AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 2000.
REGISTRATION NO. 333-90857
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERSIL HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3674 59-3590018
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
2401 PALM BAY ROAD NE
PALM BAY, FLORIDA 32905
(321) 724-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEPHEN M. MORAN
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
2401 PALM BAY ROAD NE
PALM BAY, FLORIDA 32905
(321) 724-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
With a Copy to:
CHRISTOPHER G. KARRAS, ESQ.
DECHERT PRICE & RHOADS
4000 BELL ATLANTIC TOWER
1717 ARCH STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 994-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /x/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
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 statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
200,000 WARRANTS
3,703,707 UNDERLYING SHARES OF CLASS A COMMON STOCK
OF
INTERSIL HOLDING CORPORATION
------------------------
We are registering the resale of the warrants and the issuance of
underlying shares of Class A Common Stock of Intersil Holding Corporation upon
exercise of the warrants by subsequent purchasers of the warrants. The exercise
price for the warrants is $0.0015 per share of Class A Common Stock.
The exercise price and number of shares of Class A Common Stock issuable
upon exercise of the warrants are both subject to adjustment. The warrants are
exercisable on or after August 14, 2000, and will expire on August 15, 2009.
The warrants are not listed or quoted on any national securities exchange
or The Nasdaq Stock Market. Our common stock is listed on The Nasdaq Stock
Market's National Market under the symbol "ISIL." On March 9, 2000, the reported
last sale price of our common stock on The Nasdaq Stock Market's National Market
was $50.3125 per share.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF RISKS THAT
SHOULD BE CONSIDERED BY HOLDERS OF THE WARRANTS AND THE CLASS A COMMON STOCK
ISSUABLE UPON EXERCISE OF THE WARRANTS.
------------------------
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these Securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is March 10, 2000.
<PAGE>
------------------
TABLE OF CONTENTS
<TABLE>
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Page Page
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<S> <C> <S> <C>
INDUSTRY DATA......................... i MANAGEMENT............................ 45
SUMMARY............................... 1 CERTAIN RELATIONSHIPS AND RELATED
RISK FACTORS.......................... 7 TRANSACTIONS........................ 50
FORWARD-LOOKING STATEMENTS............ 14 OWNERSHIP OF CAPITAL STOCK............ 51
USE OF PROCEEDS....................... 14 DESCRIPTION OF CAPITAL STOCK.......... 53
RECENT DEVELOPMENTS................... 14 DESCRIPTION OF CERTAIN INDEBTEDNESS... 56
CAPITALIZATION........................ 15 DESCRIPTION OF THE WARRANTS........... 59
UNAUDITED PRO FORMA COMBINED CONDENSED UNITED STATES FEDERAL
FINANCIAL STATEMENTS................ 16 INCOME TAX CONSIDERATIONS........... 63
SELECTED HISTORICAL FINANCIAL DATA AND PLAN OF DISTRIBUTION.................. 67
OTHER DATA.......................... 21 SELLING SECURITY HOLDERS.............. 68
MANAGEMENT'S DISCUSSION AND ANALYSIS LEGAL MATTERS......................... 71
OF FINANCIAL CONDITION AND RESULTS EXPERTS............................... 71
OF OPERATIONS....................... 22 WHERE YOU CAN FIND MORE
INDUSTRY OVERVIEW..................... 31 INFORMATION......................... 71
BUSINESS.............................. 33 INDEX TO FINANCIAL STATEMENTS......... F-1
THE TRANSACTIONS...................... 42
</TABLE>
-----------------------
You should rely only on the information contained in this document or to
which we have referred you in this prospectus. We have not authorized anyone to
provide you with information that is different. This prospectus may only be used
where it is legal to sell these securities. The information in this prospectus
may only be accurate on the date of this document.
INDUSTRY DATA
In this prospectus, we rely on and refer to information regarding the
semiconductor market and its segments and competitors from Dataquest,
International Data Corporation, Semiconductor Industry Association, Worldwide
Semiconductor Trade Statistics, Venture Development Corporation, Johari
Associates, market research reports, analyst reports and other publicly
available sources. The listed market research firms are not aware of and have
not consented to being named in this prospectus. Although we believe that this
information is reliable, we have not independently verified the accuracy and
completeness of the information.
i
<PAGE>
SUMMARY
This summary may not contain all of the information that may be important
to you. You should read this entire prospectus, including the financial data and
related notes, before making an investment decision. The information in this
prospectus has been adjusted to reflect the conversion of all our 12% Series A
Cumulative Compounding Preferred Stock into shares of Class A Common Stock, a 1
for 1.5 reverse stock split of our previously issued common stock and the
issuance and sale of 22,000,000 shares of Class A Common Stock in connection
with our initial public offering.
THE OFFERING
On August 13, 1999, we issued and sold 200,000 units, each unit consisting
of $1,000 principal amount of 13 1/4% Senior Subordinated Notes of Intersil and
a warrant to purchase 18.518535 shares of Class A Common Stock of Intersil
Holding. In connection with that sale, we entered into a Warrant Agreement with
the United States Trust Company of New York, as Warrant Agent. Pursuant to the
Warrant Agreement, we agreed, among other things, to register the resale of the
warrants under the Securities Act and the issuance of the Class A Common Stock
upon exercise of the warrants.
WHO WE ARE
We are a systems oriented designer and manufacturer of analog and digital
integrated circuits, which we refer to as integrated circuits or semiconductors,
and discrete semiconductors for the communications and power management end-user
markets.
o Wireless--We are the industry leader in providing wireless local area
networking semiconductor sets, which we refer to as our PRISM(R) chip
set, based upon data published by Dataquest and International Data
Corporation. The PRISM(R) chip set is our fastest growing product, which
has applications in wireless networking for the business or home and in
transmitting data to and from broadband home data gateways to multiple
end-user applications.
o Analog & Mixed-Signal--Our analog products include communications, analog
and mixed-signal semiconductors that are used in wireless and wired data
and voice communications products, power integrated circuits that perform
multiple power management tasks, industry standard signal processing
products that convert analog signals into digital format and digital
signals into analog format and products that are used in communications
satellites and military applications.
o Discrete Power--Our discrete semiconductors perform single power
management functions such as switching electricity on or off and are used
in computing, communications and automotive applications.
Business Strategy
Our business strategy is to utilize our core strengths to focus on high
growth, higher margin end-markets through partnerships with industry leaders
among our strategic customer base to quickly take our engineering and design
capabilities to commercial levels. To achieve these goals, we develop systems
level solutions that enhance the value of our products as they are designed and
incorporated into our customers' products and we leverage our high quality of
customer service as a means of differentiation from our competitors. We will
continue to invest in products designed for high-growth communications
applications. For calendar year 1999, approximately 88% of our research and
development investment was related to integrated communications products.
Sales and Manufacturing
We currently sell to many industry leaders in our targeted markets
including Asustek, Bosch, Cisco, Compaq, Emerson, Dell, Intel, Nokia, Siemens,
Sony and 3Com. We have been doing business with many of these industry leaders
for over ten years. We are also an analog and discrete power semiconductor
supplier to some of the world's largest semiconductor distributors, such as
Avnet and Arrow Electronics, which allows us to expand our global reach to
include the middle market and emerging technology companies. Our products are
sold worldwide with about 53.5%, 24.6% and 21.9% of our revenues for fiscal year
1999 being derived from North America, Europe and Asia/Pacific, respectively. We
service our customers through a dedicated sales force, about half of whom are
domiciled outside North America. We own fabrication facilities, which we refer
to as fabs, in Florida, Ohio and Pennsylvania, including our state-of-the-art
8-inch discrete power wafer fab in Mountaintop, Pennsylvania. We also have
assembly and test facilities in Malaysia and Florida.
Our principal executive office is located at 2401 Palm Bay Road NE, Palm
Bay, Florida 32905, and our telephone number is (321) 724-7000.
<PAGE>
INTERSIL CORPORATION
Intersil is our wholly-owned subsidiary. Our assets are Intersil's stock
and certain intangible assets.
THE TRANSACTIONS
Pursuant to the Master Transaction Agreement dated June 2, 1999, among
Intersil, us and Harris Corporation, we acquired the semiconductor business of
Harris on August 13, 1999. See "The Transactions."
THE OFFERING
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<S> <C>
WARRANTS:
Issuer............................ Intersil Holding Corporation.
Warrants Offered.................. 200,000 warrants which, when exercised, will entitle the
holders to acquire an aggregate of 3,703,707 shares of
Class A Common Stock.
Exercise Price.................... $0.0015 per share of Class A Common Stock.
Exercise.......................... The warrants are exercisable beginning on August 14,
2000 and ending on August 15, 2009.
Expiration........................ August 15, 2009.
Voting Rights..................... Warrant holders have no voting rights.
Anti-Dilution..................... The exercise price and number of shares of Class A
Common Stock issued upon exercise of the warrants are
both subject to adjustment in certain cases. See
"Description of the Warrants--Adjustments."
Warrant Shares.................... The warrants entitle the holders to acquire shares of
Class A Common Stock of Intersil Holding. The shares of
Class A Common Stock for which the warrants are
exercisable or which are issued upon exercise of the
warrants are collectively referred to as "Warrant
Shares."
</TABLE>
RISK FACTORS
Investing in the warrants or Warrant Shares 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 warrants or Warrant
Shares.
2
<PAGE>
SUMMARY HISTORICAL, PRO FORMA AND OTHER DATA
The following summary historical financial data for the fiscal years ended
June 27, 1997, July 3, 1998 and July 2, 1999 for Intersil Holding were derived
from our predecessor's audited consolidated financial statements included
elsewhere in this prospectus, except for revenue categorized by product line
(Analog & Mixed-Signal, Discrete Power and Wireless), which were derived from
our books and records. The balance sheet data as of December 31, 1999
(Successor) have been derived from our unaudited consolidated financial
statements included elsewhere in this prospectus, and include, in the opinion of
management, all adjustments necessary to present fairly the balance sheet data
at the time. The summary pro forma financial information for the fiscal year
1999 (predecessor), six months ended January 1, 1999 (predecessor) and combined
six months ended December 31, 1999 (6 weeks ended August 13, 1999 (predecessor)
and 20 weeks ended December 31, 1999 (successor)) were derived from our pro
forma unaudited consolidated financial statements included elsewhere in this
prospectus.
During the period covered by our consolidated financial statements, our
activities were conducted as part of Harris' overall operations. Accordingly,
our consolidated financial statements contain various allocations for costs and
expenses attributable to services provided by Harris. Therefore, the
Consolidated Statement of Operations may not be indicative of the results of
operations that would have resulted if we had operated on a stand-alone basis.
Since the information in the tables below is a summary, you should read the
following tables in conjunction with other information contained under the
captions "Unaudited Pro Forma Combined Condensed Financial Statements,"
"Capitalization," "Selected Historical Financial Data," "Forward Looking
Statements," "Risk Factors--Risks Related to Use of Estimates in Pro Forma
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and with our financial statements and related notes and
other financial information contained elsewhere in this prospectus.
3
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED (1)
----------------------------------
HISTORICAL SIX MONTHS ENDED
------------------------- -------------------------
COMBINED
FISCAL FISCAL FISCAL FISCAL JANUARY 1, DECEMBER 31,
1997 1998 1999 1999 1999 1999
------- ------ ------ ------ ---------- ------------
(PREDECESSOR) (PREDECESSOR)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Analog & Mixed-Signal............... $ 384.4 $390.4 $352.8 $352.8 $166.0 $176.8
Discrete Power...................... 154.5 176.4 161.6 161.6 73.3 99.7
Wireless............................ 6.4 10.0 18.3 18.3 7.3 15.5
------- ------ ------ ------ ------ ------
Total revenue......................... $ 545.3 $576.8 $532.7 $532.7 $246.6 $292.0
======= ====== ====== ====== ====== ======
Gross margin(2)....................... $ 199.3 $207.5 $182.9 $197.3 $ 88.2 $111.7
Research and development.............. 75.2 75.1 67.0 67.0 29.7 34.5
Selling, administrative and general... 99.3 98.2 84.0 87.0 42.9 49.5
Harris corporate expense allocation... 10.0 10.0 9.3 -- -- --
Intangible amortization............... 2.3 2.3 2.4 12.7 6.2 5.4
In-process research and development... -- -- -- -- -- 20.2
------- ------ ------ ------ ------ ------
Operating income (loss)............... 12.5 21.9 20.2 30.6 9.4 2.1
Interest, net......................... (0.6) (0.9) (1.2) 17.1 8.9 8.9
------- ------ ------ ------ ------ ------
Income (loss) before income taxes..... 13.1 22.8 21.4 13.5 0.5 (6.8)
Income taxes (benefit)................ 1.9 9.9 (6.0) (9.1) (3.1) 7.8
------- ------ ------ ------ ------ ------
Net income (loss)..................... 11.2 12.9 27.4 22.6 3.6 (14.6)
Preferred dividends................... -- -- -- -- -- --
------- ------ ------ ------ ------ ------
Net income (loss) to common
shareholders........................ $ 11.2 $ 12.9 $ 27.4 $ 22.6 $ 3.6 $(14.6)
======= ====== ====== ====== ====== ======
NET INCOME (LOSS) PER COMMON SHARE:
Basic........................................................... $ 0.24 $ 0.04 $(0.16)
Diluted......................................................... 0.23 0.04 (0.16)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (IN MILLIONS):
Basic........................................................... 92.5 92.5 92.5
Diluted......................................................... 99.3 99.3 92.5
SUPPLEMENTAL DATA:
Depreciation.......................... $ 50.2 $ 65.0 $ 78.2 $ 63.8 $ 30.9 $ 29.4
Capital expenditures.................. $ 173.3 $ 90.2 $ 38.6 $ 38.6 $ 18.1 $ 14.5
Total cash interest expense(4).................................... $ 18.0 $ 9.1 $ 8.8
Adjusted EBITDA(3)................................................ $129.8 $ 56.5 $ 57.1
Cash flows provided from (used in)
Operating activities................ $ 54.6 $ 48.3 $111.2
Investing activities................ $(173.3) $(90.2) $(39.9)
Financing activities................ $ 1.4 $ 2.7 $ 0.5
Ratio of Adjusted EBITDA to total cash interest expense........... 7.2x 6.2x 6.5x
Ratio of total debt to Adjusted EBITDA(5)......................... 1.0x 2.4x 2.3x
Ratio of earnings to fixed
charges(6).......................... 7.0x 11.9x 10.7x 1.7x 1.1x --
Ratio of earnings to fixed charges and
preferred stock dividends(7)........ 7.0x 11.9x 10.7x 1.7x 1.1x --
</TABLE>
4
<PAGE>
AS OF
DECEMBER 31, 1999
-----------------
AS
ACTUAL ADJUSTED
------ --------
(IN MILLIONS)
BALANCE SHEET DATA:
Cash........................................................ $ 40.1 $142.7
Total assets(8)............................................. 717.0 796.3
Long-term debt, including current portion................... 534.3 134.1
Mandatorily redeemable preferred stock(9)................... 87.9 --
Total shareholders' equity (deficit)(10).................... (18.8) 562.0
- ------------------
(1) The pro forma as adjusted information presented is a summary only and
should be read in conjunction with "Unaudited Pro Forma Combined Condensed
Financial Statements" included elsewhere in the prospectus.
(2) Gross margin includes foreign exchange losses with respect to the Malaysian
Ringgit as detailed in footnote (3) below.
(3) Adjusted EBITDA, for the pro forma as adjusted periods presented,
represents income (loss) before income taxes, depreciation, amortization,
interest expense and the following adjustments in the chart below. While
Adjusted EBITDA should not be construed as a substitute for operating
income or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with generally accepted
accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditure and working capital requirements which
the Company believes certain investors find to be useful.
PRO FORMA
AS ADJUSTED
----------------------------------
SIX MONTHS ENDED
-------------------------
COMBINED
FISCAL JANUARY 1, DECEMBER 31,
1999 1999 1999
------ ---------- ------------
(IN MILLIONS)
In-process research and development... $ -- $ -- $20.2
Foreign exchange losses............... 11.4 4.3 --
Cost savings.......................... 11.3 5.7 --
----- ----- -----
$22.7 $10.0 $20.2
===== ===== =====
Foreign exchange losses--foreign exchange losses with respect to the
Malaysian Ringgit represent losses under contracts entered into by Harris
and subsequently terminated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Market Risk Management".
Cost savings--reflects management's estimate of the effect for a full year
of the cost savings related to the closure in January 1999 of one of our
facilities ($3.3 million) and additional cost savings which management
believes can be achieved as a result of initiatives that were begun during
the first quarter of fiscal year 2000 ($8.0 million). These estimated
additional cost savings are expected to result from (i) the decrease in
royalty payments as we accelerate the use of a new fabrication process that
does not rely on third party patents, (ii) the outsourcing of information
technology support services currently provided by Harris, (iii) the
outsourcing of specialized semiconductor packaging in Malaysia and the
related reduction in our workforce and (iv) the downsizing of our European
administrative headquarters. While we consider the numerical specificity of
the foregoing preliminary estimates and the anticipated cost savings to be
reasonable, these estimates and savings are based upon a number of
assumptions and estimates that are subject to inherent uncertainty. The
actual cost savings could vary from these estimates.
(Footnotes continued on next page)
5
<PAGE>
(Footnotes continued from previous page)
(4) Total cash interest expense represents the pro forma as adjusted interest
expense less amortization of deferred debt issuance costs and accretion of
original issue discount as a result of a required allocation of value to
the warrants under generally accepted accounting principles.
(5) The ratio of total debt to adjusted EBITDA for the pro forma as adjusted
six months ended January 1, 1999 and December 31, 1999 is calculated by
annualizing adjusted EBITDA for the respective period.
(6) Earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense on debt and amortization of defined
debt issuance costs and the portion (about one-third) of rental expense
that we believe is representative of the interest component of rental
expense. Pro forma fixed charges exceeded pro forma as adjusted earnings by
$6.8 million for the pro forma as adjusted period six months ended combined
December 31, 1999.
(7) Earnings as defined above, fixed charges as defined above plus preferred
stock dividends, whether paid or accreted. Pro forma as adjusted fixed
charges and preferred stock dividends exceeded pro forma as adjusted
earnings by $6.8 million for the pro forma as adjusted period six months
ended combined December 31, 1999.
(8) Total assets as adjusted have been reduced by $9.9 million for the one-time
write-off of unamortized debt issuance costs associated with the debt being
repaid.
(9) As adjusted assumes all of the outstanding shares of the 12% Series A
Cumulative Compounding Preferred Stock were converted into common stock at
$1,000 per share plus accumulated and unpaid dividends, based on the per
share amount we received in the initial public offering.
(10) Shareholders' equity as adjusted has been reduced by $9.9 million for the
one-time write-off of unamortized debt issuance costs associated with the
debt being repaid, $13.4 million for prepayment premiums on the portions of
the 13 1/4% Senior Subordinated Notes due 2009 being repaid and the Tranche
B Senior Term Facility being repaid and $0.3 million for the written-off
related to the value ascribed to the warrants issued on the 13.5%
Subordinated Holding PIK Note due 2010 to be repaid.
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing our
company. Additional risks not now known to us or that we currently deem
immaterial may also impair our business operations.
ABSENCE OF PUBLIC MARKET FOR THE WARRANTS--NO ASSURANCE CAN BE GIVEN AS TO THE
LIQUIDITY OF ANY TRADING MARKET FOR THE WARRANTS.
The warrants are eligible for trading in the PORTAL Market, a screen-based
market operated by the National Association of Securities Dealers. The PORTAL
market is limited to qualified institutional investors as defined by Rule 144A
of the Securities Act of 1933.
There can be no assurance regarding the future development of a market for
the warrants, the ability of the holders of the warrants to sell these
securities, or the price at which these holders may be able to sell these
securities. If such a market were to develop, the warrants could trade at prices
that may be higher or lower than the price paid by selling holders. Future
trading prices of the warrants will depend on many factors, including, among
other things, prevailing interest rates, our operating results and the market
for similar securities. The initial purchasers have advised Intersil Holding
that they intend to make a market in the warrants, subject to the limits imposed
by the Securities Act and the Exchange Act and subject to any limits imposed
during the pendency of any registration statement or shelf registration
statement filed under the Securities Act; however, the initial purchasers are
not obligated to do so, and may discontinue these market-marking at any time
without notice. Therefore, no assurance can be given as to the liquidity of any
trading market for the warrants or that an active market for the warrants will
develop.
FLUCTUATION OF OPERATING RESULTS--OUR FUTURE OPERATING RESULTS ARE LIKELY TO
FLUCTUATE AND THEREFORE MAY FAIL TO MEET EXPECTATIONS WHICH COULD CAUSE THE
PRICE OF THE WARRANTS OR WARRANT SHARES TO DECLINE.
Our operating results have varied widely in the past and are likely to do
so in the future. In addition, our operating results may not follow any past
trends. Our future operating results will depend on many factors and may fail to
meet our expectations for a number of reasons, including those set forth in
these risk factors. Any failure to meet expectations could cause the price of
the warrants or Warrant Shares to significantly fluctuate or decline.
Factors that could cause our operating results to fluctuate that relate to
our internal operations include:
o the need for continual, rapid new product introductions;
o changes in our product mix;
o our inability to adjust our fixed costs in the face of any declines in
sales; and
o the availability of production capacity and fluctuations in the
manufacturing yields at our facilities.
Factors that could cause our operating results to fluctuate that depend on
our suppliers and customers include:
o the timing of significant product orders, order cancellations and
reschedulings;
o the availability of production capacity and fluctuations in the
manufacturing yields at third parties' facilities that manufacture our
devices; and
o the cost of raw materials and manufacturing services from our suppliers.
Factors that could cause our operating results to fluctuate that are
industry risks include:
o the cyclical nature of the semiconductor industry;
o the new and evolving nature of the wireless LAN market and the
possibility that wireless LAN technology may not be adopted on a
widespread basis or may be replaced by a competing technology; and
7
<PAGE>
o intense competitive pricing pressures.
CYCLICAL INDUSTRY--DOWNTURNS IN THE BUSINESS CYCLE COULD REDUCE THE REVENUES AND
PROFITABILITY OF OUR BUSINESS.
The semiconductor industry is highly cyclical. In 1998, the semiconductor
industry experienced a downturn. Our markets may experience other, possibly more
severe and prolonged, downturns in the future. We may also experience
significant changes in our operating profit margins as a result of variations in
sales, changes in product mix, price competition for orders and costs associated
with the introduction of new products.
The markets for our products depend on continued demand for personal
computer, industrial, telecommunications, consumer electronics and automotive
goods. There can be no assurance that these end-user markets will not experience
changes in demand that will adversely affect our prospects.
NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE--OUR INABILITY TO INTRODUCE NEW
PRODUCTS COULD RESULT IN DECREASED REVENUES AND LOSS OF MARKET SHARE TO
COMPETITORS; NEW TECHNOLOGIES COULD ALSO REDUCE THE DEMAND FOR OUR PRODUCTS.
Rapidly changing technology and industry standards, along with frequent new
product introductions, characterize the semiconductor industry. Our success in
these markets depends on our ability to design, develop, manufacture, assemble,
test, market and support new products and enhancements on a timely and
cost-effective basis. There can be no assurance that we will successfully
identify new product opportunities and develop and bring new products to market
in a timely and cost-effective manner or that products or technologies developed
by others will not render our products or technologies obsolete or
noncompetitive. A fundamental shift in technology in our product markets could
have a material adverse effect on us.
COMPETITION--OUR BUSINESS IS VERY COMPETITIVE AND INCREASED COMPETITION COULD
REDUCE GROSS PROFIT MARGINS AND THE VALUE OF AN INVESTMENT IN OUR COMPANY.
The semiconductor industry, and the semiconductor product markets
specifically, are highly competitive. Competition is based on price, product
performance, quality, reliability and customer service. The gross profit margins
realizable in our markets can differ across regions, depending on the economic
strength of end-product markets in those regions. Even in strong markets, price
pressures may emerge as competitors attempt to gain more share by lowering
prices. Competition in the various markets in which we participate comes from
companies of various sizes, many of which are larger and have greater financial
and other resources than we have and thus can better withstand adverse economic
or market conditions. In addition, companies not currently in direct competition
with us may introduce competing products in the future.
ADDITIONAL BORROWINGS AVAILABLE--WE AND OUR SUBSIDIARIES WILL BE ABLE TO INCUR
SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS DESCRIBED
BELOW.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. Although the indenture governing the notes contains
restrictions on the incurrence of additional indebtedness, these restrictions
are subject to a number of qualifications and exceptions; and the indebtedness
incurred in compliance with these restrictions could be substantial. Also, these
restrictions do not prevent us from incurring obligations that do not constitute
indebtedness. As of December 31, 1999, Intersil's senior credit facilities
provided for additional borrowings of up to about $70.0 million. To the extent
new debt is added to our and our subsidiaries' currently anticipated debt
levels, it could:
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
o increase our vulnerability to adverse general economic or industry
conditions;
o limit our flexibility in planning for, or reacting to, changes in our
business or the industry in which we operate;
8
<PAGE>
o prevent us from raising the funds necessary to repurchase all 13 1/4%
Senior Subordinated Notes due 2009 tendered to us upon the occurrence of
certain changes of control in our ownership, which would constitute a
default under the indenture governing those notes; and
o place us at a competitive disadvantage compared to our competitors that
have less debt.
See "Capitalization," "Selected Historical Consolidated Financial Data" and
"Description of Certain Indebtedness."
RESTRICTIONS AND COVENANTS IN OUR DEBT INSTRUMENTS--RESTRICTIONS IMPOSED BY OUR
SENIOR CREDIT FACILITIES AND THE INDENTURE GOVERNING THE NOTES LIMIT INTERSIL'S
ABILITY TO ENGAGE IN OR ENTER INTO BUSINESS, OPERATING AND FINANCING
ARRANGEMENTS, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO TAKE ADVANTAGE OF
POTENTIALLY PROFITABLE BUSINESS OPPORTUNITIES.
We cannot assure you that the operating and financial restrictions and
covenants in our debt instruments, including the senior credit facilities and
the notes, will not adversely affect our ability to finance our future
operations or capital needs or engage in other business activities that may be
in our interest.
Intersil's senior credit facilities require it to maintain certain
financial ratios which become more restrictive over time. Intersil's ability to
comply with these ratios may be affected by events beyond our control. A breach
of any of these covenants or Intersil's inability to comply with the required
financial ratios could result in a default under Intersil's senior credit
facilities. In the event of any of these defaults, the lenders under Intersil's
senior credit facilities could elect to declare all borrowings outstanding,
together with accrued interest and other fees, to be due and payable, to require
us to apply all of Intersil's available cash to repay these borrowings or to
prevent Intersil from making debt service payments on the notes, any of which
would be an event of default under the notes. See "Description of Certain
Indebtedness."
HOLDING COMPANY STRUCTURE--AS A HOLDING COMPANY, WE ARE TOTALLY DEPENDENT ON
DIVIDENDS FROM OUR OPERATING SUBSIDIARIES TO MEET OUR DEBT OBLIGATIONS OR,
SHOULD WE SO CHOOSE, PAY DIVIDENDS. TO THE EXTENT WE DO NOT RECEIVE DIVIDENDS
FROM INTERSIL, WE COULD HAVE DIFFICULTY SATISFYING OUR OBLIGATIONS.
We are a holding company whose only material asset is the capital stock of
Intersil. We conduct no business (other than in connection with our ownership of
the capital stock of Intersil and certain other administrative obligations), and
depend on distributions from Intersil to meet our obligations. Because of
Intersil's ability to incur substantial indebtedness and our dependence upon the
operating performance of Intersil to generate distributions to us, there can be
no assurance that any these distributions will be adequate to fund our
obligations when due. In addition, the senior credit facilities, the notes and
applicable Federal and state law impose restrictions on the payment of dividends
and the making of loans by Intersil to us. As a result of the foregoing
restrictions, we may be required to:
o refinance our indebtedness,
o seek additional debt or equity financing,
o cause Intersil to refinance all or a portion of its indebtedness with
indebtedness containing covenants allowing us to gain access to
Intersil's cash flow or assets,
o cause Intersil to obtain modifications of the covenants restricting our
access to cash flow or assets of Intersil contained in Intersil's
financing documents (including, without limitation, the senior credit
facilities and the notes),
o merge Intersil with us, which merger would be subject to compliance with
applicable debt covenants and the consents of certain lenders, or
o pursue a combination of the foregoing actions.
The measures we may undertake to gain access to sufficient cash flow to
meet our future debt service requirements will depend on general economic and
financial market conditions, as well as our financial condition and the
financial condition of Intersil and other relevant factors existing at the time.
No assurance
9
<PAGE>
can be given that any of the foregoing measures can be accomplished, and the
failure to do so could have a material adverse effect on the value of the
warrants and Warrant Shares.
RISKS RELATED TO USE OF ESTIMATES IN PRO FORMA FINANCIAL INFORMATION--IF ACTUAL
RESULTS DIFFER FROM THE ESTIMATES UNDERLYING SOME OF THE PRO FORMA FINANCIAL
INFORMATION, OUR RESULTS MAY REFLECT HIGHER EXPENSES AND LOWER OPERATING
RESULTS.
The pro forma financial information contained herein assumes that we would
have incurred annual expenses of $3.0 million to obtain general and
administrative services, either from Harris, under the Transition Services
Agreement, or otherwise. Charges under the Transition Services Agreement may
exceed historical charges or upon termination of the agreement we might not be
able to obtain similar facilities and services on comparable terms. See "The
Transactions--Transition Services Agreement." If our actual expenses exceed the
estimates, our operating results will be less favorable than those set forth in
the pro forma financial statements. See "Unaudited Pro Forma Combined Condensed
Financial Statements."
CURRENCY EXCHANGE RATE FLUCTUATIONS--FLUCTUATIONS IN THE EXCHANGE RATE OF THE
U.S. DOLLAR AND OTHER FOREIGN CURRENCIES COULD INCREASE OPERATING EXPENSES AND
NEGATIVELY IMPACT OUR FINANCIAL PERFORMANCE AND RESULTS OF OPERATIONS.
While we and our subsidiaries transact business primarily in U.S. dollars
and most of our revenues are denominated in U.S. dollars, a portion of our costs
and revenues is denominated in other currencies, such as the Euro, the Malaysian
Ringgit and the Japanese Yen. As a result, changes in the exchange rates of
these currencies or any other applicable currencies to the U.S. dollar will
affect our costs of goods sold and operating margins and could result in
exchange losses. The impact of future exchange rate fluctuations on our results
of operations cannot be accurately predicted. From time to time, we have engaged
in, and may continue to engage in, exchange rate hedging activities in an effort
to mitigate the impact of exchange rate fluctuations. However, any hedging
technique that we may implement may not be effective or may result in foreign
exchange hedging losses. In the past, we have incurred foreign exchange hedging
losses, including $13.3 million during fiscal year 1998 and $11.4 million during
fiscal year 1999.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS--OUR INTERNATIONAL OPERATIONS
SUBJECT US TO RISKS NOT FACED BY DOMESTIC COMPETITORS WHICH INCLUDE UNFAVORABLE
POLITICAL, REGULATORY, LABOR AND TAX CONDITIONS IN OTHER COUNTRIES.
We cannot be certain to what extent our future operations and earnings may
be adversely affected by the risks related to, or any other problems arising
from, operating in international markets. We have significant operations in
Kuala Lumpur, Malaysia and additionally generate approximately one-half of our
revenue from outside the United States. Risks inherent in doing business on an
international level include:
o unexpected changes in the laws and policies of the United States and of
the countries in which we manufacture and sell our products;
o economic and political instability;
o trade restrictions; and
o foreign currency fluctuations.
DEPENDENCE ON SOURCES OF SUPPLY--PRODUCTION TIME AND THE OVERALL COST OF OUR
PRODUCTS COULD INCREASE IF WE WERE TO LOSE ONE OF OUR LIMITED NUMBER OF
SUPPLIERS OR IF ONE OF THOSE SUPPLIERS INCREASED THE PRICES OF RAW MATERIALS.
Our results of operations could be adversely affected if we were unable to
obtain adequate supplies of raw materials in a timely manner or if the costs of
raw materials increased significantly. Our manufacturing operations depend upon
obtaining adequate supplies of raw materials on a timely basis. We purchase raw
materials, such as silicon wafers, lead frames, mold compound, ceramic packages
and chemicals and gases, from a limited number of suppliers on a just-in-time
basis. From time to time, suppliers may extend lead times, limit supplies or
increase prices due to capacity constraints or other factors.
10
<PAGE>
MANUFACTURING RISKS--DUE TO OUR COMPLEX MANUFACTURING PROCESSES, DELAYS IN
PRODUCTION AT NEW FACILITIES, IMPLEMENTING NEW PRODUCTION TECHNIQUES OR IN
CURING PROBLEMS ASSOCIATED WITH TECHNICAL EQUIPMENT MALFUNCTIONS MAY LOWER
YIELDS AND REDUCE OUR REVENUES.
Our manufacturing processes are highly complex, require advanced and costly
equipment and are continuously being modified in an effort to improve yields and
product performance. Impurities or other difficulties in the manufacturing
process can lower yields. Our manufacturing efficiency will be an important
factor in our future profitability, and we cannot assure you that we will be
able to maintain our manufacturing efficiency or increase manufacturing
efficiency to the same extent as our competitors.
In addition, as is common in the semiconductor industry, we have from time
to time experienced difficulty in beginning production at new facilities or in
effecting transitions to new manufacturing processes. As a consequence, we have
suffered delays in product deliveries or reduced yields. We may experience
manufacturing problems in achieving acceptable yields or experience product
delivery delays in the future as a result of, among other things, capacity
constraints, construction delays, upgrading or expanding existing facilities or
changing our process technologies, any of which could result in a loss of future
revenues. Our operating results could also be adversely affected by the increase
in fixed costs and operating expenses related to increases in production
capacity if revenues do not increase proportionately.
CONTROLLING SHAREHOLDERS--A LIMITED NUMBER OF PERSONS INDIRECTLY CONTROL OUR
COMPANY AND MAY EXERCISE THEIR CONTROL IN A MANNER ADVERSE TO YOUR INTERESTS.
Upon completion of the initial public offering, Sterling and some key
employees of our company owned 17,259,652 shares, or approximately 41.5%, of the
outstanding Class A Common Stock, our only class of voting stock, and 45,214,898
shares of Class B Common Stock which are convertible into shares of Class A
Common Stock on a one-to-one basis. By virtue of this stock ownership, they have
the power to direct our affairs and will be able to determine the outcome of all
matters required to be submitted to shareholders for approval, including the
election of a majority of our directors, any merger, consolidation or sale of
all or substantially all of our assets, and amendment of our Restated
Certificate of Incorporation. Sterling also has a significant equity investment
in Fairchild Semiconductor, one of our competitors. Because a limited number of
persons control us, transactions could be difficult or impossible to complete
without the support of those persons. It is possible that these persons will
exercise control over us in a manner adverse to your interests. See "Ownership
of Capital Stock."
DEPENDENCE ON INTELLECTUAL PROPERTY--WE USE A SIGNIFICANT AMOUNT OF INTELLECTUAL
PROPERTY IN OUR BUSINESS. IF WE ARE UNABLE TO PROTECT THIS INTELLECTUAL
PROPERTY, WE COULD LOSE OUR RIGHT TO EXCLUSIVE USE OF KEY TECHNOLOGY, RESULTING
IN DECREASED REVENUES.
Our future success and competitive position depend in part upon our ability
to obtain and maintain proprietary technology used in our principal products. We
rely on intellectual property rights, including, but not limited to, rights
existing under patent, trade secret, trademark, maskwork and copyright law, to
protect this technology. Some of our technology is not covered by any patent or
patent application, and there is risk that:
o some of the approximately 1,400 patents that we own and other numerous
patents that we license from Harris may be invalidated, circumvented,
challenged or licensed to others;
o the license rights granted by Harris, or the patents that we own, will
not provide competitive advantages to us; or
o some of our pending or future patent applications will not be issued
within the scope of the claims sought by us, if at all.
Further, others may develop technologies that are similar or superior to our
technology, duplicate our technology or design around our patents. In addition,
effective patent, trademark, copyright, maskwork and trade secret protection may
be unavailable, limited or not applied for in certain foreign countries.
11
<PAGE>
We also seek to protect our proprietary technology, including technology
that may not be patented or patentable, in part by confidentiality agreements
and, if applicable, inventors' rights agreements with our collaborators,
advisors, employees and consultants. There can be no assurance that these
agreements will not be breached, that we will have adequate remedies for any
breach or that these persons or institutions will not assert rights to
intellectual property arising out of this research.
Some of our current licenses to use others' technology will expire during
the next several years, unless extended. In particular, we currently have access
to a portfolio of patents under cross-license agreements that expire in the year
2000. We will then need to negotiate renewals of these agreements or obtain the
technology from alternative sources. There is no guarantee that we will be able
to obtain renewals on substantially similar terms as those that currently exist.
DEPENDENCE ON INTELLECTUAL PROPERTY ACQUIRED FROM HARRIS--WE HAVE ACQUIRED
SUBSTANTIALLY ALL OF OUR INTELLECTUAL PROPERTY FROM HARRIS. TO THE EXTENT OUR
USE OF THIS INTELLECTUAL PROPERTY INFRINGES THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS, WE MAY BE REQUIRED TO CEASE OUR USE OR SALE OF AFFECTED PRODUCTS.
Under our intellectual property agreement with Harris, Harris has limited,
royalty-free, worldwide, nonexclusive license rights (without right to
sublicense) to some of our technology. Under our patent assignment and services
agreements with Harris, Harris retained the ownership and rights to certain
patents for a period of three years after which time the patents will be
assigned to us, provided the patents are not the subject of litigation at that
time, and with the proviso that any binding obligations on third parties to make
royalty or other payments respecting the patents will be retained by Harris.
Furthermore, the license agreements under which third parties are licensed to
our intellectual property (or intellectual property that is assigned to us) and
under which Harris was cross-licensed to the third party's intellectual
property, may not be assignable to us. For this situation, Harris agreed to
partially indemnify us for limited periods in limited situations against claims
that may be made that our activities infringe the intellectual property rights
of others. The extent and duration of this indemnification may be insufficient
to shield us from the need to make monetary payments to third parties or to
facilitate the continued manufacture, use or sale of some affected products.
INTELLECTUAL PROPERTY UPON WHICH WE RELY MAY INFRINGE ON OTHER PARTIES'
INTELLECTUAL PROPERTY RIGHTS--WE MAY HAVE TO PAY OTHERS FOR INFRINGING THEIR
INTELLECTUAL PROPERTY RIGHTS OR DEFEND OURSELVES IN A LITIGATION, RESULTING IN
SIGNIFICANT EXPENSE TO US.
Vigorous protection and pursuit of intellectual property rights or
positions characterize the semiconductor industry. This vigor and pursuit have
resulted in significant and often protracted and expensive litigation. We may
from time to time be notified of claims that we may be infringing third party
patents or other intellectual property rights. A countersuit has been brought
against Harris by Ericsson, one of its competitors, alleging infringement of
four of its patents relating to telephone subscriber line interface circuits and
we have been joined as a party. We believe our liability from this litigation,
if any, that arises out of the conduct of the semiconductor business prior to
closing is covered by Harris' agreement to provide limited indemnities. We do
not believe that the litigation will have a material adverse effect on our
business, financial condition or results of operations. It is possible, however,
that the litigation will be resolved in a manner that is materially adverse to
us. If necessary or desirable, we may, from time to time, seek licenses to
patents or other intellectual property rights. However, we cannot be certain
that we will obtain these licenses or that the terms of any offered licenses
will be acceptable to us, and any acquisition or license could require
expenditure of substantial time and other resources. Furthermore, some licenses
or other rights to intellectual property of third parties that we use, such as
software, may not be freely assignable by Harris to us. Our failure to obtain a
license from a third party for technology we use could cause us to incur
substantial liabilities and to suspend the manufacture or shipment of products
or our use of processes requiring the technology. Litigation could result in
significant expense to us, adversely affecting sales of the challenged product
or technologyand diverting the efforts of our technical and management
personnel, whether or not the litigation is determined in our favor. In the
event of an adverse outcome in any litigation, we may be required to:
12
<PAGE>
o pay substantial damages and incur significant attorneys' fees;
o cease the manufacture, use, sale or importation of infringing products;
o expend significant resources to develop or acquire non-infringing
technology;
o discontinue the use of some processes; or
o obtain licenses to intellectual property covering the infringing
technology.
RISKS RELATING TO FUTURE ACQUISITIONS--WE MAY NOT BE ABLE TO CONSUMMATE FUTURE
ACQUISITIONS, AND THOSE ACQUISITIONS WHICH WE DO COMPLETE MAY BE DIFFICULT TO
INTEGRATE AND RESULT IN INCREASED DEBT AND LIABILITIES.
We plan to pursue acquisitions of related businesses. We might not be able
to consummate acquisitions, or, if we complete any acquisition, we may not
realize any of the benefits anticipated from these acquisitions. Financing for
acquisitions may not be available; and, depending on the terms of these
acquisitions, financing could be restricted by the terms of our senior credit
facilities and the indenture governing the 13 1/4% Senior Subordinated Notes due
2009. The process of integrating acquired operations into our existing
operations may result in unforeseen operating difficulties and may require
significant financial resources that would otherwise be available for the
ongoing development or expansion of our existing operations. Possible future
acquisitions could result in the incurrence of additional debt, contingent
liabilities and amortization expenses related to goodwill and other intangible
assets, all of which could materially adversely affect our financial condition
and operating results.
ENVIRONMENTAL LIABILITIES AND OTHER GOVERNMENTAL REGULATIONS--REGULATORY MATTERS
COULD FORCE US TO INCUR SIGNIFICANT CAPITAL AND OPERATIONAL COSTS.
We are subject to various environmental laws and regulations relating to
the management, disposal and, under some circumstances, remediation of hazardous
materials and wastes and the discharge of pollutants into the air and water. We
are also subject to laws and regulations relating to workplace safety and worker
health which, among other things, regulate employee exposure to hazardous
substances. Under the Master Transaction Agreement, Harris agreed to indemnify
us for substantially all environmental liabilities related to events or
activities occurring prior to the closing of the transactions contemplated by
the Master Transaction Agreement. The nature of our ongoing operations exposes
us to the risk of liabilities or claims with respect to environmental matters,
including those relating to the on- and off-site disposal and release of
hazardous materials, and there can be no assurance that material costs will not
be incurred in connection with these liabilities or claims.
Based on our experience, we believe that the future cost of compliance with
existing environmental and health and safety laws and regulations (and liability
for known environmental conditions even without the Harris indemnity) will not
have a material adverse effect on our business, financial condition or results
of operations. However, we cannot predict:
o what environmental or health and safety legislation or regulations will
be enacted in the future;
o how existing or future laws or regulations will be enforced, administered
or interpreted; or
o the amount of future expenditures which may be required to comply with
these environmental or health and safety laws or regulations or to
respond to future cleanup matters or other environmental claims.
See "Business--Environmental Matters."
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. These statements
relate to analyses and other information which are based on forecasts of future
results and estimates of amounts not yet determinable. These statements also
relate to our future prospects, developments and business strategies.
These forward-looking statements are identified by their use of terms and
phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. These statements are contained in
sections entitled "Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and other
sections of this prospectus.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. These factors include, but are not limited to, the following: changes
in general economic and business conditions; changes in current pricing levels;
changes in political, social and economic conditions and local regulations;
changes in technology and the development of new technology; foreign currency
fluctuations; reductions in sales to any significant customers; changes in sales
mix; industry capacity; competition; disruptions of established supply channels;
manufacturing capacity constraints; and the availability, terms and deployment
of capital. Our risks are more specifically described in the "Risk Factors"
section of this prospectus. If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, our actual results
may vary materially from those expected, estimated or projected.
We do not undertake to update our forward-looking statements or risk
factors to reflect future events or circumstances.
USE OF PROCEEDS
Intersil used the gross proceeds from the sale of the 200,000 units, each
consisting of $1,000 principal amount of 13 1/4% Senior Subordinated Notes of
Intersil and one warrant, together with the $220.0 million from borrowing by
Intersil under the senior credit facilities, and a $120.0 million cash equity
contribution by us to Intersil as follows: (i) approximately $520.0 million to
pay for the purchase price of the semiconductor business and (ii) $20.0 million
to pay fees and expenses relating to the acquisition, the financing in
connection with the acquisition and the application of the proceeds of the
financing. See "The Transactions"
Upon any exercise of the warrants, we will receive the exercise price of
$.0015 per warrant share.
RECENT DEVELOPMENTS
On February 23, 2000, Intersil Holding's Registration Statement was
declared effective by the Securities and Exchange Commission to register the
sale of shares of common stock in an underwritten public offering. The common
stock, including the Warrant Shares, has been approved for listing on the Nasdaq
Stock Market's National Market under the symbol "ISIL". The gross proceeds from
the offering were about $500 million. The proceeds were used to repay the entire
13.5% Senior Subordinated PIK Note due 2010, the 11.13% Seller Holding PIK Note
due 2010, the Senior Term Facility and significant portions of the 13 1/4%
Senior Subordinated Notes due 2009, as well as related fees and expenses.
In connection with the completion of the underwritten public offering,
Intersil Holding restated its Certificate of Incorporation. The Restated
Certificate of Incorporation provides for cumulative voting and contains
provisions that limit the powers of our Board of Directors to adopt a
stockholder rights plan. Our authorized capital stock increased to 300,000,000
shares of Class A Common Stock, 300,000,000 shares of Class B Common Stock and
100,000 shares of preferred stock (which could be issued by the Board of
Directors only in connection with the adoption of a stockholder rights plan).
All of our outstanding 12% Series A Cumulative Compounding Preferred Stock
were converted by the Restated Certificate of Incorporation into shares of Class
A Common Stock. Each preferred stockholder received 45.42359 shares of Class A
Common Stock. No shares of 12% Series A Cumulative Compounding Preferred Stock
are authorized for issuance in the Restated Certificate of Incorporation.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
on an actual and as adjusted basis. This table should be read in conjunction
with "Unaudited Pro Forma Combined Condensed Financial Statements,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------
ACTUAL AS ADJUSTED
--------------------------- ------------
INTERSIL INTERSIL
INTERSIL HOLDING HOLDING
CORPORATION CONSOLIDATED CONSOLIDATED
----------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C>
Cash........................................................... $ 40.1 $ 40.1 $142.7
======= ====== ======
Long-term debt, including current portion:
Senior Credit Facilities:
Revolving Credit Facility.................................. -- -- --
Tranche B Senior Term Facility(1).......................... 205.0 205.0 --
13 1/4% Senior Subordinated Notes due 2009(2)................ 199.7 199.7 129.7
13.5% Subordinated Holding PIK Note due 2010(3).............. -- 31.3 --
11.13% Seller Holding PIK Note due 2010(4)................... -- 93.9 --
Other...................................................... 4.4 4.4 4.4
------- ------ ------
Total long-term debt.................................. 409.1 534.3 134.1
------- ------ ------
12% Series A Cumulative Compounding Preferred Stock(5)(7)...... -- 87.9 --
Shareholders' equity:
Common stock................................................. -- 0.7 0.9
Additional paid-in capital(2)(3)............................. 215.8 2.6 606.8
Retained deficit............................................. (21.8) (21.8) (46.0)
Unearned compensation........................................ -- (0.6) --
Accumulated other comprehensive income....................... 0.3 0.3 0.3
------- ------ ------
Total shareholders' equity(6)(8)...................... 194.3 (18.8) 562.0
------- ------ ------
Total capitalization.............................. $ 603.4 $603.4 $696.1
======= ====== ======
</TABLE>
- ------------------
(1) The Tranche B Senior Term Facility will mature in 2005 and will require 1%
of the original principal amount to be repaid in each of the first five
years.
(2) The notes were issued as part of the units, which consisted of $200.0
million principal amount of 13 1/4% Senior Subordinated Notes due 2009 and
warrants to purchase 3,703,707 shares of Class A Common Stock of Intersil
Holding. Reflects the gross proceeds from the units offering of $200.0
million net of $0.3 million ascribed to the warrants. The $0.3 million
associated with the sale of the warrants is reflected as an increase to
additional paid-in capital of Intersil.
(3) Citicorp Mezzanine Partners, L.P. contributed $30.0 million in cash in
exchange for the 13.5% Subordinated Holding PIK Note due 2010 and warrants
to purchase 3,703,707 shares of Class A Common Stock. Reflects the gross
proceeds of $30.0 million net of $0.3 million ascribed to the warrants. The
$0.3 million associated with the sale of the warrants is reflected as an
increase to additional paid-in capital of Intersil Holding.
(4) The 11.13% Seller Holding PIK Note issued to Harris will mature in 2010 and
does not require payment of cash interest until then. The 11.13% Seller
Holding PIK Note is an obligation of Intersil Holding only and is not
reflected in the historical or pro forma financial statements of Intersil,
and the proceeds have been contributed to Intersil's capital.
(5) Sterling Holding Company, LLC and senior management, other key employees and
certain other investors purchased shares of 12% Series A Cumulative
Compounding Preferred Stock and common stock of Intersil Holding, for a
total of about $76.5 million in cash and Harris purchased shares of 12%
Series A Cumulative Compounding Preferred Stock and common stock of Intersil
Holding for about $8.5 million in cash. The total cash preferred stock
investment was $85.0 million, and the total cash common stock investment was
$5.0 million. See "Ownership of Capital Stock." Intersil has 1,000 shares
authorized and 1,000 shares issued and outstanding of its $.01 par value
common stock.
(6) Intersil Holding Consolidated Shareholder's Equity is adjusted to eliminate
the investment in Intersil of $210.0 million.
(7) As adjusted assumes all of the outstanding shares of the 12% Series A
Cumulative Compounding Preferred Stock were converted into common stock at
$1,000 per share plus accumulated and unpaid dividends, based on the per
share amount we received in the initial public offering.
(8) Shareholders' equity as adjusted for the initial public offering has been
reduced by $9.9 million for the one-time write-off of unamortized debt
issuance costs associated with the debt being repaid, $13.4 million for
prepayment premiums on the portions of the 13 1/4% Senior Subordinated Notes
due 2009 being repaid and the Tranche B Senior Term Facility being repaid
and $0.3 million for the write-off related to the value ascribed to the
warrants issued on the 13.5% Subordinated Holding PIK Note due 2010 to be
repaid.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements for Intersil Holding
are based on or derived from our historical predecessor Consolidated Financial
Statements included elsewhere in this prospectus. The acquisition of the
semiconductor business was consummated on August 13, 1999.
The Unaudited Pro Forma Combined Statements of Operations of Intersil
Corporation and Intersil Holding give effect to the transactions as if they had
occurred as of July 4, 1998. The transactions and the related adjustments are
described in the accompanying notes. The pro forma financial statements do not
purport to represent what Intersil's or Intersil Holding's results of operations
or financial position would actually have been had the transactions in fact
occurred on the dates specified nor do they purport to project the results of
operations or financial position for any future period or at any future date.
The acquisition of the semiconductor business has been accounted for using
the purchase method of accounting. After the acquisition of the semiconductor
business, the total purchase cost of the acquisition was allocated to the
tangible and intangible assets and liabilities of the semiconductor business
based upon their respective fair values. In the opinion of our management, all
adjustments that are necessary to present fairly the pro forma data have been
made.
The Pro Forma Combined Condensed Financial Statements should be read in
conjunction with our Consolidated Financial Statements and notes thereto as of
December 31, 1999 and July 2, 1999 and for the fiscal year ended July 2, 1999,
the 6 weeks ended August 13, 1999, and the unaudited 26 weeks ended January 1,
1999 and the unaudited 20 weeks ended December 31, 1999, included elsewhere in
this registration statement. See "Forward Looking Statements," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Risk Factors--Risks Related to Use of Estimates in Pro Forma Information."
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 2, 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTERSIL CORPORATION INTERSIL HOLDING
--------------------------------------- -------------------------------------------------------
HISTORICAL CONSOLIDATED OFFERING PRO FORMA
(PREDECESSOR) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------- ----------- --------- ----------- ------------ ----------- ------------
(IN MILLIONS)
Sales:
Product sales............. $532.7 $532.7 $532.7 $532.7
Costs and Expenses:
Cost of product sales..... 349.8 $(14.4)(a) 335.4 335.4 335.4
Research and
development............. 67.0 67.0 67.0 67.0
Selling, administrative
and general............. 84.0 3.0 (b) 87.0 87.0 87.0
Harris corporate expense
allocation.............. 9.3 (9.3)(b) --
Intangible amortization... 2.4 10.3 (d) 12.7 12.7 12.7
------ ------ ------ ------ ------
Operating income.............. 20.2 10.4 30.6 30.6 30.6
Interest, net............. (1.2) 49.9 (c) 48.7 $ 14.1 (f) 62.8 $(45.7)(h)(i) 17.1
------ ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes....................... 21.4 (39.5) (18.1) (14.1) (32.2) 45.7 13.5
Income taxes (benefit)........ (6.0) (15.4)(e) (21.4) (5.5)(e) (26.9) 17.8 (j) (9.1)
------ ------ ------ ------ ------ ------ ------
Net income (loss)............. 27.4 (24.1) 3.3 (8.6) (5.3) 27.9 22.6
Preferred dividends........... -- -- -- (10.0)(g) (10.0) 10.0 (k) --
------ ------ ------ ------ ------ ------ ------
Net income (loss) to common
shareholders................ $ 27.4 $(24.1) $ 3.3 $(18.6) $(15.3) $ 37.9 $ 22.6
====== ====== ====== ====== ====== ====== ======
Net income (loss) per common
share(1):
Basic........................................................................................................... $ 0.24
Diluted......................................................................................................... 0.23
Weighted average common shares
outstanding(1):
Basic........................................................................................................... 92.5
Diluted......................................................................................................... 99.3
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed
Statement of Operations.
16
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
26 WEEKS ENDED JANUARY 1, 1999
------------------------------------------------------------------------------------------------
INTERSIL CORPORATION INTERSIL HOLDING
--------------------------------------- ------------------------------------------------------
HISTORICAL CONSOLIDATED OFFERING PRO FORMA
(PREDECESSOR) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------- ----------- --------- ----------- ------------ ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales:
Product sales.............. $246.6 $246.6 $246.6 $246.6
Costs and Expenses:
Cost of product sales...... 165.6 $ (7.2)(a) 158.4 158.4 158.4
Research and development... 29.7 29.7 29.7 29.7
Administrative and
general.................. 41.3 1.6 (b) 42.9 42.9 42.9
Harris corporate expense
allocation............... 4.3 (4.3)(b) --
Intangible amortization.... 1.2 5.0 (d) 6.2 6.2 6.2
------ ------ ------ ------ ------
Operating income............... 4.5 4.9 9.4 9.4 9.4
Interest, net.............. (0.4) 25.0 (c) 24.6 $ 7.1 (f) 31.7 $(22.8)(h)(i) 8.9
------ ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes........................ 4.9 (20.1) (15.2) (7.1) (22.3) 22.8 0.5
Income taxes (benefit)......... (1.4) (7.8)(e) (9.2) (2.8)(e) (12.0) 8.9 (j) (3.1)
------ ------ ------ ------ ------ ------ ------
Net income (loss).............. 6.3 (12.3) (6.0) (4.3) (10.3) 13.9 3.6
Preferred dividends............ -- -- -- (5.0)(g) (5.0) 5.0 (k) --
------ ------ ------ ------ ------ ------ ------
Net income (loss) to common
shareholders................. $ 6.3 $(12.3) $ (6.0) $ (9.3) $(15.3) $ 18.9 $ 3.6
====== ====== ====== ====== ====== ====== ======
Net income (loss) per common
share(1):
Basic............................................................................................................ $ 0.04
Diluted.......................................................................................................... 0.04
Weighted average common shares
outstanding(1):
Basic............................................................................................................ 92.5
Diluted.......................................................................................................... 99.3
</TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
26 WEEKS ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
6 WEEKS ENDED AUGUST 13, 1999
----------------------------------------------------- 20 WEEKS ENDED
DECEMBER 31, 1999
PRO FORMA ------------------------
INTERSIL ADJUSTMENTS
CORPORATION ---------------------- INTERSIL INTERSIL
HISTORICAL INTERSIL INTERSIL CONSOLIDATED CORPORATION HOLDING
(PREDECESSOR) CORPORATION HOLDING PRO FORMA HISTORICAL HISTORICAL
------------- ----------- -------- ------------ ----------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Sales:
Product sales.................. $57.3 $57.3 $234.7
Costs and Expenses:
Cost of product sales.......... 39.6 $(1.7)(a) 37.9 142.4
Research and development....... 8.5 8.5 26.0
Selling, administrative and
general...................... 10.9 0.3 (b) 11.2 38.3
Harris corporate expense
allocation................... 1.2 (1.2)(b) -- --
Intangible amortization........ 0.3 1.2 (d) 1.5 3.9
In-process R&D charge.......... -- -- 20.2
----- ----- ----- ------
Operating income (loss)............ (3.2) 1.4 (1.8) 3.9
Interest, net.................. (0.1) 5.9 (c) $ 1.6 (f) 7.4 18.8 $ 5.5
----- ----- ----- ----- ------ -----
Income (loss) before income
taxes............................ (3.1) (4.5) (1.6) (9.2) (14.9) (5.5)
Income taxes (benefit)............. (0.1) (1.8)(e) (0.6)(e) (2.5) 1.4 --
----- ----- ----- ----- ------ -----
Net income (loss).................. (3.0) (2.7) (1.0) (6.7) (16.3) (5.5)
Preferred dividends................ -- -- (1.2)(g) (1.2) -- (3.8)
----- ----- ----- ----- ------ -----
Net income (loss) to common
shareholders..................... $(3.0) $(2.7) $(2.2) $(7.9) $(16.3) $(9.3)
===== ===== ===== ===== ====== =====
Net income (loss) per common
share(1):
Basic..............................................................................................................
Diluted............................................................................................................
Weighted average common shares
outstanding(1):
Basic..............................................................................................................
Diluted............................................................................................................
<CAPTION>
26 WEEKS ENDED DECEMBER 31, 1999
-------------------------------------------
INTERSIL
HOLDING
CONSOLIDATED OFFERING PRO FORMA
PRO FORMA ADJUSTMENTS AS ADJUSTED
------------ ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Sales:
Product sales.................. $292.0 $292.0
Costs and Expenses:
Cost of product sales.......... 180.3 180.3
Research and development....... 34.5 34.5
Selling, administrative and
general...................... 49.5 49.5
Harris corporate expense
allocation................... -- --
Intangible amortization........ 5.4 5.4
In-process R&D charge.......... 20.2 20.2
------ ------
Operating income (loss)............ 2.1 2.1
Interest, net.................. 31.7 $(22.8)(h)(i) 8.9
------ ------ ------
Income (loss) before income
taxes............................ (29.6) 22.8 (6.8)
Income taxes (benefit)............. (1.1) 8.9 (j) 7.8
------ ------ ------
Net income (loss).................. (28.5) 13.9 (14.6)
Preferred dividends................ (5.0) 5.0 (k) --
------ ------ ------
Net income (loss) to common
shareholders..................... $(33.5) $ 18.9 $(14.6)
====== ====== ======
Net income (loss) per common
share(1):
Basic............................ $(0.16)
Diluted.......................... (0.16)
Weighted average common shares
outstanding(1):
Basic............................ 92.5
Diluted.......................... 92.5
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed
Statement of Operations.
17
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
The unaudited pro forma consolidated statements of operations give effect
to the following adjustments:
(a) The total purchase price of $614.3 million was allocated to the assets and
liabilities of the semiconductor business based upon their approximate fair
value. The fair value of the net assets acquired exceeded the purchase
price resulting in negative goodwill. This negative goodwill was allocated
to property and equipment and identified intangible assets based on their
relative fair value as follows:
<TABLE>
<CAPTION>
ALLOCATION
FAIR VALUE OF OF EXCESS ADJUSTED
ASSETS ACQUIRED FAIR VALUE FAIR VALUE
--------------- ---------- ----------
<S> <C> <C> <C>
Net current assets............................. $160.6 -- $160.6
Other amounts.................................. 17.2 -- 17.2
Property & equipment........................... 481.0 $(153.2) 327.8
Developed technology........................... 80.0 (23.9) 56.1
Customer base.................................. 33.0 (10.0) 23.0
In-process research and development............ 29.0 (8.8) 20.2
Assembled workforce............................ 13.5 (4.1) 9.4
------ ------- ------
814.3 $(200.0) $614.3
======= ======
Purchase price................................. 614.3
------
Excess fair value.............................. $200.0
======
</TABLE>
As a result of the allocation of negative goodwill to property, plant and
equipment, the net book carrying value at August 13, 1999 of $403.7 million
was reduced by $75.9 million to the fair value of $327.8 million. Therefore,
for pro forma purposes, depreciation expense was reduced by $14.4 million,
$7.2 million and $1.7 million for the fiscal year ended July 2, 1999, the 26
weeks ended January 1, 1999 and the 6 weeks ended August 13, 1999,
respectively.
(b) Historically, Harris allocated corporate headquarters expenses to the
semiconductor business based on the semiconductor business' net sales as a
percentage of Harris' net sales. This pro forma adjustment represents the
elimination of this allocation and our estimate of the cost of replacing
these services as a stand-alone company, calculated as follows:
<TABLE>
<CAPTION>
26 WEEKS
FISCAL YEAR ENDED ENDED 6 WEEKS ENDED
JULY 2, 1999 JANUARY 1, 1999 AUGUST 13, 1999
----------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Harris corporate expenses allocation..... $ 9.3 $ 4.3 $ 1.2
----- ----- -----
Company's anticipated expenses:
Finance, legal and professional........ 2.0 1.0 0.20
Human resources/benefits............... 0.5 0.3 0.05
Other.................................. 0.5 0.3 0.05
----- ----- -----
Total anticipated expenses.......... 3.0 1.6 0.3
----- ----- -----
Net reduction............................ $ 6.3 $ 2.7 $ 0.9
===== ===== =====
</TABLE>
(c) Represents interest expense associated with the indebtedness incurred in
connection with the acquisition of the semiconductor business, calculated
as follows:
<TABLE>
<CAPTION>
26 WEEKS
FISCAL YEAR ENDED ENDED 6 WEEKS ENDED
JULY 2, 1999 JANUARY 1, 1999 AUGUST 13, 1999
----------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Interest on Notes (13.25% on $200.0 $26.5 $13.3 $ 3.1
million)................................
Estimated interest on Senior Term
Facility (9.94% on $205.0 million)..... 20.4 10.2 2.4
Estimated interest on Revolving Credit
Facility
(9.19% on $15.0 million)............... 1.4 0.7 0.2
----- ----- -----
Total cash interest expense......... 48.3 24.2 5.7
Deferred financing fees.................. 1.6 0.8 0.2
----- ----- -----
Total interest expense.............. $49.9 $25.0 $ 5.9
===== ===== =====
</TABLE>
A change in the interest rate on the Senior Term Facility and the Revolving
Credit Facility of one-eighth of one percent (0.125%) would change interest
expense by $0.28 million for the fiscal year ended July 2, 1999, $0.14
million for the 26 weeks ended January 1, 1999 and $0.03 million for the 6
weeks ended August 13, 1999.
18
<PAGE>
Financing fees are composed of $6.0 million on the notes (amortized over 10
years) and $6.2 million on the Senior Term Facility and Revolving Credit
Facility (amortized over 6 years).
(d) Represents the adjustment to reflect additional amortization expense for
the identified intangible assets. The appraisal of the acquired business,
after adjustment for negative goodwill, included $108.7 million of
identified intangible assets including, $56.1 million of developed
technology, $23.0 million to customer base, $9.4 million to assembled
workforce and $20.2 million of purchased in-process research and
development. The purchased in-process research and development related to
various products under development that had not yet reached technological
feasibility and had no future alternative uses. Pursuant to Regulation S-X,
the in-process research and development has been written off against
retained earnings and has not been reflected in the pro forma consolidated
statement of operations for the unaudited pro forma combined statement of
operations for the fiscal year ended July 2, 1999. The remaining identified
intangibles are being amortized over the following lives:
<TABLE>
<CAPTION>
26 WEEKS
FISCAL YEAR ENDED ENDED 6 WEEKS ENDED
IDENTIFIED INTANGIBLE AMOUNT LIFE JULY 2, 1999 JANUARY 1, 1999 AUGUST 13, 1999
- --------------------- ------ -------- ----------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Developed $56.1 11 years $ 5.1 $ 2.5 $0.6
technology.........
Customer base........ 23.0 7 years 3.3 1.6 0.4
Assembled
workforce.......... 9.4 5 years 1.9 0.9 0.2
----- ----- ----
$10.3 $ 5.0 $1.2
===== ===== ====
</TABLE>
(e) Represents the adjustment of the pro forma income tax provision related to
the pro forma pretax adjustments for Intersil and Intersil Holding computed
on a stand-alone basis at the effective domestic tax rate of 39%.
(f) Represents interest expense associated with Intersil Holding's indebtedness
incurred in connection with the acquisition of the semiconductor business,
calculated as follows:
<TABLE>
<CAPTION>
26 WEEKS
FISCAL YEAR ENDED ENDED 6 WEEKS ENDED
JULY 2, 1999 JANUARY 1, 1999 AUGUST 13, 1999
----------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Interest on Subordinated Holding PIK
Note
(13.50% on $30.0 million)............. $ 4.1 $ 2.1 $0.5
Interest on Seller Holding PIK Note
(11.13% on $90.0 million)............. 10.0 5.0 1.1
----- ----- ----
$14.1 $ 7.1 $1.6
===== ===== ====
</TABLE>
(g) Represents the adjustment for the accretion of the 12% cumulative dividends
on the 83,434 shares of the mandatorily redeemable 12% Series A Cumulative
Compounding Preferred Stock, with a stated value of $1,000 per share.
(h) Represents the elimination of interest expense associated with debt to be
repaid with the proceeds of the initial public offering. Such amounts were
$44.5 million for the fiscal year ended July 2, 1999 and $22.2 million for
the 26 weeks ended January 1, 1999 and the 26 weeks ended December 31,
1999.
(i) Represents the elimination of the amortization of deferred financing and
debt issuance costs associated with the debt being repaid. Such amounts
were $1.2 million for the fiscal year ended July 2, 1999 and $0.6 million
for the 26 weeks ended January 1, 1999 and the 26 weeks ended December 31,
1999. In connection with the initial public offering, we are required to
write-off unamortized debt issuance costs associated with debt being
repaid. Approximately $9.9 million will be written off concurrent with the
initial public offering. This non-recurring charge has been excluded from
the pro forma combined condensed statements of operations.
(j) Represents the pro forma adjustment for income tax expense related to the
pro forma adjustments made to give effect to the initial public offering at
the effective domestic tax rate of 39%.
(k) Assumes all of the outstanding shares of the 12% Series A Cumulative
Compounding Preferred Stock were converted into common stock at $1,000 per
share plus accumulated and unpaid dividends, based on the per share amount
we received in the initial public offering.
19
<PAGE>
(l) The following table sets forth the computation of pro forma as adjusted
basic and diluted net income (loss) per common share and weighted average
common shares outstanding as follows:
<TABLE>
<CAPTION>
26 WEEKS
FISCAL YEAR ENDED ENDED 26 WEEKS ENDED
JULY 2, 1999 JANUARY 1, 1999 DECEMBER 31, 1999
----------------- --------------- -----------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Numerator
Net income (loss) to common
shareholders (basic and
diluted)......................... $22.6 $ 3.6 $(14.6)
===== ===== ======
Denominator:
Basic:
Shares outstanding at December
31, 1999....................... 66.7 66.7 66.7
Conversion of Preferred Stock.... 3.8 3.8 3.8
Class A Common Stock offering.... 22.0 22.0 22.0
----- ----- ------
Total Basic...................... 92.5 92.5 92.5
Diluted:
Warrants............................ 5.9 5.9 --
Common stock options................ 0.9 0.9 --
----- ----- ------
Total diluted....................... 6.8 6.8 --
----- ----- ------
Total denominator..................... 99.3 99.3 92.5
===== ===== ======
Net income (loss) per common share:
Basic............................... $0.24 $0.04 $(0.16)
Diluted............................. 0.23 0.04 (0.16)
</TABLE>
The effect of dilutive securities is not included in the computation for
the 26 weeks ended December 31, 1999 because to do so would be antidilutive.
20
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA AND OTHER DATA
The following table sets forth selected historical financial data and
supplemental data for Intersil Holding and its predecessor. The historical
financial data as of and for fiscal years 1997, 1998, 1999 and the 6 weeks ended
August 13, 1999 are derived directly from our predecessor's audited Consolidated
Financial Statements included elsewhere in this prospectus, except for revenue
categorized by business unit, which is derived from our predecessor's books and
records. The historical financial data as of and for fiscal years ended 1995 and
1996, which are not included in this prospectus, and the 26 weeks ended January
1, 1999 included elsewhere in this prospectus, are derived directly from our
predecessor's unaudited Consolidated Financial Statements. The historical
financial data as of and for the 20 weeks ended December 31, 1999 are derived
directly from our unaudited Consolidated Financial Statements included elsewhere
in this prospectus. The unaudited Consolidated Financial Statements include all
adjustments necessary for the fair presentation of the financial condition and
the results of operations for these periods and as of these dates. This
information should be read in conjunction with the Consolidated Financial
Statements included elsewhere in this prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
------------------------------------------ ---------------------------------
FISCAL YEARS 26 WEEKS ENDED 6 WEEKS ENDED
------------------------------------------ --------------- ---------------
1995 1996 1997 1998 1999 JANUARY 1, 1999 AUGUST 13, 1999
------ ------ ------ ------ ------ --------------- ---------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Analog & Mixed-Signal................ $379.2 $393.6 $384.4 $390.4 $352.8 $166.0 $ 36.3
Discrete Power....................... 128.2 176.6 154.5 176.4 161.6 73.3 18.0
Wireless............................. 0.0 0.0 6.4 10.0 18.3 7.3 3.0
------ ------ ------ ------ ------ ------ ------
Total revenue............................ $507.4 $570.2 $545.3 $576.8 $532.7 $246.6 $ 57.3
====== ====== ====== ====== ====== ====== ======
Gross profit............................. $178.5 $227.1 $199.3 $207.5 $182.9 $ 81.0 $ 17.7
Research and development................. 50.6 69.4 75.2 75.1 67.0 29.7 8.5
Selling, general and administrative...... 94.6 103.6 99.3 98.2 84.0 41.3 10.9
Harris corporate expense allocation...... 9.1 10.3 10.0 10.0 9.3 4.3 1.2
Intangible amortization.................. 2.3 2.3 2.3 2.3 2.4 1.2 0.3
In-process R&D charge.................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Operating income (loss).................. 21.9 41.5 12.5 21.9 20.2 4.5 (3.2)
Interest, net............................ 0.6 (1.0) (0.6) (0.9) (1.2) (0.4) (0.1)
------ ------ ------ ------ ------ ------ ------
Income (loss) before income taxes........ 21.3 42.5 13.1 22.8 21.4 4.9 (3.1)
Income taxes (benefit)................... (4.3) 2.6 1.9 9.9 (6.0) (1.4) (0.1)
------ ------ ------ ------ ------ ------ ------
Net income (loss)........................ 25.6 39.9 11.2 12.9 27.4 6.3 (3.0)
Preferred dividends...................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss) to common
shareholders........................... $ 25.6 $ 39.9 $ 11.2 $ 12.9 $ 27.4 $ 6.3 $ (3.0)
====== ====== ====== ====== ====== ====== ======
LOSS PER SHARE:
Basic and diluted........................
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (IN MILLIONS):
Basic and diluted........................
SUPPLEMENTAL DATA:
Depreciation............................. $ 44.5 $ 47.6 $ 50.2 $ 65.0 $ 78.2 $ 38.1 $ 8.7
Capital expenditures..................... $ 80.4 $141.8 $173.3 $ 90.2 $ 38.6 $ 18.1 $ 1.9
Total interest expense................... $ -- $ -- $ -- $ -- $ 0.1 $ -- $ --
Ratio of earnings to fixed
charges(1)............................. 9.5x 21.2x 7.0x 11.9x 10.7x 5.5x (3)
Ratio of earnings to fixed charges and
preferred stock dividends(2)........... 9.5x 21.2x 7.0x 11.9x 10.7x 5.5x (4)
BALANCE SHEET DATA (END OF PERIOD):
Cash..................................... $ -- $ -- $ -- $ -- $ -- $ -- $ 1.4
Total assets............................. 546.2 647.0 773.3 810.3 761.2 766.0 736.1
Long-term debt, including current
portion................................ -- -- 1.4 4.1 4.6 4.7 4.5
Mandatorily redeemable preferred stock... -- -- -- -- -- -- --
Total shareholders' equity (deficit)..... 456.2 520.9 646.2 699.1 658.9 684.0 657.3
<CAPTION>
SUCCESSOR
-----------------
20 WEEKS ENDED
-----------------
DECEMBER 31, 1999
-----------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Analog & Mixed-Signal................ $140.5
Discrete Power....................... 81.7
Wireless............................. 12.5
------
Total revenue............................ $234.7
======
Gross profit............................. $ 92.3
Research and development................. 26.0
Selling, general and administrative...... 38.3
Harris corporate expense allocation...... --
Intangible amortization.................. 3.9
In-process R&D charge.................... 20.2
------
Operating income (loss).................. 3.9
Interest, net............................ 24.3
------
Income (loss) before income taxes........ (20.4)
Income taxes (benefit)................... 1.4
------
Net income (loss)........................ (21.8)
Preferred dividends...................... 3.9
------
Net income (loss) to common shareholders. $(25.7)
======
LOSS PER SHARE:
Basic and diluted........................ $(0.39)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (IN MILLIONS):
Basic and diluted........................ 66.7
SUPPLEMENTAL DATA:
Depreciation............................. $ 22.4
Capital expenditures..................... $ 12.6
Total interest expense................... $ 24.8
Ratio of earnings to fixed
charges(1)............................. (3)
Ratio of earnings to fixed charges and
preferred stock dividends(2)........... (4)
BALANCE SHEET DATA (END OF PERIOD):
Cash..................................... $ 40.1
Total assets............................. 717.0
Long-term debt, including current
portion................................ 534.3
Mandatorily redeemable preferred stock... 87.9
Total shareholders' equity (deficit)..... (18.8)
</TABLE>
- ------------------
(1) Earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense on debt and amortization of deferred
debt issuance costs and the portion (about one-third) of rental expense that
we believe is representative of the interest component of rental expense.
(2) Earnings as defined above, fixed charges as defined above plus preferred
stock dividends, whether paid or accreted.
(3) The deficiency of earnings available to cover fixed charges for the six
weeks ended August 13, 1999 and for the twenty weeks ended December 31, 1999
is $3.1 million and $20.4 million, respectively.
(4) The deficiency of earnings available to cover fixed charges and preferred
stock dividends for the six weeks ended August 13, 1999 and for the twenty
weeks ended December 31, 1999 is $3.1 million and $24.3 million,
respectively.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to our Consolidated Financial Statements,
including the notes thereto appearing elsewhere in this prospectus. Except for
historical information, the discussions in this section of the prospectus
contain forward-looking statements that involve risks and uncertainties. Actual
results could differ materially from those discussed below.
OVERVIEW
We are a systems level designer and manufacturer of analog, mixed signal,
discrete power and wireless communications semiconductors. We use our
proprietary technologies and design capabilities to provide systems solutions
for the communications power management and wireless markets. We sell over 4,500
products to more than 28,000 customers worldwide.
BASIS OF PRESENTATION
We were formed on August 13, 1999 through a series of transactions, in
which we and our wholly-owned subsidiary, Intersil, acquired the semiconductor
business of Harris. Intersil and its wholly-owned domestic and foreign
subsidiaries include the operations of the Predecessor. Our fiscal year 2000
began on July 3, 1999 and our second fiscal quarter ended December 31, 1999.
The total purchase price of the semiconductor business acquisition was
$614.3 million, which included transaction costs of approximately $7.8 million
and deferred financing costs of $12.2 million. The consideration paid by
Intersil Holding was $504.3 million in cash of which $420.0 million was financed
through borrowings from the senior credit facilities, the 13 1/4% Senior
Subordinated Notes due 2009 and 13.5% Subordinated Holding "Pay-In-Kind" (PIK)
Note and the issuance of a $90.0 million 11.13% PIK Note to Harris.
The acquisition was accounted for using the purchase method of accounting
and accordingly, the operating results of the semiconductor business have been
included in Intersil's consolidated financial statements since the date of
acquisition. The total purchase price was allocated to the assets and
liabilities of the semiconductor business based upon their approximate fair
value. The fair value of the net assets acquired exceeded the purchase price
resulting in negative goodwill of $200.0 million. This negative goodwill was
allocated to the identified intangibles and property and equipment based on
their relative fair values. The most significant effects were to decrease
property, plant and equipment and to increase certain intangibles and
liabilities. Accordingly, certain financial information for the periods prior to
August 13, 1999 is not comparable to periods subsequent to August 13, 1999. All
income statement information for the first six months ending December 31, 1999
of the fiscal year 2000 represents the combined results of the semiconductor
business from July 3, 1999 through August 13, 1999 and Intersil Holding from
August 14, 1999 through December 31, 1999.
22
<PAGE>
QUARTERLY RESULTS
The following table sets forth the unaudited historical quarterly revenue
and gross margin of our product groups:
<TABLE>
<CAPTION>
COMBINED
FISCAL YEAR 1998 FISCAL YEAR 1999 FISCAL YEAR 2000
--------------------------------- --------------------------------- -----------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
------ ------ ------ ------ ------ ------ ------ ------ ------- -------
(IN MILLIONS, EXCEPT FOR PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Analog & Mixed-Signal.... $ 96.3 $ 93.9 $ 95.2 $105.0 $ 79.8 $ 86.2 $ 88.5 $ 98.3 $ 82.8 $ 94.0
Discrete Power........... 44.7 45.2 45.7 40.8 38.5 34.8 42.3 46.0 44.9 54.8
Wireless................. 2.9 2.2 2.6 2.3 4.2 3.1 4.6 6.4 6.2 9.3
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total................ $143.9 $141.3 $143.5 $148.1 $122.5 $124.1 $135.4 $150.7 $133.9 $158.1
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
GROSS MARGIN
Analog & Mixed-Signal.... $ 34.2 $ 39.4 $ 39.9 $ 46.5 $ 33.0 $ 33.2 $ 38.3 $ 42.1 $ 35.1 $ 42.5
Discrete Power........... 10.8 12.4 10.6 10.3 8.1 5.0 7.2 9.5 11.0 15.5
Wireless................. 0.9 0.1 1.1 1.3 0.9 0.8 1.6 3.2 2.2 3.6
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total................ $ 45.9 $ 51.9 $ 51.6 $ 58.1 $ 42.0 $ 39.0 $ 47.1 $ 54.8 $ 48.3 $ 61.6
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
GROSS MARGIN PERCENTAGE
Analog & Mixed-Signal.... 36% 42% 42% 44% 41% 39% 43% 43% 42% 45%
Discrete Power........... 24 27 23 25 21 14 17 21 24 28
Wireless................. 31 5 42 57 21 26 35 50 35 39
Total................ 32 37 36 39 34 31 35 36 36 39
</TABLE>
Our first fiscal quarter is generally the weakest due to slow demand from
government customers, model year changeovers in the automotive industry and
summer holiday seasons, primarily in Europe. Our fourth fiscal quarter is
generally the strongest due to strong demand from government customers.
The semiconductor industry has historically experienced declining selling
prices over the past 15 years, and we expect that trend to continue in the
future. We expect to realize productivity gains which will offset the decline in
average selling prices and therefore we do not anticipate a significant adverse
effect on our financial condition.
Industry demand weakened significantly in the first half of fiscal 1999 due
to widespread inventory adjustments which led to excess manufacturing capacity
and steep declines in product prices. This trend impacted all three product
groups. Our results, and the industry as a whole, began to strengthen in the
third fiscal quarter of 1999, with an increase in sales of 9.1% from the second
quarter to the third quarter and 11.3% from the third quarter to the fourth
quarter. For the six months ended December 31, 1999, industry conditions have
continued to improve. Additionally, the introduction of our new PRISM II
wireless product has accelerated growth in the Wireless product group.
As Wireless is an emerging business, gross margins have fluctuated during
the start-up period due to timing of sales and variability of yield performance.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth income statement data for the periods
indicated as a percentage of revenue:
<TABLE>
<CAPTION>
FISCAL YEAR 26 WEEKS ENDED
----------------------------- ----------------------------
COMBINED
JANUARY 1, DECEMBER 31,
1997 1998 1999 1999 1999
----- ----- ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Analog & Mixed-Signal.......... 70.5% 67.7% 66.2% 67.3% 60.6%
Discrete Power................. 28.3 30.6 30.4 29.7 34.1
Wireless....................... 1.2 1.7 3.4 3.0 5.3
----- ----- ----- ------ ------
Total....................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ------ ------
Cost and Expenses:
Cost of goods sold............. 63.5 64.0 65.6 67.3 62.4
Research and development....... 13.8 13.0 12.6 12.0 11.8
Selling, administrative and
general..................... 20.0 18.8 17.5 18.5 17.2
Intangible amortization........ 0.4 0.4 0.5 0.4 1.5
In-process research and
development................. -- -- -- -- 6.9
----- ----- ----- ------ ------
Operating income............ 2.3 3.8 3.8 1.8 0.2
Interest, net.................. (0.1) (0.2) (0.2) (0.2) 8.3
----- ----- ----- ------ ------
Income (loss) before income
taxes.......................... 2.4 4.0 4.0 2.0 (8.1)
Income taxes (benefit)........... 0.3 1.8 (1.1) (0.6) 0.4
----- ----- ----- ------ ------
Net income (loss)................ 2.1% 2.2% 5.1% 2.6% (8.5)%
===== ===== ===== ====== ======
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED WITH SIX MONTHS ENDED JANUARY 1,
1999
Revenue
Revenue for the six months ended December 31, 1999 increased 18.4% to
$292.0 million from $246.6 million during the six months ended January 1, 1999.
This growth is the result of improved demand across all business units,
primarily as a result of improved market conditions. Wireless sales growth of
112% was driven by increased market acceptance of our PRISM(R) products.
Geographically, 48.9%, 22.9% and 28.2% of product sales were derived in
North America, Europe and Asia, respectively, during the six months ended
December 31, 1999, compared to 54.1%, 24.9% and 21.0% during the six months
ended January 1, 1999.
Gross Margin
Cost of goods sold consists primarily of purchased materials, labor and
overhead (including depreciation) associated with product manufacturing, plus
royalty, warranty and sustaining engineering expenses pertaining to products
sold. Gross margin on product sales increased 35.7% to $109.9 million in the six
months ended December 31, 1999 from $81.0 million in the six months ended
January 1, 1999. As a percent of sales, gross margin was 37.6% during the six
months ended December 31, 1999 and 32.8% during the six months ended January 1,
1999. This increase was substantially due to a decrease in depreciation expense
resulting from a revaluation of our property, plant and equipment due to
purchase accounting, greater capacity utilization, from 62% during the six
months ended January 1, 1999 to 80% during the six months ended December 31,
1999, and increased manufacturing efficiencies resulting from cost reductions
related to headcount reductions.
Operating Expenses
R&D expenses consist primarily of salaries and selected costs of employees
engaged in product/process research, design and development activities, as well
as related subcontracting activities, prototype development, cost of design
tools and technology license agreement expenses. R&D expenses increased
24
<PAGE>
16.2% to $34.5 million during the six months ended December 31, 1999 from $29.7
million during the first half of fiscal 1999. As a percent of sales, R&D
expenses remained relatively flat at 11.8% for the six months ended December 31,
1999 from 12.0% for the six months ended January 1, 1999. R&D expense included
continued investment in the PRISM(R) chip sets and in the power management
integrated circuits area, focusing in the categories of communications and
computing, which led our growth of new product revenue during fiscal 1999.
In connection with the acquisition, we allocated $20.2 million of the
purchase price to in-process R&D projects. This allocation represents the
estimated fair value based on risk-adjusted cash flows related to the incomplete
products. At the date of acquisition, the development of these projects had not
yet reached technological feasibility and the in-process R&D had no alternative
future uses. Accordingly, these costs were expensed as a one-time charge to
earnings in the combined six months ended December 31, 1999.
In making the purchase price allocation, we relied on present value
calculations of income, an analysis of project accomplishments and completion
costs and an assessment of overall contribution and project risk. The amounts
assigned to the in-process R&D were determined by identifying significant
research projects for which technological feasibility had not been established.
The amounts assigned to the in-process R&D were determined by identifying
significant research projects for which technological feasibility had not been
established. The fair values assigned prior to allocation of negative goodwill
to each of the significant projects and the stage of completion are reported
below.
FAIR VALUE STAGE OF
PRODUCT (IN MILLIONS) COMPLETION
------- ------------- ----------
SMPS IGBT.......................................... $ 2.4 60%
PRISM II........................................... 2.4 90
HIP 6601/2/3....................................... 1.5 75
HC 1540............................................ 0.4 80
HC 7581............................................ 3.4 60
HIP 6210/6220...................................... 2.4 50
DC to DC Power Converters.......................... 2.2 35
Gen III Radiation Hardened MOSFETs................. 8.0 60
Other.............................................. 6.3 38
-----
Total............................................ $29.0
=====
A discussion of the most significant projects follows:
SMPS IGBT
SMPS IGBT refers to a project researched and in development in our discrete
power product line area. AC to DC power supplies are designed to use high
voltage power metal oxide semiconductor field effect transistors, or MOSFETs, to
convert an AC voltage into a DC voltage. The new switch mode power supply, or
SMPS, family of insulated gate bipolar transistors, or IGBTs, will combine the
fast speed, unclamped inductive switching and low gate charge speed of the power
MOSFET with the high current density and low forward voltage drop of the IGBT.
The result will be a lower cost and more efficient product than currently
available high voltage MOSFET products.
PRISM II
PRISM II refers to a project researched and in development in our wireless
product line area. PRISM II will be a complete silicon solution for the design
of Wireless Local Area Networks, or WLANs. Comprised of five highly integrated
chips incorporating advanced silicon germanium technology, PRISM II will deliver
all required analog and digital circuitry for the physical and medium access
controller layers, while providing a complete "antenna-to-computer" solution for
high data rate WLANs. The product will provide end-users in the computer market
with a low cost, small and lightweight medium for WLAN connection.
25
<PAGE>
HIP6601/2/3
HIP6601/2/3 refers to another chipset family researched and in development
in our analog and mixed signal product line area. HIP6601/2/33 will be designed
to support the next generation Intel and AMD processors that will be used in
file servers, desktops, and workstations. The HIP6601, HIP6602 and HIP6603 will
be a family of similar controllers and drivers designed to support various high
performance CPU power supply conversion requirements.
HC1540
HC1540 refers to an integrated circuit and relay researched and in
development in our analog and mixed signal product line area. HC1540 will be a
high voltage, switch for use in the telecom industry.
HC7581
HC7581 refers to a new subscriber line interface circuit, or SLIC,
researched and in development in our analog and mixed signal product line area.
SLICs are required in all telecom exchange systems to interface with signals
entering into telecommunication systems.
HIP6210/6220
HIP6210/6220 refer to a chipset researched and in development in our analog
and mixed signal product line area. HIP6210/6220 are designed to support the
personal computer market by saving energy. These chips will sense different
power requirement levels and regulate the flow of the power based on essential
needs.
DC to DC Power Converters
DC to DC power converters refer to a project researched and in development
in our space and defense group. The DC to DC power converter will be the first
in a series of radiation-hardened, high reliability power supplies. This power
supply source will be smaller in size, of less weight and more efficient than
currently available technology. The initial market will be for usage in
satellites. However, a variety of other commercial and military space
applications are envisioned.
Gen III Radiation Hardened MOSFETs
Gen III radiation hardened metal oxide semiconductor field effect
transistors, or MOSFETs, refer to a project researched and in development in our
discrete power product line area. This technology will reduce the die size used
in commercial satellites by 50% while maintaining a high degree of radiation
hardness. Launch costs of commercial satellites are directly proportional to a
satellite's size and weight. The die size reduction will enable us to place our
silicon in packages that are smaller and lighter thereby providing the end-user
with a more economical printed circuit board.
The value assigned to purchased in-process R&D was determined by estimating
the costs to develop the purchased in-process R&D into commercially viable
products and discounting the net cash flows to their present value.
Remaining development efforts for these in-process R&D projects include
various phases of design, development and testing. The anticipated completion
dates for the in-process R&D projects will occur within the next one and one
half years, after which we expect to begin generating economic benefits from the
technologies. Expenditures to complete these projects are expected to total
approximately $12.1 million in fiscal year 2000, and $1.3 million in fiscal year
2001.
These estimates are subject to change, given the uncertainties of the
development process, and no assurance can be given that deviations from these
estimates will not occur. We expect to continue these development efforts and
believe we have a reasonable chance of successfully completing the R&D programs.
However, there is risk associated with the completion of the projects and there
is no assurance that any will meet with either technological or commercial
success.
SG&A costs, which include marketing, selling, administrative and general
expenses, and Harris corporate expense allocation, increased to $50.2 million
during the six months ended December 31, 1999 from $45.7 million during the six
months ended January 1, 1999. This increase was due to additional selling costs
resulting from higher sales in fiscal 2000 and additional marketing costs
associated with the new company branding initiative. Operating expenses include
allocated charges by Harris to us for legal, financial and other
26
<PAGE>
administrative expenses of $1.2 million for the six weeks ended August 13, 1999
and $4.3 million for the six months ended January 1, 1999.
Certain intangible assets were recorded on the opening balance sheet of
Intersil as part of purchase accounting. These assets are being amortized over
their useful lives ranging from five to eleven years.
Interest Expense
In connection with the acquisition of the semiconductor business, we
entered into new credit facilities. See "--Liquidity and Capital Resources."
Interest expense related to this debt for Intersil Holding during the six months
ended December 31, 1999 was $24.8 million, excluding interest income of $0.6
million.
Tax Expense
The tax benefit for the combined six months ended December 31, 1999 is not
comparable to the six months ended January 1, 1999, due to the different tax
structures of the semiconductor business and Intersil Holding.
Backlog
We had backlog at December 31, 1999 of $192.4 million compared to $174.0
million at July 2, 1999.
FISCAL 1999 COMPARED WITH 1998
Revenue
Revenue for fiscal year 1999 decreased 7.6% to $532.7 million from $576.8
million in fiscal year 1998. This decrease is the result of continued soft
market conditions and resulting adverse effects on semiconductor demand. This
trend continued through the second quarter of fiscal 1999. We believe that the
principal causes for the decline were initially high inventory levels of our
products at our distributors, which decreased 17% from fiscal year 1998 to
fiscal year 1999, as well as high levels of inventory at customers. This was
followed by an overall drop in global semiconductor demand of 8.5% in calendar
year 1998. Particularly hard hit were our Discrete Power products where prices
of power metal oxide semiconductor field effect transistors, or MOSFETs,
declined by nearly 15%. Additionally, distributors and major OEMs reduced the
amount of pipeline inventory in the channel, taking advantage of the shorter
lead-times and lower prices. During the third fiscal quarter of 1999, we began
to experience an increase in new orders, which resulted in a 9.1% increase in
sales in the third quarter versus the preceding quarter. The positive trend
continued into the fourth quarter with an increase in sales of 11.3% from the
third quarter.
Geographically, 53.5%, 24.6% and 21.9% of product sales were derived in
North America, Europe and Asia, respectively, during fiscal year 1999, compared
to 53.8%, 28.0%, and 18.2% in fiscal year 1998.
Gross Margin
Gross margin on product sales declined 11.9% to $182.9 million in fiscal
year 1999 from $207.5 million in fiscal year 1998. As a percent of sales, gross
margin was 34.3% in fiscal year 1999 and 36.0% in fiscal year 1998. This
decrease was substantially due to price pressure worldwide for our Discrete
Power products and a $13.2 million increase in our depreciation expense
resulting from the additional capital expenditures that went into our 8-inch
wafer fab in Mountaintop, Pennsylvania. Our gross margin decline was partially
offset by a series of cost reduction initiatives which resulted in lower
operating costs and improved pricing and terms with our suppliers of raw
materials.
Operating Expenses
R&D expenses decreased 10.8% to $67.0 million in fiscal year 1999 from
$75.1 million in fiscal year 1998. During fiscal year 1999, we focused our
resources on targeted applications and reduced programs that did not support our
emphasis. Major investment continued on the PRISM(R) chip set which addresses
the wireless local area network market. R&D for products designed for the power
management market was principally focused on computing and communications which
led our growth of new product revenue during fiscal year 1999.
SG&A costs decreased 13.7% to $93.3 million in fiscal year 1999 from $108.1
million in fiscal year 1998. The decrease in SG&A was primarily due to increased
efficiencies resulting from a reorganization of
27
<PAGE>
the internal sales force and external sales representative firms and reduction
of administrative expenses including headcount reductions. Operating expenses
include allocated charges by Harris to us for legal, financial and other
administrative expenses of $9.3 million for fiscal year 1999 and $10.0 million
for fiscal year 1998.
Tax Expenses
The tax benefit of $6.0 million in fiscal year 1999 was primarily driven by
changes in the Malaysian tax system, resulting in fiscal year 1999 income not
being subject to tax.
Backlog
We had backlog at July 2, 1999 of $174.0 million compared to backlog of
about $188.5 million at July 3, 1998. The decrease in backlog was primarily due
to shorter industry lead-times.
FISCAL 1998 COMPARED WITH 1997
Revenue
Revenue for fiscal year 1998 increased 5.8% to $576.8 million from $545.3
million in fiscal year 1997. The increase was principally due to a 14% increase
in Discrete Power sales over the prior year primarily due to increased output
from our new 8-inch wafer fab in Mountaintop, Pennsylvania.
Geographically, 53.8%, 28.0%, and 18.2% of product sales were derived in
North America, Europe and Asia/Pacific, respectively, in fiscal year 1998,
compared to 55.4%, 26.6%, and 18.0% in fiscal year 1997.
Gross Margin
Gross margin in fiscal year 1998 increased 4.1% to $207.5 million from
$199.3 million in fiscal year 1997. The increase in gross margin was primarily
due to higher revenue and improved manufacturing efficiencies offset partially
by a $14.8 million increase in depreciation expense resulting from the expansion
of the Mountaintop, Pennsylvania 8-inch wafer fab. As a percentage of revenue,
our gross margin decreased to 36.0% in fiscal year 1998 compared to 36.5% for
fiscal year 1997 due primarily to the increased depreciation.
Operating Expenses
R&D expenses were $75.1 million, or 13.0% of sales in fiscal year 1998,
compared to $75.2 million, or 13.8% of sales in fiscal year 1997. During fiscal
year 1998, we continued to direct about two-thirds of our R&D investment to our
wireless and analog products.
SG&A expenses in fiscal year 1998 decreased 1.1% to $108.1 million,
compared to $109.3 million in fiscal year 1997. The decrease in SG&A as a
percent of sales from 20.0% to 18.7% was primarily due to our increased
operating efficiency and efforts to reduce selling and administrative expenses.
Operating expenses include charges by Harris for our share of legal, financial
and other administrative expenses of $10.0 million for fiscal year 1998 and
$10.0 million for fiscal year 1997.
Tax Expenses
The favorable tax rate in fiscal year 1997 was primarily due to
fluctuations in foreign income and a reinvestment allowance on capital
expenditures in Malaysia.
Backlog
We had backlog at July 3, 1998 of about $188.5 million compared to backlog
of about $223.2 million at June 27, 1997. The decline in backlog was primarily
due to shorter industry lead times.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the acquisition of the semiconductor business, we
entered into new credit facilities, which provided for a Senior Term Facility of
$205.0 million and a Revolving Credit Facility in an aggregate amount up to
$70.0 million.
28
<PAGE>
The Senior Term Facility was subject to amortization payments which
required 1.0% of the original principal amount to be repaid in each of the first
five years. The Revolving Credit Facility is available until 2005 unless sooner
terminated. As of December 31, 1999, the Revolving Credit Facility was undrawn.
Our principal capital requirements are to fund working capital needs, to
meet required debt payments and to complete planned maintenance and expansion.
We anticipate that our operating cash flow, together with available borrowings
under the Revolving Credit Facility, will be sufficient to meet our working
capital, capital expenditure and interest requirements on our debt obligations
for the foreseeable future. We used the proceeds of our initial public offering
to repay the entire 13.5% Senior Subordinated PIK Note due 2010, the 11.13%
Seller Holding PIK Note due 2010 and the Senior Term Facility and a substantial
portion of the 13 1/4% Senior Subordinated Notes due 2009. As of December 31,
1999 our total debt and stockholders' equity as adjusted for the initial public
offering would have been $134.1 million and $562.0 million, respectively.
Because our business was operated as a subsidiary of Harris during fiscal
year 1997 through fiscal year 1999, we do not believe our prior years' cash
flows are indicative of our business on a stand-alone basis. Net cash generated
by operating activities for the six months ended December 31, 1999 was $65.3
million. Net cash used in investing activities for the six months ended December
31, 1999 was $14.5 million for capital expenditures to support our expanded
operations. Net cash used to repay debt for the six months ended December 31,
1999 was $15.2 million. Our cash balance at December 31, 1999 was $40.1 million.
Our senior credit facility contains financial covenants and restrictions
including restrictions on our ability to pay cash dividends or to effect mergers
or acquisitions, incur certain indebtedness or to make certain investments
without the bank's prior approval. We are currently in compliance with such
financial covenants and restrictions.
Receivables and Inventories
Trade accounts and the current portion of notes receivable less the
allowance for collection losses totaled $91.7 million at December 31, 1999
compared to $100.7 million at July 2, 1999. This decrease was due to continued
emphasis on improving the receivable collection cycle. Inventories remained
relatively flat at December 31, 1999, increasing from $153.8 million at July 2,
1999 to $154.0 million at December 31, 1999. The inventory decrease from the end
of fiscal year 1998 of $26.2 million was a result of a management initiative to
reduce our inventory through portfolio management and streamlining of processes,
resulting in less excess and obsolete inventory.
Distributor reserves have fluctuated from year to year based on the level
of inventory of distributions. In late fiscal year 1998, inventories at
distributors declined and the reserve was reduced accordingly. From fiscal year
1998 to fiscal year 1999, the reserve has remained relatively flat.
Capital Expenditures
Capital expenditures for the six months ended December 31, 1999 were $14.5
million. During fiscal year 1999, capital expenditures were $38.6 million
compared to $90.2 million in fiscal year 1998. This decrease was due primarily
to the completion of our expansion of the Mountaintop, Pennsylvania 8-inch wafer
fab during fiscal year 1998. Our previous owner invested approximately $303.9
million in capital expenditures since the beginning of fiscal year 1997 for
upgrading our existing facilities with state-of-the-art manufacturing equipment
and for the building and equipping of the world's first 8-inch wafer fab for
discrete power semiconductors. As a result, we do not anticipate substantial
capital expenditures in the foreseeable future. During the fiscal year 2000, we
intend to spend about $45.0 million in capital expenditures.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The statement
establishes standards for recording derivative financial instruments and the
recognition of gains or losses resulting from changes in the fair values of
those instruments. We plan to adopt the new standard no later than the first
quarter of fiscal year 2001. However, we have not yet determined the anticipated
impact of FAS No. 133.
29
<PAGE>
MARKET RISK MANAGEMENT
We, in the normal course of doing business, are exposed to the risks
associated with foreign currency exchange rates and changes in interest rates.
We employ established policies and procedures governing the use of financial
instruments to manage our exposure to these risks.
We use foreign exchange contracts and options to hedge both balance sheet
and off-balance sheet foreign currency commitments. Specifically, these foreign
exchange contracts offset foreign currency denominated inventory and purchase
commitments from suppliers, and accounts receivable from, and future committed
sales to customers and intercompany loans. We believe the use of foreign
currency financial instruments should reduce the risks that arise from doing
business in international markets. Our policy, effective August 1999, is to
hedge firm foreign currency exposure up to six months of anticipated
requirements. At December 31, 1999, we had open foreign exchange contracts with
a notional amount of $27.6 million, all of which were to hedge off-balance-sheet
commitments. At August 13, 1999 we had open foreign exchange contracts with a
notional amount of $6.1 million, all of which were to hedge off-balance-sheet
commitments. At July 2, 1999, we had open foreign exchange contracts with a
notional amount of $22.0 million, all of which were to hedge off-balance-sheet
commitments. At July 3, 1998, we had open foreign exchange contracts with a
notional amount of $166.4 million, all of which were to hedge off-balance-sheet
commitments. Additionally, for the fiscal year ended July 2, 1999, we purchased
and sold $120.7 million of foreign exchange forward and option contracts,
compared to $139.4 million for the prior year. See Note O "Financial
Instruments" in the Notes to Financial Statements for further information with
respect to commitments to buy or sell foreign currencies. Our hedging activities
provide only limited protection against currency exchange risks. Factors that
could impact the effectiveness of our hedging programs include accuracy of sales
estimates, volatility of currency markets, and the cost and availability of
hedging instruments. A 10% adverse change in currency exchange rates for our
foreign currency derivatives held at December 31, 1999, would have an impact of
approximately $1.3 million on the fair value of these instruments. This
qualification of exposure to the market risk associated with foreign exchange
financial instruments does not take into account the offsetting impact of
changes in the fair value of our foreign denominated assets, liabilities, and
firm commitments.
Additionally, we use foreign exchange contracts to hedge anticipated
foreign cash flow commitments up to 6 months. Hedges on anticipated foreign cash
flow commitments do not qualify for deferral and therefore, gains and losses on
changes in the fair market value of the foreign exchange contract are recognized
in income. We are exposed to market risks related to fluctuations in interest
rates on our variable rate debt, which consists of borrowings at December 31,
1999, of $205.0 million under our Tranche B Senior Term Facility. As of December
31, 1999, we also had fixed rate debt of approximately $329.3 million comprised
primarily of the 13 1/4% Senior Subordinated Notes due 2009, the 13.5% Senior
Subordinated PIK Note due 2010 and the 11.13% Seller Holding PIK Note due 2010.
We are not currently utilizing any type of derivative financial instrument to
control our interest rate risk.
For fixed rate debt, changes in interest rates generally affect the fair
market value, but not earnings or cash flows. Conversely, for variable rate
debt, changes in interest rates generally do not influence fair market value,
but do affect future earnings and cash flows. We manage our interest exposure by
using a combination of fixed and variable rate debt. Holding the variable rate
debt balance constant, each one percentage point increase in interest rates
occurring on the first day of the year would result in an increase in interest
expense for fiscal year 2000 of approximately $2.2 million.
30
<PAGE>
INDUSTRY OVERVIEW
Semiconductors, which consist of integrated circuits and discrete
semiconductors, are the critical components used to create an increasing variety
of electronic products and systems. Integrated circuits operate at low power
levels and perform multiple functions to process and convey information in
electronic signal form. Integrated circuit capability is largely defined by
circuit density, which increases as its components are miniaturized. In contrast
to integrated circuits, discrete semiconductors perform a single function and
often have multiple uses in many different end-user applications.
Worldwide Semiconductor Trade Statistics, or WSTS, forecasts strong growth
of approximately 15.5% for the semiconductor industry over the next three years.
We sell our semiconductors into high-growth segments of the market including the
communications analog & mixed-signal market, which is forecast by the
Semiconductor Industry Association, or SIA, to grow 18.4% in calendar year 2000
from calendar year 1999, the power management market, which is forecast by WSTS
to grow at 20.2% in calendar year 2000 from calendar year 1999, and the wireless
LAN market, which is forecast by Intex Management Services to grow 39.0% in
calendar year 2000 from calendar year 1999.
SEMICONDUCTOR CLASSIFICATIONS
The following table sets forth the worldwide semiconductor total available
market, or TAM, for each of five product functions of the semiconductor industry
according to WSTS. Our products fit within the Analog and Discrete Power
classifications listed in the table.
WORLDWIDE SEMICONDUCTOR TAM
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 CAGR
----- ----- ----- ----- ------ ------ ------ ------ ------ ----
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Analog............... $ 7.8 $ 8.3 $ 8.7 $10.7 $ 13.6 $ 16.6 $ 17.0 $ 19.8 $ 19.1 11.8%
Discrete Power....... 4.3 4.4 4.5 5.2 6.3 8.2 7.8 8.1 7.4 7.0
Microcomponents...... 9.2 11.4 13.9 19.1 23.8 33.4 39.8 47.8 47.3 22.8
Memory............... 11.8 12.2 14.8 21.3 32.5 53.5 36.0 29.3 23.0 8.7
Other................ 17.5 18.2 17.9 21.1 25.7 32.7 31.3 32.2 28.8 6.4
----- ----- ----- ----- ------ ------ ------ ------ ------
Total................ $50.6 $54.5 $59.8 $77.4 $101.9 $144.4 $131.9 $137.2 $125.6 12.1
===== ===== ===== ===== ====== ====== ====== ====== ======
</TABLE>
Analog integrated circuits are used to shape or condition electrical
signals, to amplify electrical signal strengths, to convert electrical signals
to and from digital "one or zero" levels, to regulate voltage levels and to
provide interfaces between other products within an electrical system. Power
semiconductors can be either discrete power devices or analog integrated
circuits. Discrete devices perform a single function, such as switching
electricity on and off. Analog integrated circuits perform multiple functions
such as controlling and regulating currents. Microcomponents include
microprocessors and microcontrollers that process data according to instructions
embedded within the semiconductors themselves. These are considered the "brains"
of the electronic system and are at the center of the system architecture.
Memory are devices that store data and instructions. The "other" category
includes all electronic devices whose functions do not include one of the four
previously mentioned product functions.
ANALOG
Analog signals are not discrete binary numerical values, but rather
continuously variable electrical signals that represent continuous data
variables or wave signals, such as sound waves. The analog market is split into
two major segments: standard linear and mixed signal. The standard linear market
is comprised of building block products such as amplifiers, voltage regulators,
data conversion, interface circuits and comparators. These products are used in
all end systems, from computers and telecommunications, to industrial,
automotive and consumer applications. The mixed signal market consists of more
complex analog products, which also contain some digital circuitry for timing,
information control and data flow. Mixed signal products are often developed for
specific applications, such as video encoding, hard disk drive control, data
transmission, motor control and power management.
DISCRETE POWER
Discrete power semiconductors, such as a transistor or diode (a device that
allows current to flow in only one direction), typically contain one active
element. These devices perform a single function such as efficiently switching
electricity on and off. Examples of discrete power semiconductors include power
metal oxide semiconductor field effect transistors, or MOSFETs, and insulated
gate bipolar transistors, or IGBTs.
31
<PAGE>
MOSFETs are semiconductors that convert, switch or otherwise shape or condition
electricity. IGBTs typically serve the switch function in power conversion
applications that require higher current and voltage than power MOSFETs can
handle efficiently. IGBTs combine the ease of voltage-driven power MOSFET
technology with the conduction efficiency of bipolar transistor technology.
INDUSTRY TRENDS
As the performance of semiconductor devices has increased and size and cost
have decreased, demand for semiconductors has expanded beyond their original
primary applications in computer systems to applications in telecommunications
systems, automotive products, consumer products and industrial automation and
control systems. In addition, system users and designers have driven the demand
for systems with increased functionality, higher levels of performance, greater
reliability and shorter design cycle times, all in smaller packages at lower
costs. These demands have resulted in increased semiconductor dollar content of
electronic products. The demand for electronic systems has also expanded
geographically with the emergence of new markets, particularly in the
Asia/Pacific region. We believe that future demand for semiconductors will be
driven by the growing trend towards use of the Internet and portable
electronics, including consumer electronics, computers and cellular telephones,
and the resulting need for semiconductors that can manage connectivity and power
for longer periods of use and that require less space.
Today, nearly every form of communication is being revolutionized by the
growing use of digital communications to move all types of data, voice and video
around the world. Different technologies, protocols and media have evolved which
are uniquely suited to particular applications in this rapidly evolving
environment. Advances in broadband communications are accelerating the reach of
cost effective, fast data highways to both homes and offices. Communications
semiconductors will be used extensively in broadband communication
networks/facilities, portable communications devices, and in servers and
infrastructure supporting the Internet. Each of these technologies requires
specific transport and access hardware devices, including handsets and base
stations for wireless telephony, switches and routers for telecommunications and
data networking, set-top boxes for cable and satellite communications, and
digital cable and digital subscriber line, or xDSL, modems for Internet access.
The advent of the Internet as a communications medium has dramatically
increased business and consumer demand for high-speed access to multimedia and
entertainment content. As business and consumers increasingly rely on the
Internet and intranets, many existing networks are under significant stress. A
bandwidth constraint has emerged, particularly at the "last mile" of network
infrastructures, challenging users and industry participants in a number of
communications segments. In response to growing network demands,
telecommunications, data communications and cable network operators are making
significant investments to alleviate congestion and support emerging high
bandwidth, integrated data, voice and video services. Specific technologies
addressing bandwidth capacity constraints include cable modems and xDSL,
including asymmetric digital subscriber line, or ADSL, for residential
applications, high speed digital subscriber line, or HDSL, symmetric digital
subscriber line, or SDSL, and T1/E1 for high speed network access in commercial
applications, and ATM and SONET, for network backbone transmission. The
importance of the Internet as a communications medium and the increased ability
to deliver access to content available through the Internet will increase the
demand for home and small business networking solutions, provided these
networking solutions are cost-effective.
In addition, these solutions depend on enhanced performance capabilities of
advanced electronic systems. As electronic systems continue to increase in
performance and sophistication, they demand more complex power management
solutions. The latest generation personal computers rely on advances in power
conversion to operate at ever-lower voltages in order to reduce power
consumption, increase efficiency and, in notebook personal computers, prolong
battery life. Further, advanced electronic systems outside of communications
applications also have greater power management requirements. All of these
systems, including efficient power supplies for communications and computing
networks and engine and chassis management in automobiles, require advanced
power management semiconductors for more complex digital signal processors and
microcontrollers and for efficient power inverters.
The growth in Internet infrastructure, portable battery-powered computing
and communication devices and continually faster microprocessors are driving the
development of, and demand for, successively more efficient power management
integrated circuits and discrete power semiconductors. As a result of these
industry trends, we have strategically focused on designing and manufacturing
high performance analog and mixed-signal and discrete power semiconductors for
solving communications, data conversion, wireless data and power management
problems.
33
<PAGE>
BUSINESS
GENERAL
We design, manufacture and market analog, mixed-signal and wireless LAN
integrated circuits and power management semiconductors for rapidly growing
communications markets. The majority of our revenue is derived from sales of our
analog and mixed-signal products developed primarily for the communications and
power management markets. Additionally, we use our proprietary technologies and
design capabilities to provide systems solutions for rapidly growing wireless
applications. We own about 1,400 patents and have substantial expertise in the
design and manufacturing of components that perform many of the essential
functions relating to the supply, distribution and regulation of electric power
in electronic products. Our core competencies include analog mixed signal,
digital signal processor, radio frequency, discrete power and radiation
hardening technologies. Our products include components performing complex
communications functions, such as our PRISM(R) chip sets for wireless data
communications, digital radios and high speed converters in cellular base
stations and power management integrated circuits and discrete semiconductors
used in Internet servers and computers.
OUR BUSINESS STRATEGY
Our business strategy emphasizes the following key elements:
o Focus on High Growth, Integrated Communications Markets. In light of the
rapid expansion of communication applications and the increased
requirement for power management in electronic systems, we focus our
investments in these areas. We believe these markets have attractive
growth characteristics and enable us to draw on our core competencies.
Accordingly, we are pursuing opportunities in communications, wireless
and power management. In addition, while we will continue to offer base
products such as certain automotive integrated circuits, defense and
other legacy products, we do not intend to focus investment in the
development of new products in these areas.
o Focus on Partnering with Industry Leaders. We partner with industry
leaders in each of our target end-user markets to take our strong
engineering and design capabilities to commercial levels. Our customer
base of industry leaders illustrates the acceptance of our products to
date, and we continue to partner with these customers and others to
develop and market our next generation products. Our applications and
design engineers support our customers' end product development.
o Provide Systems Level Solutions to Our Customers. We design and develop
our semiconductors with a systems level approach that we believe enhances
the value of our products as they are designed into and incorporated in
our customers' electronic systems. This approach yields early integration
of our products into our customers' products, provides opportunities for
current design wins, and ultimately increases revenue as our solutions
are incorporated within a targeted end application.
o Maintain High Quality Customer Service. Quality customer service is
critical to our customer retention and sales growth. Through our customer
relations initiatives, we believe we distinguish ourselves from our
competitors. Additionally, our sales force and authorized representatives
and distributors are expanding customer information programs and
augmenting our comprehensive customer support efforts.
o Maintain Technology Leadership. We focus our research and development
investments on integrated communications. Of our over 620 engineers, 220
are working on innovative wireless and power management architectures. We
also have significant experience in analog and mixed-signal process
technology and high volume manufacturing. In conjunction with these
efforts, we will continue to expand our strong intellectual property
position by seeking to increase our existing portfolio of over 1,400
patents.
33
<PAGE>
PRODUCTS AND TECHNOLOGY
We design, develop and manufacture a broad range of products used in a wide
variety of microelectronic applications in the communications, wireless and
power management end-user markets. Our products are organized into three
principal product groups: Analog & Mixed-Signal, Discrete Power and Wireless.
<TABLE>
<CAPTION>
ANALOG & DISCRETE
MIXED-SIGNAL POWER WIRELESS
------------------------- ------------------------ ----------------------
<S> <C> <C> <C>
FISCAL YEAR 1999 REVENUES.... $352.8 million $161.6 million $18.3 million
PERCENTAGE OF REVENUES....... 66.2% 30.3% 3.5%
KEY CUSTOMERS................ Siemens Asustek Nokia
Compaq Emerson Sony
Dell Compaq Siemens
Intel Bosch 3Com
Cisco
</TABLE>
ANALOG & MIXED-SIGNAL
Our Analog & Mixed-Signal portfolio represented 66.2% of our fiscal year
1999 revenue. We deliver leading-edge analog, mixed signal, digital signal
processors and groups of semiconductors that are designed to work together, also
known as chip set solutions, for today's fastest-growing communications markets.
Our design focus targets such opportunities as wired networks, subscriber line
interface circuits, or SLICs, which interface analog and digital signals for
telecom systems, and high-speed digital radios for cellular basestations. The
three analog product lines include the following:
Signal Processing Products. We have a portfolio of linear, mixed-signal
and digital signal processor integrated circuits optimized for high-speed
communications applications. We also have a limited portfolio of legacy base
products for industrial markets.
Communications Analog & Mixed-Signal integrated circuits are primarily
targeted at wired and wireless voice and data communications infrastructure
applications. We have developed a complete portfolio of digital radio signal
processing products and a line of 8-, 12- and 14-bit high speed data acquisition
converter integrated circuits for cellular basestations, wireless data links,
wireless local loop and broadband wireless access, which we refer to as the
wireless infrastructure market. These products, designated CommLink(TM), enable
our customers to increase the amount of data that can be transmitted, enabling
the addition of high speed data transmission to cellular communications
networks. These integrated circuits enable faster wireless data links between
remote basestations and also enable more efficient cable "headends"--the ground
station for the satellite links and broadband wireless access--which is
sometimes called Wireless Cable or LMDS. Our products support cellular standards
including Generation 2 Digital such as IS-95 CDMA and GSM, Generation 2.5 such
as Edge and IS-95+, and Generation 3 Wideband CDMA. We utilize both systems
level engineering and integrated circuit expertise to offer superior products
for wireless communications systems. This combination of expertise enabled us to
introduce the industry's first digital signal processing-based single chip, the
HSP50016, which provided the technology base used to separate telephone calls
for cellular basestations. We continue that leadership with the recently
announced HSP50216 Quad programmable down converter for use in Generation 2.5
cellular basestation designs.
New generations of high performance digital signal processing
communications integrated circuits require ever increasing performance from the
analog-to-digital and digital-to-analog converters that convert digital signals
to analog radio frequency signals for wireless applications. We currently market
a broad family of 6- to 14-bit, CMOS analog-to-digital and digital-to-analog
converters in multiple speed ranges and functional combinations in order to
complement our digital radio wireless infrastructure solutions.
With more than 15 years of experience in the design and development of
SLICs, we continue to expand our family portfolio of SLICs. SLICs, which are
used in many telephone applications, serve two primary functions. First, they
interface analog voice signals with digital processors. Second, they serve the
simple, yet essential, function of ringing a telephone to signal an incoming
call. Recently, we introduced an advanced
34
<PAGE>
ringing SLIC, which combined both functions into a single SLIC. Thus, the
ringing SLIC acts as both an interface into the telephone and also rings the
telephone. Our newest ringing SLIC product, a voice over internet protocol or
VoIP product, enables the use of analog phones in the emerging Internet
telephony market. Our SLIC family portfolio of advanced telecom linecard
solutions are ideal for today's universal telecom exchange systems, including
Plain Old Telephone Service, or POTS, Private Branch Exchanges, Central Office,
Loop Carrier, Fiber in the Loop and Wireless Local Loop.
Included in our legacy base product portfolio are operational amplifiers,
which are referred to as op amps, interface integrated circuits and industrial
and video integrated circuits. These include the industry standard BiCMOS high
speed op amp and the low power instrumentation converter. This portfolio is sold
to a broad range of customers in industrial, medical, computer, avionics and
test and measurement instrumentation markets, primarily through distribution
partners. These products typically have long life cycles and are designed into
our customers' products thereby ensuring us long-term sales. Our end-user
markets include wireless communications, video and image processing, high-speed
satellite communications, test/measurement equipment and medical
instrumentation.
Power Management Integrated Circuits. We develop power system
architectures and provide a portfolio of computer products, file server/storage
system products, networking and VoIP products. Our power management products for
computing applications operate in a voltage range of 1 to 30 volts and are
designed into desktop personal computers, file servers and workstations. We have
also developed new power management circuits for 24x7 server networks supporting
e-commerce on the Internet.
Our highly successful HIP6000 family of pulse width modulator controller
integrated circuits are used in about 30% of all personal computers that use
Pentium, Pentium II and Pentium III class processors.
We recently introduced an advanced architecture which delivers multiphase
power to next generation, high speed microprocessors. This is a requirement for
Intel and AMD microprocessors above 800 MHz. This new platform of products
consists of three controllers (HIP6301, HIP6302 and HIP6303) and three gate
drivers (HIP6601, HIP6602 and HIP6603). We also offer a complete advanced
configuration power interface solution for instant on and sleep mode capability
used to save energy in personal computers.
We provide complete power solutions for the file server and redundant array
of independent disks, or RAID, market. Internet growth, especially e-commerce,
is driving the need for high reliability/availability in these applications. Our
family of hot plug products allows repair and maintenance of a file server and
RAID without a complete shutdown of the file server.
We are currently expanding our space-qualified portfolio by offering our
Starpower(TM) family of radiation hardened power management products for
commercial satellite applications. We are developing what we believe will be an
industry-leading radiation hardened DC/DC Converter power module line to provide
highly reliable power management in communications satellites.
Our power management integrated circuits are also used in industrial
control and automotive engine management systems.
Defense. Our radiation hardened integrated circuit product portfolio
includes logic, memories, signal processing components, microprocessors and
custom devices, providing system designers with a full complement of products
for radiation hardened systems used in commercial space and defense
applications. We also have a set of legacy digital product lines which serve
both defense and commercial systems, with microprocessor, memory and data
communications products. These products typically have long life cycles and are
designed into our customers' products.
35
<PAGE>
DISCRETE POWER
Our power portfolio represented 30.3% of our revenue for fiscal year 1999.
Discrete power products coupled with our power management integrated circuits
provide unique power management solutions for the integrated communications
market. Our MOSFETs have been designed in conjunction with our multiphase power
integrated circuits for faster, next generation computers. We also manufacture
efficient power MOSFETs used in servers supporting the Internet. We are
investing in new, efficient power devices for cellular phones and portable
information appliances.
In 1980, we invented IGBTs, or insulated gate bipolar transistors, and hold
some of the fundamental patents that cover their production. We continue to
develop next-generation IGBTs and recently introduced our new 600V SMPS, or
switch mode power supply Series IGBT family of high-speed, high efficiency IGBTs
specifically tailored for operation in today's switched mode power supplies. Our
portfolio also includes radiation hardened N- and P-channel metal oxide
semiconductor field effect transistors, or MOSFETs, for high-reliability
applications such as communications satellites.
In addition, we have a base legacy business with IGBTs, MOSFETs and
rectifiers used in automotive and industrial applications. These include motor
management, automotive ignition, welding, instrumentation and other industrial
applications. Like our base analog and mixed-signal products, our base power
MOSFETs are designed into our customers' products with life cycles spanning
several years.
We supply our discrete power products to Asustek, Bosch, Compaq, Emerson
and Siemens and other customers who use our products for personal computer
motherboard power, diesel fuel injection, body and chassis controls and
industrial power supplies.
WIRELESS
Our Wireless portfolio represented 3.5% of our revenue for fiscal year
1999. We are the leading developer of semiconductor solutions for the emerging
wireless local area networking market. Our PRISM(R) family of chip sets address
the growing demand for wireless networking for use in both the home and business
providing cost effective, wireless access to high data rate broadband
communications networks. We believe we are the only supplier of an integrated
wireless networking product solution, including reference designs, software and
all integrated circuits necessary for wireless data communications at data rates
of 11 megabits-per-second.
The PRISM II chip set is comprised of five highly integrated
semiconductors. They are the 2.4GHz power amplifier, RF/IF up and down
converter, quadrature modulator/demodulator, baseband processor and the medium
access controller. These integrated circuits represent design and manufacturing
competence in radio frequency, or RF, mixed signal and digital technologies. The
2.4GHz power amplifier, RF/IF up and down converter, and the quadrature
modular/demodulator are designed and manufactured using a high performance RF
silicon germanium process technology. The baseband processor and medium access
controller are designed and manufactured using mixed signal and digital process
technologies.
Because we design all components of our wireless chip set, including
reference designs and software, we believe we provide our customers with the
best available performance and value. Providing our customers with a turnkey
wireless data radio solution enables them to have the fastest time to market for
their systems which we believe is a critical competitive advantage in this
emerging market. More than 40 companies, including Nokia, Compaq, Samsung,
Aironet and Sony, have adopted use of the PRISM(R) chip set in their products.
We recently announced our PRISM II chip set, our second-generation chip set
capable of delivering high-speed wireless networking at data rates of 11
megabits-per-second. The PRISM II chip set incorporates advanced integrated
circuit design with silicon germanium process technology which makes the PRISM
II chip set five times faster while reducing power consumption by 50% compared
to the original the PRISM(R) chip set. Since the introduction of the PRISM II
chip set, we are developing relationships with original equipment manufacturers,
including among others, Aironet, Compaq, Zoom, Nokia, Nortel, Siemens and 3Com,
for use of the PRISM II chip set in a variety of wireless local area network
applications for home and business.
36
<PAGE>
CUSTOMERS AND APPLICATIONS
We seek to capitalize on our core competencies by focusing on the
integrated communications market. Within the integrated communications market,
our products include communication integrated circuits, power management and
PRISM(R) wireless LAN chip sets.
<TABLE>
<CAPTION>
END MARKETS APPLICATIONS KEY CUSTOMERS
------------------------ ------------------------------ -------------------
<S> <C> <C> <C>
Communications Signal processing, Video (cable television Cisco, Lucent,
wireless communications, systems, digital video), Dell, IBM, Siemens
telecommunications telephony (central office
switching solutions, digital
cellular basestations, PBX
systems), home gateways,
networking, satellites
Power Management Networking and computing File servers, PC motherboards, Asustek, Compaq,
printers, workstations Dell, IBM, Intel
Wireless Wireless local area Wireless local area networks 3Com, Compaq,
networks providing network wireless Nokia, Northern
access to broadband (cable, Telecom, Samsung,
ethernet, xDSL, ISDN) networks Siemens, Sony
</TABLE>
Outside of our targeted end markets, our remaining category includes
automotive integrated circuits, industrial and defense products. Applications in
this category include automotive applications including fuel injection and
ignition circuits, industrial applications including power supplies and defense
applications including smart munitions and tactical and strategic missiles. We
sell to, among others, DaimlerChrysler, Siemens, Boeing, Lockheed Martin and
Emerson.
SALES, MARKETING AND DISTRIBUTION
In fiscal 1999, we derived about 66% of our sales from original equipment
manufacturer, or OEM, customers through our global sales organizations and 34%
of our sales through distributors. We operate sales organizations in the
Americas, Europe and the Asia/Pacific region with about 240 employed
salespersons. Our sales organizations are supported by logistics organizations.
Product orders flow to our manufacturing facilities, where the product is made.
Products are then shipped to the customer either directly or indirectly via our
warehouses in the United States and Europe.
We have dedicated direct sales organizations operating in the Americas,
Europe and Asia/Pacific regions that serve our major OEM customers. We have
strategically located our sales offices near these major OEM customers. We also
have a large network of distributors and manufacturers' representatives to
distribute our products around the world. We believe that maintaining a small,
highly focused, direct sales force selling products for each of our targeted
product areas, combined with an extensive network of distributors and
manufacturer's representatives, is the most efficient way to serve our customer
base. Our sales force is segmented by end-user markets, thereby ensuring each
salesperson has an end-user market expertise and focus. We also maintain a
dedicated marketing organization, which supports each product area on a regional
basis.
Typically, distributors handle a wide variety of products, including
products that compete with our products, and fill orders for many customers.
Some of our sales to distributors are made under agreements allowing for market
price fluctuations and/or the right of return on some unsold merchandise.
Virtually all distribution agreements contain an industry standard stock
rotation provision allowing for minimum levels of inventory returns. In our
experience, these inventory returns can usually be resold. Manufacturers'
representatives generally do not offer products that compete directly with our
products, but may carry complementary items manufactured by others.
Manufacturers' representatives do not maintain a product inventory; instead,
their customers place large quantity orders directly with us and are referred to
distributors for smaller orders.
37
<PAGE>
RESEARCH AND DEVELOPMENT
Manufacturing technology is a key determinant in the improvement of
semiconductor products. Each new generation of process technology has resulted
in products with higher speed, greater performance and lower costs of
production. Infrastructure investments made in recent years will enable us to
continue to achieve high volume, high-reliability and low-cost production using
leading edge process technology. Our research and development efforts are
focused on new product development and improvements in process technology in our
growth areas which include communications, power management and wireless.
Our expenditures for research and development in fiscal years 1997, 1998
and 1999 were $75.2 million, $75.1 million and $67.0 million, respectively. Each
of our product areas maintain independent research and development
organizations. We work closely with our major customers in many research and
development situations to increase the likelihood that our products will be
designed directly into the customers' products and achieve rapid and lasting
market acceptance.
MANUFACTURING
We fabricate wafers at three locations in the United States--Mountaintop,
Pennsylvania, Palm Bay, Florida, and Findlay, Ohio. We also use a number of
outside wafer fabrication foundries for the manufacture of device types where we
do not have the necessary technologies resident in house. We also utilize
advanced manufacturing processes of outside foundries for many of our PRISM(R)
products.
Our principal assembly and test facility is located in Kuala Lumpur,
Malaysia. Established in 1974, this facility has 524,000 square feet on 22 acres
of land. It has the capacity to assemble and test 350 million units of plastic
integrated circuits, 25 million hermetically sealed ceramic packaged integrated
circuit units and 500 million power semiconductor units each year. We also have
limited assembly and test capability in Palm Bay, Florida. We use a number of
assembly and test subcontractors for device types and packages that cannot be
assembled and tested in Kuala Lumpur.
Our previous owner made significant capital expenditures to increase
capacity and improve our manufacturing efficiency. As a result, our wafer fabs
and assembly and test facilities are among the most productive and efficient in
the industry. We believe we can continue to maintain competitive cost, further
increase productivity and enhance our process efficiency by investing in people
and assets, where necessary.
We utilize an extensive set of manufacturing processes to fabricate our
products, including technologies such as: ULTRAFET(R), IGBT, BiCMOS, Power
BiCMOS, High Frequency Bipolar, CMOS and Rad Hard Processes. The table below
sets forth some information regarding our manufacturing facilities, products,
wafer diameter and annual wafer capacity:
MANUFACTURING FACILITIES
<TABLE>
<CAPTION>
ANNUAL CAPACITY
LOCATION PRODUCTS/FUNCTIONS WAFER DIAMETER (6" EQUIVALENT WAFERS)
-------- ------------------ -------------- ---------------------------
<S> <C> <C> <C>
FABRICATION
FACILITIES:
Mountaintop, MOSFETs, IGBTs, rectifiers 6", 8" 420,000
Pennsylvania
Findlay, Ohio Standard linear/interface integrated 5" 120,000
circuits, power integrated circuits
Palm Bay, Florida Power integrated circuits, telecom 4", 6" 175,000
SLICs, rad hard integrated circuits
ASSEMBLY AND TEST
FACILITIES:
Kuala Lumpur, Assembly and testing of most of our
Malaysia products
Palm Bay, Florida Assembly and testing of most of our
products used in military applications
</TABLE>
38
<PAGE>
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 sales are made pursuant to purchase orders that are generally booked
from one to six months in advance of delivery. Backlog is influenced by several
factors including market demand, pricing and customer order patterns in reaction
to product lead times. Although quantities actually purchased by customers may
vary between booking and delivery to the extent customer needs or industry
conditions change, our backlog has historically been a reliable indicator of our
future revenues. Our backlog was about $223.2 million at June 27, 1997, about
$188.5 million at July 3, 1998, $174.0 million at July 2, 1999 and $192.4
million at December 31, 1999. We expect to ship the backlog at December 31, 1999
within twelve months of that date.
Approximately 30% of our revenue is generated under annual, fixed-price
contracts with key customers. These contracts allow us to schedule production
capacity in advance and allow our customers to manage their inventory levels
consistent with just-in-time principles while shortening the cycle times
required to produce ordered products. However, quantity and price agreements
under these contracts are, as a matter of industry practice, difficult to
maintain and implement.
SEASONALITY
A lower percentage of our products is sold to the computer end-user or into
the computer market than the percentage of products sold by other semiconductor
manufacturers to the computer end-user or into the computer market. Sales in the
computer market fluctuate more than in other semiconductor markets. As a result,
we experience less seasonal fluctuation than the semiconductor industry as a
whole. We typically experience lower revenue in the first fiscal quarter,
primarily due in large part to slow demand from government customers,
changeovers in automotive models and customer demand adjustments as a result of
summer and holiday seasons around the world, particularly Europe. Revenue
usually has a seasonal peak in our fourth fiscal quarter due to our customers'
need to meet government delivery requirements.
COMPETITION
Markets for our products are highly competitive. Although only a few
companies compete with us in all of our product lines, we face significant
competition within each of our product lines from major international
semiconductor companies. Some of our competitors may have substantially greater
financial and other resources with which to pursue engineering, manufacturing,
marketing and distribution of their products. Competitors include manufacturers
of standard semiconductors, application specific integrated circuits and fully
customized integrated circuits, as well as customers who develop their own
integrated circuit products.
We compete in different product lines to various degrees on the basis of
price, technical performance, product features, product system compatibility,
customized design, availability, quality and sales and technical support. Our
ability to compete successfully depends on elements both within and outside of
our control, including successful and timely development of new products and
manufacturing processes, product performance and quality, manufacturing yields
and product availability, intellectual property protection obtained by us and
our competitors, customer service, pricing, industry trends and general economic
trends.
The following chart sets forth our principal competitors by business unit:
<TABLE>
<CAPTION>
BUSINESS UNIT PRINCIPAL COMPETITORS
- ------------- ---------------------
<S> <C>
Analog & Mixed-Signal Analog Devices, Burr Brown, Linear Technology, Maxim,
Semtech
Discrete Power International Rectifier, ON Semiconductor, Siliconix,
STMicroelectronics
Wireless Lucent, Philips, Proxim
</TABLE>
39
<PAGE>
TRADEMARKS AND PATENTS
We own rights to a number of trademarks and patents that are important to
our business. Among others, we consider Intersil, PRISM(R), ULTRAFET(R) and
CommLink to be trademarks that are material to our operations.
Our corporate policy is to protect proprietary products by obtaining
patents for these products when practicable. We currently possess about 1,400
patents.
EMPLOYEES
Our worldwide workforce consisted of 5,693 employees (full- and part-time)
as of December 31, 1999 of whom 733 were represented by collective bargaining
arrangements. Of our employees, 4,650 were engaged in manufacturing, 516 were
engaged in engineering, 333 were engaged in marketing and sales, 98 were engaged
in administration and 96 were engaged in management information systems. Of our
employees, 3,389 were employed in the Analog & Mixed-Signal area; 1,968 were
employed in the Discrete Power area; and 336 were employed in the Wireless area.
We believe that our relations with our employees are satisfactory.
PROPERTIES
In the United States, our corporate headquarters as well as some
manufacturing and warehouse operations are located in about 846,000 square feet
of space in properties owned by us in Palm Bay, Florida. Additional
manufacturing, warehouse and office facilities are housed in about 445,000
square feet and 270,000 square feet of space in properties owned by us in
Mountaintop, Pennsylvania and Findlay, Ohio, respectively.
In Kuala Lumpur, Malaysia, we own about 524,000 square feet of
manufacturing and warehouse space located upon land leased by us under three
long-term ground leases. The initial term of these leases will expire in 2086.
The improvements located upon the leased land are owned by us.
Our primary engineering activity takes place in Palm Bay, Florida and at
our other manufacturing facilities. In addition to this, we have engineering
activities taking place in leased facilities in Durham, North Carolina (Research
Triangle Park), Branchburg, New Jersey and San Antonio, Texas.
We maintain regional sales offices in Orange County, California, Palm Bay,
Florida; Burlington, Massachusetts; Dallas, Texas; San Jose, California; Munich,
Germany; Milan, Italy; Camberly, United Kingdom; and Taipei, Taiwan and other
sales offices around the world. All our offices are leased generally under short
term leases, except our offices in Palm Bay, Florida.
We believe that our facilities around the world, whether owned or leased,
are well-maintained. Our manufacturing facilities contain sufficient production
capacity to meet our needs for the foreseeable future.
ENVIRONMENTAL MATTERS
Our operations are subject to environmental laws and regulations in the
countries in which we operate that regulate, among other things, air and water
emissions and discharges at our manufacturing facilities; the management and
disposal of hazardous substances and wastes; the investigation and remediation
of environmental contamination; and the release of contaminants into the
environment at or from properties operated by us and at other sites. As with
other companies engaged in like businesses, the nature of our operations exposes
us to the risk of environmental liabilities or claims. We believe, however, that
our operations are in substantial compliance with applicable environmental laws
and regulations. Our costs to comply with environmental regulations were about
$4.5 million, $6.3 million and $7.4 million in each of fiscal years 1997, 1998
and 1999, respectively.
Our facilities in Findlay, Ohio have ongoing remediation projects to
respond to some releases of hazardous substances that occurred prior to the
consummation of the acquisition of Harris' semiconductor business. Our
facilities in Mountaintop, Pennsylvania have groundwater and subsurface soil
contamination from past operations, some of which occurred prior to Harris'
acquisition of those facilities, for which
40
<PAGE>
remediation has been conducted, and additional remediation may be required. In
addition, Harris' facilities in Palm Bay, Florida, a portion of which includes
our business, are listed on the National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act. Remediation activities
are ongoing in Palm Bay in accordance with Consent Decrees entered into by
Harris with the United States Environmental Protection Agency. Under the Master
Transaction Agreement, Harris has agreed to indemnify us for the cost of these
projects at all of our facilities, including at Findlay, Ohio, Mountaintop,
Pennsylvania, Kuala Lumpur, Malaysia and Palm Bay, Florida to the extent these
costs are not currently allocated in the current balance sheet for the
Semiconductor Business. Based on the historical costs of these projects and
because the remediation projects are in advance stages, we do not believe that
the future cleanup costs will be material, even without the indemnity.
Future laws or regulations and changes in existing environmental laws or
regulations may subject our operations to different, additional or more
stringent standards. While historically the cost of compliance with
environmental laws has not had a material adverse effect on our results of
operations, business or financial condition, we cannot predict with certainty
our future costs of compliance because of changing standards and requirements.
We cannot assure you that material costs will not be incurred in connection with
the future compliance with environmental laws or with future cleanup costs
related to currently unknown contamination.
LEGAL PROCEEDINGS
From time to time we are involved in legal proceedings arising in the
ordinary course of business. A countersuit brought against Harris by Ericsson, a
competitor of Harris, in which patent infringement claims have been asserted is
currently pending in the Sherman Division of the United States District Court
for the Eastern District of Texas. The action was initially instituted by Harris
against Ericsson on August 17, 1998 in Dallas, Texas. Ericsson countersued
Harris, claiming infringement by Harris of four of its patents relating to
telephone subscriber line interface circuits. On September 1, 1999, Ericsson
joined us in this action. Ericsson seeks an injunction plus damages, including
lost profits and/or a reasonable royalty, costs of suit, treble damages,
prejudgment interest and attorneys' fees. However, to the extent our liability
from this litigation, if any, arises out of the conduct of the semiconductor
business by Harris prior to closing, this liability will be covered by Harris'
agreement in connection with the acquisition of the semiconductor business to
provide us with certain indemnities. We believe that there is no litigation
pending that could have, individually or in the aggregate, a material adverse
effect on our business, financial condition, results of operations or cash
flows.
41
<PAGE>
THE TRANSACTIONS
The following contains summaries of the material agreements which we
entered into in connection with the acquisition of the semiconductor business.
The acquisition of the semiconductor business was funded in part by the proceeds
of the sale of units, consisting of the 13 1/4% Senior Subordinated Notes due
2009 of Intersil and the warrants of Intersil Holding which are being registered
under this prospectus. The descriptions in the summaries of the terms and
provisions of the agreements are complete in all material respects, but for
detailed information you should read the agreements themselves, copies of which
have been filed or incorporated by reference as exhibits to the registration
statement of which this prospectus is a part.
MASTER TRANSACTION AGREEMENT
In accordance with the Master Transaction Agreement,
o Harris transferred to us portions of the semiconductor business in
exchange for (a) $504.3 million in cash, and (b) our subordinated
promissory note, referred to as the 11.13% Seller Holding PIK Note, in
the principal amount of $90.0 million, which permitted us to pay interest
in the form of additional notes, which we call pay-in-kind, or PIK,
notes;
o Harris paid about $9.0 million in cash to us to purchase shares of our
12% Series A Cumulative Compounding Preferred Stock and common stock;
o we sold to Sterling Holding Company, LLC, referred to as Sterling, and to
senior management and other key employees, referred to as the Management
Investors, and certain other investors shares of 12% Series A Cumulative
Compounding Preferred Stock and common stock for a total of about $81.0
million in cash;
o we contributed cash in the amount of about $90.0 million to Intersil's
capital as well as assets with a fair market value of about $90.0
million;
o Citicorp Mezzanine Partners, L.P. contributed $30.0 million in cash to us
in exchange for our subordinated promissory note, referred to as the
13.5% Subordinated Holding PIK Note due 2010, and warrants to purchase
3,703,707 shares of Class A Common Stock (reduced to 2,222,224 upon
repayment in full of the 13.5% Subordinated Holding PIK Note due 2010);
o we contributed cash in the amount of $30.0 million received from Citicorp
Mezzanine Partners, L.P. to Intersil's capital; and
o Intersil borrowed $220.0 million available under its new senior credit
facilities and received the gross proceeds of $200.0 million from the
sale of 200,000 units, each unit consisting of $1,000 principal amounts
of Senior Subordinated Notes of Intersil and one warrant to purchase
18.518535 shares of Class A Common Stock of Intersil Holding.
The assets purchased by us under the Master Transaction Agreement include,
among other things, some properties located at Palm Bay, Florida, Mountaintop,
Pennsylvania, Findlay, Ohio and Kuala Lumpur, Malaysia (see
"Business--Properties"), as well as, with some exceptions and limitations, all
of the manufacturing equipment, motor vehicles, office furniture, inventory,
governmental permits and licenses and other assets necessary to operate our
business. In addition, purchased assets include:
o contractual rights and obligations which primarily relate to the
semiconductor business;
o intellectual property rights; and
o all of the capital stock and membership interests of four domestic and
twelve foreign entities (corporations and limited liability companies)
owned by Harris. We acquired eleven of the twelve foreign entities or
their assets either directly or through a foreign subsidiary wholly owned
by us. The twelfth foreign entity, a corporation which operates our
assembly and test facility in Kuala Lumpur, Malaysia, was acquired by a
British Virgin Islands corporation that is wholly owned by our wholly-
owned Malaysian subsidiary. The acquisition of this twelfth foreign
entity was made under a separate transaction agreement and was financed
with funds both contributed by us and loaned by our wholly-owned Cayman
Islands subsidiary to our Malaysian subsidiary (the loan proceeds from
the Cayman Islands subsidiary consisting of funds contributed to this
subsidiary by us) which in turn were loaned and contributed to the
British Virgin Islands corporation.
Among the liabilities we did not assume are the environmental liabilities
relating to the operations of the semiconductor business and the transferred
Harris subsidiaries prior to closing. The agreement provides that Harris must
indemnify us for any damages arising from these excluded liabilities. The
agreement also
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<PAGE>
provides that we must offer to employ all our employees on substantially the
same terms and conditions as they were employed immediately before the
acquisition of the semiconductor business. In addition, the agreement contains a
provision that, subject to some limitations, forbids Harris for a period of five
years after the consummation of the acquisition of the semiconductor business
from engaging in business competing with most of our products in existence on
the date the transactions were consummated.
Under the terms of the Master Transaction Agreement, Harris entered into
with us the Intellectual Property Agreement, the Patent Assignment and Services
Agreement, the License Assignment Agreement, the Harris Trademark License
Agreement, the Secondary Trademark Assignment and License Agreement, the
Transition Services Agreement, the Stockholders' Agreement, the Registration
Rights Agreement and the Royalty Agreement. See "Description of Capital
Stock--Stockholders' Agreement" and "--Registration Rights Agreement."
INTELLECTUAL PROPERTY AGREEMENT
Under the Intellectual Property Agreement, Harris assigned to us its entire
ownership, right, title and interest in some intangible property rights existing
under laws respecting copyright, maskwork and trade secrets, which intangible
property rights are owned by Harris and that were specific to the operations of
the semiconductor business. Harris also granted to us a royalty-free,
non-exclusive, worldwide license, with a limited right to sublicense, under
certain copyrights, maskworks and trade secrets to make, have made, use and sell
certain products, which copyrights, maskworks and trade secrets are specific to
the products or are used in the semiconductor business. The Intellectual
Property Agreement lists those licenses to software that are unassignable
without the permission of the licensor.
PATENT ASSIGNMENT AND SERVICES AGREEMENT
Under the Patent Assignment and Services Agreement, Harris assigned to us,
subject to pre-existing license rights, about 1,400 patents. Harris also granted
us a worldwide, royalty-free, non-exclusive license, without the right to
sublicense, under some other applicable patents, for the life of such patents,
to make, have made, use and sell certain of our products. Harris retained the
rights to some patents for up to three years before assigning their entire
right, title and interest therein to us (provided that the patents are not in
litigation at the time, and no royalties are owed on licenses to the patents).
During the interim preceding the assignment of these retained patents, Harris
granted us a worldwide, royalty-free, non-exclusive license thereto, without the
right to sublicense.
LICENSE ASSIGNMENT AGREEMENT
Under the License Assignment Agreement, Harris assigned to us its entire
right, title and interest in and to certain license agreements by and between
Harris and third party licensors and licensees, which license agreements may be
assigned without the consent of the third parties. The agreement provides that
Harris will use commercially reasonable efforts, as requested by us in writing,
to provide us with the economic benefit of certain other license agreements
between Harris and third party licensors and licensees, which license agreements
are material to the semiconductor business and require the consent of the third
parties to assign. Harris will assign to us any revenue received under certain
other royalty bearing license agreements between Harris and third party
licensees, which agreements require the consent of the third party licensees to
assign, and will use commercially reasonable efforts to obtain the consent of
the third party licensees to these assignments.
The agreement also provides that Harris will, at our written request and to
the extent that Harris is authorized to do so and that the license is relevant
to our business as of August 13, 1999, grant us a sublicense under the License
Agreement between Harris and Lemelson Medical, Education & Research Foundation,
Limited Partnership dated April 30, 1999. The agreement with Lemelson Medical
and subsequent sublicenses will authorize us to use the inventions identified in
up to one hundred eighty patents and patent applications concerning chemical
manufacturing, optical measurement and tracking of production lots, all of which
are technologies used in manufacturing semiconductors. The License Assignment
Agreement further provides that Harris will assign all remaining rights in the
retained license agreements to us. The assignment of each retained license
agreement is to occur at the time that all the amounts that are due, or are to
become due under that retained license agreement, have been paid to Harris. In
the event that a retained license agreement cannot be assigned at that time,
Harris will use commercially reasonable efforts, as requested by us, to provide
us with the economic benefit of that retained license agreement. The assignment
of, or commercially reasonable efforts to provide us the economic benefit of,
each retained license agreement is to
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<PAGE>
occur at the time that all the amounts that are due, or are to become due under
the retained license agreement, have been paid to Harris. The agreement still
further provides that we accept the assignments or transfers effected under the
License Assignment Agreement and assume the liabilities of Harris to each of the
license agreements so assigned or transferred.
HARRIS TRADEMARK LICENSE AGREEMENT
Under the Harris Trademark License Agreement, Harris granted to us
non-exclusive, royalty-free licenses recognizing transitional use of some
visible trademarks and product-embedded trademarks, which embedded trademarks
will not be eliminated until the relevant product is discontinued.
AGREEMENT COVERING PRISM(R) REVENUES
Under an agreement covering PRISM(R) revenues, we agreed to pay Harris 2%
of the revenue generated by the sales of the PRISM chip sets for a period of
five years after the closing of the transactions consummated under the Master
Transaction Agreement.
SECONDARY TRADEMARK ASSIGNMENT AND LICENSE AGREEMENT
Under the Secondary Trademark Assignment and License Agreement, Harris
assigned to us some trademarks related to products of the semiconductor business
and we granted back to Harris worldwide, non-exclusive, royalty-free licenses
recognizing transitional use of some visible trademarks assigned by Harris to
us. The agreement further provides that Harris will cooperate with us, at our
expense, in any judicial or administrative proceedings contemplated or commenced
by us under any of the trademarks assigned to us under this agreement.
TRANSITION SERVICES AGREEMENT
Under the Transition Services Agreement, Harris will provide a number of
business support services to us that will assist in the conversion of the
semiconductor business to an independent entity. From the consummation of the
acquisition for, in most instances, up to 8 months, Harris is obligated to make
available to us:
o data processing and communication services;
o financial and administrative support; and
o human resources and benefits services.
Generally, the agreement provides that Harris will invoice us for the cost of
services provided, plus 5%, with some charges based on a fixed cost and other
charges based on Harris' actual incurred costs. We are not currently utilizing
any of these services from Harris.
Under the Transition Services Agreement, we have also agreed to provide
Harris with certain services for a period of 18 months and certain products for
a period of 24 months related to the suppression products business. For the
services and products to be provided by us to Harris, Harris has agreed to pay
5% on top of all costs except third-party costs.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the persons
who are members of our Board of Directors, key employees or executive officers.
Each of our directors has served as director since our formation on June 2, 1999
and will continue to hold office until the next annual meeting of shareholders
or until a successor has been elected and qualified. With one exception, each of
our officers has served as officer since our formation, and each of our officers
will hold office until the first meeting of directors after its next annual
meeting of shareholders.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Gregory L. Williams....................... 46 Chief Executive Officer, Director
W. Russell Morcom......................... 53 Vice President, General Manager, Discrete Power
George L. Gidzinski....................... 44 Vice President, General Manager, Analog and Mixed
Signal Business Unit
Daniel J. Heneghan........................ 44 Vice President, Chief Financial Officer and
Assistant Secretary
Larry W. Sims............................. 42 Vice President, Marketing and Sales
Lawrence J. Ciaccia....................... 41 Vice President, General Manager, PRISM(R) Wireless
Stephen M. Moran.......................... 43 Vice President, General Counsel and Secretary
James A. Urry............................. 45 Director
Gary E. Gist.............................. 53 Director
</TABLE>
Gregory L. Williams, Chief Executive Officer, Director. Mr. Williams is
our Chief Executive Officer. From October, 1998, to August, 1999, Mr. Williams
was President of the semiconductor business at Harris. From January to October
1998, Mr. Williams was Vice President and General Manager of the Power Products
Division at Harris. From 1984 to 1998, Mr. Williams also served as Vice
President and Assistant General Manager of the Semiconductor Components Group,
Vice President and General Manager of the Power Products Division, and Vice
President and Director of Automotive World Marketing at Motorola Semiconductor,
and from 1977 to 1984, Mr. Williams served with General Electric Company.
W. Russell Morcom, Vice President, General Manager, Discrete Power. Mr.
Morcom is our Vice President and General Manager, Discrete Power. From 1997 to
August, 1999, Mr. Morcom was Vice President and General Manager, Operations and
Quality of the semiconductor business at Harris. From 1991 to 1997, Mr. Morcom
was Vice President and General Manager, Semiconductor Products Division of the
semiconductor business of Harris.
George L. Gidzinski, Vice President, General Manager, Analog and Mixed
Signal Business Unit. Mr. Gidzinski is our Vice President and General Manager,
Analog and Mixed Signal Business Unit. From 1998 until August, 1999, Mr.
Gidzinski was Vice President and General Manager of the Power Products Business
of the semiconductor business at Harris. From 1995 to 1998, Mr. Gidzinski served
as Vice President of Intelligent Power Products of the semiconductor business at
Harris and from 1991 to 1995, Mr. Gidzinski served as Vice President of
Worldwide Marketing of the semiconductor business at Harris.
Daniel J. Heneghan, Vice President, Assistant Secretary and Chief Financial
Officer. Mr. Heneghan is our Vice President, Assistant Secretary and Chief
Financial Officer. From 1996 to August, 1999, Mr. Heneghan was Vice President
and Controller of the semiconductor business at Harris. From 1994 to 1996, Mr.
Heneghan was Vice President of Digital Products of the semiconductor business at
Harris. Mr. Heneghan also served at various times as Division Controller of the
semiconductor business at Harris, Director of Planning at Harris, Director of
Finance at Harris and Senior Financial Analyst with Royal Crown Cola.
Larry W. Sims, Vice President, Marketing and Sales. Mr. Sims is our Vice
President, Marketing and Sales. From August, 1998 to August, 1999, Mr. Sims was
Vice President, Sales of the semiconductor business at Harris. Prior to joining
Harris, Mr. Sims served in various sales management positions at Motorola
Semiconductor.
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<PAGE>
Lawrence J. Ciaccia, Vice President, General Manager, PRISM(R) Wireless.
Mr. Ciaccia is our Vice President and General Manager, PRISM(R) Wireless
Products Business Unit. From February 1998 to December 1999, Mr. Ciaccia was
Vice President and Director of Engineering for the PRISM(R) Wireless Products
business at Harris. From 1997 to 1998 Mr. Ciaccia was Director of Strategic and
Product Marketing for the Multimedia Products business at Harris. Mr. Ciaccia
also served at various times from 1993 to 1997 as Director of Engineering for
several different semiconductor businesses at Harris.
Stephen M. Moran, Vice President, General Counsel and Secretary. Mr. Moran
joined our company as Vice President, General Counsel, and Secretary in January
of 2000. Prior to joining Intersil, Mr. Moran served with Toshiba America, Inc.
from September 1996 until January 2000 and served as the Vice President and
General Counsel for Toshiba America Electronic Components, Inc. (Toshiba
America's Semiconductor Company) from January 1998 to January 2000. From March
1992 until September 1996, Mr. Moran was the General Counsel of ITT Cannon,
Inc., an ITT Industries corporation.
James A. Urry, Director. Mr. Urry is one of our directors. Mr. Urry has
been with Citibank, N.A. since 1981 serving as a Vice President since 1986. He
has been a Vice President of Citicorp Venture Capital Ltd., which is an
affiliate of ours, since 1989. He is also a Director of Airxcel, Inc., CORT
Business Services, CLARK Material Handling Corporation, Hancor Holding
Corporation, IKS Corporation, Palomar Technological Companies and York
International Corporation.
Gary E. Gist, Director. Mr. Gist is one of our directors. Mr. Gist is the
President and Chief Executive Officer of, and has been with, Palomar
Technological Companies since 1995, a corporation made up of a diverse group of
companies that focus on designing and manufacturing electronic products
including the following companies: HID Corporation, AML Wireless Systems, Inc.,
Palomar Display Products, Inc., Palomar Products, Inc. and Palomar Technologies,
Inc. Prior to 1995, he was Division Manager of the Technology Products Division
of Hughes Industrial Electronics Company.
Our Board of Directors currently consists of three directors. We expect
that two additional individuals will be elected to the Board within ninety days
of the initial public offering. Our Board of Directors will then consist of five
directors, determined as follows: our chief executive officer, one individual
designated by Sterling, up to two independent directors designated by Sterling
(to the extent permitted by applicable law as determined in Sterling's sole
discretion) and, in the event the Board includes two independent directors
designated by Sterling, one additional individual designated by Sterling. The
holders of a majority of the outstanding shares of Class A Common Stock
(including any shares of Class A Common Stock held by Sterling) have the right
to veto the election of any independent directors designated by Sterling. Under
our Stockholders' Agreement, each of our stockholders prior to the initial
public offering (representing in the aggregate 100% of the ownership of the
Class A Common Stock) agrees to take all action necessary (including voting his,
her or its shares, calling special meetings and executing and delivering written
consents) to ensure our Board of Directors will be composed at all times as
described in this paragraph.
DIRECTOR COMPENSATION AND ARRANGEMENTS
Those directors who are employed by us or by Citicorp Venture Capital Ltd.
do not receive compensation for their services as directors. Compensation for
other directors has not yet been determined. Members of the Board of Directors
are elected according to the voting agreements outlined in the Stockholders'
Agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
James A. Urry and Gary E. Gist are the members of our Compensation
Committee.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation received by our five most highly compensated officers for services
rendered in fiscal year 1999.
SUMMARY COMPENSATION TABLE
FISCAL YEAR 1999
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------------
AWARDS PAYOUTS
---------- ----------
ANNUAL COMPENSATION SECURITIES
-------------------------------------------- UNDERLYING ALL OTHER
NAME AND OTHER ANNUAL OPTIONS LTIP COMPENSATION
PRINCIPAL POSITION SALARY($) BONUS($)(1) COMPENSATION($)(2) (#)(3) PAYOUTS($) ($)(4)
------------------ --------- ----------- ------------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gregory L. Williams ......... 318,615 20,531 6,925 25,000 0 12,207
Chief Executive Officer
W. Russell Morcom ........... 170,000 113,623 10,798 6,000 70,875 57,114
Vice President--General
Manager--Discrete Power
George L. Gidzinski ......... 133,269 46,683 3,264 5,000 28,350 15,128
Vice President--General
Manager--Analog and Mixed
Signal
Daniel J. Heneghan .......... 121,980 44,121 1,920 3,500 24,924 23,774
Vice President--Chief
Financial
Officer--Assistant
Secretary
Larry W. Sims ............... 185,769 117,953 47,174 0 0 1,889
Vice President--Marketing
and Sales
</TABLE>
- ------------------
(1) This category includes Annual Incentive Plan bonus for all officers and a
sales incentive compensation bonus for Mr. Sims. It also includes awards for
Mr. Williams and for Mr. Heneghan of $50 each, a bonus of $7,108 for Mr.
Heneghan and disruption and signing bonuses, totaling $65,000, for Mr. Sims.
(2) Except for Mr. Sims, none of the executive officers named in the Summary
Compensation Table received personal benefits in excess of the lesser of
$50,000 or 10% of annual salary and bonus for fiscal year 1999. Mr. Sims'
personal benefits for fiscal year 1999 included relocation expenses and
applicable taxes. The other amounts reported represent dividend equivalent
payments on outstanding performance shares granted under Harris' Stock
Incentive Plan for which the performance period had not expired.
(3) All options granted were for Harris common stock under Harris' Stock
Incentive Plan. We did not assume Harris' obligations under the Stock
Incentive Plan.
(4) Amounts reported include:
(A) Contributions to the Harris Retirement Plan for fiscal 1999: Mr.
Williams--$3,959; Mr. Heneghan--$19,659; Mr. Gidzinski--$14,984; Mr.
Sims--$1,293; and Mr. Morcom--$17,703.
(B) Contributions to Harris' Supplemental Executive Retirement Plan for
fiscal 1999: Mr. Williams--$5,943; Mr. Heneghan--$3,700; Mr.
Gidzinski--$0; Mr. Sims--$0; and Mr. Morcom--$38,677.
(C) The taxable portion of premiums on life insurance provided by Harris for
fiscal 1999: Mr. Williams--$2,305; Mr. Heneghan--$415; Mr.
Gidzinski--$144; Mr. Sims--$596; and Mr. Morcom--$734.
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<PAGE>
The following table provides information with respect to individual grants
made by Harris of options for shares of Harris common stock to the named
executive officers during fiscal year 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT
PERCENT OF ASSUMED ANNUAL
TOTAL RATE OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED EXERCISE FOR OPTION
UNDERLYING TO EMPLOYEES OR TERM (4)
OPTIONS IN FISCAL BASE PRICE EXPIRATION --------------------
NAME GRANTED (#) (1) YEAR (%) (2) ($/SH) DATE (3) 5% ($) 10% ($)
---- --------------- -------------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gregory L. Williams..................... 25,000 3.17 34.0625 11/11/99 51,788 104,405
W. Russell Morcom....................... 6,000 .76 34.0625 11/11/99 12,429 25,057
George L. Gidzinski..................... 5,000 .63 34.0625 11/11/99 10,358 20,881
Daniel J. Heneghan...................... 3,500 .44 34.0625 11/11/99 7,250 14,617
Larry W. Sims........................... 0 0 0 0 0 0
</TABLE>
- ------------------
(1) All options granted were for Harris common stock pursuant to the Harris
Stock Incentive Plan. We did not assume Harris' obligations under the Stock
Incentive Plan.
(2) A total of 789,340 options were granted to Harris employees under the Harris
Stock Incentive Plan in fiscal year 1999.
(3) Under the terms of the Harris Stock Incentive Plan, the options expire 10
years after they are granted; however, in the event a grantee ceases to be
an employee of Harris, the options expire 90 days after the date the grantee
ceases to be an employee of Harris.
(4) Represents the potential realizable value of the underlying shares of Harris
common stock at the expiration date based on an assumed annual appreciation
rate of 5% and 10%, each compounded annually. The actual value, if any, that
may be realized will depend on the excess of the stock price over the
exercise price on the date the options exercised, so there can be no
assurance that the actual value realized will be at or near the value
estimated in the table.
The following table provides information with respect to the named
executive officers concerning the exercise of Harris options during fiscal year
1999, and unexercised Harris options held as of the end of fiscal year 1999.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-
SHARES VALUE (#) (3) END ($) (4)
AQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) (1) ($) (2) UNEXERCISABLE UNEXERCISABLE
---- ---------------- -------- ------------------ ---------------
<S> <C> <C> <C> <C>
Gregory L. Williams.................... 0 0 0/25,000 0/132,813
W. Russell Morcom...................... 3,186 45,201 19,500/10,500 231,469/44,906
George L. Gidzinski.................... 1,200 12,300 2,846/6,800 0/31,775
Daniel J. Heneghan..................... 2,000 12,799 2,500/5,000 13,031/22,938
Larry W. Sims.......................... 0 0 0 0
</TABLE>
- ------------------
(1) Options exercised were for Harris common stock.
(2) Represents the difference between the market price per share of Harris
common stock on the date of exercise and the exercise price.
(3) All unexercised options were for Harris common stock.
(4) Represents the difference between the market price per share of Harris
common stock at fiscal year end and the exercise price.
EMPLOYMENT AGREEMENTS
In connection with the Transactions, we and Intersil entered into an
employment agreement with Mr. Williams for him to serve as our Chief Executive
Officer and a member of our Board of Directors. His employment agreement
provides for an annual base salary of $425,000, subject to increases and annual
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<PAGE>
performance bonuses at the discretion of the Board of Directors. The agreement
also provides for Mr. Williams to receive our standard benefits. The term of the
agreement is 60 months, subject to automatic renewal for successive one year
terms, unless either we give or Mr. Williams gives prior notice of non-renewal.
Mr. Williams is subject to a noncompetition covenant during the term of his
agreement and for a period of one year following termination or expiration of
the agreement.
RETIREMENT AND SAVINGS PROGRAM
We provide retirement benefits to substantially all employees primarily
through a retirement plan having profit-sharing and savings elements.
Contributions by us to the retirement plan are based on profits and employees'
savings with no other funding requirements. We are able to make additional
contributions to the fund at our discretion. We also have non-contributory
defined benefit pension plans which are fully funded.
Retirement benefits also include an unfunded limited healthcare plan for
U.S.-based retirees and employees on long-term disability. We accrue the
estimated cost of these medical benefits, which are not material, during an
employee's active service life.
1999 EQUITY COMPENSATION PLAN
We adopted the 1999 Equity Compensation Plan, effective August 13, 1999,
which we refer to as the Plan. Under the Plan, we may grant to our salaried
officers and key employees options for up to 7,500,000 shares of Class A Common
Stock. Options to acquire 1,549,333 shares of Class A Common Stock were granted,
effective as of August 14, 1999 and are the only options granted under the Plan
as of December 31, 1999. The Plan authorizes us to grant either (1) options
intended to constitute incentive stock options under the Internal Revenue Code
of 1986, as amended, (2) non-qualified stock options, (3) shares of restricted
stock, (4) stock appreciation rights or (5) phantom share awards. Under the
Plan, a committee of the Board of Directors will determine the exercise price of
each option granted, provided that the minimum exercise price is equal to the
fair market value of the underlying stock on the date the option is granted. The
maximum term of any option will be ten years from the date of grant for
incentive stock options and ten years and one day from the date of grant for
non-qualified stock options. Options granted will be exercisable at the
determination of the Board of Directors, and the options will vest ratably over
about five years. Within any one-year period, an employee may not receive
options to purchase more than 666,667 shares of Class A Common Stock.
In addition to options, the committee may award restricted stock, stock
appreciation rights and phantom share awards under the Plan.
A grant of restricted stock represents the right to become the owner of
that stock upon the lapse of restrictions, which will usually require the
performance of substantial additional services to Intersil Holding by the
recipient of the grant. If the restrictions are not satisfied, the restricted
stock is forfeited. If the restrictions are satisfied, the individual in
question becomes the owner of those shares. In the interim, the individual is
entitled to any dividends that may be paid on the restricted shares and is
allowed to vote them. The individual cannot, however, sell, assign or otherwise
transfer the subject shares.
A stock appreciation right entitles the recipient to a payment, in cash or
in shares of Intersil Holding Class A Common Stock of an amount equal to the
excess of the fair market value of Intersil Holding Class A Common Stock on the
date the stock appreciation right is exercised over the "exercise price" of the
stock appreciation right, which will usually be the fair market value of the
subject Intersil Holding Class A Common Stock on the date the stock appreciation
right is granted.
A phantom stock award entitles the recipient to a payment in cash or in
shares of Intersil Holding Class A Common Stock of an amount equal to the
appreciation in the value of the underlying Intersil Holding Class A Common
Stock over the period from the grant of the phantom share award to the date of
settlement specified in the award.
The terms and conditions of grants of restricted stock, stock appreciation
rights and phantom stock awards will be governed by the Plan and by the terms of
the agreement making the grant or award, as determined by the committee of the
Board of Directors.
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<PAGE>
Any Intersil Holding Class A Common Stock awarded as restricted stock,
awarded upon exercise of a stock appreciation right or awarded in settlement of
a phantom stock award will count against the 7,500,000 share overall limit under
the Plan and against the 666,667 individual annual limit.
EMPLOYEE STOCK PURCHASE PLAN
In connection with our initial public offering, we adopted the Intersil
Holding Corporation Employee Stock Purchase Plan, which we refer to as the
Employee Stock Purchase Plan. Pursuant to the Employee Stock Purchase Plan, our
employees will have an opportunity to purchase up to 1,333,333 shares of our
Class A Common Stock at up to a 15% discount to the current market price. All of
our employees who render more than 20 hours of service per week for more than
five months per calendar year, other than those who own 5% or more of our
outstanding securities, are eligible to participate in the Employee Stock
Purchase Plan. The Employee Stock Purchase Plan will expire 10 years from its
effective date. The Employee Stock Purchase Plan is intended to comply with the
provisions of Section 423 of the Internal Revenue Code of 1986.
Employees purchase shares pursuant to the Employee Stock Purchase Plan by
electing to have a percentage of their base compensation withheld from their
paychecks for the duration of a six month purchase period. We hold such
compensation in notional accounts for the benefit of the participating
employees. At the end of each purchase period, the money that has accumulated in
each employee's notional account will be used to buy shares of our Class A
Common Stock at a price equal to no less than 85% of the lesser of the fair
market value of the stock on the first day of the purchase period and the fair
market value of the stock on the last day of the purchase period. Within any one
calendar year, an employee may not purchase more than $25,000 worth of our Class
A Common Stock under the Employee Stock Purchase Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Citicorp Mezzanine Partners, L.P. contributed $30.0 million in cash to
Intersil Holding in exchange for the 13.5% Subordinated PIK Note due 2010 and
warrants to purchase 3,703,707 shares of Intersil Holding's Class A Common
Stock. The 13.5% Subordinated PIK Note due 2010 was repaid in full with the
proceeds of our initial public offering and the warrants will be exercisable for
only 2,222,224 shares. Intersil Holding contributed the $30.0 million from
Citicorp Mezzanine Partners, L.P. to Intersil as a capital contribution. The
general partner of Citicorp Mezzanine Partners, L.P. is an affiliate of Citicorp
Venture Capital Ltd. Citicorp Venture Capital Ltd. owns an interest in Sterling,
a stockholder of Intersil Holding.
Under to the Master Transaction Agreement, the shareholders of Intersil
Holding entered into a Stockholders' Agreement containing certain agreements
among the shareholders regarding the capital stock and corporate governance of
Intersil and Intersil Holding. Intersil Holding exercised its option under the
Stockholders' Agreement to repurchase from Sterling Holding Company, LLC a total
of 1,833,333 shares of Intersil Holding's Class A Common Stock for an aggregate
purchase price of $137,500 to reissue to Intersil Holding's employees. See
"Description of Capital Stock--Stockholders' Agreement."
Intersil Holding, along with Intersil, purchased from Harris selected
portions of the semiconductor business. Harris entered into with us various
agreements, including the Intellectual Property Agreement, the Patent
Assignment, the Secondary Trademark Assignment and License Agreement, the
Transition Services Agreement, the Registration Rights Agreement and the Royalty
Agreement. See "The Transactions."
The terms of the agreements listed above were the result of arms-length
negotiations and in our opinion are no less favorable to Intersil and Intersil
Holding than those that could be obtained from non-affiliated parties.
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<PAGE>
OWNERSHIP OF CAPITAL STOCK
The following table sets forth information regarding the beneficial
ownership of each holder of 5% or more of the outstanding shares of Intersil
Holding Class A Common Stock (the only voting class of stock) and Class B Common
Stock, each director and each executive officer named in the Summary
Compensation Table, and all directors and officers as a group, as of March 1,
2000. The table does not include shares of Intersil Holding Class A Common Stock
issuable upon conversion of the warrants and the warrants issued in connection
with the 13.5% Subordinated Holding PIK Note due 2010.
<TABLE>
<CAPTION>
NUMBER AND PERCENT OF SHARES OF INTERSIL HOLDING
--------------------------------------------------
CLASS A STOCK (1) CLASS B STOCK (2)
---------------------- ---------------------- PERCENT OF ALL
NAME OF BENEFICIARY NUMBER PERCENT NUMBER PERCENT COMMON STOCK (3)
- ------------------- ----------- -------- ----------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Sterling Holding Company, LLC 10,738,026 25.84% 45,214,898 90.89% 61.28%
(4)(5) ...............................
c/o Intersil Corporation
2401 Palm Bay Road NE
Palm Bay, FL 32905
Harris Corporation (6) ............... 892,806 2.15% 4,531,584 9.11% 5.94%
1025 W. NASA Boulevard
Melbourne, Florida 32919
Gregory L. Williams .................. 2,090,056 5.03% -- -- 2.29%
W. Russell Morcom .................... 573,570 1.38% -- -- .63%
George L. Gidzinski .................. 461,098 1.11% -- -- .51%
Daniel J. Heneghan ................... 392,685 .94% -- -- .43%
Larry W. Sims ........................ 568,418 1.37% -- -- .62%
James A. Urry (7) .................... 32,024 .08% -- -- .04%
Gary E. Gist (8) ..................... 4,708 .01% 33,478 .07% .04%
All directors, officers and other 6,558,358 15.78% 33,478 .07% 7.22%
management investors as a group (18
persons) (7)(8) ......................
</TABLE>
- ------------------
(1) Does not include shares of Class A Common Stock issuable upon conversion of
Class B Common Stock. A holder of Class B Common Stock may convert any or
all of his shares into an equal number of shares of Class A Common Stock,
provided that such conversion would be permitted only to the extent that the
holder of shares to be converted would be permitted under applicable law to
hold the total number of shares of Class A Common Stock which would be held
after giving effect to the conversion.
(2) Does not include shares of Class B Common Stock issuable upon conversion of
Class A Common Stock. A holder of Class A Common Stock may convert any or
all of his shares into an equal number of shares of Class B Common Stock.
(3) Represents the percentage of the total number of shares of Class A Common
Stock and Class B Common Stock combined.
(4) An affiliate of Credit Suisse First Boston Corporation owns an interest in
Sterling and could have the right to acquire up to 1,070,733 shares of Class
A Common Stock.
(5) Citicorp Venture Capital Ltd. owns an interest in Sterling and could have
the right to acquire up to 42,055,184 shares of Intersil Holding common
stock. Citicorp Mezzanine Partners, L.P., the general partner of which is an
affiliate of Citicorp Venture Capital, contributed $30.0 million in cash to
our company in exchange for the 13.5% Subordinated Holding PIK Note due 2010
and warrants to purchase 3,703,707 shares of our Class A Common Stock. We
contributed the $30.0 million to Intersil as a capital contribution. Upon
repayment of the 13.5% Subordinated PIK Note due 2010, the warrants became
exercisable for 2,222,224 shares of our Class A Common Stock.
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<PAGE>
(Footnotes continued from previous page)
(6) The shares reported by Harris are owned by Manatee Investment Corporation, a
wholly owned subsidary of Harris. Harris may be deemed to beneficially own
these shares.
(7) James A. Urry, who is one of our directors, is affiliated with Sterling in
the capacities described under "Management--Directors and Executive
Officers" and footnote (5) above. All shares reported for Mr. Urry are held
by Sterling, but do not include all shares held by Sterling, which Mr. Urry
may be deemed to beneficially own as a result of his affiliation with
Sterling. Mr. Urry disclaims beneficial ownership of all shares held by
Sterling, except for those shares reported for Mr. Urry, which Mr. Urry has
the right to acquire in exchange for an ownership interest in Sterling.
(8) Gary E. Gist owns an interest in Sterling and could have the right to
exchange that interest for up to 38,186 shares of our common stock.
------------------
Sterling, one of our principal stockholders, also owns 7.1% of Class A
Common Stock and 100% of Class B Common Stock of Fairchild Semiconductor
International, Inc., one of our competitors. Fairchild Semiconductor Corporation
is a wholly owned subsidiary of Fairchild Semiconductor International, Inc.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock gives effect to the initial
public offering, as well as the conversion of all outstanding shares of 12%
Series A Cumulative Compounding Preferred Stock into Class A Common Stock and
the 1 for 1.5 reverse stock split effective on February 23, 2000. Our capital
stock consists of 600,000,000 authorized shares of common stock, par value $.01
per share, divided into two classes consisting of (a) 300,000,000 shares of
Class A Common Stock, of which 41,554,703 shares are outstanding and (b)
300,000,000 shares of Class B Common Stock, of which 49,746,482 shares are
outstanding. Our capital stock also consists of 100,000 authorized shares of
preferred stock, par value $.01 per share, none of which is issued or
outstanding.
The following description of the terms and provisions of our capital stock
is not complete, and you should read our Bylaws and Restated Certificate of
Incorporation, which have been filed as exhibits to the Registration Statement
of which this prospectus is a part.
CLASS A COMMON STOCK
The holders of Class A Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders other than
elections of directors. Our Restated Certificate of Incorporation provides for
cumulative voting for directors. With cumulative voting, at each election for
directors, each holder of Class A Common Stock is entitled to as many votes as
would equal the number of shares he or she holds multiplied by the number of
directors to be elected. The holder may cast all of his or her votes for a
single candidate or may distribute them among any number of candidates. Under
cumulative voting, a minority holder has a greater possibility of influencing
the election of directors because, for example, the minority holder can increase
the number of votes such holder may cast for an individual director. The holders
of Class A Common Stock will be entitled to such dividends as may be declared at
the discretion of our Board of Directors out of funds legally available for that
purpose. The holders of Class A Common Stock will be entitled to share ratably
with holders of Class B Common Stock in the net assets of our company upon
liquidation after payment or provision for all liabilities. A holder of Class A
Common Stock may convert any or all of his shares into an equal number of shares
of Class B Common Stock. We have never paid and we do not anticipate declaring
or paying any cash dividends on shares of our Class A Common Stock in the
foreseeable future. As of December 31, 1999, there were 19 holders of record of
our Class A Common Stock.
CLASS B COMMON STOCK
Except as required by law, the holders of Class B Common Stock have no
voting rights. The holders of Class B Common Stock will be entitled to such
dividends as may be declared at the discretion of our Board of Directors out of
funds legally available for that purpose. The holders of Class B Common Stock
will be entitled to share ratably with holders of Class A Common Stock in the
net assets of our company upon liquidation after payment or provision for all
liabilities. A holder of Class B Common Stock may convert any or all of his
shares into an equal number of shares of Class A Common Stock, provided that
such conversion would be permitted only to the extent that the holder of such
shares to be converted certifies to us in writing that the holder would be
permitted under applicable law to hold the total number of shares of Class A
Common Stock which would be held after giving effect to the conversion. We have
never paid and we do not anticipate declaring or paying any cash dividends on
shares of our Class B Common Stock in the foreseeable future. As of December 31,
1999, there were 2 holders of record of our Class B Common Stock.
PREFERRED STOCK
Under our Restated Certificate of Incorporation, our Board of Directors has
the authority to issue up to 100,000 shares of preferred stock, but only in
connection with the adoption of a stockholder rights plan. A stockholder rights
plan may only be adopted by our Board of Directors with the approval of holders
of a majority of outstanding shares of Class A Common Stock or with the
unanimous consent of our Board of Directors, unless Sterling and its affiliates
hold less than 15% of our outstanding common stock, in which case approval by a
majority of our Board of Directors is required. See "--Other Provisions of Our
Restated Certificate of Incorporation." If our Board of Directors has such
requisite authority, it will be authorized to issue preferred stock in
connection with a stockholder rights plan in one or more series, and to fix the
voting
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<PAGE>
powers, designations, preferences, and relative, participating, optional or
other special rights and qualifications, limitations and restrictions of each
series, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, and the number of shares constituting any
series. The ability of our Board of Directors to issue preferred stock could
have the effect of making it more difficult for a third party to acquire, or
discouraging a third party from acquiring, a majority of our outstanding Class A
Common Stock. Our Board of Directors' ability to establish the preferences and
rights of the shares of any series of preferred stock may also afford holders of
any preferred stock preferences, powers and rights (including voting rights)
senior to the rights of holders of our Class A Common Stock. We have no present
plans to issue any shares of preferred stock.
12% SERIES A CUMULATIVE COMPOUNDING PREFERRED STOCK
All outstanding shares of 12% Series A Cumulative Compounding Preferred
Stock have been converted into shares of Class A Common Stock in connection with
the initial public offering and no 12% Series A Cumulative Compounding Preferred
Stock are authorized.
OTHER PROVISIONS OF OUR RESTATED CERTIFICATE OF INCORPORATION
Our Restated Certificate of Incorporation, which became effective on March
1, 2000, contains provisions affecting the rights of our stockholders and the
powers of our Board of Directors, including the following:
o We are not subject to the provisions of Section 203 of the General
Corporation Law of Delaware regulating takeovers. Section 203 generally
makes it more difficult for a third party to take control of a company by
prohibiting a third party owning more than 15% of the company's stock
from entering into transactions with the company unless the board of
directors or stockholders unaffiliated with the third party approve
either the third party or the transaction at issue, before the third
party becomes a 15% owner or the third party acquires at least 85% of the
company's stock.
o A stockholder rights plan can be adopted only with the consent of holders
of a majority of outstanding Class A Common Stock or with the unanimous
consent of our Board of Directors, except that if Sterling's and its
affiliates' ownership is less than 15% of our outstanding common stock,
then a stockholder rights plan can be adopted with the consent of a
majority of our Board of Directors. A stockholder rights plan generally
makes it more difficult for a hostile bidder to take control of a company
by providing existing stockholders with special rights which would make
it uneconomical for the third party to acquire additional interests. If
our Board of Directors is authorized to and decides to implement a
stockholder rights plan, the plan adopted by the Board may deter
acquisitions which you might deem to be in your best interests.
o Our Board of Directors must have no fewer than three and no more than
seven members and may not be divided into classes. The term of each
member of the Board of Directors expires at each annual stockholders'
meeting. Having a minimum number of Directors ensures that cumulative
voting will operate to protect the interests of minority shareholders,
since with a smaller Board it would take a greater percentage of votes to
elect one director. Similarly, by prohibiting a classified Board, our
Restated Certificate of Incorporation ensures that stockholders may
replace the entire Board at each annual election.
o Stockholders may act by written consent, without a meeting and without
notice or a vote. This provision enables stockholders to act on matters
subject to a stockholder vote without waiting until the next annual or
special meeting of stockholders.
o Each of the provisions of our Restated Certificate of Incorporation
described above, and the provision described above under "Preferred
Stock" that limits the Board of Directors' ability to issue preferred
stock other than in connection with a stockholder rights plan, may be
amended only with the approval of holders of 75% of our outstanding Class
A Common Stock. Amending other provisions requires approval by holders of
a majority of our outstanding Class A Common Stock. The provision
requiring a supermajority vote also cannot be amended without the consent
of holders of 75% of the Class A Common Stock. If a third party--that is,
a person or entity other than our principal stockholders or members of
our management--acquires more than 40% of the Class A Common Stock, then
the holders of a majority of the Class A Common Stock could amend the
foregoing provisions. If, after
54
<PAGE>
any transfer by Sterling Holding Company, LLC and its affiliates,
Sterling and the affiliates together own less than 15% of our outstanding
common stock, then holders of a majority of the Class A Common Stock
could amend the supermajority provisions. The effect of each
supermajority provision is that holders of 25% of our Class A Common
Stock could block amendments to our Restated Certificate of Incorporation
affecting the provisions described above.
WARRANTS RELATING TO THE 13.5% SUBORDINATED HOLDING PIK NOTE
Intersil Holding issued to Citicorp Mezzanine Partners, L.P. warrants to
purchase Intersil Holding Class A Common Stock. These warrants are not the
warrants covered by this prospectus. These warrants initially entitled the
holder to purchase up to 3,703,707 shares of Class A Common Stock of Intersil
Holding upon exercise of the warrants beginning on August 13, 2001 and ending on
August 15, 2009 at an exercise price of $0.0015 per share, subject to
anti-dilution adjustments. Intersil Holding prepaid in full the 13.5%
Subordinated Holding PIK Note due 2010 with the proceeds of the initial public
offering, reducing the number of shares these warrants are exercisable for to
2,222,224 shares of the Intersil Holding Class A Common Stock.
STOCKHOLDERS' AGREEMENT
Prior to our initial public offering, the then-existing stockholders of our
company entered into a Securities Purchase and Holders Agreement, which we refer
to as the Stockholders' Agreement, containing agreements among the stockholders
with respect to our capital stock and corporate governance.
The Stockholders' Agreement contains provisions which restrict our ability
to issue common stock. We cannot issue shares of common stock to Sterling,
Citicorp Venture Capital Ltd. or any of their respective affiliates without
offering the other parties to the Stockholders' Agreement an equal opportunity
to purchase our shares. In addition, Sterling and its affiliates have the right
to have observers present at meetings of our Board of Directors if they are not
represented on our Board of Directors as long as they own at least 5% of the
common stock then outstanding. The Stockholders' Agreement continues to subject
some of our executive officers' common stock to risk of forfeiture.
REGISTRATION RIGHTS AGREEMENT
In connection with their entry into the Stockholders' Agreement, Intersil
Holding, Sterling, the management investors, Harris and the other shareholders
of Intersil Holding entered into a Registration Rights Agreement (the
"Registration Rights Agreement"). According to the Registration Rights
Agreement, upon the written request of Sterling and subject to Intersil
Holding's option to defer action for 180 days, Intersil Holding will prepare and
file a registration statement with the Securities and Exchange Commission
concerning the distribution of all or part of the shares held by Sterling and
use its best efforts to cause such registration statement to become effective.
If at any time Intersil Holding files a registration statement for the Intersil
Holding common stock because of a request by Sterling or otherwise, Intersil
Holding will use its best efforts to allow the other parties to the Registration
Rights Agreement to have their shares of Intersil Holding common stock (or a
portion of their shares under circumstances set forth in the Registration Rights
Agreement) included in the registered offering of Intersil Holding common stock.
Intersil Holding is not bound by this requirement if it is filing a registration
statement on Form S-8, Form S-4 or any similar form filed in connection with an
exchange offer or an offering solely to Intersil Holding's employees or existing
shareholders, or a registration statement registering a unit offering consisting
of a public offering of debt and equity securities of Intersil Holding in which
(i) not more than twenty percent of the gross proceeds received from the sale of
those securities is attributed to the equity securities and (ii) after the
public offering, Intersil Holding does not have a class of equity securities
required to be registered under the Securities Exchange Act of 1934. Most
registration expenses of the selling shareholders will be paid by Intersil
Holding. Intersil Holding will not pay expenses relating to underwriting
commissions, brokerage fees and transfer taxes applicable to the shares sold by
the shareholders or in certain cases the fees and expenses of any accountants or
other representatives retained by a selling shareholder.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of Intersil and of
Intersil Holding. See "Recent Developments." To the extent such summary contains
descriptions of documents relating to the notes, the senior credit facilities
and other loan documents, such descriptions do not purport to be complete and
are qualified in their entirety by reference to such documents, which are
available upon request to us. We repaid a substantial amount of our indebtedness
with the proceeds of our initial public offering.
NOTES
On August 13, 1999, Intersil and Intersil Holding issued 200,000 units,
each unit consisting of $1,000 principal amount of 13 1/4% Senior Subordinated
Notes due 2009 of Intersil and one warrant to purchase 18.518535 shares of Class
A common stock of Intersil Holding, in connection with the unit offering for
gross proceeds of approximately $200.0 million. The notes were issued under an
indenture dated as of August 13, 1999 (the "Indenture") between Intersil and
United States Trust Company of New York, as Trustee. The warrants were issued
under the Warrant Agreement. The net proceeds of the unit offering, together
with the net proceeds of certain other funds, were used to pay the cash
consideration for the acquisition of the semiconductor business from Harris and
pay related fees and expenses. See "The Transactions."
The notes were initially in the principal amount of $200.0 million and
mature on August 15, 2009. Interest on the notes accrues at 13 1/4% per annum
and is payable semiannually in arrears on February 15 and August 15, commencing
February 15, 2000. Subject to certain covenants set forth in the Indenture,
Intersil may issue more notes under the Indenture in an unlimited principal
amount. Any additional notes that are actually issued will be treated as issued
and outstanding notes (and as the same class as the initial notes) for most
purposes. The notes are unsecured senior subordinated obligations of Intersil,
are subordinated in right of payment to all existing and future Senior
Indebtedness (as defined in the Indenture) of Intersil, and are senior in right
of payment to all future Subordinated Indebtedness (as defined in the Indenture)
of Intersil. The notes are guaranteed by Intersil Holding and each Subsidiary
Guarantor (as defined in the Indenture). The Guaranties are senior subordinated
obligations of Intersil Holding and the relevant Subsidiary Guarantor.
Under the terms of the notes, we were permitted, but were not required, to
redeem up to $70.0 million principal amount of the notes with the net cash
proceeds of our initial public offering at a price of 113 1/4% of the principal
amount of the notes, plus accrued and unpaid interest on the notes.
On or after August 15, 2004, the notes may be redeemed at the option of
Intersil, in whole or in part, at the following redemption prices (expressed as
percentages of principal amount at maturity), plus accrued and unpaid interest,
if redeemed during the 12 months beginning August 15 of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004........................................................ 106.625%
2005........................................................ 104.969
2006........................................................ 103.313
2007........................................................ 101.656
2008 and thereafter......................................... 100.000
</TABLE>
Upon a Change of Control (as defined in the Indenture), each holder of
notes may require Intersil to repurchase all or any portion of the holder's
notes at a purchase price equal to 101% of the principal amount plus accrued and
unpaid interest to the date of purchase.
The Indenture contains certain covenants that, among other things, limit
(i) the incurrence of additional debt by Intersil and certain of its
subsidiaries, (ii) the payment of dividends on capital stock of Intersil and the
purchase, redemption or retirement of capital stock or subordinated
indebtedness, (iii) investments, (iv) certain transactions with affiliates, (v)
sales of assets, including capital stock of subsidiaries, and (vi) certain
consolidations, mergers and transfers of assets. The Indenture also prohibits
certain restrictions on distributions from certain subsidiaries. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
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<PAGE>
Under a registration rights agreement dated August 13, 1999 among Intersil
Holding, Intersil and the initial purchasers, Intersil exchanged the notes for
new notes in an exchange offer registered under the Securities Act.
SENIOR CREDIT FACILITIES
General. In connection with the transactions, Intersil entered into the
senior credit facilities with a syndicate of certain financial institutions, as
lenders, Credit Suisse First Boston, New York branch, as the Administrative
Agent, Salomon Smith Barney Inc., as Syndication Agent, and Morgan Guaranty
Trust Company of New York, as Documentation Agent. The description below is only
a summary of the principal terms of the senior credit facilities and related
loan documents.
The senior credit facilities provided for up to $275.0 million of aggregate
borrowing capacity, consisting of:
o a secured $205.0 million funded term loan (the "Tranche B Senior Term
Facility"); and
o a secured $70.0 million revolving line of credit, $15.0 million of which
was funded at closing of the acquisition of the semiconductor business
(the "Revolving Credit Facility").
Use of the Senior Credit Facilities. Intersil used the proceeds from the
senior credit facilities, together with $30.0 million of proceeds from the 13.5%
Subordinated Holding PIK Note due 2010, $90.0 million of proceeds from the
11.13% Seller Holding PIK Note due 2010, the proceeds of the unit offering and
the equity contribution from Intersil Holding, (i) to fund the acquisition of
the semiconductor business, (ii) to pay related fees and expenses and (iii) for
general corporate purposes.
Guaranties; Security. Intersil's obligations under the senior credit
facilities are unconditionally guaranteed, jointly and severally, by Intersil
Holding and each of Intersil's existing and subsequently acquired or organized
domestic subsidiaries. Intersil's obligations and those of the guarantors under
the senior credit facilities are secured by a pledge of all of Intersil's
capital stock and by substantially all of the assets of Intersil Holding,
Intersil and each of Intersil's existing and subsequently acquired or organized
domestic (and, to the extent no adverse tax consequences will result, foreign)
subsidiaries. No foreign subsidiary is required to guarantee the senior credit
facilities and less than two-thirds of the capital stock of certain foreign
subsidiaries is required to be pledged to secure the senior credit facilities.
Amortization; Interest; Fees; Maturity. The Senior Term Facility was
subject to certain specified amortization payments required to be made in
quarterly installments until final payment was made. The Revolving Credit
Facility is available until 2005 unless terminated earlier under the terms of
the senior credit facilities.
Borrowings under the senior credit facilities bear interest at a rate equal
to, at Intersil's option, either (i) the base rate (which is based on the prime
rate most recently announced by the Administrative Agent or the Federal Funds
rate plus one-half of 1%) or (ii) the applicable London interbank offered rate,
in each case plus the applicable margin. In addition, the senior credit
facilities are subject to a commitment fee of 0.50% per annum of the undrawn
portion of the Revolving Credit Facility, and letter of credit fees regarding
each letter of credit outstanding under the senior credit facilities equal to
(i) the applicable margin over the Adjusted LIBOR Rate (as defined in the Credit
Agreement) in effect for loans under the Revolving Credit Facility and (ii)
0.25% per annum on the face amount of all outstanding letters of credit.
Prepayments. The terms of our senior credit facilities required us to
apply 50% of the net cash proceeds of our initial public offering in excess of
$50.0 million to the prepayment of the term loans under the senior credit
facilities. We repaid $205.0 million of our Tranche B Senior Term Facility.
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Covenants and Events of Default. The senior credit facilities contain,
among other things, covenants restricting Intersil's ability and its
subsidiaries' ability to dispose of assets, merge, pay dividends, repurchase or
redeem capital stock and indebtedness (including the notes), incur indebtedness
or guaranties, create liens, enter into agreements with negative pledge clauses,
make certain investments or acquisitions, enter into sale and leaseback
transactions, enter into transactions with affiliates, change Intersil's
business or make fundamental changes, and otherwise restrict corporate actions.
The senior credit facilities also contain a number of financial maintenance
covenants.
The senior credit facilities also include events of default usual for these
types of credit facilities and transactions, including but not limited to
nonpayment of principal or interest, violation of covenants, incorrectness of
representations and warranties, cross defaults and cross acceleration,
bankruptcy, material judgments, ERISA, actual or asserted invalidity of the
guaranties or the security documents and certain changes of control of Intersil.
The occurrence of any event of default could result in the acceleration of
Intersil's and the guarantors' obligations under the senior credit facilities,
which could materially and adversely affect you.
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DESCRIPTION OF THE WARRANTS
GENERAL
The warrants were issued in connection with a Warrant Agreement dated
August 13, 1999 (the "Warrant Agreement"), between us and United States Trust
Company of New York, as warrant agent, and are being registered for resale by
this prospectus.
The following description is only a summary of the material provisions of
the Warrant Agreement. We urge you to read the Warrant Agreement because it, and
not this description, defines your rights as holders of these warrants. You may
request copies of the Warrant Agreement at our address set forth under "Where
You Can Find More Information."
BRIEF DESCRIPTION OF THE WARRANTS
Each warrant:
o when exercised, will entitle the holder to purchase 18.518535 shares
of Class A Common Stock from us;
o may be exercised at a price of $0.0015 per share of Class A Common
Stock; and
o may be exercised beginning on August 14, 2000 and ending on August
15, 2009, which we refer to as the expiration date.
The exercise price and the number of shares of Class A Common Stock issuable
upon exercise of a warrant are both subject to adjustment in some cases. See
"--Adjustments" below. The warrants will initially entitle the holders to
acquire, in the aggregate, 3,703,707 shares of Class A Common Stock.
We will give notice of expiration not less than 90 nor more than 120 days
prior to the expiration date to the registered holders of the then outstanding
warrants. Even if we fail to give this notice, the warrants will still expire
and become void on the expiration date.
At our option, fractional shares of Class A Common Stock may not be issued
upon exercise of the warrants. If any fraction of a share of Class A Common
Stock would otherwise be issuable upon the exercise of any of the warrants (or
any specified portion of them), we will pay an amount in cash equal to the
Current Market Value per share of Class A Common Stock, as determined on the day
immediately preceding the date the warrant is presented for exercise, multiplied
by that fraction, computed to the nearest whole cent.
The "Current Market Value" per share of Class A Common Stock or any other
security at any date means (i) if the security is not registered under the
Exchange Act, (a) the value of the security, determined in good faith by the
Board of Directors of Intersil Holding and certified in a board resolution,
based on the most recently completed arm's-length transaction between Intersil
Holding and a Person other than an Affiliate of Intersil Holding, the closing of
which shall have occurred on that date or within the six-month period preceding
that date, or (b) if no transaction shall have occurred on that date or within a
six-month period of that date, the value of the security as determined by an
independent financial expert or (ii) if the security is registered under the
Exchange Act, the average of the daily closing bid prices (or the equivalent in
an over-the-counter market) for each business day during the period commencing
15 business days before that date and ending on the date one day prior to that
date, or if the security has been registered under the Exchange Act for less
than 15 consecutive business days before that date, then the average of the
daily closing bid prices (or the equivalent) for all of the business days before
that date for which daily closing bid prices are available; provided, however,
that if the closing bid price is not determinable for at least ten business days
in that period, the "Current Market Value" of the security shall be determined
as if the security were not registered under the Exchange Act.
Certificates for warrants will be issued in fully registered form only. We
refer to the registered certificates (including the warrants offered and sold to
qualified institutional buyers in reliance on Rule 144A of the Securities Act)
issued by us under the Warrant Agreement representing the warrants as warrant
certificates. No service charge will be made for registration of transfer or
exchange upon surrender of any warrant certificate at the office of the warrant
agent maintained for that purpose. We may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of warrant certificates.
In the event a bankruptcy, reorganization or similar proceeding is
commenced by or against us, a bankruptcy court may hold that unexercised
warrants are executory contracts which may be subject to rejection by us with
approval of the bankruptcy court. As a result, holders of the warrants may, even
if sufficient funds are available, not be entitled to receive any consideration
or may receive an amount less than
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they would be entitled to if they had exercised their warrants prior to the
commencement of any bankruptcy, reorganization or similar proceeding.
GENERAL TERMS
Exercise
In order to exercise all or any of the warrants, the holder is required to
surrender to the warrant agent the related warrant certificate and pay in full
the exercise price for each share of Class A Common Stock or other securities
issuable upon exercise of the warrants. The exercise price may be paid (i) in
cash or by certified or official bank check or by wire transfer to an account
designated by us for that purpose or (ii) without the payment of cash (the
"Cashless Exercise").
In the event that a holder chooses to exercise all or any of the warrants
in a Cashless Exercise:
(1) we will reduce the number of shares of Class A Common Stock that
would be obtainable upon the exercise of a warrant and payment of the
exercise price in cash; and
(2) the holder will receive a number of shares of Class A Common Stock
equal to the product of (a) the number of shares of Class A Common Stock
for which the warrant is exercisable as of the date of exercise (if the
exercise price were being paid in cash) and (b) the Cashless Exercise Ratio
(the "Cashless Exercise").
The "Cashless Exercise Ratio" equals a fraction, the numerator of which is the
excess of the Current Market Value per share of Class A Common Stock on the day
on which a warrant is exercised, or the exercise date, over the exercise price
per share as of the exercise date and the denominator of which is the Current
Market Value per share of the Class A Common Stock on the exercise date. Upon
surrender of a warrant certificate representing more than one warrant in
connection with the holder's option to elect a Cashless Exercise, the number of
shares of Class A Common Stock deliverable upon a Cashless Exercise equals the
number of shares of Class A Common Stock issuable upon the exercise of warrants
that the holder specifies are to be exercised in a Cashless Exercise multiplied
by the Cashless Exercise Ratio. All provisions of the Warrant Agreement are
applicable to a surrender of a warrant certificate in connection with a Cashless
Exercise for less than the full number of warrants represented.
No Rights as Stockholders
The holders of unexercised warrants are not entitled, by virtue of being
holders, to receive dividends, to vote, to consent, to exercise any preemptive
rights or to receive notice as our stockholders in respect of any stockholders
meeting for the election of our directors or any other purpose, or to the
exercise of any other rights whatsoever as our stockholders.
Mergers, Consolidations, etc.
In the event that we consolidate with, merge with or into, or sell all or
substantially all of our assets to, any other individual, corporation,
partnership, joint venture, limited liability company, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivision of them or any other entity, which we refer to
collectively as a Person, each warrant thereafter entitles the holder to receive
upon exercise of the warrant, per share of Class A Common Stock for which the
warrant is exercisable, the number of shares of common stock or other securities
or property which the holder of a share of Class A Common Stock is entitled to
receive upon completion of the consolidation, merger or sale of assets. However,
if
(1) we consolidate with, merge with or into, or sell all or
substantially all of our assets to, another Person and, in connection
therewith, the consideration payable to the holders of Class A Common Stock
in exchange for their shares is payable solely in cash; or
(2) there is a dissolution, liquidation or winding-up of us;
then the holders of the warrants will be entitled to receive distributions on an
equal basis with the holders of Class A Common Stock or other securities
issuable upon exercise of the warrants, as if the warrants had been exercised
immediately prior to the event, less the exercise price. Upon receipt of the
payment, if any, the warrants will expire and the rights of the holders will
cease.
In the case of any merger, consolidation or sale of assets, the surviving
or acquiring person and, in the event of any dissolution, liquidation or
winding-up of us, we must deposit promptly with the warrant agent the funds, if
any, required to pay the holders of the warrants. After the funds and the
surrendered warrant certificates are received, the warrant agent is required to
deliver a check in the amount as is appropriate (or,
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in the case of consideration other than cash, other consideration as is
appropriate) to any Persons as it may be directed in writing by the holders
surrendering these warrants.
ADJUSTMENTS
The number of shares of Class A Common Stock issuable upon the exercise of
the warrants and the exercise price will be subject to adjustment in the
following events:
(1) the payment by us of certain dividends (or other distributions) on
our common stock or including dividends or distributions payable in shares
of this common stock or other shares of our capital stock;
(2) subdivisions, combinations and certain reclassifications of the
common stock;
(3) the issuance to all holders of common stock of rights, options or
warrants to subscribe for shares of common stock, or of securities
convertible into or exchangeable or exercisable for shares of common stock,
for a consideration per share which is less than the Current Market Value
per share of the common stock;
(4) the issuance of shares of common stock for a consideration per
share which is less than the Current Market Value per share of the Class A
Common Stock other than upon the conversion, exchange or exercise of
convertible, exchangeable or exercisable securities of ours outstanding as
of August 13, 1999 (to the extent in accordance with the terms of those
securities as in effect on that date), and
(5) the distribution to all holders of the common stock of any of our
assets, debt securities or any rights or warrants to purchase securities
(excluding those rights and warrants referred to in clause (3) above and
cash dividends and other cash distributions from current or retained
earnings other than the portion, if any, of the aggregate amount of all
dividends paid by Intersil Holding on the common stock in any fiscal year
that exceeds $10 million).
No adjustment to the number of shares of Class A Common Stock issuable upon the
exercise of the warrants and the exercise price will be required in the
following events:
(1) the issuance of shares of common stock in bona fide public
offerings that are underwritten or in which a placement agent is retained
by us;
(2) the issuance of options or shares of common stock to officers,
directors or employees of Intersil or us;
(3) the issuance of Class A Common Stock upon conversion of Class B
Common Stock and the issuance of Class B Common Stock upon conversion of
Class A Common Stock, in each case as provided in our Certificate of
Incorporation as in effect on August 13, 1999; and
(4) the issuance of shares of common stock in connection with
acquisitions of products and businesses other than to our affiliates.
In the event of a distribution to holders of common stock which results in
an adjustment to the number of shares of Class A Common Stock or other
consideration for which a warrant may be exercised, the holders of the warrants
may, in certain circumstances, be deemed to have received a distribution subject
to United States Federal income tax as a dividend. See "U.S. Federal Income Tax
Considerations."
No adjustment in the exercise price will be required unless the adjustment
would require an increase or decrease of at least one percent in the exercise
price; provided, however, that any adjustment which is not made as a result of
this paragraph will be carried forward and taken into account in any subsequent
adjustment.
AMENDMENT
From time to time we and the warrant agent, without the consent of the
holders of the warrants, may amend or supplement the Warrant Agreement, in order
to cure defects or inconsistencies or make any change that does not adversely
affect the rights of any holder. Any amendment or supplement to the warrant
agreement that has an adverse effect on the interests of the holders of the
warrants requires the written consent of the holders of a majority of the then
outstanding warrants. The consent of each holder of the warrants affected is
required for any amendment by which the exercise price would be increased or the
number of shares of Class A Common Stock issuable upon exercise of warrants
would be decreased (other than in connection with adjustments provided in the
Warrant Agreement).
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REGISTRATION RIGHTS
Registration of Warrants
The Warrant Agreement required us to file this registration statement
covering the resale of the warrants by the warrant holders by November 10, 1999,
and to use our best efforts to cause this registration statement to be declared
effective under the Securities Act by January 10, 2000 and to remain effective
until the earliest of:
(1) the time by which all of the warrants have been sold under this
registration statement,
(2) two years after its effective date, and
(3) the time by which the warrants can be sold without restriction
under the Securities Act.
Each holder of warrants that sells these warrants in connection with this
registration statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to the
purchaser, will be subject to certain of the civil liability provisions under
the Securities Act in connection with these sales and will be bound by certain
provisions of the Warrant Agreement which are applicable to the holder
(including certain indemnification obligations). In addition, each holder of
warrants will be required to deliver information to be used in connection with
this registration statement in order to have its warrants included in this
registration statement.
Registration of Underlying Class A Common Stock
The Warrant Agreement also required us to file this registration statement
covering the issuance of shares of Class A Common Stock to the holders of the
warrants upon exercise of the warrants by the warrant holders and to use our
best efforts to cause this registration statement to be declared effective on or
before August 14, 2000 and to remain effective until the earlier of:
(1) the time by which all warrants have been exercised; and
(2) the expiration date.
During any consecutive 365-day period, we are entitled to suspend the
availability of this registration statement for up to two 45 consecutive-day
periods (except for the 45 consecutive-day period immediately prior to the
expiration date) if our Board of Directors determines in the exercise of its
reasonable judgment that there is a valid business purpose for the suspension
and provides notice that this determination was made to the holders of the
warrants; provided, however, that in no event are we required to disclose the
business purpose for the suspension if we determine in good faith that the
business purpose must remain confidential. There can be no assurance that we
will be able to file, cause to be declared effective, or keep a registration
statement continuously effective until all of the warrants have been exercised
or have expired.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion sets forth the opinion of Dechert Price & Rhoads
("Tax Counsel") regarding the material U.S. Federal income and estate tax
aspects of the purchase, ownership and disposition of the warrants and Class A
Common Stock obtained upon exercise of the warrants. As noted below, some
matters regarding the treatment of the warrants are unclear and Tax Counsel does
not render an opinion on these matters. This discussion contains general
information only and is limited in the following ways:
o The discussion only covers holders of the warrants and the Class A Common
Stock obtained upon exercise of the warrants.
o The discussion only covers holders of warrants and Class A Common Stock
obtained upon exercise of the warrants that hold the warrants and Class A
Common Stock as capital assets (that is, for investment purposes), and
that do not have a special tax status.
o The discussion covers only the general tax consequences to holders of the
warrants and Class A Common Stock obtained upon exercise of the warrants.
It does not cover tax consequences that depend upon a holder's individual
tax circumstances.
o The discussion is based on current law. Changes in the law may change the
tax treatment of the warrants and Class A Common Stock obtained upon
exercise of the warrants on a prospective or retroactive basis.
o The discussion does not cover state, local or foreign law.
o Whenever Class A Common Stock is discussed in this discussion, we are
referring only to Class A Common Stock obtained upon the exercise of
warrants.
The tax consequences depend upon whether you are a U.S. holder or a
non-U.S. holder. A U.S. holder is:
o a citizen or resident of the United States;
o a corporation or other entity taxable as a corporation created or
organized under U.S. law (Federal or state);
o an estate the income of which is subject to U.S. Federal income taxation
regardless of its sources;
o a trust if a U.S. court is able to exercise primary jurisdiction over
administration of the trust and one or more U.S. persons have authority
to control all substantial decisions of the trust; or
o any other person whose worldwide income and gain is otherwise subject to
U.S. Federal income taxation on a net basis.
A non-U.S. holder is a holder that is not a U.S. holder.
TAX CONSEQUENCES TO U.S. HOLDERS
Characterization
o For the reasons described below, it is unclear whether the warrants will
be treated for federal income tax purposes as warrants or as Class A
Common Stock. Tax Counsel is unable to opine as to the tax treatment of
the warrants as warrants or common stock due to the inherently factual
nature of the issue and the lack of clear legal authority.
o Because of the nominal exercise price and the lack of any meaningful
contingency, it is possible that the warrants will be characterized as
Class A Common Stock for U.S. federal income tax purposes from the date
of issuance. Tax Counsel does not believe that a characterization of the
warrants as Class A Common Stock would materially adversely affect the
holders.
o Unless otherwise noted, this summary assumes that the warrants will be
respected as warrants for U.S. Federal income tax purposes, and
describes, as appropriate, differing U. S. Federal income tax treatment
that would result if the warrants are treated as stock.
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Exercise
o You will not recognize gain or loss upon exercise of a warrant (except
with respect to the receipt of cash in lieu of fractional shares).
o Your tax basis for the warrant will equal: (i) for a holder who acquires
a unit consisting of both a note and a warrant, the portion of the
purchase price of the unit allocable to the warrant, which for a holder
who acquired a unit for $1,000 from the initial holder, equals $1.36; or
(ii) for a holder who acquires only a warrant, the purchase price for the
warrant.
o Your tax basis in the Class A Common Stock received in connection with
the exercise of a warrant will equal your basis in the warrant
immediately prior to the exercise plus the amount of cash paid upon
exercise.
o Your holding period in the Class A Common Stock received in connection
with the exercise of a warrant will commence on the day after you
exercise the warrant.
o If the warrants are treated as Class A Common Stock from the date of
issuance:
-- you will not recognize any gain or loss in connection with the
exercise of the warrant, and
-- your holding period in the Class A Common Stock received in
connection with the exercise of a warrant will include the entire
period during which you held the warrant.
-- your tax basis for the Class A Common Stock will equal your basis
in the warrant, or $1.36, and when you exercise the warrant, will
equal your basis in the warrant plus the amount of cash paid upon
exercise.
Adjustments
o The exercise price of the warrants may be adjusted pursuant to the
antidilution provisions of the warrants under circumstances which are
described in "Description of Warrants--Adjustments."
o An adjustment in the exercise price of the warrants may result in
constructive distributions that could be taxable as dividends. The
consequences of this type of adjustment should be the same whether or not
the warrants are treated as warrants or stock, as of the date of
issuance.
o If holders of warrants are treated as receiving a constructive
distribution taxable as a dividend, the distribution:
-- will be taxable as a dividend (i.e., ordinary income) to the extent
of Intersil Holding's current and/or accumulated earnings and
profits, as calculated for U.S. Federal income tax purposes,
-- any excess will be treated as a return of capital (on a
dollar-for-dollar basis) to the extent of your tax basis in the
warrant, and
-- any remaining balance will be treated as capital gain.
o Only corporate holders generally will be eligible to take the
dividends-received deduction
o Your tax basis in the warrant generally will increase by the amount of
the distribution taxable as a dividend.
Disposition
On a sale, exchange or other disposition of a warrant (whether or not the
warrant is treated as a warrant or stock, as of the date of issuance) or Class A
Common Stock acquired upon exercise of a warrant:
o you will have taxable gain or loss equal to the difference between:
-- the amount received on the sale, exchange or other disposition, and
-- your tax basis in the warrant or Class A Common Stock.
o any gain or loss will generally be capital gain or loss.
o any capital gain or loss will be long-term capital gain or loss if your
holding period in the warrant or Class A Common Stock is more than one
(1) year at the time of sale, exchange or other disposition.
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Lapse
Upon a lapse of a warrant, you will recognize a capital loss equal to your
tax basis in the warrant. The result generally will be the same even if the
warrant is treated as stock, as of the date of issuance.
Information Reporting and Backup Withholding
Under the tax rules concerning information reporting to the Internal
Revenue Service:
o Unless an exemption applies, you are required to provide us with a
correct taxpayer identification number for our use in reporting
information to the Internal Revenue Service. If you are an individual,
this is your social security number. You are also required to comply with
other Internal Revenue Service requirements concerning information
reporting.
o If you are subject to these requirements but do not comply, we are
required to withhold 31% of all amounts payable to you. If we do withhold
part of a payment, you may use the withheld amount as a credit against
your Federal income tax liability.
o All U.S. holders that are individuals are subject to these requirements.
Certain U.S. holders, including all corporations, tax-exempt
organizations and individual retirement accounts, are exempt from these
requirements.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
Warrants and Class A Common Stock
o As discussed above, except as otherwise noted, this summary assumes that
the warrants will be respected as warrants for U.S. Federal income tax
purposes.
o Your tax basis in a warrant and tax basis and holding period for Class A
Common Stock obtained upon the exercise of a warrant will be determined
in accordance with the rules for U.S. holders, as described above.
o Although we do not expect Intersil Holding to make any distributions with
respect to the warrants or Class A Common Stock for the foreseeable
future, if you are a non-U.S. holder, distributions (including
constructive distributions) made with respect to the warrants or Class A
Common Stock which are taxable as dividends generally will be subject to
withholding tax at a rate of 30%, unless an applicable income tax treaty
provides for a lesser rate and you comply with certain reporting rules so
as to obtain a lesser rate.
If, however, the dividend is effectively connected with the conduct of a
trade or business in the United States by a non-U.S. holder, or, if a tax treaty
applies, is attributable to a permanent establishment of the non-U.S. holder,
the dividend will be subject to U.S. Federal income tax on a net income basis
that applies to U.S. holders generally (and, to corporate holders under certain
circumstances, the branch profits tax).
Sale, Exchange or Redemption of Warrants and Class A Common Stock
If you sell or otherwise dispose of a warrant or Class A Common Stock
obtained upon exercise of the warrants, you generally will not be subject to
U.S. Federal income tax on any gain unless:
o The gain is effectively connected with a trade or business that you
conduct in the U.S. or, if a tax treaty applies, is attributable to a
U.S. permanent establishment of the non-U.S. holder.
o You are an individual and are present in the U.S. for at least 183 days
during the calendar year in which you dispose of the warrant or Class A
Common Stock, and certain other conditions are satisfied.
o You are required to pay tax pursuant to the provisions of U.S. tax law
applicable to certain U.S. expatriates.
o In the case of the disposition of Class A Common Stock (or warrants
treated as stock) where Intersil Holding is or has been a "U.S. real
property holding corporation" at any time within the shorter of the (i)
5-year period preceding such disposition, or (ii) non-U.S. holder's
holding period in the Class A Common Stock. We believe that Intersil
Holding is not, and will conduct its affairs in a manner so that it will
not become, a U.S. real property holding corporation.
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U.S. Trade or Business
If you are a corporation and hold a warrant or Class A Common Stock in
connection with a trade or business that you are conducting in the U.S. or, if a
tax treaty applies, the holding is attributable to a U.S. permanent
establishment of yours, you may be subject to a branch profits tax on your
earnings (with some adjustments) that are connected with your U.S. trade or
business. This tax is imposed at a 30% rate, but may be reduced or eliminated by
an applicable income tax treaty (subject to compliance with certain reporting
rules).
Estate Taxes
o Warrants and Class A Common Stock held by an individual non-U.S. holder
at the time of death will be included in the holder's gross estate for
U.S. Federal estate tax purposes, unless an applicable estate tax or
other tax treaty provides otherwise.
Information Reporting and Backup Withholding
Under applicable Treasury Regulations, if Intersil Holding pays a dividend
on its Class A Common Stock, Intersil Holding generally must report annually to
the Internal Revenue Service:
o the amount of the dividend,
o the name and address of the recipient of the dividend,
o the amount of tax withheld, if any, regarding the dividend.
Intersil Holding generally must send a similar report to the recipient of the
dividend.
The Internal Revenue Service may make its reports available to tax
authorities in the country in which the non-U.S. holder is a resident under the
provisions of an applicable tax treaty or agreement.
Dividends paid to a non-U.S. holder at an address within the U.S. may be
subject to backup withholding at a rate of 31% if the non-U.S. holder fails to
establish that it is entitled to an exemption or provide a correct taxpayer
identification number and other information to the payor. Backup withholding
will generally not apply to dividends paid to non-U.S. holders at an address
outside the U.S. on or prior to December 31, 2000, unless the payor knows that
the payee is a U.S. person. Under recently finalized Treasury Regulations,
payments of dividends to non-U.S. holders at an address outside the U.S. on or
after January 1, 2001 may be subject to backup withholding at a rate of 31%
unless such non-U.S. holder satisfies various certification requirements.
Similarly, if you dispose of a warrant or Class A Common Stock through a
broker:
o You must provide the broker appropriate certification of your non-U.S.
status to avoid information reporting and backup withholding.
o If you do not provide certification, and you use the U.S. office of a
broker, you may be subject to information reporting and backup
withholding.
o If you do not provide certification, and you use the non-U.S. office of a
broker, you will not be subject to backup withholding. However, you may
be subject to information reporting depending on whether the broker has
certain connections to the U.S.
Backup withholding is not an additional tax. The tax liability of persons
subject to backup withholding will be reduced by the amount of the tax withheld.
If withholding results in an overpayment of taxes, a refund may be obtained,
provided that the required information is furnished to the Internal Revenue
Service.
You should consult your tax advisor about the tax rules concerning information
reporting requirements and backup withholding, including the effect, if any, of
those recently finalized Treasury Regulations referred to above.
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. EACH HOLDER OF
WARRANTS OR CLASS A COMMON STOCK SHOULD CONSULT WITH ITS OWN TAX ADVISOR AS TO
THE SPECIFIC TAX CONSEQUENCES (INCLUDING APPLICABLE STATE, LOCAL AND FOREIGN TAX
LAWS) TO THE HOLDER OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE WARRANTS
AND CLASS A COMMON STOCK.
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PLAN OF DISTRIBUTION
The warrants and the Warrant Shares may be sold from time to time to
purchasers directly by the selling holders. Alternatively, the selling holders
may from time to time offer the warrants or the Warrant Shares to or through
underwriters, broker-dealers or agents, who may receive compensation in the form
of underwriting discounts, concessions or commissions from the selling holders
or the purchasers of the securities for whom they may act as agents. The selling
holders and any underwriters, broker-dealers or agents that participate in the
distribution of warrants or the Warrant Shares may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of the securities and any discounts, commissions, concessions or other
compensation received by any underwriter, broker-dealer or agent may be deemed
to be underwriting discounts and commissions under the Securities Act.
The warrants and the Warrant Shares may be sold from time to time in one or
more transactions at fixed prices, at prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
The sale of the warrants and the Warrant Shares may be effected in transactions
(which may involve crosses or block transactions) (i) on any national securities
exchange or quotation service on which the securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on these exchanges or in the over-the-counter market or (iv)
through the writing of options. At the time a particular offering of the
warrants or the Warrant Shares is made, a supplement to this prospectus (a
"prospectus supplement"), if required, will be distributed which will set forth
the aggregate amount of warrants or Warrant Shares being offered and the terms
of the offering, including the name or names of any underwriters, broker-dealers
or agents, any discounts, commissions and other terms constituting compensation
from the selling holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker-dealers. Each broker-dealer that receives the
warrants or Warrant Shares for its own account pursuant to this prospectus must
acknowledge that it will deliver the prospectus and any prospectus supplement in
connection with any sale of the warrants or Warrant Shares.
To comply with the securities laws of certain jurisdictions, if applicable,
the warrants and Warrant Shares will be offered or sold in these jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the warrants and Warrant Shares may not be offered or sold unless
they have been registered or qualified for sale in these jurisdictions or an
exemption from registration or qualification is available and is complied with.
The selling holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the warrants or Warrant Shares
by the selling holders. The foregoing may affect the marketability of these
securities.
Under the terms of the Warrant Agreement, certain expenses of the
registration of the warrants and the Warrant Shares hereunder will be paid by
Intersil Holding, including, without limitation, filing fees of the Commission
and expenses of compliance with state securities or "blue sky" laws; provided,
however, that the selling holders will pay all underwriting discounts, selling
commissions and transfer taxes, if any, applicable to any sales pursuant to the
registration statement. Intersil Holding has agreed to indemnify the selling
holders against certain civil liabilities, including certain liabilities under
the Securities Act, and the selling holders will be entitled to contribution in
connection with any registration and any sales pursuant thereto. Intersil
Holding will be indemnified by the selling holders severally against certain
civil liabilities, including certain liabilities under the Securities Act, or
will be entitled to contribution in connection with any registration and any
sales pursuant to the registration statement.
67
<PAGE>
SELLING SECURITY HOLDERS
The selling security holders currently beneficially own a total of 200,000
warrants, which entitle them to purchase 3,703,707 shares of Class A Common
Stock. See "Description of the Warrants." All 200,000 warrants are being
registered by this prospectus and may be offered from time to time by the
selling security holders. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to the securities.
The following table sets forth the number of shares of Class A Common Stock
beneficially owned by each of the selling security holders, as of December 31,
1999. None of the selling security holders has had a material relationship with
Intersil Holding within the past three years other than as a result of the
ownership of our shares, warrants or other securities. No estimate can be given
as to the number of shares or warrants that will be held by the selling security
holders after completion of this offering because the selling security holders
may offer all or some of the warrants. Intersil Holding will not receive any of
the proceeds from the sale of the warrants.
<TABLE>
<CAPTION>
AMOUNT OF
SECURITIES TO
AMOUNT OF BE OFFERED
SECURITIES OWNED FOR SECURITY
PRIOR TO HOLDER'S
SELLING SECURITY HOLDER OFFERING ACCOUNT
- ----------------------- ---------------- --------------
<S> <C> <C>
Quantum Ind. Partners LDC c/o Curacao Int'l Trust Co.,
Willemstad, Curacao, Netherlands, Antilles................ 25,000 25,000
Fidelity Fixed Income Trust: Fidelity High Income Fund...... 16,350 16,350
Fidelity Advisor Series II: Fidelity Advisor High Yield
Fund...................................................... 16,220 16,220
Fidelity Management Trust Company on behalf of accounts
managed by it............................................. 13,025 13,025
Equitable Life Assurance Society of the United States....... 10,000 10,000
Variable Insurance Products Fund High Income Portfolio...... 9,470 9,470
PW Managed High Yield Plus.................................. 7,500 7,500
Oak Hill Pledge to Wells Fargo and US Trust................. 6,450 6,450
AC ITM High Yield Tokyo..................................... 6,000 6,000
Fidelity Puritan Trust...................................... 5,510 5,510
State Street Research High Income Fund...................... 5,300 5,300
Equitable Advisors Trust High Yield......................... 5,000 5,000
SG Cowen Securities Corp.................................... 5,000 5,000
LB Series Fund, Inc. High Yield Portfolio................... 4,300 4,300
The Prudential Insurance Company of America................. 3,640 3,640
Senior High Income Portfolio Inc............................ 3,000 3,000
Lutheran Brotherhood High Yield Fund........................ 2,700 2,700
Fidelity Summer Street Trust: Fidelity Capital Income
Fund...................................................... 2,600 2,600
Mitsui Trust & Banking Co. Ltd.............................. 2,550 2,550
Prudential High Yield Fund, Inc............................. 2,475 2,475
General Motors Employees Global Group Pension Trust......... 2,350 2,350
Halyard CBO I Ltd........................................... 2,000 2,000
Lutheran Brotherhood........................................ 2,000 2,000
Saudi International Bank London England..................... 2,000 2,000
Standard Bank of London..................................... 2,000 2,000
United Bank of Kuwait P&C Client Account.................... 2,000 2,000
Aetna High Yield Bond Account............................... 1,900 1,900
Credit Suisse First Boston Corporation...................... 1,805 1,805
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF
SECURITIES TO
AMOUNT OF BE OFFERED
SECURITIES OWNED FOR SECURITY
PRIOR TO HOLDER'S
SELLING SECURITY HOLDER OFFERING ACCOUNT
- ----------------------- ---------------- --------------
<S> <C> <C>
Van Kampen High Income Corporate Bond Fund.................. 1,700 1,700
Eaton Vance High Income Portfolio........................... 1,250 1,250
Eaton Vance Income Fund..................................... 1,250 1,250
Goldman Sachs High Yield Fund............................... 1,250 1,250
Honeywell Master Pension Plan............................... 1,250 1,250
Van Kampen High Yield Fund.................................. 1,200 1,200
Debt Strategies Fund II, Inc................................ 1,000 1,000
Debt Strategies Fund Inc.................................... 1,000 1,000
Evergreen High Income Fund.................................. 1,000 1,000
Jayvee & Co................................................. 1,000 1,000
Mentor Investment Group..................................... 1,000 1,000
PW Premier High Income...................................... 1,000 1,000
PW Strategic Income......................................... 1,000 1,000
Lerner Enterprises, LP...................................... 900 900
The Prudential Series Fund, Inc., High Yield Bond
Portfolio................................................. 835 835
Invesco Asset Management Ltd. A/C Aim Strategic Fund........ 800 800
Gam High Yield Inc.......................................... 750 750
Goldman Sachs High Yield Offshore........................... 750 750
Goldman Sachs Liquidity Partners............................ 750 750
Goldman Sachs Liquidity Partners Offshore................... 750 750
CIM High Yield Securities................................... 650 650
Fidelity Advisor Series I: Fidelity Advisor Balanced Fund... 590 590
Alliance Capital GJ US High Yield........................... 500 500
Armstrong Retirement Income Plan............................ 500 500
Banco Disa.................................................. 500 500
Maritime Life-Tal High Yield Bond........................... 500 500
Mark IV Industries, Inc. and Subsidiaries Employees
Retirement Fund........................................... 500 500
PW Offshore High Income..................................... 500 500
Retirement Program Plan for Employees of Praxair, Inc....... 500 500
RT Toronto.................................................. 500 500
Teachers' Retirement System of Louisiana.................... 500 500
The High Yield Plus Fund.................................... 500 500
Thomas & Betts Pension Plan................................. 500 500
Fidelity Advisor Series II: Fidelity Advisor Strategic
Income Fund............................................... 420 420
Metropolitan Life Separate Account.......................... 375 375
State Street Research Strategic Growth & Income Fund........ 375 375
Invesco Asset Management Ltd. A/C US High Yield Barc........ 350 350
State Street Research Strategic Income Fund................. 350 350
The US High Yield Fund SICAU................................ 305 305
Prumerica Worldwide Investors Portfolio, U.S. High Yield
Fund...................................................... 260 260
PW Series Trust High Income................................. 250 250
State-Boston Retirement System.............................. 250 250
Public School Teachers' Pension and Retirement Fund of
Chicago................................................... 200 200
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF
SECURITIES TO
AMOUNT OF BE OFFERED
SECURITIES OWNED FOR SECURITY
PRIOR TO HOLDER'S
SELLING SECURITY HOLDER OFFERING ACCOUNT
- ----------------------- ---------------- --------------
<S> <C> <C>
CBI Pension Plan............................................ 150 150
P&PK Family Ltd. Partnership, LP............................ 150 150
The Prudential Ins. Co. of America--Group
Life & Health Int. High Yield............................. 150 150
Prudential High Yield Total Return Fund, Inc................ 145 145
PW Series Trust Strategic Income............................ 125 125
Aetna High Yield VP......................................... 100 100
Van Kampen Strategic Income Fund............................ 100 100
The High Yield Income Fund, Inc............................. 95 95
The Prudential Life Insurance Company of Arizona............ 80 80
Chase Vista Strategic Income Fund........................... 75 75
Markle Foundation........................................... 75 75
President and Trustees of Bates College..................... 75 75
Tate & Lyle Reinsurance Limited............................. 75 75
Variable Insurance Products Fund III: Balanced Portfolio.... 60 60
Fidelity School Street Trust: Fidelity Strategic Income
Fund...................................................... 50 50
The Prudential Ins. Co. of America Structured Settlement
High Yield................................................ 50 50
The Prudential Ins. Co. of America Prudential Property &
Casualty High Yield....................................... 45 45
The Prudential Property and Casualty Insurance Company of
New Jersey................................................ 35 35
Chase Manhattan Vista Funds: Strategic Income Sub-Fund...... 25 25
Housing Authority Risk Retention Group, Inc................. 25 25
Invesco Asset Management Ltd. A/C Aim Global Fund........... 25 25
PII High Yield Fund......................................... 25 25
Prudential Diversified Moderate Growth Fund................. 25 25
SBL Global Strategic Inc.................................... 25 25
SBL Series K................................................ 25 25
The Prudential Series Fund, Inc., Diversified Conservative
Growth Portfolio.......................................... 20 20
Prudential Diversified Conservative Growth Fund............. 15 15
------- -------
TOTAL.................................................. 200,000 200,000
</TABLE>
70
<PAGE>
LEGAL MATTERS
Certain legal matters regarding the warrants and Warrant Shares offered
hereby will be passed upon for us by Dechert Price & Rhoads, Philadelphia,
Pennsylvania.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the Intersil Holding
Corporation (Successor) consolidated balance sheet at August 14, 1999 and the
consolidated financial statements of the semiconductor business of Harris
(Predecessor) at July 3, 1998 and July 2, 1999, and for each of the three years
in the period ended July 2, 1999, as set forth in their report. We have included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file 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 by us at the Securities and Exchange Commission's public
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's regional offices located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661 and Seven
World Trade Center, 13th Floor, New York, NY 10048. Copies of this material can
be obtained from the Public Reference Section of the SEC upon payment of fees
prescribed by the SEC. You may call the Securities and Exchange Commission at
1-800-SEC-0330 for further information contained in the public reference room.
Our filings with the Securities and Exchange Commission will also be available
to the public from commercial document retrieval services and at the Securities
and Exchange Commission's Web site at "http://www.sec.gov."
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act of 1933, covering the warrants to purchase 3,703,707 shares of
Class A Common Stock of Intersil Holding Corporation (Registration No.
333-90857). This prospectus, which is a part of the registration statement, does
not contain all of the information included in the registration statement. Any
statement made in this prospectus concerning the contents of any contract,
agreement or other document is not necessarily complete. For further information
regarding our company and the warrants to purchase 3,703,707 shares of Class A
Common Stock of Intersil Holding Corporation, please reference the registration
statement, including its exhibits. If we have filed any contract, agreement or
other document as an exhibit to the registration statement, you should read the
exhibit for a more complete understanding of the documents or matter involved.
Copies of the registration statement, including all related exhibits and
schedules, may be inspected without charge at the public reference facilities
maintained by the SEC, or obtained at prescribed rates from the Public Reference
Section of the SEC at the address set forth above. In addition, you may request
a copy of any of these filings, at no cost, by writing or telephoning us at the
following address or phone number: Intersil Holding Corporation, 2401 Palm Bay
Road NE, Palm Bay, Florida 32905; the telephone number at that address is (321)
724-7000.
71
<PAGE>
INDEX TO FINANCIAL STATEMENTS
INTERSIL HOLDING CORPORATION
PAGE
----
Independent Certified Public Accountants' Report............ F-2
Consolidated Statement of Operations and Comprehensive
Income.................................................... F-3
Consolidated Balance Sheet.................................. F-4
Consolidated Statement of Cash Flows........................ F-5
Consolidated Statement of Shareholders' Equity.............. F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
The Board of Directors
Intersil Holding Corporation
We have audited the accompanying consolidated balance sheet of Intersil Holding
Corporation (successor) as of August 14, 1999 (successor period) and the
consolidated balance sheets of the Harris Semiconductor Business ("Semiconductor
Business") (Predecessor), which is wholly owned by Harris Corporation, as of
July 2, 1999 and July 3, 1998 and the related consolidated statements of
operations, comprehensive income and cash flows for each of the three fiscal
years in the period ended July 2, 1999 and the six weeks ended August 13, 1999
(Predecessor period). Our audits also included the financial statement schedule
listed at Item 16. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
The accompanying Predecessor consolidated financial statements were prepared on
the basis of presentation as described in Note A. The results of operations are
not necessarily indicative of the results of operations that would be recorded
by Semiconductor Business on a stand-alone basis.
In our opinion, the successor consolidated balance sheet referred to above
presents fairly, in all material respects, the financial position of Intersil
Holding Corporation as of August 14, 1999. Further, in our opinion, the
Predecessor consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Semiconductor
Business at July 2, 1999 and July 3, 1998 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
July 2, 1999 and for the six weeks ended August 13, 1999, on the basis described
in Note A, in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Jacksonville, Florida Ernst & Young LLP
November 3, 1999, except as to
Note L as to which the date
is February 23, 2000
F-2
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR | SUCCESSOR
------------------------------------------- -------------------------------- | -----------------
FISCAL YEAR ENDED 26 WEEKS ENDED 6 WEEKS ENDED | 20 WEEKS ENDED
------------------------------------------- --------------- --------------- | -----------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 JANUARY 1, 1999 AUGUST 13, 1999 | DECEMBER 31, 1999
------------- ------------ ------------ --------------- --------------- | -----------------
(UNAUDITED) | (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
<S> <C> <C> <C> <C> <C> <C>
REVENUE |
Product sales.......... $545,321 $576,836 $532,718 $246,625 $ 57,336 | $234,745
COSTS AND EXPENSES |
Cost of product |
sales............... 346,073 369,332 349,776 165,619 39,681 | 142,494
Research and |
development......... 75,208 75,125 67,079 29,726 8,499 | 25,952
Selling, administrative |
and general......... 99,314 98,184 83,998 41,333 10,908 | 38,252
Harris corporate |
expense |
allocation.......... 9,960 9,962 9,303 4,314 1,164 | --
Intangible |
amortization........ 2,291 2,292 2,414 1,146 326 | 3,942
In-process R&D |
charge.............. -- -- -- -- -- | 20,239
-------- -------- -------- -------- -------- | --------
Operating income |
(loss)................. 12,475 21,941 20,148 4,487 (3,242) | 3,866
Interest, net.......... (595) (914) (1,231) (410) (111) | 24,314
-------- -------- -------- -------- -------- | --------
Income (loss) before |
income taxes........ 13,070 22,855 21,379 4,897 (3,131) | (20,448)
Income taxes |
(benefit)........... 1,845 9,944 (6,027) (1,380) (102) | 1,399
-------- -------- -------- -------- -------- | --------
NET INCOME (LOSS)...... 11,225 12,911 27,406 6,277 (3,029) | (21,847)
Preferred dividends...... -- -- -- -- -- | 3,851
-------- -------- -------- -------- -------- | --------
Net income (loss) to |
common shareholders.... $ 11,225 $ 12,911 $ 27,406 $ 6,277 $ (3,029) | $(25,698)
======== ======== ======== ======== ======== | ========
LOSS PER SHARE: |
Basic.................. | $ (0.39)
| ========
Diluted................ | $ (0.39)
| ========
WEIGHTED AVERAGE COMMON |
SHARES OUTSTANDING (IN |
MILLIONS): |
Basic.................. | 66.7
| ========
Diluted................ | 66.7
| ========
</TABLE>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR | SUCCESSOR
------------------------------------------- -------------------------------- | -----------------
FISCAL YEAR ENDED 26 WEEKS ENDED 6 WEEKS ENDED | 20 WEEKS ENDED
------------------------------------------- --------------- --------------- | -----------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 JANUARY 1, 1999 AUGUST 13, 1999 | DECEMBER 31, 1999
------------- ------------ ------------ --------------- --------------- | -----------------
(UNAUDITED) | (UNAUDITED)
(IN THOUSANDS) |
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)....... $11,225 $12,911 $27,406 $ 6,277 $(3,029) | $(21,847)
Other comprehensive |
income (loss): |
Currency translation |
adjustments........ (2,015) (1,851) (574) 1,714 2,475 | 280
------- ------- ------- ------- ------- | --------
Comprehensive income |
(loss)................ $ 9,210 $11,060 $26,832 $ 7,991 $ (554) | $(21,567)
======= ======= ======= ======= ======= | ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
PREDECESSOR | SUCCESSOR
--------------------------- | -----------------------------------
JULY 3, 1998 JULY 2, 1999 | AUGUST 14, 1999 DECEMBER 31, 1999
------------ ------------ | --------------- -----------------
| (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS |
Current Assets |
Cash $ -- $ -- | $ 7,377 $ 40,122
Trade receivables, less allowances for collection loss |
($571 in 1998, $582 in 1999, $755 as of August 14, |
1999 and $823 as of December 31, 1999).............. 110,675 100,674 | 83,042 91,748
Inventories........................................... 180,232 153,822 | 153,044 154,016
Prepaid expenses...................................... 4,658 3,725 | 3,051 7,562
Income tax receivable................................. 643 1,527 | 573 --
Deferred income taxes................................. -- 3,476 | -- --
-------- -------- | -------- --------
Total Current Assets.............................. 296,208 263,224 | 247,087 293,448
Other Assets |
Property, plant and equipment, less allowance for |
depreciation ($567,031 in 1998, $582,616 in 1999, |
-0- as of August 14, 1999 and $22,402 as of December |
31, 1999)........................................... 450,084 410,530 | 348,514 318,147
Intangibles, less accumulated amortization ($17,760 in |
1998, $19,929 in 1999, -0- as of August 14, 1999 and |
3,942 as of December 31, 1999)...................... 44,219 45,368 | 90,715 84,652
Other................................................. 19,759 42,057 | 21,463 20,784
-------- -------- | -------- --------
Total Other Assets................................ 514,062 497,955 | 460,692 423,583
-------- -------- | -------- --------
Total Assets............................................ $810,270 $761,179 | $707,779 $717,031
======== ======== | ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY/BUSINESS EQUITY |
Current Liabilities |
Trade account payables................................ $ 33,305 $ 31,068 | $ 29,365 $ 35,338
Retirement plan accruals.............................. 15,448 13,640 | 2,445 7,563
Accrued compensation.................................. 29,022 19,283 | 15,842 24,279
Accrued interest and sundry taxes..................... 4,257 3,193 | 3,877 14,530
Other accrued items................................... 13,403 16,418 | 27,222 24,986
Distributor reserves.................................. 6,189 6,542 | 6,512 6,356
Unearned service income............................... 248 567 | 567 129
Income taxes payable.................................. -- -- | -- 555
Deferred income taxes................................. 126 -- | -- --
Long-term debt--current portion....................... 167 360 | 2,410 2,415
-------- -------- | -------- --------
Total Current Liabilities......................... 102,165 91,071 | 88,240 116,151
Other Liabilities |
Deferred income taxes................................. 5,126 7,022 | 8,199 --
Long-term debt........................................ 3,902 4,207 | 541,525 531,836
Mandatorily Redeemable Preferred Stock--1,000,000 shares |
designated 12% Series A Cumulative Compounding |
preferred stock, $1,000 stated value; 2,000,000 shares |
authorized, 85,000 shares authorized, 83,434 shares |
issued and outstanding at August 14, 1999 and December |
31, 1999.............................................. -- -- | 84,009 87,860
Stockholders' Equity/Business Equity.................... |
Class A Common Stock, $.01 par value, voting; |
300,000,000 shares authorized, 15,764,794 shares |
issued and outstanding at August 14, 1999 and |
December 31, 1999................................... -- -- | 158 158
Class B Common Stock, $.01 par value, non-voting; |
300,000,000 shares authorized, 50,908,386 shares |
issued and outstanding at August 14, 1999 and |
December 31, 1999................................... -- -- | 509 509
Additional paid-in Capital............................ -- -- | 5,935 2,656
Business equity....................................... 701,012 661,388 | -- --
Retained deficit...................................... -- -- | (20,796) (21,847)
Unearned compensation................................. -- -- | -- (572)
Accumulated other comprehensive (loss) income......... (1,935) (2,509) | -- 280
-------- -------- | -------- --------
Total Stockholders' Equity/Business Equity........ 699,077 658,879 | (14,194) (18,816)
-------- -------- | -------- --------
Total Liabilities and Stockholders' |
Equity/Business Equity......................... $810,270 $761,179 | $707,779 $717,031
======== ======== | ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR | SUCCESSOR
------------------------------------------- -------------------------------- | -----------------
FISCAL YEAR ENDED 26 WEEKS ENDED 6 WEEKS ENDED | 20 WEEKS ENDED
------------------------------------------- --------------- --------------- | -----------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 JANUARY 1, 1999 AUGUST 13, 1999 | DECEMBER 31, 1999
------------- ------------ ------------ --------------- --------------- | -----------------
(UNAUDITED) | (UNAUDITED)
(IN THOUSANDS) |
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES: |
Net Income (loss)........ $ 11,225 $12,911 $ 27,406 $ 6,277 $ (3,029) | $(21,847)
Adjustments to reconcile |
net income (loss) to net |
cash provided by |
operating activities |
Depreciation........... 50,218 65,036 78,217 38,068 8,747 | 22,402
Amortization........... 2,295 2,295 2,414 1,146 326 | 3,942
Write-off of in-process |
technology........... -- -- -- -- -- | 20,239
Non-current deferred |
income taxes......... (981) (461) 1,896 (815) (4,756) | --
Changes in assets and |
liabilities: |
Trade receivables...... 3,164 1,270 10,001 24,570 14,532 | (8,706)
Inventories............ (7,720) (9,859) 26,410 15,324 (1,649) | (973)
Prepaid expenses....... 1,746 506 933 724 674 | (4,511)
Trade payables and |
accrued |
liabilities.......... 24 (14,399) (13,950) (28,228) (18,705) | 33,245
Unearned service |
income............... 94 (32) 319 (163) -- | (438)
Income taxes........... (84) (3,866) (4,486) (101) 4,430 | 1,127
Other.................. (5,405) (5,070) (17,911) (15,520) 2,812 | 17,388
-------- ------- -------- -------- -------- | --------
Net cash provided by |
operating |
activities........ 54,576 48,331 111,249 41,282 3,382 | 61,868
INVESTING ACTIVITIES: |
Cash paid for acquired |
business................. -- -- (1,335) -- -- | --
Plant and equipment........ (173,304) (90,184) (38,563) (18,149) (1,887) | (12,634)
-------- ------- -------- -------- -------- | --------
Net cash used in |
investing |
activities........ (173,304) (90,184) (39,898) (18,149) (1,887) | (12,634)
FINANCING ACTIVITIES: |
Proceeds from |
borrowings............. 1,450 2,750 800 750 -- | --
Payments of borrowings... (48) (83) (302) (113) (32) | (15,144)
Net cash transfer and |
billings from (to) |
parent................. 116,105 41,844 (67,030) (23,078) (1,198) | --
-------- ------- -------- -------- -------- | --------
Net cash provided by |
(used in) |
financing |
activities........ 117,507 44,511 (66,532) (22,441) (1,230) | (15,144)
Effect of exchange rates on |
cash and cash |
equivalents.............. 1,221 (2,658) (4,819) (692) 1,177 | (1,345)
-------- ------- -------- -------- -------- | --------
Net increase in |
cash.............. -- -- -- -- 1,442 | 32,745
Cash at the beginning |
of the period..... -- -- -- -- -- | 7,377
-------- ------- -------- -------- -------- | --------
Cash at the end of |
the period........ $ -- $ -- $ -- $ -- $ 1,442 | $ 40,122
======== ======= ======== ======== ======== | ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED OTHER
----------------- PAID-IN EARNINGS UNEARNED COMPREHENSIVE
CLASS A CLASS B CAPITAL (DEFICIT) COMPENSATION INCOME TOTAL
------- ------- ---------- --------- ------------ ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization at
August 14, 1999.............. $158 $509 $5,935 $ -- $ -- $ -- $ 6,602
Net income (loss)
(unaudited).................. -- -- -- (21,847) -- -- (21,847)
Common stock sold to certain
executives................... -- -- 572 -- (572) -- --
Accretion of undeclared
dividends on preferred stock
(unaudited).................. -- -- (3,851) -- -- -- (3,851)
Foreign currency translation
(unaudited).................. -- -- -- -- -- 280 280
---- ---- ------ -------- ----- ---- ---------
Balances at December 31, 1999
(unaudited).................. $158 $509 $2,656 $(21,847) $(572) $280 $ (18,816)
==== ==== ====== ======== ===== ==== =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Intersil Holding Corporation (Intersil Holding) was formed on August 13,
1999 through a series of transactions, in which Intersil Holding and its
wholly-owned subsidiary, Intersil Corporation (Intersil), acquired the
Semiconductor Business (Semiconductor Business or Predecessor) of Harris
Corporation (Harris). Intersil Holding currently has no operations but holds
common stock related to its investment in Intersil and certain indebtedness
related to the Semiconductor Business acquisition (Harris acquisition). Intersil
and its wholly-owned domestic and foreign subsidiaries include the operations of
the Predecessor.
BASIS OF PRESENTATION
The Successor consolidated balance sheet as of August 14, 1999 reflects the
initial capitalization of Intersil Holding and the acquisition of the
Semiconductor Business. The consolidated balance sheets as of July 3, 1998 and
July 2, 1999 and the consolidated statements of operations, comprehensive income
and cash flows for the fiscal years ended June 27, 1997, July 3, 1998, July 2,
1999 and the 6 weeks ended August 13, 1999 include the accounts of Semiconductor
Business, the Predecessor company.
Accordingly, the consolidated financial statements include the power,
communications, space and defense product lines of Harris' Semiconductor
Business that were purchased in the transaction. The transaction did not include
Harris' semiconductor suppression business or photomask operations or certain
patents in the memory field that were retained by Harris. The Semiconductor
Business, which was wholly-owned by Harris, designs, manufactures and sells
discrete semiconductors and standard and custom integrated circuits to the
semiconductor markets. The Semiconductor Business' manufacturing facilities
perform manufacturing operations related to other Harris Semiconductor Product
Lines. The Semiconductor Business was not a separate legal entity and the assets
and liabilities associated with the Semiconductor Business were components of a
larger business.
The Predecessor's consolidated statements of operations include all
revenues and costs attributable to the Semiconductor Business. For cost of
sales, material costs are directly attributable to a product line and are
charged accordingly. Indirect costs are assigned using activity based costing.
Operating expenses (engineering, marketing, and administration & general) have
been allocated to the product lines based on sales or labor, as appropriate.
Harris Corporate expense allocations are based on a percentage of the
Semiconductor Business' net sales. Interest expense is provided on direct
borrowings of the Semiconductor Business. Interest expense of Harris has not
been allocated to the Semiconductor Business.
All of the allocations and estimates in the Predecessor's combined
statements of operations are based on assumptions that management believes are
reasonable under the circumstances. However, these allocations and estimates are
not necessarily indicative of the costs that would have resulted if the
Semiconductor Business had been operated on a stand alone basis.
The Semiconductor Business sells products to other affiliated operations of
Harris. Sales to these operations were not material.
The accompanying unaudited financial statements for the 26 weeks ended
January 1, 1999 and the 20 weeks ended December 31, 1999, reflect all
adjustments, all of which are of a normal recurring nature, necessary in the
opinion of management for a fair presentation of the results for these interim
periods and are not necessarily indicative of full-year results.
F-7
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION--(CONTINUED)
ACQUISITION OF HARRIS' SEMICONDUCTOR BUSINESS
The total purchase price of the Semiconductor Business acquisition was
$614.3 million, which included transaction costs of approximately $7.8 million
and deferred financing costs of $12.2 million (Note H). The consideration paid
by Intersil Holding was $504.3 million in cash of which $420.0 million was
financed through borrowings from the senior credit facilities, the 13 1/4%
Senior Subordinated Notes and 13.5% Subordinated Holding "Pay-In-Kind" (PIK)
Note and the issuance of a $90.0 million PIK Note note to Harris.
The acquisition was accounted for using the purchase method of accounting
and accordingly, the operating results of the Semiconductor Business have been
included in Intersil's consolidated financial statements since the date of
acquisition. The total purchase price was allocated to the assets and
liabilities of the Semiconductor Business based upon their approximate fair
value. The fair value of the net assets acquired exceeded the purchase price
resulting in negative goodwill. This negative goodwill was allocated to the
identified intangibles and property and equipment based on their relative fair
values as follows (in millions).
<TABLE>
<S> <C> <C> <C>
Purchase price:
Cash paid to Harris.................. $504.3
13.5% Subordinated PIK Note.......... 90.0
Transaction costs and fees........... 20.0
------
Total purchase price................... $614.3
======
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION OF
FAIR VALUE OF EXCESS FAIR ADJUSTED
ACQUIRED ASSETS VALUE FAIR VALUE
--------------- ------------- -------------
<S> <C> <C> <C>
Net current assets..................... $160.6 -- $160.6
Other.................................. 17.2 -- 17.2
Property and equipment................. 481.0 $(153.2) 327.8
Developed Technology................... 80.0 (23.9) 56.1
Customer base.......................... 33.0 (10.0) 23.0
In-process research and development.... 29.0 (8.8) 20.2
Assembled workforce.................... 13.5 (4.1) 9.4
------ ------- ------
$814.3 $(200.0) $614.3
====== ======= ======
Excess fair value of net assets
acquired over purchase price......... $200.0
======
</TABLE>
The appraisal of the acquired business included $20.2 million of purchased
in-process research and development, which was related to various products under
development. This valuation represents the 10 years after-tax cash flow of this
in-process technology using a discount rate of 20%. The acquired technology had
not yet reached technological feasibility and had no future alternative uses.
Accordingly, it was written off at the time of the acquisition. The remaining
identified intangibles (developed technology, customer base and assembled
workforce) are being amortized over 5 to 11 years.
In connection with the acquisition of the Semiconductor Business, Intersil
formulated a restructuring plan and will involuntarily terminate the employment
of 372 employees of the Semiconductor Business. At
F-8
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION--(CONTINUED)
August 13, 1999, Intersil recorded $11.0 million in severance benefits and this
is included in the allocation of the acquisition cost. The severance includes
the following:
<TABLE>
<CAPTION>
LOCATION NO. OF EMPLOYEES AMOUNTS
-------- ---------------- -------------
(IN MILLIONS)
<S> <C> <C>
Europe............................................ 17 $ 5.6
Malaysia.......................................... 262 1.9
North America..................................... 93 3.5
--- -----
372 $11.0
=== =====
</TABLE>
For the twenty weeks ended December 31, 1999, approximately $5.0 million
of these restructuring costs had been paid out. As of December 31, 1999, the
restructuring liability was $6.0 million. Intersil Holding will complete the
restructing plan by the end of fiscal year 2000.
The following unaudited information presents pro forma financial
information, after giving effect to certain adjustments including amortization
of intangible assets acquired, as if the Acquisition of the Semiconductor
Business had occurred at July 3, 1998 for the 26 weeks ended January 1, 1999 and
July 2, 1999 for the 26 weeks ended December 31, 1999. These pro forma results
have been prepared for comparative purposes only and do not purport to represent
what Intersil Holding's results of operations would actually have been had the
transactions in fact occurred on the date specified, nor do they purport to
project the results of operations for any future period.
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------------
26 WEEKS COMBINED
ENDED 26 WEEKS ENDED
JANUARY 1, 1999 DECEMBER 31, 1999
---------------- ------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Product sales................................ $246.6 $292.0
Net loss..................................... $(10.3) $(28.5)
Net loss to common shareholders.............. $(15.3) $(33.5)
Loss per share:
Basic and diluted.......................... $(0.23) $(0.50)
</TABLE>
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR--The 1997 fiscal year includes the 52 weeks ended June 27,
1997; fiscal year 1998 includes the 53 weeks ended July 3, 1998; and fiscal year
1999 includes the 52 weeks ended July 2, 1999.
INVENTORIES--Inventories are carried at the lower of standard cost, which
approximates actual cost, determined by the First-In-First-Out (FIFO) method, or
market.
PLANT AND EQUIPMENT--Machinery and equipment are carried on the basis of
cost. The estimated useful lives of buildings range between 5 and 50 years. The
estimated useful lives of machinery and equipment range between 3 and 10 years.
Depreciation is computed by the straight-line method using the estimated useful
life of the asset.
REVENUE RECOGNITION--Revenue is recognized from sales to all customers,
including distributors, when a product is shipped. Sales to distributors are
made under distributor agreements which provide the distributors rights of
return and price protection on unsold merchandise held by the distributors.
Accordingly, sales are reduced for estimated returns from distributors and
estimated future price reductions of unsold merchandise
F-9
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
held by distributors. Product sales to two distributors for the fiscal years
ended June 27, 1997, July 3, 1998, July 2, 1999, twenty-six weeks ended January
1, 1999, six weeks ended August 13, 1999 and twenty weeks ended December 31,
1999 amounted to 20.5%, 19.0%, 16.6%, 18.2%, 29.3% and 13.3%, respectively, of
total product sales.
RESEARCH AND DEVELOPMENT--Research and development costs, consisting of the
cost of designing, developing, and testing new or significantly enhanced
products, are expensed as incurred.
RETIREMENT BENEFITS--Intersil Holding provides retirement benefits to
substantially all employees primarily through a retirement plan having
profit-sharing and savings elements. Contributions by Intersil Holding to the
retirement plan are based on profits and employees' savings with no other
funding requirements. Intersil Holding may make additional contributions to the
fund at its discretion.
Retirement benefits also include an unfunded limited health-care plan for
U.S.-based retirees and employees on long-term disability. Intersil Holding
accrues the estimated cost of these medical benefits, which are not material,
during an employee's active service life.
Retirement plans expense was $17.4 million in 1997, $15.6 million in 1998,
$14.8 million in 1999, $6.2 million for the twenty-six weeks ended January 1,
1999, $1.4 million for the six weeks ended August 13, 1999 and $5.4 million for
the twenty weeks ended December 31, 1999.
INCOME TAXES--Intersil Holding follows the liability method of accounting
for income taxes and for the Predecessor financial statements was included with
its parent, Harris, in a consolidated federal income tax return. Harris required
each of its businesses to provide taxes on financial statement pre-tax income or
loss at applicable statutory tax rates. United States local amounts receivable
or payable for current and prior years' income taxes were treated as
intercompany transactions and were recorded in the Semiconductor Business
equity. International current income taxes payable and deferred income taxes
resulting from temporary differences between the financial statements and the
tax basis of assets and liabilities of the Intersil Holding's international
subsidiaries are separately classified on the balance sheets.
ASSET IMPAIRMENT--Intersil Holding accounts for long-lived asset impairment
under Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company recognizes impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amounts. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount. Fair value is estimated based on discounted future
cash flows. Long-lived assets to be disposed of are recorded at the lower of
their carrying amount or estimated fair value less cost to sell.
INTANGIBLES--Intangibles resulting from acquisitions are being amortized by
the straight-line method over 5 to 40 years. Recoverability of intangibles is
assessed using estimated undiscounted cash flows of related operations.
Intangibles that are not expected to be recovered through future undiscounted
cash flows are charged to expense when identified. Amounts charged to expense
are amounts in excess of the fair value of the intangible asset. Fair value is
determined by calculating the present value of estimated expected future cash
flows using a discount rate commensurate with the risks involved.
START-UP--In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5 "Reporting on the Costs of
Start-Up Activities." The Company is required to adopt the provisions of this
Statement no later than its fiscal year 2000. This Statement provides guidance
on the financial reporting of start-up and organization costs and requires such
costs, as defined, to be expensed as
F-10
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
incurred, as start-up costs are currently expensed as incurred, adoption of this
Statement is not expected to have a material impact on the Company's results of
operations or financial condition.
FUTURES AND FORWARD CONTRACTS--When Intersil Holding sells products outside
the United States or enters into purchase commitments, the transactions are
frequently denominated in currencies other than U.S. dollars. To minimize the
impact on revenue and cost from currency fluctuations, Intersil Holding enters
into currency exchange agreements that qualify for hedge accounting treatment.
It is Intersil Holding's policy not to speculate in foreign currencies. Currency
exchange agreements are designated as, and are effective as, hedges of foreign
currency commitments. In addition, these agreements are consistent with the
designated currency of the underlying transaction and mature on or before the
underlying transaction. Gains and losses on currency exchange agreements that
qualify as hedges are deferred and recognized as an adjustment of the carrying
amount of the hedged asset, liability or commitment. Gains and losses on
currency exchange agreements that do not qualify as hedges are recognized in
income based on changes in the fair market value of the currency exchange
agreement.
FOREIGN CURRENCY TRANSLATION--The functional currency for the Malaysian
subsidiary is the U.S. dollar, and for other international subsidiaries it is
the local currency. Assets and liabilities are translated at current rates of
exchange, and income and expense items are translated at the weighted average
exchange rate for the year. The resulting translation adjustments are recorded
as a separate component of Shareholder's equity (Business Equity in the
Predecessor's financial statements). Cumulative translation gains (losses) were
$(1.9) million, $(0.6) million, $2.5 and $0.3 million at July 3, 1998, July 2,
1999, August 13, 1999 and December 31, 1999, respectively.
LOSS PER SHARE--Loss per share is computed and presented in accordance with
SFAS No. 128, "Earnings per Share" and the Securities and Exchange Commission
Staff Accounting Bulletin No. 98. Net loss per common share is presented for the
twenty weeks ended December 31, 1999 only because it is not meaningful for
earlier periods since the Company did not have common stock outstanding for any
of the earlier periods.
USE OF ESTIMATES--These statements have been prepared in conformity with
generally accepted accounting principles and require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE C--ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The statement
establishes standards for recording derivative financial instruments and the
recognition of gains or losses resulting from changes in the fair values of
those instruments. Intersil Holding plans to adopt the new standard no later
than the first quarter of fiscal 2001. However, Intersil Holding has not
determined the anticipated impact of FAS No. 133.
F-11
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE D--INVENTORIES
Inventories are summarized below (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
------------------- -------------------------
JULY 3, JULY 2, AUGUST 14, DECEMBER 31,
1998 1999 1999 1999
-------- -------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Finished products......................... $ 64,644 $ 58,041 $ 59,708 $ 61,221
Work in process........................... 125,647 102,457 104,262 106,208
Raw materials and supplies................ 14,423 11,441 9,137 8,769
-------- -------- -------- --------
204,714 171,939 173,107 176,198
Less inventory reserve.................... (24,482) (18,117) (20,063) (22,182)
-------- -------- -------- --------
$180,232 $153,822 $153,044 $154,016
======== ======== ======== ========
</TABLE>
At July 2, 1999, August 14, 1999 and December 31, 1999 Intersil Holding was
committed to purchase $22.5 million, $22.8 million and $19.7 million,
respectively of inventory from suppliers. Management believes the cost of this
inventory approximates current market value.
NOTE E--PLANT AND EQUIPMENT
Plant and equipment are summarized below (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
--------------------- -------------------------
JULY 3, JULY 2, AUGUST 14, DECEMBER 31,
1998 1999 1999 1999
---------- -------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land..................................... $ 3,966 $ 3,966 $ 6,539 $ 4,138
Buildings................................ 262,490 266,364 100,511 81,103
Machinery and equipment.................. 750,659 722,816 241,464 255,308
---------- -------- -------- --------
1,017,115 993,146 348,514 340,549
Less allowances for depreciation......... 567,031 582,616 -- 22,402
---------- -------- -------- --------
$ 450,084 $410,530 $348,514 $318,147
========== ======== ======== ========
</TABLE>
NOTE F--INTANGIBLES
Intangibles are summarized below (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
----------------- -------------------------
PERIOD OF JULY 3, JULY 2, AUGUST 14, DECEMBER 31,
AMORTIZATION 1998 1999 1999 1999
------------- ------- ------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Developed technology..................... 11 years $ -- $ -- $ 57,369 $56,141
Customer base............................ 7 years -- -- 23,665 23,031
Assembled workforce...................... 5 years -- -- 9,681 9,422
Goodwill................................. 40 years 61,979 65,297 -- --
------- ------- -------- -------
61,979 65,297 90,715 88,594
Less accumulated amortization............ 17,760 19,929 -- 3,942
------- ------- -------- -------
$44,219 $45,368 $ 90,715 $84,652
======= ======= ======== =======
</TABLE>
F-12
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE G--LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss
per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
(SUCCESSOR)
-----------------
<S> <C>
DECEMBER 31, 1999
-----------------
(UNAUDITED)
Numerator:
Net loss available to common shareholders (numerator for
basic and diluted earnings per share).................. $(25,698)
========
Denominator:
Denominator for basic earnings per share-weighted average
common shares.......................................... 66,673
Effect of dilutive securities:
Stock options.......................................... --
Warrants............................................... --
--------
Denominator for diluted earnings per share-adjusted
weighted average shares................................ 66,673
========
Basic loss per share........................................ $ (0.39)
========
Diluted loss per share...................................... $ (0.39)
========
</TABLE>
The effect of dilutive securities is not included in the computation for
the twenty weeks ended December 31, 1999 because to do so would be antidilutive.
NOTE H--LONG-TERM DEBT
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
----------------------------- -----------------------------------
JULY 3, 1998 JULY 2, 1999 AUGUST 14, 1999 DECEMBER 31, 1999
------------- ------------- --------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
13.25% Senior Subordinated $ -- $ -- $199,700 $199,712
Notes........................
Tranche B Senior Term
Facility..................... -- -- 205,000 205,000
11.13% Seller Holding PIK
Note......................... -- -- 90,000 93,869
13.5% Subordinated Holding PIK
Note......................... -- -- 29,700 31,286
Revolving Credit Facility...... -- -- 15,000 --
Other.......................... 4,069 4,567 4,535 4,384
------ ------ -------- --------
4,069 4,567 543,935 534,251
Less: current portion.......... 167 360 2,410 2,415
------ ------ -------- --------
$3,902 $4,207 $541,525 $531,836
====== ====== ======== ========
</TABLE>
F-13
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE H--LONG-TERM DEBT--(CONTINUED)
Schedule future principal payments under Intersil Holding's and Intersil's
indebtedness are as follows:
<TABLE>
<S> <C>
2000...................................................... $ 2,415
2001...................................................... 2,454
2002...................................................... 2,466
2003...................................................... 2,479
2004...................................................... 2,438
Thereafter................................................ 521,999
--------
$534,251
========
</TABLE>
13.25% Senior Subordinated Notes and Warrants
On August 13, 1999, in connection with the acquisition of the Semiconductor
Business, Intersil completed an offering of 200,000 units consisting of $200
million of its 13.25% Senior Subordinated Notes due 2009 and warrants to
purchase 3,703,707 shares of Class A Common Stock of Intersil Holding. Each unit
consisted of $1,000 principal amount of 13.25% Senior Subordinated Notes of
Intersil and one warrant to purchase 18.5185 shares of Class A Common Stock of
Intersil Holding. The total gross proceeds from the sale of the 13.25% Senior
Subordinated Notes were $194.0 million, net of $6.0 million of deferred
financing fees. The $6.0 million deferred financing fees will be treated as
additional interest related to the 13.25% Senior Subordinated Notes and
amortized over the life of the 13.25% Senior Subordinated Notes on an effective
yield method.
The 13.25% Senior Subordinated Notes are unsecured and are fully and
unconditionally guaranteed by Intersil Holding and all of Intersil's current and
future domestic subsidiaries. The 13.25% Senior Subordinated Notes are not
guaranteed by Intersil's foreign subsidiaries. The 13.25% Senior Subordinated
Notes require semi-annual interest payments beginning on February 15, 2000
through maturity on August 15, 2009. The 13.25% Senior Subordinated Notes may be
redeemed at the option of Intersil Holding after August 15, 2004 upon the
payment of certain redemption premiums, although up to 35% of the 13.25% Senior
Subordinated Notes can be redeemed prior to August 15, 2002 with the proceeds of
certain equity offerings and upon the payment of certain redemption premiums.
The 13.25% Senior Subordinated Notes contain various restrictive covenants,
including limitations on the incurrence of additional indebtedness, restrictions
and limitations on payment of dividends, making investments, engaging in
transactions with affiliates, consolidating, merging or transfering assets and
restrictions and limitations on the sales of certain assets, among others. The
13.25% Senior Subordinated Notes also require the maintenance of certain ratios.
Each warrant entitles the holder to purchase 18.5185 shares of Intersil
Holding Class A Common Stock at a price of $.001 per share. The warrants are
exercisable beginning on the first anniversary of their issue date (August 13,
1999) and expire on August 15, 2009. Warrant holders have no holding rights. The
warrants were preliminarily valued at $0.3 million and will be treated as
additional interest related to the 13.25% Senior Subordinated Notes and
amortized over the life of the 13.25% Senior Subordinated Notes on an effective
yield method.
Senior Credit Facilities
In connection with the Acquisition of the Semiconductor Business, Intersil
entered into senior credit facilities with a syndicate of financial
institutions. The senior credit facilities include a $205.0 million funded term
loan facility (the "Tranche B Senior Term Facility") and a revolving line of
credit (the "Revolving Credit Facility"). The Revolving Credit Facility has
maximum borrowings of up to $70.0 million, of which
F-14
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE H--LONG-TERM DEBT--(CONTINUED)
$15.0 million was funded on August 13, 1999 in connection with the acquisition
of the Semiconductor Business. The total gross proceeds from the issuance of the
Tranche B Senior Term Facility and the Revolving Credit Facility were $212.9
million, net of $6.2 million of deferred financing fees and $0.9 million debt
issuance costs. The $6.2 million deferred financing fees will be treated as
additional interest related to the senior credit facilities and amortized over
the life of the senior credit facilities on an effective yield method. The $0.9
million debt issuance costs will be amortized over the life of the senior credit
facilities.
The Tranche B Senior Term Facility bears interest at LIBOR + 4%. The
Tranche B Senior Term Facility matures in 2005 and requires 1% of the original
principal amount to be repaid in each of the first five years in quarterly
installments. Beginning September 2004, 24% of the original principal amount
will be repaid each quarter, for four quarters. The senior credit facilities are
subject to an annual commitment fee of .50% of the undrawn portion of the
Revolving Credit Facility.
The Revolving Credit Facility bears interest ranging from LIBOR + 2.00% to
LIBOR + 3.25%, depending on the results of applicable ratios. The Revolving
Credit Facility matures in 2005.
The senior credit facilities are unconditionally guaranteed, jointly and
severally, by Intersil Holding, Intersil and existing and subsequently acquired
or organized domestic subsidiaries. The senior credit facilities contain various
restrictive covenants, including, incurrence of indebtedness, payment of
dividends, making certain investments and acquisitions, disposing of assets,
among others. The senior credit facilities also require the maintenance of
certain ratios.
Pay-In-Kind (PIK) Notes
On August 13, 1999, in connection with the Acquisition of the Semiconductor
Business, Intersil Holding issued to Harris a $90.0 million 11.13% Seller
Holding PIK Note which matures in 2010. The 11.13% Seller Holding PIK Note bears
interest at an annual rate equal to 11.13%. Intersil Holding may pay interest on
the 11.13% Seller Holding PIK Note by issuing additional 11.13% PIK notes.
Intersil Holding may redeem the 11.13% Seller Holding PIK Note at any time. In
addition, Intersil Holding will be required to redeem the 11.13% Seller Holding
PIK Note upon a change in control. The 11.13% Seller Holding PIK Note contains
various restrictive covenants and is subordinated to Intersil Holding's
guarantee of Intersil's 13.25% Senior Subordinated Notes and senior credit
facilities. Intersil and its subsidiaries are not a guarantor of the 11.13%
Seller Holding PIK Note.
Also, on August 13, 1999, Intersil Holding issued to Citicorp Mezzanine
Partners, L.P. a $30.0 million 13.5% Subordinated Holding PIK Note. The 13.5%
Subordinated Holding PIK Note matures on July 15, 2010 and bears interest at an
annual rate equal to 13.5%. To the extent Intersil Holding's senior debt
prohibits Intersil Holding from paying cash interest on the 13.5% Subordinated
Holding PIK Note, this interest shall be paid by adding the accrued interest to
the principal amount of the 13.5% Subordinated Holding PIK Note. Intersil
Holding may redeem the 13.5% Subordinated Holding PIK Note at any time in whole
or in part at 100% of the principal amount plus accrued and unpaid interest and
certain prepayment premiums. The 13.5% Subordinated Holding PIK Note contains
various restrictive covenants. The 13.5% Subordinated Holding PIK Note is
subordinated to Intersil Holding's guarantee of Intersil's Notes and senior
credit facilities. Intersil and its subsidiaries are not a guarantor of the
13.5% Subordinated Holding PIK Note.
F-15
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE H--LONG-TERM DEBT--(CONTINUED)
The other debt consists of 5 loans made by agencies of the Commonwealth of
Pennsylvania with maturity dates ranging from 2003 to 2017 and are secured by
Intersil's manufacturing facility in Mountaintop, Pennsylvania, which has a net
carrying value of $4.5 million at August 13, 1999 and $4.4 million at December
31, 1999. The weighted average interest rate for this debt was 3.0% at July 3,
1998, July 2, 1999, August 13, 1999 and December 31, 1999.
NOTE I--PREFERRED STOCK
Intersil Holding has 2.0 million shares of preferred stock authorized,
stated value of $1,000 per share, 1.0 million of which may be designated as 12%
Series A Cumulative Compounding Preferred Stock. On August 13, 1999, Intersil
Holding sold 83,434 shares of its 12% Series A Cumulative Compounding Preferred
Stock to certain buyers including, Sterling Intersil Holding Company LLC, Harris
and certain members of management. The $83.4 million proceeds were used as a
cash equity contribution from Intersil Holding to Intersil for the Acquisition
of the Semiconductor Business.
The Series A Preferred Stock is (i) non-voting, (ii) entitled to cumulative
dividends whether or not declared or earned, at a rate of 12%, compounding
annually, (iii) to have approval rights of new issuances of any other class or
series of stock entitled to a preference ahead of Intersil Holding preferred
stock, (iv) able to amend Intersil Holding's certificate of incorporation if the
amendment adversely affects the rights and preferences of the preferred stock
holders, (v) entitled to $1,000 per share, plus accrued and unpaid dividends in
the event of liquidation before any distribution to holders of Intersil Holding
common stock, (vi) optionally redeemable by Intersil Holding in whole or in part
at a price per share of $1,000 plus accrued and unpaid dividends, and (vii)
mandatorily redeemable on June 30, 2011, at a price per share equal to $1,000
plus accrued and unpaid dividends.
The total mandatory redemption value of the shares outstanding at August
13, 1999 and December 31, 1999, in the amounts of $83.4 million and $87.3
million ($3.9 million accretion of undeclared dividends), respectively, is
classified in Intersil Holding's balance sheet as Mandatorily Redeemable
Preferred Stock.
On August 13, 1999, Intersil Holding granted to certain members of
management options to purchase 766.67 shares of Series A Preferred Stock at an
option price of $250 per share. Intersil Holding granted a sign-on bonus in the
aggregate amount of $575,025, representing the difference between the stated par
value and the option price. The preferred stock options vest immediately.
Intersil Holding recorded compensation expense for the $575,025 as of the grant
date.
NOTE J--LEASE COMMITMENTS
Total rental expense amounted to $6.7 million in 1997, $6.3 million in
1998, $6.3 million in 1999, $3.2 million for the twenty-six weeks ended January
1, 1999, $0.6 million for the 6 weeks ended August 13, 1999 and $2.1 million for
the twenty weeks ended December 31, 1999. Future minimum rental commitments
under leases, primarily used for land at Intersil's Malaysian facility and
office buildings at Intersil's International locations, amounted to
approximately $17.7 million at July 2, 1999. Intersil's Malaysian manufacturing
facility leases land under leases expiring from 2072 to 2081. The commitments
for the years following 1999 are: 2000--$4.0 million, 2001--$3.2 million,
2002--$1.4 million, 2003--$1.1 million, 2004--$0.9 million, and $7.1 million
thereafter.
F-16
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE K--BUSINESS EQUITY
Changes in the business equity of the Predecessor's financial statements
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (PREDECESSOR)
------------------------------------------- ---------------------------------
26 WEEKS
FISCAL YEAR ENDED ENDED 6 WEEKS ENDED
------------------------------------------- --------------- ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 JANUARY 1, 1999 AUGUST 13, 1999
------------- ------------ ------------ --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year........ $520,858 $646,173 $699,077 $699,077 $658,879
Net income (loss)................... 11,225 12,911 27,406 6,277 (3,029)
Foreign currency translation
adjustments....................... (2,015) (1,851) (574) 1,714 2,475
Net cash transfers and billings from
(to) Harris Corporation........... 116,105 41,844 (67,030) 23,078 (1,198)
Purchase price elimination.......... -- -- -- -- (657,127)
-------- -------- -------- -------- --------
Balance at end of period............ $646,173 $699,077 $658,879 $730,146 $ --
======== ======== ======== ======== ========
</TABLE>
NOTE L--COMMON STOCK
On January 21, 2000, Intersil Holding filed a registration statement (which
became effective on February 23, 2000) with the Securities and Exchange
Commission for a public offering of 22 million shares of its common stock. In
connection with the public offering, Intersil Holding effected a 1 for 1.5
reverse stock split of its Class A and Class B common shares as of February 23,
2000. All references to common shares in the accompanying financial statements
reflect Intersil Holding's reverse stock split, retroactively applied to all
periods presented.
Intersil Holding is authorized to issue 600.0 million shares of Intersil
Holding common stock, par value $0.01 per share, divided into two classes
consisting of 300.0 million shares of Intersil Holding Class A Common Stock and
300.0 million shares of Intersil Holding Class B Common Stock. Holders of Class
A Common Stock are entitled to one vote for each share held and holders of Class
B Common Stock have no voting rights. A holder of either class of Intersil
Holding common stock may convert any or all shares into an equal number of
shares of the other class of Intersil Holding common stock.
On August 13, 1999, Intersil Holding sold 15.76 million shares of Class A
Common Stock and 50.91 million shares of Class B Common Stock for approximately
$5.0 million. The $5.0 million proceeds, along with the $83.4 million proceeds
from the sale of Series A Preferred Stock was used as a cash equity contribution
from Intersil Holding to Intersil for the acquisition of the Semiconductor
Business.
On August 13, 1999, in connection with Intersil Holding's issuance of the
13.5% Subordinated Holding PIK Note, Intersil Holding issued to Citicorp
Mezzanine Partners, L.P. warrants to purchase 3,703,707 shares of Intersil
Holding Class A Common at an exercise price of $.001 per share, subject to
certain anti-dilution adjustments. If Intersil Holding's prepays in full the
13.5% Subordinated Holding PIK Note within 24 months after issuance, the
warrants will be exercisable for 2,222,224 shares of Intersil Holding Class A
Common Stock. The warrants were valued at $0.3 million and will be treated as
additional interest related to the 13.5% Subordinated Holding PIK Note and
amortized over the life of the 13.5% Subordinated Holding PIK Note on an
effective yield method.
During the unaudited 20 weeks ended December 31, 1999, Intersil Holding
recorded $0.6 million of unearned compensation for the excess of the fair value
of the Class A Common Stock over the grant price for stock sold to certain
executives by the majority shareholder of Intersil Holding. The compensation
F-17
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE L--COMMON STOCK--(CONTINUED)
expense is being recognized over the stock vesting period of five years. Upon an
initial public offering, the shares sold become fully vested.
Intersil Holding had an option to purchase 1,161,905 shares from a majority
shareholder at $0.075 per share pursuant to an agreement executed at the initial
capitalization. Intersil Holding repurchased the 1,161,905 shares in January
2000.
NOTE M--INCOME TAXES
The provisions for income taxes are summarized below (Pro Forma for
predecessor financial statements) (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
------------------------------------------- --------------------------------- -----------------
FISCAL YEAR ENDED 26 WEEKS ENDED 6 WEEKS ENDED 20 WEEKS ENDED
------------------------------------------- --------------- --------------- -----------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 JANUARY 1, 1999 AUGUST 13, 1999 DECEMBER 31, 1999
------------- ------------ ------------ --------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
United States $(2,595) $4,221 $(6,626) $(1,518) $(399) $ --
(benefit)..........
International........ 4,768 4,910 1,605 368 352 1,399
State and local
(benefit).......... (328) 813 (1,006) (230) (55) --
------- ------ ------- ------- ----- ------
$ 1,845 $9,944 $(6,027) $(1,380) $(102) $1,399
======= ====== ======= ======= ===== ======
</TABLE>
In the year 2000, the Malaysian taxing authority will convert its income
tax system to a self-assessment system. The new self-assessment system will
require Malaysian corporate taxpayers to begin making estimated tax payments in
year 2000 based on year 2000 estimated taxable income. Currently, Malaysian
corporate taxpayers submit tax payments following the year of assessment. In
fiscal year 1999, the Semiconductor Business made Malaysian taxing payments
based on fiscal year 1998's taxable income. As a result of the change in the
Malaysian taxing system, the Semiconductor Business will not be required to make
tax payments on its fiscal year 1999 Malaysian taxable income, and therefore has
not provided a tax provision for Malaysian taxes for the fiscal year ended July
2, 1999, which would have amounted to approximately $15.1 million. The Malaysian
tax holiday is effective for Intersil's fiscal year ended July 2, 1999 only, and
does not impact the 6 weeks ended August 13, 1999 and the 20 weeks ended
December 31, 1999.
The components of deferred income tax assets (liabilities) are as follows
(in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
--------------------------------------------- ---------------------------------------------
JULY 3, 1998 JULY 2, 1999 AUGUST 14, 1999 DECEMBER 31, 1999
--------------------- --------------------- --------------------- ---------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT CURRENT NON-CURRENT CURRENT NON-CURRENT
------- ----------- ------- ----------- ------- ----------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables.......... $(663) $ -- $ -- $ -- $ -- $ -- $ -- $ --
Fixed Assets......... -- -- -- -- -- -- -- 4,599
NOL Carryforward..... -- -- -- -- -- -- -- 1,320
Credit Carryforward.. -- -- -- -- -- -- -- 4,700
Depreciation......... -- (5,126) -- (7,022) -- (12,953) -- (3,195)
All other--net....... 537 -- 3,476 -- -- 4,754 -- --
Valuation Allowance.. -- -- -- -- -- -- -- (7,424)
----- ------- ------ ------- ------ -------- ------ --------
$(126) $(5,126) $3,476 $(7,022) $ -- $ (8,199) $ -- $ --
===== ======= ====== ======= ====== ======== ====== ========
</TABLE>
F-18
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE M--INCOME TAXES--(CONTINUED)
A reconciliation of the statutory United States income tax rate to the
effective income tax rate follows:
<TABLE>
<CAPTION>
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
------------------------------------------- --------------------------------- -----------------
FISCAL YEAR ENDED 26 WEEKS ENDED 6 WEEKS ENDED 20 WEEKS ENDED
------------------------------------------- --------------- --------------- -----------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 JANUARY 1, 1999 AUGUST 13, 1999 DECEMBER 31, 1999
------------- ------------ ------------ --------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. income 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%
tax rate...........
State taxes.......... (1.6) 2.3 (3.1) (3.1) 1.1 0.6
International
income............. (21.4) 5.2 (61.9) (61.9) (29.7) (0.7)
Research credits..... (4.8) (2.9) (2.7) (2.7) 2.2 1.3
In-Process R&D....... -- -- -- -- -- (34.5)
Subpart F............ -- -- -- -- -- (1.7)
Valuation Allowance.. -- -- -- -- -- (6.5)
Goodwill
amortization....... 6.1 3.5 4.0 4.0 (4.9) --
Other items.......... .8 .4 0.5 0.5 (0.5) (0.3)
----- ----- ----- ----- ----- -----
Effective income tax
rate............... 14.1% 43.5% (28.2)% (28.2)% 3.2% (6.8)%
===== ===== ===== ===== ===== =====
</TABLE>
United States income taxes have not been provided on undistributed earnings
of international subsidiaries because of Intersil Holding's intention to
reinvest these earnings. The determination of unrecognized deferred U.S. tax
liability for the undistributed earnings of international subsidiaries is not
practicable.
Pretax income (loss) of international subsidiaries was $21.1 million in
1997, $10.2 million in 1998, $41.9 million in 1999, $0.7 million for the 26
weeks ended January 1, 1999, $(1.6) million for the 6 weeks ended August 13,
1999 and $16.2 million for the 20 weeks ended December 31, 1999.
Income taxes paid (received) were $2.4 million in 1997, $14.8 million in
1998, $3.4 million in 1999, $(0.5) million for the 26 weeks ended January 1,
1999, $0.2 million for the 6 weeks ended August 13, 1999 and $0.3 million for
the 20 weeks ended December 31, 1999.
The change in the balance for deferred taxes is a result of purchase price
adjustments. These adjustments generated a net deferred tax asset in our
Malaysian subsidiary. A full valuation allowance was placed on this asset.
F-19
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE N--GEOGRAPHIC INFORMATION
Intersil Holding operates exclusively in the semiconductor industry.
Substantially all revenues result from the sale of semiconductor products. All
intercompany revenues and balances have been eliminated.
A summary of the operations by geographic area is summarized below (in
thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
------------------------------------------- ---------------------------------- -----------------
FISCAL YEAR ENDED 26 WEEKS ENDED 6 WEEKS ENDED 20 WEEKS ENDED
------------------------------------------- ---------------- --------------- -----------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 JANUARY 1, 1999 AUGUST 13, 1999 DECEMBER 31, 1999
------------- ------------ ------------ ---------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
United States
operations
Net sales.......... $531,246 $563,180 $519,555 $242,507 $ 54,664 $227,976
Long-lived
assets.......... 380,143 386,333 371,448 351,836 366,386 333,513
International
Net sales.......... 14,075 13,656 13,163 4,118 2,672 6,769
Long-lived
assets.......... 102,683 122,397 121,330 153,093 118,277 97,672
</TABLE>
Export sales included in U.S. Operations were, $234.6 million in 1997,
$258.4 million in 1998, $254.8 million in 1999, $113.7 million for the 26 weeks
ended January 1, 1999, $30.4 million for the 6 weeks ended August 13, 1999 and
$149.0 million for the 20 weeks ended December 31, 1999.
NOTE O--FINANCIAL INSTRUMENTS
The carrying values of accounts receivable, notes receivable, accounts
payable, short-term debt and long-term debt approximates fair value.
Intersil Holding markets its products for sale to customers, including
distributors, primarily in the United States, Europe and Asia/Pacific. Credit is
extended based on an evaluation of the customer's financial condition, and
collateral is generally not required. Intersil Holding maintains an allowance
for losses based upon the expected collectibility of all accounts receivable.
Intersil Holding believes it is adequately reserved with regard to receivables
from its domestic and international customers.
Intersil Holding uses foreign exchange contracts and options to hedge
intercompany accounts and off-balance-sheet foreign currency commitments.
Specifically, these foreign exchange contracts offset foreign currency
denominated inventory and purchase commitments from suppliers, accounts
receivable from and future committed sales to customers and firm committed
operating expenses. Management believes the use of foreign currency financial
instruments should reduce the risks that arise from doing business in
international markets. Contracts are generally one year or less. At July 2,
1999, August 13, 1999 and December 31, 1999, open foreign exchange contracts
were $22.0 million, $6.1 million and $27.6 million, respectively (as described
below), all of which were to hedge off-balance-sheet commitments. Additionally,
for the year ended July 2, 1999, the Semiconductor Business purchased and sold
$120.7 million of foreign exchange forward contracts.
Deferred gains and losses are included on a net basis in the Consolidated
Balance Sheet as other assets and are recorded in income as part of the
underlying transaction when it is recognized. At July 2, 1999, Intersil Holding
had deferred foreign exchange contract losses on future commitments of
approximately $28.6 million. There were no deferred foreign exchange contract
losses at August 14, 1999.
F-20
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE O--FINANCIAL INSTRUMENTS--(CONTINUED)
Total open foreign exchange contracts at July 2, 1999, August 14, 1999 and
December 31, 1999, are described in the table below:
JULY 2, 1999
COMMITMENTS TO BUY FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
-------------------------- MATURITIES
CURRENCY FOREIGN CURRENCY U.S. DEFERRED GAINS (IN MONTHS)
- -------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Malaysian Ringgit........................... 80,589 $19,000 $2,208 1-2
</TABLE>
COMMITMENTS TO SELL FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
-------------------------- MATURITIES
CURRENCY FOREIGN CURRENCY U.S. DEFERRED GAINS (IN MONTHS)
- -------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
French Franc................................ 10,900 $ 1,857 $138 1-2
British Pound............................... 691 1,094 2 1
</TABLE>
AUGUST 14, 1999
COMMITMENTS TO BUY FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
-------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (LOSSES) (IN MONTHS)
- -------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Euro......................................... 808 $ 865 $ (5) 1
French Franc................................. 5,300 865 (6) 1
British Pound................................ 202 327 (2) 1
Malaysian Ringgit............................ 8,504 2,000 238 1
</TABLE>
COMMITMENTS TO SELL FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
-------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (LOSSES) (IN MONTHS)
- -------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Euro......................................... 808 $ 865 $(5) 1
French Franc................................. 5,300 860 -- 1
British Pound................................ 202 321 (4) 1
</TABLE>
DECEMBER 31, 1999 (UNAUDITED)
COMMITMENTS TO BUY FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
-------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (LOSSES) (IN MONTHS)
- -------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Malaysian Ringgit............................ 26,440 $ 7,000 $(42) 1-2
</TABLE>
F-21
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE O--FINANCIAL INSTRUMENTS--(CONTINUED)
COMMITMENTS TO SELL FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
-------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (LOSSES) (IN MONTHS)
- -------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Euro......................................... 8,804 $ 9,191 $324 1-5
French Franc................................. 14,646 2,335 87 3-5
Deutsche Mark................................ 4,000 2,163 103 3-4
British Pound................................ 2,846 4,654 69 1-5
Japanese Yen................................. 231,134 2,240 (32) 1-4
</TABLE>
NOTE P--EQUITY COMPENSATION PLAN (UNAUDITED)
On November 5, 1999, to be effective August 14, 1999, Intersil Holding
adopted the 1999 Equity Compensation Plan (the "Plan") for salaried officers and
key employees. The Plan authorizes the grant of options for up to 3.0 million
shares of Intersil Holding Class A Common Stock and can include (i) options
intended to constitute incentive stock options ("ISOs") under the Internal
Revenue Code, (ii) non-qualified stock options, (iii) restricted stock, (iv)
stock appreciation rights, and (v) phantom share awards. The exercise price of
each option granted under the Plan shall be as determined by a committee of the
Board of Directors (the "Board"). The maximum term of any option shall be ten
years from the date of grant for incentive stock options and ten years and one
day from the date of grant for non-qualified stock options. Options granted
under the Plan are exercisable at the determination of the Board, currently
vesting ratably over approximately 5 years. Employees receiving options under
the Plan may not receive in any one year period options to purchase more than
666,667 shares of common stock. During the 20 weeks ended December 31, 1999,
Intersil Holding granted 1,549,333 options to acquire Intersil Holding Class A
Common Stock at a price of $2.25 per share. The Company accounts for its Equity
Compensation Plan in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." As such, compensation expense is
recorded on the date of grant only if the current market price of the underlying
stock exceeds the exercise price. During the twenty weeks ended December 31,
1999, the Company recorded no deferred compensation. Had compensation cost for
the Company's stock option plan been determined consistent with SFAS Statement
No. 123, the Company would have reported a net loss of $21.9 million for the
twenty weeks ended December 31, 1999.
The Company estimates the fair value of each option as of the date of grant
using a Black-Scholes pricing model with the following weighted average
assumptions.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Expected volatility......................................... --
Dividend yield.............................................. --
Risk-free interest rate..................................... 8.17%
Expected life, in years..................................... 7
</TABLE>
F-22
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999,
6 WEEKS ENDED AUGUST 13, 1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE P--EQUITY COMPENSATION PLAN (UNAUDITED)--(CONTINUED)
A summary of the status of the Company's stock option plan as of December
31, 1999, and changes during the twenty weeks then ended are presented in the
table below.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ --------
<S> <C> <C>
Outstanding at beginning of period.......................... -- $ --
Granted..................................................... 1,549 2.25
Exercised................................................... -- --
Canceled.................................................... -- --
----- -----
Outstanding at end of period................................ 1,549 $2.25
===== =====
Exercisable at end of period................................ -- --
Weighted average fair value of options granted.............. $0.98
</TABLE>
Information with respect to stock options outstanding and stock options
exercisable at December 31, 1999, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------------- ----------- ----------- --------- ----------- ---------
(IN (IN
THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C> <C>
$2.25.................................... 1,549 9.69 $2.25 0 $ 2.25
===== =====
</TABLE>
NOTE Q--FINANCIAL INFORMATION FOR GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
Intersil Holding is a holding company for Intersil. All of the operations
are conducted through Intersil and its wholly-owned domestic and foreign
subsidiaries. On August 13, 1999, in connection with the Harris acquisition,
Intersil issued the Notes and Senior Credit Facilities (Note F), which are fully
and unconditionally guaranteed on a joint and several basis by Intersil Holding
(Parent), Intersil and all of Intersil's wholly-owned current and future
domestic subsidiaries (the "Guarantor Subsidiaries"). Intersil's wholly-owned
foreign subsidiaries are not guarantors (the "Non-Guarantor Subsidiaries"). In
management's opinion, separate financial statements of the Guarantor
Subsidiaries and the Non-Guarantor Subsidiaries are not material to investors.
The condensed consolidating financial information presented below includes
the predecessor consolidated balance sheets as of July 3, 1998 and July 2, 1999
and the predecessor consolidated statements of income and cash flows for the
fiscal years ended June 27, 1997, July 3, 1998, July 2, 1999, the 26 weeks ended
January 1, 1999 and the 6 weeks ended August 13, 1999 for the Predecessor
Guarantor and Non-Guarantor Subsidiaries. The condensed consolidated balance
sheets as of August 14, 1999 and December 31, 1999 and the condensed
consolidated statements of income and cash flows for the 20 weeks ended December
31, 1999 reflect the Parent, Guarantor Subsidiaries and Non-Guarantor
Subsidiaries.
F-23
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JUNE 27, 1997
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUE
Product sales............................... $555,110 $398,745 $(408,534) $545,321
COSTS AND EXPENSES
Cost of product sales....................... 400,997 338,666 (393,590) 346,073
Research and development.................... 74,636 572 -- 75,208
Selling, administrative and general......... 79,065 20,249 -- 99,314
Harris corporate expense allocations........ 10,854 (894) -- 9,960
Goodwill amortization....................... 2,291 -- -- 2,291
-------- -------- --------- --------
Operating income (loss)....................... (12,733) 40,152 (14,944) 12,475
Interest, net............................... 26,693 (5,174) (22,114) (595)
-------- -------- --------- --------
Income (loss) before income taxes........... (39,426) 45,326 7,170 13,070
Income taxes (benefit)...................... (11,658) 6,298 7,205 1,845
-------- -------- --------- --------
NET INCOME (LOSS)........................... $(27,768) $ 39,028 $ (35) $ 11,225
======== ======== ========= ========
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JULY 3, 1998
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUE
Product sales............................... $609,136 $418,721 $(451,021) $576,836
COSTS AND EXPENSES
Cost of product sales....................... 402,892 388,729 (422,289) 369,332
Research and development.................... 74,466 659 -- 75,125
Selling, administrative and general......... 79,547 18,637 -- 98,184
Harris corporate expense allocations........ 10,941 (979) -- 9,962
Goodwill amortization....................... 2,292 -- -- 2,292
-------- -------- --------- --------
Operating income (loss)....................... 38,998 11,675 (28,732) 21,941
Interest net................................ 40,793 (5,325) (36,382) (914)
-------- -------- --------- --------
Income (loss) before income taxes........... (1,795) 17,000 7,650 22,855
Income taxes (benefit)...................... (887) (1,418) 12,249 9,944
-------- -------- --------- --------
NET INCOME (LOSS)........................... $ (908) $ 18,418 $ (4,599) $ 12,911
======== ======== ========= ========
</TABLE>
F-24
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JULY 2, 1999
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUE
Product sales............................... $524,142 $480,981 $(472,405) $532,718
COSTS AND EXPENSES
Cost of product sales....................... 379,282 337,287 (366,793) 349,776
Research and development.................... 67,316 (237) -- 67,079
Selling, administrative and general......... 65,866 18,132 -- 83,998
Harris corporate expense allocations........ 10,115 (812) -- 9,303
Goodwill amortization....................... 2,414 -- -- 2,414
-------- -------- --------- --------
Operating income (loss)....................... (851) 126,611 (105,612) 20,148
Interest, net............................... 33,894 (4,975) (30,150) (1,231)
-------- -------- --------- --------
Income (loss) before income taxes........... (34,745) 131,586 (75,462) 21,379
Income taxes (benefit)...................... (39,176) 10,313 22,836 (6,027)
-------- -------- --------- --------
NET INCOME (LOSS)........................... $ 4,431 $121,273 $ (98,298) $ 27,406
======== ======== ========= ========
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
TWENTY-SIX WEEKS ENDED JANUARY 1, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUE
Product sales............................... $240,586 $205,188 $(199,149) $246,625
COSTS AND EXPENSES
Cost of product sales....................... 212,307 209,083 (255,771) 165,619
Research and development.................... 33,811 (53) (4,032) 29,726
Selling, administrative and general......... 34,323 8,519 (1,509) 41,333
Harris corporate expense allocations........ 4,314 -- -- 4,314
Goodwill amortization....................... 1,146 -- -- 1,146
-------- -------- --------- --------
Operating income (loss)....................... (45,315) (12,361) 62,163 4,487
Interest, net............................... (423) (446) 459 (410)
-------- -------- --------- --------
Income (loss) before income taxes........... (44,892) (11,915) 61,704 4,897
Income taxes (benefit)...................... (22,725) 1,650 19,695 (1,380)
-------- -------- --------- --------
NET INCOME (LOSS)........................... $(22,167) $(13,565) $ 42,009 $ 6,277
======== ======== ========= ========
</TABLE>
F-25
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX WEEKS ENDED AUGUST 13, 1999
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUE
Product sales............................... $ 39,470 $129,546 $(111,680) $57,336
COSTS AND EXPENSES
Cost of product sales....................... 37,484 139,292 (137,095) 39,681
Research and development.................... 8,511 (12) -- 8,499
Selling, administrative and general......... 8,986 1,778 144 10,908
Harris corporate expense allocations........ 1,393 (85) (144) 1,164
Intangible amortization..................... 326 -- -- 326
-------- -------- --------- -------
Operating income (loss)....................... (17,230) (11,427) 25,415 (3,242)
Interest, net............................... (161) 50 -- (111)
-------- -------- --------- -------
Income (loss) before income taxes........... (17,069) (11,477) 25,415 (3,131)
Income taxes (benefit)...................... (4,943) (15) 4,856 (102)
-------- -------- --------- -------
NET INCOME (LOSS)........................... $(12,126) $(11,462) $ 20,559 $(3,029)
======== ======== ========= =======
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
TWENTY WEEKS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR
--------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUE
Product sales..................... $ -- $232,133 $212,234 $(209,622) $234,745
COSTS AND EXPENSES
Cost of product sales............. -- 163,851 186,792 (208,149) 142,494
Research and development.......... -- 25,952 -- -- 25,952
Selling, administrative and
general........................ -- 27,945 10,307 -- 38,252
Harris corporate expense
allocations.................... -- -- -- -- --
Intangible amortization........... -- 3,942 -- -- 3,942
In-process R&D charge............. -- 20,239 -- -- 20,239
-------- -------- -------- --------- --------
Operating income (loss)............. -- (9,796) 15,135 (1,473) 3,866
Interest, net..................... 5,455 18,859 -- -- 24,314
Equity in subsidiary (income)
loss).......................... 13,520 -- -- (13,520) --
-------- -------- -------- --------- --------
Income (loss) before income
taxes.......................... (18,975) (28,655) 15,135 12,047 (20,448)
Income taxes (benefit)............ -- -- 1,399 -- 1,399
-------- -------- -------- --------- --------
Net income (loss)................. (18,975) (28,655) 13,736 12,047 (21,847)
Preferred dividends............... 3,851 3,851 -- (3,851) 3,851
-------- -------- -------- --------- --------
Net income (loss) to common
shareholders................... $(22,826) $(32,506) $ 13,736 $ 15,898 $(25,698)
======== ======== ======== ========= ========
</TABLE>
F-26
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 3, 1998
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Trade receivables, net...................... $108,895 $ 1,780 -- $110,675
Intercompany balances....................... 51,685 (26,498) $ (25,187) --
Inventories................................. 60,370 158,702 (38,840) 180,232
Other current assets........................ 4,630 671 -- 5,301
Property, plant and equipment, net.......... 327,098 122,986 -- 450,084
Intangibles, net............................ 44,219 -- -- 44,219
Investment in subsidiaries.................. 21,383 65,881 (87,264) --
Other non-current assets.................... 10,350 9,409 -- 19,759
-------- -------- --------- --------
Total Assets............................. $628,630 $332,931 $(151,291) $810,270
======== ======== ========= ========
LIABILITIES AND BUSINESS EQUITY
Accounts payable............................ $ 21,362 $ 11,943 -- $ 33,305
Compensation and benefits................... 39,599 4,871 -- 44,470
Other current liabilities................... 35,701 2,310 $ (13,621) 24,390
Other non-current liabilities............... 9,028 -- -- 9,028
Business Equity............................. 522,940 313,807 (137,670) 699,077
-------- -------- --------- --------
Total Liabilities and Business Equity.... $628,630 $332,931 $(151,291) $810,270
======== ======== ========= ========
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 2, 1999
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Trade receivables, net...................... $ 97,043 $ 3,631 -- $100,674
Intercompany balances....................... (139,993) 19,554 $120,439 --
Inventories................................. 86,986 86,049 (19,213) 153,822
Other current assets........................ 7,782 946 -- 8,728
Property, plant and equipment, net.......... 291,645 118,885 -- 410,530
Intangibles, net............................ 45,368 -- -- 45,368
Investment in subsidiaries.................. 10,907 72,195 (83,102) --
Other non-current assets.................... 39,721 2,336 -- 42,057
-------- -------- -------- --------
Total Assets............................. $439,459 $303,596 $ 18,124 $761,179
======== ======== ======== ========
LIABILITIES AND BUSINESS EQUITY
Accounts payable............................ $ 21,503 $ 9,565 -- $ 31,068
Compensation and benefits................... 26,120 6,803 -- 32,923
Other current liabilities................... 42,778 (8,254) $ (7,444) 27,080
Other non-current liabilities............... 11,229 -- -- 11,229
Business Equity............................. 337,829 295,482 25,568 658,879
-------- -------- -------- --------
Total Liabilities and Business Equity.... $439,459 $303,596 $ 18,124 $761,179
======== ======== ======== ========
</TABLE>
F-27
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AUGUST 14, 1999
<TABLE>
<CAPTION>
SUCCESSOR
--------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash................................ $ -- $ 5,932 $ 1,445 $ -- $ 7,377
Trade receivables, net.............. -- 79,242 3,800 -- 83,042
Intercompany balances............... -- (155,306) (29,102) 184,408 --
Inventories......................... -- 147,441 5,643 (40) 153,044
Other current assets................ -- 9,898 (903) (5,371) 3,624
Property, plant and equipment,
net............................... -- 252,796 95,718 -- 348,514
Intangibles, net.................... -- 90,715 -- -- 90,715
Investment in subsidiaries.......... 210,011 23,240 68 (233,319) --
Other non-current assets............ -- 20,086 752 625 21,463
-------- -------- -------- --------- --------
Total Assets...................... $210,011 $474,044 $ 77,421 $ (53,697) $707,779
======== ======== ======== ========= ========
LIABILITIES AND BUSINESS EQUITY
Accounts payable.................... $ -- $ 16,532 $ 11,390 $ 1,443 $ 29,365
Compensation and benefits........... -- 13,164 5,186 (63) 18,287
Other current liabilities........... -- 41,774 (1,593) 407 40,588
Long-term debt...................... 119,700 421,825 -- -- 541,525
Other non-current liabilities....... -- (7,370) 5,933 9,636 8,199
Preferred stock..................... 84,009 -- -- -- 84,009
Common Stock........................ 667 -- -- -- 667
Additional paid in capital.......... 5,635 300 -- -- 5,935
Retained deficit.................... -- (12,181) 56,505 (65,120) (20,796)
-------- -------- -------- --------- --------
Total Liabilities and
Stockholders' Equity........... $210,011 $474,044 $ 77,421 $ (53,697) $707,779
======== ======== ======== ========= ========
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR
--------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash................................ $ -- $ 34,083 $ 6,039 $ -- $ 40,122
Trade receivables, net.............. -- 87,325 4,423 -- 91,748
Intercompany balances............... -- 17,078 (16,079) (999) --
Inventories......................... -- 130,546 33,260 (9,790) 154,016
Other current assets................ -- 7,237 325 -- 7,562
Property, plant and equipment,
net............................... -- 230,986 87,161 -- 318,147
Intangibles, net.................... -- 84,343 309 -- 84,652
Investment in subsidiaries.......... 215,466 306,502 95,613 (617,581) --
Other non-current assets............ -- 18,184 2,600 -- 20,784
-------- -------- -------- --------- --------
Total Assets...................... $215,466 $916,284 $213,651 $(628,370) $717,031
======== ======== ======== ========= ========
LIABILITIES AND BUSINESS EQUITY
Accounts payable.................... $ -- $ 20,449 $ 14,889 $ -- $ 35,338
Compensation and benefits........... -- 26,460 5,382 -- 31,842
Other current liabilities........... -- 48,434 537 -- 48,971
Long-term debt...................... 125,155 406,681 -- -- 531,836
Preferred stock..................... 87,860 -- -- -- 87,860
Common stock........................ 667 -- -- -- 667
Additional paid in capital.......... 2,356 300 -- -- 2,656
Retained deficit.................... -- 413,960 192,843 (628,370) (21,567)
Unearned compensation............... (572) -- -- -- (572)
-------- -------- -------- --------- --------
Total Liabilities and
Stockholders' Equity........... $215,466 $916,284 $213,651 $(628,370) $717,031
======== ======== ======== ========= ========
</TABLE>
F-28
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 27, 1997
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................... $(27,768) $ 39,028 $ (35) $ 11,225
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization....................... 36,857 15,656 -- 52,513
Changes in working capital.......................... 31,934 16,339 (57,435) (9,162)
-------- -------- ------- --------
Net cash provided by (used in) operating
activities...................................... 41,023 71,023 (57,470) 54,576
INVESTING ACTIVITIES:
Plant and equipment................................... (134,875) (38,429) -- (173,304)
-------- -------- ------- --------
Net cash used in investing activities............. (134,875) (38,429) -- (173,304)
FINANCING ACTIVITIES:
Proceeds from borrowings............................ 1,450 -- -- 1,450
Payments of borrowings.............................. (48) -- -- (48)
Net cash transfer and billings from (to) parent..... 92,450 (33,815) 57,470 116,105
-------- -------- ------- --------
Net cash provided by financing activities......... 93,852 (33,815) 57,470 117,507
Effect of exchange rates on cash and cash
equivalents......................................... -- 1,221 -- 1,221
-------- -------- ------- --------
Net increase in cash.............................. -- -- -- --
Cash at the beginning of the period............... -- -- -- --
-------- -------- ------- --------
Cash at the end of the period..................... $ -- $ -- $ -- $ --
======== ======== ======= ========
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JULY 3, 1998
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................... $ (908) $18,418 $ (4,599) $ 12,911
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization....................... 51,295 16,036 -- 67,331
Changes in working capital.......................... (154,815) 12,669 110,235 (31,911)
-------- ------- --------- --------
Net cash provided by (used in) operating
activities...................................... (104,428) 47,123 105,636 48,331
INVESTING ACTIVITIES:
Plant and equipment................................... (49,762) (40,422) -- (90,184)
-------- ------- --------- --------
Net cash used in investing activities............. (49,762) (40,422) -- (90,184)
FINANCING ACTIVITIES:
Proceeds from borrowings............................ 2,750 -- -- 2,750
Payments of borrowings.............................. (83) -- -- (83)
Net cash transfer and billings from (to) parent..... 151,523 (4,043) (105,636) 41,844
-------- ------- --------- --------
Net cash provided by financing activities......... 154,190 (4,043) (105,636) 44,511
Effect of exchange rates on cash and cash
equivalents......................................... -- (2,658) -- (2,658)
-------- ------- --------- --------
Net increase in cash.............................. -- -- -- --
Cash at the beginning of the period............... -- -- -- --
-------- ------- --------- --------
Cash at the end of the period..................... $ -- $ -- $ -- $ --
======== ======= ========= ========
</TABLE>
F-29
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JULY 2, 1999
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................... $ 4,431 $ 121,273 $(98,298) $ 27,406
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization....................... 59,615 21,016 -- 80,631
Changes in working capital.......................... 147,981 19,084 (163,853) 3,212
--------- --------- -------- --------
Net cash provided by (used in) operating
activities...................................... 212,027 161,373 (262,151) 111,249
INVESTING ACTIVITIES:
Cash paid for acquired business....................... (1,335) -- -- (1,335)
Plant and equipment................................... (21,648) (16,915) -- (38,563)
--------- --------- -------- --------
Net cash used in investing activities............. (22,983) (16,915) -- (39,898)
FINANCING ACTIVITIES:
Proceeds from borrowings............................ 800 -- -- 800
Payments of borrowings.............................. (302) -- -- (302)
Net cash transfer and billings from (to) parent..... (189,542) (139,639) 262,151 (67,030)
--------- --------- -------- --------
Net cash provided by financing activities......... (189,044) (139,639) 262,151 (66,532)
Effect of exchange rates on cash and cash
equivalents......................................... -- (4,819) -- (4,819)
--------- --------- -------- --------
Net increase in cash.............................. -- -- -- --
Cash at the beginning of the period............... -- -- -- --
--------- --------- -------- --------
Cash at the end of the period..................... $ -- $ -- $ -- $ --
========= ========= ======== ========
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
TWENTY-SIX WEEKS ENDED JANUARY 1, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................... $(22,167) $(13,565) $ 42,009 $ 6,277
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization....................... 29,534 9,680 -- 39,214
Non-current deferred income taxes................... (59,182) -- 58,367 (815)
Changes in working capital.......................... (137,676) (57,417) 191,699 (3,394)
-------- -------- --------- -------
Net cash provided by (used in) operating
activities...................................... (189,491) (61,302) 292,075 41,282
INVESTING ACTIVITIES:
Plant and equipment................................... (10,602) (7,547) -- (18,149)
-------- -------- --------- -------
Net cash used in investing activities............. (10,602) (7,547) -- (18,149)
FINANCING ACTIVITIES:
Proceeds from borrowings............................ 750 -- -- 750
Payments of borrowings.............................. (4,818) -- 4,705 (113)
Net cash transfer and billings from (to) parent..... 204,161 69,541 (296,780) (23,078)
-------- -------- --------- -------
Net cash provided by (used in) financing
activities...................................... 200,093 69,541 (292,075) (22,441)
Effect of exchange rates on cash and cash
equivalents......................................... -- (692) -- (692)
-------- -------- --------- -------
Net increase in cash.................................. -- -- -- --
Cash at the beginning of the period................... -- -- -- --
-------- -------- --------- -------
Cash at the end of the period......................... $ -- $ -- $ -- $ --
======== ======== ========= =======
</TABLE>
F-30
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX WEEKS ENDED AUGUST 13, 1999
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................. $ (11,462) $ (12,126) $ 20,559 $(3,029)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization................. 2,380 6,693 -- 9,073
Non-current deferred income taxes............. -- 4,815 (9,571) (4,756)
Changes in working capital.................... 210,864 128,451 (337,221) 2,094
--------- --------- --------- -------
Net cash provided by (used in) operating
activities............................... 201,782 127,833 (326,233) 3,382
INVESTING ACTIVITIES:
Plant and equipment............................. (1,020) (867) -- (1,887)
--------- --------- --------- -------
Net cash used in investing activities....... (1,020) (867) -- (1,887)
FINANCING ACTIVITIES:
Payments of borrowings........................ -- 4,535 (4,567) (32)
Net cash transfer and billings from (to)
parent...................................... (200,497) (131,501) 330,800 (1,198)
--------- --------- --------- -------
Net cash provided by (used in) financing
activities............................... (200,497) (126,966) 326,233 (1,230)
Effect of exchange rates on cash and cash
equivalents................................... 1,177 -- -- 1,177
--------- --------- --------- -------
Net increase in cash............................ 1,442 -- -- 1,442
Cash at the beginning of the period............. -- -- -- --
--------- --------- --------- -------
Cash at the end of the period................... $ 1,442 $ -- $ -- $ 1,442
========= ========= ========= =======
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
TWENTY WEEKS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR
--------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................... $ (5,455) $(28,655) $13,736 $ (1,473) $(21,847)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation and amortization....... -- 20,665 5,679 -- 26,344
Changes in working capital.......... 5,455 58,599 (8,156) 1,473 57,371
-------- -------- ------- --------- --------
Net cash provided by (used in)
operating activities........... -- 50,609 11,259 -- 61,868
INVESTING ACTIVITIES:
Plant and equipment................... -- (7,314) (5,320) -- (12,634)
-------- -------- ------- --------- --------
Net cash used in investing
activities..................... -- (7,314) (5,320) -- (12,634)
FINANCING ACTIVITIES:
Payments of borrowings.............. -- (15,144) -- -- (15,144)
Net cash transfer and billings from
(to) parent....................... -- -- -- -- --
-------- -------- ------- --------- --------
Net cash used in financing
activities..................... -- (15,144) -- -- (15,144)
Effect of exchange rates on cash and
cash
equivalents......................... -- -- (1,345) -- (1,345)
-------- -------- ------- --------- --------
Net increase in cash.................. -- 28,151 4,594 -- 32,745
Cash at the beginning of the period... -- 5,932 1,445 -- 7,377
-------- -------- ------- --------- --------
Cash at the end of the period......... $ -- $ 34,083 $ 6,039 $ -- $ 40,122
======== ======== ======= ========= ========
</TABLE>
F-31
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses (other than the SEC filing fee) are estimated:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 5
Accounting Fees............................................. $ 1,259,294
Printing and Engraving Expenses............................. $ 249,261
Legal Fees and Expenses (other than blue sky)............... $ 3,376,065
Blue Sky Fees and Expenses.................................. $ --
Transfer Agent and Registrar Fees........................... $ 893,375
Miscellaneous Expense....................................... $14,222,005
-----------
Total.................................................. $20,000,000
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, the Restated
Certificate of Incorporation of the Issuer provides that directors of the Issuer
shall not be personally liable to the Issuer or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Issuer or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, relating to prohibited dividends or
distributions or the repurchase or redemption of stock, or (iv) for any
transaction from which the director derives an improper personal benefit. In
addition, the By-laws of the Issuer provide for indemnification of the Issuer's
officers and directors to the fullest extent permitted under Delaware law.
Section 145 of the Delaware General Corporation Law provides that a corporation
may indemnify any persons, including officers and directors, who were or are, or
are threatened to be made, parties to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation or is or was serving at the request of such corporation as
an officer, director, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, for criminal proceedings, had no reasonable cause to believe that his
conduct was unlawful. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses that such officer or director actually and reasonably
incurred. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling an
Issuer pursuant to the foregoing provisions, the Issuer has been informed that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
The directors and officers of the Issuer are insured against certain
liabilities under the Issuer's directors' and officers' liability insurance.
The foregoing summary of the Delaware General Corporation Law and of the
Certificate of Incorporation and By-laws of the Issuer is qualified in its
entirety by reference to the relevant provisions of the Delaware General
Corporation Law and of the Issuer's Certificate of Incorporation and By-laws,
which are filed as exhibits to this Registration Statement.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On August 13, 1999, pursuant to an Amended and Restated Master Transaction
Agreement, Intersil and Intersil Holding acquired selected portions of the
semiconductor business of Harris (the "Acquisition"). In connection with the
Acquisition, (i) Intersil Holding issued an 11.13% subordinated promissory note
to Harris in the principal amount of $90.0 million; (ii) Harris paid about $9.0
million in cash to Intersil Holding to purchase shares of 12% Series A
Cumulative Compounding Preferred Stock ("Intersil Holding Preferred Stock") and
shares of common stock ("Intersil Holding Common Stock"); (iii) Intersil Holding
sold to Sterling Holding Company, LLC shares of Intersil Holding Preferred Stock
and Intersil Holding Common Stock and to senior management and other key
employees and certain other investors shares of Intersil Holding Common Stock
for a total of about $81.0 million in cash; (iv) Citicorp Mezzanine Partners,
L.P. contributed $30.0 million in cash to Intersil Holding in exchange for a
13.5% subordinated promissory note and warrants to purchase about 3,703,707
million shares of Class A Common Stock of Intersil Holding. In addition,
Intersil Holding granted to certain senior managers a sign-on bonus in the
aggregate amount of about $574,000, in the form of options to purchase Intersil
Holding Preferred Stock. Intersil Holding has determined that the issuance of
the subordinated notes, the Intersil Holding Preferred Stock, the Intersil
Holding Common Stock, the warrants and the options to purchase Intersil Holding
Preferred Stock were exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended.
Also in connection with the Acquisition, Intersil offered Senior
Subordinated Notes due 2009, the old notes, to "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act). That offering was
consummated on August 13, 1999 with the sale of 200,000 units, each unit
consisting of one 13 1/4% Senior Subordinated Note due 2009 of Intersil with a
principal amount of $1,000 and one Warrant (a "Warrant") to purchase 18.518535
shares of Intersil Holding's Class A Common Stock. An exchange offer
registration statement filed by Intersil became effective on January 12, 2000
with respect to the exchange of the old notes for registered notes having
substantially identical terms, the new notes. This Registration Statement is
filed to register the Warrants and the shares of Common Stock issuable upon
exercise of the Warrants.
Pursuant to the 1999 Equity Compensation Plan, Intersil Holding granted
certain salaried officers and key employees options to acquire 1,549,333 shares
of Intersil Holding Class A Common Stock, effective as of August 14, 1999. The
options vest 20% per year over five years, with 20% becoming immediately vested
upon this offering. Intersil Holding has determined that the issuance of the
options to purchase Intersil Holding Common Stock were exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
Incorporated by reference to the Exhibit Index following page II-5 hereto.
(b) Financial Statement Schedules:
Schedule I Condensed Financial Information of Registrant
The information required by Schedule I is included in the notes to the
Financial Statements.
II-2
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS $)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED ADDITIONS
BALANCE AT TO COSTS CHARGED DEDUCTION BALANCE
BEGINNING AND TO OTHER FROM AT END OF
OF PERIOD EXPENSES ACCOUNTS RESERVES PERIOD
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Valuation and qualifying accounts deducted
from the assets to which they apply:
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
1999....................................... $ 571 $ 487 $ -- $ 476 $ 582
1998....................................... $ 1,336 $ 324 $ -- $ 1,089 $ 571
1997....................................... $ 757 $ 336 $300 $ 57 $ 1,336
INVENTORY RESERVE
1999....................................... $24,482 $ 8,373 $257 $14,995 $18,117
1998....................................... $31,736 $ 9,846 $120 $17,220 $24,482
1997....................................... $25,385 $10,007 $ 46 $ 3,702 $31,736
DISTRIBUTOR RESERVES
1999....................................... $ 6,189 $52,965 $ -- $52,612 $ 6,542
1998....................................... $11,278 $66,062 $ -- $71,151 $ 6,189
1997....................................... $ 7,520 $65,374 $ -- $61,616 $11,278
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
II-3
<PAGE>
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the 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 registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Post Effective Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Palm Bay, State of Florida, on the
10th day of March, 2000.
INTERSIL HOLDING CORPORATION
By: DANIEL J. HENEGHAN
----------------------------------
Daniel J. Heneghan
Assistant Secretary, Chief
Financial Officer and Vice
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 1 to the Registration Statement has been
signed below by the following persons in the capacities indicated on March 10,
2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chief Executive Officer and Director
- --------------------------------------------- (principal executive officer)
Gregory L. Williams
DANIEL J. HENEGHAN Assistant Secretary, Chief Financial Officer
- --------------------------------------------- and Vice President
Daniel J. Heneghan (principal financial and accounting officer)
* Director
- ---------------------------------------------
James A. Urry
* Director
- ---------------------------------------------
Gary E. Gist
By: DANIEL J. HENEGHAN
- ---------------------------------------------
Daniel J. Heneghan
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
2.01* Amended and Restated Master Transaction Agreement dated as
of June 2, 1999, by and among Intersil Holding Corporation
("Holding"), Intersil Corporation ("Intersil") and Harris
Corporation ("Harris").
2.02* Agreement Concerning Deferred Closings dated as of August
13, 1999, by and among Harris and Intersil.
2.03* Transition Services Agreement dated as of August 13, 1999,
by and among Intersil and Harris.
2.04* Share Sale Agreement dated August 13, 1999, between Harris
Airport Systems (Malaysia) Sdn. Bhd., Harris Solid State
(Malaysia) Sdn. Bhd. and Sapphire Worldwide Investments,
Inc.
2.05* Agreement for the Sale and Purchase of the Business and
Assets of Harris Semiconductor Limited dated as of August
13, 1999, between Harris Semiconductor Limited and Intersil
Limited.
2.06* Asset Purchase Agreement dated as of August 20, 1999,
between Harris Semiconductor Design & Sales Pte. Ltd. and
Intersil Pte. Ltd.
2.07* Purchase Agreement of Corporate Quotas of a Limited
Liability Company, dated as of August 13, 1999, between
Harris Semiconductor BV, Harris Semiconductor Limited and
Intersil.
2.08* Assignment of Shares, dated as of August 13, 1999, between
Intersil and Harris for the transfer by Harris of all of its
shares of Harris Semiconducteurs, Sarl to Intersil.
2.09* Share Transfer Agreement, dated as of August 1, 1999,
between Harris and Intersil for the transfer of stock of
Harris Semiconductor Y.H.
2.10* Equity Purchase Agreement, dated as of August 13, 1999,
between Harris Advanced Technology (Malaysia) Sdn. Bhd. and
Harris Airport Systems (M) Sdn. Bhd.
2.11* Agreement Re: China Subsidiaries, dated as of August 13,
1999, between Harris and Intersil.
2.12* Agreement Re: Anshan Joint Venture, dated as of August 13,
1999, between Harris Advanced Technology (Malaysia) Sdn.
Bhd. and Harris Airport Systems (M) Sdn. Bhd.
2.13* Agreement Re: Guangzhou Joint Venture, dated as of August
13, 1999, between Harris Advanced Technology (Malaysia) Sdn.
Bhd. and Harris Airport Systems (M) Sdn. Bhd.
2.14* Agreement Re: Suzhou Harris, dated as of August 13, 1999,
between Harris Advanced Technology (Malaysia) Sdn. Bhd. and
Harris Airport Systems (M) Sdn. Bhd.
2.15* Intellectual Property Agreement, dated as of August 13,
1999, among Harris, Harris Semiconductor Patents, Inc. and
Holding.
2.16* Patent Assignment and Services Agreement, dated as of August
13, 1999, among Harris, Harris Semiconductor Patents, Inc.
and Holding.
2.17* License Assignment Agreement, dated as of August 13, 1999,
among Harris, Harris Semiconductor Patents, Inc. and
Holding.
2.18* Harris Trademark License Agreement, dated as of August 13,
1999, among Harris, HAL Technologies, Inc. and Holding.
2.19* Secondary Trademark Assignment and License Agreement, dated
as of August 13, 1999, between Harris and Holding.
2.20* PRISM(R) Intellectual Property Assignment, dated August 13,
1999, between Holding and Intersil.
2.21* Tax Sharing Agreement, dated as of August 13, 1999, among
Holding, Intersil and Choice Microsystems, Inc.
2.22* Royalty Agreement, dated as of August 13, 1999, among Harris
and Intersil.
3.01 Restated Certificate of Incorporation of Holding.
3.02* Bylaws of Holding.
4.01* Warrant Agreement, dated as of August 13, 1999, between
Holding and United States Trust Company of New York.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
4.02* Purchase Agreement, dated as of August 6, 1999, between
Intersil, Holding, Harris Semiconductor, LLC, Harris
Semiconductor (Ohio), LLC, Harris Semiconductor
(Pennsylvania), LLC, Choice Microsystems, Inc., Credit
Suisse First Boston Corporation, J. P. Morgan Securities
Inc. and Salomon Smith Barney Inc.
4.03* Registration Rights Agreement, dated as of August 6, 1999,
between Intersil, Holding, Harris Semiconductor, LLC, Harris
Semiconductor (Ohio), LLC, Harris Semiconductor
(Pennsylvania), LLC, Choice Microsystems, Inc., Credit
Suisse First Boston Corporation, J. P. Morgan Securities
Inc. and Salomon Smith Barney Inc.
5.01* Opinion of Dechert Price & Rhoads.
8.01* Opinion of Dechert Price & Rhoads.
10.01* Indenture, dated as of August 13, 1999, among Intersil,
Holding, Harris Semiconductor, LLC, Harris Semiconductor
(Ohio), LLC, Harris Semiconductor (Pennsylvania), LLC,
Choice Microsystems, Inc. and United States Trust Company of
New York for 13 1/4% Senior Subordinated Notes due 2009.
10.02* Form of 13 1/4% Senior Subordinated Notes due 2009 (included
in Exhibit 10.01).
10.03* Credit Agreement, dated as of August 13, 1999, among
Intersil, the Lender Parties thereto, Credit Suisse First
Boston, as the Administrative Agent, Salomon Smith Barney,
as Syndication Agent, and Morgan Guaranty Trust Company of
New York, as Documentation Agent.
10.04 Amendment No. 1 and Waiver, dated as of January 28, 2000, to
the Credit Agreement, dated as of August 13, 1999, among
Intersil, Holding, Credit Suisse First Boston, as the
Administrative Agent, Salomon Smith Barney, as Syndication
Agent, and Morgan Guaranty Trust Company of New York, as
Documentation Agent (incorporated by reference to Exhibit
10.07 to Amendment No. 2 to the Registration Statement on
Form S-1 previously filed by Intersil Holding Corporation on
February 23, 2000).
10.05* Subordinated Credit Agreement, dated as of August 13, 1999,
among Holding and Citicorp Mezzanine Partners, L.P. for
13 1/2% Subordinated Pay-In-Kind Note due 2010.
10.06* Form of 13 1/2% Subordinated Pay-In-Kind Note due 2010
(included in Exhibit 10.04).
10.07* Indenture, dated as of August 13, 1999, among Holding and
United States Trust Company of New York for 11.13%
Subordinated Pay-In-Kind Notes due 2010.
10.08* Form of 11.13% Subordinated Pay-In-Kind Note due 2010
(included in Exhibit 10.06).
10.09 Amended and Restated Registration Rights Agreement, dated as
of January 21, 2000, by and among Holding, Sterling Holding
Company, L.L.C., Manatee Investment Corporation, Citicorp
Mezzanine Partners, L.P. and the management investors named
therein (incorporated by reference to Exhibit 4.02 to the
Registration Statement on Form 8-A previously filed by
Intersil Holding Corporation on February 18, 2000).
10.10* Securities Purchase and Holders Agreement, dated as of
August 13, 1999, among Holding, Sterling Holding Company,
LLC, Manatee Investment Corporation, Intersil Prism LLC,
Citicorp Mezzanine Partners, L.P., William N. Stout and the
management investors named therein.
10.11* Option Award Agreement, dated as of August 13, 1999.
10.12* Employment Agreement, dated as of August 9, between Intersil
and Gregory L. Williams.
10.13 Intersil Holding Corporation 1999 Equity Compensation Plan.
10.14 Intersil Holding Corporation Employee Stock Purchase Plan.
10.15* Agreement between Harris and Local Union No. 1907
International Brotherhood of Electrical Workers, AFL-CIO
(Findlay, OH Facility), effective as of July 1, 1996.
10.16* Agreement between Harris and Local Union 177 International
Union of Electronic, Electrical, Salaried, Machine and
Furniture Workers, AFL-CIO (Mountaintop, PA Facility),
effective December 1, 1998.
10.17* Machinery and Equipment Loan Agreement, dated September 9,
1996, between Commonwealth of Pennsylvania, Department of
Community and Economic Development and Harris.
10.18* Machinery and Equipment Loan Agreement, dated as of November
3, 1998, between Commonwealth of Pennsylvania, Department of
Community and Economic Development and Harris.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.19* Master Agreement, dated as of December 2, 1997, between
Harris Semiconductor and Optum Software.
10.20* Purchase Agreement, dated as of March 14, 1997, between
Harris Semiconductor and Praxair, Inc.
10.21* Asset Purchase Agreement, dated as of July 2, 1999, by and
among Align-Rite International, Inc., Align-Rite, Inc. and
Harris.
10.22* Bill of Sale and Assignment, dated as of July 2, 1999, by
Harris in favor of Align-Rite International, Inc. and
Align-Rite, Inc.
10.23* Lease Agreement, dated as of July 2, 1999, by and among
Harris Corporation Semiconductor Business Unit and
Align-Rite, Inc.
10.24* Photomask Supply and Strategic Alliance Agreement, dated as
of July 2, 1999, by and among Harris, Align-Rite
International, Inc. and Align-Rite, Inc.
10.25* Site Services Agreement, dated as of July 2, 1999, by and
among Harris Corporation Semiconductor Business Unit and
Align-Rite, Inc.
10.26* Software License Agreement, dated as of July 31, 1984,
between Harris and Consilium Associates, Inc.
10.27* Addendum Software License and Maintenance Agreement, dated
as of October 27, 1995, between Harris and Consilium, Inc.
10.28* Specialty Gas Supply Agreement, dated as of October 15,
1996, between Air Products and Chemicals, Inc. and Harris.
10.29* Silicon Wafer Purchase Agreement, dated as of January 1,
1997, between Mitsubishi Silicon America Corporation and
Harris.
10.30* Nitrogen Supply Agreement, dated as of September 22, 1992,
between Harris Corporation Semiconductor Sector and Liquid
Air Corporation Merchant Gases Division.
10.31* Nitrogen Supply System Agreement, Amendment Number 1, dated
as of September 15, 1996, between Air Liquide America
Corporation and Harris Corporation Semiconductor Sector.
10.32* Site Subscription Agreement, dated as of July 1, 1993,
between Harris Semiconductor Sector of Harris and Cadence
Design Systems, Inc.
10.33* Site Subscription Addendum, dated December 19, 1997, between
Harris Semiconductor Sector of Harris and Cadence Design
Systems, Inc.
10.34* HMCD--HSS Memorandum of Agreement, dated March 26, 1999,
between Harris Microwave Communication Division and Harris
Semiconductor Sector.
10.35* Investment Agency Appointment and Participation
Authorization, dated September 3, 1999, between Intersil,
Intersil Corporation Master Trust and T. Rowe Price Trust
Company.
10.36* Investment Agency Appointment and Participation Authority,
dated September 3, 1999, between Intersil Corporation Master
Trust and T. Rowe Price Trust Company.
10.37* Investment Advisory Agreement (Equity Growth Fund), dated
September 3, 1999, between T. Rowe Price Associates, Inc.
and Intersil Corporation Retirement Committee.
10.38* Investment Advisory Agreement (Equity Income Fund), dated
September 3, 1999, between T. Rowe Price Associates, Inc.
and Intersil Corporation Retirement Committee.
10.39* Intersil Corporation Retirement Plan (Non-Union), dated
September 3, 1999.
10.40* Intersil Corporation Retirement Plan (Union), dated
September 3, 1999.
10.41* Commercial Supply Agreement, dated December 3, 1998, by and
between Texas Instruments Incorporated and Harris.
10.42* Military Supply Agreement, dated December 3, 1998, by and
between Texas Instruments Incorporated and Harris.
10.43* Intellectual Property Agreement, dated December 3, 1998, by
and between Texas Instruments Incorporated, Harris, Harris
Advanced Technology (Malaysia) Sdn. Bhd. and Harris
Southwest Properties, Inc.
10.44* Asset Transfer Agreement, dated December 3, 1998, by and
between Texas Instruments Incorporated and Harris Advanced
Technology (Malaysia) Sdn. Bhd.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.45* Military Asset Purchase Agreement, dated October 23, 1998,
by and between Texas Instruments Incorporated, Harris,
Harris Advanced Technology (Malaysia) Sdn. Bhd. and Harris
Southwest Properties, Inc.
10.46* Commercial Asset Purchase Agreement, dated October 23, 1998,
by and between Texas Instruments Incorporated, Harris,
Harris Advanced Technology (Malaysia) Sdn. Bhd. and Harris
Southwest Properties, Inc.
10.47* Certificate of Leasehold Property for Land Office No. 7668
by Harris Advanced Technology (M) Sdn. Bhd.
10.48* State Lease for Lot No. 7716 by Harris Advanced Technology
(Malaysia) Sdn. Bhd.
10.49* Certificate of Leasehold Property for Land Office No. 7666
by Harris Advanced Technology (M) Sdn. Bhd.
12.01* Statement of Computation of Ratio of Earnings to Fixed
Charges.
21.01* Subsidiaries of Holding.
23.01* Consent of Dechert Price & Rhoads (included in Exhibit
5.01).
23.02 Consent of Ernst & Young LLP.
27.01* Financial Data Schedule.
</TABLE>
- ------------------
* Previously filed
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
of
INTERSIL HOLDING CORPORATION
INTERSIL HOLDING CORPORATION, a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
FIRST: The present name of the corporation is INTERSIL HOLDING CORPORATION
and the name under which the corporation was originally incorporated is HSS
HOLDING CORPORATION. The date of filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was June 2,
1999.
SECOND: This Amended and Restated Certificate of Incorporation (the
"Certificate") restates and integrates and further amends in its entirety the
Certificate of Incorporation of this corporation. This Certificate was duly
adopted by a majority vote of the stockholders of the Corporation in accordance
with Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware.
THIRD: This Certificate shall become effective immediately upon its filing
with the Secretary of State of the State of Delaware.
FOURTH: Upon the filing of the Certificate with the Secretary of State of
the State of Delaware, the Certificate of Incorporation of the Corporation shall
be amended and restated in its entirety to read as set forth on Exhibit A
attached hereto.
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
executed by a duly authorized officer this 1st day of March 2000.
INTERSIL HOLDING CORPORATION
By: /s/ Gregory L. Williams
-----------------------
Gregory L. Williams
Chief Executive Officer
<PAGE>
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
of
INTERSIL HOLDING CORPORATION
1. Name. The name of the Corporation is Intersil Holding Corporation.
2. Registered Office and Agent. The address of the Corporation's registered
office in the State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
at such address is The Corporation Trust Company.
3. Purpose. The purposes for which the Corporation is formed are to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware ("DGCL") and to possess and
exercise all of the powers and privileges granted by such law and any other law
of Delaware.
4. Conversion of Preferred Stock into Common Stock. Upon the filing and
effectiveness of this Amended and Restated Certificate of Incorporation, each
share of capital stock of the Corporation consisting of 12% Series A Cumulative
Compounding Preferred Stock, par value $.01 per share, which shall have been
issued and outstanding immediately prior thereto ("Former Series A Preferred
Stock"), shall be automatically reclassified and converted into 45.42359 fully
paid and nonassessable shares of Class A Common Stock authorized hereby, with
any fractional shares rounded up to the nearest whole share. Upon receipt of a
stock certificate representing shares of Former Series A Preferred Stock, the
Secretary of the Corporation shall cancel or cause to be canceled such
certificate and issue or cause to be issued to the stockholder in whose name
such certificate appears a certificate or certificates representing shares of
Class A Common Stock in accordance with the foregoing conversion ratio.
5. Authorized Capital. The aggregate number of shares of stock which the
Corporation shall have authority to issue is 600,100,000 shares, divided into
three classes consisting of 100,000 shares of Preferred Stock, par value $.01
per share ("Preferred Stock"); 300,000,000 shares of Class A Common Stock, par
value $.01 per share ("Class A Common Stock"); and 300,000,000 shares of Class B
Common Stock, par value $.01 per share ("Class B Common Stock"). Class A Common
Stock and Class B Common Stock are hereinafter sometimes individually or
collectively referred to as "Common Stock."
The following is a statement of the designations, preferences,
qualifications, limitations, restrictions and the special or relative rights
granted to or imposed upon the shares of each such class.
A. PREFERRED STOCK.
(a) Subject to Section 9 below, the board of directors is authorized
to provide for the issuance of shares of Preferred Stock in one
or more series with such designations, preferences and relative,
participating, optional or other special rights and
-2-
<PAGE>
qualifications, limitations or restrictions thereof as are stated
and expressed in the resolution or resolutions providing for the
issue thereof adopted by the board of directors (as such
resolutions may be amended by a resolution or resolutions
subsequently adopted by the board of directors), and as are not
stated and expressed in this Amended and Restated Certificate of
Incorporation including, but not limited to, determination of any
of the following:
(i) the distinctive designation of the series and the number
of shares which will constitute the series, which number
may be increased or decreased (but not below the number of
shares then outstanding) from time to time by action of
the board of directors;
(ii) the dividend rate and the times of payment of dividends on
the shares of the series, whether dividends will be
cumulative, and if so, from what date or dates;
(iii) the price or prices at which, and the terms and conditions
on which, the shares of the series may be redeemed at the
option of the Corporation;
(iv) whether or not the shares of the series will be entitled
to the benefit of a retirement or sinking fund to be
applied to the purchase or redemption of such shares and,
if so entitled, the amount of such fund and the terms and
provisions relative to the operation thereof;
(v) whether or not the shares of the series will be
convertible into, or exchangeable for, any other shares of
stock of the Corporation or other securities, and if so
convertible or exchangeable, the conversion price or
prices, or the rates of exchange, and any adjustments
thereof, at which such conversion or exchange may be made,
and any other terms and conditions of such conversion or
exchange;
(vi) the rights of the shares of the series in the event of
voluntary or involuntary liquidation, dissolution or
winding up of the Corporation;
(vii) whether or not the shares of the series will have priority
over or be on a parity with or be junior to the shares of
any other series or class in any respect or will be
entitled to the benefit of limitations restricting the
issuance of shares of any other series or class having
priority over or being on a parity with the shares of such
series in any respect, or restricting the payment of
dividends on or the making of other distributions in
respect of shares of any other series or class ranking
junior to the shares of the series as to dividends or
assets, or restricting the purchase or redemption of the
shares of any such junior series or class, and the terms
of any such restriction;
(viii) whether the series will have voting rights, in addition to
any voting rights provided by law, and, if so, the terms
of such voting rights; and
-3-
<PAGE>
(ix) any other preferences, qualifications, privileges, options
and other relative or special rights and limitations of
that series.
(b) Dividends. Holders of Preferred Stock shall be entitled to
receive, when and as declared by the board of directors, out of
funds legally available for the payment thereof, dividends at the
rates fixed by the board of directors for the respective series,
and no more, before any dividends shall be declared and paid, or
set apart for payment, on Common Stock with respect to the same
dividend period.
(c) Preference on Liquidation. In the event of the voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, holders of each series of Preferred Stock will be
entitled to receive the amount fixed for such series plus, in the
case of any series on which dividends will have been determined
by the board of directors to be cumulative, an amount equal to
all dividends accumulated and unpaid thereon to the date of final
distribution whether or not earned or declared before any
distribution shall be paid, or set aside for payment, to holders
of Common Stock. If the assets of the Corporation are not
sufficient to pay such amounts in full, holders of all shares of
Preferred Stock will participate in the distribution of assets
ratably in proportion to the full amounts to which they are
entitled or in such order or priority, if any, as will have been
fixed in the resolution or resolutions providing for the issue of
the series of Preferred Stock. Neither the merger nor
consolidation of the Corporation into or with any other
corporation, nor a sale, transfer or lease of all or part of its
assets, will be deemed a liquidation, dissolution or winding up
of the Corporation within the meaning of this paragraph except to
the extent specifically provided for herein.
(d) Redemption. The Corporation, at the option of the board of
directors, may redeem all or part of the shares of any series of
Preferred Stock on the terms and conditions fixed for such
series.
(e) Voting Rights. Except as otherwise required by law, as otherwise
provided herein or as otherwise determined by the board of
directors as to the shares of any series of Preferred Stock prior
to the issuance of any such shares, the holders of Preferred
Stock shall have no voting rights and shall not be entitled to
any notice of meeting of stockholders.
B. CLASS A AND CLASS B COMMON STOCK
Except as otherwise provided herein, all shares of Class A Common Stock and
Class B Common Stock shall be identical and shall entitle the holders thereof to
the same rights and privileges.
(a) Dividends. Holders of Common Stock shall be entitled to receive
ratably on a per share basis such dividends as may be declared by
the board of directors, provided that if dividends are declared
which are payable in shares of Class A Common Stock or Class B
Common Stock, dividends shall be declared which are payable at
the same rate on each class of Common Stock and the dividends
payable in shares of Class A Common Stock shall be payable to
holders of Class A Common Stock and the dividends
-4-
<PAGE>
payable in shares of Class B Common Stock shall be payable to
holders of Class B Common Stock.
(b) Conversion. Each record holder of Class A Common Stock will be
entitled to convert any or all of such holder's Class A Common
Stock into the same number of shares of Class B Common Stock and
each record holder of Class B Common Stock will be entitled to
convert any or all of the shares of such holder's Class B Common
Stock into the same number of shares of Class A Common Stock;
provided, however, that at the time of conversion of shares of
Class B Common Stock into shares of Class A Common Stock such
holder certifies to the Corporation in writing that such holder
would be permitted, pursuant to applicable law, to hold the total
number of shares of Class A Common Stock which such holder would
hold after giving effect to such conversion.
Each conversion of shares of one class of Common Stock into
shares of another class of Common Stock shall be effected by the
surrender of the certificate or certificates representing the
shares to be converted at the principal office of the Corporation
at any time during normal business hours, together with a written
notice by the holder of such shares stating the number of shares
that any such holder desires to convert into the other class of
Common Stock. Such conversion shall be deemed to have been
effected immediately upon the receipt of the written notice by
the Corporation if the notice so provides, or otherwise as of the
close of business on the date on which such certificate or
certificates have been surrendered and such notice has been
received by the Corporation, and at such time the rights of any
such holder with respect to the converted class of Common Stock
shall cease and the Person or Persons in whose name or names the
certificate or certificates for shares of the other class of
Common Stock are to be issued upon such conversion shall be
deemed to have become the holder or holders of record of the
shares of such other class of Common Stock represented thereby.
Promptly after such surrender and the receipt by the
Corporation of the written notice from the holder hereinbefore
referred to, the Corporation shall issue and deliver in
accordance with the surrendering holder's instructions the
certificate or certificates for the other class of Common Stock
issuable upon such conversion and a certificate representing any
shares of Common Stock which were represented by the certificate
or certificates delivered to the Corporation in connection with
such conversion but which were not converted. The issuance of
certificates for the other class of Common Stock upon conversion
shall be made without charge to the holder or holders of such
shares for any issuance tax (except stock transfer taxes) in
respect thereof or other cost incurred by the Corporation in
connection with such conversion.
(c) Transfers. The Corporation shall not close its books against the
transfer of any share of Common Stock, or of any share of Common
Stock issued or
-5-
<PAGE>
issuable upon conversion of shares of the other class of Common
Stock, in any manner that would interfere with the timely
conversion of such shares of Common Stock.
(d) Subdivision and Combinations of Shares. If the Corporation in any
manner subdivides or combines the outstanding shares of any class
of Common Stock, the outstanding shares of the other class of
Common Stock shall be proportionately subdivided or combined.
(e) Reservation of Shares for Conversion. So long as any shares of
any class of Common Stock are outstanding, the Corporation shall
at all times reserve and keep available out of its authorized but
unissued shares of Class A Common Stock and Class B Common Stock
(or any shares of Class A Common Stock or Class B Common Stock
which are held as treasury shares), the number of shares
sufficient for issuance upon conversion of the outstanding shares
of Common Stock.
(f) Distribution of Assets. In the event of the voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, holders of Common Stock shall be entitled to receive
all of the remaining assets of the Corporation available for
distribution to its stockholders.
(g) Voting Rights. The holders of Class A Common Stock shall have the
general right to vote for all purposes as provided by law. Each
holder of Class A Common Stock shall be entitled (i) at all
elections of directors, to as many votes as shall equal the
number of shares of Class A Common Stock held by such holder
multiplied by the number of directors to be elected, and such
holder may cast all of such votes for a single director or may
distribute them among the number to be voted for, or for any two
or more of them as such holder may see fit, and (ii) to one vote
for each share upon all other matters. Except as otherwise
required by law, the holders of Class B Common Stock shall have
no voting rights.
(h) Merger, etc. In connection with any merger, consolidation, or
recapitalization in which holders of Class A Common Stock
generally receive, or are given the opportunity to receive,
consideration for their shares, all holders of Class B Common
Stock shall receive or be given the same opportunity to receive,
as the case may be, the same form of consideration for their
shares in the same amount per share as is received by holders of
Class A Common Stock.
6. Section 203 Not Applicable. The Corporation shall not be governed by the
provisions of Section 203 of the DGCL.
7. Board of Directors. The board of directors of the Corporation shall be
composed of not fewer than three and not more than seven members, provided that
if the death, incapacity or resignation of a director results in the board of
directors being composed of fewer than three members, actions of the board of
directors which are otherwise valid and taken between the time of such death,
incapacity or resignation and the next meeting of stockholders at which a
director is elected to fill such vacancy shall nevertheless be valid. Directors
of the Corporation shall not be divided into classes. The term of each director
shall expire at each
-6-
<PAGE>
annual meeting of stockholders. Elections of directors need not be by written
ballot unless and except to the extent the bylaws of the Corporation shall so
provide.
8. Action By Stockholders In Lieu of a Meeting. Any action required by the
DGCL to be taken at any annual or special meeting of the stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voting and shall be delivered to the Corporation by delivery to its
registered office in Delaware, the Corporation's principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand, certified or registered mail,
return receipt requested or facsimile transmission.
9. Classes of Stock; Series of Preferred Stock. The board of directors
shall not have the authority to establish classes of capital stock of the
Corporation. The board of directors shall have the authority to fix by
resolution or resolutions any of the designations, powers, preferences, rights,
qualifications, limitations, and restrictions of any series of Preferred Stock,
provided, that such authority may be exercised only in connection with the
approval or adoption of a Rights Plan (as defined in Section 10) in accordance
with Section 10.
10. Rights Plans. Without (i) the affirmative vote of the holders of at
least a majority of the outstanding shares of Class A Common Stock or (ii) (A)
if Sterling Holding Company, LLC ("Sterling"), Citicorp Venture Capital Ltd.
("CVC") and their Affiliates (as defined in Section 13) Beneficially Own (as
defined in Section 13) in the aggregate 15% or more of the outstanding Common
Stock, the unanimous consent of the board of directors or (B) if Sterling, CVC
and their Affiliates Beneficially Own in the aggregate less than 15% of the
outstanding Common Stock, the consent of a majority of the board of directors,
the Corporation shall not authorize or establish any Rights Plan. For purposes
of this Amended and Restated Certificate of Incorporation, a "Rights Plan" shall
mean any plan or arrangement of the sort commonly referred to as a "stockholder
rights plan" or "shareholder rights plan" including, without limitation, any
issuance of securities or other distribution to stockholders of the Corporation,
whether or not pursuant to any plan, that includes conversion rights, exchange
rights, warrants, options or any other rights of any kind, any of which would
entitle the holders thereof to acquire, or provides for the holders thereof to
receive, any securities of the Corporation either (i) at an exercise, option,
conversion or exchange price that is less than the Fair Market Value (as defined
below) of the underlying securities on the date of grant or (ii) at an exercise,
option, conversion or exchange price that is determined by reference to the Fair
Market Value of the underlying securities at the time of exercise and which
either explicitly or implicitly by its terms would entitle the holders thereof
to acquire, or provide for the holder thereof to receive, the underlying
securities at a price other than the Fair Market Value of such securities on the
date of grant. For purposes of this paragraph, "Fair Market Value" means (i) as
to any class of securities traded on a national securities exchange or quoted on
the recognized over-the-counter market, or any class of securities convertible
by its terms into such securities, the last closing price on such exchange or
last sale price so reported, in each case as to such traded or
-7-
<PAGE>
reported class of securities on the date nearest preceding the date of
determination of the Fair Market Value and (ii) as to all other securities, the
fair market value determined by the board of directors of the Corporation in the
exercise of its good faith and reasonable best judgment.
11. Bylaws. In furtherance and not in limitation of the powers conferred by
law, the board of directors of the Corporation is authorized to adopt, amend or
repeal the bylaws of the Corporation, except as otherwise specifically provided
therein, subject to the powers of the stockholders of the Corporation to amend
or repeal any bylaws adopted by the board of directors.
12. Limitation on Liability. The directors of the Corporation shall be
entitled to the benefits of all limitations on the liability of directors
generally that are now or hereafter become available under the DGCL. Without
limiting the generality of the foregoing, to the fullest extent permitted by the
DGCL, as it exists on the date hereof or as it may hereafter be amended, no
director of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. Any repeal or modification of this Section
12 or any adoption of any provision of this Certificate of Incorporation
inconsistent with this Section 12 shall be prospective only, and shall not
affect, to the detriment of any director, any limitation on the personal
liability of a director of the Corporation existing at the time of such repeal,
modification or adoption.
13. Amendment. Sections 6, 7, 8, 9, 10 and 13 of this Amended and Restated
Certificate of Incorporation shall not be amended or repealed without the
affirmative vote of the holders of at least 75% of the outstanding shares of
Class A Common Stock, except that (i) after the occurrence of a Change of
Control (as defined below), the affirmative vote of the holders of at least a
majority of the shares of outstanding Class A Common Stock shall be required to
amend or repeal such sections and (ii) after any transfer by Sterling, CVC or
their respective Affiliates resulting in Sterling, CVC and their Affiliates
being collectively the Beneficial Owner of less than 15% of the outstanding
shares of Common Stock, then the affirmative vote of the holders of a majority
of the shares of outstanding Class A Common Stock shall be required to amend or
repeal such sections.
As used herein, the following terms shall have the following meanings:
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
under the Exchange Act.
"Beneficial Owner" and "Beneficially Own" when used with respect to any
securities shall mean a Person that, individually or with or through any of its
Affiliates,
(A) is the beneficial owner of such securities, within the meanings
ascribed to the term beneficial owner in Rule 13d-3 and Rule 13d-5
under the Exchange Act;
-8-
<PAGE>
(B) has (1) the right to acquire such securities (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
provided, however, that a Person shall not be deemed the Beneficial
Owner of securities tendered pursuant to a tender or exchange offer
made by such Person or any of such Person's Affiliates until such
tendered securities are accepted for purchase or exchange; or (2) the
right to vote such securities pursuant to any agreement, arrangement
or understanding, provided, however, that a Person shall not be deemed
the Beneficial Owner of any securities because of such Person's right
to vote such securities if the agreement, arrangement or understanding
to vote such securities arises solely from a revocable proxy or
consent given in response to a proxy or consent solicitation made to
10 or more Persons; or
(C) has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (except voting pursuant to a revocable
proxy or consent as described in item (2) of clause (B) of this
definition), or disposing of such securities with any other Person
that Beneficially Owns, or whose Affiliates Beneficially Own, directly
or indirectly, such securities.
Securities that are "Beneficially Owned" by any Person shall mean all such
securities of which such Person is the Beneficial Owner. The Corporation shall
be permitted to conclusively rely upon its stock transfer ledger, public filings
with regulatory agencies, such as Schedules 13D, or certificates of its
stockholders in determining the Beneficial Ownership of any Person and its
Affiliates.
"Change in Control" shall mean the acquisition by any Person and the
Affiliates of such Person, other than Sterling, CVC or the executive officers of
the Corporation and their Affiliates, of more than 40% of the shares of Class A
Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as in effect on
the date that this Amended and Restated Certificate of Incorporation becomes
effective.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, estate, trust, association, organization or other
entity.
-9-
================================================================================
INTERSIL HOLDING CORPORATION
1999 EQUITY COMPENSATION PLAN
================================================================================
Intersil Holding Corporation, a Delaware corporation, wishes to attract key
employees, directors and consultants to the Company and its Subsidiaries, to
induce key employees, directors and consultants to remain with the Company and
its Subsidiaries and to encourage them to increase their efforts to make the
Company's business more successful, whether directly or through its
Subsidiaries. In furtherance thereof, the Intersil Holding Corporation 1999
Equity Compensation Plan is designed to provide equity-based incentives to key
employees, directors and consultants of the Company and its Subsidiaries. Awards
under the Plan may be made in the form of Options, Restricted Stock or Phantom
Shares.
1. DEFINITIONS.
Whenever used herein and unless otherwise provided in the Participant's
Award Agreement, the following terms shall have the meanings set forth below:
"Affiliate" means, with respect to any specified Person, (i) any other
Person which directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person (for
the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under common control
with"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise) and (ii) each Person of which such specified Person or
an Affiliate (as defined in clause (i) above) thereof shall, directly or
indirectly, beneficially own at least 5% of any class of outstanding capital
stock or other evidence of beneficial interest at such time.
"Approved Sale" means the approval of the merger or consolidation of the
Company or the sale of all or substantially all of its assets or sale of all or
a majority of the outstanding capital stock or any other similar transaction,
prior to the consummation of a Public Offering that is approved by the holders
of at least 50% of the Common Stock (including voting and non-voting shares
voting as a single class).
"Award," except where referring to a particular category of grant under the
Plan, shall include Incentive Stock Options, Non-Qualified Stock Options,
Restricted Stock and Phantom Shares.
"Award Agreement" means a written agreement in a form approved by the
Committee to be entered into by the Company and the Participant as provided in
Section 3.
"Board" means the Board of Directors of the Company.
<PAGE>
"Cause" means the Participant's (i) act or acts of dishonesty, moral
turpitude or criminality with respect to his or her employment or other service
with the Company, (ii) continued failure to perform such Participant's duties as
an employee, Director or consultant, as reasonably determined by the Board
acting in good faith, after reasonable notice of such failure and opportunity to
cure such failure (if curable) is given to such Participant by the Board, and or
(iii) willful or deliberate violations of such Participant's obligations to the
Company that result or could reasonably be expected to result in material injury
to the Company.
"Change of Control" means the happening of any of the following after the
consummation of a Public Offering:
(i) any Person, other than (a) the Company or any of its Subsidiaries,
(b) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any of its Subsidiaries, (c) an underwriter
temporarily holding securities pursuant to an offering of such securities,
(d) a corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportion as their ownership of stock of
the Company, (e) a Participant or any "group" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) which includes the
Participant), or (f) the Investors or their Affiliates is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or its Subsidiaries) representing more than 25%
of either the then outstanding shares of Stock of the Company or the
combined voting power of the Company's then outstanding securities;
(ii) the individuals who serve on the Board as of the effective date
hereof (the "Incumbent Directors") cease for any reason to constitute at
least a majority of the Board; provided, however, any person who becomes a
director subsequent to the effective date hereof, whose election or
nomination for election was approved by a vote of at least a majority of
the directors then constituting the Incumbent Board, shall for purposes of
this clause (ii) be considered an Incumbent Director;
(iii) the consummation of a merger or consolidation of the Company in
which the stockholders of the Company immediately prior to such merger or
consolidation, would not, immediately after the merger or consolidation,
beneficially own (as such term is defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, shares representing in the aggregate 50% or
more of the combined voting power of the securities of the corporation
issuing cash or securities in the merger or consolidation (or of its
ultimate parent corporation, if any); or
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company, or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or disposition
by the Company of all or substantially all of the Company's assets to an
entity, at least 50% of the combined voting power of the voting securities
of which are owned by Persons in substantially the same proportion as their
ownership of the Company immediately prior to such sale.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Committee appointed by the Board under Section 3.
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"Common Stock" means Class A Common Stock of the Company, par value $.01
per share, either currently existing or authorized hereafter.
"Company" means Intersil Holding Corporation, a Delaware corporation.
"Director" means a member of the Board who is not an employee of the
Company or a Subsidiary.
"Disability" means the occurrence of an event which would entitle an
employee of the Company to the payment of disability income under the Company's
then current long-term disability income plan, if any, or a long-term disability
as determined by the Committee in its absolute discretion pursuant to any other
standard as may be adopted by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" per Share as of a particular date means (i) if Shares
are then listed on a national stock exchange, the closing sales price per Share
on the exchange for the last preceding date on which there was a sale of Shares
on such exchange, as determined by the Committee, (ii) if Shares are not then
listed on a national stock exchange but are then traded on an over-the-counter
market, the average of the closing bid and asked prices for the Shares in such
over-the-counter market for the last preceding date on which there was a sale of
such Shares in such market, as determined by the Committee, or (iii) if Shares
are not then listed on a national stock exchange or traded on an
over-the-counter market, the "Fair Market Value Price" as defined in the
Securities Purchase and Holders Agreement.
"Grantee" means an employee, Director or consultant who is granted
Restricted Stock or Phantom Shares hereunder.
"Incentive Stock Option" means an "incentive stock option" within the
meaning of Section 422(b) of the Code.
"Investors" means, collectively, Sterling Holding Company, LLC, Manatee
Investment Corporation, Intersil Prism LLC, Citicorp Mezzanine Partners, L.P.,
William N. Stout, and the Affiliates of each.
"Non-Qualified Stock Option" means an Option which is not an Incentive
Stock Option.
"Option" means the right to purchase, at the price and for the term fixed
by the Committee in accordance with the Plan, and subject to such other
limitations and restrictions in the Plan and the applicable Award Agreement, a
number of Shares determined by the Committee.
"Optionee" means an employee or Director of, or consultant to, the Company
to whom an Option is granted, or the Successors of the Optionee, as the context
so requires.
"Option Price" means the exercise price per Share of an Option.
"Participant" means a Grantee or Optionee.
"Person" means any individual, partnership, corporation, company, limited
liability company, association, trust, joint venture, unincorporated
organization, entity or division, or any government, governmental department or
agency or political subdivision thereof.
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"Phantom Share" means a right, pursuant to the Plan, of the Grantee to
payment of the Phantom Share Value.
"Phantom Share Value" per Phantom Share, means the Fair Market Value of a
Share or, if so provided by the Committee, such Fair Market Value to the extent
in excess of a base value established by the Committee at the time of grant.
"Plan" means this Intersil Holding Corporation 1999 Equity Compensation
Plan, as amended from time to time.
"Public Offering" means a successfully completed firm-commitment
underwritten public offering (other than a Unit Offering, as hereinafter
defined) pursuant to an effective registration statement under the Securities
Act in respect of the offer and sale of shares of Common Stock for the account
of the Company resulting in aggregate net proceeds to the Company and any
stockholder selling shares of Common Stock in such offering of not less than $30
million.
"Restricted Stock" means an award of Shares that are subject to
restrictions hereunder as described in Section 7.
"Retirement" means the Termination of Service of a Participant with the
Company under circumstances which would entitle an employee of the Company to an
immediate pension under one of the Company's approved retirement plans or
retirement as determined by the Committee in its absolute discretion pursuant to
such other standard as may be adopted by the Committee.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Purchase and Holders Agreement" means that certain Securities
Purchase and Holders Agreement among the Company, Sterling Holding Company, LLC,
Manatee Investment Corporation, Intersil Prism, LLC, Citicorp Mezzanine
Partners, L.P., William N. Stout, the individuals designated on Schedule I
thereto as Management Investors and other individuals who join such agreement as
Management Investors, as defined therein, dated August 13, 1999, as may be
amended by the parties thereto from time to time.
"Settlement Date" means the date determined under Section 8.4(c).
"Share" means one share of Common Stock of the Company.
"Subsidiary" means any corporation (other than the Company) that is a
"subsidiary corporation" with respect to the Company under Section 424(f) of the
Code. In the event the Company becomes a subsidiary of another company, the
provisions hereof applicable to subsidiaries shall, unless otherwise determined
by the Committee, also be applicable to any company that is a "parent
corporation" with respect to the Company under Section 424(e) of the Code.
"Successor of the Optionee" means: (i) the legal representative of the
estate of a deceased Optionee, (ii) persons who shall acquire the right to
exercise an Option by bequest or inheritance or by reason of the death of the
Optionee or (iii) persons who shall acquire the right to exercise an Option on
behalf of the Optionee as the result of a determination by a court or other
governmental agency of the incapacity of the Optionee.
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"Termination of Service" means a Participant's termination of employment or
other service, as applicable, with the Company and its Subsidiaries. Cessation
of service as an officer, employee, director or consultant shall not be treated
as a Termination of Service if the Participant continues without interruption to
serve thereafter in a material manner in another one (or more) of such other
capacities, as determined by the Committee in its sole discretion.
"Transfer" means the making of any sale, exchange, assignment,
hypothecation, gift, security interest, pledge or other encumbrance, or any
contract therefor, any voting trust or other agreement or arrangement with
respect to the transfer of voting rights or any other beneficial interest in any
Award or Share issued or issuable under the Plan, the creation of any other
claim thereto or any other transfer or disposition whatsoever, whether voluntary
or involuntary, affecting the right, title, interest or possession in or to such
Award or Share issued or issuable under the Plan.
"Unit Offering" means an underwritten public offering of a combination of
debt securities and Common Stock (or warrants or exchange rights to purchase
Common Stock) of the Company in which not more than 15% of the gross proceeds
received for the sale of such securities is attributed to Common Stock.
2. EFFECTIVE DATE AND TERMINATION OF PLAN.
The effective date of the Plan is August 13, 1999. The Plan shall terminate
on, and no Award shall be granted hereunder on or after, the 10-year anniversary
of the earlier of the approval of the amended and restated Plan by (i) the Board
or (ii) the stockholders of the Company; provided, however, that the Board may
at any time prior to that date terminate the Plan.
3. ADMINISTRATION OF PLAN.
(a) The Plan shall be administered by the Committee appointed by the Board.
The Committee shall, at such times as the Common Stock, or shares of such other
stock that may be the subject of Awards hereunder, are registered pursuant to
Section 12 of the Exchange Act, consist of at least two individuals each of whom
shall be a "nonemployee director" as defined in Rule 16b-3 as promulgated by the
Securities and Exchange Commission ("Rule 16b-3") under the Exchange Act and
shall, at such times as the Company is subject to Section 162(m) of the Code (to
the extent relief from the limitation of Section 162(m) of the Code is sought
with respect to Awards), qualify as "outside directors" for purposes of Section
162(m) of the Code and related Treasury regulations. The acts of a majority of
the members present at any meeting of the Committee at which a quorum is
present, or acts approved in writing by a majority of the entire Committee,
shall be the acts of the Committee for purposes of the Plan. No member of the
Committee may act as to matters under the Plan exclusively relating to such
member. If no Committee is designated by the Board to act for these purposes,
the Board shall have the rights and responsibilities of the Committee hereunder.
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(b) Subject to the provisions of the Plan, the Committee shall in its
discretion as reflected by the terms of the Award Agreements (i) authorize the
granting of Awards to key employees, Directors and consultants of the Company
and its Subsidiaries; and (ii) determine the eligibility of an employee,
Director or consultant to receive an Award subject to Section 4 hereof, as well
as determine the number of Shares to be covered under any Award Agreement,
considering the position and responsibilities of the employee, Director or
consultant, the nature and value to the Company of the employee's, Director's or
consultant's present and potential contribution to the success of the Company
whether directly or through a Subsidiaries and such other factors as the
Committee may deem relevant.
(c) The Award Agreement shall contain such other terms, provisions and
conditions not inconsistent herewith as determined by the Committee. The
Participant shall take whatever additional actions and execute whatever
additional documents the Committee may in its reasonable judgment deem necessary
or advisable in order to carry out or effect one or more of the obligations or
restrictions imposed on the Participant pursuant to the express provisions of
the Plan and the Award Agreement.
(d) Without limiting the generality of the Committee's discretion
hereunder, the Committee may (subject to such considerations as may arise under
Section 16 of the Exchange Act, or under other corporate, securities or tax
laws) take any steps it deems appropriate, that are not inconsistent with the
purposes and intent of the Plan, to establish performance-based criteria
applicable to Awards otherwise permitted to be granted hereunder, and to attempt
to procure stockholder approval with respect thereto, to take into account the
provisions of Section 162(m) of the Code and the regulations thereunder.
4. ELIGIBILITY.
Any key employee, Director or consultant of the Company or a Subsidiary who
is designated by the Committee as eligible to participate in the Plan shall be
eligible to receive an Award under the Plan, provided that no Incentive Stock
Option shall be granted to a Director or consultant.
5. SHARES AND UNITS SUBJECT TO THE PLAN.
5.1. In General.
(a) Subject to Section 5.2, and subject to adjustments as provided in
Section 13, the total number of Shares subject to Options granted under the
Plan and Shares of Restricted Stock and Phantom Shares granted under the
Plan, in the aggregate, may not exceed 7,500,000. Shares distributed under
the Plan may be treasury Shares or authorized but unissued Shares. Any
Shares that have been granted as Restricted Stock or that have been
reserved for distribution in payment for Options or Phantom Shares but are
later forfeited or for any other reason are not, and will not be, payable
under the Plan may again be made the subject of Awards under the Plan.
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(b) The certificates for Shares issued hereunder may include any
legend which the Committee deems appropriate to reflect any rights of first
refusal or other restrictions on transfer hereunder or under the Award
Agreement, or as the Committee may otherwise deem appropriate.
5.2. Options.
Subject to adjustments pursuant to Section 13, Options with respect to
an aggregate of no more than 7,500,000 Shares may be granted under the
Plan. In no event may any Optionee receive Options for more than 1,000,000
Shares in any calendar year. The aggregate Fair Market Value, determined as
of the date an Option is granted, of the Common Stock for which any
Optionee may be awarded Incentive Stock Options which are first exercisable
by the Optionee during any calendar year under the Plan (or any other stock
option plan required to be taken into account under Section 422(d) of the
Code) shall not exceed $100,000.
6. ROVISIONS APPLICABLE TO STOCK OPTIONS.
6.1. Grant of Option.
Subject to the other terms of the Plan, the Committee shall, in its
discretion as reflected by the terms of the applicable Award Agreement: (i)
determine and designate from time to time those eligible key employees,
Directors and consultants of the Company and its Subsidiaries to whom
Options are to be granted and the number of Shares to be optioned to each
employee, Director and consultant; (ii) determine whether to grant
Incentive Stock Options, Non-Qualified Stock Options, or both (to the
extent that any Option does not qualify as an Incentive Stock Option, it
shall constitute a separate Non-Qualified Stock Option); provided that
Incentive Stock Options may only be granted to employees; (iii) cause each
Option to be designated as an Incentive Stock Option or a Non-Qualified
Stock Option; (iv) determine the time or times when and the manner and
condition in which each Option shall be exercisable and the duration of the
exercise period; and (v) determine or impose other conditions to the grant
or exercise of Options under the Plan as it may deem appropriate.
6.2. Option Price.
The Option Price shall be determined by the Committee on the date the
Option is granted and shall be reflected in the Award Agreement, as the
same may be amended from time to time. Any particular Award Agreement may
provide for different exercise prices for specified amounts of Shares
subject to the Option. The Option Price with respect to each Incentive
Stock Option shall not be less than 100% (or 110% in the case of an
individual described in Section 422(b)(6) of the Code (relating to certain
10% owners)) of the Fair Market Value of a Share on the day the Option is
granted.
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6.3. Period of Options Vesting and Exercisability.
(a) Unless earlier expired, forfeited or otherwise terminated, each
Option shall expire in its entirety upon the 10th anniversary of the date
of grant or shall have such other term as is set forth in the applicable
Award Agreement (except that, in the case of an individual described in
Section 422(b)(6) of the Code (relating to certain 10% owners) who is
granted an Incentive Stock Option, the term of such Option shall be no more
than five years from the date of grant). The Option shall also expire, be
forfeited and terminate at such times and in such circumstances as
otherwise provided hereunder or under the Award Agreement.
(b) The Award Agreement may, but need not, include a provision whereby
the Optionee may elect at any time while an employee or Director of, or a
consultant to, the Company to exercise the Option as to any part or all of
the shares subject to the Option prior to the full vesting of the Option.
Any Shares so purchased (i) shall vest in accordance with the vesting
schedule otherwise applicable to the Option, (ii) shall, prior to vesting,
be subject to a repurchase right in favor of the Company, with the
repurchase price to be equal to the lesser of (x) the exercise price paid
or (y) the Fair Market Value of the Shares on the date of such repurchase,
and (iii) shall be subject to any other restriction the Company determines
to be appropriate.
(c) Unless otherwise provided in the Award Agreement or herein, no
Option (or portion thereof) shall ever be vested and exercisable, and no
Shares acquired pursuant to such Option shall ever be vested, if the
Optionee has a Termination of Service before the time at which such Option
or Shares would otherwise have become vested, and any Option that would
otherwise become vested and exercisable, or Shares that would otherwise
become vested, after such Termination of Service shall be forfeited upon
such termination. Notwithstanding the foregoing provisions of this Section
6.3, Options exercisable pursuant to the schedule set forth by the
Committee at the time of grant may be fully or more rapidly exercisable or
vested, and Shares subject to such schedule may be fully or more rapidly
vested, at any time in the discretion of the Committee. Upon and after the
death of an Optionee, such Optionee's Options, if and to the extent
otherwise exercisable hereunder or under the applicable Award Agreement
after the Optionee's death, may be exercised by the Successors of the
Optionee.
6.4. Exercisability Upon and After Termination of Optionee.
(a) The Committee shall provide in the Award Agreement the extent (if
any) to which any Option may be exercised upon the Termination of Service
of the Optionee.
(b) Except as may otherwise be expressly set forth in this Section 6
or as may otherwise be expressly provided under the Award Agreement, no
provision of this Section 6 is intended to or shall permit the exercise of
the Option to the extent the Option was not exercisable upon the
Termination of Service.
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6.5. Exercise of Options.
(a) Subject to vesting and other restrictions provided for hereunder
or otherwise imposed in accordance herewith, an Option may be exercised,
and payment in full of the aggregate Option Price made, by an Optionee only
by written notice (in the form prescribed by the Committee) to the Company
specifying the number of Shares to be purchased.
(b) Without limiting the scope of the Committee's discretion
hereunder, the Committee may impose such other restrictions on the exercise
of Incentive Stock Options (whether or not in the nature of the foregoing
restrictions) as it may deem necessary or appropriate.
(c) If Shares acquired upon exercise of an Incentive Stock Option are
disposed of in a disqualifying disposition within the meaning of Section
422 of the Code by an Optionee prior to the expiration of either two years
from the date of grant of such Option or one year from the transfer of
Shares to the Optionee pursuant to the exercise of such Option, or in any
other disqualifying disposition within the meaning of Section 422 of the
Code, such Optionee shall notify the Company in writing as soon as
practicable thereafter of the date and terms of such disposition and, if
the Company (or any affiliate thereof) thereupon has a tax-withholding
obligation, shall pay to the Company (or such affiliate) an amount equal to
any withholding tax the Company (or affiliate) is required to pay as a
result of the disqualifying disposition.
6.6. Payment.
(a) The aggregate Option Price shall be paid in full upon the exercise
of the Option. Payment must be made by one of the following methods:
(i) cash or a certified or bank cashier's check;
(ii) the proceeds of a Company loan program or third-party sale
program or a note acceptable to the Committee given as consideration
under such a program, in each case if permitted by the Committee in
its discretion, if such a program has been established and the
Optionee is eligible to participate therein;
(iii) if approved by the Committee in its discretion Shares of
previously owned Common Stock having an aggregate Fair Market Value on
the date of exercise equal to the aggregate Option Price;
(iv) if approved by the Committee in its discretion, by delivery
of an assignment satisfactory in form and substance to the Company of
a sufficient amount of the proceeds from the sale of Shares to be
acquired pursuant to such exercise and an instruction to the broker or
selling agent to pay that amount to the Company; or
(v) by any combination of such methods of payment or any other
method acceptable to the Committee in its discretion.
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(b) Except in the case of Options exercised by certified or bank
cashier's check, the Committee may impose limitations and prohibitions on
the exercise of Options as it deems appropriate, including, without
limitation, any limitation or prohibition designed to avoid accounting
consequences which may result from the use of Common Stock as payment upon
exercise of an Option. Any fractional Shares resulting from an Optionee's
election that is accepted by the Company shall be paid in cash.
6.7. Stock Appreciation Rights.
Committee, in its discretion, may also permit the Optionee to elect to
exercise an Option by receiving a combination of Shares and cash, or, in
the discretion of the Committee, either Shares or cash, with an aggregate
Fair Market Value (or, to the extent of payment in cash, in an amount)
equal to the excess of the Fair Market Value of the Shares with respect to
which the Option is being exercised over the aggregate Option Price, as
determined as of the day the Option is exercised.
6.8. Exercise by Successors.
An Option may be exercised, and payment in full of the aggregate
Option Price made, by the Successors of the Optionee only by written notice
(in the form prescribed by the Committee) to the Company specifying the
number of Shares to be purchased. Such notice shall state that the
aggregate Option Price will be paid in full, or that the Option will be
exercised as otherwise provided hereunder, in the discretion of the Company
or the Committee, if and as applicable.
6.9. Nontransferability of Option.
Each Option granted under the Plan shall by its terms be
nontransferable by the Optionee except by will or the laws of descent and
distribution of the state wherein the Optionee is domiciled at the time of
his death; provided, however, that the Committee may (but need not) permit
other transfers that are not inconsistent with the provisions of the
Securities Purchase and Holders Agreement, where the Committee concludes
that such transferability (i) does not result in accelerated U.S. federal
income taxation, (ii) does not cause any Option intended to be an Incentive
Stock Option to fail to be described in Section 422(b) of the Code, and
(iii) is otherwise appropriate and desirable.
7. PROVISIONS APPLICABLE TO RESTRICTED STOCK.
7.1. Grant of Restricted Stock.
Subject to the other terms of the Plan, the Committee may, in its
discretion as reflected by the terms of the applicable Award Agreement: (i)
authorize the granting of Restricted Stock to eligible key employees,
Directors and consultants of the Company and its Subsidiaries; (ii)
determine the restrictions applicable to Restricted Stock; and (iii)
determine or impose other conditions to the grant of Restricted Stock under
the Plan as it may deem appropriate.
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7.2. Certificates.
(a) Each Grantee of Restricted Stock shall be issued a stock
certificate in respect of Restricted Stock awarded under the Plan. Such
certificate shall be registered in the name of the Grantee. Without
limiting the generality of Section 5.1(c), the certificates for Restricted
Stock issued hereunder may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer hereunder or under the
Award Agreement, or as the Committee may otherwise deem appropriate, and,
without limiting the generality of the foregoing, shall bear a legend
referring to the terms, conditions, and restrictions applicable to such
Award, substantially in the following form:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Intersil Holding Corporation 1999 Equity
Compensation Plan and an Award Agreement entered into between the
registered owner and Intersil Holding Corporation. Copies of such Plan
and Award Agreement are on file in the offices of Intersil Holding
Corporation.
(b) The Committee shall require that the stock certificates evidencing
such Shares be held in custody by the Company until the restrictions
thereon shall have lapsed, and that, as a condition of any Award of
Restricted Stock, the Grantee shall have delivered a stock power, endorsed
in blank, relating to the stock covered by such Award. If and when such
restrictions lapse, the stock certificates shall be delivered by the
Company to the Grantee or his or her designee as provided in Section 7.3.
7.3. Restrictions and Conditions.
Unless otherwise provided by the Committee, the Restricted Stock
awarded pursuant to the Plan shall be subject to the following restrictions
and conditions:
(i) Subject to the provisions of the Plan and the Award
Agreement, during a period commencing with the date of the Award and
ending on the date the period of forfeiture with respect to the
Restricted Stock lapses, the Grantee shall not be permitted
voluntarily or involuntarily to sell, transfer, pledge, anticipate,
alienate, encumber or assign Restricted Stock awarded under the Plan
(or have such Shares attached or garnished). Subject to the provisions
of the Award Agreement and clauses (iii) and (iv) below, the period of
forfeiture with respect to Restricted Stock granted hereunder shall
lapse as provided in the applicable Award Agreement.
(ii) Except as provided in the foregoing clause (i), the Grantee
shall have, in respect of Restricted Stock, all of the rights of a
stockholder of the Company, including the right to vote the Shares,
and the right to receive any cash dividends, which dividends shall be
held by the Company (unsegregated as a part of its general assets)
until the period of forfeiture lapses (and shall be forfeited if the
underlying Shares are forfeited). Certificates for Shares (not subject
to restrictions) shall be delivered to the Grantee or his or her
designee promptly after, and only after, the period of forfeiture
shall lapse without forfeiture in respect of such Restricted Stock.
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(iii) Subject to the provisions of the Award Agreement and clause
(iv) below, if the Grantee has a Termination of Service by the Company
for Cause, or by the Grantee for any reason, during the applicable
period of forfeiture, then all Shares still subject to restriction
shall thereupon, and with no further action, be forfeited by the
Grantee.
(iv) Subject to the provisions of the Award Agreement, in the
event the Grantee has a Termination of Service on account of death or
Disability, or the Grantee has a Termination of Service by the Company
for any reason other than Cause, during the applicable period of
forfeiture, then restrictions will immediately lapse on all Restricted
Stock granted to the applicable Grantee.
8. PROVISIONS APPLICABLE TO PHANTOM SHARES.
8.1. Grant of Phantom Shares.
Subject to the other terms of the Plan, the Committee shall, in its
discretion as reflected by the terms of the applicable Award Agreement: (i)
authorize the granting of Phantom Shares to employees, directors and
consultants of the Company and its Subsidiaries and (ii) determine or
impose other conditions to the grant of Phantom Shares under the Plan as it
may deem appropriate.
8.2. Term.
The Committee may provide in an Award Agreement that any particular
Phantom Share shall expire at the end of a specified term.
8.3. Vesting.
(a) Phantom Shares shall vest and first become exercisable according
to the terms and conditions set forth in the Award Agreement, as determined
by the Committee at the time of grant.
(b) Unless otherwise provided in the Award Agreement, if a Grantee has
a Termination of Service, any and all of the Grantee's Phantom Shares which
have not vested prior to or as of such termination shall thereupon, and
with no further action, be forfeited and cease to be outstanding.
8.4. Settlement of Phantom Shares.
(a) Each vested and outstanding Phantom Share shall be settled by the
transfer to the Grantee of one Share; provided that, the Committee at the
time of grant may provide that a Phantom Share may be settled (i) in cash
at the applicable Phantom Share Value, (ii) in cash or by transfer of
Shares as elected by the Grantee in accordance with procedures established
by the Committee or (iii) in cash or by transfer of Shares as elected by
the Company.
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(b) Each Phantom Share shall be settled with a single-sum payment by
the Company; provided that, with respect to Phantom Shares of a Grantee
which have a common Settlement Date, the Committee may permit the Grantee
to elect in accordance with procedures established by the Committee to
receive installment payments over a period not to exceed 10 years.
(c) (i) The Settlement Date with respect to a Grantee is the first day
of the month to follow the Grantee's Termination of Service, provided that
a Grantee may elect, in accordance with procedures to be adopted by the
Committee, that such Settlement Date will be deferred as elected by the
Grantee to a time permitted by the Committee under procedures to be
established by the Committee. Unless otherwise determined by the Committee,
elections under this Section 8.4(c)(i) must be made at least six months
before, and in the year prior to the year in which, the Settlement Date
would occur in the absence of such election.
(ii) Notwithstanding Section 8.4(c)(i), the Committee may provide
that distributions of Phantom Shares can be elected at any time in
those cases in which the Phantom Share Value is determined by
reference to Fair Market Value to the extent in excess of a base
value, rather than by reference to unreduced Fair Market Value.
(iii) Notwithstanding the foregoing, the Settlement Date, if not
earlier pursuant to this Section 8.4(c), is the date of the Grantee's
death.
8.5. Other Phantom Share Provisions.
(a) Rights or benefits with respect to Phantom Shares granted under
the Plan shall not be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance attachment, charge,
garnishment, execution, or levy of any kind, wither voluntary or
involuntary, prior to actually being received by the person entitled to the
benefit under the terms of the Plan; and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber, attach, charge or
otherwise dispose of any right or benefits payable hereunder shall be void.
(b) A Grantee may designate in writing, on forms to be prescribed by
the Committee, a beneficiary or beneficiaries to receive any payments
payable after his or her death and may amend or revoke such designation at
any time. If no beneficiary designation is in effect at the time of a
Grantee's death, payments hereunder shall be made to the Grantee's estate.
If a Grantee with a vested Phantom Share dies, such Phantom Share shall be
settled and the Phantom Share Value in respect of such Phantom Shares paid,
and any payments deferred pursuant to an election under Section 8.3(c)
shall be accelerated and paid, as soon as practicable (but no later than 60
days) after the date of death to such Grantee's beneficiary or estate, as
applicable.
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(c) Phantom Shares are solely a device for the measurement and
determination of the amounts to be paid to a Grantee under the Plan. Each
Grantee's right in the Phantom Shares is limited to the right to receive
payment, if any, as may herein be provided. The Phantom Shares do not
constitute Common Stock and shall not be treated as (or as giving rise to)
property or as a trust fund of any kind; provided, however, that the
Company may establish a mere bookkeeping reserve to meet its obligations
hereunder or a trust or other funding vehicle that would not cause the Plan
to be deemed to be funded for tax purposes or for purposes of Title I of
the Employee Retirement Income Security Act of 1974, as amended. The right
of any Grantee of Phantom Shares to receive payments by virtue of
participation in the Plan shall be no greater than the right of any
unsecured general creditor of the Company. Nothing contained in the Plan
shall be construed to give any Grantee any rights with respect to Shares or
any ownership interest in the Company. Without limiting Section 8, no
provision of the Plan shall be interpreted to confer any voting, dividend
or derivative or other similar rights with respect to any Phantom Shares.
8.6. Claims Procedures.
(a) The Grantee, or his beneficiary hereunder or authorized
representative, may file a claim for benefits with respect to Phantom
Shares under the Plan by written communication to the Committee or its
designee. A claim is not considered filed until such communication is
actually received. Within 90 days (or, if special circumstances require an
extension of time for processing, 180 days, in which case notice of such
special circumstances should be provided within the initial 90-day period)
after the filing of the claim, the Committee will either:
(i) approve the claim and take appropriate steps for satisfaction
of the claim; or
(ii) if the claim is wholly or partially denied, advise the
claimant of such denial by furnishing to him a written notice of such
denial setting forth (A) the specific reason or reasons for the
denial; (B) specific reference to pertinent provisions of the Plan on
which the denial is based and, if the denial is based in whole or in
part on any rule of construction or interpretation adopted by the
Committee, a reference to such rule, a copy of which shall be provided
to the claimant; (C) a description of any additional material or
information necessary for the claimant to perfect the claim and an
explanation of the reasons why such material or information is
necessary; and (D) a reference to this Section 8.6 as the provision
setting forth the claims procedure under the Plan.
(b) The claimant may request a review of any denial of his claim by
written application to the Committee within 60 days after receipt of the
notice of denial of such claim. Within 60 days (or, if special
circumstances require an extension of time for processing, 120 days, in
which case notice of such special circumstances should be provided within
the initial 60-day period) after receipt of written application for review,
the Committee will provide the claimant with its decision in writing,
including, if the claimant's claim is not approved, specific reasons for
the decision and specific references to the Plan provisions on which the
decision is based.
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<PAGE>
9. TAX WITHHOLDING.
9.1. In General.
The Company shall be entitled to withhold from any payments or deemed
payments any amount of tax withholding determined by the Committee to be
required by law. Without limiting the generality of the foregoing, the
Committee may, in its discretion, require a Participant to pay to the
Company at such time as the Committee determines the amount that the
Committee deems necessary to satisfy the Company's obligation to withhold
federal, state or local income or other taxes incurred by reason of (i) the
exercise of any Option, (ii) the lapsing of any restrictions applicable to
any Restricted Stock, (iii) the receipt of a distribution in respect of
Phantom Shares or (iv) any other applicable income-recognition event (for
example, an election under Section 83(b) of the Code).
9.2. Share Withholding.
(a) Upon the exercise of an Option, the Optionee may, if approved by
the Committee in its discretion, make a written election to have Shares
then issued withheld by the Company from the Shares otherwise to be
received, or to deliver previously owned Shares, in order to satisfy the
liability for such withholding taxes. In the event that the Optionee makes,
and the Committee permits, such an election, the number of Shares so
withheld or delivered shall have an aggregate Fair Market Value on the date
of exercise sufficient to satisfy the applicable withholding taxes. Where
the exercise of an Option does not give rise to an obligation by the
Company to withhold federal, state or local income or other taxes on the
date of exercise, but may give rise to such an obligation in the future,
the Committee may, in its discretion, make such arrangements and impose
such requirements as it deems necessary or appropriate.
(b) Upon the lapsing of restrictions on Restricted Stock (or other
income-recognition event), the Grantee may, if approved by the Committee in
its discretion, make a written election to have Shares withheld by the
Company from the Shares otherwise to be released from restriction, or to
deliver previously owned Shares (not subject to restrictions hereunder), in
order to satisfy the liability for such withholding taxes. In the event
that the Grantee makes, and the Committee permits, such an election, the
number of Shares so withheld or delivered shall have an aggregate Fair
Market Value on the date of exercise sufficient to satisfy the applicable
withholding taxes.
9.3. Withholding Required.
Notwithstanding anything contained in the Plan to the contrary, the
Participant's satisfaction of any tax-withholding requirements imposed by
the Committee shall be a condition precedent to the Company's obligation as
may otherwise be provided hereunder to provide Shares to the Participant
and to the release of any restrictions as may otherwise be provided
hereunder, as applicable; and the applicable Option, Restricted Stock or
Phantom Shares shall be forfeited upon the failure of the Participant to
satisfy such requirements with respect to, as applicable, (i) the exercise
of the Option, (ii) the lapsing of restrictions on the Restricted Stock (or
other income-recognition event) or (iii) distributions in respect of any
Phantom Shares.
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<PAGE>
10. CERTAIN RESTRICTIONS.
(a) Restrictions on Transfer. In addition to any restrictions on Transfer
imposed in this Plan or an applicable Award Agreement, no Participant shall
effect a Transfer of any Award and/or Shares issued or issuable under the Plan
without the prior written consent of the Board. In exercising the consent and
approval described in the first sentence of this Section 10(a), the Board may
employ its sole discretion in evaluating the nature of the proposed transferee
and the Board may impose such conditions on Transfer as it deems appropriate in
its sole discretion, including, but not limited to, requirements that the
transferee be an employee of the Company and that the transferee purchase the
Participant's Award and/or Shares subject to the restrictions of this Article X.
Any purported Transfer in violation of this Agreement shall be null and void and
of no force and effect and the purported transferees shall have no rights or
privileges in or with respect to the Company.
(b) Right of Repurchase. Any Shares acquired pursuant to the Plan shall be
subject to a right of repurchase in favor of the Company as reflected in the
terms of the applicable Award Agreement.
(c) Right of First Refusal. If a Participant proposes to sell any or all of
his or her Shares acquired or to be acquired under to the Plan to a third party
in a bona fide transaction, and provided such transaction is permitted under any
applicable restrictions set forth in Section 10(a), the Participant may not
Transfer such Shares without first offering to sell such Shares to the Company
pursuant to this Section 10(c). The Participant shall deliver a written notice
(a "Sale Notice") to the Company describing in reasonable detail the Shares
being offered, the name of the offeree, the purchase price to be received and
all other material terms of the proposed Transfer. Upon receipt of the Sale
Notice, the Board shall have the right and option to cause the Company to
purchase all or any portion of the Award and/or Shares being offered at the
price and on the terms of the proposed Transfer set forth in the Sale Notice.
Within 30 days after receipt of the Sale Notice, the Board shall notify such
Participant whether or not it will cause the Company to purchase any or all of
the offered Securities. If the Board elects to cause the Company to purchase any
of the offered Shares, the closing of the purchase and sale of such Shares shall
be held at the place and on the date established by the Board in its notice to
the Participant, in response to the Sale Notice, which in no event shall be less
than ten or more than 60 days from the date of such notice. In the event that
the Board does not elect to cause the Company to purchase all the offered
Shares, the Participant may, subject to the other provisions of this Agreement,
Transfer the remaining offered Shares to the offeree specified in the Sale
Notice at a price no less than the price specified in the Sale Notice and on
other terms no more favorable to the transferee(s) thereof than specified in the
Sale Notice during the 180-day period immediately following the last date on
which the Board could have elected to cause the Company to purchase the offered
Shares. Any such Shares not transferred within such 180-day period will be
subject to the provisions of this Section 10(c) upon subsequent Transfer.
(d) Involuntary Transfer. In the event that Shares issued or issuable to or
owned by any Participant shall be subject to sale or other Transfer (the date of
such sale or Transfer shall hereinafter be referred to as the "Transfer Date")
by reason of (i) bankruptcy or insolvency proceedings, whether voluntary or
involuntary, or (ii) distraint, levy, execution or other involuntary Transfer,
then such Participant shall give the Company written notice thereof
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<PAGE>
promptly upon the occurrence of such event stating the terms of such proposed
Transfer, the identity of the proposed transferee, the price or other
consideration, if readily determinable, for which the Shares are proposed to be
transferred, and the number of shares of Common Stock to be transferred. After
its receipt of such notice or, failing such receipt, after the Company otherwise
obtains actual knowledge of such a proposed Transfer, the Company, or a designee
selected by a majority of the non-employee members of the Board of Directors of
the Company, shall have the right and option to purchase all, but, not less than
all of such Shares which right shall be exercised by written notice given by the
Company to such proposed transferor within 60 days following the Company's
receipt of such notice or, failing such receipt, the Company's obtaining actual
knowledge of such proposed Transfer. Any purchase pursuant to this Section 10(d)
shall be at the price and on the terms applicable to such proposed transfer. If
the nature of the event giving rise to such involuntary Transfer is such that no
readily determinable consideration is to be paid for the Transfer of the Shares,
the price to be paid by the Company shall be the Fair Market Value of the
Shares. The closing of the purchase and sale of Shares shall be held at the
place and the date to be established by the Company, which in no event shall be
less than ten or more than 60 days from the date on which the Company gives
notice of its election to purchase the Shares. At such closing, the Participant
shall deliver the certificates evidencing the number of shares of Common Stock
to be purchased by the Company, accompanied by stock powers duly endorsed in
blank or duly executed instruments of transfer, and any other documents that are
necessary to transfer to the Company good title to such of the securities to be
transferred, free and clear of all pledges, security interests, liens, charges,
encumbrances, equities, claims and options of whatever nature other than those
imposed under this Agreement, and concurrently with such delivery, the Company
shall deliver to the Participant the full amount of the purchase price for such
Shares in cash by certified or bank cashier's check.
(e) Lapse. The provisions of Sections 10(a), 10(b), 10(c) and 10(d) shall
terminate upon the consummation of a Public Offering.
11. STOCKHOLDERS AGREEMENT.
To the extent provided in the applicable Award Agreement, any Shares
acquired pursuant to the Plan shall be subject to, and the Participant agrees,
upon the Participant's initial acquisition of Shares under the Plan, to execute
and be bound by, the Securities Purchase and Holders Agreement and all
provisions of such agreement applicable to Management Investors (as defined in
such Securities Purchase and Holders Agreement) shall be applicable to the
Participant.
12. REGULATIONS AND APPROVALS.
(a) The obligation of the Company to sell Shares with respect to an Award
granted under the Plan shall be subject to all applicable laws, rules and
regulations, including all applicable federal and state securities laws, and the
obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Committee.
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<PAGE>
(b) The Committee may make such changes to the Plan as may be necessary or
appropriate to comply with the rules and regulations of any government authority
or to obtain tax benefits applicable to an Award.
(c) Each grant of Options, Restricted Stock, or Phantom Shares (or issuance
of Shares in respect thereof) is subject to the requirement that, if at any time
the Committee determines, in its discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the issuance of Options, shares of
Restricted Stock, or Phantom Shares no payment shall be made or Phantom Shares
or Shares issued, or grant of Restricted Stock made, in whole or in part, unless
listing, registration, qualification, consent or approval has been effected or
obtained free of any conditions in a manner acceptable to the Committee.
(d) In the event that the disposition of stock acquired pursuant to the
Plan is not covered by a then current registration statement under the
Securities Act, and is not otherwise exempt from such registration, such Shares
shall be restricted against transfer to the extent required under the Securities
Act, and the Committee may require any individual receiving Shares pursuant to
the Plan, as a condition precedent to receipt of such Shares, to represent to
the Company in writing that such Shares will be disposed of only if registered
for sale under the Securities Act or if there is an available exemption for such
disposition.
13. INTERPRETATION AND AMENDMENTS, OTHER RULES.
The Committee may make such rules and regulations and establish such
procedures for the administration of the Plan as it deems appropriate. Without
limiting the generality of the foregoing, the Committee may (i) determine the
extent, if any, to which Options, or Phantom Shares or Shares (whether or not
Shares of Restricted Stock) shall be forfeited (whether or not such forfeiture
is expressly contemplated hereunder); (ii) interpret the Plan and the Award
Agreements hereunder, with such interpretations to be conclusive and binding on
all persons and otherwise accorded the maximum deference permitted by law,
provided that the Committee's interpretation shall not be entitled to deference
on and after a Change of Control except to the extent that such interpretations
are made exclusively by members of the Committee who are individuals who served
as Committee members before the Change of Control; and (iii) take any other
actions and make any other determinations or decisions that it deems necessary
or appropriate in connection with the Plan or the administration or
interpretation thereof. Unless otherwise expressly provided hereunder, the
Committee, with respect to any grant, may exercise its discretion hereunder at
the time of the Award or thereafter. In the event of any dispute or disagreement
as to the interpretation of the Plan or of any rule, regulation or procedure, or
as to any question, right or obligation arising from or related to the Plan, the
decision of the Committee, except as provided in clause (ii) of the foregoing
sentence, shall be final and binding upon all persons. The Board may amend the
Plan as it shall deem advisable, except that no amendment may adversely affect a
Participant with respect to an Award previously granted unless such amendments
are required in order to comply with applicable laws; provided that the Board
may not make any amendment in the Plan that would, if such
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<PAGE>
amendment were not approved by the holders of the Common Stock, cause the Plan
to fail to comply with any requirement of applicable law or regulation, unless
and until the approval of the holders of such Common Stock is obtained.
14. CHANGES IN CAPITAL STRUCTURE; CHANGE OF CONTROL.
14.1. Changes in Capital Structure.
(a) If (i) the Company shall at any time be involved in a merger,
consolidation, dissolution, liquidation, reorganization, exchange of
shares, sale of all or substantially all of the assets or stock of the
Company or a transaction similar thereto, (ii) any stock dividend, stock
split, reverse stock split, stock combination, reclassification,
recapitalization or other similar change in the capital structure of the
Company or any distribution to holders of Common Stock other than cash
dividends, shall occur or (iii) any other event shall occur which in the
judgment of the Committee necessitates action by way of adjusting the terms
of the outstanding Options, then:
(x) the maximum aggregate number of Shares which may be made
subject to Options under the Plan, and the maximum aggregate number
and kind of Shares of Restricted Stock that may be granted under the
Plan shall be appropriately adjusted by the Committee; and/or
(y) the Committee shall take any such action as in its judgment
shall be necessary to preserve the Participants' rights in their
respective Options substantially proportionate to the rights existing
in such Options prior to such event, including, without limitation,
adjustments in (A) the number of Options granted, (B) the number and
kind of shares or other property to be distributed in respect of
Options, (C) the Option Price, and (D) performance-based criteria
established in connection with Awards; provided that, in the
discretion of the Committee, the foregoing clause (D) may also be
applied in the case of any event relating to a Subsidiary if the event
would have been covered under this Section 14.1(a) had the event
related to the Company.
(b) Any Shares or other securities distributed to a Grantee with
respect to Restricted Stock shall be subject to the restrictions and
requirements imposed by Section 7, including depositing the certificates
therefor with the Company together with a stock power and bearing a legend
as provided in Section 7.2(a).
(c) If the Company shall be consolidated or merged with another
corporation, each Grantee who has received Restricted Stock that is then
subject to restrictions imposed by Section 7.3(a) may be required to
deposit with the successor corporation the certificates for the stock or
securities or the other property that the Grantee is entitled to receive by
reason of ownership of Restricted Stock in a manner consistent with Section
7.2(b), and such stock, securities or other property shall become subject
to the restrictions and requirements imposed by Section 7.3(a), and the
certificates therefor or other evidence thereof shall bear a legend similar
in form and substance to the legend set forth in Section 7.2(a).
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<PAGE>
14.2. Approved Sale; Change of Control.
(a) Upon an Approved Sale or a Change of Control, unless otherwise
provided in an Optionee's Award Agreement, the Committee, in its
discretion, may take one or more of the following actions with respect to
all Options that are outstanding and unexercised as of such Approved Sale
or Change of Control: (i) accelerate the vesting and exercisability of all
such Options to the extent unvested and unexercisable, such that all
outstanding Options are fully vested and exercisable, (ii) cancel all
outstanding vested Options in exchange for a cash payment in an amount
equal to the excess, if any, of the Fair Market Value of the Common Stock
underlying the unexercised portion of the Option as of the date of the
Change of Control over the Option Price of such portion, (iii) terminate
all such Options immediately prior to the Change of Control, provided that
the Company provide the Optionee an opportunity to exercise the Option
within a specified period following the Optionee's receipt of a written
notice of such Approved Sale or Change of Control and of the Company's
intention to terminate the Option prior to such Approved Sale or Change of
Control, or (iv) require the successor corporation, following an Approved
Sale or a Change of Control if the Company does not survive such Change of
Control, to assume all outstanding Options and to substitute such Options
with awards involving the common stock of such successor corporation on
terms and conditions necessary to preserve the rights of Optionees with
respect to such Options. Notwithstanding anything in the Plan to the
contrary, in the event of an Approved Sale or a Change of Control, the
Committee shall not have the right to take any actions described in the
Plan (including without limitation actions described in this Section 14.2)
that would make the Approved Sale or Change of Control ineligible for
pooling of interests accounting treatment or that would make the Approved
Sale or Change of Control ineligible for desired tax treatment if, in the
absence of such right, the transaction would qualify for such treatment and
the Company intends to use such treatment with respect to the transaction,
in which case the Committee shall be required to take the action described
in clause (iv) above.
14.3. Committee Authority.
The judgment of the Committee with respect to any matter referred to
in this Section 14 shall be conclusive and binding upon each Participant
without the need for any amendment to the Plan.
15. MISCELLANEOUS.
15.1. No Rights to Employment or Other Service.
Nothing in the Plan or in any grant made pursuant to the Plan shall
confer on any individual any right to continue in the employ or other
service of the Company or its Subsidiaries or interfere in any way with the
right of the Company or its Subsidiaries and its stockholders to terminate
the individual's employment or other service at any time.
15.2. No Fiduciary Relationship.
Nothing contained in the Plan, and no action taken pursuant to the
provisions of the Plan, shall create or shall be construed to create a
trust of any kind, or a fiduciary relationship between the Company or its
Subsidiaries, or their officers or the Committee, on the one hand, and the
Participant, the Company, its Subsidiaries or any other person or entity,
on the other.
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<PAGE>
15.3. Notices.
All notices under the Plan shall be in writing, and if to the Company,
shall be delivered to the Board or mailed to its principal office,
addressed to the attention of the Board; and if to the Participant, shall
be delivered personally, sent by facsimile transmission or mailed to the
Participant at the address appearing in the records of the Company. Such
addresses may be changed at any time by written notice to the other party
given in accordance with this Section 14.3.
15.4. Exculpation and Indemnification.
The Company shall indemnify and hold harmless the members of the Board
and the members of the Committee, from and against any and all liabilities,
costs and expenses incurred by such persons as a result of any act or
omission to act in connection with the performance of such person's duties,
responsibilities and obligations under the Plan, to the maximum extent
permitted by law, other than such liabilities, costs and expenses as may
result from the gross negligence, bad faith, willful misconduct or criminal
acts of such persons.
15.5. Captions.
The use of captions in this Plan is for convenience. The captions are
not intended to provide substantive rights.
15.6. Governing Law.
THE PLAN SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAWS.
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THE INTERSIL HOLDING CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
(EFFECTIVE MARCH 1, 2000)
I. PURPOSE OF THE PLAN
This Plan is intended to promote the interests of Intersil Holding
Corporation (the "Corporation") by providing eligible employees with the
opportunity to acquire a proprietary interest in the Corporation through
participation in a payroll-deduction based employee stock purchase plan designed
to qualify under Section 423 of the Code.
II. Capitalized terms herein shall have the following meanings:
A. "Compensation" shall mean the total earnings paid to a Participant by
one or more Participating Corporations during such individual's period of
participation in the Plan, plus any pre-tax contributions made by the
Participant to any Code Section 401(k) salary deferral plan or any Code Section
125 cafeteria benefit program now or hereafter established by the Corporation or
any Corporate Affiliate; provided that Compensation shall not include the
following items of compensation:
(i) any extraordinary income compensation of a non-recurring nature;
(ii) any award made or amount paid pursuant to an employer's equity-based
compensation arrangement including, but not limited to, performance
shares, stock options (including any exercise thereof), restricted
stock, stock appreciation rights (including any exercise thereof), and
dividend equivalents;
(iii) severance pay or special retirement pay;
(iv) imputed compensation, such as employer-paid group insurance premiums;
and
(v) reimbursements or other allowances for automobile, relocation,
tax-equalization, travel or educational expenses.
B. "Board" shall mean the Corporation's Board of Directors.
C. "Code" shall mean the Internal Revenue Code of 1986, as amended.
D. "Committee" shall mean the committee described in Article III below.
E. "Common Stock" shall mean the Corporation's common stock.
<PAGE>
F. "Corporate Affiliate" shall mean any parent or subsidiary corporation of
the Corporation (as determined in accordance with Code Section 424), whether now
existing or subsequently established.
G. "Corporate Transaction" shall mean either of the following
stockholder-approved transactions to which the Corporation is a party: (i) a
merger or consolidation in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation's outstanding
securities are transferred to a person or persons different from the persons
holding those securities immediately prior to such transaction, or (ii) the
sale, transfer or other disposition of all or substantially all of the assets of
the Corporation in complete liquidation or dissolution of the Corporation.
H. "Corporation" shall mean Intersil Holding Corporation, a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Intersil Holding Corporation which shall by
appropriate action adopt the Plan.
I. "Effective Date" shall mean March 1, 2000. Any Corporate Affiliate which
becomes a Participating Corporation after such Effective Date shall designate a
subsequent Effective Date with respect to its employee-Participants.
J. "Eligible Employee" shall mean any employee on active payroll status who
is employed by a Participating Corporation on such terms that he or she is
regularly expected to render more than twenty (20) hours of service per week for
more than five (5) months per calendar year for earnings considered wages under
Section 3401(a) of the Code, with the exception of Five-Percent Owners, as
defined in Article II.M. below.
K. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
L. "Fair Market Value" per share of Common Stock as of a particular date
means (i) if the shares of Common Stock are then listed on a national stock
exchange, the closing sales price per share of Common Stock on the exchange for
the last preceding date on which there was a sale of such shares on such
exchange, as determined by the Committee, (ii) if shares of Common Stock are not
then listed on a national stock exchange but are then traded on an
over-the-counter market, the average of the closing bid and asked prices for
such shares in such over-the-counter market for the last preceding date on which
there was a sale of such shares in such market, as determined by the Committee,
or (iii) if shares of Common Stock are not then listed on a national stock
exchange or traded on an over-the-counter market, such value as the Committee in
its discretion may in good faith determine; provided that, where the shares of
Common Stock are so listed or traded, the Committee may make such discretionary
determinations where the shares have not been traded for 10 trading days.
Notwithstanding the foregoing, upon the date of an initial public offering of
the Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, the "Fair Market Value" per share of Common
Stock means the price at which such stock is initially offered by the Company in
such public offering.
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<PAGE>
M. "Five-Percent Owner" shall mean any individual who would, immediately
after the grant of purchase rights, as described in Article VIII.A., own (within
the meaning of Code Section 424(d)) or hold outstanding options or other rights
to purchase stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Corporation or any
Corporate Affiliate.
N. "Participant" shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
O. "Participating Corporation" shall mean the Corporation and such
Corporate Affiliates as may be authorized from time to time by the Board to
extend the benefits of the Plan to their Eligible Employees. The Participating
Corporations in the Plan are listed in the attached Schedules, which may be
amended from time to time.
P. "Plan" shall mean the Corporation's Employee Stock Purchase Plan, as set
forth in this document.
Q. "Purchase Date" shall mean the last business day of each purchase
period, i.e., the last business day of September and March of each year in which
the Plan is maintained by the Corporation.
III. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board, or by a Committee appointed by
the Board. All references to the Committee herein shall apply to the Board in
the event that no Committee is appointed pursuant to this Article. Such
Committee shall, at such times as the Common Stock is registered pursuant to
Section 12 of the Exchange Act, consist of at least two individuals each of whom
shall be a "nonemployee director" as defined in Rule 16b-3 as promulgated by the
Securities and Exchange Commission ("Rule 16b-3") under the Exchange Act and
shall, at such times as the Company is subject to Section 162(m) of the Code (to
the extent relief from the limitation of Section 162(m) of the Code is sought
with respect to purchase rights offered hereunder), qualify as "outside
directors" for purposes of Section 162(m) of the Code and related Treasury
regulations. The acts of a majority of the members present at any meeting of the
Committee at which a quorum is present, or acts approved in writing by a
majority of the entire Committee, shall be the acts of the Committee for
purposes of the Plan. If and to the extent applicable, no member of the
Committee may act as to matters under the Plan specifically relating to such
member. The Committee shall have full authority to interpret and construe any
provision of the Plan and to adopt such rules and regulations for administering
the Plan as it may deem necessary in order to comply with the requirements of
Code Section 423. Decisions of the Committee shall be final and binding on all
parties having an interest in the Plan.
IV. STOCK SUBJECT TO PLAN
A. Number of Shares. The stock purchasable under the Plan shall be shares
of authorized but unissued or reacquired Common Stock, including shares of
Common Stock
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<PAGE>
purchased on the open market. The maximum number of shares of Common Stock which
may be issued over the term of the Plan shall not exceed 2,000,000 shares.
B. Adjustments. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date and (iii) the number and
class of securities and the price per share in effect under outstanding purchase
rights in order to prevent the dilution or enlargement of benefits thereunder.
V. PURCHASE PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive purchase periods until the earlier of such time
as (i) the maximum number of shares of Common Stock available for issuance under
the Plan shall have been purchased or (ii) the Plan shall have been terminated.
B. Except for the initial purchase period, each purchase period shall have
a duration of six (6) months. Purchase periods shall run from April 1st to
September 30th and from October 1st to March 31st; provided that the first
purchase period shall begin on the date of the Corporation's initial public
offering and end on September 30, 2000.
VI. ELIGIBILITY
A. Each individual who is an Eligible Employee shall be eligible to
participate in the Plan on the start date of any purchase period under the Plan.
B. To participate in the Plan for a particular purchase period, the
Eligible Employee must complete the telephonic enrollment procedure prescribed
by the Committee (or its designate), at the time specified by such procedures.
Such telephonic enrollment will include authorizing payroll deductions as
described in Article VII below. An Eligible Employee's election to participate
in the Plan for a particular purchase period shall apply to subsequent purchase
periods, unless revoked by the Eligible Employee, as provided in Articles VII
and VIII.
VII. PAYROLL DEDUCTIONS
A. Election and Revocation. The payroll deduction authorized by the
Participant for purposes of acquiring shares of Common Stock under the Plan may
be any multiple of one percent (1%) of the Compensation paid to the Participant
during each purchase period, up to a maximum of ten percent (10%). The deduction
rate so authorized shall continue in effect for the entire purchase period. The
rate of payroll deduction may not be increased or decreased during the purchase
period. However, the Participant may, at any time during a purchase period,
revoke his or her payroll deduction election by using the telephonic procedures
prescribed by the
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Committee. The revocation shall become effective as soon as possible following
the completion of such telephonic procedure. The revocation of a payroll
deduction election results in the termination of the Participant's outstanding
purchase rights, as provided in Article VIII.F.i below.
B. Beginning Date. Payroll deductions shall begin on the first pay period
following the start date of the purchase period and shall (unless sooner
terminated by the Participant) continue through the pay period ending with or
immediately prior to the last day of the purchase period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance outstanding from time to time in
such account. The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.
C. Ending Date. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase rights in accordance with the
provisions of the Plan.
D. No Further Obligation. Subject to the limitations set forth in Articles
VIII.D and IX below, the Participant's acquisition of Common Stock under the
Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date.
VIII. PURCHASE RIGHTS
A. Grant of Purchase Rights. A Participant shall be granted a separate
purchase right on the start date of each purchase period in which he or she
elects to participate. Such purchase right shall provide the Participant with
the right to purchase shares of Common Stock on the Purchase Date upon the terms
set forth below. Under no circumstances shall a purchase right be granted under
the Plan to any Eligible Employee if such individual would immediately after the
grant be a Five-Percent Owner, as defined in Article II.M..
B. Exercise of the Purchase Rights. Purchase rights shall be automatically
exercised on the Purchase Date, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant (other than any Participant whose
payroll deductions have previously been refunded in accordance with Section
VIII.F. below) on such date. The purchase shall be effected by applying the
Participant's payroll deductions for the purchase period ending on such Purchase
Date to the purchase of shares of Common Stock (subject to the limitation on the
maximum number of shares purchasable per Participant on any one Purchase Date)
at the purchase price in effect for that purchase period.
C. Purchase Price. Unless otherwise provided by the Committee, the purchase
price per share at which Common Stock will be purchased on the Participant's
behalf on each Purchase Date shall be eighty-five percent (85%) of the lower of
(i) the Fair Market Value per share of Common Stock on the start date of the
purchase period or (ii) the Fair Market Value per share of Common Stock on the
applicable Purchase Date.
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D. Number of Shares Which May Be Purchased. The number of shares of Common
Stock which will be purchased by a Participant on each Purchase Date shall be
that number of shares (including fractional shares) obtained by dividing the
amount collected from the Participant through payroll deductions during the
purchase period ending with that Purchase Date by the purchase price in effect
for that Purchase Date. However, the maximum number of shares of Common Stock
purchasable per Participant on any one Purchase Date shall not exceed 25,000
shares, subject to periodic adjustments as provided in Article IV.B. and subject
to the limitation in Article IX.
E. Excess Payroll Deductions. Any payroll deductions not applied to the
purchase of Common Stock by reason of the limitation on the maximum number of
shares purchasable by the Participant on the Purchase Date shall be held for the
purchase of shares of Common Stock for the Participant on the next Purchase
Date.
F. Termination of Payroll Deductions During a Purchase Period. The
following provisions shall govern the termination of payroll deduction elections
during a purchase period rights:
(i) A Participant may, at any time before the last two weeks of a
purchase period, terminate his or her payroll deductions by revoking his or
her payroll deduction election through the telephonic procedure described
above, and no further payroll deductions shall be collected from the
Participant during the purchase period in which such revocation is made (or
the purchase period immediately following such purchase period). Any
payroll deductions collected during the purchase period in which a
revocation of payroll deduction election occurs shall, at the Participant's
election, be refunded in cash or held for the purchase of shares of Common
Stock on the Purchase Date applicable to such purchase period. If no such
election is made at the time such revocation occurs, then the payroll
deductions collected with respect to the purchase period in which the
revocation occurs shall be refunded to the Participant.
(ii) The termination of a payroll deduction election shall be
irrevocable, and the Participant may not subsequently rejoin the purchase
period in which the revocation was made. In addition, the Participant may
not make payroll deduction contributions in the purchase period immediately
following the purchase period in which such a revocation occurred. In order
to resume payroll deductions in any subsequent purchase period, such
individual must re-enroll in the Plan on or before the start date of the
next purchase period in which he or she may participate.
(iii) Should the Participant cease to remain an Eligible Employee for
any reason (including death or disability) while his or her purchase rights
are outstanding, then such Participant's right to continue payroll
deduction contributions shall immediately terminate, and all of the
Participant's payroll deductions accumulated prior to such termination
shall, at the election of the Participant (or, in the event of the
Participant's death, the personal representative of the Participant's
estate), be refunded or held for the purchase of shares of Common Stock on
the next Purchase Date. If no such election is made prior to the next
Purchase Date, then such accumulated payroll deductions shall be refunded
to the Participant or beneficiary, as applicable.
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(iv) Should the Participant cease to remain in active service by
reason of an approved leave of absence, then the Participant shall have the
right described in Article VIII.F.i above to elect to withdraw all the
payroll deductions collected during the applicable purchase period. In the
absence of such an election, such funds shall be held for the purchase of
shares at the end of such purchase period. In no event, however, shall any
further payroll deductions be collected on the Participant's behalf during
such leave. Upon the Participant's return to active service, his or her
payroll deductions under the Plan shall automatically resume at the rate in
effect at the time the leave began, unless the participant elects otherwise
in accordance with Article VIII.F.i above.
G. Corporate Transaction. Outstanding purchase rights shall automatically
be exercised, immediately prior to the effective date of any Corporate
Transaction, by applying the payroll deductions of each Participant for the
purchase period in which such Corporate Transaction occurs to the purchase of
shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) (or such greater percentage as the Committee may have established
for the purchase period in which such Corporate Transaction occurs) of the lower
of (i) the Fair Market Value per share of Common Stock on the start date of the
purchase period in which such Corporate Transaction occurs or (ii) the Fair
Market Value per share of Common Stock immediately prior to the effective date
of such Corporate Transaction. However, the applicable limitation on the number
of shares of Common Stock purchasable per Participant shall continue to apply to
any such purchase. The Corporation shall use its best efforts to provide at
least ten (10) days prior written notice of the occurrence of any Corporate
Transaction, and Participants shall, following the receipt of such notice, have
the right to terminate their outstanding purchase rights prior to the effective
date of the Corporate Transaction in accordance with Article VIII.F.i above.
H. Proration of Purchase Rights. Should the total number of shares of
Common Stock which are to be purchased pursuant to outstanding purchase rights
on any Purchase Date exceed the number of shares then available for issuance
under the Plan, the Committee shall make a pro-rata allocation of the available
shares on a uniform and nondiscriminatory basis, and the payroll deductions of
each Participant, to the extent in excess of the aggregate purchase price
payable for the Common Stock pro-rated to such individual, shall be refunded.
I. Assignability. Purchase rights shall be exercisable only by the
Participant and shall not be assignable or transferable by the Participant.
J. Stockholder Rights. A Participant shall have no stockholder rights with
respect to the shares subject to his or her outstanding purchase rights until
the shares are purchased on the Participant's behalf in accordance with the
provisions of the Plan and the Participant has become a holder of record of the
purchased shares.
IX. ACCRUAL LIMITATIONS
A. Twenty-Five Thousand Dollar Limit. No Participant shall be entitled to
accrue rights to acquire Common Stock pursuant to any purchase right outstanding
under this Plan if
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and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. Application of the Limit. For purposes of applying such accrual
limitations, (i) the right to acquire Common Stock under each outstanding
purchase right shall accrue on the Purchase Date in effect for the purchase
period for which such right is granted and, (ii) the right to acquire Common
Stock under any outstanding purchase right shall accrue in accordance with the
rate preserved in the Plan, but in the event may such rate exceed Twenty-Five
Thousand Dollars ($25,000) worth of Common Stock (determined on the basis of the
Fair Market Value per share on the date or dates of grant) for any one calendar
year.
C. Refund of Excess. If by reason of such accrual limitations, the purchase
rights of a Participant does not accrue for a particular purchase period, then
the payroll deductions which the Participant made during that purchase period
with respect to such purchase rights shall be refunded within thirty (30) days.
D. Limit Controls. In the event there is any conflict between the
provisions of this Article IX and one or more provisions of the plan or any
instrument issued thereunder, the provisions of this Article IX shall be
controlling.
X. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Effective Date. The Plan was adopted by the Board on November 3,
2000 and becomes effective on the Effective Date.
B. Termination of the Plan. Unless sooner terminated by the Board, the Plan
shall terminate upon the earliest of (i) February 28, 2010, (ii) the date on
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Corporate Transaction. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following its termination.
XI. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any time,
with such change to become effective immediately following the close of any
purchase period. However, the Board may not, without the approval of the
Corporation's stockholders, (i) materially increase the number of shares of
Common Stock issuable under the Plan or the maximum number of shares purchasable
per Participant on any one Purchase Date, except for permissible adjustments in
the event of certain changes in the Corporation's capitalization, (ii) alter the
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purchase price formula so as to reduce the purchase price payable for the shares
of Common Stock purchasable under the Plan, or (iii) materially increase the
benefits accruing to Participants under the Plan or materially modify the
requirements for eligibility to participate in the Plan.
XII. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan shall
be paid by the Corporation.
B. Nothing in the Plan shall confer upon any Participant the right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the State of
Delaware without resort to that State's conflict-of-laws rules.
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SCHEDULE A
Corporations Participating in
Employee Stock Purchase Plan
As March 1, 2000
Intersil Corporation
Intersil Holding Corporation
Choice-Intersil Microsystems, Inc.
EXHIBIT 23.02
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated November 3, 1999, except as to Note L as to which
the date is February 23, 2000, included in the Post-Effective Amendment No. 1 to
the Registration Statement (Form S-1 No. 333-90857) and related Prospectus of
Intersil Holding Corporation for the registration of 3,703,707 shares of Class A
Common Stock, par value $.01 per share and 200,000 Warrants to purchase Shares
of Class A Common Stock.
/s/ Ernst & Young LLP
Jacksonville, Florida
March 7, 2000
