>
The corresponding projections prepared in April 1997, but without giving
effect to the Reorganization Plan, showed a diminution in the level of
anticipated second quarter borrowings, with a quarter-end level of
$327 million rather than $355 million.
The Reorganization Plan Projections. During early April, in response to the
Company's first quarter 1997 results (see "THE TENDER OFFER--7. Certain
Information Concerning the Company"), and at the direction of the Executive
Committee given during its March 21, 1997 meeting referred to above, the
Company's senior management prepared the Reorganization Plan. The
Reorganization Plan was presented to the Board at its April 14, 1997 meeting
at which the Merger Agreement was approved (see "Background of the Offer and
the Merger"). The Board authorized management to finalize the details of the
reduction-in-force component thereof (involving a reduction of approximately
25% of the Company's worldwide workforce, which the Board approved by written
consent dated April 18, 1997 and which the Company publicly announced on April
21, 1997; see "THE TENDER OFFER--7. Certain Information Concerning the
Company") and deferred action on the other components thereof in order to give
management additional time to refine the details of those other components.
The Reorganization Plan is intended (regardless of the possibility that
Purchaser might acquire the entire equity interest in the Company) to reduce
the Company's anticipated cash outflow during 1997 and to establish the goal
of achieving break-even operations for the Company during 1998. The
Reorganization Plan has three principal components: (i) changes in the
Company's organizational focus, including a downsizing of the Company's
worldwide operations and a refocusing of the Company's products and marketing;
(ii) a substantial worldwide reduction in workforce; and (iii) a disposition
program for certain assets and the implementation of an asset-based secured
financing.
39
<PAGE>
Set forth below are certain projections included in the Reorganization Plan,
as presented to the Board on April 14, 1997, and which assume that the
separate components of the Reorganization Plan are successfully implemented.
Such projections reflect three alternative scenarios: (i) the Company attains
its budgeted results for the third and fourth quarters of 1997 without giving
effect to the Reorganization Plan; (ii) the Company operates under a "break-
even model;" and (iii) a scenario captioned "Current Roll-Up," which gives
effect to the estimated effects of successfully implementing the
Reorganization Plan (and reflecting certain margin targets, which are shown in
italics).
PRELIMINARY Q3/Q4 REVISED OPERATING PLAN
(AS OF APRIL 14, 1997)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Q3 Q4
-------------------------------- --------------------------------
BREAK- BREAK-
ORIGINAL EVEN CURRENT ORIGINAL EVEN CURRENT
BUDGET MODEL ROLL-UP BUDGET MODEL ROLL-UP
-------- ------ ------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Sales................... $603 $400 $397 $910 $500 $570
Gross Margin............ 69 11.4% 60 15.0% 44 11.1% 125 13.7% 75 15.0% 80 14.0%
Operating Expenses...... 98 16.3% 50 12.5% 73 18.4% 109 12.0% 63 12.5% 78 13.7%
Profit From
Operations........... (29) 10 (29) 16 12 2
Other Expenses.......... (10) (10) (14) (12) (12) (14)
---- ---- ---- ---- ---- ----
Net................... $(39) $-- $(43) $ 4 $-- $(12)
==== ==== ==== ==== ==== ====
</TABLE>
CERTAIN LITIGATION
The Delaware Action. On January 31, 1997 and shortly thereafter, the Company
was named, along with Purchaser and certain current and former members of the
Board, as a defendant in a series of stockholder class action lawsuits. Eleven
class action complaints were filed in the Court of Chancery in New Castle
County, Delaware, under case names Miller v. Kim, et al.; Tepper v. Samsung
Electronics Co., Ltd., et al.; Kenneth Steiner v. Kim, et al.; William Steiner
v. Kim, et al.; Zeiff v. AST Research, Inc., et al.; Schultz v. Choo, et al.;
Ungar v. AST Research, Inc., et al.; Jaroslawicz v. Kim, et al.; Schnoll v.
AST Research, Inc., et al.; Krim v. AST Research, Inc., et al.; and Rattner v.
Samsung Electronics Co., Ltd., et al. The Delaware Plaintiffs alleged that the
defendants had engaged in an unlawful scheme to enable Purchaser to acquire
all outstanding Shares owned by the Non-Samsung Stockholders for inadequate
consideration and in violation of the defendants' fiduciary duties. The
Delaware Plaintiffs sought to enjoin Purchaser's proposed purchase of the
Shares and requested unspecified monetary damages, including attorney and
expert fees and costs. On February 27, 1997, the Delaware Plaintiffs submitted
a proposed Stipulation and Order of Consolidation to the Delaware Chancery
Court. Such Proposed Stipulation and Order was entered on March 7, 1997, and
the cases were consolidated as the Delaware Action under the heading In Re AST
Research, Inc. Shareholder Litigation, Consolidated Civil Action No. 15495-NC.
On April 11, 1997, a consolidated and amended complaint was filed.
Following separate discussions between Purchaser, on the one hand, and each
of the Company and the Special Committee, on the other hand, on April 9, 1997
negotiations occurred between Purchaser and counsel for the Delaware
Plaintiffs regarding a possible settlement of the Delaware Action (neither the
Company nor the Special Committee participated in such negotiations). As a
result of such negotiations, in connection with the approval of the Merger
Agreement by the Special Committee and the Board, on April 14, 1997,
Purchaser, with the concurrence of the other defendants, entered into a
Memorandum of Understanding with the Delaware Plaintiffs (the "Memorandum of
40
<PAGE>
Understanding"). The Memorandum of Understanding provides, among other things,
that the parties to the Delaware Action will enter into a definitive
settlement agreement which will provide for class certification, notice to the
members of the class, a release of all claims against the defendants and
dismissal of the Delaware Action. The settlement is subject to discovery to
confirm that the settlement is in the best interests of the stockholders of
the Company and to Delaware Chancery Court approval. If the settlement is
approved by the Delaware Chancery Court and implemented, counsel for the
Delaware Plaintiffs will apply for an award of attorneys' fees and costs to be
paid by Purchaser an amount not to exceed $875,000, and defendants will not
oppose that application. The parties intend to seek to complete the process of
entering into, implementing and seeking Delaware Chancery Court approval of,
the settlement agreement provided for in the Memorandum of Understanding as
soon as possible.
The California Action. The California Action, a separate class action
complaint, was filed on January 31, 1997, in the Superior Court for the County
of Orange, California, under case name Sigler v. AST Research, Inc., et al. by
Daniel Sigler, a stockholder of the Company (see "Background of the Offer and
the Merger"). On March 26, 1997, the plaintiff filed a First Amended
Complaint, which renamed the California Action as Sigler v. Samsung
Electronics Co. The California Action names only Purchaser as a defendant and
alleges that Purchaser committed fraud and breached a purported fiduciary duty
to the "non-controlling shareholders" of the Company. The plaintiff alleges,
among other things, that Purchaser breached a purported fiduciary duty by
failing to take action to preserve the Non-Samsung Stockholders' equity and by
the timing of the announcement of the Acquisition Proposal and that Purchaser
committed fraud through a scheme to purchase the Shares held by the Non-
Samsung Stockholders "at a depleted price."
41
<PAGE>
THE TENDER OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), Purchaser will accept for payment and pay for all Shares
validly tendered on or prior to the Expiration Date and not theretofore
withdrawn in accordance with the provisions set forth in Section 3. The term
"Expiration Date" shall mean 5:00 P.M., New York City time, on Monday, May 19,
1997, unless and until Purchaser, in its sole discretion (but subject to the
terms and conditions of the Merger Agreement, see "SPECIAL FACTORS--The Merger
Agreement"), shall from time to time have extended the period of time during
which the Offer is open, in which event the term "Expiration Date" shall mean
the latest time and date at which the Offer, as so extended by Purchaser,
shall expire.
Pursuant to the Merger Agreement, Purchaser may increase the Offer Price and
may make any other changes in the terms and conditions of the Offer, provided
that, unless previously approved by the Company (acting through the Special
Committee) in writing, Purchaser may not (i) decrease the Offer Price, (ii)
change the form of consideration payable in the Offer, (iii) decrease the
number of Shares sought pursuant to the Offer, or (iv) add additional
conditions to the Offer, or make any other changes in the terms or conditions
of the Offer which are otherwise materially adverse to holders of Shares.
Purchaser may, without the Special Committee's consent, (i) from time to
time extend the Offer if at the scheduled Expiration Date of the Offer any
conditions to the Offer shall not have been satisfied or waived, (ii) extend
the Offer for any period required by any rule, regulation, interpretation or
position of the Commission applicable to the Offer and (iii) extend the Offer
for any reason on one or more occasions for an aggregate period of not more
than ten business days beyond the latest Expiration Date that would otherwise
be permitted under clauses (i) or (ii) of this sentence. In addition, if at
any scheduled Expiration Date any of the conditions to the Offer have not been
satisfied or waived by Purchaser, but are capable of being satisfied in the
reasonable, good faith judgment of Purchaser, then, on the written request of
the Company (acting through the Special Committee), Purchaser shall from time
to time extend the Offer for up to twenty business days from the then-
scheduled Expiration Date of the Offer. As used in this Offer to Purchase,
"business day" has the meaning set forth in Rule 14d-1 under the Exchange Act.
Purchaser confirms that its right to delay payment for Shares that it has
accepted for payment is limited by Rule 14e-1(c) under the Exchange Act, which
requires that a tender offeror pay the consideration offered or return the
tendered securities promptly after the termination or withdrawal of a tender
offer.
Subject to the applicable rules and regulations of the Commission, Purchaser
expressly reserves the right, in its sole discretion (but subject to the terms
and conditions of the Merger Agreement), at any time and from time to time,
upon the failure to be satisfied of any of the conditions to the Offer, to (i)
terminate or amend the Offer, (ii) extend the Offer and postpone acceptance
for payment of any Shares, or (iii) waive any condition, by giving oral or
written notice of such termination, amendment, extension or waiver to the
Depositary. During any such extension all Shares previously tendered and not
properly withdrawn will remain subject to any such extension and will remain
subject to the Offer, subject to the right of a tendering stockholder to
withdraw such stockholder's Shares. In the event that Purchaser waives any of
the conditions set forth in Section 13, the Commission may, if the waiver is
deemed to constitute a material change to the information previously provided
to the stockholders, require that the Offer remain open for an additional
period of time and/or that Purchaser disseminate information concerning such
waiver.
If Purchaser extends the Offer, or if Purchaser (whether before or after its
acceptance for payment of Shares) is delayed in its payment for Shares or is
unable to pay for Shares pursuant to the Offer for any reason, then, without
prejudice to Purchaser's rights under the Offer, the Depositary may retain
42
<PAGE>
tendered Shares on behalf of Purchaser, and such Shares may not be withdrawn
except to the extent tendering stockholders are entitled to withdrawal rights
as described in Section 3. However, as described above, the ability of
Purchaser to delay payment for Shares that Purchaser has accepted for payment
is limited by Rule 14e-1(c) under the Exchange Act.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
Purchaser will disseminate additional tender offer materials (including by
public announcement as set forth above) and extend the Offer to the extent
required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. Such
rules generally provide that the minimum period during which a tender offer
must remain open following a material change in the terms of the offer or
information concerning the offer, other than a change in price or a change in
percentage of securities sought or a change in the dealer's soliciting fee,
will depend upon the facts and circumstances, including the relative
materiality of the changes in the terms or information. In the Commission's
view, an offer should remain open for a minimum of five business days from the
date a material change is first published, sent or given to securityholders,
and, if material changes are made with respect to information that approaches
the significance of price and share levels, a minimum of ten business days may
be required to allow for adequate dissemination and investor response. With
respect to a change in price or a change in percentage of securities sought or
a change in the dealer's soliciting fee, a minimum ten business day period is
generally required to allow for adequate dissemination to stockholders and for
investor response.
Any extension, amendment or termination of the Offer will be followed as
promptly as practicable by public announcement in accordance with the public
announcement requirements of Rule 14e-1(d) under the Exchange Act. Subject to
applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act,
which require that any material change in the information published, sent or
given to stockholders in connection with the Offer be promptly disseminated to
stockholders in a manner reasonably designed to inform stockholders of such
change) and without limiting the manner in which Purchaser may choose to make
any public announcement, Purchaser shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
making a release to the Dow Jones News Service.
The Company has provided Purchaser with the Company stockholder list, a
nonobjecting beneficial owners list and security position listings for the
purpose of disseminating the Offer to holders of Shares. This Offer to
Purchase and the Letter of Transmittal and other relevant materials will be
mailed to record holders of Shares and furnished to brokers, dealers,
commercial banks, trust companies and similar persons whose names, or the
names of whose nominees, appear on the stockholder list or, if applicable, who
are listed as participants in a clearing agency's security position listing,
for subsequent transmittal to beneficial owners of Shares.
2. PROCEDURE FOR ACCEPTING THE OFFER AND TENDERING SHARES.
Valid Tender of Shares. For a stockholder to validly tender Shares pursuant
to the Offer, either (i) a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), together with any required signature
guarantees, or an Agent's Message (as defined herein) in connection with a
book-entry delivery of Shares, and any other required documents, must be
received by the Depositary at one of its addresses set forth on the back cover
of this Offer to Purchase, and either certificates for Shares ("Share
Certificates") for tendered Shares must be received by the Depositary at one
of such addresses or such Shares must be delivered pursuant to the procedure
for book-entry transfer set forth below (and a Book-Entry Confirmation (as
defined herein) received by the Depositary), in each case prior to the
Expiration Date, or (ii) the tendering stockholder must comply with the
guaranteed delivery procedures set forth below.
43
<PAGE>
Book-Entry Transfers. The Depositary will establish an account with respect
to the Shares at The Depository Trust Company and the Philadelphia Depository
Trust Company (each individually, a "Book-Entry Transfer Facility" and,
collectively, the "Book-Entry Transfer Facilities") for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any
financial institution that is a participant in a Book-Entry Transfer Facility
may make book-entry delivery of the Shares by causing the book-entry transfer
system to transfer such Shares into the Depositary's account at a Book-Entry
Transfer Facility in accordance with such Book-Entry Transfer Facility's
procedure for such transfer. Although delivery of Shares may be effected
through book-entry transfer at any Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees, or an Agent's Message (as defined herein)
in connection with a book-entry transfer, and any other required documents,
must, in any case, be transmitted to, and received by, the Depositary at one
of its addresses set forth on the back cover of this Offer to Purchase prior
to the Expiration Date, or the tendering stockholder must comply with the
guaranteed delivery procedures described below. The confirmation of a book-
entry transfer of Shares into the Depositary's account at a Book-Entry
Transfer Facility as described above is referred to herein as a "Book-Entry
Confirmation." DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN
ACCORDANCE WITH ITS BOOK-ENTRY PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of
the Book-Entry Confirmation, which states that the Book-Entry Transfer
Facility has received an express acknowledgment from the participant in the
Book-Entry Transfer Facility tendering the Shares that such participant has
received the Letter of Transmittal and agrees to be bound by the terms of the
Letter of Transmittal and that Purchaser may enforce such agreement against
such participant.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND SOLE RISK OF THE TENDERING
STOCKHOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED AT
THE DEPOSITARY. IF DELIVERY IS BY MAIL, THEN INSURED OR REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. No signature guarantee on the Letter of Transmittal is
required if (i) the Letter of Transmittal is signed by the registered holder
of the Shares (which term, for purposes of this Section, includes any
participant in a Book-Entry Transfer Facility system whose name appears on a
security position listing as the owner of the Shares) tendered therewith and
such registered holder has not completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Payment Instructions" on
such Letter of Transmittal or (ii) such Shares are tendered for the account of
a bank, broker, dealer, credit union, savings association or other entity that
is a member in good standing of the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Guarantee Program or
the Stock Exchange Medallion Program (each, an "Eligible Institution"). In all
other cases, all signatures on the Letter of Transmittal must be guaranteed by
an Eligible Institution. See Instructions 1 and 5 to the Letter of
Transmittal. If the Share Certificates are registered in the name of a person
other than the signer of the Letter of Transmittal, or if payment is to be
made to, or Share Certificates not validly tendered or not accepted for
payment or not purchased are to be issued or returned to, a person other than
the registered holder of the Share Certificates, the tendered Share
Certificates must be endorsed in blank or accompanied by appropriate stock
powers, signed exactly as the name of the registered holder appears on the
Share Certificates with the signature on such Share Certificates or stock
powers guaranteed by an Eligible Institution. See Instructions 1 and 5 to the
Letter of Transmittal.
44
<PAGE>
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates are not immediately
available or the procedures for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such Shares may nevertheless be
tendered provided that all of the following guaranteed delivery procedures are
duly complied with:
(a) such tender is made by or through an Eligible Institution;
(b) the Depositary receives (by hand, mail, telegram or facsimile
transmission) on or prior to the Expiration Date, a properly completed and
duly executed Notice of Guaranteed Delivery, substantially in the form
provided by Purchaser; and
(c) the Share Certificates representing all tendered Shares, in proper
form for transfer (or Book-Entry Confirmation with respect to such Shares),
together with a properly completed and duly executed Letter of Transmittal
(or facsimile thereof) and any other documents required by the Letter of
Transmittal, are received by the Depositary within three NASDAQ trading
days after the date of such Notice of Guaranteed Delivery. A "NASDAQ
trading day" is any day on which NASDAQ is open for business.
The Notice of Guaranteed Delivery may be delivered by hand, or may be
transmitted by telegram, facsimile transmission or mail, to the Depositary and
must include a guarantee by an Eligible Institution in the form set forth in
such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) Share Certificates for (or a timely Book-
Entry Confirmation with respect to) such Shares, (ii) a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), or, in the case of
Book-Entry Transfer, an Agent's Message and (iii) any other documents required
by the Letter of Transmittal. Accordingly, tendering stockholders may be paid
at different times depending upon when Share Certificates, Book-Entry
Confirmations and such other documents are actually received by the
Depositary. Under no circumstances will interest be paid by Purchaser on the
purchase price of the Shares to any tendering stockholders, regardless of any
extension of the Offer or any delay in making such payment.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tender of Shares will be determined by Purchaser in its sole discretion, which
determination will be final and binding. Purchaser reserves the absolute right
to reject any or all tenders of any Shares that it determines are not in
proper form or the acceptance for payment of or payment for which may, in the
opinion of Purchaser's counsel, be unlawful. Purchaser also reserves the
absolute right to waive any of the conditions of the Offer or any defect or
irregularity in the tender of any Shares with respect to any particular
stockholder, whether or not similar defects or irregularities are waived in
the case of other stockholders. None of Purchaser, Sub, the Dealer Manager,
the Depositary, the Information Agent or any other person will be under any
duty to give notice of any defects or irregularities in tenders or incur any
liability for failure to give any such notice. Purchaser's interpretation of
the terms and conditions of the Offer (including the Letter of Transmittal and
the instructions thereto) will be final and binding.
Other Requirements. By executing the Letter of Transmittal as set forth
herein, a tendering stockholder irrevocably appoints designees of Purchaser as
such stockholder's proxies, each with full power of substitution, in the
manner set forth in the Letter of Transmittal, to the full extent of such
stockholder's rights with respect to the Shares tendered by such stockholder
and accepted for payment by Purchaser (and with respect to any and all other
Shares or other securities or rights issued or issuable in respect of such
Shares on or after April 21, 1997), effective when, if and to the extent that
Purchaser accepts such Shares for payment pursuant to the Offer. All such
proxies shall be considered coupled with an interest in the tendered Shares.
Upon such acceptance for payment, all prior proxies
45
<PAGE>
given by such stockholder with respect to such Shares accepted for payment or
other securities or rights will, without further action, be revoked, and no
subsequent proxies may be given. Such designees of Purchaser will, with
respect to such Shares for which the appointment is effective, be empowered to
exercise all voting and other rights of such stockholder as they in their sole
discretion may deem proper in respect of any annual or special meeting of the
Company's stockholders or any adjournment or postponement thereof, by written
consent in lieu of any such meeting or otherwise. Purchaser reserves the right
to require that, in order for Shares to be deemed validly tendered,
immediately upon Purchaser's payment for such Shares, Purchaser must be able
to exercise full voting rights with respect to such Shares.
Purchaser's acceptance for payment of Shares tendered pursuant to any of the
procedures described herein will constitute a binding agreement between the
tendering stockholder and Purchaser upon the terms and subject to the
conditions of the Offer.
Backup Federal Income Tax Withholding. To prevent backup federal income tax
withholding on payments of cash pursuant to the Offer, a stockholder tendering
Shares in the offer must provide the Depositary with such stockholder's
correct taxpayer identification number ("TIN") on a Substitute Form W-9 and
certify under penalties of perjury that such TIN is correct and that such
stockholder is not subject to backup withholding. If a stockholder does not
provide its correct TIN or fails to provide the certification described
herein, under federal income tax laws, the Depositary will be required to
withhold 31% of the amount of any payment made to such stockholder pursuant to
the Offer. All stockholders tendering Shares pursuant to the Offer should
complete and sign the SubstituteForm W-9 included as a part of the Letter of
Transmittal to provide the information and certification necessary to avoid
backup withholding. Noncorporate foreign stockholders should complete and sign
a Form W-8, Certificate of Foreign Status, a copy of which may be obtained
from the Depositary, in order to avoid backup withholding. See Instruction 10
to the Letter of Transmittal.
3. WITHDRAWAL RIGHTS.
Tenders of Shares made pursuant to the Offer will be irrevocable, except
that Shares tendered may be withdrawn at any time prior to the Expiration
Date, and, unless theretofore accepted for payment and paid for as provided
herein, may also be withdrawn at any time on or after June 20, 1997.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase.
Any notice of withdrawal must specify the name of the person who tendered the
Shares to be withdrawn, the number of Shares to be withdrawn and the name of
the registered holder of the Shares to be withdrawn as set forth on such Share
Certificates if different from the name of the person who tendered such
Shares. If Share Certificates have been delivered or otherwise identified to
the Depositary, then, prior to the physical release of such Share
Certificates, the serial numbers shown on such Share Certificates must be
furnished to the Depositary and, unless such Shares have been tendered by an
Eligible Institution, the signatures on the notice of withdrawal must be
guaranteed by an Eligible Institution. If Shares have been delivered pursuant
to the procedures for book-entry transfer set forth in Section 2 above, any
notice of withdrawal must specify the name and number of the account at the
appropriate Book-Entry Transfer Facility to be credited with such withdrawn
Shares and otherwise comply with such Book-Entry Transfer Facility's
procedures for withdrawal, in which case a notice of withdrawal will be
effective if delivered to the Depositary by any method of delivery described
in the first sentence of this paragraph.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Purchaser in its sole discretion,
and its determination will be final and binding. None of Purchaser, the Dealer
Manager, the Depositary, the Information Agent or any other person will be
obligated to give notice of any defects or irregularities in any notice of
withdrawal, nor shall any of them incur any liability for failure to give any
such notice.
46
<PAGE>
Withdrawals of tenders of Shares may not be rescinded, and any Shares
properly withdrawn will thereafter be deemed not validly tendered for purposes
of the Offer. However, withdrawn Shares may be retendered by following one of
the procedures described in Section 2 above at any time on or prior to the
Expiration Date.
4. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any extension or
amendment), Purchaser will accept for payment, and will pay for, any and all
Shares validly tendered on or prior to the Expiration Date and not properly
withdrawn in accordance with Section 3 above promptly after the Expiration
Date. Any determination concerning the satisfaction of the terms and
conditions of the Offer shall be within the sole discretion of Purchaser and
such determination shall be final and binding on all tendering stockholders.
See Section 1. Subject to applicable rules of the Commission and the terms and
conditions of the Merger Agreement, Purchaser expressly reserves the right, in
its sole discretion, to delay acceptance for payment of, or payment for,
Shares in order to comply in whole or in part with any applicable law.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i)
the Share Certificates (or timely Book-Entry Confirmation of the book-entry
transfer of such Shares into the Depositary's account at a Book-Entry Transfer
Facility pursuant to the procedures set forth under Section 2 above, (ii) the
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, together with any required signature guarantees, or an Agent's
Message in connection with a book-entry transfer and (iii) any other documents
required by the Letter of Transmittal.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered to Purchaser and not
properly withdrawn as, if and when Purchaser gives oral or written notice to
the Depositary of Purchaser's acceptance for payment of such Shares pursuant
to the Offer. In all cases, upon the terms and subject to the conditions of
the Offer, payment for Shares so accepted for payment will be made by the
deposit of the purchase price therefor with the Depositary, which will act as
agent for tendering stockholders for the purpose of receiving payment from
Purchaser and transmitting payment to validly tendering stockholders. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID BY PURCHASER ON THE PURCHASE PRICE OF THE
SHARES TENDERED PURSUANT TO THE OFFER, REGARDLESS OF ANY EXTENSION OF THE
OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. Upon the deposit of funds with the
Depositary for the purpose of making payments to tendering stockholders,
Purchaser's obligation to make such payments shall be satisfied and tendering
stockholders must thereafter look solely to the Depositary for payment of
amounts owed to them by reason of the acceptance for payment of Shares
pursuant to the Offer. Purchaser will pay any stock transfer taxes with
respect to the transfer and sale to it or its order pursuant to the Offer,
except as otherwise provided in Instruction 6 of the Letter of Transmittal, as
well as any charges and expenses of the Depositary and the Information Agent.
If Purchaser is delayed in its acceptance for payment of, or payment for
tendered Shares or is unable to accept for payment or pay for such Shares
pursuant to the Offer for any reason, then, without prejudice to Purchaser's
rights under the Offer (but subject to Purchaser's obligations under Rule 14e-
1(c) under the Exchange Act to pay for or return the tendered Shares promptly
after the termination or withdrawal of the Offer), the Depositary may,
nevertheless, retain tendered Shares on behalf of Purchaser, and such Shares
may not be withdrawn except to the extent tendering stockholders are entitled
to exercise, and duly exercise, withdrawal rights as described under Section 3
above.
If any tendered Shares are not purchased pursuant to the Offer because of an
invalid tender or for any reason, Share Certificates for any such Shares will
be returned, without expense, to the
47
<PAGE>
tendering stockholder (or, in the case of Shares delivered by book-entry
transfer of such Shares into the Depositary's account at a Book-Entry Transfer
Facility pursuant to the procedures set forth under Section 2 above, such
Shares will be credited to an account maintained at such Book-Entry Transfer
Facility) as promptly as practicable following the expiration or termination
of the Offer.
Purchaser reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of Purchaser's subsidiaries or affiliates, the
right to purchase all or any Shares tendered pursuant to the Offer, but any
such transfer or assignment will not relieve Purchaser of its obligations
under the Offer or prejudice the rights of tendering stockholders to receive
payment for Shares validly tendered and accepted for purchase.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The summary of Federal income tax consequences set forth below is for
general information only and is based on Purchaser's understanding of the law
as currently in effect. The tax consequences to each stockholder will depend
in part upon such stockholder's particular situation. Special tax consequences
not described herein may be applicable to particular classes of taxpayers,
such as financial institutions, broker-dealers, persons who are not citizens
or residents of the United States and stockholders who acquired their Shares
through the exercise of an employee stock option or otherwise as compensation.
ALL STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE
APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL
OR FOREIGN INCOME AND OTHER TAX LAWS AND OF CHANGES IN SUCH TAX LAWS.
The receipt of cash for Shares pursuant to the Offer (or the Merger) will be
a taxable transaction for federal income tax purposes and may also be a
taxable transaction under applicable state, local or foreign tax laws.
Generally, for federal tax purposes, a stockholder who receives cash for
Shares pursuant to the Offer (or the Merger) will recognize gain or loss for
federal income tax purposes equal to the difference between the amount of cash
received in exchange for the Shares sold and such stockholder's adjusted tax
basis in such Shares. Provided that the Shares constitute capital assets in
the hands of the stockholder, such gain or loss will be capital gain or loss,
and will be long term capital gain or loss if the holder has held the Shares
for more than one year at the time of sale. Gain or loss will be calculated
separately for each block of Shares (i.e., a group of Shares with the same tax
basis and holding period) tendered pursuant to the Offer.
Legislative proposals have been under consideration that would reduce the
rate of Federal income taxation of certain capital gains. Such legislation, if
enacted, might apply only to gain realized on sales occurring after a date
specified in the legislation. It cannot be predicted whether any such
legislation ultimately will be enacted and, if enacted, when its effective
date will be.
A stockholder (other than certain exempt stockholders including, among
others, all corporations and certain foreign individuals and entities) that
tenders Shares may be subject to 31% backup withholding unless the stockholder
provides its TIN and certifies that such number is correct or properly
certifies that it is awaiting a TIN, or unless an exemption applies. A
stockholder who does not furnish its TIN may be subject to a penalty imposed
by the Internal Revenue Service (the "IRS"). See Section 2.
If backup withholding applies to a stockholder, the Depositary is required
to withhold 31% from payments to such stockholder. Backup withholding is not
an additional tax. Rather, the amount of the backup withholding can be
credited against the federal income tax liability of the person subject to the
backup withholding, provided that the required information is given to the
IRS. If backup withholding results in an overpayment of tax, a refund can be
obtained by the stockholder upon filing an appropriate income tax return.
48
<PAGE>
6. PRICE RANGE OF THE SHARES.
The Company's Common Stock is traded on the NASDAQ National Market System
under the symbol ASTA. The following table sets forth, for the periods
indicated, the high and low sales prices of the Common Stock as reported by
NASDAQ:
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Year Ending July 1, 1995:
First Quarter........................................... $19 1/4 $12
Second Quarter.......................................... $16 1/4 $10 3/8
Third Quarter........................................... $17 $13 1/8
Fourth Quarter.......................................... $19 1/8 $13 1/2
Six Months Ending December 30, 1995:
First Quarter........................................... $16 3/8 $10
Second Quarter.......................................... $10 1/16 $17 7/8
Year Ending December 30, 1996:
First Quarter........................................... $ 8 7/8 $ 4 49/64
Second Quarter.......................................... $ 8 1/4 $ 4 3/4
Third Quarter........................................... $ 7 1/8 $ 4 1/2
Fourth Quarter.......................................... $ 5 5/8 $ 4
</TABLE>
On January 29, 1997, the last full trading day prior to the date of the
announcement of the Acquisition Proposal, according to published sources, the
closing price of the Shares on the NASDAQ National Market System was $4.625
per Share. On April 14, 1997, the last full day of trading prior to the public
announcement of the execution of the Merger Agreement, according to published
sources, the closing price on the NASDAQ National Market System was $4.75 per
Share. On April 18, 1997, the last full day of trading before the commencement
of the Offer, according to published sources, the closing price of the Shares
on the NASDAQ National Market System was $5.125 per Share. STOCKHOLDERS ARE
URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE COMMON STOCK.
7. CERTAIN INFORMATION CONCERNING THE COMPANY.
General
The Company is a Delaware corporation with its principal offices located at
16215 Alton Parkway, Irvine, California 92718. The following description of
the Company's business has been taken from the Company's Annual Report on Form
10-K for the fiscal year ended December 28, 1996.
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), Bravo(TM), Ascentia(TM) and
Manhattan(TM) brand names.
Available Information
The Shares are registered under the Exchange Act. Accordingly, the Company
is subject to the informational filing requirements of the Exchange Act and,
in accordance therewith, is required to file periodic reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Certain information, as of particular
dates, concerning the Company's directors and officers (including their
remuneration, stock options granted to them and shares held by them), the
principal holders of the Company's securities, and any material interest of
such persons in transactions with the Company is required to be disclosed in
proxy statements and annual reports distributed to the Company's stockholders
and filed with the Commission. Such reports,
49
<PAGE>
proxy statements and other information are available for inspection and
copying at the public reference facilities of the Commission located in
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located in Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of this material may also
be obtained by mail, upon payment of the Commission's customary fees from the
Commission's principal office at 450 Fifth Street. N.W., Washington, D.C.
20549. The Commission also maintains an Internet site on the World Wide Web at
<http://www.sec.gov> that contains reports, proxy statements and other
information. In addition, such material should also be available for
inspection at The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington,
D.C. 20006.
Directors and Officers
The name, address, principal occupation or employment, five-year employment
history and citizenship of each director and executive officer of the Company
is set forth in Schedule II hereto.
Summary Financial Information
The following table sets forth certain summary consolidated financial
information with respect to the Company and its consolidated subsidiaries
derived from the audited financial statements contained in the Company's 1996
Annual Report on Form 10-K. The summary below is qualified by reference to
such document (which may be inspected and obtained as described below),
including the financial statements and related notes contained therein. (See
Schedule III hereto)
THE COMPANY AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED FISCAL YEAR ENDED
--------------- --------------- ----------------------
DECEMBER 28, DECEMBER 30, JULY 1, JULY 2,
1996 1995 1995 1994
--------------- --------------- ---------- ----------
<S> <C> <C> <C> <C>
Income Statement Data:
Net sales.............. $2,103,643 $1,016,283 $2,467,783 $2,367,274
Gross profit (loss).... 24,868 (16,875) 245,675 347,733
Operating income
(loss)................ (385,108)(2) (215,196) (105,690) 53,989(4)
Net income (loss)...... (417,715) (225,006)(3) (99,309) 31,309
Net income (loss) per
share: (1)............ $ (18.22) $ (5.27) $ (3.07) $ 0.96
Shares used in
computing net income
(loss) per share (1).. 50,827 42,721 32,371 32,546
<CAPTION>
AT DECEMBER 28, AT DECEMBER 30, AT JULY 1, AT JULY 2,
1996 1995 1995 1994
--------------- --------------- ---------- ----------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and short-term
investments........... $ 61,063 $ 125,387 $ 95,825 $ 153,118
Working capital........ (41,049) 223,546 306,872 444,974
Total assets........... 831,057 1,056,042 1,021,501 1,005,620
Long-term debt......... 131,737 125,540 219,224 215,294
Total shareholders'
equity................ $ 12,140 $ 310,882 $ 263,238 $ 361,762
Shares outstanding at
end of period......... 57,758 44,679 32,413 32,334
</TABLE>
- --------
(1) 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.
(2) Includes a pretax restructuring charge of $6.5 million and other pretax
charges of $26.4 million. See Notes 2 and 3 of Notes to Consolidated
Financial Statements in Schedule III hereto.
50
<PAGE>
(3) Includes a $13 million pretax restructuring charge. See Note 2 of Notes to
Consolidated Financial Statements (see Schedule III hereto).
(4) Includes a $12.5 million pre-tax credit from the reversal of excess
restructuring charge amounts not utilized. See Note 2 of Notes to
Consolidated Financial Statements (see Schedule III hereto).
Except as otherwise noted in this Offer to Purchase, all of the information
with respect to the Company set forth in this Offer to Purchase has been
derived from publicly available information. Although Purchaser has no
knowledge that any such information is untrue, Purchaser takes no
responsibility for the accuracy or completeness of information contained in
this Offer to Purchase with respect to the Company or for any failure by the
Company to disclose events which may have occurred or may affect the
significance or accuracy of any such information.
Certain Recent Developments
On April 21, 1997, the Company issued a press release containing the
following information:
AST RESEARCH OUTLINES WORKFORCE REDUCTION PLANS; ANNOUNCES FIRST QUARTER
RESULTS
IRVINE, Calif., April 21, 1997--AST Research, Inc. (ASTA-NASDAQ)
today announced that financial results for the first quarter of
fiscal year 1997 were lower than anticipated. The company's
revenues were approximately $347 million and its net loss was
approximately $110 million ($1.90 loss per share) for the first
quarter of fiscal year 1997, ended March 29. These results
compare with revenues of $530.0 million and a loss of $115.8
million ($2.59 loss per share) during the comparable prior year
period.
In response to these financial results, AST announced plans
for a reduction of approximately 25 percent of its work force
worldwide. This action is expected to result in a charge of
approximately $12 million during the second fiscal quarter.
"Our turnaround efforts require more aggressive actions than
in the past due to lower than anticipated performance during the
first quarter of fiscal year 1997," said Mr. Y.S. Kim, AST
president and chief executive officer. "Reducing our global
workforce will allow the company to significantly lower
operating costs, which, combined with our continuing product
development and demand generation efforts, will help to further
advance our return to profitability goals."
The Company previously reported that net sales and operating
losses for the first quarter would be negatively impacted due to
lower demand, including an accelerated competitive pricing
environment, a product transition period in its commercial
desktop and notebook product lines and customer uncertainty
surrounding a proposal with Samsung Electronics Co., Ltd. to
commence negotiations to acquire all of the outstanding shares
of common stock of AST not currently owned by Samsung or its
affiliates. On April 15, 1997, AST and Samsung announced they
had reached a definitive merger agreement, under which Samsung
will commence a tender offer to acquire all of AST's outstanding
shares not currently owned by Samsung or its affiliates at a
price of $5.40 per share in cash. The tender offer will be
commenced April 21, 1997 and will expire at 5:00 p.m. Eastern
Daylight Time on May 19, 1997, unless extended.
51
<PAGE>
8. CERTAIN INFORMATION CONCERNING PURCHASER.
Purchaser is a Korean corporation with its principal executive offices
located at 250, 2-Ka, Taepyung-Ro, Chung-Ku, Seoul, Korea 100-742. Purchaser
is a leading international brand-name manufacturer of consumer electronics,
semiconductors and industrial electronics products. Each of Purchaser's three
main business lines is divided into two divisions: consumer electronics into
Audio & Video and Household Appliances; semiconductors into Memory Devices and
Non-Memory Devices; and industrial electronics into Information/Computer
Systems and Telecommunication Systems.
Set forth below is a summary of certain financial data with respect to
Purchaser for and as of its fiscal year ended December 31, 1996, December 31,
1995 and December 31, 1994. The financial information set forth below was
prepared in accordance with Korean generally accepted accounting principles
("Korean GAAP"), which differ in certain respects from United States generally
accepted accounting principles ("GAAP"). For example, under Korean GAAP,
property, plant and equipment are recorded at cost, except for upward
revaluation to give accounting recognition to some extent to the loss in
purchasing power of the Korean Won. Such revaluation presents productive
capacity and buildings at their appraised value and land at the prevailing
market value, as of the effective date of the revaluation. Investments in
subsidiaries and affiliated companies are reported at cost, except if the
financial condition of the subsidiary or affiliated company has significantly
deteriorated, in which event the investment is reduced to its estimated net
realizable value. Neither consolidation of subsidiaries nor the equity method
of accounting for minority-owned companies is applied in the financial
statements of Purchaser.
The official accounting records of Purchaser are maintained in Korean Won in
accordance with the laws and regulations of the Republic of Korea. For the
convenience of the reader, the financial data have been translated into U.S.
Dollars at the rate of 844 Won per U.S. Dollar, which was the prevailing rate
on December 31, 1996.
PURCHASER
SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income Statement Data:
Sales..................................... $18,808,701 $19,182,271 $13,647,014
Operating Profit.......................... 1,714,276 5,073,073 3,089,483
Net income................................ $ 194,497 $ 2,968,573 $ 1,119,726
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Current Assets............................ $ 6,822,502 $ 6,975,297 $ 4,723,004
Total Assets.............................. 18,765,946 16,068,504 10,772,291
Current Liabilities....................... 4,050,982 4,020,895 4,029,108
Total Liabilities......................... 12,735,420 9,476,992 7,378,493
Stockholders' Equity...................... $ 6,030,526 $ 6,591,512 $ 3,393,797
</TABLE>
The name, business address, citizenship, present principal occupation or
employment and five-year employment history of each of the executive officers
of Purchaser and each of the persons carrying out functions in Purchaser
similar to that of a director and/or executive officer in a United States
corporation are set forth in Schedule I hereto.
52
<PAGE>
Except as described in this Offer to Purchase (i) none of Purchaser nor, to
the best of Purchaser's knowledge, any of the persons listed in Schedule I
hereto, or any associate or majority-owned subsidiary of Purchaser or any of
the persons so listed, beneficially owns or has any right to acquire directly
or indirectly any Shares or has any contract, arrangement, understanding or
relationship with any other person with respect to any Shares, including, but
not limited to, any contract, arrangement, understanding or relationship
concerning the transfer or the voting of any shares, joint ventures, loan or
option arrangements, puts or calls, guaranties of loans, guaranties against
loss, or the giving or withholding of proxies, and (ii) none of Purchaser nor
to the best knowledge of Purchaser, any of the other persons referred to
above, or any of the respective directors, executive officers or subsidiaries
of any of the foregoing, has effected any transaction in any Shares during the
past 60 days.
Except as set forth in this Offer to Purchase, since June 30, 1993, neither
Purchaser nor, to the best knowledge of Purchaser, any of the persons listed
on Schedule I hereto, has had any transaction with the Company or any of its
executive officers, directors or affiliates that is required to be reported
under the rules and regulations of the Commission applicable to the Offer.
Except as set forth in this Offer to Purchase, since June 30, 1993 there have
been no contracts, negotiations or transactions between Purchaser, or any of
its subsidiaries or, to the best knowledge of Purchaser, any of the persons
listed in Schedule I to this Offer to Purchase, on the one hand, and the
Company or its affiliates, on the other hand, concerning a merger,
consolidation or acquisition; a tender offer for or other acquisition of
securities of any class of the Company; an election of directors of the
Company; or a sale or other transfer of a material amount of assets of the
Company or any of its subsidiaries.
9. FINANCING OF THE OFFER AND THE MERGER.
The total amount of funds required by Purchaser to purchase the Offer
Shares, redeem all of the outstanding LYONs and to pay related fees and
expenses will be approximately $308 million. Purchaser will provide such funds
from its working capital or its affiliates' working capital or from existing
credit facilities or new credit facilities established for this purpose or
from a combination of the foregoing. No decision has been made concerning
which of the foregoing sources Purchaser will utilize. Such decision will be
made based on Purchaser's review from time to time of the advisability of
particular actions, as well as on prevailing interest rates and financial and
other economic conditions and such other factors as Purchaser may deem
appropriate. Purchaser will file an amendment to its Tender Offer Statement on
Schedule 14D-1 and its Schedule 13E-3 (see Section 16) promptly after any such
decision is made. Purchaser has not conditioned the Offer or the Merger on
obtaining financing and has agreed that none of the borrowings it may use to
consummate the transactions contemplated by the Merger Agreement will be
incurred by, or secured, directly or indirectly, by the assets of, the Company
or any of its subsidiaries.
Purchaser anticipates that any indebtedness incurred through borrowings
under credit facilities will be repaid from a variety of sources, which may
include, but may not be limited to, funds generated internally by Purchaser
and its affiliates, bank financing, and the public or private sale of debt or
equity securities. No decision has been made concerning the method Purchaser
will employ to repay such indebtedness. Such decision will be made based on
Purchaser's review from time to time of the advisability of particular
actions, as well as on prevailing interest rates and financial and other
economic conditions and such other factors as Purchaser may deem appropriate.
10. CERTAIN TRANSACTIONS BETWEEN PURCHASER AND THE COMPANY.
In addition to the transactions between Purchaser and the Company described
in "SPECIAL FACTORS--Background of the Offer and Merger," the Purchaser and
the Company have engaged in certain commercial transactions described below.
53
<PAGE>
Purchaser and certain of its subsidiaries supply components such as DRAMs
(Dynamic Random Access Memory chips) and monitors to the Company pursuant to
customary commercial arrangements. Sales of such components by Purchaser and
its subsidiaries to the Company aggregated approximately $304.7 million,
$144.7 million, $65 million and $46 million, respectively, for the Company's
1996 fiscal year, the transition period ended December 30, 1995, and the 1995
and 1994 fiscal years.
On November 22, 1995, Purchaser 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 February 22, 1996, the Company entered into a Server Technology Transfer
Agreement and a Strategic Consulting Agreement with Purchaser. The Server
Technology Transfer Agreement grants Purchaser a royalty-free license through
July 31, 2000 to use the technical information supplied by the Company to
produce server technology products. The Strategic Consulting Agreement grants
Purchaser a royalty-free license through July 31, 2000 to use various
marketing and sales planning studies provided by the Company. Under each
agreement, Purchaser paid $5 million to the Company.
On June 27, 1996, the Company entered into an Intellectual Property
Assignment Agreement with Purchaser, which assigns certain patent applications
of the Company to Purchaser. Purchaser purchased a first group of patent
applications from the Company during the second quarter of fiscal year 1996
for $15 million and exercised an option to purchase an additional group of
patent applications for $10 million during the fourth quarter of fiscal year
1996.
On October 11, 1996, Purchaser provided a $50 million short-term loan to the
Company at an interest rate of 5.9% per annum. The Company repaid the loan,
including interest of $0.6 million, on December 19, 1996.
During fiscal year 1996, Purchaser paid the salaries of certain employees of
the Company. The Company recorded a capital contribution of $1.0 million,
which represents the estimated compensation expense of the employees paid by
Purchaser.
11. DIVIDENDS AND DISTRIBUTIONS.
According to the Company's 1996 Annual Report on Form 10-K, the Company has
not paid cash dividends to date and intends to retain any future earnings for
use in the business.
Pursuant to the terms of the Merger Agreement, the Company will not split,
combine or reclassify the outstanding Shares or declare, set aside or pay any
dividend payable in cash, stock or property with respect to the Shares. If on
or after the date of the Merger Agreement the Company should declare or pay
any cash or stock dividend or other distribution on, or issue any rights with
respect to, the Shares, payable or distributable to stockholders of record on
a date prior to the transfer to the name of Purchaser or its nominees or
transferees on the Company's stock transfer records of the Shares purchased
pursuant to the Offer, then, without prejudice to Purchaser's rights under
Section 13 of this Offer to Purchase, (i) the purchase price per Share payable
by Purchaser pursuant to the Offer may, in the sole discretion of Purchaser,
be reduced by the amount of any such cash dividend or distribution, and (ii)
any non-cash dividend, distribution or right to be received by the tendering
stockholders will (a) be received and held by the tendering stockholders for
the account of Purchaser and will be required to be promptly remitted and
transferred by each tendering stockholder to the Depositary for the account of
Purchaser, accompanied by appropriate documentation of transfer, or (b) at the
direction of Purchaser, be exercised for the benefit of Purchaser, in which
case the proceeds of such exercise will promptly be remitted to Purchaser.
Pending such remittance, Purchaser will be entitled to all rights and
privileges as owner of any such non-cash dividend, distribution or right or
such proceeds and may withhold the entire purchase price or deduct from the
purchase price the amount or value thereof, as determined by Purchaser in its
sole discretion.
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<PAGE>
12. EFFECTS OF THE OFFER ON THE MARKET FOR SHARES; NASDAQ NATIONAL MARKET
SYSTEM AND EXCHANGE ACT REGISTRATION.
The purchase of Shares by Purchaser pursuant to the Offer will reduce the
number of Shares that might otherwise trade publicly, will reduce the number
of holders of Shares and could thereby adversely affect the liquidity and
market value of the remaining publicly held Shares.
NASDAQ National Market System Listing. Depending upon the number of Shares
purchased pursuant to the Offer, the Shares may no longer meet the standards
for continued inclusion in the NASDAQ National Market System. According to the
NASDAQ National Market System's published guidelines, the Shares would not be
eligible to be included for continued listing if, among other things, the
number of publicly held Shares falls below 200,000, the number of holders of
Shares falls below 400 or the aggregate market value of such publicly held
Shares falls below $1,000,000. If these standards are not met, the Shares
would no longer be admitted to quotation on the NASDAQ National Market System.
In that event, the Shares might continue to be listed on the NASDAQ Small Cap
Market, but if the number of holders of the Shares falls below 300, or if the
number of publicly held shares falls below 100,000, or if the aggregate market
value of such publicly held Shares does not exceed $200,000 or there are not
at least two registered and active market makers, one of which may be a market
maker entering a stabilizing bid, the NASDAQ Small Cap Market rules provide
that the securities would no longer qualify for inclusion in the NASDAQ Small
Cap Market and the NASDAQ Small Cap Market would cease to provide any
quotations. Shares held directly or indirectly by an officer or director of
the Company or by a beneficial owner of more than 10% of the Shares will
ordinarily not be considered as being publicly held for purposes of these
standards. In the event the Shares are no longer eligible for the NASDAQ
National Market System or Small Cap Market quotation, quotations might still
be available from other sources. However, the extent of the public market for
the Shares and the availability of such quotations would depend upon the
number of holders of such Shares remaining at such time, the interest in
maintaining a market in such Shares on the part of securities firms, the
possible termination of registration of such Shares under the Exchange Act, as
described herein and other factors. Based upon the Company's most recent
Annual Report on Form 10-K, as of February 21, 1997, there were approximately
952 holders of record of the Shares.
Margin Regulations. The Shares are currently "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of
allowing brokers to extend credit on the collateral of such Shares for the
purpose of buying, carrying or trading in securities ("Purpose Loans").
Depending upon factors similar to those described above regarding the
continued listing, public trading and market quotations of the Shares, it is
possible that, following the purchase of the Shares pursuant to the Offer, the
Shares would no longer constitute "margin securities" for the purposes of the
margin regulations of the Federal Reserve Board and therefore could no longer
be used as collateral for Purpose Loans made by brokers.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. Such registration may be terminated upon application by the
Company to the Commission if the Shares are not listed on a national
securities exchange and there are fewer than 300 record holders. The
termination of the registration of the Shares under the Exchange Act would
substantially reduce the information required to be furnished by the Company
to holders of Shares and to the Commission and would make certain provisions
of the Exchange Act, such as the short-swing profit recovery provisions of
Section 16(b), the requirements of furnishing a proxy statement in connection
with stockholders' meetings and the requirements of Rule 13e-3 under the
Exchange Act with respect to "going private" transactions, no longer
applicable to the Shares. In addition, "affiliates" of the Company and persons
holding "restricted securities" of the Company may be deprived of the ability
to dispose of such securities pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended. If registration of the Shares under the
Exchange Act were terminated, the Shares would no longer be
55
<PAGE>
"margin securities" or be eligible for NASDAQ National Market System or Small
Cap Market reporting. Purchaser currently intends to seek to cause the Company
to terminate the registration of the Shares under the Exchange Act as soon
after consummation of the Offer as the requirements for termination of
registration are met.
13. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer or the Merger Agreement,
and subject to any applicable rules and regulations of the Commission,
including Rule 14e-1(c) relating to Purchaser's obligation to pay for or
return tendered Shares after termination of the Offer, Purchaser shall not be
required to accept for payment or pay for any Shares, or may terminate the
Offer if (i) any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), has not
expired or terminated; (ii) approval of all necessary government officials and
agencies (See Section 14), including the Republic of Korea, shall not have
been obtained on terms and conditions reasonably satisfactory to Purchaser
(except where the failure to obtain such consents or approvals would not have
a material adverse effect on (a) the Company and its subsidiaries, taken as a
whole, or (b) Parent's ability to consummate the transactions contemplated by
the Merger Agreement); or (iii) at any time after April 14, 1997 and before
acceptance for payment of any Shares, any of the following events shall occur
or shall be determined by Purchaser to have occurred:
(a) there shall have been any action taken, or any statute, rule,
regulation, judgment, order or injunction promulgated, entered, enforced,
enacted, issued or deemed applicable to the Offer or the Merger by any
domestic or foreign governmental regulatory or administrative agency or
authority or court or legislative body or commission which directly or
indirectly (1) prohibits, or imposes any material limitations on,
Purchaser's ownership or operation (or that of any of their respective
subsidiaries or affiliates) of all or a material portion of their or the
Company's businesses or assets, or compels Purchaser or their respective
subsidiaries or affiliates to dispose of or hold separate any material
portion of the business or assets of the Company or Purchaser and their
respective subsidiaries, in each case taken as a whole, (2) prohibits, or
makes illegal, the acceptance for payment, payment for or purchase of
Shares or the consummation of the Offer, the Merger or the other
transactions contemplated by the Merger Agreement, (3) results in the delay
in or restricts the ability of Purchaser, or renders Purchaser unable, to
accept for payment, pay for or purchase some or all of the Shares, (4)
imposes material limitations on the ability of Purchaser effectively to
exercise full rights of ownership of the Shares, including, without
limitation, the right to vote the Shares purchased by it on all matters
properly presented to the Company's stockholders, or (5) otherwise has a
material adverse effect on the consolidated financial condition, businesses
or results of operations of the Company and its subsidiaries, taken as a
whole, provided that Purchaser shall have used all reasonable efforts to
cause any such judgment, order or injunction to be vacated or lifted;
(b) there shall have occurred (1) any general suspension of trading in,
or limitation on prices for, securities on the New York Stock Exchange or
in the NASDAQ National Market System, for a period in excess of twenty-four
hours, (2) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or the Republic of Korea
(whether or not mandatory), (3) any limitation (whether or not mandatory)
by any Korean or United States governmental authority on the extension of
credit by banks or other financial institutions, (4) a change in general,
financial, bank or capital market conditions which materially and adversely
affects the ability of financial institutions in the United States or the
Republic of Korea to extend credit or syndicate loans, (5) any significant
change in the United States or the Republic of Korea currency exchange
rates (with respect to the other) or suspension of, or limitation on, the
markets therefor (whether or not mandatory) or the imposition of, or any
significant change in, any currency or exchange control laws in the United
States or the Republic of Korea, or (6) in the case of any of the foregoing
existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof;
56
<PAGE>
(c) (1) the representations and warranties of the Company set forth in
the Merger Agreement shall not be true and correct in any material respect
as of the date of the Merger Agreement and as of consummation of the Offer
as though made on or as of such date, (2) the Company shall have failed to
comply with its covenants and agreements under the Merger Agreement in all
material respects or (3) there shall have occurred any events or changes
which have had or which are reasonably likely to have a material adverse
effect on the Company and its subsidiaries taken as a whole (provided that
(i) any determination as to whether there has been a material adverse
effect with respect to the Company and its subsidiaries, taken as a whole,
shall be made in comparison to the Company's net losses and declining
equity over the past thirteen fiscal quarters, the current trend with
respect thereto and all developments resulting therefrom and (ii) any
changes resulting from any actions of the Company approved on or after
April 14, 1997 by the Board (including the Executive Committee) or the
chief executive officer shall be disregarded;
(d) the Special Committee shall have withdrawn, or modified or changed in
a manner adverse to Purchaser (including by amendment of the Schedule 14D-
9) its recommendation of the Offer, the Merger Agreement, or the Merger, or
recommended another proposal or offer, or the Special Committee, upon
request of Purchaser, shall fail to reaffirm such approval or
recommendation or shall have resolved to do any of the foregoing; or
(e) the Merger Agreement shall have terminated in accordance with its
terms;
which in the reasonable and good faith judgment of Purchaser, in any such
case, and regardless of the circumstances (including any action or inaction by
Purchaser) giving rise to such condition makes it inadvisable to proceed with
the Offer or the acceptance for payment of or payment for the Shares.
The foregoing conditions (the "Offer Conditions") are for the sole benefit
of Purchaser and may be waived by Purchaser, in whole or in part at any time
and from time to time in the sole discretion of Purchaser. The failure by
Purchaser at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
14. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS.
General. Except as described below, Purchaser is not aware of any license or
regulatory permit that appears to be material to the business of the Company
and its subsidiaries, taken as a whole, that might be adversely affected by
Purchaser's acquisition of Shares pursuant to the Offer, or of any approval or
other action by any governmental, administrative or regulatory agency or
authority or public body, domestic or foreign, that would be required for the
acquisition or ownership of Shares by Purchaser pursuant to the Offer. Should
any such approval or other action be required, it is presently contemplated
that such approval or action would be sought except as described below in this
Section under "State Takeover Statutes." While, except as otherwise expressly
described herein, Purchaser does not currently intend to delay acceptance for
payment of Shares tendered pursuant to the Offer pending the outcome of any
such matter, there can be no assurance that any such approval or other action,
if needed, would be obtained without substantial conditions or that adverse
consequences might not result to the Company's business or that certain parts
of the Company's business might not have to be disposed of in the event that
such approvals were not obtained or such other actions were not taken or in
order to obtain any such approval or other action, any of which could cause
Purchaser to decline to accept for payment or pay for any Shares tendered.
Purchaser's obligation under the Offer to accept for payment and pay for
shares is subject to the Offer Conditions, including conditions relating to
legal matters discussed in this Section 14.
Antitrust. Under the HSR Act and the rules that have been promulgated
thereunder by the Federal Trade Commission ("FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the
"Antitrust
57
<PAGE>
Division") and the FTC and certain waiting period requirements have been
satisfied. The acquisition of Shares pursuant to the Offer is subject to such
requirements. See Section 13.
Purchaser expects to file a Notification and Report Form with respect to the
Offer under the HSR Act as soon as practicable following commencement of the
Offer. The waiting period under the HSR Act with respect to the Offer will
expire at 11:59 p.m. New York City time, on the 15th day after the date such
form is filed, unless early termination of the waiting period is granted. In
addition, the Antitrust Division or the FTC may extend such waiting periods by
requesting additional information or documentary material from Purchaser. If
such a request is made with respect to the Offer, the waiting period related
to the Offer will expire at 11:59 p.m. New York City time on the 10th day
after substantial compliance by Purchaser with such request. With respect to
each acquisition, the Antitrust Division or the FTC may issue only one request
for additional information. In practice, complying with a request for
additional information or material can take a significant amount of time. In
addition, if the Antitrust Division or the FTC raises substantive issues in
connection with a proposed transaction, the parties may engage in negotiations
with the relevant governmental agency concerning possible means of addressing
those issues and may agree to delay consummation of the transaction while such
negotiations continue. Expiration or termination of applicable waiting periods
under the HSR Act is a condition to Purchaser's obligation to accept for
payment and pay for Shares tendered pursuant to the Offer.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed purchase of the Shares
by Purchaser pursuant to the Offer. At any time before or after such purchase,
the Antitrust Division or the FTC could take such action under the antitrust
laws as it deems necessary or desirable in the public interest, including
seeking to enjoin the transaction or seeking divestiture of the Shares so
acquired or divestiture of substantial assets of Purchaser or the Company.
Litigation seeking similar relief could be brought by private parties.
Purchaser does not believe that consummation of the Offer and the other
transactions contemplated by the Merger Agreement will result in violation of
any applicable antitrust laws. However, there can be no assurance that a
challenge to the Offer and the other transactions contemplated by the Merger
Agreement on antitrust grounds will not be made, or if such a challenge is
made, what the result will be. See Section 13 for certain conditions to the
purchase of the Shares, including conditions with respect to litigation and
certain governmental actions.
Foreign Governmental Approvals The Offer is subject to certain governmental
review and approvals under Korean law. Purchaser will submit an approval
application with the Bank of Korea (the "BOK") pursuant to the Foreign
Exchange Control Act of Korea (the "FECA") in connection with the Offer. Under
FECA and the rules promulgated thereunder, overseas investments by a Korean
resident are permissible in principle when the shares to be acquired by the
Korean investor will constitute 20% or more of the outstanding shares of the
company. Because the Offer contemplates an investment of over $10 million in a
foreign country, Purchaser must also obtain approval of the Overseas
Investment Deliberation Committee (the "OIDC"), a committee of Korean
government officials operating under the auspices of the BOK and the Korean
Ministry of Finance and Economy (the "MOFE"). The OIDC considers factors such
as the general appropriateness of the investment, possible negative effects of
the transaction upon the Korean economy or Korean foreign policy, whether the
transaction would be against Korean social or public order, and whether the
Korean investor has previously violated Korean foreign investment policies.
Once all the necessary documents for the BOK approval are prepared and filed
with the BOK, the BOK preliminary reviews the application and forwards it to
the MOFE. The MOFE then arranges for review of the application by the OIDC,
and the OIDC determines whether or not to approve the application. Following
the OIDC decision, the MOFE returns the application to the BOK along with the
OIDC's decision. The BOK then issues its final decision on approval shortly
after such receipt. The
58
<PAGE>
Korean approval process typically takes up to ninety days from the date the
approval application is filed with the BOK.
In addition to the governmental review and approvals under Korean law set
forth above, the Offer is also subject to other various foreign governmental
review and approvals, including governmental review and approvals under the
laws, rules and regulations of Canada and the European Union.
State Takeover Statutes The Company is incorporated under the laws of the
State of Delaware. In general, Section 203 of the DGCL prevents an "interested
stockholder" (generally, a person who owns or has the right to acquire 15% or
more of a corporation's outstanding voting stock, or an affiliate or associate
thereof) from engaging in a "business combination" (defined to include mergers
and certain other transactions) with a Delaware corporation for a period of
three years following the date such person became an interested stockholder
unless, among other things, prior to such date the board of directors of the
corporation approved either the business combination or the transaction in
which the interested director became an interested stockholder. Purchaser
became an interested stockholder on July 31, 1995 in connection with the Stock
Purchase Agreement approved by the Board. Accordingly, Section 203 is
inapplicable to the Offer and the Merger.
A number of states have adopted "takeover" statutes that purport to apply to
attempts to acquire corporations that are incorporated in such states, or
whose business operations have substantial economic effects in such states, or
which have substantial assets, security holders, employees, principal
executive offices or places of business in such states.
In Edgar v. MITE Corporation, the Supreme Court of the United States
invalidated on constitutional grounds the Illinois Business Takeover Act,
which, as a matter of state securities law, made takeovers of corporations
meeting certain requirements more difficult. However, in CTS Corp. v. Dynamics
Corp. of America, the Supreme Court held that a state may, as a matter of
corporate law and, in particular, those laws concerning corporate governance,
constitutionally disqualify a potential acquirer from voting on the affairs of
a target corporation without prior approval of the remaining stockholders,
provided that such laws were applicable under certain conditions, in
particular, that the corporation has a substantial number of stockholders in
the state and is incorporated there.
The Company, directly or through subsidiaries, conducts business in a number
of states throughout the United States, some of which have enacted takeover
statutes. Purchaser does not know whether any of these statutes will, by their
terms, apply to the Offer, and has not complied with any such statutes. To the
extent that certain provisions of these statutes purport to apply to the
Offer, Purchaser believes that there are reasonable bases for contesting such
statutes. If any person should seek to apply any state takeover statute,
Purchaser would take such action as then appears desirable, which action may
include challenging the validity or applicability of any such statute in
appropriate court proceedings. If it is asserted that one or more takeover
statutes apply to the Offer and it is not determined by an appropriate court
that such statute or statutes do not apply or are invalid as applied to the
Offer, Purchaser might be required to file certain information with, or
receive approvals from, the relevant state authorities, and Purchaser might be
unable to purchase or pay for shares tendered pursuant to the Offer, or be
delayed in continuing or consummating the Offer. In such case, Purchaser may
not be obligated to accept for payment or pay for Shares tendered pursuant to
the Offer.
15. FEES AND EXPENSES.
Salomon Brothers Inc is acting as financial advisor to Purchaser in
connection with the transactions contemplated by the Merger Agreement and is
also acting as Dealer Manager for the Offer. Purchaser has agreed to
compensate Salomon for its financial advisory services and to reimburse
Salomon for its reasonable out-of-pocket expenses, including those incurred in
connection with Salomon's activities as Dealer Manager and including the fees
and disbursements of its legal
59
<PAGE>
counsel, and to indemnify Salomon against certain liabilities in connection
with the Offer, including certain liabilities under the federal securities
laws.
Purchaser has retained MacKenzie Partners. Inc. to act as the Information
Agent and Citibank, N.A. to act as the Depositary in connection with the
Offer. The Information Agent may contact holders of Shares by mail, telephone,
telegraph and personal interview and may request brokers, dealers and other
nominee stockholders to forward the Offer materials to beneficial owners. The
Information Agent will receive a fee for services as Information Agent of
$7,500 and will be reimbursed for certain out-of-pocket expenses. The
Depositary will receive reasonable and customary compensation for services
relating to the Offer and will be reimbursed for certain out-of-pocket
expenses. Purchaser has also agreed to indemnify the Information Agent and the
Depositary against certain liabilities and expenses in connection with the
Offer, including certain liabilities under the federal securities laws.
Purchaser will not pay any fees or commissions to any broker or dealer or
any other person for soliciting tenders of Shares pursuant to the Offer (other
than to the Dealer Manager and the Information Agent). Brokers, dealers,
commercial banks, trust companies and other nominees will, upon request, be
reimbursed by Purchaser for customary mailing and handling expenses incurred
by them in forwarding offering materials to their customers.
The following is an estimate of expenses to be incurred in connection with
the Offer and the Merger.
<TABLE>
<S> <C>
EXPENSES TO BE PAID BY PURCHASER:
Financial Advisor/Dealer Manager Fees....................... $2,075,000
Legal Fees(1)............................................... 550,000
Printing and Mailing Costs.................................. 300,000
Advertising................................................. 85,000
Filing Fees................................................. 79,100
Depositary Fees............................................. 22,500
Information Agent Fees...................................... 7,500
Miscellaneous............................................... 30,900
----------
Total..................................................... $3,150,000
==========
EXPENSES TO BE PAID BY THE COMPANY:
Special Committee Fees(2)................................... $ 160,000
Financial Advisor to Special Committee(3)................... 1,425,000
Legal Fees(1)(4)............................................ 925,000
Miscellaneous............................................... 15,000
----------
Total..................................................... $2,525,000
==========
</TABLE>
- --------
(1) Does not include fees and disbursements in connection with the litigation
described in "SPECIAL FACTORS--Certain Litigation" or any other litigation
that may relate to the Offer or the Merger.
(2) Includes the fee of $50,000 paid to each member of the Special Committee
for his services as such, pursuant to the Board's Consent (see "SPECIAL
FACTORS--Background of the Offer and the Merger" and Schedule II hereto),
as well as the estimated expenses of each member of the Special Committee
in connection with his services as such.
(3) Includes the fees and estimated expenses of Morgan Stanley and its
counsel. See "SPECIAL FACTORS--Opinion of Financial Advisor to the Special
Committee."
(4) Includes the estimated fees and expenses of counsel to the Company,
Delaware counsel to the Company, counsel to the Special Committee and
Delaware counsel to the Special Committee. Does not include the estimated
fees or expenses of Morgan Stanley's counsel (see Note (3) above). Also
does not include fees and expenses in connection with ongoing services
performed by counsel to the Company as its general outside counsel.
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<PAGE>
16. MISCELLANEOUS.
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the
securities, blue sky or other laws of such jurisdiction. Purchaser may, in its
discretion, however, take such action as it may deem necessary to make the
Offer in any jurisdiction and extend the Offer to holders of Shares in any
such jurisdiction. In any jurisdiction where the securities, blue sky or other
laws require the Offer to be made by a licensed broker or dealer, the Offer
shall be deemed to be made on behalf of Purchaser by the Dealer Manager or one
or more registered brokers or dealers licensed under the laws of such
jurisdiction.
No person has been authorized to give any information or to make any
representation on behalf of Purchaser not contained herein or in the Letter of
Transmittal and, if given or made, such information or representation must not
be relied upon as having been authorized. Neither the delivery of this Offer
to Purchase nor any purchase pursuant to the Offer shall, under any
circumstances, create any implication that there has been no change in the
affairs of Purchaser or the Company since the date as of which information is
furnished or the date of this Offer to Purchase.
Purchaser has filed with the Commission a Tender Offer Statement on Schedule
14D-1, together with exhibits, pursuant to Rule 14d-3 under the Exchange Act,
and Purchaser and the Company have filed with the Commission a Rule 13e-3
Transaction Statement on Schedule 13E-3, together with exhibits, pursuant to
Rule 13e-3 under the Exchange Act, furnishing certain additional information
with respect to the Offer. In addition, the Company has filed with the
Commission a Solicitation/ Recommendation Statement on Schedule 14D-9,
together with exhibits, pursuant to Rule 14d-9 under the Exchange Act, setting
forth the recommendations of the Board and the Special Committee with respect
to the Offer and the reasons for such recommendations and furnishing certain
additional related information. Such Schedules and any amendments thereto,
including exhibits, may be inspected and copies may be obtained from the
Commission in the manner set forth in Section 7 (except that they will not be
available at the regional offices of the Commission).
Samsung Electronics Co., Ltd.
April 21, 1997
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SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER
The following table sets forth the name, business or residence address,
principal occupation or employment at the present time and during the last
five years, and the name of any corporation or other organization in which
such employment is conducted or was conducted of each executive officer of
Purchaser and each person carrying out functions in Purchaser similar to that
of a director in a United States corporation. Except as otherwise indicated,
all of the persons listed below are citizens of the Republic of Korea. Each
occupation set forth opposite a person's name, unless otherwise indicated,
refers to employment with Purchaser. Persons carrying out functions in
Purchaser similar to that of a director in a United States corporation are
indicated with an asterisk.
<TABLE>
<CAPTION>
MATERIAL POSITIONS HELD
NAME, CITIZENSHIP AND PRESENT OCCUPATION DURING THE PAST FIVE
CURRENT BUSINESS ADDRESS OR EMPLOYMENT YEARS
------------------------------- --------------------- ------------------------
<C> <C> <C> <S>
Ho Moon Kang Senior Vice President General Manager of MICRO
Samsung Electronics Co., Ltd. and General Manager, Business from January
416 Maetan-3 Dong Paldal-Gu Computer Business 1995; General Manager of
Suwon City, Kyungki-Do, Korea since 1996. MICRO Division from
January 1994; Managing
Director of MICRO Export
Team from March 1990.
* Kwang-Ho Kim Chairman and Chief Vice Chairman and Chief
Samsung North America Executive Officer of Executive Officer from
3655 North First Street Samsung North America January 1995 to December
San Jose, CA 95134-1713 since January, 1997. 1996; President and
Chief Executive Officer
from March 1990 to
December 1994.
* Bon-Guk Koo Executive Vice Senior Executive
Samsung Electronics Co., Ltd. President since March Managing Director from
416 Maetan-3 Dong Paldal-Gu 1993. March 1990 to February
Suwon City, Kyungki-Do, Korea 1993.
* Hai-Min Lee Executive Vice Senior Executive
Samsung Electronics Co., Ltd. President since March Managing Director from
416 Maetan-3 Dong Paldal-Gu 1993. March 1990 to February
Suwon City, Kyungki-Do, Korea 1993.
* Yoon Woo Lee President and Chief Executive Vice President
Samsung Electronics Co., Ltd. Executive Officer and Chief Executive
San #24 Nongseo-Ri, since January 1995. Officer from January
Kiheung-Eup, Yongin-Gun, 1994 to December 1994;
Kyungki-Do, Korea Executive Vice President
from March 1992 to
December 1993; Senior
Executive Managing
Director from July 1989
to February 1992.
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
MATERIAL POSITIONS HELD
NAME, CITIZENSHIP AND PRESENT OCCUPATION DURING THE PAST FIVE
CURRENT BUSINESS ADDRESS OR EMPLOYMENT YEARS
------------------------------- --------------------- ------------------------
<C> <C> <C> <S>
* Suek Namgoong President, Non-employee Director
Samsung Electronics Co., Ltd. Telecommunication & from February 1994 to
7th Floor Samsung Main Building Systems Business December 1994; President
250 Taepyung-Ro 2 Ka since December 1994. and Chief Executive
Chung-Ku, Seoul, Korea Officer from September
1993 to present of
Samsung Data systems,
Ltd.; President of Korea
PC Telecom Ltd. from
February 1992 to
September 1993;
Executive Vice President
of Hyundai Electronics
Industries, Ltd. from
January 1986 to February
1991.
Geun Sik Noh Executive Vice Senior Executive
Samsung Electronics Co., Ltd. President since Managing Director from
Joong-Ang Daily News Building 7 January 1995. March 1989 to December
Soonwha-Dong, Chung Ku 1994.
Seoul, Korea
* Myeong Sub Son Executive Vice Senior Executive
Samsung Electronics Co., Ltd. President since Managing Director from
84-11 Namdaemun-Ro 5-Ka, Chung- January 1994. March 1990 to December
Ku, Seoul, Korea 1993.
Bo-Soon Song Senior Executive President and Chief
Samsung Electronics America, Managing Director Executive Officer of
Inc. since 1995 and Samsung North America
105 Challenger Road President of Samsung from January 1995; Chief
Ridgefield Park, NJ 07660 Electronics America, Executive Officer of
Inc. since January Samsung Electronics
1997. America, Inc. from
September 1993; Chief
Finance Officer of
Samsung Electronics
America, Inc. from 1991
to 1993.
* Yong-Ro Song Executive Vice Executive Vice President
Samsung Electronics Co., Ltd. President and Chief from July 1995 to
11th Floor Samsung Main Executive Officer December 1996; Executive
Building 250 Taepyung-Ro 2 Ka since January 1997. Vice President of Joong-
Chung-Ku, Seoul, Korea Ang Daily News, from
April 1994 to June 1995;
Senior Vice President
from 1991.
Wook Sun Executive Vice Senior Executive
Samsung Electronics Co., Ltd. President since Managing Director of
11th Floor Samsung Main January 1994. Samsung Electro
Building 250 Taepyung-Ro 2 Ka Mechanics Co., Ltd. from
Chung-Ku, Seoul, Korea March 1990.
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
MATERIAL POSITIONS HELD
NAME, CITIZENSHIP AND PRESENT OCCUPATION DURING THE PAST FIVE
CURRENT BUSINESS ADDRESS OR EMPLOYMENT YEARS
------------------------------- --------------------- ------------------------
<C> <C> <C> <S>
* Jong Yong Yun President and Chief President and Chief
Samsung Electronics Co., Ltd. Executive Officer Executive Officer of
11th Floor Samsung Main since January 1997. Samsung Display Japan
Building 250 Taepyung-Ro 2 Ka from November 1995 to
Chung-Ku, Seoul, Korea December 1996; President
and Chief Executive
Officer of Samsung
Display and Devices from
1993 to 1995; President
and Chief Executive
Officer of Samsung
Electro Mechanics Co.,
Ltd. from 1992 to 1993.
</TABLE>
I-3
<PAGE>
SCHEDULE II
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, business or residence address,
principal occupation or employment at the present time and during the last
five years, the name of any corporation or other organization in which such
employment is conducted or was conducted, those securities for which there is
a right to acquire, and the aggregate amount and percentage of securities
beneficially owned, for each executive officer and director of the Company.
Except as otherwise indicated, all of the persons listed below are citizens of
the United States. The business address of each executive officer of the
Company is 16215 Alton Parkway, Irvine, California, 92718, unless otherwise
set forth below. Each occupation set forth opposite a person's name, unless
otherwise indicated, refers to employment with the Company. Directors of the
Company are indicated with an asterisk.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------------
MATERIAL POSITIONS HELD PERCENTAGE
NAME, CITIZENSHIP AND PRESENT OCCUPATION DURING THE PAST FIVE OPTIONS OF SHARES
CURRENT BUSINESS ADDRESS OR EMPLOYMENT YEARS (A) TOTAL OUTSTANDING
------------------------------- --------------------- ------------------------ ------- ------- -----------
<C> <C> <C> <S> <C> <C> <C>
Scott Bower Vice President, Sales Vice President of Sales -- -- --
and Marketing, and Marketing,
Americas, since Information Systems
January 1997. Division of Purchaser
from June 1995 to
December 1996; Director
of Mobile Computing
Marketing, Director of
PC Product Line Planning
and Director of Software
Sales at IBM.
Mark de Raad Vice President, Vice President, 4,500 4,600 *
Finance, Treasurer Financial Operations
and Principal from August 1994; Vice
Accounting Officer President, Worldwide
since July 1995. Controller from February
1994; Controller from
August 1990; Assistant
Controller from February
1989; Manager, Financial
Reporting from May 1987.
* Richard J. Goeglein Director since May Director, Boomtown, 132,000 149,000 *
Gaming Associates, Inc. 1987. Inc.; Director, Platinum
2688 South Rainbow Boulevard Software Corporation;
Suite D Founder and Principal of
Las Vegas, NV 89102 Gaming Associates;
President and Chief
Executive Officer of
Dakin, Inc. from April
1990 to September 1991.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
--------------
MATERIAL POSITIONS HELD PERCENTAGE
NAME, CITIZENSHIP AND PRESENT OCCUPATION DURING THE PAST FIVE OPTIONS OF SHARES
CURRENT BUSINESS ADDRESS OR EMPLOYMENT YEARS (A) TOTAL OUTSTANDING
------------------------------- --------------------- ------------------------ ------- ------ -----------
<C> <C> <C> <S> <C> <C> <C>
* Roger W. Johnson Director since Business advisor, 82,000 82,000 --
600 Anton Boulevard October 1996. teacher and author;
Suite 1260 Director, The Needham
Costa Mesa, CA 92626 Funds, Inc., JTS
Corporation, Group
Technologies, Inc.,
Insolectro, Inc., Elexys
International, Inc. and
Array Microsystems;
Administrator of the
U.S. General Services
Administration from 1993
to 1996; Chairman and
Chief Executive Officer
of Western Digital
Corporation from 1982 to
1993.
* Ho Moon Kang Director since Senior Vice President -- -- --
Samsung Electronics Co., Ltd. February 1997. and General Manager of
416 Maetan-3 Dong Paldal-Gu Samsung Electronics
Suwon City, Kyungki-Do, Korea Computer Division from
(Citizen of Korea) 1996; General Manager of
MICRO Business of
Purchaser from January
1995; General Manager of
MICRO Division from
January 1994; Managing
Director of MICRO Export
Team from March 1990.
* Kwang-Ho Kim Director since July Chairman and Chief -- -- --
Samsung North America, Inc. 1995; Chairman of the Executive Officer of
3655 North First Street Board since June Samsung North America
San Jose, CA 95134-1713 1996. since January, 1997;
(Citizen of Korea) Vice Chairman and Chief
Executive Officer of
Purchaser from January
1995 to December 1996;
President and Chief
Executive Officer of
Purchaser from March
1990 to December 1994.
Young Soo Kim President and Chief Corporate Vice President -- -- --
Executive Officer of Purchaser from
since August 1996; January 1993 to August
Director since July 1996; President of the
1995. Computer and Systems
Business of Purchaser
from June 1989; Vice
President, Semiconductor
Business of Purchaser
from August 1987.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
-----------------
MATERIAL POSITIONS HELD PERCENTAGE
NAME, CITIZENSHIP AND PRESENT OCCUPATION DURING THE PAST FIVE OPTIONS OF SHARES
CURRENT BUSINESS ADDRESS OR EMPLOYMENT YEARS (A) TOTAL OUTSTANDING
------------------------------- --------------------- ------------------------ ------- --------- -----------
<C> <C> <C> <S> <C> <C> <C>
Noh Byung Park Senior Vice President Senior Managing Director -- -- --
(Citizen of Korea) of Worldwide Product of Purchaser from
Development and January 1995 to
Manufacturing since September 1996; Director
September 1996. of Purchaser from March
1993 to December 1994;
Acting Director of
Purchaser from March
1990 to February 1993.
* Jack W. Peltason Director since July Director of Irvine 83,000 83,300 *
School of Social Sciences 1993. Apartment Communities;
3151 Social Sciences Plaza Director of Infotec;
University of California, President of the
Irvine University of California
Irvine, CA 92697-5100 from 1992 to 1995;
Chancellor of the
University of
California, Irvine from
1984 to 1992.
* Safi U. Qureshey(b) Director since the Chairman Emeritus since 501,250 2,857,576 4.9%
Company's inception. June 1996; Chairman of
the Board from November
1993; Chief Executive
Officer from July 1988
to November 1995;
Co-chairman of the Board
from 1988 to June 1992;
Director of
ObjectAutomation.
* Bo-Soon Song Director since Senior Executive -- -- --
Samsung Electronics America, January 1996. Managing Director and
Inc. President of Purchaser
105 Challenger Road from January 1997;
Ridgefield Park, NJ 07660 President and Chief
(Citizen of Korea) Executive Officer of
Samsung North America
from January 1995; Chief
Executive Officer of
Purchaser from September
1993; Chief Finance
Officer of Purchaser
from 1991 to 1993.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
--------------
MATERIAL POSITIONS HELD PERCENTAGE
NAME, CITIZENSHIP AND PRESENT OCCUPATION DURING THE PAST FIVE OPTIONS OF SHARES
CURRENT BUSINESS ADDRESS OR EMPLOYMENT YEARS (A) TOTAL OUTSTANDING
------------------------------- --------------------- ------------------------ ------- ------ -----------
<C> <C> <C> <S> <C> <C> <C>
* Yong-Ro Song Director since Executive Vice President -- -- --
Samsung Electronics Co., Ltd. February 1997. and Chief Executive
11th Floor Samsung Main Officer of Purchaser
Building 250 Taepyung-Ro 2 Ka since January 1997;
Chung-Ku, Seoul, Korea Executive Vice President
(Citizen of Korea) of Purchaser from July
1995 to December 1996;
Executive Vice President
of Joong-Ang Daily News
from April 1994 to June
1995; Senior Vice
President of Purchaser
from 1991 to 1993.
Gary D. Weaver Senior Vice Vice President, Americas 31,250 31,250 *
President, Worldwide Manufacturing from
Manufacturing December 1994; Vice
Operations since President, Operations of
September 1995. Ioptex Research from May
1990 to November 1994.
* Won Suk Yang Senior Vice President Senior Executive -- -- --
(Citizen of Korea) and Chief Financial Managing Director of
Officer since Purchaser since April
September 1996; 1995; General Manager of
Director since July the Corporate
1995. Administrative Office of
Cheil Synthetic
Industries, an affiliate
of Purchaser from
January 1993; General
Manager of the Planning
and Administrative
Office of Purchaser from
June 1991 to December
1992; Executive Vice
President of Samsung
Semiconductor Inc. from
April 1983; Director of
Finance of Samsung
Petrochemical Co. from
April 1979 to March
1983.
</TABLE>
- -------
* Less than 1%.
(a) Includes shares which executive officers and directors have the right to
acquire within 60 days of April 14, 1997, under stock option and warrant
agreements.
(b) Includes 72,834 shares held by Nancy Marshall as custodian for minor
children of Mr. Qureshey and 3,289 shares held by U.S. Trust, as trustee
for Skyline Crut I and Skyline Crut II established for the benefit of Mr.
Qureshey's minor children, to which Mr. Qureshey disclaims any beneficial
interest.
II-4
<PAGE>
SCHEDULE III
FINANCIAL STATEMENTS OF THE COMPANY
AST RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30, JULY 1,
1996 1995 1995
------------ ------------ ----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 61,063 $ 125,387 $ 95,825
Accounts receivable, net of allowance
for doubtful accounts of $20,243,
$18,629, and $17,452 at December 28,
1996, December 30, 1995, and July 1,
1995, respectively..................... 400,061 392,598 394,927
Inventories............................. 139,007 252,339 311,469
Deferred income taxes................... 18,813 19,495 31,973
Other current assets.................... 19,949 47,802 6,938
--------- ---------- ----------
Total current assets.................. 638,893 837,621 841,132
Property and equipment, net............. 91,612 98,725 101,255
Other assets............................ 100,552 119,696 79,114
--------- ---------- ----------
$ 831,057 $1,056,042 $1,021,501
========= ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings................... $ 175,000 $ 75,000 $ 156,000
Accounts payable, including payable to
related party of $58,394 and $31,562 at
December 28, 1996 and December 30,
1995, respectively..................... 272,693 199,346 213,202
Accrued salaries, wages and employee
benefits............................... 15,684 19,827 17,760
Other accrued liabilities............... 184,664 200,639 119,689
Income taxes payable.................... 31,610 26,902 25,189
Current portion of long-term debt....... 291 92,361 2,420
--------- ---------- ----------
Total current liabilities............. 679,942 614,075 534,260
Long-term debt............................ 131,737 125,540 219,224
Other non-current liabilities............. 7,238 5,545 4,779
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $.01;
1,000,000 shares authorized, 500,000
shares issued and outstanding at
December 28, 1996, liquidation
preference of $32,500,000.............. 27,780 -- --
Common stock, par value $.01;
200,000,000 shares authorized,
57,757,830, 44,679,400, and 32,412,500
shares issued and outstanding at
December 28, 1996 December 30, 1995,
and July 1, 1995, respectively......... 578 447 324
Additional capital...................... 505,797 414,735 142,208
Retained earnings (deficit)............. (522,015) (104,300) 120,706
--------- ---------- ----------
Total shareholders' equity............ 12,140 310,882 263,238
--------- ---------- ----------
$ 831,057 $1,056,042 $1,021,501
========= ========== ==========
</TABLE>
See accompanying notes.
III-1
<PAGE>
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS FISCAL YEAR ENDED
ENDED ENDED ----------------------
DECEMBER 28, DECEMBER 30, JULY 1, JULY 2,
1996 1995 1995 1994
------------ ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales................... $2,068,643 $1,016,283 $2,467,783 $2,367,274
Revenue from related party.. 35,000 -- -- --
---------- ---------- ---------- ----------
Total revenue............... 2,103,643 1,016,283 2,467,783 2,367,274
Cost of sales............... 2,078,775 1,033,158 2,222,108 2,019,541
---------- ---------- ---------- ----------
Gross profit (loss)......... 24,868 (16,875) 245,675 347,733
Selling, general and
administrative expenses.... 336,367 165,746 314,982 267,386
Engineering and development
expenses................... 40,702 19,608 36,383 38,858
Restructuring charge
(credit)................... 6,527 12,967 -- (12,500)
Other charges............... 26,380 -- -- --
---------- ---------- ---------- ----------
Total operating expenses.... 409,976 198,321 351,365 293,744
---------- ---------- ---------- ----------
Operating income (loss)..... (385,108) (215,196) (105,690) 53,989
Financing and other expense,
net........................ (32,607) (9,810) (17,675) (7,677)
---------- ---------- ---------- ----------
Income (loss) before income
taxes...................... (417,715) (225,006) (123,365) 46,312
Income tax provision
(benefit).................. -- -- (24,056) 15,003
---------- ---------- ---------- ----------
Net income (loss)........... $ (417,715) $ (225,006) $ (99,309) $ 31,309
========== ========== ========== ==========
Net income (loss) per common
share:
Primary................... $ (8.22) $ (5.27) $ (3.07) $ 0.96
Fully diluted............. $ (8.22) $ (5.27) $ (3.07) $ 0.95
========== ========== ========== ==========
Shares used in computing net
income (loss) per common
share:
Primary................... 50,827 42,721 32,371 32,548
Fully diluted............. 50,827 42,721 32,371 34,866
========== ========== ========== ==========
</TABLE>
See accompanying notes.
III-2
<PAGE>
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED
STOCK COMMON STOCK RETAINED
-------------- ------------- ADDITIONAL EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
------ ------- ------ ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 3, 1993..... -- $ -- 31,579 $316 $129,784 $ 188,706
Exercise of stock options. -- -- 755 7 9,554 --
Tax benefit related to
employee stock options... -- -- -- -- 1,823 --
Vesting of restricted
stock.................... -- -- -- -- 263 --
Net loss.................. -- -- -- -- -- 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)
Issuance of preferred
stock to related party in
exchange for additional
support, net of issuance
costs of $267............ 500 27,780 -- -- -- --
Issuance of common stock
to repay long-term debt,
net of issuance costs of
$152..................... -- -- 4,499 45 29,803 --
Issuance of common stock
to related party......... -- -- 8,499 85 59,915 --
Expenses paid by related
party.................... -- -- -- -- 1,009 --
Exercise of stock options. -- -- 81 1 335 --
Net loss.................. -- -- -- -- -- (417,715)
--- ------- ------ ---- -------- ---------
Balance at December 28,
1996....................... 500 $27,780 57,758 $578 $505,797 $(522,015)
=== ======= ====== ==== ======== =========
</TABLE>
See accompanying notes.
III-3
<PAGE>
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS FISCAL YEAR ENDED
ENDED ENDED -------------------
DECEMBER 28, DECEMBER 30, JULY 1, JULY 2,
1996 1995 1995 1994
------------ ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............. $ (417,715) $ (225,006) $ (99,309) $ 31,309
Adjustments to reconcile net
income (loss) to net cash
used in operating activities:
Depreciation and
amortization............... 27,525 11,595 19,209 22,928
Amortization of debt issue
costs and credit
guarantees................. 23,810 3,675 6,102 2,933
Provision (benefit) for
deferred income taxes...... 3,024 2,047 (25,318) 8,983
Gain on sale of capital
equipment.................. (1,812) (435) (870) (4,286)
Other charges............... 26,380 -- -- --
Pen-based inventory write-
off........................ -- -- -- 33,600
Expenses paid by related
party...................... 1,009 -- -- --
Change in operating assets
and liabilities, net of
effects of acquisition:
Accounts receivable....... (5,713) 4,620 (58,714) (86,290)
Inventories............... 113,332 59,130 22,260 (19,808)
Other current assets...... 27,545 (17,318) 12,798 3,317
Accounts payable.......... 73,773 (8,322) 2,142 29,545
Accrued salaries, wages,
and employee benefits.... (3,942) 2,105 (4,152) 4,782
Other accrued liabilities. (11,437) 64,529 9,215 (43,470)
Income taxes payable...... 4,708 1,713 (2,266) (17,377)
Other non-current
liabilities.............. (1,896) (8,568) 787 (8,523)
Exchange (gains) losses....... 2,434 2,907 (1,658) 2,097
---------- ---------- --------- --------
Net cash used in operating
activities............... (138,975) (107,328) (119,774) (40,260)
Cash flows from investing
activities:
Purchases of capital
equipment.................... (22,445) (10,649) (26,080) (30,045)
Proceeds from disposition of
capital equipment............ 4,274 1,611 4,474 10,673
Purchases of other assets..... (462) (2,811) (12,022) (1,484)
Payment related to Tandy/GRiD
acquisition.................. -- -- -- (15,000)
---------- ---------- --------- --------
Net cash used in investing
activities............... (18,633) (11,849) (33,628) (35,856)
Cash flows from financing
activities:
Short-term borrowings
(repayments), net............ 100,000 (81,000) 106,000 (9,217)
Repayment of long-term debt... (62,255) (6,877) (391) (520)
Proceeds from issuance of
long-term debt............... -- -- 23 107,974
Proceeds from issuance of
common stock:
To related party............ 60,000 240,564 -- --
Other....................... 184 1,041 785 9,561
---------- ---------- --------- --------
Net cash provided by
financing activities..... 97,929 153,728 106,417 107,798
Effect of exchange rate changes
on cash and cash equivalents... (4,645) (4,989) (10,308) (164)
---------- ---------- --------- --------
Net increase (decrease) in cash
and cash equivalents........... (64,324) 29,562 (57,293) 31,518
Cash and cash equivalents at
beginning of period............ 125,387 95,825 153,118 121,600
---------- ---------- --------- --------
Cash and cash equivalents at end
of period...................... $ 61,063 $ 125,387 $ 95,825 $153,118
========== ========== ========= ========
</TABLE>
See accompanying notes.
III-4
<PAGE>
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
FISCAL YEAR SIX MONTHS --------------
ENDED ENDED JULY
DECEMBER 28, DECEMBER 30, 1, JULY 2,
1996 1995 1995 1994
------------ ------------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance to related party of .5
million shares of preferred stock in
exchange for a two-year $200 million
credit guarantee.................... $ 27,780 $ -- $ -- $ --
Issuance of 4.5 million shares of
common stock to Tandy Corporation to
pay $30 million of the $90 million
promissory note due to Tandy
Corporation......................... $ 30,000 $ -- $ -- $ --
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 in
exchange for a two-year $200 million
credit guarantee, and a two-year
$100 million vendor line............ $ -- $ 31,045 $ -- $ --
Tax benefit of employee stock
options............................. $ -- $ -- $ -- $ 1,823
======== ======== ====== =======
The Company purchased certain assets
relating to Tandy/GRiD France's
personal computer operations
effective September 1, 1993. In
conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired...... $ -- $ -- $ -- $16,571
Note payable to Tandy.............. -- -- -- (6,720)
-------- -------- ------ -------
Liabilities assumed................ $ -- $ -- $ -- $ 9,851
======== ======== ====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for
interest.......................... $ 11,568 $ 7,717 $9,937 $ 3,149
Cash paid (received) during the
year for income taxes............. $ (4,729) $ 913 $9,895 $22,210
======== ======== ====== =======
</TABLE>
See accompanying notes.
III-5
<PAGE>
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.
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, Ascentia and Manhattan brand names.
Financing Requirements
The Company's recent operations have resulted in net losses of $417.7
million, $225.0 million, and $99.3 million for fiscal year 1996, transition
period 1995, and fiscal year 1995, respectively, as well as a working capital
deficiency of $41.0 million and total stockholders' equity of $12.1 million as
of December 28, 1996. As a result, it has been necessary for the Company to
look to Purchaser Electronics Co., Ltd. ("Purchaser"), its largest
stockholder, for financial support while management implements changes to the
Company's business in order to return the Company to profitability. In
addition to purchases of common stock from the Company aggregating $309.5
million, Purchaser has provided credit guarantees aggregating $400 million
(see Note 4) that are available to support bank borrowings by the Company
through December 31, 1998 (for which Purchaser received additional Company
equity securities then valued at $58.8 million) and a $100 million vendor
credit line available through November 1997 to facilitate component purchases
from Purchaser.
As of December 28, 1996, the Company had borrowed $175 million under bank
lines supported by Purchaser guarantees and had $58.4 million due to Purchaser
under the vendor credit line. As a result, the Company has additional
borrowing availability under the loan guarantees of $225 million, of which
$125 million is available under presently committed bank loan agreements.
Management believes these financial resources will be sufficient to support
the Company's liquidity requirements in fiscal 1997; however, in the event
they are not, the Company would be required to seek additional financing from
Purchaser or others for which it has no current commitments.
Additionally on January 30, 1997, the Company announced that Purchaser
proposed to commence negotiations to acquire all of the outstanding shares of
the Company not owned by Purchaser or its affiliates at a price of $5.10 per
share (see Note 6). If this transaction were to occur, and there is no
assurance that it will ultimately occur, it would constitute a change in
control under the Company's Liquid Yield Option(TM) Notes ("LYONs"), and the
holders of the LYONs have the right to require the Company to redeem the LYONs
at their issue price plus accrued original discount through the date set for
such redemption. A LYONs redemption event occurring in fiscal 1997 would
result in approximately $130 to $140 million of additional cash requirement
for which the Company would be required to seek external financing.
No assurance can be given that, if required, additional financing in amounts
in excess of the borrowing availability supported by current Purchaser
guarantees will be available on acceptable terms or at all.
III-6
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Management has developed plans to improve the Company's competitive position
by increasing operating efficiencies, by more focused and aggressive marketing
of the Company's products and through a sharing of expertise with Purchaser,
and it anticipates that these efforts will result in improving the Company's
gross margins and operating results. However, no assurances can be given that
the Company will be successful in realizing these goals. If the Company is
unable to improve its gross margins and operating results, management will be
required to significantly adjust the Company's operations. The Company's
ability to continue its on-going operations on a long term basis is dependent
upon its ability maintain to adequate financing levels, improve gross margins,
and ultimately sustain a profitable level of operations.
Fiscal Year
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, Purchaser Electronics Co. Ltd.
("Purchaser"). The change in fiscal year is effective for the six months ended
December 30, 1995 ("transition period" or "transition period 1995"). Fiscal
year 1996 included 52 weeks. Transition period 1995 included 26 weeks. The
fiscal years ended July 1, 1995 and July 2, 1994 included 52 weeks.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. The industry in which the Company operates is
characterized by rapid technological change and short product life cycles. As
a result, estimates are required to provide for product returns, product
obsolescence and warranty returns. Actual results may differ, however, from
those estimates.
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 7 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.
III-7
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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> <C>
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>
Intangible Assets
During the fiscal year ended July 1, 1995, the Company elected the early
adoption of Statement of Financial Accounting Standards No. 121 ("SFAS No.
121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." In accordance with SFAS No. 121, long-lived assets
and certain identifiable intangibles held and used by the Company are 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,
because the assets being tested do not have identifiable cash flows that are
largely independent of other asset groupings.
Since adoption of SFAS No. 121, the Company has evaluated its long-lived
assets for impairment on a quarterly basis. As a result of an unexpected
deterioration in the Company's operating results for the third quarter of
fiscal year 1996 and the resulting impact on the Company's future
expectations, the Company concluded that its long-lived assets had become
impaired. The decline in the Company's revenue and gross margin during the
third quarter resulted primarily from the Company's inability to generate
sufficient demand for its products and the continued aggressive pricing
environment within the computer marketplace. As a result, the Company updated
its cash flow projections for purposes of evaluating its long-lived assets for
impairment to reflect a reduced level of sales growth and to adjust the period
of time and rate by which gross margins are expected to improve.
In accordance with SFAS 121, the impairment loss equals the difference
between the carrying value of long-lived assets, including goodwill, and the
fair value of the long-lived assets. Within the third fiscal quarter, the
Company completed an estimate of the fair value of its long-lived assets, and,
based on this estimate, the Company recorded an impairment charge of
approximately $21.6 million. The impairment charge consisted of the remaining
net book value of goodwill acquired in connection with the Company's 1993
acquisition of Tandy Corporation's ("Tandy") personal computer manufacturing
operations. The Company's estimate of fair the value of tangible assets was
based upon independent appraisals. The Company's SFAS No. 121 analysis for the
fourth quarter of fiscal year 1996, and appraisals, indicated that the fair
value of its long-lived assets approximates their net book value.
Patents are amortized using the straight-line method over the estimated
useful life of the patented technology. Licenses are amortized on a straight-
line basis over the estimated economic lives of the related assets.
III-8
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment.
In certain circumstances, the Company provides customers with stock
rebalancing 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 rebalancing programs
allow customers to return product and receive credit for the invoiced price
less any post-sale pricing reductions. The effect of these programs is
estimated and current period sales and cost of sales are reduced accordingly.
Warranty Revenue and Costs
Revenue from separately stated warranty programs is deferred and recognized
over the extended warranty period, and the related extended warranty costs are
recognized as incurred.
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.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the year
ended December 28, 1996, the six months ended December 30, 1995, and the years
ended July 1, 1995, and July 2, 1994 was $71,530,000, $32,795,000, $59,262,000
and $41,138,000 respectively.
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.
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.
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 28, 1996, December 30, 1995, and July
1, 1995 was $3.5 million, $6.0 million, and $6.7 million, respectively, and is
included in "Other accrued liabilities" in the accompanying consolidated
balance sheets. Total grant amounts amortized into income during fiscal year
1996, the six-month period ended December 30, 1995, fiscal year 1995, and
fiscal year 1994 were $2.5 million, $2.8 million, $5.8 million, and
$0.6 million, respectively.
III-9
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 28, 1996, the Company also has seven years remaining on a
one million Irish punts (U.S. $1.7 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 $70.0
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 2), 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. In
fiscal year 1996, this amount was distributed as a dividend to the U.S.
subsidiary from one of its foreign subsidiaries.
Per Share Information
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 and
where it results in additional dilution, 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.
Stock Option Plans
The Company applies 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.
III-10
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company records the amounts received upon the exercise of options as a
credit to 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.
Reclassifications
Certain prior year balances have been reclassified to conform with the 1996
presentation.
NOTE 2. 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.
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. During fiscal 1996, the Company incurred
cash expenditures of approximately $4.0 million and at December 28, 1996, $5.2
million of the restructuring accrual remained on the Company's consolidated
balance sheet. The remaining accrual consists of amounts provided for the
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
III-11
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 consisted
primarily of employee severance, asset write-downs, vendor cancellation
charges and lease write-offs for closed offices. The employee severance
included approximately 1,500 employees primarily in semi-skilled and skilled
manufacturing positions. Approximately $7.6 million of the charge was 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 $0.8 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. During fiscal year 1996, the Company incurred cash
expenditures of $5.4 million and non-cash charges of $3.8 million, related
primarily to severance payments, asset write-downs and lease payments for
closed facilities. At December 28, 1996, $3.0 million of the restructuring
accrual remained on the Company's consolidated balance sheet, consisting
primarily provisions for lease obligations. As of December 28, 1996,
approximately $4.2 million of the total $10.0 million restructuring charge
utilized to date relates to severance payments made to the 1,532 employees who
have been terminated under this plan. As of December 28, 1996, the majority of
the restructuring has been completed, although certain lease obligations will
continue through fiscal year 1998.
In the second quarter of fiscal year 1996, the Company approved and
implemented a restructuring plan, separate and apart from the restructuring
plan implemented in transition period 1995, designed to restructure its
worldwide operations into three regional operating groups. The Company's plans
included the consolidation and/or closure of certain regional offices and
reconfiguration centers and the suspension of its notebook manufacturing
operations in Taiwan, accompanied by the transfer of notebook manufacturing to
third-party original equipment manufacturers. In accordance with this plan,
the Company recorded a restructuring charge of approximately $6.5 million in
the quarter ended June 29, 1996. Costs included in the restructuring charge
consist primarily of employee severance, asset write-downs and provisions for
lease obligations. Approximately $5.8 million is expected to involve cash
disbursements with the remaining costs primarily involving asset write-downs.
The employee severance was expected to involve approximately 240 employees,
across all functions and levels. In fiscal year 1996, the Company incurred
aggregate cash expenditures of $4.1 million and non-cash charges of $0.3
million, consisting primarily of employee severance, asset write-downs, and
payments for lease obligations. At December 28, 1996, approximately $2.1
million of the restructuring accrual remained on the Company's consolidated
balance sheet, consisting primarily of provisions for lease obligations. As of
December 28, 1996, 250 employees have been terminated under this plan, and the
total $3.1 accrued for severance payments has been paid. At December 28, 1996,
the majority of the restructuring had been completed, although certain lease
obligations will continue through fiscal year 2001.
Although the Company believes that these 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.
III-12
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. SUPPLEMENTAL FINANCIAL INFORMATION
Supplemental Balance Sheet Information
Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30, JULY 1,
1996 1995 1995
------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Purchased parts........................... $ 68,877 $ 73,012 $ 67,296
Work in process........................... 7,380 33,823 36,686
Finished goods............................ 62,750 145,504 207,487
-------- -------- --------
Total..................................... $139,007 $252,339 $311,469
======== ======== ========
</TABLE>
Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30, JULY 1,
1996 1995 1995
------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land..................................... $ 16,079 $ 15,961 $ 15,961
Buildings................................ 34,285 34,253 34,824
Machinery and equipment.................. 89,119 93,990 88,476
Furniture and fixtures................... 12,627 13,519 12,860
Leasehold improvements................... 14,097 13,174 13,140
-------- -------- --------
166,207 170,897 165,261
Accumulated depreciation................. (74,595) (72,172) (64,006)
-------- -------- --------
Property and equipment, net.............. $ 91,612 $ 98,725 $101,255
======== ======== ========
</TABLE>
Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30, JULY 1,
1996 1995 1995
------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred income taxes.................... $ 41,674 $ 44,016 $ 33,585
Credit line guarantees, less accumulated
amortization of 17,723 and $506 at
December 28, 1996 and December 30, 1995,
respectively............................ 43,350 32,519 --
Goodwill, less accumulated amortization
of $8,218 and $6,615 bat December 30,
1995, and July 1, 1995, respectively.... -- 24,250 25,853
Patents,licenses and other intangibles,
less accumulated amortization of $3,672,
$2,130 and $436 at December 28, 1996,
December 30, 1995 and July 1, 1995,
respectively............................ 8,793 10,890 11,382
Other, net............................... 6,735 8,021 8,294
-------- -------- --------
Total.................................... $100,552 $119,696 $ 79,114
======== ======== ========
</TABLE>
III-13
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other Current Accounts
Accrued royalties of $35.3 million and accrued product warranty of $48.8
million were included in "Other accrued liabilities" at December 28, 1996.
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.
SUPPLEMENTAL STATEMENTS OF OPERATIONS INFORMATION
Other Charges
Other charges for the fiscal year ended December 28, 1996 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 28,
1996
--------------
(IN THOUSANDS)
<S> <C>
Asset impairment charge....................................... $21,643
Facility write-down to net realizable value................... 1,149
Provision under Founder's Agreement........................... 3,588
-------
Total......................................................... $26,380
=======
</TABLE>
For further information concerning the asset impairment charge, see Note 1.
Summary of Significant Accounting Policies, Intangible Assets.
As part of its second quarter restructuring plan, $1.1 million in other
charges were provided as a result of management's commitment to dispose of its
existing sales facility in France. The carrying amount of the facility, which
includes land, a building, and leasehold improvements, is approximately $3.1
million after the write-down and represents the estimated fair value less
costs to sell.
Effective July 27, 1993, the Company entered into an employment contract
("Founder's Agreement") with founder and former Chairman of the Board (now
Chairman Emeritus), Safi U. Qureshey, who was then serving as the Company's
Chief Executive Officer. The Founder's Agreement provided for five years of
salary, health and welfare benefits, two years of bonus, acceleration of stock
options and certain other benefits if active employment was terminated by the
Company or by Mr. Qureshey under specified conditions. On June 28, 1996, the
Company elected Kwang-Ho Kim as Chairman and named Mr. Qureshey Chairman
Emeritus, which would have resulted in Mr. Qureshey being entitled to such
compensation and benefits had he not agreed to defer its effectiveness to some
future date of his choice. As a result, the Company provided $3.6 million
during fiscal year 1996, representing the present value of the benefits
payable to Mr. Qureshey.
Financing and other expense
Financing and other expense consist of the following:
<TABLE>
<CAPTION>
FISCAL YEAR
FISCAL YEAR SIX MONTHS ENDED
ENDED ENDED -----------------
DECEMBER 28, DECEMBER 30, JULY 1, JULY 2,
1996 1995 1995 1994
------------ ------------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.............. $ 2,777 $ 2,631 $ 2,362 $ 2,125
Interest expense............. (33,412) (8,634) (17,436) (9,937)
Other income (expense), net.. (1,972) (3,807) (2,601) 135
-------- ------- -------- -------
Total financing and other
expense, net................ $(32,607) $(9,810) $(17,675) $(7,677)
======== ======= ======== =======
</TABLE>
III-14
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. FINANCING ARRANGEMENTS
At December 28, 1996, the Company has a $200 million revolving credit
facility, guaranteed by Purchaser as part of the Additional Support Agreement,
with a final maturity date of December 25, 1997. The credit guarantee expires
December 31, 1998. The revolving credit agreement allows the Company to borrow
at a rate of LIBOR plus 0.25% per annum, or the bank's reference rate, at the
Company's option. The Company is required to pay a commitment fee equal to
0.125% per annum based on the average daily unused portion of the facility.
The fee is payable quarterly in arrears. At December 28, 1996, there was $175
million outstanding as borrowings under this credit facility at an interest
rate of 6.06% per annum.
On December 13, 1996, the Company signed a Second Additional Support
Agreement (Note 6) with Purchaser that provides the Company with an additional
$200 million credit guarantee through December 31, 1998. On December 18, 1996,
the Company completed the establishment of additional bank credit lines
totaling $100 million with three banks, which represents the initial $100
million that is guaranteed by the Second Additional Support Agreement. The
credit agreements allow the Company to borrow at the prime rate. At December
28, 1996, there were no outstanding borrowings under these credit lines.
The weighted average interest rate on total short-term borrowings as of
December 28, 1996, December 30, 1995 and July 1, 1995 was 6.06%, 8.50%, and
8.22% respectively.
NOTE 5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30, JULY 1,
1996 1995 1995
------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Liquid Yield Option Notes (zero coupon
convertible subordinated notes) due
2013, less original issue discount of
$184,470, $191,063, and $194,232, at
December 28, 1996, December 30, 1995,
July 1, respectively, 5.25% yield to
maturity.............................. $130,530 $123,937 $120,768
Promissory note payable to Tandy, paid
July 1996............................. -- 90,000 96,720
Other notes payable and capital lease
obligations due in various
installments through April 2002....... 1,498 3,964 4,156
-------- -------- --------
132,028 217,901 221,644
Less current portion of long-term debt. (291) (92,361) (2,420)
-------- -------- --------
Long-term debt......................... $131,737 $125,540 $219,224
======== ======== ========
</TABLE>
On December 14, 1993, the Company issued $315 million par value of 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
III-15
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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
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. On January 30,
1997, Purchaser proposed to commence negotiations regarding the acquisition by
Purchaser of all of the outstanding shares of the Company's common stock not
currently owned by Purchaser or its affiliates, at a price of $5.10 per share.
Purchaser currently has 49.4% beneficial ownership of the Company. If the
transaction is consummated, there would be a change in control, and the
holders of the LYONs have the right to require the Company to redeem the LYONs
at their issue price plus accrued original discount through the date set for
such redemption. A LYONs redemption event occurring in fiscal 1997 would
result in approximately $130 million to $140 million of additional cash
requirement for which the Company would be required to seek external
financing. No decision has been made by the Company with respect to the source
of funds to meet the change in control redemption requirements, should this
transaction be completed.
At December 30, 1996, the assets held under capital leases total $3.1
million, net of $0.8 million in accumulated depreciation, and are included in
land and buildings in the accompanying consolidated balance sheet.
Principal repayments on long-term debt required in fiscal years 1997, 1998,
1999, 2000 and 2001 are $291,000, $282,000, $282,000, $282,000 and $282,000,
respectively, exclusive of the purchase of the LYONs, should the proposed
transaction with Purchaser be completed.
NOTE 6. STOCKHOLDERS' EQUITY TRANSACTIONS
On February 27, 1995, the Company entered into a Stock Purchase Agreement
("Purchase Agreement") with Purchaser providing for a significant minority
ownership interest in the Company of approximately 40%. On June 30, 1995, the
Company's stockholders 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, Purchaser 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 stockholders, 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, Purchaser 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.
III-16
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On December 21, 1995, the Company signed an Additional Support Agreement
with Purchaser that provides additional financial support to the Company,
principally including a guarantee by Purchaser of a line of credit of up to
$200 million through December 1997 and a vendor line of credit with Purchaser
of $100 million through November 1997 for component purchases. In exchange for
the additional financial support, the Company issued an option to Purchaser 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 Purchaser to add an additional member to the Company's Board. The
issuance of the option increases Purchaser's potential ownership in the
Company to approximately 45%. The value of 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 1998.
On July 11, 1996, the Company paid the $90 million promissory note due to
Tandy related to the Company's 1993 acquisition of Tandy's personal computer
manufacturing operations. Payment was in the form of 4,498,594 shares of the
Company's common stock, then valued at $30 million, and $60 million in cash.
Subsequent to the issuance of shares to Tandy, also on July 11, 1996, the
Company issued 8,499,336 shares of its common stock to Purchaser in exchange
for $60 million in cash that was used to pay Tandy. The issuance of the common
stock to Purchaser was made pursuant to a 1995 Letter of Credit Agreement
between the Company and Purchaser. The equity transactions were recorded net
of professional fees of approximately $0.1 million.
On December 13, 1996, the Company signed a Second Additional Support
Agreement with Purchaser to provide certain additional financial support to
the Company as consideration for 500,000 shares of non-voting preferred stock.
The shares are not subject to mandatory redemption, but each share is
redeemable at the Company's option for cash of $100.75 or 13.11 shares of the
Company's common stock, beginning in January 1999. The preferred shares carry
a quarterly cumulative dividend, beginning in 1999, at the annual rate of
$4.72 per share, with annual increases to a maximum rate of $7.96 per share in
the year 2004 and thereafter. The value of the benefits received in exchange
for the preferred stock were recorded in "Other assets" based on the estimated
fair value of the stock at the date of issuance, or $28.1 million. In
connection with this agreement, the Company incurred professional fees of
approximately $0.3 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 1998.
NOTE 7. 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
III-17
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 June 1997 with a face value of approximately $162.6 at December 28,
1996, $162.0 million at December 30, 1995, and $162.0 million at July 1, 1995,
which approximate the Company's hedgeable net monetary asset exposure to
foreign currency fluctuations at those respective dates. For the fiscal year
ended December 28, 1996, the transition period ended December 30, 1995, and
the fiscal years ended July 1, 1995, and July 2, 1994, a net foreign currency
transaction loss of $0.4 million, loss of $2.9 million, gain of $1.7 million,
and loss of $2.1 million respectively, is included in the caption "Financing
and other expense, net", in the accompanying Consolidated Statements of
Operations. Foreign currency borrowings at December 28, 1996, December 30,
1995, and July 1, 1995 totaled $1.5 million, $4.0 million, and $4.2 million,
respectively.
Fair Values of Financial Instruments
The estimated fair values of financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 30, 1995 JULY 1, 1995
--------------------- -------------------- --------------------
ESTIMATED ESTIMATED
CARRYING ESTIMATED CARRYING FAIR CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE AMOUNT VALUE
--------- ---------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $ 61,063 $ 61,063 $ 125,387 $ 125,387 $ 95,825 $ 95,825
Short-term borrowings... 175,000 175,000 (75,000) (75,000) (156,000) (156,000)
Current portion of long-
term debt.............. (291) (291) (92,361) (92,361) (2,420) (2,420)
Long-term debt:
Liquid Yield Option
Notes................ (130,530) (97,256)(a) (123,937) (107,100) (120,768) (103,950)
Other................. (1,499) (1,499) (1,603) (1,603) (98,456) (98,456)
Forward exchange
contract liability..... (399) (399) (370) (370) (611) (611)
--------- -------- --------- --------- --------- ---------
</TABLE>
- --------
(a) Based on quoted market price as required by SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments". On January 30, 1997, Purchaser
proposed to commence negotiations to acquire all of the outstanding shares
of the Company's common stock not currently owned by Purchaser or its
affiliates, at a price of $5.10 per share. There is no guarantee that the
transaction will ultimately occur. However, if the transaction is
consummated, there would be a change in control (Note 5) and the Company
would be required to repay the LYONs at their issue price plus accrued
original issue discount through the date set for such purchase. Therefore,
assuming completion of the transaction, the Company believes that a better
estimate of the fair market value of the LYONs at December 28, 1996 is the
accreted interest value of $130.5 million.
III-18
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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 fiscal year 1996, transition period 1995, fiscal year 1995, and
fiscal year 1994 accounted for approximately 3%, 7%, 5%, and 6%, 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 fiscal year 1996, transition period 1995, or
for fiscal years 1995, or 1994.
NOTE 8. INCOME TAXES
The income tax provision (benefit) is based on income (loss) before income
taxes as follows:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS FISCAL YEAR ENDED
ENDED ENDED ------------------
DECEMBER 28, DECEMBER 30, JULY 1, JULY 2,
1996 1995 1995 1994
------------ ------------ --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. ........................... $ (176,999) $ (139,438) $(103,930) $16,534
Foreign......................... (240,716) (85,568) (19,435) 29,778
---------- ---------- --------- -------
$ (417,715) $ (225,006) $(123,365) $46,312
========== ========== ========= =======
</TABLE>
III-19
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
FISCAL YEAR SIX MONTHS ENDED
ENDED ENDED -----------------
DECEMBER 28, DECEMBER 30, JULY 1, JULY 2,
1996 1995 1995 1994
------------ ------------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal....................... $(3,058) $ 2,033 $ (700) $(2,781)
State......................... 98 107 (124) (201)
Foreign....................... (64) (4,187) 2,086 9,002
------- ------- -------- -------
(3,024) (2,047) 1,262 6,020
------- ------- -------- -------
Deferred:
Federal....................... 3,119 (249) (19,971) 8,532
State......................... (98) (50) (3,722) 105
Foreign....................... 3 2,346 (1,625) 346
------- ------- -------- -------
3,024 2,047 (25,318) 8,983
------- ------- -------- -------
$ -- $ -- $(24,056) $15,003
======= ======= ======== =======
</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 28, 1996, December 30, 1995, and July 1, 1995
are as follows:
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 30, 1995 JULY 1, 1995
---------------------- ---------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES ASSETS LIABILITIES
--------- ----------- --------- ----------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Inventory reserves...... $ 13,441 $ -- $ 12,726 $ -- $ 11,178 $ --
Accrued liabilities..... 27,124 -- 14,367 -- 14,834 --
Undistributed foreign
earnings, net of
foreign tax credit..... -- -- -- (21,976) -- --
Warranty reserves....... 12,063 -- 9,868 -- 4,857 --
State income taxes...... -- (1,042) -- (1,031) -- (1,750)
Goodwill and intangibles
amortization........... 3,908 -- -- (1,441) -- (1,762)
Net operating loss
carryforwards.......... 206,340 -- 147,684 -- 72,362 --
Capitalized research and
development costs...... 21,937 -- -- -- -- --
Other................... 21,752 (180) 18,159 (244) 14,543 (422)
--------- -------- --------- -------- -------- -------
Total deferred taxes.... 306,565 (1,222) 202,804 (24,692) 117,774 (3,934)
Valuation allowance..... (244,856) -- (114,601) -- (48,282) --
--------- -------- --------- -------- -------- -------
$ 61,709 $ (1,222) $ 88,203 $(24,692) $ 69,492 $(3,934)
========= ======== ========= ======== ======== =======
</TABLE>
The Company has established a valuation allowance against its deferred tax
assets in accordance with the provisions of SFAS No. 109. The $130.3 million
increase in this valuation allowance is primarily the result of management's
determination that the increased deferred tax asset resulting from the fiscal
1996 operating loss may not be realized.
III-20
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
FISCAL YEAR SIX MONTHS FISCAL YEAR ENDED
ENDED ENDED ------------------
DECEMBER 28, DECEMBER 30, JULY 1, JULY 2,
1996 1995 1995 1994
------------ ------------ --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Statutory federal income tax
provision (benefit)............. $ (146,200) $ (78,752) $ (43,178) $16,209
Increase (decrease) in taxes
resulting from:.................
State income taxes, net of
federal benefit............... -- 43 (2,208) (137)
Tax on undistributed foreign
earnings...................... 32 34,631 -- --
Foreign income taxed at
different rates............... (2,093) 5,642 5,692 (10,005)
Losses producing no current tax
benefit....................... 146,148 38,870 15,916 8,589
Adjustment to deferred tax
assets and liabilities for
change in tax rate............ -- -- -- (1,266)
Other, net..................... 2,113 (434) (278) 1,613
---------- --------- --------- -------
$ -- $ -- $ (24,056) $15,003
========== ========= ========= =======
</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 fiscal year 1996, transition period 1995 and for fiscal years
1995, and 1994.
In determining the provision (benefit) for income taxes for fiscal year
1996, the Company has utilized approximately $0.2 million of prior year net
operating loss ("NOL") carryforwards to reduce the amount of taxes otherwise
payable for such year. The Company has $630 million of remaining NOL
carryforwards which it expects will be available to offset future taxable
income. Approximately $292 million of such carryforwards relate to foreign
operations in various taxing jurisdictions of which $143 million expire in
years 1997 through 2006 and $149 million have no expiration date. The
remaining $338 million of such carryforwards relate to U.S. operations and
expire in the years 2008 to 2012.
Sections 382 and 383 of the Internal Revenue Code of 1986 ("the Code") place
certain limitations on U.S. net operating loss carryforwards and excess
credits if one or more stockholders have increased their aggregate equity
ownership of the Company by more than 50 percentage points, within a three
year measurement period. As a result of recent stockholder equity transactions
with Tandy Corporation ("Tandy") and Samsung Electronics Co. Ltd,
("Purchaser") on July 11, 1996, the Company experienced a change in ownership
as defined in the Code. Accordingly, the amount of taxable income or income
tax in any particular year that can be offset by net operating loss and tax
credit carryforward amounts is limited to a prescribed annual amount equal to
5.78% of the fair market value of the Company as of July 11, 1996. Based on
preliminary calculations, the Company does not believe that any of the net
operating loss or tax credit carryforward amounts in the aggregate will be
unusable solely as a result of the annual limitation, although the amounts
that can be utilized in any
III-21
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
year may be limited. On January 30, 1997 Purchaser proposed to commence
negotiations regarding the acquisition of all of the outstanding shares not
currently owned by Purchaser or its affiliates. Should the transaction be
completed as proposed, the Company's ability to realize a benefit from its net
deferred tax asset, and a substantial portion of the Company's deferred tax
assets from net operating loss carryovers that have been offset by a valuation
allowance, would be impaired.
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 income tax
liabilities for such years. Initially, the IRS had proposed adjustments of
approximately $12.6 million, plus accrued interest of $17.2 million. Following
the Company's request for an administrative conference to appeal the proposed
adjustments, the IRS Appeals Office returned the case to the Examination
Office for further development because the method used in determining the
original proposed adjustments was not adopted in the final regulations.
Management believes that any aggregate liability that may result upon the
final resolution of the proposed adjustments for 1987 and 1988 or the 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.
However, management is unable to estimate the amount of any loss that may be
realized in the event of an unfavorable outcome.
NOTE 9. 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 and
are not to exceed income before provision for income taxes and profit sharing
expense. The Company did not contribute to the plan for fiscal year 1996,
transition period 1995, or for the fiscal years 1995 and 1994. 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's
contributions for the fiscal year 1996, the transition period ended December
30, 1995, and fiscal years 1995 and 1994 amounted to $1.6 million, $1.1
million, $2.5 million, and $2.1 million, 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 fiscal year 1996, transition period 1995 and
fiscal year 1995, no bonuses were paid. Bonuses paid for the fiscal year 1994
were $2.0 million.
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.
Bonuses paid for the fiscal year 1996 were $0.5 million. For transition period
1995 and fiscal year 1995, no bonuses were paid. Bonuses paid for the fiscal
year ended July 2, 1994 were $1.9 million.
Stock Plans
The Company has three employee stock plans, adopted in 1985, 1989 and 1995,
and three non-employee director stock plans adopted in 1991, 1994 and 1996
(the "Plans").
III-22
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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 1.2 million 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 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 28, 1996,
200,000 options remained outstanding and were exercisable at a price of $3.50
per share.
The 1989 Long-Term Incentive Program (the "1989 Program"), as amended,
provides for the granting of stock options, stock appreciation rights,
restricted stock and performance units. An amendment to the plan, adopted by
the Board in 1992, 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 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 on July 1, 1994. At
December 28, 1996, 100,000 options remained outstanding and were exercisable
at a 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.
In 1996, the Company adopted the 1996 Non-Employee Director Plan. Subject to
shareholder approval, this plan provides for an aggregate of 500,000 shares of
the Company's common stock to be available to the non-employee members of the
Company's Board.
The following table summarizes stock options available for grant:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS FISCAL YEAR ENDED
ENDED ENDED ----------------------
DECEMBER 28, DECEMBER 30, JULY 1, JULY 2,
1996 1995 1995 1994
------------ ------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of
period................. 1,767,744 1,652,631 1,605,568 2,052,143
Authorized.............. 1,679,607 2,143,588 648,250 896,675
Granted................. (1,949,249) (2,579,425) (1,261,700) (1,624,400)
Canceled................ 3,005,413 1,345,625 747,195 380,425
Plan shares expired..... (67,400) (794,675) (86,682) (99,275)
---------- ---------- ---------- ----------
Available for future
grant.................. 4,436,115 1,767,744 1,652,631 1,605,568
========== ========== ========== ==========
</TABLE>
III-23
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's stock option plans as of fiscal
year 1996, transition year 1995, fiscal year 1995, and fiscal year 1994, and
changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
FISCAL YEAR 1996 TRANSITION YEAR 1995
-------------------------- --------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year................ 5,518,875 $10.35 4,481,975 $14.86
Granted................. 1,949,249 5.38 2,579,425 10.50
Exercised............... (80,500) 4.18 (196,000) 5.29
Canceled................ (3,005,413) 9.23 (1,346,525) 15.90
---------- ----------
Outstanding at end of
year................... 4,382,211 $ 6.86 5,518,875 $10.35
========== ====== ========== ======
Exercisable at end of
year................... 2,057,260 2,183,574
========== ====== ========== ======
Weighted-average fair
value of options
granted during the
year................... $ 2.25 $ 3.47
========== ====== ========== ======
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1995 FISCAL YEAR 1994
------------------------- -------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year................ 4,046,220 $15.60 3,504,380 $14.49
Granted................. 1,261,700 13.95 1,624,400 17.17
Exercised............... (78,750) 9.97 (755,000) 12.67
Canceled................ (747,195) 17.95 (327,560) 17.90
--------- ---------
Outstanding at end of
year................... 4,481,975 $14.86 4,046,220 $15.60
========= ====== ========= ======
Exercisable at end of
year................... 1,909,477 1,351,661
========= ====== ========= ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 28, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ---------------------
WEIGHTED- WEIGHTED-
NUMBER WEIGHTED-AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/28/96 CONTRACTUAL LIFE PRICE AT 12/28/96 PRICE
--------------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 3.50 200,000 0.1 years $ 3.50 200,000 $ 3.50
4.00 to 5.00 3,241,711 8.9 4.56 1,082,010 4.58
5.25 to 8.63 70,000 8.9 8.36 17,000 8.49
10.75 to 15.00 309,000 8.0 13.46 238,500 13.70
15.13 to 22.75 561,500 5.8 17.54 519,750 17.43
--------- ---------
$ 3.50 to 22.75 4,382,211 8.0 years $ 6.86 2,057,260 $ 8.81
========= ========= ====== ========= ======
</TABLE>
At December 28, 1996, 8,818,326 shares of the Company's common stock were
reserved for issuance under the Company's various stock option plans.
III-24
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies APB Opinion 25 and related Interpretations in accounting
for its stock plans and accordingly, no compensation cost has been recognized.
Pro forma information regarding net income and earnings per share is required
by of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" ("SFAS No. 123"), and has been determined as if the
Company had accounted for employee stock options under the fair value method
of SFAS No. 123. The fair value for stock options was estimated at the date of
grant using a Black-Scholes option pricing model with the following range of
assumptions for fiscal year 1996 and transition period 1995, respectively:
risk-free interest rates of 5.50% and 5.09%; volatility factors of the
expected market price of the Company's common stock of 0.54 and 0.56, and an
expected life of the option of 4.1 and 5.1 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The effects
of applying SFAS 123 for providing pro forma disclosures in fiscal 1996 and in
transition period 1995 are not likely to be representative of the effects on
reported net income for future years. The Company's pro forma information
follows:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED
DECEMBER 28, DECEMBER 30,
1996 1995
------------ ------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Net loss............................. As reported $(417,715) $(225,006)
Pro forma (419,920) (225,865)
Net loss per share................... As reported $ (8.22) $ (5.27)
Pro forma (8.26) (5.29)
========= =========
</TABLE>
In December 1990, the Board 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 28, 1996, 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 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 28, 1996, 37,500 of these warrants remained outstanding
and were exercisable at a price of $13.50 per share.
On September 23, 1996, all outstanding stock options held by employees
(excluding executive officers and board members) were repriced with a new
exercise price of $4.63 per share, the closing market price on that date. The
repricing is subject to the condition that the options are not exercised and
employment is not terminated prior to September 22, 1997. The Company intends
to cancel and reissue new options under the Company's 1989 Long Term Incentive
Plan. The number of shares and vesting schedule of the new options grants is
the same as that of the original grant. A total of 3,035,268 options with
exercise prices ranging from $4.81 to $9.38 were repriced.
NOTE 10. STOCKHOLDER RIGHTS PLAN
On June 30, 1989, the Board adopted a Stockholder Rights Plan which is
intended to protect stockholders 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
III-25
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
stockholder of the Company, including, without limitation, the rights to vote
as a stockholder 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 28, 1996, 500,000 of the 1,000,000 authorized but unissued preferred
shares of the Company are reserved for issuance upon exercise of these rights.
As a condition of entering into the Stock Purchase Agreement with Purchaser,
the Company amended the Stockholder Rights Plan to allow Purchaser, in
accordance with the terms and conditions of the Stockholder Agreement between
the Company and Purchaser dated July 31, 1995, to acquire, without additional
Board or Stockholder approval and without triggering the Stockholders Rights
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 Purchaser made pursuant to a cash tender offer for all
equity securities not owned by Purchaser and/or its affiliates.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its field offices, certain equipment, automobiles and
most of its operating facilities under operating lease agreements. Future
minimum lease payments under these leases approximate the following amounts:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- --------------
(IN THOUSANDS)
<S> <C>
1997..................................................... $12,017
1998..................................................... 8,938
1999..................................................... 5,483
2000..................................................... 3,355
2001..................................................... 3,004
Thereafter............................................... 18,361
-------
Total minimum lease payments............................... $51,158
=======
</TABLE>
Operating lease commitments have been reduced for rental income from non-
cancelable subleases by approximately $1.8 million in 1997, $1.4 million in
1998, and $0.9 million in 1999. Rent expense for fiscal year 1996, transition
period 1995, and fiscal years 1995 and 1994, was approximately $10,496,000,
$5,070,000, $11,125,000, and $10,588,000, respectively.
III-26
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
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 $3.4
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
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. The Company is currently unable to estimate the amount of any loss
that may be realized in the event of an unfavorable outcome. However, 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. The
Company has maintained various liability insurance policies during the periods
covering the claims 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 results of operations 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 alleged that the
III-27
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. The
Company is currently unable to estimate the amount of any loss that may be
realized in the event of an unfavorable outcome in any or all of these cases.
However, based on preliminary facts available to the Company, 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.
The Company has been named, along with Purchaser and certain current and
former members of the Company's Board, as a defendant in twelve shareholder
class action lawsuits filed on or shortly after January 31, 1997. Eleven class
action complaints were filed in the Court of Chancery in New Castle County,
Delaware, under case names Miller v. Kim, et al; Tepper v. Samsung Electronics
Co., Ltd., et al.; Kenneth Steiner v. Kim, et al.; William Steiner v. Kim, et
al.; Zeiff v. AST Research, Inc., et al; Schultz v. Choo, et al.; Ungar v. AST
Research, Inc. et al.; Schnoll v. AST Research, Inc., et al.; Krim v. AST
Research, Inc., et al.; Jaroslawicz v. Kim, et al.; and Rattner v. Samsung
Electronics Co., Ltd. A separate class action complaint was filed but not
served on January 31, 1997 in the Superior Court for the County of Orange,
California, under case name Sigler v. AST Research, Inc., et al The Plaintiffs
allege that the defendants have engaged in an unlawful scheme to enable
Purchaser to acquire all outstanding shares of the Company's stock not
previously owned by Purchaser for inadequate consideration and in violation of
the defendants' fiduciary duties. The plaintiffs seek to enjoin Purchaser's
proposed purchase of the Company's outstanding shares and request unspecified
monetary damages, including attorney and expert fees and costs. On February
27, 1997, the plaintiffs in the Delaware cases submitted a proposed Order of
Consolidation to the court, which has not yet been entered. The litigation is
in its preliminary stages. The Company is unable at this time to predict the
ultimate outcome of these lawsuits.
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.
III-28
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. 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.
A summary of the Company's operations by geographic area is as follows:
Year ended December 28, 1996
<TABLE>
<CAPTION>
ASIA
AMERICAS EUROPE PACIFIC ELIMINATED CONSOLIDATED
---------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers.............. $1,140,808 $ 675,592 $ 252,243 $ -- $2,068,643
Transfers between
geographic areas....... 214,850 649,150 455,586 (1,319,586) --
---------- ---------- ---------- ----------- ----------
Net sales............... $1,355,658 $1,324,742 $ 707,829 $(1,319,586) $2,068,643
Revenue from related
party.................. 25,000 10,000 -- -- 35,000
---------- ---------- ---------- ----------- ----------
Total revenue........... $1,380,658 $1,334,742 $ 707,829 $(1,319,586) $2,103,643
========== ========== ========== =========== ==========
Operating loss.......... $ (230,896) $ (110,771) $ (46,928) $ 3,487 $ (385,108)
========== ========== ========== =========== ==========
Identifiable assets..... $ 420,764 $ 285,534 $ 124,759 $ -- $ 831,057
========== ========== ========== =========== ==========
Six months ended December 30, 1995
<CAPTION>
ASIA
AMERICAS EUROPE PACIFIC ELIMINATED CONSOLIDATED
---------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
<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) --
---------- ---------- ---------- ----------- ----------
Total revenue........... $ 593,851 $ 761,724 $ 599,391 $ (938,683) $1,016,283
========== ========== ========== =========== ==========
Operating loss.......... $ (149,180) $ (47,481) $ (18,974) $ 439 $ (215,196)
========== ========== ========== =========== ==========
Identifiable assets..... $ 491,243 $ 380,769 $ 184,030 $ -- $1,056,042
========== ========== ========== =========== ==========
Year ended July 1, 1995
<CAPTION>
ASIA
AMERICAS EUROPE PACIFIC ELIMINATED CONSOLIDATED
---------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
<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) --
---------- ---------- ---------- ----------- ----------
Total revenue........... $1,762,942 $1,372,392 $1,239,099 $(1,906,650) $2,467,783
========== ========== ========== =========== ==========
Operating loss.......... $ (91,738) $ (6,362) $ (7,619) $ 29 $ (105,690)
========== ========== ========== =========== ==========
Identifiable assets..... $ 508,714 $ 287,218 $ 225,569 $ -- $1,021,501
========== ========== ========== =========== ==========
</TABLE>
III-29
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Year ended July 2, 1994
<TABLE>
<CAPTION>
ASIA
AMERICAS EUROPE PACIFIC ELIMINATED CONSOLIDATED
---------- --------- ---------- ----------- ------------
(IN THOUSANDS)
<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) --
---------- --------- ---------- ----------- ----------
Total revenue........... $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>
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 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. The fiscal year 1996 restructuring charge of $6.5
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 $1.1 million in the Americas segment, $3.7 million in the
Europe segment and $1.7 million in the Asia Pacific segment.
NOTE 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The tables below set forth selected quarterly financial information for
fiscal year 1996, transition period 1995, and fiscal year 1995 (in thousands,
except per share amounts).
Year ended December 28, 1996
<TABLE>
<CAPTION>
THIRD FOURTH
FIRST QUARTER SECOND QUARTER QUARTER QUARTER
------------- -------------- -------- --------
<S> <C> <C> <C> <C>
Net sales.................... $ 519,972 $ 538,759 $408,483 $601,429
Revenue from related party... 10,000 15,000 -- 10,000
------------- -------------- -------- --------
Total Revenue................ 529,972 553,759 408,483 611,429
Gross profit (loss).......... (19,646) 18,601 (18,762) 44,675
Net loss..................... (115,760) (98,730) (135,268) (67,957)
Net loss per share........... $ (2.59) $ (2.21) $ (2.41) $ (1.18)
------------- -------------- -------- --------
Six months ended December 30, 1995
FIRST QUARTER SECOND QUARTER
------------- --------------
Total revenue................ $ 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>
III-30
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED JULY 1, 1995 QUARTER QUARTER QUARTER QUARTER
- ----------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenue........................... $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>
In fiscal year 1996 and transition period 1995, the quarterly per share
amounts do not sum to the per share amounts for respective periods 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 respective periods. In fiscal year 1996, transition period
1995 and fiscal year 1995, fully diluted per share information is anti-
dilutive.
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 Purchaser, receiving net proceeds of
approximately $240 million.
On November 22, 1995, Purchaser 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 Purchaser to
purchase 4.4 million shares of the Company's common stock at an exercise price
of $.01 per share and allowed Purchaser to add an additional member to the
Company's Board, in exchange for additional financial support, principally
including a two-year $200 million credit guarantee and a two-year vendor
credit line of $100 million for selected component purchases.
On July 11, 1996, the Company paid the $90 million promissory note due to
Tandy related to the Company's 1993 acquisition of Tandy's personal computer
manufacturing operations. Payment was in the form of 4,498,594 shares of the
Company's common stock then valued at $30 million, and $60 million in cash.
Subsequent to the issuance of shares to Tandy, also on July 11, 1996, the
Company issued 8,499,336 shares of its common stock to Purchaser in exchange
for $60 million in cash that was used to pay Tandy. The issuance of the common
stock to Purchaser was made pursuant to the 1995 Letter of Credit Agreement
between the Company and Purchaser.
On October 11, 1996, Purchaser provided a $50 million short-term loan to the
Company at an interest rate of 5.9% per annum. The Company repaid the loan,
including interest of $0.6 million, on December 19, 1996.
On December 13, 1996, the Company signed a Second Additional Support
Agreement with Purchaser to provide certain additional financial support to
the Company as consideration for 500,000 shares of non-voting preferred stock.
The shares are not subject to mandatory redemption, but each share is
redeemable at the Company's option for cash of $100.75 or 13.11 shares of the
Company's common stock, beginning in January 1999. The preferred shares carry
a quarterly cumulative dividend, beginning in 1999, at the annual rate of
$4.72 per share, with annual increases to a maximum rate of $7.96 per share in
the year 2004 and thereafter.
III-31
<PAGE>
On February 22, 1996, the Company entered into a Server Technology Transfer
Agreement and a Strategic Consulting Agreement with Purchaser. The Server
Technology Transfer Agreement grants Purchaser a royalty-free license through
July 31, 2000 to use the technical information supplied by the Company to
produce server technology products. The Strategic Consulting Agreement grants
Purchaser a royalty-free license through July 31, 2000 to use various
marketing and sales planning studies provided by the Company. Under each
agreement, Purchaser paid $5 million to the Company. These amounts are not
refundable under any circumstance and are not contingent upon the rendering of
future services by the Company. As a result of these agreements, $10.0 million
was recorded as revenue from related party in fiscal year 1996.
On June 27, 1996, the Company entered into an Intellectual Property
Assignment Agreement with Purchaser, which assigns certain patent applications
of the Company to Purchaser. Purchaser purchased a first group of patent
applications from the Company during the second quarter of fiscal year 1996
for $15 million and exercised an option to purchase an additional group of
patent applications for $10 million during the fourth quarter of fiscal year
1996. A total of $25 million related to these agreements was recorded as
revenue from a related party in fiscal year 1996. The Company received $15
million in fiscal 1996, and the remaining payment of $10 million to be
received in fiscal year 1997 is not contingent upon the rendering of future
services by the Company.
During fiscal year 1996, Purchaser paid the salaries of certain employees of
the Company. The Company recorded a capital contribution of $1.0 million,
which represents the estimated compensation expense of the employees paid by
Purchaser.
During fiscal year 1996 and transition period 1995, the Company purchased
$304.7 million and $144.7 million of components and products from Purchaser
respectively. Amounts payable to Purchaser at December 28, 1996 and December
30, 1995 were $58.4 million and $31.6 million, respectively.
NOTE 16. SUBSEQUENT EVENT
On January 30, 1997 the Company announced that Purchaser proposed to
commence negotiations to the acquire all of the outstanding shares of common
stock of the Company not currently owned by Purchaser or its affiliates at a
price of $5.10 per share. Pursuant to the terms of a Stockholder Agreement
between the Company and Purchaser, Purchaser's ability to purchase shares and
engage in other transactions with the Company is subject to certain
restrictions, including approval of the Independent Directors (as defined in
the Stockholder Agreement). The Company's Board has formed a special
committee, consisting of the Independent Directors, to evaluate the Purchaser
Proposal, and to consider other options that may be available to the Company.
There is no assurance that any transaction will ultimately occur.
III-32
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 14, 1997, by and among
Samsung Electronics Co. Ltd., a Korean corporation ("Parent"), AST
Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub"), and AST Research, Inc., a Delaware corporation (the
"Company").
ARTICLE I
THE OFFER
SECTION 1.1 The Offer
(a) Provided that none of the events set forth in Annex A hereto shall have
occurred, as promptly as practicable, but in no event later than five business
days after the public announcement of the execution hereof by the parties,
Parent shall commence (within the meaning of Rule 14d-2 under the Securities
and Exchange Act of 1934, as amended (the "Exchange Act")) an offer to
purchase (the "Offer") for cash any and all of the Company's issued and
outstanding shares of common stock, par value $.01 per share (the "Shares"),
at a price of $5.40 per share, net to the seller in cash (such price, or such
higher price per Share as may be paid in the Offer, being referred to herein
as the "Offer Price"). The obligation of Parent to accept for payment and to
pay for any Shares tendered shall be subject to the conditions set forth in
Annex A hereto.
(b) Parent shall not decrease the Offer Price, change the form of
consideration payable in the Offer, decrease the number of Shares sought
pursuant to the Offer, add additional conditions to the Offer, or make any
other changes in the terms or conditions of the Offer which are otherwise
materially adverse to holders of Shares without the prior written consent of
the Company (acting through the Special Committee, as defined in Section
1.2(a) below). Subject to the terms and conditions thereof, the Offer shall
expire at midnight, New York City time, on the date that is twenty (20)
business days from the date the Offer is commenced; provided, however, that
without the Special Committee's consent, Parent may (i) from time to time
extend the Offer, if at the scheduled expiration date of the Offer any of the
conditions to the Offer shall not have been satisfied or waived, (ii) extend
the offer for any period required by any rule, regulation, interpretation or
position of the Securities and Exchange Commission ("SEC") or the staff
thereof applicable to the Offer and (iii) extend the Offer for any reason on
one or more occasions for an aggregate period of not more than ten (10)
business days beyond the latest expiration date that would otherwise be
permitted under clause (i) or (ii) of this sentence. In addition, if at any
scheduled expiration date of the Offer any of the conditions of the Offer have
not been satisfied or waived by Parent, but are capable of being satisfied in
the reasonable, good faith judgment of Parent, then, on the written request of
the Company (acting through the Special Committee), Parent shall from time to
time extend the Offer for up to twenty (20) business days from the then-
scheduled expiration date of the Offer.
(c) As soon as practicable on the date the Offer is commenced, Parent shall
file with the SEC a Tender Offer Statement on Schedule 14D-1 (together with
all amendments and supplements thereto and including all exhibits thereto, the
"Schedule 14D-1") with respect to the Offer, and a Transaction Statement on
Schedule 13E-3 (together with all amendments and supplements thereto and
including all exhibits thereto, the "Schedule 13E-3"). The Schedule 14D-1
shall contain as an exhibit or incorporate by reference the Offer to Purchase
(or portions thereof) and forms of the related letter of transmittal and
summary advertisement. Parent and Sub agree that the Schedule 14D-1, the Offer
to Purchase and all amendments or supplements thereto (which together
constitute the "Offer Documents"), and the Schedule 13E-3, shall comply in all
material respects with the Exchange Act and the rules and regulations
thereunder and other applicable laws. The Company and its counsel, and the
A-1
<PAGE>
Special Committee and its counsel, shall be given an opportunity to review the
Offer Documents prior to the filing thereof with the SEC. Parent and Sub agree
to provide the Company and its counsel in writing with any comments Parent,
Sub or their counsel may receive from the SEC or its staff with respect to the
Offer Documents promptly after receipt of such comments.
SECTION 1.2 Company Actions
(a) The Company hereby approves of and consents to the Offer and represents
that its Board of Directors, at a meeting duly called and held, has in light
of the recommendation of its Special Committee of independent directors (the
"Special Committee") and subject to the terms and conditions set forth herein,
(i) determined that this Agreement and the transactions contemplated hereby,
including the Offer and the Merger (as defined in Section 2.1), taken
together, are in the best interests of the stockholders of the Company (other
than Parent and its affiliates), (ii) approved this Agreement and the
transactions contemplated hereby, including the Offer and the Merger, and
(iii) resolved to recommend that the stockholders of the Company accept the
Offer, tender their Shares thereunder to Parent and, if required by applicable
law, approve and adopt this Agreement and the Merger. The Company also
represents that the Special Committee has reviewed the opinion of Morgan
Stanley & Co. Incorporated, financial advisor to the Special Committee, that,
as of April 14, 1997, the consideration to be received pursuant to this
Agreement is fair to the stockholders of the Company (other than Parent and
its affiliates) from a financial point of view (the "Morgan Stanley Opinion").
(b) The Company shall file with the SEC, concurrently with the filing of the
Schedule 14D-1, a Solicitation/Recommendation Statement on Schedule 14D-9
(together with all amendments and supplements thereto, and including all
exhibits thereto, the "Schedule 14D-9") containing the recommendations
described in Section 1.2(a) and shall mail the Schedule 14D-9 to the
stockholders of the Company promptly after the commencement of the Offer. The
Schedule 14D-9 shall comply in all material respects with the Exchange Act and
the rules and regulations thereunder and other applicable laws. Parent and its
counsel shall be given the opportunity to review the Schedule 14D-9 prior to
the filing thereof with the SEC. The Company shall also execute, and join in
the filing of, the Schedule 13E-3 after review and approval thereof by the
Company, the Special Committee and their respective counsel.
(c) In connection with the Offer, the Company shall, or shall cause its
transfer agent to, promptly furnish Parent with such information, including
updated lists of the stockholders of the Company, mailing labels and updated
lists of security positions, and such assistance, at Parent's expense, as
Parent or its agents may reasonably request in communicating the Offer to the
record and beneficial holders of Shares.
(d) Solely in connection with the tender and purchase of Shares pursuant to
the Offer and the consummation of the Merger, the Company hereby waives any
and all rights of first refusal it may have with respect to shares owned by,
or issuable to, any person.
ARTICLE II
THE MERGER
SECTION 2.1 The Merger
Upon the terms and subject to the conditions hereof, and in accordance with
the relevant provisions of the Delaware General Corporation Law (the "Delaware
Law"), Sub or another direct or indirect wholly owned subsidiary of Parent
shall be merged with and into the Company (the "Merger") as soon as
practicable following the satisfaction or waiver, if permissible, of the
conditions set forth in Article VIII hereof. Following the Merger, the Company
shall continue as the surviving corporation (the
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"Surviving Corporation") and shall continue its existence under the laws of
Delaware, and the separate corporate existence of Sub (or such other
subsidiary of Parent) shall cease.
The parties agree that they will consider alternative structures in order to
maximize the benefits of the ownership of the Shares by Parent, provided that
such alternative structures do not, in the opinion of the Special Committee,
adversely affect the rights of the Company or its stockholders (other than
Parent and its affiliates) under this Agreement.
SECTION 2.2 Effective Time
The Merger shall be consummated by filing with the Secretary of State of the
State of Delaware a certificate of merger in such form as is required by, and
executed in accordance with, the relevant provisions of the Delaware Law (the
time of such filing being the "Effective Time").
SECTION 2.3 Effects of the Merger
The Merger shall have the effects set forth in the Delaware Law.
SECTION 2.4 Certificate of Incorporation and Bylaws
The Certificate of Incorporation and the Bylaws of the Company at the
Effective Time shall be the Certificate of Incorporation and the Bylaws of the
Surviving Corporation until modified in accordance with applicable law.
SECTION 2.5 Directors and Officers
The directors of Sub at the Effective Time shall be the directors of the
Surviving Corporation until their successors are duly elected and qualified
and the officers of the Company at the Effective Time shall be the officers of
the Surviving Corporation until replaced in accordance with the Bylaws of the
Surviving Corporation.
SECTION 2.6 Conversion of Company Shares
(a) Each Share issued and outstanding immediately prior to the Effective
Time (other than Shares held of record by Parent, Sub or any other subsidiary
of Parent (other than the Company) or held in the treasury of the Company or
any subsidiary of the Company, and Dissenting Shares, as defined in Section
3.1 hereof) shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive $5.40 in cash or
any higher price which may be paid pursuant to the Offer (the "Merger
Consideration") payable to the holder thereof, without interest thereon, upon
surrender of the certificate representing such share.
(b Each share of Common Stock and Series A Redeemable Preferred Stock of the
Company held by Parent, Sub or any other subsidiary of Parent or held in the
treasury of the Company or by any subsidiary of the Company immediately prior
to the Effective Time shall, by virtue of the Merger and without any action on
the part of the holder thereof, be canceled without any payment therefor.
SECTION 2.7 Conversion of Sub Common Stock.
Each share of common stock, par value $.01 per share, of Sub issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into one share of common stock of the Surviving Corporation.
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SECTION 2.8 Stock Options, SAR's
(a) The Company shall cancel, immediately prior to the Effective Time, each
outstanding stock option and warrant and any related stock appreciation right
(hereinafter referred to as "Options") granted under any stock incentive plan
or arrangement of the Company, provided that (i) not less than 30 days prior
to the Effective Time, each outstanding Option shall become fully exercisable
and vested, (ii) upon the earlier of September 23, 1997 or the acceptance for
payment and purchase of Shares pursuant to the Offer (the "Time of
Acceptance"), the exercise price of each outstanding Option granted under the
AST Research, Inc. 1989 Long-Term Incentive Program (the "1989 Program") which
is held by non-officer/director employees who are employed by the Company on
such date and which is subject to the Company's action on September 23, 1996
to reprice stock options, shall be adjusted to $4.625 per Share, and (iii)
each holder of a vested Option shall be entitled to receive from the Company,
as of the Effective Time, for each Share subject to such Option an amount in
cash in cancellation of such Option equal to the excess, if any, of the Merger
Consideration over the per Share exercise price of such Option, less any
applicable tax withholding. Except as provided herein, all stock incentive
plans and arrangements of the Company shall terminate as of the Effective
Time. Notwithstanding the foregoing, Options held by Parent shall not require
any payment but instead shall be cancelled as of the Effective Time, unless
theretofore exercised.
(b) Notwithstanding anything else contained herein to the contrary, this
subsection 2.8(b) shall apply to Options held by employees who are laid off by
the Company prior to the Effective Time. In the event that an employee is laid
off on or after the date hereof and prior to the Effective Time, (i) each
outstanding Option held by such former employee shall become immediately fully
exercisable and vested, (ii) if the former employee was a non-officer/director
employee, the exercise price of each outstanding Option granted under the 1989
Program which is held by the former employee and which is subject to the
Company's action on September 23, 1996 to reprice stock options, shall be
adjusted to $4.625 per Share as of the acceptance for payment and purchase of
shares pursuant to the Offer, and (iii) the former employee shall be entitled
to receive from the Company, as of the Effective Time, for each Share subject
to such Option, an amount in cash in cancellation of such Option equal to the
excess, if any, of the Merger Consideration over the per Share exercise price
of such Option, less any applicable tax withholding. The Company shall
thereafter cancel, immediately prior to the Effective Time, each outstanding
Option held by laid-off employees.
SECTION 2.9 Stockholders' Meeting
If required by applicable law in order to consummate the Merger, and subject
to the fiduciary duties of the Company's Board of Directors, the Company,
acting through its Board of Directors, shall, in accordance with applicable
law:
(a) duly call, give notice of, convene and hold a special meeting (the
"Special Meeting") of its stockholders as soon as practicable following the
acceptance for payment and purchase of Shares pursuant to the Offer for the
purpose of approving and adopting this Agreement;
(b) subject to the fiduciary obligations of the Board and the Special
Committee as advised by their respective legal counsel, include in the
Proxy Statement (as defined in Section 5.6) the recommendation of its Board
of Directors that stockholders of the Company vote in favor of the approval
and adoption of this Agreement and the Morgan Stanley Opinion; and
(c) use its best efforts (i) to obtain and furnish the information
required to be included by it in the Proxy Statement, and, after
consultation with Parent, respond promptly to any comments made by the SEC
with respect to the Proxy Statement and any preliminary version thereof and
cause the Proxy Statement to be mailed to its stockholders at the earliest
practicable time following the acceptance for payment and purchase of
Shares pursuant to the Offer, and (ii) to obtain the necessary approval of
the Merger by its stockholders. Parent agrees that, at the Special Meeting,
all of the Shares owned by Parent, Sub or any other affiliate of Parent
will be voted in favor of the Merger.
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SECTION 2.10 Closing
Upon the terms and subject to the conditions hereof, as soon as practicable
after the acceptance for payment and purchase of Shares pursuant to the Offer
and, if required by law, after the vote of the stockholders of the Company in
favor of the adoption of this Agreement has been obtained, the Company shall
execute in the manner required by the Delaware Law and deliver to the Delaware
Secretary of State a duly executed certificate of merger, or certificate of
ownership and merger if permitted by Delaware Law, and the parties shall take
all such other and further actions as may be required by law to make the
Merger effective. Prior to the filings referred to in this Section 2.10, a
closing (the "Closing") will be held at the offices of Gibson, Dunn & Crutcher
LLP, 4 Park Plaza, Irvine, California 92614 (or such other place as the
parties may agree) for the purpose of confirming all the foregoing.
ARTICLE III
DISSENTING SHARES; EXCHANGE OF SHARES
SECTION 3.1 Dissenting Shares
Notwithstanding anything in this Agreement to the contrary, in the event
that dissenters' rights are available in connection with the Merger pursuant
to Section 262 of the Delaware Law, Shares that are issued and outstanding
immediately prior to the Effective Time and that are held by stockholders who
did not vote in favor of the Merger and who comply with all of the relevant
provisions of Section 262 of the Delaware Law (the "Dissenting Shares") shall
not be converted into or be exchangeable for the right to receive the Merger
Consideration, but instead shall be converted into the right to receive such
consideration as may be determined to be due to such stockholders pursuant to
Section 262 of the Delaware Law, unless and until such holders shall have
failed to perfect or shall have effectively withdrawn or lost their rights to
appraisal under the Delaware Law. If any such holder shall have failed to
perfect or shall have effectively withdrawn or lost such right, such holder's
Shares shall thereupon be deemed to have been converted into and to have
become exchangeable for the right to receive, as of the Effective Time, the
Merger Consideration without any interest thereon. The Company shall give
Parent (i) prompt notice of any written demands for appraisal of Shares
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to any such demands. The Company
shall not, without the prior written consent of Parent, voluntarily make any
payment with respect to, or settle or offer to settle, any such demands.
SECTION 3.2 Payment for Shares
(a) Parent shall deposit in trust with a payment agent reasonably acceptable
to the Company (the "Payment Agent"), prior to the Effective Time, cash in an
aggregate amount necessary to make the payments pursuant to Section 2.6 hereof
to holders (other than Parent or Sub or any of their respective subsidiaries)
of Shares that are issued and outstanding immediately prior to the Effective
Time (such amounts being hereinafter referred to as the "Payment Fund"). The
Payment Agent shall, pursuant to irrevocable instructions, make the payments
provided for in the preceding sentence out of the Payment Fund. The Payment
Agent shall invest portions of the Payment Fund as Parent directs, provided
that substantially all such investments shall be in obligations of or
guaranteed by the United States of America, in commercial paper obligations
receiving the highest rating from either Moody's Investors Services, Inc. or
Standard & Poor's Corporation, or in certificates of deposit or banker's
acceptances of commercial banks with capital exceeding $100 million. The
Payment Fund shall not be used for any other purpose, except as provided in
this Agreement.
(b) Promptly after the Effective Time, the Surviving Corporation shall cause
the Payment Agent to mail to each record holder (other than Parent or Sub or
any of their respective subsidiaries), as of the
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Effective Time, of an outstanding certificate or certificates which
immediately prior to the Effective Time represented Shares (the
"Certificates"), a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Payment
Agent) and instructions for use in effecting the surrender of the Certificate
or payment therefor. Upon surrender to the Payment Agent of a Certificate,
together with such letter of transmittal duly executed, the holder of such
Certificate shall be paid in exchange therefor cash in an amount equal to the
product of the number of Shares represented by such Certificate multiplied by
the Merger Consideration, and such Certificate shall forthwith be canceled. No
interest will be paid or accrued on the cash payable upon the surrender of the
Certificates. If payment is to be made to a person other than the person in
whose name the Certificate surrendered is registered, it shall be a condition
of payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the Certificate
surrendered or establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable. After the Effective Time, until
surrendered in accordance with the provisions of this Section 3.2, each
Certificate (other than Certificates representing Shares owned by Parent, Sub
or any of their respective subsidiaries, and Dissenting Shares) shall
represent for all purposes the right to receive the Merger Consideration in
cash multiplied by the number of Shares evidenced by such Certificate, without
any interest thereon.
(c) After the Effective Time, there shall be no transfers of Shares that
were outstanding immediately prior to the Effective Time on the stock transfer
books of the Surviving Corporation. If, after the Effective Time, Certificates
are presented to the Surviving Corporation, they shall be canceled and
exchanged for cash as provided in this Section 3.2. At the Effective Time, the
stock transfer books of the Company shall be closed.
(d) Any portion of the Payment Fund (including the proceeds of any
investments thereof) that remains unclaimed by the stockholders of the Company
after one year following the Effective Time shall be repaid to the Surviving
Corporation and holders of Certificates shall thereafter look only to the
Surviving Corporation as general creditors thereof for payment of any Merger
Consideration payable upon due surrender of their Certificates.
Notwithstanding the foregoing, neither Parent nor the Surviving Corporation
shall be liable to a holder of a Certificate for amounts delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
laws.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUB
Parent and Sub hereby represent and warrant to the Company as follows:
SECTION 4.1 Organization and Qualification
Each of Parent and Sub is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization and has
the requisite corporate power to carry on its business as it is now being
conducted.
SECTION 4.2 Authority Relative to this Agreement
Each of Parent and Sub has the requisite corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by requisite
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corporate action of Parent and Sub and no other corporate proceedings on the
part of Parent or Sub are necessary to authorize this Agreement and the
transactions contemplated hereby. Neither Parent nor Sub is subject to or
obligated under any charter, bylaw or contract provision or any license,
franchise or permit, or any law, regulation, order or decree, which would be
breached or violated or in respect of which a right of acceleration would be
created by its executing and carrying out this Agreement, other than any such
breach, violation or right which (i) will not have a material adverse effect
on Parent and its subsidiaries taken as a whole or (ii) will be cured, waived
or terminated prior to the Effective Time.
SECTION 4.3 Governmental Consents
No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with any governmental
authority ("Consent") is required on the part of Parent or Sub in connection
with the transactions contemplated by this Agreement, except (i) those
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR"), (ii) those required by federal and state securities laws,
(iii) approval by all necessary government officials and agencies of the
Republic of Korea, (iv) filing reports with the U.S. Department of Commerce
regarding foreign direct investment in the United States, (v) filings with the
Competition Directorate of the European Community Commission and under the
Canadian Competition Act and the Investment Canada Act, (vi) filing a
certificate of merger or a certificate of ownership and merger, as the case
may be, with the Delaware Secretary of State, and (vii) where the failure to
obtain such Consents would not have a material adverse effect on Parent's
ability to consummate the transactions contemplated hereby. Parent has no
reason to believe that all required governmental consents will not be obtained
in a timely fashion.
SECTION 4.4 Offer Documents; Proxy Statement
The Offer Documents and the Offer will comply in all material respects with
the Exchange Act, except that no representation is made by Parent with respect
to information supplied in writing by the Company specifically for inclusion
in the Offer Documents. None of the information supplied in writing by Parent
or its affiliates specifically for inclusion in the Schedule 14D-9 or the
Proxy Statement will, at the time they are first filed with the SEC or
distributed to the Company's stockholders, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 4.5 Financing of the Offer and the Merger
Parent has available to it credit lines or other sources of financing to
provide the funds necessary for the completion of the transactions
contemplated hereby, including, without limitation, to fund the repurchase
obligations of the Company under the Company's Liquid Yield Option Notes due
2013 (the "LYONs") and to satisfy any debt obligations of the Company which
will be accelerated as a result of the consummation of the Offer and/or the
Merger. Parent agrees that none of the borrowings it may use to consummate the
transactions contemplated by this Agreement will be incurred by, or secured,
directly or indirectly, by the assets of, the Company or any of its
subsidiaries.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
SECTION 5.1 Organization and Qualification
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite
corporate power to carry on its business as it is now being conducted. The
Company is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties
owned or leased or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified will not have a
material adverse effect on the Company and its subsidiaries taken as a whole.
SECTION 5.2 Capitalization
The authorized capital stock of the Company consists of 200,000,000 Shares
and 1,000,000 shares of Preferred Stock. As of April 10, 1997, 57,964,830
Shares were validly issued and outstanding, no Shares were held in the
Company's treasury, and 500,000 shares of Series A Preferred were issued and
outstanding. Since April 10, 1997 no Shares of the Company's capital stock
have been issued, except Shares issued on exercise of Options. The Company has
heretofore provided Parent with a complete and accurate schedule setting forth
all outstanding Options, the holder thereof and the exercise price therefor.
Except for Options set forth on such schedule, the LYONs and the Rights issued
pursuant to the Rights Agreement (as defined in Section 5.4(b) below) there
are no options, warrants, convertible securities or other rights, agreements
or commitments obligating the Company to issue shares of its capital stock.
SECTION 5.3 Subsidiaries
Each subsidiary material to the business of the Company is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has corporate power to carry on its business
as it is now being conducted. Each of such subsidiaries is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or leased or the
nature of its activities makes such qualification necessary, except where the
failure to be so qualified will not have a material adverse effect on the
Company and its subsidiaries taken as a whole. All the outstanding shares of
capital stock of such subsidiaries are validly issued, fully paid and
nonassessable and, except for directors' qualifying shares and certain shares
held in the names of nominees, are owned by the Company or by a subsidiary of
the Company free and clear of all liens, claims or encumbrances.
SECTION 5.4 Authority Relative to this Agreement
(a) The Company has the requisite corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the Company's Board of
Directors and, except for the approval of its stockholders, if required by the
Delaware Law, no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement and the transactions contemplated
hereby. The Company is not subject to or obligated under any charter, bylaw or
contract provision or any license, franchise or permit, or any law,
regulation, order or decree, which would be breached or violated or in respect
of which a right of acceleration would be created by its executing and
carrying out this Agreement, other than any such breach, violation or right
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which (i) will not have a material adverse effect on the Company and its
subsidiaries taken as a whole, or (ii) will be cured, waived or terminated
prior to the Effective Time or (iii) which has been disclosed in writing by
the Company to Parent or its advisors at or prior to the date of this
Agreement.
(b) All necessary action has been taken with respect to the Amended and
Restated Rights Agreement by and between the Company and American Stock
Transfer and Trust Company dated as of January 28, 1994, as amended by the
First Amendment thereto dated as of January 28, 1994 (the "Rights Agreement"),
so that (i) the Rights issued pursuant to the Rights Agreement will not be
exercisable, trade separately or otherwise be affected by the Offer or the
Merger, (ii) none of Parent, Sub or any of their affiliates will be deemed to
be an "Acquiring Person" for purposes of the Rights Agreement in respect of
the Offer or the Merger and (iii) a "Distribution Date" shall not occur by
virtue of the Offer or the Merger.
(c) The "Independent Directors", as defined in the Stockholder Agreement
dated as of July 31, 1995 between Parent and the Company, as amended by
Amendment No. 1 thereto dated as of December 21, 1995 (the "Stockholder
Agreement"), have approved the Offer and the Merger for all purposes of the
Stockholder Agreement, including Sections 2.1.7 and 6.3 thereof.
SECTION 5.5 Governmental Consents
No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with any governmental
authority ("Consent") is required on the part of the Company in connection
with the transactions contemplated by this Agreement, except (i) those
required by HSR, (ii) those required by federal and state securities laws,
(iii) filing reports with the U.S. Department of Commerce regarding foreign
direct investment in the United States, (iv) filings with the Competition
Directorate of the European Community Commission and under the Canadian
Competition Act and the Investment Canada Act, (v) stockholder approval of the
Merger (if required), and filing the certificate of merger or certificate of
ownership and merger, as the case may be, with the Delaware Secretary of
State, (vi) as has been disclosed in writing by the Company to Parent or its
advisors at or prior to the date of this Agreement, and (vii) where failure to
obtain such Consent would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole, or its ability to consummate the
transactions contemplated hereby. The Company has no reason to believe that
all required governmental consents will not be obtained in a timely fashion.
SECTION 5.6 SEC Reports and Financial Statements
The Company has filed with the SEC, and has heretofore made available to
Parent, true and complete copies of, all forms, reports, schedules, statements
and other documents required to be filed by it since January 1, 1995 under the
Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act
(collectively, the "SEC Documents"). As of their respective dates or, if
amended, as of the date of the last such amendment, the Company SEC Documents
(as amended or supplemented by any such amendments), including, without
limitation, any financial statements or schedules included therein (a) did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the
circumstances under which they were made, not misleading and (b) complied in
all material respects with the applicable requirements of the Exchange Act and
the Securities Act, as the case may be, and the applicable rules and
regulations of the SEC thereunder. None of the Company's subsidiaries is
required to file any forms, reports or other documents with the SEC. The
financial statements of the Company included in the SEC Documents (as amended
or supplemented by any such amendments) have been prepared from, and are in
accordance with, the books and records of the Company and its consolidated
subsidiaries, comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in
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accordance with United States generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly present the consolidated
financial position and the consolidated results of operations and cash flows
(and changes in financial position, if any) of the Company and its
consolidated subsidiaries as of the respective dates and for the respective
periods thereof.
SECTION 5.7 Offer Documents; Proxy Statement; Other Information
If a Proxy Statement is required for the consummation of the Merger under
applicable law, the Proxy Statement will comply in all material respects with
the Exchange Act, except that no representation is made by the Company with
respect to information supplied in writing by Parent or any affiliate of
Parent (other than the Company and its subsidiaries) specifically for
inclusion in the Proxy Statement. The letter to stockholders, notice of
meeting, proxy statement and form of proxy, or the information statement, as
the case may be, to be distributed to stockholders in connection with the
Merger, or any schedules required to be filed with the SEC in connection
therewith are collectively referred to herein as the "Proxy Statement." None
of the information relating to the Company and its subsidiaries supplied in
writing by the Company specifically for inclusion in the Offer Documents or
any schedules required to be filed with the SEC in connection therewith will,
at the respective times the Offer Documents or any amendments or supplements
thereto or any such schedules are filed with the SEC, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The Schedule
14D-9 will comply in all material respects with the Exchange Act, except that
no representation is made by the Company with respect to information supplied
in writing by Parent or any affiliate of Parent (other than the Company and
its subsidiaries) specifically for inclusion in the Schedule 14D-9.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 Conduct of Business by the Company Pending the Merger
The Company covenants and agrees that, prior to the Time of Acceptance,
unless Parent shall otherwise agree in writing, or as shall have otherwise
been approved by the chief executive officer of the Company, or as otherwise
contemplated by this Agreement:
(a) the businesses of the Company and its subsidiaries shall be conducted
only in the ordinary and usual course (taking into account the Company's
current financial condition, results of operations and cash flow);
(b) the Company shall not (i) sell or pledge or agree to sell or pledge
any stock owned by it in any of its subsidiaries; (ii) amend its
Certificate of Incorporation or Bylaws; or (iii) split, combine or
reclassify the outstanding Shares or declare, set aside or pay any dividend
payable in cash, stock or property with respect to the Shares; and
(c) neither the Company nor any of its subsidiaries shall (i) issue or
agree to issue any additional shares of, or rights of any kind to acquire
any shares of, its capital stock of any class other than Shares issuable
pursuant to presently outstanding Options or pursuant to the Rights; or
(ii) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing.
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ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Expenses
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Offer, this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses.
SECTION 7.2 Additional Agreements
Subject to the terms and conditions herein provided, each of the parties
hereto agrees to use all reasonable efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by the Offer and this Agreement,
including using all reasonable efforts to obtain all necessary waivers,
consents and approvals and to effect all necessary registrations and filings.
In case at any time after the Effective Time any further action is necessary
or desirable to carry out the purposes of this Agreement, the proper officers
and/or directors of Parent, Sub and the Company shall take all such necessary
action.
SECTION 7.3 Indemnification
(a) Parent and Sub agree that all rights to indemnification and advancement
of expenses now existing in favor of the directors and officers of the Company
and its subsidiaries as provided in their Certificates of Incorporation or
Bylaws or otherwise in effect on the date of this Agreement (whether pursuant
to indemnification agreements or otherwise) with respect to matters occurring
on or prior to the Effective Time will survive the Merger and continue in full
force and effect, and Parent will cause the Surviving Corporation (or any
successor to the Surviving Corporation) to honor all such rights to
indemnification and advancement of expenses.
(b) For six years after the Effective Time, Parent shall cause the Surviving
Corporation (or any successor to the Surviving Corporation) to indemnify,
defend and hold harmless the present and former officers, directors, employees
and agents of the Company and its subsidiaries (each an "Indemnified Party")
against all losses, claims, damages, liabilities, fees, costs and expenses
(including reasonable fees and disbursements of counsel in advance of
disposition and judgments, fines, losses, claims, liabilities and amounts paid
in settlement (provided that any such settlement is effected with the written
consent of Parent or the Surviving Corporation, which consent will not be
unreasonably withheld or delayed)) arising out of actions or omissions
occurring at or prior to the Effective Time (including, without limitation,
matters arising out of or pertaining to the transactions contemplated by this
Agreement) to the full extent permitted under Delaware law, subject to the
terms of the Company's Certificate of Incorporation, Bylaws and
indemnification agreements, all as in effect at the date hereof, including
provisions relating to advancement of expenses incurred in the defense of any
action or suit; provided that, in the event any claim or claims are asserted
or made within such six year period, all rights to indemnification or
advancement of expenses in respect of any such claim or claims shall continue
until disposition of any and all such claims; provided further, that each
Indemnified Party's conduct shall be conclusively presumed to comply with the
standards set forth under Delaware law, the Company's Certificate of
Incorporation, Bylaws or such agreements, as the case may be, unless and until
a court of competent jurisdiction in a final, non-appealable decision,
determines to the contrary; and provided further, that nothing herein shall
impair any existing rights or obligations of any present or former directors
or officers of the Company. In the event of any threatened or actual claim,
action, suit, proceeding or investigation as to which an Indemnified Party is
entitled to indemnification or advancement of expenses hereunder (whether
asserted before, at or after
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the Effective Time), the Indemnified Party may retain counsel reasonably
satisfactory to it after consultation with Parent, but in no event shall the
Surviving Corporation be required to reimburse the costs of such counsel
hereunder unless (i) the Surviving Corporation shall have declined to assume
the defense of such claim with counsel reasonably satisfactory to the
Indemnified Party within ten days of a written request for indemnification
given in accordance with Section 10.3 or (ii) the Indemnified Party shall have
reasonably concluded, upon the advice of counsel, that there may be defenses
available to it which conflict with those available to the Surviving
Corporation.
(c) Parent or the Surviving Corporation shall maintain the Company's
existing officers' and directors' liability insurance ("D&O Insurance") for a
period of not less than four years after the Effective Time; provided, that
the Parent may substitute therefor policies of substantially similar coverage
and amounts containing terms no less favorable to such former directors or
officers; provided, further, if the existing D&O Insurance expires, is
terminated or canceled during such period, Parent or the Surviving Corporation
will use all reasonable efforts to obtain substantially similar D&O Insurance;
provided further, however, that in no event shall Parent or the Surviving
Corporation be required to pay aggregate premiums for insurance under this
Section 7.3 in excess of 200% of the aggregate premiums paid by the Company in
1996 on an annualized basis for such purpose (in which event Parent or the
Surviving Corporation shall cause to be maintained D&O Insurance which, in
Parent's good faith judgment, provides the maximum coverage available at an
annual premium equal to 200% of the Company's 1996 annualized premiums).
(d) For a period of six years from the Effective Time, Parent shall cause
the Surviving Corporation (or any successor corporation) to keep in effect
provisions in its Certificate of Incorporation and Bylaws providing for
exculpation of director and officer liability and indemnification of the
Indemnified Parties to the same extent as are currently provided for in the
Company's Certificate of Incorporation and Bylaws, which such provisions shall
not be amended during such period except as required by applicable law or
except to make changes permitted by law that would expand or enlarge the
Indemnified Parties' exculpation or indemnification rights.
(e) The rights under this Section 7.3 are intended to benefit the Company
and each Indemnified Party hereunder, shall be binding on all successors and
assigns of Parent and the Surviving Corporation and shall be enforceable by
each Indemnified Party. The parties hereto acknowledge and agree that the
remedy at law for any breach of the obligations of Parent and the Surviving
Corporation under this Section 7.3 is and will be insufficient and inadequate
and that the Indemnified Parties, in addition to any remedies at law, shall be
entitled to equitable relief (including specific performance). The Surviving
Corporation shall pay all reasonable expenses, including reasonable attorneys'
fees, incurred by any Indemnified Party in enforcing the indemnity and other
obligations set forth in this Section 7.3.
(f) Parent unconditionally guarantees all of the Surviving Corporation's
payment and other obligations provided for in this Section 7.3.
SECTION 7.4 Publicity
The initial press release with respect to the execution of this Agreement
has been previously approved by the parties. Following such initial press
release, so long as this Agreement is in effect, neither the Company, Parent
nor any of their respective affiliates shall issue or cause the publication of
any press release or other public announcement with respect to the Merger,
this Agreement or the other transactions contemplated hereby without the prior
consultation of the other party, except as may be required by law or by any
listing agreement with a national securities exchange or trading market.
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ARTICLE VIII
CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the Merger
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) this Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of the holders of the
Shares, if such vote is required by applicable law;
(b) no statute, rule, regulation, decree, order or injunction shall have
been promulgated, enacted, entered or enforced by any United States or
Korean governmental agency or authority or court which remains in effect
and prohibits, restrains, enjoins or restricts the consummation of the
Merger or makes the acquisition or holding by Parent, its subsidiaries or
affiliates of the Shares or the shares of common stock of the Surviving
Corporation illegal;
(c) any governmental consents or approvals required to consummate the
Merger shall have been obtained, except where the failure to obtain such
consents or approvals would not have a material adverse effect on (i) the
Company and its subsidiaries, taken as a whole, or (ii) Parent's ability to
consummate the transactions contemplated hereby; and
(d) Parent shall have purchased Shares pursuant to the Offer.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval by the stockholders of the Company:
(a) By mutual consent of Parent and the Company (with the consent of the
Special Committee).
(b) By either Parent or the Company (with the consent of the Special
Committee) if Parent shall not have purchased Shares pursuant to the Offer
by December 31, 1997.
(c) By the Company (with the consent, and at the direction of, the
Special Committee):
(i) if, prior to the purchase of the Shares pursuant to the Offer,
the Special Committee shall have (A) withdrawn, or modified or changed
in a manner adverse to Parent or the Sub, its approval or
recommendation of the Offer, this Agreement or the Merger in order to
permit the Company to execute a definitive agreement providing for the
acquisition of the Company by merger, consolidation or otherwise,
determined by the Special Committee to constitute a superior
alternative to the stockholders of the Company (other than Parent or
its affiliates) (the "Alternative Transaction") than the acquisition of
the Company contemplated by this Agreement, (B) determined, only after
receipt of advice from legal counsel to the Special Committee, that the
failure to take such action as set forth in the preceding clause (A)
would cause the Board of Directors to violate its fiduciary duties to
the Company's stockholders under applicable law, and (C) given notice
to the Parent of its intent to terminate this Agreement and of the
terms and provisions of the Alternate Transaction, such notice to be
given not less than five (5) business days prior to the date of the
termination of this Agreement;
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(ii) if, prior to the purchase of the Shares pursuant to the Offer,
Parent breaches or fails in any material respect to perform or comply
with any of its material covenants and agreements contained herein or
breaches its representations and warranties in any material respect; or
(iii) if the Offer shall have expired, or shall have been withdrawn,
abandoned or terminated without Parent purchasing any Shares pursuant
thereto; provided that the Company may not terminate this Agreement
pursuant to this Section 9.1(c)(iii) if the Company is in material
breach of this Agreement.
(d) By Parent:
(i) if prior to the purchase of the Shares pursuant to the Offer, the
Special Committee shall have withdrawn, or modified or changed in a
manner adverse to Parent, its approval or recommendation of the Offer,
this Agreement or the Merger or shall have recommended an Alternate
Transaction or offer, or the Company shall have executed an agreement
in principle (or similar agreement) or definitive agreement providing
for a tender offer or exchange offer for any shares of capital stock of
the Company, or a merger, consolidation or other business combination
with a person or entity other than Parent or its affiliates (or the
Special Committee resolves to do any of the foregoing); or
(ii) if Parent shall have terminated the Offer without purchasing any
Shares thereunder; provided that Parent may not terminate this
Agreement pursuant to this Section 9.1(d)(ii) if Parent has failed to
purchase the Shares in the Offer in breach of the terms thereof.
SECTION 9.2 Effect of Termination
In the event of termination of this Agreement as provided above, this
Agreement shall forthwith become void and there shall be no liability on the
part of either Parent or the Company; provided, however, that nothing herein
shall relieve any party from any liability for any material breach of this
Agreement.
SECTION 9.3 Amendment
This Agreement may be amended by the parties hereto any time before or after
approval hereof by the stockholders of the Company, but, after any such
approval, no amendment shall be made which reduces the Merger Consideration or
in any way adversely affects the rights of holders of the Shares without the
further approval of such stockholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto and, in the case of the Company, approved by the Special Committee.
SECTION 9.4 Waiver
At any time prior to the Effective Time, the parties hereto may (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. Without limiting the effect of any other provision of
this Agreement that confers authority upon the Special Committee with respect
to this Agreement, it is expressly agreed that all of the rights of the
Company under this Agreement (including, without limitation, rights of waiver
and enforcement) are hereby vested exclusively in the Special Committee and
shall be exercised by the Company only with the consent, or at the express
direction, of the Special Committee.
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<PAGE>
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Non-Survival of Representations and Warranties
All representations and warranties in this Agreement of Parent, Sub and the
Company or in any instrument delivered by Parent, Sub or the Company pursuant
to this Agreement shall not survive the Merger.
SECTION 10.2 Brokers
The Company represents and warrants that, except for Morgan Stanley & Co.
Incorporated, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger
based upon arrangements made by or on behalf of the Company.
SECTION 10.3 Notices
Any notice required or permitted to be given under this Agreement shall be
written, and may be given by personal delivery, by cable, telecopy, telex or
telegram (with a confirmation copy mailed as follows), by Federal Express,
United Parcel Service, DHL, or other reputable commercial delivery service, or
by registered or certified mail, first-class postage prepaid, return receipt
requested. Notice shall be deemed given upon actual receipt. Mailed notices
shall be addressed as follows, but each party may change its address by
written notice in accordance with this paragraph.
To the Company: AST Research, Inc.
16215 Alton Parkway
Irvine, California 92718
Attention: General Counsel
Fax: (714) 727-8581
with copies to:The Special Committee of
Independent Directors of
AST Research, Inc.
c/o Roger W. Johnson
600 Anton Blvd., Suite 1260
Costa Mesa, CA 92626
Fax: (714) 979-6823
Irell & Manella LLP
333 South Hope Street, Suite 3300
Los Angeles, CA 90071
Attention: Henry Lesser, Esq.
Fax: (213) 229-0515
O'Melveny & Myers LLP
610 Newport Center Drive
Newport Beach, CA 92660
Attention: Gary J. Singer, Esq.
Fax: (714) 669-6994
To the Parent: Samsung Electronics Co., Ltd.
Samsung Main Building
250, 2-Ka, Taepyung-Ro, Chung-Ku
Seoul, Korea 100-742
Attention: General Legal Counsel
Fax: (822) 727-7179
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<PAGE>
with a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071-3197
Attention: Andrew E. Bogen, Esq.
Fax: (213) 229-7520
SECTION 10.4 Elimination of Role of Independent Directors
Concurrently with the acceptance for payment and purchase of Shares by
Parent pursuant to the Offer, each agreement between the Company and Parent
(other than this Agreement) which contains any provision requiring the
approval of "Independent Directors" of the Company for any transaction between
the Company and Parent or any of its affiliates, including but not limited to
the Stockholder Agreement, shall automatically be amended to delete any such
requirement.
SECTION 10.5 Miscellaneous
This Agreement (i) constitutes the entire agreement and supersedes all other
prior agreements and understanding, both written and oral, among the parties,
or any of them, with respect to the subject matter hereof; (ii) is not
intended to confer upon any other person any rights or remedies hereunder,
except as otherwise expressly provided herein; and (iii) shall be governed in
all respects, including validity, interpretation and effect, by the laws of
the State of Delaware (without regard to choice of law provisions). This
Agreement may be executed in two or more counterparts which together shall
constitute a single agreement. If any term, provision, covenant or restriction
set forth in this Agreement is held by a court of competent jurisdiction to be
invalid, void, unenforceable or against its regulatory policy, the remainder
of the terms, provisions, covenants and restrictions set forth in this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. Each of the parties hereto hereby consents
to the non-exclusive jurisdiction of the Chancery Court and Supreme Court of
the State of Delaware for purposes of resolving any disputes relating to this
Agreement and waives any objections as to venue or personal jurisdiction in
such courts. Any determination under this Agreement (including Annex A hereto)
as to whether there has been a material adverse effect with respect to the
Company and its subsidiaries, taken as a whole, shall be made in comparison to
the Company's net losses and declining equity over the past thirteen fiscal
quarters, the current trend with respect thereto, and all developments
resulting therefrom. In addition, in making any such determination, any
changes resulting from any actions of the Company approved on or after April
14, 1997 by the Board of Directors (including the Executive Committee) or the
chief executive officer shall be disregarded.
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<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company caused this Agreement to be
signed as of the date first written above by their respective officers
thereunto duly authorized.
SAMSUNG ELECTRONICS CO. LTD.
By: /s/ W.R. Choi
________________________________
W.R. Choi
Title: Executive Director,
International Finance
AST ACQUISITION, INC.
By: /s/ J.C. Lee
________________________________
J.C. Lee
Title: Vice President, Chief
Financial Officer and Secretary
AST RESEARCH, INC.
By: /s/ Y.S. Kim
________________________________
Y.S. Kim
Title: President and Chief Executive
Officer
A-17
<PAGE>
Annex A
(to the Agreement and Plan of Merger)
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer or the Merger Agreement,
and subject to any applicable rules and regulations of the SEC, including Rule
14e-1(c) relating to Parent's obligation to pay for or return tendered shares
after termination of the Offer, Parent shall not be required to accept for
payment or pay for any Shares tendered pursuant to the Offer, or may delay the
acceptance for payment of any Shares, or may terminate the Offer if (i) any
applicable waiting period under HSR has not expired or terminated; (ii)
approval of all necessary government officials and agencies, including the
Republic of Korea, shall not have been obtained on terms and conditions
reasonably satisfactory to Purchaser (except where the failure to obtain such
consents or approvals would not have a material adverse effect on (a) the
Company and its subsidiaries, taken as a whole, or (b) Parent's ability to
consummate the transactions contemplated hereby); or (iii) at any time after
April 14, 1997 and before acceptance for payment of any Shares, any of the
following events shall occur or shall be determined by Parent to have
occurred:
(a) there shall have been any action taken, or any statute, rule,
regulation, judgment, order or injunction promulgated, entered, enforced,
enacted, issued or deemed applicable to the Offer or the Merger by any
domestic or foreign governmental regulatory or administrative agency or
authority or court or legislative body or commission which directly or
indirectly (1) prohibits, or imposes any material limitations on, Parent's
ownership or operation (or that of any of their respective subsidiaries or
affiliates) of all or a material portion of their or the Company's
businesses or assets, or compels Parent or their respective subsidiaries or
affiliates to dispose of or hold separate any material portion of the
business or assets of the Company or Parent and their respective
subsidiaries, in each case taken as a whole, (2) prohibits, or makes
illegal, the acceptance for payment, payment for or purchase of Shares or
the consummation of the Offer, the Merger or the other transactions
contemplated by the Merger Agreement, (3) results in the delay in or
restricts the ability of Parent, or renders Parent unable, to accept for
payment, pay for or purchase some or all of the Shares, (4) imposes
material limitations on the ability of Parent effectively to exercise full
rights of ownership of the Shares, including, without limitation, the right
to vote the Shares purchased by it on all matters properly presented to the
Company's stockholders, or (5) otherwise has a material adverse effect on
the consolidated financial condition, businesses or results of operations
of the Company and its subsidiaries, taken as a whole, provided that Parent
shall have used all reasonable efforts to cause any such judgment, order or
injunction to be vacated or lifted;
(b) there shall have occurred (1) any general suspension of trading in,
or limitation on prices for, securities on the New York Stock Exchange or
in the NASDAQ National Market System, for a period in excess of twenty-four
hours, (2) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or the Republic of Korea
(whether or not mandatory), (3) any limitation (whether or not mandatory)
by any Korean or United States governmental authority on the extension of
credit by banks or other financial institutions, (4) a change in general,
financial, bank or capital market conditions which materially and adversely
affects the ability of financial institutions in the United States or the
Republic of Korea to extend credit or syndicate loans, (5) any significant
change in the United States or the Republic of Korea currency exchange
rates (with respect to the other) or suspension of, or limitation on, the
markets therefor (whether or not mandatory) or the imposition of, or any
significant change in, any currency or exchange control laws in the United
States or the Republic of Korea, or (6) in the case of any of the foregoing
existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof;
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<PAGE>
(c) (1) the representations and warranties of the Company set forth in the
Merger Agreement shall not be true and correct in any material respect as of
the date of the Merger Agreement and as of consummation of the Offer as though
made on or as of such date, (2) the Company shall have failed to comply with
its covenants and agreements under the Merger Agreement in all material
respects or (3) subject to the last two sentences of Section 10.5 of the
Merger Agreement, there shall have occurred any events or changes which have
had or which are reasonably likely to have a material adverse effect on the
Company and its subsidiaries taken as a whole;
(d) the Special Committee shall have withdrawn, or modified or changed in a
manner adverse to Parent (including by amendment of the Schedule 14D-9) its
recommendation of the Offer, the Merger Agreement, or the Merger, or
recommended another proposal or offer, or the Special Committee, upon request
of Parent, shall fail to reaffirm such approval or recommendation or shall
have resolved to do any of the foregoing; or
(e) the Merger Agreement shall have terminated in accordance with its terms;
which in the reasonable and good faith judgment of Parent, in any such case,
and regardless of the circumstances (including any action or inaction by
Parent) giving rise to such condition makes it inadvisable to proceed with the
Offer or the acceptance for payment of or payment for the Shares.
The foregoing conditions are for the sole benefit of Parent and may be
waived by Parent, in whole or in part at any time and from time to time in the
sole discretion of Parent. The failure by Parent at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and
each such right shall be deemed an ongoing right which may be asserted at any
time and from time to time.
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<PAGE>
ANNEX B
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
555 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA
94104
(415) 576-2000
April 14, 1997
The Special Committee of the Independent
Directors of AST Research, Inc.
16215 Alton Parkway
Irvine, California 92716
Gentlemen:
We understand that Samsung Electronics Co., Ltd. ("Samsung") and Samsung
Acquisition Corp., a wholly owned subsidiary of Samsung ("Acquisition Sub"),
and AST Research, Inc. ("AST") propose to enter into an Agreement and Plan of
Merger substantially in the form of the draft dated April 14, 1997 (the
"Merger Agreement"), which provides, among other things, for (i) the
commencement by Samsung of a tender offer (the "Tender Offer") for all
outstanding shares of common stock, par value $.01 per share (the "Common
Stock"), of AST for $5.40 per share net to the seller in cash, and (ii) the
subsequent merger (the "Merger") of Acquisition Sub with and into AST.
Pursuant to the Merger, AST will become a wholly owned subsidiary of Samsung
and each outstanding share of Common Stock, other than shares held in treasury
or held by Samsung or any affiliate of Samsung or as to which dissenters'
rights have been perfected, will be converted into the right to receive $5.40
per share in cash. The terms and conditions of the Tender Offer and the Merger
are more fully set forth in the Merger Agreement. We further understand that
approximately 45.7% of the outstanding shares of Common Stock is owned by
Samsung and its affiliates, and that Samsung also owns options exercisable at
$.01 per share which, if exercised, would increase Samsung's ownership of the
outstanding shares of Common Stock to approximately 49%.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Common Stock (other than Samsung and its
affiliates) pursuant to the Merger Agreement is fair from a financial point of
view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of AST;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning AST prepared by the management of AST;
(iii) reviewed certain financial projections prepared by the management
of AST, including a draft of the AST Research, Inc. Reorganization Plan,
dated April 14, 1997 (the "Reorganization Plan"), which contains
projections with respect to restructuring actions that AST's management has
proposed and long-term targets for AST's operating margins;
(iv) discussed the past and current operations and financial condition
and the prospects of AST with certain past and present senior executives
and outside consultants of AST;
(v) reviewed certain strategic and financial studies prepared by third
parties at the direction of AST;
(vi) reviewed the reported prices and trading activity for the Common
Stock;
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<PAGE>
(vii) compared the financial performance of AST and the prices and
trading activity of the Common Stock with that of certain other broadly
comparable publicly-traded companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(ix) considered the future liquidity needs of AST, including our
understanding, based on information provided to us by members of the
Special Committee of the Independent Directors of AST (the "Special
Committee") and representatives of Samsung as to statements made by Samsung
to such members and representatives, respectively, that if the Merger is
not consummated, there is no assurance that Samsung will provide any
additional financial support to AST other than that which Samsung is
contractually obligated to provide, nor be willing to have its existing
ownership interest diluted by third party financing;
(x) considered statements made by Samsung's representatives that Samsung
intends to continue its active participation in the management of AST;
(xi) participated in discussions and negotiations among representatives
of the Special Committee, AST and Samsung and their financial and legal
advisors;
(xii) reviewed certain agreements between Samsung and AST in existence
prior to the date hereof;
(xiii) reviewed the Merger Agreement and certain related documents; and
(xiv) considered such other factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. In addition, we have assumed that the financial projections
and targets provided to us by the management of AST, including those contained
in the Reorganization Plan, have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the future financial
performance of AST. We have not made any independent valuation or appraisal of
the assets or liabilities of AST, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of,
the date hereof. We also have relied on advice of counsel to the Special
Committee as to certain legal matters regarding AST.
We understand, based on information provided to us by members of the Special
Committee and representatives of Samsung as to statements made by Samsung to
such members and representatives, respectively, that Samsung does not intend
to sell its ownership interest in AST to a third party. Accordingly, in
arriving at our opinion, we did not solicit interest from any party with
respect to the acquisition of AST or any of its assets, nor did we receive any
indication of interest in such an acquisition from any party other than
Samsung.
We have acted as financial advisor to the Special Committee in connection
with this transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Special
Committee and may not be used for any other purpose without our prior written
consent, except that this opinion may be included in its entirety in any
filing made by AST with the Securities and Exchange Commission in connection
with the Tender Offer and the Merger. In addition, we express no opinion and
make no recommendation as to whether the stockholders of AST should accept the
Tender Offer.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Common Stock (other
than Samsung and its affiliates) pursuant to the Merger Agreement is fair from
a financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
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<PAGE>
ANNEX C
TEXT OF SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S) 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or
more shares, or fractions thereof, solely of stock of a corporation, which
stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of (S)
251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms
of an agreement of merger or consolidation pursuant to (S)(S) 251, 252, 254,
257, 258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under (S) 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
C-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or (S)
253 of this title, each consitutent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall
notify each of the holders of any class or series of stock of such
constitutent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for any
or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice, demand in writing
from the surviving or resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constitutent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constitutent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constitutent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given,
C-2
<PAGE>
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f)
C-3
<PAGE>
of this section and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-4
<PAGE>
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. Letters of Transmittal and certificates for Shares should be sent or
delivered by each stockholder of the Company or his broker, dealer, commercial
bank or trust company to the Depositary at one of its addresses set forth
below:
The Depositary for the Offer is:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
c/o Citicorp Data c/o Citicorp Data Corporate Trust Window
Distribution, Inc. Distribution, Inc. 111 Wall Street, 5th Floor
P.O. Box 7072 404 Sette Drive New York, New York
Paramus, New Jersey 07653 Paramus, New Jersey 07652
</TABLE>
<TABLE>
<S> <C>
By Facsimile Transmission: Confirm by Telephone:
(For Eligible Institutions Only) (800) 422-2066
(201) 262-3240
</TABLE>
----------------
Any questions or requests for assistance may be directed to the Information
Agent or Dealer Manager at their respective addresses and telephone numbers
set forth below. Requests for additional copies of this Offer to Purchase and
the Letter of Transmittal may be directed to the Information Agent, the Dealer
Manager or the Depositary. Stockholders may also contact their brokers,
dealers, commercial banks or trust companies for assistance concerning the
Offer.
The Information Agent for the Offer is:
[LOGO OF MACKENZIE PARTNERS, INC.]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
CALL TOLL-FREE (800) 322-2885
The Dealer Manager for the Offer is:
SALOMON BROTHERS INC
333 South Hope Street
Los Angeles, California 90071
(213) 253-1842
(Call Collect)
<PAGE>
EXHIBIT 99.2
Letter of Transmittal, dated April 21, 1997
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
(Including the Associated Rights)
OF
AST RESEARCH, INC.
AT
$5.40 NET PER SHARE
PURSUANT TO THE OFFER TO PURCHASE DATED APRIL 21, 1997
OF
SAMSUNG ELECTRONICS CO., LTD.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON MONDAY, MAY 19, 1997, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
The Depositary for the Offer is:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
c/o Citicorp Data c/o Citicorp Data Corporate Trust Window
Distribution, Inc. Distribution, Inc. 111 Wall Street, 5th Floor
P.O. Box 7072 404 Sette Drive New York, New York 10043
Paramus, New Jersey 07653 Paramus, New Jersey 07652
</TABLE>
By Facsimile Transmission: Confirm by Telephone:
(For Eligible Institutions Only) (800) 422-2066
(201) 262-3240
--------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN ONE LISTED ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL
IN THE APPROPRIATE SPACE PROVIDED THEREFOR, WITH SIGNATURE GUARANTEE IF
REQUIRED, AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW. SEE INSTRUCTION
1.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used either if certificates are to be
forwarded herewith or, unless an Agent's Message (as defined in the Offer to
Purchase) is utilized, if delivery is to be made by book-entry transfer to the
account maintained by the Depositary at The Depository Trust Company or the
Philadelphia Depository Trust Company (individually, a "Book-Entry Transfer
Facility" and collectively, the "Book-Entry Transfer Facilities") pursuant to
the procedures set forth in Section 2 of the Offer to Purchase. Stockholders
whose certificates are not immediately available or who cannot deliver their
certificates or deliver confirmation of the book-entry transfer of their Shares
(as defined below) into the Depositary's account at a Book-Entry Transfer
Facility ("Book-Entry Confirmation") and all other documents required hereby to
the Depositary on or prior to the Expiration Date (as defined in the Offer to
Purchase) must tender their Shares according to the guaranteed delivery
procedures set forth in Section 2 of the Offer to Purchase. See Instruction 2.
Delivery of documents to a Book-Entry Transfer Facility does not constitute
delivery to the Depositary.
<PAGE>
[_] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
Check box of Book-Entry Transfer Facility:
[_] The Depository Trust Company
[_] Philadelphia Depository Trust Company
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
[_] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Owner(s): ____________________________________________
Window Ticket Number (if any): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Institution that Guaranteed Delivery: ______________________________
If Delivered by Book-Entry Transfer, Check box of Book-Entry Transfer
Facility:
[_]The Depository Trust Company
[_]Philadelphia Depository Trust Company
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE(S) TENDERED
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- ------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF
CERTIFICATE SHARES REPRESENTED NUMBER OF
NUMBER(S)* BY CERTIFICATE(S) SHARES TENDERED**
-----------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
TOTAL SHARES
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by stockholders tendering by book-entry
transfer.
** Unless otherwise indicated, it will be assumed that all Shares
being delivered to the Depositary are being tendered. See
Instruction 4.
- --------------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS.
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Samsung Electronics Co., Ltd., a Korean
corporation ("Purchaser"), the above described shares of Common Stock, par
value $.01 per share (the "Common Stock"), of AST Research, Inc., a Delaware
corporation (the "Company"), and the associated Rights, as defined in the
Offer to Purchase (collectively, the "Shares"), pursuant to Purchaser's offer
to purchase all of the outstanding Shares upon the terms and subject to the
conditions set forth in the Offer to Purchase dated April 21, 1997 (the "Offer
to Purchase"), receipt of which is hereby acknowledged, and in this Letter of
Transmittal (which together constitute the "Offer"), at the purchase price of
$5.40 per Share, net to the tendering stockholder in cash.
<PAGE>
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith in accordance with the terms and subject to the conditions
of the Offer, the undersigned hereby sells, assigns, and transfers to, or upon
the order of, Purchaser all right, title and interest in and to all the Shares
that are being tendered hereby (and any and all other Shares or other
securities issued or issuable in respect thereof on or after April 21, 1997)
and irrevocably constitutes and appoints the Depositary the true and lawful
agent and attorney-in-fact of the undersigned with respect to such Shares (and
any such other Shares or securities) with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest), to (a) deliver certificates for such Shares (and any such other
Shares or securities), or transfer ownership of such Shares (and any such
other Shares or securities) on the account books maintained by a Book-Entry
Transfer Facility, together in either such case with all accompanying
evidences of transfer and authenticity, to or upon the order of Purchaser upon
receipt by the Depositary, as the undersigned's agent, of the purchase price
(adjusted, if appropriate, as provided in the Offer to Purchase), (b) present
such Shares (and any such other Shares or securities) for transfer on the
books of the Company and (c) receive all benefits and otherwise exercise all
rights of beneficial ownership of such Shares (and any such other Shares or
securities), all in accordance with the terms of the Offer.
The undersigned hereby irrevocably appoints each designee of Purchaser as
the attorney-in-fact and proxy of the undersigned, each with full power of
substitution, to vote in such manner as each such attorney and proxy or his
substitute shall in his sole discretion deem proper, and otherwise act
(including pursuant to written consent) with respect to all the Shares
tendered hereby which have been accepted for payment by Purchaser prior to the
time of such vote or action (and any and all other Shares or securities issued
or issuable in respect thereof on or after April 21, 1997), which the
undersigned is entitled to vote at any meeting of stockholders (whether annual
or special and whether or not an adjourned meeting) of the Company, or consent
in lieu of any such meeting, or otherwise. This proxy is coupled with an
interest in the Company and in the Shares and is irrevocable and is granted in
consideration of, and is effective upon, the deposit by Purchaser with the
Depositary of the purchase price for such Shares in accordance with the terms
of the Offer. Such acceptance for payment shall revoke all prior proxies
granted by the undersigned at any time with respect to such Shares (and any
such other Shares or other securities) and no subsequent proxies will be given
(and if given will be deemed not to be effective) with respect thereto by the
undersigned.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby (and any and all other Shares or other securities issued or issuable in
respect thereof on or after April 21, 1997) and that, when the same are
accepted for payment by Purchaser, Purchaser will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and the same will not be subject to any adverse claim. The
undersigned, upon request, will execute and deliver any additional documents
deemed by the Depositary or Purchaser to be necessary or desirable to complete
the sale, assignment and transfer of the Shares tendered hereby (and any and
all such other Shares or other securities).
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall not be affected by, and shall survive, the death or
incapacity of the undersigned and any obligation of the undersigned hereunder
shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned. Except as stated
in the Offer to Purchase, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 2 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the
undersigned and Purchaser upon the terms and subject to the conditions of the
Offer.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price or any certificates for Shares
not tendered or accepted for payment in the name(s) of the undersigned.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the purchase price or return any certificates for
Shares not tendered or accepted for payment (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature. In the event that both the Special Delivery Instructions and the
Special Payment Instructions are completed, please issue the check for the
purchase price or any certificates for Shares not tendered or accepted for
payment in the name of, and deliver such check or return such certificates to
the person or persons so indicated. Stockholders delivering Shares by book-
entry transfer may request that any Shares not accepted for payment be
returned by crediting such account maintained at a Book-Entry Transfer
Facility as such stockholder may designate by making an appropriate entry
under "Special Payment Instructions." The undersigned recognizes that
Purchaser has no obligation pursuant to the Special Payment Instructions to
transfer any Shares from the name of the registered holder thereof if
Purchaser does not accept for payment any of the Shares so tendered.
<PAGE>
- -------------------------------------- --------------------------------------
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 4, 5, 6 AND 7)
To be completed ONLY if To be completed ONLY if
certificates for Shares not certificates for Shares not
tendered or not purchased and/or tendered or not purchased and/or
the check for the purchase price of the check for the purchase price of
Shares purchased are to be issued Shares purchased are to be sent to
in the name of someone other than someone other than the undersigned,
the undersigned, or if Shares or to the undersigned at an address
delivered by book-entry transfer other than that shown above.
which are not purchased are to be
returned by credit to an account
maintained at a Book-Entry Transfer Issue check and/or certificate to:
Facility other than that designated
above. Name _______________________________
(Please Print)
Issue check and/or certificate to:
Address ____________________________
Name _______________________________ ____________________________________
(Please Print) (Include Zip Code)
Address ____________________________ ____________________________________
(Tax Identification or Social
____________________________________ Security Number)
(Include Zip Code)
____________________________________
(Tax Identification or Social
Security Number)
[_] Credit unpurchased Shares
delivered by book-entry transfer
to the Book-Entry Transfer
Facility account set forth below.
Check appropriate box.
[_] The Depository Trust Company
[_] Philadelphia Depository Trust
Company
______________________________
(Account Number)
<PAGE>
- -------------------------------------------------------------
SIGN HERE
(COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
X...........................................................
X...........................................................
SIGNATURE(S) OF OWNER(S)
Dated: .............................................. , 1997
(Must be signed by registered holder(s) exactly as name(s)
appear(s) on stock certificate(s) or on a security position
listing or by person(s) authorized to become registered
holder(s) by certificates and documents transmitted
herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, agent, officer
of a corporation or other person acting in a fiduciary or
representative capacity, please provide the following
information. See Instructions 1 and 5.)
Name(s).....................................................
.....................................................
(PLEASE PRINT)
Capacity (Full Title).......................................
(See Instruction 5)
Address.....................................................
.....................................................
(INCLUDE ZIP CODE)
Area Code and Telephone Number..............................
Tax Identification or
Social Security No..........................................
(COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 1 AND 5)
Authorized Signature........................................
Name........................................................
(PLEASE PRINT)
Title.......................................................
Name of Firm................................................
Address.....................................................
.....................................................
(INCLUDE ZIP CODE)
Area Code and Telephone Number..............................
Dated: .............................................. , 1997
- -------------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required (i) if this Letter of Transmittal is signed by the
registered holder of the Shares (which term, for purposes of this document,
shall include any participant in a Book-Entry Transfer Facility whose name
appears on a security position listing as the owner of Shares) tendered
herewith, unless such holder has completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Payment Instructions" on
the reverse hereof, or (ii) if such Shares are tendered for the account of a
bank, broker, dealer, credit union, savings association or other entity that
is a member in good standing of the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Guarantee Program or
the Stock Exchange Medallion Program (each an "Eligible Institution"). In all
other cases, all signatures on this Letter of Transmittal must be guaranteed
by an Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of
Transmittal is to be completed by stockholders either if certificates are to
be forwarded herewith or if tenders of Shares are to be made pursuant to the
procedures for delivery by book-entry transfer set forth in Section 2 of the
Offer to Purchase. Certificates for all physically tendered Shares, or any
Book-Entry Confirmation of Shares, as the case may be, as well as a properly
completed and duly executed Letter of Transmittal (or facsimile thereof),
unless an Agent's Message (as defined in the Offer to Purchase) is utilized,
and any other documents required by this Letter of Transmittal, must be
received by the Depositary at one of its addresses set forth herein on or
prior to the Expiration Date (as defined in Section 1 of the Offer to
Purchase). Stockholders whose certificates for Shares are not immediately
available or who cannot deliver their certificates and all other required
documents to the Depositary on or prior to the Expiration Date may tender
their Shares by properly completing and duly executing the Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in
Section 2 of the Offer to Purchase. Pursuant to such procedure, (i) such
tender must be made by or through an Eligible Institution, (ii) a properly
completed and duly executed Notice of Guaranteed Delivery, substantially in
the form provided by Purchaser, must be received by the Depositary prior to
the Expiration Date, and (iii) the certificates for all physically tendered
Shares or Book-Entry Confirmation of Shares, as the case may be, together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), unless an Agent's Message is utilized, and any other documents
required by this Letter of Transmittal, must be received by the Depositary
within three NASDAQ National Market System trading days after the date of
execution of such Notice of Guaranteed Delivery, all as provided in Section 2
of the Offer to Purchase.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE CERTIFICATE FOR
SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH A BOOK-
ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING
STOCKHOLDER AND, EXCEPT AS OTHERWISE PROVIDED IN THIS INSTRUCTION 2, THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
INSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering stockholders, by execution
of this Letter of Transmittal (or facsimile thereof), waive any right to
receive any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
signed schedule attached hereto.
4. PARTIAL TENDERS. (Not applicable to stockholders who tender by book-entry
transfer.) If fewer than all the Shares evidenced by any certificate submitted
are to be tendered, fill in the number of Shares which are to be tendered in
the box entitled "Number of Shares Tendered." In such case, new certificate(s)
for the remainder of the Shares that were evidenced by your old certificate(s)
will be sent to you, unless otherwise provided in the appropriate box on this
Letter of Transmittal, as soon as practicable after the Expiration Date. All
Shares represented by certificates delivered to the Depositary will be deemed
to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal or any certificates or stock powers are signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of
a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to Purchaser of such person's authority so to act must be
submitted.
<PAGE>
When this Letter of Transmittal is signed by the registered owner(s) of the
Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment or certificates for Shares
not tendered or purchased are to be issued to a person other than the
registered owner(s). Signatures on such certificates or stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Shares listed, the certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered owner or owners appear on the certificates.
Signatures on such certificates or stock powers must be guaranteed by an
Eligible Institution.
6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6,
Purchaser will pay or cause to be paid any stock transfer taxes with respect
to the transfer and sale of purchased Shares to it or its order pursuant to
the Offer. If payment of the purchase price is to be made to, or if
certificates for Shares not tendered or purchased are to be registered in the
name of, any person other than the registered holder, or if tendered
certificates are registered in the name of any person other than the person(s)
signing this Letter of Transmittal, the amount of any stock transfer taxes
(whether imposed on the registered holder or such person) payable on account
of the transfer to such person will be deducted from the purchase price unless
satisfactory evidence of the payment of such taxes or exemption therefrom is
submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF
TRANSMITTAL.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check or certificates for
unpurchased Shares are to be issued in the name of a person other than the
signer of this Letter of Transmittal or if a check is to be sent or such
certificates are to be returned to someone other than the signer of this
Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed.
Stockholders tendering Shares by book-entry transfer may request that Shares
not purchased be credited to such account maintained at a Book-Entry Transfer
Facility as such stockholder may designate hereon. If no such instructions are
given, such Shares not purchased will be returned by crediting the account at
the Book-Entry Transfer Facility designated above.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance may
be directed to, or additional copies of the Offer to Purchase and this Letter
of Transmittal may be obtained from, the Information Agent or the Dealer
Manager at their respective addresses set forth below or from your broker,
dealer, commercial bank or trust company.
9. WAIVER OF CONDITIONS. Subject to the terms of the Merger Agreement (as
defined in the Offer to Purchase), the conditions of the Offer may be waived
by Purchaser, in whole or in part, at any time and from time to time in the
Purchaser's sole discretion, in the case of any Shares tendered.
10. SUBSTITUTE FORM W-9. The tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9 which is provided under "Important Tax Information" below,
and to certify whether the stockholder is subject to backup withholding of
Federal income tax. If a tendering stockholder is subject to backup
withholding, the stockholder must cross out item (2) of the Certification box
of the Substitute Form W-9. Failure to provide the information on the
Substitute Form W-9 may subject the tendering stockholder to 31% Federal
income tax withholding on the payment of the purchase price. If the tendering
stockholder has not been issued a TIN and has applied for a number or intends
to apply for a number in the near future, he or she should write "Applied For"
in the space provided for the TIN in Part I, and sign and date the Substitute
Form W-9. If "Applied For" is written in Part I and the Depositary is not
provided with a TIN within 60 days, the Depositary will withhold 31% on all
payments of the purchase price until a TIN is provided to the Depositary.
11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s)
representing Shares or Rights has been lost, destroyed or stolen, the
stockholder should promptly notify the Depositary. The stockholder will then
be instructed as to the steps that must be taken in order to replace the
certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed certificates
have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF), TOGETHER
WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER
REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE
EXPIRATION DATE.
<PAGE>
IMPORTANT TAX INFORMATION
Under Federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required to provide the Depositary with such
stockholder's correct TIN on Substitute Form W-9 below. If such stockholder is
an individual, the TIN is his or her social security number. If a tendering
stockholder is subject to backup withholding, he or she must cross out item
(2) of the Certification box on the Substitute Form W-9. If the Depositary is
not provided with the correct TIN, the stockholder may be subject to a $50
penalty imposed by the Internal Revenue Service. In addition, payments that
are made to such stockholder with respect to Shares purchased pursuant to the
Offer may be subject to backup withholding.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that stockholder must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt status. Such statements may be
obtained from the Depositary. Exempt stockholders, other than foreign
individuals, should furnish their TIN, write "Exempt" on the face of the
Substitute Form W-9 below and sign, date and return the Substitute Form W-9 to
the Depositary. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of his or her correct TIN by completing the
form below certifying that the TIN provided on the Substitute Form W-9 is
correct (or that such stockholder is awaiting a TIN).
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares. If
the Shares are in more than one name or are not in the name of the actual
owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidelines on
which number to report. If the tendering stockholder has not been issued a TIN
and has applied for a number or intends to apply for a number in the near
future, the stockholder should write "Applied For" in the space provided for
in the TIN in Part I, and sign and date the Substitute Form W-9. If "Applied
For" is written in Part I and the Depositary is not provided with a TIN within
60 days, the Depositary will withhold 31% on all payments of the purchase
price until a TIN is provided to the Depositary.
<PAGE>
PAYER'S NAME: CITIBANK N.A.
<TABLE>
<CAPTION>
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SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN IN SOCIAL SECURITY NUMBER
FORM W-9 THE BOX AT RIGHT AND CERTIFY BY
SIGNING AND DATING BELOW. OR__________________________________
Department of the Treasury EMPLOYER IDENTIFICATION NUMBER
Internal Revenue Service
(If awaiting TIN write "Applied For")
<S> <C>
----------------------------------------------------------------------------
Payer's Request for Taxpayer PART II--For Payees exempt from backup withholding, see the enclosed
Identification Number (TIN) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 and complete as instructed therein.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION--Under the penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or a Taxpayer Identification Number has not been issued to me)
and either (a) I have mailed or delivered an application to receive a
Taxpayer Identification Number to the appropriate Internal Revenue
Service ("IRS") or Social Security Administration office or (b) I intend
to mail or deliver an application in the near future. (I understand that
if I do not provide a Taxpayer Identification Number within 60 days, 31%
of all reportable payments made to me thereafter will be withheld until I
provide a number); and
(2) I am not subject to backup withholding either because I have not been
notified by the IRS that I am subject to backup withholding as a result
of a failure to report all interest or dividends, or the IRS has notified
me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2). (Also see instructions in the
enclosed Guidelines.)
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SIGNATURE__________________________________________ DATE_______________ 1997
- -------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
The Information Agent for the Offer is:
[LOGO OF MACKENZIE PARTNERS, INC.]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
CALL TOLL-FREE (800) 322-2885
The Dealer Manager for the Offer is:
SALOMON BROTHERS INC
333 South Hope Street
Los Angeles, CA 90071
(213) 253-1842
(Call Collect)
<PAGE>
EXHIBIT 99.4
Letter to Stockholders of AST Research, Inc. dated April 21, 1997
<PAGE>
[LOGO OF AST COMPUTER]
April 21, 1997
Dear AST Research Stockholders:
I am pleased to inform you that, on April 14, 1997, AST Research, Inc. (the
"Company") entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Samsung Electronics Co. Ltd. ("Samsung") and AST Acquisition,
Inc., a wholly-owned subsidiary of Samsung ("AST Acquisition"), pursuant to
which Samsung is commencing a cash tender offer to purchase all of the
outstanding shares of the Company's Common Stock not currently owned by
Samsung or its affiliates at a price of $5.40 per share (the "Offer").
Following completion of the Offer, upon the terms and subject to the
conditions of the Merger Agreement, AST Acquisition will be merged with and
into the Company (the "Merger"), and each share of the Company's Common Stock
not purchased in the Offer (other than any shares owned by the Company or any
of its subsidiaries, Samsung or any of its subsidiaries and any dissenting
stockholders) will be converted into the right to receive $5.40 per share in
cash, without interest. Upon consummation of these transactions, Samsung and
its affiliates will own the entire equity interest in the Company.
THE BOARD OF DIRECTORS OF THE COMPANY, BASED ON THE UNANIMOUS RECOMMENDATION
OF A SPECIAL COMMITTEE OF THE INDEPENDENT DIRECTORS OF THE COMPANY, HAS
DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE OFFER AND THE MERGER, TAKEN TOGETHER, ARE IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF THE COMPANY (OTHER THAN SAMSUNG AND ITS
AFFILIATES), HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, AND RECOMMENDS THAT
THE STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES THEREUNDER.
Accompanying this letter, in addition to the attached Schedule 14D-9
relating to the Offer, is Samsung's Offer to Purchase, dated April 21, 1997
together with related materials including a Letter of Transmittal, dated April
21, 1997, to be used for tendering your shares. These documents set forth the
terms and conditions of the Offer and the Merger, provide detailed information
about the transactions and include instructions as to how to tender your
shares. I urge you to read the enclosed materials carefully.
Very truly yours,
/s/ Y.S. Kim
Y.S. Kim
President and Chief Executive
Officer
AST Research, Inc. . 16215 Alton Parkway . Irvine, CA 92718
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.9
Second Amendment to Rights Agreement, dated as of April 15, 1997,
between AST Research, Inc. and American Stock Transfer and Trust Company,
as Successor Rights Agent
<PAGE>
EXHIBIT 9
SECOND AMENDMENT TO RIGHTS AGREEMENT
------------------------------------
THIS SECOND AMENDMENT to the Amended and Restated Rights Agreement, dated
as of January 28, 1994, by and between AST Research, Inc. (the "Company") and
American Stock Transfer and Trust Company, as successor Rights Agent ("American
Stock Transfer"), as amended by the First Amendment to Rights Agreement, dated
as of March 1, 1995 (as so amended, the "Rights Agreement"), is dated as of this
15th day of April, 1997.
WHEREAS, the Company and American Stock Transfer are parties to the Rights
Agreement, pursuant to which American Stock Transfer acts as successor Rights
Agent; and
WHEREAS, the Company, Samsung Electronics Co. Ltd. ("Purchaser") and AST
Acquisition, Inc. ("Merger Sub") have entered into that certain Agreement and
Plan of Merger, dated as of April 14, 1997 (the "Merger Agreement"), pursuant to
which (a) Purchaser will acquire all of the outstanding shares of Common Stock
of the Company not owned by Purchaser or its affiliates and (b) Purchaser and
its affiliates will collectively own all of the Common Stock of the Company; and
WHEREAS, Section 27 of the Rights Agreement provides that prior to a
Distribution Date (as defined in the Rights Agreement), the Company and the
Rights Agent shall, if the Company so directs and upon the delivery of a
certificate from an appropriate officer of the Company which states that the
proposed amendment is in compliance with Section 27, amend any provision of the
Rights Agreement without the approval of the holders of Common Stock;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties agree to amend the Rights Agreement as follows:
1. Section 35 shall be added to the Rights Agreement and shall read in its
entirety as follows:
"Section 35. Termination of Rights. Notwithstanding any
---------------------
provision of this Agreement to the contrary, the Rights shall
expire immediately prior to the Effective Time, as such term is
defined in the Agreement and Plan of Merger, dated as of April
14, 1997, by and among the Company, Samsung Electronics Co. Ltd.
and AST Acquisition, Inc."
2. Except as set forth herein, the Rights Agreement shall remain in full
force and effect.
3. This Amendment shall be deemed to be a contract made under the laws of
the State of Delaware, and for all purposes shall be governed by and construed
in accordance with the laws of such State applicable to contracts made and
performed entirely within such State.
<PAGE>
4. This Amendment may be executed in any number of counterparts, and each
such counterpart shall for all purposes be deemed to be an original, with all
such counterparts together constituting one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first written above.
<TABLE>
<S> <C>
Attest: AST RESEARCH, INC.
By: /s/ ALICE A. ROGERS By: /s/ Y.S. KIM
------------------------------------ ---------------------------------------
Name: Alice A. Rogers Name: Young Soo Kim
------------------------------------ ---------------------------------------
Title: Executive Assistant Title: President and Chief
------------------------------------ ---------------------------------------
Executive Officer
---------------------------------------
Attest: AMERICAN STOCK TRANSFER & TRUST COMPANY
By: /s/ GERALDINE M. ZARBO By: /s/ H. J. LEMMER
---------------------------------- ---------------------------------------
Name: Geraldine M. Zarbo Name: Herbert J. Lemmer
---------------------------------- ---------------------------------------
Title: Vice President Title: Vice President
---------------------------------- ---------------------------------------
</TABLE>
<PAGE>
EXHIBIT 99.53
Implementation Supplement to Employment Agreement, dated April 19, 1997,
between AST Research, Inc. and Safi U. Qureshey
<PAGE>
IMPLEMENTATION SUPPLEMENT TO EMPLOYMENT AGREEMENT
This Implementation Supplement to Employment Agreement is dated April 19,
1997, and is by and between AST Research, Inc. and Safi U. Qureshey, and
concerns the Employment Agreement (hereinafter "Employment Agreement") dated
July 27, 1993 and the Amendment to and Clarification of Employment Agreement
dated February 27, 1995. The parties agree as follows:
1. Section 12(b) of the Employment Agreement, which states as follows:
"During the benefit period of five (5) years following the Date of Termination,
the Company shall allow Executive the continued use of a Company automobile on
the same terms that existed prior to the Date of Termination for the five (5)
years following the Date of Termination; and upon expiration of the five (5)
year benefit period, the Company shall transfer to Executive clear title to the
automobile being driven by Executive with sales or use taxes fully paid by the
Company." is deleted and replaced by the following:
During the period of May 1, 1997 through January 31, 2002, the Company
shall pay to Executive the amount of $1,000 per month. The Company shall,
on May 1, 1997, transfer to the Executive the title and ownership of a 1994
Chrysler Concorde automobile currently being driven by the Executive, and
the parties agree that the value of the automobile is $13,964.00. The
Automobile is transferred AS IS and WITH ALL FAULTS, without any warranty
of any kind by the Company.
2. Section 12(d) of the Employment Agreement, which states as follows:
"During the benefit period of five (5) years following the Date of Termination,
the Company shall provide Executive with an office and secretarial services in
Irvine, California, equivalent to those being provided to Executive in his
current Irvine, California, office." is deleted and replaced by the following:
Commencing on May 1, 1997, the Company shall pay the Executive the monthly
amount of $9,000 through January 31, 2002. The Executive agrees to vacate,
by May 1, 1997, the current office being used by him in the Company
facility. The Company shall, on May 1, 1997, transfer to the Executive the
title and ownership of the following furniture currently being used by
Executive and the assistant to the Executive: one executive desk, one
executive chair, two visitor chairs, one large credenza/computer table, one
small credenza/file, two book cases, one sofa, one love seat/chair, one
coffee table, one conference table, four conference table chairs, one
television, one television table/end table, one small refrigerator, one
computer, one fax machine, one white board, two deluxe speaker telephones,
one small volume copier, one executive secretarial desk, one executive
secretary chair, one visitor chair, two book cases, two large credenzas,
one large credenza/hutch, two small credenzas/file, one computer table, one
computer, one printer, one deluxe secretarial/speaker telephone. The
parties agree that the value of the furniture is $5,441.80. The furniture
is transferred AS IS and WITH ALL FAULTS, without any warranty of any kind
by the Company.
3. In respect to the delay by the Company of a payment made on April 12, 1997
under the severance Agreement dated February 15, 1991, as amended, the Company
agrees to pay to the Executive, by April 25, 1997, the amount of
-1-
<PAGE>
$20,000, from which government required withholding may be deducted. The
Executive agrees to return that portion of the April 19, 1997 payment that was
inadvertantly not withheld for government required withholding by the Company.
The Company agrees that all of such amount returned by the Executive pursuant to
this paragraph shall be paid to governments as withholding for the benefit of
the Executive.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Implementation Supplement to Employment Agreement as of April 19, 1997.
EXECUTIVE: AST RESEARCH, INC.:
By: /s/ SAFI U. QURESHEY By: /s/ RANDALL G. WICK
----------------------------- -----------------------------
SAFI U. QURESHEY RANDALL G. WICK
Vice President
-2-
