AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 2000.
REGISTRATION NO. 333-90741
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERSIL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3674 59-3586843
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
------------------------
2401 PALM BAY ROAD NE
PALM BAY, FLORIDA 32905
(321) 724-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SEE TABLE OF ADDITIONAL REGISTRANTS BELOW
------------------------
GREGORY L. WILLIAMS
CHIEF EXECUTIVE OFFICER
2401 PALM BAY ROAD NE
PALM BAY, FLORIDA 32905
(321) 724-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
With a Copy to:
CHRISTOPHER G. KARRAS, ESQ.
DECHERT PRICE & RHOADS
4000 BELL ATLANTIC TOWER
1717 ARCH STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 994-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
========================================================================================================================
TITLE OF EACH CLASS OF | AMOUNT TO BE| PROPOSED MAXIMUM | PROPOSED MAXIMUM | AMOUNT OF
SECURITIES TO BE REGISTERED | REGISTERED | OFFERING PRICE PER UNIT(1)| AGGREGATE OFFERING PRICE(1)| REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
13 1/4% Senior Subordinated | | | |
Notes Due 2009............. | $200,000,000| 100% | $200,000,000 | $55,600(2)
Guarantees(3)................ | $200,000,000| -- | -- | (4)
========================================================================================================================
(1) Estimated pursuant to Rule 457(f) under the Securities Act of 1933, as
amended, solely for purposes of calculating the registration fee.
(2) Previously paid.
(3) Intersil's parent, Intersil Holding Corporation, and the other companies
listed in the Table of Additional Registrants below have guaranteed, jointly
and severally, the 13 1/4% Senior Subordinated Notes Due 2009 being
registered hereby. The guarantors are registering the guarantees. Pursuant
to rule 457(n) under the Securities Act of 1933, no registration fee is
required with respect to the guarantees.
(4) Not applicable.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTERSIL CORPORATION
TABLE OF ADDITIONAL REGISTRANTS
PRIMARY STANDARD
STATE OF INDUSTRIAL
INCORPORATION CLASSIFICATION I.R.S. EMPLOYER
NAME OR ORGANIZATION CODE NUMBER IDENTIFICATION NO.
---- --------------- ---------------- ------------------
Intersil Holding Corporation....................... Delaware 3674 59-3590018
Intersil (Florida), LLC............................ Delaware 3674 59-3586843
Intersil (Ohio), LLC............................... Delaware 3674 59-3586843
Intersil (Pennsylvania), LLC....................... Delaware 3674 59-3586843
Choice-Intersil Microsystems, Inc.................. Kansas 3674 36-4202824
The address, including zip code, and telephone number, including area code,
of the principal offices of the additional registrants listed above (the
"Additional Registrants") is: 2401 Palm Bay Road NE, Palm Bay, Florida 32905;
the telephone number at that address is (321) 724-7000.
PROSPECTUS
[LOGO]
OFFER TO EXCHANGE
13 1/4% SENIOR SUBORDINATED NOTES DUE 2009 FOR ALL OUTSTANDING
13 1/4% SENIOR SUBORDINATED NOTES DUE 2009
OF
INTERSIL CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON FEBRUARY 17, 2000, UNLESS EXTENDED.
------------------------
Terms of the exchange offer:
-- We will exchange all old notes that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
-- You may withdraw tenders of old notes at any time prior to the
expiration of the exchange offer.
-- We believe that the exchange of old notes will not be a taxable event
for U.S. federal income tax purposes, but you should see "United States
Federal Income Tax Considerations" on page 111 for more information.
-- We will not receive any proceeds from the exchange offer.
-- The terms of the new notes are substantially identical to the old notes,
except that the new notes are registered under the Securities Act of
1933 and the transfer restrictions and registration rights applicable to
the old notes do not apply to the new notes.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF RISKS THAT
SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES.
------------------------
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these Securities or passed upon
the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
The date of this prospectus is January 12, 2000.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THE PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
TABLE OF CONTENTS
Page Page
---- ----
INDUSTRY DATA......................... i THE TRANSACTIONS...................... 56
SUMMARY............................... 1 MANAGEMENT............................ 59
RISK FACTORS.......................... 11 CERTAIN RELATIONSHIPS AND RELATED
FORWARD-LOOKING STATEMENTS............ 21 TRANSACTIONS........................ 65
SOURCES AND USES OF PROCEEDS.......... 21 OWNERSHIP OF CAPITAL STOCK............ 66
CAPITALIZATION........................ 22 DESCRIPTION OF CAPITAL STOCK.......... 68
UNAUDITED PRO FORMA COMBINED CONDENSED DESCRIPTION OF CERTAIN INDEBTEDNESS... 72
FINANCIAL STATEMENTS................ 23 DESCRIPTION OF THE NOTES.............. 75
SELECTED HISTORICAL FINANCIAL DATA AND UNITED STATES FEDERAL
OTHER DATA.......................... 27 INCOME TAX CONSIDERATIONS........... 111
MANAGEMENT'S DISCUSSION AND ANALYSIS PLAN OF DISTRIBUTION.................. 115
OF FINANCIAL CONDITION AND RESULTS LEGAL MATTERS......................... 116
OF OPERATIONS....................... 28 EXPERTS............................... 116
INDUSTRY OVERVIEW..................... 37 WHERE YOU CAN FIND MORE
BUSINESS.............................. 39 INFORMATION......................... 116
THE EXCHANGE OFFER.................... 48 INDEX TO FINANCIAL STATEMENTS......... F-1
------------------
You should rely only on the information contained in this document or to
which we have referred you in this prospectus. We have not authorized anyone to
provide you with information that is different. This prospectus may only be used
where it is legal to sell these securities. The information in this prospectus
may only be accurate on the date of this document.
INDUSTRY DATA
In this prospectus, we rely on and refer to information regarding the
semiconductor market and its segments and competitors from Dataquest,
International Data Corporation, Semiconductor Industry Association, Worldwide
Semiconductor Trade Statistics, Venture Development Corporation, Johari
Associates, market research reports, analyst reports and other publicly
available sources. The listed market research firms are not aware of and have
not consented to being named in this prospectus. Although we believe that this
information is reliable, we have not independently verified the accuracy and
completeness of the information.
i
SUMMARY
This summary may not contain all of the information that may be important
to you. You should read this entire prospectus, including the financial data and
related notes, before making an investment decision.
THE EXCHANGE OFFER
On August 13, 1999, we issued and sold $200.0 million aggregate principal
amount of 13 1/4% Senior Subordinated Notes Due 2009, referred to as the old
notes. In connection with that sale, we entered into a registration rights
agreement with the initial purchasers of the old notes in which we agreed to
deliver this prospectus to you and to complete an exchange offer for the old
notes. As requested by the registration rights agreement, we are offering to
exchange $200.0 million aggregate principal amount of our new 13 1/4% Senior
Subordinated Notes Due 2009, referred to as the new notes, the issuance of which
will be registered under the Securities Act, for a like aggregate principal
amount of our old notes. We refer to this offer to exchange new notes for old
notes in accordance with the terms set forth in this prospectus and the
accompanying letter of transmittal as the exchange offer. You are entitled to
exchange your old notes for new notes. The new notes have substantially
identical terms to the old notes. We urge you to read the discussions under the
headings "The Exchange Offer" and "The New Notes" in this Summary for further
information regarding the exchange offer and the new notes.
WHO WE ARE
We are a leading systems oriented designer and manufacturer of analog
integrated circuits, which we refer to as integrated circuits or semiconductors,
and discrete semiconductors for the communications and power management end-user
markets. Based upon data published by Dataquest and Venture Development
Corporation, we have determined that we rank among the major suppliers in the
world in analog, integrated circuits and discrete semiconductors for the
communications and power management end-user markets. Additionally, we are the
industry leader in providing wireless local area networking semiconductor sets,
which we refer to as our PRISM(Registered) chip set, based upon data published
by Dataquest and International Development Corporation. Our analog products
include communications analog and mixed-signal semiconductors that are used in
wireless and wired data and voice communications products, power integrated
circuits that perform multiple power management tasks, industry standard signal
processing products that convert analog signals into digital format and digital
signals into analog format and space and defense products which are used in
military applications and commercial satellites. Our discrete semiconductors
perform single power management functions such as switching electricity on or
off and are used in computing, industrial and automotive markets. The fastest
growing product that we sell is our wireless local area network
PRISM(Registered) chip sets, which have applications in wireless computer
networking for the business or home and in transmitting data from home data
gateways to multiple end-user applications.
Our business strategy is to utilize our core strengths to focus on high
growth, higher margin end-markets through partnerships with industry leaders
among our strategic customer base to quickly take our engineering and design
capabilities to commercial levels. To achieve these goals, we develop systems
level solutions that enhance the value of our products as they are designed and
incorporated into our customers' products and we leverage our high quality of
customer service as a means of differentiation from our competitors.
We currently sell to many industry leaders in our targeted markets
including Asustek, Bosch, Cisco, Compaq, Emerson, Dell, Intel, Nokia, Siemens,
Sony and 3Com. We have been doing business with many of these industry leaders
for over ten years. We are also one of the leading analog and discrete power
semiconductor suppliers to some of the world's largest semiconductor
distributors, such as Avnet and Arrow Electronics, which allows us to expand our
global reach to include the middle market and emerging technology companies.
Based upon data published by Venture Development Corporation, these
semiconductor distributors recognized us as one of the top ten worldwide vendors
of power supply and power integrated circuits in 1998. Our products are sold
worldwide with about 53.5%, 24.6% and 21.9% of our revenues for fiscal year 1999
being derived from North America, Europe and Asia/Pacific, respectively. We
service our customers through a dedicated sales force, about half of whom are
domiciled outside North America. We own fabrication facilities, which we refer
to as fabs, in Florida, Ohio and Pennsylvania, including our state-of-the-art
8-inch wafer fab in Mountaintop, Pennsylvania. We also have assembly and test
facilities in Malaysia and Florida. For fiscal year 1999, our revenue was $532.7
million, net income was $27.4 million and adjusted EBITDA was $129.3 million.
For the quarter ended combined October 1, 1999, our revenue was $133.9 million,
net loss was $29.6 million and adjusted EBITDA was $26.5 million. In addition,
our sales backlog was $180.8 million at October 1, 1999.
Worldwide Semiconductor Trade Statistics, or WSTS, has forecasted strong
growth of approximately 15.5% for the semiconductor industry over the next three
years. We sell our semiconductors into high-growth segments of the market
including the communications analog & mixed-signal market, which is forecasted
by the Semiconductor Industry Association, or SIA, to grow 18.4% in calendar
year 2000 from calendar year 1999, the power management market which is
forecasted by WSTS to grow at 20.2% in calendar year 2000 from calendar year
1999 and the wireless LAN market which is forecasted by Intex Management
Services to grow 39.0% in calendar year 2000 from calendar year 1999. We believe
that future demand for our semiconductors will be driven by the increasing
demand for Internet use and for greater portability of electronics, including
consumer electronics, computers and cellular telephones and the growth of the
emerging wireless data communications markets.
INTERSIL HOLDING CORPORATION
We are a wholly-owned subsidiary of Intersil Holding. Our parent's assets
are our stock and other intangible assets.
2
THE TRANSACTIONS
Pursuant to the Master Transaction Agreement dated June 2, 1999, among
Intersil Holding, us and Harris Corporation, we acquired the semiconductor
business of Harris on August 13, 1999. See "The Transactions."
THE EXCHANGE OFFER
Securities Offered ............... Up to $200,000,000 aggregate principal amount of 13 1/4%
Senior Subordinated Notes Due 2009. The terms of the new
notes and old notes are identical in all material
respects, except for transfer restrictions and
registration rights relating to the old notes.
The Exchange Offer ............... We are offering the new notes to you in exchange for a
like principal amount of old notes. Old notes may be
exchanged only in integral multiples of $1,000. We
intend by the issuance of the new notes to satisfy our
obligations contained in the Registration Rights
Agreement.
Expiration Date; Withdrawal of
Tender ......................... The exchange offer will expire at 5:00 p.m., New York
City time, on , , or such later
date and time to which it may be extended by us. The
tender of old notes pursuant to the exchange offer may
be withdrawn at any time prior to the expiration date of
the exchange offer. Any old notes not accepted for
exchange for any reason will be returned without expense
to its tendering holder as promptly as practicable after
the expiration or termination of the exchange offer.
Conditions to the Exchange
Offer .......................... Our obligation to accept for exchange, or to issue new
notes in exchange for, any old notes is subject to
customary conditions relating to compliance with any
applicable law or any applicable interpretation by the
staff of the Securities and Exchange Commission, the
receipt of any applicable governmental approvals and the
absence of any actions or proceedings of any
governmental agency or court which could materially
impair our ability to consummate the exchange offer. We
currently expect that each of the conditions will be
satisfied and that no waivers will be necessary. See
"The Exchange Offer -- Conditions to the Exchange
Offer."
Procedures for Tendering Old
Notes .......................... If you wish to accept the exchange offer and tender your
old notes, you must complete, sign and date the Letter
of Transmittal, or a facsimile of the Letter of
Transmittal, in accordance with its instructions and the
instructions in this prospectus, and mail or otherwise
deliver the Letter of Transmittal, or the facsimile,
together with the old notes and any other required
documentation, to the exchange agent at the address set
forth herein. See "The Exchange Offer -- Procedures for
Tendering Old Notes."
Use of Proceeds .................. We will not receive any proceeds from the exchange
offer.
Exchange Agent ................... United States Trust Company of New York is serving as
the exchange agent in connection with the exchange
offer.
Federal Income Tax Consequences... The exchange of notes pursuant to the exchange offer
should not be a taxable event for federal income tax
purposes. See "United States Federal Income Tax
Considerations."
3
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the Securities
and Exchange Commission to third parties in unrelated transactions, we are of
the view that holders of old notes (other than any holder who is an "affiliate"
of our company within the meaning of Rule 405 under the Securities Act) who
exchange their old notes for new notes pursuant to the exchange offer generally
may offer the new notes for resale, resell the new notes and otherwise transfer
the new notes without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided:
o the new notes are acquired in the ordinary course of the holders'
business;
o the holders have no arrangement with any person to participate in a
distribution of such new notes; and
o neither the holder nor any other person is engaging in or intends to
engage in a distribution of the new notes.
Each broker-dealer that receives new notes for its own account in exchange
for old notes must acknowledge that it will deliver a prospectus in connection
with any resale of such new notes. See "Plan of Distribution." In addition, to
comply with the securities laws of applicable jurisdictions, the new notes may
not be offered or sold unless they have been registered or qualified for sale in
the applicable jurisdiction or in compliance with an available exemption from
registration or qualification. We have agreed, under the Registration Rights
Agreement and subject to limitations specified in the Registration Rights
Agreement, to register or qualify the new notes for offer or sale under the
securities or blue sky laws of the applicable jurisdictions as any holder of the
notes reasonably requests in writing. If a holder of old notes does not exchange
the old notes for new notes according to the terms of the exchange offer, the
old notes will continue to be subject to the restrictions on transfer contained
in the legend printed on the old notes. In general, the old notes may not be
offered or sold, unless registered under the Securities Act, except under an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Holders of old notes do not have any appraisal
or dissenters' rights under the Delaware General Corporation Law in connection
with the exchange offer. See "The Exchange Offer -- Consequences of Failure to
Exchange; Resales of New Notes."
The old notes are currently eligible for trading in the Private Offerings,
Resales and Trading through Automated Linkages (PORTAL) market. Following
commencement of the exchange offer but prior to its completion, the old notes
may continue to be traded in the PORTAL market. Following completion of the
exchange offer, the new notes will not be eligible for PORTAL trading.
4
THE NEW NOTES
The terms of the new notes and the old notes are identical in all material
respects, except for transfer restrictions and registration rights relating to
the old notes.
Issuer ........................... Intersil Corporation.
Maturity Date .................... August 15, 2009.
Interest Payment Dates ........... February 15 and August 15 of each year, commencing
February 15, 2000.
Optional Redemption .............. We cannot redeem the new notes before August 15, 2004,
except that, until August 15, 2002, we can choose to
redeem up to an aggregate of 35% of the sum of the
original principal amount of the notes and the original
principal amount of any other notes issued under the
same indenture, with money we raise in certain equity
offerings, as long as:
o we pay the holders of the new notes a redemption price
of 113 1/4% of the principal amount of the new notes we
redeem, plus accrued interest to the date of
redemption; and
o at least 65% of the original aggregate principal
amount of the notes and other notes issued remains
outstanding after each such redemption.
On or after August 15, 2004, we can redeem some or all
of the notes at the redemption prices listed in the
"Description of the Notes--Optional Redemption" section
of this prospectus, plus accrued interest to the date of
redemption.
Change of Control ................ If a change of control of Intersil occurs, subject to
certain conditions, we must give holders of the new
notes an opportunity to sell to us the new notes at a
purchase price of 101% of the principal amount of the
new notes, plus accrued interest. The term "Change of
Control" is defined in the "Description of the
Notes--Change of Control" section of this prospectus.
Ranking .......................... The new notes will be unsecured and subordinated to our
existing and future senior indebtedness. On a pro forma
basis after giving effect to the transactions
contemplated by the Master Transaction Agreement, as of
July 2, 1999, we have had about $224.6 million of senior
indebtedness outstanding. The new notes will rank junior
in right of payment with all of our other senior
subordinated indebtedness and rank senior to any of our
other subordinated indebtedness issued after the
offering of the old notes and after this offering. The
terms "Senior Indebtedness" and "Senior Subordinated
Indebtedness" are defined in the "Description of the
Notes--Certain Definitions" section of this prospectus.
Guaranties ....................... The payment of the principal, premium and interest on
the new notes will be fully and unconditionally
guaranteed on a senior subordinated basis by Intersil
Holding and all our domestic subsidiaries. The guaranty
by Intersil Holding and our domestic subsidiaries will
be subordinated to all existing and future senior
indebtedness of Intersil Holding and our domestic
subsidiaries, respectively, including their guaranty of
our obligations under our senior credit facilities.
Intersil Holding currently conducts no business and has
no significant assets other than our capital stock, all
of which is pledged to secure Intersil Holding's
guaranty of our obligations under our senior credit
facilities. See "Description of the Notes--Guaranties."
5
Restrictive Covenants ............ The indenture governing the new notes contains covenants
that limit our ability and certain of our subsidiaries'
ability to:
o incur additional indebtedness;
o pay dividends on our capital stock or redeem,
repurchase or retire our capital stock or subordinated
indebtedness;
o make investments;
o engage in transactions with affiliates;
o sell assets, including capital stock of subsidiaries;
and
o consolidate, merge or transfer assets.
These covenants are subject to important exceptions and
qualifications, which are described in the "Description
of the Notes--Certain Covenants" section of this
prospectus.
For a more detailed discussion of the new notes, see "Description of the
Notes."
RISK FACTORS
Investing in the new notes involves substantial risks. See the "Risk
Factors" section of this prospectus for a description of certain of the risks
you should carefully consider before investing in the new notes.
6
SUMMARY HISTORICAL, PRO FORMA AND OTHER DATA
The following summary historical financial data for the fiscal years ended
June 27, 1997, July 3, 1998 and July 2, 1999 for Intersil Holding were derived
from our predecessor's audited consolidated financial statements included
elsewhere in this prospectus, except for revenue categorized by product line
(Analog & Mixed-Signal, Discrete Power and Wireless), which were derived from
Intersil Holding's books and records. The balance sheet data as of October 1,
1999 (successor) have been derived from Intersil Holding's unaudited
consolidated financial statements included elsewhere in this prospectus, and
include, in the opinion of management, all adjustments necessary to present
fairly the balance sheet data at the time. The summary pro forma financial
information for the fiscal year 1999 (predecessor), quarter ended October 2,
1998 (predecessor) and combined quarter ended October 1, 1999 (6 weeks ended
August 13, 1999 (predecessor) and 7 weeks ended October 1, 1999 (successor))
were derived from Intersil Holding's pro forma unaudited consolidated financial
statements included elsewhere in this prospectus.
During the period covered by Intersil Holding's consolidated financial
statements, Intersil Holding's activities were conducted as part of Harris'
overall operations. Accordingly, Intersil Holding's consolidated financial
statements contain various allocations for costs and expenses attributable to
services provided by Harris. Therefore, the Consolidated Statement of Operations
may not be indicative of the results of operations that would have resulted if
Intersil Holding had operated on a stand-alone basis.
Since the information in the tables below is a summary, you should read the
following tables in conjunction with other information contained under the
captions "Unaudited Pro Forma Combined Condensed Financial Statements,"
"Capitalization," "Selected Historical Financial Data," "Forward Looking
Statements," "Risk Factors--Risks Related to Use of Estimates in Pro Forma
Information and Adjusted EBITDA," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and with Intersil Holding's
financial statements and related notes and other financial information contained
elsewhere in this prospectus.
7
PRO FORMA (1)
--------------------------------
HISTORICAL QUARTER ENDED
------------------------- -----------------------
COMBINED
FISCAL FISCAL FISCAL FISCAL OCTOBER 2, OCTOBER 1,
1997 1998 1999 1999 1998 1999
------- ------ ------ ------ ---------- ----------
(PREDECESSOR) (PREDECESSOR)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenue:
Analog & Mixed-Signal ................ $ 384.4 $390.4 $352.8 $352.8 $ 79.8 $ 82.8
Discrete Power ....................... 154.5 176.4 161.6 161.6 38.5 44.9
Wireless ............................. 6.4 10.0 18.3 18.3 4.2 6.2
------- ------ ------ ------ ------ ------
Total revenue .......................... $ 545.3 $576.8 $532.7 $532.7 $122.5 $133.9
======= ====== ====== ====== ====== ======
Gross profit(2) ........................ $ 199.3 $207.5 $182.9 $192.9 $ 44.5 $ 48.9
Research and development................ 75.2 75.1 67.0 67.0 14.8 16.9
Selling, general and administrative..... 99.3 98.2 84.0 87.0 22.0 21.8
Harris corporate expense allocation..... 10.0 10.0 9.3 -- -- --
Intangible amortization................. 2.3 2.3 2.4 12.9 3.2 2.9
In-process research and development..... -- -- -- -- -- 20.8
------- ------ ------ ------ ------ ------
Operating income (loss)................. 12.5 21.9 20.2 26.0 4.5 (13.5)
Interest, net........................... (0.6) (0.9) (1.2) 61.4 15.4 15.8
------- ------ ------ ------ ------ ------
Income (loss) before income taxes....... 13.1 22.8 21.4 (35.4) (10.9) (29.3)
Income taxes (benefit).................. 1.9 9.9 (6.0) (28.2) (6.7) (2.3)
------- ------ ------ ------ ------ ------
Net income (loss)....................... 11.2 12.9 27.4 (7.2) (4.2) (27.0)
Preferred dividends..................... -- -- -- (10.2) (2.6) (2.6)
------- ------ ------ ------ ------ ------
Net income (loss) to common
shareholders.......................... $ 11.2 $ 12.9 $ 27.4 $(17.4) $ (6.8) $(29.6)
======= ====== ====== ====== ====== ======
LOSS PER COMMON SHARE:
Basic and diluted................................................. $(0.17) $(0.07) $(0.30)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (IN MILLIONS):
Basic and diluted................................................. 100.0 100.0 100.0
SUPPLEMENTAL DATA:
Depreciation............................ $ 50.2 $ 65.0 $ 78.2 $ 68.2 $ 16.5 $ 16.3
Capital expenditures.................... $ 173.3 $ 90.2 $ 38.6 $ 38.6 $ 13.1 $ 4.3
Total cash interest expense(4)...................................... $ 47.0 $ 11.7 $ 12.0
Adjusted EBITDA(3).................................................. $129.8 $ 29.6 $ 26.5
Cash flows provided from (used in)
Operating activities.................. $ 54.6 $ 48.3 $111.2
Investing activities.................. $(173.3) $(90.2) $(39.9)
Financing activities.................. $ 1.4 $ 2.7 $ 0.5
Ratio of Adjusted EBITDA to total cash interest expense............. 2.8x 2.5x 2.2x
Ratio of total debt to Adjusted EBITDA(5)........................... 4.3x 4.6x 5.3x
Ratio of earnings to fixed charges(6)... 7.0x 11.9x 10.7x -- -- --
Ratio of earnings to fixed charges and
preferred stock dividends(7).......... 7.0x 11.9x 10.7x -- -- --
8
AS OF
OCTOBER 1, 1999
---------------
(IN MILLIONS)
BALANCE SHEET DATA:
Cash........................................................ $ 33.8
Total assets................................................ 736.7
Long-term debt, including current portion................... 545.8
Mandatorily redeemable preferred stock...................... 86.4
Total shareholders' equity (deficit)........................ (15.4)
- ------------------
(1) The pro forma information presented is a summary only and should be read in
conjunction with "Unaudited Pro Forma Combined Condensed Financial
Statements and Unaudited Supplemental Data" included elsewhere in the
prospectus.
(2) Gross profit includes foreign exchange losses with respect to the Malaysian
Ringgit as detailed in footnote (3) below.
(3) Adjusted EBITDA, for the pro forma periods presented, represents income
(loss) before income taxes, depreciation, amortization, interest expense and
the following adjustments in the chart below. While Adjusted EBITDA should
not be construed as a substitute for operating income or a better indicator
of liquidity than cash flow from operating activities, which are determined
in accordance with generally accepted accounting principles, it is included
herein to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditure and working
capital requirements which the Company believes certain investors find to be
useful.
PRO FORMA
--------------------------------
QUARTER ENDED
-----------------------
COMBINED
FISCAL OCTOBER 2 OCTOBER 1,
1999 1998 1999
------ ---------- ----------
(IN MILLIONS)
In-process research and development.............. $ -- $ -- $20.8
Foreign exchange losses.......................... 11.4 2.6 --
Cost savings..................................... 11.3 2.8 --
----- ----- -----
$22.7 $ 5.4 $20.8
===== ===== =====
Foreign exchange losses--foreign exchange losses with respect to the
Malaysian Ringgit represent losses under contracts entered into by Harris and
subsequently terminated. See "Market Risk Management" on page 37 of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Cost savings--reflects management's estimate of the effect for a full year of
the cost savings related to the closure in January 1999 of one of our
facilities ($3.3 million) and additional cost savings which management
believes can be achieved as a result of initiatives that were begun during
the first quarter of fiscal year 2000 ($8.0 million). These estimated
additional cost savings are expected to result from (i) the decrease in
royalty payments as we accelerate the use of a new fabrication process that
does not rely on third party patents, (ii) the outsourcing of information
technology support services currently provided by Harris, (iii) the
outsourcing of specialized semiconductor packaging in Malaysia and the
related reduction in our workforce and (iv) the downsizing of our European
administrative headquarters. While we consider the numerical specificity of
the foregoing preliminary estimates and the anticipated cost savings to be
reasonable, these estimates and savings are based upon a number of
assumptions and estimates that are subject to inherent uncertainty. The
actual cost savings could vary from these estimates.
(Footnotes continued on next page)
9
(Footnotes continued from previous page)
(4) Total cash interest expense represents the pro forma interest expense less
interest on the 11.13% Seller Holding PIK Note, the 13.5% Subordinated
Holding PIK Note and amortization of deferred debt issuance costs and
accretion of original issue discount as a result of a required allocation of
value to the warrants under generally accepted accounting principles.
(5) The ratio of total debt to adjusted EBITDA for the pro forma quarters ended
October 2, 1998 and October 1, 1999 is calculated by annualizing adjusted
EBITDA for the respective period.
(6) Earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense on debt and amortization of defined debt
issuance costs and the portion (about one-third) of rental expense that
we believe is representative of the interest component of rental expense.
Pro forma fixed charges exceeded pro forma earnings by $35.4 million, $10.9
million and $29.3 million for the pro forma periods fiscal 1999, quarter
ended October 2, 1998 and quarter ended combined October 1, 1999,
respectively.
(7) Earnings as defined above, fixed charges as defined above plus preferred
stock dividends, whether paid or accreted. Pro forma fixed charges and
preferred stock dividends exceeded pro forma earnings by $45.6 million,
$13.5 million and $31.9 million for the pro forma periods fiscal 1999,
quarter ended October 2, 1998 and quarter ended combined October 1, 1999,
respectively.
10
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing our
company. Additional risks not presently known to us or that we currently deem
immaterial may also impair our business operations.
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES--NO ASSURANCE CAN BE GIVEN AS TO THE
LIQUIDITY OF ANY TRADING MARKET FOR THE NEW NOTES.
The old notes are currently eligible for trading in the PORTAL Market, a
screen-based market operated by the National Association of Securities Dealers.
The PORTAL market is limited to qualified institutional investors as defined by
Rule 144A of the Securities Act of 1933. The new notes are new securities for
which there is no established market. Intersil does not intend to apply for
listing or quotation of the notes on any securities exchange or stock market.
Credit Suisse First Boston, J.P. Morgan & Co. and Salomon Smith Barney
acted as initial purchasers in connection with the offer and sale of the old
notes. Some of the initial purchasers have informed us that they intend to make
a market in the notes. However, these initial purchasers may cease their
market-making at any time. In addition, the liquidity of the trading market in
the new notes, and the market price quoted for the new notes, may be adversely
affected by changes in the overall market for high yield securities and by
changes in our financial performance or prospects or in the prospects for
companies in our industry generally. As a result, we cannot assure you that an
active trading market will develop for the new notes.
LIMITS ON ABILITY TO RESELL OLD NOTES--FAILURE TO TENDER YOUR OLD NOTES FOR NEW
NOTES COULD LIMIT YOUR ABILITY TO RESELL THE OLD NOTES.
The old notes were not registered under the Securities Act or under the
securities laws of any state and may not be resold, offered for resale or
otherwise transferred unless they are subsequently registered or resold under an
exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your old notes for new
notes under the exchange offer, you will not be able to resell, offer to resell
or otherwise transfer the old notes unless they are registered under the
Securities Act or unless you resell them, offer to resell or otherwise transfer
them under an exemption from the registration requirements of, or in a
transaction not subject to, the Securities Act. In addition, we will no longer
be under an obligation to register the old notes under the Securities Act except
in the limited circumstances provided under the registration rights agreement.
In addition, if you want to exchange your old notes in the exchange offer for
the purpose of participating in a distribution of the new notes, you may be
deemed to have received restricted securities, and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
ADVERSE EFFECT ON MARKET FOR OLD NOTES--THE ISSUANCE OF THE NEW NOTES MAY
ADVERSELY AFFECT THE MARKET FOR THE OLD NOTES.
To the extent that old notes are tendered for exchange and accepted in the
exchange offer, the trading market for the untendered and tendered but
unaccepted old notes could be adversely affected.
11
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS MAY LIMIT CASH FLOW AVAILABLE
TO INVEST IN THE ONGOING NEEDS OF OUR BUSINESS RATHER THAN SERVICE DEBT WHICH
COULD PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We have a significant amount of indebtedness. The following chart sets
forth certain important credit information as of the date, or at the beginning
of the periods, specified below regarding Intersil Holding:
INTERSIL
HOLDING
AT OCTOBER 1,
1999
-----------------
(IN MILLIONS
EXCEPT RATIO)
Total indebtedness.......................................... $545.8
Shareholders' deficit....................................... (15.4)
Debt to equity (deficit) ratio.............................. (35.4)x
PRO FORMA
-----------------------------
COMBINED
FISCAL YEAR 13 WEEKS ENDED
1999 OCTOBER 1, 1999
----------- ---------------
(IN MILLIONS)
Deficiency of earnings available to cover fixed charges.... $35.4 $29.3
Pro forma interest expense for Intersil Holding for the year ended July 2, 1999
and the combined 13 weeks ended October 1, 1999, would have been $62.7 million
and $15.9 million, respectively.
Our substantial indebtedness could have important consequences to you. For
example, it could:
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
o increase the amount of interest expense which we have to pay, because
certain of our borrowings are at variable rates of interest, which, if
interest rates increase, could result in higher interest expense;
o increase our vulnerability to adverse general economic or industry
conditions;
o limit our flexibility in planning for, or reacting to, changes in our
business or the industry in which we operate;
o prevent us from raising the funds necessary to repurchase all notes
tendered to us upon the occurrence of certain changes of control in our
ownership, which would constitute a default under the indenture governing
our notes; and
o place us at a competitive disadvantage compared to our competitors that
have less debt.
See "Description of Certain Indebtedness--Notes," "Capitalization,"
"Unaudited Pro Forma Consolidated Condensed Financial Statements and Unaudited
Other Data" and "Description of Certain Indebtedness."
ADDITIONAL BORROWINGS AVAILABLE--DESPITE CURRENTLY EXPECTED LEVELS OF
INDEBTEDNESS, WE AND OUR SUBSIDIARIES WILL BE ABLE TO INCUR SUBSTANTIALLY MORE
DEBT. THIS COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. Although the indenture governing the notes contains
restrictions on the incurrence of additional indebtedness, these restrictions
are subject to a number of qualifications and exceptions; and the indebtedness
incurred in compliance with these such restrictions could be substantial. Also,
these restrictions do not prevent us from incurring obligations that do not
constitute indebtedness. As of October 1, 1999, our senior credit facilities
provide for additional borrowing of up to about $55.0 million. To the extent new
debt is added to our and
12
our subsidiaries' currently anticipated debt levels, the substantial leverage
risks described above would increase.
See "Pro Forma Capitalization," "Selected Historical Consolidated Financial
Data," "Description of the Notes" and "Description of Certain Indebtedness."
ABILITY TO SERVICE DEBT--TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. WE MAY NOT BE ABLE TO GENERATE CASH. IF WE CANNOT
OBTAIN THE REQUIRED CASH, WE MAY NOT BE ABLE TO MAKE PAYMENTS UNDER THE NOTES.
Our ability to make payments on our indebtedness, including the notes, and
to fund planned capital expenditures and research and development efforts will
depend on our ability to generate cash in the future. This, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control.
Our historical financial results have been, and our future financial
results are anticipated to be, subject to substantial fluctuations. We cannot
assure you that our business will generate sufficient cash flow from operations,
that currently anticipated cost savings and operating improvements will be
realized on schedule or that future borrowings will be available to us in an
amount sufficient to enable us to pay our indebtedness, including the notes, or
to fund our other liquidity needs. If we are unable to pay our debts, we will be
required to pursue one or more alternative strategies, such as selling assets,
refinancing or restructuring our indebtedness or selling equity capital.
However, we cannot assure you that any alternative strategies will be feasible
at the time or prove adequate. Also, certain alternative strategies will require
the consent of our senior secured lenders before we engage in any of these
strategies.
See "--Cyclical Industry" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THE NEW NOTES, LIKE THE OLD
NOTES, IS JUNIOR TO OUR AND OUR GUARANTORS' EXISTING SENIOR INDEBTEDNESS AND
POSSIBLY ALL OF OUR AND THEIR FUTURE BORROWINGS. FURTHER, CLAIMS OF CREDITORS OF
OUR NON-GUARANTOR SUBSIDIARIES WILL GENERALLY HAVE PRIORITY WITH RESPECT TO THE
ASSETS AND EARNINGS OF SUCH SUBSIDIARIES OVER YOUR CLAIMS.
The new notes, like the old notes, the Intersil Holding guaranty and the
subsidiary guaranties will be subordinated to the prior payment in full of our,
Intersil Holding's and the subsidiary guarantors', as the case may be, current
and future senior indebtedness to the extent set forth in the indenture. As of
July 2, 1999, after giving pro forma effect to the transactions under the Master
Transaction Agreement, we would have had about $224.6 million of senior
indebtedness, Intersil Holding would have had about $220.0 million of senior
indebtedness, consisting of its senior guaranty of our obligations under our
senior credit facilities, and the subsidiary guarantors would have had about
$220.0 million of senior indebtedness, consisting of their senior guaranty of
our obligations under our senior credit facilities. Because of the subordination
provisions of the notes, in the event of the bankruptcy, liquidation or
dissolution of our company or any guarantor, our assets or the assets of the
guarantors would be available to pay obligations under the notes only after all
payments had been made on our or the guarantors' senior indebtedness. Sufficient
assets may not remain after all such payments have been made to make any
payments on the notes, including payments on interest when due. The term "Senior
Indebtedness" is defined in the "Description of the Notes" section of this
offering circular.
In addition, all payments on the notes and the guaranties will be
prohibited in the event of a payment default on certain of our senior
indebtedness (including borrowings under the senior credit facilities) and, for
limited periods, upon the occurrence of other defaults under such indebtedness.
We conduct a portion of our business through our subsidiaries. Our foreign
subsidiaries are not guaranteeing the notes. Claims of creditors of the
non-guarantor subsidiaries, including trade creditors, secured creditors and
creditors holding indebtedness, and claims of preferred stockholders (if any) of
the non-guarantor subsidiaries will generally have priority with respect to
their assets and earnings over the claims of creditors of our company, including
holders of the notes, even if the obligations of the subsidiaries do not
constitute senior indebtedness. Immediately following the consummation of the
transactions under the Master
13
Transaction Agreement, we anticipate that the non-guarantor subsidiaries will
own approximately a quarter of our consolidated assets.
See "Description of the Notes--Ranking" and "Description of the
Notes--Certain Covenants--Limitation on Indebtedness."
ENCUMBRANCES ON ASSETS TO SECURE SENIOR CREDIT FACILITIES--THE NEW NOTES, LIKE
THE OLD NOTES, ARE NOT SECURED BY OUR ASSETS AND THOSE OF OUR SUBSIDIARIES, AND
THE LENDERS UNDER THE SENIOR CREDIT FACILITIES WILL BE ENTITLED TO REMEDIES
AVAILABLE TO A SECURED LENDER WHICH GIVES THEM PRIORITY OVER THE NOTE HOLDERS TO
COLLECT AMOUNTS DUE ON OUR DEBT.
In addition to being subordinated to all of our existing and future senior
debt, the new notes, like the old notes, the Intersil Holding guaranty and the
subsidiary guaranties will not be secured by any of our assets. Our obligations
under the senior credit facilities will be secured by, among other things, a
first priority pledge of all of our capital stock, mortgages upon all of the
real property owned by us in the United States and by substantially all of the
assets of Intersil Holding, our company and each of our existing and
subsequently acquired or organized domestic (and, to the extent no adverse tax
consequences will result, foreign) subsidiaries. If we become insolvent or are
liquidated, or if payment under the senior credit facilities or in respect of
any other secured senior indebtedness is accelerated, the lenders under the
senior credit facilities or holders of other secured senior indebtedness will be
entitled to exercise the remedies available to a secured lender under applicable
law (in addition to any remedies that may be available under documents
pertaining to the senior credit facilities or such other senior debt). Upon the
occurrence of any default under the senior credit facilities (and even without
accelerating the indebtedness under the senior credit facilities), the lenders
may be able to prohibit the payment of the notes and guaranties under the
subordination provisions contained in the indenture governing the notes, or
otherwise limit our ability to use our cash flow to make such payments. See
"Description of Certain Indebtedness--Senior Credit Facilities" and "Description
of the Notes."
RESTRICTIONS AND COVENANTS IN OUR DEBT INSTRUMENTS--RESTRICTIONS IMPOSED BY OUR
SENIOR CREDIT FACILITIES AND THE INDENTURE GOVERNING THE NOTES LIMIT OUR ABILITY
TO ENGAGE IN OR ENTER INTO BUSINESS, OPERATING AND FINANCING ARRANGEMENTS, WHICH
COULD ADVERSELY AFFECT OUR ABILITY TO TAKE ADVANTAGE OF POTENTIALLY PROFITABLE
BUSINESS OPPORTUNITIES.
We cannot assure you that the operating and financial restrictions and
covenants in our debt instruments, including the senior credit facilities and
the notes, will not adversely affect our ability to finance our future
operations or capital needs or engage in other business activities that may be
in our interest.
Our senior credit facilities require us to maintain certain financial
ratios which become more restrictive over time. Our ability to comply with these
ratios may be affected by events beyond our control. A breach of any of these
covenants or our inability to comply with the required financial ratios could
result in a default under our senior credit facilities. In the event of any
default under our senior credit facilities, the lenders under our senior credit
facilities could elect to declare all borrowings outstanding, together with
accrued interest and other fees, to be due and payable, to require us to apply
all of our available cash to repay these borrowings or to prevent us from making
debt service payments on the notes, any of which would be an event of default
under the notes.
See "Description of the Notes" and "Description of Certain Indebtedness."
FINANCING CHANGE OF CONTROL OFFER--WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE
GOVERNING THE NOTES WHICH WOULD VIOLATE THE TERMS OF THE NOTES.
Upon the occurrence of a change of control, we will be required to offer to
repurchase all outstanding new notes and old notes. We cannot assure you that
there will be sufficient funds available for us to make any required repurchases
of the notes upon a change of control. In addition, our senior credit facilities
will prohibit us from purchasing any notes and provide that the occurrence of a
change of control constitute defaults. If we do not obtain a consent of our
lenders under our senior credit facilities to repurchase the notes
14
or repay all borrowings under our senior credit facilities, we will remain
prohibited from purchasing notes. In such case, our failure to purchase tendered
notes would constitute a default under the indenture governing the notes, which,
in turn, would constitute a default under our senior credit facilities.
See "Description of the Notes--Change of Control."
GUARANTY OF OUR PARENT COMPANY, INTERSIL HOLDING CORPORATION--INTERSIL HOLDING
CORPORATION DOES NOT HAVE ANY RESOURCES TO SUPPORT ITS GUARANTY OF THE NOTES AND
THEREFORE ITS GUARANTY MAY NOT PROVIDE ANY BENEFIT TO THE NOTE HOLDERS.
Although Intersil Holding has guaranteed the notes on a senior subordinated
basis, it currently conducts no business and has no significant assets other
than our capital stock and intangible assets. Since all of our capital stock
owned by Intersil Holding will be pledged to secure Intersil Holding's guaranty
of our obligations under our senior credit facilities, there are currently no
resources supporting Intersil Holding's guaranty of the notes besides those to
which holders of the notes already have access as our direct creditors. Intersil
Holding's guaranty of the notes is subordinated in right of payment to the
guaranty by Intersil Holding of our obligations under our senior credit
facilities.
See "Description of the Notes--Guaranties."
CYCLICAL INDUSTRY--DOWNTURNS IN THE BUSINESS CYCLE COULD REDUCE THE REVENUES AND
PROFITABILITY OF OUR BUSINESS.
The semiconductor industry is highly cyclical. In 1998, the semiconductor
industry experienced a downturn. Our markets may experience other, possibly more
severe and prolonged, downturns in the future. We may also experience
significant changes in our operating profit margins as a result of variations in
sales, changes in product mix, price competition for orders and costs associated
with the introduction of new products.
The markets for our products depend on continued demand for personal
computer, industrial, telecommunications, consumer electronics and automotive
goods. There can be no assurance that these end-user markets will not experience
changes in demand that will adversely affect our prospects.
NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE--OUR INABILITY TO INTRODUCE NEW
PRODUCTS COULD RESULT IN DECREASED REVENUES AND LOSS OF MARKET SHARE TO
COMPETITORS; NEW TECHNOLOGIES COULD ALSO REDUCE THE DEMAND FOR OUR PRODUCTS.
Rapidly changing technology and industry standards, along with frequent new
product introductions, characterize the semiconductor industry. Our success in
these markets depends on our ability to design, develop, manufacture, assemble,
test, market and support new products and enhancements on a timely and
cost-effective basis. There can be no assurance that we will successfully
identify new product opportunities and develop and bring new products to market
in a timely and cost-effective manner or that products or technologies developed
by others will not render our products or technologies obsolete or
noncompetitive. A fundamental shift in technology in our product markets could
have a material adverse effect on us.
COMPETITION--OUR BUSINESS IS VERY COMPETITIVE AND INCREASED COMPETITION COULD
REDUCE GROSS PROFIT MARGINS AND THE VALUE OF AN INVESTMENT IN OUR COMPANY.
The semiconductor industry, and the semiconductor product markets
specifically, are highly competitive. Competition is based on price, product
performance, quality, reliability and customer service. The gross profit margins
realizable in our markets can differ across regions, depending on the economic
strength of end-product markets in those regions. Even in strong markets, price
pressures may emerge as competitors attempt to gain more share by lowering
prices. Competition in the various markets in which we participate comes from
companies of various sizes, many of which are larger and have greater financial
and other resources than we have and thus can better withstand adverse economic
or market conditions. In addition, companies not currently in direct competition
with us may introduce competing products in the future.
15
RISKS RELATED TO USE OF ESTIMATES IN PRO FORMA FINANCIAL INFORMATION AND
ADJUSTED EBITDA--IF ACTUAL RESULTS DIFFER FROM THE ESTIMATES UNDERLYING SOME OF
THE PRO FORMA FINANCIAL INFORMATION AND ADJUSTED EBITDA, OUR RESULTS MAY REFLECT
HIGHER EXPENSES AND LOWER OPERATING RESULTS.
The pro forma financial information contained herein assumes that we would
have incurred annual expenses of $3.0 million to obtain general and
administrative services, either from Harris, under the Transition Services
Agreement, or otherwise. Charges under the Transition Services Agreement may
exceed historical charges or upon termination of the agreement we might not be
able to obtain similar facilities and services on comparable terms. See "The
Transactions--Transition Services Agreement. If our actual expenses exceed the
estimates, our operating results will be less favorable than those set forth in
the pro forma financial statements.
The Adjusted EBITDA represents income (loss) before income taxes,
depreciation, amortization, interest expense and adjustments for in-process
research and development, foreign exchange loss and cost savings. It reflects
management's estimate of our normalized earnings flow and is an indicator of our
anticipated performance. Adjusted EBITDA in this prospectus is based on
anticipated cost savings that our management believes are reasonable, including
cost savings resulting from a plant closure in January 1999 and certain other
cost savings anticipated in connection with other initiatives. We cannot assure
you that the anticipated cost savings will be achieved. If our actual savings
are less than our estimates or adversely affect our revenues or operations, our
results and Adjusted EBITDA will be less than we anticipate and less than the
amounts set forth in this prospectus. See "Summary Historical, Pro Forma and
Other Data."
FLUCTUATION OF OPERATING RESULTS--OUR OPERATING RESULTS MAY DECREASE DUE TO THE
DECLINE OF AVERAGE SELLING PRICES IN THE SEMICONDUCTOR INDUSTRY.
Intense competition and a general slowdown in the semiconductor industry
worldwide have resulted in decreases in the average selling prices of many of
our products. We expect that average selling prices for our products will
continue to decline in the future. A decline in average selling prices for our
products, if not offset by reductions in the costs of providing these products,
would decrease our gross profits and could have a material adverse effect on our
business, financial condition and results of operation.
CURRENCY EXCHANGE RATE FLUCTUATIONS--FLUCTUATIONS IN THE EXCHANGE RATE OF THE
U.S. DOLLAR AND OTHER FOREIGN CURRENCIES COULD INCREASE OPERATING EXPENSES AND
NEGATIVELY IMPACT OUR FINANCIAL PERFORMANCE AND RESULTS OF OPERATIONS.
While we and our subsidiaries transact business primarily in U.S. dollars
and most of our revenues are denominated in U.S. dollars, a portion of our costs
and revenues are denominated in other currencies, such as the Euro, the
Malaysian Ringgit and the Japanese Yen. As a result, changes in the exchange
rates of these currencies or any other applicable currencies to the U.S. dollar
will affect our costs of goods sold and operating margins and could result in
exchange losses. The impact of future exchange rate fluctuations on our results
of operations cannot be accurately predicted. From time to time, we have engaged
in, and may continue to engage in, exchange rate hedging activities in an effort
to mitigate the impact of exchange rate fluctuations. However, any hedging
technique that we may implement may not be effective or may result in foreign
exchange hedging losses. In the past, we have incurred foreign exchange hedging
losses, including $13.3 million during fiscal year 1998 and $11.4 million during
fiscal year 1999.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS--OUR INTERNATIONAL OPERATIONS
SUBJECT US TO RISKS NOT FACED BY DOMESTIC COMPETITORS WHICH INCLUDE UNFAVORABLE
POLITICAL, REGULATORY, LABOR AND TAX CONDITIONS IN OTHER COUNTRIES.
We cannot be certain to what extent our future operations and earnings may
be adversely affected by the risks related to or any other problems arising from
operating in international markets. We have significant operations in Kuala
Lumpur, Malaysia and additionally generate approximately one-half of our revenue
from outside the United States. Risks inherent in doing business on an
international level include:
o unexpected changes in the laws and policies of the United States and of
the countries in which we manufacture and sell our products;
16
o economic and political instability;
o trade restrictions; and
o foreign currency fluctuations.
DEPENDENCE ON SOURCES OF SUPPLY--PRODUCTION TIME AND THE OVERALL COST OF OUR
PRODUCTS COULD INCREASE IF WE WERE TO LOSE ONE OF OUR LIMITED NUMBER OF
SUPPLIERS OR IF ONE OF THOSE SUPPLIERS INCREASED THE PRICES OF RAW MATERIALS.
Our results of operations could be adversely affected if we were unable to
obtain adequate supplies of raw materials in a timely manner or if the costs of
raw materials increased significantly. Our manufacturing operations depend upon
obtaining adequate supplies of raw materials on a timely basis. We purchase raw
materials, such as silicon wafers, lead frames, mold compound, ceramic packages
and chemicals and gases, from a limited number of suppliers on a just-in-time
basis. From time to time, suppliers may extend lead times, limit supplies or
increase prices due to capacity constraints or other factors.
MANUFACTURING RISKS--DUE TO OUR COMPLEX MANUFACTURING PROCESSES, DELAYS IN
PRODUCTION AT NEW FACILITIES, IMPLEMENTING NEW PRODUCTION TECHNIQUES OR IN
CURING PROBLEMS ASSOCIATED WITH TECHNICAL EQUIPMENT MALFUNCTIONS MAY LOWER
YIELDS AND REDUCE OUR REVENUES.
Our manufacturing processes are highly complex, require advanced and costly
equipment and are continuously being modified in an effort to improve yields and
product performance. Impurities or other difficulties in the manufacturing
process can lower yields. Our manufacturing efficiency will be an important
factor in our future profitability, and we cannot assure you that we will be
able to maintain our manufacturing efficiency or increase manufacturing
efficiency to the same extent as our competitors.
In addition, as is common in the semiconductor industry, we have from time
to time experienced difficulty in beginning production at new facilities or in
effecting transitions to new manufacturing processes. As a consequence, we have
suffered delays in product deliveries or reduced yields. We may experience
manufacturing problems in achieving acceptable yields or experience product
delivery delays in the future as a result of, among other things, capacity
constraints, construction delays, upgrading or expanding existing facilities or
changing our process technologies, any of which could result in a loss of future
revenues. Our operating results could also be adversely affected by the increase
in fixed costs and operating expenses related to increases in production
capacity if revenues do not increase proportionately.
CONTROLLING SHAREHOLDERS OF INTERSIL HOLDING--A LIMITED NUMBER OF PERSONS
INDIRECTLY CONTROL INTERSIL HOLDING AND MAY EXERCISE THEIR CONTROL IN A MANNER
ADVERSE TO YOUR INTEREST.
Sterling and certain key employees of our company own about 90% of the
outstanding voting stock of our parent company, Intersil Holding, which owns all
of our outstanding capital stock. By virtue of this stock ownership, they have
the power to direct our affairs and will be able to determine the outcome of all
matters required to be submitted to shareholders for approval, including the
election of a majority of our directors, any merger, consolidation or sale of
all or substantially all of our assets, and amendment of our Certificate of
Incorporation. Sterling also has a significant equity investment in Fairchild
Semiconductor, one of our competitors. See "Business--Competition." Because a
limited number of persons control us, transactions could be difficult or
impossible to complete without the support of those persons. It is possible that
these persons will exercise control over us in a manner adverse to your
interests.
See "Ownership of Capital Stock."
DEPENDENCE ON INTELLECTUAL PROPERTY--WE USE A SIGNIFICANT AMOUNT OF INTELLECTUAL
PROPERTY IN OUR BUSINESS. IF WE ARE UNABLE TO PROTECT THIS INTELLECTUAL
PROPERTY, WE COULD LOSE OUR RIGHT TO EXCLUSIVE USE OF KEY TECHNOLOGY, RESULTING
IN DECREASE REVENUES.
Our future success and competitive position depend in part upon our ability
to obtain and maintain proprietary technology used in our principal products. We
rely on intellectual property rights, including, but not limited to, rights
existing under patent, trade secret, trademark, maskwork and copyright law, to
protect
17
this technology. Some of our technology is not covered by any patent or patent
application, and there is risk that:
o some of the approximately 1,400 patents that we own and other numerous
patents that we license from Harris may be invalidated, circumvented,
challenged or licensed to others;
o the license rights granted by Harris, or the patents that we own, will
not provide competitive advantages to us; or
o some of our pending or future patent applications will not be issued
within the scope of the claims sought by us, if at all.
Further, others may develop technologies that are similar or superior to our
technology, duplicate our technology or design around our patents. In addition,
effective patent, trademark, copyright, maskwork and trade secret protection may
be unavailable, limited or not applied for in certain foreign countries.
We also seek to protect our proprietary technology, including technology
that may not be patented or patentable, in part by confidentiality agreements
and, if applicable, inventors' rights agreements with our collaborators,
advisors, employees and consultants. There can be no assurance that these
agreements will not be breached, that we will have adequate remedies for any
breach or that these persons or institutions will not assert rights to
intellectual property arising out of this research.
Some of our current licenses to use others' technology will expire during
the next several years, unless extended. In particular, we currently have access
to a portfolio of patents under a cross-license agreement that expires in the
year 2000. We will then need to negotiate renewals of these agreements or obtain
the technology from alternative sources. There is no guarantee that we will be
able to obtain renewals on substantially similar terms as those that currently
exist.
DEPENDENCE ON INTELLECTUAL PROPERTY ACQUIRED FROM HARRIS--WE HAVE ACQUIRED
SUBSTANTIALLY ALL OF OUR INTELLECTUAL PROPERTY FROM HARRIS. TO THE EXTENT OUR
USE OF THIS INTELLECTUAL PROPERTY INFRINGES THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS, WE MAY BE REQUIRED TO CEASE OUR USE OR SALE OF AFFECTED PRODUCTS.
Under our intellectual property agreement with Harris, Harris has limited,
royalty-free, worldwide, nonexclusive license rights (without right to
sublicense) to some of our technology. Under our patent assignment and services
agreements with Harris, Harris retained the ownership and rights to certain
patents for a period of three years after which time the patents will be
assigned to us, provided the patents are not the subject of litigation at that
time, and with the proviso that any binding obligations on third parties to make
royalty or other payments respecting the patents will be retained by Harris.
Furthermore, the license agreements under which third parties are licensed to
our intellectual property (or intellectual property that is assigned to us) and
under which Harris was cross-licensed to the third party's intellectual
property, may not be assignable to us. For this situation, Harris agreed to
partially indemnify us for limited periods in limited situations against claims
that may be made that our activities infringe the intellectual property rights
of others. The extent and duration of this indemnification may be insufficient
to shield us from the need to make monetary payments to third parties or to
facilitate the continued manufacture, use or sale of some affected products.
INTELLECTUAL PROPERTY UPON WHICH WE RELY MAY INFRINGE ON OTHER PARTIES'
INTELLECTUAL PROPERTY RIGHTS--WE MAY HAVE TO PAY OTHERS FOR INFRINGING THEIR
INTELLECTUAL PROPERTY RIGHTS OR DEFEND OURSELVES IN A LITIGATION, RESULTING IN
SIGNIFICANT EXPENSE TO US.
Vigorous protection and pursuit of intellectual property rights or
positions characterize the semiconductor industry. This vigor and pursuit have
resulted in significant and often protracted and expensive litigation. We may
from time to time be notified of claims that we may be infringing third party
patents or other intellectual property rights. For example, a countersuit has
been brought against Harris by Ericsson, one of its competitors alleging
infringement of four of its patents relating to telephone subscriber line
interface circuits and we have been joined as a party. Our liability from this
litigation, if any, that arises out of the conduct of the semiconductor business
prior to closing is covered by Harris' agreement to provide limited indemnities.
We do not believe that the litigation will have a material adverse effect on our
business, financial condition or results of operations. It is possible, however,
that the litigation will be resolved in a manner that is
18
materially adverse to us. If necessary or desirable, we may, from time to time,
seek licenses to patents or other intellectual property rights. However, we
cannot be certain that we will obtain these licenses or that the terms of any
offered licenses will be acceptable to us, and any acquisition or license could
require expenditure of substantial time and other resources. Furthermore, some
licenses or other rights to intellectual property of third parties that we use,
such as software, may not be freely assignable by Harris to us. Our failure to
obtain a license from a third party for technology we use could cause us to
incur substantial liabilities and to suspend the manufacture or shipment of
products or our use of processes requiring the technology. Litigation could
result in significant expense to us, adversely affecting sales of the challenged
product or technology and diverting the efforts of our technical and management
personnel, whether or not the litigation is determined in our favor. In the
event of an adverse outcome in any litigation, we may be required to:
o pay substantial damages and incur significant attorneys' fees;
o cease the manufacture, use, sale or importation of infringing products;
o expend significant resources to develop or acquire non-infringing
technology;
o discontinue the use of some processes; or
o obtain licenses to intellectual property covering the infringing
technology.
RISKS RELATING TO FUTURE ACQUISITIONS--WE MAY NOT BE ABLE TO CONSUMMATE FUTURE
ACQUISITIONS, AND THOSE ACQUISITIONS WHICH WE DO COMPLETE MAY BE DIFFICULT TO
INTEGRATE AND RESULT IN INCREASED DEBT AND LIABILITIES.
We plan to pursue acquisitions of related businesses. We might not be able
to identify acquisitions, or, if we complete any acquisition, we may not realize
any of the benefits anticipated from these acquisitions. Financing for
acquisitions may not be available; and, depending on the terms of these
acquisitions, financing could be restricted by the terms of our senior credit
facilities and the indenture governing the Notes. The process of integrating
acquired operations into our existing operations may result in unforeseen
operating difficulties and may require significant financial resources that
would otherwise be available for the ongoing development or expansion of our
existing operations. Possible future acquisitions could result in the incurrence
of additional debt, contingent liabilities and amortization expenses related to
goodwill and other intangible assets, all of which could materially adversely
affect our financial condition and operating results.
ENVIRONMENTAL LIABILITIES AND OTHER GOVERNMENTAL REGULATIONS--REGULATORY MATTERS
COULD FORCE US TO INCUR SIGNIFICANT CAPITAL AND OPERATIONAL COSTS.
We are subject to various environmental laws and regulations relating to
the management, disposal and, under some circumstances, remediation of hazardous
materials and wastes and the discharge of pollutants into the air and water. We
are also subject to laws and regulations relating to workplace safety and worker
health which, among other things, regulate employee exposure to hazardous
substances. Under the Master Transaction Agreement, Harris agreed to indemnify
us for substantially all environmental liabilities related to events or
activities occurring prior to the closing of the transactions contemplated by
the Master Transaction Agreement. The nature of our ongoing operations exposes
us to the risk of liabilities or claims with respect to environmental matters,
including those relating to the on- and off-site disposal and release of
hazardous materials, and there can be no assurance that material costs will not
be incurred in connection with these liabilities or claims.
Based on our experience, we believe that the future cost of compliance with
existing environmental and health and safety laws and regulations (and liability
for known environmental conditions even without the Harris indemnity) will not
have a material adverse effect on our business, financial condition or results
of operations. However, we cannot predict:
o what environmental or health and safety legislation or regulations will
be enacted in the future;
o how existing or future laws or regulations will be enforced, administered
or interpreted; or
19
o the amount of future expenditures which may be required to comply with
these environmental or health and safety laws or regulations or to
respond to future cleanup matters or other environmental claims.
See "Business--Environmental Matters."
FRAUDULENT CONVEYANCE MATTERS--FEDERAL AND STATE LAWS ALLOW COURTS, UNDER
SPECIFIC CIRCUMSTANCES, TO VOID DEBTS, INCLUDING GUARANTIES, AND REQUIRE
NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM US OR THE GUARANTORS.
If a bankruptcy proceeding or lawsuit were to be initiated by unpaid
creditors, the notes and the guaranties of the notes could come under review for
federal or state fraudulent transfer violations. Under federal bankruptcy law
and comparable provisions of state fraudulent transfer laws, obligations under a
note or a guaranty could be voided, or claims in respect of a note or a guaranty
could be subordinated to all other debts of the debtor or guarantor if, among
other things, the debtor or guarantor at the time it incurred the indebtedness
evidenced by its note or guaranty:
o received less than reasonably equivalent value or fair consideration for
the incurrence of the debt or guaranty; and
o one of the following applies:
o it was insolvent or rendered insolvent by reason of such incurrence;
o it was engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital; or
o it intended to incur, or believed that it would incur, debts beyond
its ability to pay debts as they mature.
In addition, any payment by that debtor or guarantor under its note or guaranty
could be voided and required to be returned to the debtor or guarantor, as the
case may be, or to a fund for the benefit of the creditors of the debtor or
guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a debtor or guarantor
would be considered insolvent if:
o the sum of its debts, including contingent liabilities, were greater than
the fair salable value of all of its assets;
o if the present fair salable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
o it could not pay its debts as they become due.
20
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. These statements
relate to analyses and other information which are based on forecasts of future
results and estimates of amounts not yet determinable. These statements also
relate to our future prospects, developments and business strategies.
These forward-looking statements are identified by their use of terms and
phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. These statements are contained in
sections entitled "Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and other
sections of this prospectus.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. These factors include, but are not limited to, the following: changes
in general economic and business conditions; changes in current pricing levels;
changes in political, social and economic conditions and local regulations;
changes in technology and the development of new technology; foreign currency
fluctuations; reductions in sales to any significant customers; changes in sales
mix; industry capacity; competition; disruptions of established supply channels;
manufacturing capacity constraints; the availability, terms and deployment of
capital; and our ability to accurately estimate the cost of systems preparation
and successfully implement for Year 2000 compliance. Our risks are more
specifically described in the "Risk Factors" section of this prospectus. If one
or more of these risks or uncertainties materialize, or if underlying
assumptions prove incorrect, our actual results may vary materially from those
expected, estimated or projected.
We do not undertake to update our forward-looking statements or risk
factors to reflect future events or circumstances.
SOURCES AND USES OF PROCEEDS
We will not receive any proceeds from the exchange offer. In consideration
for issuing the new notes, we will receive in exchange old notes of like
principal amount, the terms of which are identical in all material respects to
the new notes. The old notes surrendered in exchange for new notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the new
notes will not result in any increase in our indebtedness. We have agreed to
bear the expenses of the exchange offer. No underwriters are being used in
connection with the exchange offer.
We used the gross proceeds from the sale of the 200,000 units, each
consisting of $1,000 principal amount of old notes and one warrant to purchase
27.7778 shares of Class A Common Stock of Intersil Holding, together with the
$220.0 million from borrowings under the senior term facilities, and a $120.0
million cash equity contribution to us from Intersil Holding as follows: (i)
approximately $520.0 million to pay for the purchase price of the semiconductor
business and (ii) $20.0 million to pay fees and expenses relating to the
acquisition, the financings in connection with the acquisition and the
application of the proceeds of the financings. See "The Transactions."
21
CAPITALIZATION
The following table sets forth the capitalization of Intersil and Intersil
Holding (on a consolidated basis) as of October 1, 1999. This table should be
read in conjunction with "Unaudited Pro Forma Combined Condensed Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Intersil Holding's Consolidated Financial Statements
included elsewhere in this prospectus.
OCTOBER 1, 1999 OCTOBER 1, 1999
---------------- ----------------
INTERSIL INTERSIL HOLDING
CORPORATION CONSOLIDATED
----------- ----------------
(IN MILLIONS)
Long-term Debt, including Current Portion:
Senior Credit Facilities:
Revolving Credit Facility(1) ................ $ 15.0 $ 15.0
Tranche B Senior Term Facility(2)............ 205.0 205.0
13 1/4% Senior Subordinated Notes(3)........... 199.7 199.7
13.5% Subordinated Holding PIK Note(4)......... -- 30.2
11.13% Seller Holding PIK Note(5).............. -- 91.4
Other........................................ 4.5 4.5
------ ------
Total long-term debt.................... 424.2 545.8
------ ------
Mandatorily Redeemable Preferred Stock(6)........ -- 86.4
Shareholders' Equity(6):
Common stock................................... -- 1.0
Additional paid-in capital(3)(7)............... 212.2 3.2
Retained deficit............................... (20.1) (20.1)
Accumulated other comprehensive income......... .4 .4
------ ------
Total shareholders' equity.............. 192.5 (15.5)
------ ------
Total capitalization............... $616.7 $616.7
====== ======
- ------------------
(1) Represents the drawn portion of $70.0 million available under the Revolving
Credit Facility.
(2) The Tranche B Senior Term Facility will mature in 2005 and will require 1%
of the original principal amount to be repaid in each of the first five
years.
(3) The notes were issued as part of the units, which consist of $200.0 million
principal amount of 13 1/4% Senior Subordinated Notes due 2009 and warrants
to purchase 5,555,560 shares of Class A Common Stock of Intersil Holding.
Reflects the gross proceeds from the units offering of $200.0 million net of
$0.3 million ascribed to the warrants. The $0.3 million associated with the
sale of the warrants is reflected as an increase to additional paid-in
capital of Intersil. The value ascribed to the warrants does not reflect
their market value.
(4) Citicorp Mezzanine Partners, L.P. contributed $30.0 million in cash to
Intersil Holding in exchange for the 13.5% Subordinated Holding PIK Note due
2010 and warrants to purchase 5,555,560 shares of Class A Common Stock of
Intersil Holding. Reflects the gross proceeds of $30.0 million net of $0.3
million ascribed to the warrants. The $0.3 million associated with the sale
of the warrants is reflected as an increase to additional paid-in capital of
Intersil Holding. The 13.5% Subordinated Holding PIK Note due 2010 is an
obligation of Intersil Holding only and is not reflected on the historical
or the pro forma financial statements of Intersil.
(5) The 11.13% Seller Holding PIK Note issued to Harris will mature in 2010 and
does not require payment of cash interest until then. The 11.13% Seller
Holding PIK Note is an obligation of Intersil Holding only and is not
reflected in the historical or pro forma financial statements of Intersil,
and the proceeds have been contributed to Intersil's capital.
(6) Sterling Holding Company, LLC and senior management, other key employees and
certain other investors purchased shares of 12% Series A Cumulative
Compounding Preferred Stock and common stock of Intersil Holding, for a
total of about $76.5 million in cash and Harris purchased shares of 12%
Series A Cumulative Compounding Preferred Stock and common stock of Intersil
Holding for about $8.5 million in cash. The total cash preferred stock
investment was $85.0 million, and the total cash common stock investment was
$5.0 million. See "Ownership of Capital Stock." Intersil has 1,000 shares
authorized and 1,000 shares issued and outstanding of its $.01 par value
common stock.
(7) Intersil Holding Consolidated Shareholder's Equity is adjusted to eliminate
the investment in Intersil of $210.0 million.
22
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements for Intersil Holding
are based on or derived from Intersil Holding's historical predecessor
Consolidated Financial Statements included elsewhere in this prospectus. The
acquisition of the semiconductor business was consummated on August 13, 1999.
The Unaudited Pro Forma Combined Statements of Operations of Intersil
Corporation and Intersil Holding give effect to the transactions as if they had
occurred as of July 4, 1998. The transactions and the related adjustments are
described in the accompanying notes. The pro forma financial statements do not
purport to represent what Intersil's or Intersil Holding's results of operations
or financial position would actually have been had the transactions in fact
occurred on the dates specified nor do they purport to project the results of
operations or financial position for any future period or at any future date.
The acquisition of the semiconductor business has been accounted for using
the purchase method of accounting. After the acquisition of the semiconductor
business, the total purchase cost of the acquisition was allocated to the
tangible and intangible assets and liabilities of the semiconductor business
based upon their respective fair values. The pro forma adjustments are based
upon preliminary estimates that our management believes are reasonable in the
circumstances. In the opinion of Intersil Holding's management, all adjustments
that are necessary to present fairly the pro forma data have been made. After
definitive valuations have been made, the final allocation of the purchase price
could differ from the preliminary estimates used herein which would result in
changes to the pro forma financial statements; however, any changes are not
expected to be material. The purchase price of the acquisition of the
semiconductor business is subject to a post-closing adjustment, which has not
been finalized.
The Pro Forma Combined Condensed Financial Statements should be read in
conjunction with our Consolidated Financial Statements and notes thereto as of
October 1, 1999 and July 2, 1999 and for the fiscal year ended July 2, 1999 the
6 weeks ended August 13, 1999, and the unaudited 13 weeks ended October 2, 1998
and the unaudited 7 weeks ended October 1, 1999, included elsewhere in this
registration statement, "Forward Looking Statements," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Risk
Factors--Risks Related to Use of Estimates in Pro Forma Information and Adjusted
EBITDA."
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JULY 2, 1999
--------------------------------------------------------------------
INTERSIL CORPORATION INTERSIL HOLDING
--------------------------------------- --------------------------
HISTORICAL CONSOLIDATED
(PREDECESSOR) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------- ----------- --------- ----------- ------------
(IN MILLIONS)
Sales:
Product sales..................... $532.7 $ -- $532.7 $ -- $532.7
Costs and Expenses:
Cost of product sales............. 349.8 (10.0)(a) 339.8 339.8
Research and development.......... 67.0 67.0 67.0
Marketing......................... 66.9 66.9 66.9
Administrative and general........ 17.1 3.0 (b) 20.1 20.1
Harris corporate expense
allocation..................... 9.3 (9.3)(b)
Intangible amortization........... 2.4 10.5 (d) 12.9 12.9
------ ------ ------ ------ ------
Operating income...................... 20.2 5.8 26.0 -- 26.0
Interest, net..................... (1.2) 48.5 (c) 47.3 14.1 (f) 61.4
------ ------ ------ ------ ------
Income (loss) before income taxes..... 21.4 (42.7) (21.3) (14.1) (35.4)
Income taxes (benefit)................ (6.0) (16.7)(e) (22.7) (5.5)(e) (28.2)
------ ------ ------ ------ ------
Net income (loss)..................... 27.4 (26.0) 1.4 (8.6) (7.2)
Preferred dividends................... -- -- -- (10.2)(g) (10.2)
------ ------ ------ ------ ------
Net income (loss) to common
shareholders........................ $ 27.4 $(26.0) $ 1.4 $(18.8) $(17.4)
====== ====== ====== ====== ======
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Statement of
Operations.
23
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
13 WEEKS ENDED OCTOBER 2, 1998
--------------------------------------------------------------------
INTERSIL CORPORATION INTERSIL HOLDING
--------------------------------------- --------------------------
HISTORICAL CONSOLIDATED
(PREDECESSOR) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------- ----------- --------- ----------- ------------
(IN MILLIONS)
Sales:
Product sales..................... $122.5 $122.5 $122.5
Costs and Expenses:
Cost of product sales............. 80.5 (2.5)(a) 78.0 78.0
Research and development.......... 14.8 14.8 14.8
Marketing......................... 16.0 16.0 16.0
Administrative and general........ 5.2 0.8 (b) 6.0 6.0
Harris corporate expense
allocation..................... 2.1 (2.1)(b)
Intangible amortization........... 0.6 2.6 (d) 3.2 3.2
------ ------ ------ ------
Operating income...................... 3.3 1.2 4.5 4.5
Interest, net..................... (0.2) 12.1 (c) 11.9 3.5 (f) 15.4
------ ------ ------ ------ ------
Income (loss) before income taxes..... 3.5 (10.9) (7.4) (3.5) (10.9)
Income taxes (benefit)................ (1.0) (4.3)(e) (5.3) (1.4)(e) (6.7)
------ ------ ------ ------ ------
Net income (loss)..................... 4.5 (6.6) (2.1) (2.1) (4.2)
Preferred dividends................... -- -- -- (2.6)(g) (2.6)
------ ------ ------ ------ ------
Net income (loss) to common
shareholders........................ $ 4.5 $ (6.6) $ (2.1) $ (4.7) $ (6.8)
====== ====== ====== ====== ======
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Statement of
Operations.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
13 WEEKS ENDED OCTOBER 1, 1999
-----------------------------------------------------------------------------------------------
6 WEEKS ENDED AUGUST 13, 1999
----------------------------------------------------- 7 WEEKS ENDED
OCTOBER 1, 1999
PRO FORMA ------------------------
INTERSIL ADJUSTMENTS INTERSIL
CORPORATION ---------------------- INTERSIL INTERSIL HOLDING
HISTORICAL INTERSIL INTERSIL CONSOLIDATED CORPORATION HOLDING CONSOLIDATED
(PREDECESSOR) CORPORATION HOLDING PRO FORMA HISTORICAL HISTORICAL PRO FORMA
------------- ----------- -------- ------------ ----------- ---------- ------------
(IN MILLIONS)
Sales:
Product sales.......... $57.3 $ -- $ -- $57.3 $ 76.6 $ -- $133.9
Costs and Expenses:
Cost of product
sales............... 39.6 (1.2)(a) 38.4 46.6 -- 85.0
Research and
development......... 8.5 8.5 8.4 -- 16.9
Marketing.............. 8.2 8.2 8.4 -- 16.6
Administrative and
general............. 2.7 0.3 (b) 3.0 2.2 -- 5.2
Harris corporate
expense
allocation.......... 1.2 (1.2)(b) -- -- -- --
Intangible
amortization........ 0.3 1.2 (d) 1.5 1.4 -- 2.9
In-process R&D charge.. -- -- 20.8 -- 20.8
----- ----- ----- ----- ------ ----- ------
Operating income (loss).... (3.2) 0.9 -- (2.3) (11.2) -- (13.5)
Interest, net.......... (0.1) 5.6 (c) 1.6 (f) 7.1 6.8 1.9 15.8
----- ----- ----- ----- ------ ----- ------
Income (loss) before income
taxes.................... (3.1) (4.7) (1.6) (9.4) (18.0) (1.9) (29.3)
Income taxes (benefit)..... (0.1) (1.8)(e) (0.6)(e) (2.5) 0.2 -- (2.3)
----- ----- ----- ----- ------ ----- ------
Net income (loss).......... (3.0) (2.9) (1.0) (6.9) (18.2) (1.9) (27.0)
Preferred dividends........ -- -- (1.2)(g) (1.2) -- (1.4) (2.6)
----- ----- ----- ----- ------ ----- ------
Net income (loss) to common
shareholders............. $(3.0) $(2.9) $(2.2) $(8.1) $(18.2) $(3.3) $(29.6)
===== ===== ===== ===== ====== ===== ======
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Statement of
Operations.
24
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
The unaudited pro forma consolidated statements of operations give effect
to the following adjustments:
(a) The total purchase price of $630.0 million was allocated to the assets and
liabilities of the semiconductor business based upon their approximate fair
value. The preliminary fair value of the net assets acquired exceeded the
purchase price resulting in negative goodwill. This negative goodwill was
allocated to property and equipment and identified intangible assets based
on their relative fair value as follows:
ALLOCATION
FAIR VALUE OF OF EXCESS ADJUSTED
ASSETS ACQUIRED FAIR VALUE FAIR VALUE
--------------- ---------- ----------
Net current assets............................. $160.9 -- $160.9
Other amounts.................................. 9.0 -- 9.0
Property & equipment........................... 486.0 $(137.5) 348.5
Developed technology........................... 80.0 (22.6) 57.4
Customer base.................................. 33.0 (9.3) 23.7
In-process research and development............ 29.0 (8.2) 20.8
Assembled workforce............................ 13.5 (3.8) 9.7
------ ------- ------
811.4 $ 181.4 $630.0
======= ======
Purchase price................................. 630.0
------
Excess fair value.............................. $181.4
======
As a result of the allocation of negative goodwill to property, plant and
equipment, the net book carrying value at August 13, of $403.7 million was
reduced by $55.2 million to the fair value of $348.5 million. Therefore, for
pro forma purposes, depreciation expense was reduced by $10.0 million, $2.5
million and $1.2 million for the fiscal year ended July 2, 1999, the 13
weeks ended October 2, 1998 and the 6 weeks ended August 13, 1999,
respectively.
(b) Historically, Harris allocated corporate headquarters expenses to the
semiconductor business based on the semiconductor business' net sales as a
percentage of Harris' net sales. This pro forma adjustment represents the
elimination of this allocation and our estimate of the cost of replacing
these services as a stand-alone company, calculated as follows:
13 WEEKS
FISCAL YEAR ENDED ENDED 6 WEEKS ENDED
JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999
----------------- --------------- ---------------
(IN MILLIONS)
Harris corporate expenses $ 9.3 $ 2.1 $ 1.2
allocation.........................
----- ----- -----
Company's anticipated expenses:
Finance, legal and professional.... 2.0 0.5 0.20
Human resources/benefits........... 0.5 0.2 0.05
Other.............................. 0.5 0.1 0.05
----- ----- -----
Total anticipated expenses.... 3.0 0.8 0.3
----- ----- -----
Net reduction......................... $ 6.3 $ 1.3 $ 0.9
===== ===== =====
(c) Represents interest expense associated with the indebtedness incurred in
connection with the acquisition of the semiconductor business, calculated
as follows:
13 WEEKS
FISCAL YEAR ENDED ENDED 6 WEEKS ENDED
JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999
----------------- --------------- ---------------
(IN MILLIONS)
Interest on Notes (13.25% on $200.0
million)........................... $26.5 $ 6.6 $ 3.1
Estimated interest on Senior Term
Facility (9.30% on $205.0
million)........................... 19.1 4.8 2.2
Estimated interest on Revolving Credit
Facility (8.55% on $15.0
million)........................... 1.3 0.3 0.1
----- ----- -----
Total cash interest expense... 46.9 11.7 5.4
Deferred financing fees............... 1.6 0.4 0.2
----- ----- -----
Total interest expense........ $48.5 $12.1 $ 5.6
===== ===== =====
A change in the interest rate on the Senior Term Facility and the Revolving
Credit Facility of one-eighth of one percent (0.125%) would change interest
expense by $0.28 million for the fiscal year ended July 2, 1999, $0.07
million for the thirteen weeks ended October 2, 1998 and $0.03 million for
the six weeks ended August 13, 1999.
25
Financing fees are composed of $6.0 million on the notes (amortized over 10
years) and $6.2 million on the Senior Term Facility and Revolving Credit
Facility (amortized over 6 years).
(d) Represents the adjustment to reflect additional amortization expense for
the identified intangible assets. The preliminary appraisal of the acquired
business, after adjustment for negative goodwill, included $111.6 million
of identified intangible assets including, $57.4 million of developed
technology, $23.7 million to customer base, $9.7 million to assembled
workforce and $20.8 million of purchased in-process research and
development. The purchased in-process research and development related to
various products under development that had not yet reached technological
feasibility and had no future alternative uses. Pursuant to Regulation S-X,
the in-process research and development has been written off against
retained earnings and has not been reflected in the pro forma consolidated
statement of operations for the unaudited pro forma combined statement of
operations for the fiscal year ended July 2, 1999. The remaining identified
intangibles are being amortized over the following lives:
13 WEEKS
FISCAL YEAR ENDED ENDED 6 WEEKS ENDED
IDENTIFIED INTANGIBLE AMOUNT LIFE JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999
- --------------------- ------ -------- ----------------- --------------- ---------------
(IN MILLIONS)
Developed $57.4 11 years $ 5.2 $ 1.3 $0.6
technology.........
Customer base........ 23.7 7 years 3.4 0.8 0.4
Assembled
workforce.......... 9.7 5 years 1.9 0.5 0.2
----- ----- ----
$10.5 $ 2.6 $1.2
===== ===== ====
The purchase price is subject to a post closing adjustment based on the
level of working capital on the closing date.
(e) Represents the adjustment of the pro forma income tax provision related to
the pro forma pretax adjustments for Intersil and Intersil Holding computed
on a stand-alone basis at an effective tax rate of 39% for domestic
adjustments.
(f) Represents interest expense associated with Intersil Holding's indebtedness
incurred in connection with the acquisition of the semiconductor business,
calculated as follows:
13 WEEKS
FISCAL YEAR ENDED ENDED 6 WEEKS ENDED
JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999
----------------- --------------- ---------------
(IN MILLIONS)
Interest on Subordinated Holding PIK
Note (13.50% on $30.0 million)..... $ 4.1 $ 1.0 $0.5
Interest on Seller Holding PIK Note
(11.13% on $90.0 million).......... 10.0 2.5 1.1
----- ----- ----
$14.1 $ 3.5 $1.6
===== ===== ====
(g) Represents the adjustment for the accretion of the 12% cumulative dividends
on the 85,000 shares of the mandatorily redeemable 12% Series A Cumulative
Compounding Preferred Stock, with a stated value of $1,000 per share.
26
SELECTED HISTORICAL FINANCIAL DATA AND OTHER DATA
The following table sets forth selected historical financial data and
supplemental data for Intersil Holding and its predecessor. The historical
financial data as of and for fiscal years 1997, 1998, 1999 and the 6 weeks ended
August 13, 1999 are derived directly from Intersil Holding's predecessor's
audited Consolidated Financial Statements included elsewhere in this prospectus,
except for revenue categorized by business unit, which is derived from Intersil
Holding's predecessor's books and records. The historical financial data as of
and for fiscal years ended 1995 and 1996, which are not included in this
prospectus, and the 13 weeks ended October 2, 1998 included elsewhere in this
prospectus, are derived directly from Intersil Holding's predecessor's unaudited
Consolidated Financial Statements. The historical financial data as of and for
the 7 weeks ended October 1, 1999 are derived directly from Intersil Holding's
unaudited Consolidated Financial Statements included elsewhere in this
prospectus. The unaudited Consolidated Financial Statements include all
adjustments necessary for the fair presentation of the financial condition and
the results of operations for these periods and as of these dates. This
information should be read in conjunction with the Consolidated Financial
Statements included elsewhere in this prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
PREDECESSOR PREDECESSOR
------------------------------------------ --------------------------------
FISCAL YEARS 13 WEEKS ENDED 6 WEEKS ENDED
------------------------------------------ -------------- ---------------
1995 1996 1997 1998 1999 OCTOBER 2, 1998 AUGUST 13, 1999
------ ------ ------ ------ ------ --------------- ---------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenue:
Analog & Mixed-Signal................... $379.2 $393.6 $384.4 $390.4 $352.8 $ 79.8 $ 36.3
Discrete Power.......................... 128.2 176.6 154.5 176.4 161.6 38.5 18.0
Wireless................................ 0.0 0.0 6.4 10.0 18.3 4.2 3.0
------ ------ ------ ------ ------ ------ ------
Total revenue............................... $507.4 $570.2 $545.3 $576.8 $532.7 $122.5 $ 57.3
====== ====== ====== ====== ====== ====== ======
Gross profit................................ $178.5 $227.1 $199.3 $207.5 $182.9 $ 42.0 $ 17.7
Research and development.................... 50.6 69.4 75.2 75.1 67.0 14.8 8.5
Selling, general and administrative......... 94.6 103.6 99.3 98.2 84.0 21.2 10.9
Harris corporate expense allocation......... 9.1 10.3 10.0 10.0 9.3 2.1 1.2
Intangible amortization..................... 2.3 2.3 2.3 2.3 2.4 0.6 0.3
In-process R&D charge....................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Operating income (loss)..................... 21.9 41.5 12.5 21.9 20.2 3.3 (3.2)
Interest, net............................... 0.6 (1.0) (0.6) (0.9) (1.2) (0.2) (0.1)
------ ------ ------ ------ ------ ------ ------
Income (loss) before income taxes........... 21.3 42.5 13.1 22.8 21.4 3.5 (3.1)
Income taxes (benefit)...................... (4.3) 2.6 1.9 9.9 (6.0) (1.0) (0.1)
------ ------ ------ ------ ------ ------ ------
Net income (loss)........................... 25.6 39.9 11.2 12.9 27.4 4.5 (3.0)
Preferred dividends......................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss) to common shareholders.... $ 25.6 $ 39.9 $ 11.2 $ 12.9 $ 27.4 $ 4.5 $ (3.0)
====== ====== ====== ====== ====== ====== ======
LOSS PER SHARE:
Basic and diluted...........................
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(IN MILLIONS):
Basic and diluted...........................
SUPPLEMENTAL DATA:
Depreciation................................ $ 44.5 $ 47.6 $ 50.2 $ 65.0 $ 78.2 $ 19.0 $ 8.7
Capital expenditures........................ $ 80.4 $141.8 $173.3 $ 90.2 $ 38.6 $ 13.1 $ 1.9
Total interest expense...................... $ -- $ -- $ -- $ -- $ 0.1 $ -- $ --
Ratio of earnings to fixed
charges(1)................................ 9.5x 21.2x 7.0x 11.9x 10.7x 8.0x (3)
Ratio of earnings to fixed charges and
preferred stock dividends(2).............. 9.5x 21.2x 7.0x 11.9x 10.7x 8.0x (4)
BALANCE SHEET DATA (END OF PERIOD):
Cash........................................ $ -- $ -- $ -- $ -- $ -- $ -- $ 1.4
Total assets................................ 546.2 647.0 773.3 810.3 761.2 801.0 736.1
Long-term debt, including current portion... -- -- 1.4 4.1 4.6 4.0 4.5
Mandatorily redeemable preferred stock...... -- -- -- -- -- -- --
Total shareholders' equity (deficit)........ 456.2 520.9 646.2 699.1 658.9 705.7 657.3
SUCCESSOR
---------------
7 WEEKS ENDED
---------------
OCTOBER 1, 1999
---------------
STATEMENT OF OPERATIONS DATA:
Revenue:
Analog & Mixed-Signal................... $ 46.5
Discrete Power.......................... 26.9
Wireless................................ 3.2
------
Total revenue............................... $ 76.6
======
Gross profit................................ $ 30.0
Research and development.................... 8.4
Selling, general and administrative......... 10.6
Harris corporate expense allocation......... --
Intangible amortization..................... 1.4
In-process R&D charge....................... 20.8
------
Operating income (loss)..................... (11.2)
Interest, net............................... 8.7
------
Income (loss) before income taxes........... (19.9)
Income taxes (benefit)...................... 0.2
------
Net income (loss)........................... (20.1)
Preferred dividends......................... (1.4)
------
Net income (loss) to common shareholders.... $(21.5)
======
LOSS PER SHARE:
Basic and diluted........................... $(0.22)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(IN MILLIONS):
Basic and diluted........................... 100.0
SUPPLEMENTAL DATA:
Depreciation................................ $ 8.7
Capital expenditures........................ $ 3.4
Total interest expense...................... $ 8.7
Ratio of earnings to fixed
charges(1)................................ (3)
Ratio of earnings to fixed charges and
preferred stock dividends(2).............. (4)
BALANCE SHEET DATA (END OF PERIOD):
Cash........................................ $ 33.8
Total assets................................ 736.7
Long-term debt, including current portion... 545.8
Mandatorily redeemable preferred stock...... 86.4
Total shareholders' equity (deficit)........ (15.4)
- ------------------
(1) Earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense on debt and amortization of deferred
debt issuance costs and the portion (about one-third) of rental expense that
Intersil Holding believes is representative of the interest component of
rental expense.
(2) Earnings as defined above, fixed charges as defined above plus preferred
stock dividends, whether paid or accreted.
(3) The deficiency of earnings available to cover fixed charges for the six
weeks ended August 13, 1999 and for the seven weeks ended October 1, 1999 is
$3.1 million and $19.9 million, respectively.
(4) The deficiency of earnings available to cover fixed charges and preferred
stock dividends for the six weeks ended August 13, 1999 and for the seven
weeks ended October 1, 1999 is $3.1 million and $21.3 million, respectively.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to Intersil Holding's Consolidated
Financial Statements, including the notes thereto appearing elsewhere in this
prospectus. Except for historical information, the discussions in this section
of the prospectus contain forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed
below. Intersil Holding is a holding company whose sole assets are its
investment in Intersil's capital stock and certain intangible assets. Intersil
Holding is dependent on the receipt of dividends or distributions from Intersil
to fund its obligations.
OVERVIEW
We are a leading systems level designer and manufacturer of analog, mixed
signal, discrete power and wireless communications semiconductors. We use our
proprietary technologies and design capabilities to provide systems solutions
for the communications power management and wireless markets. We sell over 4,500
products to more than 28,000 customers worldwide.
BASIS OF PRESENTATION
Intersil was formed through a series of transactions, in which Intersil and
its parent, Intersil Holding, acquired the Semiconductor Business of Harris on
August 13, 1999. Intersil Holding currently has no operations but holds common
stock related to its investment in Intersil and certain indebtedness related to
the Semiconducter Business acquisition. Intersil and its wholly-owned domestic
and foreign subsidiaries include the operations of the Predecessor. Our first
quarter of fiscal year 2000 began on July 3, 1999 and ended October 1, 1999.
The total purchase price of the Semiconductor Business acquisition was $630
million, which included transaction costs of approximately $7.8 million and
deferred financing costs of $12.2 million. The consideration paid by Intersil
Holding was $520.0 million in cash of which $420.0 million was financed through
borrowings from the senior credit facilities, the 13 1/4% Senior Subordinated
Notes and 13.5% Subordinated Holding PIK Note and the issuance of a $90.0
million "Pay-In-Kind" (PIK) note to Harris.
The acquisition was accounted for using the purchase method of accounting
and accordingly, the operating results of the Semiconductor Business have been
included in Intersil's consolidated financial statements since the date of
acquisition. The total purchase price was allocated to the assets and
liabilities of the Semiconductor Business based upon their approximate fair
value. The fair value of the net assets acquired exceeded the purchase price
resulting in negative goodwill of approximately $181 million. This negative
goodwill was allocated to the identified intangibles and property and equipment
based on their relative fair values. The most significant effects were to
decrease property, plant and equipment and to increase certain intangibles and
liabilities. Accordingly, certain financial information for the periods prior to
August 13, 1999 is not comparable to periods subsequent to August 13, 1999. All
income statement information for the first quarter of fiscal year 2000
represents the combined results of the semiconductor business from July 3, 1999
through August 13, 1999 and Intersil Holding from August 14, 1999 through
October 1, 1999.
28
QUARTERLY RESULTS
The following table sets forth the unaudited historical quarterly net sales
and gross profits of our product groups:
COMBINED
FISCAL
YEAR
FISCAL YEAR 1998 FISCAL YEAR 1999 2000
--------------------------------- --------------------------------- --------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
------ ------ ------ ------ ------ ------ ------ ------ --------
(IN MILLIONS, EXCEPT FOR PERCENTAGES)
Net Sales
Analog & Mixed-Signal..... $ 96.3 $ 93.9 $ 95.2 $105.0 $ 79.8 $ 86.2 $ 88.5 $ 98.3 $ 82.8
Discrete Power............ 44.7 45.2 45.7 40.8 38.5 34.8 42.3 46.0 44.9
Wireless.................. 2.9 2.2 2.6 2.3 4.2 3.1 4.6 6.4 6.2
------ ------ ------ ------ ------ ------ ------ ------ ------
Total................. $143.9 $141.3 $143.5 $148.1 $122.5 $124.1 $135.4 $150.7 $133.9
====== ====== ====== ====== ====== ====== ====== ====== ======
Gross Profit
Analog & Mixed-Signal..... $ 34.2 $ 39.4 $ 39.9 $ 46.5 $ 33.0 $ 33.2 $ 38.3 $ 42.1 $ 34.7
Discrete Power............ 10.8 12.4 10.6 10.3 8.1 5.0 7.2 9.5 10.8
Wireless.................. 0.9 0.1 1.1 1.3 0.9 0.8 1.6 3.2 2.2
------ ------ ------ ------ ------ ------ ------ ------ ------
Total................. $ 45.9 $ 51.9 $ 51.6 $ 58.1 $ 42.0 $ 39.0 $ 47.1 $ 54.8 $ 47.7
====== ====== ====== ====== ====== ====== ====== ====== ======
Gross Profit Percentage
Analog & Mixed-Signal..... 36% 42% 42% 44% 41% 39% 43% 43% 42%
Discrete Power............ 24 27 23 25 21 14 17 21 24
Wireless.................. 31 5 42 57 21 26 35 50 35
Total................. 32 37 36 39 34 31 35 36 36
Our first fiscal quarter is generally the weakest due to slow demand from
government customers, model year changeovers in the automotive industry and
summer holiday seasons, primarily in Europe. Our fourth fiscal quarter is
generally the strongest due to strong demand from government customers.
The semiconductor industry has historically experienced declining selling
prices over the past 15 years, and we expect that trend to continue in the
future. We expect to realize productivity gains which will offset the decline in
average selling prices and therefore we do not anticipate a significant adverse
effect on our financial condition.
Industry demand weakened significantly in the first half of fiscal 1999 due
to widespread inventory adjustments which led to excess manufacturing capacity
and steep declines in product prices. This trend impacted all three product
groups. Our results, and the industry as a whole, began to strengthen in the
third fiscal quarter of 1999, with an increase in sales of 9.1% from the second
quarter to the third quarter and 11.3% from the third quarter to the fourth
quarter.
As Wireless is an emerging business, gross margins have fluctuated during
the start-up period due to timing of sales and variability of yield performance.
29
RESULTS OF OPERATIONS
The following table sets forth income statement data for the periods
indicated as a percentage of net sales:
FISCAL YEAR 13 WEEKS ENDED
----------------------------- --------------------------
COMBINED
OCTOBER 2, OCTOBER 1,
1997 1998 1999 1998 1999
----- ----- ----- ---------- ----------
Revenue:
Analog & Mixed-Signal............ 70.5% 67.7% 66.2% 65.2% 61.9%
Discrete Power................... 28.3 30.6 30.4 31.4 33.5
Wireless......................... 1.2 1.7 3.4 3.4 4.6
----- ----- ----- ------ ------
Total......................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ------ ------
Cost and Expenses
Cost of goods sold............... 63.5 64.0 65.6 65.7 64.4
Research and development......... 13.8 13.0 12.6 12.1 12.6
Selling, general and
administrative................ 20.0 18.8 17.5 19.0 17.0
Intangible amortization.......... 0.4 0.4 0.5 0.5 1.3
In-process research and
development................... -- -- -- -- 15.5
----- ----- ----- ------ ------
Operating income.............. 2.3 3.8 3.8 2.7 (10.8)
Interest, net.................... (0.1) (0.2) (0.2) (0.2) 6.4
----- ----- ----- ------ ------
Income (loss) before income
taxes............................ 2.4 4.0 4.0 2.9 (17.2)
Income taxes (benefit)............. 0.3 1.8 (1.1) (0.8) 0.1
----- ----- ----- ------ ------
Net income (loss).................. 2.1% 2.2% 5.1% 3.7% (17.3)%
===== ===== ===== ====== ======
Q1 FISCAL 2000 COMPARED WITH Q1 FISCAL 1999
Net Sales
Net sales for the first quarter of fiscal year 2000 increased 9.3% to
$133.9 million from $122.5 million in the first quarter of fiscal year 1999. The
quarter over quarter growth is the result of improved demand across all business
units, primarily as a result of improved market conditions. Wireless sales
growth of 48% was driven by increased market acceptance of our PRISM(Registered)
products.
Geographically, 48.7%, 22.8% and 28.5% of product sales were derived in
North America, Europe and Asia, respectively, during the first quarter of fiscal
year 2000, compared to 55.6%, 25.1%, and 19.3% in the first quarter of fiscal
year 1999.
Gross Margin
Cost of goods sold consists primarily of purchased materials, labor and
overhead (including depreciation) associated with product manufacturing, plus
royalty, warranty and sustaining engineering expenses pertaining to products
sold. Gross margin on product sales increased 13.6% to $47.7 million in the
first quarter of fiscal year 2000 from $42.0 million in the first quarter of
fiscal year 1999. As a percent of sales, gross margin was 35.6% in the first
quarter of fiscal year 2000 and 34.3% in the first quarter of fiscal year 1999.
This increase was substantially due to greater capacity utilization, from 60% in
Q1 Fiscal 1999 to 76% in Q1 Fiscal 2000, and increased manufacturing
efficiencies resulting from cost reductions related to head count reductions, as
well as a decrease in depreciation expense resulting from a revaluation of our
property, plant and equipment due to purchase accounting.
30
Operating Expenses
R&D expenses consist primarily of salaries and selected costs of employees
engaged in product/process research, design and development activities, as well
as related subcontracting activities, prototype development, cost of design
tools and technology license agreement expenses. R&D expenses increased 14.2% to
$16.9 million in the first quarter of fiscal year 2000 from $14.8 million in the
first quarter of fiscal year 1999. As a percent of sales, R&D expenses remained
relatively flat at 12.6% in the first quarter of fiscal year 2000 from 12.1% in
the first quarter of fiscal year 1999. R&D expense included continued investment
in the PRISM(Registered) chip set and in the Discrete Power integrated circuits
area, focusing in the categories of communications and computing, which led our
growth of new product revenue during fiscal year 1999.
In connection with the acquisition, we allocated $20.8 million of the
purchase price to in-process R&D projects. This allocation represents the
estimated fair value based on risk-adjusted cash flows related to the incomplete
products. At the date of acquisition, the development of these projects had not
yet reached technological feasibility and the in-process R&D had no alternative
future uses. Accordingly, these costs were expensed as a one-time charge to
earnings in the first quarter of fiscal year 2000.
In making the purchase price allocation, we relied on present value
calculations of income, an analysis of project accomplishments and completion
costs and an assessment of overall contribution and project risk. The amounts
assigned to the in-process R&D were determined by identifying significant
research projects for which technological feasibility had not been established.
The amounts assigned to the in-process R&D were determined by identifying
significant research projects for which technological feasibility had not been
established. The fair values assigned to each of the significant projects and
the stage of completion are reported below.
FAIR VALUE STAGE OF
PRODUCT (IN MILLION) COMPLETION
- ------- ------------- ----------
SMPS IGBT................................................... $ 2.4 60%
PRISM II.................................................... 2.4 90%
HIP 6601/2/3................................................ 1.5 75%
HC 1540..................................................... 0.4 80%
HC 7581..................................................... 3.4 60%
HIP 6210/6220............................................... 2.4 50%
DC to DC Power Converters................................... 2.2 35%
Gen III Radiation Hardened MOSFETs.......................... 8.0 60%
Other....................................................... 6.3 38%
----- --
Total..................................................... $29.0
=====
A discussion of the most significant projects follows:
SMPS IGBT
SMPS IGBT refers to a project researched and in development in our discrete
power product line area. AC to DC power supplies are designed to use high
voltage power metal oxide semiconductor field effect transistors, or MOSFETs, to
convert an AC voltage into a DC voltage. The new switch mode power supply, or
SMPS, family of insulated gate bipolar transistors, or IGBTs, will combine the
fast speed, unclamped inductive switching and low gate charge speed of the power
MOSFET with the high current density and low forward voltage drop of the IGBT.
The result will be a lower cost and more efficient product than currently
available high voltage MOSFET products.
PRISM II
PRISM II refers to a project researched and in development in our wireless
product line area. PRISM II will be a complete silicon solution for the design
of Wireless Local Area Networks, or WLANs. Comprised of five highly integrated
chips incorporating advanced silicon germanium technology, PRISM II will deliver
all required analog and digital circuitry for the physical and medium access
controller layers, while providing
31
a complete "antenna-to-computer" solution for high data rate WLANs. The product
will provide end-users in the computer market with a low cost, small and
lightweight medium for WLAN connection.
HIP6601/2/3
HIP6601/2/3 refers to another chipset family researched and in development
in our analog and mixed signal product line area. HIP6601/2/3 will be designed
to support the next generation Intel and AMD processors that will be used in
file servers, desktops and workstations. The HIP6601, HIP6602 and HIP6603 will
be a family of similar controllers and drivers designed to support various high
performance CPU power supply conversion requirements.
HC1540
HC1540 refers to an integrated circuit and relay researched and in
development in our analog and mixed signal product line area. HC1540 will be a
high voltage, switch for use in the telecom industry.
HC7581
HC7581 refers to a new subscriber line interface circuit, or SLIC,
researched and in development in our analog and mixed signal product line area.
SLICs are required in all telecom exchange systems to interface with signals
entering into telecommunication systems.
HIP6210/6220
HIP6210/6220 refer to a chipset researched and in development in our analog
and mixed signal product line area. HIP6210/6220 are designed to support the
personal computer market by saving energy. These chips will sense different
power requirement levels and regulate the flow of the power based on essential
needs.
DC to DC Power Converters
DC to DC power converters refer to a project researched and in development
in our space and defense group. The DC to DC power converter will be the first
in a series of radiation-hardened, high reliability power supplies. This power
supply source will be smaller in size, of less weight and more efficient than
currently available technology. The initial market will be for usage in
satellites. However, a variety of other commercial and military space
applications are envisioned.
Gen III Radiation Hardened MOSFETs
Gen III radiation hardened metal oxide semiconductor field effect
transistors, or MOSFETs, refer to a project researched and in development in our
discrete power product line area. This technology will reduce the die size used
in commercial satellites by 50% while maintaining a high degree of radiation
hardness. Launch costs of commercial satellites are directly proportional to a
satellite's size and weight. The die size reduction will enable us to place our
silicon in packages that are smaller and lighter thereby providing the end-user
with a more economical printed circuit board.
The value assigned to purchased in-process R&D was determined by estimating
the costs to develop the purchased in-process R&D into commercially viable
products and discounting the net cash flows to their present value.
Remaining development efforts for these in-process R&D projects include
various phases of design, development and testing. The anticipated completion
dates for the in-process R&D projects will occur within the next one and one
half years, after which we expect to begin generating economic benefits from the
technologies. Expenditures to complete these projects are expected to total
approximately $12.1 million in fiscal year 2000, and $1.3 million in fiscal year
2001.
These estimates are subject to change, given the uncertainties of the
development process, and no assurance can be given that deviations from these
estimates will not occur. We expect to continue these development efforts and
believe we have a reasonable chance of successfully completing the R&D programs.
32
However, there is risk associated with the completion of the projects and there
is no assurance that any will meet with either technological or commercial
success.
SG&A costs, which include marketing, selling, administrative and general
expenses, and Harris corporate expense allocation, decreased 3.0% to $22.7
million in the first quarter of fiscal year 2000 from $23.4 million in the first
quarter of fiscal year 1999. The decrease in SG&A was primarily due to increased
efficiencies resulting from a reorganization of the internal sales force and
external sales representative firms in fiscal year 1999 and reduction of
administrative expenses including headcount reductions. Operating expenses
include allocated charges by Harris to us for legal, financial and other
administrative expenses of $1.2 million for the six weeks of the first quarter
of fiscal year 2000 and $2.1 million for all of the first quarter of fiscal year
1999. Certain intangible assets were recorded on the opening balance sheet of
Intersil as part of purchase accounting. These assets will be amortized over
their useful lives ranging from five to eleven years.
Interest Expense
In connection with the acquisition of the semiconductor business, we and
Intersil Holding entered into new credit facilities. See "--Liquidity and
Capital Resources." Interest expense related to this debt for Intersil Holding
during the first quarter of fiscal year 2000 was $8.6 million, excluding
interest income of $0.1 million.
Tax Expense
The tax benefit for the combined first quarter of fical year 2000 is not
comparable to the first quarter of fiscal year 1999, due to the different tax
structures of the semiconductor business and Intersil Holding.
Backlog
We had backlog at October 1, 1999 of $180.8 compared to $174.0 million at
July 2, 1999.
FISCAL 1999 COMPARED WITH 1998
Net Sales
Net sales for fiscal year 1999 decreased 7.6% to $532.7 million from $576.8
million in fiscal year 1998. This decrease is the result of continued soft
market conditions and resulting adverse effects on semiconductor demand. This
trend continued through the second quarter of fiscal 1999. We believe that the
principal causes for the decline were initially high inventory levels of our
products at our distributors which decreased 17% from fiscal year 1998 to fiscal
year 1999, as well as high inventory at customers. This was followed by an
overall drop in global semiconductor demand of 8.5% in calendar year 1998.
Particularly hard hit were our Discrete Power products where prices of power
metal oxide semiconductor field effect transistors, or MOSFETs, declined by
nearly 15%. Additionally, distributors and major OEMs reduced the amount of
pipeline inventory in the channel, taking advantage of the shorter lead-times
and lower prices. During the third fiscal quarter of 1999, we began to
experience an increase in new orders, which resulted in a 9.1% increase in sales
in the third quarter versus the preceding quarter. The positive trend continued
into the fourth quarter with an increase in sales of 11.3% from the third
quarter.
Geographically, 53.5%, 24.6% and 21.9% of product sales were derived in
North America, Europe and Asia, respectively, during fiscal year 1999, compared
to 53.8%, 28.0%, and 18.2% in fiscal year 1998.
Gross Margin
Gross margin on product sales declined 11.9% to $182.9 million in fiscal
year 1999 from $207.5 million in fiscal year 1998. As a percent of sales, gross
margin was 34.3% in fiscal year 1999 and 36.0% in fiscal year 1998. This
decrease was substantially due to price pressure worldwide for our Discrete
Power products and a $13.2 million increase in our depreciation expense
resulting from the additional capital expenditures that went into our 8-inch
wafer fab in Mountaintop, Pennsylvania. Our gross margin decline was partially
offset by a series of cost reduction initiatives which resulted in lower
operating costs and improved pricing and terms with our suppliers of raw
materials.
33
Operating Expenses
R&D expenses decreased 10.8% to $67.0 million in fiscal year 1999 from
$75.1 million in fiscal year 1998. During fiscal year 1999, we focused our
resources on targeted applications and reduced programs that did not support our
emphasis. Major investment continued on the PRISM(Registered) chip set which
addresses the wireless local area network market. R&D for products designed for
the power management market was principally focused on computing and
communications which led our growth of new product revenue during fiscal year
1999.
SG&A costs decreased 13.7% to $93.3 million in fiscal year 1999 from $108.1
million in fiscal year 1998. The decrease in SG&A was primarily due to increased
efficiencies resulting from a reorganization of the internal sales force and
external sales representative firms and reduction of administrative expenses
including headcount reductions. Operating expenses include allocated charges by
Harris to us for legal, financial and other administrative expenses of $9.3
million for fiscal year 1999 and $10.0 million for fiscal year 1998.
Tax Expenses
The tax benefit of $6.0 million in fiscal year 1999 was primarily driven by
changes in the Malaysian tax system, resulting in fiscal year 1999 income not
being subject to tax.
Backlog
We had backlog at July 2, 1999 of $174.0 million compared to backlog of
about $188.5 million at July 3, 1998. The decrease in backlog was primarily due
to shorter industry lead-times.
FISCAL 1998 COMPARED WITH 1997
Net Sales
Net sales for fiscal year 1998 increased 5.8% to $576.8 million from $545.3
million in fiscal year 1997. The increase was principally due to a 14% increase
in Discrete Power sales over the prior year primarily due to increased output
from our new 8-inch wafer fab in Mountaintop, Pennsylvania.
Geographically, 53.8%, 28.0%, and 18.2% of product sales were derived in
North America, Europe and Asia/Pacific, respectively, in fiscal year 1998,
compared to 55.4%, 26.6%, and 18.0% in fiscal year 1997.
Gross Margin
Gross margin in fiscal year 1998 increased 4.1% to $207.5 million from
$199.3 million in fiscal year 1997. The increase in gross margin was primarily
due to higher revenue and improved manufacturing efficiencies offset partially
by a $14.8 million increase in depreciation expense resulting from the expansion
of the Mountaintop, Pennsylvania 8-inch wafer fab. As a percentage of revenue,
our gross margin decreased to 36.0% in fiscal year 1998 compared to 36.5% for
fiscal year 1997 due primarily to the increased depreciation.
Operating Expenses
R&D expenses were $75.1 million, or 13.0% of sales in fiscal year 1998,
compared to $75.2 million, or 13.8% of sales in fiscal year 1997. During fiscal
year 1998, we continued to direct about two-thirds of our R&D investment to our
wireless and analog products.
SG&A expenses in fiscal year 1998 decreased 1.1% to $108.1 million,
compared to $109.3 million in fiscal year 1997. The decrease in SG&A as a
percent of sales from 20.0% to 18.7% was primarily due to our increased
operating efficiency and efforts to reduce selling and administrative expenses.
Operating expenses include charges by Harris for our share of legal, financial
and other administrative expenses of $10.0 million for fiscal year 1998 and
$10.0 million for fiscal year 1997.
34
Tax Expenses
The favorable tax rate in fiscal year 1997 was primarily due to
fluctuations in foreign income and a reinvestment allowance on capital
expenditures in Malaysia.
Backlog
We had backlog at July 3, 1998 of about $188.5 million compared to backlog
of about $223.2 million at June 27, 1997. The decline in backlog was primarily
due to shorter industry lead times.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the acquisition of the semiconductor business, we and
Intersil Holding entered into new credit facilities, which provide for a Senior
Term Facility of $205.0 million and a Revolving Credit Facility in an aggregate
amount up to $70.0 million. Both the Senior Term Facility and the Revolving
Credit Facility will mature in 2005.
The Senior Term Facility is subject to amortization payments which require
1.0% of the original principal amount to be repaid in each of the first five
years. The Revolving Credit Facility is available until 2005 unless sooner
terminated. As of October 1, 1999, $15.0 million of the Revolving Credit
Facility was outstanding.
Our principal capital requirements are to fund working capital needs, to
meet required debt payments and to complete planned maintenance and expansion.
We anticipate that our operating cash flow, together with available borrowings
under the Revolving Credit Facility, will be sufficient to meet our working
capital, capital expenditure and interest requirements on our debt obligations
for the foreseeable future. As of October 1, 1999, Intersil Holding's total
debt, preferred stock and shareholder's deficit was $545.8 million, $86.4
million and $15.4 million, respectively. Intersil Holding also has additional
borrowing availability of $55.0 million for working capital and capital
expenditure requirements under the Revolving Credit Facility.
The senior credit facilities, along with the PIK Notes and the notes,
restrict the payment of dividends and the making of loans by Intersil to
Intersil Holding. Under the senior credit facilities and the subordinated credit
facility and indentures governing the PIK Notes and the notes, Intersil
generally may not pay dividends or advance funds to Intersil Holding except up
to $5,000,000 in any fiscal year to repurchase stock of employees, officers and
directors, up to $500,000 in any fiscal year to pay operating and other overhead
expenses, any payment under a tax sharing agreement with its affiliates and
management fees not to exceed the amount of employee compensation. As Intersil
Holding is a holding company, the exceptions to the general prohibition on
dividends and distributions are expected to be sufficient to fund Intersil
Holding's obligations.
Receivables and Inventories
Trade accounts and the current portion of notes receivable less the
allowance for collection losses totaled $84.8 million at October 1, 1999
compared to $100.7 million at July 2, 1999. This decrease was due to continued
emphasis on improving the receivable collection cycle and higher sales in the
fourth quarter of fiscal year 1999. Inventories remained relatively flat during
the first quarter of fiscal year 2000, with a slight increase due to the
increased sales demand, from $153.8 million at July 2, 1999 to $156.4 million at
October 1, 1999. The inventory decrease from the end of fiscal year 1998 of
$23.8 million was a result of a management initiative to reduce our inventory
through portfolio management and streamlining of processes, resulting in less
excess and obsolete inventory.
Distributor reserves have fluctuated from year to year based on the level
of inventory of distributions. In late fiscal year 1998, inventories at
distributors declined and the reserve was reduced accordingly. From fiscal year
1998 to fiscal year 1999, the reserve has remained relatively flat.
Capital Expenditures
Capital expenditures for the first quarter of fiscal year 2000 were $4.3
million. During fiscal year 1999, capital expenditures were $38.6 million
compared to $90.2 million in fiscal year 1998. This decrease was due primarily
to the completion of our expansion of the Mountaintop, Pennsylvania 8-inch wafer
fab during fiscal year 1998. Our previous owner invested approximately $303.9
million in capital expenditures since the beginning of fiscal 1997 for upgrading
our existing facilities with state-of-the-art manufacturing equipment
35
and for the building and equipping of the world's first 8-inch wafer fab for
discrete power semiconductors. As a result, we do not anticipate substantial
capital expenditures in the foreseeable future. During the fiscal year 2000, we
intend to spend about $38.0 million in capital expenditures.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The statement
establishes standards for recording derivative financial instruments and the
recognition of gains or losses resulting from changes in the fair values of
those instruments. We plan to adopt the new standard no later than the first
quarter of fiscal year 2001. However, we have not yet determined the anticipated
impact of FAS No. 133.
MARKET RISK MANAGEMENT
We, in the normal course of doing business, are exposed to the risks
associated with foreign currency exchange rates and changes in interest rates.
We employ established policies and procedures governing the use of financial
instruments to manage our exposure to these risks.
We use foreign exchange contracts and options to hedge both balance sheet
and off-balance sheet foreign currency commitments. Specifically, these foreign
exchange contracts offset foreign currency denominated inventory and purchase
commitments from suppliers, and accounts receivable from, and future committed
sales to customers and intercompany loans. We believe the use of foreign
currency financial instruments should reduce the risks that arise from doing
business in international markets. Our policy, effective August 1999, is to
hedge firm foreign currency exposure up to six months of anticipated
requirements. At October 1, 1999, we had open foreign exchange contracts with a
notional amount of $14.0 million, all of which were to hedge off-balance-sheet
commitments. At August 13, 1999 we had open foreign exchange contracts with a
notional amount of $6.1 million, all of which were to hedge off-balance-sheet
commitments. At July 2, 1999, we had open foreign exchange contracts with a
notional amount of $22.0 million, all of which were to hedge off-balance-sheet
commitments. At July 3, 1998, we had open foreign exchange contracts with a
notional amount of $166.4 million, all of which were to hedge off-balance-sheet
commitments. Additionally, for the fiscal year ended July 2, 1999, we purchased
and sold $120.7 million of foreign exchange forward and option contracts,
compared to $139.4 million for the prior year. See Note O "Financial
Instruments" in the Notes to Financial Statements for further information with
respect to commitments to buy or sell foreign currencies. Our hedging activities
provide only limited protection against currency exchange risks. Factors that
could impact the effectiveness of our hedging programs include accuracy of sales
estimates, volatility of currency markets, and the cost and availability of
hedging instruments. A 10% adverse change in currency exchange rates for our
foreign currency derivatives held July 2, 1999, would have an impact of
approximately $6.8 million on the fair value of these instruments. This
qualification of exposure to the market risk associated with foreign exchange
financial instruments does not take into account the offsetting impact of
changes in the fair value of our foreign denominated assets, liabilities, and
firm commitments.
Additionally, we use foreign exchange contracts to hedge anticipated
foreign cash flow commitments up to 6 months. Hedges on anticipated foreign cash
flow commitments do not qualify for deferral and therefore, gains and losses on
changes in the fair market value of the foreign exchange contract are recognized
in income. We are exposed to market risks related to fluctuations in interest
rates on our variable rate debt, which consists of borrowings at October 1,
1999, of $205.0 million under our Tranche B Senior Term Facility and $15.0
million borrowed under the Revolving Credit Facility. Intersil Holding and
Intersil together also have fixed rate debt of approximately $325.8 million
comprised primarily of the 13.25% Senior Subordinated Notes and PIK Notes. We
are not currently utilizing any type of derivative financial instrument to
control our interest rate risk.
For fixed rate debt, changes in interest rates generally affect the fair
market value, but not earnings or cash flows. Conversely, for variable rate
debt, changes in interest rates generally do not influence fair market value,
but do affect future earnings and cash flows. We manage our interest exposure by
using a combination of fixed and variable rate debt. Holding the variable rate
debt balance constant, each one percentage point increase in interest rates
occurring on the first day of the year would result in an increase in interest
expense for fiscal year 2000 of approximately $2.2 million.
36
INDUSTRY OVERVIEW
Semiconductors, which consist of integrated circuits and discrete
semiconductors, are the critical components used to create an increasing variety
of electronic products and systems. Integrated circuits operate at low power
levels and perform multiple functions to process and convey information in
electronic signal form. Integrated circuit capability is largely defined by
circuit density, which increases as its components are miniaturized. In contrast
to integrated circuits, discrete semiconductors perform a single function and
often have multiple uses in many different end-user applications.
SEMICONDUCTOR CLASSIFICATIONS
The following table sets forth the worldwide semiconductor total available
market, or TAM, for each of five product functions of the semiconductor industry
according to WSTS. Our products fit within the Analog and Discrete Power
classifications listed in the table.
WORLDWIDE SEMICONDUCTOR TAM
1990 1991 1992 1993 1994 1995 1996 1997 1998 CAGR
----- ----- ----- ----- ------ ------ ------ ------ ------ ----
(DOLLARS IN BILLIONS)
Analog............... $ 7.8 $ 8.3 $ 8.7 $10.7 $ 13.6 $ 16.6 $ 17.0 $ 19.8 $ 19.1 11.8%
Discrete Power....... 4.3 4.4 4.5 5.2 6.3 8.2 7.8 8.1 7.4 7.0
Microcomponents...... 9.2 11.4 13.9 19.1 23.8 33.4 39.8 47.8 47.3 22.8
Memory............... 11.8 12.2 14.8 21.3 32.5 53.5 36.0 29.3 23.0 8.7
Other................ 17.5 18.2 17.9 21.1 25.7 32.7 31.3 32.2 28.8 6.4
----- ----- ----- ----- ------ ------ ------ ------ ------
Total................ $50.6 $54.5 $59.8 $77.4 $101.9 $144.4 $131.9 $137.2 $125.6 12.1
----- ----- ----- ----- ------ ------ ------ ------ ------
----- ----- ----- ----- ------ ------ ------ ------ ------
Analog integrated circuits are used to shape or condition electrical
signals, to amplify electrical signal strengths, to convert electrical signals
to and from digital "one or zero" levels, to regulate voltage levels and to
provide interfaces between other products within an electrical system. Power
semiconductors can be either discrete power devices or analog integrated
circuits. Discrete devices perform a single function, such as switching
electricity on and off. Analog integrated circuits perform multiple functions
such as controlling and regulating currents. Microcomponents include
microprocessors and microcontrollers that process data according to instructions
embedded within the semiconductors themselves. These are considered the "brains"
of the electronic system and are at the center of the system architecture.
Memory are devices that store data and instructions. The "other" category
includes all electronic devices whose functions do not include one of the four
previously mentioned product functions.
ANALOG
Analog signals are not discrete binary numerical values, but rather
continuously variable electrical signals that represent continuous data
variables or wave signals, such as sound waves. The analog market is split into
two major segments: standard linear and mixed signal. The standard linear market
is comprised of building block products such as amplifiers, voltage regulators,
data conversion, interface circuits and comparators. These products are used in
all end systems, from computers and telecommunications, to industrial,
automotive and consumer applications. The mixed signal market consists of more
complex analog products, which also contain some digital circuitry for timing,
information control and data flow. Mixed signal products are often developed for
specific applications, such as video encoding, hard disk drive control, data
transmission, motor control and power management.
DISCRETE POWER
Discrete power semiconductors, such as a transistor or diode (a device that
allows current to flow in only one direction), typically contain one active
element. These devices perform a single function such as efficiently switching
electricity on and off. Examples of discrete power semiconductors include power
metal oxide semiconductor field effect transistors, or MOSFETs, and insulated
gate bipolar transistors, or IGBTs. MOSFETs are semiconductors that convert,
switch or otherwise shape or condition electricity. IGBTs typically serve the
switch function in power conversion applications that require higher current and
voltage than power MOSFETs can handle efficiently. IGBTs combine the ease of
voltage-driven power MOSFET technology with the conduction efficiency of bipolar
transistor technology.
37
INDUSTRY TRENDS
As the performance of semiconductor devices has increased and size and cost
have decreased, demand for semiconductors has expanded beyond their original
primary applications in computer systems to applications in telecommunications
systems, automotive products, consumer products and industrial automation and
control systems. In addition, system users and designers have driven the demand
for systems with increased functionality, higher levels of performance, greater
reliability and shorter design cycle times, all in smaller packages at lower
costs. These demands have resulted in increased semiconductor dollar content of
electronic products. The demand for electronic systems has also expanded
geographically with the emergence of new markets, particularly in the
Asia/Pacific region. We believe that future demand for semiconductors will be
driven by the growing trend towards use of the Internet and portable
electronics, including consumer electronics, computers and cellular telephones,
and the resulting need for semiconductors that can manage connectivity and power
for longer periods of use and that require less space.
Today, nearly every form of communication is being revolutionized by the
growing use of digital communications to move all types of data, voice and video
around the world. Different technologies, protocols and media have evolved which
are uniquely suited to particular applications in this rapidly evolving
environment. Advances in broadband communications are accelerating the reach of
cost effective, fast data highways to both homes and offices. Communications
semiconductors will be used extensively in broadband communication
networks/facilities, portable communications devices, and in servers and
infrastructure supporting the Internet. Each of these technologies requires
specific transport and access hardware devices, including handsets and base
stations for wireless telephony, switches and routers for telecommunications and
data networking, set-top boxes for cable and satellite communications, and
digital cable and digital subscriber line, or xDSL, modems for Internet access.
The advent of the Internet as a communications medium has dramatically
increased business and consumer demand for high-speed access to multimedia and
entertainment content. As business and consumers increasingly rely on the
Internet and intranets, many existing networks are under significant stress. A
bandwidth constraint has emerged, particularly at the "last mile" of network
infrastructures, challenging users and industry participants in a number of
communications segments. In response to growing network demands,
telecommunications, data communications and cable network operators are making
significant investments to alleviate congestion and support emerging high
bandwidth, integrated data, voice and video services. Specific technologies
addressing bandwidth capacity constraints include cable modems and xDSL,
including asymmetric digital subscriber line, or ADSL, for residential
applications, high speed digital subscriber line, or HDSL, symmetric digital
subscriber line, or SDSL, and T1/E1 for high speed network access in commercial
applications, and ATM and SONET, for network backbone transmission. The
importance of the Internet as a communications medium and the increased ability
to deliver access to content available through the Internet will increase the
demand for home and small business networking solutions, provided these
networking solutions are cost-effective.
In addition, these solutions depend on enhanced performance capabilities of
advanced electronic systems. As electronic systems continue to increase in
performance and sophistication, they demand more complex power management
solutions. The latest generation personal computers rely on advances in power
conversion to operate at ever-lower voltages in order to reduce power
consumption, increase efficiency and, in notebook personal computers, prolong
battery life. Further, advanced electronic systems outside of communications
applications also have greater power management requirements. All of these
systems, including efficient power supplies for communications and computing
networks and engine and chassis management in automobiles, require advanced
power management semiconductors for more complex digital signal processors and
microcontrollers and for efficient power inverters.
The growth in Internet infrastructure, portable battery-powered computing
and communication devices and continually faster microprocessors are driving the
development of, and demand for, successively more efficient power management
integrated circuits and discrete power semiconductors. As a result of these
industry trends, we have strategically focused on designing and manufacturing
high performance analog and mixed-signal and discrete power semiconductors for
solving communications, data conversion, wireless data and power management
problems.
38
BUSINESS
GENERAL
We design, manufacture and market analog and wireless integrated circuits
and discrete power semiconductors for rapidly growing communications products
and other applications. The majority of our revenue is derived from sales of our
analog and mixed-signal products developed primarily for the communications and
power management markets. Additionally, we use our proprietary technologies and
design capabilities to provide systems solutions for rapidly growing wireless
applications. We own about 1,400 patents and have substantial expertise in the
design and manufacturing of components that perform many of the essential
functions relating to the supply, distribution and regulation of electric power
in electronic products. Our core competencies include analog mixed signal,
digital signal processor, radio frequency, discrete power and radiation
hardening technologies. Our products range from components performing highly
complex functions, such as our PRISM(Registered) chip sets for wireless data
communications, to components serving as simple building blocks for electronic
circuits, such as our IGBTs, for power management applications.
OUR BUSINESS STRATEGY
Our business strategy emphasizes the following key elements:
o Focus on High Growth, Higher Margin End-User Markets. In light of the
rapid expansion of communication applications and the increased
requirement for power management in electronic systems, we focus our
investments in these areas. We believe these markets have attractive
growth characteristics and enable us to draw on our core competencies.
Accordingly, we are pursuing opportunities in communications, wireless
and power management. In addition, while we will continue to offer legacy
products such as certain automotive integrated circuits, defense products
and microcontrollers, we do not intend to invest in the development of
new products in these areas.
o Focus on Partnering with Industry Leaders. We partner with industry
leaders in each of our target end-user markets to take our strong
engineering and design capabilities to commercial levels. Our customer
base of industry leaders illustrates the acceptance of our products to
date, and we continue to partner with these customers and others to
develop and market our next generation products.
o Provide Systems Level Solutions to Our Customers. We design and develop
our semiconductors with a systems level approach that we believe enhances
the value of our products as they are designed into and incorporated in
our customers' electronic systems. This approach yields early integration
of our products into our customers' products, provides opportunities for
current design wins, and ultimately increases revenue as our solutions
are incorporated within a targeted end application.
o Maintain High Quality Customer Service. Quality customer service is
critical to our customer retention and sales growth. Through our customer
relations initiatives, we believe we distinguish ourselves from our
competitors. Additionally, our sales force and authorized representatives
and distributors are expanding customer information programs and
augmenting our comprehensive customer support efforts.
39
PRODUCTS AND TECHNOLOGY
We design, develop and manufacture a broad range of products used in a wide
variety of microelectronic applications in the communications, wireless and
power management end-user markets. Our products are organized into three
principal product groups: Analog & Mixed-Signal, Discrete Power, and Wireless.
ANALOG & DISCRETE
MIXED-SIGNAL POWER WIRELESS
------------------------- ------------------------ ----------------------
FISCAL YEAR 1999 REVENUES.... $352.8 million $161.6 million $18.3 million
PERCENTAGE OF REVENUES....... 66.2% 30.3% 3.5%
KEY CUSTOMERS................ Siemens Asustek Nokia
Compaq Emerson Sony
Dell Compaq Siemens
Intel Bosch 3Com
Cisco
ANALOG & MIXED-SIGNAL
Our Analog & Mixed-Signal portfolio represented 66.2% of our fiscal year
1999 revenue. We deliver leading-edge analog, mixed signal, digital signal
processors and groups of semiconductors that are designed to work together, also
known as chip set solutions, for today's fastest-growing communications markets.
Our design focus targets such opportunities as wired networks, subscriber line
interface circuits, or SLICs, which interface analog and digital signals for
telecom systems, and high-speed converters for flat-panel LCD monitors. The
three analog product lines include the following:
Signal Processing Products. We have a portfolio of linear, mixed-signal
and digital signal processor integrated circuits optimized for high-speed
communications and multimedia application-specific products.
Communications Analog & Mixed-Signal integrated circuits are primarily
targeted at wired and wireless voice and data communications infrastructure
applications. We have developed a complete portfolio of digital signal
processing products and a line of 8-, 12- and 14-bit high speed data acquisition
converter integrated circuits for cellular basestations, wireless data links,
wireless local loop and broadband wireless access, which we refer to as the
wireless infrastructure market. These products, designated CommLink(Trademark),
enable our customers to increase the amount of data that can be transmitted,
enabling the addition of high speed data transmission to cellular communications
networks. These integrated circuits enable faster wireless data links between
remote basestations and also enable more efficient cable "headends"--the ground
station for the satellite links and broadband wireless access--which is
sometimes called Wireless Cable or LMDS. Our products support cellular standards
including Generation 2 Digital such as IS-95 CDMA and GSM, Generation 2.5 such
as Edge and IS-95+, and Generation 3 Wideband CDMA. We utilize both systems
level engineering and integrated circuit expertise to offer superior products
for wireless communications systems. This combination of expertise enabled us to
introduce the industry's first digital signal processing-based single chip, the
HSP50016, which provided the technology base used to separate telephone calls
for cellular basestations. We continue that leadership with the recently
announced HSP50216 Quad programmable down converter for use in Generation 2.5
cellular basestation designs.
New generations of high performance digital signal processing
communications integrated circuits require ever increasing performance from the
analog-to-digital and digital-to-analog converters that convert digital signals
to analog radio frequency signals for wireless applications. We currently market
a broad family of 6- to 14-bit, CMOS analog-to-digital and digital-to-analog
converters in multiple speed ranges and functional combinations in order to
service wireless infrastructure applications.
With more than 15 years of experience in the design and development of
SLICs, we continue to expand our family portfolio of SLICs. SLICs, which are
used in many telephone applications, serve two primary functions. First, they
interface analog voice signals with digital processors. Second, they serve the
simple, yet essential, function of ringing a telephone to signal an incoming
call. Recently, we introduced an advanced ringing SLIC, which combined both
functions into a single SLIC. Thus, the ringing SLIC acts as both an interface
into the telephone and also rings the telephone. Our newest ringing SLIC
product, a voice over internet protocol or VoIP product, enables the use of
analog phones in the emerging Internet telephony
40
market. Our SLIC family portfolio of advanced telecom linecard solutions are
ideal for today's universal telecom exchange systems, including Plain Old
Telephone Service, or POTS, Private Branch Exchanges, Central Office, Loop
Carrier, Fiber in the Loop and Wireless Local Loop.
Included in our broad portfolio are operational amplifiers, which are
referred to as op amps, interface integrated circuits and multimedia and
professional video integrated circuits. These include the industry standard
BiCMOS high speed op amp and the low power instrumentation converter. This
portfolio is sold to a broad range of customers in industrial, medical,
computer, avionics and test and measurement instrumentation markets, primarily
through distribution partners. These products typically have long life cycles
and are designed into our customers' products thereby ensuring us long-term
sales. Our end-user markets include wireless communications, video and image
processing, high-speed satellite communications, test/measurement equipment and
medical instrumentation.
Power Management Integrated Circuits. We develop power system
architectures and provide a portfolio of computer products, file server/storage
system products, networking and VoIP products. Our power management products for
computing applications operate in a voltage range of 1 to 30 volts and are
designed into desktop personal computers, file servers and workstations. We have
also developed new power management circuits for server networks supporting the
Internet.
Our highly successful HIP6000 family of pulse width modulator controller
integrated circuits are used in about 30% of all personal computers that use
Pentium, Pentium II and Pentium III class processors.
We recently introduced an advanced architecture which delivers multiphase
power to microprocessors. This is a requirement for Intel and AMD
microprocessors above MHz. This new platform of products consists of three
controllers (HIP6301, HIP6302 and HIP6303) and three gate drivers (HIP6601,
HIP6602 and HIP6603). We also offer a complete advanced configuration power
interface solution for instant on and sleep mode capability used to save energy
in personal computers.
We provide complete power solutions for the file server and redundant array
of independent disks, or RAID, market. Internet growth, especially e-commerce,
is driving the need for high reliability/availability in these applications. Our
family of hot plug products allows repair and maintenance of a file server and
RAID without a complete shutdown of the file server.
We are currently expanding our space-qualified portfolio by offering our
Starpower(Trademark) family of radiation hardened power management products for
commercial satellite applications. We are developing what we believe will be an
industry-leading radiation hardened DC/DC Converter power module line.
Our power management integrated circuits are also used in industrial
control and automotive engine management systems.
Defense. We are a leading supplier of radiation hardened and
high-reliability semiconductor solutions for today's defense market. We have a
history of success in custom products for many defense programs, and continue to
supply programs such as Minuteman III, GPS, SINCGARS, SADARM, Sparrow, AMRAAM
and Aegis. Our radiation hardened integrated circuit product portfolio includes
logic, memories, signal processing components, microprocessors and custom
devices, providing system designers with a full complement of products for
radiation hardened systems. We also have a set of legacy digital product lines
which serve both defense and commercial systems, with microprocessor,
microcontroller, memory and data communications products.
DISCRETE POWER
Our power portfolio represented 30.3% of our revenue for fiscal year 1999.
We have designed a portfolio of high value products for power system
architectures. We combine systems-level expertise with proprietary technologies
that increase the likelihood that our products will be designed directly into
our customers' products and achieve rapid and lasting market acceptance.
41
In 1980, we invented IGBTs, or insulated gate bipolar transistors, and hold
some of the fundamental patents that cover their production. We continue to
develop next-generation IGBTs and recently introduced our new 600V SMPS, or
switch mode power supply Series IGBT family of high-speed, high efficiency IGBTs
specifically tailored for operation in today's switched mode power supplies. Our
portfolio also includes radiation hardened N- and P-channel metal oxide
semiconductor field effect transistors, or MOSFETs, for high-reliability
applications such as satellites.
Our computing discrete power products portfolio includes low voltage
MOSFETs. These MOSFETs are designed to specifically enhance the performance of
the power supply when used in conjunction with our power integrated circuits.
Our industrial and automotive power discrete product portfolio includes IGBTs,
MOSFETs, and high-speed rectifiers for motor drive and motor control, power
supply, automotive, instrumentation, robotic, welding, and other
high-reliability industrial applications. Our power management integrated
circuits and discretes allow us to provide a complete power management solution
for our customers. We supply our discrete power products to Asustek, Bosch,
Compaq and Emerson and other customers who use our products for personal
computer motherboard power, diesel fuel injection, body and chassis controls and
industrial power supplies.
WIRELESS
Our Wireless portfolio represented 3.5% of our revenue for fiscal year
1999. We are the leading developer of semiconductor solutions for the emerging
wireless local area networking market. Our PRISM(Registered) family of chip sets
address the growing demand for wireless networking for use in both the home and
business. We believe we are the only supplier of an integrated wireless
networking product solution, including reference designs and software.
The PRISM II chip set is comprised of five highly integrated
semiconductors. They are the 2.4GHz power amplifier, RF/IF up and down
converter, quadrature modulator/demodulator, baseband processor and the medium
access controller. These integrated circuits represent design and manufacturing
competence in radio frequency, or RF, mixed signal and digital technologies. The
2.4GHz power amplifier, RF/IF up and down converter, and the quadrature
modular/demodulator are designed and manufactured using a high performance RF
silicon germanium process technology. The baseband processor and medium access
controller are designed and manufactured using mixed signal and digital process
technologies.
Because we design all components of our wireless chip set, including
reference designs and software, we believe we provide our customers with the
best available performance and value. Providing our customers with a turnkey
wireless data radio solution enables them to have the fastest time to market for
their systems which we believe is a critical competitive advantage in this
emerging market. More than 40 companies, including Nokia, Compaq, Samsung,
Aironet and Sony, have adopted use of the PRISM(Registered) chip set in their
products. We recently announced our PRISM II chip set, our second-generation
chip set capable of delivering high-speed wireless networking at data rates of
11 megabits-per-second. The PRISM II chip set incorporates advanced integrated
circuit design with silicon germanium process technology which makes the PRISM
II chip set five times faster while reducing power consumption by 50% compared
to the original the PRISM(Registered) chip set. Since the introduction of the
PRISM II chip set, we are developing relationships with original equipment
manufacturers, including among others, Compaq, Zoom, Nokia, Nortel, Siemens and
3Com, for use of the PRISM II chip set in a variety of wireless local area
network applications for home and business.
CUSTOMERS AND APPLICATIONS
We seek to capitalize on our core competencies by focusing on three
targeted end markets: Communications, Power Management and Wireless.
Our Communications end market includes signal processing and data
communications, industrial and satellite products. Applications in this area are
video including cable television systems and digital video, telephony including
central office switching solutions, digital cellular telephones, ISDN
controllers, modems and PBX systems, networking applications and space
applications including commercial and military satellites and avionics. We sell
to, among others, Cisco, Lucent, Alcatel, Dell and IBM.
42
Our Power Management end market includes computing, automotive and
industrial products. Applications in this area are computing applications
including file servers, monitors, PC motherboards, printers and workstations,
automotive applications including entertainment systems, electronic power
steering and engine management systems and industrial automation and control. We
sell to, among others, Asustek, Bosch, Dell, Emerson, IBM, Intel and Siemens.
Our Wireless end market and its related applications comprises wireless
local area networks. We sell to, among others, 3Com, Compaq, Nokia, Northern
Telecom, Samsung, Siemens and Sony.
Outside of our targeted end markets, our remaining category includes
automotive integrated circuits and defense products. Applications in this
category include automotive applications including fuel injection and ignition
circuits and defense applications including smart munitions and tactical and
strategic missiles. We sell to, among others, DaimlerChrysler, Siemens, Boeing,
Lockheed Martin and Raytheon.
SALES, MARKETING AND DISTRIBUTION
In fiscal 1999, we derived about 66% of our sales from original equipment
manufacturer, or OEM, customers through our global sales organizations and 34%
of our sales through distributors. We operate sales organizations in the
Americas, Europe and the Asia/Pacific region with about 240 employed
salespersons. Our sales organizations are supported by logistics organizations.
Product orders flow to our manufacturing facilities, where the product is made.
Products are then shipped to the customer either directly or indirectly via our
warehouses in the United States and Europe.
We have dedicated direct sales organizations operating in the Americas,
Europe and Asia/Pacific regions that serve our major OEM customers. We have
strategically located our sales offices near these major OEM customers. We also
have a large network of distributors and manufacturers' representatives to
distribute our products around the world. We believe that maintaining a small,
highly focused, direct sales force selling products for each of our targeted
product areas, combined with an extensive network of distributors and
manufacturer's representatives, is the most efficient way to serve our customer
base. Our sales force is segmented by end-user markets, thereby ensuring each
salesperson has an end-user market expertise and focus. We also maintain a
dedicated marketing organization, which supports each product area on a regional
basis.
Typically, distributors handle a wide variety of products, including
products that compete with our products, and fill orders for many customers.
Some of our sales to distributors are made under agreements allowing for market
price fluctuations and/or the right of return on some unsold merchandise.
Virtually all distribution agreements contain an industry standard stock
rotation provision allowing for minimum levels of inventory returns. In our
experience, these inventory returns can usually be resold. Manufacturers'
representatives generally do not offer products that compete directly with our
products, but may carry complementary items manufactured by others.
Manufacturers' representatives do not maintain a product inventory; instead,
their customers place large quantity orders directly with us and are referred to
distributors for smaller orders.
RESEARCH AND DEVELOPMENT
Manufacturing technology is a key determinant in the improvement of
semiconductor products. Each new generation of process technology has resulted
in products with higher speed, greater performance and lower costs of
production. Infrastructure investments made in recent years will enable us to
continue to achieve high volume, high-reliability and low-cost production using
leading edge process technology. Our research and development efforts are
focused on new product development and improvements in process technology in our
growth areas which include communications, power management and wireless.
Our expenditures for research and development in fiscal years 1997, 1998
and 1999 were $75.2 million, $75.1 million and $67.0 million, respectively. Each
of our product areas maintain independent research and development
organizations. We work closely with our major customers in many research and
development situations to increase the likelihood that our products will be
designed directly into the customers' products and achieve rapid and lasting
market acceptance.
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MANUFACTURING
We fabricate wafers at three locations in the United States--Mountaintop,
Pennsylvania, Palm Bay, Florida, and Findlay, Ohio. Each of the plants has two
wafer manufacturing clean rooms. We also use a number of outside wafer
fabrication foundries for the manufacture of device types where we do not have
the necessary technologies resident in house. We also utilize advanced
manufacturing processes of outside foundries for many of our PRISM(Registered)
products.
Our principal assembly and test facility is located in Kuala Lumpur,
Malaysia. Established in 1974, this facility has 524,000 square feet on 22 acres
of land. It has the capacity to assemble and test 350 million units of plastic
integrated circuits, 25 million hermetically sealed ceramic packaged integrated
circuit units and 500 million power semiconductor units each year. We also have
limited assembly and test capability in Palm Bay, Florida. We use a number of
assembly and test subcontractors for device types and packages that cannot be
assembled and tested in Kuala Lumpur.
Our previous owner made significant capital expenditures to increase
capacity and improve our manufacturing efficiency. As a result, our wafer fabs
and assembly and test facilities are among the most productive and efficient in
the industry. We believe we can continue to maintain competitive cost, further
increase productivity and enhance our process efficiency by investing in people
and assets, where necessary.
We utilize an extensive set of manufacturing processes to fabricate our
products, including technologies such as: ULTRAFET(Registered), IGBT, BiCMOS,
Power BiCMOS, High Frequency Bipolar, CMOS and Rad Hard Processes. The table
below sets forth some information regarding our manufacturing facilities,
products, wafer diameter and annual wafer capacity:
MANUFACTURING FACILITIES
ANNUAL CAPACITY
LOCATION PRODUCTS/FUNCTIONS WAFER DIAMETER (6" EQUIVALENT WAFERS)
-------- ------------------ -------------- ---------------------------
FABRICATION
FACILITIES:
Mountaintop, MOSFETs, IGBTs, Rectifiers, Rad Hard 6", 8" 420,000
Pennsylvania Discretes
Findlay, Ohio Standard Linear/Interface 5" 120,000
integrated circuits,
Power integrated circuits
Palm Bay, Florida Analog, Power integrated circuits, 4", 6" 175,000
Telecom SLICs, Rad Hard integrated
circuits
ASSEMBLY AND TEST
FACILITIES:
Kuala Lumpur, Assembly and testing of most of our
Malaysia products
Palm Bay, Florida Assembly and testing of some of our
products used in military applications
Our manufacturing processes use many raw materials, including silicon
wafers, copper lead frames, mold compound, ceramic packages and various
chemicals and gases. We obtain our raw materials and supplies from a large
number of sources on a just-in-time basis. Although supplies for the raw
materials used by us are currently adequate, shortages could occur in various
essential materials due to interruption of supply or increased demand in the
industry.
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BACKLOG
Our sales are made pursuant to purchase orders that are generally booked
from one to six months in advance of delivery. Backlog is influenced by several
factors including market demand, pricing and customer order patterns in reaction
to product lead times. Although quantities actually purchased by customers may
vary between booking and delivery to the extent customer needs or industry
conditions change, our backlog has historically been a reliable indicator of our
future revenues. Our backlog was about $223.2 million at June 27, 1997, about
$188.5 million at July 3, 1998, $174.0 million at July 2, 1999 and $180.8
million at October 1, 1999. We expect to ship the backlog at October 1, 1999
within twelve months of that date.
Approximately 30% of our revenue is generated under annual, fixed-price
contracts with key customers. These contracts allow us to schedule production
capacity in advance and allow our customers to manage their inventory levels
consistent with just-in-time principles while shortening the cycle times
required to produce ordered products. However, quantity and price agreements
under these contracts are, as a matter of industry practice, difficult to
maintain and implement.
SEASONALITY
A lower percentage of our products is sold to the computer end-user or into
the computer market than the percentage of products sold by other semiconductor
manufacturers to the computer end-user or into the computer market. Sales in the
computer market fluctuate more than in other semiconductor markets. As a result,
we experience less seasonal fluctuation than the semiconductor industry as a
whole. We typically experience lower revenue in the first fiscal quarter,
primarily due in large part to slow demand from government customers,
changeovers in automotive models and customer demand adjustments as a result of
summer and holiday seasons around the world, particularly Europe. Revenue
usually has a seasonal peak in our fourth fiscal quarter due to our customers'
need to meet government delivery requirements.
COMPETITION
Markets for our products are highly competitive. Although only a few
companies compete with us in all of our product lines, we face significant
competition within each of our product lines from major international
semiconductor companies. Some of our competitors may have substantially greater
financial and other resources with which to pursue engineering, manufacturing,
marketing and distribution of their products. Competitors include manufacturers
of standard semiconductors, application specific integrated circuits and fully
customized integrated circuits, as well as customers who develop their own
integrated circuit products.
We compete in different product lines to various degrees on the basis of
price, technical performance, product features, product system compatibility,
customized design, availability, quality and sales and technical support. Our
ability to compete successfully depends on elements both within and outside of
our control, including successful and timely development of new products and
manufacturing processes, product performance and quality, manufacturing yields
and product availability, intellectual property protection obtained by us and
our competitors, customer service, pricing, industry trends and general economic
trends.
The following chart sets forth our principal competitors by business unit:
BUSINESS UNIT PRINCIPAL COMPETITORS
------------- ---------------------
Analog & Mixed-Signal Analog Devices, Burr Brown, Linear
Technology, Maxim, Semtech,
Discrete Power International Rectifier, ON
Semiconductor, Siliconix,
STMicroelectronics
Wireless Lucent, Philips, Proxim
45
TRADEMARKS AND PATENTS
We own rights to a number of trademarks and patents that are important to
our business. Among others, we consider Intersil, PRISM(Registered),
ULTRAFET(Registered) and CommLink to be trademarks that are material to our
operations.
Our corporate policy is to protect proprietary products by obtaining
patents for these products when practicable. We currently possess about 1,400
patents.
EMPLOYEES
Our worldwide workforce consisted of 5,778 employees (full- and part-time)
as of October 1, 1999 of whom 793 were represented by collective bargaining
arrangements. Of our employees, 4,743 were engaged in manufacturing, 511 were
engaged in engineering, 323 were engaged in marketing and sales, 100 were
engaged in administration and 101 were engaged in management information
systems. Of our employees, 3,519 were employed in the Analog & Mixed-Signal
area; 1,897 were employed in the Discrete Power area; and 362 were employed in
the Wireless area. We believe that our relations with our employees are
satisfactory.
PROPERTIES
In the United States, our corporate headquarters as well as some
manufacturing and warehouse operations are located in about 846,000 square feet
of space in properties owned by us in Palm Bay, Florida. Additional
manufacturing, warehouse and office facilities are housed in about 445,000
square feet and 270,000 square feet of space in properties owned by us in
Mountaintop, Pennsylvania and Findlay, Ohio, respectively.
In Kuala Lumpur, Malaysia, we own about 524,000 square feet of
manufacturing and warehouse space located upon land leased by us under three
long-term ground leases. The initial term of these leases will expire in 2086.
The improvements located upon the leased land are owned by us.
Our primary engineering activity takes place in Palm Bay, Florida and at
our other manufacturing facilities. In addition to this, we have engineering
activities taking place in leased facilities in Durham, North Carolina (Research
Triangle Park), Branchburg, New Jersey and San Antonio, Texas.
We maintain regional sales offices in Palm Bay, Florida; Burlington,
Massachusetts; Dallas, Texas; San Jose, California; Munich, Germany; Milan,
Italy; Camberly, United Kingdom; and Taipei, Taiwan and other sales offices
around the world. All our offices are leased generally under short term leases,
except our offices in Palm Bay, Florida.
We believe that our facilities around the world, whether owned or leased,
are well-maintained. Our manufacturing facilities contain sufficient production
capacity to meet our needs for the foreseeable future.
ENVIRONMENTAL MATTERS
Our operations are subject to environmental laws and regulations in the
countries in which we operate that regulate, among other things, air and water
emissions and discharges at our manufacturing facilities; the management and
disposal of hazardous substances and wastes; the investigation and remediation
of environmental contamination; and the release of contaminants into the
environment at or from properties operated by us and at other sites. As with
other companies engaged in like businesses, the nature of our operations exposes
us to the risk of environmental liabilities or claims. We believe, however, that
our operations are in substantial compliance with applicable environmental laws
and regulations. Our costs to comply with environmental regulations were about
$4.5 million, $6.3 million and $7.4 million in each of fiscal years 1997, 1998
and 1999, respectively.
Our facilities in Findlay, Ohio have ongoing remediation projects to
respond to some releases of hazardous substances that occurred prior to the
consummation of the acquisition of Harris' semiconductor business. Our
facilities in Mountaintop, Pennsylvania have groundwater and subsurface soil
contamination from past operations, some of which occurred prior to Harris'
acquisition of those facilities, for which
46
remediation has been conducted, and additional remediation may be required. In
addition, Harris' facilities in Palm Bay, Florida, a portion of which includes
our business, are listed on the National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act. Remediation activities
are ongoing in Palm Bay in accordance with Consent Decrees entered into by
Harris with the United States Environmental Protection Agency. Under the Master
Transaction Agreement, Harris has agreed to indemnify us for the cost of such
projects at all of our facilities, including at Findlay, Ohio, Mountaintop,
Pennsylvania, Kuala Lumpur, Malaysia and Palm Bay, Florida to the extent these
costs are not currently allocated in the current balance sheet for the
Semiconductor Business. Based on the historical costs of these projects and
because the remediation projects are in advance stages, we do not believe that
the future cleanup costs will be material, even without the indemnity.
Future laws or regulations and changes in existing environmental laws or
regulations may subject our operations to different, additional or more
stringent standards. While historically the cost of compliance with
environmental laws has not had a material adverse effect on our results of
operations, business or financial condition, we cannot predict with certainty
our future costs of compliance because of changing standards and requirements.
We cannot assure you that material costs will not be incurred in connection with
the future compliance with environmental laws or with future cleanup costs
related to currently unknown contamination.
LEGAL PROCEEDINGS
From time to time we are involved in legal proceedings arising in the
ordinary course of business. A countersuit brought against Harris by Ericsson, a
competitor of Harris in which patent infringement claims have been asserted is
currently pending in the Sherman Division of the United States District Court
for the Eastern District of Texas. The action was initially instituted by Harris
against Ericsson on August 17, 1998 in Dallas, Texas. Ericsson countersued
Harris, claiming infringement by Harris of four of its patents relating to
telephone subscriber line interface circuits. On September 1, 1999, Ericsson
joined us in this action. Ericsson seeks an injunction plus damages, including
lost profits and/or a reasonable royalty, costs of suit, treble damages,
prejudgment interest and attorneys' fees. However, to the extent our liability
from this litigation, if any, arises out of the conduct of the semiconductor
business by Harris prior to closing, this liability will be covered by Harris'
agreement in connection with the acquisition of the semiconductor business to
provide us with certain indemnities. We believe that there is no litigation
pending that could have, individually or in the aggregate, a material adverse
effect on our business, financial condition, results of operations or cash
flows.
47
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We issued and sold the old notes to the initial purchasers on August 13,
1999. The initial purchasers subsequently sold the old notes to qualified
institutional buyers in reliance on Rule 144A under the Securities Act. Because
the old notes are subject to transfer restrictions, our company, Intersil
Holding, and the initial purchasers entered into a registration rights agreement
dated August 13, 1999 under which we agreed:
o on or before November 11, 1999, to prepare and file with the Securities
and Exchange Commission the registration statement of which this
prospectus is a part;
o on or before January 12, 2000, to use our best efforts to cause the
registration statement to become effective under the Securities Act;
o upon the effectiveness of the registration statement, to offer the new
notes in exchange for surrender of the old notes; and
o to keep the exchange offer open for not less than 30 days (or longer if
required by applicable law) after the date notice of the exchange offer
is mailed to the holders of the old notes.
The registration statement is intended to satisfy in part our obligations
regarding the old notes under the registration rights agreement.
Under existing interpretations of the Securities and Exchange Commission,
the new notes will be freely transferable by holders other than our affiliates
after the exchange offer without further registration under the Securities Act
if the holder of the new notes represents that:
o it is acquiring the new notes in the ordinary course of its business;
o it has no arrangement or understanding with any person to participate in
the distribution of the new notes; and
o it is not an affiliate of Intersil, as such terms are interpreted by the
Securities and Exchange Commission.
However, broker-dealers receiving new notes in the exchange offer will have a
prospectus delivery requirement regarding resales of such new notes. The
Securities and Exchange Commission has taken the position that broker-dealers
receiving new notes in the exchange offer may fulfill their prospectus delivery
requirements regarding new notes (other than a resale of an unsold allotment
from the original sale of the old notes) with this prospectus. Under the
registration rights agreement, we are required to allow broker-dealers receiving
new notes in the exchange offer and other persons, if any, with similar
prospectus delivery requirements to use this prospectus in connection with the
resale of the new notes. Each broker-dealer that receives new notes for its own
account in exchange for old notes, where the notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the new notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying Letter of Transmittal (which together constitute the
exchange offer), we will accept for exchange old notes which are properly
tendered on or prior to the expiration date of the exchange offer and not
withdrawn as permitted below. The expiration date of the exchange offer shall be
5:00 p.m., New York City time, on February 17, 2000, unless extended by us, in
our sole discretion.
As of the date of this prospectus, $200.0 million aggregate principal
amount of the old notes are outstanding. This prospectus, together with the
Letter of Transmittal, is first being sent on or about January 18, 2000 to all
holders of old notes known to us. Our obligation to accept old notes for
exchange under the exchange offer is subject to conditions as set forth under
"-- Conditions to the Exchange Offer" below.
48
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and accordingly
delay acceptance for any exchange of any old notes, by giving notice of the
extension to the holders of old notes as described below. During any extension,
all old notes previously tendered will remain subject to the exchange offer and
may be accepted for exchange by us. Any old notes not accepted for exchange for
any reason will be returned without expense to the tendering holder as promptly
as practicable after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any old notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified below under "-- Conditions to the Exchange Offer." We will give notice
of any extension, amendment, non-acceptance or termination to the holders of the
old notes as promptly as practicable, the notice in the case of any extension to
be issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date of the exchange offer.
Holders of old notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law in connection with the exchange offer.
PROCEDURES FOR TENDERING OLD NOTES
The tender to us of old notes by a holder of old notes as set forth below
and the acceptance of the tender by us will constitute a binding agreement
between the tendering holder and us upon the terms and subject to the conditions
set forth in this prospectus and in the accompanying Letter of Transmittal.
Except as set forth below, a holder who wishes to tender old notes for exchange
under the exchange offer must transmit a properly completed and duly executed
Letter of Transmittal, including all other documents required by the Letter of
Transmittal, to United States Trust Company of New York at one of the addresses
set forth below under "-- Exchange Agent" on or prior to the expiration date of
the exchange offer. In addition, the exchange agent must receive:
o certificates for the old notes along with the Letter of Transmittal, or
o prior to the expiration date of the exchange offer, a timely confirmation
of a book-entry transfer of the old notes into the exchange agent's
account at The Depository Trust Company in accordance with the procedure
for book-entry transfer described below, or
o the holder must comply with the guaranteed delivery procedure described
below.
The method of delivery of old notes, Letters of Transmittal and all other
required documents is at your election and risk. If such delivery is by mail, we
recommend that you use registered mail, properly insured, with return receipt
requested. In all cases, you should allow sufficient time to assure timely
delivery. You should not send Letters of Transmittal or old notes to us.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the old notes surrendered for exchange
are tendered:
o by a registered holder of the old notes who has not completed the box
entitled "Special Issuance Instruction" or "Special Delivery Instruction"
on the Letter of Transmittal; or
o for the account of a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States.
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by a firm which is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the United
States. If old notes are registered in the name of a person other than a signer
of the Letter of Transmittal, the old notes surrendered for exchange must be
endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by us in our sole
discretion, duly executed by the registered holder with the signature on the old
notes guaranteed by a firm which is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
a commercial bank or trust company having an office or correspondent in the
United States.
49
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee, and who wishes
to tender, should contact the registered holder promptly and instruct the
registered holder to tender on such beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
old notes, either (1) make appropriate arrangements to register ownership of the
old notes in the owner's name or (2) obtain a properly completed bond power from
the registered holder. The transfer of registered ownership may take
considerable time.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of old notes tendered for exchange will be determined by
us in our sole discretion. This determination shall be final and binding. We
reserve the absolute right to reject any and all tenders of any particular old
notes not properly tendered or to not accept any particular old notes which
acceptance might, in our judgment or our counsel's judgment, be unlawful. We
also reserve the absolute right to waive any defects or irregularities or
conditions of the exchange offer as to any particular old notes either before or
after the expiration date of the exchange offer (including the right to waive
the ineligibility of any holder who seeks to tender old notes in the exchange
offer). The interpretation of the terms and conditions of the exchange offer as
to any particular old notes either before or after the expiration date of the
exchange offer (including the Letter of Transmittal and the instructions to such
Letter of Transmittal) by us shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of old notes
for exchange must be cured within a reasonable period of time as we shall
determine. Neither we, the exchange agent nor any other person shall be under
any duty to give notification of any defect or irregularity regarding any tender
of old notes for exchange, nor shall any of them incur any liability for failure
to give notification.
If the Letter of Transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing, and, unless waived by
us, proper evidence satisfactory to us of their authority to so act must be
submitted.
By tendering, each holder of old notes will represent to us in writing
that, among other things:
o the new notes acquired under the exchange offer are being obtained in the
ordinary course of business of the holder and any beneficial holder;
o neither the holder nor any beneficial holder has an arrangement or
understanding with any person to participate in the distribution of the
new notes; and
o neither the holder nor any other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of our company. If the holder is
not a broker-dealer, the holder must represent that it is not engaged in
nor does it intend to engage in distribution of the new notes.
If any holder or any other person is an "affiliate," as defined under Rule
405 of the Securities Act, of ours, or is engaged in, or intends to engage in,
or has an arrangement or understanding with any person to participate in, a
distribution of the new notes to be acquired under the exchange offer, the
holder or any other person (1) may not rely on the applicable interpretations of
the staff of the Securities and Exchange Commission and (2) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
If the holder is a broker-dealer, the holder must represent that it will
receive new notes for its own account in exchange for old notes that were
acquired as a result of market-making activities or other trading activities.
Each broker-dealer that receives new notes for its own account in exchange for
old notes, where such old notes were acquired by the broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such new notes.
See "Plan of Distribution."
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date of the exchange offer, all
old notes properly tendered, and will issue the new notes promptly after
acceptance of the old notes. See "-- Conditions to Exchange Offer" below. For
purposes of
50
the exchange offer, we shall be deemed to have accepted properly tendered old
notes for exchange when, as and if we have given oral and written notice to the
exchange agent.
The new notes will bear interest from the most recent date to which
interest has been paid on the old notes, or if no interest has been paid on the
old notes, from August 13, 1999. Accordingly, registered holders of new notes on
the relevant record date for the first interest payment date following the
consummation of the exchange offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from August 13, 1999. Old notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the exchange offer. Holders
of old notes whose old notes are accepted for exchange will not receive any
payment for accrued interest on the old notes otherwise payable on any interest
payment date the record date for which occurs on or after consummation of the
exchange offer and will be deemed to have waived their rights to receive the
accrued interest on the old notes.
In all cases, issuance of new notes for old notes that are accepted for
exchange under the exchange offer will be made only after timely receipt by the
exchange agent of (1) certificates for the old notes or a timely confirmation of
a book-entry transfer of the old notes into the exchange agent's account at The
Depository Trust Company, (2) a properly completed and duly executed Letter of
Transmittal and (3) all other required documents. If any tendered old notes are
not accepted for any reason set forth in the terms and conditions of the
exchange offer or if old notes are submitted for a greater principal amount than
the holder desires to exchange, the unaccepted or non-exchanged old notes will
be returned without expense to the tendering holder of the old notes (or, in the
case of old notes tendered by book-entry transfer into the exchange agent's
account at The Depository Trust Company according to the book-entry transfer
procedures described below, the non-exchanged old notes will be credited to an
account maintained with the Depository Trust Company) as promptly as practicable
after the expiration of the exchange offer.
BOOK-ENTRY TRANSFER
Any financial institution that is a participant in The Depository Trust
Company's systems may make book-entry delivery of old notes by causing The
Depository Trust Company to transfer the old notes into the exchange agent's
account at The Depository Trust Company in accordance with The Depository Trust
Company's procedures for transfer. However, although delivery of old notes may
be effected through book-entry transfer at The Depository Trust Company, the
Letter of Transmittal or facsimile of the Letter of Transmittal with any
required signature guarantees and any other required documents must, in any
case, be transmitted to and received by the exchange agent at one of the
addresses set forth below under "--Exchange Agent" on or prior to the expiration
date of the exchange offer, unless the holder has strictly complied with the
guaranteed delivery procedures described below.
We understand that the exchange agent has confirmed with The Depository
Trust Company that any financial institution that is a participant in The
Depository Trust Company's system may utilize The Depository Trust Company's
Automated Tender Offer Program to tender old notes. We further understand that
the exchange agent will request, within two business days after the date the
exchange offer commences, that The Depository Trust Company establish an account
for the old notes for the purpose of facilitating the exchange offer, and any
participant may make book-entry delivery of old notes by causing The Depository
Trust Company to transfer the old notes into the exchange agent's account in
accordance with The Depository Trust Company's Automated Tender Offer Program
procedures for transfer. However, the exchange of the old notes so tendered will
only be made after timely confirmation of such book-entry transfer and timely
receipt by the exchange agent of, in addition to any other documents required,
an appropriate Letter of Transmittal with any required signature guarantee and
an agent's message, which is a message, transmitted by The Depository Trust
Company and received by the exchange agent and forming part of a confirmation of
a book-entry transfer, which states that The Depository Trust Company has
received an express acknowledgment from a participant tendering old notes which
are the subject of such confirmation of a book-entry transfer and that the
participant has received and agrees to be bound by the terms of the Letter of
Transmittal and that we may enforce such agreement against the participant.
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GUARANTEED DELIVERY PROCEDURES
If a registered holder of the old notes desires to tender the old notes and
the old notes are not immediately available, or time will not permit the
holder's old notes or other required documents to reach the exchange agent
before the expiration date of the exchange offer, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may
nonetheless be effected if:
o the tender is made through a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an
office or correspondent in the United States;
o prior to the expiration date of the exchange offer, the exchange agent
received from the firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or commercial bank or trust company having an office or
correspondent in the United States a properly completed and duly executed
Letter of Transmittal (or a facsimile of the Letter of Transmittal) and
Notice of Guaranteed Delivery, substantially in the form provided by us
(by telegram, telex, facsimile transmission, mail or hand delivery),
setting forth the name and address of the holder of old notes and the
amount of old notes tendered, stating that the tender is being made and
guaranteeing that within five New York Stock Exchange trading days after
the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered old notes, in proper form for
transfer, or a confirmation of a book-entry transfer, as the case may be,
and any other documents required by the Letter of Transmittal will be
deposited by the firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or commercial bank or trust company having an office or
correspondent in the United States with the exchange agent; and
o the certificates for all physically tendered old notes, in proper form
for transfer, or a confirmation of a book-entry transfer, as the case may
be, and all other documents required by the Letter of Transmittal are
received by the exchange agent within five NYSE trading days after the
date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of old notes may be withdrawn at any time prior to the expiration
date of the exchange offer. For a withdrawal to be effective, a written notice
of withdrawal must be received by the exchange agent at one of the addresses set
forth below under "-- Exchange Agent." Any such notice of withdrawal must:
o specify the name of the person having tendered the old notes to be
withdrawn;
o identify the old notes to be withdrawn (including the principal amount of
the old notes); and
o where certificates for old notes have been transmitted specify the name
in which the old notes are registered, if different from that of the
withdrawing holder.
If certificates for old notes have been delivered or otherwise identified to the
exchange agent, then, prior to the release of such certificates, the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by a firm
which is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United States unless the
holder is a firm which is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States.
If old notes have been tendered under the procedure for book-entry transfer
described above, any notice of withdrawal must specify the name and number of
the account at The Depository Trust Company to be credited with the withdrawn
old notes and otherwise comply with the procedures of the facility. All
questions as to the validity, form and eligibility (including time of receipt)
of the notices will be determined by us, whose determination shall be final and
binding on all parties. Any old notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the exchange offer. Any old
notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof
52
without cost to the holder (or in the case of old notes tendered by book-entry
transfer into the exchange agent's account at The Depository Trust Company
according to the book-entry transfer procedures described above, the old notes
will be credited to an account maintained with The Depository Trust Company for
the old notes) as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn old notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering Old Notes" above at any time on or prior to the expiration date of the
exchange offer.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue new notes in exchange for, any old
notes and may terminate or amend the exchange offer if at any time before the
acceptance of the old notes for exchange or the exchange of new notes for the
old notes, we determine that:
o the exchange offer does not comply with any applicable law or any
applicable interpretation of the staff of the Securities and Exchange
Commission;
o we have not received all applicable governmental approvals; or
o any actions or proceedings of any governmental agency or court exist
which could materially impair our ability to consummate the exchange
offer.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any condition or may be waived by
us in whole or in part at any time and from time to time in our reasonable
discretion. Our failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of that right and each such right shall be deemed
an ongoing right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any old notes, if at such time any stop
order shall be threatened or in effect regarding the registration statement of
which this prospectus constitutes a part or the qualification of the indenture
under the Trust Indenture Act of 1939, as amended. In any event we are required
to use every reasonable effort to obtain the withdrawal of any stop order at the
earliest possible time.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the exchange
agent for the exchange offer. All executed Letters of Transmittal should be
directed to the exchange agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the exchange agent addressed as
follows:
By Hand, up to 4:30 p.m.: By Registered or Certified Mail: By Overnight Courier & By Hand
United States Trust Company United States Trust Company after 4:30 p.m. on the
of New York of New York expiration
111 Broadway P.O. Box 844 date only:
Lower Level Attn: Corporate Trust United States Trust Company
Attn: Corporate Trust Services of New York
Services Cooper Station 770 Broadway, 13th Floor
New York, New York 10006 New York, New York New York, New York 10003
10276-0844 Attn: Corporate Trust Services
By Facsimile:
(212) 420-6211
Confirm by Telephone:
(800) 548-6565
Delivery other than as set forth above will not constitute a valid
delivery.
53
FEES AND EXPENSES
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone by
our officers and employees.
The expenses to be incurred in connection with the exchange offer will be
paid by us. These expenses include fees and expenses of the exchange agent and
trustee under the indenture governing the notes, accounting and legal fees and
printing costs, among others.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying amount as the old
notes, which is the principal amount as reflected in our accounting records on
the date of the exchange and, accordingly, no gain or loss will be recognized.
The debt issuance costs will be capitalized and amortized to interest expense
over the term of the new notes.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection with the tender, except that holders who
instruct us to register new notes in the name of, or request that old notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of old notes who do not exchange their old notes for new notes in
the exchange offer will continue to be subject to the restrictions on transfer
of the old notes as set forth in the legend on the old notes as a consequence of
the issuance of the old notes in accordance with exemptions from, or in
transactions not subject to, the registration requirements of, the Securities
Act and applicable state securities laws. Old notes not exchanged in accordance
with the exchange offer will continue to accrue interest at 13 1/4% per annum
and will otherwise remain outstanding in accordance with their terms. Holders of
old notes do not have any appraisal or dissenters' rights under the Delaware
General Corporation Law in connection with the exchange offer. In general, the
old notes may not be offered or sold unless registered under the Securities Act,
except in accordance with an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. We do not currently
anticipate that we will register the old notes under the Securities Act.
However, (i) if any initial purchaser so requests that the old notes not
eligible be exchanged for new notes in the exchange offer and held by it
following consummation of the exchange offer or (ii) if any holder of old notes
(other than a broker-dealer that receives new notes for its own account in
exchange for old notes, where the old notes were acquired by the broker-dealer
as a result of market-making or other trading activities) is not eligible to
participate in the exchange offer or, in the case of any holder of old notes
(other than a broker-dealer that receives new notes for its own account in
exchange for old notes, where the old notes were acquired by the broker-dealer
as a result of market-making or other trading activities) that participates in
the exchange offer, does not receive new notes in exchange for old notes that
may be sold without restriction under state and federal securities laws (other
than due solely to the status of the holder as an affiliate of us within the
meaning of the Securities Act), we are obligated to file a shelf registration
statement on the appropriate form under the Securities Act relating to the old
notes held by such persons.
Based on interpretive letters issued by the staff of the Securities and
Exchange Commission to third parties in unrelated transactions, we are of the
view that new notes issued in accordance with the exchange offer may be offered
for resale, resold or otherwise transferred by the holders (other than (i) any
holder which is an "affiliate" of us within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases notes from us to resell
in accordance with Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the new notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of the new notes. If any
holder has any arrangement or understanding regarding the distribution of the
new notes to be acquired in
54
accordance with the exchange offer, the holder (i) could not rely on the
applicable interpretations of the staff of the Securities and Exchange
Commission and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. A broker-dealer who holds old notes that were acquired for its own
account as a result of market-making or other trading activities may be deemed
to be an "underwriter" within the meaning of the Securities Act and must,
therefore, deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of new notes. Each such broker-dealer that
receives new notes for its own account in exchange for old notes, where the old
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
the new notes. See "Plan of Distribution." We have not requested the staff of
the Securities and Exchange Commission to consider the exchange offer in the
context of a no-action letter, and there can be no assurance that the staff
would take positions similar to those taken in the interpretive letters referred
to above if we were to make a no-action request.
In addition, to comply with the securities laws of applicable
jurisdictions, the new notes may not be offered or sold unless they have been
registered or qualified for sale in the applicable jurisdictions or an exemption
from registration or qualification is available and is complied with. We have
agreed, under the registration rights agreement and subject to specified
limitations therein, to register or qualify the new notes for offer or sale
under the securities or blue sky laws of the applicable jurisdictions in the
United States as any selling holder of the notes reasonably requests in writing.
55
THE TRANSACTIONS
The following contains summaries of the material agreements which we
entered into in connection with the acquisition of the semiconductor business.
The acquisition of the semiconductor business was funded in part by the proceeds
of the sale of units, consisting of the notes of Intersil and the warrants of
Intersil Holding. The descriptions in the summaries of the terms and provisions
of the agreements are complete in all material respects, but for detailed
information you should read the agreements themselves, copies of which have been
filed or incorporated by reference as exhibits to the registration statement of
which this prospectus is a part.
MASTER TRANSACTION AGREEMENT
In accordance with the Master Transaction Agreement:
o Harris transferred to us and Intersil Holding portions of the
semiconductor business in exchange for (a) $520.0 million in cash and (b)
a subordinated promissory note of Intersil Holding referred to as the
11.13% Seller Holding PIK Note, in the principal amount of $90.0 million,
which permits Intersil Holding to pay interest in the form of additional
notes, which we call pay-in-kind, or PIK, notes;
o Harris paid about $9.0 million in cash to Intersil Holding to purchase
shares of 12% Series A Cumulative Compounding Preferred Stock and common
stock of Intersil Holding;
o Intersil Holding sold to Sterling Holding Company, LLC, referred to as
Sterling, and to senior management and other key employees, referred to
as the Management Investors, and certain other investors shares of its
12% Series A Cumulative Compounding Preferred Stock and common stock for
a total of about $81.0 million in cash;
o Intersil Holding contributed cash in the amount of about $90.0 million to
our capital as well as assets with a fair market value of about $90.0
million;
o Citicorp Mezzanine Partners, L.P. contributed $30.0 million in cash to
Intersil Holding in exchange for a subordinated promissory note of
Holdings, referred to as the 13.5% Subordinated Holding PIK Note due
2010, and warrants to purchase 5,555,560 shares of Class A Common Stock
of Intersil Holding;
o Intersil Holding contributed cash in the amount of $30.0 million received
from Citicorp Mezzanine Partners, L.P. to our capital; and
o We borrowed $220.0 million available under our new senior credit
facilities and received the gross proceeds of $200.0 million from the
sale of 200,000 units, each unit consisting of $1,000 principal amount of
old notes of Intersil and one warrant to purchase 27.7778 shares of Class
A Common Stock of Intersil Holding.
Under the terms of the Master Transaction Agreement, Intersil Holding and
Intersil purchased from Harris portions of the semiconductor business for a
purchase price that is further subject to a post-closing adjustment. The assets
purchased by us include, among other things, some properties located at Palm
Bay, Florida, Mountaintop, Pennsylvania, Findlay, Ohio and Kuala Lumpur,
Malaysia (see "Business--Properties"), as well as, with some exceptions and
limitations, all of the manufacturing equipment, motor vehicles, office
furniture, inventory, governmental permits and licenses and other assets
necessary to operate our business. In addition, purchased assets include:
o contractual rights and obligations which primarily relate to the
semiconductor business;
o intellectual property rights; and
o all of the capital stock and membership interests of four domestic and 12
foreign entities (corporations and limited liability companies) owned by
Harris. We acquired eleven of the twelve foreign entities or their assets
either directly or through a foreign subsidiary wholly owned by us. The
twelfth foreign entity, a corporation which operates our assembly and
test facility in Kuala Lumpur, Malaysia, was acquired by a British Virgin
Islands corporation that is wholly owned by our wholly-owned Malaysian
subsidiary. The acquisition of this twelfth foreign entity was made under
a separate transaction agreement and was financed with funds both
contributed by us and loaned by our wholly-owned Cayman Islands
subsidiary to our Malaysian subsidiary (the loan proceeds from the Cayman
Islands subsidiary consisting of funds contributed to this subsidiary by
us) which in turn were loaned and contributed to the British Virgin
Islands corporation.
Among the liabilities we did not assume are the environmental liabilities
relating to the operations of the semiconductor business and the transferred
Harris subsidiaries prior to closing. The agreement provides that
56
Harris must indemnify us for any damages arising from these excluded
liabilities. The agreement also provides that we must offer to employ all our
employees on substantially the same terms and conditions as they were employed
immediately before the acquisition of the semiconductor business. In addition,
the agreement contains a provision that, subject to some limitations, forbids
Harris for a period of five years after the consummation of the acquisition of
the semiconductor business from engaging in business competing with most of our
products in existence on the date the transactions were consummated.
Under the terms of the Master Transaction Agreement, Harris entered into
with us the Intellectual Property Agreement, the Patent Assignment and Services
Agreement, the License Assignment Agreement, the Harris Trademark License
Agreement, the Secondary Trademark Assignment and License Agreement, the
Transition Services Agreement, the Shareholders' Agreement, the Registration
Rights Agreement and the Royalty Agreement. See "Description of Capital
Stock--Shareholders' Agreement" and "--Registration Rights Agreement."
INTELLECTUAL PROPERTY AGREEMENT
Under the Intellectual Property Agreement, Harris assigned to us its entire
ownership, right, title and interest in some intangible property rights existing
under laws respecting copyright, maskwork and trade secret, which intangible
property rights are owned by Harris and that were specific to the operations of
the semiconductor business. Harris also granted to us a royalty-free,
non-exclusive, worldwide license, with a limited right to sublicense, under
certain copyrights, maskworks and trade secrets to make, have made, use and sell
certain products, which copyrights, maskworks and trade secrets are specific to
the products or are used in the semiconductor business. The Intellectual
Property Agreement lists those licenses to software that are unassignable
without the permission of the licensor.
PATENT ASSIGNMENT AND SERVICES AGREEMENT
Under the Patent Assignment and Services Agreement, Harris assigned to us,
subject to pre-existing license rights, about 1,400 patents. Harris also granted
us a worldwide, royalty-free, non-exclusive license, without the right to
sublicense, under some other applicable patents, for the life of such patents,
to make, have made, use and sell certain of our products. Harris retained the
rights to some patents for up to three years before assigning their entire
right, title and interest therein to us (provided that the patents are not in
litigation at the time, and no royalties are owed on licenses to the patents).
During the interim preceding the assignment of these retained patents, Harris
granted us a worldwide, royalty-free, non-exclusive license thereto, without the
right to sublicense.
LICENSE ASSIGNMENT AGREEMENT
Under the License Assignment Agreement, Harris assigned to us its entire
right, title and interest in and to certain license agreements by and between
Harris and third party licensors and licensees, which license agreements may be
assigned without the consent of the third parties. The agreement provides that
Harris will use commercially reasonable efforts, as requested by us in writing,
to provide us with the economic benefit of certain other license agreements
between Harris and third party licensors and licensees, which license agreements
are material to the semiconductor business and require the consent of the third
parties to assign. Harris will assign to us any revenue received under certain
other royalty bearing license agreements between Harris and various third
parties, which agreements require the consent of the third party licensees to
assign, and will use commercially reasonable efforts to obtain the consent of
the third party licensees to these assignments.
The agreement also provides that Harris will, at our written request and to
the extent that Harris is authorized to do so and that the license is relevant
to our business as of the Closing Date, grant us a sublicense under the License
Agreement between Harris and Lemelson Medical, Education & Research Foundation,
Limited Partnership dated April 30, 1999. The agreement with Lemelson Medical
and subsequent sublicenses will authorize us to use the inventions identified in
up to one hundred eighty patents and patent applications concerning chemical
manufacturing, optical measurement and tracking of production lots, all of which
are technologies used in manufacturing semiconductors. The License Assignment
Agreement further provides that Harris will assign all remaining rights in the
retained license agreements to us. The assignment of each such retained license
agreement is to occur at the time that all the amounts that are due, or are to
become due under that retained license agreement, have been paid to Harris. In
the event that a retained license agreement cannot be assigned at that time,
Harris will use commercially reasonable efforts, as requested by us, to provide
us with the economic benefit of that retained license agreement. The assignment
57
of, or commercially reasonable efforts to provide us the economic benefit of,
each such retained license agreement is to occur at the time that all the
amounts that are due, or are to become due under the retained license agreement,
have been paid to Harris. The agreement still further provides that we accept
the assignments or transfers effected under the License Assignment Agreement and
assume the liabilities of Harris to each of the license agreements so assigned
or transferred.
HARRIS TRADEMARK LICENSE AGREEMENT
Under the Harris Trademark License Agreement, Harris granted to us
non-exclusive, royalty-free licenses recognizing transitional use of some
visible trademarks and product-embedded trademarks, which embedded trademarks
will not be eliminated until the relevant product is discontinued.
AGREEMENT COVERING PRISM(REGISTERED) REVENUES
Under an agreement covering PRISM(Registered) revenues, we agreed to pay
Harris 2% of the revenue generated by the sales of the PRISM(Registered) chip
sets for a period of five years after the closing of the transactions
consummated under the Master Transaction Agreement.
SECONDARY TRADEMARK ASSIGNMENT AND LICENSE AGREEMENT
Under the Secondary Trademark Assignment and License Agreement, Harris
assigned to us some trademarks related to products of the semiconductor business
and we granted back to Harris worldwide, non-exclusive, royalty-free licenses
recognizing transitional use of some visible trademarks assigned by Harris to
us. The agreement further provides that Harris will cooperate with us, at our
expense, in any judicial or administrative proceedings contemplated or commenced
by us under any of the trademarks assigned to us under this agreement.
TRANSITION SERVICES AGREEMENT
Under the Transition Services Agreement, Harris will provide a number of
business support services to us that will assist in the conversion of the
semiconductor business to an independent entity. From the consummation of the
acquisition for, in most instances, up to 8 months, Harris is obligated to make
available to us:
o data processing and communication services;
o financial and administrative support; and
o human resources and benefits services.
Generally, the agreement provides that Harris will invoice us for the cost of
services provided, plus 5%, with some charges based on a fixed cost and other
charges based on Harris' actual incurred costs.
Under the Transition Services Agreement, we have also agreed to provide Harris
with certain services for a period of 18 months and certain products for a
period of 24 months related to the suppression products business. For the
services and products to be provided by us to Harris, Harris has agreed to pay
5% on top of all costs except third-party costs.
OPTION AGREEMENT
Under an Option Agreement, we granted to Intersil Prism, LLC an option to
purchase assets to be used in the manufacture and sale of semiconductor
solutions for the high-speed wireless local area networking market for a fixed
purchase price equal to the purchase price paid by us for the assets plus
associated capital expenses, research and development expenses and interest at
ten percent (10%) per annum. The option itself was granted for a purchase price
of $1,000,000 and is exercisable for eighteen months from August 13, 1999,
subject to extension for an additional eighteen month period upon payment of a
$2,000,000 fee or for the period necessary to obtain any required approvals
without any fee. However, because the exercise of the option would be prohibited
by the terms of the indenture governing the notes, the option may not be
exercised while the notes are outstanding unless we obtain a consent from the
noteholders. If the holder of the option exercises it, holders of the warrants
issued as part of the unit offering and the warrants issued to Citicorp
Mezzanine Partners, L.P. (or the holders of the Class A Common Stock issued upon
exercise of the warrants) may participate in the purchase of these assets upon
payment of their pro rata share of the option purchase price and the option
exercise price.
58
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the persons
who are members of our Board of Directors, key employees or executive officers.
Each of our directors has served as director since our formation on June 2, 1999
and will continue to hold office until the relevant company's next annual
meeting of shareholders or until a successor has been elected and qualified.
Each of our officers has served as officer since our formation and will hold
office until the relevant company's first meeting of directors after its next
annual meeting of shareholders.
NAME AGE TITLE
- ---- --- -----
Gregory L. Williams....................... 46 Chief Executive Officer, Director
W. Russell Morcom......................... 53 Vice President, General Manager, Discrete Power
George L. Gidzinski....................... 44 Vice President, General Manager, Analog and Mixed
Signal Business Unit
Daniel J. Heneghan........................ 44 Vice President, Chief Financial Officer and
Secretary
Ray D. Odom............................... 46 Vice President, General Manager, Space & Defense
Products
Larry W. Sims............................. 42 Vice President, Marketing and Sales
James A. Urry............................. 45 Director
Gary E. Gist.............................. 53 Director
Gregory L. Williams, Chief Executive Officer, Director. Mr. Williams is
our Chief Executive Officer. From October, 1998, to August, 1999, Mr. Williams
was President of the semiconductor business at Harris. From January to October
1998, Mr. Williams was Vice President and General Manager of the Power Products
Division at Harris. From 1984 to 1998, Mr. Williams also served as Vice
President and Assistant General Manager of the Semiconductor Components Group,
Vice President and General Manager of the Power Products Division, and Vice
President and Director of Automotive World Marketing at Motorola Semiconductor,
and from 1977 to 1984, Mr. Williams served with General Electric Company.
W. Russell Morcom, Vice President, General Manager, Discrete Power. Mr.
Morcom is our Vice President and General Manager, Discrete Power. From 1997 to
August, 1999, Mr. Morcom was Vice President and General Manager, Operations and
Quality of the semiconductor business at Harris. From 1991 to 1997, Mr. Morcom
was Vice President and General Manager, Semiconductor Products Division of the
semiconductor business of Harris.
George L. Gidzinski, Vice President, General Manager, Analog and Mixed
Signal Business Unit. Mr. Gidzinski is our Vice President and General Manager,
Analog and Mixed Signal Business Unit. From 1998 until August, 1999, Mr.
Gidzinski was Vice President and General Manager of the Power Products Business
of the semiconductor business at Harris. From 1995 to 1998, Mr. Gidzinski served
as Vice President of Intelligent Power Products of the semiconductor business at
Harris and from 1991 to 1995, Mr. Gidzinski served as Vice President of
Worldwide Marketing of the semiconductor business at Harris.
Daniel J. Heneghan, Vice President, Secretary and Chief Financial
Officer. Mr. Heneghan is our Vice President, Secretary and Chief Financial
Officer. From 1996 to August, 1999, Mr. Heneghan was Vice President and
Controller of the semiconductor business at Harris. From 1994 to 1996, Mr.
Heneghan was Vice President of Digital Products of the semiconductor business at
Harris. Mr. Heneghan also served at various times as Division Controller of the
semiconductor business at Harris, Director of Planning at Harris, Director of
Finance at Harris and Senior Financial Analyst with Royal Crown Cola.
Ray D. Odom, Vice President, General Manager, Space and Defense
Products. Mr. Odom is our Vice President and General Manager, Space and Defense
Products. From July, 1998 to August, 1999, Mr. Odom was Vice President and
General Manager, Space and Defense Products of the semiconductor business at
Harris. From July, 1997 to June, 1998, Mr. Odom was Director, Space and Defense
Products, of the semiconductor business at Harris. From July 1994 to June 1997,
Mr. Odom was Director of Palm Bay
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Manufacturing of the semiconductor business at Harris. From February 1991 to
June 1994, Mr. Odom was Director of Manufacturing of the Military and Aerospace
Division of the semiconductor business at Harris.
Larry W. Sims, Vice President, Marketing and Sales. Mr. Sims is our Vice
President, Marketing and Sales. From August, 1998 to August, 1999, Mr. Sims was
Vice President, Sales of the semiconductor business at Harris. Prior to joining
Harris, Mr. Sims served in various sales management positions at Motorola
Semiconductor.
James A. Urry, Director. Mr. Urry is one of our directors. Mr. Urry has
been with Citibank, N.A. since 1981 serving as a Vice President since 1986. He
has been a Vice President of Citicorp Venture Capital Ltd., which is an
affiliate of ours, since 1989. He is also a Director of Airxcel, Inc.,
AmeriSource Health Corporation, CORT Business Services, Brunner Mond Holdings,
CLARK Material Handling Corporation, Hancor Holding Corporation, IKS
Corporation, Palomar Technological Companies and York International Corporation.
Gary E. Gist, Director. Mr. Gist is one of our directors. Mr. Gist is the
President and Chief Executive Officer of, and has been with, Palomar
Technological Companies since 1995, a corporation made up of a diverse group of
companies that focus on designing and manufacturing electronic products
including the following companies: HID Corporation, AML Wireless Systems, Inc.,
Palomar Display Products, Inc., Palomar Products, Inc. and Palomar Technologies,
Inc. Prior to 1995, he was Division Manager of the Technology Products Division
of Hughes Industrial Electronics Company.
Our Board of Directors will consist of five directors, determined as
follows: our chief executive officer, one individual designated by Sterling, up
to two independent directors designated by Sterling (to the extent permitted by
applicable law as determined in Sterling's sole discretion) and, in the event
the Board includes two independent directors designated by Sterling, one
additional individual designated by Sterling. The holders of a majority of the
outstanding shares of Class A Common Stock (including any shares of Class A
Common Stock held by Sterling) have the right to veto the election of any
independent directors designated by Sterling. Under our Shareholders' Agreement
each of our stockholders (representing 100% of the ownership of the Class A
Common Stock) agree to take all action necessary (including voting his, her or
its shares, calling special meetings and executing and delivering written
consents) to ensure our Board of Directors will be composed at all times as
described in this paragraph.
DIRECTOR COMPENSATION AND ARRANGEMENTS
Those directors who are employed by us or by Citicorp Venture Capital Ltd.
do not receive compensation for their services as directors. Compensation for
other directors has not yet been determined. Members of the Board of Directors
are elected according to the voting agreements outlined in the Securities
Purchase and Holders Agreement.
60
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation received by our five most highly compensated officers for services
rendered in fiscal year 1999.
SUMMARY COMPENSATION TABLE
FISCAL YEAR 1999
LONG-TERM
COMPENSATION
-----------------------
AWARDS PAYOUTS
---------- ----------
ANNUAL COMPENSATION SECURITIES
-------------------------------------------- UNDERLYING ALL OTHER
NAME AND OTHER ANNUAL OPTIONS LTIP COMPENSATION
PRINCIPAL POSITION SALARY($) BONUS($)(1) COMPENSATION($)(2) (#)(3) PAYOUTS($) ($)(4)
------------------ --------- ----------- ------------------ ---------- ---------- ------------
Gregory L. Williams ......... 318,615 20,531 6,925 25,000 0 12,207
Chief Executive Officer
W. Russell Morcom ........... 170,000 113,623 10,798 6,000 70,875 57,114
Vice President--General
Manager--Discrete Power
George L. Gidzinski ......... 133,269 46,683 3,264 5,000 28,350 15,128
Vice President--General
Manager--Analog and Mixed
Signal Business Unit
Daniel J. Heneghan .......... 121,980 44,121 1,920 3,500 24,924 23,774
Vice President--Chief
Financial
Officer--Secretary
Larry W. Sims ............... 185,769 117,953 47,174 0 0 1,889
Vice President--Marketing
and Sales
- ------------------
(1) This category includes Annual Incentive Plan bonus for all officers and a
sales incentive compensation bonus for Mr. Sims. It also includes awards for
Mr. Williams and for Mr. Heneghan of $50 each, a bonus of $7,108 for Mr.
Heneghan and disruption and signing bonuses, totaling $65,000, for Mr. Sims.
(2) Except for Mr. Sims, none of the executive officers named in the Summary
Compensation Table received personal benefits in excess of the lesser of
$50,000 or 10% of annual salary and bonus for fiscal year 1999. Mr. Sims'
personal benefits for fiscal year 1999 included relocation expenses and
applicable taxes. The other amounts reported represent dividend equivalent
payments on outstanding performance shares granted under Harris' Stock
Incentive Plan for which the performance period had not expired.
(3) All options granted were for Harris common stock under Harris' Stock
Incentive Plan. We did not assume Harris' obligations under the Stock
Incentive Plan.
(4) Amounts reported include:
(A) Contributions to the Harris Retirement Plan for fiscal 1999: Mr.
Williams--$3,959; Mr. Heneghan--$19,659; Mr. Gidzinski--$14,984; Mr.
Sims-- $1,293; and Mr. Morcom--$17,703.
(B) Contributions to Harris' Supplemental Executive Retirement Plan for
fiscal 1999: Mr. Williams--$5,943; Mr. Heneghan--$3,700; Mr.
Gidzinski--$0; Mr. Sims--$0; and Mr. Morcom--$38,677.
(C) The taxable portion of premiums on life insurance provided by Harris for
fiscal 1999: Mr. Williams--$2,305; Mr. Heneghan--$415; Mr. Gidzinski--
$144; Mr. Sims--$596; and Mr. Morcom--$734.
61
The following table provides information with respect to individual grants
made by Harris of options for shares of Harris common stock to the named
executive officers during fiscal year 1999.
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT
--------------------------------------------------------- ASSUMED ANNUAL
NUMBER OF PERCENT OF RATE OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED FOR OPTION
TERM (4) TO EMPLOYEES EXERCISE OR TERM(4)
OPTIONS IN FISCAL BASE PRICE EXPIRATION ------------------
NAME GRANTED(#)(1) YEAR(%)(2) ($/SH) DATE (3) 5%($) 10%($)
---- ------------- ------------- ------------ ---------- ------- --------
Gregory L. Williams................ 25,000 3.17 34.0625 11/11/99 51,788 104,405
W. Russell Morcom.................. 6,000 .76 34.0625 11/11/99 12,429 25,057
George L. Gidzinski................ 5,000 .63 34.0625 11/11/99 10,358 20,881
Daniel J. Heneghan................. 3,500 .44 34.0625 11/11/99 7,250 14,617
Larry W. Sims...................... 0 0 0 0 0 0
- ------------------
(1) All options granted were for Harris common stock pursuant to the Harris
Stock Incentive Plan. We did not assume Harris' obligations under the Stock
Incentive Plan.
(2) A total of 789,340 options were granted to Harris employees under the Harris
Stock Incentive Plan in fiscal year 1999.
(3) Under the terms of the Harris Stock Incentive Plan, the options expire 10
years after they are granted; however, in the event a grantee ceases to be
an employee of Harris, the options expire 90 days after the date the grantee
ceases to be an employee of Harris.
(4) Represents the potential realizable value of the underlying shares of Harris
common stock at the expiration date based on an assumed annual appreciation
rate of 5% and 10%, each compounded annually. The actual value, if any, that
may be realized will depend on the excess of the stock price over the
exercise price on the date the options exercised, so there can be no
assurance that the actual value realized will be at or near the value
estimated in the table.
The following table provides information with respect to the named
executive officers concerning the exercise of Harris options during fiscal year
1999, and unexercised Harris options held as of the end of fiscal year 1999.
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT FISCAL YEAR-
FISCAL YEAR- END
SHARES VALUE END (#)(3) ($)(4)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#)(1) ($)(2) UNEXERCISABLE UNEXERCISABLE
---- -------------- -------------- ------------- --------------
Gregory L. Williams.......................... 0 0 0/25,000 0/132,813
W. Russell Morcom............................ 3,186 45,201 19,500/10,500 231,469/44,906
George L. Gidzinski.......................... 1,200 12,300 2,846/6,800 0/31,775
Daniel J. Heneghan........................... 2,000 12,799 2,500/5,000 13,031/22,938
Larry W. Sims................................ 0 0 0 0
- ------------------
(1) Options exercised were for Harris common stock.
(2) Represents the difference between the market price per share of Harris
common stock on the date of exercise and the exercise price.
(3) All unexercised options were for Harris common stock.
(4) Represents the difference between the market price per share of Harris
common stock at fiscal year end and the exercise price.
62
EMPLOYMENT AGREEMENTS
In connection with the Transactions, we and Intersil Holding entered into
an employment agreement with Mr. Williams for him to serve as our Chief
Executive Officer and a member of our Board of Directors. His employment
agreement provides for an annual base salary of $425,000, subject to increases
and annual performance bonuses at the discretion of the Board of Directors. The
agreement also provides for Mr. Williams to receive our standard benefits. The
term of the agreement is 60 months, subject to automatic renewal for successive
one year terms, unless either we give or Mr. Williams gives prior notice of non-
renewal. Mr. Williams is subject to a noncompetition covenant during the term of
his agreement and for a period of one year following termination or expiration
of the agreement.
RETIREMENT AND SAVINGS PROGRAM
We provide retirement benefits to substantially all employees primarily
through a retirement plan having profit-sharing and savings elements.
Contributions by us to the retirement plan are based on profits and employees'
savings with no other funding requirements. We are able to make additional
contributions to the fund at our discretion. We also have non-contributory
defined benefit pension plans which are fully funded.
Retirement benefits also include an unfunded limited healthcare plan for
U.S.-based retirees and employees on long-term disability. We accrue the
estimated cost of these medical benefits, which are not material, during an
employee's active service life.
63
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Citicorp Mezzanine Partners, L.P. contributed $30.0 million in cash to
Intersil Holding in exchange for the 13.5% Subordinated PIK Note and a warrant
to purchase about 5.6 million shares of Intersil Holding's Class A Common Stock.
Intersil Holding contributed the $30.0 million from Citicorp Mezzanine Partners,
L.P. to Intersil as a capital contribution. The general partner of Citicorp
Mezzanine Partners, L.P. is an affiliate of Citicorp Venture Capital Ltd.
Citicorp Venture Capital Ltd. owns an interest in Sterling, a stockholder of
Intersil Holding.
Under the Master Transaction Agreement, the shareholders of Intersil
Holding entered into a Shareholders' Agreement containing certain agreements
among the shareholders regarding the capital stock and corporate governance of
Intersil and Intersil Holding. See "Description of Capital Stock--Shareholder's
Agreement."
Intersil Holding, along with Intersil, purchased from Harris selected
portions of the semiconductor business. Harris entered into with us various
agreements, including the Intellectual Property Agreement, the Patent
Assignment, the Secondary Trademark Assignment and License Agreement, the
Transition Services Agreement, the Registration Rights Agreement and the Royalty
Agreement. See "The Transactions."
The terms of the agreements listed above were the result of arms-length
negotiations and in our opinion are no less favorable to Intersil and Intersil
Holding than those that could be obtained from non-affiliated parties.
64
OWNERSHIP OF CAPITAL STOCK
We are a wholly owned subsidiary of Intersil Holding. The following table
sets forth information regarding the beneficial ownership of the Intersil
Holding preferred stock and Intersil Holding common stock. This table does not
include (a) shares of Intersil Holding Class A Common Stock issuable upon
conversion of Intersil Holding Class B Common Stock or (b) shares of Intersil
Holding Class B Common Stock issuable upon conversion of Intersil Holding Class
A Common Stock. A number of our employees are expected to participate in an
Employee Stock Option Plan under which they will be offered the opportunity to
acquire Intersil Holding Class A Common Stock which would equal in the aggregate
up to an additional 3% of the Intersil Holding common stock outstanding. See
"--Employee Stock Option Plan." In addition, we granted to certain senior
managers a sign-on bonus in the aggregate amount of about $574,000, in the form
of options to purchase preferred stock of Intersil Holding. The option price is
about $250 per share. The table includes shares or options that may
be acquired by our employees under the Employee Stock Option Plan and the shares
of preferred stock that may be acquired by certain senior managers upon exercise
of the preferred stock options granted to these senior managers. The table does
not include shares of Intersil Holding Class A Common Stock issuable upon
conversion of the warrants and the warrants issued in connection with the 13.5%
Subordinated Holding PIK Note.
NUMBER AND PERCENT OF SHARES OF INTERSIL HOLDING
--------------------------------------------------------------------
PREFERRED STOCK CLASS A STOCK CLASS B STOCK
---------------- -------------------- --------------------
NAME OF BENEFICIARY NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
- ------------------- ------ ------- ---------- ------- ---------- -------
Sterling Holding Company, LLC
(1)(4) ............................ 73,650 87.31% 11,088,837 41.69% 69,615,203 91.10%
c/o Intersil Corporation
2401 Palm Bay Road NE
Palm Bay, FL 32905
Harris Corporation ................ 8,456 10.02% 2,263,028 8.51% 6,797,375 8.90%
1025 W. NASA Boulevard
Melbourne, Florida 32919
Gregory L. Williams ............... 407 0.48% 3,347,315 12.59% -- --
W. Russell Morcom ................. 515 0.61% 1,025,247 3.85% -- --
George L. Gidzinski ............... 104 0.12% 684,564 2.57% -- --
Daniel J. Heneghan ................ 121 0.14% 582,634 2.19% -- --
Larry W. Sims ..................... 245 0.29% 835,916 3.14% -- --
James A. Urry(2) .................. 705 0.84% -- -- -- --
Gary E. Gist(3).................... -- -- -- -- -- --
All directors, officers and other 2,958 3.51% 10,245,327 38.52% -- --
management investors as a group (17
persons)(3) .......................
- ------------------
(1) An affiliate of Credit Suisse First Boston Corporation owns an interest in
Sterling and could have the right to acquire up to 1,510,068 shares of Class
A Common Stock and 1,410 shares of Intersil Holding preferred stock from
Sterling in exchange for its interest in Sterling.
(2) James A. Urry, who is one of our directors, is affiliated with Sterling in
the capacities described under "Management--Directors and Executive
Officers" and footnote (4) below. All shares reported for Mr. Urry are held
by Sterling, but do not include all shares held by Sterling, which Mr. Urry
may be deemed to beneficially own as a result of his affiliation with
Sterling. Mr. Urry disclaims beneficial
(Footnotes continued on next page)
65
(Footnotes continued from previous page)
ownership of all shares held by Sterling, except for those shares reported
for Mr. Urry, which Mr. Urry has the right to acquire in exchange for an
ownership interest in Sterling.
(3) Gary E. Gist owns an interest in Sterling and could have the right to
acquire up to 119 shares of Class A Common Stock, 50,217 shares of Class
B Common Stock and 93.96 shares of Intersil Holding preferred stock from
Sterling in exchange for his interest in Sterling.
(4) Citicorp Venture Capital Ltd. owns an interest in Sterling and could have
the right to acquire up to 62,184,690 shares of Intersil Holding common
stock, consisting of 49% of the outstanding Class A Common Stock and the
remainder of which would be shares of Class B Common Stock, and 55,472
shares of the preferred stock from Sterling in exchange for its interest in
Sterling. Citicorp Mezzanine Partners, L.P., the general partner of which is
an affiliate of Citicorp Venture Capital, contributed $30.0 million in cash
to Intersil Holding in exchange for the 13.5% Subordinated Holding PIK Note
due 2010 and warrants to purchase 5,555,560 shares of our Class A Common
Stock. Intersil Holding contributed the $30.0 million to Intersil as a
capital contribution.
Sterling owns 88.3% of preferred stock, 47.0% of Class A Common Stock and
91.1% of Class B Common Stock of Intersil Holding and also owns 22.7% of Class A
Common Stock and 100% of Class B Common Stock of Fairchild Semiconductor
International, Inc. Fairchild Semiconductor Corporation is a wholly owned
subsidiary of Fairchild Semiconductor International, Inc. See
"Business--Competition."
66
DESCRIPTION OF CAPITAL STOCK
INTERSIL HOLDING PREFERRED STOCK
Intersil Holding's Certificate of Incorporation provides that Intersil
Holding may issue 2,000,000 shares of preferred stock, 1,000,000 of which is
designated as 12% Series A Cumulative Compounding Preferred Stock. Intersil
Holding preferred stock has a stated value of $1,000 per share and is entitled
to annual dividends when, as and if declared, which dividends are cumulative,
whether or not earned or declared, and accrue at a rate of 12%, compounding
annually. As of the date of this prospectus, 83,432 shares of Intersil Holding
preferred stock were outstanding. The vote of a majority of the outstanding
shares of the Intersil Holding preferred stock, voting as a separate class, is
required to (1) create, authorize or issue any other class or series of stock
entitled to a preference ahead of the Intersil Holding preferred stock regarding
any dividend or upon distribution or any liquidation, distribution of assets,
dissolution or winding up of Intersil Holding, or increase the authorized amount
of any other class or series, or (2) amend Intersil Holding's Certificate of
Incorporation if the amendment would adversely affect the relative rights and
preferences of the holders of the Intersil Holding preferred stock. Except as
described in the immediately preceding sentence or as otherwise required by law,
the Intersil Holding preferred stock is not entitled to vote. Intersil Holding
may not pay any dividend upon (except for a dividend payable in Junior Stock, as
defined below), or redeem or otherwise acquire shares of, capital stock junior
to the Intersil Holding Preferred Stock (including the Intersil Holding common
stock) ("Junior Stock") unless all cumulative dividends on the Intersil Holding
preferred stock have been paid in full. Upon liquidation, dissolution or winding
up of Intersil Holding, holders of Intersil Holding preferred stock are entitled
to receive out of the legally available assets of Intersil Holding, before any
amount shall be paid to holders of Junior Stock, an amount equal to $1,000 per
share of Intersil Holding preferred stock, plus all accrued and unpaid dividends
to the date of final distribution. If the available assets are insufficient to
pay the holders of the outstanding shares of Intersil Holding preferred stock in
full, the assets, or the proceeds from the sale of the assets, will be
distributed ratably among the holders. The Intersil Holding preferred stock is
not mandatorily redeemable prior to June 30, 2011. Intersil Holding may
optionally redeem, in whole or in part, the Intersil Holding preferred stock at
any time at a price per share of $1,000, plus accrued and unpaid dividends to
the date of redemption. At the option of Intersil Holding, the Intersil Holding
preferred stock may be exchanged for junior subordinated debentures of Intersil
Holding.
INTERSIL HOLDING COMMON STOCK
The Certificate of Incorporation of Intersil Holding provides that Intersil
Holding may issue 250,000,000 shares of Intersil Holding common stock, divided
into two classes consisting of 125,000,000 shares of Intersil Holding Class A
Common Stock and 125,000,000 shares of Intersil Holding Class B Stock. As of the
date of this prospectus 100,009,770 shares of Intersil Holding common stock were
outstanding. The holders of Intersil Holding Class A Common Stock are entitled
to one vote for each share held of record on all matters submitted to a vote of
the shareholders. Except as required by law, the holders of Intersil Holding
Class B Common Stock have no voting rights. Under the Certificate of
Incorporation of Intersil Holding, either class of Intersil Holding common stock
is convertible into an equal number of shares of the other class of Intersil
Holding common stock. In the case of a conversion from Intersil Holding Class B
Common Stock, which is nonvoting, into Intersil Holding Class A Common Stock,
which is voting, the holder of shares to be converted must be permitted under
applicable law to hold the total number of shares of voting stock which would be
held upon conversion.
WARRANTS RELATING TO THE ISSUANCE OF THE UNITS
Intersil Holding originally issued and sold warrants, referred to as the
Warrants, to Credit Suisse First Boston Corporation, J.P. Morgan Securities,
Inc. and Salomon Smith Barney Inc. pursuant to a private placement by Intersil
Holding and Intersil of 200,000 units, each unit consisting of one old note and
one Warrant to purchase 27.7778 shares of Class A Common Stock, par value $.01,
of Intersil Holding at an exercise price (the "Exercise Price") of $0.001. The
Exercise Price and the number of shares of Common Stock issuable upon exercise
of a Warrant may be subject to adjustment. The Warrants initially entitle the
holders to acquire, in the aggregate, 5,555,560 shares of Class A Common Stock.
67
The Warrants may be exercised at any time after the first anniversary of
the issue date of the units; provided, however, that the holder of Warrants will
be able to exercise the Warrants only if a shelf registration statement relating
to the Class A Common Stock underlying the Warrants is effective or the exercise
of those Warrants is exempt from the registration requirements of the Securities
Act, and such securities are qualified for sale or exempt from qualification
under the applicable securities laws of the states or other jurisdictions in
which such holders reside. Intersil Holding has filed a shelf registration
statement to cover the Warrants for resale and in the issuance of the Class A
Common Stock upon exercise of the Warrants, but the Securities and Exchange
Commission has not yet declared it effective. Unless earlier exercised, the
Warrants will expire on August 15, 2009 (the "Expiration Date"). Intersil
Holding will give notice of expiration not less than 90 nor more than 120 days
prior to the Expiration Date to the registered holders of the then outstanding
Warrants. If Intersil Holding fails to give the expiration notice, the Warrants
will nevertheless expire and become void on the Expiration Date.
At Intersil Holding's option, fractional shares of Class A Common Stock may
not be issued upon exercise of the Warrants. If any fraction of a share of Class
A Common Stock would, except for the foregoing provision, be issuable upon the
exercise of any of the Warrants (or specified portion of the Warrants), Intersil
Holding will pay an amount in cash equal to the current market value per share
of Class A Common Stock, as determined on the day immediately preceding the date
the Warrant is presented for exercise, multiplied by that fraction, computed to
the nearest whole cent.
Certificates for Warrants have been and will be issued in fully registered
form only. No service charge will be made for registration of transfer or
exchange upon surrender of any Warrant certificate at the office maintained for
that purpose by United States Trust Company of New York, as Warrant Agent.
Intersil Holding may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Warrant certificates.
The holders of unexercised Warrants are not entitled, by virtue of being
such holders, to receive dividends, to vote, to consent, to exercise any
preemptive rights or to receive notice as stockholders of Intersil Holding in
respect of any stockholders meeting for the election of directors of Intersil
Holding or any other purpose, or to exercise any other rights whatsoever as
stockholders of Intersil Holding.
In the event a bankruptcy, reorganization or similar proceeding is
commenced by or against Intersil Holding, a bankruptcy court may hold that
unexercised Warrants are executory contracts which may be subject to rejection
by Intersil Holding with approval of the bankruptcy court. As a result, holders
of the Warrants may, even if sufficient funds are available, not be entitled to
receive any consideration or may receive an amount less than they would be
entitled to if they had exercised their Warrants prior to the commencement of
any such bankruptcy, reorganization or similar proceeding.
WARRANTS RELATING TO THE 13.5% SUBORDINATED HOLDING PIK NOTE
Intersil Holding issued to Citicorp Mezzanine Partners, L.P. warrants to
purchase Intersil Holding Class A Common Stock. These warrants entitle the
holder to purchase up to 5,555,560 shares of Class A Common Stock of Intersil
Holding upon exercise of the warrants beginning on August 13, 2001 and ending on
August 15, 2009 at an exercise price of $0.001 per share, subject to certain
anti-dilution adjustments in certain circumstances. If Intersil Holding prepays
in full the 13.5% Subordinated Holding PIK Note due 2010 within 24 months after
issuance, these warrants will be exercisable for 3,333,336 shares of the
Intersil Holding Class A Common Stock. See "Description of Certain
Indebtedness--13.5% Subordinated Holding PIK Note due 2010."
SHAREHOLDERS' AGREEMENT
The shareholders of Intersil Holding entered into a Securities Purchase and
Holders Agreement (the "Shareholders' Agreement") containing certain agreements
among the shareholders regarding the capital stock and corporate governance of
us and Intersil Holding.
According to the Shareholders' Agreement, our board of directors and the
board of directors of Intersil Holding must be composed of up to five directors
as follows: our chief executive officer; one individual designated by Sterling;
up to two independent directors designated by Sterling (to the extent permitted
by applicable law as determined by Sterling in its sole discretion), subject to
the right of the majority of holders of the outstanding shares of Intersil
Holding Class A Common Stock to veto the election of any such
68
independent director, provided that in the event that Sterling concludes that it
is unable to designate, or elects not to designate for any reason, one or more
of such independent directors or the election of any such independent director
is not approved by the holders of a majority of the outstanding shares of
Intersil Holding Class A Common Stock, these directorship(s) shall not be filled
by the remaining members of the Board of Directors but shall remain vacant until
the election of a director designated by Sterling to fill such vacancy in
accordance with the Shareholders' Agreement. When our Board of Directors
includes two independent directors, Sterling shall have the right to designate
one additional individual. However, if Sterling at any time owns of record in
excess of 50% of the Intersil Holding Class A Common Stock then outstanding,
then our Board of Directors shall consist of our chief executive officer and up
to four individuals designated by Sterling in its sole discretion.
The Shareholders' Agreement contains provisions which, with some
exceptions, restrict the ability of the shareholders to transfer any Intersil
Holding common stock or Intersil Holding preferred stock. If holders of more
than 50% of the Intersil Holding common stock approve the sale of Intersil or
Intersil Holding, each shareholder has agreed to consent to the sale and, if the
sale includes the sale of stock, each shareholder has agreed to sell all of such
shareholder's Intersil Holding common stock and Intersil Holding preferred stock
on the terms and conditions approved by holders of a majority of the Intersil
Holding common stock then outstanding. In the event Intersil Holding proposes to
issue and sell (other than in a public offering under a registration statement
declared effective by the Securities and Exchange Commission) any shares of
Intersil Holding common stock or any securities containing options or rights to
acquire any shares of Intersil Holding common stock or any securities
convertible into Intersil Holding common stock to Citicorp Venture Capital Ltd.,
Sterling or any of their respective affiliates, Intersil Holding must first
offer to each of the other shareholders a pro rata portion of these shares.
These preemptive rights are not applicable to the issuance of shares of Intersil
Holding common stock upon the conversion of shares of one class of Intersil
Holding common stock into shares of the other class. Subject to certain
limitations, neither Sterling, nor any of its respective affiliates, may sell
any of its shares of Intersil Holding preferred stock or Intersil Holding common
stock without offering the other shareholders a pro rata opportunity to
participate in the sale.
The Shareholders' Agreement also provides for additional restrictions on
transfer of shares by our executive officers and other employees, which we refer
to as our management investors, including the right of Intersil Holding to
repurchase some of the management investors' shares of Intersil Holding common
stock upon termination of the shareholder's employment prior to August 2004, at
a formula price, and the grant of a right of first refusal in favor of Intersil
Holding in the event a management investor elects to transfer its shares of
Intersil Holding common stock or Intersil Holding preferred stock. Our directors
are not bound by the additional restrictions on management investors except to
the extent that they are also officers of Intersil Holding.
1999 EQUITY COMPENSATION PLAN
Intersil Holding adopted the 1999 Equity Compensation Plan, effective
August 13, 1999 (the "Plan"). Under to the Plan, Intersil Holding will be able
to grant to our salaried officers and key employees options for up to 3,000,000
shares of Intersil Holding Class A Common Stock. The Plan will authorize
Intersil Holding to grant either (1) options intended to constitute incentive
stock options under the Internal Revenue Code of 1986, as amended, (2)
non-qualified stock options, (3) shares of restricted stock, (4) stock
appreciation rights or (5) phantom share awards. Under the Plan, a committee of
the Board of Directors of Intersil Holding will determine the exercise price of
each option granted, provided that the minimum exercise price is equal to the
fair market value of the underlying stock on the date the option is granted. The
maximum term of any option will be ten years from the date of grant for
incentive stock options and ten years and one day from the date of grant for
non-qualified stock options. Options granted will be exercisable at the
determination of the Board of Directors of Intersil Holding, and the options
will vest ratably over about five years. Within any one-year period, an employee
may not receive options to purchase more than 1,000,000 shares of Intersil
Holding Class A Common Stock. Options to acquire 2,350,000 shares of Intersil
Holding Class A Common Stock were granted, effective as of August 14, 1999.
In addition to options, the committee may award restricted stock, stock
appreciation rights and phantom share awards under the Plan.
69
A grant of restricted stock represents the right to become the owner of
that stock upon the lapse of restrictions, which will usually require the
performance of substantial additional services to Intersil Holding by the
recipient of the grant. If the restrictions are not satisfied, the restricted
stock is forfeited. If the restrictions are satisfied, the individual in
question becomes the owner of those shares. In the interim, the individual is
entitled to any dividends that may be paid on the restricted shares and is
allowed to vote them. The individual cannot, however, sell, assign or otherwise
transfer the subject shares.
A stock appreciation right entitles the recipient to a payment, in cash or
in shares of Intersil Holding Class A Common Stock of an amount equal to the
excess of the fair market value of Intersil Holding Class A Common Stock on the
date the stock appreciation right is exercised over the "exercise price" of the
stock appreciation right, which will usually be the fair market value of the
subject Intersil Holding Class A Common Stock on the date the stock appreciation
right is granted.
A phantom stock award entitles the recipient to a payment in cash or in
shares of Intersil Holding Class A Common Stock of an amount equal to the
appreciation in the value of the underlying Intersil Holding Class A Common
Stock over the period from the grant of the phantom share award to the date of
settlement specified in the award.
The terms and conditions of grants of restricted stock, stock appreciation
rights and phantom stock awards will be governed by the Plan and by the terms of
the agreement making the grant or award, as determined by the committee of the
Board of Directors.
Any Intersil Holding Class A Common Stock awarded as restricted stock,
awarded upon exercise of a stock appreciation right or awarded in settlement of
a phantom stock award will count against the 3,000,000 share overall limit under
the Plan and against the 1,000,000 individual annual limit.
REGISTRATION RIGHTS AGREEMENT
In connection with their entry into the Shareholders' Agreement, Intersil
Holding, Sterling, the management investors, Harris and the other shareholders
of Intersil Holding entered into a Registration Rights Agreement (the
"Registration Rights Agreement"). According to the Registration Rights
Agreement, upon the written request of Sterling and subject to Intersil
Holding's option to defer action for 180 days, Intersil Holding will prepare and
file a registration statement with the Securities and Exchange Commission
concerning the distribution of all or part of the shares held by Sterling and
use its best efforts to cause such registration statement to become effective.
If at any time Intersil Holding files a registration statement for the Intersil
Holding common stock because of a request by Sterling or otherwise, Intersil
Holding will use its best efforts to allow the other parties to the Registration
Rights Agreement to have their shares of Intersil Holding common stock (or a
portion of their shares under circumstances set forth in the Registration Rights
Agreement) included in the registered offering of Intersil Holding common stock.
Intersil Holding is not bound by this requirement if it is filing a registration
statement on Form S-8, Form S-4 or any similar form filed in connection with an
exchange offer or an offering solely to Intersil Holding's employees or existing
shareholders, or a registration statement registering a unit offering consisting
of a public offering of debt and equity securities of Intersil Holding in which
(i) not more than twenty percent of the gross proceeds received from the sale of
those securities is attributed to the equity securities and (ii) after the
public offering, Intersil Holding does not have a class of equity securities
required to be registered under the Securities Exchange Act of 1934. Most
registration expenses of the selling shareholders will be paid by Intersil
Holding. Intersil Holding will not pay expenses relating to underwriting
commissions, brokerage fees and transfer taxes applicable to the shares sold by
the shareholders or in certain cases the fees and expenses of any accountants or
other representatives retained by a selling shareholder.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of Intersil and of
Intersil Holding. To the extent such summary contains descriptions of documents
relating to the senior credit facilities and other loan documents, such
descriptions do not purport to be complete and are qualified in their entirety
by reference to such documents, which are available upon request to us.
SENIOR CREDIT FACILITIES
General. In connection with the transactions we entered into the senior
credit facilities with a syndicate of certain financial institutions, as
lenders, Credit Suisse First Boston, as the Administrative Agent, Salomon Smith
Barney Inc., as Syndication Agent, and Morgan Guaranty Trust Company of New
York, as Documentation Agent. The description below is only a summary of the
principal terms of the senior credit facilities and related loan documents.
The senior credit facilities provide for up to $275.0 million of aggregate
borrowing capacity for Intersil, consisting of:
o a secured $205.0 million funded term loan (the "Tranche B Senior Term
Facility"); and
o a secured $70.0 million revolving line of credit, $15.0 million of which
was funded at closing of the acquisition of the semiconductor business
(the "Revolving Credit Facility").
Use of the Senior Credit Facilities. We used the proceeds from the senior
credit facilities, together with $30.0 million of proceeds from the 13.5%
Subordinated Holding PIK Note due 2010, $90.0 million of proceeds from the
11.13% Seller Holding PIK Note due 2010, the proceeds of the unit offering and
the equity contribution from Intersil Holding, (i) to fund the acquisition of
the semiconductor business, (ii) to pay related fees and expenses and (iii) for
general corporate purposes.
Guaranties; Security. Our obligations under the senior credit facilities
are unconditionally guaranteed, jointly and severally, by Intersil Holding and
each of our existing and subsequently acquired or organized domestic
subsidiaries. Our obligations and those of the guarantors under the senior
credit facilities are secured by a pledge of all of our capital stock and by
substantially all of the assets of Intersil Holding, Intersil and each of our
existing and subsequently acquired or organized domestic (and, to the extent no
adverse tax consequences will result, foreign) subsidiaries. No foreign
subsidiary is required to guarantee the senior credit facilities and less than
two-thirds of the capital stock of certain foreign subsidiaries is required to
be pledged to secure the senior credit facilities.
Amortization; Interest; Fees; Maturity. The Senior Term Facility is
subject to certain specified amortization payments required to be made in
quarterly installments until final payment is made upon maturity. The Revolving
Credit Facility is available until 2005 unless terminated earlier under the
terms of the senior credit facilities.
Our borrowings under the senior credit facilities bear interest at a rate
equal to, at our option, either (i) the base rate (which is based on the prime
rate most recently announced by the Administrative Agent or the Federal Funds
rate plus one-half of 1%) or (ii) the applicable London interbank offered rate,
in each case plus the applicable margin. In addition, the senior credit
facilities are subject to a commitment fee of 0.50% per annum of the undrawn
portion of the Revolving Credit Facility, and letter of credit fees regarding
each letter of credit outstanding under the senior credit facilities equal to
(i) the applicable margin over the Adjusted LIBOR Rate (as defined in the Credit
Agreement) in effect for loans under the Revolving Credit Facility and (ii)
0.25% per annum on the face amount of all outstanding letters of credit.
Prepayments. The loans under the Senior Term Facility are required to be
prepaid with certain asset and capital stock sales and dispositions, certain
incurrences of indebtedness, certain offerings of common equity securities and
by certain percentages of our annual Excess Cash Flow (as defined in the Credit
Agreement). Voluntary prepayments may be made in whole or in part without
premium or penalty.
Covenants and Events of Default. The senior credit facilities contain,
among other things, covenants restricting our ability and our subsidiaries'
ability to dispose of assets, merge, pay dividends, repurchase or
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redeem capital stock and indebtedness (including the notes), incur indebtedness
or guaranties, create liens, enter into agreements with negative pledge clauses,
make certain investments or acquisitions, enter into sale and leaseback
transactions, enter into transactions with affiliates, change our business or
make fundamental changes, and otherwise restrict corporate actions. The senior
credit facilities also contain a number of financial maintenance covenants.
The senior credit facilities also include events of default usual for these
types of credit facilities and transactions, including but not limited to
nonpayment of principal or interest, violation of covenants, incorrectness of
representations and warranties, cross defaults and cross acceleration,
bankruptcy, material judgments, ERISA, actual or asserted invalidity of the
guaranties or the security documents and certain changes of control of Intersil.
The occurrence of any event of default could result in the acceleration of
Intersil's and the guarantors' obligations under the senior credit facilities,
which could materially and adversely affect you.
SUBSIDIARY CREDIT FACILITIES
Certain of our subsidiaries may incur indebtedness. It is expected that the
debt instruments evidencing such indebtedness will contain customary terms and
conditions, covenants and events of default.
13.5% SUBORDINATED HOLDING PIK NOTE DUE 2010
In connection with the Transactions, Intersil Holding issued to Citicorp
Mezzanine Partners, L.P. the 13.5% Subordinated Holding PIK Note due 2010 in the
original principal amount of $30.0 million. The 13.5% Subordinated Holding PIK
Note due 2010 matures on July 15, 2010 and bears interest at an annual rate
equal to 13.5%. To the extent any Intersil Holding Senior Debt prohibits
Intersil Holding from paying interest due on the 13.5% Subordinated Holding PIK
Note due 2010 in cash, the interest shall be paid by adding the interest to the
then outstanding principal amount of the 13.5% Subordinated Holding PIK Note due
2010. This amount shall accrue interest as a portion of the principal amount of
the 13.5% Subordinated Holding PIK Note due 2010 from the applicable interest
payment date. Under the terms of the 13.5% Subordinated Holding PIK Note due
2010, interest on the 13.5% Subordinated Holding PIK Note due 2010 may not be
deductible until paid. The 13.5% Subordinated Holding PIK Note due 2010 is
subordinated to Intersil Holding obligations (including guarantees, if any, from
time to time) under the senior credit facilities, the notes and certain other
indebtedness of Intersil Holding, other than indebtedness which by its terms is
pari passu or junior in right of payment to the 13.5% Subordinated Holding PIK
Note due 2010. The 13.5% Subordinated Holding PIK Note is senior to the 11.13%
Seller Holding PIK Note. Intersil Holding may prepay the 13.5% Subordinated
Holding PIK Note due 2010 at any time in whole or in part at 100% of the
principal amount thereof plus (a) accrued and unpaid interest to the date of
prepayment and (b) certain prepayment premiums set forth in the 13.5%
Subordinated Holding PIK Note due 2010. See "Ownership of Capital
Stock--Warrant."
11.13% SELLER HOLDING PIK NOTE DUE 2010
In connection with the Transactions, Intersil Holding issued to Harris the
Seller Holding PIK Note due 2010 in the original principal amount of $90.0
million. The Seller Holding PIK Note matures in 2010 and bears interest at an
annual rate equal to 11.13%. Intersil Holding may pay interest on the 11.13%
Seller Holding PIK Note by issuing additional 11.13% Seller Holding PIK Notes.
Intersil Holding may redeem the 11.13% Seller Holding PIK Note at any time in
whole or in part at 100% of the principal amount plus accrued and unpaid
interest to the date of redemption. In addition, upon a "change in control"
Intersil Holding is required to redeem the 11.13% Seller Holding PIK Note at
face value subject to some conditions. The 11.13% Seller Holding PIK Note
contains some covenants in favor of the holder, including but not limited to:
(1) restrictions on the payment by Intersil Holding and its subsidiaries of
dividends and the purchase, redemption or prepayment by Intersil Holding and its
subsidiaries of its capital stock or indebtedness which, by its terms or by
operation of law, ranks junior in right of payment to the 11.13% Seller Holding
PIK Note and (2) restrictions on subsidiaries entering into agreements (other
than with respect to the 11.13% Seller Holding PIK Note) restricting their
ability to pay dividends or make certain other distributions to Intersil Holding
or any subsidiary of Intersil Holding. The 11.13% Seller Holding PIK Note is
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subordinated to Intersil Holding's obligations (including guaranties, if any,
from time to time) under our senior credit facilities and the notes and is
subordinated to certain other indebtedness of Intersil Holding, other than
indebtedness which by its terms is junior in right of payment to the 11.13%
Seller Holding PIK Note (the "Intersil Holding Senior Debt"). Until the Intersil
Holding Senior Debt is paid in full, Intersil Holding may not make any payment
of principal or interest to the 11.13% Seller Holding PIK Note Holder: (1)
following the maturity of any Intersil Holding Senior Debt (either by lapse,
acceleration or otherwise) that has not been paid in full; (2) following a
payment default on Intersil Holding Senior Debt or (3) following a nonpayment
default on Intersil Holding Senior Debt (until (a) the non-payment default shall
have been cured or waived, (b) certain events of default relating to bankruptcy
under the 11.13% Seller Holding PIK Note shall have occurred, (c) the senior
credit facilities or notes shall have become due and payable upon acceleration
or (d) 180 days shall have elapsed after notice of the non-payment default has
been received by Intersil Holding). Except for certain events of bankruptcy, the
consent of 11.13% Seller Holding PIK Note holders holding 25% or more of the
principal amount of the 11.13% Seller Holding PIK Note is required to accelerate
the payment of principal upon an event of default. If any Intersil Holding
Senior Debt is outstanding at the time of an acceleration of the 11.13% Seller
Holding PIK Note, the 11.13% Seller Holding PIK Note becomes due and payable
upon the earlier of acceleration of the Intersil Holding Senior Debt or thirty
days following notice of acceleration of the 11.13% Seller Holding PIK Note
being given to the agent for Intersil Holding Senior Debt holders. An event of
default under the 11.13% Seller Holding PIK Note includes, among other things,
failure to pay principal or interest when due, failure to comply with the
material terms of the 11.13% Seller Holding PIK Note following notice, failure
to pay certain material indebtedness of Intersil Holding and certain events of
bankruptcy or insolvency.
12% JUNIOR SUBORDINATED DEBENTURES DUE 2011
At Intersil Holding's option, Intersil Holding may issue 12% Junior
Subordinated Debentures due 2011 to holders of Intersil Holding preferred stock
in exchange for shares of Intersil Holding preferred stock in the original
principal amount of $1,000 per share of Intersil Holding preferred stock plus an
amount per share equal to the full accrued and unpaid cumulative dividends
thereon. The 12% Junior Subordinated Debentures due 2011 will mature on June 30,
2011 and will bear interest at an annual rate equal to 12%. To the extent any
Intersil Holding Senior Debt prohibits Intersil Holding from paying interest due
on the 12% Junior Subordinated Debentures due 2011 in cash, the interest shall
be paid by adding the interest to the then outstanding principal amount of the
12% Junior Subordinated Debentures due 2011. The amount shall accrue interest as
a portion of the principal amount of the 12% Junior Subordinated Debentures due
2011 from the applicable interest payment date. The 12% Junior Subordinated
Debentures due 2011 will be subordinated to Intersil Holding's obligations
(including guaranties, if any, from time to time) under the senior credit
facilities, the notes, the 11.13% Seller Holding PIK Note and certain other
indebtedness, other than indebtedness which by its terms is pari passu or junior
in right of payment to the 12% Junior Subordinated Debentures due 2011. The 12%
Junior Subordinated Debentures due 2011 contain certain covenants in favor of
the holder that are no more burdensome, in any material respect, to us than our
covenants under the notes. Intersil Holding may prepay the 12% Junior
Subordinated Debentures due 2011 at any time in whole or in part at 100% of the
principal amount plus accrued and unpaid interest to the date of prepayment.
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DESCRIPTION OF THE NOTES
GENERAL
Intersil issued the old notes under an indenture, dated as of August 13,
1999 (the "Indenture"), between itself and United States Trust Company of New
York, as trustee (the "Trustee"). The terms of the notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act").
Certain terms used in this description are defined under the caption
"--Certain Definitions." In this description, the word "Company" refers only to
Intersil Corporation and not to any of its subsidiaries.
The following description is only a summary of the material provisions of
the Indenture and the Registration Rights Agreement. We urge you to read the
Indenture and the Registration Rights Agreement because they, and not this
description, define your rights as holders of these notes. You may request
copies of these agreements at our address set forth under "Where You Can Find
More Information."
BRIEF DESCRIPTION OF THE NOTES
The Notes
These notes:
o are unsecured senior subordinated obligations of the Company;
o are subordinated in right of payment to all existing and future
Senior Indebtedness of the Company;
o are senior in right of payment to any future Subordinated
Obligations of the Company; and
o are subject to registration with the SEC under the Registration
Rights Agreement.
The Guaranties
The Holdings Guaranty and each Subsidiary Guaranty:
o unconditionally guarantee the obligations of the Company under the
Notes; and
o are senior subordinated obligations of Holdings and the relevant
Subsidiary Guarantor, as the case may be.
PRINCIPAL, MATURITY AND INTEREST
The Company issued the notes initially in the principal amount of $200.0
million. The Company will issue the notes in denominations of $1,000 and any
integral multiple of $1,000. The notes will mature on August 15, 2009. Subject
to our compliance with the covenant described under the caption "--Certain
Covenants--Limitation on Indebtedness," we are permitted to issue more notes
under the Indenture in an unlimited principal amount ("Additional Notes"). Any
such Additional Notes that are actually issued will be treated as issued and
outstanding notes (and as the same class as the initial notes) for all purposes
of the Indenture and this "Description of the Notes," unless the context
indicates otherwise.
Interest on these notes will accrue at the rate of 13 1/4% per annum and
will be payable semiannually in arrears on February 15 and August 15, commencing
on February 15, 2000. The Company will make each interest payment to the holders
of record of these notes on the immediately preceding February 1 and August 1.
We will pay interest on overdue principal at 1% per annum in excess of the above
rate and will pay interest on overdue installments of interest at such higher
rate to the extent lawful.
Interest on these notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
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Additional interest may accrue on the notes under the Registration Rights
Agreement.
OPTIONAL REDEMPTION
Except as set forth below, we will not be entitled to redeem the notes at
our option prior to August 15, 2004.
On and after August 15, 2004, we will be entitled at our option to redeem
all or a portion of these notes upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest on the notes, if any, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on August 15 in the years indicated below:
YEAR PERCENTAGE
---- ----------
2004........................................................ 106.625%
2005........................................................ 104.969
2006........................................................ 103.313
2007........................................................ 101.656
2008 and thereafter......................................... 100.000
In addition, prior to August 15, 2002, we may at our option on one or more
occasions redeem notes (which includes Additional Notes, if any) in an aggregate
principal amount not to exceed 35% of the aggregate principal amount of notes
(which includes Additional Notes, if any) originally issued at a redemption
price of 113 1/4% of the principal amount of notes, plus accrued and unpaid
interest on the notes, if any, to the redemption date, with the net cash
proceeds from one or more Equity Offerings; provided, however, that
(1) at least 65% of such aggregate principal amount of notes (which
includes Additional Notes, if any) remains outstanding immediately
after the occurrence of each redemption (other than Notes held,
directly or indirectly, by the Company or its Affiliates) and
(2) each redemption occurs within 90 days after the date of the
related Equity Offering.
SELECTION AND NOTICE OF REDEMPTION
If we are redeeming less than all the notes at any time, the Trustee will
select notes on a pro rata basis, by lot or by any other method as the Trustee
in its sole discretion shall deem to be fair and appropriate.
Notes redeemed in part will be redeemed only in principal amounts of
$1,000. We will cause notices of redemption to be mailed by first-class mail at
least 30 but not more than 60 days before the redemption date to each holder of
notes to be redeemed at its registered address.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount to be
redeemed. We will issue a new note in principal amount equal to the unredeemed
portion of the original note in the name of the holder upon cancelation of the
original note. Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on notes
or portions of them called for redemption.
GUARANTIES
Holdings and each of the Subsidiary Guarantors will jointly and severally
guarantee, on a senior subordinated basis, our obligations under the notes. Each
Subsidiary Guaranty will be limited as necessary to prevent the Subsidiary
Guaranty from being rendered voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. See "Risk Factors--Fraudulent Conveyance
Matters."
Each Subsidiary Guarantor that makes a payment under its Subsidiary
Guaranty will be entitled to a contribution from each other Subsidiary Guarantor
in an amount equal to the other Subsidiary Guarantor's pro rata portion of such
payment based on the respective net assets of all the Subsidiary Guarantors at
the time of the payment determined in accordance with GAAP.
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If a Subsidiary Guaranty were to be rendered voidable, it could be
subordinated by a court to all other indebtedness (including guarantees and
other contingent liabilities) of the applicable Subsidiary Guarantor and,
depending on the amount of the indebtedness, a Subsidiary Guarantor's liability
on its Subsidiary Guaranty could be reduced to zero.
Under the Indenture, Holdings or a Subsidiary Guarantor may consolidate
with, merge with or into, or transfer all or substantially all its assets to any
other Person to the extent described below under "--Certain Covenants--Merger
and Consolidation;" provided, however, that if the other Person is not the
Company, Holdings' obligations under the Holdings Guaranty or the Subsidiary
Guarantor's obligations under its Subsidiary Guaranty, as the case may be, must
be expressly assumed by the other Person.
A Subsidiary Guarantor will be released and relieved from all its
obligations under its Subsidiary Guaranty:
(1) upon the sale or other disposition (including by way of
consolidation or merger) of the Subsidiary Guarantor; or
(2) upon the sale or disposition of all or substantially all the
assets of the Subsidiary Guarantor;
in each case other than to the Company or an Affiliate of the Company and as
permitted by the Indenture.
RANKING
Notes and Guaranties versus Senior Indebtedness
The indebtedness evidenced by the notes, the Holdings Guaranty and the
Subsidiary Guaranties are senior subordinated obligations of the Company,
Holdings and the Subsidiary Guarantors, as the case may be. The payment of the
principal of, premium, if any, and interest on the notes and the payment of the
Holdings Guaranty and any Subsidiary Guaranty is subordinate in right of
payment, as set forth in the Indenture, to the prior payment in full in cash
when due of all Obligations with respect to Senior Indebtedness of the Company,
Holdings or the relevant Subsidiary Guarantor, as the case may be, whether
outstanding on the Issue Date or thereafter incurred, including the obligations
of the Company, Holdings and such Subsidiary Guarantor under the Credit
Agreement.
As of July 2, 1999, after giving pro forma effect to the Transactions:
(1) the Senior Indebtedness of the Company would have been
approximately $224.6 million, consisting primarily of $220.0
million of secured indebtedness under the Credit Agreement;
(2) the Senior Indebtedness of Holdings would have been $220.0
million, consisting of the Holdings' senior guaranty of the
Company's obligations under the Credit Agreement; and
(3) the Senior Indebtedness of the Subsidiary Guarantors would have
been $220.0 million, consisting of the Subsidiary Guarantors'
senior guaranty of the Company's obligations under the Credit
Agreement.
In addition, the Company would have had additional availability of $55.0
million for borrowings of Senior Indebtedness under the Credit Agreement.
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company and the Subsidiary Guarantors may incur, the
amount of such Indebtedness could be substantial and, in any case, such
Indebtedness may be Senior Indebtedness. See "--Certain Covenants--Limitation on
Indebtedness."
Guaranties versus Other Liabilities of Subsidiaries
A portion of the operations of the Company are conducted through its
subsidiaries. None of our foreign subsidiaries are guaranteeing the notes.
Claims of creditors of the non-guarantor subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by the non-guarantor subsidiaries, and claims of preferred stockholders,
if any, of the non-guarantor subsidiaries generally will have priority regarding
the assets and earnings of the non-guarantor subsidiaries over the claims of
creditors of the Company, including holders of the notes, even if the
obligations do not constitute Senior Indebtedness.
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The notes, the Holdings Guaranty and each Subsidiary Guaranty, therefore, will
be effectively subordinated to creditors (including trade creditors) and
preferred stockholders of the non-guarantor subsidiaries of the Company. See
"Risk Factors--Subordination."
Although the Indenture limits the incurrence of Indebtedness and preferred
stock of certain of the Company's subsidiaries, the limitation is subject to a
number of significant qualifications. Moreover, the Indenture does not impose
any limitation on the incurrence by the subsidiaries of liabilities that are not
considered Indebtedness or Preferred Stock under the Indenture. See "--Certain
Covenants--Limitation on Indebtedness." Therefore, our subsidiaries, including
in particular the non-guarantor subsidiaries, could have substantial
liabilities.
Notes and Guaranties versus Other Senior Subordinated Indebtedness
Only Indebtedness of the Company, Holdings or a Subsidiary Guarantor that
is Senior Indebtedness will rank senior to the notes, the Holdings Guaranty and
the relevant Subsidiary Guaranty in accordance with the provisions of the
Indenture. The Notes, the Holdings Guaranty and each Subsidiary Guaranty will in
all respects rank junior to all other Senior Subordinated Indebtedness of the
Company, Holdings and the relevant Subsidiary Guarantor, respectively.
The Company, Holdings and each Subsidiary Guarantor have agreed in the
Indenture that they will not Incur, directly or indirectly, any Indebtedness
that is subordinate or junior in ranking in right of payment to its Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness.
Unsecured Indebtedness is not deemed to be subordinated or junior to Secured
Indebtedness merely because it is unsecured.
Payment of Notes
We are not permitted to pay principal of, premium, if any, or interest on,
the notes or make any deposit pursuant to the provisions described under
"--Defeasance" below and may not repurchase, redeem or otherwise retire any
notes (collectively, "pay the notes") if either of the following (each, a
"Payment Default") occurs:
(1) any Obligations relating to Senior Indebtedness are not paid in
full when due; or
(2) any other default on Senior Indebtedness occurs and the maturity
of the Senior Indebtedness is accelerated in accordance with its
terms;
unless, in either case, the Payment Default has been cured or waived and any
acceleration has been rescinded in writing or the Senior Indebtedness has been
paid in full in cash. Regardless of the foregoing, we are permitted to pay the
notes without regard to the foregoing if the Company and the Trustee receive
written notice approving the payment from the Representative of the Senior
Indebtedness relating to which the Payment Default has occurred and is
continuing.
During the continuance of any default (other than a Payment Default)
relating to any Designated Senior Indebtedness where the maturity may be
accelerated immediately without further notice (except notice as may be required
to effect acceleration) or the expiration of any applicable grace periods, we
are not permitted to pay the notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a "Blockage Notice") of default from the Representative of the
holders of Designated Senior Indebtedness specifying an election to effect a
Payment Blockage Period and ending 179 days thereafter. The Payment Blockage
Period will end earlier if the Payment Blockage Period is terminated:
(1) by written notice to the Trustee and the Company from the Person
or Persons who gave the Blockage Notice;
(2) because no defaults continue in existence which would permit the
acceleration of the maturity of any Designated Senior Indebtedness
at the time; or
(3) because the Designated Senior Indebtedness has been repaid in full
in cash.
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Notwithstanding the provisions described above, unless the holders of the
Designated Senior Indebtedness or the Representative of the holders have
accelerated the maturity of the Designated Senior Indebtedness, or any Payment
Default otherwise exists, we are permitted to resume payments on the notes after
the end of the Payment Blockage Period. The notes shall not be subject to more
than one Payment Blockage Period in any consecutive 360-day period, irrespective
of the number of defaults relating to Designated Senior Indebtedness during the
period, except that if any Blockage Notice is delivered to the Trustee by or on
behalf of holders of Designated Senior Indebtedness (other than holders of the
Bank Indebtedness), a Representative of holders of Bank Indebtedness may give
another Blockage Notice within the period. However, in no event may the total
number of days during which any Payment Blockage Period or Periods is in effect
exceed 179 days in the aggregate during any 360 consecutive day period, and
there must be 181 days during any 360-day consecutive period during which no
Payment Blockage Period is in effect.
Upon any payment or distribution by the Company upon any liquidation,
dissolution, winding up, assignment for the benefit of creditors or marshalling
of assets of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property:
(1) the holders of Senior Indebtedness will be entitled to receive
payment in full in cash of all Obligations relating to such Senior
Indebtedness before the Noteholders are entitled to receive any
payment or distribution; and
(2) until all Obligations with respect to Senior Indebtedness are paid
in full in cash, any payment or distribution to which Noteholders
would be entitled but for the subordination provisions of the
Indenture will be made to holders of the Senior Indebtedness as
their interests may appear.
If a distribution is made to Noteholders that, due to the subordination
provisions, should not have been made to them, such Noteholders are required to
hold it in trust for the holders of Senior Indebtedness and pay it over to them
as their interests may appear.
If payment of the notes is accelerated because of an Event of Default, we
or the Trustee shall promptly notify the holders of Designated Senior
Indebtedness or the Representative of the holders of the acceleration. If any
Designated Senior Indebtedness is outstanding at the time of such acceleration,
neither the Company nor any Subsidiary Guarantor may pay the notes until five
Business Days after the Representatives of all the issues of Designated Senior
Indebtedness receive notice of the acceleration and, thereafter, may pay the
notes only if the Indenture otherwise permits payment at that time.
The obligations of Holdings under the Holdings Guaranty and of a Subsidiary
Guarantor under its Subsidiary Guaranty are senior subordinated obligations. As
such, the rights of Noteholders to receive payment by Holdings or by a
Subsidiary Guarantor under the Holdings Guaranty or a Subsidiary Guaranty will
be subordinated in right of payment to the rights of holders of Senior
Indebtedness of Holdings or the Subsidiary Guarantor, as the case may be. The
terms of the subordination provisions described above regarding the Company's
obligations under the notes apply equally to Holdings and a Subsidiary Guarantor
and the obligations of Holdings and the Subsidiary Guarantor under the Holdings
Guaranty or a Subsidiary Guaranty, as the case may be.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company, Holdings or a Subsidiary
Guarantor who are holders of Senior Indebtedness of the Company, Holdings or a
Subsidiary Guarantor, as the case may be, may recover more, ratably, than the
Noteholders, and creditors of the Company who are not holders of Senior
Indebtedness may recover less, ratably, than holders of Senior Indebtedness and
may recover more, ratably, than the Noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the notes under
the provisions described under "--Defeasance," if the foregoing subordination
provisions were not violated at the time the respective amounts were deposited
under the defeasance provisions.
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BOOK-ENTRY, DELIVERY AND FORM
The old notes were, and the new notes will be, issued in the form of one or
more global notes (the "Global Note") deposited with, or on behalf of, the
Depository and registered in the name of the Depository or its nominee. Except
as set forth below, the Global Note may be transferred, in whole and not in
part, only to the Depository or another nominee of the Depository. You may hold
your beneficial interests in the Global Note directly through the Depository if
you have an account with the Depository or indirectly through organizations
which have accounts with the Depository.
The Depository has advised Intersil as follows: the Depository is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered under the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in the securities
through electronic book-entry changes in accounts of the participants,
consequently eliminating the need for physical movement of securities
certificates. The Depository's participants include securities brokers and
dealers (which may include the initial purchasers), banks, trust companies,
clearing corporations and other organizations. Access to the Depository's
book-entry system is also available to others such as banks, brokers, dealers
and trust companies (collectively, the "indirect participants") that clear
through or maintain a custodial relationship with a participant, whether
directly or indirectly.
Intersil expects that under procedures established by the Depository, upon
the deposit of the Global Note with the Depository, the Depository will credit,
on its book-entry registration and transfer system, the principal amount of
notes represented by such Global Note to the accounts of participants. The
accounts to be credited shall be designated by the initial purchasers. Ownership
of beneficial interests in the Global Note will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in the Global Note will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by the
Depository (regarding participants' interest), and the participants and the
indirect participants (regarding the owners of beneficial interests in the
Global Note other than participants). The laws of some jurisdictions may require
that purchasers of securities take physical delivery of the securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or the nominee, as the case may be,
will be considered the sole legal owner and holder of any related notes
evidenced by the Global Note for all purposes of the notes and the indenture.
Except as set forth below, as an owner of a beneficial interest in the Global
Note, you will not be entitled to have the notes represented by the Global Note
registered in your name, will not receive or be entitled to receive physical
delivery of certificated notes and will not be considered to be the owner or
holder of any notes under the Global Note. We understand that under existing
industry practice, in the event an owner of a beneficial interest in the Global
Note desires to take any action that the Depository, as the holder of the Global
Note, is entitled to take, the Depository would authorize the participants to
take action, and that the participants would authorize beneficial owners owning
through participants to take action or would otherwise act upon the instructions
of beneficial owners owning through them.
We will make payments of principal of, premium, if any, and interest on
notes represented by the Global Note registered in the name of and held by the
Depository or its nominee to the Depository or its nominee, as the case may be,
as the registered owner and holder of the Global Note.
We expect that the Depository or its nominee, upon receipt of any payment
of principal of, premium, if any, or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. We also expect that
payments by participants or indirect participants to owners of beneficial
interests in the Global Note held through participants or indirect participants
will be governed by standing instructions and customary practices and will be
the responsibility of participants or indirect participants. We will not have
any responsibility or liability for any aspect of the records relating to, or
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payments made on account of, beneficial ownership interests in the Global Note
for any note or for maintaining, supervising or reviewing any records relating
to beneficial ownership interests or for any other aspect of the relationship
between the Depository and its participants or indirect participants or the
relationship between participants or indirect participants and the owners of
beneficial interests in the Global Note owning through participants or indirect
participants.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform these
procedures, and these procedures may be discontinued at any time. Neither the
Trustee nor Intersil will have any responsibility or liability for the
performance by the Depository or its participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES
Subject to conditions, the notes represented by the Global Note are
exchangeable for certificated notes in definitive form of like tenor in
denominations of $1,000 and integral multiples of the notes if:
(1) the Depository notifies Intersil that it is unwilling or unable to
continue as Depository for the Global Note or if at any time the
Depository ceases to be a clearing agency registered under the
Exchange Act and, in either case, we are unable to appoint a
qualified successor within 90 days;
(2) we in our discretion at any time determine not to have all the
notes represented by the Global Note; or
(3) a default entitling the holders of the notes to accelerate the
maturity of the notes has occurred and is continuing.
Any note that is exchangeable as above is exchangeable for certificated
notes issuable in authorized denominations and registered in those names as the
Depository shall direct. Subject to the foregoing, the Global Note is not
exchangeable, except for a Global Note of the same aggregate denomination to be
registered in the name of the Depository or its nominee. In addition, the
certificates will bear the legend referred to under "Transfer Restrictions"
(unless we determine otherwise in accordance with applicable law), subject,
regarding such certificated notes, to the provisions of such legend.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
We agreed under the Registration Rights Agreement with the Initial
Purchasers, subject to certain exceptions,
(1) by November 11, 1999, to file a registration statement (the
"Exchange Offer Registration Statement") with the SEC relating to
a registered offer (the "Registered Exchange Offer") to exchange
the notes for new notes of the Company (the "Exchange Notes")
having terms substantially identical in all material respects to
the notes (except that the Exchange Notes will not contain terms
relating to transfer restrictions);
(2) to use our best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act by
January 12, 2000;
(3) upon the effectiveness of the Exchange Offer Registration
Statement, to offer the new notes in exchange for surrender of the
notes; and
(4) to keep the Registered Exchange Offer open for not less than 30
days (or longer if required by applicable law) after the date
notice of the Registered Exchange Offer is mailed to the holders
of the notes.
For each note surrendered to us under the Registered Exchange Offer, we
will issue a new note having a principal amount equal to that of the surrendered
note. Interest on each new note will accrue from the last
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interest payment date on which interest was paid on the note surrendered in
exchange for the new note or, if no interest has been paid on such note, from
the date of its original issue.
Under existing SEC interpretations, the new notes would be freely
transferable by holders other than our affiliates after the Registered Exchange
Offer without further registration under the Securities Act if the holder of the
new notes represents that it is acquiring the new notes in the ordinary course
of its business, that it has no arrangement or understanding with any person to
participate in the distribution of the new notes and that it is not an affiliate
of the Company, as these terms are interpreted by the SEC; provided, however,
that broker-dealers ("Participating Broker-Dealers") receiving new notes in the
Registered Exchange Offer will have a prospectus delivery requirement regarding
resales of the new notes. The SEC has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements regarding new
notes (other than a resale of an unsold allotment from the original sale of the
notes) with the prospectus contained in the Exchange Offer Registration
Statement.
Under the Registration Rights Agreement, we are required to allow
Participating Broker-Dealers and other persons, if any, with similar prospectus
delivery requirements to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of the new notes.
A Holder of notes (other than certain specified holders) that wishes to
exchange the notes for new notes in the Registered Exchange Offer will be
required to represent that any new notes to be received by it will be acquired
in the ordinary course of its business and that at the time of the commencement
of the Registered Exchange Offer it has no arrangement or understanding with any
person to participate in the distribution (within the meaning of the Securities
Act) of the new notes and that it is not an "affiliate" of the Company, as
defined in Rule 405 of the Securities Act, or if it is an affiliate, that it
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
In the event that:
(1) applicable interpretations of the staff of the SEC do not permit
us to effect such a Registered Exchange Offer, or
(2) for any other reason the Registered Exchange Offer is not
consummated by February 10, 2000, or
(3) an Initial Purchaser shall notify us following consummation of the
Registered Exchange Offer that notes held by it are not eligible
to be exchanged for new notes in the Registered Exchange Offer, or
(4) certain holders are prohibited by law or SEC policy from
participating in the Registered exchange offer or may not resell
the new notes acquired by them in the Registered exchange offer to
the public without delivering a prospectus,
then, we will, subject to certain exceptions,
(1) promptly file a shelf registration statement (the "Shelf
Registration Statement") covering resales of the notes or the new
notes, as the case may be;
(2) use our best efforts to cause the Shelf Registration Statement to
be declared effective under the Securities Act; and
(3) keep the Shelf Registration Statement effective until the earlier
of (A) the time when the notes covered by the Shelf Registration
Statement can be sold under Rule 144 without any limitations under
clauses (c), (e), (f) and (h) of Rule 144 and (B) two years from
the Issue Date.
We will, in the event a Shelf Registration Statement is filed, among other
things, provide to each holder for whom the Shelf Registration Statement was
filed copies of the prospectus which is a part of the Shelf Registration
Statement, notify each holder when the Shelf Registration Statement has become
effective and take certain other actions as are required to permit unrestricted
resales of the notes or the new notes, as the case may be. A holder selling the
notes or new notes under the Shelf Registration Statement generally would be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection
81
with the sales and will be bound by the provisions of the Registration Rights
Agreement that are applicable to the holder (including certain indemnification
obligations).
We will pay additional cash interest on the notes, subject to certain
exceptions,
(1) if the Company fails to file an Exchange Offer Registration
Statement with the Commission on or prior to November 11, 1999,
(2) if the Exchange Offer Registration Statement is not declared
effective by the Commission on or prior to January 12, 2000,
(3) if the Exchange Offer is not consummated on or before the 40th day
after the Exchange Offer Registration Statement is declared
effective,
(4) if obligated to file the Shelf Registration Statement, the Company
fails to file the Shelf Registration Statement with the Commission
on or prior to the 45th day after such filing obligation arises,
(5) if obligated to file the Shelf Registration Statement, the Shelf
Registration Statement is not declared effective on or prior to
the 140th day after the obligation to file a Shelf Registration
Statement arises, or
(6) after the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, is declared effective,
such Registration Statement thereafter ceases to be effective or
usable (subject to certain exceptions) in connection with resales
of notes or new notes in accordance with and during the periods
specified in the Registration Rights Agreement (each event
referred to in clauses (1) through (6), a "Registration Default").
Additional cash interest will accrue on the notes and the new notes at the
rate of 0.50% per annum (increasing by 0.50% per annum at the end of each 90-day
period thereafter) from and including the date on which any Registration Default
shall occur to but excluding the date on which all Registration Defaults have
been cured; provided, however, that in no event shall such additional interest
exceed 2.0% per annum. The interest is payable in addition to any other interest
payable from time to time regarding the notes and the new notes.
All references in the Indenture, in any context, to any amount of interest
or any other amount payable on or regarding any of the notes shall be deemed to
include payment of any additional interest under the Registration Rights
Agreement.
If we effect the Registered Exchange Offer, we will be entitled to close
the Registered Exchange Offer 30 days after the commencement of it provided that
we have accepted all notes validly tendered in accordance with the terms of the
Registered Exchange Offer.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase the Holder's notes at a purchase price in cash equal to 101% of the
principal amount of the notes plus any accrued and unpaid interest to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date):
(1) any "person" (as the term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that the person shall be deemed to
have "beneficial ownership" of all shares that any person has the
right to acquire, whether the right is exercisable immediately or
only after the passage of time or the satisfaction of any other
conditions), directly or indirectly, of more than 50% of the total
voting power of the Voting Stock of the Company (for the purposes
of this clause (1), such person shall be deemed to beneficially
own any Voting Stock of a Person held by any other Person (the
"parent entity"), if such person is the beneficial owner (as
defined in this clause (1)), directly or indirectly, of
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more than 50% of the voting power of the Voting Stock of the
parent entity); provided, however, that notwithstanding the
foregoing, CVC shall be deemed to beneficially own a majority of
the voting power of the Voting Stock of Sterling (or any
successor) so long as CVC, employees, officers and directors of
CVC and corporations, partnerships and other entities at least a
majority of the equity in which is held in the aggregate by CVC
and its employees, officers and directors hold in the aggregate no
less than a majority of the economic interests in Sterling (or a
successor);
(2) individuals who on the Issue Date constituted the Board of
Directors (together with any new directors (A) whose election by
such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority
of the directors of the Company then still in office who were
either directors on the Issue Date or whose election or nomination
for election was previously so approved or (B) who were elected to
the Board of Directors under the Stockholders' Agreement, as
amended, modified or supplemented from time to time) cease for any
reason to constitute a majority of the Board of Directors then in
office; or
(3) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company,
or the sale of all or substantially all the assets of the Company
to another Person, if the securities of the Company that are
outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of the Voting Stock
of the Company are changed into or exchanged for cash, securities
or property, unless (i) in the transaction the securities are
changed into or exchanged for, in addition to any other
consideration, securities of the surviving Person or transferee
that represent, immediately after the transaction, at least a
majority of the aggregate voting power of the Voting Stock of the
surviving Person or transferee, or (ii) after giving effect to the
transaction the Permitted Holders "beneficially own" (as
determined in clause (1) above) at least 35% of the total voting
power of the Voting Stock of the surviving Person or transferee,
as the case may be).
Within 30 days following any Change of Control (but subject to compliance
with the immediately succeeding paragraph), the Company shall mail a notice to
each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that the Holder has the
right to require the Company to purchase the Holder's notes at a
purchase price in cash equal to 101% of the principal amount of
the notes plus any accrued and unpaid interest to the date of
purchase (subject to the right of holders of record on the
relevant record date to receive interest on the relevant interest
payment date);
(2) the circumstances and relevant facts regarding the Change of
Control;
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date the notice is mailed); and
(4) the instructions determined by the Company, consistent with the
covenant described hereunder, that a Holder must follow in order
to have its Notes purchased.
If the terms of the Credit Agreement prohibit the Company from making the
foregoing offer upon a Change of Control or from purchasing any notes pursuant
thereto, prior to the mailing of the notice to Holders described in the
preceding paragraph, but in any event within 30 days following any Change of
Control, the Company covenants to:
(1) repay in full all indebtedness outstanding under the Credit
Agreement or offer to repay in full all indebtedness and repay the
indebtedness of each lender who has accepted the offer; or
(2) obtain the requisite consent under the Credit Agreement to permit
the purchase of the Notes as described above.
The Company must first comply with the covenant described above before it
will be required to purchase notes in the event of a Change of Control;
provided, however, that the Company's failure to comply with the covenant
described in the preceding sentence or to make a Change of Control offer because
of any such failure shall constitute a Default described in clause (4) under
"--Defaults" below (and not under clause (2) under "--Defaults" below). As a
result of the foregoing, a holder of the Notes may not be able to
83
compel the Company to purchase the notes unless the Company is able at the time
to refinance all indebtedness outstanding under the Credit Agreement or obtain
requisite consents under the Credit Agreement.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of notes in connection with the
covenant described hereunder. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. We have no present intention to engage
in a transaction involving a Change of Control, although we could decide to do
so in the future. Subject to the limitations discussed below, we could, in the
future, enter into certain transactions, including acquisitions, refinancings or
other recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
that time or otherwise affect our capital structure or credit ratings.
Restrictions on our ability to incur additional Indebtedness are contained in
the covenants described under "--Certain Covenants--Limitation on Indebtedness."
These restrictions can only be waived with the consent of the holders of a
majority in principal amount of the notes then outstanding. Except for the
limitations contained in these covenants, however, the Indenture will not
contain any covenants or provisions that may afford holders of the notes
protection in the event of a highly leveraged transaction.
The Credit Agreement will prohibit us from purchasing any notes, and will
also provide that the occurrence of certain change of control events regarding
the Company would constitute a default thereunder. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing notes,
the Company could seek the consent of its lenders to the purchase of notes or
could attempt to refinance the borrowings that contain the prohibition. If the
Company does not obtain such a consent or repay the borrowings, the Company will
remain prohibited from purchasing notes. In such case, the Company's failure to
comply with this covenant would constitute a Default under the Indenture which
would, in turn, constitute a default under the Credit Agreement. In these
circumstances, the subordination provisions in the Indenture would likely
restrict payment to the Holders of notes.
Future indebtedness that we may incur may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require the indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the holders of their right to require us to repurchase the notes
could cause a default under the indebtedness, even if the Change of Control
itself does not, due to the financial effect of the repurchase on us. Finally,
our ability to pay cash to the holders of notes following the occurrence of a
Change of Control may be limited by our then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases. The provisions under the Indenture relative to
our obligation to make an offer to repurchase the notes as a result of a Change
of Control may be waived or modified with the written consent of the holders of
a majority in principal amount of the notes.
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CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, Incur, directly or indirectly, any
Indebtedness except that the Company or any Subsidiary Guarantor may Incur
Indebtedness if, after giving effect thereto, the Consolidated Coverage Ratio
exceeds 2.25 to 1.00 if the Indebtedness is Incurred prior to August 15, 2001 or
2.50 to 1.00 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(1) Indebtedness of the Company or any Restricted Subsidiary Incurred
under the Revolving Credit Facilities; provided, however, that, immediately
after giving effect to any such Incurrence, the aggregate principal amount
of all Indebtedness incurred under this clause (1) and then outstanding
does not exceed the greater of (A) $70.0 million and (B) the sum of 50% of
the book value of the inventory of the Company and its Restricted
Subsidiaries and 85% of the book value of the accounts receivables of the
Company and its Restricted Subsidiaries;
(2) Indebtedness of the Company Incurred under the Term Loan
Facilities; provided, however, that, after giving effect to any Incurrence,
the aggregate principal amount of all Indebtedness Incurred under this
clause (2) and then outstanding does not exceed $205.0 million less the
aggregate sum of all principal payments actually made from time to time
after the Issue Date regarding the Indebtedness under paragraph (a)(3)(A)
of the covenant described under "Limitation on Sales of Assets and
Subsidiary Stock;"
(3) Indebtedness of the Company or any Restricted Subsidiary owed to
and held by the Company or a Restricted Subsidiary; provided, however, that
any subsequent issuance or transfer of any Capital Stock which results in
any Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of the Indebtedness (other than to the Company or
another Restricted Subsidiary) shall be deemed, in each case, to constitute
the Incurrence of the Indebtedness by the issuer; provided, further,
however, that any Indebtedness of the Company or a Subsidiary Guarantor
shall be unsecured Subordinated Obligations of the obligor;
(4) Indebtedness consisting of the Notes and the Exchange Notes (other
than Additional Notes);
(5) Indebtedness outstanding on the Issue Date, including, without
limitation, Indebtedness assumed or to be assumed in respect of the Harris
Loan Obligations (other than Indebtedness described in clause (1), (2), (3)
or (4) of this covenant);
(6) Refinancing Indebtedness in respect of Indebtedness Incurred under
paragraph (a) or pursuant to clause (4), (5), (7) or this clause (6);
(7) Indebtedness of a Person Incurred and outstanding on or prior to
the date on which the Person was acquired by the Company or a Restricted
Subsidiary (other than Indebtedness Incurred in connection with, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions where the
Person was acquired by the Company or a Restricted Subsidiary); provided,
however, that after giving pro forma effect thereto, (a) the Consolidated
Coverage Ratio increases as a consequence of such incurrence and related
acquisition and (b) after giving effect thereto, the Consolidated Coverage
Ratio is at least 1.5 to 1.0;
(8) Hedging Obligations of the Company or any Restricted Subsidiary
under Interest Rate Agreements and Currency Agreements entered into in the
ordinary course of business and not for the purpose of speculation;
85
(9) Indebtedness of the Company or any Restricted Subsidiary in
respect of performance bonds and surety or appeal bonds entered into by the
Company and the Restricted Subsidiaries in the ordinary course of their
business;
(10) Indebtedness consisting of the Subsidiary Guaranties and the
Guarantees of Indebtedness Incurred pursuant to paragraph (a) or under
clause (1), (2), (4), (5), (6), (7) above and (16) below;
(11) Indebtedness of the Company or any Restricted Subsidiary arising
from the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business, provided that the Indebtedness is satisfied within five business
days of Incurrence;
(12) Indebtedness (including Capital Lease Obligations) Incurred by
the Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) and Refinancing Indebtedness in respect of any
Indebtedness Incurred pursuant to this clause (12) in an aggregate
principal amount which, when added together with the amount of Indebtedness
Incurred under this clause (12) and then outstanding, does not exceed the
greater of (A) $15.0 million and (B) 3.5% of Total Assets; provided,
however, that, in the case of any Capital Lease Obligations, the assets
subject to the related capital lease are not owned or used by the Company
or any Restricted Subsidiary on the Issue Date;
(13) Indebtedness of the Company or any Restricted Subsidiary
consisting of indemnification, adjustment of purchase price or similar
obligations, in each case incurred in connection with the disposition of
any assets of the Company or any Restricted Subsidiary in a principal
amount not to exceed the gross proceeds actually received by the Company or
any Restricted Subsidiary in connection with the disposition;
(14) Indebtedness of a Foreign Subsidiary Incurred to finance the
working capital of such Foreign Subsidiary;
(15) Indebtedness of the Company issued to directors, employees,
officers or consultants of the Company or a Restricted Subsidiary in
connection with the redemption or purchase of Capital Stock that by its
terms is subordinated to the notes, is not secured by any assets of the
Company or its Restricted Subsidiaries and does not require cash payments
on or prior to the Stated Maturity of the Notes and Refinancing
Indebtedness in respect thereof, in an aggregate principal amount which,
when added together with the amount of Indebtedness Incurred under this
clause (15) and then outstanding, does not exceed $5.0 million; and
(16) Indebtedness of the Company and the Restricted Subsidiaries in an
aggregate principal amount which, together with all other Indebtedness of
the Company and the Restricted Subsidiaries outstanding on the date of the
Incurrence (other than Indebtedness permitted by clauses (1) through (15)
above or paragraph (a) above), does not exceed $40.0 million.
(c) Notwithstanding the foregoing, the Company shall not, and shall not
permit any Restricted Subsidiary to, Incur any Indebtedness under the foregoing
paragraph (b) if the proceeds thereof are used, directly or indirectly, to
Refinance any Subordinated Obligations unless the Indebtedness shall be
subordinated to the Notes or the relevant Subsidiary Guaranty, as applicable, to
at least the same extent as the Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (1)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify the item of Indebtedness and only be required to include the
amount and type of the Indebtedness in one of the above clauses and (2) an item
of Indebtedness may be divided and classified in more than one of the types of
Indebtedness described above.
86
(e) Notwithstanding paragraphs (a) and (b) above, the Company shall not,
and shall not permit any Subsidiary Guarantor to, Incur (1) any Indebtedness if
such Indebtedness is subordinate or junior in ranking in any respect to any
Senior Indebtedness of the Company or such Subsidiary Guarantor, as applicable,
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness or (2) any
Secured Indebtedness (other than trade payables incurred in the ordinary course
of business) that is not Senior Indebtedness unless contemporaneously an
effective provision is made to secure the notes or the relevant Subsidiary
Guaranty, as applicable, equally and ratably with the Secured Indebtedness for
so long as the Secured Indebtedness is secured by a Lien.
(f) For purposes of determining compliance with any U.S. dollar denominated
restriction on the Incurrence of Indebtedness where the Indebtedness is
denominated in a different currency, the amount of the Indebtedness will be the
U.S. Dollar Equivalent determined on the date of the Incurrence of the
Indebtedness; provided, however, that if any Indebtedness denominated in a
different currency is subject to a Currency Agreement relating to U.S. dollars,
covering all principal, premium, if any, and interest payable on the
Indebtedness, the amount of the Indebtedness expressed in U.S. dollars will be
as provided in the Currency Agreement. The principal of any Refinancing
Indebtedness Incurred in the same currency as the Indebtedness being refinanced
will be the U.S. Dollar Equivalent of the Indebtedness Refinanced, except to the
extent that (i) the U.S. Dollar Equivalent was determined based on a Currency
Agreement, in which case the Refinancing Indebtedness will be determined in
accordance with the preceding sentence, and (ii) the principal amount of the
Refinancing Indebtedness exceeds the principal amount of the Indebtedness being
Refinanced, in which case the U.S. Dollar Equivalent of the excess will be
determined on the date the Refinancing Indebtedness is Incurred.
Limitation on Restricted Payments. (a) The Company shall not, and shall
not permit any Restricted Subsidiary, directly or indirectly, to make a
Restricted Payment if at the time the Company or the Restricted Subsidiary makes
the Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness under paragraph (a) of the covenant described under
"--Limitation on Indebtedness;" or
(3) the aggregate amount of the Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum (without
duplication) of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the notes
are originally issued to the end of the most recent fiscal quarter
ending at least 45 days (or, if less, the number of days after the end
of such fiscal quarter as the consolidated financial statements of the
Company shall be provided to the Noteholders pursuant to the Indenture)
prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from
the issuance or sale of, or capital contribution in respect of, its
Capital Stock (other than Disqualified Stock) subsequent to the Issue
Date (other than an issuance or sale to a Subsidiary of the Company and
other than an issuance or sale to an employee stock ownership plan or to
a trust established by the Company or any of its Subsidiaries for the
benefit of their employees to the extent that the purchase by the plan
or trust is financed by Indebtedness of the plan or trust to the Company
or any Subsidiary or Indebtedness Guaranteed by the Company or any
Subsidiary) and the fair market value (as determined in good faith by
resolution of the Board of Directors of the Company) of property (other
than cash) constituting Temporary Cash Equivalents or a Related Business
and received by the Company or a Restricted Subsidiary subsequent to the
Issue Date as a contribution to its common equity capital (other than
any property received from a Subsidiary or that was financed by the
Company or any Restricted Subsidiary);
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(C) the amount by which Indebtedness of the Company or any
Restricted Subsidiary is reduced on the Company's consolidated balance
sheet upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to the Issue Date of any Indebtedness of the Company
or any Restricted Subsidiary convertible or exchangeable for Capital
Stock (other than Disqualified Stock) of the Company (less the amount of
any cash, or the fair value of any other property, distributed by the
Company or any Restricted Subsidiary upon the conversion or exchange);
and
(D) an amount equal to the sum of (i) the net reduction in
Investments (other than Permitted Investments) made by the Company or
any Restricted Subsidiary in any Person resulting from repurchases,
repayments or redemptions of the Investments by such Person, proceeds
realized on the sale of the Investment or proceeds representing the
return of capital (excluding dividends and distributions), in each case
received by the Company or any Restricted Subsidiary, and (ii) to the
extent the Person is an Unrestricted Subsidiary, the portion
(proportionate to the Company's equity interest in the Subsidiary) of
the fair market value of the net assets of the Unrestricted Subsidiary
at the time the Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not exceed,
in the case of such Person or Unrestricted Subsidiary, the amount of
Investments (excluding Permitted Investments) previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in the Person or Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any Restricted Payment made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the
Company (other than Disqualified Stock and other than Capital Stock issued
or sold to a Subsidiary of the Company or an employee stock ownership plan
or to a trust established by the Company or any of its Subsidiaries for the
benefit of their employees to the extent that the purchase by the plan or
trust is financed by Indebtedness of such plan or trust to the Company or
any Subsidiary of the Company or Indebtedness Guaranteed by the Company or
any Subsidiary of the Company); provided, however, that (A) such Restricted
Payment shall be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from the sale shall be excluded from
the calculation of amounts under clause (3)(B) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness which is permitted to be Incurred under the covenant
described under "--Limitation on Indebtedness;" provided, however, that the
purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments;
(3) any purchase or redemption of Disqualified Stock of the Company or
a Restricted Subsidiary made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Disqualified Stock of the Company or the
Restricted Subsidiary, as the case may be, which is permitted to be
Incurred under the covenant described under "--Limitation on Indebtedness;"
provided, however, that the purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments;
(4) any purchase or redemption of Subordinated Obligations from the
balance of Net Available Cash after an offer for the notes under the
covenant described under "--Limitation on Sales of Assets and Subsidiary
Stock;" provided, however, that the purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments;
(5) upon the occurrence of a Change of Control and within 60 days
after the completion of the offer to repurchase the notes under the
covenant described under "--Change of Control" above (including the
purchase of the notes tendered), any purchase or redemption of Subordinated
Obligations required under the terms thereof as a result of such Change of
Control at a purchase or redemption price not to exceed the outstanding
principal amount of the notes, plus any accrued and unpaid interest;
88
provided, however, that (A) at the time of such purchase or redemption no
Default shall have occurredand be continuing (or would result therefrom),
(B) the Company would be able to Incur an additional $1.00 of Indebtedness
under paragraph (a) of the covenant described under "--Limitation on
Indebtedness" after giving pro forma effect to the Restricted Payment and
(C) the purchase or redemption shall be included in the calculation of the
amount of Restricted Payments;
(6) dividends paid within 60 days after the date of declaration if at
the date of declaration the dividend would have complied with this
covenant; provided, however, that at the time of payment of the dividend,
no other Default shall have occurred and be continuing (or result
therefrom); provided further, however, that the dividend shall be included
in the calculation of the amount of Restricted Payments;
(7) the repurchase or other acquisition of shares of, or options to
purchase shares of, common stock of the Company or any of its Subsidiaries
from employees, former employees, directors or former directors of the
Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, consultants, former consultants, directors or
former directors), under the terms of the agreements (including employment
and consulting agreements) or plans (or amendments thereto) approved by the
Board of Directors under which the individuals purchase or sell or are
granted the option to purchase or sell, shares of the common stock;
provided, however, that the aggregate amount of the repurchases shall not
exceed the sum of $5.0 million and the Net Cash Proceeds from the sale of
Capital Stock to members of management or directors of the Company and its
Subsidiaries that occurs after the Issue Date (to the extent the Net Cash
Proceeds from the sale of the Capital Stock have not otherwise been applied
to the payment of Restricted Payments by virtue of clause (3)(B) of
paragraph (a) above); provided further, however, that (A) the repurchases
shall be excluded in the calculation of the amount of Restricted Payments
and (B) the Net Cash Proceeds from the sale shall be excluded from the
calculation of amounts under clause (3)(B) of paragraph (a) above;
(8) dividends or advances to Holdings in an amount necessary to pay
holding company expenses, the amount not to exceed $500,000 in any fiscal
year of the Company; provided, however, that the dividends and advances
shall be excluded in the calculation of the amount of Restricted Payments;
(9) any payment by the Company to Holdings under a Tax Sharing
Agreement; provided, however, that the amount of any the payment shall not
exceed the amount of taxes that the Company would have been liable for on a
stand-alone basis; provided further, however, that the payment shall be
excluded in the calculation of the amount of Restricted Payments;
(10) the distribution, as a dividend or otherwise, of shares of
Capital Stock or assets of an Unrestricted Subsidiary provided that the
fair market value (as determined in good faith by the Board of Directors of
the Company) of the shares of Capital Stock or assets shall not exceed the
amount of the Investments that were made (and not subsequently reduced
under clause 3(D) of paragraph (a) above) by the Company in the
Unrestricted Subsidiary and were treated as Restricted Payments or were
included in the calculation of the amount of the Restricted Payments
previously made; provided, however, that (A) the distributions shall be
excluded in the calculation of the amount of Restricted Payments, and (B)
any net reduction in Investments in such Unrestricted Subsidiary resulting
from the distribution shall be excluded from the calculation of amounts
under clause 3(D) of paragraph (a) above; or
(11) Restricted Payments not exceeding $5.0 million in the aggregate;
provided, however, that (A) at the time of the Restricted Payments, no
Default shall have occurred and be continuing (or result therefrom) and (B)
the Restricted Payments shall be included in the calculation of the amount
of Restricted Payments.
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Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company,
(b) make any loans or advances to the Company or (c) transfer any of its
property or assets to the Company, except:
(1) any encumbrance or restriction under an agreement in effect at or
entered into on the Issue Date, including the Credit Agreement as in
effect on the Issue Date;
(2) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which the Restricted
Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or
series of related transactions under which the Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Company) and
outstanding on such date;
(3) any encumbrance or restriction relating to a Restricted Subsidiary
under an agreement evidencing Indebtedness Incurred without violation
of the Indenture, including those contained in any amendment to an
agreement referred to in clause (1) or (2) of this covenant; provided,
however, that the encumbrances and restrictions relating to the
Restricted Subsidiary are, in the good faith judgment of the Board of
Directors, no more restrictive in any material respect than the
encumbrances and restrictions relating to such Restricted Subsidiary
contained in agreements of the Restricted Subsidiary in effect at, or
entered into on, the Issue Date;
(4) any encumbrance or restriction consisting of customary non-assignment
provisions in leases governing leasehold interests to the extent the
provisions restrict the transfer of the lease or the property leased
thereunder or in licenses entered into in the ordinary course of
business to the extent the licenses restrict the transfer of the
license or the property licensed thereunder;
(5) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent the restrictions restrict the transfer of the
property subject to the security agreements or mortgages;
(6) any restriction regarding a Restricted Subsidiary imposed under an
agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of the Restricted
Subsidiary pending the closing of the sale or disposition;
(7) any restriction in any agreement that is not more restrictive than the
restrictions under the terms of the Credit Agreement as in effect on
the Issue Date;
(8) in the case of clause (c) above, restrictions on the transfer of
assets subject to any Lien imposed by the holder of the Lien;
(9) provisions regarding the disposition or distribution of assets or
property in joint venture agreements and other similar agreements
entered into in the ordinary course of business;
(10) any restriction arising under applicable law, regulation or order;
(11) any restriction contained in any agreement or instrument governing
Capital Stock (other than Disqualified Stock) of any Restricted
Subsidiary that is in effect on the date the Restricted Subsidiary is
acquired by the Company or a Restricted Subsidiary; and
(12) any restriction on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless
90
(1) the Company or the Restricted Subsidiary receives consideration at the
time of the Asset Disposition at least equal to the fair market value
(including as to the value of all non-cash consideration), as
determined in good faith by the Board of Directors, of the shares and
assets subject to the Asset Disposition;
(2) at least 75% of the consideration received by the Company or the
Restricted Subsidiary is in the form of cash or cash equivalents unless
the Asset Disposition consists of a disposition of the Company's
Malaysian Business to a Permitted Joint Venture; and
(3) an amount equal to 100% of the Net Available Cash from the Asset
Disposition is applied by the Company (or the Restricted Subsidiary, as
the case may be)
(A) first, to the extent the Company elects (or is required by the
terms of any Indebtedness), to prepay, repay, redeem or purchase
Senior Indebtedness or Indebtedness (other than any Disqualified
Stock) of a Restricted Subsidiary (in each case other than
Indebtedness owed to the Company or an Affiliate of the Company)
within one year from the later of the date of the Asset
Disposition and the receipt of the Net Available Cash;
(B) second, to the extent of the balance of the Net Available Cash
after application in accordance with clause (A), to the extent the
Company elects, to acquire Additional Assets within one year (or
enter into a binding agreement therefor within the period and
acquire such Additional Assets within 18 months) from the later of
the date of the Asset Disposition and the receipt of the Net
Available Cash; and
(C) third, to the extent of the balance of the Net Available Cash
after application in accordance with clauses (A) and (B), to make
an offer to the holders of the Notes (and to holders of other
Senior Subordinated Indebtedness designated by the Company) to
purchase Notes (and such other Senior Subordinated Indebtedness)
under the and subject to the conditions contained in the
Indenture;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness under clause (A) or (C) above, the Company or such Restricted
Subsidiary shall permanently retire the Indebtedness and shall cause the related
loan commitment, if any, to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions of this paragraph, the Company and the Restricted Subsidiaries shall
not be required to apply any Net Available Cash in accordance with this
paragraph except to the extent that the aggregate Net Available Cash from all
Asset Dispositions which are not applied in accordance with this paragraph
exceeds $10.0 million. Pending application of Net Available Cash under this
covenant, the Net Available Cash shall be invested in Permitted Investments or
used to reduce loans outstanding under any revolving credit facility.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of the Company or any
Restricted Subsidiary and the release of the Company or the Restricted
Subsidiary from all liability on the Indebtedness in connection with the Asset
Disposition, (y) securities received by the Company or any Restricted Subsidiary
from the transferee that are promptly converted by the Company or the Restricted
Subsidiary into cash and (z) any Additional Assets (so long as the Additional
Assets were acquired for fair market value (as determined in good faith by the
Board of Directors of the Company) in connection with the transaction giving
rise to the Asset Disposition and are used for the same or similar purpose as
the assets disposed of in such Asset Disposition), which Additional Assets shall
be deemed to have been acquired under clause (B) of the preceding paragraph in
connection with the Asset Disposition.
(b) In the event of an Asset Disposition that requires the purchase of the
notes (and other Senior Subordinated Indebtedness) under clause (a)(3)(C) above,
the Company will be required to purchase Notes tendered in connection with an
offer by the Company for the Notes (and other Senior Subordinated Indebtedness)
at a purchase price of 100% of their principal amount (without premium) plus
accrued but unpaid interest (or, in respect of such other Senior Subordinated
Indebtedness, such lesser price, if any, as may be provided for by the terms of
the Senior Subordinated Indebtedness) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
Indenture. If the aggregate
91
purchase price of the notes (and any other Senior Subordinated Indebtedness)
tendered exceeds the Net Available Cash allotted to the purchase thereof, the
Company will select the notes (and any other SeniorSubordinated Indebtedness) to
be purchased on a pro rata basis but in denominations of $1,000 or multiples
thereof. The Company shall not be required to make such an offer to purchase
notes (and other Senior Subordinated Indebtedness) under this covenant if the
Net Available Cash available therefor is less than $10.0 million (which lesser
amount shall be carried forward for purposes of determining whether the offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms
(1) are no less favorable to the Company or the Restricted Subsidiary
than those that could be obtained at the time of the transaction
in arm's-length dealings with a Person who is not an Affiliate;
(2) if the Affiliate Transaction involves an amount in excess of $2.5
million, (A) are set forth in writing and (B) have been approved
by a majority of the members of the Board of Directors having no
personal stake in such Affiliate Transaction; and
(3) if the Affiliate Transaction involves an amount in excess of $10.0
million, have been determined by (A) a nationally recognized
investment banking firm to be fair, from a financial standpoint,
to the Company and its Restricted Subsidiaries or (B) an
accounting or appraisal firm nationally recognized in making these
determinations to be on terms that are not less favorable to the
Company and its Restricted Subsidiaries than the terms that could
be obtained in an arms-length transaction from a Person that is
not an Affiliate of the Company.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any Restricted Payment permitted to be paid under the covenant
described under
"--Limitation on Restricted Payments;"
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise in connection with, or the funding
of, employment arrangements, stock options and stock ownership
plans approved by the Board of Directors;
(3) the grant of stock options or similar rights to employees and
directors of the Company through plans approved by the Board of
Directors;
(4) loans or advances to employees in the ordinary course of business
in accordance with the past practices of the Company or its
Restricted Subsidiaries, but in any event not to exceed $5.0
million in the aggregate outstanding at any one time;
(5) reasonable fees, compensation or employee benefit arrangements to
and indemnity provided for the benefit of directors, officers or
employees of the Company or any Subsidiary in the ordinary course
of business;
(6) any Affiliate Transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries;
(7) any Affiliate Transaction with Harris in connection with written
agreements in effect on the Issue Date and as amended, renewed or
extended from time to time; provided, however, that
92
any amendment, renewal or extension shall not contain terms which
are materially less favorable to the Company than those in the
agreements in effect on the Issue Date;
(8) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company; and
(9) any Tax Sharing Agreement; provided, however, that the aggregate
amount payable by the Company pursuant thereto shall not exceed
the amount of taxes that the Company would have been liable for on
a stand-alone basis.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any Capital
Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
of its Capital Stock except
(1) to the Company or a Wholly Owned Subsidiary;
(2) if, immediately after giving effect to the issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any
Capital Stock of the Restricted Subsidiary;
(3) if, immediately after giving effect to such issuance, sale or other
disposition, the Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in the Person remaining after
giving effect thereto would have been permitted to be made under the
covenant described under "--Limitation on Restricted Payments" if made
on the date of the issuance, sale or other disposition; or
(4) directors' qualifying shares.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United
States of America, any State or the District of Columbia and the
Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company
under the Notes and the Indenture;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or
any Subsidiary as a result of the transaction as having been Incurred
by the Successor Company or the Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(3) immediately after giving effect to the transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness
under paragraph (a) of the covenant described under "--Limitation on
Indebtedness"; and
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that the
consolidation, merger or transfer and any supplemental indenture comply
with the Indenture;
provided, however, that clause (3) above shall not apply (x) if, in the good
faith determination of the Board of Directors, whose determination shall be
evidenced by a resolution of the Board of Directors, the principal purpose and
effect of the transaction is to change the jurisdiction of incorporation of the
Company or (y) in the case of a merger of the Company with or into a Wholly
Owned Subsidiary.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the notes.
93
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person unless:
(1) the resulting, surviving or transferee Person (if not the Subsidiary)
shall be a Person organized and existing under the laws of the
jurisdiction under which the Subsidiary was organized or under the
laws of the United States of America, or any State of the United
States or the District of Columbia, and the Person shall expressly
assume, by executing a Guaranty Agreement, all the obligations of the
Subsidiary, if any, under its Subsidiary Guaranty;
(2) immediately after giving effect to the transaction or transactions on a
pro forma basis (and treating any Indebtedness which becomes an
obligation of the resulting, surviving or transferee Person as a result
of the transaction as having been issued by such Person at the time of
the transaction), no Default shall have occurred and be continuing; and
(3) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that the consolidation, merger or
transfer and the Guaranty Agreement, if any, complies with the
Indenture.
The provisions of clauses (1) and (2) above shall not apply to any one or more
transactions which constitute an Asset Disposition if the Company has complied
with the applicable provisions of the covenant described under "--Limitation on
Sales of Assets and Subsidiary Stock" above.
Under the Indenture, Holdings will covenant not to merge with or into, or
convey, transfer or lease, in one transaction or a series of transactions, all
or substantially all of its assets to any Person unless:
(1) the resulting, surviving or transferee Person (if not Holdings) shall
be a Person organized and existing under the laws of the jurisdiction
under which Holdings was organized or under the laws of the United
States of America, or any State of the United States or the District of
Columbia, and the Person shall expressly assume, by executing a
Guaranty Agreement, all the obligations of Holdings, if any, under the
Holdings Guaranty;
(2) immediately after giving effect to the transaction or transactions on a
pro forma basis (and treating any Indebtedness which becomes an
obligation of the resulting, surviving or transferee Person as a result
of the transaction as having been issued by the Person at the time of
the transaction), no Default shall have occurred and be continuing; and
(3) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that the consolidation, merger or
transfer and the Guaranty Agreement, if any, complies with the
Indenture.
Future Guarantors. In the event that, after the Issue Date, any Restricted
Subsidiary (other than a Foreign Subsidiary) Guarantees any Senior Indebtedness
of the Company or any Subsidiary Guarantor Incurred pursuant to paragraph (a) or
clause (1), (2), (10) or (16) of the covenant described under "--Limitation on
Indebtedness" above, the Company shall cause the Restricted Subsidiary to
Guarantee the Notes under a Subsidiary Guaranty on the terms and conditions set
forth in the Indenture and shall cause all Indebtedness of the Restricted
Subsidiary owing to the Company or any other Subsidiary of the Company and not
previously discharged to be converted into Capital Stock of the Restricted
Subsidiary (other than Disqualified Stock).
SEC Reports. Whether or not subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, we will file with the SEC and provide
the Trustee and Noteholders with all annual reports and information, documents
and other reports as are specified in Sections 13 and 15(d) of the Exchange Act
and applicable to a U.S. corporation subject to those Sections at the times
specified for the filings under those Sections. However, we will not be required
to file any reports, documents or other information if the SEC will not accept
the filing.
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DEFAULTS
Each of the following is an Event of Default:
(1) a default in the payment of interest on the notes when due, continued
for 30 days;
(2) a default in the payment of principal of any note when due at its
Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise;
(3) the failure by the Company to comply with its obligations under
"--Certain Covenants--Merger and Consolidation" above;
(4) the failure by the Company to comply for 30 days after notice with any
of its obligations in the covenants described above under "--Change of
Control" (other than a failure to purchase notes) or under "--Certain
Covenants" under "--Limitation on Indebtedness," "--Limitation on
Restricted Payments," "--Limitation on Restrictions on Distributions
from Restricted Subsidiaries," "--Limitation on Sales of Assets and
Subsidiary Stock" (other than a failure to purchase notes after an
offer to purchase same has been made in accordance with that covenant),
"--Limitation on Affiliate Transactions," "--Limitation on the Sale or
Issuance of Capital Stock of Restricted Subsidiaries," "--Future
Guarantors" or "--SEC Reports;"
(5) the failure by the Company to comply for 60 days after notice with its
other agreements contained in the Indenture;
(6) Indebtedness of the Company or any Significant Subsidiary is not paid
within any applicable grace period after final maturity or is
accelerated by the holders because of a default and the total amount of
such Indebtedness unpaid or accelerated exceeds $10.0 million (the
"cross acceleration provision");
(7) events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary (the "bankruptcy provisions");
(8) any judgment or decree for the payment of money in excess of $10.0
million is entered against the Company or a Significant Subsidiary,
remains outstanding for a period of 60 days following the judgment and
is not discharged, waived or stayed within 10 days after notice (the
"judgment default provision"); or
(9) the Holdings Guaranty or any Subsidiary Guaranty ceases to be in full
force and effect (other than in accordance with the terms of the
Holdings Guaranty or such Subsidiary Guaranty) or Holdings or any
Subsidiary Guarantor denies or disaffirms its obligations under the
Holdings Guaranty or its Subsidiary Guaranty, as the case may be.
However, a default under clauses (4), (5) and (8) will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount of
the outstanding notes notify the Company of the default and the Company does not
cure the default within the time specified after receipt of the notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding notes may declare the
principal of and accrued but unpaid interest on all the notes to be due and
payable. Upon such a declaration, the principal and accrued but unpaid interest
shall be due and payable immediately; provided, however, that if upon the
declaration there are any amounts outstanding under the Credit Agreement and the
amounts under the Credit Agreement have not been accelerated, the principal and
accrued but unpaid interest shall be due and payable upon the earlier of the
time those amounts are accelerated or five Business Days after receipt by the
Company and the Representative under the Credit Agreement of the declaration. If
an Event of Default relating to events of bankruptcy, insolvency or
reorganization of the Company occurs and is continuing, the principal of and
interest on all the notes will automatically become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holders of the notes. Under the Indenture, the holders of a majority in
principal amount of the outstanding notes may be able to rescind the
acceleration with respect to the notes and its consequences.
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Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee is
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders of the notes unless the
holders have offered to the Trustee reasonable indemnity or security against any
loss, liability or expense. Except to enforce the right to receive payment of
principal, premium, if any, or interest when due, no holder of a note may pursue
any remedy with respect to the Indenture or the notes unless:
(1) the holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding notes
have requested the Trustee to pursue the remedy;
(3) the holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity; and
(5) the holders of a majority in principal amount of the outstanding notes
have not given the Trustee a direction inconsistent with the request
within the 60-day period.
Subject to certain restrictions, the holders of a majority in principal amount
of the outstanding notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder of a note or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the notes.
In addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after their
occurrence, written notice of any event which would constitute specified
Defaults, their status and what action the Company is taking or proposes to take
in response.
AMENDMENTS AND WAIVERS
The Indenture may be amended with the consent of the holders of a majority
in principal amount of the notes then outstanding (including consents obtained
in connection with a tender offer or exchange for the notes) and any past
default or compliance with any provisions may also be waived with the consent of
the holders of a majority in principal amount of the notes then outstanding.
However, without the consent of each holder of an outstanding note affected, no
amendment may, among other things:
(1) reduce the amount of notes whose holders must consent to an amendment;
(2) reduce the rate of or extend the time for payment of interest on any
note;
(3) reduce the principal of or extend the Stated Maturity of any note;
(4) reduce the amount payable upon the redemption of any note or change the
time at which any note may be redeemed as described under "--Optional
Redemption" above;
(5) make any note payable in money other than that stated in the note;
(6) impair the right of any holder of the notes to receive payment of
principal of and interest on the holder's notes on or after the due
dates of the notes or to institute suit for the enforcement of any
payment on or with respect to the holder's notes;
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(7) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions;
(8) make any change to the subordination provisions of the Indenture that
would adversely affect the Noteholders; or
(9) make any change in the Holdings Guaranty or any Subsidiary Guaranty
that would adversely affect the Noteholders.
Without the consent of any holder of the notes, the Company and Trustee may
amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated notes in addition to
or in place of certificated notes (provided that the uncertificated notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated notes are described in Section 163(f)(2)(B)
of the Code), to add guarantees with respect to the notes, to release a
Subsidiary Guaranty when permitted by the Indenture, to secure the notes, to add
to the covenants of the Company for the benefit of the holders of the notes or
to surrender any right or power conferred upon the Company, to make any change
that does not adversely affect the rights of any holder of the notes or to
comply with any requirement of the SEC in connection with the qualification of
the Indenture under the Trust Indenture Act. However, no amendment may be made
to the subordination provisions of the Indenture that adversely affects the
rights of any holder of Senior Indebtedness then outstanding unless the holders
of the Senior Indebtedness (or their Representative) consent to such change.
The consent of the holders of the notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if the consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the notes a notice briefly describing the
amendment. However, the failure to give the notice to all holders of the notes,
or any defect in providing the notice, will not impair or affect the validity of
the amendment.
TRANSFER
The notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable for transfers and exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the notes
and the Indenture ("legal defeasance"), except for obligations, respecting the
defeasance trust and obligations to register the transfer or exchange of the
notes, to replace mutilated, destroyed, lost or stolen notes and to maintain a
registrar and paying agent in respect of the notes. The Company at any time may
terminate its obligations under "--Change of Control" and under the covenants
described under "--Certain Covenants" (other than the covenant described under
"--Merger and Consolidation"), the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Significant Subsidiaries
and the judgment default provision described under "--Defaults" above and the
limitations contained in clause (3) of the first paragraph under "--Certain
Covenants--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the notes may not be accelerated because of an
Event of Default specified in clause (4), (6), (7) (with respect only to
Significant Subsidiaries) or (8) under "--Defaults" above or because of the
failure of the Company to comply with clause (3) under "--Certain
Covenants--Merger and Consolidation" above. If the Company exercises its legal
defeasance option or its covenant defeasance option, Holdings and each
Subsidiary Guarantor will be released from all of its obligations under the
Holdings Guaranty or its Subsidiary Guaranty, as the case may be.
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In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
U.S. Federal income tax purposes as a result of the deposit and defeasance and
will be subject to U.S. Federal income tax on the same amounts and in the same
manner and at the same times as would have been the case if the deposit and
defeasance had not occurred (and, in the case of legal defeasance only, the
Opinion of Counsel must be based on a ruling of the Internal Revenue Service or
other change in applicable U.S. Federal income tax law).
CONCERNING THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent under the
Notes.
The Holders of a majority in principal amount of the outstanding Notes
generally will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee. The Indenture
provides that if an Event of Default occurs (and is not cured), the Trustee will
be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to those provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any Holder of Notes, unless the Holder
offers to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense and then only to the extent required by the terms of
the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required to apply.
CERTAIN DEFINITIONS
"Acquisition" means the acquisition by the Company of selected portions of
the semiconductor business of Harris substantially as described in the offering
circular used in connection with the initial sale of the old notes.
"Additional Assets" means (1) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business, (2) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
the Capital Stock by the Company or another Restricted Subsidiary or (3) Capital
Stock constituting a minority interest in any Person that at the time is a
Restricted Subsidiary; provided, however, that any Restricted Subsidiary
described in clauses (2) or (3) above is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants--Limitation on
Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase the Capital Stock (whether or not currently exercisable) and any Person
who would be an Affiliate of the beneficial owner pursuant to the first sentence
hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (1) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary), (2) all or substantially all the assets of any division
or line of business of the Company or any Restricted Subsidiary or (3) any other
assets of the Company or any Restricted Subsidiary
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outside of the ordinary course of business of the Company or the Restricted
Subsidiary (other than, in the case of (1), (2) and (3) above, (w) a disposition
by a Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (x) for purposes of the covenant
described under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, a disposition that constitutes a Restricted Payment
permitted by the covenant described under "--Certain Covenants--Limitation on
Restricted Payments", (y) a disposition of shares of Capital Stock of Anshan
Harris Broadcast Equipment Co. Ltd. and Harris Semiconductor (Suzhou) Co. Ltd.
and (z) disposition of assets with a fair market value of less than $1,000,000).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in the
Sale/Leaseback Transaction (including any period for which the lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (1) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of the Indebtedness or
redemption or similar payment with respect to the Preferred Stock multiplied by
the amount of the payment by (2) the sum of all of the payments.
"Bank Indebtedness" means all Obligations under the Credit Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee duly authorized to act on behalf of the Board.
"Business Day" means each day other than a Saturday, Sunday or a day on
which commercial banking institutions are authorized or required by law to close
in New York City.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by the
obligation shall be the capitalized amount of the obligation determined in
accordance with GAAP; and the Stated Maturity of the obligation shall be the
date of the last payment of rent or any other amount due under the lease prior
to the first date upon which the lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into equity of the Person.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (a) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days (or, if less, the
number of days after the end of the fiscal quarter as the consolidated financial
statements of the Company shall be provided to the Noteholders pursuant to the
Indenture) prior to the date of the determination to (b) Consolidated Interest
Expense for the four fiscal quarters; provided, however, that
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of the period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and
Consolidated Interest Expense for the period shall be calculated after
giving effect on a pro forma basis to the Indebtedness as if the
Indebtedness had been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of the new Indebtedness as if the
discharge had occurred on the first day of the period;
(2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of the period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless the
Indebtedness has been permanently repaid and has not been replaced) on the
date of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for
the period shall be calculated on a pro forma basis as if the discharge had
occurred on the first day of the period and as if the Company or the
Restricted
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Subsidiary has not earned the interest income actually earned during the
period on cash or Temporary Cash Investments used to repay, repurchase,
defease or otherwise discharge the Indebtedness;
(3) if since the beginning of the period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for that
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of the Asset
Disposition for the period, or increased by an amount equal to the EBITDA
(if negative), directly attributable thereto for the period and
Consolidated Interest Expense for the period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company
and its continuing Restricted Subsidiaries in connection with the Asset
Disposition for the period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for the period
directly attributable to the Indebtedness of the Restricted Subsidiary to
the extent the Company and its continuing Restricted Subsidiaries are no
longer liable for the Indebtedness after the sale);
(4) if since the beginning of the period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring
in connection with a transaction requiring a calculation to be made under
this prospectus and including the Acquisition, which constitutes all or
substantially all of an operating unit of a business, EBITDA and
Consolidated Interest Expense for the period shall be calculated after
giving pro forma effect to the Investment or acquisiton (including the
Incurrence of any Indebtedness) as if the Investment or acquisition
occurred on the first day of the period (the pro forma calculation, in the
case of the Acquisition, to be on substantially the same bases as the pro
forma adjustments set forth in the offering circular used in connection
with the initial sale of the Notes); and
(5) if since the beginning of the period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning of the period) shall have
made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if
made by the Company or a Restricted Subsidiary during such period, EBITDA
and Consolidated Interest Expense for the period shall be calculated after
giving pro forma effect to the Asset Disposition, Investment or acquisition
as if it occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition or disposition of assets, the amount of income or earnings relating
to the acquisition or disposition and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred in connection with the
acquisition or disposition, the pro forma calculations shall be determined in
good faith by a responsible financial or accounting Officer of the Company (and
shall include any applicable Pro Forma Cost Savings). If any Indebtedness bears
a floating rate of interest and is being given pro forma effect, the interest of
that Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if the
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Current Liabilities" as of the date of determination means
the aggregate amount of liabilities of the Company and its consolidated
Restricted Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), on a consolidated basis, after
eliminating (1) all intercompany items between the Company and any Restricted
Subsidiary and (2) all current maturities of long-term Indebtedness, all as
determined in accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in the total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication, (1)
interest expense attributable to Capital Lease Obligations and the interest
expense attributable to leases constituting part of a Sale/Leaseback
Transaction, (2) amortization of debt discount and debt issuance cost, (3)
capitalized interest, (4) non-cash interest expenses, (5) commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (6) net costs associated with Hedging Obligations
involving any Interest Rate Agreement (including amortization of fees), (7)
Preferred Stock dividends accrued by consolidated Restricted Subsidiaries on of
all Preferred Stock held by Persons other than the Company or
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a Restricted Subsidiary, (8) interest incurred in connection with Investments in
discontinued operations, (9) interest accruing on any Indebtedness of any other
Person to the extent that Indebtedness is Guaranteed by (or secured by the
assets of) the Company or any Restricted Subsidiary and (10) the cash
contributions to any employee stock ownership plan or similar trust to the
extent those contributions are used by the plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by the plan or trust and less, to the extent included in the total interest
expense, the amortization during the period of capitalized financing costs.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in the Consolidated Net Income:
(1) any net income of any Person (other than the Company) if the
Person is not a Restricted Subsidiary, except that (A) subject to the
exclusion contained in clause (4) below, the Company's equity in the net
income of the Person for the period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by the
Person during the period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained
in clause (3) below) and (B) the Company's equity in a net loss of the
Person for the period shall be included in determining such Consolidated
Net Income;
(2) any net income (or loss) of any Person acquired by the Company or
a Subsidiary in a pooling of interests transaction for any period prior to
the date of the acquisition;
(3) any net income of any Restricted Subsidiary if the Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by the Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject
to the exclusion contained in clause (4) below, the Company's equity in the
net income of any Restricted Subsidiary for the period shall be included in
the Consolidated Net Income up to the aggregate amount of cash that could
have been distributed by the Restricted Subsidiary consistent with the
restrictions during the period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to another Restricted Subsidiary, to
the limitation contained in this clause) and (B) the Company's equity in a
net loss of any such Restricted Subsidiary for the period shall be included
in determining such Consolidated Net Income;
(4) any gain (or loss) realized upon the sale or other disposition of
any assets of the Company or its consolidated Subsidiaries (including
pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (or
loss) realized upon the sale or other disposition of any Capital Stock of
any Person;
(5) extraordinary gains or losses; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"--Certain Covenants--Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent those dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof.
"Credit Agreement" means the Credit Agreement entered into by and among
Holdings, the Company, its Subsidiaries, the lenders referred to in the Credit
Agreement and Credit Suisse First Boston, Salomon Smith Barney Inc. and Morgan
Guaranty Trust Company, as agents, together with related documents (including
without limitation the term loans and revolving loans under the Credit
Agreement, any guarantees and security documents), as amended, extended,
renewed, restated, supplemented or otherwise modified (in whole or in part, and
without limitation as to amount, terms, conditions, covenants and other
provisions) from time to time, and any agreement (and related document)
governing Indebtedness incurred to refund or refinance, in whole or in part, the
borrowings and commitments then outstanding or permitted to be outstanding under
the Credit Agreement or a successor credit agreement, whether by the same or any
other lender or group of lenders.
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"Currency Agreement" means regarding a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which that
Person is a party or beneficiary.
"CVC" means Citicorp Venture Capital Ltd., a New York corporation.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (1) the Bank Indebtedness; provided,
however, that Bank Indebtedness outstanding under any Credit Agreement that
Refinanced in part, but not in whole, the previously outstanding Bank
Indebtedness shall only constitute Designated Senior Indebtedness if it meets
the requirements of succeeding clause (2); and (2) any other Senior Indebtedness
of the Company which, at the date of determination, has an aggregate principal
amount outstanding of, or under which, at the date of determination, the holders
of that Senior Indebtedness are committed to lend up to, at least $10.0 million
and is specifically designated by the Company in the instrument evidencing or
governing the Senior Indebtedness as "Designated Senior Indebtedness" for
purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (1) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(2) is convertible or exchangeable for Indebtedness or Disqualified Stock or (3)
is redeemable at the option of the holder, in whole or in part, in each case on
or prior to the first anniversary of the Stated Maturity of the Notes; provided,
however, that any Capital Stock that would not constitute Disqualified Stock but
for provisions thereof giving holders the right to require the Person to
repurchase or redeem the Capital Stock upon the occurrence of an "asset sale" or
"change of control" occurring prior to the first anniversary of the Stated
Maturity of the Notes shall not constitute Disqualified Stock if the "asset
sale" or "change of control" provisions applicable to the Capital Stock are not
more favorable to the holders of the Capital Stock than the provisions described
under "--Change of Control" and under "--Certain Covenants--Limitation on Sales
of Assets and Subsidiary Stock."
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating the Consolidated Net Income:
(1) all income tax expense of the Company and its consolidated
Restricted Subsidiaries;
(2) depreciation expense of the Company and its consolidated
Restricted Subsidiaries;
(3) amortization expense of the Company and its consolidated
Restricted Subsidiaries (excluding amortization expense attributable to a
prepaid cash item that was paid in a prior period);
(4) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any non-cash charge to the extent that
it represents an accrual of or reserve for cash expenditures in any future
period); and
(5) foreign exchange losses with respect to the Malaysian Ringgit
incurred prior to the Issue Date,
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion)
that the net income of the Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by the Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to the
Restricted Subsidiary or its stockholders.
"Equity Offering" means a primary offering of Capital Stock (other than
Disqualified Stock) of the Company other than any sale of Capital Stock to an
Affiliate of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Foreign Subsidiary" means any Restricted Subsidiary not created or
organized in the United States or any state of the United States and that
conducts substantially all its operations outside of the United States.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (1)
the opinions and pronouncements of the Accounting Principles Board of
102
the American Institute of Certified Public Accountants, (2) statements and
pronouncements of the Financial Accounting Standards Board, (3) the other
statements by the other entity as approved by a significant segment of the
accounting profession and (4) the rules and regulations of the SEC governing the
inclusion of financial statements (including pro forma financial statements) in
periodic reports required to be filed pursuant to Section 13 of the
Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of the Person (1) to
purchase or pay (or advance or supply funds for the purchase or payment of) the
Indebtedness or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (2) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect the obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the Trustee, pursuant to which a successor to Holdings or a Subsidiary
Guarantor becomes subject to the applicable terms and conditions of the
Indenture.
"Harris" means Harris Corporation, a Delaware corporation.
"Harris Loan Obligations" means the loans made by agencies of the
Commonwealth of Pennsylvania to Harris outstanding on the Issue Date in an
aggregate amount not to exceed $4.6 million.
"Hedging Obligations" of any Person means the obligations of that Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Holdings" means Intersil Holding Corporation, a Delaware corporation, and
any successor corporation.
"Holdings Guaranty" means the Guarantee by Holdings of the Company's
obligations with respect to the Notes contained in the Indenture.
"Holdings PIK Note" means the subordinated PIK note due 2010 in the
original principal amount of $90 million with an annual rate of interest of
11.13% issued by Holdings in accordance with the provisions of the Master
Transaction Agreement dated as of June 2, 1999 among Holdings, the Company and
Harris.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time the Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by that
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal of and premium (if any) on (A) indebtedness of the
Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which the
Person is responsible or liable;
(2) all Capital Lease Obligations of the Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by the Person;
(3) all obligations of the Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of the Person
and all obligations of the Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(4) all obligations of the Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (1) through (3)
above) entered into in
/R>
103
the ordinary course of business of the Person to the extent the letters of
credit are not drawn upon or, if and to the extent drawn upon, the drawing
is reimbursed no later than the tenth Business Day following payment on the
letter of credit);
(5) the amount of all obligations of the Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of the Person, the liquidation preference
with respect to, any Preferred Stock (but excluding, in each case, any
accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5)
of other Persons and all dividends of other Persons for the payment of
which, in either case, the Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6)
of other Persons secured by any Lien on any property or asset of the Person
(whether or not the obligation is assumed by the Person), the amount of the
obligation being deemed to be the lesser of the value of the property or
assets or the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at the date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at the date; provided, however, that
the amount outstanding at any time of any Indebtedness issued with original
issue discount shall be deemed to be the face amount of the Indebtedness less
the remaining unamortized portion of the original issue discount of the
indebtedness at the time as determined in accordance with GAAP.
"Interest Rate Agreement" means regarding any Person any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Person against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by that Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments",
(1) "Investment" shall include the portion (proportionate to the
Company's equity interest in the Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that the
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of the Subsidiary as a Restricted Subsidiary, the
Company shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the
Company's "Investment" in the Subsidiary at the time of such redesignation
less (y) the portion (proportionate to the Company's equity interest in the
Subsidiary) of the fair market value of the net assets of the Subsidiary at
the time of the redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the old notes were originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease of a similar nature).
"Malaysian Business" means the business conducted by the Company in
Malaysia on the Issue Date and any business developed thereafter using
substantially the same assets.
"Net Available Cash" from an Asset Disposition means cash payments received
from the disposition (including any cash payments received by way of deferred
payment of principal under a note or installment receivable or otherwise and
proceeds from the sale or other disposition of any securities received as
consideration, but only as and when received, but excluding any other
consideration received in the form of
104
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets or received in any other non-cash form), in each
case net of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, as a
consequence of the Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any
assets subject to the Asset Disposition, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect to the
assets, or which must by its terms, or in order to obtain a necessary
consent to the Asset Disposition, or by applicable law be, repaid out of
the proceeds from the Asset Disposition;
(3) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of
the Asset Disposition; and
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after the Asset
Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of the issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with the issuance or sale and net of taxes paid or payable as a
result thereof.
"Obligations" means with respect to any Indebtedness all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
and other amounts payable under the documentation governing such Indebtedness.
"Permitted Holders" means (1) CVC, (2) any officer, employee or director of
CVC or any trust, partnership or other entity established solely for the benefit
of the officers, employees or directors, (3) any officer, employee or director
of Holdings, the Company or any Subsidiary or any trust, partnership or other
entity established solely for the benefit of the officers, employees or
directors and (4) in the case of any individual, any Permitted Transferee of the
individual (as defined in the Stockholders Agreement), except a Permitted
Transferee by virtue of Section 4.4(b)(iv) of the Stockholders Agreement
provided, however, that in no event shall individuals collectively be deemed to
be "Permitted Holders" of more than 30% of the total voting power of Holdings or
the Company.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in
(1) a Restricted Subsidiary or a Person that will, upon the making of
the Investment, become a Restricted Subsidiary; provided, however, that the
primary business of the Restricted Subsidiary is a Related Business;
(2) another Person if as a result of the Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that the Person's primary business is a Related
Business;
(3) Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that the trade terms may include those concessionaire trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of the advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or the Restricted
Subsidiary;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
105
(8) any Person to the extent the Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "--Certain Covenants--Limitation
on Sales of Assets and Subsidiary Stock";
(9) Currency Agreements and Interest Rate Agreements entered into in
the ordinary course of the Company's business and otherwise in compliance
with the Indenture;
(10) the Permitted Joint Venture; provided, however, such Investment
is received in exchange for the Malaysian Business or paid for with the
proceeds from a disposition of the Malaysian Business; and
(11) so long as no Default shall have occurred and be continuing (or
result therefrom), any Person engaged in a Related Business in an aggregate
amount which, when added together with the amount of all the Investments
made under this clause (11) which at such time have not been repaid through
repayments of loans or advances or other transfers of assets, does not
exceed the greater of $25.0 million and, after the first anniversary of the
Issue Date, 5.0% of Total Assets (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value).
"Permitted Joint Venture" means any joint venture to which the Company or
any Restricted Subsidiary is a party, which includes the Malaysian Business,
whether the Malaysian Business is sold or contributed to the joint venture.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any government agency or political subdivision or
any other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of the
Person, over shares of Capital Stock of any other class of the Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Pro Forma Cost Savings" means, with respect to any period, the reduction
in costs that were
(1) directly attributable to an asset acquisition and calculated on a
basis that is consistent with Regulation S-X under the Securities Act in
effect and applied as of the Issue Date, or
(2) implemented by the business that was the subject of the asset
acquisition within six months of the date of the asset acquisition and that
are supportable and qualifiable by the underlying accounting records of
such business,
as if, in the case of each of clause (1) and (2), all of the reductions in costs
had been effected as of the beginning of the relevant period.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (1) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being Refinanced, (2) the Refinancing Indebtedness has an Average
Life at the time the Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being Refinanced and (3) the
Refinancing Indebtedness has an aggregate principal amount (or if Incurred with
original issue discount, an aggregate issue price) that is equal to or less than
the aggregate principal amount (or if Incurred with original issue discount, the
aggregate accreted value) then outstanding or committed (plus fees and expenses,
including any premium and defeasance costs) under the Indebtedness being
Refinanced; provided further, however, that Refinancing Indebtedness shall not
include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the
Company or (y) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
106
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company and the Restricted Subsidiaries on the Issue
Date.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company; provided, however, that if and for
so long as any Senior Indebtedness lacks the representative, then the
Representative for the Senior Indebtedness shall at all times be the holders of
a majority in outstanding principal amount of the senior Indebtedness.
"Restricted Payment" with respect to any Person means
(1) the declaration or payment of any dividends or any other
distributions of any sort in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving the
Person) or similar payment to the direct or indirect holders of its Capital
Stock (other than dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and dividends or distributions
payable solely to the Company or a Restricted Subsidiary, and other than
pro rata dividends or other distributions made by a Subsidiary that is not
a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other
than a corporation));
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated Obligations
(other than the purchase, repurchase or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition); or
(4) the making of any Investment in any Person (other than a Permitted
Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Revolving Credit Facilities" means the revolving credit facility contained
in the Credit Agreement and any other facility or financing arrangement that
Refinances or replaces, in whole or in part, any of those revolving credit
facilities.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or later acquired by which the Company or a Restricted Subsidiary
transfers the property to a Person and the Company or a Restricted Subsidiary
leases it from the Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Indebtedness" of any Person means all (1) Bank Indebtedness of or
guarantees by the Person, whether outstanding on the Issue Date or thereafter
Incurred, and (2) Indebtedness of the Person, whether outstanding on the Issue
Date or thereafter Incurred, including interest on, (A) Indebtedness for money
borrowed, (B) Indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which the Person is responsible or liable
and (C) Hedging Obligations, unless, in the case of (1) and (2), in the
instrument creating or evidencing the same or under which the same is
outstanding, it is provided that the obligations are subordinate in right of
payment to the obligations under the Notes; provided, however, that Senior
Indebtedness shall not include (i) any obligation of the Person to any
subsidiary of such Person, (ii) any liability for Federal, state, local or other
taxes owed or owing by the Person, (iii) any accounts payable or other liability
to trade creditors arising in the ordinary course of business (including
guarantees thereof or instruments evidencing such liabilities), (iv) any
Indebtedness of the Person (and any accrued and unpaid interest) which is
subordinate or junior by its terms to any other Indebtedness or other obligation
of the Person (including, in the case of the Company, the Notes and, in the case
of Holdings, the 13.5% Subordinated Holding PIK Note and the Holdings PIK Note)
or (v) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Indenture (but as to any the Indebtedness under the
Credit Agreement, no violation shall be deemed to exist if the Representative of
the Lenders thereunder shall have received an officers' certificate of the
Company to the effect that the issuance of such Indebtedness does not violate
the covenant and setting forth in reasonable detail the reasons therefor).
107
"Senior Subordinated Indebtedness" means (1) with respect to the Company,
the Notes and any other Indebtedness of the Company that specifically provides
that the Indebtedness is to rank junior to the Notes in right of payment and is
not subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness of the Company and
(2) with respect to Holdings or a Subsidiary Guarantor, their respective
Guarantees of the Notes and any other Indebtedness of the Person that
specifically provides that the Indebtedness rank junior to the Guaranty in
respect of payment and is not subordinated by its terms in respect of payment to
any Indebtedness or other obligation of the Person which is not Senior
Indebtedness of the Person; provided, however, that Senior Subordinated
Indebtedness shall not include, in the case of Holdings, the 13.5% Subordinated
Holding PIK Note and the Holdings PIK Note.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in the security as the fixed date on which the final payment of principal of the
security is due and payable, including under any mandatory redemption provision
(but excluding any provision providing for the repurchase of the security at the
option of the holder upon the happening of any contingency unless the
contingency has occurred).
"Stockholders' Agreement" means the Securities Purchase and Holders
Agreement among the stockholders of Holdings, as in effect on the Issue Date.
"Subordinated Obligation" means any Indebtedness of the Company or any
Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) which is subordinate or junior in right of payment to, in the case of
the Company, the Notes or, in the case of the Subsidiary Guarantor, its
Subsidiary Guaranty, under a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees is at the time owned or
controlled, directly or indirectly, by (1) the Person, (2) the Person and one or
more Subsidiaries of such Person or (3) one or more Subsidiaries of the Person.
"Subsidiary Guarantor" means any subsidiary of the Company that Guarantees
the Company's obligations regarding the Notes.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
"Tax Sharing Agreement" means any tax sharing agreement between the Company
and Holdings or any other Person with which the Company is required to, or is
permitted to, file a consolidated, combined or unitary tax return or with which
the Company is or could be part of a consolidated group for tax purposes.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of
America or any agency of the United States of America or obligations
guaranteed by the United States of America or any agency of the United
States of America;
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
issued by a bank or trust company which is organized under the laws of the
United States of America, any state of the United States of America or any
foreign country recognized by the United States, and which bank or trust
company has capital, surplus and undivided profits aggregating in excess of
$50.0 million (or the foreign currency equivalent) and has outstanding debt
which is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined
in Rule 436 under the Securities Act) or any money-market fund sponsored by
a registered broker dealer or mutual fund distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America
108
with a rating at the time as of which any investment therein is made of
"P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Ratings Group; and
(5) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority, and rated at least "A" by
Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
"Term Loan Facilities" means the term loan facilities contained in the
Credit Agreement and any other facility or financing arrangement that Refinances
in whole or in part any such term loan facility.
"13.5% Subordinated Holding PIK Note" means the subordinated PIK note due
2010 in the original principal amount of $30.0 million issued with an annual
rate of interest of 13.5% by Holdings to Citicorp Mezzanine Partners, L.P.
"Total Assets" means the total consolidated assets (calculated in
accordance with GAAP) of the Company and its Restricted Subsidiaries, as set
forth on the Company's most recent consolidated balance sheet.
"Unrestricted Subsidiary" means (1) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (2) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "--Certain Covenants--Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to the designation (x) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"--Certain Covenants--Limitation on Indebtedness" and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to the designation and an
Officers' Certificate certifying that the designation complied with the
foregoing provisions.
"U.S. Dollar Equivalent" means relating to any monetary amount in a
currency other than U.S. dollars, at any time for determination thereof, the
amount of U.S. dollars obtained by converting the foreign currency involved in
the computation into U.S. dollars at the spot rate for the purchase of U.S.
dollars with the applicable foreign currency as published in The Wall Street
Journal in the "Exchange Rates" column under the heading "Currency Trading" on
the date two Business Days prior to the determination.
Except as described under "--Certain Covenants--Limitation on
Indebtedness," whenever it is necessary to determine whether the Company has
complied with any covenant in the Indenture or a Default has occurred and an
amount is expressed in a currency other than U.S. dollars, the amount will be
treated as the U.S. Dollar Equivalent determined as of the date the amount is
initially determined in the currency.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in the obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of the Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
SAME-DAY PAYMENT
The Indenture requires that payments in respect of the notes (including
principal, premium and interest) be made by wire transfer of immediately
available U.S. dollar funds to the accounts specified by the holders or, if no
account is specified, by mailing a check to each holder's registered address.
109
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion sets forth the opinion of Dechert Price & Rhoads
regarding the material U.S. Federal income and estate tax aspects of the
exchange offer and the ownership and disposition of the new notes. This
discussion contains general information only and is limited in the following
ways:
o The discussion only covers holders of the new notes that receive the new
notes in the exchange offer and that purchased the old notes for cash.
o The discussion only covers holders of the notes that hold both the old
notes and the new notes as capital assets (that is, for investment
purposes), and that do not have a special tax status.
o The discussion covers only the general tax consequences to holders of the
notes. It does not cover tax consequences that depend upon a holder's
individual tax circumstances.
o The discussion is based on current law. Changes in the law may change the
tax treatment of the exchange offer and the notes on a prospective or
retroactive basis.
o The discussion does not cover state, local or foreign law.
o The discussion does not apply to holders owning 10% or more of our voting
stock, or corporate holders that are controlled foreign corporations with
respect to us.
We have not and will not seek any rulings or opinions from the Internal
Revenue Service with respect to the matters discussed below. There can be no
assurance that the Internal Revenue Service will not take positions about the
tax treatment of the exchange offer or the notes which are different from those
that we discuss.
THIS DISCUSSION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL TAXATION
THAT MAY BE RELEVANT TO THE DECISION TO EXCHANGE OLD NOTES FOR NEW NOTES. EACH
INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING THE APPLICATION OF
THE FEDERAL TAX LAWS AND OTHER LAWS TO ITS PARTICULAR SITUATION BEFORE
DETERMINING WHETHER TO EXCHANGE OLD NOTES FOR NEW NOTES.
The tax consequences depend upon whether you are a U.S. holder or a
non-U.S. holder. A U.S. holder is:
o a citizen or resident of the United States;
o a corporation or other entity taxable as a corporation created or
organized under U.S. law (Federal or state);
o an estate the income of which is subject to U.S. Federal income taxation
regardless of its sources;
o a trust if a U.S. court is able to exercise primary jurisdiction over
administration of the trust and one or more U.S. persons have authority
to control all substantial decisions of the trust; or
o any other person whose worldwide income and gain is otherwise subject to
U.S. Federal income taxation on a net basis.
A non-U.S. holder is a holder that is not a U.S. holder.
TAX CONSEQUENCES TO U.S. HOLDERS
The Exchange Offer
The exchange of old notes for new notes in the exchange offer will not be a
taxable event for holders. Accordingly, if you exchange your old notes for new
notes pursuant to the exchange offer you:
o will not recognize gain or loss in connection with the exchange;
o will have the same tax basis in the new notes that you had in the old
notes immediately prior to the exchange; and
o will have the same holding period in the new notes that you had in the
old notes immediately prior to the exchange.
110
Interest
Under applicable Treasury Regulations, the old notes are not treated as
being issued with original issue discount because the difference between an old
note's stated redemption price at maturity (namely, $1,000 per note) and its
issue price (namely $998.64) is considered to constitute de minimis original
issue discount.
The issue price of the note is based on an allocation of the purchase price for
a unit between the note and the warrant.
A new note received in the exchange offer for an old note will have
identical de minimis original issue discount to the old note for which it is
exchanged. As a result:
o If you are a cash method taxpayer (including most individual holders),
you must report the stated interest on the new note in your income when
it is received by you.
o If you are an accrual method taxpayer, you must report the stated
interest on the new note in your income as it accrues.
o You will not be required to include the de minimis original issue
discount in your income as it accrues. Instead, you will include such de
minimis original issue discount in your computation of gain or loss when
you sell, exchange or otherwise dispose of the new note (including by way
of retirement or redemption).
A purchaser of a note who purchases the note at a price less than the
stated redemption price at maturity of the note (namely, $1,000 per note) will
generally be acquiring the note with "market discount". While principal payments
on a note are not normally taxable, a portion of each principal payment will
then be treated as the receipt of market discount, which would be taxable as
ordinary interest income. Apart from the foregoing, other potential adverse
effects can result from the presence of market discount (such as a potential
limitation on the ability to deduct interest on debt that may have been incurred
to acquire a note).
Under certain circumstances described above, we will be required to pay
additional interest on the new notes if we fail to comply with certain of our
obligations under the Registration Rights Agreement. See "Description of the
Notes--Registered Exchange Offer; Registration Rights." This additional interest
should be treated as a payment of additional interest on the new notes for U.S.
Federal income tax purposes, with the following results:
o If you are a cash method taxpayer (including most individual holders),
such additional interest will be taxable to you as ordinary income when
it is received by you.
o If you are an accrual method taxpayer, such additional interest will be
taxable to you as ordinary income as it accrues.
It is possible, however, that the Internal Revenue Service may take a different
position, in which case you might be required to include such additional
interest in income as it accrues or becomes fixed (regardless of your regular
method of accounting).
Sale, Exchange or Retirement of the Notes
On a sale, exchange, retirement or other disposition of a note:
o You will have taxable gain or loss equal to the difference between the
tax basis of the note and the amount received on the sale, exchange,
retirement or other disposition.
o Any gain or loss will generally be capital gain or loss, and will be long
term capital gain or loss if the note was held for more than one year,
except to the extent the gain is market discount, which is taxable as
ordinary income.
o If you sell the note between interest payment dates, a portion of the
amount you receive reflects stated interest that has accrued on the note
but has not yet been paid by the sale date. That amount is treated as
ordinary interest income and not as sale proceeds.
111
Information Reporting and Backup Withholding
Under the tax rules concerning information reporting to the Internal
Revenue Service:
o We are required to provide information to the Internal Revenue Service
concerning interest and redemption proceeds we pay to you on notes held
by you, unless an exemption applies.
o Similarly, unless an exemption applies, you are required to provide us
with a correct taxpayer identification number for our use in reporting
information to the Internal Revenue Service. If you are an individual,
this is your social security number. You are also required to comply with
other Internal Revenue Service requirements concerning information
reporting.
o If you are subject to these requirements but do not comply, we are
required to withhold 31% of all amounts payable to you on the notes
(including principal payments). If we do withhold part of a payment, you
may use the withheld amount as a credit against your Federal income tax
liability.
o All U.S. holders that are individuals are subject to these requirements.
Certain U.S. holders, including all corporations, tax-exempt
organizations and individual retirement accounts, are exempt from these
requirements.
Withholding Taxes on the New Notes
If you are a non-U.S. holder, payments of principal and interest on the new
notes generally will not be subject to U.S. withholding taxes. However, in order
for the exemption from withholding taxes to apply, you must meet the following
requirements:
o As the beneficial owner of a new note, you must provide a statement to
the effect that you are not a U.S. holder. This statement is generally
made on Internal Revenue Service Form W-8. You should consult your own
tax advisor about the specific method to satisfy this requirement. The
procedures for satisfying this requirement will change on January 1,
2001.
o You must not be a bank that is making a loan in the ordinary course of
its business.
Non-U.S. holders that do not qualify for exemption from withholding with
respect to payments of principal and interest on the new notes generally will be
subject to withholding of U.S. Federal income tax at a rate of 30%, or lower
applicable treaty rate (subject to compliance with certain reporting rules), on
any interest payments.
Sale, Exchange or Redemption of New Notes
If you sell or otherwise dispose of a new note, you generally will not be
subject to U.S. Federal income tax on any gain unless:
o The gain is effectively connected with a trade or business that you
conduct in the U.S. or, if a tax treaty applies, is attributable to a
U.S. permanent establishment of the non-U.S. holder.
o You are an individual and are present in the U.S. for at least 183 days
during the calendar year in which you dispose of the new note and certain
other conditions are satisfied.
o You are required to pay tax pursuant to the provisions of U.S. tax law
applicable to certain U.S. expatriates.
U.S. Trade or Business
If you hold a new note in connection with a trade or business that you are
conducting in the U.S. or, if a tax treaty applies, the holding is attributable
to a U.S. permanent establishment of the non-U.S. holder:
o Any interest on the note generally will be subject to income tax as if
you were a U.S. holder.
o Any interest will be exempt from U.S. withholding tax as discussed above
as long as you submit to us a proper form, generally Internal Revenue
Service Form 4224, that includes certain required information. You should
consult your own tax advisor about how to satisfy this requirement. The
procedures for satisfying this requirement will change on January 1,
2001.
112
o If you are a corporation, you may be subject to a branch profits tax on
your earnings (with some adjustments) that are connected with your U.S.
trade or business, including earnings from the note. This tax is imposed
at a 30% rate, but may be reduced or eliminated by an applicable income
tax treaty (subject to compliance with certain reporting rules).
Estate Taxes
o New notes held by an individual non-U.S. holder who is neither a citizen
nor a domiciliary of the United States for U.S. Federal income tax
purposes at the time of such holder's death will not be subject to U.S.
Federal estate tax, provided that, at the time of death, the income from
such notes was not or would not have been effectively connected with a
U.S. trade or business of that individual and the individual qualified
for the exemption from U.S. Federal withholding tax (without regard to
the certification requirements) described above. See "Withholding Taxes
on the New Notes."
Information Reporting and Backup Withholding
U.S. rules concerning information reporting and backup withholding with
respect to the new notes are described above. You automatically avoid these
requirements when you provide the tax certifications needed to avoid withholding
tax on interest, as described above (unless we know, or an intermediate entity
knows, that the certification is false). See "Withholding Taxes on the New
Notes" above. Notwithstanding the foregoing, interest payments made to you will
be reported to the Internal Revenue Service on Form 1042-S.
If you dispose of a new note through a broker:
o You must provide the broker appropriate certification of your non-U.S.
status to avoid information reporting and backup withholding.
o If you do not provide such certification, and you use the U.S. office of
a broker, you may be subject to information reporting and backup
withholding.
o If you do not provide such certification, and you use the non-U.S. office
of a broker, you will not be subject to backup withholding. However, you
may be subject to information reporting depending on whether the broker
has certain connections to the U.S.
Backup withholding is not an additional tax. The tax liability of persons
subject to backup withholding will be reduced by the amount of the tax withheld.
If withholding results in an overpayment of taxes, a refund may be obtained,
provided that the required information is furnished to the Internal Revenue
Service. You should consult your tax advisor about the tax rules concerning
information reporting requirements and backup withholding.
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. EACH HOLDER OF
OLD NOTES THAT EXCHANGES OLD NOTES FOR NEW NOTES IN THE EXCHANGE OFFER SHOULD
CONSULT WITH ITS OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES (INCLUDING
APPLICABLE STATE, LOCAL AND FOREIGN TAX LAWS) TO SUCH HOLDER OF THE EXCHANGE
OFFER AND THE OWNERSHIP AND DISPOSITION OF THE NEW NOTES.
113
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, for a period of 180 days after the
expiration date of the exchange offer, we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until April 11, 2000 (90 days after the date of
this prospectus), all dealers effecting transactions in the new notes may be
required to deliver a prospectus.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such new notes. Any broker-dealer that
resells new notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date of the exchange offer,
we will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the Holders of the
notes) other than commissions or concessions of any brokers or dealers and will
indemnify the Holders of the Securities (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
114
LEGAL MATTERS
Certain legal matters regarding the validity of the new notes offered by
this prospectus will be passed upon for us by Dechert Price & Rhoads,
Philadelphia, Pennsylvania.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the Intersil Holding
Corporation (Successor) consolidated balance sheet at August 14, 1999 and the
consolidated financial statements of the semiconductor business of Harris
(Predecessor) at July 3, 1998 and July 2, 1999, and for each of the three years
in the period ended July 2, 1999, as set forth in their report. We have included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
As a result of the exchange offer, we will become subject to the
informational requirements of the Exchange Act. You may read and copy any
reports or other information filed by us at the Securities and Exchange
Commission's public reference room at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices located
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661 and Seven World Trade Center, 13th Floor, New York, NY 10048. Copies of
this material can be obtained from the Public Reference Section of the SEC upon
payment of fees prescribed by the SEC. You may call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information contained in the public
reference room. Our filings with the Securities and Exchange Commission will
also be available to the public from commercial document retrieval services and
at the Securities and Exchange Commission's Web site at "http://www.sec.gov."
Our duty to file supplementary and periodic information, documents and
reports under the Exchange Act shall be automatically suspended as to our fiscal
year beginning July 3, 1999. Accordingly, we will cease to file supplementary
and periodic information, documents and reports for our fiscal year beginning
July 3, 1999.
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act of 1933, covering the notes to be issued in the exchange offer
(Registration No. 333-90741). This prospectus, which is a part of the
registration statement, does not contain all of the information included in the
registration statement. Any statement made in this prospectus concerning the
contents of any contract, agreement or other document is not necessarily
complete. For further information regarding our company and the notes to be
issued in the exchange offer, please reference the registration statement,
including its exhibits. If we have filed any contract, agreement or other
document as an exhibit to the registration statement, you should read the
exhibit for a more complete understanding of the documents or matter involved.
Copies of the registration statement, including all related exhibits and
schedules, may be inspected without charge at the public reference facilities
maintained by the SEC, or obtained at prescribed rates from the Public Reference
Section of the SEC at the address set forth above. In addition, you may request
a copy of any of these filings, at no cost, by writing or telephoning us at the
following address or phone number: Intersil Corporation, 2401 Palm Bay Road NE,
Palm Bay, Florida 32905; the telephone number at that address is (321) 724-7000.
115
INDEX TO FINANCIAL STATEMENTS
INTERSIL HOLDING CORPORATION
PAGE
----
Independent Certified Public Accountants' Report............ F-2
Consolidated Statement of Operations and Comprehensive
Income.................................................... F-3
Consolidated Balance Sheet.................................. F-4
Consolidated Statement of Cash Flows........................ F-5
Consolidated Statement of Shareholders' Equity.............. F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
The Board of Directors
Intersil Holding Corporation
We have audited the accompanying consolidated balance sheet of Intersil Holding
Corporation (successor) as of August 14, 1999 (successor period) and the
consolidated balance sheets of the Harris Semiconductor Business ("Semiconductor
Business") (Predecessor), which is wholly owned by Harris Corporation, as of
July 2, 1999 and July 3, 1998 and the related consolidated statements of
operations, comprehensive income and cash flows for each of the three fiscal
years in the period ended July 2, 1999 and the six weeks ended August 13, 1999
(Predecessor period). Our audits also included the financial statement schedule
listed at Item 16. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
The accompanying Predecessor consolidated financial statements were prepared on
the basis of presentation as described in Note A. The results of operations are
not necessarily indicative of the results of operations that would be recorded
by Semiconductor Business on a stand-alone basis.
In our opinion, the successor consolidated balance sheet referred to above
presents fairly, in all material respects, the financial position of Intersil
Holding Corporation as of August 14, 1999. Further, in our opinion, the
Predecessor consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Semiconductor
Business at July 2, 1999 and July 3, 1998 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
July 2, 1999 and for the six weeks ended August 13, 1999, on the basis described
in Note A, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
Jacksonville, Florida Ernst & Young LLP
November 3, 1999
F-2
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
PREDECESSOR PREDECESSOR | SUCCESSOR
------------------------------------------- -------------------------------- | ---------------
|
FISCAL YEAR ENDED 13 WEEKS ENDED 6 WEEKS ENDED | 7 WEEKS ENDED
------------------------------------------- -------------- --------------- | ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 OCTOBER 2, AUGUST 13, 1999 | OCTOBER 1, 1999
1998 |
------------- ------------ ------------ -------------- --------------- | ---------------
|
(UNAUDITED) | (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
REVENUE |
Product sales............. $545,321 $576,836 $532,718 $122,549 $ 57,336 | $ 76,548
COSTS AND EXPENSES |
Cost of product sales..... 346,073 369,332 349,776 80,511 39,681 | 46,554
Research and |
development............ 75,208 75,125 67,079 14,779 8,499 | 8,398
Marketing................. 81,390 79,787 66,873 16,074 8,208 | 8,421
Administrative and |
general................ 17,924 18,397 17,125 5,194 2,700 | 2,186
Harris corporate expense |
allocation............. 9,960 9,962 9,303 2,133 1,164 | --
Intangible amortization... 2,291 2,292 2,414 573 326 | 1,418
In-process R&D charge..... -- -- -- -- -- | 20,796
-------- -------- -------- -------- ---- | --------
Operating income (loss)..... 12,475 21,941 20,148 3,285 (3,242) | (11,225)
Interest, net............. (595) (914) (1,231) (217) (111) | 8,665
-------- -------- -------- -------- ---- | --------
Income (loss) before |
income taxes........... 13,070 22,855 21,379 3,502 (3,131) | (19,890)
Income taxes (benefit).... 1,845 9,944 (6,027) (987) (102) | 222
-------- -------- -------- -------- ---- | --------
NET INCOME (LOSS)......... 11,225 12,911 27,406 4,489 (3,029) | (20,112)
Preferred dividends......... -- -- -- -- -- | (1,369)
-------- -------- -------- -------- ---- | --------
Net income (loss) to common |
shareholders.............. $ 11,225 $ 12,911 $ 27,406 $ 4,489 $ (3,029) | $(21,481)
======== ======== ======== ======== ======== | ========
LOSS PER SHARE: |
Basic..................... | $ (0.22)
| ========
Diluted................... | $ (0.22)
| ========
WEIGHTED AVERAGE COMMON |
SHARES OUTSTANDING (IN |
MILLIONS): |
Basic..................... | 100.0
| ========
Diluted................... | 100.0
| ========
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
PREDECESSOR PREDECESSOR | SUCCESSOR
------------------------------------------- -------------------------------- | ---------------
|
FISCAL YEAR ENDED 13 WEEKS ENDED 6 WEEKS ENDED | 7 WEEKS ENDED
------------------------------------------- -------------- --------------- | ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 OCTOBER 2, AUGUST 13, 1999 | OCTOBER 1, 1999
1998 |
------------- ------------ ------------ -------------- --------------- | ---------------
|
(UNAUDITED) | (UNAUDITED)
(IN THOUSANDS) |
Net income (loss)......... $11,225 $12,911 $27,406 $ 4,489 $(3,029) | $(20,112)
Other comprehensive income |
(loss): |
Currency translation |
adjustments.......... (2,015) (1,851) (574) 1,681 2,475 | 426
------- ------- ------- ------- --- | --------
Comprehensive income |
(loss).................. $ 9,210 $11,060 $26,832 $ 6,170 $ (554) | $(19,686)
======= ======= ======= ======= ======= | ========
See Notes to Consolidated Financial Statements.
F-3
INTERSIL HOLDING CORPORATION
CONSOLIDATED BALANCE SHEET
PREDECESSOR | SUCCESSOR
--------------------------- | ---------------------------------
JULY 3, 1998 JULY 2, 1999 | AUGUST 14, 1999 OCTOBER 1, 1999
------------ ------------ | --------------- ---------------
|
| (UNAUDITED)
(IN THOUSANDS)
ASSETS |
Current Assets |
Cash $ -- $ -- | $ 7,377 $ 33,820
Trade receivables, less allowances for collection loss |
($571 in 1998, $582 in 1999, $755 as of August 14, |
1999 and $780 as of October 1, 1999).................. 110,675 100,674 | 83,042 84,777
Inventories............................................. 180,232 153,822 | 153,044 156,384
Prepaid expenses........................................ 4,658 3,725 | 3,051 7,265
Income tax receivable................................... 643 1,527 | 573 621
Deferred income taxes................................... -- 3,476 | -- --
-------- -------- | -------- --------
Total Current Assets................................ 296,208 263,224 | 247,087 282,867
Other Assets |
Property, plant and equipment, less allowance for |
depreciation ($567,031 in 1998, $582,616 in 1999, -0- |
as of August 14, 1999 and $8,740 as of October 1, |
1999)................................................. 450,084 410,530 | 348,514 342,198
Intangibles, less accumulated amortization ($17,760 in |
1998, $19,929 in 1999, -0- as of August 14, 1999 and |
$1,418 as of October 1, 1999)......................... 44,219 45,368 | 90,715 89,297
Other................................................... 19,759 42,057 | 21,463 22,358
-------- -------- | -------- --------
Total Other Assets.................................. 514,062 497,955 | 460,692 453,853
-------- -------- | -------- --------
Total Assets.............................................. $810,270 $761,179 | $707,779 $736,720
======== ======== | ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY/BUSINESS EQUITY |
Current Liabilities |
Trade account payables.................................. $ 33,305 $ 31,068 | $ 29,365 $ 32,619
Retirement plan accruals................................ 15,448 13,640 | 2,445 5,865
Accrued compensation.................................... 29,022 19,283 | 15,842 23,571
Accrued interest and sundry taxes....................... 4,257 3,193 | 3,877 8,733
Other accrued items..................................... 13,403 16,418 | 27,222 33,440
Distributor reserves.................................... 6,189 6,542 | 6,512 7,073
Unearned service income................................. 248 567 | 567 536
Deferred income taxes................................... 126 -- | -- --
Long-term debt--current portion......................... 167 360 | 2,410 2,410
-------- -------- | -------- --------
Total Current Liabilities........................... 102,165 91,071 | 88,240 114,247
Other Liabilities |
Deferred income taxes................................... 5,126 7,022 | 8,199 8,199
Long-term debt.......................................... 3,902 4,207 | 541,525 543,349
Mandatorily Redeemable Preferred Stock--1,000,000 shares |
designated 12% Series A Cumulative Compounding preferred |
stock, $1,000 stated value; 2,000,000 shares authorized, |
85,000 shares issued and outstanding at August 14, 1999 |
and October 1, 1999..................................... -- -- | 85,000 86,369
Stockholders' Equity/Business Equity...................... |
Class A Common Stock, $.01 par value, voting; |
125,000,000 shares authorized, 23,800,000 shares |
issued and outstanding at August 14, 1999 and October |
1, 1999............................................... -- -- | 238 238
Class B Common Stock, $.01 par value, non-voting; |
125,000,000 shares authorized, 76,200,000 shares |
issued and outstanding at August 14, 1999 and October |
1, 1999............................................... -- -- | 762 762
Additional paid-in Capital.............................. -- -- | 4,611 3,242
Business equity......................................... 701,012 661,388 | -- --
Retained deficit........................................ -- -- | (20,796) (20,112)
Accumulated other comprehensive (loss) income........... (1,935) (2,509) | -- 426
-------- -------- | -------- --------
Total Stockholders' Equity/Business Equity.......... 699,077 658,879 | (15,185) (15,444)
-------- -------- | -------- --------
Total Liabilities and Stockholders' Equity/Business |
Equity........................................... $810,270 $761,179 | $707,779 $736,720
======== ======== | ======== ========
See Notes to Consolidated Financial Statements.
F-4
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
PREDECESSOR PREDECESSOR | SUCCESSOR
------------------------------------------- -------------------------------- | ---------------
|
FISCAL YEAR ENDED 13 WEEKS ENDED 6 WEEKS ENDED | 7 WEEKS ENDED
------------------------------------------- -------------- --------------- | ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 OCTOBER 2, AUGUST 13, 1999 | OCTOBER 1, 1999
1998 |
------------- ------------ ------------ -------------- --------------- | ---------------
|
(UNAUDITED) | (UNAUDITED)
(IN THOUSANDS) |
OPERATING ACTIVITIES: |
Net Income (loss).......... $ 11,225 $12,911 $ 27,406 $ 4,489 $ (3,029) | $(20,112)
Adjustments to reconcile net |
income (loss) to net cash |
provided by operating |
activities |
Depreciation............. 50,218 65,036 78,217 19,014 8,747 | 8,740
Amortization............. 2,295 2,295 2,414 573 326 | 1,418
Write-off of in-process |
technology............. -- -- -- -- -- | 20,796
Non-current deferred |
income taxes........... (981) (461) 1,896 1,415 (4,756) | --
Changes in assets and |
liabilities: |
Trade receivables........ 3,164 1,270 10,001 13,187 14,532 | (1,735)
Inventories.............. (7,720) (9,859) 26,410 5,708 (1,649) | (3,340)
Prepaid expenses......... 1,746 506 933 172 674 | (4,214)
Trade payables and |
accrued liabilities.... 24 (14,399) (13,950) (16,333) (18,705) | 27,927
Unearned service |
income................. 94 (32) 319 (163) -- | (31)
Income taxes............. (84) (3,866) (4,486) (264) 4,430 | (48)
Other.................... (5,405) (5,070) (17,911) (15,059) 2,812 | (1,686)
-------- ------- -------- -------- -------- | --------
Net cash provided by |
operating |
activities.......... 54,576 48,331 111,249 12,739 3,382 | 27,715
INVESTING ACTIVITIES: |
Cash paid for acquired |
business................... -- -- (1,335) -- -- | --
Plant and equipment.......... (173,304) (90,184) (38,563) (13,101) (1,887) | (2,424)
-------- ------- -------- -------- -------- | --------
Net cash used in |
investing |
activities.......... (173,304) (90,184) (39,898) (13,101) (1,887) | (2,424)
FINANCING ACTIVITIES: |
Proceeds from borrowings... 1,450 2,750 800 -- -- | --
Payments of borrowings..... (48) (83) (302) (41) (32) | (65)
Net cash transfer and |
billings from (to) |
parent................... 116,105 41,844 (67,030) 443 (1,198) | --
-------- ------- -------- -------- -------- | --------
Net cash provided by |
(used in) financing |
activities.......... 117,507 44,511 (66,532) 402 (1,230) | (65)
Effect of exchange rates on |
cash |
and cash equivalents....... 1,221 (2,658) (4,819) (40) 1,177 | 1,217
-------- ------- -------- -------- -------- | --------
Net increase in cash... -- -- -- -- 1,442 | 26,443
Cash at the beginning |
of the period....... -- -- -- -- -- | 7,377
-------- ------- -------- -------- -------- | --------
Cash at the end of the |
period.............. $ -- $ -- $ -- $ -- $ 1,442 | $ 33,820
======== ======= ======== ======== ======== | ========
See Notes to Consolidated Financial Statements.
F-5
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED OTHER
----------------- PAID-IN EARNINGS COMPREHENSIVE BUSINESS
CLASS A CLASS B CAPITAL (DEFICIT) INCOME EQUITY TOTAL
------- ------- ---------- --------- ------------- --------- ---------
(IN THOUSANDS)
Initial capitalization at August
14, 1999...................... $238 $762 $4,611 $ -- $ -- $ -- $ 5,611
Net income (loss) (unaudited)... -- -- -- (20,112) -- -- (20,112)
Accretion of undeclared
dividends on preferred stock
(unaudited)................... -- -- (1,369) -- -- -- (1,369)
Foreign currency translation
(unaudited)................... -- -- -- -- 426 -- 426
---- ---- ------ -------- ---- --------- ---------
Balances at October 1, 1999
(unaudited)................... $238 $762 $3,242 $(20,112) $426 $ -- $ (15,444)
==== ==== ====== ======== ==== ========= =========
See Notes to Consolidated Financial Statements.
F-6
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Intersil Holding Corporation (Intersil Holding) was formed on August 13,
1999 through a series of transactions, in which Intersil Holding and its
wholly-owned subsidiary, Intersil Corporation (Intersil), acquired the
Semiconductor Business (Semiconductor Business or Predecessor) of Harris
Corporation (Harris). Intersil Holding currently has no operations but holds
common stock related to its investment in Intersil and certain indebtedness
related to the Semiconductor Business acquisition (Harris acquisition). Intersil
and its wholly-owned domestic and foreign subsidiaries include the operations of
the Predecessor.
BASIS OF PRESENTATION
The Successor consolidated balance sheet as of August 14, 1999 reflects the
initial capitalization of Intersil Holding and the acquisition of the
Semiconductor Business. The consolidated balance sheets as of July 3, 1998 and
July 2, 1999 and the consolidated statements of operations, comprehensive income
and cash flows for the fiscal years ended June 27, 1997, July 3, 1998, July 2,
1999 and the 6 weeks ended August 13, 1999 include the accounts of Semiconductor
Business, the Predecessor company.
Accordingly, the consolidated financial statements include the power,
communications, space and defense product lines of Harris' Semiconductor
Business that were purchased in the transaction. The transaction did not include
Harris' semiconductor suppression business or photomask operations or certain
patents in the memory field that were retained by Harris. The Semiconductor
Business, which was wholly-owned by Harris, designs, manufactures and sells
discrete semiconductors and standard and custom integrated circuits to the
semiconductor markets. The Semiconductor Business' manufacturing facilities
perform manufacturing operations related to other Harris Semiconductor Product
Lines. The Semiconductor Business was not a separate legal entity and the assets
and liabilities associated with the Semiconductor Business were components of a
larger business.
The Predecessor's consolidated statements of operations include all
revenues and costs attributable to the Semiconductor Business. For cost of
sales, material costs are directly attributable to a product line and are
charged accordingly. Indirect costs are assigned using activety based costing.
Operating expenses (engineering, marketing, and administration & general) have
been allocated to the product lines based on sales or labor, as appropriate.
Harris Corporate expense allocations are based on a percentage of the
Semiconductor Business' net sales. Interest expense is provided on direct
borrowings of the Semiconductor Business. Interest expense of Harris has not
been allocated to the Semiconductor Business.
All of the allocations and estimates in the Predecessor's combined
statements of operations are based on assumptions that management believes are
reasonable under the circumstances. However, these allocations and estimates are
not necessarily indicative of the costs that would have resulted if the
Semiconductor Business had been operated on a stand alone basis.
The Semiconductor Business sells products to other affiliated operations of
Harris. Sales to these operations were not material.
The accompanying unaudited financial statements for the 13 weeks ended
October 2, 1998 and the 7 weeks ended October 1, 1999, reflect all adjustments,
all of which are of a normal recurring nature, necessary in the opinion of
management for a fair presentation of the results for these interim periods and
are not necessarily indicative of full-year results.
F-7
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION--(CONTINUED)
ACQUISITION OF HARRIS' SEMICONDUCTOR BUSINESS
The total purchase price of the Semiconductor Business acquisition was $630
million, which included transaction costs of approximately $7.8 million and
deferred financing costs of $12.2 million (Note H). The consideration paid by
Intersil Holding was $520.0 million in cash of which $420.0 million was financed
through borrowings from the senior credit facilities, the 13 1/4% Senior
Subordinated Notes and 13.5% Subordinated Holding PIK Note and the issuance of a
$90.0 million "Pay-In-Kind" (PIK) note to Harris.
The acquisition was accounted for using the purchase method of accounting
and accordingly, the operating results of the Semiconductor Business have been
included in Intersil's consolidated financial statements since the date of
acquisition. The total purchase price was allocated to the assets and
liabilities of the Semiconductor Business based upon their approximate fair
value. The fair value of the net assets acquired exceeded the purchase price
resulting in negative goodwill. This negative goodwill was allocated to the
identified intangibles and property and equipment based on their relative fair
values as follows (in millions).
Purchase price:
Cash paid to Harris.................. $520.0
13.5% Subordinated PIK Note.......... 90.0
Transaction costs and fees........... 20.0
------
Total purchase price................... $630.0
======
ALLOCATION OF
FAIR VALUE OF EXCESS FAIR ADJUSTED
ACQUIRED ASSETS VALUE FAIR VALUE
--------------- ------------- -------------
Net current assets..................... $160.9 -- $160.9
Other.................................. 9.0 -- 9.0
Property and equipment................. 486.0 $(137.5) 348.5
Developed Technology................... 80.0 (22.6) 57.4
Customer base.......................... 33.0 (9.3) 23.7
In-process research and development.... 29.0 (8.2) 20.8
Assembled workforce.................... 13.5 (3.8) 9.7
------ ------- ------
$811.4 $(181.4) $630.0
====== ======= ======
Excess fair value of net assets
acquired over purchase price......... $181.4
======
The preliminary appraisal of the acquired business included $20.8 million
of purchased in-process research and development, which was related to various
products under development. This valuation represents the 10 years after-tax
cash flow of this in-process technology using a discount rate of 20%. The
acquired technology had not yet reached technological feasibility and had no
future alternative uses. Accordingly, it was written off at the time of the
acquisition. The remaining identified intangibles (developed technology,
customer base and assembled workforce) are being amortized over 5 to 11 years.
The allocation of the purchase price is based on a preliminary valuation,
which is subject to change, although management does not believe the final
valuation will be materially different.
In connection with the acquisition of the Semiconductor Business, Intersil
formulated a restructuring plan and will involuntarily terminate the employment
of 372 employees of the Semiconductor Business. At
F-8
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION--(CONTINUED)
August 13, 1999, Intersil recorded $11.0 million in severance benefits and this
is included in the allocation of the acquisition cost. The severance includes
the following:
LOCATION NO. OF EMPLOYEES AMOUNTS
-------- ---------------- -------------
(IN MILLIONS)
Europe............................................ 17 $ 5.6
Malaysia.......................................... 262 1.9
North America..................................... 93 3.5
--- -----
372 $11.0
=== =====
As of October 1, 1999, the restructuring liability was $8.8 million. For
the seven weeks ended October 1, 1999, approximately $2.2 million of these
restructuring costs had been paid out. Intersil Holding will complete the
restructing plan by the end of fiscal year 2000.
The following unaudited information presents pro forma financial
information, after giving effect to certain adjustments including amortization
of intangible assets acquired, as if the Acquisition of the Semiconductor
Business had occurred at July 3, 1998 for the 13 weeks ended October 2, 1998 and
July 2, 1999 for the 13 weeks ended October 1, 1999. These pro forma results
have been prepared for comparative purposes only and do not purport to represent
what Intersil Holding's results of operations would actually have been had the
transactions in fact occurred on the date specified, nor do they purport to
project the results of operations for any future period.
PRO FORMA
----------------------------------------
13 WEEKS 13 WEEKS
ENDED ENDED
OCTOBER 2, 1998 OCTOBER 1, 1999
----------------- -----------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Product sales.................................. $122.5 $133.9
Net loss....................................... $ (4.2) $(27.0)
Net loss to common shareholders................ $ (6.8) $(29.6)
Loss per share:
Basic and diluted............................ $(0.07) $(0.30)
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR--The 1997 fiscal year includes the 52 weeks ended June 27,
1997; fiscal year 1998 includes the 53 weeks ended July 3, 1998; and fiscal year
1999 includes the 52 weeks ended July 2, 1999.
INVENTORIES--Inventories are carried at the lower of standard cost, which
approximates actual cost, determined by the First-In-First-Out (FIFO) method, or
market.
PLANT AND EQUIPMENT--Machinery and equipment are carried on the basis of
cost. The estimated useful lives of buildings range between 5 and 50 years. The
estimated useful lives of machinery and equipment range between 3 and 10 years.
Depreciation is computed by the straight-line method using the estimated useful
life of the asset.
REVENUE RECOGNITION--Revenue is recognized from sales to all customers,
including distributors, when a product is shipped. Sales to distributors are
made under distributor agreements which provide the distributors rights of
return and price protection on unsold merchandise held by the distributors.
Accordingly, sales are reduced for estimated returns from distributors and
estimated future price reductions of unsold merchandise
F-9
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
held by distributors. Product sales to two distributors for the fiscal years
ended June 27, 1997, July 3, 1998, July 2, 1999, thirteen weeks ended October 2,
1998, six weeks ended August 13, 1999 and seven weeks ended October 1, 1999
amounted to 20.5%, 19.0%, 16.6%, 19.1%, 29.3% and 7.8%, respectively, of total
product sales.
RESEARCH AND DEVELOPMENT--Research and development costs, consisting of the
cost of designing, developing, and testing new or significantly enhanced
products, are expensed as incurred.
RETIREMENT BENEFITS--Intersil Holding provides retirement benefits to
substantially all employees primarily through a retirement plan having
profit-sharing and savings elements. Contributions by Intersil Holding to the
retirement plan are based on profits and employees' savings with no other
funding requirements. Intersil Holding may make additional contributions to the
fund at its discretion.
Retirement benefits also include an unfunded limited health-care plan for
U.S.-based retirees and employees on long-term disability. Intersil Holding
accrues the estimated cost of these medical benefits, which are not material,
during an employee's active service life.
Retirement plans expense was $17.4 million in 1997, $15.6 million in 1998,
$14.8 million in 1999, $4.1 million for the thirteen weeks ended October 2,
1998, $1.4 million for the six weeks ended August 13, 1999 and $2.5 million for
the seven weeks ended October 1, 1999.
INCOME TAXES--Intersil Holding follows the liability method of accounting
for income taxes and for the Predecessor financial statements was included with
its parent, Harris, in a consolidated federal income tax return. Harris required
each of its businesses to provide taxes on financial statement pre-tax income or
loss at applicable statutory tax rates. United States local amounts receivable
or payable for current and prior years' income taxes were treated as
intercompany transactions and were recorded in the Semiconductor Business
equity. International current income taxes payable and deferred income taxes
resulting from temporary differences between the financial statements and the
tax basis of assets and liabilities of the Intersil Holding's international
subsidiaries are separately classified on the balance sheets.
ASSET IMPAIRMENT--Intersil Holding accounts for long-lived asset impairment
under Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company recognizes impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amounts. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount. Fair value is estimated based on discounted future
cash flows. Long-lived assets to be disposed of are recorded at the lower of
their carrying amount or estimated fair value less cost to sell.
INTANGIBLES--Intangibles resulting from acquisitions are being amortized by
the straight-line method over 5 to 40 years. Recoverability of intangibles is
assessed using estimated undiscounted cash flows of related operations.
Intangibles that are not expected to be recovered through future undiscounted
cash flows are charged to expense when identified. Amounts charged to expense
are amounts in excess of the fair value of the intangible asset. Fair value is
determined by calculating the present value of estimated expected future cash
flows using a discount rate commensurate with the risks involved.
START-UP--In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5 "Reporting on the Costs of
Start-Up Activities." The Company is required to adopt the provisions of this
Statement no later than its fiscal year 2000. This Statement provides guidance
on the financial reporting of start-up and organization costs and requires such
costs, as defined, to be expensed as
F-10
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
incurred, as start-up costs are currently expensed as incurred, adoption of this
Statement is not expected to have a material impact on the Company's results of
operations or financial condition.
FUTURES AND FORWARD CONTRACTS--When Intersil Holding sells products outside
the United States or enters into purchase commitments, the transactions are
frequently denominated in currencies other than U.S. dollars. To minimize the
impact on revenue and cost from currency fluctuations, Intersil Holding enters
into currency exchange agreements that qualify for hedge accounting treatment.
It is Intersil Holding's policy not to speculate in foreign currencies. Currency
exchange agreements are designated as, and are effective as, hedges of foreign
currency commitments. In addition, these agreements are consistent with the
designated currency of the underlying transaction and mature on or before the
underlying transaction. Gains and losses on currency exchange agreements that
qualify as hedges are deferred and recognized as an adjustment of the carrying
amount of the hedged asset, liability or commitment. Gains and losses on
currency exchange agreements that do not qualify as hedges are recognized in
income based on changes in the fair market value of the currency exchange
agreement.
FOREIGN CURRENCY TRANSLATION--The functional currency for the Malaysian
subsidiary is the U.S. dollar, and for other international subsidiaries it is
the local currency. Assets and liabilities are translated at current rates of
exchange, and income and expense items are translated at the weighted average
exchange rate for the year. The resulting translation adjustments are recorded
as a separate component of Shareholder's equity (Business Equity in the
Predecessor's financial statements). Cumulative translation gains (losses) were
$(1.9) million, $(2.5) million, $0 and $0.4 million at July 3, 1998, $2.5
million at July 2, 1999, August 13, 1999 and October 1, 1999, respectively.
LOSS PER SHARE--Loss per share is computed and presented in accordance with
SFAS No. 128, "Earnings per Share" and the Securities and Exchange Commission
Staff Accounting Bulletin No. 98. Net loss per common share is presented for the
seven weeks ended October 1, 1999 only because it is not meaningful for earlier
periods since the Company did not have common stock outstanding for any of the
earlier periods.
USE OF ESTIMATES--These statements have been prepared in conformity with
generally accepted accounting principles and require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE C--ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The statement
establishes standards for recording derivative financial instruments and the
recognition of gains or losses resulting from changes in the fair values of
those instruments. Intersil Holding plans to adopt the new standard no later
than the first quarter of fiscal 2001. However, Intersil Holding has not
determined the anticipated impact of FAS No. 133.
F-11
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED 7 WEEKS ENDED OCTOBER
1, 1999
NOTE D--INVENTORIES
Inventories are summarized below (in thousands):
(PREDECESSOR) (SUCCESSOR)
------------------- -------------------------
JULY 3, JULY 2, AUGUST 14, OCTOBER 1,
1998 1999 1999 1999
-------- -------- ---------- ------------
(UNAUDITED)
Finished products.......................... $ 64,644 $ 58,041 $ 59,708 $ 57,137
Work in process............................ 125,647 102,457 104,262 109,903
Raw materials and supplies................. 14,423 11,441 9,137 8,735
-------- -------- -------- --------
204,714 171,939 173,107 175,775
Less inventory reserve..................... (24,482) (18,117) (20,063) (19,391)
-------- -------- -------- --------
$180,232 $153,822 $153,044 $156,384
======== ======== ======== ========
At July 2, 1999, August 14, 1999 and October 1, 1999 Intersil Holding was
committed to purchase $22.5 million, $22.8 million and $22.8 million,
respectively of inventory from suppliers. Management believes the cost of this
inventory approximates current market value.
NOTE E--PLANT AND EQUIPMENT
Plant and equipment are summarized below (in thousands):
(PREDECESSOR) (SUCCESSOR)
--------------------- -------------------------
JULY 3, JULY 2, AUGUST 14, OCTOBER 1,
1998 1999 1999 1999
---------- -------- ---------- ------------
(UNAUDITED)
Land..................................... $ 3,966 $ 3,966 $ 6,539 $ 6,034
Buildings................................ 262,490 266,364 100,511 100,337
Machinery and equipment.................. 750,659 722,816 241,464 244,567
---------- -------- -------- --------
1,017,115 993,146 348,514 350,938
Less allowances for depreciation......... 567,031 582,616 -- 8,740
---------- -------- -------- --------
$ 450,084 $410,530 $348,514 $342,198
========== ======== ======== ========
NOTE F--INTANGIBLES
Intangibles are summarized below (in thousands):
(PREDECESSOR) (SUCCESSOR)
----------------- ------------------------
PERIOD OF JULY 3, JULY 2, AUGUST 14, OCTOBER 1,
AMORTIZATION 1998 1999 1999 1999
------------- ------- ------- ---------- -----------
(UNAUDITED)
Developed technology...................... 11 years $ -- $ -- $ 57,369 $57,369
Customer base............................. 7 years -- -- 23,665 23,665
Assembled workforce....................... 5 years -- -- 9,681 9,681
Goodwill.................................. 40 years 61,979 65,297 -- --
------- ------- -------- -------
61,979 65,297 90,715 90,715
Less accumulated amortization............. 17,760 19,929 -- 1,418
------- ------- -------- -------
$44,219 $45,368 $ 90,715 $89,297
======= ======= ======== =======
F-12
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE G--LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss
per share:
(SUCCESSOR)
---------------
OCTOBER 1, 1999
--------
(UNAUDITED)
Numerator
Net loss (numerator for basic and diluted earnings per
share)................................................. $(21,481)
========
Denominator:
Denominator for basic earnings per share-weighted average
common shares.......................................... 100,000
Effect of dilutive securities:
Warrants............................................... --
--------
Denominator for diluted earnings per share-adjusted
weighted average shares................................ 100,000
========
Basic loss per share........................................ $ (0.22)
========
Diluted loss per share...................................... $ (0.22)
========
The effect of dilutive securities is not included in the computation for
the seven weeks ended October 1, 1999 because to do so would be antidilutive.
NOTE H--LONG-TERM DEBT
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
(PREDECESSOR) (SUCCESSOR)
----------------------------- ---------------------------------
JULY 3, 1998 JULY 2, 1999 AUGUST 14, 1999 OCTOBER 1, 1999
------------- ------------- --------------- ---------------
(UNAUDITED)
13.25% Senior Subordinated $ -- $ -- $199,700 $199,700
Notes..........................
Tranche B Senior Term Facility... -- -- 205,000 205,000
11.13% Seller Holding PIK Note... -- -- 90,000 91,345
13.5% Subordinated Holding PIK
Note........................... -- -- 29,700 30,244
Revolving Credit Facility........ -- -- 15,000 15,000
Other............................ 4,069 4,567 4,535 4,470
------ ------ -------- --------
4,069 4,567 543,935 545,759
Less: current portion............ 167 360 2,410 2,410
------ ------ -------- --------
$3,902 $4,207 $541,525 $543,349
====== ====== ======== ========
F-13
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE H--LONG-TERM DEBT--(CONTINUED)
Schedule future principal payments under Intersil Holding's and Intersil's
indebtedness are as follows:
2000...................................................... $ 2,410
2001...................................................... 2,454
2002...................................................... 2,466
2003...................................................... 2,479
2004...................................................... 2,438
Thereafter................................................ 533,512
--------
$545,759
========
13.25% Senior Subordinated Notes and Warrants
On August 13, 1999, in connection with the acquisition of the Semiconductor
Business, Intersil completed an offering of 200,000 units consisting of $200
million of its 13.25% Senior Subordinated Notes due 2009 and warrants to
purchase 5,555,560 shares of Class A Common Stock of Intersil Holding. Each unit
consisted of $1,000 principal amount of 13.25% Senior Subordinated Notes of
Intersil and one warrant to purchase 27.7778 shares of Class A Common Stock of
Intersil Holding. The total gross proceeds from the sale of the 13.25% Senior
Subordinated Notes were $194.0 million, net of $6.0 million of deferred
financing fees. The $6.0 million deferred financing fees will be treated as
additional interest related to the 13.25% Senior Subordinated Notes and
amortized over the life of the 13.25% Senior Subordinated Notes on an effective
yield method.
The 13.25% Senior Subordinated Notes are unsecured and are fully and
unconditionally guaranteed by Intersil Holding and all of Intersil's current and
future domestic subsidiaries. The 13.25% Senior Subordinated Notes are not
guaranteed by Intersil's foreign subsidiaries. The 13.25% Senior Subordinated
Notes require semi-annual interest payments beginning on February 15, 2000
through maturity on August 15, 2009. The 13.25% Senior Subordinated Notes may be
redeemed at the option of Intersil Holding after August 15, 2004 upon the
payment of certain redemption premiums, although up to 35% of the 13.25% Senior
Subordinated Notes can be redeemed prior to August 15, 2002 with the proceeds of
certain equity offerings and upon the payment of certain redemption premiums.
The 13.25% Senior Subordinated Notes contain various restrictive covenants,
including limitations on the incurrence of additional indebtedness, restrictions
and limitations on payment of dividends, make investments, engage in
transactions with affiliates, consolidate, merge or transfer assets and
restrictions and limitations on the sales of certain assets, among others. The
13.25% Senior Subordinated Notes also require the maintenance of certain ratios.
Each warrant entitles the holder to purchase 27.7778 shares of Intersil
Holding Class A Common Stock at a price of $.001 per share. The warrants are
exercisable beginning on the first anniversary of their issue date (August 13,
1999) and expire on August 15, 2009. Warrant holders have no holding rights. The
warrants were preliminarily valued at $0.3 million and will be treated as
additional interest related to the 13.25% Senior Subordinated Notes and
amortized over the life of the 13.25% Senior Subordinated Notes on an effective
yield method.
Senior Credit Facilities
In connection with the Acquisition of the Semiconductor Business, Intersil
entered into senior credit facilities with a syndicate of financial
institutions. The senior credit facilities include a $205.0 million funded term
loan facility (the "Tranche B Senior Term Facility") and a revolving line of
credit (the "Revolving Credit Facility"). The Revolving Credit Facility has
maximum borrowings of up to $70.0 million, of which
F-14
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE H--LONG-TERM DEBT--(CONTINUED)
$15.0 million was funded on August 13, 1999 in connection with the acquisition
of the Semiconductor Business. The total gross proceeds from the issuance of the
Tranche B Senior Term Facility and the Revolving Credit Facility were $212.90
million, net of $6.2 million of deferred financing fees and $0.9 million debt
issuance costs. The $6.2 million deferred financing fees will be treated as
additional interest related to the senior credit facilities and amortized over
the life of the senior credit facilities on an effective yield method. The $0.9
million debt issuance costs will be amortized over the life of the senior credit
facilities.
The Tranche B Senior Term Facility bears interest at LIBOR + 4%. The
Tranche B Senior Term Facility matures in 2005 and requires 1% of the original
principal amount to be repaid in each of the first five years in quarterly
installments. Beginning September 2004, 24% of the original principal amount
will be repaid each quarter, for four quarters. The senior credit facilities are
subject to an annual commitment fee of .50% of the undrawn portion of the
Revolving Credit Facility.
The Revolving Credit Facility bears interest ranging from LIBOR + 2.00% to
LIBOR + 3.25%, depending on the results of applicable ratios. The Revolving
Credit Facility matures in 2005.
The senior credit facilities are unconditionally guaranteed, jointly and
severally, by Intersil Holding, Intersil and existing and subsequently acquired
or organized domestic subsidiaries. The senior credit facilities contain various
restrictive covenants, including, incurrence of indebtedness, payment of
dividends, make certain investments and acquisitions, dispose of assets, among
others. The senior credit facilities also require the maintenance of certain
ratios.
Pay-In-Kind (PIK) Notes
On August 13, 1999, in connection with the Acquisition of the Semiconductor
Business, Intersil Holding issued to Harris a $90.0 million 11.13% Seller
Holding PIK Note which matures in 2010. The 11.13% Seller Holding PIK Note bears
interest at an annual rate equal to 11.13%. Intersil Holding may pay interest on
the 11.13% Seller Holding PIK Note by issuing additional 11.13% PIK notes.
Intersil Holding may redeem the 11.13% Seller Holding PIK Note at any time. In
addition, Intersil Holding will be required to redeem the 11.13% Seller Holding
PIK Note upon a change in control. The 11.13% Seller Holding PIK Note contains
various restrictive covenants and is subordinated to Intersil Holding's
guarantee of Intersil's 13.25% Senior Subordinated Notes and senior credit
facilities. Intersil and its subsidiaries are not a guarantor of the 11.13%
Seller Holding PIK Note.
Also, on August 13, 1999, Intersil Holding issued to Citicorp Mezzanine
Partners, L.P. a $30.0 million 13.5% Subordinated Holding PIK Note. The 13.5%
Subordinated Holding PIK Note matures on July 15, 2010 and bears interest at an
annual rate equal to 13.5%. To the extent Intersil Holding's senior debt
prohibits Intersil Holding from paying cash interest on the 13.5% Subordinated
Holding PIK Note, this interest shall be paid by adding the accrued interest to
the principal amount of the 13.5% Subordinated Holding PIK Note. Intersil
Holding may redeem the 13.5% Subordinated Holding PIK Note at any time in whole
or in part at 100% of the principal amount plus accrued and unpaid interest and
certain prepayment premiums. The 13.5% Subordinated Holding PIK Note contains
various restrictive covenants. The 13.5% Subordinated Holding PIK Note is
subordinated to Intersil Holding's guarantee of Intersil's Notes and senior
credit facilities. Intersil and its subsidiaries are not a guarantor of the
13.5% Subordinated Holding PIK Note.
F-15
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE H--LONG-TERM DEBT--(CONTINUED)
The other debt consists of 5 loans made by agencies of the Commonwealth of
Pennsylvania with maturity dates ranging from 2003 to 2017 and are secured by
Intersil's manufacturing facility in Montaintop, Pennsylvania, which has a net
carrying value of $4.5 million at August 13, 1999 and October 1, 1999. The
weighted average interest rate for this debt was 3.0% at July 3, 1998, July 2,
1999, August 13, 1999 and October 1, 1999.
NOTE I--PREFERRED STOCK
Intersil Holding has 2.0 million shares of preferred stock authorized,
stated value of $1,000 per share, 1.0 million of which may be designated as 12%
Series A Cumulative Compounding Preferred Stock. On August 13, 1999, Intersil
Holding sold 85,000 shares of its 12% Series A Cumulative Compounding Preferred
Stock to certain buyers including, Sterling Intersil Holding Company LLC (75,088
shares), Harris (8,500 shares) and certain members of management (1,412 shares).
The $85.0 million proceeds were used as a cash equity contribution from Intersil
Holding to Intersil for the Acquisition of the Semiconductor Business.
The Series A Preferred Stock is (i) non-voting, (ii) entitled to cumulative
dividends whether or not declared or earned, at a rate of 12%, compounding
annually, (iii) to have approval rights of new issuances of any other class or
series of stock entitled to a preference ahead of Intersil Holding preferred
stock, (iv) able to amend Intersil Holding's certificate of incorporation if the
amendment adversely affects the rights and preferences of the preferred stock
holders, (v) entitled to $1,000 per share, plus accrued and unpaid dividends in
the event of liquidation before any distribution to holders of Intersil Holding
common stock, (vi) optionally redeemable by Intersil Holding in whole or in part
at a price per share of $1,000 plus accrued and unpaid dividends, and (vii)
mandatorily redeemable on June 30, 2011, at a price per share equal to $1,000
plus accrued and unpaid dividends.
The total mandatory redemption value of the shares outstanding at August
13, 1999 and October 1, 1999, in the amounts of $85.0 million and $86.4 million
($1.4 million accretion of undeclared dividends), respectively, is classified in
Intersil Holding's balance sheet as Mandatorily Redeemable Preferred Stock.
NOTE J--LEASE COMMITMENTS
Total rental expense amounted to $6.7 million in 1997, $6.3 million in
1998, $6.3 million in 1999, $1.6 million for the thirteen weeks ended October 2,
1998, $0.6 million for the 6 weeks ended August 13, 1999 and $0.7 million for
the seven weeks ended October 1, 1999. Future minimum rental commitments under
leases, primarily used for land at Intersil's Malaysian facility and office
buildings at Intersil's International locations, amounted to approximately $18.7
million at July 2, 1999. Intersil's Malaysian manufacturing facility leases land
under leases expiring from 2072 to 2081. The commitments for the years following
1999 are: 2000--$4.0 million, 2001--$2.6 million, 2002--$1.6 million, 2003--$1.3
million, 2004--$1.3 million, and $7.9 million thereafter.
F-16
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE K--BUSINESS EQUITY
Changes in the business equity of the Predecessor's financial statements
are summarized as follows (in thousands):
(PREDECESSOR) (PREDECESSOR)
------------------------------------------- ---------------------------------
FISCAL YEAR ENDED 13 WEEKS ENDED 6 WEEKS ENDED
------------------------------------------- --------------- ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999
------------- ------------ ------------ --------------- ---------------
(UNAUDITED)
Balance at beginning of year........ $520,858 $646,173 $699,077 $699,077 $658,879
Net income (loss)................... 11,225 12,911 27,406 4,489 (3,029)
Foreign currency translation
adjustments....................... (2,015) (1,851) (574) 1,681 2,475
Net cash transfers and billings from
(to) Harris Corporation........... 116,105 41,844 (67,030) 443 (1,198)
Purchase price elimination.......... -- -- -- -- (657,127)
-------- -------- -------- -------- --------
Balance at end of period............ $646,173 $699,077 $658,879 $705,690 $ --
======== ======== ======== ======== ========
NOTE L--COMMON STOCK
Intersil Holding is authorized to issue 250.0 million shares of Intersil
Holding common stock, par value $0.01 per share, divided into two classes
consisting of 125.0 million shares of Intersil Holding Class A Common Stock and
125.0 million shares of Intersil Holding Class B Common Stock. Holders of Class
A Common Stock are entitled to one vote for each share held and holders of Class
B Common Stock have no voting rights. A holder of either class of Intersil
Holding common stock may convert any or all shares into an equal number of
shares of the other class of Intersil Holding common stock.
On August 13, 1999, Intersil Holding sold 23.8 million shares of Class A
Common Stock and 76.2 million shares of Class B Common Stock for approximately
$5.0 million. The $5.0 million proceeds, along with the $85.0 million proceeds
from the sale of Series A Preferred Stock was used as a cash equity contribution
from Intersil Holding to Intersil for the acquisition of the Semiconductor
Business.
On August 13, 1999, in connection with Intersil Holding's issuance of the
13.5% Subordinated Holding PIK Note, Intersil Holding issued to Citicorp
Mezzanine Partners, L.P. warrants to purchase 5,555,560 shares of Intersil
Holding Class A Common at an exercise price of $.001 per share, subject to
certain anti-dilution adjustments. If Intersil Holding's prepays in full the
13.5% Subordinated Holding PIK Note within 24 months after issuance, the
warrants will be exercisable for 3,333,336 shares of Intersil Holding Class A
Common Stock. The warrants were valued at $0.3 million and will be treated as
additional interest related to the 13.5% Subordinated Holding PIK Note and
amortized over the life of the 13.5% Subordinated Holding PIK Note on an
effective yield method.
F-17
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE M--INCOME TAXES
The provisions for income taxes are summarized below (Pro Forma for
predecessor financial statements) (in thousands):
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
------------------------------------------- --------------------------------- ---------------
FISCAL YEAR ENDED 13 WEEKS ENDED 6 WEEKS ENDED 7 WEEKS ENDED
------------------------------------------- --------------- --------------- ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999 OCTOBER 1, 1999
------------- ------------ ------------ --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
United States $(2,595) $4,221 $(6,626) $(1,085) $(399) $ --
(benefit)............
International.......... 4,768 4,910 1,605 263 352 222
State and local
(benefit)............ (328) 813 (1,006) (165) (55) --
------- ------ ------- ------- ----- ----
$ 1,845 $9,944 $(6,027) $ (987) $(102) $222
======= ====== ======= ======= ===== ====
In the year 2000, the Malaysian taxing authority will convert its income
tax system to a self-assessment system. The new self-assessment system will
require Malaysian corporate taxpayers to begin making estimated tax payments in
year 2000 based on year 2000 estimated taxable income. Currently, Malaysian
corporate taxpayers submit tax payments following the year of assessment. In
fiscal year 1999, the Semiconductor Business made Malaysian taxing payments
based on fiscal year 1998's taxable income. As a result of the change in the
Malaysian taxing system, the Semiconductor Business will not be required to make
tax payments on its fiscal year 1999 Malaysian taxable income, and therefore has
not provided a tax provision for Malaysian taxes for the fiscal year ended July
2, 1999, which would have amounted to approximately $15.1 million. The Malaysian
tax holiday is effective for Intersil's fiscal year ended July 2, 1999 only, and
does not impact the 6 weeks ended August 13, 1999 and the 7 weeks ended October
1, 1999.
The components of International deferred income tax assets (liabilities)
are as follows (in thousands):
(PREDECESSOR) (SUCCESSOR)
--------------------------------------------- ---------------------------------------------
JULY 3, 1998 JULY 2, 1999 AUGUST 14, 1999 OCTOBER 1, 1999
--------------------- --------------------- --------------------- ---------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT CURRENT NON-CURRENT CURRENT NON-CURRENT
------- ----------- ------- ----------- ------- ----------- ------- -----------
(UNAUDITED)
Receivables.......... $(663) $ -- $ -- $ -- $ -- $ -- $ -- $ --
Fixed Assets......... -- -- -- -- -- -- -- 13,296
NOL Carryforward..... -- -- -- -- -- -- -- 3,217
Credit Carryforward.. -- -- -- -- -- -- -- 4,700
Depreciation......... -- (5,126) -- (7,022) -- (12,953) -- (12,899)
All other--net....... 537 -- 3,476 -- -- 4,754 -- --
Valuation Allowance.. -- -- -- -- -- -- -- (16,513)
----- ------- ------ ------- ------ -------- ------ --------
$(126) $(5,126) $3,476 $(7,022) $ -- $ (8,199) $ -- $ (8,199)
===== ======= ====== ======= ====== ======== ====== ========
F-18
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE M--INCOME TAXES--(CONTINUED)
A reconciliation of the statutory United States income tax rate to the
effective income tax rate follows:
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
------------------------------------------- --------------------------------- ---------------
FISCAL YEAR ENDED 13 WEEKS ENDED 6 WEEKS ENDED 7 WEEKS ENDED
------------------------------------------- --------------- --------------- ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999 OCTOBER 1, 1999
------------- ------------ ------------ --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
Statutory U.S. income 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%
tax rate...........
State taxes.......... (1.6) 2.3 (3.1) (3.1) 1.1 1.5
International
income............. (21.4) 5.2 (61.9) (61.9) (29.7) 5.0
Research credits..... (4.8) (2.9) (2.7) (2.7) 2.2 1.8
In-Process R&D....... -- -- -- -- -- (25.4)
Subpart F............ -- -- -- -- -- (2.4)
Valuation Allowance.. -- -- -- -- -- (16.2)
Goodwill
amortization....... 6.1 3.5 4.0 4.0 (4.9) --
Other items.......... .8 .4 0.5 0.5 (0.5) (0.4)
----- ----- ----- ----- ----- -----
Effective income tax
rate............... 14.1% 43.5% (28.2)% (28.2)% 3.2% (1.1)%
===== ===== ===== ===== ===== =====
United States income taxes have not been provided on undistributed earnings
of international subsidiaries because of Intersil Holding's intention to
reinvest these earnings. The determination of unrecognized deferred U.S. tax
liability for the undistributed earnings of international subsidiaries is not
practicable.
Pretax income (loss) of international subsidiaries was $21.1 million in
1997, $10.2 million in 1998, $41.9 million in 1999, $.6 million for the 13 weeks
ended October 2, 1998, $(1.6) million for the 6 weeks ended August 13, 1999 and
$1.1 million for the 7 weeks ended October 1, 1999.
Income taxes paid (received) were $2.4 million in 1997, $14.8 million in
1998, $3.4 million in 1999, $2.0 million for the 13 weeks ended October 2, 1998,
$.2 million for the 6 weeks ended August 13, 1999 and $.2 million for the 7
weeks ended October 1, 1999.
NOTE N--GEOGRAPHIC INFORMATION
Intersil Holding operates exclusively in the semiconductor industry.
Substantially all revenues result from the sale of semiconductor products. All
intercompany revenues and balances have been eliminated.
A summary of the operations by geographic area is summarized below (in
thousands):
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
------------------------------------------- --------------------------------- ---------------
FISCAL YEAR ENDED 13 WEEKS ENDED 6 WEEKS ENDED 7 WEEKS ENDED
------------------------------------------- --------------- --------------- ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999 OCTOBER 1, 1999
------------- ------------ ------------ --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
United States
operations
Net sales............ $531,246 $563,180 $519,555 $121,966 $ 54,664 $ 74,094
Long-lived assets.... 380,143 386,333 371,448 369,985 366,386 331,406
International
Net sales............ 14,075 13,656 13,163 583 2,672 2,454
Long-lived assets.... 102,683 122,397 121,330 148,863 118,277 123,388
F-19
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE N--GEOGRAPHIC INFORMATION--(CONTINUED)
Export sales included in U.S. Operations were, $234.6 million in 1997,
$258.4 million in 1998, $254.8 million in 1999, $72.1 million for the 13 weeks
ended October 2, 1998, $33.5 million for the 6 weeks ended August 13, 1999 and
$48.7 million for the 7 weeks ended October 1, 1999.
NOTE O--FINANCIAL INSTRUMENTS
The carrying values of accounts receivable, notes receivable, accounts
payable, short-term debt and long-term debt approximates fair value.
Intersil Holding markets its products for sale to customers, including
distributors, primarily in the United States, Europe and Asia/Pacific. Credit is
extended based on an evaluation of the customer's financial condition, and
collateral is generally not required. Intersil Holding maintains an allowance
for losses based upon the expected collectibility of all accounts receivable.
Intersil Holding believes it is adequately reserved with regard to receivables
from its domestic and international customers.
Intersil Holding uses foreign exchange contracts and options to hedge
intercompany accounts and off-balance-sheet foreign currency commitments.
Specifically, these foreign exchange contracts offset foreign currency
denominated inventory and purchase commitments from suppliers, accounts
receivable from and future committed sales to customers and firm committed
operating expenses. Management believes the use of foreign currency financial
instruments should reduce the risks that arise from doing business in
international markets. Contracts are generally one year or less. At July 2,
1999, August 13, 1999 and October 1, 1999, open foreign exchange contracts were
$22.0 million, $6.1 million and $14.0 million, respectively (as described
below), all of which were to hedge off-balance-sheet commitments. Additionally,
for the year ended July 2, 1999, the Semiconductor Business purchased and sold
$120.7 million of foreign exchange forward contracts.
Deferred gains and losses are included on a net basis in the Consolidated
Balance Sheet as other assets and are recorded in income as part of the
underlying transaction when it is recognized. At July 2, 1999, Intersil Holding
had deferred foreign exchange contract losses on future commitments of
approximately $28.6 million. There were no deferred foreign exchange contract
losses at August 14, 1999.
Total open foreign exchange contracts at July 2, 1999, August 14, 1999 and
October 1, 1999, are described in the table below:
JULY 2, 1999
COMMITMENTS TO BUY FOREIGN CURRENCIES
CONTRACT AMOUNT
-------------------------- MATURITIES
CURRENCY FOREIGN CURRENCY U.S. DEFERRED GAINS (IN MONTHS)
- -------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
Malaysian Ringgit........................... 80,589 $19,000 $2,208 1-2
COMMITMENTS TO SELL FOREIGN CURRENCIES
CONTRACT AMOUNT
-------------------------- MATURITIES
CURRENCY FOREIGN CURRENCY U.S. DEFERRED GAINS (IN MONTHS)
- -------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
French Franc................................ 10,900 $ 1,857 $138 1-2
British Pound............................... 691 1,094 2 1
F-20
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE O--FINANCIAL INSTRUMENTS--(CONTINUED)
AUGUST 14, 1999
COMMITMENTS TO BUY FOREIGN CURRENCIES
CONTRACT AMOUNT
-------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (LOSSES) (IN MONTHS)
- -------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
Euro......................................... 808 $ 865 $ (5) 1
French Franc................................. 5,300 865 (6) 1
British Pound................................ 202 327 (2) 1
Malaysian Ringgit............................ 8,504 2,000 238 1
COMMITMENTS TO SELL FOREIGN CURRENCIES
CONTRACT AMOUNT
-------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (LOSSES) (IN MONTHS)
- -------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
Euro......................................... 808 $ 865 $(5) 1
French Franc................................. 5,300 860 -- 1
British Pound................................ 202 321 (4) 1
OCTOBER 1, 1999 (UNAUDITED)
COMMITMENTS TO BUY FOREIGN CURRENCIES
CONTRACT AMOUNT
-------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (IN MONTHS)
- -------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
Malaysian Ringgit............................ 16,906 $ 4,000 $449 1
COMMITMENTS TO SELL FOREIGN CURRENCIES
CONTRACT AMOUNT
-------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (LOSSES) (IN MONTHS)
- -------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
French Franc................................. 20,000 $ 3,212 $22 3-6
Deutsche Mark................................ 8,000 4,306 27 3-6
British Pound................................ 1,520 2,491 (12) 3-5
F-21
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE P-- SUBSEQUENT EVENT--EQUITY COMPENSATION PLAN
On November 5, 1999, to be effective August 14, 1999, Intersil Holding
adopted the 1999 Equity Compensation Plan (the "Plan") for salaried officers and
key employees. The Plan authorizes the grant of options for up to 3.0 million
shares of Intersil Holding Class A Common Stock and can include (i) options
intended to constitute incentive stock options ("ISOs") under the Internal
Revenue Code, (ii) non-qualified stock options, (iii) restricted stock, (iv)
stock appreciation rights, and (v) phantom share awards. The exercise price of
each option granted under the Plan shall be as determined by a committee of the
Board of Directors (the "Board"). The maximum term of any option shall be ten
years from the date of grant for incentive stock options and ten years and one
day from the date of grant for non-qualified stock options. Options granted
under the Plan are exercisable at the determination of the Board, currently
vesting ratably over approximately 5 years. Employees receiving options under
the Plan may not receive in any one year period options to purchase more than
1,000,000 shares of common stock. On November 5, 1999, Intersil Holding granted
approximately 2.3 million options to acquire Intersil Holding Class A Common
Stock at a price of $1.50 per share. The Company plans to account for its Equity
Compensation Plan in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
NOTE Q-- FINANCIAL INFORMATION FOR GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
Intersil Holding is a holding company for Intersil. All of the operations
are conducted through Intersil and its wholly-owned domestic and foreign
subsidiaries. On August 13, 1999, in connection with the Harris acquisition,
Intersil issued the Notes and Senior Credit Facilities (Note F), which are fully
and unconditionally guaranteed on a joint and several basis by Intersil Holding
(Parent), Intersil and all of Intersil's wholly-owned current and future
domestic subsidiaries (the "Guarantor Subsidiaries"). Intersil's wholly-owned
foreign subsidiaries are not guarantors (the "Non-Guarantor Subsidiaries"). In
management's opinion, separate financial statements of the Guarantor
Subsidiaries and the Non-Guarantor Subsidiaries are not material to investors.
The condensed consolidating financial information presented below includes
the predecessor consolidated balance sheets as of July 3, 1998 and July 2, 1999
and the predecessor consolidated statements of income and cash flows for the
fiscal years ended June 27, 1997, July 3, 1998, July 2, 1999, the 13 weeks ended
October 2, 1998 and the 6 weeks ended August 13, 1999 for the Predecessor
Guarantor and Non-Guarantor Subsidiaries. The condensed consolidated balance
sheets as of August 14, 1999 and October 1, 1999 and the condensed consolidated
statements of income and cash flows for the 7 weeks ended October 1, 1999
reflect the Parent, Guarantor Subsidiaries and Non-Guarantor Subsidiaries.
F-22
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JUNE 27, 1997
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
REVENUE
Product sales............................... $555,110 $398,745 $(408,534) $545,321
COSTS AND EXPENSES
Cost of product sales....................... 400,997 338,666 (393,590) 346,073
Research and development.................... 74,636 572 -- 75,208
Marketing................................... 62,138 19,252 -- 81,390
Administrative and general.................. 16,927 997 -- 17,924
Harris corporate expense allocations........ 10,854 (894) -- 9,960
Goodwill amortization....................... 2,291 -- -- 2,291
-------- -------- --------- --------
Operating income (loss)....................... (12,733) 40,152 (14,944) 12,475
Interest, net............................... 26,693 (5,174) (22,114) (595)
-------- -------- --------- --------
Income (loss) before income taxes........... (39,426) 45,326 7,170 13,070
Income taxes (benefit)...................... (11,658) 6,298 7,205 1,845
-------- -------- --------- --------
NET INCOME (LOSS)........................... $(27,768) $ 39,028 $ (35) $ 11,225
======== ======== ========= ========
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JULY 3, 1998
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
REVENUE
Product sales............................... $609,136 $418,721 $(451,021) $576,836
COSTS AND EXPENSES
Cost of product sales....................... 402,892 388,729 (422,289) 369,332
Research and development.................... 74,466 659 -- 75,125
Marketing................................... 61,525 18,262 -- 79,787
Administrative and general.................. 18,022 375 -- 18,397
Harris corporate expense allocations........ 10,941 (979) -- 9,962
Goodwill amortization....................... 2,292 -- -- 2,292
-------- -------- --------- --------
Operating income (loss)....................... 38,998 11,675 (28,732) 21,941
Interest net................................ 40,793 (5,325) (36,382) (914)
-------- -------- --------- --------
Income (loss) before income taxes........... (1,795) 17,000 7,650 22,855
Income taxes (benefit)...................... (887) (1,418) 12,249 9,944
-------- -------- --------- --------
NET INCOME (LOSS)........................... $ (908) $ 18,418 $ (4,599) $ 12,911
======== ======== ========= ========
F-23
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JULY 2, 1999
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
REVENUE
Product sales............................... $524,142 $480,981 $(472,405) $532,718
COSTS AND EXPENSES
Cost of product sales....................... 379,282 337,287 (366,793) 349,776
Research and development.................... 67,316 (237) -- 67,079
Marketing................................... 47,429 19,444 -- 66,873
Administrative and general.................. 18,437 (1,312) -- 17,125
Harris corporate expense allocations........ 10,115 (812) -- 9,303
Goodwill amortization....................... 2,414 -- -- 2,414
-------- -------- --------- --------
Operating income (loss)....................... (851) 126,611 (105,612) 20,148
Interest, net............................... 33,894 (4,975) (30,150) (1,231)
-------- -------- --------- --------
Income (loss) before income taxes........... (34,745) 131,586 (75,462) 21,379
Income taxes (benefit)...................... (39,176) 10,313 22,836 (6,027)
-------- -------- --------- --------
NET INCOME (LOSS)........................... $ 4,431 $121,273 $ (98,298) $ 27,406
======== ======== ========= ========
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED OCTOBER 2, 1998
(UNAUDITED)
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
REVENUE
Product sales............................... $124,194 $94,542 $(96,187) $122,549
COSTS AND EXPENSES
Cost of product sales....................... 100,986 90,330 (110,805) 80,511
Research and development.................... 18,585 34 (3,840) 14,779
Marketing................................... 12,362 4,354 (642) 16,074
Administrative and general.................. 3,644 (344) 1,894 5,194
Harris corporate expense allocations........ 2,915 (197) (585) 2,133
Goodwill amortization....................... 573 -- -- 573
-------- ------- -------- --------
Operating income (loss)....................... (14,871) 365 17,791 3,285
Interest, net............................... (211) (242) 236 (217)
-------- ------- -------- --------
Income (loss) before income taxes........... (14,660) 607 17,555 3,502
Income taxes (benefit)...................... (8,133) 1,153 5,993 (987)
-------- ------- -------- --------
NET INCOME (LOSS)........................... $ (6,527) $ (546) $ 11,562 $ 4,489
======== ======= ======== ========
F-24
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX WEEKS ENDED AUGUST 13, 1999
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
REVENUE
Product sales............................... $ 39,470 $129,546 $(111,680) $57,336
COSTS AND EXPENSES
Cost of product sales....................... 37,484 139,292 (137,095) 39,681
Research and development.................... 8,511 (12) 8,499
Marketing................................... 6,288 1,920 8,208
Administrative and general.................. 2,698 (142) 144 2,700
Harris corporate expense allocations........ 1,393 (85) (144) 1,164
Intangible amortization..................... 326 -- -- 326
-------- -------- --------- -------
Operating income (loss)....................... (17,230) (11,427) 25,415 (3,242)
Interest, net............................... (161) 50 -- (111)
-------- -------- --------- -------
Income (loss) before income taxes........... (17,069) (11,477) 25,415 (3,131)
Income taxes (benefit)...................... (4,943) (15) 4,856 (102)
-------- -------- --------- -------
NET INCOME (LOSS)........................... $(12,126) $(11,462) $ 20,559 $(3,029)
======== ======== ========= =======
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SEVEN WEEKS ENDED OCTOBER 1, 1999
(UNAUDITED)
SUCCESSOR
-------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
REVENUE
Product sales...................... $ -- $ 82,848 $68,979 $(75,279) $ 76,548
COSTS AND EXPENSES
Cost of product sales.............. -- 51,197 63,903 (68,546) 46,554
Research and development........... -- 8,398 -- -- 8,398
Marketing.......................... -- 4,277 4,144 -- 8,421
Administrative and general......... -- 2,186 -- -- 2,186
Harris corporate expense
allocations..................... -- -- -- -- --
Intangible amortization............ -- 7,322 (15,996) 10,092 1,418
In-process R&D charge.............. -- 20,796 -- -- 20,796
------- -------- ------- -------- --------
Operating income (loss).............. -- (11,328) 16,928 (16,825) (11,225)
Interest, net...................... 1,889 8,605 2,267 (4,096) 8,665
Equity in subsidiary (income)
loss)........................... 5,272 -- -- (5,272) --
------- -------- ------- -------- --------
Income (loss) before income
taxes........................... (7,161) (19,933) 14,661 (7,457) (19,890)
Income taxes (benefit)............. -- 268 1,801 (1,847) 222
------- -------- ------- -------- --------
NET INCOME (LOSS).................. (7,161) (20,201) 12,860 (5,610) (20,112)
------- -------- ------- -------- --------
Preferred dividends................ 1,369 1,369 -- (1,369) 1,369
------- -------- ------- -------- --------
Net income (loss) to common
shareholders.................... $(8,530) $(21,570) $12,860 $ (4,241) $(21,481)
======= ======== ======= ======== ========
F-25
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 3, 1998
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
ASSETS
Trade receivables, net...................... $108,895 $ 1,780 -- $110,675
Intercompany balances....................... 51,685 (26,498) $ (25,187) --
Inventories................................. 60,370 158,702 (38,840) 180,232
Other current assets........................ 4,630 671 -- 5,301
Property, plant and equipment, net.......... 327,098 122,986 -- 450,084
Intangibles, net............................ 44,219 -- -- 44,219
Investment in subsidiaries.................. 21,383 65,881 (87,264) --
Other non-current assets.................... 10,350 9,409 -- 19,759
-------- -------- --------- --------
Total Assets............................. $628,630 $332,931 $(151,291) $810,270
======== ======== ========= ========
LIABILITIES AND BUSINESS EQUITY
Accounts payable............................ $ 21,362 $ 11,943 -- $ 33,305
Compensation and benefits................... 39,599 4,871 -- 44,470
Other current liabilities................... 35,701 2,310 $ (13,621) 24,390
Other non-current liabilities............... 9,028 -- -- 9,028
Business Equity............................. 522,940 313,807 (137,670) 699,077
-------- -------- --------- --------
Total Liabilities and Business Equity.... $628,630 $332,931 $(151,291) $810,270
======== ======== ========= ========
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 2, 1999
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
ASSETS
Trade receivables, net...................... $ 97,043 $ 3,631 -- $100,674
Intercompany balances....................... (139,993) 19,554 $120,439 --
Inventories................................. 86,986 86,049 (19,213) 153,822
Other current assets........................ 7,782 946 -- 8,728
Property, plant and equipment, net.......... 291,645 118,885 -- 410,530
Intangibles, net............................ 45,368 -- -- 45,368
Investment in subsidiaries.................. 10,907 72,195 (83,102) --
Other non-current assets.................... 39,721 2,336 -- 42,057
-------- -------- -------- --------
Total Assets............................. $439,459 $303,596 $ 18,124 $761,179
======== ======== ======== ========
LIABILITIES AND BUSINESS EQUITY
Accounts payable............................ $ 21,503 $ 9,565 -- $ 31,068
Compensation and benefits................... 26,120 6,803 -- 32,923
Other current liabilities................... 42,778 (8,254) $ (7,444) 27,080
Other non-current liabilities............... 11,229 -- -- 11,229
Business Equity............................. 337,829 295,482 25,568 658,879
-------- -------- -------- --------
Total Liabilities and Business Equity.... $439,459 $303,596 $ 18,124 $761,179
======== ======== ======== ========
F-26
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AUGUST 14, 1999
SUCCESSOR
--------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
ASSETS
Cash................................ $ -- $ 5,932 $ 1,445 $ -- $ 7,377
Trade receivables, net.............. -- 79,242 3,800 -- 83,042
Intercompany balances............... -- (155,306) (29,102) 184,408 --
Inventories......................... -- 147,441 5,643 (40) 153,044
Other current assets................ -- 9,898 (903) (5,371) 3,624
Property, plant and equipment,
net............................... -- 252,796 95,718 -- 348,514
Intangibles, net.................... -- 90,715 -- -- 90,715
Investment in subsidiaries.......... 210,011 23,240 68 (233,319) --
Other non-current assets............ -- 20,086 752 625 21,463
-------- -------- -------- --------- --------
Total Assets...................... $210,011 $474,044 $ 77,421 $ (53,697) $707,779
======== ======== ======== ========= ========
LIABILITIES AND BUSINESS EQUITY
Accounts payable.................... $ -- $ 16,532 $ 11,390 $ 1,443 $ 29,365
Compensation and benefits........... -- 13,164 5,186 (63) 18,287
Other current liabilities........... -- 41,774 (1,593) 407 40,588
Long-term debt...................... 119,700 421,825 -- -- 541,525
Other non-current liabilities....... -- (7,370) 5,933 9,636 8,199
Preferred stock..................... 85,000 -- -- -- 85,000
Common Stock........................ 1,000 -- -- -- 1,000
Additional paid in capital.......... 4,311 300 -- -- 4,611
Retained deficit.................... -- (12,181) 56,505 (65,120) (20,796)
-------- -------- -------- --------- --------
Total Liabilities and
Stockholders' Equity........... $210,011 $474,044 $ 77,421 $ (53,697) $707,779
======== ======== ======== ========= ========
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
OCTOBER 1, 1999
(UNAUDITED)
SUCCESSOR
--------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
ASSETS
Cash................................ $ -- $ 26,734 7,086 $ -- $ 33,820
Trade receivables, net.............. -- 82,211 2,566 -- 84,777
Intercompany balances............... -- 29,655 (22,162) (7,493) --
Inventories......................... -- 133,535 33,330 (10,481) 156,384
Other current assets................ -- 14,309 (2,757) (3,666) 7,886
Property, plant and equipment,
net............................... -- 243,719 98,479 -- 342,198
Intangibles, net.................... -- 89,297 -- -- 89,297
Investment in subsidiaries.......... 211,900 306,502 95,613 (614,015) --
Other non-current assets............ -- 20,153 1,475 730 22,358
-------- -------- -------- --------- --------
Total Assets...................... $211,900 $946,115 $213,630 $(634,925) $736,720
======== ======== ======== ========= ========
LIABILITIES AND BUSINESS EQUITY
Accounts payable.................... $ -- $ 21,856 $ 10,763 $ -- $ 32,619
Compensation and benefits........... -- 22,882 6,554 -- 29,436
Other current liabilities........... -- 52,930 (738) -- 52,192
Long-term debt...................... 121,589 421,760 -- -- 543,349
Other non-current liabilities....... -- 8,199 -- -- 8,199
Preferred stock..................... 86,369 -- -- -- 86,369
Common stock........................ 1,000 -- -- -- 1,000
Additional paid in capital.......... 2,942 300 -- -- 3,242
Retained deficit.................... -- 418,188 197,051 (634,925) (19,686)
-------- -------- -------- --------- --------
Total Liabilities and
Stockholders' Equity........... $211,900 $946,115 $213,630 $(634,925) $736,720
======== ======== ======== ========= ========
F-27
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 27, 1997
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss)................................... $(27,768) $ 39,028 $ (35) $ 11,225
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization....................... 36,857 15,656 -- 52,513
Changes in working capital.......................... 31,934 16,339 (57,435) (9,162)
-------- -------- ------- --------
Net cash provided by (used in) operating
activities...................................... 41,023 71,023 (57,470) 54,576
INVESTING ACTIVITIES:
Plant and equipment................................... (134,875) (38,429) -- (173,304)
-------- -------- ------- --------
Net cash used in investing activities............. (134,875) (38,429) -- (173,304)
FINANCING ACTIVITIES:
Proceeds from borrowings............................ 1,450 -- -- 1,450
Payments of borrowings.............................. (48) -- -- (48)
Net cash transfer and billings from (to) parent..... 92,450 (33,815) 57,470 116,105
-------- -------- ------- --------
Net cash provided by financing activities......... 93,852 (33,815) 57,470 117,507
Effect of exchange rates on cash and cash
equivalents......................................... -- 1,221 -- 1,221
-------- -------- ------- --------
Net increase in cash.............................. -- -- -- --
Cash at the beginning of the period............... -- -- -- --
-------- -------- ------- --------
Cash at the end of the period..................... $ -- $ -- $ -- $ --
======== ======== ======= ========
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JULY 3, 1998
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)................................... $ (908) $18,418 $ (4,599) $ 12,911
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization....................... 51,295 16,036 -- 67,331
Changes in working capital.......................... (154,815) 12,669 110,235 (31,911)
-------- ------- --------- --------
Net cash provided by (used in) operating
activities...................................... (104,428) 47,123 105,636 48,331
INVESTING ACTIVITIES:
Plant and equipment................................... (49,762) (40,422) -- (90,184)
-------- ------- --------- --------
Net cash used in investing activities............. (49,762) (40,422) -- (90,184)
FINANCING ACTIVITIES:
Proceeds from borrowings............................ 2,750 -- -- 2,750
Payments of borrowings.............................. (83) -- -- (83)
-------- ------- --------- --------
Net cash transfer and billings from (to) parent..... 151,523 (4,043) (105,636) 41,844
Net cash provided by financing activities......... 154,590 (4,043) (105,636) 44,511
Effect of exchange rates on cash and cash
equivalents......................................... -- (2,658) -- (2,658)
-------- ------- --------- --------
Net increase in cash.............................. -- -- -- --
Cash at the beginning of the period............... -- -- -- --
-------- ------- --------- --------
Cash at the end of the period..................... $ -- $ -- $ -- $ --
======== ======= ========= ========
F-28
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JULY 2, 1999
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)................................... $ 4,431 $ 121,273 $(98,298) $ 27,406
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization....................... 59,615 21,016 -- 80,631
Changes in working capital.......................... 147,981 19,084 (163,853) 3,212
--------- --------- -------- --------
Net cash provided by (used in) operating
activities...................................... 212,027 161,373 (262,151) 111,249
INVESTING ACTIVITIES:
Cash paid for acquired business....................... (1,335) -- -- (1,335)
Plant and equipment................................... (21,648) (16,915) -- (38,563)
--------- --------- -------- --------
Net cash used in investing activities............. (22,983) (16,915) -- (39,898)
FINANCING ACTIVITIES:
Proceeds from borrowings............................ 800 -- -- 800
Payments of borrowings.............................. (302) -- -- (302)
Net cash transfer and billings from (to) parent..... (189,542) (139,639) 262,151 (67,030)
--------- --------- -------- --------
Net cash provided by financing activities......... (189,044) (139,639) 262,151 (66,532)
Effect of exchange rates on cash and cash
equivalents......................................... -- (4,819) -- (4,819)
--------- --------- -------- --------
Net increase in cash.............................. -- -- -- --
Cash at the beginning of the period............... -- -- -- --
--------- --------- -------- --------
Cash at the end of the period..................... $ -- $ -- $ -- $ --
========= ========= ======== ========
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THIRTEEN WEEKS ENDED OCTOBER 2, 1998
(UNAUDITED)
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)................................... $ (6,528) $ (545) $ 11,562 $ 4,489
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization....................... 14,832 4,755 -- 19,587
Non-current deferred income taxes................... (56,952) -- 58,367 1,415
Changes in working capital.......................... (154,375) (41,274) 182,897 (12,752)
-------- ------- --------- --------
Net cash provided by (used in) operating
activities...................................... (203,023) (37,064) 252,826 12,739
INVESTING ACTIVITIES:
Plant and equipment................................... (9,469) (3,632) -- (13,101)
-------- ------- --------- --------
Net cash used in investing activities............. (9,469) (3,632) -- (13,101)
FINANCING ACTIVITIES:
Proceeds from borrowings............................ -- -- -- --
Payments of borrowings.............................. (4,069) -- 4,028 (41)
Net cash transfer and billings from (to) parent..... 216,561 40,736 (256,854) 443
-------- ------- --------- --------
Net cash provided by (used in) financing
activities...................................... (212,492) 40,736 (252,826) 402
Effect of exchange rates on cash and cash
equivalents......................................... -- (40) -- (40)
-------- ------- --------- --------
Net increase in cash.............................. -- -- -- --
Cash at the beginning of the period............... -- -- -- --
-------- ------- --------- --------
Cash at the end of the period..................... $ -- $ -- $ -- $ --
======== ======= ========= ========
F-29
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX WEEKS ENDED AUGUST 13, 1999
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)............................. $ (11,462) $ (12,126) $ 20,559 $(3,029)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization................. 2,380 6,693 -- 9,073
Non-current deferred income taxes............. -- 4,815 (9,571) (4,756)
Changes in working capital.................... 210,864 128,451 (337,221) 2,094
--------- --------- --------- -------
Net cash provided by (used in) operating
activities............................... 201,782 127,833 (326,233) 3,382
INVESTING ACTIVITIES:
Plant and equipment............................. (1,020) (867) -- (1,887)
--------- --------- --------- -------
Net cash used in investing activities....... (1,020) (867) -- (1,887)
FINANCING ACTIVITIES:
Payments of borrowings........................ -- 4,535 (4,567) (32)
Net cash transfer and billings from (to)
parent...................................... (200,497) (131,501) 330,800 (1,198)
--------- --------- --------- -------
Net cash provided by (used in) financing
activities............................... (200,497) (126,966) 326,233 (1,230)
Effect of exchange rates on cash and cash
equivalents................................... 1,177 -- -- 1,177
--------- --------- --------- -------
Net increase in cash............................ -- -- -- 1,442
Cash at the beginning of the period............. -- -- -- --
--------- --------- --------- -------
Cash at the end of the period................... $ 1,442 $ -- $ -- $ 1,442
========= ========= ========= =======
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SEVEN WEEKS ENDED OCTOBER 1, 1999
(UNAUDITED)
SUCCESSOR
--------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)................... $ (1,889) $(20,201) $12,860 $ (10,882) $(20,112)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation and amortization....... -- 7,628 2,530 -- 10,158
Changes in working capital.......... 1,889 30,573 (5,675) 10,882 37,669
-------- -------- ------- --------- --------
Net cash provided by (used in)
operating activities........... -- 18,000 9,715 -- 27,715
INVESTING ACTIVITIES:
Plant and equipment................... -- 2,867 (5,291) -- (2,424)
-------- -------- ------- --------- --------
Net cash used in investing
activities..................... -- 2,867 (5,291) -- (2,424)
FINANCING ACTIVITIES:
Payments of borrowings.............. -- (65) -- -- (65)
Net cash transfer and billings from
(to) parent....................... -- -- -- -- --
-------- -------- ------- --------- --------
Net cash provided by financing
activities..................... -- (65) -- -- (65)
Effect of exchange rates on cash and
cash
equivalents......................... -- -- 1,217 -- 1,217
-------- -------- ------- --------- --------
Net increase in cash.................. -- 20,802 5,641 -- 26,443
Cash at the beginning of the period... -- 5,932 1,445 -- 7,377
-------- -------- ------- --------- --------
Cash at the end of the period......... $ -- $ 26,734 $ 7,086 $ -- $ 33,820
======== ======== ======= ========= ========
F-30
[INTERSIL LOGO]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, the Certificates of
Incorporation of Intersil and Intersil Holding, and as permitted by the Kansas
General Corporation Law, the Articles of Incorporation of Choice-Intersil
Microsystems, Inc., provide that their directors shall not be personally liable
to those Registrants or their stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to those Registrants or their stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law and Section 17-6424 of the Kansas General Corporation Law,
relating to prohibited dividends or distributions or the repurchase or
redemption of stock, or (iv) for any transaction from which the director derives
an improper personal benefit. In addition, the By-laws of Intersil, Intersil
Holding and Choice-Intersil Microsystems, Inc. provide for indemnification of
their officers and directors to the fullest extent permitted under Delaware and
Kansas law, as applicable. Section 145 of the Delaware General Corporation Law
and Section 17-6305 of the Kansas General Corporation Law provide that a
corporation may indemnify any persons, including officers and directors, who
were or are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation), by reason of the fact that such person was an officer, director,
employee or agent of the corporation or is or was serving at the request of the
corporation as an officer, director, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. The indemnity may include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
the action, suit or proceeding, provided such person acted in good faith and in
a manner he reasonably believed to be in or not opposed to the corporation's
best interests and, for criminal proceedings, had no reasonable cause to believe
that his conduct was unlawful. A Delaware or Kansas corporation may indemnify
officers and directors in an action by or in the right of the corporation under
the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses that such officer or director actually and
reasonably incurred. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers or persons
controlling an Issuer pursuant to the foregoing provisions, the Issuers have
been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
Each of Intersil (Florida), LLC, Intersil (Ohio), LLC and Intersil
(Pennsylvania), LLC is empowered by Section 18-108 of the Delaware Limited
Liability Company Act, subject to the procedures and limitations in the Delaware
Limited Liability Company Act, to indemnify and hold harmless any member or
manager or other person from and against any and all claims and demands
whatsoever, subject to such standards and restrictions, if any, as are set forth
in its limited liability company agreement. Article IV of Intersil (Ohio) LLC's
and Intersil (Pennsylvania) LLC's limited liability company agreements authorize
them to indemnify their directors and officers to the fullest extent permitted
by Delaware law. Article V of Intersil (Florida) LLC's limited liability company
agreement authorizes it to indemnify its directors and officers to the fullest
extent permitted by Delaware law and to the extent authorized by a majority of
the Board of Directors or by the members, upon a determination that the person
acted in good faith and is fairly and reasonably entitled to indemnification.
The directors and officers of the Registrants are insured against certain
liabilities under the Registrants' directors' and officers' liability insurance.
The foregoing summary of the Delaware General Corporation Law, Kansas
General Corporation Law and Delaware Limited Liability Company Act and of the
Certificate of Incorporation and By-laws and limited liability company
agreements of each Issuer is qualified in its entirety by reference to the
relevant provisions
II-1
of the Delaware General Corporation Law and of each Issuer's Certificate of
Incorporation and By-laws, which are filed as exhibits to this Registration
Statement.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
Incorporated by reference to the Exhibit Index following page II-9
hereto.
(b) Financial Statement Schedules:
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS $)
ADDITIONS
CHARGED ADDITIONS
BALANCE AT TO COSTS CHARGED DEDUCTION BALANCE
BEGINNING AND TO OTHER FROM AT END OF
OF PERIOD EXPENSES ACCOUNTS RESERVES PERIOD
---------- --------- --------- --------- ---------
Valuation and qualifying accounts deducted
from the assets to which they apply:
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
1999....................................... $ 571 $ 487 $ -- $ 476 $ 582
1998....................................... $ 1,336 $ 324 $ -- $ 1,089 $ 571
1997....................................... $ 757 $ 336 $300 $ 57 $ 1,336
INVENTORY RESERVE
1999....................................... $24,482 $ 8,373 $257 $14,995 $18,117
1998....................................... $31,736 $ 9,846 $120 $17,220 $24,482
1997....................................... $25,385 $10,007 $ 46 $ 3,702 $31,736
DISTRIBUTOR RESERVES
1999....................................... $ 6,189 $52,965 $ -- $52,612 $ 6,542
1998....................................... $11,278 $66,062 $ -- $71,151 $ 6,189
1997....................................... $ 7,520 $65,374 $ -- $61,616 $11,278
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and have therefore been
omitted.
ITEM 22. UNDERTAKINGS
(a) Each of the undersigned registrants hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate
II-2
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
each registrant pursuant to the foregoing provisions, or otherwise, each
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, each registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) Each of the undersigned registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(d) Each of the undersigned registrants hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the corporation being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palm Bay, State of Florida, on the 12th day of
January, 2000.
INTERSIL CORPORATION
By: GREGORY L. WILLIAMS
------------------------------------
Gregory L. Williams
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on January 12, 2000.
SIGNATURE TITLE
--------- -----
GREGORY L. WILLIAMS Chief Executive Officer and Director
- ----------------------------------------------------- (principal executive officer)
Gregory L. Williams
* Secretary, Chief Financial Officer
- ----------------------------------------------------- and Vice President (principal financial and
Daniel J. Heneghan accounting officer)
* Director
- -----------------------------------------------------
James A. Urry
* Director
- -----------------------------------------------------
Gary E. Gist
By: GREGORY L. WILLIAMS
-------------------------------------------------
Gregory L. Williams
Attorney-in-Fact
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palm Bay, State of Florida, on the 12th day of
January, 2000.
INTERSIL HOLDING CORPORATION
By: GREGORY L. WILLIAMS
------------------------------------
Gregory L. Williams
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on January 12, 2000.
SIGNATURE TITLE
--------- -----
GREGORY L. WILLIAMS Chief Executive Officer and Director
- ----------------------------------------------------- (principal executive officer)
Gregory L. Williams
* Secretary, Chief Financial Officer and Vice President
- ----------------------------------------------------- (principal financial and accounting officer)
Daniel J. Heneghan
* Director
- -----------------------------------------------------
James A. Urry
* Director
- -----------------------------------------------------
Gary E. Gist
By: GREGORY L. WILLIAMS
-------------------------------------------------
Gregory L. Williams
Attorney-in-Fact
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palm Bay, State of Florida, on the 12th day of
January, 2000.
INTERSIL (FL), LLC
By: GREGORY L. WILLIAMS
------------------------------------
Gregory L. Williams
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on January 12, 2000.
SIGNATURE TITLE
--------- -----
GREGORY L. WILLIAMS Chief Executive Officer
- ----------------------------------------------------- (principal executive officer)
Gregory L. Williams
* Secretary, Controller and Vice President
- ----------------------------------------------------- (principal financial and accounting officer)
Daniel J. Heneghan
By: GREGORY L. WILLIAMS
-------------------------------------------------
Gregory L. Williams
Attorney-in-Fact
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palm Bay, State of Florida, on the 12th day of
January, 2000.
INTERSIL (PA), LLC
By: GREGORY L. WILLIAMS
------------------------------------
Gregory L. Williams
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on January 12, 2000.
SIGNATURE TITLE
--------- -----
GREGORY L. WILLIAMS Chief Executive Officer
- ----------------------------------------------------- (principal executive officer)
Gregory L. Williams
* Secretary, Controller and Vice President (principal
- ----------------------------------------------------- financial and accounting officer)
Daniel J. Heneghan
By: GREGORY L. WILLIAMS
-------------------------------------------------
Gregory L. Williams
Attorney-in-Fact
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palm Bay, State of Florida, on the 12th day of
January, 2000.
INTERSIL (OH), LLC
By: GREGORY L. WILLIAMS
------------------------------------
Gregory L. Williams
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on January 12, 2000.
SIGNATURE TITLE
--------- -----
GREGORY L. WILLIAMS Chief Executive Officer
- ----------------------------------------------------- (principal executive officer)
Gregory L. Williams
* Secretary, Controller and Vice President (principal
- ----------------------------------------------------- financial and accounting officer)
Daniel J. Heneghan
By: GREGORY L. WILLIAMS
-------------------------------------------------
Gregory L. Williams
Attorney-in-Fact
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palm Bay, State of Florida, on the 12th day of
January, 2000.
CHOICE-INTERSIL MICROSYSTEMS, INC.
By: GREGORY L. WILLIAMS
------------------------------------
Gregory L. Williams
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on January 12, 2000.
SIGNATURE TITLE
--------- -----
GREGORY L. WILLIAMS Chief Executive Officer and Director
- ----------------------------------------------------- (principal executive officer)
Gregory L. Williams
* Secretary, Controller and Vice President (principal
- ----------------------------------------------------- financial and accounting officer)
Daniel J. Heneghan
* Director
- -----------------------------------------------------
James A. Urry
* Director
- -----------------------------------------------------
Gary E. Gist
By: GREGORY L. WILLIAMS
-------------------------------------------------
Gregory L. Williams
Attorney-in-Fact
II-9
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
2.01* Amended and Restated Master Transaction Agreement dated as
of June 2, 1999, by and among Intersil Holding Corporation
("Holding"), Intersil Corporation ("Intersil") and Harris
Corporation ("Harris") (incorporated by reference to Exhibit
2.01 to the Registration Statement on Form S-1 previously
filed by Intersil Holding Corporation on November 10, 1999
("Registration Statement on Form S-1")).
2.02* Agreement Concerning Deferred Closings dated as of August
13, 1999, by and among Harris and Intersil (incorporated by
reference to Exhibit 2.02 to the Registration Statement on
Form S-1).
2.03* Transition Services Agreement dated as of August 13, 1999,
by and among Intersil and Harris (incorporated by reference
to Exhibit 2.03 to the Registration Statement on Form S-1).
2.04* Share Sale Agreement dated August 13, 1999, between Harris
Airport Systems (Malaysia) Sdn. Bhd., Harris Solid State
(Malaysia) Sdn. Bhd. and Sapphire Worldwide Investments,
Inc. (incorporated by reference to Exhibit 2.04 to the
Registration Statement on Form S-1).
2.05* Agreement for the Sale and Purchase of the Business and
Assets of Harris Semiconductor Limited dated as of August
13, 1999, between Harris Semiconductor Limited and Intersil
Limited (incorporated by reference to Exhibit 2.05 to the
Registration Statement on Form S-1).
2.06* Asset Purchase Agreement dated as of August 20, 1999,
between Harris Semiconductor Design & Sales Pte. Ltd. and
Intersil Pte. Ltd. (incorporated by reference to Exhibit
2.06 to the Registration Statement on Form S-1).
2.07* Purchase Agreement of Corporate Quotas of a Limited
Liability Company, dated as of August 13, 1999, between
Harris Semiconductor BV, Harris Semiconductor Limited and
Intersil (incorporated by reference to Exhibit 2.07 to the
Registration Statement on Form S-1).
2.08* Assignment of Shares, dated as of August 13, 1999, between
Intersil and Harris for the transfer by Harris of all of its
shares of Harris Semiconducteurs, Sarl to Intersil
(incorporated by reference to Exhibit 2.08 to the
Registration Statement on Form S-1).
2.09* Share Transfer Agreement, dated as of August 1, 1999,
between Harris and Intersil for the transfer of stock of
Harris Semiconductor Y.H. (incorporated by reference to
Exhibit 2.09 to the Registration Statement on Form S-1).
2.10* Equity Purchase Agreement, dated as of August 13, 1999,
between Harris Advanced Technology (Malaysia) Sdn. Bhd. and
Harris Airport Systems (M) Sdn. Bhd. (incorporated by
reference to Exhibit 2.10 to the Registration Statement on
Form S-1).
2.11* Agreement Re: China Subsidiaries, dated as of August 13,
1999, between Harris and Intersil (incorporated by reference
to Exhibit 2.11 to the Registration Statement on Form S-1).
2.12* Agreement Re: Anshan Joint Venture, dated as of August 13,
1999, between Harris Advanced Technology (Malaysia) Sdn.
Bhd. and Harris Airport Systems (M) Sdn. Bhd. (incorporated
by reference to Exhibit 2.12 to the Registration Statement
on Form S-1).
2.13* Agreement Re: Guangzhou Joint Venture, dated as of August
13, 1999, between Harris Advanced Technology (Malaysia) Sdn.
Bhd. and Harris Airport Systems (M) Sdn. Bhd. (incorporated
by reference to Exhibit 2.13 to the Registration Statement
on Form S-1).
2.14* Agreement Re: Suzhou Harris, dated as of August 13, 1999,
between Harris Advanced Technology (Malaysia) Sdn. Bhd. and
Harris Airport Systems (M) Sdn. Bhd. (incorporated by
reference to Exhibit 2.14 to the Registration Statement on
Form S-1).
2.15* Intellectual Property Agreement, dated as of August 13,
1999, among Harris, Harris Semiconductor Patents, Inc. and
Holding (incorporated by reference to Exhibit 2.15 to the
Registration Statement on Form S-1).
2.16* Patent Assignment and Services Agreement, dated as of August
13, 1999, among Harris, Harris Semiconductor Patents, Inc.
and Holding (incorporated by reference to Exhibit 2.16 to
the Registration Statement on Form S-1).
2.17* License Assignment Agreement, dated as of August 13, 1999,
among Harris, Harris Semiconductor Patents, Inc. and Holding
(incorporated by reference to Exhibit 2.17 to the
Registration Statement on Form S-1).
2.18* Harris Trademark License Agreement, dated as of August 13,
1999, among Harris, HAL Technologies, Inc. and Holding
(incorporated by reference to Exhibit 2.18 to the
Registration Statement on Form S-1).
2.19* Secondary Trademark Assignment and License Agreement, dated
as of August 13, 1999, between Harris and Holding
(incorporated by reference to Exhibit 2.19 to the
Registration Statement on Form S-1).
EXHIBIT
NO. DESCRIPTION
- ------- -----------
2.20* PRISM(Registered) Intellectual Property Assignment, dated
August 13, 1999, between Holding and Intersil (incorporated
by reference to Exhibit 2.20 to the Registration Statement
on Form S-1).
2.21* Tax Sharing Agreement, dated as of August 13, 1999, among
Holding, Intersil and Choice Microsystems, Inc.
(incorporated by reference to Exhibit 2.21 to the
Registration Statement on Form S-1).
2.22* Royalty Agreement, dated as of August 13, 1999, among Harris
and Intersil (incorporated by reference to Exhibit 2.22 to
the Registration Statement on Form S-1).
2.23* Option Agreement, dated as of August 13, 1999, among
Intersil and Intersil PRISM, LLC (incorporated by reference
to Exhibit 2.23 to the Registration Statement on Form S-1).
3.01* Certificate of Incorporation of Intersil, as amended.
3.02* Bylaws of Intersil.
3.03* Certificate of Incorporation of Holding, as amended
(incorporated by reference to Exhibit 3.01 to the
Registration Statement on Form S-1).
3.04* Bylaws of Holding (incorporated by reference to Exhibit 3.02
to the Registration Statement on Form S-1).
3.05* Certificate of Formation of Intersil (FL), LLC, as amended.
3.06* Certificate of Formation of Intersil (OH), LLC, as amended.
3.07* Certificate of Formation of Intersil (PA), LLC, as amended.
3.08* Certificate of Incorporation of Choice-Intersil
Microsystems, Inc., as amended.
3.09* Bylaws of Choice-Intersil Microsystems, Inc.
4.01* Indenture, dated as of August 13, 1999, among Intersil,
Holding, Harris Semiconductor, LLC, Harris Semiconductor
(Ohio), LLC, Harris Semiconductor (Pennsylvania), LLC,
Choice Microsystems, Inc. and United States Trust Company of
New York for 13 1/4% Senior Subordinated Notes due 2009
(incorporated by reference to Exhibit 10.01 to the
Registration Statement on Form S-1).
4.02* Form of 13 1/4% Senior Subordinated Notes due 2009 (included
in Exhibit 4.01).
4.03* Purchase Agreement, dated as of August 6, 1999, between
Intersil, Holding, Harris Semiconductor, LLC, Harris
Semiconductor (Ohio), LLC, Harris Semiconductor
(Pennsylvania), LLC, Choice Microsystems, Inc., Credit
Suisse First Boston Corporation, J. P. Morgan Securities
Inc. and Salomon Smith Barney Inc. (incorporated by
reference to Exhibit 4.02 to the Registration Statement on
Form S-1).
4.04* Registration Rights Agreement, dated as of August 6, 1999,
between Intersil, Holding, Harris Semiconductor, LLC, Harris
Semiconductor (Ohio), LLC, Harris Semiconductor
(Pennsylvania), LLC, Choice Microsystems, Inc., Credit
Suisse First Boston Corporation, J. P. Morgan Securities
Inc. and Salomon Smith Barney Inc. (incorporated by
reference to Exhibit 4.03 to the Registration Statement on
Form S-1).
5.01* Opinion of Dechert Price & Rhoads.
5.02* Opinion of Stinson Magg & Fizzell.
8.01* Opinion of Dechert Price & Rhoads.
10.01* Warrant Agreement, dated as of August 13, 1999, between
Holding and United States Trust Company of New York
(incorporated by reference to Exhibit 4.01 to the
Registration Statement on Form S-1).
10.02* Credit Agreement, dated as of August 13, 1999, among
Intersil, the Lender Parties thereto, Credit Suisse First
Boston, as the Administrative Agent, Salomon Smith Barney,
as Syndication Agent, and Morgan Guaranty Trust Company of
New York, as Documentation Agent (incorporated by reference
to Exhibit 10.03 to the Registration Statement on Form S-1).
10.03* Subordinated Credit Agreement, dated as of August 13, 1999,
among Holding and Citicorp Mezzanine Partners, L.P. for
13 1/2% Subordinated Pay-In-Kind Note due 2010 (incorporated
by reference to Exhibit 10.04 to the Registration Statement
on Form S-1).
10.04* Form of 13 1/2% Subordinated Pay-In-Kind Note due 2010
(included in Exhibit 10.03).
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.05* Indenture, dated as of August 13, 1999, among Holding and
United States Trust Company of New York for 11.13%
Subordinated Pay-In-Kind Notes due 2010 (incorporated by
reference to Exhibit 10.06 to the Registration Statement on
Form S-1).
10.06* Form of 11.13% Subordinated Pay-In-Kind Note due 2010
(included in Exhibit 10.05).
10.07* Registration Rights Agreement, dated August 13, 1999, among
Holding, Sterling Holding Company, LLC, Manatee Investment
Corporation, Citicorp Mezzanine Partners, L.P. and the
management investors named therein (incorporated by
reference to Exhibit 10.08 to the Registration Statement on
Form S-1).
10.08* Securities Purchase and Holders Agreement, dated as of
August 13, 1999, among Holding, Sterling Holding Company,
LLC, Manatee Investment Corporation, Intersil Prism LLC,
Citicorp Mezzanine Partners, L.P., William N. Stout and the
management investors named therein (incorporated by
reference to Exhibit 10.09 to the Registration Statement on
Form S-1).
10.09* Option Award Agreement, dated as of August 13, 1999
(incorporated by reference to Exhibit 10.10 to the
Registration Statement on Form S-1).
10.10* Employment Agreement, dated as of August 9, between Intersil
and Gregory L. Williams (incorporated by reference to
Exhibit 10.11 to the Registration Statement on Form S-1).
10.11* Agreement between Harris and Local Union No. 1907
International Brotherhood of Electrical Workers, AFL-CIO
(Findlay, OH Facility), effective as of July 1, 1996
(incorporated by reference to Exhibit 10.12 to the
Registration Statement on Form S-1).
10.12* Agreement between Harris and Local Union 177 International
Union of Electronic, Electrical, Salaried, Machine and
Furniture Workers, AFL-CIO (Mountaintop, PA Facility),
effective December 1, 1998 (incorporated by reference to
Exhibit 10.13 to the Registration Statement on Form S-1).
10.13* Machinery and Equipment Loan Agreement, dated September 9,
1996, between Commonwealth of Pennsylvania, Department of
Community and Economic Development and Harris (incorporated
by reference to Exhibit 10.14 to the Registration Statement
on Form S-1).
10.14* Machinery and Equipment Loan Agreement, dated as of November
3, 1998, between Commonwealth of Pennsylvania, Department of
Community and Economic Development and Harris (incorporated
by reference to Exhibit 10.15 to the Registration Statement
on Form S-1).
10.15* Master Agreement, dated as of December 2, 1997, between
Harris Semiconductor and Optum Software (incorporated by
reference to Exhibit 10.16 to the Registration Statement on
Form S-1).
10.16* Purchase Agreement, dated as of March 14, 1997, between
Harris Semiconductor and Praxair, Inc. (incorporated by
reference to Exhibit 10.17 to the Registration Statement on
Form S-1).
10.17* Asset Purchase Agreement, dated as of July 2, 1999, by and
among Align-Rite International, Inc., Align-Rite, Inc. and
Harris (incorporated by reference to Exhibit 10.18 to the
Registration Statement on Form S-1).
10.18* Bill of Sale and Assignment, dated as of July 2, 1999, by
Harris in favor of Align-Rite International, Inc. and
Align-Rite, Inc. (incorporated by reference to Exhibit 10.19
to the Registration Statement on Form S-1).
10.19* Lease Agreement, dated as of July 2, 1999, by and among
Harris Corporation Semiconductor Business Unit and
Align-Rite, Inc. (incorporated by reference to Exhibit 10.20
to the Registration Statement on Form S-1).
10.20* Photomask Supply and Strategic Alliance Agreement, dated as
of July 2, 1999, by and among Harris, Align-Rite
International, Inc. and Align-Rite, Inc. (incorporated by
reference to Exhibit 10.21 to the Registration Statement on
Form S-1).
10.21* Site Services Agreement, dated as of July 2, 1999, by and
among Harris Corporation Semiconductor Business Unit and
Align-Rite, Inc. (incorporated by reference to Exhibit 10.22
to the Registration Statement on Form S-1).
10.22* Software License Agreement, dated as of July 31, 1984,
between Harris and Consilium Associates, Inc. (incorporated
by reference to Exhibit 10.23 to the Registration Statement
on Form S-1).
10.23* Addendum Software License and Maintenance Agreement, dated
as of October 27, 1995, between Harris and Consilium, Inc.
(incorporated by reference to Exhibit 10.24 to the
Registration Statement on Form S-1).
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.24* Specialty Gas Supply Agreement, dated as of October 15,
1996, between Air Products and Chemicals, Inc. and Harris
(incorporated by reference to Exhibit 10.25 to the
Registration Statement on Form S-1).
10.25* Silicon Wafer Purchase Agreement, dated as of January 1,
1997, between Mitsubishi Silicon America Corporation and
Harris (incorporated by reference to Exhibit 10.26 to the
Registration Statement on Form S-1).
10.26* Nitrogen Supply Agreement, dated as of September 22, 1992,
between Harris Corporation Semiconductor Sector and Liquid
Air Corporation Merchant Gases Division (incorporated by
reference to Exhibit 10.27 to the Registration Statement on
Form S-1).
10.27* Nitrogen Supply System Agreement, Amendment Number 1, dated
as of September 15, 1996, between Air Liquide America
Corporation and Harris Corporation Semiconductor Sector
(incorporated by reference to Exhibit 10.28 to the
Registration Statement on Form S-1).
10.28* Site Subscription Agreement, dated as of July 1, 1993,
between Harris Semiconductor Sector of Harris and Cadence
Design Systems, Inc. (incorporated by reference to Exhibit
10.29 to the Registration Statement on Form S-1).
10.29* Site Subscription Addendum, dated December 19, 1997, between
Harris Semiconductor Sector of Harris and Cadence Design
Systems, Inc. (incorporated by reference to Exhibit 10.30 to
the Registration Statement on Form S-1).
10.30* HMCD--HSS Memorandum of Agreement, dated March 26, 1999,
between Harris Microwave Communication Division and Harris
Semiconductor Sector (incorporated by reference to Exhibit
10.31 to the Registration Statement on Form S-1).
10.31* Investment Agency Appointment and Participation
Authorization, dated September 3, 1999, between Intersil,
Intersil Corporation Master Trust and T. Rowe Price Trust
Company (incorporated by reference to Exhibit 10.32 to the
Registration Statement on Form S-1).
10.32* Investment Agency Appointment and Participation Authority,
dated September 3, 1999, between Intersil Corporation Master
Trust and T. Rowe Price Trust Company (incorporated by
reference to Exhibit 10.33 to the Registration Statement on
Form S-1).
10.33* Investment Advisory Agreement (Equity Growth Fund), dated
September 3, 1999, between T. Rowe Price Associates, Inc.
and Intersil Corporation Retirement Committee (incorporated
by reference to Exhibit 10.34 to the Registration Statement
on Form S-1).
10.34* Investment Advisory Agreement (Equity Income Fund), dated
September 3, 1999, between T. Rowe Price Associates, Inc.
and Intersil Corporation Retirement Committee (incorporated
by reference to Exhibit 10.35 to the Registration Statement
on Form S-1).
10.35* Intersil Corporation Retirement Plan (Non-Union), dated
September 3, 1999 (incorporated by reference to Exhibit
10.36 to the Registration Statement on Form S-1).
10.36* Intersil Corporation Retirement Plan (Union), dated
September 3, 1999 (incorporated by reference to Exhibit
10.37 to the Registration Statement on Form S-1).
10.37* Commercial Supply Agreement, dated December 3, 1998, by and
between Texas Instruments Incorporated and Harris
(incorporated by reference to Exhibit 10.38 to the
Registration Statement on Form S-1).
10.38* Military Supply Agreement, dated December 3, 1998, by and
between Texas Instruments Incorporated and Harris
(incorporated by reference to Exhibit 10.39 to the
Registration Statement on Form S-1).
10.39* Intellectual Property Agreement, dated December 3, 1998, by
and between Texas Instruments Incorporated, Harris, Harris
Advanced Technology (Malaysia) Sdn. Bhd. and Harris
Southwest Properties, Inc. (incorporated by reference to
Exhibit 10.40 to the Registration Statement on Form S-1).
10.40* Asset Transfer Agreement, dated December 3, 1998, by and
between Texas Instruments Incorporated and Harris Advanced
Technology (Malaysia) Sdn. Bhd. (incorporated by reference
to Exhibit 10.41 to the Registration Statement on Form S-1).
10.41* Military Asset Purchase Agreement, dated October 23, 1998,
by and between Texas Instruments Incorporated, Harris,
Harris Advanced Technology (Malaysia) Sdn. Bhd. and Harris
Southwest Properties, Inc. (incorporated by reference to
Exhibit 10.42 to the Registration Statement on Form S-1).
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.42* Commercial Asset Purchase Agreement, dated October 23, 1998,
by and between Texas Instruments Incorporated, Harris,
Harris Advanced Technology (Malaysia) Sdn. Bhd. and Harris
Southwest Properties, Inc. (incorporated by reference to
Exhibit 10.43 to the Registration Statement on Form S-1).
10.43* Certificate of Leasehold Property for Land Office No. 7668
by Harris Advanced Technology (M) Sdn. Bhd. (incorporated by
reference to Exhibit 10.44 to the Registration Statement on
Form S-1).
10.44* State Lease for Lot No. 7716 by Harris Advanced Technology
(Malaysia) Sdn. Bhd. (incorporated by reference to Exhibit
10.45 to the Registration Statement on Form S-1).
10.45* Certificate of Leasehold Property for Land Office No. 7666
by Harris Advanced Technology (M) Sdn. Bhd. (incorporated by
reference to Exhibit 10.46 to the Registration Statement on
Form S-1).
12.01* Statement of Computation of Ratio of Earnings to Fixed
Charges (incorporated by reference to Exhibit 12.01 to the
Registration Statement on Form S-1).
21.01* Subsidiaries of Intersil and the Additional Registrants.
23.01 Consent of Dechert Price & Rhoads (included in Exhibit
5.01).
23.02 Consent of Stinson Magg & Fizzell (included in Exhibit
5.02).
23.03 Consent of Ernst & Young LLP.
25.01* Statement of Eligibility and Qualification of United States
Trust Company of New York on Form T-1.
27.01* Financial Data Schedule (incorporated by reference to
Exhibit 27.01 to the Registration Statement on Form S-1).
99.01* Form of Letter of Transmittal.
99.02* Form of Notice of Guaranteed Delivery.
99.03* Letter to Holders of 13 1/4% Senior Subordinated Notes Due
2009 Concerning Offer For All Outstanding 13 1/4% Senior
Subordinated Notes Due 2009 in Exchange for 13 1/4% Senior
Subordinated Notes Due 2009 of Intersil Corporation Which
Have Been Registered Under the Securities Act of 1933, as
amended.
99.04* Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees Concerning Offer For All
Outstanding 13 1/4% Senior Subordinated Notes Due 2009 in
Exchange for 13 1/4% Senior Subordinated Notes Due 2009 of
Intersil Corporation Which Have Been Registered Under the
Securities Act of 1933, as amended.
99.05* Letter to Clients Concerning Offer For All Outstanding
13 1/4% Senior Subordinated Notes Due 2009 in Exchange for
13 1/4% Senior Subordinated Notes Due 2009 of Intersil
Corporation Which Have Been Registered Under the Securities
Act of 1933, as amended.
99.06* Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
- ------------------
* Previously filed.