-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MEAYvrnsSxw6ZaRXv8VOqRItvKvu3Ntvoh5T/B4HvWmX9E/pHzL+3oiK+NdkWdy7 MC1BEVHGK7REE9lD6RkkEw== 0000950123-99-002534.txt : 19990326 0000950123-99-002534.hdr.sgml : 19990326 ACCESSION NUMBER: 0000950123-99-002534 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL SEMICONDUCTOR INC CENTRAL INDEX KEY: 0000040656 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 133575653 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-05442 FILM NUMBER: 99573162 BUSINESS ADDRESS: STREET 1: 10 MELVILLE PARK ROAD CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5168473000 MAIL ADDRESS: STREET 1: 10 MELVILLE PARK ROAD CITY: MELVILLE STATE: NY ZIP: 11747 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL INSTRUMENT CORP /DE/ DATE OF NAME CHANGE: 19920703 10-K405/A 1 GENERAL SEMICONDUCTOR, INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K/A (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-5442 GENERAL SEMICONDUCTOR, INC. ------------------------------------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-3575653 ------------------------------- ------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 10 MELVILLE PARK ROAD, MELVILLE, NEW YORK 11747 ----------------------------------------- --------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (516) 847-3000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $203.1 million as of February 26, 1999 (based on the closing price of the Common Stock on the New York Stock Exchange on that date). For purposes of this computation, shares held by affiliates and by directors and officers of the registrant have been excluded. Such exclusion of shares to be held by directors and officers is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant. Number of shares of Common Stock, par value $.01 per share, outstanding as of February 26, 1999: 36,819,898. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement to be used in conjunction with the Annual Meeting of Stockholders to be held on May 12, 1999 are incorporated by reference in Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM I. BUSINESS GENERAL General Semiconductor, Inc. ("General Semiconductor" or the "Company"), a Delaware corporation, is a market leader in the discrete segment of the semiconductor industry with manufacturing facilities in China, France, Germany, Ireland, Taiwan and the United States. The Company provides customers with a broad array of power rectifiers, transient voltage suppressors and small signal transistors and diodes. It has a diversified customer base, in terms of geography and end-use markets. Customers include leading manufacturers of consumer electronics, lighting, telecommunications equipment, computers, automotive and automotive after-market products located around the globe. 1997 COMPANY REORGANIZATION On January 7, 1997 the Board of Directors of General Instrument Corporation ("GI") approved a plan to divide GI into three separate public companies. To effect the transaction, GI (i) transferred all the assets and liabilities relating to the manufacture and sale of broadband communications products used in the cable television, satellite, and telecommunications industries and all rights to the related GI trademarks to its wholly-owned subsidiary NextLevel Systems, Inc. ("NextLevel Systems"), and all the assets and liabilities relating to the manufacture and sale of coaxial, fiber optic and other electric cable used in the cable television, satellite and other industries to its wholly-owned subsidiary CommScope, Inc. ("CommScope") and (ii) distributed all of the outstanding shares of capital stock of each of NextLevel Systems and CommScope to its stockholders on a pro rata basis as a dividend (the "Distribution") in a transaction that was finalized on July 28, 1997 (the "Distribution Date"). On the Distribution Date, NextLevel Systems and CommScope began operating as independent entities with publicly traded common stock. GI retained no ownership interest in either NextLevel Systems or CommScope. Concurrent with the Distribution, GI changed its name to General Semiconductor, Inc. and effected a one for four reverse stock split (the "Stock Split"). On February 2, 1998 NextLevel Systems changed its name to General Instrument Corporation ("General Instrument"). PRINCIPAL PRODUCTS General Semiconductor designs, manufactures and sells a broad array of discrete semiconductors. These products are used throughout industry to condition current and voltage, to protect electrical circuits from power surges, to amplify and switch small electrical signals and to regulate voltage levels in circuits. Products sold include low-to-medium-power rectifiers, transient voltage suppressors ("TVS"), small signal diodes and transistors, and zener diodes in axial, bridge, power, and surface mount packages. Discrete semiconductors, unlike integrated circuits (IC's), are single function components. Power rectifiers, TVS and small signal products are essential components of most electronic devices and systems. Unlike most IC's, the Company's discrete semiconductor products are generally characterized by long product life cycles. As an example, General Semiconductor has been manufacturing the SUPERECTIFIER(R) for over 25 years. This long life cycle allows the Company to spend less on equipment and research and development than higher technology IC semiconductor manufacturers that produce products with shorter life cycles. Rectifiers. Rectifiers convert alternating current (AC) into direct current (DC) which can be used to power electronic equipment. General Semiconductor offers the widest selection of rectifier products in the world. Rectifiers offered by the Company include: bridges, fast efficient rectifiers, glass passivated rectifiers, plastic rectifiers, Schottky rectifiers and SUPERECTIFIERS(R). Bridge rectifiers are essential for any electronic equipment which plugs into an electrical outlet. A bridge rectifier is comprised of four separate rectifier components configured into a "bridge" arrangement in a single package. Bridge assemblies convert alternating current (AC) into full wave direct current (DC) which can be 1 3 utilized by electronic equipment. General Semiconductor manufactures a complete line of bridge rectifiers that meet the power and case style requirements of most electronic equipment. The SUPERECTIFIER(R) is a highly reliable and cost effective component that incorporates several of the Company's unique technologies. The SUPERECTIFIER(R) glass-plastic construction provides improved durability and handling characteristics which makes this product effective in a broad range of end markets. General Semiconductor's Schottky rectifier is designed for use in high-speed and low-power load applications such as computer and computer related products. Its metal-silicon junctions and majority carrier conduction result in nearly zero reverse recovery times and very low forward voltage drop. The Company's unique sputtered metallization process and ion-implanted guard ring technology create a highly reliable Schottky product. The Company produces Schottky rectifiers in axial, power and surface mount packages. Fast efficient rectifiers are a natural extension of the Company's Schottky product portfolio. These products offer reverse times as low as 25 nanoseconds at voltage levels as high as 1,000 volts while maintaining the efficiencies of a lower forward voltage loss. The Company produces fast efficient rectifiers in axial, power and surface mount packages. Fast efficient rectifiers, like Schottky rectifiers, are principally used for computer and computer related applications. Transient Voltage Suppressors. TVS devices, like fuses, are designed to provide protection against all types of transient threats, ranging from electrostatic discharge ("ESD") to induced lightning. Based on controlled avalanche technology, these voltage clamping devices absorb large amounts of energy for short periods of time. The Company offers a broad range of state-of-the-art TVS devices for use in most modern electronic equipment. In 1998, the Company introduced a line of TVS devices specifically designed for automotive applications. These include the avalanche alternator rectifier and the surface mount automotive high energy TVS device. Small Signal Diodes. Small signal diodes perform various functions such as signal blocking, routing and switching at lower current levels. Product usage includes telecommunication equipment, personal computer motherboards, automotive systems, power supplies and consumer electronics. Small Signal Transistors. Small signal transistors deliver amplification and switching functions. These products provide the critical switching and amplification functions that are essential to any modern electronic system. Zener Diodes. Zener product lines provide a wide variety of specialized functions for complex electronic circuits. These devices are used as voltage regulators, voltage reference and voltage suppressors against ESD threats. Zener diodes are also used in most modern electronic systems and end markets. END MARKETS AND CUSTOMERS The Company has a diversified customer base in terms of both geography and end-use markets. The Company's products are primarily targeted for use in the automotive, computer, consumer electronics, telecommunications and lighting industries. The Company's customers are located throughout the world. The demand for discrete semiconductors has grown as product performance has been enhanced and size and cost have decreased. In addition, system users and designers demand systems with more functionality, higher levels of performance, greater reliability and shorter design cycles, all in smaller packages and at lower costs. This demand has resulted in increased semiconductor content as a percentage of overall system content. Automotive. General Semiconductor's discrete components are found in critical systems and creature comfort systems throughout automotive design. Automotive customers seek highly reliable components. The Company's components are used in many automotive applications including: air conditioning modules, catalytic converter heaters, climate control modules, engine cooling systems and ignition modules. The automotive industry represented 18% of the Company's 1998 sales. Major automotive customers include Robert Bosch Corporation, Ford Motor Company, General Motors Corporation and Siemens AG. 2 4 Computer. All computers and their associated peripherals require sophisticated, controlled electrical energy. General Semiconductor provides the power rectifying element required in all computer electronic systems to transform unmanaged, raw electric power into the controlled energy source modern digital systems require. The Company's products also protect computer systems from transient threats, such as ESD and induced lightning. The computer market represented 24% of the Company's 1998 sales. General Semiconductor's products are sold to computer and computer component manufacturers in numerous applications, including: switch mode power supplies, modem cards, P.C.A. boards, logic boards, laser printers, computer processors and monitors. Major computer customers include Philips NV, Samsung Electronics Co. Ltd., Acer Incorporated and LG International Corp. Consumer electronics. General Semiconductor's products are found in a broad range of consumer products, including: refrigerators, garage door openers, hair dryers, washers and dryers, microwaves and more. The consumer end market represented 13% of the Company's 1998 sales. Sony Corporation, Philips NV, LG International Corp., and Daewoo Corporation represent a few of the Company's customers in the consumer market. Telecommunications. General Semiconductor's products perform various functions for the telecommunications market. Applications using the Company's products include cordless phones, pagers, cellular base stations, ISDN boards, satellite dishes and more. This end-market represented 6% of General Semiconductor's 1998 sales. Major telecommunications customers include Siemens AG, Lucent Technologies, Nokia Electronics and Nortel Networks. Lighting. Electronic ballast systems have been replacing older and less efficient magnetic ballast systems and incandescent bulbs. This, in part, has increased the demand for the Company's products which are used in electronic ballasts. Lighting represented 4% of the Company's 1998 sales. Major customers in this end market include Philips NV, MagneTek Inc., Siemens AG and Motorola, Inc. Distributors. Distributors meet the needs of customers with lower volume requirements. Distributors serve all the Company's end-use markets described above in all regions. Sales to distributors represented 30% of the Company's 1998 sales. Major distributors include Future Electronics, Inc., Arrow Electronics Inc., Rutronik Elektron and Taitron Components Inc. BUSINESS STRATEGY As a leading manufacturer of discrete semiconductors, the Company's strategy is to increase its market share in the $12 billion discrete semiconductor market. This strategy is based on the following: - Focus on Value-Added Investment and Manufacturing. General Semiconductor intends to continue to focus on value-added investments in capital, sales and marketing and research and development. The Company's value-added manufacturing strategy is based on its high-volume, highly automated operations, which is currently capable of producing approximately 45 million units per day and gives the Company the competitive advantage of being a low cost producer. This strategy is characterized by high-quality and very low-defect output. - Product Breadth Expansion. General Semiconductor believes that a key driver in its growth will be new product introduction and expansion in the breadth of its product portfolio. The Company expects to realize this growth by internal research and development efforts, strategic partnerships and strategic acquisitions. The acquisition of ITT Industries, Inc.'s discrete semiconductor business in October 1997 expanded the Company's product offerings by adding zener diodes, signal diodes and small signal transistors to the General Semiconductor portfolio. - Capitalize on Global Sales and Distribution Capabilities. General Semiconductor will continue to capitalize on its international presence. International sales represented approximately 70% of the Company's 1998 sales. The Company currently maintains 10 sales offices worldwide and utilizes a worldwide sales force of over 1,000 persons, including sales agents, distributors and representatives. 3 5 Additionally, the Company has approximately 60 direct sales and technical personnel with over ten years average sales experience in the industry. General Semiconductor intends to continue its strategy of utilizing direct and indirect sales forces on a global scale. - Maintain and Expand Strong Customer Relationships. The Company's products occupy a segment of the semiconductor industry characterized by long product life cycles, relatively low research and development investments and utilization of proven wafer fabrication technology. General Semiconductor maintains ongoing relationships with major computer, telecommunications, automotive and consumer electronics companies worldwide. The Company intends to continue to build upon these strong relationships to grow with its customers and to increase its market share. Management of General Semiconductor believes that future demand for discrete semiconductors will be driven over time by several factors including (i) increased electronic content in a broad range of products, devices and systems, including automotive, consumer products and industrial equipment; (ii) greater demand for voice and data communications products; (iii) growth in personal computers and peripheral products; (iv) the rapid replacement of heavier and less efficient magnetic lighting ballasts with electronic ballasts; and (v) increasing demand in new international markets. There can be no assurance, however, that increased competition, excess industry capacity or technical developments will not adversely affect the Company's revenue and profitability by causing it to reduce prices or by reducing demand for the Company's products. SALES AND DISTRIBUTION General Semiconductor products are sold primarily to the automotive, computer, consumer electronics, telecommunications, and lighting industries via a direct sales force, through distributors and sales representatives. In each of the years ended December 31, 1998, 1997 and 1996, sales to customers in North America, Europe and Southeast Asia each represented approximately 30% of the Company's net sales. Sales to customers in Japan represented the majority of the balance. General Semiconductor's customer base incorporates a wide array of the world's largest manufacturers. No single customer accounted for more than 10% of the Company's sales during the years ended December 31, 1998, 1997 and 1996. To support its worldwide sales and distribution, General Semiconductor utilizes more than 1,000 sales personnel worldwide, including sales representatives, distributors and approximately 60 direct sales and technical personnel. The Company maintains 10 sales offices located in Melville, New York; Carlsbad, California; Arlington Heights, Illinois; Norcross, Georgia; Hong Kong; Munich, Germany; Tokyo and Osaka, Japan; Taipei, Taiwan; and Singapore. Additionally, the Company leverages information technology to develop and maintain strong customer relationships. Examples such as electronic data interchange ("EDI") are used by many of its major customers to facilitate the order through delivery process. In addition to EDI, the Company intends to expand upon the scope of services provided via Internet, Extranets and other electronic means to provide broader services to the marketplace. These services will provide, among others, improved technical support, on-line order access, and e-commerce. The use of improved information technology, combined with strong technical marketing and broad sales channels has helped the Company obtain new product approvals and market share gains at major customers. RESEARCH AND DEVELOPMENT General Semiconductor conducts an internally funded research and development program and employs approximately 70 full-time research and development personnel. The Company operates research and development labs in Ireland and Taiwan that focus primarily on the development of new packaging technology and a third research and development lab in Westbury, New York which focuses on applied material sciences. In addition to its in-house research and development efforts, the Company funds dedicated research through a grant program with the National Microelectronics Research Center at the University College, Cork in Ireland. Research and development expenditures totaled $6.1 million, $6.0 million and $5.8 million for the years ended December 31, 1998, 1997 and 1996, respectively. Research and development expenditures reflect 4 6 continued development and the advancement of new product and packaging technologies targeted for the automotive, telecommunications and computer end-market applications. In 1998 the Company introduced the surface mount high energy automotive TVS device, the fast recovery mini-bridge and the high voltage TVS products. The new surface mount automotive high energy TVS device is designed to protect automotive electronic systems from high energy surges. These products use General Semiconductor's patented PAR(TM) construction that insures superior high temperature operation, which is critical for automotive applications. The fast-recovery mini-bridge is a low-current surface mount bridge rectifier with fast switching characteristics. This device saves space on printed circuit boards when compared to standard bridges. The fast recovery time of this device reduces energy losses for fast switching power supply applications. The Company has extended the voltage range of its TRANSZORB(TM) TVS devices up to 550 volts, which is the highest avalanche voltage offered in the market today. These are offered in both axial and surface-mount packages. Applications for these higher voltage TVS devices include lighting ballast. PATENTS The Company pursues an active policy of seeking patents for new products and designs. As of December 31, 1998, the Company held 58 U.S. patents. Although management believes that the Company's patents provide a competitive advantage, no single patent is material to its business and General Semiconductor intends to continue to rely on its proprietary knowledge and continuing technological innovation to develop and maintain its competitive position. BACKLOG At December 31, 1998, the Company had an order backlog of approximately $121.8 million compared with $168.1 million as of December 31, 1997. Order backlog includes only orders for products scheduled to be shipped within six months. Orders may be revised or canceled, either pursuant to their terms or as a result of negotiations; consequently, it is impossible to predict accurately the amount of backlog orders that will result in sales. While 1998 order levels have been depressed industry wide due to the global economic conditions, order backlog has also declined during 1998 in part due to shortened customer lead times. The Company's backlog may not necessarily be indicative of sales for any succeeding period. COMPETITION The discrete semiconductor industry is highly competitive. General Semiconductor competes with companies worldwide, some of which have greater financial, marketing and management resources than the Company. Management believes, however, that the Company competes favorably on the basis of its continued commitment to global distribution and customer service, value-added manufacturing, technological leadership and new product innovation. There can be no assurance, however, that the Company will have sufficient resources to continue to make such investments or that the Company will be successful in maintaining such advantages. The Company believes that its principal competitors include Motorola, Inc., Philips Electronics N.V., ST Microelectronics N.V., and a number of Taiwanese and Japanese manufacturers. EMPLOYEES As of December 31, 1998, General Semiconductor employed approximately 5,000 people worldwide. Management believes that the Company's relations with both its union and non-union employees are satisfactory. RAW MATERIALS Silicon ingots, molding compound and lead frames typically account for approximately two-thirds of General Semiconductor's raw material expense. Management believes that the Company's relations with its suppliers are good and does not anticipate any supply shortages in the near term. 5 7 Due to the general availability of components and supplies, the Company does not believe that the loss of any supplier would have a long-term material adverse effect on its business although set-up costs and delays could occur if the Company changes suppliers. In the past, delays in delivery of components have not had a material adverse effect on shipments of the Company's products. ENVIRONMENT General Semiconductor is committed to operate worldwide in a manner which respects and protects the environment. The Company uses hazardous substances and generates solid and hazardous waste in the ordinary course of its business. Consequently, the Company is subject to various federal, state, local and foreign laws and regulations governing environmental matters, including the use, discharge and disposal of hazardous materials. Because of the nature of its business, the Company incurs costs relating to compliance with such environmental laws. Although General Semiconductor's management believes that the Company is in substantial compliance with such environmental requirements there can be no assurance that General Semiconductor's cost to comply with such requirements will not increase in the future. Although General Semiconductor is unable to predict what legislation or regulations may be adopted in the future with respect to environmental protection and waste disposal, compliance with existing legislation and regulations has not had a material adverse effect on the Company and is not expected to have a material adverse effect on the Company's financial position, results of operations or cash flows. In connection with the Distribution, General Semiconductor retained the obligations with respect to environmental matters relating to the Company's discontinued operations and its status as a "potentially responsible party" with respect to the offsite disposal of wastes. The Company is presently engaged in the remediation of eight discontinued operations in six states, and is a de minimus "potentially responsible party" at five hazardous waste sites in four states. Based on several factors including capital expenditures and expenses for the Company's remediation programs, and the proportionate share of the cost of the necessary investigation and eventual remedial work that may be needed to be performed at the sites for which the Company has been named as a "potentially responsible party," these matters are not expected to have a material adverse effect on the financial position, results of operations or cash flows of General Semiconductor. The Company's present and past facilities have been in operation for many years, and over that time in the course of those operations, such facilities have used substances which are or might be considered hazardous, and the Company has generated and disposed of wastes which are or might be considered hazardous. Therefore, it is possible that additional environmental issues may arise in the future which the Company cannot now predict. Reference is made to Note 10 to the consolidated financial statements and the cautionary statements contained in Exhibit 99 to this Form 10-K for further information regarding environmental matters. INTERNATIONAL OPERATIONS A significant portion of the Company's products are manufactured or assembled in Taiwan (Republic of China), the People's Republic of China, Ireland, Germany and France. These foreign operations are subject to the usual risks inherent in operating overseas, including risks with respect to fluctuations in currency exchange rates, economic and political destabilization, restrictive actions by foreign governments, nationalizations, the laws and policies of the United States affecting trade, foreign investment and loans and foreign tax laws. The Company's cost-competitive status relative to its competitors could be adversely affected if the New Taiwan dollar appreciates relative to the U.S. dollar or if the Company experiences other unfavorable movements in foreign currency rates. International sales generally represent 70% of the Company's worldwide sales. Sales to the entire Asia/ Pacific region accounted for approximately 35% of the Company's worldwide sales for the year ended December 31, 1998. During 1998 order trends and average selling prices weakened significantly reflecting the current economic and currency difficulties in Southeast Asia, the economic slowdown in Japan and the difficulties in the computer and computer peripherals industries. However, approximately 50% of the Company's production is currently in Taiwan, the cost of which has benefited from the weakened New Taiwan Dollar in relation to the U.S. dollar. Extended underutilization of the Company's manufacturing facilities, 6 8 resulting in production inefficiency, could result in margin deterioration. There can be no assurance as to the extent or duration of the impact of these events on the Company. For detailed financial information concerning foreign and domestic operations and export sales, reference is made to Note 15 to the consolidated financial statements included in Part II of this Form 10-K. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is certain information with respect to the executive officers of the Company as of December 31, 1998.
NAME AND TITLE AGE BUSINESS EXPERIENCE -------------- --- ------------------- Ronald A. Ostertag.................. 58 Ronald A. Ostertag has been Chairman, President Chairman, President and and Chief Executive Officer of General Chief Executive Officer Semiconductor since the Distribution. Previously, he held the position of Vice President of GI since February 1989 and President of GI's Power Semiconductor Division since September 1990. Andrew M. Caggia.................... 50 Andrew M. Caggia has been Senior Vice President Senior Vice President and and Chief Financial Officer of General Chief Financial Officer Semiconductor since the Distribution. Previously, he held the position of Senior Vice President of Finance at GI's Power Semiconductor Division since September 1990. Robert J. Gange..................... 43 Robert J. Gange has been Vice President and Vice President and Controller of General Semiconductor since the Controller Distribution and Vice President and Controller of GI's Power Semiconductor Division since May 1997. From 1995 to 1997, he was Director of Finance and from 1993 to 1995, Assistant Controller of GI's Power Semiconductor Division. Vincent M. Guercio.................. 45 Vincent M. Guercio has been Senior Vice Senior Vice President, e-commerce President, e-commerce of General Semiconductor since November 1998. From the Distribution to November 1998 he was Senior Vice President, Worldwide Sales and Marketing. Previously, he had been responsible for this function at GI's Power Semiconductor Division since January 1992. W. John Nelson...................... 44 W. John Nelson has been President, Asia/Pacific President, Operations of General Semiconductor since Asia/Pacific Operations November 1998. From the Distribution to November 1998 he was Senior Vice President, Asia/Pacific Operations. Previously, he had been responsible for this function at GI's Power Semiconductor Division since March 1994. From 1991 to 1994, he was President of GI Taiwan.
7 9
NAME AND TITLE AGE BUSINESS EXPERIENCE -------------- --- ------------------- Stephen B. Paige.................... 51 Stephen B. Paige has been Senior Vice President, Senior Vice President, General General Counsel and Secretary of General Counsel and Secretary Semiconductor since the Distribution. Previously, he was Senior Vice President and General Counsel for GI's Power Semiconductor Division since May 1997. From April 1995 to May 1997, he was Vice President and General Counsel of Monsanto Business Services, Chicago Region. From January 1992 to April 1995, he was Vice President, General Counsel and Secretary of The NutraSweet Company, a wholly-owned subsidiary of Monsanto Company. Linda S. Perry...................... 48 Linda S. Perry has been Senior Vice President, Senior Vice President, Human Resources of General Semiconductor since Human Resources September 1997 and its Vice President, Human Resources since the Distribution. Previously, she held the position of Vice President, Human Resources at GI's Power Semiconductor Division and has had responsibility for this function since 1988. John P. Phillips.................... 53 John P. Phillips has been President, Europe and President, Europe and North America Operations of General North America Operations Semiconductor since November 1998. From the Distribution to November 1998 he was Senior Vice President, European Operations. Previously, he was Senior Vice President of Worldwide Technology for GI's Power Semiconductor Division and had responsibility for this function since March 1992.
ITEM 2. PROPERTIES The Company's administrative, production and research and development facilities are located in Melville and Westbury, New York; Taipei, Taiwan; Macroom, Ireland; Tianjin, China; Freiburg, Germany; and Colmar, France. The Melville, New York facility occupies approximately 52,000 square feet pursuant to a lease expiring in 2004 and is General Semiconductor's worldwide headquarters. The Company has two additional five year options to renew the lease. The Westbury, New York facility occupies approximately 18,000 square feet pursuant to leases expiring in 2005 with an option to extend the leases for an additional five years. The Westbury facility is the location of the Company's epitaxial silicon wafer manufacturing operations and its applied material sciences research and development laboratory. The Taipei, Taiwan land and facility is owned and occupies approximately 350,000 square feet. At the Taiwan facility, the Company manufactures standard, Schottky and fast efficient rectifiers and TVS devices. The Company also maintains a research and development laboratory at its Taiwan facility. The Company owns approximately 120,000 square feet of manufacturing space in Macroom, Ireland. The Company manufactures standard rectifiers, fast efficient rectifiers, TVS devices and bridge assemblies and maintains a research and development laboratory at the Ireland facility. The Company owns an approximately 120,000 square foot manufacturing facility in Tianjin, China. The China facility is located on land that is leased by the Company pursuant to a ground lease expiring in 2045. The Company manufactures rectifiers and bridges at this facility which opened in the third quarter of 1997. 8 10 The Freiburg, Germany facility occupies approximately 55,000 square feet pursuant to a lease expiring in 2000 and is the location of the Company's small signal product, die and wafer manufacturing operations. The Company has the right to continue the lease until October 2007. The Colmar, France facility performs the assembly function for the Company's small signal products product line. This highly automated 63,000 square foot plant is situated on approximately six acres of land owned by the Company. Utilization of the Company's facilities vary with economic and other business conditions. At the present time, the Company has excess capacity for certain of its products. Management believes that the Company's facilities and equipment generally are well maintained, in good operating condition and adequate for its present and anticipated near term operating needs. ITEM 3. LEGAL PROCEEDINGS A securities class action is presently pending in the United States District Court for the Northern District of Illinois, Eastern Division, In Re General Instrument Corporation Securities Litigation. This action, which consolidates numerous class action complaints filed in various courts between October 10 and October 27, 1995, is brought by plaintiffs, on their own behalf and as representatives of a class of purchasers of GI common stock during the period March 21, 1995 through October 18, 1995. The complaint alleges that prior to the Distribution, GI and certain of its officers and directors, as well as Forstmann Little & Co. and certain related entities, violated the federal securities laws, namely, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), by allegedly making false and misleading statements and failing to disclose material facts about GI's planned shipments in 1995 of its CFT-2200 and DigiCipher II products. Also pending in the same court, under the same name, is a derivative action brought on behalf of GI. The derivative action alleges that the members of GI's Board of Directors, several of its officers and Forstmann Little & Co. and related entities have breached their fiduciary duties by reason of the matter complained of in the class action and the defendants' alleged use of material non-public information to sell shares of GI common stock for personal gain. An action entitled BKP Partners, L.P. v. General Instrument Corp. was brought in February 1996 by certain holders of preferred stock of Next Level Communications ("NLC"), which was merged into a subsidiary of GI in September 1995. The action was originally filed in the Northern District of California and was subsequently transferred to the Northern District of Illinois. The plaintiffs allege that the defendants violated federal securities laws by making misrepresentations and omissions and breached fiduciary duties to NLC in connection with the acquisition of NLC by GI. Plaintiffs seek, among other things, unspecified compensatory and punitive damages and attorney's fees and costs. In connection with the Distribution, General Instrument (formerly "NextLevel Systems, Inc.") agreed to indemnify the Company with respect to its obligations, if any, arising out of or relating to In Re General Instrument Corporation Securities Litigation (including the derivative action), and the BKP Partners, L.P. v. General Instrument Corp. litigation. Therefore, management is of the opinion that the resolution of these matters will have no effect on the Company's consolidated financial position, results of operations or cash flows. General Semiconductor is not a party to any pending legal proceedings other than various claims and lawsuits arising in the normal course of business and those for which they are indemnified. Management is of the opinion that such litigation or claims will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 9 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Prior to the Distribution on July 28, 1997, GI's Common Stock was traded on the New York Stock Exchange under the symbol GIC. The information set forth below relating to the period preceding the Distribution represents market data of GI and has not been adjusted to reflect the Distribution or the one for four reverse stock split effected in connection with the Distribution. Since the Distribution, the Company's Common Stock has been traded on the New York Stock Exchange under the symbol SEM. The following table sets forth the high and low sale prices as reported by the New York Stock Exchange for each of the years ended December 31, 1997 and 1998.
"GIC": ---------------------- HIGH LOW --------- --------- YEAR ENDING DECEMBER 31, 1997 First Quarter............................................... $25 5/8 $21 1/2 Second Quarter.............................................. 28 3/8 21 1/4 Third Quarter (through July 25th)........................... 28 7/16 25 7/16 "SEM": ---------------------- HIGH LOW --------- --------- YEAR ENDING DECEMBER 31, 1997 July 28th through September 30th............................ $17 1/2 $12 3/8 Fourth Quarter.............................................. 13 9 7/8 HIGH LOW --------- --------- YEAR ENDING DECEMBER 31, 1998 First Quarter............................................... $14 3/4 $10 5/8 Second Quarter.............................................. 14 3/4 9 7/8 Third Quarter............................................... 10 1/8 6 Fourth Quarter.............................................. 10 11/16 5 15/16
As of February 26, 1999, there were 466 holders of record of the Company's Common Stock. The Company does not currently intend to pay dividends in the foreseeable future, but to reinvest earnings in the Company's business. The Company's ability to pay cash dividends on its Common Stock is limited by certain covenants contained in a credit agreement to which the Company is a party. See Note 9 to the Consolidated Financial Statements included in Part II of this Form 10-K. 10 12 ITEM 6. SELECTED FINANCIAL DATA The following table presents selected historical financial data of General Semiconductor at the dates and for each of the periods indicated. The financial data as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998 has been derived from the audited General Semiconductor consolidated financial statements included elsewhere herein. The financial data as of December 31, 1996, 1995 and 1994 and for the two years ended December 31, 1995 has been derived from the previously audited consolidated financial statements not included herein, as adjusted to give effect to the Distribution. The selected financial data should be read in conjunction with the Company's consolidated financial statements and notes thereto included elsewhere herein and "Management's Discussion and Analysis of Financial Condition and Results of Operations". Historical consolidated financial data may not be indicative of General Semiconductor's future performance.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1998 1997(a) 1996 1995 1994 -------- -------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales........................... $401,144 $380,038 $ 361,891 $ 414,269 $ 315,688 Cost of sales....................... 283,582 289,313 230,687 254,991 208,452 Selling, general and administrative.................... 46,802 44,668 42,594 51,225 45,253 Research and development............ 6,104 5,998 5,838 5,068 3,454 Restructuring....................... 12,324 -- -- -- -- Operating income.................... 47,187 34,916 77,618 97,776 53,140 Interest expense -- net............. (20,026) (14,353) (10,396) (9,461) (13,132) Income from continuing operations(b)..................... 18,534 8,872 39,764 57,316 19,541 Net income (loss)................... 18,534 5,933 (1,864) 123,782 246,535 BASIC EARNINGS (LOSS) PER SHARE: Income from continuing operations... $ 0.50 $ 0.25 $ 1.20 $ 1.86 $ 0.65 Net income (loss)................... 0.50 0.17 (0.06) 4.01 8.15 DILUTED EARNINGS PER SHARE: Income from continuing operations... $ 0.50 $ 0.25 $ 1.15 $ 1.68 $ 0.65 Net income.......................... 0.50 0.17 0.27 3.86 7.54 CONSOLIDATED BALANCE SHEET DATA: Accounts receivable................. $ 59,643 $ 54,077 $ 49,629 $ 58,819 $ 49,837 Inventories......................... 39,514 34,309 31,551 23,524 19,510 Property, plant and equipment....... 223,743 218,752 202,281 156,714 135,120 Net assets of discontinued operations........................ -- -- 1,444,734 1,265,345 1,107,063 Total assets........................ 563,447 550,305 2,057,162 1,799,387 1,633,122 Long-term debt, including current maturities........................ 286,000 268,074 692,335 732,079 796,849
- --------------- (a) Includes charges of $33.8 million ($25.3 million net of tax), or $0.69 per share, primarily related to the separation of GI's Taiwan operations. These costs include $32.7 million charged to cost of sales and $1.1 million charged to selling, general and administrative expense. (b) Income from continuing operations excludes the impact of the cumulative effect of a change in accounting principle of $1.9 million for 1994, as it was not practicable to allocate such amounts between continuing and discontinued operations. This amount is included in net income. 11 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1998 COMPANY RESTRUCTURING On November 6, 1998, the Company announced a restructuring plan designed to enhance the interface of operations and customers, to improve its cost structure, efficiency and its competitive position and to accelerate growth. The restructuring included reducing the workforce by decentralizing certain purchasing, marketing, finance and research and development functions and providing early retirement to a group of employees, closing two sales offices and writing off assets related to an unprofitable product that will no longer be manufactured. Restructuring charges recorded in the fourth quarter included approximately $8.4 million in charges primarily related to severance and early retirement costs and $3.9 million in non-cash charges for asset write-offs. 1997 COMPANY REORGANIZATION On January 7, 1997 the Board of Directors of GI approved a plan to divide GI into three separate public companies in a transaction that was finalized on July 28, 1997. Concurrent with the Distribution, GI changed its name to General Semiconductor, Inc. and effected a one for four reverse stock split. Following the Distribution, General Semiconductor began operations as a stand-alone publicly held company. The revenues, costs and expenses and cash flows of the businesses transferred to the General Instrument and CommScope segments (the "Discontinued Operations"), have been excluded from the respective captions in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows and have been reported through the Distribution Date as: "Income (Loss) from discontinued operations", net of applicable income taxes and as "Cash (used in) provided by discontinued operations" for all periods presented in the Company's consolidated financial statements included elsewhere herein. Unless otherwise noted, the following Management's Discussion and Analysis pertains to the continuing operations of General Semiconductor. COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 WITH THE YEAR ENDED DECEMBER 31, 1997 NET SALES Net sales for the year ended December 31, 1998 of $401.1 million increased $21.1 million from $380.0 million for the year ended December 31, 1997. The 5.6% increase reflects a 7% increase in unit volume as well as the inclusion of small signal product sales (business acquired on October 1, 1997), partially offset by an approximate 10% decline in worldwide average selling prices. International sales, including export sales from the U.S., represented approximately 70% of net sales in each of the years ended December 31, 1998 and 1997. COST OF SALES Cost of sales for the year ended December 31, 1998 of $283.6 million decreased 2% from $289.3 million for 1997. Excluding 1997 pre-tax charges of $32.7 million primarily related to the separation of the Taiwan operations of GI, cost of sales increased $27.0 million or 10.5% principally due to increased costs related to higher operating levels and the full year effect of the small signal products acquisition offset, in part, by improved factory performance and cost reduction. Cost of sales, as a percentage of net sales, was 70.7% for 1998 compared to 67.5% for 1997, excluding the 1997 pre-tax charges discussed above. This increase primarily results from the decline in average selling prices discussed above. Accordingly, gross margin for the year ended December 31, 1998 represents 29.3% of net sales compared with 32.5% for the comparable prior year period, excluding the 1997 pre-tax charges discussed above. This decrease reflects the margin percentage reduction that was expected due to the full year effect of the small signal products acquisition and erosion of average selling prices, partially offset by improved factory performance. Without the small signal products acquisition, the year over year decrease in gross margin would have been less than one percentage point. 12 14 SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expense increased to $46.8 million for the year ended December 31, 1998 compared to $44.7 million in 1997 and represented 11.7% and 11.8% of sales, respectively. The $2.1 million increase includes higher selling costs to support increased sales. No other expense increase is individually significant. RESEARCH AND DEVELOPMENT Research and development expense for the year ended December 31, 1998 was $6.1 million compared to $6.0 million in 1997 and represented 1.6% of sales in each period. Research and development expenditures reflect the continued development of new products and modifications of existing products and manufacturing technologies to achieve cost reductions. NET INTEREST EXPENSE Net interest expense increased $5.6 million, to $20.0 million for the year ended December 31, 1998 from $14.4 million in 1997. Net interest expense in 1997 represents an allocation based upon General Semiconductor's net assets as a percentage of total assets of GI through the Distribution Date and actual interest expense thereafter. Pro forma net interest expense, assuming a net debt level of $275.0 million through the Distribution Date and amortization of debt issuance costs associated with the new borrowings, would have been $19.6 million for the year ended December 31, 1997. INCOME TAXES The Company's effective income tax rate was 31.6% for 1998 compared with 56.8% for 1997 (37.0% excluding the tax effects, at the applicable rates, of the costs incurred to separate the GI Taiwan operations). The decrease from the 37.0% described above, relates primarily to increased income of foreign subsidiaries taxed at rates lower than U.S. rates. COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 WITH THE YEAR ENDED DECEMBER 31, 1996 NET SALES Net sales for the year ended December 31, 1997 of $380.0 million increased $18.1 million from $361.9 million for the year ended December 31, 1996. The 5% increase reflects increased unit volume as well as the inclusion of small signal product sales resulting from the Company's October 1, 1997 acquisition, partially offset by an approximate 15% decline in average selling prices. Foreign exchange rate changes negatively affected sales by approximately 3%. Orders increased almost 77% in 1997; 1996 orders were depressed due to industry wide excess capacity. International sales, including export sales from the U.S., represented approximately 70% of net sales in each of the years ended December 31, 1997 and 1996. COST OF SALES Cost of sales for the year ended December 31, 1997 of $289.3 million increased 25.4% from $230.7 million for 1996. Excluding pre-tax charges of $32.7 million primarily related to the separation of the Taiwan operations of GI, cost of sales increased $25.9 million or 11.2% principally due to increased costs related to higher operating levels offset, in part, by improved factory performance. Cost of sales, as a percentage of net sales, was 76.1% for 1997 (67.5% excluding the pre-tax charges discussed above) compared to 63.7% for 1996. This increase primarily results from the decline in average selling prices discussed above. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expense increased to $44.7 million for the year ended December 31, 1997 compared to $42.6 million in 1996 and represented 11.8% of sales in each period. The increase primarily relates to higher selling costs and compensation expense associated with increased sales. 13 15 RESEARCH AND DEVELOPMENT Research and development expense for the year ended December 31, 1997 was $6.0 million compared to $5.8 million in 1996 and represented 1.6% of sales in each period. Research and development expenditures reflect the continued development of new products and modifications of existing products and manufacturing technologies to achieve cost reductions. NET INTEREST EXPENSE Net interest expense increased $4.0 million, to $14.4 million for the year ended December 31, 1997 from $10.4 million in 1996. Net interest expense represents an allocation based upon General Semiconductor's net assets as a percentage of total assets of GI for 1996 and through the Distribution Date for 1997. Pro forma net interest expense, assuming a net debt level of $275.0 million through the Distribution Date and amortization of debt issuance costs associated with the new borrowings, would have been $19.6 million for the years ended December 31, 1997 and 1996. INCOME TAXES The Company's effective income tax rate was 56.8% for 1997 (37.0% excluding the tax effects, at the applicable rates, of the costs incurred to separate the GI Taiwan operations) compared with 40.8% for 1996. The decrease in the effective rate, excluding the tax effects of the costs described above, relates primarily to increased income of foreign subsidiaries taxed at rates lower than U.S. rates. DISCONTINUED OPERATIONS The net operating results of the businesses transferred to General Instrument and CommScope have been reported, net of applicable income taxes, as "Income (Loss) from discontinued operations". Discontinued operations includes $52.9 million and $2.7 million, net of applicable income taxes, for the years ended December 31, 1997 and December 31, 1996, respectively, for costs incurred primarily related to the separation of the Taiwan operations of GI between General Semiconductor and General Instrument, and for professional fees and certain other administrative and financing costs incurred directly related to the Distribution. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1998, working capital was $51.7 million, compared to $16.7 million at December 31, 1997. The working capital increase of $35.0 million resulted primarily from the payment during the first half of 1998 of the $25.2 million remaining liability at December 31, 1997 related to the Distribution, an increase in accounts receivable associated with increased days outstanding, increased inventories, repayment of the Taiwan loan discussed below and a reduction in income taxes payable. As of December 31, 1998 approximately $7.8 million remains accrued for costs related to the 1998 restructuring. Such amounts are expected to be substantially paid by June 30, 1999. As a result the current ratio increased to 1.7 to 1 at December 31, 1998 from 1.2 to 1 at December 31, 1997. During the year ended December 31, 1998, the Company invested $26.9 million in property, plant and equipment principally directed to strategic initiatives and automation compared with $29.2 million and $60.3 million in 1997 and 1996, respectively. The higher level of capital spending incurred during 1996 was primarily attributable to equipment for capacity expansion to meet expected future demand and the construction of the manufacturing facility in Tianjin, China. While the Company does not have any material commitments for capital expenditures it does expect to invest approximately $30.0 million in 1999 principally directed at strategic initiatives and automation. At December 31, 1998, long-term debt was $286.0 million, compared to $263.8 million at December 31, 1997. At December 31, 1997 the Company had a $60 million loan agreement with a consortium of banks in Taiwan. On February 26, 1998, the Company consolidated its debt and repaid the entire Taiwan loan balance 14 16 of $46.1 million with proceeds from borrowings under its $350.0 million credit facility which matures on December 31, 2002. In July 1997, the Company entered into a bank credit agreement, which was amended in December 1998, (as amended the "Credit Agreement") which provides for a $350.0 million secured revolving credit facility that matures on December 31, 2002. The Credit Agreement requires the Company to pay a facility fee on the total commitment. The Credit Agreement permits the Company to choose between two interest rate options: the Adjusted Base Rate (as defined in the Credit Agreement), or a Eurodollar rate (LIBOR) plus a margin which varies based on the Company's ratio of indebtedness to earnings before interest, taxes, depreciation and amortization as defined in the Credit Agreement. The facility fee also varies based on that ratio. The Company is also able to set interest rates through a competitive bid procedure. The Credit Agreement contains financial and operating covenants, including limitations on guarantee obligations, liens, sale of assets, indebtedness, investments, capital expenditures, payment of dividends and leases, and requires the maintenance of certain financial ratios. In addition, certain changes in control of the Company would cause an event of default under the Credit Agreement. The December 1998 amendment amended certain covenant compliance calculations to provide the Company with greater flexibility to execute the restructuring announced on November 6, 1998. At December 31, 1998, the Company was in compliance with all such amended covenants. General Semiconductor's primary cash needs on both a short and long-term basis are for capital expenditures and other general corporate purposes. The Company believes that it has adequate liquidity to meet its current and anticipated cash flow needs from the results of its operations, working capital and the existing credit facility. The Company intends to repay its remaining indebtedness primarily with cash flow from operations. There can be no assurance, however, that future industry-specific developments or general economic trends will not adversely affect the Company's operations or its ability to meet its cash requirements. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK GENERAL The following discussion and the estimated amounts generated from the sensitivity analyses referred to below include forward-looking statements of market risk which assume for analytical purposes that certain adverse market conditions may occur. Actual future market conditions may differ materially from such assumptions because the amounts noted below are the result of analyses used for the purpose of assessing possible risks and the mitigation thereof. Accordingly, the forward-looking statements should not be considered projections by General Semiconductor of future events or losses. The Company's cash flows and earnings are subject to fluctuations resulting from changes in foreign currency exchange rates and interest rates. The Company manages its exposure to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of derivative financial instruments. The Company's policy does not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. The Company does not use financial instruments for trading purposes and is not a party to any leveraged derivatives. The Company monitors its underlying market risk exposures on an ongoing basis and believes that it can modify or adapt its hedging strategies as needed. The Company measured its market risk, related to its holdings of financial instruments based on changes in interest and foreign exchange rates, utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in fair values, cash flows or earnings based on a hypothetical 10% change in interest and foreign exchange rates. The Company used current market rates on its market risk sensitive assets and liabilities to perform the sensitivity analysis. Certain items such as obligations for pension and post retirement benefits were not included in the analysis. The Company is exposed to credit risk in the event of non-performance by the counterparties to its foreign exchange-forward contracts. The Company believes that the various counterparties with which the Company enters into these agreements consist of only financially sound institutions and, accordingly, believes that the credit risk for non-performance of these contracts is not significant. 15 17 Additional information regarding the Company's financial instruments is contained in Notes 9 and 14 to the Consolidated Financial Statements included in Part II of this Form 10-K. FOREIGN CURRENCY RISK Almost all of General Semiconductor's products are manufactured in Southeast Asia and Europe and a significant portion are sold internationally. Therefore, the Company is subject to market risk related to changes in foreign exchange rates. On a selective basis, the Company enters into forward and purchased option contracts designed to hedge the currency exposure of contractual and other firm commitments denominated in foreign currencies and the currency exposure of anticipated but not yet committed transactions expected to be denominated in foreign currencies. The Company's principal foreign currency exposures are in the New Taiwan Dollar, the Japanese Yen and in the major European currencies (Irish Punt, German Mark, French Franc and the British Pound). The Company's committed exposures relate primarily to trade payables, accounts receivable and employee compensation. At December 31, 1998, the Company had committed exposures of $51.8 million. As of December 31, 1998 and 1997, the Company had outstanding forward and purchased option contracts in the amounts of $21.3 million and $19.9 million, respectively, comprised of foreign currencies which were to be sold, and $79.6 million and $23.2 million, respectively, comprised of foreign currencies which were to be purchased. All outstanding forward and purchased option contracts at December 31, 1998 mature within twelve months and have an aggregate fair value of $1.1 million. At December 31, 1998, the impact of a hypothetical 10% adverse change in exchange rates on the fair value of foreign exchange forward contracts and purchased options is a reduction in fair value of $8.1 million. This impact would be offset, in part, by an increase in the fair value of the Company's committed exposures of $8 million. INTEREST RATE RISK The Company is exposed to changes in U.S. dollar LIBOR interest rates on its floating rate revolving credit facility. At December 31, 1998, the outstanding balance under this facility was $286 million. On a selective basis, the Company from time to time enters into interest rate swap or cap agreements to reduce the potential negative impact increases in interest rates could have on its outstanding variable rate debt. The impact of interest rate instruments on the Company's results of operations in each of the three years ended December 31, 1998 was not significant. In 1998, the Company entered into two interest rate swap transactions with a term of one year beginning in January, 1998. Pursuant to these agreements, the Company paid a fixed interest rate averaging 5.96% on a notional amount of $100 million and received interest on the $100 million notional amount based on a three month LIBOR rate set quarterly beginning in January, 1998. The fair value of these swap transactions at December 31, 1998 was not significant. In February 1998, the Company also purchased two interest rate caps with a notional amount of $50 million each. The caps became effective in April and June, 1998, with terms of nine and six months, respectively. Under the terms of the caps, the Company was paid an amount equal to the excess, if any, of three month LIBOR above 6%, multiplied by the notional amounts. The cost of the caps was not material. A hypothetical 10% increase in interest rates would adversely affect the Company's pretax earnings and cash flow by $1.6 million annually, due to the Company's floating rate debt. Earnings and cash flows would not be significantly impacted by the Company's interest rate swaps or cap agreements existing at December, 31 1998, due to a 10% adverse change in interest rates. INTERNATIONAL MARKETS Management believes that a significant amount of General Semiconductor's sales in 1999 will continue to come from international markets. 16 18 International sales generally represent 70% of the Company's worldwide sales. Sales to the Asia/Pacific region accounted for approximately 35% of the Company's worldwide sales for the year ended December 31, 1998. During 1998 order trends and average selling prices weakened significantly reflecting the current economic and currency difficulties in Southeast Asia, the economic slowdown in Japan and the difficulties in the computer and computer peripherals industries. However, approximately 50% of the Company's production is currently in Taiwan, the cost of which has benefited from the weakened New Taiwan Dollar in relation to the U.S. dollar. Extended underutilization of the Company's manufacturing facilities, resulting in production inefficiency, could result in margin deterioration. There can be no assurance as to the extent or duration of the impact of these events on the Company. RECENT ACCOUNTING PRONOUNCEMENTS During 1998 the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities and requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair value. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company is evaluating the impact SFAS 133 will have on its financial statements. YEAR 2000 The Company recognizes the importance of ensuring that neither its customers nor its business operations are disrupted as a result of the Year 2000 phenomenon. This phenomenon is a result of computer programs having been written using two digits (rather than four) to define the applicable year. Any information technology ("IT") systems that have time sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations and systems failures. The problem also extends to many "non-IT" systems such as operating and control systems that rely on embedded chip systems. The Company, with the assistance of outside consulting resources, is centrally coordinating activities directed toward achieving global Year 2000 compliance. The primary areas of potential impact include business application systems, production equipment systems, suppliers, financial institutions, government agencies and environmental support organizations. None of the Company's products contain date sensitive or date processing logic. In 1996 the Company began an upgrade of its business applications software which includes the implementation of the full suite of JD Edwards ("JDE") financial, distribution and manufacturing applications. The JDE software was selected to add worldwide functionality and efficiency to the business processes of the Company as well as address Year 2000 exposure. The JDE financial and distribution modules have been installed and are Year 2000 compliant. The JDE manufacturing modules will be installed in 2000. The Company is currently modifying its existing manufacturing applications and expects them to be Year 2000 compliant by June 30, 1999. Since the Company's financial, distribution and manufacturing applications are expected to be Year 2000 compliant, incremental costs associated with achieving Year 2000 compliance beyond the scope of this project, estimated at less than $1.0 million, should not have a material effect on the Company's financial condition or results of operations and are being expensed as incurred. The Company has surveyed its suppliers, financial institutions, government agencies and others with which it does business to determine their Year 2000 readiness and coordinate conversion efforts. Approximately 65% of third party suppliers have responded to the Company's surveys. At the current time, respondents critical to the operations of the Company have indicated that they are, or reasonably believe that they will be, Year 2000 compliant. If a material risk arises, the Company is prepared to perform on-site visits to validate the accuracy of the information received and will test such systems where appropriate and possible. Additionally, the Company has established programs to ensure that future purchases of equipment and software are Year 2000 compliant. Costs incurred have been insignificant to date. At the current time, it is difficult for the Company to specifically identify its most reasonably likely worst case Year 2000 scenario. 17 19 The Company does not expect Year 2000 issues to have a material adverse effect on its products, services, competitive position, financial condition or results of operations. However, the Company can give no assurance that the systems of other companies or government agencies on which the Company relies will be converted on time or that a failure to convert by another company or a conversion that is incompatible with the Company's systems would not have a material adverse effect on the Company. The disclosures contained herein constitute Year 2000 Readiness Statements pursuant to the Year 2000 Information and Readiness Disclosure Act, Public Law 105-271. NEW EUROPEAN CURRENCY A new European currency (Euro) was introduced in January 1999 to replace the separate currencies of eleven individual countries. The Company will need to modify its payroll, benefits and pension systems, contracts with suppliers and customers and internal financial reporting systems to be able to process transactions in the new currency. A three-year transition period is given during which transactions may be made in the old currencies. This may require dual currency processes until the conversion is complete. The Company is identifying the issues involved and intends to develop and implement solutions. The cost of this effort is not expected to be material and will be expensed as incurred. There can be no assurance, however, that all problems will be foreseen and corrected, or that no material disruption of the Company's business will occur. The conversion to the Euro may have competitive implications on our pricing and marketing strategies; however, any such impact is not known at this time. EFFECT OF INFLATION General Semiconductor attempts to minimize the effect of inflation on earnings by controlling its operating costs and selling prices. In the opinion of management, the rate of inflation has not had a material impact on the Company's results of operations. FORWARD LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward looking statements. The Company's Form 10-K for the year ended December 31, 1998, the Company's 1998 Annual Report to Stockholders, any Form 10-Q or Form 8-K of the Company, or any oral or written statements made by or on behalf of the Company, may include forward looking statements which reflect the Company's current views with respect to future events and financial performance. These forward looking statements are identified by their use of such terms and phrases as "intends," "intend," "intended," "goal," "estimate," "estimates," "expects," "expect," "expected," "project," "projects," "projected," "projections," "plans," "anticipates," "anticipated," "should," "designed to," "foreseeable future," "believe," "believes" and "scheduled" and similar expressions. Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. Reference is made to the cautionary statements contained in Exhibit 99 to this Form 10-K for a discussion of the factors that may cause actual results to differ from the results discussed in these forward looking statements. 18 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE ---- Financial Statements of General Semiconductor, Inc. Management's Responsibility for Financial Statements...... 20 Independent Auditors' Report.............................. 21 Consolidated Financial Statements: Consolidated Balance Sheets -- as of December 31, 1998 and 1997.............................................. 22 Consolidated Statements of Operations -- Years ended December 31, 1998, 1997 and 1996..................... 23 Consolidated Statements of Stockholders' Equity -- Years ended December 31, 1998, 1997 and 1996..................... 24 Consolidated Statements of Cash Flows -- Years ended December 31, 1998, 1997 and 1996..................... 25 Notes to Consolidated Financial Statements....... 26 through 46
19 21 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS Management is responsible for the preparation and accuracy of the consolidated financial statements and other information included in this report. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles using, where appropriate, management's best estimates and judgments. In meeting its responsibility for the reliability of the consolidated financial statements, management has developed and relies on the Company's system of internal accounting control. The system is designed to provide reasonable assurance that assets are safeguarded and that transactions are executed as authorized and are properly recorded. The system is augmented by written policies and procedures and an internal audit department. The Board of Directors reviews the consolidated financial statements and reporting practices of the Company through its Audit Committee, which is composed entirely of directors who are not officers or employees of the Company. The Audit Committee meets with the independent auditors, the internal auditor and management to discuss audit scopes and results and to consider internal control and financial reporting matters. Both the independent and internal auditors have direct unrestricted access to the Audit Committee. The entire Board of Directors reviews the Company's financial performance and financial plan. Ronald A. Ostertag Andrew M. Caggia Chairman, President and Senior Vice President and Chief Executive Officer Chief Financial Officer
20 22 INDEPENDENT AUDITORS' REPORT To the Stockholders of General Semiconductor, Inc. Melville, New York We have audited the accompanying consolidated balance sheets of General Semiconductor, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of General Semiconductor, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Jericho, New York February 3, 1999 21 23 GENERAL SEMICONDUCTOR, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT STOCK PAR VALUE)
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ ASSETS Current Assets: Cash and cash equivalents................................... $ 3,225 $ 5,192 Accounts receivable, less allowance for doubtful accounts of $769 and $825, respectively............................... 59,643 54,077 Inventories................................................. 39,514 34,309 Prepaid expenses and other current assets................... 12,010 9,890 Deferred income taxes....................................... 13,738 14,263 -------- -------- Total current assets.............................. 128,130 117,731 Property, plant and equipment -- net........................ 223,743 218,752 Excess of cost over fair value of net assets acquired, less accumulated amortization of $43,929 and $38,784, respectively.............................................. 162,751 167,895 Deferred income taxes....................................... 29,376 26,509 Intangibles and other assets, less accumulated amortization of $11,099 and $9,228, respectively....................... 19,447 19,418 -------- -------- TOTAL ASSETS................................................ $563,447 $550,305 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable............................................ $ 31,343 $ 38,332 Accrued expenses............................................ 45,084 58,352 Current portion of long-term debt........................... -- 4,310 -------- -------- Total current liabilities......................... 76,427 100,994 Long-term debt.............................................. 286,000 263,764 Deferred income taxes....................................... 21,390 21,710 Other non-current liabilities............................... 74,283 77,476 -------- -------- Total liabilities................................. 458,100 463,944 -------- -------- Commitments and Contingencies Stockholders' Equity: Preferred Stock, $0.01 par value; 20,000 shares authorized; no shares issued.......................................... -- -- Common Stock, $0.01 par value; 400,000 shares authorized; 36,925 and 36,887 shares issued, respectively............. 369 369 Additional paid-in capital.................................. 507 55 Retained earnings........................................... 111,842 93,308 -------- -------- 112,718 93,732 Less -- Treasury stock, at cost, 104 shares................. (7,371) (7,371) -------- -------- Total stockholders' equity........................ 105,347 86,361 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $563,447 $550,305 ======== ========
See notes to consolidated financial statements. 22 24 GENERAL SEMICONDUCTOR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, -------------------------------- 1998 1997 1996 -------- -------- -------- NET SALES.................................................. $401,144 $380,038 $361,891 -------- -------- -------- OPERATING COSTS AND EXPENSES: Cost of sales............................................ 283,582 289,313 230,687 Selling, general and administrative...................... 46,802 44,668 42,594 Research and development................................. 6,104 5,998 5,838 Amortization of excess of cost over fair value of net assets acquired....................................... 5,145 5,143 5,154 Restructuring............................................ 12,324 -- -- -------- -------- -------- Total operating costs and expenses............... 353,957 345,122 284,273 -------- -------- -------- OPERATING INCOME........................................... 47,187 34,916 77,618 Other expense-net.......................................... (71) (42) (51) Interest expense-net....................................... (20,026) (14,353) (10,396) -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES........................................ 27,090 20,521 67,171 Provision for income taxes................................. (8,556) (11,649) (27,407) -------- -------- -------- INCOME FROM CONTINUING OPERATIONS.......................... 18,534 8,872 39,764 DISCONTINUED OPERATIONS Loss from discontinued operations, net of income tax expense of $22,073 in 1997 and income tax benefit of $20,026 in 1996.......................................... -- (2,939) (41,628) -------- -------- -------- NET INCOME (LOSS).......................................... $ 18,534 $ 5,933 $ (1,864) ======== ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING: Basic.................................................... 36,811 35,414 32,924 Diluted.................................................. 36,899 35,576 36,852 BASIC EARNINGS (LOSS) PER SHARE: Continuing operations.................................... $ 0.50 $ 0.25 $ 1.20 Discontinued operations.................................. -- (0.08) (1.26) -------- -------- -------- Net income (loss)........................................ $ 0.50 $ 0.17 $ (0.06) ======== ======== ======== DILUTED EARNINGS (LOSS) PER SHARE: Continuing operations.................................... $ 0.50 $ 0.25 $ 1.15 Discontinued operations.................................. -- (0.08) (0.88) -------- -------- -------- Net income............................................... $ 0.50 $ 0.17 $ 0.27 ======== ======== ========
See notes to consolidated financial statements. 23 25 GENERAL SEMICONDUCTOR, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
ACCUMULATED OTHER COMPREHENSIVE INCOME -------------------- TOTAL COMMON STOCK ADDITIONAL UNEARNED UNREALIZED STOCK- --------------- PAID-IN RETAINED TREASURY COMPEN- GAIN ON HOLDERS' SHARES AMOUNT CAPITAL EARNINGS STOCK SATION INVESTMENT EQUITY ------ ------ ----------- --------- -------- -------- -------------------- ----------- BALANCE, JANUARY 1, 1996... 31,509 $316 $ 667,134 $ 256,416 $(7,246) $(1,277) $ -- $ 915,343 Exercise of stock options and related tax benefit.................. 40 -- 3,475 -- -- -- -- 3,475 Comprehensive income: Net loss................. -- -- -- (1,864) -- -- -- -- Total comprehensive income................... -- -- -- -- -- -- -- (1,864) Amortization of unearned compensation............. -- -- -- -- -- 612 -- 612 Treasury stock transactions............. -- -- -- -- (25) -- -- (25) Conversion of Convertible Junior Subordinated Notes -- net............. 2,737 27 255,585 -- -- -- -- 255,612 ------ ---- ----------- --------- ------- ------- -------- ----------- BALANCE, DECEMBER 31, 1996..................... 34,286 343 926,194 254,552 (7,271) (665) -- 1,173,153 Exercise of stock options and related tax benefit.................. 200 2 19,361 -- -- -- -- 19,363 Comprehensive income: Net income............... -- -- -- 5,933 -- -- -- -- Unrealized gain on investment, net of tax.................... -- -- -- -- -- 22,018 -- Total comprehensive income................... -- -- -- -- -- -- -- 27,951 Amortization of unearned compensation............. -- -- -- -- -- 243 -- 243 Treasury stock transactions............. -- -- -- -- (100) -- -- (100) Conversion of Convertible Junior Subordinated Notes -- net............. 2,397 24 226,636 -- -- -- -- 226,660 Distribution of General Instrument and Commscope................ -- -- (1,172,191) (167,177) -- 422 (22,018) (1,360,964) Common stock issued........ 4 -- 55 -- -- -- -- 55 ------ ---- ----------- --------- ------- ------- -------- ----------- BALANCE, DECEMBER 31, 1997..................... 36,887 369 55 93,308 (7,371) 0 0 86,361 Exercise of stock options and related tax benefit.................. 38 -- 452 -- -- -- -- 452 Comprehensive income: Net income............... -- -- -- 18,534 -- -- -- -- Total comprehensive income................... 18,534 ------ ---- ----------- --------- ------- ------- -------- ----------- BALANCE, DECEMBER 31, 1998..................... 36,925 $369 $ 507 $ 111,842 $(7,371) $ -- $ -- $ 105,347 ====== ==== =========== ========= ======= ======= ======== ===========
See notes to consolidated financial statements. 24 26 GENERAL SEMICONDUCTOR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------- 1998 1997 1996 -------- --------- --------- OPERATING ACTIVITIES: Income from continuing operations......................... $ 18,534 $ 8,872 $ 39,764 Adjustments to reconcile income from continuing operations to net cash provided by continuing operating activities: Depreciation and amortization.......................... 24,982 24,232 22,613 Asset write-off in conjunction with restructuring...... 3,865 -- -- Changes in assets and liabilities, net of effect of business acquired: Accounts receivable.................................. (5,565) (13,335) 9,190 Inventories.......................................... (5,204) 2,465 (8,028) Prepaid expenses and other current assets............ (2,694) (3,208) 663 Other non-current assets............................. (766) 666 44 Deferred income taxes................................ (2,662) (1,236) 14,736 Accounts payable and accrued expenses................ 5,151 9,274 (12,655) Other non-current liabilities........................ (3,193) 1,685 (222) Other.................................................. (689) (331) 2,014 -------- --------- --------- Net cash provided by continuing operating activities........ 31,759 29,084 68,119 -------- --------- --------- Cash (used in) provided by discontinued operations.......... (25,177) 145,452 (225,227) -------- --------- --------- INVESTING ACTIVITIES: Expenditures for property, plant and equipment............ (26,898) (29,208) (60,299) Proceeds from sale (purchases) of short-term investments............................................ -- 24,974 (24,974) Proceeds from sale of assets.............................. -- 3,000 4,368 Payment for business acquired............................. -- (8,982) -- -------- --------- --------- Net cash used in investing activities....................... (26,898) (10,216) (80,905) -------- --------- --------- FINANCING ACTIVITIES: Costs associated with the issuance of debt and Common Stock.................................................. -- (1,130) (1,053) Net proceeds from (repayments of ) revolving credit facilities............................................. 64,000 (192,000) 231,000 Redemption of Convertible Junior Subordinated Notes....... -- (245) (6,440) Principal repayment of debt............................... (46,074) (4,310) (4,310) Proceeds from exercise of stock options................... 423 18,305 2,686 -------- --------- --------- Net cash provided by (used in) financing activities......... 18,349 (179,380) 221,883 -------- --------- --------- Decrease in cash and cash equivalents....................... (1,967) (15,060) (16,130) Cash and cash equivalents, beginning of year................ 5,192 20,252 36,382 -------- --------- --------- Cash and cash equivalents, end of year...................... $ 3,225 $ 5,192 $ 20,252 ======== ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION, RELATING TO CONTINUING AND DISCONTINUED OPERATIONS: Income taxes paid......................................... $ 9,776 $ 37,224 $ 55,647 Interest paid............................................. $ 19,677 $ 32,033 $ 41,766
See notes to consolidated financial statements. 25 27 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED) 1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION General Semiconductor, Inc. ("General Semiconductor" or the "Company") is a world leader in the discrete segment of the semiconductor industry. The Company designs, manufactures and sells low-to-medium-power rectifiers, small signal transistors and transient voltage suppression ("TVS") components in axial, bridge, surface mount and array packages. Power rectifiers, small signal devices and TVS products are semiconductors that are essential components of most electronic devices and systems. Rectifiers convert alternating current (AC) into direct current (DC) which can be utilized by electronic equipment. TVS devices provide protection from electrical surges, ranging from electrostatic discharge to induced lightning. Small signal devices amplify or switch low level currents. The Company's products are primarily targeted for use in the computer, automotive, telecommunications, lighting and consumer electronics industries. General Instrument Corporation ("GI") (i) transferred all the assets and liabilities relating to the manufacture and sale of broadband communications products used in the cable television, satellite, and telecommunications industries and all rights to the related GI trademarks to its wholly-owned subsidiary NextLevel Systems, Inc. ("NextLevel"), and all the assets and liabilities relating to the manufacture and sale of coaxial, fiber optic and other electric cable used in the cable television, satellite and other industries to its wholly-owned subsidiary CommScope, Inc. ("CommScope") and (ii) distributed all of the outstanding shares of capital stock of each of NextLevel and CommScope to its stockholders on a pro rata basis as a dividend (the "Distribution") in a transaction that was finalized on July 28, 1997 (the "Distribution Date"). On the Distribution Date, NextLevel and CommScope began operating as independent entities with publicly traded common stock. GI retained no ownership interest in either NextLevel or CommScope. Concurrent with the Distribution, GI changed its name to General Semiconductor, Inc. and effected a one for four reverse stock split (the "Stock Split"). On February 2, 1998 NextLevel changed its name to General Instrument Corporation ("General Instrument"). In this report, all share and per share amounts have been retroactively restated to reflect the Stock Split. In addition, the number of common shares issued have been adjusted to reflect the Stock Split and an amount equal to the par value of the reduction of the shares has been transferred from common stock to additional paid-in capital as of January 1, 1996, the earliest period reported. The revenues, costs and expenses and cash flows of the businesses transferred to General Instrument and CommScope (the "Discontinued Operations"), have been excluded from the respective captions in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows and have been reported through the Distribution Date as "Income (Loss) from discontinued operations", net of applicable income taxes and as "Cash (used in) provided by discontinued operations" for all periods presented. For the purpose of governing certain of the ongoing relationships among General Semiconductor, General Instrument and CommScope after the Distribution, these entities entered into various agreements that provide for an orderly transition, the separation and distribution of the operating assets and liabilities and pension plan assets and liabilities of GI, as well as tax sharing, and other matters. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The accompanying consolidated financial statements include the accounts of General Semiconductor and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates. The preparation of the accompanying consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the 26 28 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) date of the financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents. The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Inventories. Inventories are stated at the lower of cost, determined on a first-in, first-out ("FIFO") basis, or market. Property, Plant and Equipment. Property, plant and equipment are stated at cost. Provisions for depreciation are based on estimated useful lives of the assets using the straight-line method. Useful lives are 12 to 40 years for buildings and improvements; estimated useful life or lease term, whichever is shorter, for leasehold improvements and 3 to 10 years for machinery and equipment. The cost of maintenance and repairs is charged to operations as incurred. Intangible Assets. Intangible assets consist primarily of patents which are amortized on a straight-line basis over their useful lives not exceeding 20 years. Excess of Cost Over Fair Value of Net Assets Acquired. The excess of cost over fair value of net assets acquired is being amortized on a straight-line basis over 40 years. Management periodically evaluates the appropriateness of both the carrying value and remaining life of the excess of cost over fair value of net assets acquired by assessing recoverability based on forecasted operating cash flows, on an undiscounted basis, and other factors. Long-Lived Assets. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying values of such assets may not be recoverable. The Company evaluates the carrying values of such assets using future undiscounted cash flows. Revenue Recognition. The Company recognizes revenue when products are shipped with appropriate provisions for uncollectible accounts and credits for returns. Foreign Currency Translation. The Company has determined the U.S. dollar to be the functional currency of all foreign subsidiaries. Accordingly, gains and losses recognized as a result of translating foreign subsidiaries' monetary assets and liabilities from local foreign currencies to U.S. dollars are reflected in the accompanying consolidated statements of operations. Research and Development. The Company charges research and development expenses to operations as incurred. Environmental Liabilities. The Company accounts for environmental expenditures in accordance with Statement of Position 96-1, "Environmental Remediation Liabilities". Accordingly, the Company accrues for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable. Income Taxes. Deferred income taxes reflect the future tax consequences of differences between the financial reporting and income tax bases of assets and liabilities. Deferred income taxes are provided for the income tax liabilities to be incurred on the repatriation of undistributed earnings of the Company's foreign subsidiaries, except for locations where the Company has designated earnings to be permanently reinvested. Comprehensive Income. In 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive Income". This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income is presented in the Consolidated Statement of Stockholders' Equity. The adoption of 27 29 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SFAS 130 had no impact on total stockholders' equity. Prior year financial statements have been reclassified to conform to the SFAS 130 requirements. Reclassifications. Certain prior year amounts have been reclassified to conform to the current year presentation. 3. ACQUISITION On October 1, 1997 the Company purchased certain assets and assumed certain liabilities related to the discrete semiconductor business of ITT Industries, Inc. for $8.0 million plus $1.0 million in direct transaction costs. The acquisition was accounted for as a purchase transaction and, accordingly, the results of operations are included in the Consolidated Statement of Operations since the date of acquisition. The pro forma effects, assuming this transaction was effective January 1, 1996, were not material to the Company's results of operations, financial position or cash flows for the years ended December 31, 1997 and 1996. 4. INVENTORIES Inventories consist of:
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ Raw materials...................................... $ 5,139 $ 7,181 Work in process.................................... 14,181 12,052 Finished goods..................................... 20,194 15,076 ------- ------- Total.............................................. $39,514 $34,309 ======= =======
5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of:
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ Land and land improvements......................... $ 76,321 $ 76,328 Buildings, improvements and leasehold improvements..................................... 64,106 63,485 Machinery and equipment............................ 232,690 208,067 --------- --------- 373,117 347,880 Accumulated depreciation........................... (149,374) (129,128) --------- --------- Property, plant and equipment, net................. $ 223,743 $ 218,752 ========= =========
Depreciation expense aggregated $18.0 million, $16.8 million and $14.4 million for 1998, 1997 and 1996, respectively. 28 30 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. ACCRUED EXPENSES Accrued expenses consist of:
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ Salaries and compensation liabilities.............. $14,355 $14,849 Distribution and reorganization liabilities........ -- 18,734 Restructuring liabilities.......................... 7,809 -- Benefit plan liabilities........................... 7,709 4,916 Other.............................................. 15,211 19,853 ------- ------- Total.............................................. $45,084 $58,352 ======= =======
In connection with the Distribution, the Company recorded in income (loss) from continuing operations a pre-tax charge of $32.7 million to cost of sales and $1.1 million to selling, general and administrative expenses during the year ended December 31, 1997. These costs relate to employees of General Semiconductor and were incurred in connection with the separation of the Taiwan operations between General Semiconductor and General Instrument. On November 6, 1998 the Company announced a restructuring plan designed to enhance the interface of operations and customers, to improve its cost structure, efficiency and its competitive position and to accelerate growth. The restructuring included reducing the workforce by decentralizing certain purchasing, marketing, finance and research and development functions and providing early retirement to a group of employees, closing two sales offices and writing off assets related to an unprofitable product that will no longer be manufactured. Restructuring charges recorded in the fourth quarter included approximately $8.4 million in charges primarily related to severance and early retirement costs and $3.9 million in non-cash charges for asset write-offs. 7. OTHER NON-CURRENT LIABILITIES Other non-current liabilities consist of:
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ Environmental liabilities.......................... $29,363 $32,415 Benefit plan liabilities........................... 35,596 36,070 Other.............................................. 9,324 8,991 ------- ------- Total.............................................. $74,283 $77,476 ======= =======
8. INCOME TAXES General Semiconductor, General Instrument and CommScope entered into a tax sharing agreement (the "Tax Sharing Agreement") that defines the parties' rights and obligations with respect to federal, state and other income or franchise taxes related to the businesses of GI for tax periods prior to, including and following the Distribution and with respect to certain other tax matters. General Instrument is responsible for consolidated federal income taxes, consolidated or combined state income taxes and separate state income taxes of GI and its subsidiaries and preparation and filings of the applicable returns through July 25, 1997. Such liability was determined assuming a closing of the books on July 25, 1997. Liability for foreign income taxes and other taxes was generally allocated to the legal entity on which such taxes were imposed except that liability for taxes relating to the transferred businesses (as defined in the Tax Sharing Agreement) were generally allocated to General Instrument. 29 31 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Notwithstanding the above, each of General Instrument, CommScope and General Semiconductor is responsible for any such taxes to the extent that such taxes are attributable to action taken by that entity or its affiliates after the Distribution that is inconsistent with the tax treatment contemplated in the tax ruling received from the Internal Revenue Service. The Company believes that the Tax Sharing Agreement is fair to each of the parties and contains terms which generally are comparable to those which would have been reached at arms-length negotiations with unaffiliated parties. The domestic and foreign components of income from continuing operations before income taxes is:
YEAR ENDED DECEMBER 31, ----------------------------- 1998 1997 1996 ------- ------- ------- Domestic.............................................. $ 8,141 $16,354 $62,084 Foreign............................................... 18,949 4,167 5,087 ------- ------- ------- Total................................................. $27,090 $20,521 $67,171 ======= ======= =======
The components of the provision for income taxes are as follows:
YEAR ENDED DECEMBER 31, ----------------------------- 1998 1997 1996 ------- ------- ------- Current: Federal............................................... $ 3,848 $ 4,691 $ 9,477 Foreign............................................... 6,539 2,754 2,842 State................................................. 831 2,200 922 ------- ------- ------- 11,218 9,645 13,241 ------- ------- ------- Deferred: Federal............................................... (11) 3,066 9,472 Foreign............................................... (2,478) (1,325) 3,129 State................................................. (173) 263 2,015 ------- ------- ------- (2,662) 2,004 14,616 ------- ------- ------- Net change in valuation allowance..................... -- -- (450) ------- ------- ------- Provision for income taxes............................ $ 8,556 $11,649 $27,407 ======= ======= =======
The following table presents the principal reasons for the difference between the actual income tax provision and the tax provision computed by applying the U.S. federal statutory income tax rate to income from continuing operations before income taxes:
YEAR ENDED DECEMBER 31, ----------------------------- 1998 1997 1996 ------- ------- ------- Federal income tax provision at 35%................... $ 9,482 $ 7,182 $23,510 Valuation allowance benefit........................... -- -- (450) State income taxes-net of federal benefit............. 428 1,601 1,909 Foreign operations.................................... (2,166) 1,470 1,805 Non-deductible expenses............................... 1,945 914 1,844 Other-net............................................. (1,133) 482 (1,211) ------- ------- ------- Provision for income taxes............................ $ 8,556 $11,649 $27,407 ======= ======= ======= Effective income tax rate............................. 31.6% 56.8% 40.8%
30 32 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income taxes related to foreign operations in 1998, 1997 and 1996 reflect the Company's ability to recognize the benefit of foreign tax credits. Deferred income taxes recorded in the accompanying consolidated balance sheets are comprised of:
DECEMBER 31, 1998 DECEMBER 31, 1997 ------------------------------- ------------------------------- ASSET LIABILITY NET ASSET LIABILITY NET -------- --------- -------- -------- --------- -------- Current Deferred Income Taxes: Accounts receivable and inventory reserves........................... $ 3,845 $ -- $ 3,845 $ 2,177 $ -- $ 2,177 Product and warranty liabilities..... 332 -- 332 437 -- 437 Employee benefits.................... 5,213 -- 5,213 5,576 -- 5,576 Other current........................ 4,348 -- 4,348 6,073 -- 6,073 -------- ------- -------- -------- ------- -------- $ 13,738 $ -- $ 13,738 $ 14,263 $ -- $ 14,263 ======== ======= ======== ======== ======= ======== Non-Current Deferred Income Taxes: Domestic capital loss carryforwards...................... $ 17,518 $ -- $ 17,518 $ 17,518 $ -- $ 17,518 Fixed and intangible assets.......... (6,041) -- (6,041) (4,745) 1,081 (5,826) Environmental liabilities............ 11,158 -- 11,158 12,318 -- 12,318 Employee benefits.................... 12,188 -- 12,188 12,535 205 12,330 Other non-current.................... 14,330 21,390 (7,060) 8,660 20,424 (11,764) Valuation allowance.................. (19,777) -- (19,777) (19,777) -- (19,777) -------- ------- -------- -------- ------- -------- $ 29,376 $21,390 $ 7,986 $ 26,509 $21,710 $ 4,799 ======== ======= ======== ======== ======= ========
In accordance with the Tax Sharing Agreement, approximately $17.8 million of deferred tax assets related to the Company were allocated to General Instrument in connection with the Distribution. Deferred taxes have not been provided on undistributed earnings of certain foreign operations of $14.3 million and $9.9 million in 1998 and 1997, respectively, as those earnings are considered to be permanently reinvested. Determining the tax liability that would arise if these amounts were remitted is not practicable. The valuation allowance at December 31,1998 relates principally to domestic capital loss carryforwards, which expire in 2002. The valuation allowance will be reduced when and if the Company generates domestic capital gains. During 1996 the Company settled certain tax matters which resulted in credits to excess of cost over fair value of net assets acquired of $1.8 million since such matters related to the period prior to August 1990, when affiliates of Forstmann Little & Co., a private investment firm, acquired the Company. 9. LONG-TERM DEBT Long-term debt consists of:
DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------- ----------------- Senior bank indebtedness: Revolving credit facility................ $286,000 $222,000 Taiwan loan.............................. -- 46,074 -------- -------- 286,000 268,074 Less current maturities.................... -- 4,310 -------- -------- Long-term debt............................. $286,000 $263,764 ======== ========
31 33 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In July 1997, the Company entered into a bank credit agreement, which was amended in December 1998, (as amended, the "Credit Agreement") which provides for a $350.0 million secured revolving credit facility that matures on December 31, 2002. The Credit Agreement requires the Company to pay a facility fee on the total commitment. The Credit Agreement permits the Company to choose between two interest rate options: the Adjusted Base Rate (as defined in the Credit Agreement), or a Eurodollar rate (LIBOR) plus a margin which varies based on the Company's ratio of indebtedness to earnings before interest, taxes, depreciation and amortization as defined in the Credit Agreement. The facility fee also varies based on that ratio. The Company is also able to set interest rates through a competitive bid procedure. The Credit Agreement, contains financial and operating covenants, including limitations on guarantee obligations, liens, sale of assets, indebtedness, investments, capital expenditures, payment of dividends and leases, and requires the maintenance of certain financial ratios. In addition, certain changes in control of the Company would cause an event of default under the Credit Agreement. The December 1998 amendment amended certain covenant compliance calculations to provide the Company with greater flexibility to execute the restructuring announced on November 6, 1998. At December 31, 1998 the Company was in compliance with all such amended covenants. At December 31, 1997 the Company had a $60 million loan agreement with a consortium of banks in Taiwan. On February 26, 1998 the Company consolidated its debt and repaid the entire Taiwan loan balance of $46.1 million with proceeds from borrowings under the Credit Agreement. In May 1996, the Company issued a notice to redeem $250 million in principal amount of its 5% Convertible Junior Subordinated Notes (the "Notes"). Of the Notes called, $244 million in principal amount were converted into the Company's Common Stock prior to the redemption date, with the remaining $6 million redeemed for cash. Additionally, $16 million and $6 million in principal amount of Notes that were not called for redemption were also converted into GI Common Stock during 1996 and 1995, respectively. These conversions resulted in the issuance of 2.8 million shares of Common Stock. In connection with the Common Stock conversions, $4.4 million was charged to additional paid-in capital, net of the related tax benefit, for unamortized deferred financing costs and accrued but unpaid interest related to the converted Notes. During 1997 the remaining Notes outstanding were converted into GI Common Stock at a conversion price of $23.75 per share (unadjusted for the Distribution and Stock Split) resulting in the issuance of 2.4 million shares, and $0.2 million in principal amount of Notes were redeemed. In connection with the conversion, GI charged approximately $1.5 million to additional paid-in capital, net of the related tax benefit, for unamortized deferred financing costs and accrued but unpaid interest related to the converted Notes. The Company repaid the GI revolving credit facility in July 1997 utilizing a combination of the bank credit facility described above and amounts received from General Instrument and CommScope at the Distribution Date totaling $170.1 million. The Company entered into two interest rate swap transactions with a term of one year beginning on January 22, 1998. Pursuant to these agreements it paid a fixed interest rate averaging 5.96% on a notional amount of $100 million and received interest on the $100 million notional amount based on a three month LIBOR rate set quarterly beginning on January 22, 1998. The fair value of the swaps as of December 31, 1998 was $(0.2) million. During February 1998, the Company purchased two interest rate caps each with a notional amount of $50 million. The caps became effective on April 27, 1998 and June 29, 1998 with terms of nine months and six months, respectively. Under the terms of the caps, the Company was paid an amount equal to the excess, if any, of three month LIBOR above 6% multiplied by the notional amounts. The cost of the caps was immaterial. The purpose of the swap agreement and the caps is to reduce its amount of debt subject to floating interest rates. The weighted average interest rate on the Company's long-term debt at December 31, 1998 and 1997 was 5.8% and 6.6%, respectively. 32 34 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net interest expense included in the 1996 and 1997 Consolidated Statement of Operations through the Distribution Date represents an allocation based upon General Semiconductor's net assets as a percentage of total assets of GI. 10. COMMITMENTS AND CONTINGENCIES The Company leases office space, manufacturing facilities and transportation and other equipment under operating leases which expire at various dates through the year 2004. Rent expense was $5.4 million, $3.3 million and $2.9 million in 1998, 1997 and 1996, respectively. Future minimum lease payments required under operating leases as of December 31, 1998 are: 1999...................................................... $4,454 2000...................................................... 3,028 2001...................................................... 1,853 2002...................................................... 1,255 2003...................................................... 1,119 Thereafter................................................ 295
The Company has approximately $11.0 million in letters of credit outstanding at December 31, 1998. Environmental Matters. The Company is subject to various federal, state, local and foreign laws and regulations governing environmental matters, including the use, discharge and disposal of hazardous materials. The Company's manufacturing facilities are believed to be in substantial compliance with current laws and regulations. Complying with current laws and regulations has not had a material adverse effect on the Company's financial condition. In connection with the Distribution, the Company retained the obligations with respect to environmental matters relating to its discontinued operations and its status as a "potentially responsible party." The Company is presently engaged in the remediation of eight discontinued operations in six states, and is a de minimus "potentially responsible party" at five hazardous waste sites in four states. The Company has engaged independent consultants to assist management in evaluating potential liabilities related to environmental matters. Management assesses the input from these independent consultants along with other information known to the Company in its effort to continually monitor these potential liabilities. Management assesses its environmental exposure on a site-by-site basis, including those sites where the Company has been named as a "potentially responsible party". Such assessments include the Company's share of remediation costs, information known to the Company concerning the size of the hazardous waste sites, their years of operation and the number of past users and their financial viability. The Company has a reserve recorded for environmental matters of $31.9 million at December 31, 1998 ($34.9 million at December 31, 1997). While the ultimate outcome of these matters cannot be determined, management does not believe that the final disposition of these matters will have a material adverse effect on the Company's financial position, results of operations or cash flows beyond the amounts previously provided for in the financial statements. The Company's present and past facilities have been in operation for many years, and over that time in the course of those operations, such facilities have used substances which are or might be considered hazardous, and the Company has generated and disposed of wastes which are or might be considered hazardous. Therefore, it is possible that additional environmental issues may arise in the future, which the Company cannot now predict. Litigation. A securities class action is presently pending in the United States District Court for the Northern District of Illinois, Eastern Division, In Re General Instrument Corporation Securities Litigation. This action, which consolidates numerous class action complaints filed in various courts between October 10 and October 27, 1995, is brought by plaintiffs, on their own behalf and as representatives of a class of 33 35 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) purchasers of GI common stock during the period March 21, 1995 through October 18, 1995. The complaint alleges that prior to the Distribution, GI and certain of its officers and directors, as well as Forstmann Little & Co. and certain related entities, violated the federal securities laws, namely, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), by allegedly making false and misleading statements and failing to disclose material facts about GI's planned shipments in 1995 of its CFT-2200 and DigiCipher II products. Also pending in the same court, under the same name, is a derivative action brought on behalf of GI. The derivative action alleges that the members of GI's Board of Directors, several of its officers and Forstmann Little & Co. and related entities have breached their fiduciary duties by reason of the matter complained of in the class action and the defendants' alleged use of material non-public information to sell shares of GI common stock for personal gain. An action entitled BKP Partners, L.P. v. General Instrument Corp. was brought in February 1996 by certain holders of preferred stock of Next Level Communications ("NLC"), which was merged into a subsidiary of GI in September 1995. The action was originally filed in the Northern District of California and was subsequently transferred to the Northern District of Illinois. The plaintiffs allege that the defendants violated federal securities laws by making misrepresentations and omissions and breached fiduciary duties to NLC in connection with the acquisition of NLC by GI. Plaintiffs seek, among other things, unspecified compensatory and punitive damages and attorney's fees and costs. In connection with the Distribution, General Instrument (formerly "NextLevel Systems, Inc.") agreed to indemnify the Company with respect to its obligations, if any, arising out of or relating to In Re General Instrument Corporation Securities Litigation (including the derivative action), and the BKP Partners, L.P. v. General Instrument Corp. litigation. Therefore, management is of the opinion that the resolution of these matters will have no effect on the Company's consolidated financial position, results of operations or cash flows. General Semiconductor is not a party to any pending legal proceedings other than various claims and lawsuits arising in the normal course of business and those for which they are indemnified. Management is of the opinion that such litigation or claims will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. 11. EMPLOYEE BENEFITS In February 1998, the Financial Accounting Standards Board issued SFAS No. 132 "Employer' Disclosures about Pensions and Other Post-Retirement Benefits -- an amendment of FASB Statement No. 87, 88 and 106." SFAS 132 revises employers' disclosures about pension and other post-retirement benefit plans. It does not change the measurement of recognition of those plans. The Company has adopted the provisions of SFAS 132 in their disclosures below. Pension Plans. In connection with the Distribution, the Company, General Instrument and CommScope entered into an Employee Benefits Allocation Agreement (the "Agreement"). The Agreement provides that the Company generally will assume or retain, as the case may be, all liabilities under employee benefits plans maintained by GI or any of its subsidiaries with respect to employees of General Semiconductor or any of its retained subsidiaries and employees of previously divested operations other than the liabilities related to employees of General Instrument or CommScope subsequent to the Distribution. 34 36 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net periodic pension cost consists of:
YEAR ENDED DECEMBER 31 ----------------------------------------------------------------- 1998 1997 1996 ------------------- ------------------- ------------------- DOMESTIC FOREIGN DOMESTIC FOREIGN DOMESTIC FOREIGN -------- ------- -------- ------- -------- ------- Service cost.................... $ 482 $2,513 $ 407 $ 2,746 $ 325 $ 2,968 Interest........................ 5,209 3,040 5,117 3,301 4,616 3,503 Expected return on plan assets........................ (5,979) (853) (5,620) (1,185) (5,670) (1,663) Transition (asset) obligation... -- 160 -- 188 -- -- Amortization of prior service costs......................... (12) -- (12) -- 878 906 Recognized actuarial (gain) or loss.......................... 198 522 2 756 -- -- ------- ------ ------- ------- ------- ------- Net periodic pension cost (income)...................... $ (102) $5,382 $ (106) $ 5,806 $ 149 $ 5,714 ======= ====== ======= ======= ======= =======
The status of the Company's continuing pension plans and the related amounts recorded in the accompanying consolidated balance sheets are:
DECEMBER 31, 1998 DECEMBER 31, 1997 -------------------- -------------------- DOMESTIC FOREIGN DOMESTIC FOREIGN -------- -------- -------- -------- Change in Benefit Obligation Benefit obligation at beginning of year......... $75,741 $ 46,863 $65,431 $ 60,586 Service cost................................. 482 2,513 407 2,746 Interest cost................................ 5,209 3,040 5,117 3,301 Actuarial (gain) or loss..................... 4,499 (174) 9,034 2,086 Impact of foreign exchange................... -- 885 -- (8,119) Benefits paid................................ (5,646) (2,540) (4,248) (151) Curtailment loss............................. -- -- -- 3,272 Settlement payment........................... -- -- -- (16,858) ------- -------- ------- -------- Benefit obligation at end of year............... 80,285 50,587 75,741 46,863 ------- -------- ------- -------- Change in Plan Assets Fair value of plan assets at beginning of year......................................... 78,539 11,018 67,599 23,944 Actual return on plan assets (net of expenses).................................. 13,012 1,132 15,188 999 Employer contributions....................... -- 2,543 -- 6,568 Impact of foreign exchange................... -- 155 -- (3,484) Benefits paid................................ (5,646) (2,540) (4,248) (17,009) ------- -------- ------- -------- Fair value of plan assets at end of year........ 85,905 12,308 78,539 11,018 ------- -------- ------- -------- Reconciliation of the Funded Status Funded status................................... 5,620 (38,279) 2,798 (35,845) Unrecognized transition (asset) or obligation... -- 1,523 -- 1,670 Unrecognized prior service cost................. (65) -- (77) -- Unrecognized actuarial (gain) or loss........... (3,567) 11,496 (834) 12,451 ------- -------- ------- -------- Asset (liability) recognized at year-end........ $ 1,988 $(25,260) $ 1,887 $(21,724) ======= ======== ======= ======== Actuarial assumptions: Discount rate................................... 6.75% 6.75% 7.00% 6.75% Investment return............................... 9.00% 7.00% 9.00% 7.00% Compensation increases.......................... 4.75% 6.00% 4.75% 6.00%
35 37 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The domestic pension plans consist principally of a qualified retirement plan which has satisfied the full funding limitation requirements under the Employee Retirement Income Security Act of 1974 ("ERISA"). The Company made no contributions to the plan in 1998 or 1997. Contributions to the plan in 1996 were $3.8 million. Domestic plan assets consist of fixed income and equity securities. The Company also has an unfunded supplemental retirement plan for certain members of management. Net pension cost and accrued pension obligations for this plan are included in the amounts above. The foreign pension plans consist principally of a Taiwan and a German pension plan which are funded in accordance with statutory requirements. Foreign pension contributions were $2.7 million in 1996. Foreign plan assets principally consist of fixed income securities. Defined Contribution Plans. The Company maintains defined contribution plans covering all domestic non-union employees and employees in Ireland and France. Company contributions were $0.7 million in 1998 and 1997 and $0.4 million in 1996. Postretirement Benefits other than Pensions. The Company maintains an unfunded contributory group medical plan (the "Plan") for all full-time U.S. employees not covered by a collective bargaining agreement who meet defined age and service requirements. The Company recognizes the cost of providing and maintaining postretirement benefits during employees' active service periods. The Plan is the primary provider of benefits for retirees up to age 65. After age 65, Medicare becomes the primary provider. Net periodic postretirement benefit cost consists of:
YEAR ENDED DECEMBER 31, ----------------------- 1998 1997 1996 ----- ----- ----- Service cost............................................... $ 91 $ 87 $ 78 Interest................................................... 918 891 872 Amortization of prior service cost......................... (383) (383) (383) Recognized actuarial (gain) or loss........................ 135 12 -- ----- ----- ----- Net periodic postretirement benefit cost................... $ 761 $ 607 $ 567 ===== ===== =====
The status of the Plan and the related amounts recorded in the accompanying consolidated balance sheets are:
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ Change in Benefit Obligation Benefit obligation at beginning of year.................. $ 13,286 $ 11,888 Service cost.......................................... 91 87 Interest cost......................................... 918 891 Actuarial (gain) or loss.............................. 2,056 1,932 Benefits paid......................................... (2,424) (1,512) -------- -------- Benefit obligation at end of year........................ 13,927 13,286 -------- -------- Change in Plan Assets Fair value of plan assets at beginning of year........... -- -- Actual return on plan assets.......................... -- -- Employer contributions................................ 2,424 1,512 Benefits paid......................................... (2,424) (1,512) -------- -------- Fair value of plan assets at end of year................. -- --
36 38 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ -------- -------- Reconciliation of the Funded Status Funded status............................................ (13,927) (13,286) Unrecognized transition (asset) or obligation............ -- -- Unrecognized prior service cost.......................... (4,834) (5,217) Unrecognized actuarial (gain) or loss.................... 4,955 3,033 -------- -------- Accrued benefit liability at year end.................... $(13,806) $(15,470) ======== ======== Actuarial assumptions: Discount rate............................................ 6.75% 7.00% Expected return on plan assets........................... N/A N/A
The assumed rate of future increases in health care costs for 1998 and 1997 was 11.25% and 12.5%, respectively, for pre-age 65 retirees, and 9% and 10%, respectively, for post-age 65 retirees, and is expected to decline to 6% by the year 2003 for pre-age 65 retirees and by the year 2005 for post-age 65 retirees, respectively. Under the Plan, the actuarially determined effect of a one percentage point increase in the assumed health care cost trend rate on annual net postretirement benefit cost and the APBO would be $1.4 million and $1.3 million, respectively, for 1998 and 1997. In accordance with the Employee Benefits Allocation Agreement, approximately $8.0 million of net pension liabilities related to the Company were transferred to General Instrument in connection with the Distribution for the year ended December 31, 1997. Postemployment Benefits other than Pensions. The postemployment benefits obligation relates principally to medical costs for former employees on long-term disability. As of December 31, 1998 and 1997 $1.0 million and $0.9 million was accrued for postemployment benefits, respectively. 12. STOCKHOLDERS' EQUITY Distribution. GI distributed all of its outstanding shares of capital stock of each of General Instrument and CommScope to its stockholders on a pro rata basis as a dividend in a transaction that was consummated on July 28, 1997. Approximately 147.3 million shares of General Instrument Common Stock, based on a ratio of one for one, were distributed to GI's stockholders of record on July 25, 1997. On July 28, 1997 approximately 49.1 million shares of CommScope Common Stock, based on a ratio of one for three, were distributed to General Instrument stockholders of record on that date. General Semiconductor (formerly GI) retained no ownership interest in either General Instrument or CommScope. Additionally, immediately following the Distribution, General Semiconductor effected a one for four reverse stock split. Stock Option Plan. Following the Distribution, the Company continued in effect the 1993 Long-Term Incentive Plan, renamed the Amended and Restated General Semiconductor, Inc. 1993 Long-Term Incentive Plan (the "1993 LTIP") as adjusted to reflect the Distribution and Stock Split. Stock options granted generally vest ratably over a three year period beginning on the first anniversary from the date granted, expire after ten years and have exercise prices equal to the market value of the Company's common stock at the date of grant. In May 1998, the stockholders of the Company approved the adoption of the General Semiconductor, Inc. 1998 Long-Term Incentive Plan (the "1998 LTIP") which provides for the granting of stock options, stock appreciation rights, restricted stock, performance units, performance shares and phantom stock to employees of the Company and its subsidiaries and the granting of stock options to directors of the Company. The 1998 LTIP replaces the Company's 1993 LTIP. No further awards or options were granted pursuant to the 1993 LTIP. All shares available for future grant under the 1993 LTIP and those shares in respect of 37 39 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) options or awards granted or issued pursuant to the 1993 LTIP which are subsequently forfeited, expired or otherwise terminate without having been exercised will be added to the number of shares available for grant under the 1998 LTIP. The following table summarizes stock option activity relating to the Company's 1993 LTIP and 1998 LTIP (collectively, the "LTIP Plans") since the Distribution.
NUMBER WEIGHTED- OF AVERAGE SHARES EXERCISE PRICE ------ -------------- Outstanding at Distribution Date...................... 2,838 $11.77 Granted............................................... 195 14.94 Cancelled............................................. (17) 12.00 ----- Options outstanding at December 31, 1997.............. 3,016 $11.98 Granted............................................... 1,715 8.96 Exercised............................................. (38) 11.28 Cancelled............................................. (69) 12.03 ----- Options outstanding at December 31, 1998.............. 4,624 $10.86 =====
For the period January 1, 1997 through the Distribution, 8,422 options to purchase GI common stock were granted, 798 options were exercised and 4,032 options were canceled. The weighted-average exercise price of these options (unadjusted for the Distribution and Stock Split) was $23.14, $22.95 and $29.50, respectively. At the Distribution Date, all unexercised GI stock options held by General Semiconductor employees and certain Directors of GI were converted into General Semiconductor stock options. For the holders of unexercised General Semiconductor stock options, the number of options was adjusted and all exercise prices were decreased immediately following the Distribution to preserve the economic value of the options that existed prior to the Distribution Date. The following table summarizes information about stock options outstanding and exercisable under the Company's LTIP Plans.
SHARES UNDER OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------- ------------------------- NUMBER WEIGHTED- NUMBER OUTSTANDING AVERAGE WEIGHTED- EXERCISABLE WEIGHTED- AT REMAINING AVERAGE AT AVERAGE RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE EXERCISE PRICES 1998 TERM (YEARS) PRICE 1998 PRICE - --------------- ------------ ------------ --------- ------------ --------- $1.48 to $11.60...... 1,382 8.7 $ 7.37 258 $ 8.35 $11.75 to $12.06..... 1,613 8.0 $11.75 705 $11.75 $12.36 to $14.94..... 1,629 7.4 $12.94 907 $13.02 ----- ----- 4,624 8.0 $10.86 1,870 $11.90 ===== =====
At December 31, 1998 and 1997, 3.8 million shares and 0.7 million shares, respectively, were reserved for future awards under the Company's LTIP Plans. The tax benefits arising from stock options exercised during the years ended December 31, 1998, 1997 and 1996 in the amount of $0.1 million, $1.1 million, and $0.8 million, respectively, were recorded in stockholders' equity as additional paid-in capital. In addition, under the provisions of the Incentive Plan, the Company issued 4 thousand shares of Common Stock to certain members of its Board of Directors during the year ended December 31, 1997. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its LTIP Plans. Since the exercise price of all stock 38 40 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) options granted under the LTIP Plans in 1998, 1997 and 1996 was equal to the closing price of the Common Stock on the New York Stock Exchange on the date of grant, no compensation expense has been recognized by the Company for its stock-based compensation plan during these years other than for restricted stock agreements. Compensation expense, relating to both continuing and discontinued operations, would have been $5.4 million, $27.1 million and $21.9 million in 1998, 1997 and 1996, respectively, had compensation cost for stock options awarded during these years under the Company's stock option agreements been determined based upon the fair value at the grant date consistent with the methodology prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation". The Company's pro forma net income (loss) and diluted earnings (loss) per share would have been $15.2 million and $0.41 per share for 1998, $(10.9) million and $(0.31) per share for 1997 and $(15.2) million and $(0.46) per share for 1996. The estimated weighted-average per share fair value of the options granted during 1998 was $4.18, was $9.70 January 1, 1997 through the Distribution Date, $6.38 for the remainder of 1997 and $10.80 for 1996, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
1998 1997 1996 ---- ---- ---- Expected life (years)....................................... 4.0 4.0 4.0 Risk-free interest rate..................................... 4.81% 6.39% 6.18% Expected volatility-pre-Distribution........................ N/A 43% 43% Expected volatility-post-Distribution....................... 54% 45% N/A Expected dividend yield..................................... 0% 0% 0%
The pro forma effect on net income (loss) and earnings (loss) per share for 1998, 1997 and 1996 may not be representative of the pro forma effect in future years because it includes compensation cost on a straight-line basis over the vesting periods of the grants and does not take into consideration the pro forma compensation costs for grants made prior to 1995. Stockholder Rights Plan. On January 6, 1997 the Board of Directors adopted a stockholder rights plan designed to protect stockholders from various abusive takeover tactics, including attempts to acquire control of the Company at an inadequate price. Under the rights plan, which was amended in March 1999, each stockholder, subsequent to the distribution date of January 24, 1997, receives a dividend of one right for each outstanding share of Common Stock. The rights are attached to, and presently only trade with, the Common Stock and currently are not exercisable. Except as specified below, upon becoming exercisable, all rights holders will be entitled to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock ("Participating Preferred Stock") at a price of $100. The rights become exercisable and will begin to trade separately from the Common Stock upon the earlier of (i) the first date of public announcement that a person or group (other than an existing 15% stockholder or pursuant to a Permitted Offer, as defined) has acquired beneficial ownership of 15% or more of the outstanding Common Stock, or (ii) 10 business days following a person's or group's commencement of, or announcement of, an intention to commence a tender or exchange offer, the consummation of which would result in beneficial ownership of 15% or more of the Common Stock. The rights will entitle holders to purchase Common Stock having a market value (immediately prior to such acquisition) of twice the exercise price of the right in lieu of purchasing the Participating Preferred Stock. If the Company is acquired through a merger or other business combination transaction (other than a Permitted Offer, as defined), each right will entitle the holder to purchase common stock of the surviving company having a market value (immediately prior to such acquisition) of twice the exercise price of the right. The Company may redeem the rights for $0.01 each at any time prior to such acquisition. The rights will expire on January 6, 2007, unless earlier redeemed. In connection with the stockholder rights plan, the Board of Directors approved the creation of, out of the authorized but unissued shares of preferred stock of the Company, the Participating Preferred Stock, consisting of 0.4 million shares with a par value of $0.01 per share. The holders of the Participating Preferred 39 41 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock are entitled to receive dividends, if declared by the Board of Directors, from funds legally available. Each share of Participating Preferred Stock is entitled to one thousand votes on all matters submitted to stockholder vote. The shares of Participating Preferred Stock are not redeemable by the Company nor convertible into Common Stock or any other security of the Company. 13. EARNINGS (LOSS) PER SHARE The Company adopted SFAS No. 128 "Earnings per Share" during 1997. In accordance with this pronouncement, the Company retroactively adopted this standard and restated all historical earnings per share data contained in this report. SFAS 128 requires presentations of "basic" and "diluted" earnings per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the applicable periods. In 1998, the diluted earnings per share computation is based on net income divided by the weighted-average number of common shares outstanding adjusted for the dilutive effect of stock options. In 1997 and 1996, the diluted earnings (loss) per share computations are based on net income (loss) adjusted for interest and amortization of debt issuance costs related to convertible debt, if dilutive, divided by the weighted-average number of common shares outstanding adjusted for the dilutive effect of stock options and convertible securities. The diluted earnings (loss) per share calculations assume the exercise of stock options using the treasury stock method. Set forth below are reconciliations of the numerators and denominators of the basic and diluted per share computations for each of the years ended December 31, 1998, 1997 and 1996.
FOR THE YEAR ENDED DECEMBER 31, 1998 ----------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- BASIC EPS Income available to common stockholders........ $18,534 36,811 $0.50 ===== EFFECT OF DILUTIVE SECURITIES Options...................................... -- 88 ------- ------ DILUTED EPS Income available to common stockholders plus assumed conversions.......................... $18,534 36,899 $0.50 ======= ====== =====
FOR THE YEAR ENDED DECEMBER 31, 1997 ----------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- BASIC EPS Income from continuing operations available to common stockholders.......................... $8,872 35,414 $0.25 ===== EFFECT OF DILUTIVE SECURITIES Options...................................... -- 162 ------ ------ DILUTED EPS Income from continuing operations available to common stockholders plus assumed conversions.................................. $8,872 35,576 $0.25 ====== ====== =====
40 42 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The effect of the Notes outstanding through the Distribution is excluded from the above computation of diluted earnings per share because the impact was anti-dilutive. Had the impact of the weighted-average shares outstanding related to the Notes of 1,305 shares been included in the diluted calculation, the diluted weighted-average shares outstanding of as December 31, 1997 would have been 36,881 shares.
FOR THE YEAR ENDED DECEMBER 31, 1996 ----------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- BASIC EPS Income from continuing operations available to common stockholders.......................... $39,764 32,924 $1.20 ===== EFFECT OF DILUTIVE SECURITIES Options...................................... -- 171 Convertible debt............................. 2,658 3,757 ------- ------ DILUTED EPS Income from continuing operations available to common stockholders plus assumed conversions.................................. $42,422 36,852 $1.15 ======= ====== =====
14. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS Derivative instruments are primarily used by the Company to reduce financial risk arising from changes in foreign exchange and interest rates. The Company does not use derivative instruments for trading purposes, nor does it engage in currency or interest rate speculation. Derivatives used by the Company consist of foreign exchange, interest rate and other instruments. The Company believes that the various counterparties with which the Company enters into these agreements consist of only financially sound institutions and, accordingly, believes that the credit risk for non-performance of these contracts is not significant. The Company monitors its underlying market risk exposures on an ongoing basis and believes that it can modify or adapt its hedging strategies as needed. Foreign Exchange Instruments. The Company enters into forward contracts on a month-to-month basis to minimize the effect of foreign currency fluctuations with regard to certain monetary assets and liabilities denominated in currencies other than the U.S. dollar. Gains and losses on these contracts generally offset, in the same period, gains and losses resulting from the translation of monetary assets and liabilities to U.S. dollars on a monthly basis, reducing the risk of exchange rate movements in the Company's results of operations. On a selective basis, the Company enters into forward contracts and purchased option contracts designed to hedge the currency exposure of contractual and other firm commitments denominated in foreign currencies and the currency exposure of anticipated, but not yet committed, transactions expected to be denominated in foreign currencies. The purpose of these activities is to protect the Company from the risk that the eventual net cash flows in U.S. dollars from foreign receivables and payables will be adversely affected by changes in exchange rates. Gains and losses on all purchased options and those forward contracts which hedge contractual and other firm commitments are deferred and recognized in the Company's results of operations in the same period as the gain or loss from the underlying transactions. Gains and losses on forward contracts used to hedge anticipated, but not yet committed, transactions are recognized in the Company's results of operations as changes in exchange rates for the applicable foreign currencies occur. Historically, foreign contracts with respect to contractual and other firm commitments and anticipated, but not yet committed, transactions have been short-term in nature. In addition, purchased options have had no intrinsic value at the time of purchase. 41 43 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company settles foreign exchange contracts generally at maturity and at prevailing market rates. The Company recognizes in its results of operations over the life of the contract the amortization of contract premium on purchased options. The amortization of these premiums during each of the three years in the period ended December 31, 1998 was not significant. As of December 31, 1998 and 1997, the Company had outstanding forward and purchased option contracts in the amounts of $21.3 million and $19.9 million, respectively, comprised of foreign currencies which were to be sold and $79.6 million and $23.2 million, respectively, comprised of foreign currencies which were to be purchased. All outstanding forward and purchased option contracts as of December 31, 1998 mature within twelve months. As of December 31, 1998 the Company owned the following forward and option contracts: FORWARD CONTRACTS:
US DOLLAR (000'S) AVERAGE US DOLLAR (000'S) FAIR CURRENCY RATE PURCHASE/(SELL) VALUE - -------- ------- ----------------- ----------------- New Taiwan Dollar................. 32.57 NTD/US $(54,283) $ 545 German Marks...................... 1.67 DM/US 11,392 60 Japanese Yen...................... 115.62 JPY/US 8,779 (155) Irish Punt........................ 1.49 US/IEP (3,125) (5) British Pounds.................... 1.68 US/BPS 1,093 5
PURCHASED OPTIONS:
US DOLLAR (000'S) AVERAGE US DOLLAR (000'S) FAIR CURRENCY RATE PURCHASE/(SELL) VALUE - -------- ------- ----------------- ----------------- New Taiwan Dollar................. 33.03 NTD/US (22,161) $ 600
Deferred gains or losses on the above contracts at December 31, 1998 and 1997 were not significant. Foreign currency transaction gains included in income from continuing operations were $1.6 million, $3.8 million and $0.9 million in 1998, 1997 and 1996, respectively. As of December 31, 1997 the Company had no purchased option contracts outstanding. All outstanding forward contracts at December 31, 1997 matured within three months, and the fair values of the contracts were not material. Fair values are based on quoted market prices. Interest Rate Derivative Instruments. On a selective basis, the Company from time to time enters into interest rate cap or swap agreements to reduce the potential negative impact of increases in interest rates on its outstanding variable-rate debt under the Credit Agreement. The Company recognizes in its results of operations over the term of the contract, as interest expense, the amortization of contract premiums incurred from purchasing interest rate caps. Net payments or receipts resulting from these agreements are recorded as adjustments to interest expense. The effect of interest rate instruments on the Company's results of operations in each of the three years in the period ended December 31, 1998 was not significant. The Company entered into two interest rate swap transactions with a term of one year beginning on January 22, 1998. Pursuant to these agreements it paid a fixed interest rate averaging 5.96% on a notional amount of $100 million and received interest on the $100 million notional amount based on a three month LIBOR rate set quarterly beginning on January 22, 1998. During February 1998, the Company purchased two interest rate caps each with a notional amount of $50 million. The caps became effective on April 27, 1998 and June 29, 1998 with terms of nine months and six months, respectively. Under the terms of the caps, the Company was paid an amount equal to the excess, if any, of three month LIBOR above 6% multiplied by the notional amounts. The cost of the caps was immaterial. 42 44 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1998 the Company held the following interest rate derivative instruments:
INSTRUMENT NOTIONAL AMOUNT FIXED RATE FLOATING RATE FAIR VALUE - ---------- --------------- ---------- ------------- ---------- Interest Rate Cap........... $50,000 6.000% 3-month LIBOR -- Floating to Fixed Swap...... 50,000 5.953% 3-month LIBOR (100) Floating to Fixed Swap...... 50,000 5.966% 3-month LIBOR (100)
Fair values are based on quoted market prices. Other Financial Instruments. As of December 31, 1998 and 1997 the carrying value of cash and cash equivalents, trade accounts receivable and trade accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount of the Company's senior bank indebtedness approximates fair value because the underlying instruments have variable interest rates that adjust to market on a short-term basis. Concentration of credit risk. The Company's accounts receivable are generated from sales to customers in a variety of end-use markets that are geographically and economically dispersed and payment is generally due within 30 days. Accordingly, the Company does not believe it is subject to any significant concentration of credit risk. 15. GEOGRAPHIC SEGMENT INFORMATION General Semiconductor is engaged in one industry segment, specifically, the design, manufacture and sale of discrete semiconductors. The Company manages its business on a geographic basis. Summarized financial information for the Company's reportable geographic segments is presented in the following table. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Net sales by reportable geographic segment reflects the originating source of the unaffiliated sale. Intercompany transfers represent the originating geographic source of the transfer and principally reflect product assembly which is accounted for at cost plus a nominal profit. In determining earnings (loss) before provision for income taxes for each geographic segment, sales and purchases between areas have been accounted for on the basis of internal transfer prices set by the Company. Corporate assets consist of patents, the excess of cost over fair value of net assets acquired and deferred financing costs. Long-lived assets in the European and Far East geographic segments are related primarily to Ireland and Taiwan, respectively.
UNITED STATES EUROPE FAR EAST CHINA CORPORATE CONSOLIDATED -------- -------- -------- ------- --------- ------------ YEAR ENDED DECEMBER 31, 1998: Net sales(a)................ $225,711 $135,247 $ 40,186 $ -- $ -- $401,144 Intercompany transfers...... 114,833 136,993 170,568 28,956 (451,350) -- -------- -------- -------- ------- --------- -------- Net sales................. 340,544 272,240 210,754 28,956 (451,350) $401,144 ======== ======== ======== ======= ========= ======== Interest income............. -- 48 26 29 273 376 Interest expense............ -- 297 588 -- 19,517 20,402 Depreciation and amortization expense...... 8,770 4,654 8,913 2,645 -- 24,982 Earnings before provision for income taxes(b)....... 6,614 3,802 11,061 5,613 -- 27,090 Income tax expense.......... 3,073 3,364 1,989 130 -- 8,556 Long-lived assets........... 93,691 52,931 57,264 29,049 173,007 405,942 Capital expenditures........ $ 2,731 $ 14,042 $ 7,532 $ 2,593 $ -- $ 26,898
43 45 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNITED STATES EUROPE FAR EAST CHINA CORPORATE CONSOLIDATED -------- -------- -------- ------- --------- ------------ YEAR ENDED DECEMBER 31, 1997: Net sales(a)................ $245,772 $102,881 $ 31,385 $ -- $ -- $380,038 Intercompany transfers...... 102,966 84,301 137,293 4,752 (329,312) -- -------- -------- -------- ------- --------- -------- Net sales................. 348,738 187,182 168,678 4,752 (329,312) $380,038 ======== ======== ======== ======= ========= ======== Interest income............. -- 224 58 26 -- 308 Interest expense............ -- 223 3,561 -- 10,877 14,661 Depreciation and amortization expense...... 9,711 4,323 9,514 684 -- 24,232 Earnings (loss) before provision for income taxes(c).................. 14,535 630 8,328 (2,972) -- 20,521 Income tax expense.......... 5,452 1,042 5,155 -- -- 11,649 Long-lived assets........... 94,670 47,360 59,827 27,094 177,112 406,063 Capital expenditures........ $ 7,106 $ 1,039 $ 8,100 $12,963 $ -- $ 29,208 YEAR ENDED DECEMBER 31, 1996: Net sales(a)................ $232,902 $ 98,921 $ 30,068 $ -- $ -- $361,891 Intercompany transfers...... 90,855 41,369 133,981 -- (266,205) -- -------- -------- -------- ------- --------- -------- Net sales................. 323,757 140,290 164,049 -- (266,205) $361,891 ======== ======== ======== ======= ========= ======== Interest income............. -- 419 127 43 -- 589 Interest expense............ -- 286 3,780 -- 6,919 10,985 Depreciation and amortization expense...... 10,136 3,831 8,435 211 -- 22,613 Earnings(loss) before provision for income taxes..................... 60,364 2,464 8,009 (3,666) -- 67,171 Income tax expense.......... 21,840 4,508 1,059 -- -- 27,407 Long-lived assets........... 90,836 47,220 60,904 12,258 190,219 401,437 Capital expenditures........ $ 9,049 $ 20,504 $ 21,225 $ 9,521 $ -- $ 60,299
- --------------- (a) Included in United States net sales are export sales as follows:
1998 1997 1996 -------- -------- -------- Taiwan....................................... $ 69,156 $ 99,134 $ 93,718 China........................................ 32,904 28,602 23,792 -------- -------- -------- $102,060 $127,736 $117,510 ======== ======== ========
Net sales, by country, within the European geographic segment are:
1998 1997 1996 -------- -------- ------- France........................................ $ 20,742 $ 16,485 $15,057 Germany....................................... 92,058 66,811 62,890 U.K. ......................................... 22,447 19,585 20,974 -------- -------- ------- $135,247 $102,881 $98,921 ======== ======== =======
(b) Earnings before provision for income taxes in 1998 includes restructuring charges of $12.3 million ($8.5 million net of tax). 44 46 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (c) Earnings before provision for income taxes in 1997 includes charges of $33.8 million, ($25.3 million net of tax), primarily related to the separation of GI's Taiwan operations. No single customer accounted for more than 10% of the Company's sales during the years ended December 31, 1998, 1997 and 1996. 16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly data for 1998 and 1997 is as follows:
QUARTER ENDED 1998 -------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 December 31(a) ----------- ---------- ------------ -------------- Net sales............................. $106,397 $98,762 $ 97,223 $ 98,762 Gross profit.......................... 35,289 28,647 26,726 26,900 Net income(loss)...................... 9,466 6,846 5,956 (3,734) Earnings(loss) per share Basic:.............................. $ 0.26 $ 0.19 $ 0.16 $ (0.10) Diluted:............................ 0.26 0.19 0.16 (0.10)
QUARTER ENDED 1997 -------------------------------------------------------- MARCH 31(B) JUNE 30(C) SEPTEMBER 30 DECEMBER 31 ----------- ---------- ------------ -------------- Net sales............................. $ 85,369 $95,511 $ 95,568 $103,590 Gross profit.......................... 19,426 6,915 30,662 33,722 Income(loss) from continuing operations.......................... 707 (9,416) 8,506 9,075 Net income(loss)...................... 17,683 (8,182) (12,643) 9,075 Earnings(loss) per share(d)........... Basic: Continuing operations............ $ 0.02 $ (0.27) $ 0.23 $ 0.25 Net income(loss)................. 0.52 (0.24) (0.35) 0.25 Diluted: Continuing operations............ $ 0.02 $ (0.27) $ 0.23 $ 0.25 Net income(loss)................. 0.51 (0.24) (0.33) 0.25
- --------------- (a) Includes restructuring charges of $12.3 million ($8.5 million or $0.23 per share net of tax). (b) Includes charges of $7.4 million ($5.5 million or $0.15 per share net of tax) primarily related to the separation of GI's Taiwan operations. These costs include $7.3 million charged to cost of sales and $0.1 million charged to selling, general and administrative expense. (c) Includes charges of $26.4 million ($19.8 million or $0.54 per share net of tax) primarily related to the separation of GI's Taiwan operations. These costs include $25.4 million charged to cost of sales and $1.0 million charged to selling, general and administrative expense. (d) Earnings (loss) per share data has been adjusted to reflect the one for four reverse stock split and restated in conformance with SFAS No. 128. 45 47 GENERAL SEMICONDUCTOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 17. DISCONTINUED OPERATIONS Net sales for the Discontinued Operations included in the Consolidated Statement of Operations were $1.3 billion and $2.3 billion for the years ended December 31, 1997 and 1996, respectively. Discontinued operations includes $52.9 million and $2.7 million, net of applicable income taxes, for the years ended December 31, 1997 and 1996, respectively, for costs incurred primarily related to the separation of the Taiwan operations between General Semiconductor and General Instrument and for professional fees and certain other administrative and financing costs incurred directly related to the Distribution. The distribution of the net assets of discontinued businesses reduced stockholders' equity by $1.4 billion of which $1.2 billion was allocated to additional paid-in capital and $0.2 billion to retained earnings. 46 48 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Identification of Directors: The sections captioned "Election of Directors" and "The Board of Directors and Committees of the Board" contained in the Company's 1999 Proxy Statement are hereby incorporated by reference. (b) Identification of Executive Officers: See Part I of this Form 10-K (c) Compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended: The section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" contained in the Company's 1999 Proxy Statement is hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION Information required by this item is contained in the sections captioned "Compensation of Executive Officers", and "Severance Protection and Other Agreements", in the Company's 1999 Proxy Statement and is incorporated by reference herein. The sections captioned "Report of the Compensation Committee" and "Performance Graph" in the Company's 1999 Proxy Statement are not incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is contained in the sections captioned "Security Ownership of Certain Beneficial Owners and Management of the Company" and "Compensation of Executive Officers-Stock Options" in the Company's 1999 Proxy Statement and is incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item is contained in the section captioned "Certain Related Party Transactions" in the Company's 1999 Proxy Statement and is incorporated by reference herein. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report 1. Financial Statements Independent Auditors' Report Consolidated Financial Statements: Consolidated Balance Sheets -- as of December 31, 1998 and 1997 Consolidated Statements of Operations -- Years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Stockholders' Equity -- Years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows -- Years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements 47 49 See item 8 of this Form 10-K for Consolidated Financial Statements 2. Financial Statement Schedules. Schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 3. Exhibits. The exhibits required by Item 601 of Regulation S-K filed as part of, or incorporated by reference in, this report are listed in (c) below. (b) Reports on Form 8-K The Company filed a Form 8-K with the SEC, dated November 6, 1998, to report under Item 5 of that Form that a press release was issued on November 6, 1998 regarding a restructuring plan the Company adopted. A copy of the press release was filed as an exhibit to the Form 8-K. (c) Item 601 Exhibits
EXHIBITS - -------- 2.1* Agreement of Merger, dated as of July 25, 1997, between General Instrument Corporation and General Instrument Corporation of Delaware 3.1 Restated Certificate of Incorporation of General Semiconductor, Inc. (including Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock) 3.2 Amended and Restated By-Laws of General Semiconductor, Inc. 4.1** Rights Agreement, dated January 6, 1997, between General Semiconductor, Inc. and ChaseMellon Shareholder Services, LLC 4.2*** Amendment No. 1 to the Rights Agreement, dated as of March 10, 1999 between General Semiconductor, Inc. and ChaseMellon Shareholder Services, LLC 10.1* Employee Benefits Allocation Agreement, dated as of July 25, 1997, among NextLevel Systems, Inc., CommScope, Inc. and General Semiconductor, Inc. 10.2* Debt and Cash Allocation Agreement, dated as of July 25, 1997, among NextLevel Systems, Inc., CommScope, Inc. and General Semiconductor, Inc. 10.3* Insurance Agreement, dated as of July 25, 1997, among NextLevel Systems, Inc., CommScope, Inc. and General Semiconductor, Inc. 10.4* Tax Sharing Agreement, dated as of July 25, 1997, among NextLevel Systems, Inc., CommScope, Inc. and General Semiconductor, Inc. 10.5* Trademark License Agreement, dated as of July 25, 1997, among NextLevel Systems, Inc., CommScope, Inc. and General Semiconductor, Inc. 10.6* Transition Services Agreement, dated as of July 25, 1997, among NextLevel Systems, Inc., CommScope, Inc. and General Semiconductor, Inc. 10.7* Credit Agreement, dated as of July 23, 1997, among NextLevel Systems, Inc., and General Semiconductor, Inc., Certain Banks, The Chase Manhattan Bank as Administrative Agent and The Chase Manhattan Bank, Bank of America National Trust and Savings Association, Bank of Montreal, The Bank of Nova Scotia, CIBC, Inc. Credit Lyonnais New York Branch, Fleet National Bank and Wachovia Bank, N.A. as Co-Agents 10.7.1 First Amendment to the Credit Agreement, dated as of December 31, 1998 among General Semiconductor, Inc., The Chase Manhattan Bank as Administrative Agent, the Banks from time to time parties thereto, and the financial institutions named therein as co-agents for the Banks 10.8*+ Amended and Restated General Semiconductor, Inc. 1993 Long-Term Incentive Plan 10.8.1****+ General Semiconductor, Inc. 1998 Long-Term Incentive Plan 10.9*+ Form of Indemnification Agreement between General Semiconductor, Inc. and certain executive officers 10.10+ Amended and Restated Severance Protection Agreement, dated October 29, 1998, between General Semiconductor, Inc. and Ronald A. Ostertag 10.11+ Form of Amended and Restated Severance Protection Agreement between General Semiconductor, Inc. and certain of its executive officers (other than the Chief Executive Officer) 21. Subsidiaries of the Registrant
48 50
EXHIBITS - -------- 23. Independent Auditors' Consent 27. Financial Data Schedule 99. Forward-Looking Information
- --------------- * Incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (File No. 1-5442). ** Incorporated herein by reference from the Registration Statement on Form 8-A filed January 10, 1997 (File No. 1-5442). *** Incorporated herein by reference from the Amendment to the Registration Statement on Form 8-A/A filed March 16, 1999 (File No. 1-5442). **** Incorporated herein by reference from the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 20, 1998 (Reg. No. 333-22861). + Management compensation. 49 51 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. General Semiconductor, Inc. By: /s/ RONALD A. OSTERTAG ------------------------------------ Ronald A. Ostertag Chairman of the Board, President and Chief Executive Officer Dated: March 19, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD A. OSTERTAG Chairman of the Board, President, March 19, 1999 - --------------------------------------------------- Chief Executive Officer and Ronald A. Ostertag Director (Principal Executive Officer) /s/ ANDREW M. CAGGIA Senior Vice President and Chief March 19, 1999 - --------------------------------------------------- Financial Officer (Principal Andrew M. Caggia Financial Officer) /s/ ROBERT J. GANGE Vice President and Controller March 19, 1999 - --------------------------------------------------- (Principal Accounting Officer) Robert J. Gange /s/ STEVEN B. KLINSKY Director March 19, 1999 - --------------------------------------------------- Steven B. Klinsky /s/ RONALD ROSENZWEIG Director March 19, 1999 - --------------------------------------------------- Ronald Rosenzweig /s/ PETER A. SCHWARTZ Director March 19, 1999 - --------------------------------------------------- Peter A. Schwartz /s/ SAMUEL L. SIMMONS Director March 19, 1999 - --------------------------------------------------- Samuel L. Simmons /s/ PROF. GERARD T. WRIXON Director March 19, 1999 - --------------------------------------------------- Prof. Gerard T. Wrixon
50 EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF GENERAL SEMICONDUCTOR, INC. The undersigned, Stephen B. Paige, certifies that he is the Senior Vice President, General Counsel and Secretary of General Semiconductor, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), and does hereby further certify as follows: (1) The name of the corporation is General Semiconductor, Inc. The Corporation was originally incorporated under the name FLGI Holding Corp. (2) The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on June 28, 1990. (3) A Certificate of Amendment was filed with the Secretary of State of the State of Delaware on August 9, 1990, a Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on November 13,1990, a Certificate of Amendment was filed with the Secretary of State of the State of Delaware on February 26, 1992, an Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on March 30, 1992, an Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on May 4, 1992, a Certificate of Correction was filed with the Secretary of State of the State of Delaware on June 16, 1992, an Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on June 2, 1993, and an Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on July 21, 1997. (4) This Restated Certificate of Incorporation restates and integrates the provisions of the original Certificate of Incorporation of the Corporation as heretofore amended or supplemented and has been duly adopted in accordance with Section 245 of the General Corporation Law of Delaware (the "GCL"). (5) Pursuant to Section 103(d) of the GCL, this Restated Certificate of Incorporation shall become effective immediately upon filing with the Secretary of State of the State of Delaware (the "Effective Date"). (6) The text of the Restated Certificate of Incorporation of the Corporation is again restated to read in its entirety as follows: FIRST: The name of the Corporation is General Semiconductor, Inc. SECOND: The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. 2 THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the GCL as set forth in Title 8 of the Delaware Code. FOURTH: The aggregate number of shares of all classes of capital stock which the Corporation shall have authority to issue is (i) 400,000,000 shares of common stock, par value $.01 per share (the "New Common Stock"), and (ii) 20,000,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"). At 5:15 p.m., on July 25, 1997 (the "Effective Time"), each four shares of the common stock, par value $.01 per share, issued and outstanding immediately prior to the Effective Time (the "Old Common Stock"), shall automatically, without further action on the part of the Corporation or any holder of such Old Common Stock, be reclassified as and converted into one fully paid and nonassessable share of New Common Stock as herein authorized (the "Reverse Stock Split"), subject to the treatment of fractional share interests as described below. Such reclassification and conversion of Old Common Stock into New Common Stock shall not change the par value per share of the shares reclassified and converted, which par value shall remain $.01 per share. The reclassification of the Old Common Stock into New Common Stock, will be deemed to occur at the Effective Time, regardless of when the certificates representing such Old Common Stock are physically surrendered to the Corporation. After the Effective Time, certificates representing the Old Common Stock will, until such shares are surrendered to the Corporation, represent the number of shares of New Common Stock into which such Old Common Stock shall have been converted pursuant hereto. The Corporation is authorized to use a book-entry transfer facility to reflect ownership of the New Common Stock; however, upon request and in accordance with the procedures of any such book-entry transfer facility and Delaware law, stockholders shall be entitled to receive a certificate representing shares of New Common Stock. Fractional shares of New Common Stock shall not be issued in connection with the Reverse Stock Split. Fractional shares of New Common Stock shall be aggregated into whole shares of New Common Stock and shall be sold in the open market at prevailing prices on behalf of holders who otherwise would be entitled to receive fractional share interests of New Common Stock, such holders shall then receive a cash payment equal to the amount of their pro rata share of the total sale proceeds. Following the Effective Time, the capital of the Corporation shall be reduced to reflect the change in the outstanding shares of the Corporation. Shares of the Preferred Stock of the Corporation may be issued from time to time in one or more classes or series, each of which class or series shall have such distinctive designation or title as shall be fixed by the Board of Directors of the Corporation (the "Board of Directors") prior to the issuance of any shares thereof. Each such class or series of Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof pursuant to the authority hereby expressly vested in it, all in accordance with the laws of the State of Delaware. FIFTH: The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. The number of directors of the Corporation shall be from time to time fixed by, or in the manner provided in, the By-laws of the 2 3 Corporation. SIXTH: Subject to the rights, if any, of the holders of shares of Preferred Stock then outstanding, any or all of the directors of the Corporation may be removed from office, with or without cause, at any time by the affirmative vote of the holders of a majority of the outstanding shares of the Corporation then entitled to vote generally in the election of directors, considered for purposes of this Article SIXTH as one class. SEVENTH: A director of the Corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided, however, that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any transaction from which the director derived an improper personal benefit. If the GCL is hereafter amended to permit further elimination or limitation of the personal liability of directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the GCL as so amended. Any repeal or modification of this Article SEVENTH by the stockholders of the Corporation or otherwise shall not apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. EIGHTH: The Corporation shall, to the fullest extent permitted by Delaware law, indemnify any person (the "Indemnitee") who is or was involved in any manner (including, without limitation, as a party or a witness) in any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, any action, suit or proceeding brought by or in the right of the Corporation to procure judgement in its favor) (a Proceeding") by reason of the fact that the Indemnitee is or was a director or officer of the Corporation, or is or was serving another entity in such capacity at the request of the Corporation, against all expenses and liabilities actually and reasonably incurred by the Indenmitce in connection with the defense or settlement of such Proceeding (including attorneys' fees). NINTH: The Corporation reserves the right to rescind, amend, alter, change, or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. TENTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, repeal, alter, amend or rescind the By-laws of the Corporation. In addition, the By-laws of the Corporation may be adopted, repealed, altered, amended or rescinded by the affirmative vote of a majority of the outstanding stock of the Corporation entitled to vote thereon. ELEVENTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a 3 4 meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which said application has been made, be binding on all the creditors or class of creditors, and/or on all of the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation TWELFTH: Elections of directors need not be by written ballot unless the By-laws of the Corporation shall otherwise provide. IN WITNESS WHEREOF, General Semiconductor, Inc. has caused this Restated Certificate of Incorporation to be signed by Stephen B. Paige, its Senior Vice President, General Counsel and Secretary, this 10th day of March, 1999. GENERAL SEMICONDUCTOR, INC. By: /s/ Stephen B. Paige ---------------------------------------- Stephen B. Paige Senior Vice President, General Counsel and Secretary 4 5 GENERAL SEMICONDUCTOR, INC. CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK (Pursuant to Section 151 of the General Corporation Law of the State of Delaware) I, Stephen B. Paige, Senior Vice President, General Counsel and Secretary of General Semiconductor, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), in accordance with the provisions of Section 103 thereof, do hereby certify: That pursuant to the authority conferred upon the Board of Directors by the Corporation's Certificate of Incorporation (the "Certificate of Incorporation"), the Board of Directors on January 6, 1997, adopted the following resolution creating a series of 400,000 shares of Preferred Stock designated as Series A Junior Participating Preferred Stock: WHEREAS, the Certificate of Incorporation provides that the Corporation is authorized to issue 20,000,000 shares of preferred stock, none of which are outstanding, now therefore it is. RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation by Article FOURTH of the Certificate of Incorporation, a series of Preferred Stock of the Corporation be, and it hereby is, created out of the authorized but unissued shares of the capital stock of the Corporation, such series to be designated Series A Junior Participating Preferred Stock (the "Participating Preferred Stock"), to consist of four hundred thousand (400,000) shares, par value $.01 per share, of which the preferences and relative and other rights, and the qualifications, limitations or restrictions thereof, shall be as follows: 1. Future Increase or Decrease. Subject of paragraph 4(e) of this resolution, the number of shares of said series may at any time or from time to time be increased or decreased by the Board of Directors notwithstanding that shares of such series may be outstanding at such time of increase or decrease. 2. Dividend Rate. (a) The holders of shares of Participating Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of each November, February, May and August in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00 or (b) 1,000 times the aggregate per share amount of all cash dividends and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, par value $.01 per share, of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Participating Preferred Stock. (b) On or after the first issuance of any share or fractional share of Participating Preferred Stock, no dividend on Common Stock shall be declared unless concurrently therewith a dividend or distribution is declared on the Participating Preferred Stock as provided in paragraph (a) above; and the declaration of any such dividend on the Common Stock shall be expressly conditioned 5 6 upon payment or declaration of and provision for a dividend on the Participating Preferred Stock as above provided. In the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share on the Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (c) Dividends shall begin to accrue and be cumulative on outstanding shares of Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. The Board of Directors may fix a record date for the determination of holders of shares of Participating Preferred Stock entitled to receive payment of a dividend distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. 3. Dissolution, Liquidation and Winding Up. In the event of any voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation (hereinafter referred to as a "Liquidation"), the holders of Participating Preferred Stock shall receive at least $100.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Participating Preferred Stock shall be entitled to receive at least an aggregate amount per share equal to 1,000 times the aggregate amount to be distributed per share to holders of Common Stock (the "Participating Preferred Liquidation Preference"). 4. Voting Rights. The holders of shares of Participating Preferred Stock shall have the following voting rights: (a) Each share of Participating Preferred Stock shall entitle the holder thereof to one thousand (1,000) votes on all matters submitted to a vote of the stockholders of the Corporation. (b) Except as otherwise provided herein, or by law, the Certificate of Incorporation or the Amended and Restated By-laws of the Corporation (the "By-laws"), the holders of shares of Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (c) If and whenever dividends on the Participating Preferred Stock shall be in arrears in an amount equal to six quarterly dividend payments, then and in such event the holders of the Participating Preferred Stock, voting separately as a class (subject to the provisions of subparagraph (d) below), shall be entitled at the next annual meeting of the stockholders or at any special meeting to elect two (2) directors. Each share of Participating Preferred Stock shall be entitled to one vote, and holders of fractional shares shall have the right to a fractional vote. Upon election, such directors shall become additional directors of the Corporation and the authorized number of directors of the Corporation shall thereupon be automatically increased by such number of directors. Such right of the holders of Participating Preferred Stock to elect directors may be exercised until all dividends in default on the Participating Preferred Stock shall have been paid in full, and dividends for the current dividend period declared and funds therefor set apart, and when so paid and set apart, the right of the holders of Participating Preferred Stock to elect such number of directors shall cease, the term of such directors shall thereupon terminate, and the authorized number of directors of the Corporation shall thereupon return to the number of authorized directors otherwise in effect, but subject always to the same provisions for the vesting of such special voting rights in the case of any such future dividend default or defaults. The fact that dividends have been paid and set apart as required by the preceding sentence shall be evidenced by a 6 7 certificate executed by the President and the chief financial officer of the Corporation and delivered to the Board of Directors. The directors so elected by holders of Participating Preferred Stock shall serve until the certificate described in the preceding sentence shall have been delivered to the Board of Directors or until their respective successors shall be elected or appointed and qualify. At any time when such special voting rights have been so vested in the holders of the Participating Preferred Stock, the Secretary of the Corporation may, and upon the written request of the holders of record of 10% or more of the number of shares of the Participating Preferred Stock then outstanding addressed to such Secretary at the principal office of the Corporation in the State of New York, shall, call a special meeting of the holders of the Participating Preferred Stock for the election of the directors to be elected by them as hereinabove provided, to be held in the case of such written request within forty (40) days after delivery of such request, and in either case to be held at the place and upon the notice provided by law and in the By-laws of the Corporation for the holding of meetings of stockholders; provided, however, that the Secretary shall not be required to call such a special meeting (i) if any such request is received less than ninety (90) days before the date fixed for the next ensuing annual or special meeting of stockholders or (ii) if at the time any such request is received, the holders of Participating Preferred Stock are not entitled to elect such directors by reason of the occurrence of an event specified in the third sentence of subparagraph (d) below. (d) if, at any time when the holders of Participating Preferred Stock are entitled to elect directors pursuant to the foregoing provisions of this paragraph 4, the holders of any one or more additional series of Preferred Stock are entitled to elect directors by reason of any default or event specified in the Certificate of Incorporation, as in effect at the time of the certificate of designation for such series, and if the terms for such other additional series so permit, the voting rights of the two or more series then entitled to vote shall be combined (with each series having a number of votes proportional to the aggregate liquidation preference of its outstanding shares). In such case, the holders of Participating Preferred Stock and of all such other series then entitled so to vote, voting as a class, shall elect such directors. If the holders of any such other series have elected such directors prior to the happening of the default or event permitting the holders of Participating Preferred Stock to elect directors, or prior to a written request for the holding of a special meeting being received by the Secretary of the Corporation from the holders of not less than 10% of the then outstanding shares of Participating Preferred Stock, then such directors so previously elected will be deemed to have been elected by and on behalf of the holders of Participating Preferred Stock as well as such other series, without prejudice to the right of the holders of Participating Preferred Stock to vote for directors if such previously elected directors shall resign, cease to serve or fail to stand for reelection while the holders of Participating Preferred Stock are entitled to vote. If the holders of any such other series are entitled to elect in excess of two (2) directors, the Participating Preferred Stock shall not participate in the election of more than two (2) such directors, and those directors whose terms first expire shall be deemed to be the directors elected by the holders of Participating Preferred Stock; provided that, if at the expiration of such terms the holders of Participating Preferred Stock are entitled to vote in the election of directors pursuant to the provisions of this paragraph 4, then the Secretary of the Corporation shall call a meeting (which meeting may be the annual meeting or special meeting of stockholders referred to in subparagraph (c)) of holders of Participating Preferred Stock for the purpose of electing replacement directors (in accordance with the provisions of this paragraph 4) to be held on or prior to the time of expiration of the expiring terms referred to above. (e) Except as otherwise set forth herein or required by law, the Certificate of Incorporation or the By-laws, holders of Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. No consent of the holders of outstanding shares of Participating Preferred Stock at any time outstanding shall be required in order to permit the Board of Directors to: (i) increase the number of authorized shares of Participating Preferred Stock or to decrease such number to a number not below the sum of the number of shares of Participating Preferred Stock then outstanding and the number of shares with respect to which there are outstanding rights to 7 8 purchase; or (ii) to issue Preferred Stock which is senior to the Participating Preferred Stock, junior to the Participating Preferred Stock or on a parity with the Participating Preferred Stock. 5. Redemption. The shares of Participating Preferred Stock shall not be redeemable. 6. Conversion Rights. The Participating Preferred Stock is not convertible into Common Stock or any other security of the Corporation. IN WITNESS WHEREOF, the undersigned Senior Vice President, General Counsel and Secretary of the Corporation declares under penalty of perjury the truth, to the best of his knowledge, of this Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock. Executed this 10th day of March, 1999 in Melville, New York By: /s/ Stephen B. Paige ---------------------------------- Stephen B. Paige, Senior Vice President, General Counsel and Secretary 8 EX-3.2 3 AMENDED AND RESTATED BY-LAWS 1 EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF GENERAL SEMICONDUCTOR, INC. (hereinafter called the "Corporation") (As of March 10, 1999) ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The registered office of the Corporation within the State of Delaware shall be in the City of Wilmington, County of New Castle. SECTION 2. OTHER OFFICES. The Corporation may also have an office or offices other than said registered office at such place or places, either within or without the State of Delaware, as the Board of Directors shall from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders for the election of directors or for any other purpose shall be held at any such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver thereof. At such annual meetings, the stockholders shall elect by a plurality vote the directors standing for election and transact such other business as may properly be brought before the meeting in accordance with these Amended and Restated By-Laws. SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any purpose or purposes, unless otherwise prescribed by statute may be called by the Board of Directors, the Chairman of the Board of Directors, if one shall have been elected, or the President and shall be called by the Secretary upon the request in writing of a stockholder or stockholders holding of record at least a majority of the voting power of the issued and outstanding shares of capital stock of the Corporation entitled to vote at such meeting. SECTION 4. NOTICE OF MEETINGS. Except as otherwise expressly required by statute, written notice of each annual and special meeting of stockholders stating the date, place and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder of record entitled to vote thereat not less than ten nor more than sixty days before the date of the meeting. Business transacted at any special meeting of stockholders shall be 2 limited to the purposes stated in the notice. Notice shall be given personally or by mail and, if by mail, shall be sent in a postage prepaid envelope, addressed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Notice by mail shall be deemed given at the time when the same shall be deposited in the United States mail, postage prepaid. Notice of any meeting shall not be required to be given to any person who attends such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or who, either before or after the meeting, shall submit a signed written waiver of notice, in person or by proxy. Neither the business to be transacted at, nor the purpose of, an annual or special meeting of stockholders need be specified in any written waiver of notice. SECTION 5. ORGANIZATION. At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, or, in such person's absence or if one shall not have been elected, the President, shall act as chairman of the meeting. The Secretary or, in such person's absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting, shall act as secretary of the meeting and keep the minutes thereof. SECTION 6. CONDUCT OF BUSINESS. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her in order. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. SECTION 7. QUORUM, ADJOURNMENTS. The holders of a majority of the voting power of the issued and outstanding shares of capital stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented by proxy at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or, if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 8. VOTING. Except as otherwise provided by statute or the Certificate of Incorporation and these Amended and Restated By-Laws, each stockholder of the Corporation shall be entitled at each meeting of stockholders to one vote for each share of capital stock of the Corporation standing in such stockholder's name on the record of stockholders of the Corporation: (a) on the date fixed pursuant to the provisions of Section 7 of Article V of these Amended and Restated By-Laws as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or (b) if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the date next preceding the day on which the meeting is held. Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for such stockholder by a proxy signed by such stockholder or such stockholder's attorney-in-fact, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Any such proxy shall be delivered to the secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies. When a quorum is present at any - 2 - 3 meeting, the affirmative vote of the holders of a majority of the voting power of the capital stock of the Corporation which is entitled to vote thereon and which is present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the Certificate of Incorporation or of these Amended and Restated By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by such stockholder's proxy, if there be such proxy. SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. At least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder shall be prepared. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city, town or village where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. SECTION 10. INSPECTORS. The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear or act, the chairman of the meeting shall, or if inspectors shall not have been appointed, the chairman of the meeting may appoint one or more inspectors. Each inspector, before entering upon the discharge of such inspector's duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of such inspector's ability. The inspectors shall determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be stockholders. SECTION 11. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise provided by statute or in the Certificate of Incorporation, any action required to be taken or which may be taken at any annual or special meeting of the stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of any such corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. SECTION 12. ADVANCE NOTICE PROVISIONS FOR ELECTION OF DIRECTORS. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 12 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 12. - 3 - 4 In addition to any other applicable requirements, for a nomination to be made by a stockholder such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an annual meeting, not less than 60 days nor more than 90 days prior to the date of the annual meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder in order to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the 10th day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to be named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 12. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. SECTION 13. ADVANCE NOTICE PROVISIONS FOR BUSINESS TO BE TRANSACTED AT ANNUAL MEETING. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 13 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 13. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. - 4 - 5 To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the date of the annual meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder in order to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 13, provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 13 shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. ARTICLE III DIRECTORS SECTION 1. NUMBER, QUALIFICATION, ELECTION AND TERM OF DIRECTORS. Subject to the rights, if any, of holders of Preferred Stock of the Corporation, the Board of Directors shall consist of not less than one (1) nor more than twenty-one (21) members, the exact number of which shall be fixed from time to time by affirmative vote of a majority of the entire Board of Directors. Except as otherwise provided by Section 2 of this Article III, the directors standing for election shall be elected by a plurality of the votes cast at annual meetings of stockholders, and each director so elected shall hold office until such directors' successor shall have been elected and qualified, or until such directors' death, or until such directors shall have resigned, or have been removed, as hereinafter provided by these By-Laws or the Certificate of Incorporation. Directors need not be stockholders. SECTION 2. VACANCIES. Any vacancy in the Board of Directors, whether arising from death, resignation, removal (with or without cause), an increase in the number of directors or any other cause, may be filled by the vote of a majority of the directors then in office, though less than a quorum, or by the sole remaining director or by the stockholders at the next annual meeting thereof or at a special meeting thereof. Each director so elected shall hold office until such director's successor shall have been elected and qualified. SECTION 3. DUTIES AND POWERS. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and - 5 - 6 do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Amended and Restated By-Laws directed or required to be exercised or done by the stockholders. SECTION 4. PLACE OF MEETINGS. Meetings of the Board of Directors shall be held at such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine or as shall be specified in the notice of any such meeting. SECTION 5. ANNUAL MEETING.. The annual meeting of the Board of Directors may be held at such time or place (within or without the State of Delaware) as shall be specified in a notice thereof given as hereinafter provided in Section 8 of this Article III. SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, if one shall have been elected, or by two or more directors of the Corporation or by the President. SECTION 8. NOTICE OF MEETINGS. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by law or these Amended and Restated By-Laws. Notice of each special meeting of the Board of Directors for which notice shall be required, shall be given by the Secretary as hereinafter provided in this Section 8, in which notice shall be stated the time and place of the meeting. Except as otherwise required by these Amended and Restated By-Laws, such notice need not state the purposes of such meeting. Notice of any special meeting, and of any regular or annual meeting for which notice is required, shall be given to each director at least (a) four hours before the meeting if by telephone or by being personally delivered or sent by telex, telecopy, or similar means or (b) two days before the meeting if delivered by mail to the director's residence or usual place of business. Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage prepaid, or when transmitted if sent by telex, telecopy, or similar means. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Any director may waive notice of any meeting by a writing signed by the director entitled to the notice and filed with the minutes or corporate records. The attendance at or participation of the director at a meeting shall constitute waiver of notice of such meeting, unless the director at the beginning of the meeting or promptly upon such director's arrival objects to holding the meeting or transacting business at the meeting. SECTION 9. ORGANIZATION. At each meeting of the Board of Directors, the Chairman of the Board, if one shall have been elected, or, in the absence of the Chairman of the Board or if one shall not have been elected, the President (or, in the President's absence, another director chosen by a majority of the directors present) shall act as chairman of the meeting and preside thereat. The Secretary or, in such person's absence, any person appointed by the chairman shall act as secretary of the meeting and keep the minutes thereof. SECTION 10. QUORUM AND MANNER OF ACTING. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and, except as otherwise expressly required by statute or the Certificate of Incorporation or these Amended and Restated By-Laws, the affirmative vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to all of the directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice need only be given to the directors who were not present thereat. At any - 6 - 7 adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and the individual directors shall have no power as such. SECTION 11. ACTION BY CONSENT. Unless restricted by the Certificate of Incorporation, any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors or such committee, as the case may be. SECTION 12. TELEPHONIC MEETING. Unless restricted by the Certificate of Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting. SECTION 13. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, including an executive committee, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence of disqualification of any member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Each such committee, to the extent provided in the resolution creating it, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which require it; provided, however, that no such committee shall have the power or authority in reference to the following matters: (a) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the General Corporation Law of Delaware to be submitted to stockholders for approval or (b) adopting, amending or repealing any by-law of the Corporation. Each such committee shall serve at the pleasure of the Board of Directors and have such name as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors. SECTION 14. FEES AND COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board of Directors. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 15. RESIGNATIONS. Any director of the Corporation may resign at any time by giving written notice of such director's resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 16. INTERESTED DIRECTORS. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because such person's or persons' votes are counted for such purposes if (a) the material facts as to such person's or persons' relationship or interest and as to the - 7 - 8 contract or transaction are disclosed or are known to the directors or committee who then in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum, (b) the material facts as to such person's or persons' relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV OFFICERS SECTION 1. GENERAL. The officers of the Corporation shall be chosen by the Board of Directors and shall include a President, one or more Vice Presidents (including Senior, Executive or other classifications of Vice Presidents) and a Secretary. The Board of Directors, in its discretion, may also choose as an officer of the Corporation a Chairman of the Board and a Vice Chairman of the Board and may choose other officers (including a Treasurer, one or more Assistant Secretaries and one or more Assistant Treasurers) as may be necessary or desirable. Such officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any officer of the Corporation the power to choose such other officers and to proscribe their respective duties and powers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these Amended and Restated By-Laws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board and Vice Chairman of the Board of Directors, need such officers be directors of the Corporation. SECTION 2. TERM. All officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. SECTION 3. RESIGNATIONS. Any officer of the Corporation may resign at any time by giving written notice of such officer's resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt. Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective. SECTION 4. REMOVAL. Any officer may be removed at any time by the Board of Directors with or without cause. SECTION 5. COMPENSATION. The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board of Directors. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that such officer is also a director of the Corporation. SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one shall have been elected, shall be a member of the Board, an officer of the Corporation and, if present, shall preside at each meeting of the Board of Directors or the stockholders. The Chairman of the Board shall advise and counsel with the President, and in the President's absence with other executives of the Corporation, and shall perform such other duties as may from time to time be assigned to the Chairman of the Board by the Board of Directors. - 8 - 9 ARTICLE V STOCK CERTIFICATES AND THEIR TRANSFER SECTION 1. STOCK CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board or a Vice Chairman of the Board or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such holder in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restriction of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 2. FACSIMILE SIGNATURES. Any or all of the signatures on a certificate may be a facsimile, engraved or printed. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person was such officer, transfer agent or registrar at the date of issue. SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or the owner's legal representative, to give the Corporation a bond in such sum as it may direct sufficient to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. SECTION 5. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. SECTION 6. REGULATIONS. The Board of Directors may make such additional rules and regulations, not inconsistent with these Amended and Restated By-Laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. SECTION 7. FIXING THE RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any - 9 - 10 dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 8. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VI INDEMNIFICATION OF OFFICERS AND DIRECTORS SECTION 1. GENERAL. Each person who was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any threatened, pending or completed action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative ("Proceeding") brought by reason of the fact that such person (the "Indemnitee") is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, whether the basis of such Proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as such a director or officer, shall be indemnified and held harmless by the Corporation to the full extent authorized by the General Corporation Law of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), or by other applicable law as then in effect, against all expenses, liabilities, losses and claims (including attorneys' fees, judgments, fines, excise taxes under the Employee Retirement Income Security Act of 1974, as amended from time to time, penalties and amounts to be paid in settlement) actually incurred or suffered by such Indemnitee in connection with such Proceeding (collectively, "Losses"). SECTION 2. DERIVATIVE ACTIONS. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any Proceeding brought by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person (also an "Indemnitee") is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, against Losses actually incurred or suffered by the Indemnitee in connection with the defense or settlement of such action or suit if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, provided that no indemnification shall be made in respect of any claim, issue or matter as to which Delaware law expressly prohibits such indemnification by reason of an adjudication of liability of the Indemnitee unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. INDEMNIFICATION IN CERTAIN CASES. Notwithstanding any other provision of this Article VI, to the extent that an Indemnitee has been wholly successful on the merits or otherwise in any - 10 - 11 Proceeding referred to in Sections 1 or 2 of this Article VI on any claim, issue or matter therein, the Indemnitee shall be indemnified against Losses actually incurred or suffered by the Indemnitee in connection therewith. If the Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Corporation shall indemnify the Indemnitee, against Losses actually incurred or suffered by the Indemnitee in connection with each successfully resolved claim, issue or matter. In any review or Proceeding to determine such extent of indemnification, the Corporation shall bear the burden of proving any lack of success and which amounts sought in indemnity are allocable to claims, issues or matters which were not successfully resolved. For purposes of this Section 3 and without limitation, the termination of any such claim, issue or matter by dismissal with or without prejudice shall be deemed to be a successful resolution as to such claim, issue or matter. SECTION 4. PROCEDURE. (a) Any indemnification under Sections 1 and 2 of this Article VI (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the Indemnitee is proper (except that the right of the Indemnitee to receive payments pursuant to Section 5 of this Article VI shall not be subject to this Section 4) in the circumstances because the Indemnitee has met the applicable standard of conduct. Such determination shall be made promptly, but in no event later than 60 days after receipt by the Corporation of the Indemnitee's written request for indemnification. The Secretary of the Corporation shall, promptly upon receipt of the Indemnitee's request for indemnification, advise the Board of Directors that the Indemnitee has made such request for indemnification. (b) The entitlement of the Indemnitee to indemnification shall be determined in the specific case (1) by the Board of Directors by a majority vote of the directors who are not parties to such Proceeding, even though less than a quorum (the "Disinterested Directors"), or (2) if there are no Disinterested Directors, or if such Disinterested Directors so direct, by independent legal counsel, or (3) by the stockholders. (c) In the event the determination of entitlement is to be made by independent legal counsel, such independent legal counsel shall be selected by the Board of Directors and approved by the Indemnitee. Upon failure of the Board of Directors to so select such independent legal counsel or upon failure of the Indemnitee to so approve, such independent legal counsel shall be selected by the American Arbitration Association in New York, New York or such other person as such Association shall designate to make such selection. (d) If the Board of Directors or independent legal counsel shall have determined that the Indemnitee is not entitled to indemnification to the full extent of the Indemnitee's request, the Indemnitee shall have the right to seek entitlement to indemnification in accordance with the procedures set forth in Section 6 of this Article VI. (e) If the person or persons empowered pursuant to Section 4(b) of this Article VI to make a determination with respect to entitlement to indemnification shall have failed to make the requested determination within 60 days after receipt by the Corporation of such request, the requisite determination of entitlement to indemnification shall be deemed to have been made and the Indemnitee shall be absolutely entitled to such indemnification, absent (i) misrepresentation by the Indemnitee of a material fact in the request for indemnification or (ii) a final judicial determination that all or any part of such indemnification is expressly prohibited by law. (f) The termination of any proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, adversely affect the rights of the Indemnitee to indemnification hereunder except as may be specifically provided herein, or create a presumption that the Indemnitee did not act in good faith and in a manner which the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation or create a presumption that (with respect to any - 11 - 12 criminal action or proceeding) the Indemnitee had reasonable cause to believe that the Indemnitee's conduct was unlawful. (g) For purposes of any determination of good faith hereunder, the Indemnitee shall be deemed to have acted in good faith if the Indemnitee's action is based on the records or books of account of the Corporation or an affiliate, including financial statements, or on information supplied to the Indemnitee by the officers of the Corporation or an affiliate in the course of their duties, or on the advice of legal counsel for the Corporation or an affiliate or on information or records given or reports made to the Corporation or an affiliate by an independent certified public accountant or by an appraiser or other expert selected with reasonable care to the Corporation or an affiliate. The Corporation shall have the burden of establishing the absence of good faith. The provisions of this Section 4(g) of this Article VI shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in these Amended and Restated By-Laws. (h) The knowledge and/or actions, or failure to act, of any other director, officer, agent or employee of the Corporation or an affiliate shall not be imputed to the Indemnitee for purposes of determining the right to indemnification under these Amended and Restated By-Laws. SECTION 5. ADVANCES FOR EXPENSES AND COSTS. All expenses (including attorneys' fees) incurred by or on behalf of the Indemnitee (or reasonably expected by the Indemnitee to be incurred by the Indemnitee within three months) in connection with any Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding within twenty days after the receipt by the Corporation of a statement or statements from the Indemnitee requesting from time to time such advance or advances whether or not a determination to indemnify has been made under Section 4 of this Article VI. The Indemnitee's entitlement to such advancement of expenses shall include those incurred in connection with any Proceeding by the Indemnitee seeking an adjudication or award in arbitration pursuant to these Amended and Restated By-Laws. The financial ability of an Indemnitee to repay an advance shall not be a prerequisite to the making of such advance. Such statement or statements shall reasonably evidence such expenses incurred (or reasonably expected to be incurred) by the Indemnitee in connection therewith and shall include or be accompanied by a written undertaking by or on behalf of the Indemnitee to repay such amount if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified therefor pursuant to the terms of this Article VI. SECTION 6. REMEDIES IN CASES OF DETERMINATION NOT TO INDEMNIFY OR TO ADVANCE EXPENSES. (a) In the event that (i) a determination is made that the Indemnitee is not entitled to indemnification hereunder, (ii) advances are not made pursuant to Section 5 of this Article VI or (iii) payment has not been timely made following a determination of entitlement to indemnification pursuant to Section 4 of this Article VI, the Indemnitee shall be entitled to seek a final adjudication either through an arbitration proceeding or in an appropriate court of the State of Delaware or any other court of competent jurisdiction of the Indemnitee's entitlement to such indemnification or advance. (b) In the event a determination has been made in accordance with the procedures set forth in Section 4 of this Article VI, in whole or in part, that the Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration referred to in paragraph (a) of this Section 6 shall be de novo and the Indemnitee shall not be prejudiced by reason of any such prior determination that the Indemnitee is not entitled to indemnification, and the Corporation shall bear the burdens of proof specified in Sections 3 and 4 of this Article VI in such proceeding. (c) If a determination is made or deemed to have been made pursuant to the terms of Sections 4 or 6 of this Article VI that the Indemnitee is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding or arbitration in the absence of (i) a misrepresentation of a material fact by the Indemnitee or (ii) a final judicial determination that all or any part of such indemnification is expressly prohibited by law. - 12 - 13 (d) To the extent deemed appropriate by the court, interest shall be paid by the Corporation to the Indemnitee at a reasonable interest rate for amounts which the Corporation indemnifies or is obliged to indemnify the Indemnitee for the period commencing with the date on which the Indemnitee requested indemnification (or reimbursement or advancement of expenses) and ending with the date on which such payment is made to the Indemnitee by the Corporation. SECTION 7. RIGHTS NON-EXCLUSIVE. The indemnification and advancement of expenses provided by, or granted pursuant to, the other Sections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office. SECTION 8. INSURANCE. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article VI. SECTION 9. DEFINITION OF CORPORATION. For purposes of this Article VI, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, shall stand in the same position under this Article VI with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. SECTION 10. OTHER DEFINITIONS. For purposes of this Article VI, references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VI. SECTION 11. SURVIVAL OF RIGHTS. The indemnification and advancement of expenses provided by, or granted pursuant to this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. No amendment, alteration, rescission or replacement of these Amended and Restated By-Laws or any provision hereof shall be effective as to an Indemnitee with respect to any action taken or omitted by such Indemnitee in Indemnitee's position with the Corporation or any other entity which the Indemnitee is or was serving at the request of the Corporation prior to such amendment, alteration, rescission or replacement. SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The Corporation may, by action of the Board of Directors from time to time, grant rights to indemnification and advancement of expenses to employees and agents of the Corporation with the same scope and effect as the provisions of this Article VI with respect to the indemnification of directors and officers of the Corporation. - 13 - 14 SECTION 13. SAVINGS CLAUSE. If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each person entitled to indemnification under the first paragraph of this Article VI as to all losses actually and reasonably incurred or suffered by such person and for which indemnification is available to such person pursuant to this Article VI to the full extent permitted by any applicable portion of this Article VI that shall not have been invalidated and to the full extent permitted by applicable law. ARTICLE VII GENERAL PROVISIONS SECTION 1. DIVIDENDS. Subject to the provisions of statute and the Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by statute or the Certificate of Incorporation. SECTION 2. RESERVES. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the interests of the Corporation. The Board of Directors may modify or abolish any such reserve in the manner in which it was created. SECTION 3. SEAL. The seal of the Corporation shall be in such form as shall be approved by the Board of Directors. SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be fixed, and once fixed, may thereafter be changed, by resolution of the Board of Directors. SECTION 5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation. SECTION 6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 7. VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation. In the event one or more attorneys or agents are appointed, the Chairman of the Board or the President may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman of the Board or the President may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances. - 14 - 15 ARTICLE VIII AMENDMENTS These Amended and Restated By-Laws may be repealed, altered, amended or rescinded in whole or in part, or new By-Laws may be adopted by either the affirmative vote of the holders of at least a majority of the voting power of all of the issued and outstanding shares of capital stock of the Corporation entitled to vote thereon or by the Board of Directors. - 15 - EX-10.7.1 4 FIRST AMENDMENT TO THE CREDIT AGREEMENT 1 EXHIBIT 10.7.1 FIRST AMENDMENT TO THE CREDIT AGREEMENT FIRST AMENDMENT, dated as of December 31, 1998 (this "First Amendment"), to the Credit Agreement, dated as of July 23, 1997 (as amended, supplemented, or otherwise modified from time to time, the "Credit Agreement"), among GENERAL SEMICONDUCTOR, INC., a Delaware corporation (the "Company"), the several lenders from time to time parties thereto (the "Banks"), THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Banks (in such capacity, the "Administrative Agent"), and the financial institutions named therein as co-agents for the Banks (in such capacity, collectively, the "Co-Agents"; each, individually, a "Co-Agent"). W I T N E S S E T H: WHEREAS, the Company, the Banks, the Administrative Agent and the Co-Agents are parties to the Credit Agreement; WHEREAS, the Company has requested that the Banks amend the Credit Agreements as set forth herein; WHEREAS, the Banks, the Administrative Agent and the Co-Agents are willing to agree to such amendment to the Credit Agreement, subject to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the Company, the Banks, the Administrative Agent and the Co-Agents hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms which are defined in the Credit Agreement are used herein as therein defined. 2. Amendments to Credit Agreement. (a) Subsection 1.1 of the Credit Agreement is hereby amended by deleting clause (b) from the definition of "Available Revolving Credit Commitments" and substituting therefor the phrase "(b) the Aggregate Extensions of Credit". (b) The definitions of "Consolidated EBITDA" in subsection 1.1 of the Credit Agreement is hereby amended (other than for purposes of calculating the Applicable Margin) by (i) deleting the proviso clause, (ii) amending the phrase "and (d)" appearing therein to read ", (d)" and (iii) inserting the following new clause at the end thereof. and (e) all of the Company's restructuring and other charges associated with the restructuring of the Company's operations in an aggregate amount not to exceed $14 million for the quarter ending December 31, 1998; (c) Subsection 1.1 of the Credit Agreement is hereby amended by deleting from the definition of "Consolidated Total Indebtedness" the phrase ", excluding to the extent otherwise included the Taiwan Mortgage Indebtedness" and deleting the comma after the word "GAAP" and substituting in lieu thereof a period. (d) Subsection 1.1 of the Credit Agreement is amended by deleting the definitions "Taiwan Mortgage Indebtedness" and "Taiwan Mortgaged Real Property". 2 2 (e) Subsection 5.2 of the Credit Agreement is hereby amended by deleting from paragraph (e) thereof the phrase ", other than the Taiwan Mortgage Indebtedness". (f) Subsection 7.2 of the Credit Agreement is amended by deleting clause (h) and substituting therefor the phrase "(h) INTENTIONALLY OMITTED;". (g) Subsection 7.6 of the Credit Agreement is hereby amended by deleting from paragraph (c) the amounts "$100,000,000" and "$250,000,000" and substituting therefor the amounts "$30,000,000" and "$100,000,000", respectively. (h) Subsection 7.9 of the Credit Agreement is hereby amended by deleting such subsection and substituting therefor the following: 7.9 Maintenance of Leverage Ratio. Permit (a) as of the last day of any fiscal quarter ending on or before March 31, 1999, the Leverage Ratio to be greater than 4.0 to 1.0, (b) as of the last day of the fiscal quarter ending June 30, 1999, the Leverage Ratio to be greater than 3.85 to 1.0 and (c) as of the last day of any fiscal quarter ending after June 30, 1999, the Leverage Ratio to be greater than 3.5 to 1.0. (i) Subsection 7.14 of the Credit Agreement is hereby amended by deleting clause (b) and substituting therefor the phrase "(b) INTENTIONALLY OMITTED;". 3. Representations and Warranties. The Company hereby confirms, reaffirms and restates the representations and warranties set forth in Section 4 of the Credit Agreement. The Company represents and warrants that, after giving effect to this First Amendment, no Default or Event of Default has occurred and is continuing. 4. Effectiveness. Upon receipt of the Administrative Agent of counterparts of this First Amendment duly executed by the Company and the Required Banks, this First Amendment shall become effective as of the date (the "Effective Date") that is the later of (i) the date of receipt by the Administrative Agent of such counterparts, and (ii) December 31, 1998. 5. Amendment Fee. The Borrower will pay to the Administrative Agent, for the account of each Lender which executes and returns this First Amendment to the Administrative Agent on or prior to the Effective Date, an amendment fee equal to .15% of the Revolving Credit Commitment of such Lender, such fee to be payable on the Effective Date. 6. Continuing Effect of the Credit Agreement. This First Amendment shall not constitute an amendment of any other provision of the Credit Agreement not expressly referred to herein and shall not be construed as a waiver of consent to any further or future action on the part of the Company that would require a waiver or consent of the Banks, the Administrative Agent or the Co-Agents. Except as expressly amended hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. 7. Counterparts. This First Amendment may be executed by the parties hereto in any member of separate counterparts (including telecopied counterparts), each of which shall be deemed to be an original, and all of which taken together shall be deemed to constitute one and the same instrument. 8. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 3 3 IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS FIRST AMENDMENT TO BE DULY EXECUTED AND DELIVERED IN NEW YORK, NEW YORK BY THEIR RESPECTIVE PROPER AND DULY AUTHORIZED OFFICERS AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN. GENERAL SEMICONDUCTOR, INC. BY: /S/ MICHAEL C. SMILEY ----------------------------------------- TITLE: VICE PRESIDENT AND TREASURER THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT, AS A CO-AGENT AND AS A BANK BY: /S/ STEVEN J. FALKSTEAD ----------------------------------------- TITLE: VICE PRESIDENT BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, AS A CO-AGENT AND AS A BANK BY: /S/ ----------------------------------------- TITLE: BANK OF MONTREAL, AS A CO-AGENT AND AS A BANK BY: /S/ ----------------------------------------- TITLE: THE BANK OF NOVA SCOTIA, AS A CO-AGENT AND AS A BANK BY: /S/ ----------------------------------------- TITLE: 4 4 CIBC INC., AS A CO-AGENT AND AS A BANK BY: /S/ ----------------------------------------- TITLE: CREDIT LYONNAIS NEW YORK BRANCH, AS A CO- AGENT AND AS A BANK BY: /S/ ----------------------------------------- TITLE: FLEET NATIONAL BANK, AS A CO-AGENT AND AS A BANK BY: /S/ ----------------------------------------- TITLE: WACHOVIA BANK, N.A., AS A CO-AGENT AND AS A BANK BY: /S/ ----------------------------------------- TITLE: THE BANK OF NEW YORK BY: /S/ ----------------------------------------- TITLE: BANK OF TOKYO-MITSUBISHI TRUST COMPANY BY: /S/ ----------------------------------------- TITLE: 5 5 BANKBOSTON, N.A. BY: /S/ ----------------------------------------- TITLE: BANQUE NATIONALE DE PARIS BY: /S/ ----------------------------------------- TITLE: PARIBAS BY: /S/ ----------------------------------------- TITLE: CREDIT AGRICOLE INDOSUEZ BY: /S/ ----------------------------------------- TITLE: THE LONG-TERM CREDIT BANK OF JAPAN, LTD. BY: /S/ ----------------------------------------- TITLE: 6 6 THE SANWA BANK LIMITED, CHICAGO BRANCH BY: /S/ ----------------------------------------- TITLE: SOCIETE GENERALE, NEW YORK BRANCH BY: /S/ ----------------------------------------- TITLE: THE SUMITOMO BANK, LTD., CHICAGO BRANCH BY: /S/ ----------------------------------------- TITLE: EX-10.10 5 AMENDED AND RESTATED SEVERANCE PROTECTION AGMNT 1 EXHIBIT 10.10 AMENDED AND RESTATED SEVERANCE PROTECTION AGREEMENT THIS AMENDED AND RESTATED AGREEMENT made as of the ____ day of ___________, 1997, by and between General Semiconductor, Inc. (the "Corporation"), and __________ (the "Executive"), hereby amends and restates the [Stay Incentive and] Severance Protection Agreement between the Corporation and the Executive, dated [ , 1997]. WHEREAS, the Board of Directors of the Corporation (the "Board") recognizes that the possibility of a Change in Control (as hereinafter defined) exists and that the threat or the occurrence of a Change in Control can result in significant distraction of the Corporation's key management personnel because of the uncertainties inherent in such a situation; WHEREAS, the Board has determined that it is essential and in the best interest of the Corporation and its stockholders for the Corporation to retain the services of the Executive in the event of a threat or occurrence of a Change in Control and to ensure the Executive's continued dedication and efforts in such event without undue concern for the Executive's personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Corporation, particularly in the event of a threat or the occurrence of a Change in Control, the Corporation desires to enter into this Agreement with the Executive to provide the Executive with certain benefits in the event the Executive's employment is terminated under circumstances described herein. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. Term of Agreement. This Agreement shall commence as of October 23, 1998, and shall continue in effect until [December 31, 1999], (the "Term"); provided, however, that on [January 1, 1999,] and on each January 1 thereafter, the Term shall automatically be extended for one (1) year unless either the Executive or the Corporation shall have given written notice to the other at least ninety (90) days prior thereto that the Term shall not be so extended; provided, further, however, that following the occurrence of a Change in Control, the Term shall not expire prior to the expiration of twenty-four (24) months after such occurrence. 2. Termination of Employment. If, during the Term, the Executive's employment with the Corporation and its Affiliates shall be terminated within twenty-four (24) months following a Change in Control, the Executive shall be entitled to the following compensation and benefits: (a) If the Executive's employment with the Corporation and its Affiliates shall be terminated (1) by the Corporation for Cause or Disability, (2) by reason of the Executive's death, or (3) by the Executive other than for Good Reason, the Corporation shall pay to the Executive his Accrued Compensation. In addition to the foregoing, if the Executive's employment is terminated by the Corporation for Disability or by reason of the Executive's death, the Corporation shall pay to the Executive or his beneficiaries a Pro Rata Bonus. The Executive's entitlement to any other compensation or benefits shall be determined in accordance with the Corporation's employee benefits plans and other applicable programs and practices then in effect. 2 (b) If the Executive's employment with the Corporation and its Affiliates shall be terminated for any reason other than as specified in Section 2(a), the Executive shall be entitled to the following: (1) the Corporation shall pay the Executive all Accrued Compensation and a Pro Rata Bonus; (2) the Corporation shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date, an amount equal to two (2) times the sum of (A) the Executive's Base Amount and (B) the Executive's Bonus Amount; (3) for twenty-four (24) months after such termination (the "Continuation Period"), the Corporation shall at its expense continue on behalf of the Executive and his dependents and beneficiaries the life insurance, disability, medical, dental and hospitalization coverages and benefits provided to the Executive immediately prior to the Change in Control or, if greater, the coverages and benefits provided at any time thereafter. The coverages and benefits (including deductibles and costs) provided in this Section 2(b)(3) during the Continuation Period shall be no less favorable to the Executive and his dependents and beneficiaries, than the most favorable of such coverages and benefits referred to above. The Corporation's obligation hereunder with respect to the foregoing coverages and benefits shall be reduced to the extent that the Executive obtains any such coverages and benefits pursuant to a subsequent employer's benefit plans, in which case the Corporation may reduce any of the coverages or benefits it is required to provide the Executive hereunder so long as the aggregate coverages and benefits of the combined benefit plans is no less favorable to the Executive than the coverages and benefits required to be provided hereunder. This Section 2(b)(3) shall not be interpreted so as to limit any benefits to which the Executive, his dependents or beneficiaries may be entitled under any of the Corporation's employee benefit plans, programs or practices following the Executive's termination of employment, including without limitation, retiree medical and life insurance benefits; (4) the Corporation shall pay or reimburse the Executive for the costs, fees and expenses of outplacement assistance services (not to exceed twenty-five (25%) of the sum of (A) the Executive's Base Amount and (B) the Executive's Bonus Amount) provided by any outplacement agency selected by the Executive; (5) the Corporation shall pay or reimburse the Executive up to $2,000 for tax and financial planning services in respect of the calendar year in which the payments provided for in Section 2(b)(2) are paid to the Executive; and (6) the Corporation shall pay or reimburse the Executive for the cost of relocation (in accordance with the Corporation's relocation policy) to the Executive's place of residence immediately prior to any relocation the Executive made for purposes of employment by the Corporation after July 1, 1995. (c) If the Executive's employment is terminated by the Corporation without Cause (1) within six (6) months prior to a Change in Control or (2) at any time prior to the date of a 2 3 Change in Control but the Executive reasonably demonstrates that such termination (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control (a "Third Party") and who effectuates a Change in Control or (B) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, such termination shall be deemed to have occurred after a Change in Control, provided a Change in Control shall actually have occurred. (d) (1) Effect of Section 280G of the Internal Revenue Code. Except as provided in Section 2(d)(2), in the event it shall be determined that any payment (other than the payment provided for in this Section 2(d)) or distribution of any type to or for the benefit of the Executive, by the Corporation, any Affiliate of the Corporation, any Person who acquires ownership or effective control of the Corporation or ownership of a substantial portion of the Corporation's assets (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder) or any Affiliate of such Person, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Payments"), is or will be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any income tax, employment tax or Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (2) Notwithstanding Section 2(d)(1) or any other provision of this Agreement to the contrary, in the event that the Payments (other than the payment provided for in this Section 2(d)) exceed by less than $10,000 an amount where no Payment to be made or benefit to be provided to the Executive would be subject to an Excise Tax, the Executive will not be entitled to a Gross-Up Payment and the Payments shall be reduced (but not below zero) to the extent necessary so that no Payment to be made or benefit to be provided to the Executive shall be subject to the Excise Tax. Unless the Executive shall have given prior written notice specifying a different order to the Corporation to effectuate the foregoing, the Corporation shall reduce or eliminate the Payments, by first reducing or eliminating the portion of the Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the "Determination" (as defined below). Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive's rights and entitlements to any benefits or compensation. (3) The determination of whether the Payments shall be reduced pursuant to this Agreement and the amount of such reduction, all mathematical determinations, and all determinations as to whether any of the Payments are "parachute payments" (within the meaning of Section 280G of the Code), that are required to be made under this Section 2(d), including determinations as to whether a Gross-Up Payment is required, the amount of such Gross-Up Payment and amounts relevant to the last sentence of this Section 2(d)(3), shall be made by an independent accounting firm selected by the Executive from among the five (5) largest accounting firms in the United States (the "Accounting Firm"), which shall provide its determination (the "Determination"), together with detailed supporting calculations regarding the amount of any Gross-Up Payment and any other relevant matter, both to the Corporation and the Executive by no later than ten (10) days following the Termination Date, if applicable, or such earlier time as is requested by the Corporation or the Executive (if the Executive reasonably believes that any of the Payments may be subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive and the Corporation with an opinion reasonably acceptable to the Executive and the Corporation that no Excise Tax is payable (including the reasons therefor) and that the Executive has 3 4 substantial authority not to report any Excise Tax on his federal income tax return. If a Gross-Up Payment is determined to be payable, it shall be paid to the Executive within twenty (20) days after the Determination (and all accompanying calculations and other material supporting the Determination) is delivered to the Corporation by the Accounting Firm. Any determination by the Accounting Firm shall be binding upon the Corporation and the Executive, absent manifest error. As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments not made by the Corporation should have been made ("Underpayment"), or that Gross-Up Payments will have been made by the Corporation which should not have been made ("Overpayments"). In either such event, the Accounting Firm shall determine the amount of the Underpayment or Overpayment that has occurred. In the case of an Underpayment, the amount of such Underpayment (together with any interest and penalties payable by the Executive as a result of such Underpayment) shall be promptly paid by the Corporation to or for the benefit of the Executive. In the case of an Overpayment, the Executive shall, at the direction and expense of the Corporation, take such steps as are reasonably necessary (including the filing of returns and claims for refund), follow reasonable instructions from, and procedures established by, the Corporation, and otherwise reasonably cooperate with the Corporation to correct such Overpayment, provided, however, that (i) the Executive shall not in any event be obligated to return to the Corporation an amount greater than the net after-tax portion of the Overpayment that he has retained or has recovered as a refund from the applicable taxing authorities and (ii) if a Gross-Up Payment is determined to be payable, this provision shall be interpreted in a manner consistent with an intent to make the Executive whole, on an after-tax basis, from the application of the Excise Tax, it being understood that the correction of an Overpayment may result in the Executive repaying to the Corporation an amount which is less than the Overpayment. The cost of all such determinations made pursuant to this Section 2(d) shall be paid by the Corporation. (e) The amounts provided for in Sections 2(a) and 2(b)(1) and (2) shall be paid in a single lump sum cash payment within ten (10) days after the Executive's Termination Date (or earlier, if required by applicable law). (f) The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment except as provided in Section 2(b)(3). (g) The severance pay and benefits provided for in this Section 2 shall be in lieu of any other severance pay to which the Executive may be entitled under the General Semiconductor, Inc. Employee Severance Plan or any other plan, agreement or arrangement of the Corporation or any of its Affiliates. 3. Notice of Termination. Following a Change in Control, any intended termination of the Executive's employment by the Corporation shall be communicated by a Notice of Termination from the Corporation to the Executive, and any intended termination of the Executive's employment by the Executive for Good Reason shall be communicated by a Notice of Termination from the Executive to the Corporation. 4. Fees and Expenses. The Corporation shall pay all legal fees and related expenses (including the costs of experts, evidence and counsel) incurred by the Executive as they become due as a result of (a) the termination of the Executive's employment by the Corporation or by the Executive for Good Reason (including all such fees and expenses, if any, incurred in contesting, defending or disputing the basis for any such termination of employment), (b) the Executive's hearing before the Board of Directors of the Corporation as contemplated in Section 13.6 of this Agreement or 4 5 (c) the Executive seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Corporation under which the Executive is or may be entitled to receive benefits. 5. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including any Notice of Termination) shall be in writing, shall be signed by the Executive if to the Corporation or by a duly authorized officer of the Corporation if to the Executive, and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 6. Nature of Rights. Except as provided in Section 2(g), nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Corporation or any Affiliate of the Corporation and for which the Executive may qualify, nor shall anything herein limit or reduce such rights as the Executive may have under any other agreements with the Corporation or any Affiliate of the Corporation. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Corporation or any Affiliate of the Corporation shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 7. Settlement of Claims. The Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, defense, recoupment, or other right which the Corporation may have against the Executive or others. 8. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Corporation. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party which are not expressly set forth in this Agreement. 9. Successors; Binding Agreement. (a) This Agreement shall be binding upon and shall inure to the benefit of the Corporation and its respective Successors and Assigns. The Corporation shall require its respective Successors and Assigns to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession or assignment had taken place. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative. 10. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the conflict of laws principles thereof. Any action brought by any party to this Agreement shall be brought and maintained in a court of competent jurisdiction in the State of New York. 5 6 11. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 12. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto, and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto, with respect to the subject matter hereof, including without limitation, the [Stay Incentive and] Severance Protection Agreement, dated [ , 1997], between the Executive and the Corporation. 13. Definitions. 13.1. Accrued Compensation. For purposes of this Agreement, "Accrued Compensation" shall mean all amounts of compensation for services rendered to the Corporation or any of its Affiliates that have been earned or accrued through the Termination Date but that have not been paid as of the Termination Date including (a) base salary, (b) reimbursement for reasonable and necessary business expenses incurred by the Executive on behalf of the Corporation or of its Affiliates of the Corporation during the period ending on the Termination Date, (c) vacation pay and (d) bonuses and incentive compensation; provided, however, that Accrued Compensation shall not include any amounts described in clause (a) or clause (d) that have been deferred pursuant to any salary reduction or deferred compensation elections made by the Executive. 13.2. Affiliate. For purposes of this Agreement, "Affiliate" means, with respect to any Person, any entity, directly or indirectly, controlled by, controlling or under common control with such Person. 13.3. Base Amount. For purposes of this Agreement, "Base Amount" shall mean the Executive's annual base salary at the rate in effect as of the date of a Change in Control or, if greater, at any time thereafter, determined without regard to any salary reduction or deferred compensation elections made by the Executive. 13.4. "Beneficial Owner," "Beneficially Owned" and "Beneficially Owning" shall have the meanings applicable under Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 13.5. Bonus Amount. For purposes of this Agreement, "Bonus Amount" shall mean the target annual bonus payable to the Executive under the Incentive Plan in respect of the fiscal year of the Corporation during which the Termination Date occurs or, if greater, the target annual bonus payable to the Executive under the Incentive Plan in respect of the fiscal year of the Corporation during which the Change in Control occurs. 13.6. Cause. For purposes of this Agreement, a termination of employment is for "Cause" if the Executive has been convicted of a felony or the termination is evidenced by a resolution adopted in good faith by two-thirds of the Board of Directors of the Corporation that the Executive: (a) intentionally and continually failed substantially to perform his reasonably assigned duties with the Corporation and its Affiliates (other than a failure resulting from the Executive's incapacity due to physical or mental illness or from the assignment to the Executive of duties that would constitute Good Reason) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance, signed by a duly authorized officer of the Corporation, has been delivered to the Executive specifying the manner in which the Executive has failed substantially to perform, or 6 7 (b) intentionally engaged in conduct which is demonstrably and materially injurious to the Corporation and its Affiliates; provided, however, that no termination of the Executive's employment shall be for Cause as set forth in this Section 13.6(b) until (1) there shall have been delivered to the Executive a copy of a written notice, signed by a duly authorized officer of the Corporation, setting forth that the Executive was guilty of the conduct set forth in this Section 13.6(b) and specifying the particulars thereof in detail, and (2) the Executive shall have been provided an opportunity to be heard in person by the Board of Directors of the Corporation (with the assistance of the Executive's counsel if the Executive so desires). No act, nor failure to act, on the Executive's part, shall be considered "intentional" unless the Executive has acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that the Executive's action or failure to act was in the best interest of the Corporation and its Affiliates. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after a Notice of Termination is given to the Corporation by the Executive shall constitute Cause for purposes of this Agreement. 13.7. Change in Control. "Change in Control" shall mean any of the following: (a) the acquisition by any Person, other than Instrument Partners or Forstmann Little & Co. Subordinated Debt and Equity Management Buyout Partnership-IV or any of their Affiliates (collectively, the "Forstmann Little Companies") of Beneficial Ownership of Voting Securities which, when added to the Voting Securities then Beneficially Owned by such Person, would result in such Person Beneficially Owning (1) 33% or more of the combined Voting Power of the Corporation's then outstanding Voting Securities and (2) a number of Voting Securities greater than the aggregate number of Voting Securities then Beneficially Owned by the Forstmann Little Companies; provided, however, that for purposes of this paragraph (a), a Person shall not be deemed to have made an acquisition of Voting Securities if such Person: (A) acquires Voting Securities as a result of a stock split, stock dividend or other corporate restructuring in which all stockholders of the class of such Voting Securities are treated on a pro rata basis; (B) acquires the Voting Securities directly from the Corporation; (C) becomes the Beneficial Owner of 33% or more of the combined Voting Power of the Corporation's then outstanding Voting Securities solely as a result of the acquisition of Voting Securities by the Corporation or any Subsidiary which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such Person, provided that if (x) a Person would own at least such percentage as a result of the acquisition by the Corporation or any Subsidiary and (y) after such acquisition by the Corporation or any Subsidiary, such Person acquires Voting Securities, then an acquisition of Voting Securities shall have occurred; (D) is the Corporation or any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Corporation (a "Controlled Entity"); or (E) acquires Voting Securities in connection with a "Non-Control Transaction" (as defined in paragraph (c) below); or (b) the individuals who, as of the Effective Date, are members of the Board (the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board; provided, however, that if either the election of any new director or the nomination for election of any new director by the Corporation's stockholders was approved by a vote of at least two-thirds of the Incumbent Board prior to such election or nomination, such new director shall be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) approval by stockholders of the Corporation of: 7 8 (1) a merger, consolidation or reorganization involving the Corporation (a "Business Combination"), unless (A) the stockholders of the Corporation, immediately before the Business Combination, own, directly or indirectly immediately following the Business Combination, at least a majority of the combined voting power of the outstanding voting securities of the corporation resulting from the Business Combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before the Business Combination, and (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for the Business Combination constitute at least a majority of the members of the Board of Directors of the Surviving Corporation, and (C) no Person (other than the Corporation or any Controlled Entity, a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements (or any trust forming a part thereof) maintained by the Corporation, the Surviving Corporation or any Controlled Entity, or any Person who, immediately prior to the Business Combination, had Beneficial Ownership of 33% or more of the then outstanding Voting Securities) has Beneficial Ownership of 33% or more of the combined voting power of the Surviving Corporation's then outstanding voting securities (a Business Combination satisfying the conditions of clauses (A), (B) and (C) of this subparagraph (1) shall be referred to as a "Non-Control Transaction"); (2) a complete liquidation or dissolution of the Corporation; or (3) the sale or other disposition of all or substantially all of the assets of the Corporation (other than a transfer to a Controlled Entity). Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because 33% or more of the then outstanding Voting Securities is Beneficially Owned by (x) a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements (or any trust forming a part thereof) maintained by the Corporation or any Controlled Entity or (y) any corporation which, immediately prior to its acquisition of such interest, is owned directly or indirectly by the stockholders of the Corporation in the same proportion as their ownership of stock in the Corporation immediately prior to such acquisition. 13.8. Corporation. For purposes of this Agreement, all references to the Corporation shall include its Successors and Assigns. 13.9. Disability. For purposes of this Agreement, "Disability" shall mean a physical or mental infirmity which impairs the Executive's ability to substantially perform his duties with the Corporation for six (6) consecutive months, and within the time period set forth in a Notice of Termination given to the Executive (which time period shall not be less than thirty (30) days), the Executive shall not have returned to full-time performance of his duties; provided, however, that if the Corporation's Long Term Disability Plan, or any successor plan (the "Disability Plan"), is then in effect, the Executive shall not be deemed disabled for purposes of this Agreement unless the Executive is also eligible for "Total Disability" (as defined in the Disability Plan) benefits (or similar benefits in the event of a successor plan) under the Disability Plan. 13.10. Good Reason. (a) For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change in Control of any of the following events or conditions: 8 9 (1) a change in the Executive's status, title, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment, represents an adverse change from his status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with his status, title, position or responsibilities; or any removal of the Executive from or failure to reappoint or reelect him to any of such offices or positions, except in connection with the termination of his employment for Disability, Cause, as a result of his death or by the Executive other than for Good Reason; (2) a reduction in the Executive's annual base salary below the Base Amount; (3) the relocation of the offices of the Corporation at which the Executive is principally employed to a location more than twenty-five (25) miles from the location of such offices immediately prior to the Change in Control, or the Corporation's requiring the Executive to be based anywhere other than such offices, except to the extent the Executive was not previously assigned to a principal location and except for required travel on the Corporation's business to an extent substantially consistent with the Executive's business travel obligations at the time of the Change in Control; (4) the failure by the Corporation to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Corporation in which the Executive participated, within seven (7) days of the date such compensation is due; (5) the failure by the Corporation to (A) continue in effect (without reduction in benefit level, and/or reward opportunities) any material compensation or employee benefit plan in which the Executive was participating immediately prior to the Change in Control, including, but not limited to, any of the plans listed in Appendix A hereto, unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to the Executive or (B) provide the Executive with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other compensation or employee benefit plan, program and practice in which the Executive was participating immediately prior to the Change in Control; (6) the failure of the Corporation to obtain from its Successors or Assigns the express assumption and agreement required under Section 9 hereof; or (7) any purported termination of the Executive's employment by the Corporation which is not effected pursuant to a Notice of Termination satisfying the terms set forth in the definition of Notice of Termination (and, if applicable, the terms set forth in the definition of Cause). (b) Any event or condition described in Section 13.10(a)(1) through (7) which occurs (1) within six (6) months prior to a Change in Control or (2) at any time prior to a Change in Control but which the Executive reasonably demonstrates (A) was at the request of a Third Party or (B) otherwise arose in connection with, or in anticipation of a Change in Control which has been threatened or proposed and which actually occurs, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to a Change in Control. 13.11. Incentive Plan. For purposes of this Agreement, "Incentive Plan" shall mean the General Semiconductor, Inc. Annual Incentive Plan, or any successor annual incentive plan, maintained by the Corporation. 9 10 13.12. Notice of Termination. For purposes of this Agreement, following a Change in Control, "Notice of Termination" shall mean a written notice of termination of the Executive's employment, signed by the Executive if to the Corporation or by a duly authorized officer of the Corporation if to the Executive, which indicates the specific termination provision in this Agreement, if any, relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 13.13. Person. For purposes of this Agreement, "Person" shall mean a person within the meaning of Sections 13(d) and 14(d) of the Exchange Act. 13.14. Pro Rata Bonus. For purposes of this Agreement, "Pro Rata Bonus" shall mean the Bonus Amount multiplied by a fraction of the numerator of which is the number of days in the year in which an Executive's Termination Date occurs through the termination date and the denominator of which is 365. 13.15. Subsidiary. For purposes of this Agreement, "Subsidiary" shall mean a corporation as defined in Section 424(f) (or a successor provision to such section) of the Internal Revenue Code of 1986, as amended, and regulations and rulings thereunder, with General Semiconductor, Inc. being treated as the employer corporation for purposes of this definition. 13.16. Successors and Assigns. For purposes of this Agreement, "Successors and Assigns" shall mean, with respect to the Corporation or the Corporation, a corporation or other entity acquiring all or substantially all the assets and business of the Corporation or the Corporation, as the case may be (including this Agreement) whether by operation of law or otherwise. 13.17. Termination Date. For purposes of this Agreement, "Termination Date" shall mean (a) in the case of the Executive's death, his date of death, (b) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period) and (c) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination for Cause shall not be less than thirty (30) days, and in the case of a termination for Good Reason shall not be more than sixty (60) days, from the date such Notice of Termination is given); provided, however, that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination in good faith notifies the other party that a dispute exists concerning the basis for the termination, the Termination Date shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, or by the final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been taken). Notwithstanding the pendency of any such dispute, the Corporation shall continue to pay the Executive his Base Amount and continue the Executive as a participant in all compensation, incentive, bonus, pension, profit sharing, medical, hospitalization, dental, life insurance and disability benefit plans in which he was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Section 13.17 whether or not the dispute is resolved in favor of the Corporation, and the Executive shall not be obligated to repay to the Corporation any amounts paid or benefits provided pursuant to this sentence. 13.18. Voting Power. For purposes of this Agreement, "Voting Power" shall mean the combined voting power of the then outstanding Voting Securities. 13.19. Voting Securities. For purposes of this Agreement, "Voting Securities" shall mean, with respect to General Semiconductor, Inc. or any Subsidiary, any securities issued by General Semiconductor, Inc. or such Subsidiary, respectively, which generally entitle the holder thereof to vote for the election of directors of General Semiconductor, Inc. 10 11 IN WITNESS WHEREOF, the Corporation and has caused this Agreement to be executed by their duly authorized officers and the Executive has executed this Agreement as of the day and year first above written. GENERAL SEMICONDUCTOR, INC. By: -------------------------------------- [ ] By: -------------------------------------- Executive 11 EX-10.11 6 AMENDED & RESTATED SEVERANCE PROTECTION AGREEMENT 1 EXHIBIT 10.11 AMENDED AND RESTATED SEVERANCE PROTECTION AGREEMENT THIS AMENDED AND RESTATED AGREEMENT made as of the 29th day of October, 1998, by and between General Semiconductor, Inc. (the "Corporation"), and Ronald A. Ostertag (the "Executive"), hereby amends and restates the Stay Incentive and Severance Protection Agreement between the Corporation and the Executive, dated July 28, 1997. WHEREAS, the Board of Directors of the Corporation (the "Board") recognizes that the possibility of a Change in Control (as hereinafter defined) exists and that the threat or the occurrence of a Change in Control can result in significant distraction of the Corporation's key management personnel because of the uncertainties inherent in such a situation; WHEREAS, the Board has determined that it is essential and in the best interest of the Corporation and its stockholders for the Corporation to retain the services of the Executive in the event of a threat or occurrence of a Change in Control and to ensure the Executive's continued dedication and efforts in such event without undue concern for the Executive's personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Corporation, particularly in the event of a threat or the occurrence of a Change in Control, the Corporation desires to enter into this Agreement with the Executive to provide the Executive with certain benefits in the event the Executive's employment is terminated under circumstances described herein. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. Term of Agreement. This Agreement shall commence as of October 23, 1998, and shall continue in effect until December 31, 1999, (the "Term"); provided, however, that on January 1, 1999, and on each January 1 thereafter, the Term shall automatically be extended for one (1) year unless either the Executive or the Corporation shall have given written notice to the other at least ninety (90) days prior thereto that the Term shall not be so extended; provided, further, however, that following the occurrence of a Change in Control, the Term shall not expire prior to the expiration of twenty-four (24) months after such occurrence. 2. Termination of Employment. If, during the Term, the Executive's employment with the Corporation and its Affiliates shall be terminated within twenty-four (24) months following a Change in Control, the Executive shall be entitled to the following compensation and benefits: (a) If the Executive's employment with the Corporation and its Affiliates shall be terminated (1) by the Corporation for Cause or Disability, or (2) by reason of the Executive's death, the Corporation shall pay to the Executive his Accrued Compensation. In addition to the foregoing, if the Executive's employment is terminated by the Corporation for Disability or by reason of the Executive's death, the Corporation shall pay to the Executive or his beneficiaries a Pro Rata Bonus. The Executive's entitlement to any other compensation or benefits shall be determined in accordance with the Corporation's employee benefits plans and other applicable programs and practices then in effect. (b) If the Executive's employment with the Corporation and its Affiliates shall be terminated (1) by the Corporation for other than Cause, Disability or the Executive's death, (2) by the Executive for any reason, the Executive shall be entitled to the following: 2 (1) the Corporation shall pay the Executive all Accrued Compensation and a Pro Rata Bonus; (2) the Corporation shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date, an amount equal to two and one-half (2 and 1/2) times the sum of (A) the Executive's Base Amount and (B) the Executive's Bonus Amount; (3) for thirty (30) months after such termination (the "Continuation Period"), the Corporation shall at its expense continue on behalf of the Executive and his dependents and beneficiaries the life insurance, disability, medical, dental and hospitalization coverages and benefits provided to the Executive immediately prior to the Change in Control or, if greater, the coverages and benefits provided at any time thereafter. The coverages and benefits (including deductibles and costs) provided in this Section 2(b)(3) during the Continuation Period shall be no less favorable to the Executive and his dependents and beneficiaries, than the most favorable of such coverages and benefits referred to above. The Corporation's obligation hereunder with respect to the foregoing coverages and benefits shall be reduced to the extent that the Executive obtains any such coverages and benefits pursuant to a subsequent employer's benefit plans, in which case the Corporation may reduce any of the coverages or benefits it is required to provide the Executive hereunder so long as the aggregate coverages and benefits of the combined benefit plans is no less favorable to the Executive than the coverages and benefits required to be provided hereunder. This Section 2(b)(3) shall not be interpreted so as to limit any benefits to which the Executive, his dependents or beneficiaries may be entitled under any of the Corporation's employee benefit plans, programs or practices following the Executive's termination of employment, including without limitation, retiree medical and life insurance benefits; (4) the Corporation shall pay or reimburse the Executive for the costs, fees and expenses of outplacement assistance services (not to exceed twenty-five (25%) of the sum of (A) the Executive's Base Amount and (B) the Executive's Bonus Amount) provided by any outplacement agency selected by the Executive; (5) the Corporation shall pay or reimburse the Executive up to $2,000 for tax and financial planning services in respect of the calendar year in which the payments provided for in Section 2(b)(2) are paid to the Executive; and (6) the Corporation shall pay or reimburse the Executive for the cost of relocation (in accordance with the Corporation's relocation policy) to the Executive's place of residence immediately prior to any relocation the Executive made for purposes of employment by the Corporation after July 1, 1995. (c) If the Executive's employment is terminated by the Corporation without Cause (1) within six (6) months prior to a Change in Control or (2) at any time prior to the date of a Change in Control but the Executive reasonably demonstrates that such termination (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control (a "Third Party") and who effectuates a Change in Control or (B) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, such termination shall be deemed to have occurred after a Change in Control, provided a Change in Control shall actually have occurred. (d) (1) Effect of Section 280G of the Internal Revenue Code. Except as provided in Section 2(d)(2), in the event it shall be determined that any payment (other than the payment provided for in this Section 2(d)) or distribution of any type to or for the benefit of the Executive, by the Corporation, any Affiliate of the Corporation, any Person who acquires ownership or effective control of the Corporation or ownership of a substantial portion of the Corporation's assets (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations 2 3 thereunder) or any Affiliate of such Person, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Payments"), is or will be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any income tax, employment tax or Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (2) Notwithstanding Section 2(d)(1) or any other provision of this Agreement to the contrary, in the event that the Payments (other than the payment provided for in this Section 2(d)) exceed by less than $10,000 an amount where no Payment to be made or benefit to be provided to the Executive would be subject to an Excise Tax, the Executive will not be entitled to a Gross-Up Payment and the Payments shall be reduced (but not below zero) to the extent necessary so that no Payment to be made or benefit to be provided to the Executive shall be subject to the Excise Tax. Unless the Executive shall have given prior written notice specifying a different order to the Corporation to effectuate the foregoing, the Corporation shall reduce or eliminate the Payments, by first reducing or eliminating the portion of the Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the "Determination" (as defined below). Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive's rights and entitlements to any benefits or compensation. (3) The determination of whether the Payments shall be reduced pursuant to this Agreement and the amount of such reduction, all mathematical determinations, and all determinations as to whether any of the Payments are "parachute payments" (within the meaning of Section 280G of the Code), that are required to be made under this Section 2(d), including determinations as to whether a Gross-Up Payment is required, the amount of such Gross-Up Payment and amounts relevant to the last sentence of this Section 2(d)(3), shall be made by an independent accounting firm selected by the Executive from among the five (5) largest accounting firms in the United States (the "Accounting Firm"), which shall provide its determination (the "Determination"), together with detailed supporting calculations regarding the amount of any Gross-Up Payment and any other relevant matter, both to the Corporation and the Executive by no later than ten (10) days following the Termination Date, if applicable, or such earlier time as is requested by the Corporation or the Executive (if the Executive reasonably believes that any of the Payments may be subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive and the Corporation with an opinion reasonably acceptable to the Executive and the Corporation that no Excise Tax is payable (including the reasons therefor) and that the Executive has substantial authority not to report any Excise Tax on his federal income tax return. If a Gross-Up Payment is determined to be payable, it shall be paid to the Executive within twenty (20) days after the Determination (and all accompanying calculations and other material supporting the Determination) is delivered to the Corporation by the Accounting Firm. Any determination by the Accounting Firm shall be binding upon the Corporation and the Executive, absent manifest error. As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments not made by the Corporation should have been made ("Underpayment"), or that Gross-Up Payments will have been made by the Corporation which should not have been made ("Overpayments"). In either such event, the Accounting Firm shall determine the amount of the Underpayment or Overpayment that has occurred. In the case of an Underpayment, the amount of such Underpayment (together with any interest and penalties payable by the Executive as a result of such Underpayment) shall be promptly paid by the Corporation to or for the benefit of the Executive. In the case of an Overpayment, the Executive shall, at the direction and expense of the Corporation, take such steps as are reasonably necessary (including the filing of returns and claims for refund), follow reasonable instructions from, and procedures established by, the Corporation, and otherwise reasonably cooperate with the Corporation to correct such Overpayment, 3 4 provided, however, that (i) the Executive shall not in any event be obligated to return to the Corporation an amount greater than the net after-tax portion of the Overpayment that he has retained or has recovered as a refund from the applicable taxing authorities and (ii) if a Gross-Up Payment is determined to be payable, this provision shall be interpreted in a manner consistent with an intent to make the Executive whole, on an after-tax basis, from the application of the Excise Tax, it being understood that the correction of an Overpayment may result in the Executive repaying to the Corporation an amount which is less than the Overpayment. The cost of all such determinations made pursuant to this Section 2(d) shall be paid by the Corporation. (e) The amounts provided for in Sections 2(a) and 2(b)(1) and (2) shall be paid in a single lump sum cash payment within ten (10) days after the Executive's Termination Date (or earlier, if required by applicable law). (f) The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment except as provided in Section 2(b)(3). (g) The severance pay and benefits provided for in this Section 2 shall be in lieu of any other severance pay to which the Executive may be entitled under the Corporation's Severance Plan or any other plan, agreement or arrangement of the Corporation or any of its Affiliates. 3. Notice of Termination. Following a Change in Control, any intended termination of the Executive's employment by the Corporation shall be communicated by a Notice of Termination from the Corporation to the Executive, and any intended termination of the Executive's employment by the Executive shall be communicated by a Notice of Termination from the Executive to the Corporation. 4. Fees and Expenses. The Corporation shall pay all legal fees and related expenses (including the costs of experts, evidence and counsel) incurred by the Executive as they become due as a result of (a) the termination of the Executive's employment by the Corporation or by the Executive (including all such fees and expenses, if any, incurred in contesting, defending or disputing the basis for any such termination of employment), (b) the Executive's hearing before the Board of Directors of the Corporation as contemplated in Section 13.6 of this Agreement or (c) the Executive seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Corporation under which the Executive is or may be entitled to receive benefits. 5. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including any Notice of Termination) shall be in writing, shall be signed by the Executive if to the Corporation or by a duly authorized officer of the Corporation if to the Executive, and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 6. Nature of Rights. Except as provided in Section 2(g), nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Corporation or any Affiliate of the Corporation and for which the Executive may qualify, nor shall anything herein limit or reduce such rights as the Executive may have under any other agreements with the Corporation or any Affiliate of the Corporation. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the 4 5 Corporation or any Affiliate of the Corporation shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 7. Settlement of Claims. The Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, defense, recoupment, or other right which the Corporation may have against the Executive or others. 8. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Corporation. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party which are not expressly set forth in this Agreement. 9. Successors; Binding Agreement. (a) This Agreement shall be binding upon and shall inure to the benefit of the Corporation and its respective Successors and Assigns. The Corporation shall require its respective Successors and Assigns to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession or assignment had taken place. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative. 10. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the conflict of laws principles thereof. Any action brought by any party to this Agreement shall be brought and maintained in a court of competent jurisdiction in the State of New York. 11. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 12. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto, and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto, with respect to the subject matter hereof, including without limitation, the Stay Incentive and Severance Protection Agreement, dated July 28, 1997, between the Executive and the Corporation. 13. Definitions. 13.1. Accrued Compensation. For purposes of this Agreement, "Accrued Compensation" shall mean all amounts of compensation for services rendered to the Corporation or any of its Affiliates that have been earned or accrued through the Termination Date but that have not been paid as of the Termination Date including (a) base salary, (b) reimbursement for reasonable and necessary business expenses incurred by the Executive on behalf of the Corporation or of its Affiliates of the Corporation during the period ending on the Termination Date, (c) vacation pay and (d) bonuses and 5 6 incentive compensation; provided, however, that Accrued Compensation shall not include any amounts described in clause (a) or clause (d) that have been deferred pursuant to any salary reduction or deferred compensation elections made by the Executive. 13.2. Affiliate. For purposes of this Agreement, "Affiliate" means, with respect to any Person, any entity, directly or indirectly, controlled by, controlling or under common control with such Person. 13.3. Base Amount. For purposes of this Agreement, "Base Amount" shall mean the Executive's annual base salary at the rate in effect as of the date of a Change in Control or, if greater, at any time thereafter, determined without regard to any salary reduction or deferred compensation elections made by the Executive. 13.4. "Beneficial Owner," "Beneficially Owned" and "Beneficially Owning" shall have the meanings applicable under Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 13.5. Bonus Amount. For purposes of this Agreement, "Bonus Amount" shall mean the target annual bonus payable to the Executive under the Incentive Plan in respect of the fiscal year of the Corporation during which the Termination Date occurs or, if greater, the target annual bonus payable to the Executive under the Incentive Plan in respect of the fiscal year of the Corporation during which the Change in Control occurs. 13.6. Cause. For purposes of this Agreement, a termination of employment is for "Cause" if the Executive has been convicted of a felony or the termination is evidenced by a resolution adopted in good faith by two-thirds of the Board of Directors of the Corporation that the Executive: (a) intentionally and continually failed substantially to perform his reasonably assigned duties with the Corporation and its Affiliates (other than a failure resulting from the Executive's incapacity due to physical or mental illness or from the assignment to the Executive of duties inconsistent with those he performs as of a Change in Control) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance, signed by a duly authorized officer of the Corporation, has been delivered to the Executive specifying the manner in which the Executive has failed substantially to perform, or (b) intentionally engaged in conduct which is demonstrably and materially injurious to the Corporation and its Affiliates; provided, however, that no termination of the Executive's employment shall be for Cause as set forth in this Section 13.6(b) until (1) there shall have been delivered to the Executive a copy of a written notice, signed by a duly authorized officer of the Corporation, setting forth that the Executive was guilty of the conduct set forth in this Section 13.6(b) and specifying the particulars thereof in detail, and (2) the Executive shall have been provided an opportunity to be heard in person by the Board of Directors of the Corporation (with the assistance of the Executive's counsel if the Executive so desires). No act, nor failure to act, on the Executive's part, shall be considered "intentional" unless the Executive has acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that the Executive's action or failure to act was in the best interest of the Corporation and its Affiliates. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after a Notice of Termination is given to the Corporation by the Executive shall constitute Cause for purposes of this Agreement. 6 7 13.7. Change in Control. "Change in Control" shall mean any of the following: (a) the acquisition by any Person, other than Instrument Partners or Forstmann Little & Co. Subordinated Debt and Equity Management Buyout Partnership-IV or any of their Affiliates (collectively, the "Forstmann Little Companies") of Beneficial Ownership of Voting Securities which, when added to the Voting Securities then Beneficially Owned by such Person, would result in such Person Beneficially Owning (1) 33% or more of the combined Voting Power of the Corporation's then outstanding Voting Securities and (2) a number of Voting Securities greater than the aggregate number of Voting Securities then Beneficially Owned by the Forstmann Little Companies; provided, however, that for purposes of this paragraph (a), a Person shall not be deemed to have made an acquisition of Voting Securities if such Person: (A) acquires Voting Securities as a result of a stock split, stock dividend or other corporate restructuring in which all stockholders of the class of such Voting Securities are treated on a pro rata basis; (B) acquires the Voting Securities directly from the Corporation; (C) becomes the Beneficial Owner of 33% or more of the combined Voting Power of the Corporation's then outstanding Voting Securities solely as a result of the acquisition of Voting Securities by the Corporation or any Subsidiary which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such Person, provided that if (x) a Person would own at least such percentage as a result of the acquisition by the Corporation or any Subsidiary and (y) after such acquisition by the Corporation or any Subsidiary, such Person acquires Voting Securities, then an acquisition of Voting Securities shall have occurred; (D) is the Corporation or any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Corporation (a "Controlled Entity"); or (E) acquires Voting Securities in connection with a "Non-Control Transaction" (as defined in paragraph (c) below); or (b) the individuals who, as of the Effective Date, are members of the Board (the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board; provided, however, that if either the election of any new director or the nomination for election of any new director by the Corporation's stockholders was approved by a vote of at least two-thirds of the Incumbent Board prior to such election or nomination, such new director shall be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) approval by stockholders of the Corporation of: (1) a merger, consolidation or reorganization involving the Corporation (a "Business Combination"), unless (A) the stockholders of the Corporation, immediately before the Business Combination, own, directly or indirectly immediately following the Business Combination, at least a majority of the combined voting power of the outstanding voting securities of the corporation resulting from the Business Combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before the Business Combination, and (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for the Business Combination constitute at least a majority of the members of the Board of Directors of the Surviving Corporation, and 7 8 (C) no Person (other than the Corporation or any Controlled Entity, a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements (or any trust forming a part thereof) maintained by the Corporation, the Surviving Corporation or any Controlled Entity, or any Person who, immediately prior to the Business Combination, had Beneficial Ownership of 33% or more of the then outstanding Voting Securities) has Beneficial Ownership of 33% or more of the combined voting power of the Surviving Corporation's then outstanding voting securities (a Business Combination satisfying the conditions of clauses (A), (B) and (C) of this subparagraph (1) shall be referred to as a "Non-Control Transaction"); (2) a complete liquidation or dissolution of the Corporation; or (3) the sale or other disposition of all or substantially all of the assets of the Corporation (other than a transfer to a Controlled Entity). Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because 33% or more of the then outstanding Voting Securities is Beneficially Owned by (x) a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements (or any trust forming a part thereof) maintained by the Corporation or any Controlled Entity or (y) any corporation which, immediately prior to its acquisition of such interest, is owned directly or indirectly by the stockholders of the Corporation in the same proportion as their ownership of stock in the Corporation immediately prior to such acquisition. 13.8. Corporation. For purposes of this Agreement, all references to the Corporation shall include its Successors and Assigns. 13.9. Disability. For purposes of this Agreement, "Disability" shall mean a physical or mental infirmity which impairs the Executive's ability to substantially perform his duties with the Corporation for six (6) consecutive months, and within the time period set forth in a Notice of Termination given to the Executive (which time period shall not be less than thirty (30) days), the Executive shall not have returned to full-time performance of his duties; provided, however, that if the Corporation's Long Term Disability Plan, or any successor plan (the "Disability Plan"), is then in effect, the Executive shall not be deemed disabled for purposes of this Agreement unless the Executive is also eligible for "Total Disability" (as defined in the Disability Plan) benefits (or similar benefits in the event of a successor plan) under the Disability Plan. 13.10. Incentive Plan. For purposes of this Agreement, "Incentive Plan" shall mean the General Semiconductor, Inc. Annual Incentive Plan, or any successor annual incentive plan, maintained by the Corporation. 13.11. Notice of Termination. For purposes of this Agreement, following a Change in Control, "Notice of Termination" shall mean a written notice of termination of the Executive's employment, signed by the Executive if to the Corporation or by a duly authorized officer of the Corporation if to the Executive, which indicates the specific termination provision in this Agreement, if any, relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 13.12. Person. For purposes of this Agreement, "Person" shall mean a person within the meaning of Sections 13(d) and 14(d) of the Exchange Act. 13.13. Pro Rata Bonus. For purposes of this Agreement, "Pro Rata Bonus" shall mean the Bonus Amount multiplied by a fraction of the numerator of which is the number of days in the 8 9 year in which an Executive's Termination Date occurs through the termination date and the denominator of which is 365. 13.14. Subsidiary. For purposes of this Agreement, "Subsidiary" shall mean a corporation as defined in Section 424(f) (or a successor provision to such section) of the Internal Revenue Code of 1986, as amended, and regulations and rulings thereunder, with the Corporation being treated as the employer corporation for purposes of this definition. 13.15. Successors and Assigns. For purposes of this Agreement, "Successors and Assigns" shall mean, with respect to the Corporation or the Corporation, a corporation or other entity acquiring all or substantially all the assets and business of the Corporation or the Corporation, as the case may be (including this Agreement) whether by operation of law or otherwise. 13.16. Termination Date. For purposes of this Agreement, "Termination Date" shall mean (a) in the case of the Executive's death, his date of death, (b) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period) and (c) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination for Cause shall not be less than thirty (30) days, and in the case of a termination by the Executive shall not be more than sixty (60) days, from the date such Notice of Termination is given); provided, however, that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination in good faith notifies the other party that a dispute exists concerning the basis for the termination, the Termination Date shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, or by the final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been taken). Notwithstanding the pendency of any such dispute, the Corporation shall continue to pay the Executive his Base Amount and continue the Executive as a participant in all compensation, incentive, bonus, pension, profit sharing, medical, hospitalization, dental, life insurance and disability benefit plans in which he was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Section 13.17 whether or not the dispute is resolved in favor of the Corporation, and the Executive shall not be obligated to repay to the Corporation any amounts paid or benefits provided pursuant to this sentence. 13.17. Voting Power. For purposes of this Agreement, "Voting Power" shall mean the combined voting power of the then outstanding Voting Securities. 13.18. Voting Securities. For purposes of this Agreement, "Voting Securities" shall mean, with respect to with respect to General Semiconductor, Inc. or any Subsidiary, any securities issued by General Semiconductor, Inc. or such Subsidiary, respectively, which generally entitle the holder thereof to vote for the election of directors of General Semiconductor, Inc. IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by their duly authorized officers and the Executive has executed this Agreement as of the day and year first above written. GENERAL SEMICONDUCTOR, INC. By: /s/ ANDREW M. CAGGIA ------------------------------------ Andrew M. Caggia Chief Financial Officer By: /s/ RONALD A. OSTERTAG ------------------------------------ Ronald A. Ostertag 9 EX-21 7 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The following is a list of the Company's subsidiaries as of December 31, 1998, except for unnamed subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. General Semiconductor (China) Co., Ltd. (Peoples Republic of China) General Semiconductor (Deutschland) GmbH (Germany) General Semiconductor France (France) General Semiconductor of Taiwan, Ltd. (Taiwan) General Semiconductor Ireland (Ireland) General Semiconductor Japan, Ltd. (Japan) General Semiconductor (UK) Limited (United Kingdom) General Semiconductor (Singapore) Pte. Ltd. (Singapore) General Semiconductor (Europe) Limited EX-23 8 INDEPENDENT AUDITORS' CONSENT 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-60498, 33-61820, 33-50911, 33-52189, 33-55595, 33-57737, 333-22861 and 333-09190 of General Semiconductor, Inc. (formerly General Instrument Corporation) each on Form S-8 of our report dated February 3, 1999, appearing in this Annual Report on Form 10-K of General Semiconductor, Inc. for the year ended December 31, 1998. /s/DELOITTE & TOUCHE LLP - ------------------------- DELOITTE & TOUCHE LLP Jericho, New York March 19, 1999 EX-27 9 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1998 DEC-31-1998 3,225 0 59,643 769 39,514 128,130 223,743 0 563,447 76,427 0 0 0 369 198,341 563,447 401,144 401,144 283,582 353,957 71 0 20,026 27,090 8,556 18,534 0 0 0 18,534 0.50 0.50
EX-99 10 FORWARD LOOKING INFORMATION 1 EXHIBIT 99 GENERAL SEMICONDUCTOR, INC. (THE "COMPANY") EXHIBIT 99 - FORWARD LOOKING INFORMATION The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. The Company's Form 10-K for the year ended December 31, 1998, the Company's 1998 Annual Report to Stockholders, any Form 10-Q or Form 8-K of the Company, or any other oral or written statements made by or on behalf of the Company, may include forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are identified by their use of such terms and phrases as "intends," "intend," "intended," "goal," "estimate," "estimates," "expects," "expect," "expected," "project," "projects," "projected," "projections," "plans," "anticipates," "anticipated," "should," "designed to," "foreseeable future," "believe," "believes" and "scheduled" and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The actual results of the Company may differ significantly from the results discussed in forward-looking statements. Factors that might cause such a difference include, but are not limited to, (a) the general political, economic and competitive conditions in the United States, Taiwan (Republic of China), the People's Republic of China, Ireland, Germany, France and other markets where the Company operates; (b) changes in capital availability or costs, such as changes in interest rates, market perceptions of the industry in which the Company operates, or security ratings; (c) uncertainties relating to customer plans and commitments; (d) employee workforce factors; (e) authoritative generally accepted accounting principles or policy changes from such standard-setting bodies as the Financial Accounting Standards Board and the Securities and Exchange Commission and the factors set forth below. FACTORS RELATING TO THE DISTRIBUTION On January 7, 1997, the Board of Directors of General Instrument Corporation ("GI") approved a plan to divide GI into three separate public companies. To effect the transaction, GI (i) transferred all the assets and liabilities relating to the manufacture and sale of broadband communications products used in the cable television, satellite, and telecommunications industries and all rights to the related GI trademarks to its wholly-owned subsidiary NextLevel Systems, Inc. ("NextLevel Systems") and all the assets and liabilities relating to the manufacture and sale of coaxial, fiber optic and other electric cable used in the cable television, satellite and other industries to its wholly-owned subsidiary CommScope, Inc. ("CommScope") and (ii) then distributed all of the ordinary shares of capital stock of each of NextLevel Systems and CommScope to its stockholders on a pro rata basis as a dividend (the "Distribution"), in a transaction that was consummated on July 28, 1997 (the "Distribution Date"). The Company retained all the assets and liabilities relating to the manufacture and sale of discrete power rectifiers and transient voltage suppression components used in telecommunications, automotive and consumer electronics products. On the Distribution Date, NextLevel Systems and CommScope began operating as independent entities with publicly traded common stock. GI retained no ownership interest in either NextLevel Systems or CommScope. Concurrently with the Distribution, GI changed its name to General Semiconductor, Inc. and effected a one for four reverse stock split. On February 2, 1998, NextLevel Systems changed its name to General Instrument Corporation. The Distribution Agreement dated as of June 12, 1997, among GI, General Instrument Corporation, and CommScope (the "Distribution Agreement") and certain other agreements executed in connection with the Distribution (collectively, the "Ancillary Agreements") allocate among the Company, General Instrument Corporation and CommScope, and their respective subsidiaries, responsibility for various indebtedness, liabilities and obligations. It is possible that a court would disregard this contractual allocation of indebtedness, liabilities and obligations among the parties and require the Company or its subsidiaries to assume responsibility for obligations allocated to another party, particularly if such other party were to refuse or was unable to pay or perform any of its allocated obligations. 1 2 Pursuant to the Distribution Agreement and certain of the Ancillary Agreements, the Company has agreed to indemnify the other parties (and certain related persons) from and after consummation of the Distribution with respect to certain indebtedness, liabilities and obligations, which indemnification obligations could be significant. Although GI has received a favorable ruling from the Internal Revenue Service, if the Distribution were not to qualify as a tax free spin-off (either because of the nature of the Distribution or because of events occurring after the Distribution) under Section 355 of the Internal Revenue Code of 1986, as amended, then, in general, a corporate tax would be payable by the consolidated group of which the Company was the common parent based upon the difference between the fair market value of the stock distributed and the distributing corporation's adjusted basis in such stock. The corporate level tax would be payable by the Company and could substantially exceed the net worth of the Company. However, under certain circumstances, General Instrument Corporation and CommScope have agreed to indemnify the Company for such tax liability. In addition, under the consolidated return rules, each member of the consolidated group (including General Instrument Corporation and CommScope) is severally liable for such tax liability. LEVERAGE; CERTAIN RESTRICTIONS UNDER CREDIT FACILITIES The Company is substantially more leveraged than GI was prior to the Distribution. The degree to which the Company is leveraged could have important consequences, including the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, product development, acquisitions, general corporate purposes or other purposes may be impaired; (ii) a portion of the Company's and its subsidiaries' cash flow from operations must be dedicated to the payment of the principal of and interest on its indebtedness; (iii) the Credit Agreement, dated as of July 23, 1997 and amended in December 1998, among the Company, certain banks, and The Chase Manhattan Bank, as Administrative Agent, contains certain restrictive financial and operating covenants, including, among others, requirements that the Company satisfy certain financial ratios; (iv) a significant portion of the Company's borrowings are at floating rates of interest, causing the Company to be vulnerable to increases in interest rates; (v) the Company's degree of leverage may make it more vulnerable to a downturn in general economic conditions; and (vi) the Company's degree of leverage may limit its flexibility in responding to changing business and economic conditions. In addition, in a lawsuit by an unpaid creditor or representative of creditors, such as a trustee in bankruptcy, a court may be asked to void the Distribution (in whole or in part) as a fraudulent conveyance and to require that the stockholders return the special dividend (in whole or in part) to the Company or require the Company to fund certain liabilities of General Instrument Corporation and CommScope for the benefit of creditors. COMPETITION The Company operates in the discrete segment of the semiconductor business. Its products are commodity-like in nature and are subject to cyclical variations in pricing and capacity utilization levels. The Company is subject to competition from a substantial number of foreign and domestic companies, some of which have greater financial, engineering, manufacturing and other resources, or offer a broader product line, than the Company. The Company's competitors can be expected to continue to improve the design and performance of their products and to introduce new products with competitive price and performance characteristics. Although the Company believes that it enjoys certain technological and other advantages over its competitors, realizing and maintaining such advantages will require continued investment by the Company in engineering, research and development, marketing and customer service and support. There can be no assurance that the Company will have sufficient resources to continue to make such investments or that the Company will be successful in maintaining such advantages. 2 3 INTERNATIONAL OPERATIONS A significant portion of the Company's products are manufactured or assembled in Taiwan (Republic of China), the People's Republic of China, Ireland, Germany, and France. These foreign operations are subject to the usual risks inherent in situating operations abroad, including risks with respect to currency exchange rates, economic and political destabilization, restrictive actions by foreign governments, nationalizations, the laws and policies of the United States affecting trade, foreign investment and loans, and foreign tax laws. The Company's cost-competitive status relative to other competitors could be adversely affected if the Company experiences unfavorable movements in foreign currency rates. In addition, a substantial portion of the annual sales of the Company's business are outside of the United States. International sales generally represent 70% of the Company's worldwide sales. Sales to the Asia Pacific region accounted for approximately 35% of the Company's worldwide sales for the year ended December 31, 1998. During 1998 order trends and average selling prices weakened significantly reflecting the current economic and currency difficulties in Southeast Asia, the economic slowdown in Japan and the difficulties in the computer and computer peripherals industries. However, approximately 50% of the Company's production is currently in Taiwan, the cost of which has benefited from the weakened New Taiwan Dollar in relation to the U.S. dollar. Additionally, extended underutilization of the Company's manufacturing facilities, resulting in production inefficiency, could result in margin deterioration. There can be no assurance as to the extent or duration of the impact of these events on the Company. ENVIRONMENT The Company is subject to various federal, state, local and foreign laws and regulations governing environmental matters, including the use, discharge and disposal of hazardous materials. The Company's manufacturing facilities are believed to be in substantial compliance with current laws and regulations. Complying with current laws and regulations has not had a material adverse effect on the Company's financial condition. In connection with the Distribution, the Company retained the obligations with respect to environmental matters relating to the Company's discontinued operations and its status as a "potentially responsible party." The Company is presently engaged in the remediation of eight discontinued operations in six states, and is a de minimus "potentially responsible party" at five hazardous waste sites in four states. The Company has engaged independent consultants to assist management in evaluating potential liabilities related to environmental matters. Management assesses the input from these independent consultants along with other information known to the Company in its effort to continually monitor these potential liabilities. Management assesses its environmental exposure on a site-by-site basis, including those sites where the Company has been named a "potentially responsible party." Such assessments include the Company's share of remediation costs, information known to the Company concerning the size of the hazardous waste sites, their years of operation and the number of past users and their financial viability. The Company has recorded a reserve for environmental matters of $31.9 million at December 31, 1998 ($34.9 million at December 31, 1997). While the ultimate outcome of these matters cannot be determined, management does not believe that the final disposition of these matters will have a material adverse affect on the Company's financial position, results of operations or cash flows beyond the amounts previously provided for in the financial statements. The Company's present and past facilities have been in operation for many years, and over that time in the course of those operations, such facilities have used substances which are or might be considered hazardous, and the Company has generated and disposed of wastes which are or might be considered hazardous. Therefore, it is possible that additional environmental issues may arise in the future which the Company cannot now predict. 3 4 YEAR 2000 The Company recognizes the importance of ensuring that neither its customers nor its business operations are disrupted as a result of the Year 2000 phenomenon. This phenomenon is a result of computer programs having been written using two digits (rather than four) to define the applicable year. Any information technology ("IT") systems that have time sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations and systems failures. The problem also extends to many "non-IT" systems such as operating and control systems that rely on embedded chip systems. The Company, with the assistance of outside consulting resources, is centrally coordinating activities directed toward achieving global Year 2000 compliance. The primary areas of potential impact include business application systems, production equipment systems, suppliers, financial institutions, government agencies and environmental support organizations. None of the Company's products contain date sensitive or date processing logic. In 1996 the Company began an upgrade of its business applications software which includes the implementation of the full suite of JD Edwards ("JDE") financial, distribution and manufacturing applications. The JDE software was selected to add worldwide functionality and efficiency to the business processes of the Company as well as address Year 2000 exposure. The JDE financial and distribution modules have been installed and are Year 2000 compliant. The JDE manufacturing modules will be installed in 2000. The Company is currently modifying its existing manufacturing applications and expects them to be Year 2000 compliant by June 30, 1999. Since the Company's financial, distribution and manufacturing applications are expected to be Year 2000 compliant, incremental costs associated with achieving Year 2000 compliance beyond the scope of this project, estimated at less than $1.0 million, should not have a material effect on the Company's financial condition or results of operations and are being expensed as incurred. The Company has surveyed its suppliers, financial institutions, government agencies and others with which it does business to determine their Year 2000 readiness and coordinate conversion efforts. Approximately 65% of third party suppliers have responded to the company's surveys. At the current time, respondents critical to the operations of the Company have indicated that they are, or reasonably believe that they will be, Year 2000 compliant. If a material risk arises, the Company is prepared to perform on-site visits to validate the accuracy of the information received and will test such systems where appropriate and possible. Additionally, the Company has established programs to ensure that future purchases of equipment and software are Year 2000 compliant. Costs incurred have been insignificant to date. At the current time, it is difficult for the Company to specifically identify its most reasonably likely worst case Year 2000 scenario. The Company does not expect Year 2000 issues to have a material adverse effect on its products, services, competitive position, financial condition or results of operations. However, the Company can give no assurance that the systems of other companies or government agencies on which the Company relies will be converted on time or that a failure to convert by another company or a conversion that is incompatible with the Company's systems would not have a material adverse effect on the Company. The disclosures contained herein constitute Year 2000 Readiness Statements pursuant to the Year 2000 Information and Readiness Disclosure Act, Public Law 105-271. 4 -----END PRIVACY-ENHANCED MESSAGE-----