1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 2001
REGISTRATION NO. 333-58848
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FAIRCHILD SEMICONDUCTOR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3674 77-0449095
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
------------------------
82 RUNNING HILL ROAD
SOUTH PORTLAND, MAINE 04106
(207) 775-8100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S AND CO-REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
DANIEL E. BOXER
EXECUTIVE VICE PRESIDENT AND CHIEF ADMINISTRATIVE OFFICER, GENERAL COUNSEL AND
SECRETARY
FAIRCHILD SEMICONDUCTOR CORPORATION
(207) 775-8100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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WITH A COPY TO:
STEVEN R. FINLEY
GIBSON, DUNN & CRUTCHER LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 351-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If 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 statement 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 number of the earlier effective registration statement for the same
offering: [ ]
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THE REGISTRANT AND THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION
STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT AND THE CO-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, AS
AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE
AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
*OTHER REGISTRANTS
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STATE OR OTHER PRIMARY STANDARD
JURISDICTION INDUSTRIAL I.R.S. EMPLOYER
EXACT NAME OF REGISTRANT OF INCORPORATION OR CLASSIFICATION CODE IDENTIFICATION
AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBERS NUMBER
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Fairchild Semiconductor International, Inc.**.... Delaware 3674 04-3363001
Fairchild Semiconductor Corporation of
California**................................... Delaware 3674 04-3398512
QT Optoelectronics, Inc.**....................... Delaware 3674 77-0458987
QT Optoelectronics**............................. California 3674 77-0263124
KOTA Microcircuits, Inc.**....................... Colorado 3674 84-1461973
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** Address and telephone number of principal executive offices are the same as
those of Fairchild Semiconductor Corporation.
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2
PROSPECTUS
[FAIRCHILD SEMICONDUCTOR CORP. LOGO]
FAIRCHILD SEMICONDUCTOR CORPORATION
Exchange Offer for All Outstanding
10 1/2% Senior Subordinated Notes Due February 1, 2009
in Exchange for New
10 1/2% Senior Subordinated Notes Due February 1, 2009
This exchange offer will expire at 5:00 p.m., New York City time,
on May 30, 2001, unless extended.
TERMS OF THE EXCHANGE OFFER:
- We will exchange all outstanding notes that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
- You may withdraw tendered outstanding notes at any time prior to the
expiration of the exchange offer.
- The exchange of outstanding notes will not be a taxable exchange for
United States federal income tax purposes.
- The terms of the new notes to be issued are substantially identical to
the terms of the outstanding notes, except that transfer restrictions,
registration rights and liquidated damages provisions relating to the
outstanding notes do not apply.
- Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new notes. The letter of transmittal
accompanying this prospectus states that by acknowledging this 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. 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 outstanding notes where the outstanding notes
were acquired by the broker-dealer as a result of market-making
activities or other trading activities. We have agreed that, for a period
of up to 180 days after the expiration of the exchange offer, we will
make this prospectus available to any broker-dealer for use in connection
with any resale. See "Plan of Distribution."
- We will not receive any proceeds from the exchange offer.
- There is no existing market for the notes to be issued, and we do not
intend to apply for their listing on any securities exchange.
See the "Description of the Notes" section beginning on page 70 for more
information about the notes to be issued in this exchange offer.
THIS INVESTMENT INVOLVES RISKS. SEE THE SECTION ENTITLED "RISK FACTORS"
BEGINNING ON PAGE 9 FOR A DISCUSSION OF THE RISKS THAT YOU SHOULD CONSIDER PRIOR
TO TENDERING YOUR OUTSTANDING NOTES FOR EXCHANGE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES AND
EXCHANGE COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR THE ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated April 30, 2001.
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TABLE OF CONTENTS
PAGE
----
FORWARD-LOOKING STATEMENTS............ ii
WHERE YOU CAN FIND MORE INFORMATION... iii
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 9
THE EXCHANGE OFFER.................... 20
USE OF PROCEEDS....................... 28
CAPITALIZATION........................ 29
SELECTED FINANCIAL DATA............... 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 33
PAGE
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INDUSTRY OVERVIEW..................... 51
BUSINESS.............................. 55
DESCRIPTION OF THE ACQUISITION
AGREEMENT........................... 64
DESCRIPTION OF CERTAIN INDEBTEDNESS... 67
DESCRIPTION OF THE NOTES.............. 70
CERTAIN U.S. FEDERAL INCOME TAX
CONSIDERATIONS...................... 109
PLAN OF DISTRIBUTION.................. 109
LEGAL MATTERS......................... 110
EXPERTS............................... 110
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. 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. The statements
contained in this prospectus that are not statements of historical fact may
include forward-looking statements that involve a number of risks and
uncertainties.
We have used the words "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "plan," "predict," "project," "will" and similar
terms and phrases, including references to assumptions, in this prospectus to
identify forward-looking statements. These forward-looking statements are made
based on our management's expectations and beliefs concerning future events
affecting us and are subject to uncertainties and factors relating to our
operations and business environment, all of which are difficult to predict and
many of which are beyond our control, that could cause our actual results to
differ materially from those matters expressed in or implied by these
forward-looking statements. The following factors are among those that may cause
actual results to differ materially from the forward-looking statements:
- acquisitions;
- disruption of manufacturing, marketing and distribution activities
because of the integration of acquired businesses;
- changes in general economic and business conditions;
- changes in current pricing levels;
- changes in political, social and economic conditions and local
regulations;
- foreign currency fluctuations;
- reductions in sales to any significant customers;
- significant litigation;
- changes in sales mix;
- industry capacity;
- competition;
- disruptions of established supply channels;
- manufacturing capacity constraints; and
- the availability, terms and deployment of capital.
All of our forward-looking statements should be considered in light of
these factors.
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WHERE YOU CAN FIND MORE INFORMATION
Our parent company, Fairchild Semiconductor International, Inc., which is a
guarantor of the notes, files annual, quarterly and special reports and other
information with the Securities and Exchange Commission. You may read and copy
any reports or other information filed at the SEC's public reference room at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You
may call the SEC at 1-800-SEC-0330 for further information contained in the
public reference room. Filings with the SEC are also available to the public
from commercial document retrieval services and at the SEC's Web site at
"http://www.sec.gov."
We incorporate by reference in this prospectus the following documents
filed with the SEC by Fairchild Semiconductor International, Inc., which we
refer to as Fairchild International, and Fairchild International's future
filings with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until the offering of the new notes is completed:
- Fairchild International's annual report on Form 10-K for the fiscal year
ended December 31, 2000; and
- Fairchild International's Current Reports on Form 8-K, filed with the SEC
on January 31, 2001, March 31, 2001 and April 25, 2001.
This prospectus is part of a registration statement we, Fairchild
International and the other guarantors of the notes have filed with the SEC
relating to the new notes. As permitted by SEC rules, this prospectus does not
contain all of the information included in the registration statement and the
accompanying exhibits and schedules we file with the SEC. You should read the
registration statement and the exhibits and schedules for more information about
us and the new notes. The registration statement, exhibits and schedules are
also available at the SEC's Public Reference Room or through its website.
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:
Fairchild Semiconductor Corporation
82 Running Hill Road
South Portland, ME 04106
(207) 775-8100
Attention: General Counsel
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PROSPECTUS SUMMARY
This summary contains basic information about us and this exchange offer
but may not contain all the information that is important to you. For a more
complete understanding of this exchange offer, we encourage you to read this
entire prospectus and the documents we refer you to. As used in this prospectus,
(1) the terms "we," "Fairchild," "the company" and "our company' refer to
Fairchild Semiconductor Corporation and its subsidiaries without giving effect
to our acquisition of the discrete power products business (DPP) of Intersil
Corporation, (2) the term "Fairchild International" refers to Fairchild
Semiconductor International, Inc., our parent company and a guarantor of the
notes, (3) the term "10 1/8% Senior Subordinated Notes" refers to our 10 1/8%
Senior Subordinated Notes Due March 15, 2007 and (4) the term "10 3/8% Senior
Subordinated Notes" refers to our 10 3/8 Senior Subordinated Notes Due October
1, 2007. The DPP acquisition is referred to as the Acquisition. The term
"outstanding notes" refers to the 10 1/2% Senior Subordinated Notes due February
1, 2009 issued on January 31, 2001. The term "new notes" refers to the 10 1/2%
Senior Subordinated Notes due February 1, 2009 offered in this prospectus. You
should carefully consider the information set forth under "Risk Factors." In
addition, certain statements are forward-looking statements which involve risks
and uncertainties. See "Forward-Looking Statements."
We have changed our fiscal year-end from the last Sunday in May to the last
Sunday in December. Our last fiscal year under our old accounting calendar was
the year ended May 30, 1999. An intervening seven-month transition period began
May 31, 1999 and ended December 26, 1999. Our first full fiscal year following
this change was the year ended December 31, 2000. This prospectus includes, or
incorporates by reference, financial information for the fiscal years ended May
1996, 1997, 1998 and 1999, for the seven months ended December 26, 1999, for the
twelve months ended December 26, 1999 and for the fiscal year ended December 31,
2000. In this prospectus and in the information incorporated by reference in
this prospectus, we sometimes refer to the fiscal years of the old accounting
calendar as Fiscal 1999, Fiscal 1998, and so on. We sometimes refer to the
seven-month transition period as Stub Year 1999, and we sometimes refer to the
fiscal year ended December 31, 2000 as Calendar 2000. We sometimes refer to the
twelve months ended December 26, 1999 as Calendar 1999.
THE EXCHANGE OFFER
NOTES OFFERED................. $350,000,000 aggregate principal amount of new
10 1/2% Senior Subordinated Notes due February
1, 2009, all of which will have been registered
under the Securities Act.
The terms of the new notes offered in the
exchange offer are substantially identical to
those of the outstanding notes, except that
certain transfer restrictions, registration
rights and liquidated damages provisions
relating to the outstanding notes do not apply
to the registered new notes.
OUTSTANDING NOTES............. $350,000,000 aggregate principal amount of
10 1/2% Senior Subordinated Notes due February
1, 2009, all of which were issued on January
31, 2001.
THE EXCHANGE OFFER............ We are offering to issue registered new notes
in exchange for a like principal amount and
like denomination of our outstanding notes. We
are offering to issue these registered new
notes to satisfy our obligations under a
registration rights agreement that we entered
into with the initial purchasers of the
outstanding notes when we sold them in a
transaction that was exempt from the
registration requirements of the Securities
Act. You may
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tender your outstanding notes for exchange by
following the procedures described under the
caption "The Exchange Offer."
TENDERS; EXPIRATION DATE;
WITHDRAWAL.................... The exchange offer will expire at 5:00 p.m.,
New York City time, on May 30, 2001, unless we
extend it. If you decide to exchange your
outstanding notes for new notes, you must
acknowledge that you are not engaging in, and
do not intend to engage in, a distribution of
the new notes. You may withdraw any outstanding
notes that you tender for exchange at any time
prior to May 30, 2001. If we decide for any
reason not to accept any outstanding notes you
have tendered for exchange, those outstanding
notes will be returned to you without cost
promptly after the expiration or termination of
the exchange offer. See "The Exchange Offer --
Terms of the Exchange Offer" for a more
complete description of the tender and
withdrawal provisions.
CONDITIONS TO THE EXCHANGE
OFFER......................... The exchange offer is subject to customary
conditions, some of which we may waive.
U.S. FEDERAL INCOME TAX
CONSEQUENCES................ Your exchange of outstanding notes for new
notes to be issued in the exchange offer will
not result in any gain or loss to you for U.S.
federal income tax purposes.
USE OF PROCEEDS............... We will not receive any cash proceeds from the
exchange offer.
EXCHANGE AGENT................ United States Trust Company of New York.
CONSEQUENCES OF FAILURE TO
EXCHANGE YOUR OUTSTANDING
NOTES....................... Outstanding notes that are not tendered or that
are tendered but not accepted will continue to
be subject to the restrictions on transfer that
are described in the legend on those notes. In
general, you may offer or sell your outstanding
notes only if they are registered under, or
offered or sold under an exemption from, the
Securities Act and applicable state securities
laws. We, however, will have no further
obligation to register the outstanding notes.
If you do not participate in the exchange
offer, the liquidity of your outstanding notes
could be adversely affected.
CONSEQUENCES OF EXCHANGING
YOUR OUTSTANDING NOTES........ Based on interpretations of the staff of the
SEC, we believe that you may offer for resale,
resell or otherwise transfer the new notes that
we issue in the exchange offer without
complying with the registration and prospectus
delivery requirements of the Securities Act if
you:
- acquire the new notes issued in the
exchange offer in the ordinary course of
your business;
- are not participating, do not intend to
participate, and have no arrangement or
undertaking with anyone to participate,
in the distribution of the new notes
issued to you in the exchange offer; and
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- are not an "affiliate" of our company as
defined in Rule 405 of the Securities
Act.
If any of these conditions is not satisfied and
you transfer any new notes issued to you in the
exchange offer without delivering a proper
prospectus or without qualifying for a
registration exemption, you may incur liability
under the Securities Act. We will not be
responsible for or indemnify you against any
liability you may incur.
Any broker-dealer that acquires new notes in
the exchange offer for its own account in
exchange for outstanding notes which it
acquired through market-making or other trading
activities, must acknowledge that it will
deliver a prospectus when it resells or
transfers any new notes issued in the exchange
offer. See "Plan of Distribution" for a
description of the prospectus delivery
obligations of broker-dealers in the exchange
offer.
THE NOTES
The terms of the new notes we are issuing in this exchange offer and the
outstanding notes are identical in all material respects, except the new notes
offered in the exchange offer:
- will have been registered under the Securities Act;
- will not contain transfer restrictions and registration rights that
relate to the outstanding notes; and
- will not contain provisions relating to the payment of liquidated damages
to be made to the holders of the outstanding notes under circumstances
related to the timing of the exchange offer.
A brief description of the material terms of the notes follows:
ISSUER........................ Fairchild Semiconductor Corporation.
NOTES OFFERED................. $350,000,000 aggregate principal amount of
10 1/2% Senior Subordinated Notes Due February
1, 2009.
MATURITY DATE................. February 1, 2009.
INTEREST PAYMENT DATES........ February 1 and August 1 of each year,
commencing August 1, 2001.
OPTIONAL REDEMPTION........... Until February 1, 2004, we can choose to redeem
up to 35% of the original principal amount of
the notes and any additional notes issued under
the same indenture governing the notes, with
money we raise in certain equity offerings, as
long as:
- we pay the holders of the notes and any
such additional notes redeemed a
redemption price of 110.5% of the
principal amount of the notes and any
such additional notes we redeem, plus
accrued interest to the date of
redemption; and
- at least 65% of the original aggregate
principal amount of the notes and any
such additional notes remains
outstanding after each such redemption.
On or after February 1, 2005, we can redeem
some or all of the notes at the redemption
prices listed in the "Description of the
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Notes -- Optional Redemption" section of this
prospectus, plus accrued interest to the date
of redemption.
CHANGE OF CONTROL............. If a change of control of Fairchild
International or our company occurs, subject to
certain conditions, we must give holders of the
notes an opportunity to sell the notes to us at
a purchase price of 101% of the principal
amount of the notes, plus accrued interest to
the date of the repurchase. The term "Change of
Control" is defined in the "Description of the
Notes -- Change of Control" section of this
prospectus.
RANKING....................... The notes are unsecured and subordinated to our
existing and future senior indebtedness. As of
December 31, 2000, after giving effect to the
Acquisition, we would have had approximately
$124.2 million of senior indebtedness
outstanding. The notes rank pari passu in right
of payment with our outstanding 10 1/8% Senior
Subordinated Notes in an aggregate principal
amount of $300.0 million, with our outstanding
10 3/8% Senior Subordinated Notes in an
aggregate principal amount of $300.0 million
and with any future senior subordinated
indebtedness. 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 notes is fully and
unconditionally guaranteed on a senior
subordinated basis by Fairchild International
and our principal domestic subsidiaries. The
guarantee by Fairchild International and our
principal domestic subsidiaries is subordinated
to all existing and future senior indebtedness
of Fairchild International and our principal
domestic subsidiaries, respectively, including
their guarantee of our obligations under our
senior credit facility, and rank pari passu
with the existing guaranties of the 10 1/8%
Senior Subordinated Notes and the 10 3/8%
Senior Subordinated Notes. Fairchild
International currently conducts no business
and has no significant assets other than our
capital stock, all of which is pledged to
secure Fairchild International's obligations
under its guarantee of our senior credit
facility. See "Description of the
Notes -- Guaranties."
RESTRICTIVE COVENANTS......... The indenture governing the notes contains
covenants that limit our ability and certain of
our subsidiaries' ability to:
- incur additional indebtedness;
- pay dividends on our capital stock or
redeem, repurchase or retire our capital
stock or subordinated indebtedness;
- make investments;
- create restrictions on the payment of
dividends or other amounts to us from
our restricted subsidiaries;
- engage in transactions with affiliates;
- sell assets, including capital stock of
subsidiaries; and
- consolidate, merge or transfer assets.
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These covenants are subject to important
exceptions and qualifications, which are
described in the "Description of the Notes --
Certain Covenants" section of this prospectus.
FAIRCHILD SEMICONDUCTOR CORPORATION
Fairchild is one of the largest independent semiconductor companies focused
solely on multi-market products. Multi-market products are building block
components that can be used in a wide range of applications and are found in
virtually all electronic devices. We design, develop and market analog,
discrete, interface and logic, non-volatile memory and optoelectronic
semiconductors. We supply customers in a diverse range of end markets, including
the computer, industrial, communications, consumer electronics and automotive
industries. We are particularly strong in providing discrete and analog power
management products, which address the growing requirement for portability and
long battery life for computing and communication devices.
In March 2001, Fairchild purchased Intersil's discrete power products
business for approximately $338.0 million. The Acquisition provides valuable
intellectual property, products complementary to our existing power discrete
semiconductors, the world's only eight-inch wafer fabrication facility that
supports only discrete power products and increased presence in the computer,
automotive and industrial end-user markets.
For Calendar 2000, our revenues were approximately $1.8 billion and our
operating income before other (income) expense, interest expense, taxes,
depreciation, amortization, restructuring and other non-recurring (gains)
charges, which we refer to as adjusted EBITDA, was $477.0 million. For 2000,
revenues and adjusted EBITDA of Intersil's discrete power products business,
which we refer to as DPP, were $210.8 million and $48.4 million, respectively.
THE ACQUISITION
On January 20, 2001, Fairchild signed an asset purchase agreement to
purchase DPP for approximately $338.0 million in cash. The Acquisition was
consummated on March 16, 2001. DPP is a leading provider of silicon-based power
devices for the computer, communications, industrial, automotive and space and
defense end-user markets. These products are used in AC/DC and DC/DC industrial
power supplies, automotive ignition, fuel injection and engine controls, DC/DC
converters for the desktop computer market, and power supplies for the satellite
industry.
DPP currently sells its products to many Fortune 500 companies, including
Boeing, Bosch, Compaq, Daimler-Chrysler, Dell, Delphi, Emerson, Ericsson,
Hughes, Lockheed-Martin and Siemens. No single customer represents more than 5%
of DPP's total revenues. We have added approximately 650 DPP employees to our
existing work force of approximately 11,000. Intersil has agreed to provide
certain transitional, operational and administrative services to assist us in
integrating the DPP operations into our operations, for which Intersil will be
paid a fee. See "Description of the Acquisition Agreement."
We anticipate the following benefits from the Acquisition:
Expanded Technology and Intellectual Property Portfolios. DPP possesses
leading-edge technologies for the production of metal oxide semiconductor field
effect transistors, referred to as MOSFETs, insulated bipolar gate transistors,
referred to as IGBTs, and high-speed rectifiers. In addition, DPP has
approximately 300 patents issued globally as well as over 75 patent applications
pending.
Extended Market Presence. We believe the Acquisition will enhance our
presence in most of our end-user markets, particularly in the industrial and
automotive markets. For 2000, DPP derived approximately 49% of its revenue from
the industrial market, 26% from the automotive market, 19% from the computer
market, and 6% from the space and defense market.
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Enhanced Market Position and Industry Consolidation. The Acquisition
represents a major step in the continued consolidation of the power discrete
semiconductor business following several other transactions in the sector during
2000. The Acquisition has made us one of the leading suppliers of power MOSFETs
and one of the leading suppliers in the power transistor market, which totaled
over $7.0 billion in 2000.
State-of-the-Art Manufacturing Facility. As part of the Acquisition, we
acquired DPP's eight-inch wafer fabrication facility in Mountaintop,
Pennsylvania, which we refer to as Fab 8. Fab 8 is the world's only eight-inch
wafer fabrication facility that supports only discrete power products.
Eight-inch wafers produce more semiconductors per wafer than the more commonly
used six-inch or four-inch wafers used in the industry. We believe that this
ability to produce more semiconductors for each wafer will lead to manufacturing
cost advantages. We intend to move to Fab 8 a portion of our semiconductor
fabrication that is currently outsourced. In addition, we expect to reduce
capital expenditures at some of our other fabrication facilities as a result of
the available capacity at Fab 8.
Set forth below is certain supplemental pro forma financial information for
DPP for the twelve months ended December 29, 2000. The financial information for
DPP is derived from historical financial schedules which Intersil prepared and
delivered to us in connection with the Acquisition. Before the Acquisition, DPP
was operated as a division of Intersil. The financial schedules prepared by
Intersil are based on allocations and estimates made by Intersil's management as
to revenues and costs associated with DPP. In addition, our management believes
that additional costs should be reflected in these schedules and the data for
DPP set forth below contains these estimated additional costs. The information
set forth in the table below may not accurately reflect all the costs associated
with DPP and may not be indicative of the results that would have been achieved
if DPP had been operated as a stand-alone entity.
TWELVE MONTHS ENDED
DECEMBER 29, 2000
-------------------
(IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $208.6
Gross profit................................................ 62.4
Operating income (loss)..................................... 28.1
OTHER FINANCIAL DATA:
Adjusted EBITDA............................................. $ 48.4
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents................................... $ --
Accounts receivable, net.................................... --
Inventories................................................. 42.1
Total assets................................................ 144.4
Long-term debt, including current portion................... 4.0
COMPANY STRENGTHS
We believe our core strengths are:
Breadth of Product Portfolio. We provide our customers with one of the
largest product offerings in the industry for analog, discrete, interface and
logic, non-volatile memory, and optoelectronic devices. Our analog device
portfolio consists of over 2,600 products, including offerings in all of the top
100 best-selling analog product types by volume. Our discrete device portfolio
consists of over 8,400 products, and we believe it is one of the most
comprehensive power device portfolios in the industry. We develop products for a
wide range of market applications, reducing our dependence on any single
product, application or market. In addition, we believe that our ability to
provide our customers with multiple products meets a growing need among our end
users for a single source of supply.
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Leadership in Power Solutions. We believe there is an increasing demand
for a combination of sophisticated computing and communication capabilities,
frequently in the form of portable devices. We are a leader in providing
solutions for managing the power required to operate such devices. Our combined
analog and discrete device offering provides a complete solution for power
management:
- Analog: We provide specific solutions for power conversion, temperature
sensing, management functions, battery chargers and motor controls.
- Power Discrete: We provide comprehensive solutions for managing power
from the original power source to end products such as computers,
cellular phones and network devices.
High Quality Customer Service. Our customers recognize us for our high
quality of service. They require a reliable source of supply, often in high
volumes and with short lead times, demand quick responses to technical questions
and seek support in designing new applications which use our products. Because
we are an independent company focused solely on multi-market products, all of
our service and support efforts are tailored to meet these customer needs.
History of Product Innovation. Our success in introducing new products has
been an important source of our growth and profitability. We have been a
significant innovator in the multi-market segment of the semiconductor industry
with several leading edge technologies and industry firsts, including our
introduction over the past three decades of many new power management solutions
that set new standards for speed and efficiency. During 2000, we introduced over
450 new products.
Diverse and Blue-Chip Customer Base. Our diverse customer base, which
spans a wide spectrum of end-user markets, enables us to avoid some of the
volatility that may be encountered in specific semiconductor markets. We serve
thousands of customers worldwide, with no single customer, other than Samsung
Electronics, providing more than 5% of our total revenues for Calendar 2000.
Customers in our end-user markets include industry leaders such as Compaq,
Ericsson, Lucent, Nortel Networks, Samsung Electronics and Siemens.
Experienced Management. Our senior management team consists of seven
individuals who have on average approximately 25 years of experience in the
semiconductor industry. Our chief executive officer, Kirk P. Pond, has over 30
years of experience in the industry and has held senior management positions at
Texas Instruments and National Semiconductor. At National Semiconductor, Mr.
Pond was executive vice president and chief operating officer.
Successful Acquisition Strategy. We believe that the semiconductor
industry in general is undergoing a period of consolidation. With respect to the
multi-market sector of the industry, we expect to participate in this
development. Since our recapitalization in 1997, we have pursued strategic
acquisitions of complementary businesses of all sizes and have consummated a
number of acquisitions prior to the DPP acquisition. To date, these acquisitions
along with the DPP acquisition have exceeded $1 billion in the aggregate and
include our acquisition of Raytheon Semiconductor in 1997, the power device
business of Samsung Electronics in 1999, and QT Optoelectronics, Inc., KOTA
Microcircuits, Inc. and the power management business of Micro Linear
Corporation in 2000.
As a key part of our growth strategy, we are constantly evaluating
acquisition opportunities and consolidation possibilities and are in various
stages of due diligence or preliminary discussions with respect to a number of
potential transactions, some of which would be significant. None of these
potential transactions is subject to a letter of intent or otherwise so far
advanced as to make the transaction reasonably certain.
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RISK FACTORS
Investing in the notes involves substantial risks. See the "Risk Factors"
section of this prospectus for a description of some of the risks you should
carefully consider before investing in the notes and in evaluating the exchange
offer.
ADDITIONAL INFORMATION
Our executive offices are located at 82 Running Hill Road, South Portland,
Maine 04106. Our telephone number is (207) 775-8100. We were incorporated in
Delaware on February 10, 1997.
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RISK FACTORS
In addition to the information contained elsewhere or incorporated by
reference in this prospectus, you should carefully consider the following risk
factors, which apply to the outstanding notes and the new notes, in evaluating
the exchange offer.
YOU MAY HAVE DIFFICULTY SELLING THE OUTSTANDING NOTES THAT YOU DO NOT EXCHANGE.
If you do not exchange your outstanding notes for the new notes offered in
this exchange offer, you will continue to be subject to the restrictions on the
transfer of your outstanding notes. Those transfer restrictions are described in
the indenture governing the outstanding notes and in the legend contained on the
outstanding notes, and arose because we originally issued the outstanding notes
under exemptions from, and in transactions not subject to, the registration
requirements of the Securities Act.
In general, you may offer or sell your outstanding notes only if they are
registered under the Securities Act and applicable state securities laws, or if
they are offered and sold under an exemption from those requirements. We do not
intend to register the outstanding notes under the Securities Act.
If a large number of outstanding notes are exchanged for new notes issued
in the exchange offer, it may be more difficult for you to sell your outstanding
notes. In addition, if you do not exchange your outstanding notes in the
exchange offer, you will no longer be entitled to exchange your outstanding
notes for registered notes or to have those outstanding notes registered under
the Securities Act.
See "The Exchange Offer -- Consequences of Failure to Exchange Outstanding
Notes" for a discussion of the possible consequences of failing to exchange your
notes.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH, LIMIT
OUR ABILITY TO GROW AND COMPETE AND PREVENT US FROM FULFILLING OUR OBLIGATIONS
UNDER THE NOTES.
We continue to be highly leveraged following the offering of the
outstanding notes and the Acquisition. After giving effect to the offering of
the outstanding notes and the Acquisition, as of December 31, 2000 we would have
had total indebtedness of $1,059.2 million, stockholders' equity (before any
allocation to in-process research and development is made in connection with the
Acquisition) of $837.7 million and a ratio of debt to equity of 1.3 to 1. We
would also have had availability under our revolving credit facility of $179.8
million. After final valuations are received and final purchase accounting
allocations are made, amounts allocated to in-process research and development,
if any, will be expensed and stockholders' equity will be reduced accordingly.
Therefore, although such ratio of total debt to equity as of December 31, 2000
would have been 1.3 to 1, such ratio is based on preliminary allocations.
Our substantial indebtedness could have important consequences to you. For
example, it could:
- 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;
- increase the amount of our interest expense, because some of our
borrowings are at variable rates of interest, which, if interest rates
increase, could result in higher interest expense;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- restrict us from making strategic acquisitions, introducing new
technologies or exploiting business opportunities;
- make it more difficult for us to satisfy our obligations with respect to
the notes;
- place us at a competitive disadvantage compared to our competitors that
have less indebtedness; and
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- limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds,
dispose of assets or pay cash dividends. Failing to comply with those
covenants could result in an event of default which, if not cured or
waived, could have a material adverse effect on our business, financial
condition and results of operations.
See "Description of the Notes," "Capitalization" and "Description of Certain
Indebtedness."
DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES MAY STILL BE ABLE
TO INCUR SUBSTANTIALLY MORE INDEBTEDNESS. INCURRING MORE INDEBTEDNESS COULD
EXACERBATE THE RISKS DESCRIBED ABOVE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. Although the terms of the indenture governing the
notes, the indenture governing our outstanding 10 1/8% Senior Subordinated
Notes, the indenture governing our outstanding 10 3/8% Senior Subordinated Notes
and the credit agreement relating to our senior credit facility contain
restrictions on the incurrence of additional indebtedness, these restrictions
are subject to a number of qualifications and exceptions and, under certain
circumstances, indebtedness incurred in compliance with these restrictions could
be substantial. The senior credit facility permits borrowings of up to $300.0
million, and all of those borrowings would be senior to the notes. If new debt
is added to our and our subsidiaries' current debt levels, the substantial risks
described above would intensify. See "Capitalization," "Selected Consolidated
Financial Data," "Description of the Notes" and "Description of Certain
Indebtedness."
WE MAY NOT BE ABLE TO GENERATE THE NECESSARY AMOUNT OF CASH TO SERVICE OUR
INDEBTEDNESS, WHICH MAY REQUIRE US TO REFINANCE OUR INDEBTEDNESS OR DEFAULT ON
OUR SCHEDULED DEBT PAYMENTS. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY
FACTORS 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 at all or that future borrowings will be available to us
under our senior credit facility in an amount sufficient to enable us to pay our
indebtedness or to fund our other liquidity needs. In addition, because our
senior credit facility has variable interest rates, the cost of those borrowings
will increase if market interest rates increase. If we are unable to meet our
expenses and debt obligations, we may need to refinance all or a portion of our
indebtedness on or before maturity, sell assets or raise equity. We cannot
assure you that we would be able to refinance any of our indebtedness, sell
assets or raise equity on commercially reasonable terms or at all, which could
cause us to default on our obligations and impair our liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
THE NOTES AND THE GUARANTIES WILL BE JUNIOR TO OUR AND OUR GUARANTORS' SENIOR
INDEBTEDNESS. FURTHERMORE, CLAIMS OF CREDITORS OF OUR NON-GUARANTOR SUBSIDIARIES
WILL HAVE PRIORITY WITH RESPECT TO THE ASSETS AND EARNINGS OF SUCH SUBSIDIARIES
OVER YOUR CLAIMS.
The notes, the Fairchild International guaranty and the subsidiary
guaranties will be subordinated to the prior payment in full of our, Fairchild
International's and the subsidiary guarantors', as the case may be, current and
future senior indebtedness. As of December 31, 2000, after giving effect to the
offering of the outstanding notes and the Acquisition we would have had
approximately $124.2 million of senior indebtedness, Fairchild International
would have had approximately $124.2 million of senior indebtedness (consisting
of its senior guaranty of our obligations under the senior credit facility and
its guarantee of assumed DPP indebtedness) and the subsidiary guarantors would
have had approximately $120.2 million of senior indebtedness (consisting solely
of their senior guaranty of our obligations under the senior credit facility).
The indenture relating to the notes will permit us and our subsidiaries to incur
certain additional indebtedness, which may be senior indebtedness. The notes,
the Fairchild International guaranty and the subsidiary guaranties will rank
pari passu with the 10 1/8% Senior Subordinated Notes, the 10 3/8% Senior
Subordinated Notes and the related guaranties from Fairchild International and
the subsidiary guarantors.
We may not pay principal, premium, if any, interest or other amounts on the
notes in the event of a payment default in respect of certain senior
indebtedness, including indebtedness under the senior credit facility, unless
the indebtedness has been paid in full or the default has been cured or waived.
In addition,
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if certain other defaults regarding our senior indebtedness occur, we may not be
permitted to pay any amount regarding the notes or any subsidiary guaranties for
a designated period of time. If we or any of the subsidiary guarantors are
declared bankrupt or insolvent, or if there is a payment default under, or an
acceleration of, any senior indebtedness, we are required to pay the lenders
under the senior credit facility and any other creditors who are holders of
senior indebtedness in full before we apply any of our assets to pay you.
Accordingly, we may not have enough assets to pay you after paying the holders
of the senior indebtedness.
Our senior credit facility will, and our future senior indebtedness may,
prohibit us from repurchasing any notes prior to maturity, even though the
indenture requires us to offer to repurchase notes in some circumstances. If we
consummate restricted asset sales or if a change of control occurs when we are
prohibited from repurchasing notes, we could ask our lenders under the senior
credit facility or other future senior indebtedness for permission to repurchase
the notes or we could attempt to refinance the borrowings that contain these
prohibitions. If we do not obtain a consent to repurchase the notes or if we are
unable to refinance the borrowings, we would be unable to repurchase the notes.
Our failure to repurchase tendered notes at a time when repurchase is required
by the indenture would constitute an event of default under the indenture,
which, in turn, would constitute a default under the senior credit facility and
may constitute an event of default under our future indebtedness. In these
circumstances, the subordination provisions in the indenture would restrict
payments to you. See "Description of Certain Indebtedness," "Description of the
Notes -- Ranking," "Description of the Notes -- Change of Control" and
"Description of the Notes -- Certain Covenants."
We conduct a portion of our business through our subsidiaries. Some of our
domestic subsidiaries and all of our foreign subsidiaries, including Fairchild
Korea Semiconductor Ltd., which we refer to as Fairchild Korea, are not
guaranteeing the notes. Less than two-thirds of the capital stock of Fairchild
Korea has been pledged to secure our obligations under the senior credit
facility. Claims of creditors of our non-guarantor subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness or guaranties
issued by such subsidiaries, will generally have priority with respect to the
assets and earnings of such subsidiaries over the claims of creditors of our
company, including holders of the notes, even if the obligations of such
subsidiaries do not constitute senior indebtedness. As of December 31, 2000,
after giving effect to the offering of outstanding notes and the Acquisition and
eliminating intercompany activity, the non-guarantor subsidiaries would have had
approximately $131.3 million of liabilities and would have held approximately
40.9% of our consolidated assets, before giving effect to the goodwill which
will be recorded upon consummation of the Acquisition. During Calendar 2000, the
non-guarantor subsidiaries would have generated approximately 64.0% of our
consolidated revenues.
RESTRICTIONS IMPOSED BY THE CREDIT AGREEMENT RELATING TO OUR SENIOR CREDIT
FACILITY, THE INDENTURE GOVERNING THE NOTES, THE INDENTURE GOVERNING OUR 10 1/8%
SENIOR SUBORDINATED NOTES AND THE INDENTURE GOVERNING OUR 10 3/8% SENIOR
SUBORDINATED NOTES RESTRICT OR PROHIBIT OUR ABILITY TO ENGAGE IN OR ENTER INTO
SOME BUSINESS OPERATING AND FINANCING ARRANGEMENTS, WHICH COULD ADVERSELY AFFECT
OUR ABILITY TO TAKE ADVANTAGE OF POTENTIALLY PROFITABLE BUSINESS OPPORTUNITIES.
The operating and financial restrictions and covenants in our debt
instruments, such as the credit agreement relating to our senior credit
facility, the indenture governing the notes, the indenture governing our 10 1/8%
Senior Subordinated Notes and the indenture governing our 10 3/8% Senior
Subordinated Notes, may limit our ability to finance our future operations or
capital needs or engage in other business activities that may be in our
interests. Our debt instruments impose significant operating and financial
restrictions on us that affect our ability to incur additional indebtedness or
create liens on our assets, pay dividends, sell assets, engage in mergers or
acquisitions, make investments or engage in other business activities. These
restrictions could place us at a disadvantage relative to competitors not
subject to such limitations.
In addition, the senior credit facility contains other and more restrictive
covenants and prohibits us from prepaying our other indebtedness, including the
notes. The senior credit facility also requires us to maintain specified
financial ratios. These financial ratios become more restrictive over the life
of the senior credit facility. Our ability to meet those financial ratios can be
affected by events beyond our control, and
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we cannot assure you that we will meet those ratios. A breach of any of these
covenants, ratios or restrictions could result in an event of default under the
senior credit facility. Upon the occurrence of an event of default under the
senior credit facility, the lenders could elect to declare all amounts
outstanding under the senior credit facility, together with accrued interest, to
be immediately due and payable. If we were unable to repay those amounts, the
lenders could proceed against the collateral granted to them to secure the
indebtedness. If the lenders under the senior credit facility accelerate the
payment of the indebtedness, we cannot assure you that our assets would be
sufficient to repay in full that indebtedness and our other indebtedness,
including the notes. See "Description of Certain Indebtedness" and "Description
of the Notes -- Certain Covenants."
FAIRCHILD INTERNATIONAL, OUR PARENT COMPANY, DOES NOT HAVE ANY RESOURCES TO
SUPPORT ITS GUARANTY OF THE NOTES.
Although Fairchild International has guaranteed the notes on a senior
subordinated basis, it currently conducts no business and has no significant
assets other than our capital stock. Since all of our capital stock owned by
Fairchild International is pledged to secure Fairchild International's guaranty
of the senior credit facility, there are currently no unencumbered assets
supporting Fairchild International's guaranty of the notes. Fairchild
International's guaranty of the notes is subordinated in right of payment to the
guaranty by Fairchild International of our obligations under the senior credit
facility. See "Description of the Notes -- Guaranties."
DOWNTURNS IN THE HIGHLY CYCLICAL SEMICONDUCTOR INDUSTRY OR CHANGES IN END USER
MARKET DEMANDS COULD REDUCE THE VALUE OF OUR BUSINESS.
The semiconductor industry is highly cyclical, and the value of our
business may decline during the "down" portion of these cycles. During the
latter half of fiscal 1998 and most of fiscal 1999, we, as well as many others
in our industry, experienced significant declines in the pricing of our products
as customers reduced demand forecasts and manufacturers reduced prices to keep
capacity utilization high. We believe these trends were due primarily to the
Asian financial crisis during that period and excess personal computer
inventories. Beginning in the fourth quarter of Calendar 2000, we and the rest
of the semiconductor industry experienced backlog cancellations, resulting in
slower revenue growth, due to excess inventories at computer and
telecommunications equipment manufacturers. We may experience renewed, possibly
more severe and prolonged, downturns in the future as a result of such cyclical
changes. In addition, we may experience significant changes in our profitability
as a result of variations in sales, changes in product mix, price competition
for orders, changes in end user markets and the costs associated with the
introduction of new products. The markets for our products depend on continued
demand for personal computers, cellular telephones and consumer electronics and
automotive goods, and these end user markets may experience changes in demand
that will adversely affect our prospects.
WE MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS TO SATISFY CHANGES IN CONSUMER
DEMANDS.
Our failure to develop new technologies, or react to changes in existing
technologies, could materially delay development of new products, which could
result in decreased revenues and a loss of market share to our competitors.
Rapidly changing technologies and industry standards, along with frequent new
product introductions, characterize the semiconductor industry. Our financial
performance depends on our ability to design, develop, manufacture, assemble,
test, market and support new products and enhancements on a timely and
cost-effective basis. We cannot assure you 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
other companies will not render our products or technologies obsolete or
noncompetitive. A fundamental shift in technologies in our product markets could
have a material adverse effect on our competitive position within our industry.
OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD ADVERSELY AFFECT
OUR FUTURE PERFORMANCE AND GROWTH.
Failure to protect our existing intellectual property rights may result in
the loss of valuable technologies or having to pay other companies for
infringing on their intellectual property rights. We rely
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on patent, trade secret, trademark and copyright law to protect such
technologies. Some of our technologies are not covered by any patent or patent
application, and we cannot assure you that:
- any of the more than 330 U.S. patents owned by us or numerous other
patents which third parties license to us will not be invalidated,
circumvented, challenged or licensed to other companies;
- any of the more than 500 patents that we will acquire or license from
Intersil upon consummation of the Acquisition will not be invalidated,
circumvented or challenged; or
- any of our pending or future patent applications will be issued within
the scope of the claims sought by us, if at all.
In addition, effective patent, trademark, copyright and trade secret
protection may be unavailable, limited or not applied for in some foreign
countries.
We also seek to protect our proprietary technologies, including
technologies 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. We cannot assure you that
these agreements will not be breached, that we will have adequate remedies for
any breach or that such persons or institutions will not assert intellectual
property rights to such technologies. Some of our technologies have been
licensed on a non-exclusive basis from National Semiconductor Corporation,
Samsung Electronics Co., Ltd. and other companies which may license such
technologies to others, including, in the case of National Semiconductor
commencing on March 11, 2002, our competitors. In addition, under a technology
licensing and transfer agreement, National Semiconductor has limited
royalty-free, worldwide license rights (without right to sublicense) to some of
our technologies. If necessary or desirable, we may seek licenses under patents
or intellectual property rights claimed by others. However, we cannot assure you
that we will obtain such licenses or that the terms of any offered licenses will
be acceptable to us. The failure to obtain a license from a third party for
technologies 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 technologies.
OUR FAILURE TO OBTAIN OR MAINTAIN THE RIGHT TO USE CERTAIN TECHNOLOGIES MAY
NEGATIVELY AFFECT OUR FINANCIAL RESULTS.
Our future success and competitive position depend in part upon our ability
to obtain or maintain proprietary technologies used in our principal products,
which is achieved in part by defending claims by competitors of intellectual
property infringement. The semiconductor industry is characterized by litigation
regarding patent and other intellectual property rights. We are involved in
lawsuits, and could become subject to other lawsuits, in which it is alleged
that we have infringed upon the intellectual property rights of other companies.
See "Business -- Legal Proceedings." Our involvement in existing and future
intellectual property litigation could result in significant expense to our
company, adversely affecting sales of the challenged product or technologies and
diverting the efforts of our technical and management personnel, whether or not
such litigation is resolved in our favor. In the event of an adverse outcome as
a defendant in any such litigation, we may be required to:
- pay substantial damages;
- indemnify customers for damages they might suffer if the products they
purchase from us violate the intellectual property rights of others;
- stop our manufacture, use, sale or importation of infringing products;
- expend significant resources to develop or acquire non-infringing
technologies;
- discontinue processes; or
- obtain licenses to the intellectual property we are found to have
infringed.
We cannot assure you that we would be successful in such development or
acquisition or that such licenses would be available under reasonable terms. Any
such development, acquisition or license could require the expenditure of
substantial time and other resources.
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WE MAY NOT BE ABLE TO CONSUMMATE FUTURE ACQUISITIONS OR SUCCESSFULLY INTEGRATE
ACQUISITIONS INTO OUR BUSINESS.
We plan to pursue additional acquisitions of related businesses. We believe
the semiconductor industry is going through a period of consolidation, and we
expect to participate in this development. The expense incurred in consummating
the future acquisition of related businesses, or our failure to integrate such
businesses successfully into our existing businesses, could result in our
company incurring unanticipated expenses and losses. In addition, we may not be
able to identify or finance additional acquisitions or realize any anticipated
benefits from acquisitions we do complete.
We are constantly pursuing acquisition opportunities and consolidation
possibilities and are in various stages of due diligence or preliminary
discussions with respect to a number of potential transactions, some of which
would be significant. None of these potential transactions is subject to a
letter of intent or otherwise so far advanced as to make the transaction
reasonably certain.
Should we successfully acquire another business, 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
existing operations. Some of the risks associated with acquisitions include:
- unexpected losses of key employees or customers of the acquired company;
- conforming the acquired company's standards, processes, procedures and
controls with our operations;
- coordinating new product and process development;
- hiring additional management and other critical personnel;
- negotiating with labor unions; and
- increasing the scope, geographic diversity and complexity of our
operations.
In addition, although Intersil has agreed to assist us in integrating DPP
operations into our operations under a transitional services agreement, we may
encounter unforeseen obstacles or costs in such integration and in the
integration of other businesses we acquire.
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 have a material adverse effect on
our financial condition and operating results.
AS A RESULT OF THE ACQUISITION, APPROXIMATELY 330 OF OUR EMPLOYEES ARE COVERED
BY A COLLECTIVE BARGAINING AGREEMENT. OUR FAILURE TO INTEGRATE THESE EMPLOYEES
SUCCESSFULLY COULD ADVERSELY AFFECT US.
Prior to the Acquisition, none of our employees were covered by a
collective bargaining agreement. As a result of the Acquisition, approximately
330 of our employees are covered by a collective bargaining agreement. We cannot
assure you that we will successfully integrate these new employees into our
business or what effect, if any, they will have on our employee relations
generally.
PRODUCTION TIME AND THE OVERALL COST OF PRODUCTS COULD INCREASE IF WE WERE TO
LOSE ONE OF OUR PRIMARY SUPPLIERS OR IF A PRIMARY SUPPLIER INCREASED THE PRICES
OF RAW MATERIALS.
Our manufacturing operations depend upon obtaining adequate supplies of raw
materials on a timely basis. 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. 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. In
addition, we subcontract a portion of our wafer fabrication and assembly and
test operations to other manufacturers, including NS Electronics Ltd., Samsung
Electronics and Korea Micro Industry and, as a result of the
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Acquisition, ChipPAC, Inc. Our operations and ability to satisfy customer
obligations could be adversely affected if our relationships with these
subcontractors were disrupted or terminated.
DELAYS IN BEGINNING PRODUCTION AT NEW FACILITIES, EXPANDING CAPACITY AT EXISTING
FACILITIES, IMPLEMENTING NEW PRODUCTION TECHNIQUES, OR IN CURING PROBLEMS
ASSOCIATED WITH TECHNICAL EQUIPMENT MALFUNCTIONS, ALL COULD ADVERSELY AFFECT OUR
MANUFACTURING EFFICIENCIES.
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. 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.
In addition, we are currently engaged in an effort to expand capacity at
all of our manufacturing facilities. 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 delays or problems in bringing planned new manufacturing capacity
to full production. We may also experience problems in achieving acceptable
yields, or experience product delivery delays in the future with respect to
existing or planned new capacity 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.
A SIGNIFICANT PORTION OF OUR SALES IS MADE BY DISTRIBUTORS WHO CAN TERMINATE
THEIR RELATIONSHIPS WITH US WITH LITTLE OR NO NOTICE. THE TERMINATION OF A
DISTRIBUTOR COULD REDUCE SALES AND RESULT IN INVENTORY RETURNS.
Distributors accounted for 50.9% of our net sales for Calendar 2000. Our
five domestic distributors accounted for 8.2% of our net sales for Calendar
2000. As a general rule, we do not have long-term agreements with our
distributors and they may terminate their relationships with us with little or
no advance notice. Distributors generally offer competing products. The loss of
one or more of our distributors, or the decision by one or more of them to
reduce the number of our products they offer or to carry the product lines of
our competitors, could have a material adverse effect on our business, financial
condition and results of operations. The termination of a significant
distributor, whether at our or the distributor's initiative, or a disruption in
the operations of one or more of our distributors, could reduce our net sales in
a given quarter and could result in an increase in inventory returns.
THE SEMICONDUCTOR BUSINESS IS VERY COMPETITIVE AND INCREASED COMPETITION COULD
REDUCE THE VALUE OF AN INVESTMENT IN OUR COMPANY.
The semiconductor industry is, and the multi-market semiconductor product
markets in particular are, highly competitive. Competition is based on price,
product performance, quality, reliability and customer service. In addition,
even in strong markets, price pressures may emerge as competitors attempt to
gain a greater market 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 are better able to pursue acquisition candidates and 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.
FINANCIAL INFORMATION REGARDING DPP MAY NOT ACCURATELY REFLECT ALL COSTS.
The historical financial information for DPP included in this prospectus is
derived from financial schedules which Intersil prepared and delivered to us in
connection with the Acquisition. Before the Acquisition, DPP was operated as a
division of Intersil. The financial schedules prepared by Intersil are based on
allocations and estimates made by Intersil's management as to revenues and costs
associated with
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the DPP business. In addition, our management believes that additional costs
should be reflected in these schedules and the data for DPP set forth in this
prospectus contain these additional costs. The data with respect to DPP included
herein may not accurately reflect all the costs associated with the DPP business
and may not be indicative of the results that would have been achieved if DPP
had been operated as a stand-alone entity.
THE COSTS TO OPERATE DPP MAY INCREASE.
Prior to consummation of the Acquisition, Intersil operated DPP as a
division. During 2000, DPP incurred $34.4 million in costs for research and
development, sales and marketing and general and administrative activities.
These costs represent expenses incurred directly by DPP and charges allocated to
it by Intersil. Although Intersil has agreed to provide certain of these
services for a transition period under a transitional services agreement, DPP
will need to obtain many of these services on an arm's length basis. We cannot
assure you that upon termination of the transitional services agreement, we will
be able to obtain similar services on comparable terms. In addition, although
Intersil will aid us in integrating the DPP operations into our operations
pursuant to the transitional services agreement, we may encounter unforeseen
obstacles or costs in such integration. See "Description of the Acquisition
Agreement."
WE ENTERED INTO A NUMBER OF LONG-TERM SUPPLY AND SUPPORT CONTRACTS WITH SAMSUNG
ELECTRONICS IN CONNECTION WITH OUR ACQUISITION OF ITS POWER DEVICE BUSINESS IN
1999. ANY DECREASE IN THE PURCHASE REQUIREMENTS OF SAMSUNG ELECTRONICS OR THE
INABILITY OF SAMSUNG ELECTRONICS TO MEET ITS CONTRACTUAL OBLIGATIONS COULD
SUBSTANTIALLY REDUCE OUR FINANCIAL PERFORMANCE.
As a result of our acquisition of the power device business in 1999, we
have numerous arrangements with Samsung Electronics, including arrangements
relating to product sales designation as a vendor to affiliated Samsung
companies and other services. Any material adverse change in the purchase
requirements of Samsung Electronics, in its ability to supply the agreed-upon
services or in its ability to fulfill its other obligations could have a
material adverse effect on our results of operations. Although the power device
business has generated significant revenues from the sale of products to
affiliated Samsung companies, we cannot assure you that we will be able to
continue selling products to affiliated Samsung companies or that the
designation of the power device business as a vendor to those affiliated Samsung
companies will generate any revenues for our company. Furthermore, under the
Korean Fair Trade Law, the Fair Trade Commission may issue an order requiring a
change in the terms and conditions of the agreements between us and Samsung
Electronics if it concludes that Samsung Electronics has provided us with undue
support or discriminated against our competitors.
THE POWER DEVICE BUSINESS SUBJECTS OUR COMPANY TO RISKS INHERENT IN DOING
BUSINESS IN KOREA, INCLUDING LABOR RISK, POLITICAL RISK AND CURRENCY RISK.
As a result of the acquisition of the power device business in 1999, we
have significant operations in South Korea and are subject to risks associated
with doing business in that country.
In addition to other risks disclosed relating to international operations,
some businesses in South Korea are subject to labor unrest. Also, relations
between South Korea and North Korea have been tense over most of South Korea's
history. We cannot assure you as to whether or when this situation will be
resolved or change abruptly as a result of current or future events. An adverse
change in economic or political conditions in South Korea or in its relations
with North Korea could have a material adverse effect on our Korean subsidiary.
The power device business' sales are denominated primarily in U.S. dollars
while a significant portion of its costs of goods sold and its operating
expenses are denominated in South Korean won. Although we have taken steps to
fix the costs subject to currency fluctuations and to balance won revenues and
won costs, a significant change in this balance, coupled with a significant
change in the value of the won relative to the dollar, could have a material
adverse effect on our financial performance and results of operations. In
addition, an unfavorable change in the value of the won could require us to
write down our won-denominated assets.
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A CHANGE IN FOREIGN TAX LAWS OR A DIFFERENCE IN THE CONSTRUCTION OF CURRENT
FOREIGN TAX LAWS BY RELEVANT FOREIGN AUTHORITIES COULD RESULT IN US NOT
RECOGNIZING THE BENEFITS WE ANTICIPATED IN CONNECTION WITH THE TRANSACTION
STRUCTURE USED TO CONSUMMATE THE ACQUISITION OF THE POWER DEVICE BUSINESS.
The transaction structure we used for the acquisition of the power device
business is based on assumptions about the various tax laws, including
withholding tax, and other relevant laws of foreign jurisdictions. In addition,
our Korean subsidiary was granted a ten-year tax holiday under Korean law in
1999. The first seven years are tax-free, followed by three years of income
taxes at 50% of the statutory rate. In 2000, the tax holiday was extended such
that the exemption amounts were increased to 75% in the eighth year and a 25%
exemption was added to the eleventh year. If our assumptions about tax and other
relevant laws are incorrect, or if foreign taxing jurisdictions were to change
or modify the relevant laws, or if our Korean subsidiary were to lose its tax
holiday, we could suffer adverse tax and other financial consequences or lose
the benefits anticipated from the transaction structure we used to acquire that
business.
OUR INTERNATIONAL OPERATIONS SUBJECT OUR COMPANY TO RISKS NOT FACED BY DOMESTIC
COMPETITORS.
Through our subsidiaries we maintain significant operations in the
Philippines, Malaysia and South Korea and also operate facilities in China and
Singapore. We also have sales offices and customers around the world. The
following are risks inherent in doing business on an international level:
- changes in import duties;
- trade restrictions;
- transportation delays;
- work stoppages;
- economic and political instability;
- foreign currency fluctuations; and
- the laws, including tax laws, and policies of the United States and of
the countries in which we manufacture our products.
WE ARE SUBJECT TO MANY ENVIRONMENTAL LAWS AND REGULATIONS THAT COULD AFFECT OUR
OPERATIONS OR RESULT IN SIGNIFICANT EXPENSES.
Increasingly stringent environmental regulations restrict the amount and
types of pollutants that can be released from our operations into the
environment. While historically the cost of compliance with environmental laws
has not had a material adverse effect on our results of operations, compliance
with these and any future regulations could require significant capital
investments in pollution control equipment or changes in the way we make our
products. In addition, because we use hazardous and other regulated materials in
our manufacturing processes, we are subject to risks of liabilities and claims,
regardless of fault, resulting from accidental releases, including personal
injury claims and civil and criminal fines, any of which could be material to
our cash flow or earnings. For example:
- we currently are remediating contamination at some of our operating plant
sites;
- we have been identified as a potentially responsible party at a number of
Superfund sites where we (or our predecessors) disposed of wastes in the
past; and
- significant regulatory and public attention on the impact of
semiconductor operations on the environment may result in more stringent
regulations, further increasing our costs.
Although most of our known environmental liabilities are covered by
indemnities from Raytheon Company, National Semiconductor or Intersil, these
indemnities are limited to conditions that occurred prior to the consummation of
those transactions. Moreover, we cannot assure you that their indemnity
obligations to us for the covered liabilities will be adequate to protect us.
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WE MAY NOT BE ABLE TO ATTRACT OR RETAIN THE TECHNICAL OR MANAGEMENT EMPLOYEES
NECESSARY TO REMAIN COMPETITIVE IN OUR INDUSTRY.
Our continued success depends on the retention and recruitment of skilled
personnel, including technical, marketing, management and staff personnel. In
the semiconductor industry, the competition for qualified personnel,
particularly experienced design engineers and other technical employees, is
intense. There can be no assurance that we will be able to retain our current
personnel or recruit the key personnel we require. In addition, we do not have
employment agreements with most members of our senior management team.
A SUBSTANTIAL NUMBER OF SHARES OF OUR PARENT COMPANY'S COMMON STOCK ARE OWNED BY
A LIMITED NUMBER OF PERSONS, AND THEIR INTERESTS MAY CONFLICT WITH YOUR
INTERESTS.
Court Square Capital Limited, which is one of the principal stockholders of
our parent company, Fairchild International, and our directors and executive
officers together own approximately 31.5% of the outstanding shares of the Class
A Common Stock of Fairchild International (including shares underlying vested
options). By virtue of such stock ownership, such persons have the power to
significantly influence our affairs and are able to influence the outcome of
matters required to be submitted to stockholders for approval, including the
election of directors and the amendment of Fairchild International's and our
charter and bylaws. We cannot assure you that such persons will not exercise
their influence over us in a manner detrimental to your interests.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE A CHANGE OF
CONTROL OFFER.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding notes, including the
notes, the 10 1/8% Senior Subordinated Notes and the 10 3/8% Senior Subordinated
Notes at 101% of their principal amount, plus accrued and unpaid interest, if
any, to the date of redemption. If a change of control were to occur, we cannot
assure you that we would have sufficient funds to pay the purchase price of the
outstanding notes, and we expect that we would require third party financing to
do so. We cannot assure you that we would be able to obtain this financing on
favorable terms, if at all. In addition, the senior credit facility prohibits us
from purchasing any notes, including any offer in connection with a change of
control, and also provides that the occurrence of certain kinds of change of
control events will constitute a default under the senior credit facility. In
the event of a certain kind of change of control, we must offer to repay all
borrowings under the senior credit facility or obtain the consent of our lenders
under the senior credit facility to the purchase of notes. If we do not obtain
such a consent or repay such borrowings, 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, the indenture
governing our 10 1/8% Senior Subordinated Notes and the indenture governing our
10 3/8% Senior Subordinated Notes, as the case may be, which, in turn, would
constitute a default under the senior credit facility. We cannot assure you that
we will have the financial ability to purchase outstanding notes upon the
occurrence of a change of control. See "Description of the Notes -- Change of
Control."
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTIES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM SUBSIDIARY
GUARANTORS.
Under federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, a guaranty could be voided, or claims in respect of a guaranty
could be subordinated to all other debts of that guarantor if, among other
things, the subsidiary guarantor, at the time it incurred the indebtedness
evidenced by its guaranty:
- received less than reasonably equivalent value or fair consideration for
its guaranty; and
- was insolvent or was rendered insolvent by reason of such incurrence; or
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- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by such subsidiary guarantor pursuant to its
guaranty could be voided and required to be returned to such guarantor, or to a
fund for the benefit of the creditors of the subsidiary guarantor. If the
subsidiary guaranties are not enforceable, the notes would be effectively junior
in ranking to all liabilities of the subsidiary guarantors.
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 subsidiary guarantor
would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets;
- the present fair saleable value of its assets was 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
- it could not pay its debts as they become due.
YOU MAY FIND IT DIFFICULT TO SELL YOUR NOTES BECAUSE THERE IS NO EXISTING
TRADING MARKET FOR THE NOTES.
There is no existing trading market for the new notes. You may find it
difficult to sell your new notes because an active trading market for the new
notes may not develop. We do not intend to apply for listing or quotation of the
new notes on any exchange. The new notes are being offered to the holders of the
outstanding notes. The outstanding notes were issued on January 31, 2001 to a
small number of institutional investors. Therefore, we do not know the extent to
which investor interest will lead to the development of a trading market or how
liquid that market may be. Although we were informed by the initial purchasers
of the outstanding notes that they intended to make a market in the notes, they
are not required to do so, and they may cease market-making at any time without
notice. Consequently, the market price of the new notes issued in this exchange
offer could be adversely affected and you may not be able to liquidate your
investment readily.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
When we sold the outstanding notes in January 2001, we entered into a
registration rights agreement with the initial purchasers of those notes. Under
the registration rights agreement, we agreed to file by May 1, 2001 a
registration statement for the exchange of the outstanding notes for new notes
registered under the Securities Act. This prospectus is a part of the
registration statement we have filed to satisfy our obligation. We also agreed
to use our reasonable best efforts to cause this registration statement to be
declared effective by the SEC by June 30, 2001. We also agreed to conduct this
exchange offer for not less than 30 days after the date notice of the exchange
offer is mailed to the holders of the outstanding notes and to use our
reasonable best efforts to keep this registration statement effective until the
exchange offer is completed. The registration rights agreement provides that we
are required to pay liquidated damages to the holders of the outstanding notes
whose notes are subject to transfer restrictions if:
- by June 30, 2001, the registration statement is not declared effective;
or
- the exchange offer has not been consummated on or before the 40th day
after the registration statement is declared effective.
A copy of the registration rights agreement is filed as an exhibit to the
registration statement.
TERMS OF THE EXCHANGE OFFER
This prospectus and the accompanying letter of transmittal together
constitute the exchange offer. Subject to the terms and conditions in this
prospectus and the letter of transmittal, we will accept for exchange
outstanding notes which are properly tendered on or before the expiration date
and are not withdrawn as permitted below. The expiration date for this exchange
offer is 5:00 p.m., New York City time, on May 30, 2001, or such later date and
time to which we, in our sole discretion, extend the exchange offer.
The form and terms of the new notes being issued in the exchange offer are
the same as the form and terms of the outstanding notes, except that the new
notes being issued in the exchange offer:
- will have been registered under the Securities Act;
- will not bear the restrictive legends restricting their transfer under
the Securities Act; and
- will not contain the registration rights and liquidated damages
provisions contained in the outstanding notes.
Notes tendered in the exchange offer must be in denominations of the
principal amount of $1,000 and any integral multiple of $1,000.
We expressly reserve the right, in our sole discretion:
- to extend the expiration date;
- to delay accepting any outstanding notes;
- if any of the conditions set forth below under "-- Conditions to the
Exchange Offer" have not been satisfied, to terminate the exchange offer
and not accept any outstanding notes for exchange; and
- to amend the exchange offer in any manner.
We will give oral or written notice of any extension, delay,
non-acceptance, termination or amendment as promptly as practicable by a public
announcement, and in the case of an extension, no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
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During an extension, all outstanding notes previously tendered will remain
subject to the exchange offer and may be accepted for exchange by us. Any
outstanding notes not accepted for exchange for any reason will be returned
without cost to the holder that tendered them as promptly as practicable after
the expiration or termination of the exchange offer.
HOW TO TENDER OUTSTANDING NOTES FOR EXCHANGE
When the holder of outstanding notes tenders and we accept outstanding
notes for exchange, a binding agreement between us and the tendering holder is
created, subject to the terms and conditions in this prospectus and the
accompanying letter of transmittal. Except as set forth below, a holder of
outstanding notes who wishes to tender outstanding notes for exchange must, on
or prior to the expiration date:
(1) transmit a properly completed and duly executed letter of transmittal,
including all other documents required by such letter of transmittal,
to United States Trust Company of New York, the exchange agent, at the
address set forth below under the heading "-- The Exchange Agent"; or
(2) if outstanding notes are tendered pursuant to the book-entry procedures
set forth below, the tendering holder must transmit an agent's message
to the exchange agent at the address set forth below under the heading
"-- The Exchange Agent."
In addition, one of the following must occur:
(1) the exchange agent must receive the certificates for the outstanding
notes and the letter of transmittal;
(2) the exchange agent must receive, prior to the expiration date, a timely
confirmation of the book-entry transfer of the outstanding notes being
tendered into the exchange agent's account at the Depository Trust
Company, or DTC, along with the letter of transmittal or an agent's
message; or
(3) the holder must comply with the guaranteed delivery procedures
described below.
The term "agent's message" means a message, transmitted to DTC and received by
the exchange agent and forming a part of a book-entry transfer, referred to as a
"book-entry confirmation," which states that DTC has received an express
acknowledgment that the tendering holder agrees to be bound by the letter of
transmittal and that we may enforce the letter of transmittal against such
holder.
The method of delivery of the outstanding notes, the letters of transmittal
and all other required documents is at the election and risk of the holders. If
such delivery is by mail, we recommend registered mail, properly insured, with
return receipt requested. In all cases, you should allow sufficient time to
assure timely delivery. No letters of transmittal or notes should be sent
directly to us.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the outstanding notes surrendered for
exchange are tendered:
(1) by a holder of outstanding notes who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on
the letter of transmittal; or
(2) for the account of an eligible institution.
An "eligible institution" 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 signatures on a letter of transmittal or notice of withdrawal are
required to be guaranteed, the guarantor must be an eligible institution. If
outstanding notes are registered in the name of a person other than the signer
of the letter of transmittal, the outstanding notes surrendered for exchange
must be endorsed by, or accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory
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form as determined by us in our sole discretion, duly executed by the registered
holder with the holder's signature guaranteed by an eligible institution.
We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of outstanding notes tendered for
exchange in our sole discretion. Our determination will be final and binding. We
reserve the absolute right to:
(1) reject any and all tenders of any outstanding note improperly tendered;
(2) refuse to accept any outstanding note if, in our judgment or the
judgment of our counsel, acceptance of the outstanding note may be
deemed unlawful; and
(3) waive any defects or irregularities or conditions of the exchange offer
as to any particular outstanding note either before or after the
expiration date, including the right to waive the ineligibility of any
holder who seeks to tender outstanding notes in the exchange offer.
Our interpretation of the terms and conditions of the exchange offer as to
any particular notes either before or after the expiration date, including the
letter of transmittal and the instructions to it, will be final and binding on
all parties. Holders must cure any defects and irregularities in connection with
tenders of notes for exchange within such reasonable period of time as we will
determine, unless we waive such defects or irregularities. Neither we, the
exchange agent nor any other person will be under any duty to give notification
of any defect or irregularity with respect to any tender of outstanding notes
for exchange, nor will any of us incur any liability for failure to give such
notification.
If a person or persons other than the registered holder or holders of the
outstanding notes tendered for exchange signs the letter of transmittal, the
tendered outstanding notes must be endorsed or accompanied by appropriate powers
of attorney, in either case signed exactly as the name or names of the
registered holder or holders that appear on the outstanding notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any notes or any power of attorney,
such persons should so indicate when signing, and you must submit proper
evidence satisfactory to us of such person's authority to so act unless we waive
this requirement.
By tendering, each holder will represent to us that, among other things,
the person acquiring new notes in the exchange offer is obtaining them in the
ordinary course of its business, whether or not such person is the holder, and
that neither the holder nor such other person has any arrangement or
understanding with any person to participate in the distribution of the new
notes. If any holder or any such other person is an "affiliate," as defined in
Rule 405 under the Securities Act, of our company, 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, such holder or any such other
person:
(1) may not rely on the applicable interpretations of the staff of the SEC;
and
(2) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives new notes for its own account in exchange
for outstanding notes, where the outstanding 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. The letter of transmittal states that by so
acknowledging 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.
See "Plan of Distribution" for a discussion of the exchange and resale
obligations of broker-dealers in connection with the exchange offer.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES ISSUED IN
THE EXCHANGE OFFER
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all outstanding notes
properly tendered and will issue new notes registered under
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the Securities Act. For purposes of the exchange offer, we will be deemed to
have accepted properly tendered outstanding notes for exchange when, as and if
we have given oral or written notice to the exchange agent, with written
confirmation of any oral notice to be given promptly thereafter. See
"-- Conditions to the Exchange Offer" for a discussion of the conditions that
must be satisfied before we accept any notes for exchange.
For each outstanding note accepted for exchange, the holder will receive a
new note registered under the Securities Act having a principal amount equal to,
and in the denomination of, that of the surrendered outstanding note.
Accordingly, registered holders of new notes that are outstanding on the
relevant record date for the first interest payment date following the
consummation of the exchange offer will receive interest accruing from the issue
date of the outstanding notes, or, if interest has been paid, the most recent
date to which interest has been paid. Outstanding notes that we accept for
exchange will cease to accrue interest from and after the date of consummation
of the exchange offer. Under the registration rights agreement, we may be
required to make additional payments in the form of liquidated damages to the
holders of the outstanding notes under circumstances relating to the timing of
the exchange offer.
In all cases, we will issue new notes in the exchange offer for outstanding
notes that are accepted for exchange only after the exchange agent timely
receives:
(1) certificates for such outstanding notes or a timely book-entry
confirmation of such outstanding notes into the exchange agent's
account at DTC;
(2) a properly completed and duly executed letter of transmittal or an
agent's message; and
(3) all other required documents.
If for any reason set forth in the terms and conditions of the exchange
offer we do not accept any tendered outstanding notes, or if a holder submits
outstanding notes for a greater principal amount than the holder desires to
exchange, we will return such unaccepted or non-exchanged outstanding notes
without cost to the tendering holder. In the case of outstanding notes tendered
by book-entry transfer into the exchange agent's account at DTC, such
non-exchanged outstanding notes will be credited to an account maintained with
DTC. We will return the outstanding notes or have them credited to DTC as
promptly as practicable after the expiration or termination of the exchange
offer.
BOOK-ENTRY TRANSFERS
The exchange agent will make a request to establish an account at DTC for
purposes of the exchange offer within two business days after the date of this
prospectus. Any financial institution that is a participant in DTC's system must
make book-entry delivery of outstanding notes denominated in dollars by causing
DTC to transfer the outstanding notes into the exchange agent's account at DTC
in accordance with DTC's procedures for transfer. Such participant should
transmit its acceptance to DTC on or prior to the expiration date or comply with
the guaranteed delivery procedures described below. DTC will verify such
acceptance, execute a book-entry transfer of the tendered outstanding notes into
the exchange agent's account at DTC and then send to the exchange agent
confirmation of such book-entry transfer. The confirmation of such book-entry
transfer will include an agent's message confirming that DTC has received an
express acknowledgment from such participant that such participant has received
and agrees to be bound by the letter of transmittal and that we may enforce the
letter of transmittal against such participant. Delivery of new notes issued in
the exchange offer may be effected through book-entry transfer at DTC as
applicable. However, the letter of transmittal or facsimile thereof or an
agent's message, with any required signature guarantees and any other required
documents, must:
(1) be transmitted to and received by the exchange agent at the address set
forth below under "-- Exchange Agent" on or prior to the expiration
date; or
(2) comply with the guaranteed delivery procedures described below.
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GUARANTEED DELIVERY PROCEDURES
If a holder of outstanding notes desires to tender such notes and the
holder's notes are not immediately available, or time will not permit such
holder's outstanding notes or other required documents to reach the exchange
agent before the expiration date, or the procedure for book-entry transfer
cannot be completed on a timely basis, a tender may be effected if:
(1) the holder tenders the outstanding notes through an eligible
institution;
(2) prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed notice of
guaranteed delivery, substantially in the form we have provided, by
facsimile transmission, mail or hand delivery, setting forth the name
and address of the holder of the outstanding notes being tendered and
the amount of the outstanding notes being tendered. The notice of
guaranteed delivery will state that the tender is being made and
guarantee that within three New York Stock Exchange trading days after
the date of execution of the notice of guaranteed delivery, the
certificates for all physically tendered outstanding notes, in proper
form for transfer, or a book-entry confirmation, as the case may be,
together with a properly completed and duly executed letter of
transmittal or agent's message with any required signature guarantees
and any other documents required by the letter of transmittal will be
deposited by the eligible institution with the exchange agent; and
(3) the exchange agent receives the certificates for all physically
tendered outstanding notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, together with a properly
completed and duly executed letter of transmittal or agent's message
with any required signature guarantees and any other documents required
by the letter of transmittal, within three New York Stock Exchange
trading days after the date of execution of the notice of guaranteed
delivery.
WITHDRAWAL RIGHTS
You may withdraw tenders of your outstanding notes at any time prior to
5:00 p.m., New York City time, on the expiration date.
For a withdrawal to be effective, you must send a written notice of
withdrawal to the exchange agent at one of the addresses set forth below under
"-- Exchange Agent." Any such notice of withdrawal must:
(1) specify the name of the person having tendered the outstanding notes to
be withdrawn;
(2) identify the outstanding notes to be withdrawn, including the principal
amount of such outstanding notes; and
(3) where certificates for outstanding notes are transmitted, specify the
name in which outstanding notes are registered, if different from that
of the withdrawing holder.
If certificates for outstanding 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 an eligible institution unless such holder is an
eligible institution. If outstanding notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawn outstanding notes and otherwise comply with the procedures of such
facility. We will determine all questions as to the validity, form and
eligibility (including time of receipt) of such notices and our determination
will be final and binding on all parties. Any tendered outstanding notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the exchange offer. Any outstanding notes which have been tendered
for exchange but which are not exchanged for any reason will be returned to the
holder of those notes without cost to the holder. In the case of outstanding
notes tendered by book-entry transfer into the exchange agent's account at DTC,
the outstanding notes withdrawn will be credited to an account maintained with
DTC for the outstanding notes. The outstanding notes will be returned or
credited to this
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account as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn notes may be re-tendered
by following one of the procedures described under "-- How to Tender Outstanding
Notes for Exchange" above at anytime on or prior to 5:00 p.m., New York City
time, on the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
We are not required to accept for exchange, or to issue new notes in the
exchange offer for, any outstanding notes. We may terminate or amend the
exchange offer at any time before the acceptance of outstanding notes for
exchange if:
(1) any federal law, statute, rule or regulation is adopted or enacted
which, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offer;
(2) any stop order is threatened or in effect with respect to 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;
(3) there is a change in the current interpretation by staff of the SEC
which permits the new notes issued in the exchange offer in exchange
for the outstanding notes to be offered for resale, resold and
otherwise transferred by such holders, other than broker-dealers and
any such holder which is an "affiliate" of our company within the
meaning of Rule 405 under the Securities Act, without compliance with
the registration and prospectus delivery provisions of the Securities
Act, provided that the new notes acquired in the exchange offer are
acquired in the ordinary course of such holder's business and such
holder has no arrangement or understanding with any person to
participate in the distribution of the new notes;
(4) there is a general suspension of or general limitation on prices for,
or trading in, securities on any national exchange or in the
over-the-counter market;
(5) any governmental agency creates limits that adversely affect our
ability to complete the exchange offer;
(6) there is any declaration of war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or the worsening of any such condition that existed at the time
that we commence the exchange offer;
(7) there is a change or a development involving a prospective change in
our and our subsidiaries' businesses, properties, assets, liabilities,
financial condition, operations, results of operations taken as a
whole, that is or may be adverse to us; or
(8) we become aware of facts that, in our reasonable judgment, have or may
have adverse significance with respect to the value of the outstanding
notes or the new notes to be issued in the exchange offer.
The preceding conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any such condition. We may waive
the preceding conditions in whole or in part at any time and from time to time
in our sole discretion. If we do so, the exchange offer will remain open for at
least three business days following any waiver of the preceding conditions. Our
failure at any time to exercise the foregoing rights will not be deemed a waiver
of any such right and each such right will be deemed an ongoing right which we
may assert at any time and from time to time.
THE EXCHANGE AGENT
United States Trust Company of New York has been appointed as our exchange
agent for the exchange offer. All executed letters of transmittal should be
directed to our exchange agent at the address set forth below. Questions and
requests for assistance, requests for additional copies of this prospectus or of
25
31
the letter of transmittal and requests for notices of guaranteed delivery should
be directed to the exchange agent addressed as follows:
Main Delivery To:
United States Trust Company of New York
By mail, hand delivery or overnight courier:
United States Trust Company of New York
30 Broad Street
14th floor
New York, New York 10004
Attention: Corporate Trust Services -- Confidential
By facsimile transmission:
(for eligible institutions only)
(212) 422-0183 or (646) 458-8104
Confirm by telephone:
(800) 548-6565
Delivery of the letter of transmittal to an address other than as set forth
above or transmission of such letter of transmittal via facsimile other than as
set forth above does not constitute a valid delivery of such letter of
transmittal.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptance of the exchange offer except for reimbursement of mailing expenses.
We will pay the cash expenses to be incurred in connection with the exchange
offer, including:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees;
- printing fees; and
- related fees and expenses.
TRANSFER TAXES
Holders who tender their outstanding notes for exchange will not be
obligated to pay any transfer taxes in connection with the exchange. If,
however, new notes issued in the exchange offer are to be delivered to, or are
to be issued in the name of, any person other than the holder of the outstanding
notes tendered, or if a transfer tax is imposed for any reason other than the
exchange of outstanding notes in connection with the exchange offer, then the
holder must pay any of these transfer taxes, whether imposed on the registered
holder or on any other person. If satisfactory evidence of payment of, or
exemption from, these taxes is not submitted with the letter of transmittal, the
amount of these transfer taxes will be billed directly to the tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE OUTSTANDING NOTES
Holders who desire to tender their outstanding notes in exchange for new
notes registered under the Securities Act should allow sufficient time to ensure
timely delivery. Neither the exchange agent nor we are under any duty to give
notification of defects or irregularities with respect to the tenders of
outstanding notes for exchange.
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32
Outstanding notes that are not tendered or are tendered but not accepted
will, following the consummation of the exchange offer, continue to be subject
to the provisions in the indenture regarding the transfer and exchange of the
outstanding notes and the existing restrictions on transfer set forth in the
legend on the outstanding notes and in the offering circular dated January 26,
2001, relating to the outstanding notes. Except in limited circumstances with
respect to specific types of holders of outstanding notes, we will have no
further obligation to provide for the registration under the Securities Act of
such outstanding notes. In general, outstanding notes, unless registered under
the Securities Act, may not be offered or sold except pursuant to 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 take any
action to register the outstanding notes under the Securities Act or under any
state securities laws.
Upon completion of the exchange offer, holders of the outstanding notes
will not be entitled to any further registration rights under the registration
rights agreement, except under limited circumstances.
Holders of the new notes and any outstanding notes which remain outstanding
after consummation of the exchange offer will vote together as a single class
for purposes of determining whether holders of the requisite percentage of the
class have taken certain actions or exercised certain rights under the
indenture.
CONSEQUENCES OF EXCHANGING OUTSTANDING NOTES
Based on interpretations of the staff of the SEC, as set forth in no-action
letters to third parties, we believe that the new notes may be offered for
resale, resold or otherwise transferred by holders of those new notes, other
than by any holder which is our "affiliate" within the meaning of Rule 405 under
the Securities Act. The new notes may be offered for resale, resold or otherwise
transferred without compliance with the registration and prospectus delivery
provisions of the Securities Act, if:
(1) the new notes issued in the exchange offer are acquired in the ordinary
course of the holder's business; and
(2) the holder, other than broker-dealers, has no arrangement or
understanding with any person to participate in the distribution of the
new notes issued in the exchange offer.
However, the SEC has not considered the exchange offer in the context of a
no-action letter and we cannot guarantee that the staff of the SEC would make a
similar determination with respect to the exchange offer as in such other
circumstances.
Each holder, other than a broker-dealer, must furnish a written
representation, at our request, that:
(1) it is not an affiliate of ours;
(2) it is not engaged in, and does not intend to engage in, a distribution
of the notes issued in the exchange offer and has no arrangement or
understanding to participate in a distribution of notes issued in the
exchange offer;
(3) it is acquiring the new notes issued in the exchange offer in the
ordinary course of its business; and
(4) it is not acting on behalf of a person who could not make
representations (1)-(3).
Each broker-dealer that receives new notes for its own account in exchange
for outstanding notes must acknowledge that:
(1) such outstanding notes were acquired by such broker-dealer as a result
of market-making or other trading activities; and
(2) it must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction, including the delivery of a prospectus that contains
information with respect to any selling holder required by the
Securities Act in connection with any resale of new notes issued in the
exchange offer.
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33
Furthermore, any broker-dealer that acquired any of its outstanding notes
directly from us:
(1) may not rely on the applicable interpretation of the SEC staff's
position contained in Exxon Capital Holdings Corp., SEC No-Action
Letter (April 13, 1989), Morgan, Stanley & Co., Inc., SEC No-Action
Letter (June 5, 1991) and Shearman Sterling, SEC No-Action Letter (July
2, 1983); and
(2) must also be named as a selling holder of the new notes in connection
with the registration and prospectus delivery requirements of the
Securities Act relating to any resale transaction.
See "Plan of Distribution" for a discussion of the exchange and resale
obligations of broker-dealers in connection with the exchange offer.
In addition, to comply with state securities laws of certain jurisdictions,
the new notes issued in the exchange offer may not be offered or sold in any
state unless they have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and complied with by
the holders selling the new notes. We have agreed in the registration rights
agreement that, prior to any public offering of transfer restricted notes, we
will register or qualify or cooperate with the holders of the new notes in
connection with the registration or qualification of the notes for offer and
sale under the securities laws of those states as any holder of the notes
reasonably requests in writing. Unless a holder requests, we currently do not
intend to register or qualify the sale of the new notes in any state where an
exemption from registration or qualification is required and not available.
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. The net proceeds
received by us from the sale of the outstanding notes, after deducting the
underwriting discount and estimated offering expenses of $11.5 million, was
approximately $338.5 million. We used the net proceeds from the notes to fund
the Acquisition. As set forth in the asset purchase agreement for the
Acquisition, the all-cash purchase price for DPP was $338.0 million, subject to
adjustments. See "Description of the Acquisition Agreement."
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34
CAPITALIZATION
The following table sets forth the consolidated capitalization of Fairchild
International as of December 31, 2000 on an historical basis and as adjusted to
give effect to the offering of the outstanding notes but not the Acquisition.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and the notes thereto included elsewhere or incorporated by
reference in this prospectus.
AS OF DECEMBER 31, 2000
---------------------------
AS ADJUSTED
ACTUAL FOR OFFERING
-------- ---------------
(DOLLARS IN MILLIONS)
Cash and cash equivalents(1)................................ $ 401.8 $ 740.3
======== ========
Long-term debt, including current portion:
Senior credit facility(2)................................. $ 120.2 $ 120.2
10 1/8% Senior Subordinated Notes Due March 15,
2007(3)(4)............................................. 285.0 285.0
10 3/8% Senior Subordinated Notes Due October 1, 2007..... 300.0 300.0
10 1/2% Senior Subordinated Notes Due February 1, 2009.... -- 350.0
-------- --------
Total long-term debt, including current portion... 705.2 1,055.2
-------- --------
Stockholders' equity:
Class A common stock, $.01 par value, voting (140,000,000
shares authorized, 82,335,912 shares issued and
82,043,635 outstanding)................................ 0.8 0.8
Class B common stock, $.01 par value, nonvoting
(140,000,000 shares authorized, 17,281,000 shares
issued and outstanding)................................ 0.2 0.2
Additional paid-in capital................................ 801.1 801.1
Accumulated earnings...................................... 41.8 41.8
Less treasury stock (at cost)............................. (6.2) (6.2)
-------- --------
Total stockholders' equity........................ 837.7 837.7
-------- --------
Total capitalization.............................. $1,542.9 $1,892.9
======== ========
- ---------------
(1) On March 16, 2001, the Acquisition was consummated and $338.0 million was
paid to Intersil Corporation.
(2) Borrowings of up to $300.0 million are available under the senior credit
facility on a revolving basis and are available for general corporate
purposes, including acquisitions.
(3) We must redeem $150.0 million principal amount of the 10 1/8% Senior
Subordinated Notes on March 15, 2005 and $75.0 million principal amount on
March 15, 2006 in each case at a redemption price of 100% of the principal
amount plus accrued interest to the date of redemption.
(4) Does not include $15.0 million principal amount purchased by Fairchild
Semiconductor Corporation in December 2000.
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35
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data of Fairchild International, our parent company. The historical consolidated
financial data as of December 26, 1999 and December 31, 2000 and for the fiscal
years ended May 31, 1998 and May 30, 1999, the seven months ended December 26,
1999 and the year ended December 31, 2000 are derived from the audited
consolidated financial statements of Fairchild International that are
incorporated by reference in this prospectus. The historical consolidated
financial data as of May 26, 1996, May 25, 1997, May 31, 1998 and May 30, 1999
and for the fiscal years ended May 26, 1996 and May 25, 1997 are derived from
audited consolidated financial statements of Fairchild International that are
not included or incorporated by reference in this prospectus. This information
should be read in conjunction with the consolidated financial statements of
Fairchild International and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere or
incorporated by reference in this prospectus.
SEVEN
MONTHS
FISCAL YEAR ENDED MAY ENDED YEAR ENDED
---------------------------------- DECEMBER 26, DECEMBER 31,
1996 1997 1998 1999 1999 2000
------ ------ ------ ------- ------------ ------------
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:(1)
Revenue(2)............................ $776.3 $692.0 $789.2 $ 735.1 $ 786.2 $1,783.2
Gross profit(2)....................... 216.8 152.5 230.5 152.3 234.9 639.2
Research and development.............. 30.3 18.9 35.7 39.3 35.0 83.9
Selling, general and
administrative(3)................... 114.4 96.4 92.0 105.1 117.4 224.0
Restructuring, impairments and other
charges(4).......................... -- 5.3 15.5 55.3 -- 3.4
------ ------ ------ ------- -------- --------
Operating income (loss)............. 72.1 31.9 87.3 (47.4) 82.5 327.9
Interest expense, net(5).............. -- 11.2 54.5 71.8 56.2 58.0
Other expense (income), net........... (0.2) 1.4 -- -- -- (0.8)
------ ------ ------ ------- -------- --------
Income (loss) before income taxes... 72.3 19.3 32.8 (119.2) 26.3 270.7
Provision (benefit) for income
taxes(6)............................ -- 3.8 10.7 (5.1) 5.0 (2.4)
------ ------ ------ ------- -------- --------
Income (loss) before cumulative
effect of change in accounting
principle........................ $ 72.3 $ 15.5 22.1 (114.1) 21.3 273.1
====== ======
Cumulative effect of change in
accounting principle................ (1.5) -- -- --
------ ------- -------- --------
Net income (loss)..................... 20.6 (114.1) 21.3 273.1
Dividends on preferred stock.......... (8.7) (9.8) (2.0) --
------ ------- -------- --------
Net income (loss) applicable to
common stockholders.............. $ 11.9 $(123.9) $ 19.3 $ 273.1
====== ======= ======== ========
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SEVEN
MONTHS
FISCAL YEAR ENDED MAY ENDED YEAR ENDED
---------------------------------- DECEMBER 26, DECEMBER 31,
1996 1997 1998 1999 1999 2000
------ ------ ------ ------- ------------ ------------
(DOLLARS IN MILLIONS)
OTHER FINANCIAL DATA:
Revenue:
Analog.............................. $ -- $ -- $ 40.0 $ 99.7 $ 177.6 $ 378.7
Discrete............................ 175.0 164.5 187.3 222.8 316.9 749.0
Interface and logic................. 339.5 285.3 303.0 267.6 184.0 424.2
Other(2)(7)......................... 261.8 242.2 258.9 145.0 107.7 231.3
------ ------ ------ ------- -------- --------
Total revenue......................... $776.3 $692.0 $789.2 $ 735.1 $ 786.2 $1,783.2
====== ====== ====== ======= ======== ========
Depreciation and other amortization... $ 64.2 $ 77.1 $ 83.4 $ 95.4 $ 62.8 $ 113.5
Amortization of intangibles(8)........ -- -- 1.4 8.4 19.5 37.6
Adjusted EBITDA(9).................... 136.3 128.4 187.6 127.1 173.1 477.0
Capital expenditures.................. 153.9 47.1 78.0 46.2 74.8 301.9
Ratio of earnings to fixed
charges(10)......................... 46.2x 2.5x 1.5x -- 1.4x 4.2x
BALANCE SHEET DATA (END OF PERIOD):
Inventories........................... $ 93.1 $ 73.1 $108.0 $ 148.6 $ 166.3 $ 192.8
Total assets.......................... 432.7 555.0 634.3 1,095.7 1,137.6 1,837.5
Long-term debt, excluding current
portion............................. -- 487.9 526.7 1,045.9 717.2 705.2
Total stockholders' equity
(deficit)........................... 349.2 (133.3) (116.6) (240.4) 213.2 837.7
- ---------------
(1) For Fiscal 1997 and the prior period, statement of operations data include
the direct expense of the Fairchild Semiconductor business of National
Semiconductor and allocated expenses from National Semiconductor. Such
amounts may not be comparable to data for Fiscal 1998 and subsequent
periods.
(2) Revenues and gross profit in Fiscal 1999 were negatively impacted by $5.5
million and $15.4 million, respectively, due to one-time write-offs for
additional sales and inventory reserves as a result of our Memory division
restructuring. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Restructuring."
(3) For Stub Year 1999, selling, general and administrative expenses include
$8.3 million for a one-time write-off of receivables from the management
investors to pay their federal and state individual income tax liabilities
resulting from the lapse of risks of forfeiture with respect to their stock
ownership. Such receivables were cancelled as a result of the initial
public offering of Fairchild International's Class A Common Stock
consummated on August 9, 1999. This write-off includes amounts to discharge
the individual tax liabilities associated with the cancellation.
(4) In Fiscal 1997, restructuring, impairments and other charges consisted of
severance and other costs related to lay-offs that occurred in the first
quarter of fiscal 1997. In Fiscal 1998, such charges consisted of
in-process research and development associated with the acquisition of
Raytheon Semiconductor. In Fiscal 1999 such charges consisted of $34.0
million of in-process research and development associated with the
acquisition of the power device business of Samsung Electronics and $21.3
million related to various restructuring actions. In Calendar 2000 such
charges consisted of in-process research and development associated with
the acquisition of QT Optoelectronics, Inc., KOTA Microcircuits, Inc. and
the power management business of Micro Linear Corporation ($9.0 million),
offset by gains recorded for additional proceeds received in connection
with the sale of the Mountain View, California facility and the adjustment
of restructuring reserves ($5.6 million). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations --
Restructuring."
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(5) For Fiscal 1999, interest expense includes the write-off of deferred
financing fees of $5.2 million. For Stub Year 1999, interest expense
includes $7.2 million for the write-off of unamortized debt issuance costs
associated with debt repaid and $0.3 million for a prepayment premium on a
12.5% Subordinated Note Due 2008 repaid with a portion of the proceeds of
Fairchild International's initial public offering consummated on August 9,
1999. In Calendar 2000, interest expense includes the write-off of deferred
financing fees of $3.6 million.
(6) For Calendar 2000, provision (benefit) for income taxes includes the
one-time reduction of deferred tax asset valuation allowances of $26.3
million.
(7) Other includes non-volatile memory products, contract manufacturing
services and optoelectronic products. Optoelectronic products are included
from May 28, 2000, which is the date on which we acquired QT
Optoelectronics, Inc.
(8) Amortization of intangibles primarily represents the amortization of
identifiable acquisition-related intangible assets.
(9) Adjusted EBITDA is defined as operating income before other (income)
expense, interest expense, taxes, depreciation, amortization, restructuring
and other non-recurring (gains) charges. Adjusted EBITDA is presented
because we believe that it is a widely accepted financial indicator of an
entity's ability to incur and service debt. Adjusted EBITDA should not be
considered by you as an alternative to net income or income from
operations, as an indicator of our operating performance or other combined
operations or cash flow data prepared in accordance with generally accepted
accounting principles or as an alternative to cash flows as a measure of
liquidity.
(10) 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 (approximately one-third) of rental
expense that we believe is representative of the interest component of
rental expense. For Fiscal 1999, fixed charges exceeded earnings by $119.2
million.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the
consolidated financial statements and notes thereto of Fairchild International,
our parent company, incorporated by reference in this prospectus.
BACKGROUND
We are a leading designer, manufacturer and supplier of analog, discrete,
interface and logic, non-volatile memory and optoelectronic semiconductors
serving the personal computer, industrial, telecommunications, consumer
electronics and automotive markets. Our predecessors were renowned as the
pioneering business companies of the semiconductor industry. The original
Fairchild Semiconductor business invented the planar process of manufacturing
semiconductors, regarded as one of the most significant achievements in the
semiconductor industry since the invention of the transistor. These early
innovations form the base of a rich company history.
Acquired in 1979 by Schlumberger Limited, the Fairchild Semiconductor
business continued to innovate, introducing logic products such as FAST(R)
(Fairchild Advanced Schottky Technology) and FACT(TM) (Fairchild Advanced CMOS
Technology), which remain industry standard products today. In 1987, our
business was acquired by National Semiconductor and integrated into its
operations. The assets of our business were separated from National
Semiconductor in March 1997 and we began operating as a stand-alone entity. At
that time, our business consisted of the Logic Products Group, historically our
core business, the Discrete Products Group and the Non-Volatile Memory Products
Group, historically multi-market businesses of National Semiconductor.
On December 31, 1997, we acquired Raytheon Semiconductor, Inc. for
approximately $117.0 million in cash. That business designs, manufactures and
markets high-performance analog and mixed signal semiconductors with long
product lives for the personal computer, communications, broadcast video and
industrial markets.
On April 13, 1999, we acquired the power device business of Samsung
Electronics Co., Ltd. for $414.9 million in cash. The power device business
designs, manufactures and markets power discrete semiconductors and standard
analog integrated circuits serving the personal computer, industrial,
telecommunications and consumer electronics markets.
On May 28, 2000, we acquired QT Optoelectronics, Inc. for approximately
$92.0 million in cash and common stock. In addition, in conjunction with the
acquisition, we assumed and immediately repaid $14.0 million of QT
Optoelectronics' long-term debt. That business designs, manufactures and markets
optoelectronic products, including optocouplers, LED lamps and displays and
infrared components.
On September 8, 2000 we acquired KOTA Microcircuits, Inc. and the power
management business of Micro Linear Corporation for a combined $23.1 million in
cash and common stock. These businesses design and market analog products,
including operational amplifiers, offline power switches and low power battery
management.
The acquisitions were accounted for as purchases, and accordingly, our
operating results include the operating results of the businesses from their
respective dates of acquisition.
FISCAL YEAR CHANGE
We have changed our fiscal year-end from the last Sunday in May to the last
Sunday in December. Our last fiscal year under our old accounting calendar was
the year ended May 30, 1999. Our first full fiscal year following this change
was the year ended December 31, 2000, which we refer to as Calendar 2000. The
seven-month transition period is referred to as Stub Year 1999.
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SEGMENT INFORMATION
The following table sets forth the composition of trade revenue by
reportable segments and contract manufacturing services as a percentage of total
revenues, excluding one-time charges in Fiscal 1999 and the twelve months ended
December 26, 1999, which we refer to as Calendar 1999, totaling $5.5 million in
the Memory Division, which is included in the "Other" segment along with
optoelectronics products. Also excluded from the "Other" segment in Calendar
2000 is a gain of $2.1 million resulting from the adjustment of distributor
reserves originally recorded in connection with the 1999 Memory restructuring.
YEAR ENDED
FISCAL YEAR ENDED MAY STUB YEAR DECEMBER
----------------------- --------- --------------
1997 1998 1999 1999 1999 2000
----- ----- ----- --------- ----- -----
Analog.................................. 0.0% 5.1% 13.5% 22.6% 20.2% 21.2%
Discrete................................ 23.8 23.7 30.1 40.3 37.9 42.0
Interface & Logic....................... 41.2 38.4 36.1 23.4 26.7 23.8
Other................................... 19.9 13.4 9.4 4.5 5.1 7.3
----- ----- ----- ----- ----- -----
Subtotal trade Sales.................... 84.9 80.6 89.1 90.8 89.9 94.3
Contract manufacturing services......... 15.1 19.4 10.9 9.2 10.1 5.7
----- ----- ----- ----- ----- -----
Total......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 26, 1999
Comparative financial information for Calendar 2000 and Calendar 1999 is as
follows:
(IN MILLIONS) CALENDAR 1999 CALENDAR 2000
------------- ------------- -------------
(UNAUDITED)
Revenue
Net sales -- trade........................................ $1,037.6 $1,681.6
Contract manufacturing.................................... 116.9 101.6
-------- --------
Total revenue..................................... 1,154.5 1,783.2
Operating expenses
Cost of sales -- trade.................................... 764.4 1,078.7
Cost of contract manufacturing............................ 84.3 65.3
Research and development.................................. 53.1 83.9
Selling, general and administrative....................... 162.8 224.0
Purchased in-process research and development............. 34.0 9.0
Restructuring and impairments............................. 16.8 (5.6)
-------- --------
Total operating expenses.......................... 1,115.4 1,455.3
-------- --------
Operating income (loss)..................................... 39.1 327.9
Interest expense............................................ 94.6 81.3
Interest income............................................. (0.7) (23.3)
Other (income) expense, net................................. -- (0.8)
-------- --------
Income (loss) before income taxes........................... (54.8) 270.7
Provision (benefit) for income taxes........................ (2.2) (2.4)
-------- --------
Net income (loss)........................................... $ (52.6) $ 273.1
======== ========
Results of Operations. We generated net income of $273.1 million in
Calendar 2000, compared to a net loss of $(52.6) million in Calendar 1999.
Excluding unusual charges (gains) and amortization of
34
40
acquisition-related intangibles, net of tax effects, adjusted net income was as
follows for Calendar 2000 and Calendar 1999, respectively:
(IN MILLIONS) CALENDAR 1999 CALENDAR 2000
- ------------- ------------- -------------
Net income.................................................. $(52.6) $273.1
Restructuring and impairments............................... 16.8 (5.6)
Purchased in-process research and development............... 34.0 9.0
Non-recurring (gains) charges............................... 36.1 (1.8)
Non-recurring release of deferred tax asset valuation
allowance................................................. -- (26.3)
Amortization of acquisition-related intangibles............. 26.0 37.6
Less associated tax effects................................. (5.7) (3.5)
------ ------
Adjusted net income......................................... $ 54.6 $282.5
====== ======
For Calendar 2000, restructuring and impairments were associated with an
adjustment to reserves recorded in connection with the Memory restructuring, and
a one-time gain on the sale of our former Mountain View, California facility.
Purchased in-process research and development was recorded in connection with
our acquisitions. Non-recurring (gains) charges included a $3.6 million
write-off of deferred financing fees associated with the refinancing of our
senior credit facility offset by a $(5.4) million adjustment to other reserves
associated with the Memory restructuring action in 1999. Finally, we adjusted
our deferred tax valuation reserves in Calendar 2000 as we determined that it
was more likely than not that we would utilize our deferred tax assets. For
Calendar 1999, restructuring and impairments we recorded in connection with our
Analog and Memory restructuring actions. Purchased in-process research and
development was recorded in connection with the acquisition of our power device
business. Non-recurring charges included $15.4 million for other reserves
associated with our Memory restructuring action, $12.4 million for the write-off
of deferred financing fees and an $8.3 million charge for forgiveness of certain
management tax loans in connection with our initial public offering.
Operating income was $327.9 million in Calendar 2000, compared to $39.1
million in Calendar 1999. Excluding unusual charges (gains) detailed above,
operating income was $325.9 million in Calendar 2000, compared to $113.6 million
in Calendar 1999. The increase in operating income is due to higher revenues and
gross profits due to improved pricing, new product introductions and improved
business conditions, resulting in higher factory utilization. In addition,
operating income improved due to a full year of power device results in Calendar
2000, compared to approximately nine months in Calendar 1999, and the effect on
operating income from the acquisitions consummated in Calendar 2000.
Excluding depreciation and amortization of $151.1 million and $130.8
million in Calendar 2000 and Calendar 1999, respectively, unusual charges
(gains) and other (income) expense, earnings before interest, taxes,
depreciation and amortization ("EBITDA") were $477.0 million in Calendar 2000
compared to $244.4 million in Calendar 1999. EBITDA is presented because we
believe that it is a widely accepted financial indicator of an entity's ability
to incur and service debt. EBITDA should not be considered as an alternative to
net income, operating income, or other consolidated operations and cash flow
data prepared in accordance with generally accepted accounting principles, as an
indicator of our operating performance, or as an alternative to cash flows as a
measure of liquidity.
Revenues. Our revenues consist of trade sales to unaffiliated customers
(94.3% and 89.9% of total revenues in Calendar 2000 and Calendar 1999,
respectively) and revenues from contract manufacturing services provided to
National Semiconductor and Samsung Electronics (5.7% and 10.1% of total revenues
in Calendar 2000 and Calendar 1999, respectively).
Trade sales increased 62.1% to $1,681.6 million in Calendar 2000 compared
with $1,037.6 million in Calendar 1999. The increase in our trade sales resulted
from higher sales volume reflecting strength in end markets, the effect of
acquisitions, higher average selling prices and an improved sales mix due to new
product introductions.
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Geographically, 23.4%, 13.5%, 45.5% and 17.6% of trade sales were derived
from North America, Europe, Asia/Pacific and Korea, respectively, in Calendar
2000, compared to 23.9%, 13.5%, 44.9% and 17.7%, respectively, in Calendar 1999.
North American revenues increased 57.9% in Calendar 2000 from Calendar 1999.
This increase was due to strong distribution sales in both the industrial and
consumer markets and improvements in communications and computing, as well as
the effect of acquisitions. Revenues in the Europe region increased 61.5% in
Calendar 2000 from Calendar 1999. The increase in Europe was due to improvements
in the communications, consumer and distribution markets, as well as the effect
of acquisitions. Asia/Pacific region revenues increased 63.7% in Calendar 2000
from Calendar 1999. The increase is due to strength in the consumer segment,
improved regional economic conditions, expansion into the China markets, the
expansion of customers using Asian contract manufacturing locations and the
effect of acquisitions. Our Korean region increased 60.5% in Calendar 2000 from
Calendar 1999. This was primarily the result of the effect of a full year of
power device business revenues in Calendar 2000.
Contract manufacturing revenues decreased 13.1% to $101.6 million in
Calendar 2000 compared to $116.9 million in Calendar 1999. The decrease in
contract manufacturing revenues was due primarily to diminishing demand from
National Semiconductor.
Gross Profit. Gross profit increased 109.0% to $639.2 million, or 35.8% of
sales, in Calendar 2000 compared to $305.8 million, or 26.5% of sales, in
Calendar 1999. Excluding non-recurring charges (gains) associated with the
Memory restructuring of $(5.4) million and $15.4 million in Calendar 2000 and
Calendar 1999, respectively, gross profit increased 97.3% to $633.8 million in
Calendar 2000 as compared to $321.2 million in Calendar 1999.
Trade gross profits increased 120.7% to $602.9 million in Calendar 2000
from $273.2 million in Calendar 1999. Excluding non-recurring charges (gains)
associated with the Memory restructuring action of ($5.4) million in Calendar
2000 and $15.4 million in Calendar 1999, trade gross profits increased 107.0% to
$597.5 million in Calendar 2000 from $288.6 million in Calendar 1999. The
increase in trade gross profit on both an historical and adjusted basis was due
in part to a better sales mix resulting from new product introductions and
slightly higher average selling prices, as well as the favorable effect of
increased factory utilization.
Contract manufacturing gross profits increased 11.4% to $36.3 million in
Calendar 2000 from $32.6 million in Calendar 1999. The increase in contract
manufacturing gross profit was due to favorable pricing adjustments and improved
factory utilization, as well as incremental business with Samsung Electronics as
a result of the acquisition of the power device business.
Research and Development. Research and development expenses ("R&D") were
$83.9 million, or 5.0% of trade sales, in Calendar 2000, compared to $53.1
million, or 5.1% of trade sales, in Calendar 1999. The increase in R&D spending
was primarily due to spending on new product development and spending from our
acquired businesses in Calendar 2000 which was not included in Calendar 1999.
R&D efforts are focused on our growth products (Analog, Power MOSFET, Interface,
CMOS, Logic and Optoelectronics).
Selling, General and Administrative. Selling, general and administrative
("SG&A") expenses were $224.0 million, or 13.3% of trade sales, in Calendar
2000, compared to $162.8 million, or 15.7% of trade sales, in Calendar 1999.
SG&A expenses for Calendar 1999 include an unusual charge of $8.3 million for
the forgiveness of certain loans made to management investors for payment of
individual income tax liabilities resulting from their ownership of our common
stock. Excluding this unusual charge, SG&A was $154.5 million, or 14.9% of trade
sales, in Calendar 1999. The increase in SG&A expenses (excluding the unusual
charge) is primarily the result of higher selling expenses in support of higher
sales volumes and the incremental SG&A associated with our acquired businesses
including increased amortization of acquisition-related intangibles.
Purchased In-process Research and Development. Purchased in-process
research and development ("IPR&D") was $9.0 million for Calendar 2000. This was
derived from the acquisitions of QT Optoelectronics, Inc., KOTA Microcircuits,
Inc., and the power management business of Micro Linear
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42
Corporation. IPR&D for Calendar 1999 of $34.0 million represents the amount
derived from the acquisition of the power device business of Samsung
Electronics.
Restructuring. We incurred a pre-tax restructuring gain of $5.6 million in
Calendar 2000. The gain is a result of proceeds from the sale of our former
Mountain View, California facility ($3.5 million) and the adjustment to
restructuring reserves ($2.1 million) based upon final execution of several
prior year plans. Restructuring and impairments of $16.8 million were recorded
in Calendar 1999. We recorded charges taken in connection with the transfer of
assembly and test activities from our former Mountain View, California facility
to Penang, Malaysia ($2.7 million) and its wafer production to South Portland,
Maine ($10.0 million). In addition, we recorded a charge related to the 1999
Memory restructuring action ($4.1 million).
Interest Expense. Interest expense was $81.3 million in Calendar 2000,
compared to $94.6 million in Calendar 1999. Interest expense in Calendar 2000
and Calendar 1999 includes unusual charges of $3.6 million and $12.4 million,
respectively, for the write-off of deferred financing fees associated with the
refinancing of our senior bank facilities in Calendar 2000 and Calendar 1999, as
well as a write-off associated with the repayment of long-term debt in Calendar
1999. Excluding these charges, interest expense was $77.7 million in Calendar
2000 compared to $82.2 million in Calendar 1999. The decrease, excluding the
unusual charges, is principally the result of reduced indebtedness, which was
retired with the proceeds of the initial public offering of our common stock in
August 1999, and the refinancing of our senior credit facilities in June 2000.
Interest Income. Interest income was $23.3 million in Calendar 2000,
compared to $0.7 million in Calendar 1999. The increase is due to higher cash
balances in Calendar 2000 due in part from proceeds received from our January
2000 secondary stock offering.
Other (Income) Expense. In Calendar 2000 we recorded a gain on the
buy-back of $15.0 million of our 10 1/8% senior subordinated notes. This gain of
$0.8 million is included in other (income) expense.
Income Taxes. Income tax benefit was $2.4 million in Calendar 2000,
compared to a tax benefit of $2.2 million in Calendar 1999. Included in Calendar
2000 is a one-time tax benefit of $26.3 million, recorded in the fourth quarter,
related to a reduction in the deferred tax asset valuation allowance. Management
now believes that it is more likely than not these assets will be realizable
and, accordingly, reduced the valuation allowance on those deferred tax assets.
Without the effect of the one-time benefit, our tax expense would have been
$23.9 million, or an effective tax rate of 8.9%, compared to an effective tax
rate of 4.0% in Calendar 1999. The increase in our effective tax rate, excluding
the one-time benefit, is due to a tax provision recorded in the United States in
Calendar 2000 which was not recorded in Calendar 1999.
In accordance with the provisions of SFAS No. 131, comparative disclosures
of selected operating results of our reportable segments is as follows:
Analog and Mixed Signal Products Group. In Calendar 2000, our Analog Group
expanded due to the acquisitions of KOTA and Micro Linear. Its product offerings
include standard linear products such as operational amplifiers, low drop out
regulators and ground fault interrupters, motor control integrated circuits,
smart power switches and D/C to D/C converters. Analog revenues increased 62.1%
to $378.7 million in Calendar 2000 from $233.6 million in Calendar 1999. The
increase in Analog revenue reflects improved business conditions resulting in
both higher sales volumes and increased prices, the benefit of a full year of
analog power device revenues, the introduction of new products and incremental
sales from the KOTA and Micro Linear acquisitions.
Analog had operating income of $40.6 million in Calendar 2000 as compared
to $22.9 million in Calendar 1999. The increase in Analog's operating income was
due to higher revenues, the beneficial effect of moving wafer manufacturing to
South Portland, Maine, the benefit of a full year of operating income from
analog power device products and incremental operating income generated by the
addition of KOTA and Micro Linear, offset by higher costs on certain
subcontracted wafers.
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43
Discrete Products Group. Our Discrete Group designs, manufactures and
markets a broad line of Power MOSFETs, IGBT, power bipolar transistors for both
high and low voltage applications, small signal transistors and diodes. An
increasing volume of DMOS power MOSFETs are manufactured using our leading edge
Trench technology. Discrete revenues increased 71.0% to $749.0 million in
Calendar 2000, compared to $437.9 million in Calendar 1999. The increase was
across all product lines, as both volume and prices increased over the
comparable prior year period. The increase was also a result of a full year of
discrete power device revenues.
Discrete had operating income of $129.7 million in Calendar 2000 as
compared to $25.8 million in Calendar 1999. The increase in Discrete operating
income was due to higher revenues and improved gross profits due to a better
sales mix resulting from new product introductions, including Power MOSFET
products, improved factory utilization and the benefit of a full year of
operating income from discrete power device products.
Interface and Logic Products Group. Our Interface and Logic Group designs,
manufactures and markets a broad line of high-performance interface and standard
logic products. Its interface products include building block products such as
FST and GTL, and standards-specific products such as dual inline memory drivers
and Universal Serial Bus. Its logic products focus on the growing CMOS logic
market, from industry standard FACT and HCMOS to new products such as TinyLogic,
LCX and LVT. Its products also include mature bipolar logic products such as
FAST, LS and TTL. Logic revenues increased 37.9% to $424.2 million in Calendar
2000, compared to $307.7 million in Calendar 1999. The increase in Interface and
Logic revenues was due to volume increases, resulting from strengthened demand,
average selling price increases and improved mix due to new product
introductions.
Interface and Logic had operating income of $106.5 million in Calendar
2000, compared to $33.4 million in Calendar 1999. The increase in operating
income was due to higher revenues and improved gross profits due to improved
pricing, a better sales mix resulting from new product introductions,
particularly Interface and Tiny Logic, and improved factory utilization.
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44
SEVEN MONTHS ENDED DECEMBER 26, 1999 COMPARED TO SEVEN MONTHS ENDED DECEMBER 27,
1998
Comparative financial information for Stub Year 1999 and the seven months
ended December 27, 1998, which we refer to as the first seven months of Fiscal
1999, is as follows:
SEVEN MONTHS
ENDED STUB YEAR
(IN MILLIONS) DECEMBER 27, 1998 1999
- ------------- ----------------- ---------
(UNAUDITED)
Revenue:
Net sales -- trade...................................... $322.3 $714.0
Contract manufacturing.................................. 38.0 72.2
------ ------
Total revenue................................... 360.3 786.2
Operating Expenses:
Cost of sales -- trade.................................. 252.6 499.9
Cost of contract manufacturing.......................... 32.9 51.4
Research and development................................ 21.3 35.0
Selling, general and administrative..................... 52.9 117.4
Restructuring and impairments........................... 4.5 --
------ ------
Total operating expenses........................ 364.2 703.7
------ ------
Operating income (loss)................................... (3.9) 82.5
Interest expense.......................................... 34.3 56.5
Interest income........................................... (0.1) (0.3)
------ ------
Income (loss) before income taxes......................... (38.1) 26.3
Provision (benefit for income taxes)...................... (7.6) 5.0
------ ------
Net income (loss)......................................... $(30.5) $ 21.3
====== ======
Results of Operations. We generated net income of $21.3 million in Stub
Year 1999, compared to a net loss of $30.5 million in the first seven months of
Fiscal 1999. Excluding unusual charges and amortization of acquisition-related
intangibles of $15.5 million and $19.5 million, respectively, in Stub Year 1999,
and $4.5 million and $2.0 million, respectively, in the first seven months of
Fiscal 1999, net of tax effects, we had adjusted net income of $54.5 million for
Stub Year 1999 compared to an adjusted net loss of $25.3 million in the first
seven months of Fiscal 1999. Unusual charges in Stub Year 1999 included initial
public offering-related charges of $8.3 million, recorded in selling, general
and administrative expenses ("SG&A"), for the forgiveness of certain loans made
to our management investors for payment of individual income tax liabilities
resulting from their ownership of our common stock, and $7.2 million, recorded
in interest expense, for the write-off of deferred financing fees associated
with the debt repaid with the proceeds from the initial public offering. Unusual
charges in the first seven months of Fiscal 1999 were due to restructuring
charges as a result of a workforce reduction. Operating income was $82.5 million
in Stub Year 1999, compared to an operating loss of $3.9 million in the first
seven months of Fiscal 1999. Excluding unusual charges, operating income was
$90.8 million in Stub Year 1999, compared to $0.6 million in the first seven
months of Fiscal 1999. The increase in operating income is due to the
acquisition of the power device business from Samsung Electronics and higher
revenues and gross profits due to new product introductions and improved
business conditions, resulting in higher factory utilization in Stub Year 1999
as compared to the first seven months of Fiscal 1999.
Excluding depreciation and amortization of $82.3 million and $55.1 million
in Stub Year 1999 and the first seven months of Fiscal 1999, respectively, and
unusual charges, EBITDA was $173.1 million in Stub Year 1999 compared to $55.7
million in the first seven months of Fiscal 1999.
Revenues. Our revenues consist of trade sales to unaffiliated customers
(90.8% and 89.5% of total revenues in Stub Year 1999 and the first seven months
of Fiscal 1999, respectively) and revenues from
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45
contract manufacturing services provided to National Semiconductor and Samsung
Electronics (9.2% and 10.5% of total revenues in Stub Year 1999 and the first
seven months of Fiscal 1999, respectively).
Trade sales increased 121.5% to $714.0 million in Stub Year 1999 compared
with $322.3 million in the first seven months of Fiscal 1999. Trade sales for
Stub Year 1999 include sales from the power device business. Excluding sales
from the power device business, trade sales increased 28.9% in Stub Year 1999
over the first seven months of Fiscal 1999, as higher sales volume offset lower
average selling prices. The increase in trade sales is attributable to improved
demand due to strength in end-markets such as personal computers and
telecommunications and an economic recovery in the Asia/Pacific region.
Geographically, 20.7%, 12.2%, 45.6% and 21.5% of trade sales were derived
from North America, Europe, Asia/Pacific and Korea, respectively, in Stub Year
1999. Excluding sales from the power device business, 31.8%, 17.5% and 50.7% of
trade sales were derived from North America, Europe and Asia/ Pacific (including
Korea), respectively, in Stub Year 1999, compared to 40.3%, 18.4% and 41.3%,
respectively, in the first seven months of Fiscal 1999. Excluding sales from the
power device business, Asia/Pacific region revenues increased 58.2% in Stub Year
1999 over the first seven months of Fiscal 1999. The increase in the
Asia/Pacific region is due to strength in the consumer and personal computer
markets, as well as improved economic conditions. Revenues in the Europe region
increased 22.5% in Stub Year 1999 over the first seven months of Fiscal 1999.
The increase in Europe is due to improved telecommunications, consumer and
distribution markets. North American revenues increased 2.0% in Stub Year 1999
over the first seven months of Fiscal 1999. The increase in North America is the
result of improved market conditions off set by the continued move of contract
manufacturers to locations outside North America.
Contract manufacturing revenues increased 90.0% to $72.2 million in Stub
Year 1999 compared to $38.0 million in the first seven months of Fiscal 1999.
Excluding contract manufacturing services provided to Samsung Electronics,
contract manufacturing revenues increased 42.1% in Stub Year 1999 as compared to
the first seven months of Fiscal 1999, reflecting increased demand from National
Semiconductor.
Gross Profit. Gross profit increased 214.0% to $234.9 million in Stub Year
1999 compared to $74.8 million in the first seven months of Fiscal 1999.
Excluding the gross profit derived from power device products, gross profit
increased 71.8% in Stub Year 1999 over the first seven months of Fiscal 1999. As
a percentage of trade sales, gross trade profits were 30.0% in Stub Year 1999.
Excluding the power device business, gross trade profits as a percentage of
trade sales were 28.4% in Stub Year 1999 compared to 21.6% in the first seven
months of Fiscal 1999. The increase in gross trade profit as a percentage of
trade sales was due to the favorable effect of increased factory utilization and
the full benefit of cost reduction actions undertaken in Fiscal 1999, offset by
lower average selling prices. Average selling prices for Stub Year 1999 were
lower than the first seven months of Fiscal 1999, despite higher average selling
prices in the second half of Stub Year 1999 over the first half of Stub Year
1999, particularly for Discrete and Logic products.
Contract manufacturing gross profit increased 307.8% to $20.8 million in
Stub Year 1999 compared to $5.1 million in the first seven months of Fiscal
1999. The increase in contract manufacturing gross profit is due to incremental
business with Samsung Electronics as a result of the acquisition of the power
device business and greater demand from National Semiconductor reflective of
improved market conditions. Contract manufacturing gross profit for the first
seven months of Fiscal 1999 included $13.0 million of fixed cost reimbursement
under our manufacturing agreements with National Semiconductor.
Research and Development. R&D was $35.0 million, or 4.9% of trade sales,
in Stub Year 1999, compared to $21.3 million, or 6.6% of trade sales, in the
first seven months of Fiscal 1999. The increase in R&D expenses is driven by the
dedicated R&D costs incurred by the power device business in Stub Year 1999
which we did not incur in the first seven months of Fiscal 1999. R&D efforts are
focused on our growth products (Analog, DMOS power and CMOS logic). R&D
expenditures for these growth products were 5.7% and 9.0% of trade sales in Stub
Year 1999 and the first seven months of Fiscal 1999, respectively. R&D
expenditures for our mature products (Bipolar Logic, Bipolar Discretes and
EPROM) were less than 1% of trade sales for both Stub Year 1999 and the first
seven months of Fiscal 1999. The
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46
decrease in R&D expenditures for growth products as a percentage of trade sales
is due to the relatively smaller R&D requirements of the power device business
as a percentage of sales.
Selling, General and Administrative. SG&A expenses were $117.4 million, or
16.4% of trade sales, in Stub Year 1999, compared to $52.9 million, or 16.4% of
trade sales, in the first seven months of Fiscal 1999. SG&A expenses for Stub
Year 1999 include an unusual charge of $8.3 million for the forgiveness of
certain loans made to our management investors for payment of individual income
tax liabilities resulting from their ownership of our common stock. Excluding
this unusual charge, SG&A was $109.1 million, or 15.3% of trade sales, in Stub
Year 1999. The increase in SG&A expenses (excluding the unusual charge) is
primarily the result of the incremental SG&A expenses of the power device
business which we did not incur in the first seven months of Fiscal 1999,
including amortization of acquisition-related intangibles, and increased selling
expenses for the pre-existing business due to higher sales volume.
Restructuring. We incurred a pre-tax restructuring charge of approximately
$4.5 million in the first seven months of Fiscal 1999. The charge consisted of
$0.8 million related to non-cash asset impairments and $3.7 million of employee
separation costs related to the reduction of approximately 600 salaried, hourly
and temporary positions, then representing approximately 10% of our payroll.
Interest Expense. Interest expense was $56.5 million in Stub Year 1999,
compared to $34.3 million in the first seven months of Fiscal 1999. Interest
expense in Stub Year 1999 includes an unusual charge of $7.2 million for the
write-off of deferred financing fees associated with debt retired with the
proceeds from the initial public offering. Excluding this charge, interest
expense was $49.3 million in Stub Year 1999. The increase, excluding the unusual
charges, is principally the result of indebtedness incurred to finance the power
device business acquisition, which occurred in the fourth quarter of Fiscal
1999.
Interest Income. Interest income was $0.3 million for Stub Year 1999
compared to $0.1 million for the first seven months of Fiscal 1999. This was due
to higher average cash balances in Stub Year 1999 compared to the first seven
months of Fiscal 1999.
Income Taxes. Income tax expense (benefit) was $5.0 million for Stub Year
1999, compared to a tax benefit of $7.6 million in the first seven months of
Fiscal 1999. The effective tax rates for Stub Year 1999 and the first seven
months of Fiscal 1999 on book pre-tax income were 19.0% and 19.9%, respectively.
In Stub Year 1999, the current tax provision is based on income generated from
our foreign operations, excluding Korea where we benefit from a tax holiday. The
decrease in deferred tax benefits is due to profits earned in Stub Year 1999 and
our limited ability to recognize the future benefit of U.S. net operating loss
carryforwards. In addition, deferred tax expense was booked in Korea to account
for future book deductions in excess of future tax deductions arising beyond the
tax holiday period.
Comparative financial information for our reportable segments is as
follows:
Analog and Mixed Signal Products Group. We formed the Analog and Mixed
Signal Products Group upon completion of the acquisition of Raytheon. This
division has expanded due to the inclusion of the analog products of the power
device business. Analog revenues increased 334.2% to $177.6 million in Stub Year
1999 from $40.9 million in the first seven months of Fiscal 1999. Stub Year 1999
includes the analog revenues of the power device business, which is not included
in the first seven months of Fiscal 1999. Normalized to exclude power device
products, Analog revenues were $47.0 million in Stub Year 1999, an increase of
14.9% from the first seven months of Fiscal 1999. The increase is due to
improved business conditions and new product revenues, which more than offset
revenue decreases in mature products.
Analog had operating income of $19.6 million in Stub Year 1999 as compared
to a loss of $6.7 million in the first seven months of Fiscal 1999. Excluding
analog power device products, Analog had an operating loss of $12.4 million in
Stub Year 1999. The increase in Analog's operating loss (excluding analog power
device products) was due to an unfavorable sales mix and increased valuation
reserves in anticipation of the closure of the Mountain View, California wafer
fab, which occurred in the latter part of Stub Year 1999.
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47
Discrete Products Group. In Stub Year 1999, Discrete expanded due to the
inclusion of the discrete products of the power device business. Discrete
revenues increased 229.8% to $316.9 million in Stub Year 1999, compared to $96.1
million in the first seven months of Fiscal 1999. Stub Year 1999 includes the
discrete revenues of the power device business which are not included in the
first seven months of Fiscal 1999. Excluding discrete power device products,
Discrete revenues increased 54.6% to $148.6 million in Stub Year 1999 from the
first seven months of Fiscal 1999. The increase was across all product lines.
DMOS products increased 81.9% over the first seven months of Fiscal 1999.
Revenues for mature Bipolar products grew 13.7% in Stub Year 1999 over the first
seven months of Fiscal 1999.
Discrete had operating income of $24.6 million in Stub Year 1999 as
compared to $5.3 million in the first seven months of Fiscal 1999. Excluding
discrete power device products, Discrete had operating income of $13.3 million
in Stub Year 1999. The increase in Discrete operating income was due to higher
revenues and improved gross profits due to improved factory utilization and
higher average selling prices.
Interface and Logic Products Group. Interface and Logic revenues increased
27.9% to $184.0 million in Stub Year 1999, compared to $144.0 million in the
first seven months of Fiscal 1999. Revenues for interface products grew 224.4%
in Stub Year 1999 over the first seven months of Fiscal 1999, due to success of
new product introductions. Logic products revenues increased 22.8% in Stub Year
1999 over the first seven months of Fiscal 1999. The increase in logic products
revenues was across all product lines. CMOS revenues grew 34.6%, while Bipolar
revenues grew 2.5% in Stub Year 1999 over the first seven months of Fiscal 1999.
Logic had operating income of $20.9 million in Stub Year 1999, compared to
$6.3 million in the first seven months of Fiscal 1999. The increase in operating
income was due to higher revenues and improved gross profits due to improved
factory utilization.
YEAR ENDED MAY 30, 1999 COMPARED TO YEAR ENDED MAY 31, 1998
Results of Operations. We incurred a net loss of $114.1 million in Fiscal
1999, compared to net income of $20.6 million in Fiscal 1998. The net loss in
Fiscal 1999 includes pre-tax charges totaling $75.9 million for in-process
research and development ($34.0 million) and the write-off of deferred financing
fees in connection with a refinancing of our senior credit facilities ($5.2
million) as part of the acquisition of the power device business of Samsung
Electronics in April 1999, and restructuring and related charges totaling $36.7
million. The Fiscal 1999 restructuring charges pertain to a workforce reduction
undertaken in the first quarter ($4.5 million), the transfer of Analog assembly
and test operations in the third quarter ($2.7 million), the closure of the
Mountain View facility ($10.0 million) recorded in the fourth quarter and the
restructuring of the Memory business ($19.5 million), also in the fourth
quarter. The charge for the Memory restructuring includes $5.5 million and $9.9
million recorded as a reduction to revenue and an increase to cost of sales,
respectively, for additional sales and inventory reserves associated with the
restructuring. Net income in Fiscal 1998 includes pre-tax charges of $15.5
million for in-process research and development associated with the acquisition
of Raytheon and an after-tax charge of $1.5 million for the cumulative effect of
a change in accounting principle. Excluding unusual charges, net of tax effect,
and amortization of acquisition-related intangibles of $8.4 million and $1.4
million in Fiscal 1999 and Fiscal 1998, respectively, we incurred a net loss of
$33.4 million in Fiscal 1999, compared to net income of $33.5 million in Fiscal
1998. The decrease is due primarily to soft market conditions in the
semiconductor industry that persisted for much of Fiscal 1999, which resulted in
severe price competition and factory underutilization, particularly in the first
half of Fiscal 1999, which negatively impacted gross profit.
We incurred an operating loss of $47.4 million in Fiscal 1999, compared to
operating income of $87.3 million in Fiscal 1998. Excluding unusual charges,
operating income was $23.3 million in Fiscal 1999, compared to $102.8 million in
Fiscal 1998. Excluding unusual charges and depreciation and amortization of
$103.7 million and $84.6 million in Fiscal 1999 and Fiscal 1998, respectively,
EBITDA was $127.0 million in Fiscal 1999, compared to $187.4 million in Fiscal
1998.
Revenues. Our revenues consist of trade sales to unaffiliated customers
(89.0% and 80.6% of total revenues in Fiscal 1999 and Fiscal 1998, respectively)
and contract manufacturing services to National
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48
Semiconductor (11.0% and 19.4% of total revenues in Fiscal 1999 and Fiscal 1998,
respectively). Trade sales increased 2.9% to $654.1 million in Fiscal 1999 from
$635.8 million in Fiscal 1998. Trade sales in Fiscal 1999 include those of the
power device business since the acquisition date of April 13, 1999, and a
full-year of Analog. Additionally, trade sales have been reduced by $5.5 million
in Fiscal 1999 for one-time charges for additional sales reserves as a result of
the Memory restructuring. Trade sales in Fiscal 1998 include those of Analog
since the acquisition date of December 31, 1997. Excluding Power Device
revenues, one time charges and normalizing Analog sales for the non-comparable
periods, trade sales decreased 14.0% in Fiscal 1999 from Fiscal 1998. All
segments reported trade sales decreases from the prior year, due to
industry-wide soft market conditions that were prevalent for much of Fiscal
1999. These soft market conditions, caused by the Asian financial crisis and
excess capacity in the semiconductor industry as a whole, resulted in severe
price pressures, which accounted for the majority of the revenue shortfall on a
comparable basis. Unit volume was flat for Fiscal 1999 as compared to Fiscal
1998.
Geographically, 33%, 17% and 50% of our trade sales in Fiscal 1999 were
generated in the United States, Europe and Asia, respectively, compared to 38%,
21% and 41%, respectively, in Fiscal 1998. Soft market conditions prevalent in
Fiscal 1999 negatively impacted all geographic regions. Trade sales in the
United States decreased 9.8% in Fiscal 1999 from Fiscal 1998. Excluding one-time
charges, trade sales decreased 7.6%. Trade sales in Europe decreased 16.1% in
Fiscal 1999 from Fiscal 1998. Trade sales in Asia increased 24.3% in Fiscal 1999
over Fiscal 1998. Asia sales include those in Southeast Asia, Korea and Japan.
The increase in trade sales is due entirely to the acquisition of the power
device business. Excluding the power device business, Asia trade sales decreased
2.1% in Fiscal 1999 from Fiscal 1998.
Contract manufacturing revenues decreased 47.2% to $81.0 million in Fiscal
1999, compared to $153.4 million in Fiscal 1998. Contract manufacturing revenues
in Fiscal 1999 include $18.7 million of billings under the guaranteed annual
revenue and fixed cost recovery provisions of the manufacturing agreements with
National Semiconductor. The decrease was due to reduced demand from National
Semiconductor.
Gross Profit. Gross profit decreased 33.9% to $152.3 million in Fiscal
1999 from $230.5 million in Fiscal 1998. Gross trade profit in Fiscal 1999 was
negatively impacted by one-time charges of $15.4 million for additional sales
and inventory reserves as a result of the Memory restructuring action. Excluding
one-time charges, gross profit decreased 27.2% to $167.7 million in Fiscal 1999.
Gross profit includes $16.6 million and $36.3 million in Fiscal 1999 and Fiscal
1998, respectively, attributable to contract manufacturing services provided to
National Semiconductor. As a percentage of trade sales, gross trade profit,
which excludes contract manufacturing, was 20.7% in Fiscal 1999 compared to
30.5% in Fiscal 1998. Excluding one-time charges, gross trade profit as a
percentage of trade sales was 22.9% in Fiscal 1999. The decrease in gross trade
profits as a percentage of sales in Fiscal 1999 from Fiscal 1998 was due to
lower average trade selling prices and the negative effects of significantly
decreased demand from National Semiconductor.
Contract manufacturing gross profit decreased 54.3% in Fiscal 1999 from
Fiscal 1998. As a percentage of contract manufacturing revenue, contract
manufacturing gross profit was 20.5% in Fiscal 1999, compared to 23.7% in Fiscal
1998. The decrease in contract manufacturing gross profit as a percent of
contract manufacturing revenues is due to the negative effects of lower factory
utilization due to reduced demand from National Semiconductor and an unfavorable
sales mix toward ABiC wafers produced in our six-inch fab in South Portland,
Maine.
Research and Development. R&D expenses were $39.3 million, or 6.0% of
trade sales in Fiscal 1999, compared to $35.7 million, or 5.6% of trade sales in
Fiscal 1998. The increase in R&D expenses is due to the addition of the R&D
expenses of the power device business and a full year of Analog R&D expenses in
Fiscal 1999, as compared to five months of Analog R&D expenses recorded in
Fiscal 1998. R&D efforts are focused on our growth products (CMOS logic, DMOS,
Analog and the power device business products). In Fiscal 1999, R&D expenditures
were 7.7% of trade sales for these growth products, and 3.0% of trade sales for
all other products. In Fiscal 1998, R&D expenditures were 8.7% and 2.7% for
growth and all other products, respectively. The decrease in R&D expenditures
for growth products as a percentage of
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trade sales is due to the relatively small R&D requirements of the power device
business as a percentage of sales.
Selling, General and Administrative. SG&A expenses were $105.1 million, or
16.1% of trade sales in Fiscal 1999, compared to $92.0 million or 14.5% of trade
sales in Fiscal 1998. The increase in SG&A expenses is due to the addition of
the SG&A expenses of the power device business, a full year of Analog SG&A
expenses in Fiscal 1999, as compared to five months of Analog SG&A expenses
recorded in Fiscal 1998, and amortization of acquisition-related intangibles,
including a full year of amortization of intangibles related to the Raytheon
acquisition in Fiscal 1999 as compared to five months in Fiscal 1998.
Restructuring. Fiscal 1999 included restructuring charges of $21.3
million, as we took several actions during Fiscal 1999 to reduce costs and
improve profitability in a number of areas. In the fourth quarter of Fiscal
1999, we took a pre-tax charge of $4.1 million for actions to improve the
profitability of the Memory Products Group. These actions include transferring
wafer fabrication activities in Salt Lake City, Utah to third-party
subcontractors and obsoleting Memory product lines. The charge consists of $3.9
million for non-cash asset impairments at our facilities in Salt Lake City, Utah
and Sunnyvale, California, and $0.2 million for severance and employee
separation costs. In addition, we took charges of $5.5 million and $9.9 million
recorded to revenue and cost of sales, respectively, for additional sales and
inventory reserves. Including these charges, the total charge for the Memory
restructuring was $19.5 million.
In the fourth quarter of Fiscal 1999, we took a pre-tax charge of $10.0
million for the closure of our Mountain View facility, which supports the Analog
Products Group. We are transferring Analog wafer fabrication activities to our
facility in South Portland, Maine. As a result of this transfer, we expect a
substantial reduction in Analog wafer costs and improved gross profit. The
charge consists of $4.0 million for severance and employee separation costs,
$4.5 million for non-cash asset impairments, including a one-time loss for the
sale of the Mountain View facility of $1.9 million and $1.5 million in other
exit costs. In March 1999, we sold the facility for $30.2 million, net of
closing costs, $0.5 million in escrow to cover demolition costs, and a $3.5
million holdback, payment of which is contingent upon either favorable action or
no action within one year of the sale date by the City of Mountain View with
respect to the buyer's application to increase the building density on the site.
We view the holdback as a contingent gain, and as such did not record this
amount in the Statement of Operations. We expect, however, that a favorable
ruling will be granted which will enable us to record a one-time gain from
receipt of the holdback in a subsequent period. In the third quarter of Fiscal
1999, we took a pre-tax charge of $2.7 million for the transfer of Analog
assembly and test activities from its Mountain View facility to our facility in
Penang, Malaysia and various third- party subcontractors. The charge consisted
of $1.9 million for non-cash asset impairments and $0.8 million for severance
and employee separation costs. Total charges for Analog restructuring
activities, including the loss on sale of the Mountain View facility, were $12.7
million in Fiscal 1999.
In the first quarter of Fiscal 1999, we took a pre-tax restructuring charge
of $4.5 million in connection with a plan to reduce costs and improve operating
efficiencies. The charge consisted of $3.7 million for severance and employee
separation costs related to the reduction of approximately 600 salaried, hourly
and temporary positions in the United States and Cebu, the Philippines,
representing approximately 10% of our payroll. In addition, $0.8 million was
recorded for the write-off of various idle assets in our Mountain View and Salt
Lake City facilities.
Interest Expense. Interest expense was $72.3 million in Fiscal 1999,
compared to $56.5 million in Fiscal 1998. The increase was due to the write-off
of deferred financing fees of $5.2 million in connection with the refinancing of
its senior credit facilities as part of the acquisition of the power device
business, incremental interest expense as a result of additional indebtedness
incurred to finance the acquisition, a full year of interest expense on
borrowings to finance the Raytheon acquisition, as compared to five months in
Fiscal 1998 and interest expense on short-term borrowings in Fiscal 1999 which
did not occur in Fiscal 1998.
Interest Income. Interest income was $0.5 million in Fiscal 1999, compared
to $2.0 million in Fiscal 1998. The decrease is due to lower average cash
balances in Fiscal 1999 compared to Fiscal 1998.
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Income Taxes. Income tax expense (benefit) was a benefit of $(5.1) million
in Fiscal 1999, compared to income tax expense of $10.7 million in Fiscal 1998.
The effective tax rate for Fiscal 1999 was 4.3%, compared to 32.6% in Fiscal
1998. The decrease in the effective rate is due to our inability to carry back
our Fiscal 1999 operating loss due to the short time we have operated as a
stand-alone entity and a tax holiday for income generated by our Korean
subsidiary, Fairchild Korea Semiconductor Ltd., formed as a result of the
acquisition of the power device business. Fairchild Korea Semiconductor Ltd. has
been granted a ten year tax holiday. The first seven years are tax-free,
followed by three years of income taxes at 50% of the statutory rate.
Comparative financial information for our reportable segments is as
follows:
Analog and Mixed Signal Products Group. Analog revenues increased 149.3%
to $99.7 million in Fiscal 1999 from $40.0 million in Fiscal 1998. Fiscal 1999
includes the analog revenues of the power device business since the date of
acquisition. Fiscal 1998 includes revenues of Analog from the acquisition date
of Raytheon. Normalized to exclude power device products and the non-comparable
period of Analog sales in Fiscal 1999, Analog revenues were $29.4 million in
Fiscal 1999, a decrease of 26.5% from Fiscal 1998. The decrease for the
comparable period in Fiscal 1999 from Fiscal 1998 is due to revenue decreases in
its mature products, combined with lower than anticipated new product revenues.
Analog generated an operating loss of $4.5 million in Fiscal 1999 excluding
restructuring charges, compared to operating income of $1.1 million in Fiscal
1998. Excluding the effect of the power device business and normalized for the
non-comparable period of Analog operating results in Fiscal 1999, Analog
generated an operating loss of $15.3 million in Fiscal 1999. The decrease in
operating income is primarily driven by the decline in revenues.
Discrete Products Group. Discrete revenues increased 19.0% to $222.8
million in Fiscal 1999, compared to $187.3 million in Fiscal 1998. Fiscal 1999
includes the discrete revenues of the power device business since the date of
acquisition. Excluding discrete power device products, Discrete revenues
decreased 3.7% in Fiscal 1999 from Fiscal 1998. The decrease is attributable to
lower revenues for its mature Bipolar products, which decreased 18.1% from
Fiscal 1998, partially offset by higher revenues for its DMOS products, which
increased 7.9% from Fiscal 1998.
Discrete generated operating income of $16.8 million in Fiscal 1999,
compared to operating income of $35.6 million in Fiscal 1998. Excluding the
effect of the power device business, Discrete generated operating income of
$14.6 million in Fiscal 1999. The decrease was due primarily to lower gross
profit as a result of unfavorable sales mix, the negative effect of
underutilization of the Salt Lake City fab, and inventory write-downs in the
Cebu, the Philippines assembly and test facility.
Interface and Logic Products Group. Price competition was particularly
intense in Interface and Logic in Fiscal 1999. Interface and Logic revenues
decreased 11.7% to $267.6 million in Fiscal 1999, compared to $303.0 million in
Fiscal 1998. Revenues for interface products grew 573% in Fiscal 1999 over
Fiscal 1998, due to success of new product introductions. This increase was more
than offset by a 14.4% decrease in logic products revenues. The decrease in
logic products revenues is primarily attributable to lower bipolar logic
revenues, which decreased 29.4% from Fiscal 1998. CMOS revenues decreased 2.9%
in Fiscal 1999 over Fiscal 1998. Overall, new product revenues doubled in Fiscal
1999 over Fiscal 1998.
Interface and Logic generated operating income of $18.8 million in Fiscal
1999, compared to $43.1 million in Fiscal 1998. The decrease in operating income
is attributable to lower average selling prices due to soft market conditions in
Fiscal 1999.
IN-PROCESS RESEARCH AND DEVELOPMENT
Acquisition of the Power Device Business. In connection with the
acquisition of the power device business we allocated $34.0 million of the
purchase price to in-process research and development projects in Fiscal 1999.
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
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reached technological feasibility and the research and development in progress
had no alternative future uses. Accordingly, these costs were expensed as of the
acquisition date.
Our management assessed and allocated values to the in-process research and
development. The value assigned to these assets was determined by identifying
significant research projects for which technological feasibility had not been
established, including development, engineering and testing activities
associated with the introduction of the power device business' next generation
products. A discussion of the most significant projects follows.
Smart Power Switch ("SPS"). This product line combines a Power Discrete
MOSFET and an analog IC in a single package to provide customers with low cost,
high functionality, high reliability and high productivity solutions. These
products are used in power chargers, and power supplies for PCs, TVs, VCRs and
monitors. Research and development is focused on cost reduction and further
reliability improvement of existing products. Long-term research and development
is focused on proprietary chip-on-chip assembly technology as well as developing
a one-chip solution.
Motor IC. This product line specializes in IC products that control
various motor drives. These products are used for driving motors in automotive,
camera, CD-ROM, CD player, floppy disk drive, hard disk drive and video recorder
applications. Current research and development is focused on adding more
channels as well as adding more intelligence/functionality onto the IC chips.
Integrated Gate Bipolar Transistor ("IGBT"). This product line uses a
proprietary silicon bonding process to fabricate devices for very high voltage
applications. Industrial segment applications include power supplies, welding
machines, robotics, ignition controls and battery chargers. Consumer segment
applications include lighting ballasts, camera strobes, induction heaters,
microwave ovens and washing machines. Research and development is focused on
developing IGBTs that will work with products that operate at higher frequency
ranges as well as higher voltages and higher currents.
The fair values assigned to each of the significant projects and estimated
time to complete are reported below. The estimated costs to complete for these
projects, which were estimated to be $4.7 million at the time of acquisition,
were expected to be spent evenly for the remainder of their respective
development cycles.
FAIR MAN-MONTHS
PRODUCT (IN MILLIONS) VALUE TO COMPLETE
- --------------------- ----- -----------
Smart Power Switch...................................... $13.9 57
Motor IC................................................ 8.2 131
IGBT.................................................... 6.5 25
All Others.............................................. 5.4 147
----- ---
Total......................................... $34.0 360
===== ===
The material risks associated with the successful completion of the
in-process technology are associated with the power device business' ability to
successfully finish the creation of viable prototypes and successful design of
the chips and masks required. We expect to benefit from the in-process projects
as the individual products that contain the in-process technology are put into
production and sold to end-users. The release dates for each of the products
within the product families are varied. The initial benefit received from the
significant in-process technologies occurred during the second half of calendar
year 1999.
The methodology used to assign value to purchased in-process research and
development was the income approach, which included an analysis of the markets,
cash flows and risks associated with achieving such cash flows. Significant
assumptions that had to be made using this approach included revenue and
operating margin projections and determination of the applicable discount rate.
The forecast for the in-process project related products relied on sales
projections that were based on targeted market share and pricing estimates over
the expected product life cycles. In the model used to value the in-process
research and development projects, total projected revenues were expected to
exceed $200.0 million by 2003. Operating expenses for these products included
cost of goods sold and selling, general and administrative
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expenses. Operating expenses were estimated as a percentage of revenue and were
consistent with historical results.
The forecasts used by us in valuing in-process research and development
were based upon assumptions we believe to be reasonable but which are inherently
uncertain and unpredictable. We cannot assure you that the underlying
assumptions used to estimate expected project sales or profits, or the events
associated with such projects, will transpire as estimated. Our assumptions may
be incomplete or inaccurate, and unanticipated events and circumstances are
likely to occur. For these reasons, actual results may vary from the projected
results.
The discount rate selected for power device business' in-process technology
was 20%. This discount rate is greater than our weighted average cost of capital
(approximately 15% at the date of acquisition of the power device business) and
reflects the risk premium associated with achieving the forecasted cash flows
associated with these projects. These risks include the uncertainties in the
economic estimates described above; the inherent uncertainty surrounding the
successful development of the purchased in-process technology; the useful life
of such technology; the profitability levels of such technology; and the
uncertainty of technological advances that are unknown at this time.
As of December 31, 2000, revenues recognized from these product families
were not lower than the forecasted revenues used in the calculation of the
in-process research and development value.
Acquisition of Raytheon. In connection with the acquisition of Raytheon,
we allocated $15.5 million of the purchase price to in-process research and
development projects in Fiscal 1998. 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 R&D in progress had no alternative
future uses. Accordingly, these costs were expensed as of the acquisition date.
Our management assessed and allocated values to the in-process research and
development. The values assigned to each purchased R&D project were determined
by identifying significant research projects for which technological feasibility
had not been established, including development, engineering and testing
activities associated with the introduction of the related products. The
products associated with these projects include a broad range of semiconductor
products used in power management and video integrated circuits, including
personal computers, broadcast video and data communications. The projects
identified can be categorized in the analog or video product families.
Analog Family. This family's strategy focuses on (i) a higher integration
of ground fault interruptor chips and (ii) power for desktop personal computers,
notebook personal computers and cellular telephones. As of the acquisition date,
the remaining efforts for the projects to be completed included starting and
completing the beta testing phase of the development process, with a total
remaining cost to complete the testing of approximately $2.5 million and
anticipated release dates by the end of fiscal 1998.
Video Family. This family's in-process research and development was
identified in the following projects: (i) decoders and genlocks; (ii) digital
video encoders; and (iii) personal computer to television plug-n-play
converters. The remaining efforts for the projects to be completed included the
completion of the beta-testing phase of the development process for each
project. As of the acquisition date, remaining costs to complete were estimated
to be approximately $1.0 million for anticipated release dates by the end of
fiscal 1998.
Decoders and Genlocks. These adaptive, combination based video decoders
are optimized for the video professional, allowing flexibility in system
performance while utilizing a common design approach. The genlocking analog to
digital converter is a companion product for both the new product decoders and
encoders. The products include analog, high-performance encoders which are in
the beta testing phase of development; a digital design, improved decoder for
personal computer and television applications which is in the alpha testing
phase of development; an improved genlocking digitizer which is in the design
phase of development; and an analog, genlocking decoder which is in the concept
phase of development.
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Digital Video Encoders. The in-process product in this category is a
digital design video data processor, which is in the concept phase of
development.
Personal Computer to Television Plug-N-Play Converter. The in-process
product in this category is an analog personal computer to television
plug-n-play converter, which is in the beta testing stage of development. This
product will be the next generation of the current offering with many
enhancements.
The material risks associated with the successful completion of the
in-process technology include our ability to successfully finish the creation of
viable prototypes, design the chips and masks required and achieve a high degree
of market acceptance of these new products. As of the acquisition date, we
expected to benefit from the in-process projects as the individual products that
contain the in-process technology are put into production and sold to end-users.
The methodology used to assign value to purchased in-process research and
development projects was the income approach, which includes an analysis of the
markets, cash flows and risks associated with achieving such cash flows.
Significant assumptions that had to be made using this approach included
projected revenues, operating margins and determining an appropriate discount
rate. The forecast for the in-process project related products relied on sales
estimates that were based on targeted market share, pricing estimates and
expected product life cycles. In the model used to value the in-process research
and development projects, total projected revenues from these products were
expected to exceed $150.0 million by fiscal 2002. Revenues were expected to peak
in fiscal 2001 and decline thereafter as other new products and technologies
were expected to enter the market. Operating expenses for these products
included cost of goods sold and selling, general and administrative expenses.
Operating expenses were estimated as a percentage of revenues and were
consistent with historical results. The discount rate utilized for the acquired
in-process technologies was estimated at 22.5% in consideration of our 15%
weighted average cost of capital. The discount rate utilized for the in-process
technology was determined to be higher than our weighted average cost of capital
due to the fact that the technology had not yet reached technological
feasibility as of the date of valuation.
As of December 31, 2000, total actual revenues in the analog and video
families associated with the in-process R&D projects were approximately 60% of
total expected revenues, impacting both analog and video products. The revenue
shortfall in the analog family and the associated reduction in expected cash
flows was driven by lower demand from personal computer customers. The revenue
and cash flow shortfall in the video family was driven by unfavorable market
conditions which existed during fiscal 1999 from which we were not able to
recover. The weaker cash flows from these projects has not had, nor is expected
to have, any material adverse impact on our results of operations or our
financial position, including the recoverability of intangible assets.
LIQUIDITY AND CAPITAL RESOURCES
We have a borrowing capacity of $300.0 million on a revolving basis for
working capital and general corporate purposes, including acquisitions, under
our senior credit facility. At December 31, 2000, we had drawn approximately
$120.2 million under our senior credit facility.
Our senior credit facility, the indenture governing the 10 1/8% Senior
Subordinated Notes and the indenture governing the 10 3/8% Senior Subordinated
Notes do, and other debt instruments we may enter into in the future may, impose
various restrictions and covenants on us which could potentially limit our
ability to respond to market conditions, to provide for unanticipated capital
investments or to take advantage of business opportunities. The restrictive
covenants include limitations on consolidations, mergers and acquisitions,
restrictions on creating liens, restrictions on paying dividends or making other
similar restricted payments, restrictions on asset sales and limitations on
incurring indebtedness, among other restrictions. The covenants relating to
financial ratios include minimum fixed charge and interest coverage ratios and a
maximum leverage ratio. The senior credit facility also limits our ability to
modify our certificate of incorporation, bylaws, stockholder agreements, voting
trusts or similar arrangements. In addition, the senior credit facility, the
indenture governing the 10 1/8% Senior Subordinated Notes and the indenture
governing the 10 3/8% Senior Subordinated Notes contain additional restrictions
limiting the
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ability of our subsidiaries to pay dividends or make advances to us. However,
our subsidiaries are permitted without material restrictions under our debt
instruments to pay dividends or make advances to us. We believe that those funds
permitted to be transferred to us, together with existing cash, will be
sufficient to meet our cash obligations. We expect that our existing cash and
available funds from our senior credit facility and funds generated from
operations, will be sufficient to meet our anticipated operating requirements
and to fund our research and development and capital expenditures for the next
twelve months. We had capital expenditures of approximately $301.9 million in
2000, primarily to expand capacity at all of our major manufacturing fabs and
assembly and test centers. Additional borrowing or equity investment may be
required to fund future acquisitions.
On January 25, 2000, we completed a follow-on public offering of 23,500,000
shares of our Class A Common Stock at a price of $33.4375 per share. In
addition, we sold 1,410,000 shares and 2,115,000 shares were sold by an existing
stockholder pursuant to the underwriter's overallotment option. The underwriting
discount was $1.50 per share. The 23,500,000 shares included 6,140,880 newly
issued shares and 17,359,120 shares sold by existing stockholders, including all
remaining shares owned by National Semiconductor, our former parent. We did not
receive any proceeds from shares sold by existing stockholders. Our net proceeds
after the underwriting discount and other related expenses were approximately
$240.0 million.
On June 6, 2000, we refinanced our senior credit facility, converting
approximately $117.8 million of outstanding senior term debt into a new
revolving credit line with total borrowing capacity of $300.0 million.
Borrowings under the new credit agreement accrue interest based on either the
bank's rate or the Eurodollar rate, at our option. The interest rate at December
31, 2000 was 7.8%. Borrowings under the agreement are secured by a pledge of
common stock of Fairchild Semiconductor Corporation and certain of its
subsidiaries. The maturity date of the senior credit facility is June 6, 2004.
As of December 31, 2000, our cash and cash equivalents balance was $401.8
million, an increase of $263.1 million from December 26, 1999.
During Calendar 2000, our operations provided $381.1 million in cash
compared to $172.4 million of cash in Calendar 1999. The increase in cash
provided by operating activities primarily reflects the increase in net income
in Calendar 2000 compared to Calendar 1999. Cash used in investing activities
during Calendar 2000 totaled $346.7 million, compared to $483.9 million in
Calendar 1999. The decrease in cash used in investing activities is a result of
an increase in capital expenditures, offset by a decrease in cash used for
acquisitions. Cash provided by financing activities of $228.7 million for
Calendar 2000 was primarily from the issuance of common stock in our secondary
offering in January 2000. Cash provided by financing activities of $447.0
million in Calendar 1999 was due primarily to proceeds from the initial public
offering of our common stock, issuance of 10 1/8% Senior Subordinated Notes and
refinancing of our revolving credit facility, offset by repayment of long-term
debt.
LIQUIDITY AND CAPITAL RESOURCES OF FAIRCHILD INTERNATIONAL, EXCLUDING OUR
SUBSIDIARIES
Fairchild International is a holding company, the principal asset of which
is the stock of its subsidiary, Fairchild Semiconductor Corporation. Fairchild
International on a stand-alone basis had no cash flow from operations in Stub
Year 1999, nor in the first seven months of Fiscal 1999. Fairchild International
on a stand-alone basis has no cash requirements for the next twelve months.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in interest
rates and foreign currency exchange rates. To mitigate these risks, we utilize
derivative financial instruments. We do not use derivative financial instruments
for speculative or trading purposes. All of the potential changes noted below
are based on sensitivity analyses performed on our financial position at
December 31, 2000. Actual results may differ materially.
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We use currency forward and concentration option contracts to hedge firm
commitments and currency option contracts to hedge anticipated transactions.
Beginning in 2001, similar instruments will be used to hedge a portion of our
forecasted foreign exchange denominated revenues. Gains and losses on these
foreign currency exposures would generally be offset by corresponding losses and
gains on the related hedging instruments, resulting in negligible net exposure
to us. A majority of our revenue, expense and capital purchasing activities are
transacted in U.S. dollars. However, we do conduct these activities by way of
transactions denominated in other currencies, primarily the Korean won,
Malaysian ringgit, Philippine peso, Japanese yen, British pound, and the Euro.
Exposures in the Korean won are minimal as won denominated revenues and costs
generally offset one another. To protect against reductions in value and the
volatility of future cash flows caused by changes in other foreign exchange
rates, we have established hedging programs. We utilize currency forward
contracts and currency option contracts in these hedging programs. Our hedging
programs reduce, but do not always entirely eliminate, the short-term impact of
foreign currency exchange rate movements. For example, during the twelve months
ended December 31, 2000, an adverse change in any one exchange rate (defined as
20%) over the course of the year would have resulted in an adverse impact on
income before taxes of less than $5.0 million.
We have no interest rate exposure due to rate changes for the 10 1/8%
Senior Subordinated Notes and the 10 3/8% Senior Subordinated Notes. However, we
do have interest rate exposure with respect to the $120.2 million outstanding
balance of the revolving credit facility due to its variable LIBOR pricing. For
example, a 50 basis point increase in interest rates would result in increased
annual interest expense of $1.5 million. From time to time, we may enter into
interest rate swaps or interest rate caps, primarily to reduce its interest rate
exposure. As of December 31, 2000, we had no such instruments in place.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
During the first quarter of 2001, we adopted Statement of Financial
Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"), as amended by SFAS No. 138 "Accounting for
Certain Derivative Instruments and Hedging Activities -- An Amendment of FASB
Statement No. 133." SFAS 133 requires that all derivatives, including foreign
currency exchange contracts, be recognized on the balance sheet at fair value.
Derivatives that are not hedges must be recorded at fair value through earnings.
If a derivative is a qualifying hedge, depending on the nature of the hedge,
changes in the fair value of the derivative are either offset against the change
in fair value of the underlying assets or liabilities through earnings or
recognized in Accumulated Other Comprehensive Income until the underlying hedge
is recognized in earnings. The ineffective portion of a derivative's change in
fair value is to be immediately recognized in earnings. We currently only
participate in hedge transactions of assets, liabilities and firm commitments,
and plan additionally to hedge a portion of 2001 forecasted transactions. The
adoption of this Statement did not have a material impact on the financial
statements as the gains and losses on the hedge transactions offset the losses
and gains on the underlying item being hedged.
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INDUSTRY OVERVIEW
Semiconductors are the critical components used to create an increasing
variety of electronic products and systems. Since the invention of the
transistor in 1948, continuous improvements in semiconductor process and design
technologies have led to smaller, more complex and more reliable devices at a
lower cost per function. As performance has increased and size and cost have
decreased, semiconductors have 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 demanded 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 content as a percentage of the
system costs of electronic products. The demand for electronic systems has also
expanded geographically with the emergence of new markets, particularly in the
Asia region.
Historically, changes in production capacity in the semiconductor industry
and, to a lesser extent, demand for electronic systems have resulted in
pronounced fluctuations in prices and margins. However, we believe that the
following industry trends that have developed historically may limit, in the
long term, the severity of future cyclical variations: the development of new
semiconductor applications, the increased semiconductor content as a percentage
of total system cost, the trend towards consolidation in the industry, more
moderate capital spending on production capacity and the increased customer use
of just-in-time supply systems.
Additionally, these trends have helped build demand for multi-market
companies that can provide a wide range of building block semiconductors as a
single-source supplier. Utilizing a single supplier with a sufficiently broad
product portfolio contributes to a manufacturer's overall cost reduction, and
helps to simplify the production of electronic products and systems.
Since 1990, the semiconductor market has expanded at a compounded annual
growth rate of approximately 15.0%, primarily as a result of two factors. The
first is the rapidly expanding end-user demand for faster, smaller and more
efficient electronic devices, with a greater range of functionality and
reliability, at lower costs. The second is the increasing value of
semiconductors as a percentage of the cost of electronic systems. According to
Worldwide Semiconductor Trade Statistics, the worldwide semiconductor total
available market increased to $204.4 billion in 2000 from $149.4 billion in
1999.
SEMICONDUCTOR CLASSIFICATIONS
The following table sets forth the worldwide semiconductor total available
market in each of the three product functions of the semiconductor industry:
WORLDWIDE SEMICONDUCTOR TOTAL AVAILABLE MARKET(1)
------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 CAGR(2)
----- ----- ----- ----- ------ ------ ------ ------ ------ ------ ------ -------
(DOLLARS IN BILLIONS)
Micro components......... $ 9.2 $11.4 $13.9 $19.1 $ 23.8 $ 33.4 $ 39.8 $ 47.8 $ 47.3 $ 51.7 $ 61.6 20.9%
----- ----- ----- ----- ------ ------ ------ ------ ------ ------ ------
Memory:
Volatile............... 8.7 9.1 11.4 16.4 27.2 46.9 29.9 23.6 17.9 25.4 35.4 15.1
Non-volatile........... 3.1 3.1 3.4 4.8 5.3 6.6 6.1 5.7 5.1 6.9 13.9 16.2
----- ----- ----- ----- ------ ------ ------ ------ ------ ------ ------
Total memory..... 11.8 12.2 14.8 21.3 32.5 53.5 36.0 29.3 23.0 32.3 49.3 15.4
----- ----- ----- ----- ------ ------ ------ ------ ------ ------ ------
Moving/Shaping........... 29.6 31.0 31.1 37.0 45.6 57.5 56.1 60.1 55.3 65.4 93.5 12.2
----- ----- ----- ----- ------ ------ ------ ------ ------ ------ ------
Total............ $50.5 $54.6 $59.9 $77.3 $101.9 $144.4 $132.0 $137.2 $125.6 $149.4 $204.4 15.0
===== ===== ===== ===== ====== ====== ====== ====== ====== ====== ======
- ---------------
(1) According to Worldwide Semiconductor Trade Statistics. Due to rounding, some
totals are not arithmetically correct sums of their component figures.
(2) Compounded annual growth rate. Represents the compounded annual growth rate
for the semiconductor industry since 1990.
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The semiconductor industry can be divided into three product functions:
microcomponents, memory, and moving and shaping. Microcomponents include
microprocessors and microcontrollers that process data according to instruction
sets embedded within the semiconductors themselves. These are considered the
"brains" of the electronic system and are at the center of the system
architecture. Memory includes two types of memory devices, volatile and
non-volatile, that store data and instructions. Volatile memory devices, which
need continual application of electricity to retain data, can be segmented into
DRAM (dynamic random access memory), SRAM (static random access memory) and VRAM
(video random access memory). Non-volatile devices, which retain data after
power to the device has been shut off, can be segmented into ROM (read-only
memory), EPROM, EEPROM and FLASH (memories that enable high speed electrical
reprogramming). Moving and shaping includes the moving of commands and the
shaping of signals to enable electronic devices to perform intended functions,
including moving information into memory or from one sub-system to another, or
allowing microprocessors to process data.
Semiconductors are either analog/mixed signal devices, where electronic
signals are not viewed as "one" and "zero," or digital devices, such as logic
devices, that do rely on ones and zeroes to control the operation of electronic
systems. Semiconductors may also be classified as either standard components or
application-specific components. Multi-market standard components are used by a
large group of systems designers for a broad range of applications, while
application-specific components are designed to perform specific functions in
specific applications.
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FAIRCHILD MARKETS
The following table sets forth information with respect to worldwide
semiconductor sales by product family and process technology in which we
participate:
WORLDWIDE SEMICONDUCTOR SALES(1)
----------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ----- ----- ----- ----- ----- ----- ----- -----
(DOLLARS IN BILLIONS)
MOVING & SHAPING:
ANALOG
Standard Linear(2)... $3.0 $3.0 $3.1 $ 3.8 $ 4.7 $ 5.7 $ 5.5 $ 6.2 $ 5.7 $ 7.2 $11.4
Mixed Signal......... 4.8 5.3 5.6 6.9 8.9 10.9 11.5 13.6 13.3 14.9 19.1
---- ---- ---- ----- ----- ----- ----- ----- ----- ----- -----
Total........ $7.8 $8.3 $8.7 $10.7 $13.6 $16.6 $17.0 $19.8 $19.0 $22.1 $30.5
==== ==== ==== ===== ===== ===== ===== ===== ===== ===== =====
DISCRETE
DMOS Power........... $0.6 $0.7 $0.8 $ 1.1 $ 1.4 $ 2.1 $ 2.2 $ 2.2 $ 2.0 $ 2.5 $ 3.5
Bipolar.............. 4.2 4.2 4.1 4.6 5.5 7.1 6.2 6.1 5.3 6.3 8.7
IGBT................. -- -- -- -- -- 0.5 0.6 0.6 0.7 0.6 0.8
---- ---- ---- ----- ----- ----- ----- ----- ----- ----- -----
Total........ $4.8 $4.9 $4.9 $ 5.7 $ 6.9 $ 9.7 $ 9.0 $ 8.9 $ 8.0 $ 9.4 $13.0
==== ==== ==== ===== ===== ===== ===== ===== ===== ===== =====
LOGIC
Bipolar.............. $1.5 $1.4 $1.3 $ 1.5 $ 1.3 $ 1.3 $ 0.9 $ 0.9 $ 0.6 $ 0.6 $ 0.6
CMOS/BiCMOS.......... 1.1 1.1 1.0 1.4 1.8 2.3 2.1 2.4 1.9 2.2 2.9
---- ---- ---- ----- ----- ----- ----- ----- ----- ----- -----
Total........ $2.6 $2.5 $2.3 $ 2.9 $ 3.1 $ 3.6 $ 3.0 $ 3.3 $ 2.5 $ 2.8 $ 3.5
==== ==== ==== ===== ===== ===== ===== ===== ===== ===== =====
OPTOELECTRONICS(4)..... $1.4 $1.6 $1.6 $ 1.8 $ 2.2 $ 2.9 $ 2.8 $ 3.0 $ 3.0 $ 3.4 $ 5.0
==== ==== ==== ===== ===== ===== ===== ===== ===== ===== =====
MEMORY:
NON-VOLATILE MEMORY
EPROM................ $1.6 $1.4 $1.2 $ 1.3 $ 1.4 $ 1.4 $ 1.1 $ 0.7 $ 0.5 $ 0.5 $ 0.6
EEPROM(3)............ -- 0.7 0.9 1.9 1.1 1.3 1.1 1.2 1.1 1.0 1.4
---- ---- ---- ----- ----- ----- ----- ----- ----- ----- -----
Total........ $1.6 $2.1 $2.1 $ 3.2 $ 2.5 $ 2.7 $ 2.2 $ 1.9 $ 1.6 $ 1.5 $ 2.0
==== ==== ==== ===== ===== ===== ===== ===== ===== ===== =====
- ---------------
(1) All data are according to Worldwide Semiconductor Trade Statistics. Due to
rounding, some totals are not arithmetically correct sums of their component
figures.
(2) The sales information for Standard Linear includes Interface.
(3) According to Worldwide Semiconductor Trade Statistics. Includes sales of
EEPROM and other revenues, such as those from LIFO and FIFO products.
(4) Optoelectronics includes optocouplers, LED lamps and displays, infrared
products and other optoelectronics.
MOVING AND SHAPING MARKETS
Analog Market. Analog products are used to shape or condition electrical
signals, to amplify electrical signal strength, 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. 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
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drive control, data transmission, motor control and power supply control. We
compete in both the Standard Linear and Mixed Signal markets.
Discrete Market. The discrete business, unlike logic and memory, is highly
fragmented and composed of dozens of middle market suppliers. Discrete devices
consist of individual diodes or transistors, whereas integrated circuits (such
as memory or logic devices) combine millions of functions into a "single chip"
of silicon to form a more complex circuit. Discrete products are differentiated
almost entirely on the basis of performance, as opposed to on the basis of
function as in the integrated circuit market. We participate in both the power
and small signal discrete markets, manufacturing devices that condition power or
signals for use by other devices. While small signal discrete markets have
generally grown at slower, but more stable, rates than integrated circuit
markets, the power discrete market has historically grown more rapidly due to
the increasing importance of power management, particularly in portable
applications (e.g., pagers and notebook computers).
Standard Logic Market. Logic devices are integrated circuits that control
the operation of electronic systems and move data. The standard logic market is
fully digital and has five major participants, of which we are one of the
leaders. Standard logic products are fabricated through three primary process
technologies: Bipolar, CMOS and BiCMOS. Bipolar technology is targeted for high
speed applications while CMOS technology allows the manufacturer to create a
denser chip, consuming less power and generating less heat. BiCMOS is a hybrid
of Bipolar and CMOS. While Bipolar semiconductors were once used extensively in
large computer systems, CMOS has become the most prevalent technology,
particularly for devices used in portable personal computer systems. Given the
growing demand for portability, use of CMOS technology is expected to continue
to expand; however, the demand for Bipolar is expected to continue as a result
of its lower cost and suitability for particular applications.
Optoelectronics Market. Optoelectronic products include a wide range of
semiconductor devices which emit and sense both visible and infrared light.
Visible indicators and displays are used in general illumination applications
served by incandescent or fluorescent lighting products to gain power savings
and longer life. Infrared emitters, detectors and sorters emit and detect
infrared energy instead of visible energy and are used for sensing objects and
for short distance data communication.
Optocouplers incorporate infrared emitters and detector combinations in a
single package. These products transmit signals between two electronic circuits
operating at different voltage levels while maintaining electrical isolation
between them.
MEMORY MARKET
Non-Volatile Memory Market. The memory market is comprised of volatile
memory devices (DRAM, SRAM and VRAM) and non-volatile memory devices (ROM,
EPROM, EEPROM and FLASH). Volatile memory devices need continual application of
electricity to retain data, while non-volatile memory retains data after the
power to the device has been turned off. Most of the historic economic
cyclicality in the semiconductor industry has been attributable to the volatile
memory market.
We produce standard EPROM and EEPROM products, but also fabricate
application-specific EEPROM devices. We have standardized the
application-specific nature of the EEPROM process, having designed it to perform
functions in a specific application, but not be proprietary for any single
customer. EEPROMs are being used extensively due to their ease of
programmability. EEPROMs are somewhat isolated from FLASH products, as they
serve different market needs. Reprogrammable EEPROMs are used in many products
to store frequently used phone numbers (fax machines), store accumulated phone
time (cellular phones) and change authorization codes (keyless security
systems). EPROMs have been losing market share to FLASH products because FLASH
memories are easily programmable and have higher data densities. However, there
is a level of EPROM demand that is not economically served by FLASH. As a
result, EPROMs are still utilized in virtually all segments of the low-end
consumer electronic market (e.g., answering machines, garage door openers and
washing machines), where storage of the instruction set for the microcontrollers
require less than 2Mb.
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BUSINESS
GENERAL
We are one of the largest independent semiconductor companies focused
solely on multi-market products. We design, develop and market analog, discrete,
interface and logic, non-volatile memory and optoelectronic semiconductors.
Within our multi-market products portfolio, we are particularly strong in
providing discrete and analog power management and interface solutions.
Multi-market products are the building block components for virtually all
electronic devices, from sophisticated computers and internet hardware to
telecommunications equipment to household appliances. Because of their basic
functionality, our products provide customers with greater design flexibility
than more highly integrated products and improve the performance of more complex
devices or systems. Given such characteristics, our products have a wide range
of applications. Our products are sold to customers in the personal computer,
industrial, telecommunications, consumer electronics and automotive markets.
With a history dating back more than 35 years, the original Fairchild was
one of the founders of the semiconductor industry. Established in 1959 as a
provider of memory and logic semiconductors, the Fairchild Semiconductor
business was acquired by Schlumberger Limited in 1979 and by National
Semiconductor Corporation in 1987. In March 1997, as part of its
recapitalization, much of the Fairchild Semiconductor business was sold to a
new, independent company -- Fairchild Semiconductor Corporation. At the time of
the recapitalization, Fairchild consisted of the discrete, logic and
non-volatile memory businesses of National Semiconductor. On December 31, 1997,
we acquired Raytheon Semiconductor, Inc., a wholly owned subsidiary of Raytheon
Company, for approximately $117.0 million in cash. That business designs,
manufactures and markets high-performance analog and mixed signal semiconductors
for the personal computer, communications, broadcast video and industrial
markets.
On April 13, 1999, we purchased the power device business of Samsung
Electronics for approximately $414.9 million, including fees and expenses. The
power device business designs, manufactures and markets power discrete
semiconductors and standard analog integrated circuits serving the personal
computer, industrial, telecommunications and consumer electronics markets. The
power device business has developed a number of new product designs with
industry leading performance characteristics, such as its recent process
developments in trench technology and silicon bonding. The acquisition of the
power device business not only enhanced our analog and power discrete product
offerings, but also provided us with a greater market presence in South Korea.
In connection with the acquisition of the power device business, the Korean
government granted a ten-year tax holiday. The exemption is 100% for the first
seven years of the holiday and 50% for the remaining three years of the holiday.
During Calendar 2000, the tax holiday was extended such that the exemption
amounts were increased to 75% in the eighth year and a 25% exemption was added
to the eleventh year.
On May 28, 2000, we purchased QT Optoelectronics, Inc., or QT Opto, for
approximately $92.0 million. QT Opto designs, manufactures and markets LED lamps
and displays, infrared components, custom optoelectronics and optocouplers and
is the world's largest independent company solely focused on optoelectronics.
This acquisition gives us a position in a $5.8 billion market. Revenue
opportunities exist in being able to offer these products to existing Fairchild
customers who were purchasing from competitors.
On September 8, 2000, we purchased the power management business of Micro
Linear Corporation for approximately $11.0 million. That business consists of
analog products including offline power switches, low power battery management,
video filters and bus terminators. This acquisition expands the breadth of our
overall position in the power management analog business.
On September 8, 2000, we purchased KOTA Microcircuits, Inc., or KOTA, for
approximately $12.1 million. KOTA designs, manufactures and markets
high-performance operational amplifiers and other standard linear products. This
acquisition positions us with leading technology in the operational amplifier
market, representing a $2.8 billion total available market in 2000 according to
the WSTS, and expands our penetration into markets that include cellular phone,
CD-ROM drives and portable applications.
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On March 16, 2001 we acquired substantially all of the assets of, and
assumed certain liabilities of, Intersil Corporation's discrete power products
business, which we refer to as DPP, for approximately $338.0 million in cash.
DPP is a leading provider of silicon-based discrete power devices for the
computer, communications, industrial, automotive, and space and defense markets.
On January 31, 2001, we issued the notes that are the subject of the
exchange offer. The net proceeds from the sale of the notes were used to fund
the DPP acquisition.
PRODUCTS AND TECHNOLOGY
We design, develop and manufacture a broad range of products used in a wide
variety of microelectronic applications, including personal computer,
industrial, telecommunications, consumer products and automotive systems. Our
products are organized into four principal product groups: Analog and Mixed
Signal Products, Discrete Products, Interface and Logic Products, and Other
Products which include non-volatile memory, optoelectronics and contract
manufacturing.
ANALOG AND MIXED SIGNAL PRODUCTS
We design, manufacture and market high-performance analog and mixed signal
integrated circuits for the personal computer, industrial, consumer electronics
and broadcast video markets. These products are manufactured using leading-edge
CMOS, BiCMOS, DMOS and bipolar technologies. Analog and mixed signal products
represent a significant long-term growth area of the semiconductor industry. The
increasing demand to integrate high performance microprocessor-based electronics
in equipment ranging from personal computers to scientific instrumentation,
telecommunications and data communications networks has led analog and mixed
signal semiconductor suppliers to create designs that have higher levels of
integration to reduce space and power requirements and provide greater
functionality, all at lower cost. We offer over 2,600 analog device products,
including offerings in all of the top 100 best selling (in terms of volume)
analog product types. Major competitors include Analog Devices, Linear
Technology, Intersil, ON Semiconductor, Philips and Semtech.
Analog. Analog products control continuously variable functions such as
light, color, sound and power. They enable human beings to interface with the
digital world. We provide analog products relating to power conversion,
temperature sensing, management functions, battery chargers and motor controls.
Our Smart Power Switch is a proprietary, multichip module consisting of a power
management integrated circuit and a MOSFET. Smart Power Switches provide a
solution for off-line power converter designs in power supplies, battery
chargers, PC peripherals, and home and consumer applications. We also offer a
mix of mature products, such as operational amplifiers, audio amplifiers,
regulators, comparators, references and timers, ground fault interrupters and
8-bit microprocessors which continue to generate significant revenues due to
their long product life cycles.
Mixed Signal. Mixed signal products process both analog and digital
information. Our mixed signal offerings include analog-to-digital converters,
digital-to-analog converters and market-leading digital video encoders and
decoders sold to manufacturers of high-end video equipment and set-top boxes.
We believe our Analog product portfolio is further enhanced by a wide
variety of packaging solutions that we have developed. These solutions include
surface mount and tiny packages.
DISCRETE PRODUCTS
Discrete devices are individual diodes or transistors that perform basic
signal amplification and switching functions in electronic circuits. Driving the
long-term growth of discretes is the increasing importance of power management,
particularly in portable applications such as pagers and notebook computers. We
participate in both the power and small signal discrete markets using our DMOS
and Bipolar technologies, manufacturing semiconductors that condition (or shape)
power or signals for use by other devices. The acquisition of the power device
business added significantly to our discrete product portfolio, with only small
signal transistors overlapping with our existing portfolio. While the world
market
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is dominated by such multinational semiconductor manufacturers as Toshiba, ON
Semiconductor and Philips, a significant portion of the industry is fragmented
where competition is primarily on a regional basis. Other competitors include
Siliconix and International Rectifier.
DMOS. DMOS discrete devices are used to convert, switch or otherwise shape
or condition electricity. We offer a wide range of DMOS power MOSFETs designed
for low and high voltage applications over a wide range of performance
characteristics, power handling capabilities and package options. We are
focusing on DMOS as our growth area due to the trend towards smaller and lighter
products and longer battery life, as well as batteries with built-in smart
functions. DMOS products are the focus of our discrete research and development
expenditures. These expenditures have been directed primarily toward the
development of our leading-edge Trench technology. These products are commonly
found in portable computers and peripherals, portable telephones, automobiles
and battery-powered devices. Our DMOS products include:
Low Voltage MOSFET. This product line is focused on developing products in
the Low Voltage DMOS area in support of the trend towards smaller and lighter
products, longer battery life expectancy, as well as batteries with built-in
smart functions. Research and development efforts and expenditures have been
directed toward the development of our leading-edge PowerTrench(R) technology.
The combination of leading-edge wafer fabrication processes and new packaging
technology continues to allow our Low Voltage DMOS product families to set new
standards for low resistance and high current performance in miniature surface
mount power packaging. Our Low Voltage DMOS products are commonly found in
portable computers and peripherals, portable telephones, automobiles and
battery-powered devices.
High Voltage MOSFET. This product line offers a wide variety of high
voltage MOSFET devices designed for high voltage applications (200V to 900V)
over a wide range of performance characteristics, power handling capabilities
and package options. The product portfolio includes both N channel and P channel
devices using proprietary HDMOS process technology. These products are commonly
found in power system applications including flyback and forward converters and
power factor correction in switch-mode power supplies (SMPS).
IGBT. This product line offers very high voltage devices (600V to 1500V)
in a variety of package options. Typical applications for these devices are
motor control, inverters, robotics, servo controls, power supply and lamp
ballast. IGBT will be a focused growth product line as more industrial
applications are using this technology.
Bipolar. We manufacture and sell a wide range of bipolar discretes,
including single junction glass diodes, small signal transistors, bipolar power
transistors, JFETs and Zener diodes in a wide variety of package configurations.
These devices switch, amplify and otherwise shape or modify electronic signals
and are found in nearly every electronic product, including computers, cellular
phones, mass storage devices, televisions, radios, VCRs and camcorders.
INTERFACE AND LOGIC PRODUCTS
We design, develop and manufacture high-performance interface and logic
devices utilizing three wafer fabrication processes: CMOS, BiCMOS and Bipolar.
Within each of these production processes, we manufacture products that possess
advanced performance characteristics, as well as mature products that provide
high performance at low cost to customers.
Interface Products. The significant growth in the Internet hardware and
cellular base station markets has increased demand for interface products.
Interface products generally connect signals from one part of a system to
another part of a system. Typical interface applications include backplane
driving, bus driving, clock driving and signal integrity. These applications all
require high speed, high current drive and low noise attributes. These types of
products are mixed signal in nature and require a high level of analog wave
shaping techniques on the output structures, minimizing the number of suppliers
with the capability to develop them. We believe we have developed some unique
competencies and patented circuit techniques
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along with a broad range of process technologies which facilitate our expansion
into the interface products market.
The interface market is divided into two categories: "building block
interface" and "standards-specific interface products." Current building block
products include our FST and GTL product families with planned expansions into
an LVDS family of products and clock driving products. Standards-specific
products are normally based on industry standards which are developed by
consortiums of hardware suppliers, software suppliers, end segment customers and
industry experts. We are an active participant on many committees where industry
standards are developed, and have product offerings in printer interface, dual
inline memory module drivers and Universal Serial Bus applications. Major
competitors include Texas Instruments, National Semiconductor, Maxim and Linear
Technology.
Logic Products. Since market adoption rates of new standard logic families
have historically spanned several years, we continue to generate significant
revenues from our mature products. Customers are typically slow to move from an
older product to a newer one. Further, for any given product, standard logic
customers use several different generations of logic products in their designs.
As a result, typical life cycles for logic families are between 20 and 25 years.
Since it takes new logic products an average of three to five years to
reach full market acceptance, we continue to invest in new products to generate
future revenue growth. In addition, many of these investments have established
our logic devices as key components for the personal computer and
telecommunications markets, particularly in the Internet and networking sector
and cellular communications sector. Internet appliances and Internet
infrastructure equipment (such as LAN and WAN switches, hubs, routers and
servers) require high speed, high drive and low noise characteristics. We offer
logic devices using CMOS, BiCMOS and Bipolar processes that are required to
achieve these characteristics. Our ABT, LVT and ECL logic devices have all
successfully penetrated the Internet hardware market. In addition, cellular
communications equipment such as cellular phones, pagers and base stations and
consumer set top box require low power and noise generation in very small
packages. We believe our Tiny Logic(TM), VHC, LCX and FST switch technologies
have established our logic products among the leading technologies addressing
these requirements. Major competitors include Texas Instruments, ON
Semiconductor and Philips.
OTHER PRODUCTS
Included within the "Other" reporting segment are non-volatile memory
products and optoelectronic products.
Non-Volatile Memory Products
We design, manufacture and market non-volatile memory circuits, which are
storage devices that retain data after power to the device has been shut off. We
offer an extensive portfolio of high performance serial EEPROM and EPROM
products. EPROMs are electrically programmable read-only memories. These
non-volatile memory devices are used in the personal computer, industrial,
telecommunications, consumer electronics and automotive systems. Major
competitors include ST Microelectronics, Advanced Micro Devices, Atmel, Xicor
and Microchip Technology.
EEPROMs. EEPROMs are used primarily to store changing information in
consumer products and automotive applications such as microwaves, televisions,
stereos and automotive controls. Our standard EEPROM products serve each of the
three serial bus interface protocols used with all industry standard
microcontrollers.
EPROMs. The ability of EPROMs to be programmed electrically by the
equipment manufacturer enables them to achieve shorter time to market for new
products than if they used products that must be programmed by the chip
manufacturer. Today, EPROMs are primarily utilized in applications where storage
of the instruction sets for microcontrollers requires less than 2Mb in density,
which is virtually all segments of the low-end consumer electronic market (e.g.,
answering machines, garage door openers and washing machines). The EPROM market
is declining as FLASH becomes cost-effective at lower
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densities. As a result, we are incurring minimal research and development
expenditures in this product line. We currently sell EPROMs in densities ranging
from 64K to 4Mb.
Optoelectronic Products
Optoelectronics covers a wide range of semiconductor devices which emit and
sense both visible and infrared light. Of the four major segments of the
optoelectronics market we participate in three described below.
Optocouplers. Optocouplers incorporate infrared emitter and detector
combinations in a single package. These products are used to transmit signals
between two electronic circuits operating at different voltage levels while
maintaining electrical isolation between them. Major applications for these
devices include power supplies, modems, motor controls and power modules.
LED Lamps and Displays. General illumination applications currently served
by incandescent and fluorescent lighting products are being targeted for
replacement by solid state optoelectronic products to gain power savings and
longer life. This product line includes stick and frame displays which are used
in consumer electronics and appliances as well as T-1 and T-1 3/4 lamps that are
used in consumer, industrial/instrument and signage industries.
Infrared Products. These devices emit and detect infrared energy instead
of visible energy. This product line offers a wide variety of packages including
plastic emitters and detectors, metal can emitters and detectors, slotted
switches and reflective switches. In addition, custom products address specific
types of customer applications. Applications for infrared products include
object detection (paper sensing in printers and copiers, garage door safety
sensors), data transmission (remote controls in televisions, stereos, VCRs and
wireless data links between computers and other electronic devices) and motor
control.
SALES, MARKETING AND DISTRIBUTION
In Calendar 2000, we derived approximately 46% of our trade sales from
original equipment manufacturer customers through our regional sales
organizations and 54% of our trade sales through distributors. We operate
regional sales organizations in Europe, headquartered in Wooton-Bassett,
England; the Americas, headquartered in San Jose, California; the Asia/Pacific
region, with offices in Hong Kong; the Japan region, with offices in Tokyo; and
the Korea region, with offices in Puchon, South Korea. Each of the regional
sales organizations, with the exception of Korea, is supported by logistics
organizations which manage independently operated free-on-board warehouses.
Product orders flow to our manufacturing facilities, where products are made.
Products are then shipped either directly to customers or indirectly to
customers via independently operated warehouses in Singapore, the United States
and the United Kingdom.
We have dedicated direct sales organizations operating in Europe, the
Americas, the Asia/Pacific region, Japan and Korea that serve our major original
equipment manufacturer customers. We also have a large network of distributors
and manufacturer's 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 businesses, combined with an extensive network of
distributors and manufacturer's representatives, is the most efficient way to
serve our multi-market customer base. Fairchild also maintains a dedicated
marketing organization, which consists of marketing organizations in each
product group, including tactical and strategic marketing and applications, as
well as marketing personnel located in each of the sales regions.
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, primarily in North America, are made under
agreements allowing for market price fluctuations and/or the right of return on
unsold merchandise, subject to the right terminating after the expiration of a
limited time period. Virtually all distribution agreements contain a standard
stock rotation provision allowing for minimum levels of inventory returns. In
our experience, these inventory returns can usually be resold. Manufacturer's
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representatives generally do not offer products that compete directly with our
products, but may carry complementary items manufactured by others.
Manufacturer's 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
Our expenditures for research and development in Fiscal 1998, Fiscal 1999,
Stub Year 1999 and Calendar 2000 were $35.7 million, $39.3 million, $35.0
million and $83.9 million, respectively. These expenditures represented 5.6%,
6.0%, 4.9% and 5.0% of trade sales in Fiscal 1998, Fiscal 1999, Stub Year 1999
and Calendar 2000, respectively. 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 and greater performance
produced at lower cost. 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: CMOS logic, DMOS power discretes, analog and
mixed signal products, and optoelectronic products.
Each of our product groups maintains independent research and development
organizations. We work closely with our major customers in many research and
development situations in order to increase the likelihood that our products
will be designed directly into the customers' products and achieve rapid and
lasting market acceptance.
MANUFACTURING
We operate nine manufacturing facilities, four of which are front-end wafer
fabrication plants in the United States, South Korea and Singapore, and five of
which are back-end assembly and test facilities in the United States, Malaysia,
the Philippines and China. Our products are manufactured and designed using a
broad range of manufacturing processes and proprietary design methods. We use
all of the prevalent function-oriented process technologies for wafer
fabrication, including CMOS, Bipolar, BiCMOS, DMOS and non-volatile memory
technologies. We use primarily through-hole and surface mount technologies in
our assembly and test operations, in lead counts from two to fifty-six leads.
The table below sets forth information with respect to our manufacturing
facilities, products and technologies.
MANUFACTURING FACILITIES
LOCATION PRODUCTS TECHNOLOGIES
- -------- -------- ------------
Front-End Facilities:
South Portland, Maine Bipolar, CMOS and BiCMOS 4-inch fab -- 5.0/3.0 micron
Interface and logic products 5-inch fab -- 3.0/1.5 micron
Standard Linear products 6-inch fab -- 1.5/0.5 micron
Op Amps, Ground Fault CMOS and BiCMOS
Interruptors
Salt Lake City, Utah EPROMs, EEPROMs, ACE and USB 6-inch fab -- 1.0/0.65 micron
Discrete power CMOS EPROM 2.0/0.8 micron
CMOS EPROM 2.0 micron DMOS
Puchon, South Korea Power discrete semiconductors, 4-inch fab -- 5.0/4.0 micron
standard analog integrated Bipolar 5-inch fab -- 2.0/0.8
circuits micron Bipolar and DMOS
6-inch fab -- 2.0/0.8 micron
DMOS
Singapore Optocoupler/infrared Infrared die fab
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LOCATION PRODUCTS TECHNOLOGIES
- -------- -------- ------------
Back-End Facilities:
Penang, Malaysia Bipolar, CMOS and BiCMOS MDIP, SOIC, EIAJ, TSSOP, SSOP,
interface and logic products 8-56 Pins, SC-70
Cebu, the Philippines Power and small signal discrete TO92, SOT-23, Super SOT,
SOT-223, TO220, TO263, DPAK,
SC-70, BGA
Kuala Lumpur, Malaysia Optocouplers SOIC, MFP
Wuxi, China Infrared/LED Lamps and Displays T-1, T-1 3/4, SMD, Custom
Loveland, Colorado Operational Amplifiers Hybrid
As part of the DPP acquisition, we acquired a wafer fabrication facility in
Mountaintop, Pennsylvania, which manufactures six-inch and eight-inch silicon
wafers.
We subcontract a minority of our wafer fabrication needs, primarily to
Advanced Semiconductor Manufacturing Corporation of Shanghai, Chartered
Semiconductor, Torex Semiconductor and New Japan Radio Corporation. In order to
maximize our production capacity, some of our back-end assembly and testing
operations are also subcontracted. Primary subcontractors include Carsem, Amkor,
NS Electronics (Bangkok) Ltd., Korea Micro Industry, Samsung Electronics and, as
a result of the DPP acquisition, ChipPAC, Inc. The power device business also
subcontracts manufacturing services from Samsung Electronics. As a result of the
acquisition of the power device business, these services are provided under
manufacturing agreements with Samsung Electronics.
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.
BACKLOG
Our trade sales are made primarily pursuant to standard purchase orders
that are generally booked from one to twelve 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. Quantities actually
purchased by customers, as well as prices, are subject to variations between
booking and delivery to reflect changes in customer needs or industry
conditions.
We sell products to many key customers pursuant to contracts. Contracts are
annual fixed-price agreements with customers setting forth the terms of purchase
and sale of specific products. These contracts allow us to schedule production
capacity in advance and allow 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. We recognize revenue from contract manufacturing
services but do not monitor backlog for these services. For these reasons, we
believe that the amount of backlog at a particular date is not meaningful and is
not necessarily a relevant indicator of future revenues.
SEASONALITY
Generally, we are affected by the seasonal trends of the semiconductor and
related industries. With the change of our fiscal year end we expect revenues
will be higher in the second and fourth quarters, lower in the first quarter due
to holidays around the world and lower in the third quarter due to the
historically slow summer months. In Stub Year 1999, however, typical seasonality
was offset by the effects of the recovery of the overall semiconductor market,
as we recorded sequential revenue increases in each
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quarter. This trend continued through the third quarter of Calendar 2000. In
fourth quarter of Calendar 2000, we saw significant backlog pushout and
cancellations causing quarter on quarter revenue to decline.
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, customer service, pricing, industry trends and general
economic trends.
PATENTS AND TRADEMARKS
Our corporate policy is to protect proprietary products by obtaining
patents for such products when practicable. Under a technology licensing and
transfer agreement with National Semiconductor entered into in connection with
the recapitalization of the Fairchild Semiconductor business, we acquired
approximately 150 U.S. patents and obtained perpetual, royalty-free
non-exclusive licenses on approximately 250 of National Semiconductor's patents.
Pursuant to an acquisition agreement with Raytheon Company, we acquired over 60
patents owned by Raytheon Semiconductor, Inc., as well as licensing rights
(similar to those granted to Fairchild by National Semiconductor) for other
semiconductor-related intellectual property of Raytheon Company not directly
owned by Raytheon Semiconductor, Inc. Similarly, in our acquisition of the power
device business, we acquired from Samsung Electronics a significant number of
licenses and patents, including approximately 76 U.S. patents and over 1,000
Korean patents. We also received all relevant trademarks. Additionally, from the
acquisitions of QT Optoelectronics, KOTA and the power management business of
Micro Linear Corporation, we have added in excess of 50 U.S. and five foreign
patents and patent applications to our intellectual property portfolio. Finally,
from the DPP acquisition we obtained over 500 patents worldwide. We believe that
we have the right to use all technology used in the production of our products.
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 or from our manufacturing facilities; the
generation, storage, treatment, transportation and disposal of hazardous
materials by our company; the investigation and remediation of environmental
contamination; and the release of hazardous materials into the environment at or
from properties operated by our company and at other sites. As with other
companies engaged in like businesses, the nature of our operations exposes our
company to the risk of liabilities and claims, regardless of fault, with respect
to such matters, including personal injury claims and civil and criminal fines.
Our facilities in South Portland, Maine, and, to a lesser extent, Salt Lake
City, Utah, have ongoing remediation projects to respond to releases of
hazardous materials that occurred prior to the consummation of the
recapitalization. Under the Asset Purchase Agreement with National
Semiconductor, as supplemented by ancillary agreements entered into in
conjunction with the recapitalization, National Semiconductor has agreed to
indemnify Fairchild for the cost of these projects, subject to limitations.
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Based on the historical costs of these projects, we do not believe that future
remediation costs will be material, even without the indemnity.
Our previously owned Mountain View, California, facility is listed on the
National Priorities List under the Comprehensive Environmental Response,
Compensation, and Liability Act. Under the terms of the Acquisition Agreement
with Raytheon Company, Raytheon Company retained responsibility for, and has
agreed to indemnify us with respect to, remediation costs or other liabilities
related to pre-acquisition contamination. The purchaser of the Mountain View,
California facility received an environmental indemnity from us similar in scope
to the one we received from Raytheon Company.
Although we believe that the power device business has no significant
environmental liabilities, Samsung Electronics agreed to indemnify Fairchild for
environmental liabilities arising out of the power device business, including
the Puchon, South Korean plant, subject to limitations.
We believe that our operations are in substantial compliance with
applicable environmental laws and regulations. Our costs to comply with
environmental regulations were immaterial in Fiscal 1998, Fiscal 1999, Stub Year
1999 and Calendar 2000. Future laws or regulations and changes in existing
environmental laws or regulations, however, 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.
EMPLOYEES
Our worldwide workforce consisted of 11,033 full- and part-time employees
as of December 31, 2000, none of whom were represented by collective bargaining
agreements. Of the total number of employees, 9,413 were engaged in
manufacturing, 411 were engaged in marketing and sales, 993 were engaged in
corporate and product line administration and 216 were engaged in research and
development. We believe that our relations with our employees are satisfactory.
Our wholly owned Korean subsidiary, which we refer to as Fairchild Korea,
sponsors a Power Device Business Labor Council consisting of seven
representatives from the non-management workforce and seven members of the
management workforce. The Labor Council, under Korean law, is recognized as a
representative of the workforce for the purposes of consultation and cooperation
only. The Labor Council therefore has no right to take a work action or to
strike and is not party to any labor or collective bargaining agreements with
Fairchild Korea. We believe that relations with Fairchild Korea employees and
the Labor Council are satisfactory.
As a result of the consummation of the DPP acquisition, approximately 330
of our employees are covered by a collective bargaining agreement.
LEGAL PROCEEDINGS
We are a defendant in a patent infringement lawsuit filed by Siliconix
Incorporated in the United States District Court for the Northern District of
California. The complaint filed in the suit alleges that some of our products
infringe two Siliconix patents and claims an unspecified amount of damages. We
intend to continue contesting these claims vigorously.
We are a defendant in a patent infringement lawsuit filed by U.S. Philips
Corporation in the United States District Court for the Southern District of New
York. The complaint filed in the suit alleges that some of our products infringe
one Philips patent and claims an unspecified amount of damages. We intend to
continue investigating these allegations and contesting these claims vigorously.
In addition to the above proceedings, from time to time we are involved in
other legal proceedings in the ordinary course of business. We believe that
there is no such ordinary course 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.
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DESCRIPTION OF THE ACQUISITION AGREEMENT
Pursuant to the terms of an asset purchase agreement entered into on
January 20, 2001, on March 16, 2001 we acquired substantially all of the assets
of, and assumed certain of the liabilities of, Intersil's discrete power
products business for aggregate cash consideration of approximately $338.0
million. In connection with the closing of the Acquisition, we and Intersil
entered into the following agreements:
- An intellectual property agreement under which we acquired Intersil's
rights to the intellectual property assets used in DPP;
- A transition services agreement, in which Intersil agreed to continue
providing certain services that it had provided to DPP;
- A supply agreement under which Intersil will provide to us, and we will
purchase from Intersil, packaging and test services for high reliability
products manufactured in Fab 8; and
- A partial assignment and assumption of the ChipPAC agreement under which
Intersil assigned to us certain of its rights under the supply agreement
and a letter agreement between Intersil and ChipPAC dated as of June 30,
2000 relating to DPP, and we agreed to accept such assignment and to
assume Intersil's obligations with respect to such portion of the supply
agreement and the letter agreement.
We financed the purchase price of the Acquisition as set forth under "Use
of Proceeds."
THE ASSET PURCHASE AGREEMENT
The asset purchase agreement provided for our purchase of DPP from
Intersil, which included its discrete power products business and Fab 8, and the
assumption of certain of the liabilities of DPP. The purchase price was $338.0
million, payable in cash, subject to adjustment upward or downward on a dollar-
for-dollar basis, by the amount by which assumed liabilities on the closing date
were greater than or less than $7.8 million.
The DPP assets include:
- the real property at Fab 8;
- the furniture, equipment, machinery, supplies, vehicles, spare parts,
tools, personal property and other tangible property located at Fab 8 or
primarily used by DPP, wherever located;
- the contracts, leases, licenses, agreements and commitments relating
primarily to DPP;
- DPP's inventory;
- intellectual property assigned in accordance with the intellectual
property agreement;
- transferable governmental authorizations and environmental permits
relating to Fab 8 or primarily relating to DPP;
- customer and vendor lists relating to DPP, and related files and
documents, and other business and financial records, files, books and
documents to the extent relating to DPP;
- all of Intersil's rights under express or implied warranties from vendors
related to the conveyed assets; and
- all goodwill related to DPP.
We did not purchase the following assets of DPP:
- accounts receivable, cash, cash equivalents and prepaid expenses;
- certificates of deposit, shares of stock, securities, bonds, debentures
and evidences of indebtedness to Intersil;
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- rights in any contract or arrangement representing an intercompany
transaction between Intersil and any affiliate of Intersil;
- all tax returns and all losses, loss carry forwards and rights to receive
refunds, credits and credit carry forwards with respect to any and all
taxes;
- assets not related primarily to DPP; and
- any intellectual property not assigned under the intellectual property
agreement.
We agreed to assume some of Intersil's liabilities relating to DPP. These
liabilities include:
- specified assumed indebtedness of DPP in the amount of $4.0 million as of
December 31, 2000;
- product warranty obligations to repair, replace or provide product
purchase price credit to customers and contractual obligations with
distributors for price adjustments or product repurchases;
- liabilities with respect to employees whom we employ; and
- liabilities for commissions due to independent sales representatives with
respect to orders placed prior to the closing date and for which the
customer had not yet been billed.
The agreement provides that Intersil will indemnify us for liabilities we
will not assume, including pre-closing environmental liabilities. Intersil also
agreed to indemnify us for breaches of its representations and warranties in the
asset purchase agreement, subject (with some exceptions) to a threshold of $2.6
million and a cap of $84.5 million. Intersil's liability to indemnify us will
expire at various times depending on the type of representation or warranty that
may have been breached.
THE INTELLECTUAL PROPERTY AGREEMENT
The intellectual property agreement provided for the transfer from
Intersil, either by means of a sale of Intersil's intellectual property rights
or the grant of a paid-up, worldwide, irrevocable, non-exclusive license of the
intellectual property rights used in connection with DPP, including certain
patents, patent license agreements, computer software, copyrights, databases,
industrial designs, mask works, trademarks and trade secrets that constitute an
important component of DPP.
Intersil agreed to indemnify us against losses, claims, damages,
liabilities, costs and expenses resulting from any claim of infringement of any
intellectual property made within three years of the closing date to the extent
based on the manufacture or sale of products of DPP, or the granting of any
licenses to manufacture or sell products of DPP by us after the closing or by
Intersil prior to the closing in an aggregate amount not to exceed $30.0
million.
THE SUPPLY AGREEMENT
In the supply agreement, Intersil agreed to provide packaging and test and
other services to us that it formerly provided to DPP for a period of three
years.
We agreed to supply on consignment to Intersil sufficient semiconductor
wafers, die and packages for Intersil to perform these services.
TRANSITION SERVICES AGREEMENT
In the transition services agreement, Intersil agreed to provide to us, and
we agreed to purchase from Intersil, specified services at a level and quality
substantially the same to those performed by Intersil for DPP prior to the date
of the Acquisition. Intersil also agreed that, for a period of up to 12 months,
employees of DPP (who have accepted an offer of employment or an offer of
continuation of employment by us) who are located in office facilities of
Intersil that are not being transferred to us may remain in such locations. The
term of this agreement varies depending upon the specific service in question.
Our costs for these services will essentially be Intersil's costs of providing
them to us.
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THE PARTIAL ASSIGNMENT OF THE CHIPPAC AGREEMENT
In the partial assignment agreement, Intersil assigned to us certain of
Intersil's rights relating to DPP under the supply agreement and a letter
agreement between Intersil and ChipPAC, each dated as of June 30, 2000. The
assigned rights essentially enable us to continue DPP on the same general terms
as Intersil has conducted it under its agreements with ChipPAC.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of our company and
Fairchild International that is outstanding. To the extent such summary contains
descriptions of the senior credit facility, the credit agreement relating to the
senior credit facility, the 10 3/8% Senior Subordinated Notes, the 10 1/8%
Senior Subordinated Notes and the indentures governing them, such descriptions
do not purport to be complete and are qualified in their entirety by reference
to those and related documents, copies of which have been filed or incorporated
by reference as exhibits to the registration statement of which this prospectus
forms a part.
SENIOR CREDIT FACILITY
General. On June 6, 2000, we refinanced our senior credit facility,
converting approximately $117.8 million of outstanding senior term indebtedness
into a new revolving line of credit with total borrowing capacity of $300.0
million, including up to $10.0 million of swingline loans.
Use of the Senior Credit Facility. The senior credit facility is available
for general corporate purposes, including acquisitions.
Guaranties; Security. Our obligations under the senior credit facility are
unconditionally guarantied, jointly and severally, by Fairchild International
and each of our existing and subsequently acquired or organized domestic
subsidiaries. Our obligations and those of such guarantors under the senior
credit facility will be secured by a pledge of all of our capital stock and the
capital stock of 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 guaranty the senior credit
facility. In addition, the senior credit facility is not secured by a pledge of
the intercompany debt obligation of Fairchild Korea, and less than two-thirds of
the capital stock of Fairchild Korea is required to be pledged to secure the
senior credit facility.
Amortization; Interest; Fees; Maturity. The senior credit facility is
available until June 6, 2004, unless terminated earlier under certain
circumstances. Borrowings by our company under the senior credit facility bears
interest at a rate equal to, at our option, either (1) 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 (2) the adjusted applicable
London interbank offered rate (as defined under the senior credit facility), in
each case plus an applicable margin (determined by reference to the ratio of
Consolidated Indebtedness to Consolidated EBITDA (as defined under the senior
credit facility)). In addition, the senior credit facility is currently subject
to a commitment fee of 0.30% per annum (subject to adjustment as determined by
reference to the ratio of Consolidated Indebtedness to Consolidated EBITDA (as
defined under the senior credit facility)) of the undrawn portion of the senior
credit facility, and letter of credit fees with respect to each letter of credit
outstanding under the senior credit facility equal to (1) the applicable margin
over the adjusted applicable London interbank offered rate (as defined under the
senior credit facility) in effect for loans under the senior credit facility and
(2) 0.25% per annum on the face amount of all outstanding letters of credit.
Covenants and Events of Default. The credit agreement relating to the
senior credit facility contains, among other things, covenants restricting our
ability and our subsidiaries' ability to dispose of assets, merge, pay
dividends, repurchase or redeem capital stock and indebtedness (including the
notes), incur indebtedness and guaranties, create liens, make certain
investments or acquisitions, enter into sale and leaseback transactions, enter
into transactions with affiliates or change its business or make fundamental
changes, and otherwise restricts corporate actions. The senior credit facility
also contains a number of financial maintenance covenants.
The credit agreement relating to the senior credit facility also includes
events of default usual for this type of senior credit facility and transaction,
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
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security documents and certain changes of control of our company. The occurrence
of any event of default could result in the acceleration of our and the
guarantors' obligations under the senior credit facility, which could materially
and adversely affect you.
10 3/8% SENIOR SUBORDINATED NOTES DUE OCTOBER 1, 2007
We are the primary obligor on $300.0 million in aggregate principal amount
of 10 3/8% Senior Subordinated Notes. The 10 3/8% Senior Subordinated Notes bear
interest at a rate of 10 3/8% per annum, payable semi-annually on April 1 and
October 1 of each year.
The 10 3/8% Senior Subordinated Notes are not redeemable prior to April 1,
2003, except that, until April 1, 2002, we may redeem, at our option, up to an
aggregate of $105.0 million of the principal amount of the 10 3/8% Senior
Subordinated Notes at the redemption price set forth in the indenture governing
the 10 3/8% Senior Subordinated Notes plus accrued interest to the date of
redemption with the net proceeds of one or more Public Equity Offerings (as
defined under the indenture governing the 10 3/8% Senior Subordinated Notes) if
at least $195.0 million of the principal amount of the 10 3/8% Senior
Subordinated Notes remains outstanding after each such redemption. On or after
April 1, 2003, the 10 3/8% Senior Subordinated Notes are redeemable at our
option, in whole or in part, at the redemption prices set forth in the indenture
governing the 10 3/8% Senior Subordinated Notes plus accrued interest to the
date of redemption.
Upon a "Change of Control" under the indenture governing the 10 3/8% Senior
Subordinated Notes and subject to certain conditions, each holder of the 10 3/8%
Senior Subordinated Notes may require our company to repurchase the 10 3/8%
Senior Subordinated Notes held by such holder at 101% of the principal amount
thereof plus accrued interest to the date of repurchase.
The 10 3/8% Senior Subordinated Notes are unsecured senior subordinated
obligations of our company and are subordinated in right of payment to all
existing and future Senior Indebtedness (as defined under the indenture
governing the 10 3/8% Senior Subordinated Notes) of our company. The 10 3/8%
Senior Subordinated Notes rank pari passu in right of payment with all senior
subordinated indebtedness of our company and senior to any other subordinated
indebtedness of our company.
The payment of principal, premium, if any, and interest on the 10 3/8%
Senior Subordinated Notes is fully and unconditionally guaranteed on a senior
subordinated basis by Fairchild International and the subsidiary guarantors. The
guaranties by Fairchild International and the subsidiary guarantors are
subordinated to all existing and future Senior Indebtedness of such parties,
including Fairchild International's and the subsidiary guarantors' guaranties of
our obligations under the senior credit facility. Fairchild International
currently conducts no business and has no significant assets other than our
capital stock, all of which will be pledged to secure Fairchild International's
obligations under the senior credit facility. The guaranty of Fairchild
International or a subsidiary guarantor, as the case may be, may be released
upon a sale of Fairchild International or a subsidiary guarantor, as the case
may be, or upon repayment or defeasance of the 10 3/8% Senior Subordinated Notes
in each case as permitted by the indenture governing the 10 3/8% Senior
Subordinated Notes.
The indenture governing the 10 3/8% Senior Subordinated Notes contains
restrictive covenants substantially identical to those contained in the
indenture governing the notes, including covenants that limit, among other
things, (1) the incurrence of additional debt by our company and our
subsidiaries, (2) the payment of dividends on our capital stock and the
purchase, redemption or retirement of capital stock or subordinated
indebtedness, (3) investments, (4) certain transactions with affiliates, (5)
sales of assets, including capital stock of subsidiaries and (6) certain
consolidations, mergers and transfers of assets. The indenture governing the
10 3/8% Senior Subordinated Notes also prohibits us and our subsidiaries from
entering into agreements that contain certain restrictions on distributions from
subsidiaries.
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10 1/8% SENIOR SUBORDINATED NOTES DUE MARCH 15, 2007
We are the primary obligor on $300.0 million in aggregate principal amount
of 10 1/8% Senior Subordinated Notes. We purchased $15.0 million principal
amount of these notes in December 2000. The 10 1/8% Senior Subordinated Notes
bear interest at a rate of 10 1/8% per annum, payable semi-annually on March 15
and September 15 of each year.
We are required to redeem $150.0 million principal amount of 10 1/8% Senior
Subordinated Notes on March 15, 2005 and $75.0 million principal amount of
10 1/8% Senior Subordinated Notes on March 15, 2006, in each case at a
redemption price of 100% of the principal amount plus accrued interest to the
date of redemption, subject to our right to credit against any such redemption
10 1/8% Senior Subordinated Notes acquired by our company otherwise than through
any such redemption. The 10 1/8% Senior Subordinated Notes are not otherwise
redeemable prior to March 15, 2002, except that, until March 15, 2000, we could
have redeemed, at our option, up to an aggregate of $105.0 million of the
principal amount of the 10 1/8% Senior Subordinated Notes at the redemption
price set forth in the indenture governing the 10 1/8% Senior Subordinated Notes
plus accrued interest to the date of redemption with the net proceeds of one or
more Public Equity Offerings (as defined under the indenture governing the
10 1/8% Senior Subordinated Notes) if at least $150.0 million of the principal
amount of the 10 1/8% Senior Subordinated Notes remains outstanding after each
such redemption. On or after March 15, 2002, the 10 1/8% Senior Subordinated
Notes are redeemable at our option, in whole or in part, at the redemption
prices set forth in the indenture governing the 10 1/8% Senior Subordinated
Notes plus accrued interest to the date of redemption.
Upon a "Change of Control" under the indenture governing the 10 1/8% Senior
Subordinated Notes and subject to certain conditions, each holder of the 10 1/8%
Senior Subordinated Notes may require our company to repurchase the 10 1/8%
Senior Subordinated Notes held by such holder at 101% of the principal amount
thereof plus accrued interest to the date of repurchase.
The 10 1/8% Senior Subordinated Notes are unsecured senior subordinated
obligations of our company and are subordinated in right of payment to all
existing and future Senior Indebtedness (as defined under the indenture
governing the 10 1/8% Senior Subordinated Notes) of our company. The 10 1/8%
Senior Subordinated Notes rank pari passu in right of payment with all senior
subordinated indebtedness of our company and senior to any other subordinated
indebtedness of our company.
The payment of principal, premium, if any, and interest on the 10 1/8%
Senior Subordinated Notes is fully and unconditionally guaranteed on a senior
subordinated basis by Fairchild International and the subsidiary guarantors. The
guaranties by Fairchild International and the subsidiary guarantors are
subordinated to all existing and future Senior Indebtedness of such parties,
including Fairchild International's and the subsidiary guarantors' guaranties of
our obligations under the senior credit facility. Fairchild International
currently conducts no business and has no significant assets other than our
capital stock, all of which will be pledged to secure Fairchild International's
obligations under the senior credit facility. The guaranty of Fairchild
International or a subsidiary guarantor, as the case may be, may be released
upon a sale of Fairchild International or a subsidiary guarantor, as the case
may be, or upon repayment or defeasance of the 10 1/8% Senior Subordinated Notes
in each case as permitted by the indenture governing the 10 1/8% Senior
Subordinated Notes.
The indenture governing the 10 1/8% Senior Subordinated Notes contains
restrictive covenants substantially identical to those contained in the
indenture governing the notes, including covenants that limit, among other
things, (1) the incurrence of additional debt by our company and our
subsidiaries, (2) the payment of dividends on our capital stock and the
purchase, redemption or retirement of capital stock or subordinated
indebtedness, (3) investments, (4) certain transactions with affiliates, (5)
sales of assets, including capital stock of subsidiaries and (6) certain
consolidations, mergers and transfers of assets. The indenture governing the
10 1/8% Senior Subordinated Notes also prohibits us and our subsidiaries from
entering into agreements that contain certain restrictions on distributions from
subsidiaries.
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DESCRIPTION OF THE NOTES
The terms of the new notes and the outstanding notes are identical in all
material respects, except the new notes:
- will have been registered under the Securities Act;
- will not contain transfer restrictions and registration rights that
relate to the outstanding notes; and
- will not contain provisions relating to the payment of liquidated damages
to be made to the holders of the outstanding notes under circumstances
related to the timing of the exchange offer.
Any outstanding notes that remain outstanding after the exchange offer,
together with new notes issued in the exchange offer, will be treated as a
single class of securities under the indenture for voting purposes. The terms
"note" or "notes" refer to both outstanding notes and the new notes to be issued
in the exchange offer. The term "holders" of the notes, refers to those persons
who are the registered holders of notes on the books of the registrar appointed
under the indenture.
The following is a description of certain provisions of the notes. The
following information does not purport to be a complete description of the notes
and is subject to, and qualified in its entirety by, reference to the notes and
the indenture. Unless otherwise specified, the following description applies to
all of the notes.
GENERAL
We issued the outstanding notes and will issue the new notes under an
indenture with 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.
Certain terms used in this description are defined under the caption
"-- Certain Definitions." In this description, the word "Company" refers only to
Fairchild Semiconductor 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. Copies of these
agreements have been filed or incorporated by reference as exhibits to the
registration statement of which this prospectus forms a part.
BRIEF DESCRIPTION OF THE NOTES
The Notes
These notes:
- are unsecured senior subordinated obligations of the Company;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company;
- are senior in right of payment to any future Subordinated Obligations of
the Company; and
- are subject to registration with the SEC pursuant to the Registration
Rights Agreement.
The Guaranties
The Fairchild Holdings Guaranty and each Subsidiary Guaranty:
- unconditionally guaranty the obligations of the Company under the notes;
and
- are senior subordinated obligations of Fairchild Holdings and the
relevant Subsidiary Guarantor, as the case may be.
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PRINCIPAL, MATURITY AND INTEREST
The Company issued the outstanding notes and will issue the new notes
initially in the principal amount of $350.0 million. The Company issued the
outstanding notes and will issue the new notes in denominations of $1,000 and
any integral multiple of $1,000. The notes will mature on February 1, 2009.
Subject to our compliance with the covenant described under the caption
"-- Certain Covenants -- Limitation on Indebtedness," we may, without the
consent of the holders, issue more notes under the indenture on the same terms
and conditions and with the same CUSIP numbers as the notes 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 accrues at the rate of 10 1/2% per year and will
be payable semiannually in arrears on February 1 and August 1, commencing on
August 1, 2001. The Company will make each interest payment to the holders of
record of these notes on the immediately preceding January 15 and July 15. We
will pay interest on overdue principal at 1% per year 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.
Additional interest may accrue on the notes in certain circumstances
pursuant to the Registration Rights Agreement.
OPTIONAL REDEMPTION
We will not be entitled to redeem the notes at our option other than as
provided below or as described under "-- Special Redemption; Escrow of Offering
Proceeds."
On and after February 1, 2005, 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 thereon, if any, to the
applicable redemption date, if redeemed during the 12-month period beginning on
February 1 in the years indicated below:
YEAR PERCENTAGE
- ---- ----------
2005...................................................... 105.250%
2006...................................................... 103.500
2007...................................................... 101.750
2008 and thereafter....................................... 100.000
In addition, prior to February 1, 2004, 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 110.50% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the redemption date, with the net cash proceeds
from one or more Public 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 such redemption (other than notes held,
directly or indirectly, by the Company or its Affiliates); and
(2) each such redemption occurs within 90 days after the date of the
related Public Equity Offering.
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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 such 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. Except as required under "-- Special Redemption; Escrow of Proceeds"
above, 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 thereof 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 thereof upon
cancellation 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
Fairchild Holdings and each of the Subsidiary Guarantors has jointly and
severally guarantied, on a senior subordinated basis, our obligations under the
notes. Each Subsidiary Guaranty is limited as necessary to prevent such
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 -- Federal and state statutes
allow courts, under specific circumstances, to void guaranties and require
noteholders to return payments received from subsidiary guarantors."
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 such 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 such payment determined in accordance with GAAP.
If a Subsidiary Guaranty were to be rendered voidable, it could be
subordinated by a court to all other indebtedness (including guaranties and
other contingent liabilities) of the applicable Subsidiary Guarantor and,
depending on the amount of such indebtedness, a Subsidiary Guarantor's liability
on its Subsidiary Guaranty could be reduced to zero.
Pursuant to the indenture, Fairchild 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 such other
Person is not the Company, Fairchild Holdings's obligations under the Fairchild
Holdings Guaranty or such Subsidiary Guarantor's obligations under its
Subsidiary Guaranty, as the case may be, must be expressly assumed by such 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 such Subsidiary Guarantor; or
(2) upon the sale or disposition of all or substantially all the assets of
such Subsidiary Guarantor;
in each case other than to the Company or an Affiliate of the Company and as
permitted by the indenture.
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RANKING
Notes and Guaranties versus Senior Indebtedness.
The indebtedness evidenced by the notes, the Fairchild Holdings Guaranty
and the Subsidiary Guaranties is senior subordinated obligations of the Company,
Fairchild 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 Fairchild 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, Fairchild 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, Fairchild
Holdings and such Subsidiary Guarantor under the Credit Agreement.
As of December 31, 2000, after giving pro forma effect to this offering and
the assumption of approximately $4.0 million of indebtedness in connection with
the Acquisition:
(1) the Senior Indebtedness of the Company would have been approximately
$124.2 million, $120.2 million of which would have been secured
indebtedness under the Credit Agreement;
(2) the Senior Indebtedness of Fairchild Holdings would have been
approximately $124.2 million, consisting of the Fairchild Holdings's
senior guaranty of the Company's obligations under the Credit Agreement
and its guarantee of indebtedness assumed from DPP; and
(3) the Senior Indebtedness of the Subsidiary Guarantors would have been
approximately $120.2 million, consisting of the Subsidiary Guarantors'
senior guarantee of the Company's obligations under the Credit
Agreement.
In addition, the Company would have had availability of $179.8 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, under certain circumstances 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. Some of the Company's domestic subsidiaries and all of its foreign
subsidiaries are not guaranteeing the notes. Claims of creditors of such
non-guarantor subsidiaries, including trade creditors, secured creditors and
creditors holding indebtedness and guaranties issued by such non-guarantor
subsidiaries, and claims of preferred stockholders, if any, of such
non-guarantor subsidiaries generally have priority with respect to the assets
and earnings of such non-guarantor subsidiaries over the claims of creditors of
the Company, including holders of the notes, even if such obligations do not
constitute Senior Indebtedness. The notes, the Fairchild Holdings Guaranty and
each Subsidiary Guaranty, therefore, are effectively subordinated to creditors
(including trade creditors) and preferred stockholders of such non-guarantor
subsidiaries of the Company. See "Risk Factors." The notes and the guaranties
are junior to our and our guarantors' senior indebtedness. Furthermore, claims
of creditors of our non-guarantor subsidiaries have priority with respect to the
assets and earnings of such subsidiaries over your claims."
As of December 31, 2000, the total liabilities of the Company's
non-guarantor subsidiaries were approximately $131.3 million, excluding
intercompany liabilities. Although the indenture limits the incurrence of
Indebtedness and preferred stock of certain of the Company's subsidiaries, such
limitation is subject to a number of significant qualifications. Moreover, the
indenture does not impose any limitation on the incurrence by such subsidiaries
of liabilities that are not considered Indebtedness or Preferred Stock under the
indenture. See "-- Certain Covenants -- Limitation on Indebtedness."
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Notes and Guaranties versus Other Senior Subordinated Indebtedness.
Only Indebtedness of the Company, Fairchild Holdings or a Subsidiary
Guarantor that is Senior Indebtedness ranks senior to the notes, the Fairchild
Holdings Guaranty and the relevant Subsidiary Guaranty in accordance with the
provisions of the indenture. The notes, the Fairchild Holdings Guaranty and each
Subsidiary Guaranty in all respects rank pari passu with all other Senior
Subordinated Indebtedness of the Company, Fairchild Holdings and the relevant
Subsidiary Guarantor, respectively. As of December 31, 2000, after giving pro
forma effect to the offering of the outstanding notes:
(1) the Senior Subordinated Indebtedness of the Company would have been
approximately $950.0 million, consisting of the notes and the Existing
Notes;
(2) the Senior Subordinated Indebtedness of Fairchild Holdings would have
been approximately $950.0 million, consisting of Fairchild Holdings's
senior subordinated guaranties of the Company's obligations under the
notes and the Existing Notes; and
(3) the Senior Subordinated Indebtedness of the Subsidiary Guarantors would
have been approximately $950.0 million, consisting of the Subsidiary
Guarantors' senior subordinated guaranties of the Company's obligations
under the notes and the Existing Notes.
We purchased $15.0 million principal amount of our 10 1/8% Senior
Subordinated Notes in December 2000. The Company 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 with respect to Senior Indebtedness are not paid in
full when due; or
(2) any other default on Senior Indebtedness occurs and the maturity of
such Senior Indebtedness is accelerated in accordance with its terms;
unless, in either case, the Payment Default has been cured or waived and any
such acceleration has been rescinded in writing or such 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 such payment from the Representative of the Senior
Indebtedness with respect to which the Payment Default has occurred and is
continuing.
During the continuance of any default (other than a Payment Default) with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated immediately without further notice (except such
notice as may be required to effect such 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 such default
from the Representative of the holders of such 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 such Payment
Blockage Period is terminated:
(1) by written notice to the Trustee and the Company from the Person or
Persons who gave such Blockage Notice;
(2) because no defaults continue in existence which would permit the
acceleration of the maturity of any Designated Senior Indebtedness at
such time; or
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(3) because such Designated Senior Indebtedness has been repaid in full in
cash.
Notwithstanding the provisions described above, unless the holders of such
Designated Senior Indebtedness or the Representative of such holders have
accelerated the maturity of such Designated Senior Indebtedness, or any Payment
Default otherwise exists, we are permitted to resume payments on the notes after
the end of such 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 with respect to Designated Senior Indebtedness during
such 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 such 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 with respect 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 such 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 such 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 such acceleration and, thereafter, may pay the
notes only if the indenture otherwise permits payment at that time.
The obligations of Fairchild Holdings under the Fairchild 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 Fairchild Holdings or by a Subsidiary Guarantor pursuant to the Fairchild
Holdings Guaranty or a Subsidiary Guaranty are subordinated in right of payment
to the rights of holders of Senior Indebtedness of Fairchild Holdings or such
Subsidiary Guarantor, as the case may be. The terms of the subordination
provisions described above with respect to the Company's obligations under the
notes apply equally to Fairchild Holdings and a Subsidiary Guarantor and the
obligations of Fairchild Holdings and such Subsidiary Guarantor under the
Fairchild 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, Fairchild Holdings or a
Subsidiary Guarantor who are holders of Senior Indebtedness of the Company,
Fairchild 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
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and interest on the notes pursuant to the provisions described under
"-- Defeasance," if the foregoing subordination provisions were not violated at
the time the respective amounts were deposited pursuant to such defeasance
provisions.
BOOK-ENTRY, DELIVERY AND FORM
We will initially issue the new notes in the form of one or more global
notes (the "Global Note"). The Global Note will be 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 the Company 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 pursuant to 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 such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (which may
include the initial purchaser), banks, trust companies, clearing corporations
and certain 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.
The Company expects that pursuant to 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 (with respect to participants' interests), the
participants and the indirect participants (with respect to the owners of
beneficial interests in the Global Note other than participants). The laws of
some jurisdictions may require that certain purchasers of securities take
physical delivery of such 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 such 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 such 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 such action, and the participants would authorize beneficial owners owning
through such participants to take such 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
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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 such participants or
indirect participants will be governed by standing instructions and customary
practices and will be the responsibility of such participants or indirect
participants. We will not have any responsibility or liability for any aspect of
the records relating to, or 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 such beneficial ownership interests or for any
other aspect of the relationship between the Depository and its participants or
indirect participants or the relationship between such participants or indirect
participants and the owners of beneficial interests in the Global Note owning
through such 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 such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company 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 certain 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 thereof if:
(1) the Depository notifies the Company 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
thereof has occurred and is continuing.
Any note that is exchangeable as above is exchangeable for certificated
notes issuable in authorized denominations and registered in such 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.
SAME-DAY PAYMENT
The indenture requires us to make payments in respect of notes (including
principal, premium, if any, and interest) by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
We have agreed pursuant to the Registration Rights Agreement with the
initial purchasers that we will, at our cost:
(1) within 90 days after the Issue Date, file the registration statement of
which this prospectus is a part (the "Exchange Offer Registration
Statement") with the SEC with respect to a registered offer (the
"Registered Exchange Offer") to exchange the outstanding notes for new
notes of the Company having terms substantially identical in all
material respects to the outstanding notes (except that the notes will
not contain terms with respect to transfer restrictions);
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(2) use our reasonable best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities
Act within 150 days after the Issue Date;
(3) promptly following the effectiveness of the Exchange Offer Registration
Statement (the "Effectiveness Date"), offer the new notes in exchange
for surrender of the outstanding notes; and
(4) 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 outstanding note tendered to us pursuant to the Registered
Exchange Offer, we will issue to the holder of such note a new note having a
principal amount equal to that of the surrendered note. Interest on each new
note will accrue from the last interest payment date on which interest was paid
on the note surrendered in exchange thereof or, if no interest has been paid on
such note, from the date of its original issue.
Under existing SEC interpretations, the new notes will 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 such 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 with
respect to resales of such new notes. The SEC has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to 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 such new notes for 180
days following the effective date of the Exchange Offer Registration Statement
(or such shorter period during which Participating Broker-Dealers are required
by law to deliver such prospectus).
A holder of outstanding notes (other than certain specified holders) who
wishes to exchange such outstanding 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
within 190 days of the Issue Date; or
(3) the initial purchasers 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
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(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, 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) (A) in the case of clause (1) above, use our reasonable best efforts
to cause the Shelf Registration Statement to be declared effective
under the Securities Act on or prior to the 190th calendar day
following the Issue Date and (B) in the case of clause (2), (3) or
(4) above, use our reasonable best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities
Act on or prior to the 60th day after the date on which the Shelf
Registration Statement is required to be filed; and
(3) keep the Shelf Registration Statement effective until the earliest
of (A) the time when the notes covered by the Shelf Registration
Statement can be sold pursuant to Rule 144 without any limitations
under clauses (c), (e), (f) and (h) of Rule 144, (B) two years from
the effective date of the Shelf Registration Statement and (C) the
date on which all notes registered thereunder are disposed of in
accordance therewith.
We will, in the event a Shelf Registration Statement is filed, among other
things, provide to each holder for whom such Shelf Registration Statement was
filed copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such 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 such notes or new notes pursuant to 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
with such sales and will be bound by the provisions of the Registration Rights
Agreement that are applicable to such holder (including certain indemnification
obligations).
We will pay additional cash interest on the applicable notes, subject to
certain exceptions:
(1) if the Company fails to file an Exchange Offer Registration Statement
with the SEC on or prior to the 90th day after the Issue Date,
(2) if the Exchange Offer Registration Statement or, if obligated to file a
Shelf Registration Statement pursuant to clause 2(A) above, a Shelf
Registration Statement is not declared effective by the SEC on or prior
to the 150th day after the Issue Date,
(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 SEC on or prior
to the 30th day after the date (the "Shelf Filing Date") on which the
obligation to file a Shelf Registration Statement arises,
(5) if obligated to file a Shelf Registration Statement pursuant to clause
2(B) above, the Shelf Registration Statement is not declared effective
on or prior to the 60th day after the Shelf Filing Date, 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) (each such event referred to in the
preceding clauses (1) through (6) a "Registration Default");
from and including the date on which any such Registration Default shall occur
to but excluding the date on which all Registration Defaults have been cured.
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The rate of the additional interest will be 0.50% per year for the first
90-day period immediately following the occurrence of a Registration Default,
and such rate will increase by an additional 0.50% per year with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum additional interest rate of 2.0% per year. We will pay such additional
interest on regular interest payment dates. Such additional interest will be in
addition to any other interest payable from time to time with respect to the
notes and the new notes.
All references in the indenture, in any context, to any interest or other
amount payable on or with respect to the notes shall be deemed to include any
additional interest pursuant to the Registration Rights Agreement.
We will be entitled to close the Registered Exchange Offer 30 days after
the commencement thereof provided that we have accepted all notes theretofore
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 noteholder shall have the right to require that the Company
repurchase such holder's notes at a purchase price in cash equal to 101% of the
principal amount thereof 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 such 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 for purpose of this clause (1) such person
shall be deemed to have "beneficial ownership" of all shares that any
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than 35% of the total voting power of the Voting Stock of the
Company; provided, however, that the Permitted Holders beneficially own
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly
or indirectly, in the aggregate a lesser percentage of the total voting
power of the Voting Stock of the Company than such other person and do
not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of Directors
(for the purposes of this clause (1), such other person shall be deemed
to beneficially own any Voting Stock of a person (the "specified
entity") held by a any other person (the "parent entity"), if such
other person is the beneficial owner (as defined in this clause (1)),
directly or indirectly, of more than 35% of the voting power of the
Voting Stock of such parent entity and the Permitted Holders
beneficially own (as defined in this clause (1)), directly or
indirectly, in the aggregate a lesser percentage of the voting power of
the Voting Stock of such parent entity and do not have the right or
ability by voting power, contract or otherwise to elect or designate
for election a majority of the board of directors of such 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 Holding Company, LLC (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 such 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 pursuant to
the Stockholders' Agreement, as amended, modified or supplemented from
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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
(other than a Person that is controlled by the Permitted Holders), 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 pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving Person or transferee that
represent, immediately after such transaction, at least a majority of
the aggregate voting power of the Voting Stock of the surviving Person
or transferee.
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 noteholder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such holder has the
right to require the Company to purchase such holder's notes at a
purchase price in cash equal to 101% of the principal amount thereof
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 such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with the
covenant described hereunder, that a noteholder 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 noteholders 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 such indebtedness and repay the
indebtedness of each lender who has accepted such 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) thereof). As a result of the
foregoing, a holder of the notes may not be able to 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 pursuant to 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.
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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
such 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." Such 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 such 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 prohibits us from purchasing any notes, and also
provides that the occurrence of certain change of control events with respect to
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 such prohibition. If the
Company does not obtain such a consent or repay such 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 such 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 such indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the noteholders of their right to require us to repurchase the
notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such 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.
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 may Incur Indebtedness if, after giving
effect thereto, the Consolidated Coverage Ratio exceeds 2.0 to 1.0.
(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
pursuant to 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) $300.0 million
and (B) the sum of 50% of the book value of the inventory of the
Company and its Restricted Subsidiaries and 65% of the book value of
the accounts receivables of the Company and its Restricted
Subsidiaries;
(2) Intentionally Omitted;
(3) Indebtedness of the Company or any Restricted Subsidiary owed to and
held by the Company or a Wholly Owned Subsidiary; provided, however,
that any subsequent issuance or transfer of any Capital Stock which
results in any such Wholly Owned Subsidiary ceasing to be a Wholly
Owned Subsidiary or any subsequent transfer of such Indebtedness
(other than to the Company
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or another Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof;
(4) Indebtedness of the Company or any Restricted Subsidiary owed to and
held by any Restricted Subsidiary (other than a Wholly Owned
Subsidiary); provided, however, that (A) any such Indebtedness shall
be unsecured Subordinated Obligations of the Company or such
Restricted Subsidiary, as applicable, and (B) any subsequent issuance
or transfer of any Capital Stock of such Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company, a
Wholly Owned Subsidiary or another Restricted Subsidiary) shall be
deemed to constitute the Incurrence of such Indebtedness by the issuer
thereof;
(5) Indebtedness consisting of the notes and the new notes (other than
Additional Notes);
(6) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2), (3), (4) or (5) of this covenant),
including the Existing Notes;
(7) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to paragraph (a) or pursuant to clause (5), (6) or this clause (7);
(8) Hedging Obligations of the Company or any Restricted Subsidiary under
or with respect to Interest Rate Agreements and Currency Agreements
entered into in the ordinary course of business and not for the
purpose of speculation;
(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
Guaranties of Indebtedness Incurred pursuant to paragraph (a) or
pursuant to clause (1), (2), (5), (6) and (7) above and (15) 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 such Indebtedness is satisfied
within five business days of Incurrence;
(12) Indebtedness consisting of Capital Lease Obligations in an aggregate
principal amount which, when added together with the amount of
Indebtedness Incurred pursuant to this clause (12) and then
outstanding, does not exceed $15.0 million; provided, however, that
the assets subject to the related capital lease are not owned or used
by the Company or any Restricted Subsidiary on the Issue Date or the
Acquisition closing 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 such disposition;
(14) Indebtedness of a Foreign Subsidiary Incurred to finance the purchase,
lease or improvement of property (real or personal) or equipment, in
each case incurred no more than 180 days after such purchase, lease or
improvement of such property, and any Refinancing Indebtedness in
respect of such Indebtedness; provided, however, that, except in the
case of the Incurrence of any such Refinancing Indebtedness, at the
time of the Incurrence of such Indebtedness and after giving effect
thereto, (A) the Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) above and (B) the aggregate
amount of all Indebtedness Incurred pursuant to this clause (14) and
then outstanding (including any such Refinancing Indebtedness) shall
not exceed 20% of Consolidated Net Tangible Assets as of the
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end of the most recent fiscal quarter ending at least 45 days prior to
the date of such Incurrence; and
(15) Indebtedness of the Company in an aggregate principal amount which,
together with all other Indebtedness of the Company and the Restricted
Subsidiaries outstanding on the date of such Incurrence (other than
Indebtedness permitted by clauses (1) through (14) above or paragraph
(a) above) does not exceed $50.0 million.
(c) Notwithstanding the foregoing, the Company shall not, and shall not
permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to the
foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance any Subordinated Obligations unless such Indebtedness
shall be subordinated to the notes or the relevant Subsidiary Guaranty, as
applicable, to at least the same extent as such 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 such item of Indebtedness and only be required to include the
amount and type of such 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.
(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 therewith
effective provision is made to secure the notes or the relevant Subsidiary
Guaranty, as applicable, equally and ratably with such Secured Indebtedness for
so long as such Secured Indebtedness is secured by a Lien.
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 such Restricted Subsidiary
makes such 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
pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness;" or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Reference Date would exceed the sum 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 in which the
Reference Date occurred 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 its Capital Stock (other than Disqualified
Stock) subsequent to the Reference 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 such plan or trust is
financed by Indebtedness of such plan or trust to the Company or any
Subsidiary or Indebtedness Guaranteed by the Company or any
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 Reference 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 such
conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments
in Unrestricted Subsidiaries resulting from dividends, repayments of
loans or advances or other transfers of assets subsequent to the
Reference Date, in each case to the Company or any Restricted
Subsidiary from Unrestricted Subsidiaries, and (ii) the portion
(proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of an Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is designated a
Restricted Subsidiary; provided, however, that the foregoing sum
shall not exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made (and treated as a Restricted
Payment) by the Company or any Restricted Subsidiary in such
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 such
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 such
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 pursuant to the covenant
described under "-- Limitation on Indebtedness;" provided, however,
that such 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 a Restricted Subsidiary which is permitted to be Incurred pursuant
to the covenant described under "-- Limitation on Indebtedness;"
provided, however, that such purchase or redemption shall be excluded
in the calculation of the amount of Restricted Payments;
(4) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock;" provided,
however, that such 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 pursuant to the
covenant described under "-- Change of Control" above (including the
purchase of the notes tendered), any purchase or redemption of
Subordinated Obligations required pursuant to the terms thereof as a
result of such Change of Control at a purchase or redemption price not
to exceed the outstanding principal amount thereof, plus any
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accrued and unpaid interest; provided, however, that (A) at the time of
such purchase or redemption no Default shall have occurred and be
continuing (or would result therefrom), (B) the Company would be able
to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a)
of the covenant described under "-- Limitation on Indebtedness" after
giving pro forma effect to such Restricted Payment and (C) such
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 thereof if
at such date of declaration such dividend would have complied with this
covenant; provided, however, that at the time of payment of such
dividend, no other Default shall have occurred and be continuing (or
result therefrom); provided further, however, that such 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, directors or former
directors), pursuant to the terms of the agreements (including
employment agreements) or plans (or amendments thereto) approved by the
Board of Directors under which such individuals purchase or sell or are
granted the option to purchase or sell, shares of such common stock;
provided, however, that the aggregate amount of such repurchases shall
not exceed the sum of $7.0 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 Reference Date (to
the extent the Net Cash Proceeds from the sale of such 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) such repurchases shall be excluded in the calculation
of the amount of Restricted Payments and (B) the Net Cash Proceeds from
such sale shall be excluded from the calculation of amounts under
clause (3)(B) of paragraph (a) above;
(8) dividends or advances to Fairchild Holdings in an amount necessary to
pay holding company expenses, such amount not to exceed $500,000 in any
fiscal year of the Company; provided, however, that such dividends and
advances shall be excluded in the calculation of the amount of
Restricted Payments; or
(9) Restricted Payments not exceeding $25.0 million in the aggregate;
provided, however, that (A) at the time of such Restricted Payments, no
Default shall have occurred and be continuing (or result therefrom) and
(B) such Restricted Payments shall be included in the calculation of
the amount of Restricted Payments.
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 pursuant to an agreement in effect at or
entered into 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 such 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 pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the
Company) and outstanding on such date;
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(3) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred
to in clause (1) or (2) of this covenant or this clause (3)or contained
in any amendment to an agreement referred to in clause (1) or (2) of
this covenant or this clause (3); provided, however, that the
encumbrances and restrictions with respect to such Restricted
Subsidiary contained in any such refinancing agreement or amendment are
no more restrictive in any material respect than the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in
such agreements;
(4) any such encumbrance or restriction consisting of customary
non-assignment provisions in leases governing leasehold interests to
the extent such provisions restrict the transfer of the lease or the
property leased 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 such restrictions restrict the transfer of the
property subject to such security agreements or mortgages;
(6) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of
all or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition; and
(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.
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:
(1) the Company or such Restricted Subsidiary receives consideration at the
time of such 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 such Asset Disposition;
(2) at least 85% of the consideration thereof received by the Company or
such Restricted Subsidiary is in the form of cash or cash equivalents;
and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such 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 Wholly Owned 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 such Asset Disposition and the receipt of
such Net Available Cash;
(B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to the extent the
Company elects, to acquire Additional Assets within one year from
the later of the date of such Asset Disposition and the receipt of
such Net Available Cash;
(C) third, to the extent of the balance of such 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) pursuant to
and subject to the conditions contained in the indenture; and
(D) fourth, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A), (B) and (C) to (x)
the acquisition by the Company or any Wholly Owned Subsidiary of
Additional Assets or (y) the prepayment, repayment or purchase of
Indebtedness (other than any Disqualified Stock) of the Company
(other than
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Indebtedness owed to an Affiliate of the Company) or Indebtedness of
any Subsidiary (other than Indebtedness owed to the Company or an
Affiliate of the Company);
in each case within one year from the later of the receipt of such Net Available
Cash and the date the offer described in clause (b) below is consummated;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such
Restricted Subsidiary shall permanently retire such 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
pursuant to this covenant, such 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 such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(3)(C)
above, the Company will be required to purchase notes tendered pursuant to 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
such Senior Subordinated Indebtedness) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
indenture. If the aggregate purchase price of notes (and any other Senior
Subordinated Indebtedness) tendered pursuant to such offer is less than the Net
Available Cash allotted to the purchase thereof, the Company will be required to
apply the remaining Net Available Cash in accordance with clause (a)(3)(D)
above. If the aggregate 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 Senior
Subordinated 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) pursuant to 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 such an 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 thereof:
(1) are no less favorable to the Company or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate;
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(2) if such Affiliate Transaction involves an amount in excess of $1.0
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 such Affiliate Transaction involves as 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 such 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 arm's-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 pursuant to the covenant
described under "-- Limitation on Restricted Payments;"
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, 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 pursuant to 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 National Semiconductor pursuant to
written agreements in effect on the Issue Date and as amended, renewed
or extended from time to time; provided, however, that any such
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; and
(8) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company.
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 such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any
Capital Stock of such Restricted Subsidiary;
(3) if, immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such 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 such issuance, sale or other disposition; or
(4) directors' qualifying shares.
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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 thereof 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 such transaction as having been Incurred
by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness;"
(4) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less
than the Consolidated Net Worth of the Company immediately prior to
such transaction; and
(5) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and any supplemental indenture comply
with the indenture;
provided, however, that clauses (3) and (4) above shall not apply 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 such transaction is to change the jurisdiction of incorporation of the
Company.
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.
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 such Subsidiary)
shall be a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the
laws of the United States of America, or any State thereof or the
District of Columbia, and such Person shall expressly assume, by
executing a Guaranty Agreement, all the obligations of such Subsidiary,
if any, under its Subsidiary Guaranty;
(2) immediately after giving effect to such 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 such transaction as having been issued by such Person at the time of
such 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 such consolidation, merger or
transfer and such 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.
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Pursuant to the indenture, Fairchild 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 Fairchild
Holdings) shall be a Person organized and existing under the laws of
the jurisdiction under which Fairchild Holdings was organized or under
the laws of the United States of America, or any State thereof or the
District of Columbia, and such Person shall expressly assume, by
executing a Guaranty Agreement, all the obligations of Fairchild
Holdings, if any, under the Fairchild Holdings Guaranty;
(2) immediately after giving effect to such 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 such transaction as having been issued by such Person at the time of
such 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 such consolidation, merger or
transfer and such 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) (1) Incurs any Indebtedness
pursuant to paragraph (a) or pursuant to clause (1) or (10) of paragraph (b) of
the covenant described under "-- Limitation on Indebtedness" above and (2) until
the termination of the Credit Agreement, either has Guaranteed or will as a
result of such Incurrence be required to Guaranty any Obligations under the
Credit Agreement, the Company shall cause such Restricted Subsidiary to Guaranty
the notes pursuant to a Subsidiary Guaranty on the terms and conditions set
forth in the indenture and shall cause all Indebtedness of such Restricted
Subsidiary owing to the Company or any other Subsidiary of the Company and not
previously discharged to be converted into Capital Stock of such 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 such annual reports and such 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 such Sections at
the times specified for such filings under such Sections; provided, however,
this obligation can be satisfied by Fairchild Holdings filing and providing such
information, documents and reports so long as Fairchild Holdings owns all the
Capital Stock of the Company. However, we will not be required to file any
reports, documents or other information if the SEC will not accept such a
filing.
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 redemption, upon required repurchase, upon
declaration or otherwise;
(3) the failure by the Company or Fairchild Holdings 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 the 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 the
notes), "-- Limitation on Affiliate Transactions," "-- Limitation on
the Sale or Issuance of Capital Stock of Restricted Subsidiaries,"
"-- Future Guarantors" or "-- SEC Reports;"
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(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 thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10.0 million
(the "cross acceleration provision");
(7) certain 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 such judgment and
is not discharged, waived or stayed within 10 days after notice (the
"judgment default provision"); or
(9) the Fairchild Holdings Guaranty or any Subsidiary Guaranty ceases to be
in full force and effect (other than in accordance with the terms of
the Fairchild Holdings Guaranty or such Subsidiary Guaranty) or
Fairchild Holdings or any Subsidiary Guarantor denies or disaffirms its
obligations under the Fairchild 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 such default within the time specified after receipt of such 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, such principal and interest shall be due and
payable immediately; provided, however, that if upon such declaration there are
any amounts outstanding under the Credit Agreement and the amounts thereunder
have not been accelerated, such principal and interest shall be due and payable
upon the earlier of the time such amounts are accelerated or five Business Days
after receipt by the Company and the Representative under the Credit Agreement
of such declaration. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the notes will ipso facto
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 certain
circumstances, the holders of a majority in principal amount of the outstanding
notes may rescind any such acceleration with respect to the notes and its
consequences.
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 will
be 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
such 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) such 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) such 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 thereof 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 such request
within such 60-day period.
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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 the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, 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 thereby, 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 premium 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 such holder's notes on or after the due
dates therefor or to institute suit for the enforcement of any payment
on or with respect to such holder's notes;
(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;
(9) make any change in the Fairchild Holdings Guaranty or any Subsidiary
Guaranty that would adversely affect the noteholders; or
(10) make any change in the provisions described under "-- Special
Redemption; Escrow of Offering Proceeds."
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 guaranties with respect to the notes, to release a
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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 such Senior Indebtedness (or their Representative) consents 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 such 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 such
amendment. However, the failure to give such notice to all holders of the notes,
or any defect therein, 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 in connection with certain transfers and
exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the notes
and the indenture ("legal defeasance"), except for certain obligations,
including those 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 clauses (3) and (4) 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) or (4) of the first paragraph
under "-- Certain Covenants -- Merger and Consolidation" above or the failure of
Fairchild Holdings to comply with the limitation under the fifth paragraph under
"-- Certain Covenants -- Merger and Consolidation" above. If the Company
exercises its legal defeasance option or its covenant defeasance option,
Fairchild Holdings and each Subsidiary Guarantor will be released from all of
its obligations with respect to the Fairchild Holdings Guaranty or its
Subsidiary Guaranty, as the case may be.
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 certain 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 such 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 such deposit and
defeasance had not
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occurred (and, in the case of legal defeasance only, such 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 to be the Trustee under the
indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the notes.
The holders of a majority in principal amount of the outstanding notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. 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 such 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 such holder shall have offered 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 thereby.
CERTAIN DEFINITIONS
"Acquisition" means the Company's acquisition of the discrete power
products division of Intersil Corporation pursuant to the Acquisition Agreement.
"Acquisition Agreement" means the asset purchase agreement dated as of
January 20, 2001, by and among Intersil Corporation, Intersil (Pennsylvania) and
the Company.
"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
such Capital Stock by the Company or another Restricted Subsidiary or (3)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such 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 such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such 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
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Company or any Restricted Subsidiary or (3) any other assets of the Company or
any Restricted Subsidiary outside of the ordinary course of business of the
Company or such Restricted Subsidiary (other than, in the case of (1), (2) and
(3) above, (x) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Wholly Owned Subsidiary, (y) 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" and (z) disposition of assets
with a fair market value of less than $100,000).
"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 such
Sale/Leaseback Transaction (including any period for which such 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 such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (2) the sum of all such payments.
"Bank Indebtedness" means all Obligations pursuant to the Credit Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such 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 such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such 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 such equity.
"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 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 determination to (b)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such 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 such period shall be
calculated after giving effect on a pro forma basis to such
Indebtedness as if such 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 such
new Indebtedness as if such discharge had occurred on the first day of
such period;
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(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning
of such 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 such 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 such
period shall be calculated on a pro forma basis as if such discharge
had occurred on the first day of such period and as if the Company or
such Restricted Subsidiary has not earned the interest income actually
earned during such period in respect of cash or Temporary Cash
Investments used to repay, repurchase, defease or otherwise discharge
such Indebtedness;
(3) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the
EBITDA (if negative), directly attributable thereto for such period and
Consolidated Interest Expense for such 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
such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for
such period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale);
(4) if since the beginning of such 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 hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the
first day of such period; and
(5) if since the beginning of such 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 such 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 such period shall
be calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of
such period.
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating thereto
and the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest of such 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 such 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.
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"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 such 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 in respect of all Preferred Stock held by Persons other
than the Company or 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
such 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 such contributions are used by such plan or trust to
pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust.
"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 such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such 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 any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such 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 any such Person for such 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 such acquisition;
(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such 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 such Restricted Subsidiary for such
period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such
Restricted Subsidiary consistent with such restrictions during such
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 such period shall be included in
determining such Consolidated Net Income;
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(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 such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Tangible Assets" as of any date of determination means
the total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a consolidated balance sheet of
the Company and its consolidated Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, and after giving effect to purchase
accounting and after deducting therefrom Consolidated Current Liabilities and,
to the extent otherwise included, the amounts of:
(1) minority interests in consolidated Subsidiaries held by Persons other
than the Company or a Restricted Subsidiary;
(2) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors;
(3) any revaluation or other write-up in book value of assets subsequent to
the Issue Date as a result of a change in the method of valuation in
accordance with GAAP consistently applied;
(4) unamortized debt discount and expenses and other unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses, organization or developmental expenses and other
intangible items;
(5) treasury stock;
(6) cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of
Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities; and
(7) Investments in and assets of Unrestricted Subsidiaries.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (1) the par
or stated value of all outstanding Capital Stock of the Company plus (2) paid-in
capital or capital surplus relating to such Capital Stock plus (3) any retained
earnings or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Credit Agreement" means the Credit Agreement dated as of June 6, 2000,
among Fairchild Holdings, the Company, the lenders referred to therein, Credit
Suisse First Boston, as Lead Arranger and Administrative Agent, Fleet National
Bank, as Syndication Agent, and ABN AMRO Bank NV, as Documentation Agent,
together with the related documents thereto (including without limitation the
revolving loans thereunder, any guaranties 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
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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 such Credit Agreement or a successor Credit Agreement, whether
by the same or any other lender or group of lenders.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or beneficiary.
"CVC" means Citicorp Venture Capital Ltd.
"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
thereof are committed to lend up to, at least $10.0 million and is specifically
designated by the Company in the instrument evidencing or governing such 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 thereof, 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 thereof the right to require
such Person to repurchase or redeem such 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 such Capital Stock
are not more favorable to the holders of such 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 such 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); and
(4) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash
expenditures in any future period);
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 such 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 such 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 such
Restricted Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Existing Notes" means the Company's 10 1/8% Senior Subordinated Notes Due
March 15, 2007 and the Company's 10 3/8% Senior Subordinated Notes Due October
1, 2007.
"Fairchild Holdings" means Fairchild Semiconductor International, Inc., a
Delaware corporation, and any successor corporation.
"Fairchild Holdings Guaranty" means the Guaranty by Fairchild Holdings of
the Company's obligations with respect to the notes contained in the indenture.
"Foreign Subsidiary" means any Restricted Subsidiary not created or
organized in the United States or any state thereof 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 Reference Date, including those set forth in
(1) the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (2) statements and
pronouncements of the Financial Accounting Standards Board, (3) such other
statements by such 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. All ratios and
computations based on GAAP contained in the indenture shall be computed in
conformity with GAAP.
"Guaranty" 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 such Person (1) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
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 such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guaranty" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guaranty"
used as a verb has a corresponding meaning.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the Trustee, pursuant to which Fairchild Holdings or a Subsidiary Guarantor
becomes subject to the applicable terms and conditions of the indenture.
"Hedging Obligations" of any Person means the obligations of such 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.
"Incur" means issue, assume, Guaranty, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
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) in respect of (A) indebtedness of
such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable;
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(2) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/ Leaseback Transactions entered into by such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business);
(4) all obligations of such 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 the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than
the tenth Business Day following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such 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, such Person is responsible or liable, directly
or indirectly, as obligor, guarantor or otherwise, including by means
of any Guaranty;
(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 such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such 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 such 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 such 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 such
Indebtedness less the remaining unamortized portion of the original issue
discount of such indebtedness at such time as determined in accordance with
GAAP.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Intersil Corporation" means Intersil Corporation, a Delaware corporation.
"Intersil (Pennsylvania)" means Intersil (Pennsylvania) LLC, a Delaware
limited liability company.
"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 Guaranty 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 such 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 such Subsidiary) of the fair market value of the net
assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon
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a redesignation of such 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 such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net
assets of such Subsidiary at the time of such 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 notes are originally issued.
"Lenders" has the meaning specified in the Credit Agreement.
"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 in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to 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 assumption by the acquiring Person of Indebtedness or other
obligations relating to such 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 such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any
Lien upon or other security agreement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law be, repaid out
of the proceeds from such 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 such
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 such
Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such 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 such 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 pursuant to 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 such officers, employees or directors, (3) any officer, employee or director
of Fairchild Holdings, the Company or any Subsidiary or any trust, partnership
or other entity established solely for the benefit of such officers, employees
or directors, and (4) in the case of any individual, any Permitted Transferee of
such individual (as defined in the Stockholders Agreement), except a Permitted
Transferee by virtue of Section 3.4(b)(iv) thereof; provided,
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however, that in no event shall individuals collectively be deemed to be
"Permitted Holders" with respect to more than 30% of the total voting power of
Fairchild 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 such
Investment, become a Restricted Subsidiary; provided, however, that the
primary business of such Restricted Subsidiary is a Related Business;
(2) another Person if as a result of such 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 such 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 such trade terms may include such 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 such 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 such 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;
(8) any Person to the extent such 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;" and
(9) 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 pursuant to this clause (9) which at such time have
not been repaid through repayments of loans or advances or other
transfers of assets, does not exceed $30.0 million.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof 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 such
Person, over shares of Capital Stock of any other class of such 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.
"Public Equity Offering" means an underwritten primary public offering of
common stock of (1) the Company or (2) Fairchild Holdings (to the extent the
proceeds thereof are contemporaneously contributed to the Company), in each case
pursuant to an effective registration statement under the Securities Act.
"Reference Date" means April 7, 1999.
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"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) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (2) such Refinancing Indebtedness
has an Average Life at the time such Refinancing Indebtedness is Incurred that
is equal to or greater than the Average Life of the Indebtedness being
Refinanced and (3) such 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.
"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 such a representative, then the
Representative for such Senior Indebtedness shall at all times be the holders of
a majority in outstanding principal amount of such 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 such 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 such revolving credit facility.
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"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such 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
guaranteed by such Person, whether outstanding on the Issue Date or thereafter
Incurred, and (2) Indebtedness of such Person, whether outstanding on the Issue
Date or thereafter Incurred, including interest thereon, in respect of (A)
Indebtedness for money borrowed, (B) Indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
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 pursuant to
which the same is outstanding, it is provided that such 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 such
Person to any subsidiary of such Person, (ii) any liability for Federal, state,
local or other taxes owed or owing by such Person, (iii) any accounts payable or
other liability to trade creditors arising in the ordinary course of business
(including guaranties thereof or instruments evidencing such liabilities), (iv)
any Indebtedness of such Person (and any accrued and unpaid interest in respect
thereof) which is subordinate or junior by its terms to any other Indebtedness
or other obligation of such Person (including, in the case of the Company, the
notes and the Existing Notes) or (v) that portion of any Indebtedness which at
the time of Incurrence is Incurred in violation of the indenture (but as to any
such Indebtedness under the Credit Agreement, no such 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 such covenant and setting forth in reasonable
detail the reasons therefor).
"Senior Subordinated Indebtedness" means (1) with respect to the Company,
the notes, the Existing Notes and any other Indebtedness of the Company that
specifically provides that such Indebtedness is to rank pari passu with 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 Fairchild Holdings or
a Subsidiary Guarantor, their respective Guaranties of the notes, the Existing
Notes and any other Indebtedness of such Person that specifically provides that
such Indebtedness rank pari passu with such Guaranty in respect of payment and
is not subordinated by its terms in respect of payment to any Indebtedness or
other obligation of such Person which is not Senior Indebtedness of such Person.
"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 such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Stockholders' Agreement" means the Securities Purchase and Holders
Agreement among the stockholders of Fairchild 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 such Subsidiary Guarantor, its
Subsidiary Guaranty, pursuant to 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
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interests (including partnership interests) entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
(1) such Person, (2) such Person and one or more Subsidiaries of such Person or
(3) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means Fairchild Semiconductor Corporation of
California, QT Optoelectronics, Inc., QT Optoelectronics, KOTA Microcircuits,
Inc. and any other subsidiary of the Company that Guaranties the Company's
obligations with respect to the notes.
"Subsidiary Guaranty" means a Guaranty by a Subsidiary Guarantor of the
Company's obligations with respect to the notes.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America or
any agency thereof or obligations guarantied by the United States of
America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the
laws of the United States of America, any state thereof 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 thereof)
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 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 thereof, and rated at least
"A" by Standard & Poor's Ratings Group or "A" by Moody's Investors
Service, Inc.
"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 such 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
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evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such 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 such 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.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income tax
considerations relating to the exchange of the outstanding notes for the notes
issued in this exchange offer. This discussion is based on laws, regulations,
rulings and decisions now in effect, all of which are subject to change,
possibly with retroactive effect. We have not obtained, nor do we intend to
obtain, a ruling from the IRS as to any U.S. federal income tax consequences
discussed below and there can be no assurances that the IRS will not take
contrary positions. This discussion does not address all aspects of U.S. federal
income tax that may be relevant to particular holders of outstanding notes and
notes issued in this exchange offer. This discussion deals only with holders of
notes who hold the notes as capital assets and exchange outstanding notes for
notes issued in this exchange offer. This discussion does not address the tax
consequences arising under the laws of any foreign, state or local jurisdiction.
Holders of outstanding notes or new notes to be issued in this exchange offer
are urged to consult their tax advisors regarding the U.S. federal tax
consequences of exchanging the outstanding notes for the new notes to be issued
in this exchange offer or holding and disposing of the new notes, as well as any
tax consequences that may arise under the laws of any foreign, state, local or
other taxing jurisdiction.
An exchange of the outstanding notes for the new notes pursuant to the
exchange offer will not be treated as an "exchange" for U.S. federal income tax
purposes because the terms of the new notes issued in the exchange offer are
substantially identical to the terms of the outstanding notes. Consequently, a
holder of the outstanding notes will not recognize taxable gain or loss as a
result of exchanging notes pursuant to the exchange offer. The holding period of
the new notes issued in the exchange offer will be the same as the holding
period of the outstanding notes and the tax basis of the new notes will be the
same as the basis in the outstanding notes immediately before the exchange.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the 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 outstanding notes where the
outstanding 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, or such shorter period during which
participating broker-dealers are required by law to deliver a prospectus, we
will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any resale. In addition, until July 29,
2001, 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 in
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 these methods of resale, at market
prices prevailing at the time of resale, at prices related to these prevailing
market prices or at negotiated prices. Any 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 broker-dealer or the purchasers
of any of the new notes. Any broker-dealer that resells new notes that were
received by it for its own account in the exchange offer and any broker or
dealer that participates in a distribution of these new notes may be deemed to
be an "underwriter" within the meaning of the Securities Act and any profit on
any resale of notes and any commission or concessions received by any of these
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 of the exchange offer, or
such shorter period during which participating broker-dealers are required by
law to deliver a prospectus, we will promptly send
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additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests these 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 broker-dealers and will indemnify the holders
of the notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the notes offered in this exchange
offer will be passed upon for us by Gibson, Dunn & Crutcher LLP, New York, New
York.
EXPERTS
The consolidated financial statements of Fairchild Semiconductor
International, Inc. and subsidiaries as of December 31, 2000 and December 26,
1999, and for the year ended December 31, 2000, the seven months ended December
26, 1999, and for each of the years in the two-year period ended May 30, 1999,
have been incorporated by reference herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The report of KPMG LLP covering the aforementioned consolidated financial
statements refers to a change in the method of accounting for business process
reengineering costs as a result of the Company adopting the provisions of the
Emerging Issues Task Force Issue 97-13, "Accounting for Business Process
Reengineering Costs."
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No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. This prospectus does not offer to
sell or ask for offers to buy any securities other than those to which this
prospectus relates and it does not constitute an offer to sell or ask for offers
to buy any of the securities in any jurisdiction where it is unlawful, where the
person making the offer is not qualified to do so, or to any person who cannot
legally be offered the securities. The information contained in this prospectus
is current only as of its date.
Until July 29, 2001, all dealers that effect transactions in these
securities, whether or not participating in this exchange offer, may be required
to deliver a prospectus. Each broker-dealer that receives 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 notes. For a period of 90 days
after the expiration date of the exchange offer this prospectus will be made
available to any broker-dealer for use in connection with any such resale.
---------------------
PROSPECTUS
---------------------
FAIRCHILD SEMICONDUCTOR CORPORATION
Exchange Offer for all outstanding
10 1/2% Senior Subordinated Notes due February 1, 2009
in exchange for new
10 1/2% Senior Subordinated Notes due February 1, 2009
[Fairchild Semiconductor Logo]
April 30, 2001
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PART II
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law provides in relevant
part that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed 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 is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
Section 145 also provides that to the extent a director, officer, employee
or agent of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to above, or defense of any
claim issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Furthermore, Section 145 provides that nothing in the above-described
provisions shall be deemed exclusive of any other rights to indemnification or
advancement of expenses to which any person may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 102(b)(7) of the Delaware General Corporation Law provides that a
corporation may in its certificate of incorporation eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director except for
liability: for any breach of the director's duty of loyalty to the corporation
or its stockholders; for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; under Section 174 of the
Delaware General Corporation Law (pertaining to certain prohibited acts
including unlawful payment of dividends or unlawful purchase or redemption of
the corporation's capital stock); or for any transaction from which the director
derived an improper personal benefit. The Certificate of Incorporation of each
of Fairchild International, our company, Fairchild Semiconductor Corporation of
California and QT Optoelectronics, Inc. contains a provision so limiting the
personal liability of directors of such company.
Section 317 of the General Corporation Law of California provides that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any proceeding, other than in an action
by or in the right of the corporation to obtain a favorable judgment for itself,
by reason of the fact that such person is or was an agent of the corporation,
against expenses
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actually and reasonably incurred in connection with the proceeding, if the
person acted in good faith and in a manner the person reasonably believed to be
in the best interests of the corporation and, in the case of criminal
proceedings, had no reasonable cause to believe that the conduct was unlawful.
In the case of suits by or on behalf of a corporation to obtain a judgment in
its favor, a corporation has the power to indemnify any person who was or is a
party or is threatened to made a party to such proceeding by reason of the fact
that the person is or was the corporation's agent, against expenses actually and
reasonably incurred, if the person acted in good faith in a manner the person
believed to be in the best interests of the corporation and its shareholders,
except that no such indemnification may be made for claims as to which the
person shall have been adjudged to be liable to the corporation in the
performance of that person's duty to the corporation, unless and then only to
the extent a court determines otherwise. In addition, Section 204 of the General
Corporation Law of California provides that a corporation may in its articles of
incorporation provide for the indemnification by the corporation of directors
and officers while acting in their capacities as such but not involving a breach
of duty to the corporation and its shareholders. Such a provision in the
articles of incorporation is construed to be a provision for indemnification
under both Sections 204 and 317. The articles of incorporation of QT
Optoelectronics contain such a provision.
Section 7-108-402 of the Colorado Business Corporation Act provides that a
corporation may, in its articles of incorporation, eliminate or limit the
personal liability of a director to the corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director, but any such
provision shall not eliminate or limit the liability of a director for (1) any
breach of a director's duty of loyalty to the corporation or its shareholders,
(2) acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, or (3) that involve unlawful distributions. The
articles of incorporation of KOTA Microcircuits, Inc. contain such a provision.
The Bylaws of our company and each of Fairchild International, Fairchild
Semiconductor Corporation of California, QT Optoelectronics, Inc., QT
Optoelectronics and KOTA Microcircuits, Inc. provide for the indemnification of
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding") by reason of the fact
that such person is or was a director or officer of such company or a
constituent corporation absorbed in a consolidation or merger, or is or was
serving at the request of such company or a constituent corporation absorbed in
a consolidation or merger, as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or is or was a director
or officer of such company serving at its request as an administrator, trustee
or other fiduciary of one or more of the employee benefit plans of such company
or other enterprise, against expenses (including attorneys' fees), liability and
loss actually and reasonably incurred or suffered by such person in connection
with such proceeding, whether or not the indemnified liability arises or arose
from any threatened, pending or completed proceeding by or in the right of such
company, except to the extent that such indemnification is prohibited by
applicable law. The Bylaws of each of the above companies also provide that such
indemnification shall not be deemed exclusive of any other rights to which those
indemnified may be entitled as a matter of law or under any by-law, agreement,
vote of stockholders or otherwise.
We also maintain liability insurance covering directors and officers of
each of the above companies.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
2.01 Asset Purchase Agreement, dated as of March 11, 1997,
between Fairchild Semiconductor Corporation and National
Semiconductor Corporation.(1)
2.02 Acquisition Agreement, dated November 25, 1997, among
Fairchild Semiconductor Corporation, Thornwood Trust and
Raytheon Company.(2)
2.03 Amendment No. 1 to Acquisition Agreement, dated December 29,
1997, among Fairchild Semiconductor Corporation, Thornwood
Trust and Raytheon Company.(2)
2.04 Business Transfer Agreement, dated December 20, 1998,
between Samsung Electronics Co., Ltd. and Fairchild
Semiconductor Corporation.(3)
2.05 Closing Agreement, dated April 13, 1999, among Samsung
Electronics Co. Ltd., Fairchild Korea Semiconductor Ltd. and
Fairchild Semiconductor Corporation.(3)
2.06 Asset Purchase Agreement, dated as of January 20, 2001,
among Intersil Corporation, Intersil (PA) LLC and Fairchild
Semiconductor Corporation and Amendment No. 1 thereto dated
as of March 16, 2001.(4)
3.01 Certificate of Incorporation of Fairchild Semiconductor
Corporation.(1)
3.02 Restated Certificate of Incorporation of Fairchild
Semiconductor International, Inc.(5)
3.03 Certificate of Amendment to Restated Certificate of
Incorporation of Fairchild Semiconductor International,
Inc.(6)
3.03.1* Certificate of Amendment to Restated Certificate of
Incorporation of Fairchild Semiconductor International, Inc.
3.04 Certificate of Incorporation of Fairchild Semiconductor
Corporation of California.(11)
3.05 Restated Certificate of Incorporation of QT Optoelectronics,
Inc.
3.06 Articles of Incorporation of QT Optelectronics.
3.07 Articles of Incorporation of KOTA Microcircuits, Inc.
3.08 Bylaws of Fairchild Semiconductor Corporation.(1)
3.09 Restated Bylaws of Fairchild Semiconductor International,
Inc.(7)
3.10 Bylaws of Fairchild Semiconductor Corporation of
California.(11)
3.11 Bylaws of QT Optoelectronics, Inc.
3.12 Bylaws of QT Optoelectronics.
3.13 Bylaws of KOTA Microcircuits, Inc.
4.01 Indenture, dated as of March 11, 1997, relating to
$300,000,000 aggregate principal amount of 10 1/8% Senior
Subordinated Notes due 2007, among Fairchild Semiconductor
Corporation, as Issuer, Fairchild Semiconductor
International, Inc., as Guarantor and United States Trust
Company of New York, as Trustee.(1)
4.02 Form of 10 1/8% Senior Subordinated Notes due 2007.
(included in Exhibit 4.01)
4.03 Indenture, dated as of April 7, 1999, relating to
$300,000,000 aggregate principal amount of 10 3/8% Senior
Subordinated Notes due 2007, among Fairchild Semiconductor
Corporation, as Issuer, Fairchild Semiconductor
International, Inc., Fairchild Semiconductor Corporation of
California, as Guarantors, and United States Trust Company
of New York, as Trustee.(8)
4.04 Form of 10 3/8% Senior Subordinated Notes due 2007.
(included in Exhibit 4.03)
4.05 Indenture, dated as of January 31, 2001, relating to
$350,000,000 aggregate principal amount of 10 1/2% Senior
Subordinated Notes due 2009, among Fairchild Semiconductor
Corporation, as Issuer, Fairchild Semiconductor
International, Inc., Fairchild Semiconductor Corporation of
California, QT Optoelectronics, Inc., QT Optoelectronics,
KOTA Microcircuits, Inc., as Guarantors, and United States
Trust Company of New York, as Trustee.(4)
4.06 Form of 10 1/2% Senior Subordinated Notes due 2009.
(included in Exhibit 4.05)
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EXHIBIT
NO. DESCRIPTION
- ------- -----------
4.07 Registration Rights Agreement, dated January 26, 2001, among
Fairchild Semiconductor Corporation, Fairchild Semiconductor
International, Inc., Fairchild Semiconductor Corporation of
California, QT Optoelectronics, Inc., QT Optoelectronics,
KOTA Microcircuits, Inc., Credit Suisse First Boston
Corporation, Lehman Brothers Inc., Deutsche Bank Alex. Brown
Inc. and Fleet Securities Inc.(4)
5.01* Opinion and consent of Gibson Dunn & Crutcher LLP as to the
legality of the securities to be issued in this exchange
offer.
10.01 Technology Licensing and Transfer Agreement, dated March 11,
1997 between National Semiconductor Corporation and
Fairchild Semiconductor Corporation.(9)
10.02 Environmental Side Letter, dated March 11, 1997 between
National Semiconductor Corporation and Fairchild
Semiconductor Corporation.(1)
10.03 Fairchild Benefit Restoration Plan.(1)
10.04 Fairchild Incentive Plan.(1)
10.05 FSC Semiconductor Corporation Executive Officer Incentive
Plan.(1)
10.06 Fairchild Semiconductor International, Inc. Amended and
Restated Stock Option Plan.(5)
10.07 Fairchild Semiconductor International, Inc. 2000 Stock
Option Plan.(10)
10.08 Fairchild Semiconductor International, Inc. 2000 Executive
Stock Option Plan.(10)
10.09 Form of Executive Stock Option Agreement, under the 2000
Executive Stock Option Plan, between Fairchild Semiconductor
International, Inc. and each of Kirk P. Pond, Joseph R.
Martin and Daniel E. Boxer.(10)
10.10 Form of Executive Stock Option Agreement, under the 2000
Executive Stock Option Plan, between Fairchild Semiconductor
International, Inc. and each of Jerry M. Baker and Keith
Jackson.(10)
10.11 Fairchild Semiconductor International, Inc. 2001 Stock
Option Plan.(4)
10.12 Employment Agreement, dated March 11, 2000, between
Fairchild Semiconductor Corporation and Kirk P. Pond.(10)
10.13 Employment Agreement, dated March 11, 2000, between
Fairchild Semiconductor Corporation and Joseph R.
Martin.(10)
10.14 Employment Agreement, dated March 11, 2000, between
Fairchild Semiconductor Corporation and Daniel E. Boxer.(10)
10.15 Product Supply Agreement, dated April 13, 1999, between
Samsung Electronics Co., Ltd. and Fairchild Korea
Semiconductor Ltd.(8)
10.16 Foundry Sale Agreement dated April 13, 1999 between Samsung
Electronics and Fairchild Korea Semiconductor Ltd.(8)
10.17 Intellectual Property License Agreement dated April 13, 1999
Between Samsung Electronics and Fairchild Korea
Semiconductor Ltd.(8)
10.18 Assembly and Test Services Agreement (Onyang) dated April
13, 1999 between Samsung Electronics and Fairchild Korea
Semiconductor Ltd.(8)
10.19 Assembly and Test Services Agreement (Suzhou) dated April
13, 1999 between SESS Electronics Suzhou Semiconductor Co.,
Ltd. and Fairchild Korea Semiconductor Ltd.(8)
10.20 EPI Services Agreement dated April 13, 1999 between Samsung
Electronics and Fairchild Korea Semiconductor Ltd.(8)
10.21 Fairchild Executive Incentive Plan, as amended and restated,
effective June 1, 1998.(8)
10.22 Intellectual Property Assignment and License Agreement,
dated December 29, 1997, between Raytheon Semiconductor,
Inc. and Raytheon Company.(2)
10.23 Credit Agreement, dated as of June 6, 2000, among Fairchild
Semiconductor Corporation, Fairchild Semiconductor
International, Inc., the lenders named therein and Credit
Suisse First Boston Corporation, Fleet National Bank and ABN
Amro NV.(10)
12.01 Computation of Ratio of Earnings to Fixed Charges.
21.01 Subsidiaries.(4)
23.01* Consent of KPMG LLP.
23.02* Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
5.01).
II-4
121
EXHIBIT
NO. DESCRIPTION
- ------- -----------
24.01 Powers of Attorney.
25.01** Form T-1 Statement of Eligibility of United States Trust
Company of New York to act as Trustee under the Indenture.
99.01* Form of Letter of Transmittal.
99.02* Form of Notice of Guaranteed Delivery.
99.03* Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.04* Letter to Clients for Use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
- ---------------
(1) Incorporated by reference from Fairchild Semiconductor Corporation's
Registration Statement on Form S-4, filed May 12, 1997 (File No.
333-26897).
(2) Incorporated by reference from Fairchild Semiconductor International,
Inc.'s Current Report on Form 8-K, dated December 31, 1997, filed January
13, 1998.
(3) Incorporated by reference from Fairchild Semiconductor International,
Inc.'s Current Report on Form 8-K, dated April 13, 1999, filed April 27,
1999.
(4) Incorporated by reference from Fairchild Semiconductor International,
Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31,
2000, filed March 26, 2001.
(5) Incorporated by reference from Fairchild Semiconductor International Inc.'s
Annual Report on Form 10-K for the fiscal year ended May 30, 1999, filed
August 27, 1999.
(6) Incorporated by reference from Fairchild Semiconductor International Inc.'s
Registration Statement on Form S-8, filed June 29, 2000 (File No.
333-40412).
(7) Incorporated by reference from Fairchild Semiconductor International,
Inc.'s Registration Statement on Form S-4, filed March 23, 2000 (File No.
333-33082).
(8) Incorporated by reference from Amendment No. 1 to Fairchild Semiconductor
International, Inc.'s Registration Statement on Form S-1, filed June 30,
1999 (File No. 333-78557).
(9) Incorporated by reference from Amendment No. 3 to Fairchild Semiconductor
Corporation's Registration Statement on Form S-4, filed July 9, 1997 (File
No. 333-28697).
(10) Incorporated by reference from Fairchild Semiconductor International,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 2, 2000,
filed August 16, 2000.
(11) Incorporated by reference from Fairchild Semiconductor Corporation's
Registration Statement on Form S-4, filed May 18, 1999 (File No.
333-78665).
* Filed herewith. All other exhibits have been previously filed.
** Filed herewith. Supersedes previously filed exhibit.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.
The undersigned registrants hereby undertake 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 the 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.
II-5
122
The undersigned registrants hereby undertake to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions described in Item 20 above, or otherwise,
the registrants have 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
registrant 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, the registrants will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of 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.
II-6
123
SIGNATURES
Pursuant to the requirements of the Securities Act, Fairchild Semiconductor
Corporation has duly caused this Amendment No. 1 to the registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of South Portland, State of Maine, on the 27th day of April, 2001.
FAIRCHILD SEMICONDUCTOR CORPORATION
By: /s/ DANIEL E. BOXER
------------------------------------
Daniel E. Boxer
Executive Vice President,
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the registration statement has been signed by the following persons in
the capacities indicated on the 27th day of April, 2001:
SIGNATURE TITLE
--------- -----
* Chairman of the Board of Directors, President and
- --------------------------------------------- Chief Executive Officer (principal executive
Kirk P. Pond officer)
* Executive Vice President and Chief Financial Officer,
- --------------------------------------------- and Director (principal financial officer)
Joseph R. Martin
/s/ DAVID A. HENRY Vice President, Corporate Controller (principal
- --------------------------------------------- accounting officer)
David A. Henry
* Director
- ---------------------------------------------
Richard M. Cashin, Jr.
Director
- ---------------------------------------------
Charles M. Clough
* Director
- ---------------------------------------------
Paul C. Schorr IV
* Director
- ---------------------------------------------
Ronald W. Shelly
* Director
- ---------------------------------------------
William N. Stout
*By: /s/ DANIEL E. BOXER
- ---------------------------------------------
Daniel E. Boxer
Attorney-in-fact
II-7
124
SIGNATURES
Pursuant to the requirements of the Securities Act, Fairchild Semiconductor
International, Inc. has duly caused this Amendment No. 1 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of South Portland, State of Maine, on the 27th day of
April, 2001.
FAIRCHILD SEMICONDUCTOR
INTERNATIONAL, INC.
By: /s/ DANIEL E. BOXER
------------------------------------
Daniel E. Boxer
Executive Vice President,
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the registration statement has been signed by the following persons in
the capacities indicated on the 27th day of April, 2001:
SIGNATURE TITLE
--------- -----
* Chairman of the Board of Directors, President and
- --------------------------------------------- Chief Executive Officer (principal executive
Kirk P. Pond officer)
* Executive Vice President and Chief Financial Officer,
- --------------------------------------------- and Director (principal financial officer)
Joseph R. Martin
/s/ DAVID A. HENRY Vice President, Corporate Controller (principal
- --------------------------------------------- accounting officer)
David A. Henry
* Director
- ---------------------------------------------
Richard M. Cashin, Jr.
Director
- ---------------------------------------------
Charles M. Clough
* Director
- ---------------------------------------------
Paul C. Schorr IV
* Director
- ---------------------------------------------
Ronald W. Shelly
* Director
- ---------------------------------------------
William N. Stout
*By: /s/ DANIEL E. BOXER
- ---------------------------------------------
Daniel E. Boxer
Attorney-in-fact
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125
SIGNATURES
Pursuant to the requirements of the Securities Act, Fairchild Semiconductor
Corporation of California has duly caused this Amendment No. 1 to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of South Portland, State of Maine, on the 27th day
of April, 2001.
FAIRCHILD SEMICONDUCTOR
CORPORATION OF CALIFORNIA
By: /s/ DAVID A. HENRY
------------------------------------
David A. Henry
Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the registration statement has been signed by the following persons in
the capacities indicated on the 27th day of April, 2001:
SIGNATURE TITLE
--------- -----
* President (principal executive officer)
- -----------------------------------------------
Kirk P. Pond
* Vice President and Director (principal financial
- ----------------------------------------------- officer)
Joseph R. Martin
/s/ DAVID A. HENRY Vice President (principal accounting officer)
- -----------------------------------------------
David A. Henry
/s/ DANIEL E. BOXER Director
- -----------------------------------------------
Daniel E. Boxer
*By: /s/ DANIEL E. BOXER
- -----------------------------------------------
Daniel E. Boxer
Attorney-in-fact
II-9
126
SIGNATURES
Pursuant to the requirements of the Securities Act, QT Optoelectronics,
Inc. has duly caused this Amendment No. 1 to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Jose, State of California, on the 27th day of April, 2001.
QT OPTOELECTRONICS, INC.
By: *
------------------------------------
Stephen C. Sherman
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the registration statement has been signed by the following persons in
the capacities indicated on the 27th day of April, 2001:
SIGNATURE TITLE
--------- -----
* Chairman, President and Chief Executive Officer
- ---------------------------------------------- (principal executive officer)
Stephen C. Sherman
* Vice President, Chief Financial Officer and
- ---------------------------------------------- Treasurer (principal financial and accounting
Patrick J. Traynor officer)
* Director
- ----------------------------------------------
Kirk P. Pond
* Director
- ----------------------------------------------
Joseph R. Martin
/s/ DANIEL E. BOXER Director
- ----------------------------------------------
Daniel E. Boxer
*By: /s/ DANIEL E. BOXER
- ----------------------------------------------
Daniel E. Boxer
Attorney-in-fact
II-10
127
SIGNATURES
Pursuant to the requirements of the Securities Act, QT Optoelectronics has
duly caused this Amendment No. 1 to the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Jose, State of California, on the 27th day of April, 2001.
QT OPTOELECTRONICS
By: *
------------------------------------
Stephen C. Sherman
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the registration statement has been signed by the following persons in
the capacities indicated on the 27th day of April, 2001:
SIGNATURE TITLE
--------- -----
* Chairman, President and Chief Executive Officer
- ---------------------------------------------- (principal executive officer)
Stephen C. Sherman
* Vice President, Chief Financial Officer and
- ---------------------------------------------- Treasurer (principal financial and accounting
Patrick J. Traynor officer)
* Director
- ----------------------------------------------
Kirk P. Pond
* Director
- ----------------------------------------------
Joseph R. Martin
/s/ DANIEL E. BOXER Director
- ----------------------------------------------
Daniel E. Boxer
*By: /s/ DANIEL E. BOXER
- ----------------------------------------------
Daniel E. Boxer
Attorney-in-fact
II-11
128
SIGNATURES
Pursuant to the requirements of the Securities Act, KOTA Microcircuits,
Inc. has duly caused this Amendment No. 1 to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of South Portland, State of Maine, on the 27th day of April, 2001.
KOTA MICROCIRCUITS, INC.
By: /s/ DAVID A. HENRY
------------------------------------
David A. Henry
Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the registration statement has been signed by the following persons in
the capacities indicated on the 27th day of April, 2001:
SIGNATURE TITLE
--------- -----
* President (principal executive officer)
- ----------------------------------------------
Kirk P. Pond
* Vice President and Director (principal
- ---------------------------------------------- financial officer)
Joseph R. Martin
/s/ DAVID A. HENRY Vice President (principal accounting officer)
- ----------------------------------------------
David A. Henry
/s/ DANIEL E. BOXER Director
- ----------------------------------------------
Daniel E. Boxer
*By: /s/ DANIEL E. BOXER
- ----------------------------------------------
Daniel E. Boxer
Attorney-in-fact
II-12
129
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.03.1 Certificate of Amendment to Restated Certificate of
Incorporation of Fairchild Semiconductor International, Inc.
5.01 Opinion and consent of Gibson Dunn & Crutcher LLP as to the
legality of the securities to be issued in this exchange
offer.
23.01 Consent of KPMG LLP.
25.01 Form T-1 Statement of Eligibility of United States Trust
Company of New York to act as Trustee under the Indenture
(supersedes previously filed exhibit).
99.01 Form of Letter of Transmittal.
99.02 Form of Notice of Guaranteed Delivery.
99.03 Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.04 Letter to Clients for Use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.