-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, HwOu1TDjfOy6PQARlSrrSzJFL5upYs0638XNRDCcnGlLk/Zs3r0XsOYJZSLqpIC4 2xm4fe6Myu8EBlpcolxSbg== 0000725182-95-000007.txt : 19950515 0000725182-95-000007.hdr.sgml : 19950515 ACCESSION NUMBER: 0000725182-95-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AST RESEARCH INC /DE/ CENTRAL INDEX KEY: 0000725182 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 953525565 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13941 FILM NUMBER: 95510615 BUSINESS ADDRESS: STREET 1: 16215 ALTON PKWY CITY: IRVINE STATE: CA ZIP: 92718 BUSINESS PHONE: 7147274141 10-Q 1 ________________________________________________________________________________ ________________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________ FORM 10-Q (MARK ONE) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1994 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 NO. 0-13941 AST RESEARCH, INC. (Exact name of registrant as specified in its charter) DELAWARE 95-3525565 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 16215 ALTON PARKWAY IRVINE, CALIFORNIA 92718 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 727-4141 _________________ 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 _ There were 32,376,500 shares of the registrant's Common Stock, par value $.01 per share, outstanding on January 27, 1995. ________________________________________________________________________________ ________________________________________________________________________________ AST RESEARCH, INC. INDEX
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at December 31, 1994 (Unaudited) and July 2, 1994 3 Consolidated Statements of Operations (Unaudited) for the three months and six months ended December 31, 1994 and January 1, 1994 4 Consolidated Statements of Cash Flows (Unaudited) for the six months ended December 31, 1994 and January 1, 1994 5-6 Notes to Consolidated Financial Statements (Unaudited) 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-17 PART II. OTHER INFORMATION Item 1. Legal Proceedings 18 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 SIGNATURES 20
AST RESEARCH, INC. CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------- December 31, July 2, 1994 1994 (In thousands, except share amounts) (Unaudited) - ---------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 68,654 $ 153,118 Accounts receivable, net of allowance for doubtful accounts of $17,920 at December 31, 1994 and $17,564 at July 2, 1994 375,087 326,057 Inventories 351,362 333,729 Deferred income taxes 49,690 43,266 Other current assets 14,780 9,797 - ----------------------------------------------------------------------------------------------------- Total current assets 859,573 865,967 Property and equipment 166,227 159,530 Accumulated depreciation and amortization (62,259) (56,089) - ----------------------------------------------------------------------------------------------------- Net property and equipment 103,968 103,441 Goodwill, net of accumulated amortization of $7,656 at December 31, 1994 and $4,387 at July 2, 1994 58,412 61,912 Other assets 9,495 6,992 - ----------------------------------------------------------------------------------------------------- $ 1,031,448 $ 1,038,312 ===================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 75,000 $ 50,000 Accounts payable 252,579 209,579 Accrued salaries, wages and employee benefits 19,952 21,465 Other accrued liabilities 113,351 112,096 Income taxes payable 23,540 37,955 Current portion of long-term debt 398 398 - ----------------------------------------------------------------------------------------------------- Total current liabilities 484,820 431,493 Long-term debt 218,158 215,294 Deferred income taxes and other non-current liabilities 6,328 7,571 Commitments and contingencies Shareholders' equity: Common stock, par value $.01; 200,000,000 shares authorized, 32,374,200 shares issued and outstanding at December 31, 1994 and 32,333,750 shares at July 2, 1994 324 323 Additional capital 141,814 141,424 Retained earnings 180,004 242,207 - ----------------------------------------------------------------------------------------------------- Total shareholders' equity 322,142 383,954 - ----------------------------------------------------------------------------------------------------- $ 1,031,448 $ 1,038,312 =====================================================================================================
See accompanying notes. AST RESEARCH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- ----------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended ------------------------ ---------------------- Dec. 31, Jan. 1, Dec. 31, Jan. 1, (In thousands, except per share amounts) 1994 1994 1994 1994 - ----------------------------------------------------------------------------------------------- Net sales $ 640,159 $ 677,011 $ 1,135,605 $ 1,191,420 Cost of sales 573,841 562,445 1,031,988 990,954 - ----------------------------------------------------------------------------------------------- Gross profit 66,318 114,566 103,617 200,466 Selling and marketing expenses 58,548 53,022 110,413 95,093 General and administrative expenses 22,475 19,698 44,752 37,288 Engineering and development expenses 8,648 10,403 18,550 20,647 - ----------------------------------------------------------------------------------------------- Total operating expenses 89,671 83,123 173,715 153,028 - ----------------------------------------------------------------------------------------------- Operating income (loss) (23,353) 31,443 (70,098) 47,438 Interest income 523 373 1,007 627 Interest expense (3,603) (2,581) (6,892) (4,186) Other expense, net (1,461) (2,064) (1,771) (4,235) - ------------------------------------------------------------------------------------------------ Income (loss) before income taxes (27,894) 27,171 (77,754) 39,644 Provision (benefit) for income taxes (5,579) 9,238 (15,551) 13,479 - ------------------------------------------------------------------------------------------------ Net income (loss) $ (22,315) $ 17,933 $ (62,203) $ 26,165 ================================================================================================ Net income (loss) per share: Primary $ (.69) $ .55 $ (1.92) $ .81 Fully diluted $ (.69) $ .54 $ (1.92) $ .79 ================================================================================================ Shares used in computing net income (loss) per share: Primary 32,369 32,454 32,358 32,228 Fully diluted 32,369 33,404 32,358 33,195 ================================================================================================
See accompanying notes. AST RESEARCH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------- Six Months Ended ----------------------------------- December 31, January 1, (In thousands) 1994 1994 - -------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Cash received from customers $ 1,088,368 $ 1,055,099 Cash paid to suppliers and employees (1,175,936) (1,091,042) Interest received 1,122 614 Interest paid (4,697) (2,166) Income tax refunds received 3,322 1,130 Income taxes paid (9,435) (8,706) Other cash received (paid) 2,784 (5,137) - -------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (94,472) (50,208) Cash flows from investing activities: Payment related to Tandy/GRiD acquisition - (15,000) Purchases of capital equipment (15,220) (11,186) Proceeds from disposition of capital equipment 2,029 530 Sales (purchases) of other assets (1,559) 470 - -------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (14,750) (25,186) Cash flows from financing activities: Short-term borrowings, net 25,000 (9,195) Repayment of long-term debt (226) (121) Proceeds from issuance of long-term debt, net - 108,733 Proceeds from issuance of common stock 391 1,410 - -------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 25,165 100,827 Effect of exchange rate changes on cash and cash equivalents (407) (1,606) - -------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (84,464) 23,827 Cash and cash equivalents at beginning of period 153,118 121,600 - -------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 68,654 $ 145,427 ==============================================================================================================
See accompanying notes. AST RESEARCH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) RECONCILIATION OF NET INCOME (LOSS) TO NET CASH USED IN OPERATING ACTIVITIES:
- -------------------------------------------------------------------------------------------------- Six Months Ended ------------------------------- December 31, January 1, (In thousands) 1994 1994 - -------------------------------------------------------------------------------------------------- Net income (loss) $ (62,203) $ 26,165 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 14,314 11,154 Provision (benefit) for deferred income taxes (7,101) 979 Gain on sale of capital equipment (435) - Change in operating assets and liabilities, net of effects of acquisition: Accounts receivable (45,975) (127,863) Inventories (17,633) 38,205 Other current assets (8,151) 1,119 Accounts payable and accrued expenses 52,952 41,631 Income taxes payable (14,415) (1,010) Other current liabilities (2,941) (44,933) Exchange loss (gain) (2,884) 4,345 - ------------------------------------------------------------------------------------------------- Net cash used in operating activities $ (94,472) $ (50,208) ================================================================================================= SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: The Company purchased certain assets relating to Tandy/GRiD France's personal computer operations effective September 1, 1993. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired - $ 10,171 Note payable - (6,720) - ------------------------------------------------------------------------------------------------- Liabilities assumed - $ 3,451 ================================================================================================= Tax benefit of employee stock options - $ 1,823 =================================================================================================
See accompanying notes. AST RESEARCH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1994 Basis of Presentation The accompanying consolidated financial statements have been prepared by the Company without audit (except for the balance sheet information as of July 2, 1994) in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying consolidated financial statements do not include certain footnotes and financial presentations normally required under generally accepted accounting principles and, therefore, should be read in conjunction with the audited financial statements included in the Company's 1994 Annual Report on Form 10-K. The results of operations for the three and six month periods ended December 31, 1994 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended July 2, 1994. Income Taxes The Company provides for income taxes in interim periods based on the estimated effective income tax rate for the complete fiscal year. For the six- month period ended December 31, 1994, the estimated tax benefit rate is less than the U.S. statutory rate primarily due to estimates of the proportion of the Company's fiscal 1995 consolidated income/loss which will be realized in lower rate foreign tax jurisdictions, as well as the Company's inability to benefit all of its deferred tax assets. Differences between the estimated effective tax rate and the Company's actual effective tax rate could result from changes in the Company's ability to recognize its deferred tax assets and from changes in the mix of income/loss in the various tax jurisdictions within which the Company operates. Such differences are recognized when known. The provision (benefit) for income taxes is computed on the pretax income (loss) of the consolidated entities located within each taxing country based on the current tax law. Deferred taxes result from the future tax consequences associated with temporary differences between the amount of assets and liabilities recorded for tax and financial accounting purposes. A valuation allowance for deferred tax assets is recorded to the extent the Company cannot determine, in accordance with the provisions of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes," that the ultimate realization of net deferred tax assets is more likely than not. Acquisitions and Restructuring In the fourth quarter of fiscal 1993, the Company acquired certain assets and assumed certain liabilities relating to Tandy Corporation's ("Tandy") personal computer manufacturing operations and the GRiD North American and European sales divisions. On September 1, 1993, the Company also purchased certain assets and assumed certain liabilities of Tandy/GRiD France. The total purchase price (including Tandy/GRiD France) was $111.7 million and included a cash payment of $15 million and a three-year promissory note in the principal amount of $96.7 million. Restructuring charges of $125 million were recorded in the fourth quarter of fiscal 1993 in connection with the Company's acquisition of Tandy's personal computer manufacturing and engineering operations and GRiD's North American and European sales and marketing operations. During fiscal 1994, the Company completed most of its previously identified restructuring activities and incurred asset write-downs of $50 million and cash expenditures of $47 million related directly to its fiscal 1994 restructuring activities. The Company recorded a $12.5 million credit in the fourth quarter of fiscal 1994 after concluding that most of its restructuring activities had been completed or were adequately provided for within the AST RESEARCH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1994 remaining restructuring accrual. At July 2, 1994, $15.2 million of the restructuring accrual remained on the Company's consolidated balance sheet. In October 1994, the Company announced plans to consolidate its worldwide mobile computing manufacturing in Taiwan and the concurrent closure of its Fountain Valley, California manufacturing facility February 1, 1995. During the first six months of fiscal 1995, the Company incurred cash expenditures of approximately $.7 million related primarily to the closure of its Fountain Valley, California manufacturing facility. At December 31, 1994, approximately $14.5 million of restructuring accruals remained for final restructuring activities, which the Company expects to be completed by the end of the fourth quarter of fiscal 1995. The Company expects these costs to represent a combination of future cash expenditures and asset write-downs necessary to combine and restructure existing worldwide manufacturing and distribution capacity, including the closure of its Fountain Valley facility. The Company believes that its restructuring activities were necessary in order to redeploy and reorganize its worldwide operations after the June 1993 acquisition of Tandy's personal computer operations. However, no assurances can be given that these restructuring actions will be successful or that similar actions will not be required in the future. Contingencies In June 1989, Texas Instruments Inc. ("TI") advised the Company that it believed certain AST(R) computer products infringe certain TI patents. On January 4, 1994, the Company initiated litigation (the "California action") in the U.S. District Court for the Central District of California against TI alleging certain violations of licensing agreements, federal antitrust laws and the California Unfair Practices Act. In addition, the Company alleged that TI is infringing AST patents and that certain TI patents are invalid or inapplicable. TI has alleged in the California action that the Company is infringing patents owned by TI. On August 26, 1994, TI filed a lawsuit in the U.S. District Court for the Eastern District of Texas against the Company alleging infringement of patents in addition to those asserted by TI in the California action. These litigations with TI were settled on February 7, 1995 and a Settlement Agreement and Release was entered into by the parties. The Settlement Agreement and Release includes, in part, a patent cross-license agreement between AST and TI for the calendar years 1995 through 2000, and requires periodic royalty payments from AST to TI. On March 3 and March 14, 1994, complaints were filed by two shareholders against the Company and certain of its officers and directors requesting certification of a class action, asserting claims under state and federal securities laws based on allegations that the Company made inadequate and false disclosures and seeking unspecified compensatory damages and related fees and costs. The complaints were filed in the United States District Court for the Central District of California. On September 12, 1994, a complaint was filed by a shareholder against the Company and certain of its officers and directors requesting certification of a class action, asserting claims under state and federal securities laws based on allegations that the Company made inadequate and false disclosures and seeking unspecified compensatory damages and related fees and costs. The September 12, 1994 complaint was filed in the United States District Court for the Central District of California under the case name Steven A. Kornfeld v. James L. Forquer, et al. On October 6, 1994, a complaint was filed by a shareholder in the United States District Court for the Central District of California. The October 6, 1994 complaint names the Company and certain of its officers and directors as defendants, asserts claims under the state and federal securities laws based on allegations that the Company made inadequate and false disclosures, and seeks unspecified compensatory damages and related fees and costs. The cases with complaints filed on March 3, 1994, March 14, 1994 and October 6, 1994 have been consolidated under the case name In re AST Securities Litigation. The AST Securities Litigation and Kornfeld cases are being treated as related cases by the court. Management has reviewed the allegations and the complaints and believes such allegations are without merit. Management intends to vigorously defend these litigations. Management does not believe that the outcome of these matters will have a material adverse impact on the Company's consolidated financial position or results of operations. AST RESEARCH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1994 The Internal Revenue Service ("IRS") is currently examining the Company's 1989, 1990 and 1991 federal income tax returns. In addition, the IRS has completed its examination of the Company's 1987 and 1988 federal income tax returns and has proposed adjustments to the Company's federal tax liabilities for such years of approximately $8.3 million, excluding interest. The majority of such proposed adjustments relate to the allocation of income between the Company and its foreign subsidiaries. Management believes that the Company's position has substantial merit and intends to vigorously contest these proposed adjustments. Management further believes that any liability that may result upon the final resolution of the proposed adjustments or the current examinations will not have a material adverse effect on the Company's consolidated financial position or results of operations. The Company has been named as a defendant or co-defendant, generally with other personal computer manufacturers, including IBM, AT&T, Unisys, Digital Equipment Corporation, NEC, Olivetti, NCR, Panasonic, and Matsushita, in twelve similar lawsuits, each of which alleges as a factual basis the occurrence of carpal tunnel syndrome or repetitive stress injuries. The suits naming the Company are just a few of the many lawsuits of this type which have been filed, often naming IBM and other computer companies. The claims total in excess of $100 million in compensatory and punitive damages and additional unspecified amounts. The Company has denied or is in the process of denying the claims and intends to vigorously defend the suits. The Company is unable at this time to predict the ultimate outcome of these suits. Ultimate resolution of the litigation against the Company may depend on progress in resolving this type of litigation overall. The Company believes that the claims in the suits filed against it will not have a material impact on the Company's consolidated financial position or results of operations. The Company has maintained various liability insurance policies during the period covering the claims filed above. While such policies may limit coverage under certain circumstances, the Company believes that it is adequately insured against potential losses that may result from these claims. Should the Company not be successful in defending against such lawsuits or not be entitled to claim compensation under its liability insurance policies, the Company's profitability and financial condition may be adversely affected. The Company is also subject to other legal proceedings and claims which arise in the normal course of business. While the outcome of these proceedings and claims cannot be predicted with certainty, management does not believe the outcome of any of these matters will have a material adverse effect on the Company's consolidated financial position or results of operations. Per Share Information Primary earnings (loss) per common share for fiscal 1995 and 1994 have been computed based upon the weighted average number of common and common equivalent shares outstanding. Common equivalent shares result from the assumed exercise of outstanding stock options that have a dilutive effect when applying the treasury stock method. In fiscal 1994, the fully diluted per share calculation assumes, in addition to the above, (i) that the Company's Liquid Yield Option Notes were converted from the date of issuance with earnings being increased for interest expense, net of taxes, that would not have been incurred had conversion taken place, and (ii) the potential additional dilutive effect of stock options. In fiscal 1995, fully diluted earnings (loss) per share were antidilutive. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
- ----------------------------------------------------------------------------------------------------------- December 31, July 2, (In thousands) 1994 1994 - ----------------------------------------------------------------------------------------------------------- Purchased parts $ 93,762 $ 99,959 Work in process 51,136 53,765 Finished goods 206,464 180,005 - ----------------------------------------------------------------------------------------------------------- $ 351,362 $ 333,729 ===========================================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DECEMBER 31, 1994 RESULTS OF OPERATIONS The following table shows the results of operations for the periods indicated as a percentage of net sales.
Percentage of Net Sales Percentage of Net Sales Three Months Ended Six Months Ended ----------------------------------------------------------- Dec. 31, Jan. 1, Dec. 31, Jan. 1, 1994 1994 1994 1994 - ---------------------------------------------------------------------------------------------------------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 89.6 83.1 90.9 83.2 - ---------------------------------------------------------------------------------------------------------- Gross profit 10.4 16.9 9.1 16.8 - ---------------------------------------------------------------------------------------------------------- Selling and marketing expenses 9.1 7.9 9.7 8.0 General and administrative expenses 3.5 2.9 4.0 3.1 Engineering and development expenses 1.4 1.5 1.6 1.7 - ---------------------------------------------------------------------------------------------------------- Operating income (loss) (3.6) 4.6 (6.2) 4.0 Other expense, net (0.8) (0.6) (0.6) (0.7) - ---------------------------------------------------------------------------------------------------------- Income (loss) before income taxes (4.4) 4.0 (6.8) 3.3 Provision (benefit) for income taxes (0.9) 1.4 (1.3) 1.1 - ---------------------------------------------------------------------------------------------------------- Net income (loss) (3.5%) 2.6% (5.5%) 2.2% ==========================================================================================================
Sales Net sales for the six-month period ended December 31, 1994 decreased 5% to $1.136 billion from $1.191 billion in the six-month period ended January 1, 1994. This decline in revenues was primarily due to lower 386 and 486 desktop systems sales and decreased shipments of the Company's notebook system products. The Company has experienced unanticipated product development and production delays over the prior two quarters which have contributed to lower systems sales. In addition, continued industrywide competitive pricing pressures have prompted aggressive pricing and promotional activities which have further reduced total revenues. The Company anticipates that additional pricing actions will be necessary as it attempts to maintain its competitive price and performance product profile; however, there can be no assurance that future pricing actions will be effective in stimulating sales growth. The Company shipped 707,000 computer systems in the first six months of fiscal 1995, a decrease of 6% from the 752,000 units shipped in the same prior year period. Revenues from desktop system products decreased 2% to $765 million for the six-month period ended December 31, 1994 from $780 million in the comparable prior year period. Increased sales of the Advantage!(R) 486DX and the BravoTM 486DX were offset by declines in revenues from the Advantage! and Bravo 486SX, PremmiaTM 486DX and Tandy(R) desktop systems sales. Decreased sales of the Company's 486-based desktop systems reflected the shift in demand toward the PentiumTM desktop systems which accounted for 16% of total desktop systems sales for the six-month period ended December 31, 1994 versus 3% in the comparable fiscal 1994 period. Included within total desktop revenues were sales of the Company's 80386 systems which declined to $3 million in the six-month period ended December 31, 1994, compared to $41 million in the first six months of fiscal 1994. The Company's notebook computer product revenues declined 7% to $235 million in the six-month period ended December 31, 1994 from $252 million in the comparable prior year period. This decrease reflects a 8% reduction in unit shipments to 115,000 for the six-month period ended December 31, 1994 from 125,000 in the same prior year period. Increased AscentiaTM 486SLE notebook systems sales were offset by declines in revenues from the Bravo and Advantage! 486SX lines of notebook computers and the PowerExecTM notebook product line. North American revenues (including Canada) decreased by 16% to $675 million during the first six months of fiscal 1995 from the comparable prior year period. Revenue from the consumer retail channel decreased 20% from the comparable prior year period and accounted for 37% of total North American revenues. Revenues related to Tandy branded systems sales are primarily responsible for year-over-year decreased sales in the consumer retail channel. Sales to the independent reseller/dealer channel for the six-month period ended December 31, 1994 decreased 5% over the same prior year period and accounted for 48% of total North American revenues versus 42% in the comparable fiscal 1994 period. Revenue from the original equipment manufacturers ("OEM") channel declined significantly during the first six months of fiscal 1995 due to the completion of two large OEM contracts in the fourth quarter of fiscal 1994. The Company expects revenues from the OEM channel to represent a smaller portion of its revenue base in fiscal year 1995 compared to fiscal year 1994 as the Company focuses on AST(R) branded products. Within the overall decrease in North American revenues, sales to the national distributor channel grew slightly, increasing 3% over the same prior year period. The national distributor channel and the OEM channel accounted for 13% and 2%, respectively, of total North American revenues during the six-month period ended December 31, 1994. Six month fiscal 1995 international revenues rose 20% to $461 million from $385 million in the comparable prior year period and accounted for 41% of total fiscal 1995 revenues. The European region provided 66% of total international revenues for the six-month period ended December 31, 1994, a 30% increase over the same period last year. The United Kingdom and Sweden continued to be major contributors to total European revenues with significant fiscal 1995 revenue growth also occurring in Italy and Switzerland. Increased demand for the Company's Advantage and Bravo 486-based desktop systems, Pentium desktops and the Ascentia notebook systems contributed to the European revenue growth. In January 1994, the Company established a centralized European manufacturing, distribution and service operation in Limerick, Ireland. During the second quarter of fiscal 1995, the new Ireland facility manufactured nearly all of the desktop production requirements for the European region. Pacific Rim revenues totaled $128 million in the six-month period ended December 31, 1994, up 3% from the prior year total of $125 million. A significant portion of the Company's Pacific Rim revenues are derived from sales to the Hong Kong government and to Hong Kong based dealers who ultimately market the Company's products within the People's Republic of China ("PRC"). Although the PRC has historically provided the Company with significant revenues and profitability, future sales of the Company's products into the PRC are highly dependent upon continuing favorable trade relations between the United States and the PRC and the general economic and political stability of the region. The current trade dispute between the United States and China may result in trade sanctions which could have an adverse impact on the Company's future sales and/or operations. Economic factors such as competitive pricing, short-term fluctuations in foreign currency exchange rates and changes in the PRC tax structure could also have a corresponding impact on future sales and operating results. Although Pacific Rim revenues rose during the six-month period ended December 31, 1994, revenues to the PRC declined 32% compared to the same prior year period. This decline was attributable to significantly increased competition and to lower first quarter sales to one of the Company's major customers within this region. The Company anticipates that these competitive pressures will continue and may adversely impact the Company's net sales and profitability. Revenues from the Company's Australian subsidiary increased 94% in the first six months of fiscal 1995 over the same prior year period. In the Company's Rest of World region, revenues increased 9% to $29 million in the six-month period ended December 31, 1994 compared to the same prior year period. This increase is primarily due to a 15% growth rate in the Company's Middle East operations and a 19% growth rate in Latin America. However, economic risks in Mexico as well as in other less developed countries, such as the recent Mexican currency devaluation, could have a corresponding impact on future sales and operating results in various less developed regions of the world. Revenues for the quarter ended December 31, 1994 decreased 5% to $640 million from $677 million in the quarter ended January 1, 1994 due primarily to lower notebook systems sales. Second quarter fiscal 1995 international revenues of $290 million were 28% higher than the comparable prior year quarter, while North American revenues decreased 22% to $350 million. During the second quarter of fiscal 1995, the Company began shipments of the Bravo MS-T minitower and the Bravo MS-L low-profile desktop. The Company also shipped new models of the ManhattanTM V and P series of Pentium-based servers, as well as the Ascentia 810N value notebook. Gross Profit Gross profit margins decreased to 9.1% in the six-month period ended December 31, 1994 from 16.8% in the six-month period ended January 1, 1994. This decline in margins resulted primarily from unanticipated product development and production delays, manufacturing related costs associated with product transitions and continued intense industrywide competitive pricing pressures. The Company believes that the industry will continue to be characterized by rapid technological advances and short product life-cycles resulting in continued risk of product obsolescence. The personal computer industry continues to experience significant pricing pressures and the Company believes that industry consolidation and restructuring will result in an aggressive pricing environment and continued pressure on the Company's gross profit margins during fiscal 1995. During the first six months of fiscal 1995, the Company and the majority of its competitors continued to introduce new, lower-priced, higher performance personal computers resulting in continued pricing pressures on both new and older technology products. Future pricing actions by the Company and its competitors may continue to adversely impact the Company's gross margins or profitability, which could also result in decreased liquidity and adversely affect the Company's financial position. The results of the Company's international operations are subject to currency fluctuations. As the value of the U.S. dollar weakens relative to other currencies, revenues from sales in those currencies convert to more U.S. dollars. This effect on revenue has a corresponding impact on gross profit, as the Company's production costs are incurred primarily in U.S. dollars. When comparing the six-month period ended December 31, 1994 to the six-month period ended January 1, 1994, the U.S. dollar declined against nearly all European currencies. This year-to-year currency fluctuation resulted in approximately a two percentage point gross margin increase in fiscal year-to-date 1995 results compared to the same prior year period. Currency fluctuations also resulted in increased second quarter fiscal 1995 gross margins by approximately two percentage points when compared to results of currency fluctuations in the prior year second quarter. Operating Expenses Total operating expenses increased 13.5% to $173.7 million for the six-month period ended December 31, 1994 from $153.0 million for the six-month period ended January 1, 1994. As a percentage of sales, operating expenses increased to 15.3% from 12.8% in the comparable prior year period. The increase in operating expenses in the aggregate and as a percentage of sales was primarily due to continued worldwide expansion in anticipation of higher than realized sales. Selling and marketing expenses increased 16.1% to $110.4 million for the six months ended December 31, 1994 from $95.1 million in the prior year period. Selling and marketing expenses increased due to higher payroll costs consistent with increases in worldwide sales and marketing staff. Enhanced product marketing and dealer promotional activities resulted in higher expenses for other promotions and sales literature related to new product introductions. Additionally, the Company's continued focus on increasing brand name awareness led to an increase in media advertising expenses. As a percentage of sales, selling and marketing expenses increased to 9.7% for the six-month period ended December 31, 1994 from 8.0% in the comparable prior year period. General and administrative expenses increased by 20.0% to $44.8 million for the six-month period ended December 31, 1994 from $37.3 million in the same fiscal 1994 period. Worldwide expansion, including operations in China, Ireland, Korea and the Netherlands, resulted in increased payroll and administrative costs. The Company also incurred higher legal fees due to increased litigation activity and additional patent/trademark expenses primarily resulting from an expanded patent/trademark portfolio. Depreciation and amortization expense rose due to a larger fixed asset base and increased goodwill amortization resulting from the acquisition of Tandy Corporation's personal computer manufacturing operations. As a percentage of sales, general and administrative expenses increased to 4.0% in the first six months of fiscal 1995 from 3.1% in the comparable prior year period. Engineering and development costs declined by 10.2% to $18.6 million for the six-month period ended December 31, 1994 from $20.6 million in the comparable prior fiscal period. Lower payroll and employee benefit costs were partially offset by increased engineering material expenses and other professional fees relating to new product development activities. Products introduced in the first six months of fiscal 1995 included the Advantage! Adventure 4000 and Advantage! 6000 multimedia desktops, Advantage! 8000 minitower, the Bravo MS and Premmia MX desktops, the Bravo MS-T minitower and the Bravo MS-L low-profile desktop, the Manhattan V, P and G series of Pentium-based servers and the Ascentia 800N and 810N value notebooks. As a percentage of sales, engineering and development expenses declined to 1.6% for the period ended December 31, 1994 from 1.7% in the comparable prior year period. Total operating expenses for the quarter ended December 31, 1994 increased 7.9% to $89.7 million from $83.1 million in the same fiscal 1994 quarter. As a percentage of sales, operating expenses increased to 14.0% from 12.3% in the prior year quarter. The overall increase in spending is primarily due to increased payroll costs consistent with the Company's worldwide expansion and expanded sales and marketing activities. Other Income and Expense For the six-month period ended December 31, 1994, the Company had net interest expense of $5.9 million compared to $3.6 million in the corresponding fiscal 1994 period. Interest expense increased as a result of the additional interest expense related to the note payable to Tandy, the debt associated with the Company's December 1993 issuance of Liquid Yield Option Notes and increased utilization of the Company's bank credit facilities. In the first six months of fiscal 1995, the Company recognized net other expenses of $1.8 million compared to $4.2 million for the same fiscal 1994 period. These amounts relate primarily to foreign currency transaction and remeasurement gains and losses and the costs associated with the Company's foreign currency hedging activities. The Company adheres to a hedging strategy which is designed to minimize the effect of remeasuring local currency balance sheets of its foreign subsidiaries on the Company's consolidated financial position and results of operations. Provision (Benefit) for Income Taxes The Company recorded an effective tax benefit of 20% for the six-month period ended December 31, 1994. This compares to an effective income tax provision of 34% for the same prior year period. The decrease in the fiscal 1995 effective tax rate is attributable to changes in the proportion of income earned or losses sustained within various taxing jurisdictions and the tax rates in the location in which those earnings or losses were generated, as well as the Company's inability to benefit certain deferred tax assets that include loss carryforwards. The realization of deferred tax assets is in large part dependent on future taxable income. To the extent that the Company does not ultimately realize future taxable income, the Company's effective tax rate may be negatively impacted. LIQUIDITY AND CAPITAL RESOURCES Working capital of $374.8 million at December 31, 1994 included cash and cash equivalents of $68.7 million compared to working capital of $434.5 million and cash and cash equivalents of $153.1 million at July 2, 1994. The Company had short-term borrowings of $75.0 million and $50.0 million at December 31, 1994 and July 2, 1994, respectively. During the first six months of fiscal 1995, the Company used $94.5 million of cash to fund its operating loss for the period, as well as increased levels of accounts receivable consistent with increased international sales levels. Net cash used in investing activities decreased during fiscal 1995 compared with fiscal 1994, primarily due to a one-time cash payment of $15 million related to the Tandy/GRiD acquisition recorded during the first quarter of fiscal 1994, partially offset by an increase in capital expenditures and increased purchases of other assets in fiscal 1995. Capital expenditures totaled $15.2 million in the first six months of fiscal 1995 compared to $11.2 million in the prior year period and consisted primarily of additions to plant and engineering equipment in the Far East and Ireland. The Company intends to fund its fiscal 1995 cash requirements through a combination of cash on hand, cash provided by operations, available borrowings under its committed revolving credit facilities, and possible future public or private debt and/or equity offerings. On December 23, 1994, the Company amended its $300 million unsecured committed revolving credit agreement by reducing the total amount of the facility to $225 million and securing the credit facility with a pledge of all of the Company's domestic United States assets. The amended agreement also changed certain financial covenants, thereby preventing a possible event of default under the prior agreement due to the Company's net loss for the quarter ended December 31, 1994. The amended revolving credit agreement retains the original maturity date of September 30, 1996 and allows the Company to borrow, subject to certain leverage and borrowing base restrictions, at rates based upon the bank's reference rate, or a spread over the LIBOR rate, the domestic certificate of deposit rate, or at a rate bid by a bank, as selected by the Company. At December 31, 1994, there was $70 million outstanding as drawings under this credit facility and $67.7 million outstanding in the form of a letter of credit issued to Tandy Corporation in support of the acquisition note payable. Under the terms of the amended credit agreement, the Company had the ability at December 31, 1994, to utilize a total of $152 million under the agreement. The Company also had $5 million outstanding under an uncommitted money market line of credit at December 31, 1994. The Company also has various letter of credit facilities available for use by the Company and its subsidiaries. On February 9, 1995, the Company and four of its subsidiaries entered into a $50 million committed revolving credit agreement provided by one bank. This credit facility is guaranteed by the Company and is available for use by certain subsidiaries of the Company. Drawings by subsidiaries of the Company can be made available to the Company for use in its operations. Under the terms of the agreement the Company has the ability to initially utilize $25 million of the new facility. The second $25 million will be available upon completion of certain conditions, which include, among others, the granting of certain security interests to the bank which the Company expects to complete within 60 days. This new credit facility may only be utilized after the borrowing availability under the amended $225 million revolving credit agreement is fully utilized. The financial covenants of the new $50 million credit agreement are similar to those of the amended $225 million credit agreement. This new facility has an expiration date of August 9, 1995. The Company will continue to incur short-term borrowings in order to finance working capital and capital expenditure requirements. The Company's ability to fund its activities from operations is directly dependent upon its rate of growth, ability to effectively manage its inventory, the terms under which it extends credit to its customers and its ability to collect under such terms, the manner in which it finances any capital expansion, and the Company's ability to access external sources of financing. The Company is actively pursuing additional sources of financing which it believes are necessary for the continued growth of the Company. Efforts include the structuring of a non-U.S. based trade receivables securitization financing as well as potential equity investments in the Company. On February 9, 1995, the Company announced that it is in discussions with certain parties, including Samsung Electronics Co., Ltd., regarding a potentially significant minority investment in the Company and possible strategic business arrangements. While the Company has been able to maintain access to external financing sources, no assurance can be given that such access will continue or that the Company will be successful in obtaining additional sources of financing or reach any agreements with certain parties regarding any potential equity investments in the Company. If the Company is unable to maintain access to its existing financing sources or is unable to obtain new sources, the Company's ongoing operations would be adversely impacted. In addition, continued financial losses by the Company will likely make it more difficult for the Company to access external financing sources, which would also adversely impact the Company's ongoing operations. In connection with the Tandy acquisition, the Company issued a $96.7 million promissory note to Tandy Corporation which is due on July 11, 1996. The interest rate has been adjusted to 4.94% per annum, effective July 11, 1994, and will be adjusted once more on July 11, 1995 to the lower of either 5% or the "lowest three month rate" within the meaning of Section 1274(d)(2) of the Internal Revenue Code of 1986 as of July 11, 1995. Interest is paid once a year on July 11th and there are no sinking fund requirements. The note also requires the Company to maintain a standby letter of credit payable to Tandy in the amount of 70% of the face value of the note or $67.7 million. Upon maturity of the note, up to 50% of the initial principal amount of the promissory note may be converted, at the option of the Company, into common stock of the Company based upon its then fair market value, as defined in the promissory note. On December 14, 1993, the Company issued $315 million par value of Liquid Yield Option Notes ("LYONs") due December 14, 2013. The LYONs are zero coupon convertible subordinated notes which were sold at a significant discount from par value with a yield to maturity of 5.25% and a total value at maturity of $315 million. There are no periodic payments of interest on the LYONs. Each $1,000 principal amount at maturity of LYONs is convertible into 12.993 shares of the Company's common stock at any time. Upon conversion of a LYON, the Company may elect to deliver shares of common stock at the conversion rate or cash equal to the market value of the shares of common stock into which the LYONs are convertible. Total proceeds received from the sale of the LYONs were approximately $111.7 million, which have been utilized for working capital, including the financing of expected increases in accounts receivable and inventories, repayment of bank borrowings under the Company's revolving credit facilities, new product development, and other general corporate purposes. The holder of a LYON may require the Company to purchase its LYON on December 14, 1998, December 14, 2003 and December 14, 2008 (the "Purchase Dates"), and such payments may reduce the liquidity of the Company. However, the Company may, subject to certain exceptions, elect to pay the purchase price on any of the three Purchase Dates in cash or shares of common stock or any combination thereof. The Company has made no decision as to whether it will meet future purchase obligations in cash, common stock, or any combination thereof. Such decision will be based on market conditions at the time a decision is required, as well as management's view of the liquidity of the Company at such time. The total accreted value of the LYONs at December 31, 1994 is $117.7 million. ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS Future operating results may be impacted by a number of factors, including worldwide economic and political conditions, industry specific factors, the availability and cost of components, the Company's ability to timely develop and produce commercially viable products, the Company's ability to manage expense levels in response to lower gross profit margins, the Company's ability to maintain access to external financing sources and its financial liquidity, the continued financial strength of the Company's dealers and distributors, the Company's ability to accurately anticipate customer demand, and the Company's ability to successfully complete the integration of the acquired Tandy/GRiD operations into the Company's business model. The Company's future success is highly dependent upon its ability to produce and market products that incorporate new technology, are priced competitively and achieve significant market acceptance. There can be no assurance that the Company's products will be commercially successful or technically advanced due to the rapid improvements in computer technology and resulting product obsolescence. There is also no assurance that the Company will be able to deliver commercial quantities of new products in a timely manner. The success of new product introductions is dependent on a number of factors, including market acceptance, the Company's ability to manage risks associated with product transitions, the effective management of inventory levels in line with anticipated product demand and the timely manufacturing of products in appropriate quantities to meet anticipated demand. The Company regularly introduces new products designed to replace existing products. While the Company closely monitors new product introductions and product obsolescence, there can be no assurance that such transitions will occur without adversely affecting the Company's net sales, cash flow and profitability as it did in the first quarter of fiscal 1995. In addition, if the Company is unable to accurately anticipate the customer demand shift from 486-based systems to systems utilizing Pentium processors, the product life cycles of the Company's 486-based systems could be shortened, which may require additional inventory valuation reserves and may have a material adverse effect on the Company's net sales, cash flow and profitability. Increases in demand for personal computers have created industrywide shortages, which at times have resulted in premium prices being paid for key components, such as Dynamic Random Access Memories and high quality liquid crystal display screens. These shortages have occasionally resulted in the Company's inability to procure these components in sufficient quantities to meet demand for its products. In addition, a number of the Company's products include certain components, such as active-matrix displays, CD-ROMs, application specific integrated circuits, and microprocessors, that are currently purchased from single sources due to availability, price, quality or other considerations. The Company purchases components pursuant to purchase orders placed in the ordinary course of business and has no guaranteed supply arrangements with single source suppliers. Reliance on suppliers generally involves several risks, including the possibility of defective parts, a shortage of components, an increase in component costs and disruptions in delivery of components. Should delays, defects or shortages occur or component costs significantly increase, the Company's net sales and profitability could be adversely affected. The Company participates in a highly volatile industry that is characterized by dynamic customer demand patterns, rapid introduction of new products, rapid technological advances, and industrywide competition resulting in an extremely competitive pricing environment with downward pressure on gross margins. The Company anticipates that the personal computer industry will continue to experience intense price competition and dramatic price reductions during fiscal 1995. There can be no assurance that future pricing actions by the Company and its competitors will not adversely impact the Company's net sales and profitability. Consistent with industry practice, the Company provides certain of its larger distributors, consumer retailers and dealers with stock balancing and price protection rights that permit these distributors, retailers and dealers to return slow-moving products to the Company for credit or to receive price adjustments if the Company lowers the price of selected products within certain time periods. There can be no assurance that the Company will not experience rates of return or price protection adjustments that could have a material adverse impact on the Company's net sales and profitability in the future. The Company believes that, with the acquisition of additional manufacturing facilities from Tandy Corporation and the acquisition of manufacturing facilities both in the PRC and Ireland, production capacity should be sufficient to support anticipated increases in unit volumes. The Company also expects that gross inventory levels will increase to support higher production volumes. However, if the Company is unable to obtain certain key components, or to effectively forecast customer demand or manage its inventory, these higher inventory levels may result in increased obsolescence and adversely impact the Company's gross margins and results of operations. Additionally, if the Company is unable to bring its Texas manufacturing operation into full production, this could adversely impact the Company's net sales, gross profit and profitability. General economic conditions have an impact on the Company's business and financial results. From time to time the markets in which the Company sells its products experience weak economic conditions that may negatively affect sales of the Company's products. Although the Company does not consider its business to be highly seasonal, it has experienced seasonally higher sales in the second quarter of the fiscal year due to holiday demand for some of its products in the consumer retail channel. The continued expansion of the consumer retail business is likely to result in the increased seasonality of the Company's business and its financial results being more dependent on retail business fluctuations. The Company's overall operating income varies within each geographic region. Historically, the Company's Americas and Pacific Rim regions have made the primary contributions to the Company's profitability. Therefore, should the Company continue to experience significant revenue and/or profitability declines in either region, this could significantly impact the Company's overall net sales and profitability. The Company's international operations are affected by foreign currency fluctuations. The financial statements of the Company's foreign subsidiaries are remeasured into the United States dollar functional currency for consolidated reporting purposes. Gains and losses resulting from this remeasurement process are recognized currently in the consolidated results of operations. The Company attempts to minimize the impact of these remeasurement gains and losses by adhering to a hedging strategy utilizing forward exchange contracts and, to a lesser extent, foreign currency borrowings. The Company's exposure to currency fluctuations will continue to increase as a result of the expansion of its international operations. Significant fluctuations in currency values could have an adverse effect on the Company's net sales, gross margins and profitability. The Company's international operations may also be affected by changes in United States trade relationships, increased competition and the economic stability of the locations in which sales occur. The Company operates in foreign locations, such as the PRC, where future sales may be dependent upon continuing favorable trade relations. Additionally, foreign locations such as the PRC may experience changes in their general economic stability due to such factors as increased inflation and political turmoil. Any significant change in United States trade relations or the economic stability of foreign locations in which the Company sells its products could have an adverse effect on the Company's net sales and profitability. The personal computer industry presents risks for claims of infringement of patents, trademarks and copyrights. From time to time, the Company may be notified that certain of its products may infringe upon the intellectual property rights of others. The Company generally evaluates all such notices on a case-by-case basis to determine whether licenses are necessary or desirable. If such claims are made, there can be no assurance that licenses will be available on commercially reasonable terms or that retroactive royalty payments on sales of the Company's computers will not be required. In addition, substantial costs may be incurred in disputing such claims. The Company believes that the actions it takes to avoid or minimize the impact to the Company of such claims are prudent; however, there can be no assurance that such claims will not occur or, if successful, would not have a material adverse effect on the Company's business operations and profitability. The Company's ability to compete is largely dependent upon its financial strength and its ability to adequately fund its operations. The Company's sources of financing include cash on hand, cash provided by operations, available borrowings under its committed revolving credit facilities and possible future public or private debt and/or equity offerings. The Company's future success is dependent upon its continued access to sources of financing. The Company is actively pursuing additional sources of financing which it believes are necessary for the continued growth of the Company. While the Company is pursuing various alternatives, there can be no assurance that such efforts will be successful. In the event the Company is unable to maintain access to its existing financing sources or is unable to obtain new sources, there would be a material adverse effect on the Company's business operations. The Company's primary means of distribution remains third-party computer resellers and consumer channels. While the Company continuously monitors and manages the credit it extends to resellers to limit its credit risk, the Company's business could be adversely affected in the event that the financial condition of third-party computer resellers weakens. In the event of the financial failure of a major reseller, the Company would experience disruptions in its distribution as well as the loss of the unsecured portion of any outstanding accounts receivable. The Company's corporate headquarters facility, at which the majority of its research and development activities are conducted, and certain manufacturing operations are located near major earthquake faults which have experienced earthquakes in the past. While the Company does carry insurance at levels management believes is prudent, in the event of a major earthquake affecting one or more of the Company's facilities, it is likely that insurance proceeds would not cover all of the costs incurred and, therefore, the operations and operating results of the Company could be adversely affected. Because of these and other factors affecting the Company's operating results, past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. In addition, the Company's participation in the highly dynamic personal computer industry often results in significant volatility in the Company's common stock price. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In June 1989, Texas Instruments Inc. ("TI") advised the Company that it believed certain AST computer products infringe certain TI patents. On January 4, 1994, the Company initiated litigation (the "California action") in the U.S. District Court for the Central District of California against TI alleging certain violations of licensing agreements, federal antitrust laws and the California Unfair Practices Act. In addition, the Company alleged that TI is infringing AST patents and that certain TI patents are invalid or inapplicable. TI has alleged in the California action that the Company is infringing patents owned by TI. On August 26, 1994, TI filed a lawsuit in the U.S. District Court for the Eastern District of Texas against the Company alleging infringement of patents in addition to those asserted by TI in the California action. These litigations with TI were settled on February 7, 1995 and a Settlement Agreement and Release was entered into by the parties. The Settlement Agreement and Release includes, in part, a patent cross-license agreement between AST and TI for the calendar years 1995 through 2000, and requires periodic royalty payments from AST to TI. On March 3 and March 14, 1994, complaints were filed by two shareholders against the Company and certain of its officers and directors requesting certification of a class action, asserting claims under state and federal securities laws based on allegations that the Company made inadequate and false disclosures and seeking unspecified compensatory damages and related fees and costs. The complaints were filed in the United States District Court for the Central District of California. On September 12, 1994, a complaint was filed by a shareholder against the Company and certain of its officers and directors requesting certification of a class action, asserting claims under state and federal securities laws based on allegations that the Company made inadequate and false disclosures and seeking unspecified compensatory damages and related fees and costs. The September 12, 1994 complaint was filed in the United States District Court for the Central District of California under the case name Steven A. Kornfeld v. James L. Forquer, et al. On October 6, 1994, a complaint was filed by a shareholder in the United States District Court for the Central District of California. The October 6, 1994 complaint names the Company and certain of its officers and directors as defendants, asserts claims under the state and federal securities laws based on allegations that the Company made inadequate and false disclosures, and seeks unspecified compensatory damages and related fees and costs. The cases with complaints filed on March 3, 1994, March 14, 1994 and October 6, 1994 have been consolidated under the case name In re AST Securities Litigation. The AST Securities Litigation and Kornfeld cases are being treated as related cases by the court. Management has reviewed the allegations and the complaints and believes such allegations are without merit. Management intends to vigorously defend these litigations. Management does not believe that the outcome of these matters will have a material adverse impact on the Company's consolidated financial position or results of operations. The Company received an inquiry letter dated December 20, 1994 from the Office of Consumer Affairs of the Securities and Exchange Commission ("SEC"). The letter asked for a report and documentation concerning a September 1, 1994 newspaper article on the Company's August 31, 1994 announcement that it anticipated lower first quarter performance. The Company is cooperating with the SEC in this inquiry. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's 1994 Annual Meeting of Stockholders was held on October 27, 1994 in Newport Beach, California. Matters submitted to a vote of security holders included: (1) The election of the following seven directors to hold office until the next annual meeting and until their successors are elected and duly qualified: Safi U. Qureshey Carmelo J. Santoro Bruce C. Edwards James T. Schraith Richard J. Goeglein Delbert W. Yocam Jack W. Peltason (2) The approval of the amendment of the Company's Certificate of Incorporation to increase the authorized number of shares of common stock. In Favor 19,649,633 Opposed 10,244,512 Abstentions 129,685 (3) The approval of the amendment of the Company's Certificate of Incorporation to establish the size of the Board. In Favor 24,459,727 Opposed 4,171,920 Abstentions 139,327 Broker Non-Votes 1,252,856 (4) The approval of the AST Research, Inc. Performance Based Annual Management Incentive Plan. In Favor 23,080,615 Opposed 4,858,255 Abstentions 175,314 Broker Non-Votes 1,909,646 (5) The approval of the amendment of the 1989 Long-Term Incentive Program to increase the number of shares reserved for issuance under the Program. In Favor 9,227,120 Opposed 11,723,034 Abstentions 169,199 Broker Non-Votes 8,904,477 (6) The approval of the AST Research, Inc. 1994 One-Time Grant Stock Option Plan for Non-Employee Directors. In Favor 13,382,120 Opposed 7,149,264 Abstentions 207,166 Broker Non-Votes 9,285,280 (7) The approval of the appointment of Ernst & Young as independent auditors for the fiscal year ending July 1, 1995. In Favor 29,741,856 Opposed 184,617 Abstentions 97,157 Broker Non-Votes 200 ITEM 5. OTHER INFORMATION On February 9, 1995, the Company announced that it is in discussions with certain parties, including Samsung Electronics Co., Ltd., regarding a potentially significant minority investment in the Company and possible strategic business arrangements. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits 10.131 Third Amendment dated December 23, 1994 to Credit Agreement dated September 30, 1993 among AST Research, Inc., Bank of America NT & SA, as administrative agent, co-agent and issuing bank, National Westminster Bank Plc, CIBC, Inc. and Shawmut Bank, N.A., as co-agents. 11. Computation of Net Income (Loss) Per Share. (b) Reports on Form 8-K On October 18, 1994, the Company filed a report on Form 8-K reporting under Item 5 thereof the announcement of fiscal first quarter revenue of approximately $495 million and the consolidation of its worldwide mobile computing manufacturing in Taiwan and the concurrent closure of its Fountain Valley, California manufacturing facility February 1, 1995.
AST and Advantage! are registered trademarks of AST Research, Inc. Ascentia, Bravo, Premmia, PowerExec and Manhattan are trademarks of AST Research, Inc. Pentium is a trademark of Intel Corporation. Tandy is a registered trademark of Tandy Corporation. All other product or service names mentioned herein may be trademarks or registered trademarks of their respective owners. SIGNATURES Pursuant to the requirements 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. AST Research, Inc. (Registrant) Date: February 13, 1995 Bruce C. Edwards Executive Vice President and Chief Financial Officer EX-10.131 2 THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of December 23, 1994, is entered into by and among AST RESEARCH, INC., a Delaware corporation (the "Company"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent (the "Administrative Agent"), Co-Agent and Issuing Bank, NATIONAL WESTMINSTER BANK PLC, CIBC INC. and SHAWMUT BANK, N.A., as Co-Agents (collectively, the "Co-Agents"), and the several financial institutions party to the Credit Agreement (collectively, the "Banks"). RECITALS A. The Company, the Banks, the Issuing Bank, the Co-Agents and the Administrative Agent are parties to a Credit Agreement dated as of September 30, 1993, as amended by a First Amendment to Credit Agreement dated as of March 30, 1994 and a Second Amendment to Credit Agreement dated as of April 27, 1994 (as so amended, the "Credit Agreement"), pursuant to which the Banks have extended certain credit facilities to the Company. The Company, the Banks, the Issuing Bank, the Co-Agents and the Administrative Agent also are parties to a Waiver to Credit Agreement dated as of September 28, 1994. B. The Company has told the Banks, the Issuing Bank, the Co-Agents and the Administrative Agent that, unless the Credit Agreement is amended as provided in Section 2 hereof, it may be unable to comply with certain of the financial covenants contained in the Credit Agreement as of the end of the fiscal quarter ending on December 31, 1994. C. The Company has requested that the Administrative Agent, the Co-Agents, the Issuing Bank and the Banks agree to certain amendments of the Credit Agreement as provided in Section 2 hereof. D. The Administrative Agent, the Co-Agents, the Issuing Bank and the Banks are willing to amend the Credit Agreement, subject to the terms and conditions of this Amendment. NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to them in the Credit Agreement. 2. Amendments to Credit Agreement. (a) Section 1.1 of the Credit Agreement shall be amended by deleting the following defined terms contained therein: "Consolidated Interest Expense", "EBIT" and "Senior Funded Debt". (b) Section 1.1 of the Credit Agreement shall be amended by inserting the following defined terms therein, in appropriate alphabetical order: "`Borrowing Base' means, as of the last day of each calendar month and on any other day on which the Company requests a Borrowing if the Company so elects in order to support such proposed Borrowing, 80% of the outstanding amount of the Company's Receivables, provided, that such Receivables shall not include more than $5,000,000 of accounts receivable representing obligations of account debtors formed under the laws of a state, territory, country, republic or other governing body outside of the United States of America, net of any allowance for doubtful accounts and sales returns, as of such date." "`Borrowing Base Certificate' means a certificate, executed by a Responsible Officer, in the form of Exhibit P hereto." "`Collateral' means all property and interests in property and proceeds thereof now owned or hereafter acquired by the Company in or upon which a Lien now or hereafter exists in favor of the Banks, or the Adminis trative Agent on behalf of the Banks, whether under this Agreement or under any other documents executed by the Company and delivered to the Administrative Agent or the Banks." "`Collateral Documents' means, collectively, (i) the Security Agreement, the Pledge Agreement, the Deeds of Trust and all other security agreements, deeds of trust, mortgages, pledge agreements, assignments and other similar agreements between the Company and the Banks or the Administrative Agent for the benefit of the Banks now or hereafter entered into in connection herewith, and all financing statements (or comparable documents now or hereafter filed in accordance with the Uniform Commercial Code or comparable law) by or against the Company as debtor for the benefit of the Administrative Agent or the Banks as secured party, and (ii) any amendments, supplements, modifications, renewals, replacements, consolidations, substitutions and extensions of any of the foregoing." "`Deeds of Trust' means, collectively, the Deeds of Trust dated as of December 23, 1994 by the Company, as trustor, to the Administrative Agent, as beneficiary, pursuant to which the Company has granted to the Adminis trative Agent for the benefit of the Banks a Lien on the real property described therein." "`Pledge Agreement' means the Pledge Agreement dated as of December 23, 1994 between the Company and the Administrative Agent, pursuant to which the Company granted to the Administrative Agent for the benefit of the Banks a Lien on the collateral described therein." "`Security Agreement' means the Security Agreement dated as of December 23, 1994 between the Company and the Administrative Agent, pursuant to which the Company granted to the Administrative Agent for the benefit of the Banks a Lien on the collateral described therein." "`Third Amendment to Credit Agreement' means the Third Amendment to Credit Agreement dated as of December 23, 1994 among the Company, the Banks, the Issuing Bank, the Co-Agents and the Administrative Agent." "`Utilization Amount' means the daily amount as determined with respect to the credit facilities set forth in Articles II and III on each day by adding the Effective Amount of all outstanding Loans and the Effective Amount of the Letter of Credit (if outstanding) on such day." (c) The definition of the term "Applicable Margin" set forth in Section 1.1 of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "`Applicable Margin' means, for any day, with respect to any Reference Rate Loan, CD Rate Loan or Offshore Committed Loan, the applicable margin (on a per annum basis) set forth below opposite the Utilization Amount for such date: Reference CD Rate Offshore Rate Loan Loan Committed Applicable Applicable Loan Utilization Amount Margin Margin Applicable Margin Less than or equal to $125,000,000 0.000% 1.375% 1.250% Greater than $125,000,000 but less than or equal to $200,000,000 0.000% 1.625% 1.500% Greater than $200,000,000 0.000% 1.875% 1.750% (d) The definition of the term "Cash Collateral" set forth in Section 1.1 of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "`Cash Collateralize' means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the Administrative Agent, the Co-Agents, the Issuing Bank and the Banks, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Administrative Agent and the Issuing Bank (which documents are hereby consented to by the Banks). Derivatives of such term shall have corresponding meaning." (e) The definition of the term "Loan Documents" set forth in Section 1.1 of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "`Loan Documents' means this Agreement, the Bid Notes, the L/C- Related Documents, the Collateral Documents and all other documents delivered to the Administrative Agent or any Bank in connection herewith or therewith." (f) The definition of the term "Material Adverse Effect" set forth in Section 1.1 of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "`Material Adverse Effect' means a material adverse effect upon any of (a) the operations, business, properties, condition (financial or otherwise) of the Company or the Company and its Subsidiaries taken as a whole; (b) the ability of the Company to perform its obligations under any Loan Document without default; or (c) the legality, validity, binding effect or enforceability of any Loan Document or, subject to Permitted Liens, the perfection or the priority of any Lien granted under any of the Collateral Documents." (g) [Reserved] (h) Section 2.1 of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "2.1 Amounts and Terms of Commitments. Each Bank severally agrees, on the terms and conditions hereinafter set forth, to make Committed Loans to the Company from time to time on any Business Day during the period from the Closing Date to the Termination Date, in an aggregate amount not to exceed at any time the outstanding amount set forth opposite the Bank's name in Schedule 2.1 under the heading "Commitments" and, in the case of each Additional Bank, the Commitment amount set forth in the Addendum with respect to such Additional Bank (such amount as the same may be reduced pursuant to Section 2.6 or as a result of one or more assignments pursuant to subsection 11.7(a), the Bank's "Commitment"); provided, however, that, after giving effect to any Borrowing of Committed Loans, (a) the Effective Amount of all outstanding Loans together with the Effective Amount of the Letter of Credit (if outstanding) shall not exceed the Aggregate Commitment, and (b) the Effective Amount of all outstanding Loans shall not exceed the Borrowing Base. Within the limits of each Bank's Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this Section 2.1, prepay pursuant to Section 2.7 and reborrow pursuant to this Section 2.1." (i) Section 2.4 of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "2.4 Bid Borrowings. In addition to Committed Borrowings pursuant to Section 2.3, each Bank severally agrees that the Company may, as set forth in Section 2.5, from time to time request the Banks prior to the Termination Date to submit offers to make Bid Loans to the Company; provided, however, that the Banks may, but shall have no obligation to, submit such offers and the Company may, but shall have no obligation to, accept any such offers; and provided, further, that after giving effect to any Bid Loan (a) at no time shall (i) the Effective Amount of all outstanding Loans together with the Effective Amount of the Letter of Credit (if outstanding) exceed the Aggregate Commitment, or (ii) the Effective Amount of all outstanding Loans exceed the Borrowing Base; (b) at no time shall the outstanding aggregate principal amount of all Bid Loans made by all Banks exceed 50% of the Aggregate Commitment; and (c) at no time shall the number of different Interest Periods for Bid Loans then outstanding plus the number of different Interest Periods for Committed Loans then outstanding exceed ten." (j) Subsections 2.5(c)(ii)(C) and (D) of the Credit Agreement shall be amended and restated in their entirety so that, as amended and restated, they read as follows: "(C) in case the Company elects a LIBOR Auction, the margin above or below LIBOR (the "LIBOR Bid Margin") offered for each such Bid Loan, expressed as a percentage to be added to or subtracted from the applicable LIBOR and the Interest Period applicable thereto; (D) in case the Company elects an Absolute Rate Auction, the rate of interest per annum (the "Absolute Rate") offered for each such Bid Loan; and" (k) Section 2.7 of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "2.7 Prepayments. (a) Optional Prepayments. Subject to Section 4.4, the Company may, at any time or from time to time, upon notice to the Administrative Agent by 9:00 a.m. (San Francisco time) at least three Business Days prior with respect to Offshore Committed Loans and CD Rate Loans or the same Business Day with respect to Reference Rate Loans, ratably prepay Committed Loans in whole or in part, in multiples of $1,000,000 with respect to Reference Rate Loans and in multiples of $5,000,000 and in whole multiples of $1,000,000 in excess thereof with respect to other Committed Loans. Such notice of prepayment shall specify the date and amount of such prepayment and whether such prepayment is of Reference Rate Loans, CD Rate Loans or Offshore Committed Loans, or any combination thereof. Such notice shall not thereafter be revocable by the Company and the Administrative Agent will promptly notify each Bank thereof. If such notice is given, the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. (b) Mandatory Prepayments - Borrowing Base. Subject to Section 4.4, in the event that any Borrowing Base Certificate delivered pursuant to Section 7.2(d) shall indicate as of the date of such Borrowing Base Certificate that the Effective Amount of all outstanding Loans exceeds the Borrowing Base, the Company shall immediately prepay Loans in an aggregate amount equal to the amount of such excess. (c) General. Any prepayments pursuant to this Section 2.7 shall be applied first to any Reference Rate Loans then outstanding and then to CD Rate Loans and Offshore Committed Loans with the shortest Interest Periods remaining. The Company shall pay, together with each prepayment under this Section 2.7, any amounts required pursuant to Section 4.4 and, in the case of Offshore Committed Loans and CD Rate Loans, accrued interest to each such date on the amount prepaid. Accrued interest to the date of any Reference Rate Loan prepaid pursuant to this Section 2.7 shall be paid on the last day of the calendar quarter in which such prepayment occurs. (d) Bid Loans. The Company may not repay all or any portion of the principal amount of any Bid Loan prior to the maturity thereof." (l) Section 2.9(a) of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "(a) Subject to subsection 2.9(d), each Committed Loan shall bear interest on the outstanding principal amount thereof from the date when made until it becomes due at a rate per annum equal to the CD Rate, LIBOR or the Reference Rate, as the case may be, plus the Applicable Margin. Any change in the interest rate on a Committed Loan resulting from a change in the Applicable Margin shall become effective as of the opening of business on the day on which such change in the Applicable Margin becomes effective." (m) Subsections 2.10(b), 2.10(c) and 2.10(d) of the Credit Agreement shall be amended and restated in their entirety so that, as amended and restated, they read as follows: "(b) Facility Fee. The Company shall pay to the Administrative Agent, for the ratable account of each Bank in accordance with its Commitment Percentage, a facility fee ("Facility Fee") equal to 0.4375% per annum of the Aggregate Commitment. Such Facility Fee shall accrue from the Effective Date of the Third Amendment to Credit Agreement and shall be paid quarterly in arrears on the last day of each calendar quarter, commencing on December 31, 1994, and on the Termination Date. (c) Upfront Fee. The Company shall pay to the Administrative Agent, for the ratable account of each Bank, an upfront fee as set forth in Section 4(h) of the Third Amendment to Credit Agreement. (d) Arrangement Fees. The Company shall pay to each of BA Securities, Inc. and National Westminster Plc, for their own respective accounts, such arrangement fees as are set forth in the separate Arrangement Fee Letters dated on or about the date of Third Amendment to Credit Agreement in favor of each such Person." (n) Article 2 of the Credit Agreement shall be amended by inserting the following Section 2.16 at the end thereof: "2.16 Security. All Obligations of the Company under this Agreement and all other Loan Documents shall be secured in accordance with the Collateral Documents." (o) Section 3.1 of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "3.1 The Letter of Credit. Subject to the terms and conditions set forth herein (a) the Issuing Bank agrees to honor drafts under the Letter of Credit, as the Letter of Credit may be amended from time to time, up to the maximum amount of $75,000,000, provided, however, that, after giving effect to any amendment to the Letter of Credit, the Effective Amount of all outstanding Loans together with the Effective Amount of the Letter of Credit shall not exceed the Aggregate Commitment; and (b) the Banks severally agree to participate in the Letter of Credit. The Issuing Bank's agreement under this Section is an agreement to honor drafts only under the Letter of Credit, rather than an agreement to provide a revolving letter of credit subfacility." (p) Subsection 3.8(a) of the Credit Agreement shall be amended by deleting the phrase "0.625% (62.5 basis points)" contained therein and replacing it with the phrase "1.250% (one hundred twenty five basis points)". (q) Section 4.3 of the Credit Agreement shall be amended by inserting the following subsection 4.3(c) at the end thereof: "(c) The agreements and obligations of the Company contained in this Section 4.3 shall survive the payment in full of all other Obligations and termination of the Commitments." (r) Subsection 5.2(b) of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "(b) Continuation of Representations and Warranties. The representations and warranties made by the Company contained in Article 4 hereof and in the Collateral Documents shall be true and correct on and as of such Borrowing date with the same effect as if made on and as of such borrowing date (except to the extent such representations and warranties specifically relate to an earlier date, in which case they shall be true, accurate and complete in all material respects as of such earlier date);" (s) Section 5.2 of the Credit Agreement shall be amended by (i) replacing the period at the end of subsection (c) therein with "; and", and (ii) inserting the following subsection (d) at the end thereof: "(d) Borrowing Base Compliance. After giving effect to such Borrowing, (i) the Effective Amount of all outstanding Loans together with the Effective Amount of the Letter of Credit (if outstanding) shall not exceed the Aggregate Commitment, and (ii) the Effective Amount of all outstanding Loans shall not exceed the Borrowing Base." (t) Subsection 6.11(b) of the Credit Agreement shall be amended by replacing the date "April 2, 1993" therein with "October 1, 1994." (u) Section 7.1 of the Credit Agreement shall be amended by (i) deleting the word "and" at the end of subsection (c) therein, (ii) replacing the period at the end of subsection (d) therein with "; and", and (iii) inserting the following subsection (e) at the end thereof: "(e) as soon as available, but not later than 30 days after the end of each month, an unaudited consolidated balance sheet of the Company and its Consolidated Subsidiaries for such month and the related unaudited consolidated statement of income for such month, provided, however, that the foregoing obligation to deliver monthly financial statements shall cease at such time as the Company has had two consecutive profitable quarters." (v) Section 7.2 of the Credit Agreement shall be amended by (i) deleting the word "and" at the end of subsection (b) therein, (ii) replacing the period at the end of subsection (c) therein with "; and", and (iii) inserting the following subsection (d) at the end thereof: "(d) within 20 Business Days after the last day of each calendar month and on any other day on which the Company requests a Borrowing if the Company so elects in order to support such proposed Borrowing, a Borrowing Base Certificate." (w) Section 7.6 of the Credit Agreement shall be amended by inserting the following at the end thereof: "The amounts of such insurance may not materially be reduced by the Company in the absence of 30 days' prior notice to the Administrative Agent. All such insurance shall name the Administrative Agent as loss payee/mortgagee and as additional insured, for the benefit of the Banks, as their interests may appear. All casualty insurance maintained by the Company shall name the Administrative Agent as loss payee and all liability insurance shall name the Administrative Agent as additional insured for the benefit of the Banks, as their interests may appear. Upon request of the Administrative Agent, the Company shall furnish the Administrative Agent, with sufficient copies for each Bank, at reasonable intervals (but not more than once per calendar year) a certificate of a Responsible Officer of the Company (and, if requested by the Admin istrative Agent, any insurance broker of the Company) setting forth the nature and extent of all insurance maintained by the Company and its Subsidiaries in accordance with this Section or any Collateral Documents (and which, in the case of a certificate of a broker, were placed through such broker). For purposes of this Section 7.6, the self-insurance programs of the Company for California state disability insurance to be in effect as of January 1, 1995, as disclosed to the Banks prior to the Effective Date of the Third Amendment to Credit Agreement, are approved." (x) Subsection 8.1(j) of the Credit Agreement shall be amended by deleting the text of such subsection in its entirety and replacing it with the word "Reserved;". (y) Subsection 8.2(f) of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "(f) the sale or discounting of accounts receivable: (i) by any Subsidiary, without restriction; and (ii) by the Company, (A) up to a cumulative aggregate of $2,500,000 face amount of accounts receivable per year for which the account debtor is a resident of the United States and is in arrears on other obligations owed to the Company or its Subsidiaries or in the reasonable judgment of the Company such debtor will default on its obligations, or (B) which are at least 90 days past due, all in the ordinary course of business in connection with the compromise or collection thereof, provided, however, the aggregate amount of any recourse to the Company for all such sales or discounting during a fiscal year of the Company under either clause (A) or (B) above shall not exceed $1,000,000 for such fiscal year, and provided, further, that the Company shall pay all reasonable costs and expenses, including attorneys' fees and expenses (including the allocated cost of internal counsel), incurred by the Administrative Agent in connection with the release of the Lien created by the Security Agreement with respect to any such sold or discounted accounts receivable of the Company and shall deliver to the Administrative Agent a certificate of a Responsible Officer certifying that any such release is in compliance with this subsection 8.2(f); and" (z) Subsections 8.4(e), 8.4(f) and 8.4(g) of the Credit Agreement shall be amended and restated in their entirety so that, as amended and restated, they read as follows: "(e) additional loans or capital contributions to Subsidiaries which are not Wholly-Owned Subsidiaries for which the aggregate amount extended from the Effective Date of the Third Amendment to Credit Agreement does not exceed $15,000,000; provided, however, that this paragraph shall not be deemed to prohibit intercompany account settlements made in the ordinary course of business; (f) Investments in connection with Acquisitions in the capital stock, assets, obligations or other securities of or interest in other Persons, provided, in each case, (i) the amount of consideration payable (including by assumption of liabilities) by the Company or its Subsidiary, when added to similar amounts for all transactions entered into after the Effective Date of the Third Amendment to Credit Agreement by the Company or any of its Subsidiaries, does not exceed $10,000,000; and (ii) (x) if any Acquiree is subject to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of such Act, the prior, effective written consent of the board of directors or equivalent governing body of the Acquiree is obtained and delivered to the Administrative Agent, or (y) if the Acquiree does not meet the qualifications set forth in clause (x) of this subclause (ii) of subsection 8.4(f), the prior effective written consent of the board of directors or equivalent governing body and the percent of any and all classes of stock or other equity of such Acquiree the consent of which, notwithstanding any provisions in the charter or by-laws of the Acquiree to the contrary, is required by applicable statute to consummate the Acquisition, is obtained and delivered to the Administrative Agent; (g) purchases or redemptions of debt obligations of the Company or its Subsidiaries by such Persons solely from the proceeds of the Company's issuance of Subordinated Debt or the Net Proceeds of the sale of the capital stock of the Company, so long as no Default or Event of Default exists and is continuing or would occur as a result thereof;" (aa) Section 8.7 of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "8.7 Restricted Payments. The Company shall not declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock or purchase, redeem or otherwise acquire for value (or permit any of its Material Subsidiaries, other than Wholly-Owned Subsidiaries, to do so) any shares of its capital stock or any warrants, rights or options to acquire such shares, now or hereafter outstanding; except that the Company and its Subsidiaries may: (a) declare and make dividend payments or other distributions payable solely in its common stock; and (b) purchase, redeem or otherwise acquire shares of its common stock or warrants or options to acquire any such shares from employees terminating employment with the Company, pursuant to the Company's customary policies and procedures relating to such matters, up to a maximum aggregate amount of $2,000,000 in any fiscal year of the Company." (bb) Section 8.8 of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "8.8 Modified Quick Ratio. The Company shall not, as of the last day of any fiscal quarter, suffer or permit its ratio (determined according to GAAP on a consolidated basis in respect of the Company and its Subsidiaries) of (a) the sum of cash, Liquid Assets, and Receivables, net of any allowance for doubtful accounts and sales returns, to (b) Consolidated Current Liabilities, to be less than 0.80 to 1.00." (cc) Each of Sections 8.9 and 8.14 of the Credit Agreement shall be amended by deleting the text of such Section in its entirety and replacing it with the word "Reserved". (dd) Section 8.10 of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "8.10 Tangible Net Worth. The Company shall not suffer or permit its Tangible Net Worth as of the last day of any fiscal quarter to be less than the amount equal to (a) the sum of (i) $275,000,000, plus (ii) 75% of cumulative net income for the Company and its Subsidiaries determined on a consolidated basis beginning with the fiscal quarter ended December 31, 1994, determined quarterly and not reduced by any quarterly loss (except as specifically hereinafter provided), plus (iii) 75% of the Net Proceeds of any sale of capital stock of the Company by and for the account of the Company beginning with the fiscal quarter ended December 31, 1994, plus (iv) 75% of the amount by which the Tangible Net Worth of the Company is increased, in accordance with GAAP, due to conversion of debt to common stock beginning with the fiscal quarter ended December 31, 1994, less (b) for the fiscal quarter ended December 31, 1994 only, any quarterly loss for such fiscal quarter up to a maximum amount of $30,000,000, and for the fiscal quarter ended April 1, 1995 only, any quarterly loss up to a maximum amount of $15,000,000." (ee) Section 8.11 of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "8.11 Profitability. The Company, on a consolidated basis, shall not incur or suffer or permit to be incurred, as of the last day of any fiscal quarter, commencing with the fiscal quarter ended July 1, 1995, a net loss for such fiscal quarter." (ff) Section 8.12 of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "8.12 Losses in Specific Quarters. The Company, on a consoli dated basis, shall not incur or suffer or permit to be incurred, as of the last day of (a) the fiscal quarter ended December 31, 1994, a net loss for such fiscal quarter in excess of $30,000,000, and (b) the fiscal quarter ended April 1, 1995, a net loss for such fiscal quarter in excess of $15,000,000." (gg) Section 8.13 of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "8.13 Leverage Ratio(s). (a) The Company shall not suffer or permit its ratio of Total Liabilities to Tangible Net Worth at any time to be greater than the amount set forth opposite the applicable period below: Period Ratio December 31, 1994 through September 29, 1995 2.70:1.00 September 30, 1995 through March 29, 1996 2.50:1.00 March 30, 1996 and thereafter 2.15:1.00 (b) The Company shall not suffer or permit its ratio of Total Liabilities, plus Subordinated Indebtedness, to Tangible Net Worth (the "Adjusted Leverage Ratio") at any time to be greater than the amount set forth opposite the applicable period below: Period Ratio December 31, 1994 through September 29, 1995 3.15:1.00 September 30, 1995 through March 29, 1996 2.90:1.00 March 30, 1996 and thereafter 2.60:1.00" (hh) Article 8 of the Credit Agreement shall be amended by inserting the following Sections 8.19 and 8.20 at the end thereof: "8.19 Certain Other Debt. The Company shall not prepay, redeem, defease (whether actually or in substance) or purchase in any manner (or deposit or set aside funds or securities for the purpose of the foregoing), or make any payment (other than for scheduled payments of principal and interest due on the date of payment thereof, if such payment is permitted to be made pursuant to the terms thereof) in respect of, or establish any sinking fund, reserve or like set aside of funds or other property for the redemption, retirement or repayment of, any Subordinated Indebtedness or the Tandy Note, or transfer any property in payment of or as security for the payment of, or violate the subordination terms of, any Subordinated Indebtedness or the Tandy Note, or amend, modify or change in any manner the terms of any Subordinated Indebtedness or the Tandy Note or any instrument, indenture or other document evidencing, governing or affecting the terms thereof, if any such amendment, modification or change has or would have an adverse effect on the Administrative Agent's or any Bank's rights or remedies under any of the Loan Documents, or cause or permit any of its Subsidiaries to do any of the foregoing; except that the Company may prepay, redeem, defease or purchase the Notes, pursuant to the Indenture, to the extent that the payment therefore is made solely in the Company's common stock as permitted under subsection 8.4(g). 8.20 Additional Banks. The Company shall not agree to any increase in the Commitment of an Affected Bank pursuant to clause (iii) of the second paragraph of Section 11.1 without the prior written consent of the Majority Banks." (ii) Subsection 9.1(c) shall be amended by deleting the text of such subsection in its entirety and replacing it with the word "Reserved". (jj) Subsections 9.1(d), 9.1(e) and 9.1(f) of the Credit Agreement shall be amended and restated in their entirety so as to read as follows: "(d) Specific Defaults. The Company fails to perform or observe any term, covenant or agreement contained in Section 7.3, 7.9, 7.11, 8.1 (with respect to Voluntary Liens only), 8.2, 8.3, 8.4, 8.5, 8.7, 8.8, 8.10, 8.11, 8.12, 8.13, 8.15, 8.17, 8.18, 8.19 or 8.20; or (e) Other Specified Defaults. The Company fails to perform or observe any term, covenant or agreement contained in the following Sections and such failure continues for the amount of time specified: Sections 7.1 or 7.2 for 10 days; and Section 8.1 (only with respect to any Liens other than Voluntary Liens), Section 8.6 and Section 8.16 for 15 days; or (f) Other Defaults. The Company fails to perform or observe any other term or covenant contained in this Agreement or any Loan Document, and such default shall continue unremedied for a period of 15 days after the earlier of (i) the date upon which a Responsible Officer or the general counsel of the Company or any person holding a similar position within the Company knew or should have known of such failure or (ii) the date upon which written notice thereof has been given to the Company by the Administrative Agent or any Bank; or" (kk) Section 9.1 of the Credit Agreement shall be amended by (i) replacing the period at the end of subsection (n) therein with "; and (ii) inserting the following subsections (o) and (p) at the end thereof: "(o) Collateral. (i) Any provision of any Collateral Document shall for any reason cease to be valid and binding on or enforceable against the Company or the Company shall so state in writing or bring an action to limit its obligations or liabilities thereunder; (ii) Any Collateral Document shall for any reason (other than pursuant to the terms thereof) cease to create a valid security interest in the Collateral purported to be covered thereby or such security interest shall for any reason cease to be a perfected and first priority security interest subject only to Permitted Liens; or (p) any of the unsatisfied conditions precedent to the effectiveness of the Third Amendment to Credit Agreement, as listed in Schedule 4 thereto, shall fail to be satisfied by January 20, 1995." (ll) Article 9 of the Credit Agreement shall be amended by inserting the following Section 9.4 at the end thereof: "9.4 Certain Financial Covenant Defaults. In the event that, after taking into account any extraordinary charge to earnings taken or to be taken as of the end of any fiscal period of the Company (a "Charge"), and if solely by virtue of such Charge, there would exist an Event of Default due to the breach of any of Sections 8.8, 8.10, 8.11, 8.12 or 8.13 as of such fiscal period end date, such Event of Default shall be deemed to arise upon the earlier of (a) the date after such fiscal period end date on which the Company announces publicly it will take, is taking or has taken such Charge (including an announcement in the form of a statement in a report filed with the SEC) or, if such announcement is made prior to such fiscal period end date, the date that is such fiscal period end date, and (b) the date the Company delivers to the Administrative Agent its audited annual or unaudited quarterly financial statements in respect of such fiscal period reflecting such Charge as taken." (mm) Article 10 of the Credit Agreement shall be amended by inserting the following Section 10.12 at the end thereof: "10.12 Collateral Matters. (a) The Administrative Agent is authorized on behalf of all the Banks, without the necessity of any notice to or further consent from the Banks, from time to time to take any action with respect to any Collateral or the Collateral Documents which may be necessary to perfect and maintain perfected the security interest in and Liens upon the Collateral granted pursuant to the Collateral Documents. (b) The Banks irrevocably authorize the Administrative Agent, at its option and in its discretion, to release any Lien granted to or held by the Administrative Agent upon any Collateral (i) upon termination of the Commitments and payment in full of all Loans and all other Obligations known to the Administrative Agent and payable under this Agreement or any other Loan Document; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted hereunder; (iii) constituting property in which the Company owned no interest at the time the Lien was granted or at any time thereafter; (iv) constituting property leased to the Company under a lease which has expired or been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is not intended by the Company to be, renewed or extended; (v) consisting of an instrument evidencing Indebtedness or other debt instrument, if the Indebtedness evidenced thereby has been paid in full; or (vi) if approved, authorized or ratified in writing by the Majority Banks or all the Banks, as the case may be, as provided in the relevant Collateral Document. Upon request by the Administrative Agent at any time, the Banks will confirm in writing the Administrative Agent's authority to release particular types or items of Collateral pursuant to this subsection 10.12(b). (c) None of the Administrative Agent-Related Persons shall be responsible in any manner to any of the Banks for the value of or title to any Collateral. Each Bank represents to the Administrative Agent that it has, independently and without reliance upon any Administrative Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the value of and title to any Collateral. (d) Each Bank agrees with and in favor of each other (which agreement shall not be for the benefit of the Company or any Subsidiary) that the Company's obligation to such Bank under this Agreement and the other Loan Documents is not and shall not be secured by any real property collateral now or hereafter acquired by such Bank, other than the real property described in the Deeds of Trust." (nn) Subsection 11.7(a) of the Credit Agreement shall be amended and restated in its entirety so that, as amended and restated, it reads as follows: "(a) Any Bank may, with the written consent of the Company and the Administrative Agent, which consent of the Company shall not be unreasonably withheld, at any time assign and delegate to one or more Eligible Assignees and, with notice to the Administrative Agent and the Company but without the consent of the Company or the Administrative Agent, may assign to any of its wholly-owned Affiliates (each an "Assignee") all or any ratable part of all of the Loans, L/C Obligations and the Commitments (including the L/C Commitment contained therein) or any other rights or obligations of such Bank hereunder and under the other Loan Documents; provided, however, that the Company, the Issuing Bank and the Administrative Agent may continue to deal solely and directly with such Bank in connection with the interests so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and the Administrative Agent by such Bank and the Assignee; (ii) such Bank and its Assignee shall have delivered to the Company and the Administrative Agent an Assignment and Acceptance in the form of Exhibit N ("Assignment and Acceptance") together with any Bid Note subject to such assignment; and (iii) the processing fees of $2,500 shall have been paid to the Administrative Agent; provided, further, that the aggregate amount of the Commitment, Loans and participation in L/C Obligations of the assigning Bank being assigned pursuant to any Assignment and Acceptance (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000. (oo) Section 11.8 of the Credit Agreement shall be amended by inserting the following sentence at the end thereof: "NOTWITHSTANDING THE FOREGOING, NO BANK SHALL EXERCISE, OR ATTEMPT TO EXERCISE, ANY RIGHT OF SET-OFF, BANKER'S LIEN, OR THE LIKE, AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY OF THE COMPANY OR ANY SUBSIDIARY OF THE COMPANY HELD OR MAINTAINED BY THE BANK WITHOUT THE PRIOR WRITTEN CONSENT OF THE MAJORITY BANKS." (pp) Section 11.14 of the Credit Agreement shall be amended and restated in its entirety so as to read as follows: "11.14 Entire Agreement. This Agreement, together with the other Loan Documents, embodies the entire Agreement and understanding among the Company, the Banks, the Issuing Bank, the Administrative Agent and the Co-Agents and supersedes all prior or contemporaneous agreements and understandings of such persons, verbal or written, relating to the subject matter hereof and thereof except for the fee letters referenced in Section 2.10 and 3.8(b)(ii), the letter agreements between the Company and each of BA Securities, Inc. and National Westminster Bank Plc relating hereto and any prior arrangements made with respect to the payment by the Company of (or any indemnification for) any fees, costs or expenses payable to or incurred (or to be incurred) by or on behalf of the Administrative Agent, the Issuing Bank or the Banks." (qq) Article 11 of the Credit Agreement shall be amended by inserting the following Section 11.15 at the end thereof: "11.15 Marshalling; Payments Set Aside. Neither the Administrative Agent nor the Banks shall be under any obligation to marshall any assets in favor of the Company or any other Person or against or in payment of any or all of the Obligations. To the extent that the Company makes a payment to the Administrative Agent or the Banks, or the Administrative Agent or the Banks exercise their right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set- off had not occurred, and (b) each Bank severally agrees to pay to the Administrative Agent upon demand its pro rata share of any amount so recovered from or repaid by the Administrative Agent." (rr) Schedule 2.1 to the Credit Agreement shall be superseded and replaced by Schedule 2.1 attached to this Amendment. (ss) Exhibits D and F to the Credit Agreement shall be superseded and replaced by Exhibits D and F attached to this Amendment, respectively. (tt) Exhibit P attached to this Amendment shall be added to the Credit Agreement as Exhibit P thereto. 3. Representations and Warranties. The Company hereby represents and warrants to the Administrative Agent, the Co-Agents, the Issuing Bank and the Banks as follows: (a) The execution, delivery and performance by the Company of this Amendment and the Collateral Documents have been duly authorized by all necessary corporate action and do not and will not (i) contravene the terms of the Company's certificate of incorporation, bylaws or other organizational document, (ii) conflict with or result in any breach or contravention of, or the creation of any Lien under, any indenture, agreement, lease, instrument, Contractual Obligation, injunction, order, decree or undertaking to which the Company is a party, or (iii) violate any Requirement of Law. (b) The execution, delivery and performance by the Company of this Amendment and the Collateral Documents do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable, except for recordings or filings in connection with the Liens granted to the Administrative Agent under the Collateral Documents. (c) The Credit Agreement, as amended by this Amendment, and each Collateral Document constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, without defense, counterclaim or offset. (d) The representations and warranties of the Company set forth in Article 6 in the Credit Agreement and in the Collateral Documents are true and correct on and as of the date hereof with the same effect as if made on and as of the date hereof (except to the extent such representations and warranties specifically relate to an earlier date, in which case they are true, accurate and complete in all material respects as of such earlier date). (e) No Default or Event of Default has occurred and is continuing. (f) The Company is in the process of ceasing all operations at its manufacturing facility in Fountain Valley, California and will have no manufacturing operations at such location as of February 1, 1995. (g) The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Administrative Agent, the Co-Agents, the Issuing Bank, the Banks or any other Person. 4. Effective Date. This Amendment will become effective as of December 23, 1994 (the "Effective Date"), provided that each of the following conditions precedent has been satisfied: (a) The Administrative Agent has received from the Company, each of the Co-Agents, the Issuing Bank and the Majority Banks a duly executed original of this Amendment. (b) The Administrative Agent has received from the Company duly executed original replacement Bid Notes. (c) The Administrative Agent has received each of the following, duly executed by the Company and in appropriate form for recording where applicable: (i) the Security Agreement; (ii) the Pledge Agreement; (iii) the Deeds of Trust; (iv) telephonic acknowledgment of all UCC-1 financing statements filed, registered or recorded to perfect the security interests of the Administrative Agent for the benefit of the Banks, or other evidence satisfactory to the Administrative Agent and the Majority Banks that there has been filed, registered or recorded all financing statements and other filings, registrations and recordings necessary and advisable to perfect the Liens of the Administrative Agent for the benefit of the Banks in accordance with applicable law; (v) written advice relating to such Lien and judgment searches as the Administrative Agent or the Majority Banks shall have requested, and such termination statements or other documents as may be necessary to confirm that the Collateral is subject to no other Liens in favor of any Persons (other than Permitted Liens); (vi) all certificates and instruments representing the Collateral pledged pursuant to the Pledge Agreement, and stock transfer powers executed in blank with signatures guaranteed as the Administrative Agent or the Majority Banks may specify; (vii) with respect to each of the mortgaged properties described in the Deeds of Trust, an A.L.T.A. Form B (or other form acceptable to the Administrative Agent and the Majority Banks), a mortgagee policy of title insurance or binder issued by a title insurance company satisfactory to the Administrative Agent and the Majority Banks insuring (or undertaking to insure, in the case of a binder) that such Deed of Trust creates and constitutes a valid first Lien against the mortgaged property described therein in favor of the Administrative Agent, subject only to exceptions acceptable to the Administrative Agent and the Majority Banks, with such endorsements and affirmative insurance as the Administrative Agent or the Majority Banks may reasonably request; (viii) funds sufficient to pay any filing or recording tax or fee in connection with any and all UCC-1 financing statements and the Deeds of Trust, and proof of payment of all title insurance premiums, documentary stamp or intangible taxes, recording fees and mortgage taxes payable in connection with the recording of the Deeds of Trust or the issuance of the title insurance policies (whether due on the date hereof or in the future) including sums due in connection with any future advances; (ix) evidence that the Administrative Agent has been named as loss payee under all policies of casualty insurance, and as additional insured under all policies of liability insurance, required under the Credit Agreement and the Collateral Documents, on terms satisfactory to the Administrative Agent and the Majority Banks; (x) such consents, estoppels, subordination agreements and other documents and instruments executed by landlords, tenants and other Persons party to material contracts relating to any Collateral as to which the Administrative Agent shall be granted a Lien for the benefit of the Banks, as requested by the Administrative Agent or the Majority Banks; and (xi) evidence that all other actions necessary or, in the opinion of the Administrative Agent or the Majority Banks, desirable to perfect and protect the first priority Lien created by the Collateral Documents, and to enhance the Administrative Agent's ability to preserve and protect its interests in and access to the Collateral, have been taken. (d) The Administrative Agent has received from the Company: (i) copies of the resolutions of the board of directors of the Company authorizing the transactions contemplated hereby, certified as of the dated hereof by the Secretary or an Assistant Secretary of the Company; (ii) a certificate of the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to execute, deliver and perform, as applicable, this Amendment and the Collateral Documents to be delivered by it hereunder; (iii) the articles or certificate of incorporation and the bylaws of the Company as in effect on the date hereof, certified by the Secretary or Assistant Secretary of the Company as of the date hereof; and (iv) a good standing and tax good standing certificate for the Company from the Secretary of State of its state of incorporation and each state where the Company is qualified to do business as a foreign corporation as of a recent date, together with a bring-down certificate by facsimile, dated the date hereof. (e) An opinion of Stradling, Yocca, Carlson & Rauth, counsel to the Company, addressed to the Administrative Agent, the Co-Agents, the Issuing Bank and the Banks, in form and substance satisfactory to the Administrative Agent and the Majority Banks. (f) An opinion of Akin, Gump, Strauss, Hauer & Feld, Texas counsel to the Company, addressed to the Administrative Agent, the Co-Agents, the Issuing Bank and the Banks, regarding the Texas Deed of Trust, in form and substance satisfactory to the Administrative Agent and the Majority Banks. (g) Opinions of foreign counsel to the Company, addressed to the Administrative Agent, the Co-Agents, the Issuing Bank and the Banks, regarding such matters as the Administrative Agent may request with respect to the pledge of the stock of foreign subsidiaries under the Pledge Agreement, in form and substance satisfactory to the Administrative Agent and the Majority Banks. (h) The Administrative Agent has received from the Company an upfront fee in an amount equal to 0.25% of the Aggregate Commitment on the Effective Date, which fee shall be for the ratable account of each Bank, and which fee the Company hereby covenants to pay to the Administrative Agent on demand on or prior to the Effective Date. (i) BA Securities, Inc. and National Westminster Bank Plc each has received from the Company the arrangement fee set forth in the separate "Arrangement Fee Letter" dated on or about the date hereof in favor of such Person, which fees shall be for their own respective accounts, and which fees the Company hereby covenants to pay to each of BA Securities, Inc. and National Westminster Bank Plc, respectively, on demand on or prior to the Effective Date. (j) The Administrative Agent has received from the Company payment of all accrued and unpaid fees, costs and expenses to the extent due and payable on the date hereof, together with attorneys' fees and expenses (including the allocated cost of internal counsel) invoiced on or prior to the date hereof, plus such additional amounts of attorneys' fees and expenses (including the allocated cost of internal counsel) as shall constitute the Administrative Agent's reasonable estimate of such fees and expenses incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude final settling of accounts between the Company and the Administrative Agent); including any such costs, fees and expenses arising under or referenced in Sections 2.10 and 11.4 of the Credit Agreement, as amended hereby, or subsection 6(g) hereof. (k) The Administrative Agent has received such other approvals, opinions, documents or materials as the Administrative Agent or the Majority Banks may reasonably request; and further provided that the parties hereto acknowledge that this Agreement will become effective as of December 23, 1994 notwithstanding the noncompletion by such date of such of the foregoing conditions as are listed in Schedule 4 hereto. For purposes of determining compliance with the conditions specified above, each Bank that has executed this Amendment shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Administrative Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Bank. 5. Reservation of Rights. The Company acknowledges and agrees that the execution and delivery by the Administrative Agent, the Co-Agents, the Issuing Bank and the Banks of this Amendment shall not be deemed to create a course of dealing or otherwise obligate the Administrative Agent, the Co-Agents, the Issuing Bank or the Banks to execute similar amendments under the same or similar circumstances in the future. 6. Miscellaneous. (a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. (c) This Amendment shall be governed by and construed in accordance with the law of the State of California. (d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that, if elected by the Administrative Agent, this document (and any other document required herein) may be delivered by any party thereto in the form of an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Administrative Agent of such a facsimile transmitted document purportedly bearing the signature of a party hereto shall bind such party with the same force and effect as the delivery of a hard copy original. Any failure by the Administrative Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Administrative Agent. (e) This Amendment, together with the Credit Agreement and the Collateral Documents, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 11.1 of the Credit Agreement. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment, the Credit Agreement or the Collateral Documents, respectively. (g) Company covenants to pay to or reimburse the Administrative Agent, upon demand, for all reasonable costs and expenses, including attorneys' fees and expenses (including the allocated costs of in-house counsel), incurred in connection with the development, preparation, execution and delivery of this Amendment and the other documents contemplated hereby, including without limitation appraisal, audit, search and filing fees incurred in connection herewith. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. AST RESEARCH, INC. By: BRUCE C. EDWARDS Title: Executive Vice President and Chief Financial Officer By: DENNIS R. LEIBEL Title: Vice President, Legal & Treasury Operations BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent and Co-Agent By: WENDY M. YOUNG Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Issuing Bank and a Bank By: KEVIN MC MAHON Title: Vice President NATIONAL WESTMINSTER BANK PLC, as Co-Agent and a Bank By: MICHAEL E. KEATING Title: Vice President CIBC INC., as Co-Agent and a Bank By: JAMES E. ANDERSON Title: Managing Director SHAWMUT BANK, N.A., as Co-Agent and a Bank By: FRANK BENESH Title: Director BANQUE NATIONALE DE PARIS By:_____________________________ Title: Senior Vice President and Manager By:_____________________________ Title: Vice President SANWA BANK CALIFORNIA By:_____________________________ Title: CITICORP USA, INC. By: JAMES J. SHERIDAN Title: Vice President COMMONWEALTH BANK OF AUSTRALIA By:_____________________________ Title: Executive Vice President and General Manager THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY By: KAZUTAKA KIYOTO Title: Senior Vice President THE LONG-TERM CREDIT BANK OF JAPAN, LTD., LOS ANGELES AGENCY By:_______________________________ Title: Deputy General Manager ROYAL BANK OF CANADA By:_______________________________ Title: ABN AMRO BANK N.V., LOS ANGELES BRANCH By: JOHN A. MILLER Title: Vice President By: PAUL K. STIMPFL Title: Vice President THE NIPPON CREDIT BANK LTD., LOS ANGELES AGENCY By: KIYOTUMI ICHIKAWA Title: Vice President SCHEDULE 2.1 COMMITMENTS Commitment Commitment Bank Amount Percentage Bank of America National Trust $33,750,000 15.000000000% and Savings Association National Westminster Bank Plc $26,250,000 11.666666666% CIBC Inc. $30,000,000 13.333333333% Shawmut Bank, N.A. $30,000,000 13.333333333% Banque Nationale de Paris $15,000,000 6.666666666% Sanwa Bank California $15,000,000 6.666666666% Citicorp USA, Inc. $15,000,000 6.666666666% Commonwealth Bank of Australia $11,250,000 5.000000000% The Industrial Bank of Japan, $11,250,000 5.000000000% Limited, Los Angeles Agency The Long-Term Credit Bank $11,250,000 5.000000000% of Japan, Ltd., Los Angeles Agency Royal Bank of Canada $9,375,000 4.166666666% ABN Amro Bank N.V., $9,375.000 4.166666666% Los Angeles Branch The Nippon Credit Bank Ltd., $7,500,000 3.333333333% Los Angeles Agency _____________ ______________ Total $225,000,000 100.000000000% SCHEDULE 4 CONDITIONS TO BE SATISFIED BY JANUARY 20, 1994 1. Receipt by the Administrative Agent of required landlord waivers. 2. Receipt by the Administrative Agent of a satisfactory opinion of French counsel to the Company regarding AST Research France S.A.R.L. 3. Receipt by the Administrative Agent of certificates representing all stock pledged pursuant to the Pledge Agreement. 4. Recording of Deeds of Trust as a first-priority lien, issuance of appropriate title insurance policies and receipt by the Administrative Agent of a satisfactory opinion of Texas counsel to the Company. EXHIBIT D COMPLIANCE CERTIFICATE Pursuant to that certain Credit Agreement dated as of September 30, 1993 (as amended from time to time, the "Credit Agreement," the terms defined therein being used herein as therein defined) among AST Research, Inc., a Delaware cor poration (the "Company"), Bank of America National Trust and Savings Association, as Administrative Agent, Co-Agent and Issuing Bank, National Westminster Bank Plc, CIBC, Inc. and Shawmut Bank, N.A., each as Co-Agent, and the several financial institutions party thereto, the undersigned ___________________________, certifies that he is the ___________________ of the Company, and that, as such, he is authorized to execute and deliver this Certificate, and that: [Use this paragraph if this Certificate is delivered in connection with the financial statements required by subsection 7.1(a) of the Credit Agreement] (a)Attached as Exhibit 1 hereto are the audited consolidated balance sheet of the Company as of _________, 199__ and the related consolidated statements of income, shareholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous year. or [Use this paragraph if this Certificate is delivered in connection with the financial statements required by subsection 7.1(c) of the Credit Agreement] 1. Attached as Exhibit 1 hereto are the unaudited consolidated balance sheet of the Company and its Consolidated Subsidiaries and the related consolidated statements of income, shareholders' equity and cash flows, all for the quarter ended __________, 199_. The financial statements attached as Exhibit 1 are complete and correct and fairly present, in accordance with GAAP, the financial position and results of operations of the Company and the Company's Subsidiaries; provided, however, footnotes and other financial presentations customarily presented only for audited year-end statements under GAAP are not included. 2. Attached as Exhibit 2 hereto are the unaudited consolidating balance sheets of the Company and its Subsidiaries as of ____________, 199_ and the related consolidating statements of income for such period which were used together with the financial statements attached hereto as Exhibit 1. 3. The Company has reviewed the terms of the Credit Agreement and the undersigned has made, or has caused to be made under his supervision, a review of the transactions entered into by the Company and its Subsidiaries during the accounting period covered by the attached financial statements which could affect the Company's compliance with such terms. 4. To the best of the undersigned's knowledge, the Company, during such period, has observed, performed or satisfied all of the covenants and other agreements contained in the Credit Agreement to be observed, performed or satisfied by the Company. 5. The examinations described in paragraph 3 above did not disclose, and the undersigned has obtained no knowledge of any Default or Event of Default. 6. All representations and warranties of the Company set forth in Article VI of the Credit Agreement and in the Collateral Documents are true and correct on and as of the date hereof with the same effect as if made on and as of the date hereof (except to the extent such representations and warranties specifically relate to an earlier date, in which case they are true, accurate and complete in all material respects as of such earlier date). 7. The financial analysis and information contained in this certificate are true and accurate on and as of the date of this certificate. 8. Set forth below are the calculations used to determine compliance with the covenants of the Credit Agreement. All amounts set forth below refer to the Company's consolidated financial statements for the period ended ____________, 199_. A. Modified Quick Ratio (Section 8.8) (Thousands) (i) Cash and Liquid Assets of the Company and Consolidated Subsidiaries $_________ (ii) Receivables $_________ Allowance for doubtful accounts and sales returns ($________) TOTAL RECEIVABLES $_________ TOTAL ((i) PLUS (ii)) $_________ (iii) Consolidated Current Liabilities $_________ Modified Quick Ratio is ___ to 1.00 ((i) plus (ii) to (iii)). The required Modified Quick Ratio is not less than 0.80:1.00. B. Tangible Net Worth (Section 8.10) (Thousands) (i) Total Net Worth $__________ Intangibles ($_________) TOTAL ACTUAL TANGIBLE NET WORTH $__________ (ii) Base Amount $275,000 75% of cumulative consolidated net income (excluding net loss) earned for each fiscal quarter beginning with the fiscal quarter ended December 31, 1994 $__________ 75% of Net Proceeds of sale of capital stock of the Company by and for the account of the Company beginning with the fiscal quarter ended December 31, 1994 $__________ 75% of increase in Tangible Net Worth due to conversion of debt to common stock beginning with the fiscal quarter ended December 31, 1994 $__________ [For the fiscal quarter ended December 31, 1994 only: Any quarterly loss for the fiscal quarter, up to a maximum amount of $30,000,000 ($_________)] [For the fiscal quarter ended April 1, 1995 only: Any quarterly loss for the fiscal quarter, up to a maximum amount of $15,000,000 ($_________)] TOTAL REQUIRED TANGIBLE NET WORTH $__________ Total Actual Tangible Net Worth may not be less than Total Required Tangible Net Worth set forth above. C. Profitability (Section 8.11) (Thousands) Consolidated net loss (if any) ($__________) Profitability must be positive, commencing with the fiscal quarter ended July 1, 1995. D. Losses in Specific Quarters (Section 8.12) (Thousands) Consolidated net loss (if any) ($__________) Net loss (if any) for the fiscal quarter ended December 31, 1994 shall not exceed $30,000,000, and net loss (if any) for the fiscal quarter ended April 1, 1995 shall not $15,000,000. E. Leverage Ratios (Section 8.13) (Thousands) (i) Total Liabilities $__________ (ii) Total Liabilities plus Subordinated Debt $__________ (iii) Tangible Net Worth (from B(i) above) $__________ Leverage Ratio is ___ to 1.00 ((i) to (iii)). Adjusted Leverage Ratio is ___ to 1.00 ((ii) to (iii)). The required Leverage Ratios may not exceed the ratios set forth in Section 8.13 of the Agreement for the applicable periods. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of __________, 199_. _______________________________ (signature) Title: ________________________ EXHIBIT F NOTICE OF BORROWING To: Bank of America National Trust and Savings Association, as Administrative Agent under the Credit Agreement dated as of September 30, 1993 (as amended from time to time, the "Credit Agreement") among AST Research, Inc., Bank of America National Trust and Savings Association, as Administrative Agent, Co-Agent and Issuing Bank, National Westminster Bank Plc, CIBC, Inc. and Shawmut Bank, N.A., each as Co-Agent, and the several financial institutions party thereto (the "Banks"). Date: _____________, 199_ Ladies and Gentlemen: The undersigned AST Research, Inc. (the "Company") refers to the Credit Agreement, and hereby gives you notice irrevocably, pursuant to Section 2.3 of the Credit Agreement, of the Borrowing specified herein: 1. The aggregate amount of the proposed Borrowing is $______________________. 2. The Business Day of the proposed Borrowing is ______________, 199_. 3. The Borrowing is to be comprised of $_______ of [Offshore Committed] [CD Rate] [Reference Rate] Loans. 4. The duration of the Interest Period for the [Offshore Committed] [CD Rate] Loans included in the Borrowing shall be _____ months. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed Borrowing, before and after giving effect thereto and to the application of the proceeds therefrom: (a) the representations and warranties of the Company contained in Article VI of the Credit Agreement and in the Collateral Documents are true and correct as though made on and as of the date hereof (except to the extent such representations and warranties specifically relate to an earlier date, in which case they are true, accurate and complete in all material respects as of such earlier date); (b) no Default or Event of Default has occurred and is continuing, or would result from the proposed Borrowing; (c) the Effective Amount of all outstanding Loans together with the Effective Amount of the Letter of Credit (if outstanding) does not exceed the Aggregate Commitment; and (d) the Effective Amount of all outstanding Loans does not exceed the Borrowing Base. The Company represents and warrants to the Administrative Agent and the Banks that the Borrowing requested herewith (check one of each): [ ] is, partially or in its entirety; [ ] is not, to any extent, a Purpose Credit, and [ ] is, partially or in its entirety; [ ] is not, to any extent, an Acquisition Credit. If such Borrowing is to any extent either a Purpose Credit or an Acquisition Credit, the Company acknowledges and agrees that such Borrowing is further subject to satisfaction of the conditions set forth in Section 5.3 of the Credit Agreement. Capitalized terms used herein and not defined shall have the meanings assigned to them in the Credit Agreement. AST RESEARCH, INC. By: ____________________________ Title: _________________________ EXHIBIT P BORROWING BASE CERTIFICATE Pursuant to that certain Credit Agreement dated as of September 30, 1993 (as amended from time to time, the "Credit Agreement," the terms defined therein being used herein as therein defined) among AST Research, Inc., a Delaware cor poration (the "Company"), Bank of America National Trust and Savings Association, as Administrative Agent, Co-Agent and Issuing Bank, National Westminster Bank Plc, CIBC, Inc. and Shawmut Bank, N.A., each as Co-Agent, and the several financial institutions party thereto, the undersigned ___________________________, certifies that he is the ___________________ of the Company, and that, as such, he is authorized to execute and deliver this Certificate, and that: 1. The Borrowing Base as of _________, 199__ is $________________. 2. Attached as Exhibit 1 hereto are the calculations used to determine the foregoing Borrowing Base. 3. Attached as Exhibit 2 hereto is an aging of all Receivables, net of any allowance for doubtful accounts and sales returns, as of such date, showing all such Receivables outstanding 30, 60, 90, 120 and over 120 days from their respective due dates. 4 The financial analysis and information contained in this certificate are true and accurate on and as of the date of this Certificate. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of __________, 199_. _______________________________ (signature) Title: ________________________ EX-11 3 EXHIBIT 11 AST RESEARCH, INC. COMPUTATION OF NET INCOME (LOSS) PER SHARE
Three Months Ended Six Months Ended ----------------------- ----------------------- Dec. 31, Jan. 1, Dec. 31, Jan. 1, (In thousands, except per share amounts) 1994 1994 1994 1994 - ---------------------------------------------------------------------------------------------------- Primary earnings (loss) per share Shares used in computing primary earnings (loss) per share: Weighted average shares of common stock outstanding 32,369 31,659 32,358 31,625 Effect of stock options treated as equivalents under the treasury stock method - 795 - 603 ---------- ---------- ---------- ---------- Weighted average common and common equivalent shares outstanding 32,369 32,454 32,358 32,228 ---------- ---------- ---------- ---------- Net income (loss) $ (22,315) $ 17,933 $ (62,203) $ 26,165 ---------- ---------- ---------- ---------- Earnings (loss) per share - primary $ (.69) $ .55 $ (1.92) $ .81 ========== ========== ========== ========== Fully diluted earnings (loss) per share Shares used in computing fully diluted earnings (loss) per share: Weighted average shares of common stock outstanding 32,369 31,659 32,358 31,625 Effect of stock options treated as equivalents under the treasury stock method - 890 - 715 Shares assumed issued on conversion of Liquid Yield Option Notes - 855 - 855 --------- ---------- --------- ---------- Total fully diluted shares outstanding 32,369 33,404 32,358 33,195 --------- ---------- --------- ---------- Net income (loss) - fully diluted earnings per share: Net income (loss) - primary earnings per share $ (22,315) $ 17,933 $ (62,203) $ 26,165 Adjustment for interest on LYONs, net of tax - 176 - 176 --------- ---------- --------- ---------- Adjusted net income (loss) - fully diluted earnings per share (22,315) 18,109 (62,203) 26,341 --------- ---------- --------- ---------- Earnings (loss) per share - fully diluted $ (.69) $ .54 $ (1.92) $ .79 ========= ========== ========= ==========
EX-27 4
5 This schedule contains summary financial information extracted from the accompanying Consolidated Balance Sheets and Consolidated Statements of Operations and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS JUL-01-1995 DEC-31-1994 68,654 0 393,007 17,920 351,362 859,573 166,227 62,259 1,031,448 484,820 218,158 324 0 0 321,818 1,031,448 1,135,605 1,135,605 1,031,988 1,031,988 0 3,193 6,892 (77,754) (15,551) (62,203) 0 0 0 (62,203) (1.92) (1.92)
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