UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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SCHEDULE 14A
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Integrated Silicon Solution, Inc.
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Uphill Investment Co. Merger Proposal Special Meeting of Stockholders June 19, 2015 |
Forward Looking Statements This presentation and our related comments contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Among other things, statements concerning the expected closing date of the acquisition and the timing and outcome of the CFIUS process and the Taiwan restructuring process are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. Such risks and uncertainties include obtaining stockholder approval of the transaction, the timing and ability to complete the restructuring of our operations in Taiwan, the satisfaction of the other closing conditions in the definitive agreement (including regulatory approvals), the outcome of any existing or future litigation involving the acquisition transaction or other risks listed from time to time in our filings with the Securities and Exchange Commission (SEC), including our Form 10-K for the fiscal year ended September 30, 2014 and Form 10-Q for the quarter ended March 31, 2015. We assume no obligation to update or revise the forward-looking statements in this presentation because of new information, future events, or otherwise. Additional Information and Where to Find It In connection with our pending acquisition by Uphill, we filed with the SEC a Schedule 14A containing a Proxy Statement and other relevant materials. The Proxy Statement was mailed on or about April 30, 2015 to ISSI's stockholders of record as of April 20, 2015. An amendment to the proxy materials was filed with the SEC on June 5, 2015. Stockholders may obtain, free of charge, copies of the definitive proxy statement, the amendment to the definitive proxy statement and any other documents filed by ISSI with the SEC in connection with the Special Meeting of Stockholders at the SEC's website (http://www.sec.gov), at ISSI's website (http://www.issi.com) or by writing to Investor Relations, Integrated Silicon Solution, Inc., 1623 Buckeye Drive, Milpitas, CA 95035. 2 Legal Notices |
The ISSI board of directors unanimously recommends that the stockholders approve the Uphill Investment Co. Merger Agreement and related matters. The ISSI board of directors determined that the most recent Cypress offer was not a Superior Proposal since the per share price was $0.75 lower than Uphill. 3 Board Recommendation |
Company A offer $18.19 Uphill initial deal $19.25 Cypress initial offer $19.75 Uphill revised deal $20.00 Cypress revised offer $20.25 Uphill revised deal $21.00 Increase of $2.81 per share 4 Results of ISSI Board Process |
Key Parties Background of Acquisition Discussions Comparison of Acquisition Terms CFIUS Regulatory Approval Taiwan Regulatory Approval Summary ISSI Board Recommendation 5 Contents |
Key Parties |
• High quality specialty memory, flash and analog mixed signal products • Founded in 1988, IPO in 1995 • Headquarters: Milpitas, CA • Solid growth: 2009-2014 revenue CAGR 16.4% • Business model similar to a broad line fabless analog company Corporate Facts • 2Q’15 revenue of $80.1M • Automotive revenue +6.7% over prior year • 35.0% gross margin in FQ2’15 • $135.6M cash and investments • $0.06 per share quarterly dividend Financial Highlights at March 31 • SRAM– Synch, asynch, high performance, legacy, QUAD and DDR • DRAM - Low to high density DRAM, SDRAM, DDR, DDR2, DDR3 for specific applications • NOR Flash – industry standard NOR Flash products and embedded non-volatile solutions • Analog - Audio power amplifiers, sensors and LED drivers for backlighting and display • Automotive • Industrial • Communications • Specialty Consumer Diverse Products Growing End Markets 7 ISSI Overview |
8 A Consortium of primarily Chinese investors, including: Summitview Capital (Pujiang) is an investment fund managed by Summitview Capital. Summitview Capital is a venture capital and private equity firm focusing on the semiconductor industry in China. eTown MemTek Ltd. is a company engaged in the business of development and sale of integrated circuit products and related components. The equity holders of eTown are Beijing E-Town International Investment & Development Co., Ltd. and GigaDevice Capital Ltd. Beijing E-Town is an investment firm with headquarters in Beijing. GigaDevice Capital Ltd. is a subsidiary of GigaDevice Semiconductor (Beijing) Inc., a semiconductor memory company in China. Beijing Integrated Circuit Design and Test Fund is a private equity fund managed by Hua Capital Management Ltd. Hua Capital was established by Tsinghua Holding Sino King Capital, China Fortune-Tech Capital Co., Ltd. and a team of investors in the semiconductor industry. Huaqing Jiye Investment Management Co., Ltd. is a Beijing-based investment company focusing on capital investment management and consulting. In the past 10 years, the company has invested in more than 50 high-tech start-ups and several private equity funds. Uphill Overview |
Background of Acquisition Discussions |
Dec 2014 – Jan 2015 Oppenheimer contacted 22 potential acquirers. Three signed non-disclosure agreements, conducted due diligence and met with ISSI. Jan 2015 Conducted due diligence with Company A (a strategic buyer); determined unwilling to acquire at proposed price of $18.19 per share Feb – Mar 2015 Entered non-disclosure agreement with Uphill and conducted due diligence and negotiations. March 12, 2015 Merger Agreement with Uphill executed at $19.25 per share with expected closing date in third calendar quarter of 2015. March 12, 2015 Cypress announces completed Spansion acquisition. May 5, 2015 Cypress and GSI Technologies settle SRAM antitrust litigation under confidential terms. May 13, 2015 ISSI received unsolicited non-binding proposal from Cypress to acquire ISSI for $19.75 per share in cash. May 19, 2015 Confidentiality Agreement with Cypress signed. Due diligence begins with eight meetings and conference calls held between ISSI and Cypress management within 10 days. May 28, 2015 Uphill proposed increase in purchase price from $19.25 per share to $20.00 per share and Merger Agreement Amendment signed on May 29, 2015. May 29, 2015 ISSI received revised unsolicited non-binding proposal from Cypress to acquire ISSI for $20.25 per share in cash. Due diligence continued with 6 additional meetings and conference calls, for a total of 14 meetings and conference calls held within 17 days of signing the confidentiality agreement on May 19, 2015, and a total of 83 Cypress employees and advisors with access to the data room containing 1,953 documents and 45,790 pages of information. June 8, 2015 ISSI announced that agreement could not be reached with Cypress on antitrust issues. June 10, 2015 After further negotiating antitrust provisions, ISSI agrees to merger terms with Cypress at $20.25 per share which commences Uphill match period of 4 days. June 11, 2015 Uphill proposed increase in purchase price from $20.00 per share to $21.00 per share and Merger Agreement Amendment signed on June 11, 2015. 10 Background of Acquisition Discussions |
Comparison of Acquisition Terms |
Uphill Agreement – $21.00 per share of common stock (all cash) – Signed commitment letter from ICBC – Merger is not conditioned on availability of financing – If financing is unavailable, ISSI may terminate the Merger Agreement and collect a $19 million reverse termination fee. Cypress Proposal – $20.25 per share of common stock (all cash) – Signed commitment letter from Barclays Bank PLC – Merger is not conditioned on availability of financing – If debt financing is unavailable, there is no reverse termination fee; ISSI may obtain specific performance to force Cypress to close, but this could be challenging to enforce. 12 Proposed Acquisition Terms |
Uphill Agreement – Expected to close in third calendar quarter 2015 (with specific timing subject to CFIUS and Taiwan approvals) Cypress Proposal – Expected to close 6-9 months following signing a merger agreement (e.g. March 2016 closing ) due to highly likely “second request” by the FTC/DOJ – Thus, expected real value of the Cypress proposal is less than its stated price. 13 Timing of Closing |
Uphill Agreement – Closing conditions include CFIUS regulatory approval and Taiwan approval. We believe there is low risk of non-approvals and that approvals should be received within a few months. Cypress Proposal – Cypress has agreed to use its reasonable best efforts and take all reasonable actions to obtain antitrust approvals, including fully divesting all of ISSI’s SRAM business, if required. As such, we believe there would be low risk of antitrust issues preventing the closing after the second request. Consistent with its fiduciary duties, ISSI’s Board of Directors is seeking the highest price for its stockholders. ISSI’s Board must also evaluate the closing risks of any proposed transaction to assure that it can successfully close in order to deliver value to stockholders. 14 Regulatory Summary |
Relevant to Uphill: CFIUS Regulatory Approval |
The Committee on Foreign Investment in the United States (“CFIUS”) is a U.S. Government inter-agency committee with authority to review transactions involving control over a U.S. business by a foreign person. The scope of review is for potential national security implications arising from the foreign control. Submission of a Notice to CFIUS is voluntary, but CFIUS has the authority to initiate an investigation if no Notice is filed. CFIUS may determine that there are no national security concerns with the transaction, may impose mitigation terms to resolve any national security concerns with the covered transaction, or may send a report to the President recommending that the transaction be suspended or prohibited. 16 CFIUS Regulatory Filings |
There are up to four stages of CFIUS Review – 1 to 2 week pre-filing consultation period, – followed by a 30 initial review period, – followed by a 45 day investigation period, and – then a potential 15 day review by the President CFIUS clearance generally takes up to 75 days after formal acceptance for transactions comparable to the ISSI – Uphill Transaction Key issues for CFIUS review include: – a U.S. Target’s amount of U.S. government business, both direct and indirect – the export control classification of the Target’s products and technologies 17 CFIUS Process |
ISSI’s U.S. Government Business is minimal – ISSI has no contracts, classified or unclassified, with any U.S. government agency – ISSI does not have any direct military sales – ISSI does not customize its products for military or any other end-use ISSI has customers that sell to the U.S. Government and defense contractors – These sales are a very small percentage of ISSI’s business and represent less than 0.5% ($1 million) of ISSI’s annual sales Export control classification of ISSI’s products and technologies – ISSI products are standard off-the-shelf commercial products – The products and underlying technologies can be exported to all countries (other than those subject to U.S. sanctions) without any export licensing requirements or controls Key markets are: automotive (safety features, digital audio and entertainment), mobile communications, industrial (power management, programmable logic devices, point of sale terminals), and digital consumer markets – Approximately 88% of ISSI’s revenues are from foreign sales – All ISSI’s products are manufactured in Asia 18 Key Factors for CFIUS |
On May 19, ISSI and Uphill voluntarily submitted a draft of the proposed Joint Voluntary Notice to CFIUS Consistent with CFIUS practice, counsel for parties had a call with CFIUS on May 26 to discuss the proposed Notice and CFIUS sent follow-up questions to parties On June 11, the formal Joint Voluntary Notice was submitted to CFIUS – CFIUS will notify the parties of formal acceptance of the filing commencing the initial 30 review – Delays after acceptance only likely if changes to deal and CFIUS requires parties to withdraw and refile 19 CFIUS Status |
The parties are confident that CFIUS will clear the acquisition of ISSI by Uphill in a timely manner The parties strongly believe that the Transaction does not raise national security concerns If CFIUS imposes mitigation measures to address any potential national security concerns, it should not be a material issue: – The Merger Agreement obligates the buyer to consent to CFIUS mitigation, including mitigation requiring the termination and/or cancellation of ISSI contracts, products and/or assets, etc. that are responsible for revenue of up to $5 million We believe there is a high level of certainty of obtaining CFIUS approval and almost no risk of CFIUS preventing closing of the merger after any requested remediation. 20 CFIUS Conclusion |
Relevant to Uphill: Taiwan Regulatory Approval |
ISSI has four legal entities in Taiwan that engage in a variety of business activities, including R&D, sales, marketing, customer and supplier technical support, operations/logistics, and administration. Under Taiwan’s PRC Investment Rules, a PRC investor can only directly or indirectly invest in or control a Taiwanese company doing business under specific business codes (“Positive List”). Business activities such as R&D and manufacturing are not on the Positive List and, therefore, those business activities cannot be controlled by a PRC investor. 22 Background |
ISSI and Uphill performed extensive legal and operational analysis prior to executing the Merger Agreement to ensure that, after legal entity restructuring, the transaction would comply with Taiwan’s PRC Investment Rules. Under the Merger Agreement, ISSI and Uphill agreed to fully cooperate on the legal entity restructuring, and the closing is subject to obtaining approval from the Taiwan Investment Commission. Once the Merger Agreement was executed, Uphill, ISSI, and their Taiwan legal and financial advisors investigated various options to determine the most efficient restructuring plan that would comply with Taiwan’s PRC Investment Rules. A step-by-step restructuring plan was prepared and agreed to by ISSI and Uphill, and an amendment to the Merger Agreement was executed and filed with the SEC in a Form 8-K on April 28, 2015. 23 Uphill Merger Agreement |
The plan includes restructuring the four legal entities such that the activities that cannot be controlled by a PRC investor would be combined into one legal entity. That legal entity would then be sold to a non-PRC investor. The remaining activities would be on the Positive List, can be controlled by a PRC investor, and would remain within ISSI. ISSI has begun implementing the restructuring plan and expects to have it completed in the third calendar quarter of 2015. A highly regarded non-PRC company has been identified to purchase the entity that would be sold. ISSI expects to execute an agreement with that party in the near future. ISSI has reviewed and discussed its plan with certain representatives of the Taiwan government and received positive feedback. ISSI expects to obtain the necessary Taiwan government approvals in the third calendar quarter of 2015. Based on our extensive research and consultation, we believe there is low risk of Taiwan approvals impacting the merger closing. 24 ISSI/Uphill Taiwan Restructuring Plan |
Price difference Uphill $21.00; Cypress $20.25, or 3.75% premium Targeted Closing Uphill: Third Quarter 2015 Cypress: Estimated March 2016 Uphill: CFIUS Assessment Believed to be low risk; Merger Agreement provides for mitigation in excess of revenue in question Uphill: Taiwan Assessment Initial response from government is positive; buyer identified for assets, executing restructuring plan 25 Summary |
The ISSI board of directors unanimously recommends that the stockholders approve the Uphill Investment Co. Merger Agreement and related matters. 26 Board Recommendation |