<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 14, 2000.
REGISTRATION NO. 333-90857
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 2
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>
------------------------
7585 IRVINE CENTER DRIVE
SUITE 100
IRVINE, CALIFORNIA 92618
(949) 341-7062
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEPHEN M. MORAN, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
7585 IRVINE CENTER DRIVE
SUITE 100
IRVINE, CALIFORNIA 92618
(949) 341-7040
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
With a Copy to:
CHRISTOPHER G. KARRAS, ESQ.
DECHERT
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 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 September 13, 2000, the
reported last sale price of our common stock on The Nasdaq Stock Market's
National Market was $49.81 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 September 14, 2000.
<PAGE>
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDUSTRY DATA......................... i
SUMMARY............................... 1
RISK FACTORS.......................... 7
FORWARD-LOOKING STATEMENTS............ 15
USE OF PROCEEDS....................... 15
DIVIDEND POLICY....................... 15
CAPITALIZATION........................ 16
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS............. 17
SELECTED HISTORICAL FINANCIAL DATA AND
OTHER DATA.......................... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 21
INDUSTRY OVERVIEW..................... 29
BUSINESS.............................. 32
THE TRANSACTIONS...................... 41
MANAGEMENT............................ 44
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................ 50
<CAPTION>
Page
----
<S> <C>
OWNERSHIP OF CAPITAL STOCK............ 52
DESCRIPTION OF CAPITAL STOCK.......... 54
DESCRIPTION OF CERTAIN INDEBTEDNESS... 57
DESCRIPTION OF THE WARRANTS........... 59
UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS........... 63
PLAN OF DISTRIBUTION.................. 67
SELLING SECURITY HOLDERS.............. 68
LEGAL MATTERS......................... 69
EXPERTS............................... 69
WHERE YOU CAN FIND MORE
INFORMATION......................... 69
INDEX TO FINANCIAL STATEMENTS......... F-1
</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, Cahners In-Stat Group, 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 OFFERING
On August 13, 1999, we issued and sold 200,000 units, each unit consisting
of $1,000 principal amount of 13.25% Senior Subordinated Notes of Intersil and a
warrant to purchase 18.5185 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.
INTERSIL
We are a systems oriented designer and manufacturer of analog and digital
integrated circuits 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 Cahners In-Stat Group.
The PRISM(R) chip set is our fastest growing product, which has
applications in the wireless networking of voice, video and data for
business and home and in transmitting data to and from broadband home
data gateways to multiple end-user applications. The PRISM(R) chip set is
also used to provide wireless connectivity to wired ethernet networks.
o Analog & Mixed-Signal--Our analog and mixed-signal semiconductors are
used in wireless and wired data and voice communications products. Our
products include integrated circuits which perform multiple power
management tasks, industry standard signal processing products that
manage power in desktop and laptop computers and Internet servers, and a
portfolio of standard analog products such as analog-to-digital and
digital-to-analog converters.
o Discrete Power--Our discrete semiconductors perform single power
management functions such as switching electricity on or off or
conditioning power used in communications, computing and automotive
applications.
Business Strategy
We provide systems level solutions for the growing integrated
communications semiconductor market. Integrated communications semiconductors
enable the convergence of voice, data and video. Within integrated
communications, we are focused on several key markets including high data rate
wireless connectivity, power management and wireless and wired communications
infrastructure. We use our expertise in digital and analog semiconductors and
radio and software design to deliver chip sets, components, software and
licensable application designs for communications equipment customers. For
fiscal year 2000, we allocated about 92% of our research and development
investment to the development of products for the integrated communications
market.
Sales and Manufacturing
We currently sell to many industry leaders in our targeted markets
including Alcatel, Asustek, Cisco, Compaq, Dell, Ericsson, Hewlett-Packard,
Nokia, Siemens, Sony and 3Com. We have been doing business with many of these
industry leaders for more than ten years. No single customer represents more
than 5% of our total revenues. Our products are sold worldwide with about 49.2%,
22.0% and 28.8% of our revenues for fiscal year 2000 being derived from North
America, Europe and Asia/Pacific, respectively. We own wafer fabrication
facilities, which we refer to as fabs, that manufacture analog and discrete
semiconductors in Florida, Ohio and Pennsylvania. We contract with key suppliers
that use sub-micron complementary metal oxide semiconductors, or CMOS, and
silicon germanium semiconductor wafer fabrication processes to produce
components of our PRISM(R) chip sets.
<PAGE>
Recent Developments
On September 1, 2000, we entered into a binding letter of intent to acquire
the capital stock and related securities of SiCOM, Inc. in exchange for about
3.7 million shares of our Class A Common Stock. Based in Scottsdale, Arizona,
SiCOM is a fabless communications integrated circuit developer for fixed
broadband wireless infrastructure and access solutions. We believe SiCOM modems
will enable customers to maximize network capacity while minimizing total system
cost. The shareholders of SiCOM will enter into a lock-up agreement which will
provide that the shares of our Class A Common Stock held by them may not be
disposed of for a period of 180 days after the close of the transaction. To
secure us against undisclosed liabilities and breaches of terms of the
transaction agreement, ten percent of the shares of Class A Common Stock will be
held in escrow for one year after the closing of the purchase. Subject to
successful completion of our due diligence, the escrow will be our exclusive
remedy for any undisclosed liabilities or breaches of the agreement. Our
obligations to consummate the transaction will be subject to reasonably
satisfactory completion of our due diligence review of SiCOM, including
verification of its significant relationships and technology, compliance with
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
satisfaction of other customary conditions. If we do not consummate the purchase
through no fault of SiCOM, we will pay to SiCOM cash in an amount equal to 3% of
the purchase price. SiCOM's revenue for calendar year 2000 will be less than one
percent of our revenue and we do not expect this acquisiton to have a material
effect on a pro forma basis on our historical results of operations, exclusive
of amortization of goodwill.
On August 28, 2000 we filed a registration statement on Form S-1 with the
Securities and Exchange Commission in connection with a public offering of up to
11,500,000 shares of our Class A Common Stock by us and certain members of our
management and other shareholders. On September 5, 2000 and September 14, 2000
we filed amendments to the registration statement. We expect that the
registration statement will be declared effective by the Securities and Exchange
Commission on September 14, 2000. We intend to use the net proceeds received by
us in that offering for general corporate purposes, including expenditures for
research and development of new products and sales and marketing efforts. In
addition, we may use a portion of the net proceeds to acquire complementary
products, technologies or businesses or to retire portions of our outstanding
debt.
In May 2000, we acquired No Wires Needed B.V., or NWN, in an all-stock
transaction. Based in Bilthoven, The Netherlands, NWN provides high performance
wireless-to-broadband access point reference designs. NWN combines the PRISM(R)
chip set with its own high data rate digital controller integrated circuit to
allow end users to wirelessly connect multiple computers and hand-held or
Internet appliances to a wired broadband network. NWN also provides wireless
encryption software which enhances the security of a wireless local area
network. We believe NWN's high data rate digital controller integrated circuit
will enhance the performance of future generations of our PRISM(R) chip set.
In June 2000, we sold our assembly and test facilities in Malaysia to
ChipPAC, Inc. and entered into a multi-year supply agreement with ChipPAC under
which the Malaysian facility became our preferred provider of semiconductor
assembly and test services.
Our principal executive office is located at 7585 Irvine Center Drive,
Suite 100, Irvine, California 92618, and our telephone number is (949) 341-7062.
2
<PAGE>
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
<TABLE>
<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 were exercisable beginning on August 14,
2000 and expire 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.
3
<PAGE>
SUMMARY HISTORICAL, PRO FORMA AND OTHER DATA
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 Corporation, or Harris. Our financial statements include the
results of operations of our predecessor. Our acquisition of the semiconductor
business of Harris was accounted for using the purchase method of accounting. As
a result, our results of operations for periods subsequent to the acquisition
are not comparable to the results of operations for periods prior to the
acquisition.
The following summary historical financial data for the fiscal years ended
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
predecessor's books and records. The summary historical combined financial data
for the fiscal year ended June 30, 2000 (six weeks ended August 13, 1999
(Predecessor) and 46 weeks ended June 30, 2000 (Successor)) have been derived
from our predecessor's audited consolidated financial statements and from our
audited consolidated financial statements included elsewhere in this prospectus.
The summary pro forma financial information for the combined fiscal year ended
June 30, 2000 (six weeks ended August 13, 1999 (Predecessor) and 46 weeks ended
June 30, 2000 (Successor)) were derived from our pro forma unaudited
consolidated financial statements included elsewhere in this prospectus. The pro
forma adjustments give effect to the acquisition of the semiconductor business
of Harris and to our subsequent initial public offering as if they had occurred
on July 3, 1999.
During the predecessor 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 and Other Data,"
"Forward-Looking Statements," "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.
4
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------- -------------------------------
FISCAL YEAR ENDED FISCAL YEAR ENDED JUNE 30, 2000
--------------------------- -------------------------------
JULY 3, 1998 JULY 2, 1999 COMBINED PRO FORMA(1)
------------ ------------ ------------ ----------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Analog & Mixed-Signa......................... $390.4 $352.8 $396.8 $396.8
Discrete Power............................... 176.4 161.6 205.9 205.9
Wireless..................................... 10.0 18.3 51.5 51.5
------ ------ ------ ------
Total revenue.................................. $576.8 $532.7 $654.2 $654.2
====== ====== ====== ======
Gross margin................................... $207.5 $182.9 $262.0 $263.7
Research and development....................... 75.1 67.0 78.0 78.0
Selling, general and administrative............ 98.2 84.0 108.1 108.4
Harris corporate expense allocation............ 10.0 9.3 1.2 --
Intangible amortization........................ 2.3 2.4 11.0 12.2
In-process research and development............ -- -- 20.2 20.2
Other.......................................... -- -- 1.2 1.2
------ ------ ------ ------
Operating income............................... 21.9 20.2 42.3 43.7
Loss on sale of Malaysian operation............ -- -- 24.8 24.8
Interest, net.................................. (0.9) (1.2) 38.1 13.3
------ ------ ------ ------
Income (loss) before income taxes and
extraordinary item........................... 22.8 21.4 (20.6) 5.6
Income taxes (benefit)......................... 9.9 (6.0) (0.4) 2.2
------ ------ ------ ------
Net income (loss) before extraordinary item.... 12.9 27.4 (20.2) 3.4
Extraordinary item--loss on extinguishment of
debt, net of tax effect...................... -- -- (25.5) --
------ ------ ------ ------
Net income (loss).............................. 12.9 27.4 (45.7) 3.4
Preferred dividends............................ -- -- 5.4 --
------ ------ ------ ------
Net income (loss) to common shareholders....... $ 12.9 $ 27.4 $(51.1) $ 3.4
====== ====== ====== ======
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON
SHARE(2):
Income (loss) before extraordinary item................................... $(0.34) $ 0.03
Extraordinary item........................................................ (0.33) --
------ ------
Net income (loss)......................................................... $(0.67) $ 0.03
====== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING(2):
Basic..................................................................... 76.7 98.5
Diluted................................................................... 76.7 101.8
SUPPLEMENTAL DATA:
Depreciation................................... $ 65.0 $ 78.2 $ 59.3 $ 57.6
Capital expenditures........................... 90.2 38.6 40.7 40.7
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 2000
---------------------------
AS
ACTUAL ADJUSTED(2)
------------- -----------
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $211.9 $211.9
Total assets................................................ 933.9 933.9
Long-term debt, including current portion................... 116.6 116.6
Total shareholders' equity.................................. 679.0 679.0
</TABLE>
------------------
(1) The pro forma 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. The pro forma adjustments
give effect to the acquisition of the semiconductor business of Harris and
to our subsequent initial public offering as if they had occurred on July 3,
1999.
(2) Gives effect to the issuance of 3,703,707 shares at a price per share of
$0.0015 pursuant to the exercise of the warrants.
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 this market-making 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 relate to
our industry include:
o the cyclical nature of the semiconductor industry;
o the new and evolving nature of the wireless local area network market and
the possibility that wireless local area network technology may not be
adopted on a widespread basis or may be replaced by a competing
technology; and
o intense competitive pricing pressures.
7
<PAGE>
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 integrated
communications, industrial, automotive and consumer electronics products. There
can be no assurance that these end-user markets will not experience changes in
demand that will adversely affect our business, financial conditions or results
of operations.
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
our 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.
DEPENDENCE ON SOURCES OF SUPPLY--PRODUCTION TIME AND THE 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 operating results 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, 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.
DEPENDENCE ON OUTSIDE FOUNDRIES--BECAUSE WE DEPEND ON THIRD PARTY FOUNDRIES TO
MANUFACTURE, ASSEMBLE AND TEST SOME OF OUR PRODUCTS, WE MAY EXPERIENCE DELAYS
BEYOND OUR CONTROL IN DELIVERING THOSE PRODUCTS TO OUR CUSTOMERS.
We use outside wafer fabrication foundries for the manufacture of device
types where we do not have the necessary technologies resident in house. We also
use advanced manufacturing processes of outside foundries for certain components
of our PRISM(R) products. We intend to continue to rely on third party foundries
and other specialist suppliers for some of our manufacturing requirements and
most of our assembly and testing requirements. However, these third party
foundries are not obligated to supply products to us for any specific period, in
any specific quantity or at any specific price, except with respect to a five-
year supply agreement with ChipPAC for test and assembly services and as may be
provided in a particular purchase order that has been accepted by one of them.
As a result, we cannot directly control semiconductor delivery schedules, which
could lead to product shortages, quality assurance problems and increases in the
cost of our products. We may experience delays in the future and we cannot be
sure that we will be able to obtain semiconductors within the time frames and in
the volumes required by us at an affordable cost or at all. Any disruption in
the availability of semiconductors or any problems associated with the delivery,
quality or cost of the fabrication, assembly and testing of our products could
significantly hinder our ability to deliver our products to our customers and
may result in a decrease in sales of our products. If the third party foundries
we currently use are unable to provide our products, we may be required to seek
new foundries,
8
<PAGE>
and we cannot be certain that their services will be available at favorable
terms or that sufficient capacity will be available.
In addition, the manufacture of our products is a highly complex and
precise process, requiring production in a highly controlled environment.
Changes in manufacturing processes or the inadvertent use of defective or
contaminated materials by a third party foundry could adversely affect the
foundry's ability to achieve acceptable manufacturing yields and product
reliability. If the third party foundries we currently use do not achieve
adequate yields or product reliability, our customer relationships could suffer.
This could ultimately lead to a loss of sales of our products and have a
negative effect on our business, financial condition or results of operations.
DEPENDENCE ON CHIPPAC--BECAUSE WE DEPEND ON CHIPPAC TO PROVIDE US WITH ASSEMBLY
AND TEST SERVICES, WE MAY BE ADVERSELY AFFECTED IF CHIPPAC FAILS TO PERFORM
ADEQUATELY.
We depend on ChipPAC for the assembly and testing of most of our
semiconductors. In connection with the sale of our assembly and test facilities
in Malaysia to ChipPAC, we entered into a five-year supply agreement with
ChipPAC under which the Malaysian facility became our preferred provider of
semiconductor assembly and test services. Any disruption in the availability of
semiconductors associated with the assembly and testing of our products by
ChipPAC could significantly hinder our ability to deliver our products to our
customers and may result in a decrease in sales of our products. In addition,
our business, financial condition or results of operations could be adversely
affected if ChipPAC is unable to obtain adequate supplies of raw materials in a
timely manner or if ChipPAC's costs of raw materials increase significantly. See
"Certain Relationships and Related Transactions."
MANUFACTURING RISKS--DELAYS IN PRODUCTION AT NEW FACILITIES, IN 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 and 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 US AND
MAY EXERCISE THEIR CONTROL IN A MANNER ADVERSE TO YOUR INTERESTS.
As of June 30, 2000, Sterling Holding Company, LLC, or Sterling, and some
of our key employees owned about 40% of the outstanding Class A Common Stock,
our only class of voting stock, and about 91% of the outstanding Class B Common
Stock, which is convertible into shares of Class A Common Stock on a one-for-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 the amendment of our Restated Certificate of Incorporation.
Sterling also has a significant equity investment in Fairchild Semiconductor,
one of our competitors. An affiliate of Sterling is a principal shareholder of
ChipPAC. Because a limited number of persons control us, transactions could be
difficult or
9
<PAGE>
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."
COMPETITION--OUR BUSINESS IS VERY COMPETITIVE, AND INCREASED COMPETITION COULD
REDUCE GROSS 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 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 market share by
lowering prices. Competition in the various markets in which we participate
comes from companies of various sizes, many of which are larger and have greater
financial and other resources than we have and thus can better withstand adverse
economic or market conditions. 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. In addition, companies not currently in direct competition
with us may introduce competing products in the future.
RESTRICTIONS AND COVENANTS IN OUR DEBT INSTRUMENTS--RESTRICTIONS IMPOSED BY OUR
SENIOR CREDIT FACILITIES AND THE INDENTURE GOVERNING THE 13.25% SENIOR
SUBORDINATED NOTES DUE 2009 LIMIT OUR ABILITY TO ENGAGE IN OR ENTER INTO
BUSINESS, OPERATING AND FINANCING ARRANGEMENTS, WHICH COULD ADVERSELY AFFECT OUR
ABILITY TO TAKE ADVANTAGE OF POTENTIALLY PROFITABLE BUSINESS OPPORTUNITIES.
The operating and financial restrictions and covenants in our debt
instruments, including the senior credit facilities and the indenture governing
the 13.25% Senior Subordinated Notes due 2009, or the Notes, may 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. The indenture governing the Notes
restricts, among other things, the incurrence of additional debt, the payment of
dividends on the Class A Common Stock and other capital stock of Intersil,
investments, sales of assets and certain consolidations, mergers and transfers
of assets. 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 of 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;
10
<PAGE>
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 indenture governing 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 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 Class A Common Stock.
CURRENCY EXCHANGE RATE FLUCTUATIONS--FLUCTUATIONS IN THE EXCHANGE RATE OF THE
U.S. DOLLAR AND FOREIGN CURRENCIES COULD INCREASE OPERATING EXPENSES AND
NEGATIVELY AFFECT 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 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. In
fiscal year 2000, foreign exchange hedging resulted in a gain of $3.9 million.
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 generate approximately one-half of
our revenue from outside the United States. Risks inherent in doing business on
an international level include:
o economic and political instability;
o trade restrictions;
o foreign currency fluctuations; and
o unexpected changes in the laws and policies of the United States and of
the countries in which we manufacture and sell our products.
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
11
<PAGE>
this technology. Some of our technology is not covered by any patent or patent
application, and there are risks that:
o some of the approximately 1,250 patents that we own and other patents
that we license from Harris may be invalidated, circumvented, challenged
or licensed to others;
o the license rights granted by Harris, or the patents that we own, will
not provide competitive advantages to us; or
o some of our pending or future patent applications will not be issued
within the scope of the claims sought by us, if at all.
Further, others may develop technologies that are similar or superior to our
technology, duplicate our technology or design around our patents. In addition,
effective patent, trademark, copyright, maskwork and trade secret protection may
be unavailable, limited or not applied for in certain foreign countries.
We also seek to protect our proprietary technology, including technology
that may not be patented or patentable, in part by confidentiality agreements
and, if applicable, inventors' rights agreements with our collaborators,
advisors, employees and consultants. There can be no assurance that these
agreements will not be breached or that we will have adequate remedies for any
breach.
Some of our current licenses to use others' technology are scheduled to
expire periodically over the next several years, unless extended. In particular,
we have access to a portfolio of patents under cross-license agreements that
begin to expire in December of the year 2000. We will 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 will retain the ownership and rights to certain
patents until August 13, 2002 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 provision 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
use our intellectual property (or intellectual property that is assigned to us)
and under which Harris is 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 our activities infringe upon 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 and one of our customers,
alleging infringement by Harris of four of Ericsson's patents relating to
telephone subscriber line interface circuits. We have been joined as a defendent
in this action. Because this litigation was filed prior to our acquisition of
the semiconductor business of Harris, we believe our liability from this
litigation, if any, is covered by Harris' agreement to provide us with limited
indemnities. We do not believe that this litigation will have a material adverse
effect on our business, financial condition or results of operations. It is
still possible, however, that this 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 the acquisition of any license could require
expenditure of substantial time and other resources. Furthermore, some licenses
or other rights to intellectual property of
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<PAGE>
third parties that we use, such as software, may not be freely assignable by
Harris to us. Our failure to obtain a license from a third party for technology
we use could cause us to incur substantial liabilities and to suspend the
manufacture or shipment of products or our use of processes requiring the
technology. Litigation could result in significant expense to us, adversely
affecting sales of the challenged product or technology and diverting the
efforts of our technical and management personnel, whether or not the litigation
is determined in our favor. In the event of an adverse outcome in any
litigation, we may be required to:
o pay substantial damages and incur significant attorneys' fees;
o cease the manufacture, use, sale or importation of infringing products;
o expend significant resources to develop or acquire non-infringing
technology;
o discontinue the use of some processes; or
o obtain licenses to intellectual property covering the infringing
technology.
ADDITIONAL BORROWINGS AVAILABLE--WE AND OUR SUBSIDIARIES WILL BE ABLE TO INCUR
SUBSTANTIALLY MORE DEBT, WHICH 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 June 30, 2000, Intersil's senior credit facilities provided
for additional borrowings of up to $70.0 million, all of which would be
permitted under the indenture governing the Notes. 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;
o prevent us from raising the funds necessary to repurchase all the Notes
tendered to us upon the occurrence of certain changes of control in our
ownership, which would constitute a default under the indenture governing
the Notes; and
o place us at a competitive disadvantage compared to our competitors that
have less debt.
See "Capitalization," "Selected Historical Financial Data and Other Data"
and "Description of Certain Indebtedness."
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 in the near future,
including the acquisition of SiCOM discussed elsewhere in this prospectus. 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 Notes. The process
of integrating acquired operations into our existing operations may result in
unforeseen operating difficulties and may require significant financial
resources that would otherwise be available for the ongoing development or
expansion of our existing operations. Possible future acquisitions could result
in the incurrence of additional debt, contingent liabilities and amortization
expenses related to goodwill and other intangible assets, all of which could
have a material adverse effect on our business, financial condition or results
of operations.
We have entered into a letter of intent to acquire SiCOM. Because of the
preliminary nature of this agreement, we cannot assure you that this transaction
will be completed or will be completed on the terms described in this
prospectus. We may be unable or choose not to enter into a definitive agreement
regarding
13
<PAGE>
this acquisition or, if such a definitive agreement is reached, may not be able
to satisfy the various conditions that such an agreement will likely contain.
ENVIRONMENTAL LIABILITIES AND OTHER GOVERNMENTAL REGULATIONS--REGULATORY MATTERS
COULD FORCE US TO EXPEND SIGNIFICANT CAPITAL AND INCUR SUBSTANTIAL COSTS.
We are subject to various environmental laws relating to the management,
disposal and remediation of hazardous materials and the discharge of pollutants
into the environment. We are also subject to laws relating to workplace safety
and worker health which, among other things, regulate employee exposure to
hazardous substances. Harris agreed to indemnify us for substantially all
environmental liabilities in excess of financial reserve amounts related to
events or activities occurring before our acquisition of the semiconductor
business. The nature of our ongoing operations exposes us to the risk of
liabilities 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 such
liabilities.
Based on our experience, we believe that the future cost of compliance with
existing environmental and health and safety laws (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 to respond to future
cleanup matters or other environmental claims.
See "Business--Environmental Matters."
RISKS RELATING TO FUTURE SALES OF OUR SHARES--ALL OF OUR OUTSTANDING SHARES OF
COMMON STOCK MAY BE SOLD INTO THE MARKET IN THE NEAR FUTURE, AND FUTURE SALES OF
THOSE SHARES COULD DEPRESS THE MARKET PRICE OF OUR CLASS A COMMON STOCK.
Our directors, executive officers and various shareholders, have entered
into lock-up agreements which generally provide that these holders will not
offer, sell, contract to sell, grant any option to purchase or otherwise dispose
of our common stock or any securities exercisable for or convertible into our
common stock owned by them for a period of 90 days after consummation of the
contemplated secondary offering of our Class A Common Stock without the prior
written consent of Credit Suisse First Boston Corporation. In addition, certain
shareholders who received our common stock in the acquisition of NWN have
entered into lock-up agreements which restrict the disposition of 131,844 and
79,106 shares of common stock prior to August 23, 2001 and August 23, 2002,
respectively.
Beginning August 14, 2000, some of our existing shareholders have the right
to cause us to register the sale of their shares under the Securities Act and
some other current shareholders may have the right to cause us to register their
shares for resale if we choose to file a registration statement. Registration of
the sale of these shares of our common stock would permit their sale into the
market without regard to the legal restrictions on transfer mentioned above. If
our existing shareholders sell a large number of shares, the market price of the
Class A Common Stock could decline, as these sales may be viewed by the public
as an indication of an upcoming or recently occurring shortfall in our financial
performance. Moreover, the perception in the public market that these
shareholders might sell shares of Class A Common Stock could depress the market
price of the Class A Common Stock.
We filed a registration statement with the Securities and Exchange
Commission on April 18, 2000 under which we registered 4,000,000 shares of our
Class A Common Stock for issuance in connection with future acquisitions. As of
June 30, 2000, we had issued 3,026,559 shares of Class A Common Stock under this
registration statement in connection with our acquisition of NWN and also issued
immediately exercisable options to acquire 323,493 shares of our common stock.
The issuance of shares upon exercise of these options is registered under a
registration statement. Any shares issued pursuant to this registration
statement will be freely tradeable without restriction under the Securities Act
and will result in dilution to our existing shareholders.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933. 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 13.25% 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.
DIVIDEND POLICY
We have never paid a cash dividend and do not anticipate declaring or
paying any cash dividends on shares of our common stock in the foreseeable
future. In addition, any determination to declare and pay dividends will be made
by our board of directors in light of our earnings, financial position, capital
requirements, contractual limitations contained in our debt instruments and such
other factors as the board of directors deems relevant. See "Description of
Certain Indebtedness" and "Description of Capital Stock."
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000 on an
actual 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>
AS OF
JUNE 30, 2000
-------------------------------
ACTUAL AS ADJUSTED(2)
------------- --------------
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................................ $ 211.9 $211.9
======= ======
Long-term debt, including current portion:
Senior Credit Facilities:
Revolving Credit Facility(1)........................................ $ -- $ --
13.25% Senior Subordinated Notes due 2009.............................. 112.4 112.4
Other............................................................... 4.2 4.2
------- ------
Total long-term debt........................................... 116.6 116.6
Shareholders' equity:
Common stock........................................................... 0.9 1.0
Additional paid-in capital............................................. 719.1 719.1
Retained deficit....................................................... (42.7) (42.7)
Accumulated other comprehensive income................................. 1.7 1.7
------- ------
Total shareholders' equity..................................... 679.0 679.0
------- ------
Total capitalization...................................... $ 795.6 $795.6
======= ======
</TABLE>
------------------
(1) The Revolving Credit Facility provides for maximum borrowings of up to $70.0
million.
(2) Gives effect to the issuance of 3,703,707 shares at a price per share of
$0.0015 pursuant to the exercise of the warrants.
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UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
The following Unaudited Pro Forma Combined Condensed Statement of
Operations (six weeks ended August 13, 1999 (Predecessor) and 46 weeks ended
June 30, 2000 (Successor)) are based on or derived from historical Consolidated
Financial Statements included elsewhere in this prospectus. The acquisition of
the semiconductor business of Harris was consummated on August 13, 1999.
The Unaudited Pro Forma Combined Condensed Statement of Operations gives
effect to the transactions as if they had occurred on July 3, 1999. The
transactions and the related adjustments are described in the accompanying
notes. The pro forma statement of operations does not purport to represent what
our results of operations would actually have been had the transactions in fact
occurred on July 3, 1999 nor do they purport to project the results of
operations 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 price 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 Unaudited Pro Forma Combined Condensed Statement of Operations should
be read in conjunction with the Consolidated Financial Statements and notes
thereto as of June 30, 2000 and July 2, 1999 and for the fiscal year ended July
2, 1999, the six weeks ended August 13, 1999, and the 46 weeks ended June 30,
2000 included elsewhere in this prospectus. See "Forward-Looking Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 2000
----------------------------------------------------------------------
46 WEEKS ENDED SIX WEEKS ENDED
JUNE 30, 2000 AUGUST 13, 1999 HARRIS INITIAL
-------------- ------------------- SEMICONDUCTOR PUBLIC
HISTORICAL HISTORICAL ACQUISITION OFFERING
(SUCCESSOR) (PREDECESSOR) ADJUSTMENTS ADJUSTMENTS
-------------- ------------------- ------------- ------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales:
Product sales................................... $596.8 $57.4 $ -- $ --
Costs and Expenses:
Cost of product sales........................... 352.5 39.7 (1.7)(a) --
Research and development........................ 69.5 8.5 -- --
Selling, general and administrative............. 97.2 10.9 0.3(b) --
Harris corporate expense allocation............. -- 1.2 (1.2)(b) --
Intangible amortization......................... 10.7 0.3 1.2(c) --
In-process research and development............. 20.2 -- -- --
Other........................................... 1.2 -- -- --
------ ----- ----- ------
Operating income (loss)............................. 45.5 (3.2) 1.4 --
Loss on sale of Malaysian operation............. 24.8 -- -- --
Interest, net................................... 38.2 (0.1) 7.6(d) (32.4)(g)
------ ----- ----- ------
Income (loss) before income taxes and extraordinary
item.............................................. (17.5) (3.1) (6.2) 32.4
Income taxes (benefit).............................. (0.3) (0.1) (2.4)(e) 5.0(h)
------ ----- ----- ------
Net income (loss) before extraordinary item......... (17.2) (3.0) (3.8) 27.4
Extraordinary item--loss on extinguishment of debt,
net of tax effect................................. (25.5) -- -- 25.5(i)
------ ----- ----- ------
Net income (loss)................................... (42.7) (3.0) (3.8) 52.9
Preferred dividends................................. 5.4 -- 1.2(f) (6.6)(j)
------ ----- ----- ------
Net income (loss) to common shareholders............ $(48.1) $(3.0) $(5.0) $ 59.5
====== ===== ===== ======
Net loss per common share (k):
Basic......................................................................................................................
Diluted....................................................................................................................
<CAPTION>
FISCAL
YEAR
ENDED
JUNE 30,
2000
---------
PRO FORMA
---------
<S> <C>
Sales:
Product sales................................... $ 654.2
Costs and Expenses:
Cost of product sales........................... 390.5
Research and development........................ 78.0
Selling, general and administrative............. 108.4
Harris corporate expense allocation............. --
Intangible amortization......................... 12.2
In-process research and development............. 20.2
Other........................................... 1.2
-------
Operating income (loss)............................. 43.7
Loss on sale of Malaysian operation............. 24.8
Interest, net................................... 13.3
-------
Income (loss) before income taxes and extraordinary
item.............................................. 5.6
Income taxes (benefit).............................. 2.2
-------
Net income (loss) before extraordinary item......... 3.4
Extraordinary item--loss on extinguishment of debt,
net of tax effect................................. --
-------
Net income (loss)................................... 3.4
Preferred dividends................................. --
-------
Net income (loss) to common shareholders............ $ 3.4
=======
Net loss per common share (k):
Basic............................................. $ 0.04
Diluted........................................... 0.03
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Statement of
Operations.
17
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
The unaudited pro forma combined consolidated statement of operations gives
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
--------------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Net current assets........................................... $ 160.6 $ -- $160.6
Other amounts................................................ 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
======== ======
Purchase price............................................... 614.3
-------
Excess fair value............................................ $ 200.0
=======
</TABLE>
As a result of the allocation of negative goodwill to property 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 $1.7 million for
the six weeks ended August 13, 1999.
(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>
SIX WEEKS ENDED
AUGUST 13, 1999
---------------
(IN MILLIONS)
<S> <C>
Harris corporate expenses allocation................................................... $1.20
-----
Company's estimated expenses:
Finance, legal and professional...................................................... 0.20
Human resources/benefits............................................................. 0.05
Other................................................................................ 0.05
-----
Total estimated expenses.......................................................... 0.30
-----
Net reduction.......................................................................... $0.90
=====
</TABLE>
(c) 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 consisting of $56.1 million of developed
technology, $23.0 million of customer base, $9.4 million of 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. The remaining identified intangibles are being
amortized over the following lives:
<TABLE>
<CAPTION>
SIX WEEKS ENDED
IDENTIFIED INTANGIBLE AMOUNT LIFE AUGUST 13, 1999
--------------------- ------------- -------- ---------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C>
Developed technology............................... $56.1 11 years $ 0.6
Customer base...................................... 23.0 7 years 0.4
Assembled workforce................................ 9.4 5 years 0.2
-----
$ 1.2
=====
</TABLE>
18
<PAGE>
(d) Represents interest expense associated with the indebtedness incurred in
connection with the acquisition of the semiconductor business, calculated
as follows:
<TABLE>
<CAPTION>
SIX WEEKS ENDED
AUGUST 13, 1999
---------------
(IN MILLIONS)
<S> <C>
Interest on Notes (13.25% on $200.0 million)........................................... $ 3.1
Estimated interest on Senior Term
Facility (10.71% on $205.0 million).................................................. 2.5
Estimated interest on Revolving Credit Facility
(9.96% on $15.0 million)............................................................. 0.2
-----
Total cash interest expense....................................................... 5.8
Interest on Subordinated Holding PIK Note
(13.50% on $30.0 million)............................................................ 0.5
Interest on Seller Holding PIK Note
(11.13% on $90.0 million)............................................................ 1.1
Deferred financing fees................................................................ 0.2
-----
Total interest expense............................................................ $ 7.6
=====
</TABLE>
Financing fees consist of $6.0 million on the Notes (amortized over ten
years) and $6.2 million on the Senior Term Facility and Revolving Credit
Facility (amortized over six years).
(e) Represents the adjustment of the pro forma income tax provision related to
the pro forma pretax adjustments computed on a stand-alone basis at an
effective tax rate of 39%.
(f) 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. These
shares of mandatorily redeemable 12% Series A Cumulative Compounding
Preferred Stock were converted into shares of our Class A Common Stock upon
the occurrence of our initial public offering.
(g) Represents the elimination of interest expense associated with debt which
was repaid (the Tranche B Senior Term Facility, the 11.13% Seller Holding
PIK Note, $70.0 million of the Senior Subordinated Notes, and the 13.50%
Subordinated PIK Note) with the proceeds of the initial public offering.
(h) Represents the pro forma adjustment necessary to reflect the income tax
required to result in a pro forma income tax provision based on an
effective tax rate of 39%.
(i) Represents the elimination of the extraordinary charges associated with the
early repayment of debt from the proceeds of the initial public offering.
The extraordinary charges consisted of the write-off of deferred financing
fees and prepayment penalties.
(j) Gives effect to the conversion of all of the outstanding shares of the 12%
Series A Cumulative Compounding Preferred Stock into common stock at $1,000
per share plus accumulated and unpaid dividends, based on the per share
amount received in the initial public offering.
(k) The following table sets forth the weighted average common shares
outstanding as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30, 2000
--------------------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNT)
<S> <C>
Basic:
Shares outstanding at June 30, 2000........................................... 94.8
------
Diluted:
Warrants...................................................................... 5.9
Common stock options and other................................................ 1.1
------
Total diluted................................................................. 7.0
------
Total............................................................................ 101.8
======
</TABLE>
19
<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 the fiscal years 1998 and 1999 and the six weeks
ended August 13, 1999 are derived from our predecessor's audited Consolidated
Financial Statements included elsewhere in this prospectus, except for revenue
categorized by product line, which is derived from our predecessor's books and
records. The historical financial data as of and for the fiscal years 1996 and
1997, which are not included elsewhere in this prospectus, are derived from our
predecessor's unaudited and audited Consolidated Financial Statements,
respectively. The historical financial data as of and for the 46 weeks ended
June 30, 2000 are derived from our audited Consolidated Financial Statements
included elsewhere in this prospectus. 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 | SUCCESSOR
--------------------------------- --------------- | -------------
| 46 WEEKS
FISCAL YEARS SIX WEEKS ENDED | ENDED
--------------------------------- --------------- | -------------
1996 1997 1998 1999 AUGUST 13, 1999 | JUNE 30, 2000
------ ------ ------ ------ --------------- | -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) |
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: |
Revenue: |
Analog & Mixed-Signal....................... $393.6 $384.4 $390.4 $352.8 $ 36.3 | $360.5
Discrete Power.............................. 176.6 154.5 176.4 161.6 18.0 | 187.9
Wireless.................................... -- 6.4 10.0 18.3 3.1 | 48.4
------ ------ ------ ------ -- | ------
Total revenue.................................... $570.2 $545.3 $576.8 $532.7 $ 57.4 | $596.8
====== ====== ====== ====== == | ======
Gross margin..................................... $227.1 $199.3 $207.5 $182.9 $ 17.7 | $244.3
Research and development......................... 69.4 75.2 75.1 67.0 8.5 | 69.5
Selling, general and administrative.............. 103.6 99.3 98.2 84.0 10.9 | 97.2
Harris corporate expense allocation.............. 10.3 10.0 10.0 9.3 1.2 | --
Intangible amortization.......................... 2.3 2.3 2.3 2.4 0.3 | 10.7
In-process research and development.............. -- -- -- -- -- | 20.2
Other............................................ -- -- -- -- -- | 1.2
------ ------ ------ ------ -- | ------
Operating income (loss).......................... 41.5 12.5 21.9 20.2 (3.2) | 45.5
Loss on sale of Malaysian operation.............. -- -- -- -- -- | 24.8
Interest, net.................................... (1.0) (0.6) (0.9) (1.2) (0.1) | 38.2
------ ------ ------ ------ -- | ------
Income (loss) before income taxes and |
extraordinary item............................. 42.5 13.1 22.8 21.4 (3.1) | (17.5)
Income taxes (benefit)........................... 2.6 1.9 9.9 (6.0) (0.1) | (0.3)
------ ------ ------ ------ -- | ------
Income (loss) before extraordinary item.......... 39.9 11.2 12.9 27.4 (3.0) | (17.2)
Extraordinary item--loss on extinguishment of |
debt, net of tax effect........................ -- -- -- -- -- | (25.5)
------ ------ ------ ------ -- | ------
Net income (loss)................................ 39.9 11.2 12.9 27.4 (3.0) | (42.7)
Preferred dividends.............................. -- -- -- -- -- | 5.4
------ ------ ------ ------ -- | ------
Net income (loss) to common shareholders......... $ 39.9 $ 11.2 $ 12.9 $ 27.4 $ (3.0) | $(48.1)
====== ====== ====== ====== == | ======
BASIC AND DILUTED LOSS PER SHARE: |
Loss before extraordinary item....................................................................... | $(0.30)
Extraordinary item................................................................................... | (0.33)
| ------
Net loss............................................................................................. | $(0.63)
| ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
Basic and diluted...................................................................................... | 76.7
BALANCE SHEET DATA (END OF PERIOD): |
Cash and cash equivalents........................ $ -- $ -- $ -- $ -- $ 1.4 | $211.9
Total assets..................................... 647.0 773.3 810.3 761.2 736.1 | 933.9
Long-term debt, including current portion........ -- 1.4 4.1 4.6 4.5 | 116.6
Total shareholders' equity/business equity....... 520.9 646.2 699.1 658.9 657.3 | 679.0
</TABLE>
20
<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 the 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 oriented designer and manufacturer of analog and digital
integrated circuits and discrete semiconductors for the communications and power
management end-user markets. We provide systems level solutions for the growing
integrated communications semiconductor market. Integrated communications
semiconductors enable the convergence of voice, data and video. Within
integrated communications, we are focused on several key markets including high
data rate wireless connectivity, power management and wireless and wired
communications infrastructure. We use our expertise in digital and analog
semiconductors and radio and software design to deliver chip sets, components,
software and licensable application designs for communications equipment
customers. 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 ended on June 30, 2000.
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 13.25% Senior
Subordinated Notes due 2009 and 13.50% 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 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 June 30, 2000.
On February 25, 2000, we issued 22,000,000 shares of our Class A Common
Stock in a registered underwritten initial public offering at a price of $25.00
per share. See "--Liquidity and Capital Resources."
21
<PAGE>
QUARTERLY RESULTS
The following table sets forth the unaudited historical quarterly revenue
and gross margin of our three product groups:
<TABLE>
<CAPTION>
COMBINED
FISCAL YEAR ENDED JULY 3, 1998 FISCAL YEAR ENDED JULY 2, 1999 FISCAL YEAR ENDED JUNE 30, 2000
--------------------------------- --------------------------------- ---------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <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 $103.4 $116.6
Discrete Power....... 44.7 45.2 45.7 40.8 38.5 34.8 42.3 46.0 44.9 54.8 53.2 53.0
Wireless............. 2.9 2.2 2.6 2.3 4.2 3.1 4.6 6.4 6.3 9.3 14.3 21.6
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total............ $143.9 $141.3 $143.5 $148.1 $122.5 $124.1 $135.4 $150.7 $134.0 $158.1 $170.9 $191.2
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
GROSS MARGIN
PERCENTAGE
Analog & Mixed-
Signal............... 36% 42% 42% 44% 41% 39% 43% 43% 42% 45% 44% 46%
Discrete Power....... 24 27 23 25 21 14 17 21 24 28 32 34
Wireless............. 31 5 42 57 21 26 35 50 35 39 45 50
Total............ 32 37 36 39 34 31 35 36 36 39 41 43
</TABLE>
Historically, our first fiscal quarter has been the weakest due to model
year changeovers in the automotive industry and summer holiday seasons,
primarily in Europe. Our increasing focus on integrated communications products
has resulted in a higher percentage of our sales coming from the communications
markets in the second half of our fiscal year. Revenues from integrated
communications products accounted for 53.1% of our total fourth quarter fiscal
year 2000 sales versus 39.1% of our total fourth quarter fiscal year 1999 sales.
Sales made into the communications market generally experience less seasonality
than sales of our historical mix of products.
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 those of 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. We experienced sales growth of over 25% in each of the last
three quarters of fiscal year 2000 as compared to the same periods in fiscal
year 1999 due to increased demand for our communication products and an overall
improvement in market conditions. Additionally, the introduction of our new
PRISM II wireless product has accelerated growth in the Wireless product group.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth our statement of operations data for the
periods indicated as a percentage of revenue:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------------
COMBINED
JULY 3, 1998 JULY 2, 1999 JUNE 30, 2000
------------ ------------ -------------
<S> <C> <C> <C>
Revenue:
Analog & Mixed-Signal.................... 67.7% 66.2% 60.7%
Discrete Power........................... 30.6 30.4 31.4
Wireless................................. 1.7 3.4 7.9
----- ----- ------
Total................................. 100.0 100.0 100.0
----- ----- ------
Cost and Expenses:
Cost of goods sold....................... 64.0 65.6 59.9
Research and development................. 13.0 12.6 11.9
Selling, general and administrative...... 18.8 17.5 16.7
Intangible amortization.................. 0.4 0.5 1.7
In-process research and development...... -- -- 3.1
Other.................................... -- -- 0.2
----- ----- ------
Operating income...................... 3.8 3.8 6.5
Loss on Sale of Malaysian operation...... -- -- 3.8
Interest, net............................ (0.2) (0.2) 5.9
----- ----- ------
Income (loss) before income taxes and
extraordinary item....................... 4.0 4.0 (3.2)
Income taxes (benefit)..................... 1.8 (1.1) (0.1)
----- ----- ------
Income (loss) before extraordinary item.... 2.2 5.1 (3.1)
Extraordinary item--loss on extinguishment
of debt, net of tax effect............... -- -- (3.9)
----- ----- ------
Net income (loss).......................... 2.2% 5.1% (7.0)%
===== ===== ======
</TABLE>
FISCAL YEAR 2000 COMPARED WITH FISCAL YEAR 1999
Revenue
Revenue for fiscal year 2000 increased 22.8% to $654.2 million from $532.7
million in fiscal year 1999. This growth is the result of increased demand for
communications products and overall improved market conditions. Wireless sales
growth of 181% was driven by increased market acceptance of our PRISM(R)
products.
Geographically, 49.2%, 22.0% and 28.8% of product sales were derived in
North America, Europe and Asia/Pacific, respectively, during fiscal year 2000,
compared to 53.5%, 24.6% and 21.9%, respectively, in fiscal year 1999. This
change in mix is the result of increased demand from Asian-based customers and
from other customers moving manufacturing facilities to Asia.
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 43.2% to $262.0 million in fiscal
year 2000 from $182.9 million in fiscal year 1999. As a percentage of sales,
gross margin was 40.0% in fiscal year 2000 as compared to 34.3% in fiscal year
1999. This increase was primarily due to increased capacity utilization in all
three fabrication facilities, improved product costs from yield enhancements and
manufacturing cost improvement projects. Additionally, wireless products, which
generally carry higher margins, increased as a
23
<PAGE>
percentage of our total sales. Headcount reductions and a decrease in
depreciation expense resulting from a revaluation of our property and equipment
due to purchase accounting also contributed to the margin improvement.
Research and Development ("R&D")
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 16.4% to
$78.0 million in fiscal year 2000 from $67.0 million in fiscal year 1999. The
increase was the result of our continued investment in PRISM(R) chip sets and in
power management integrated circuits, focusing in the categories of
communications and computing products. As a percentage of sales, R&D expenses
declined slightly to 11.9% in fiscal year 2000 from 12.6% in fiscal year 1999.
In-Process R&D Charge
In connection with the acquisition of the semiconductor business of Harris,
we allocated $20.2 million of the purchase price to in-process R&D projects.
These projects were in various stages of completion ranging from 35-90%
complete. The present value of $29.0 million of in-process R&D was primarily
determined by discounting 10 year after tax cash flow projections of the
individual projects using a discount rate of 20%. This value was then reduced by
negative goodwill resulting from the acquisition.
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 fiscal year ended June 30, 2000.
There is risk associated with the completion of the projects and there can
be no assurance that any will meet with either technological or commercial
success. Discussion of certain of the acquired projects can be found in the
Products and Technology portion of the Business section located elsewhere in
this prospectus.
Selling, General and Administrative ("SG&A")
SG&A costs, which include marketing, selling, general and administrative
expenses, increased 17.1% to $109.3 million in fiscal year 2000 from $93.3
million in fiscal year 1999. The increase was due to additional selling costs
resulting from higher sales in fiscal year 2000 and additional marketing costs
associated with our new company branding initiative. Operating expenses include
charges allocated by Harris to us for legal, financial and other administrative
expenses of $1.2 million for the six weeks ended August 13, 1999, and $9.3
million for the twelve months ended July 2, 1999. As a percentage of sales, SG&A
costs decreased to 16.7% in fiscal year 2000 from 17.5% in fiscal year 1999.
Intangible Assets
Certain intangible assets were recorded on the opening balance sheet of
Intersil as part of purchase accounting. We also recorded goodwill in June 2000
as a result of the acquisition of No Wires Needed B.V. These assets are being
amortized over their useful lives ranging from five to eleven years.
Loss on Sale of Malaysian Operation
On June 30, 2000, we completed the sale of our Kuala Lumpur, Malaysia-based
semiconductor assembly and test operations to ChipPAC, Inc. As consideration for
the sale we received approximately $52.5 million in cash and $15.8 million in
ChipPAC preferred convertible stock and we recognized a non-recurring, non-cash
charge of $24.8 million for loss on sale.
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 fiscal
year 2000 was $41.9 million, excluding interest income of $3.8 million.
24
<PAGE>
Extraordinary Item
On February 25, 2000, we issued 22,000,000 shares of our Class A Common
Stock in a registered underwritten initial public offering. From the proceeds of
the offering, we repaid approximately $419.0 million of debt incurred through
the acquisition of the semiconductor business, which included certain prepayment
penalties and accrued interest. In connection with the early extinguishment of
debt, we recorded extraordinary charges (net of tax effect) of $25.5 million.
The extraordinary charges consisted of the write-off of deferred financing fees
and prepayment penalties.
Tax Expense
The tax benefit for the combined twelve months ended June 30, 2000 is not
comparable to the twelve months ended July 2, 1999, due to the differences in
our tax structure as compared to that of the semiconductor business of Harris.
Backlog
We had backlog at June 30, 2000 of $259.5 million compared to $174.0
million at July 2, 1999. The increase was due to increased demand for our
integrated communications products and improved market conditions.
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 was 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.
R&D
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
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principally focused on computing and communications which led our growth of new
product revenue during fiscal year 1999.
SG&A
SG&A costs decreased 13.8% to $93.3 million in fiscal year 1999 from $108.2
million in fiscal year 1998. The decrease in SG&A was primarily due to increased
efficiencies resulting from a reorganization of the internal sales force and
external sales representative firms and reduction of administrative expenses
including headcount reductions. Operating expenses include allocated charges by
Harris to us for legal, financial and other administrative expenses of $9.3
million for fiscal year 1999 and $10.0 million for fiscal year 1998. As a
percentage of sales, SG&A costs decreased to 17.5% in fiscal year 1999 from
18.8% in 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.
LIQUIDITY AND CAPITAL RESOURCES
On February 25, 2000, we issued 22,000,000 shares of Class A Common Stock
at a price of $25.00 per share. We received net proceeds from this offering,
after deducting underwriting discounts and commissions and other fees, of
approximately $513.1 million, of which $435.2 million was subsequently used to
repay debt incurred as a result of our acquisition of the semiconductor business
of Harris.
In connection with the acquisition of the semiconductor business, we
entered into new credit facilities, which provide for a Revolving Credit
Facility in an aggregate amount up to $70.0 million. We may request, subject to
the agreement of our lenders, that the amount of the Revolving Credit Facilities
be increased to as much as $150 million. The Revolving Credit Facility will
mature in 2005 unless sooner terminated and was undrawn as of June 30, 2000.
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 and our cash on hand, together with
available borrowings under the Revolving Credit Facility, will be sufficient to
meet our working capital, capital expenditure and interest requirements on our
debt obligations for the foreseeable future. As of June 30, 2000 our total debt
and shareholders' equity was $116.6 million and $679.0 million, respectively.
Because our business was operated as a subsidiary of Harris during fiscal
year 1998 to August 13, 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 fiscal year ended June 30, 2000 was $111.1 million.
Net cash provided byinvesting activities for the fiscal year ended June 30, 2000
was $13.7 million. Net cash used to repay debt for the twelve months ended June
30, 2000 was $435.2 million. Our cash and cash equivalents balance at June 30,
2000 was $211.9 million.
Our Revolving Credit Facility and indenture governing the Notes contain
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 prior approval. We are
currently in compliance with such financial covenants and restrictions.
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Receivables and Inventories
Trade accounts receivable less the allowance for collection losses totaled
$111.7 million at June 30, 2000compared to $100.7 million at July 2, 1999. This
increase was due to higher product shipments from increased demand. Inventories
declined 17.8% from $153.8 million at July 2, 1999 to $126.5 at June 30, 2000.
The inventory decrease was a result of the sale of our Malaysian operation and a
management initiative to reduce our inventory through portfolio management and
process improvements.
Distributor reserves have fluctuated from year to year based on the level
of inventory of distributions. The reserve increased 13.8% from $6.5 million at
July 2, 1999 to $7.4 million at June 30, 2000 resulting from increasing
inventory levels at distributors in response to higher demand and overall market
improvement.
Capital Expenditures
Capital expenditures for the fiscal year ended June 30, 2000 were $40.7
million compared to $38.6 million in fiscal year 1999. We do not anticipate
substantial capital expenditures in the foreseeable future.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. (SFAS) 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of SFAS 133."
SFAS 137 amends Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," to defer its effective date
to all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS
133 establishes accounting and reporting standards for derivative instruments
including standalone instruments, as forward currency exchange contracts and
interest rate swaps or embedded derivatives and requires that these instruments
be marked-to-market on an ongoing basis. These market value adjustments are to
be included either in the income statement or shareholders' equity, depending on
the nature of the transaction. We are required to adopt SFAS 133 in the first
quarter of our fiscal year 2001. We believe that SFAS 133 will not have a
material adverse effect on our financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued SAB No.
101, "Revenue Recognition in Financial Statements," which provides guidance on
the recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC. SAB No. 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosure related to revenue
recognition policies. We believe that SAB No. 101 will not have a material
effect on our financial position or results of operations.
In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25." Among other issues, this
interpretation clarifies the definition of employees for purposes of applying
Opinion No. 25, the criteria for determining whether a plan qualifies as a
non-compensatory plan, the accounting consequence of various modifications to
the terms of a previously fixed stock option or award and the accounting for an
exchange of stock compensation awards in a business combination. This
interpretation is effective July 1, 2000, but certain conclusions in the
interpretations cover specific events that occur after either December 15, 1998
or January 12, 2000. To the extent that this interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effect of applying this
interpretation is recognized on a prospective basis from July 1, 2000. We are
currently reviewing our stock grants to determine the impact, if any, that may
arise from implementation of this interpretation, although we do not expect the
impact, if any, to be material to our financial statements.
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<PAGE>
MARKET RISK MANAGEMENT
In the normal course of doing business, we 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.
In August 1999, we began to use foreign exchange contracts to hedge
anticipated foreign cash flow commitments of up to six 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 contracts are recognized in income.
Prior to August 1999, we used 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, accounts
receivable from, and future committed sales to, customers and intercompany
loans. Foreign currency financial instruments were used to reduce the risks that
arise from doing business in international markets.
At June 30, 2000, we had open foreign exchange contracts with a notional
amount of $30.9 million, all of which were to hedge anticipated foreign cash
flow 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. Additionally, during fiscal year 2000, we purchased and sold $87.4
million of foreign exchange forward and option contracts, compared to $120.7
million for the prior year. See Note O "Financial Instruments" in the Notes to
Consolidated 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 June 30, 2000, would have an impact of
approximately $3.8 million on the fair value of these instruments. This
qualification of exposure to the market risk associated with foreign exchange
financial instruments does not take into account the offsetting impact of
changes in the fair value of our foreign denominated assets, liabilities and
firm commitments.
As of June 30, 2000, we also had fixed rate debt of approximately $116.6
million consisting primarily of the 13.25% Senior Subordinated Notes due 2009.
For fixed rate debt, changes in interest rates generally affect the fair market
value, but not earnings or cash flows.
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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 about 17.9% for the semiconductor industry through 2003. 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 34.5% in calendar year 2000
from calendar year 1999, segments of the power management market, which is
forecast by SIA to grow at 70.0% in calendar year 2000 from calendar year 1999,
and the wireless local area network integrated circuit market, which is forecast
by Cahners In-Stat Group to grow 133.1% 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 1999 CAGR
----- ----- ----- ----- ------ ------ ------ ------ ------ ------ ----
(DOLLARS IN BILLIONS)
<S> <C> <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 $ 22.1 12.3%
Discrete Power....... 4.3 4.4 4.5 5.2 6.3 8.2 7.8 8.1 7.4 8.2 7.4
Microcomponents...... 9.2 11.4 13.9 19.1 23.8 33.4 39.8 47.8 47.3 51.7 21.1
Memory............... 11.8 12.2 14.8 21.3 32.5 53.5 36.0 29.3 23.0 32.3 11.8
Other................ 17.5 18.2 17.9 21.1 25.7 32.7 31.3 32.2 28.8 35.1 8.0
----- ----- ----- ----- ------ ------ ------ ------ ------ ------
Total................ $50.6 $54.5 $59.8 $77.4 $101.9 $144.4 $131.9 $137.2 $125.6 $149.4 12.8
===== ===== ===== ===== ====== ====== ====== ====== ====== ======
</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 composed 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.
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DISCRETE POWER
Discrete power semiconductors, such as a transistor or diode (a device that
allows current to flow in only one direction), typically contain one active
element. These devices perform a single function such as efficiently switching
electricity on and off. Examples of discrete power semiconductors include power
metal oxide semiconductor field effect transistors, or MOSFETs, and insulated
gate bipolar transistors, or IGBTs. MOSFETs are semiconductors that convert,
switch or otherwise shape or condition electricity. IGBTs typically serve the
switch function in power conversion applications that require higher current and
voltage than power MOSFETs can handle efficiently. IGBTs combine the ease of
voltage-driven power MOSFET technology with the conduction efficiency of bipolar
transistor technology.
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 Asynchronous Transfer Mode or ATM and
Synchronous Optical Network or 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.
Wireless telephony technologies are moving towards the third generation, or
3G, of standards such as Wideband CDMA which will support more users than
current standards, provide faster data transmission and mobile Internet access,
and increase the ability to execute new wireless applications. Second generation
or 2G, is the current digital standard supporting IS-95 CDMA and GSM and is used
widely throughout the
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world. Given the significant investment in infrastructure required to move from
2G to 3G, some carriers have begun to provide an intermediate technology, known
as 2.5G, such as Edge and IS-95+, which enhances speed and capacity, but does
not provide all the capabilities of 3G. This infrastructure buildout to 2.5G and
ultimately to 3G will require the use of advanced integrated circuits that are
compatible with the new digital standards.
In addition, these developments in communications infrastructure 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 of 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.
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BUSINESS
GENERAL
We are a systems oriented designer and manufacturer of analog and digital
integrated circuits and discrete semiconductors for the communications and power
management end-user market. The majority of our revenue is derived from sales of
our analog and mixed-signal products. We use our proprietary technologies and
design capabilities to provide systems solutions for rapidly growing wireless
applications. We own about 1,250 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 the design of analog,
mixed-signal, digital signal processing, radio frequency and discrete power
semiconductor products. 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.
o Maintain Technology Leadership. We focus our research and development
investments on integrated communications. We have 220 engineers 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 1,250 patents.
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 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 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 provide customer information programs and support our
comprehensive customer support efforts.
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PRODUCTS AND TECHNOLOGY
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 2000 REVENUES.... $396.8 million $205.9 million $51.5 million
PERCENTAGE OF REVENUES....... 60.7% 31.4% 7.9%
KEY CUSTOMERS................ Cisco Asustek Cisco
Compaq Bosch Nokia
Dell Compaq Siemens
Intel Emerson Sony
Siemens 3Com
</TABLE>
ANALOG & MIXED-SIGNAL
Our Analog & Mixed-Signal portfolio represented 60.7% of our fiscal year
2000 revenue. We deliver leading-edge analog, mixed-signal, digital signal
processing semiconductors 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 two 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. 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 2G Digital such as IS-95 CDMA and GSM, 2.5G
such as Edge and IS-95+, and 3G such as 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 increased the efficiency of signal chain implementation through
component reductions. We continue that leadership with the HSP50216 Quad
programmable down converter for use in 2.5G 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 between digital
signals and analog radio frequency signals for wireless applications. We
currently market a 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 their design and development we
continue to expand our portfolio of SLICs. SLICs, which are used in many
telephone applications, serve two primary functions. First, they interface
analog voice signals with digital processors. Second, they serve the simple, yet
essential, function of ringing a telephone to signal an incoming call. Recently,
we introduced an advanced ringing SLIC, which combined both functions into a
single SLIC. Thus, the ringing SLIC acts as both an interface into the telephone
and also rings the telephone. Our newest ringing SLIC product, a voice over
internet protocol or VoIP product, enables the use of analog phones in the
emerging Internet telephony market. Our SLIC portfolio of advanced telecom
linecard solutions are ideal for today's universal telecom exchange
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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 and digital products 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. 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.
We supply our communications products to Cisco, Dell, IBM, Lucent, Siemens
and other customers.
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 are currently working
with motherboard manufacturers to have our pulse width modular controller
integrated circuits designed into motherboards utilizing the recently introduced
Pentium 4 processor. We expect to begin shipping products for Pentium 4
motherboards as Pentium 4 processors begin to ship in greater volumes in the
near term. Based on our current design wins, we believe that we also have a
substantial share of the volume of pulse width modulator controller integrated
circuits used in motherboards utilizing Athlon processors.
We have introduced an advanced architecture which delivers multiphase power
to next generation, higher 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 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.
Our power management integrated circuits are also used in industrial
control and automotive engine management systems.
We supply our power management products to Asustek, Compaq, Dell, IBM,
Intel and other customers.
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DISCRETE POWER
Our Discrete Power portfolio represented 31.4% of our revenue for fiscal
year 2000. 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 trench 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 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, our IGBTs, MOSFETs and rectifiers are 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 7.9% of our revenue for fiscal year
2000. 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 composed of five highly integrated semiconductors.
They are the 2.4GHz power amplifier, RF/IF up and down converter, IF/BV
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 submicron complementary metal
oxide semiconductor, or CMOS, process technologies.
Because we design all of the 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 Cisco, Compaq, Nokia, Samsung
and Sony, have adopted use of the PRISM(R) chip set in their products. Our PRISM
II chip set is 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 have been developing
relationships with original equipment manufacturers, including Cisco, Compaq,
Nokia, Nortel, Siemens, Sony, Symbol and 3Com, for use of the PRISM II chip set
in a variety of wireless local area network applications for home and business.
35
<PAGE>
As of May 29, 2000, we acquired privately held No Wires Needed B.V., or
NWN, for 3.35 million shares (which includes 323,493 shares issuable upon the
exercise of options) of our Class A Common Stock. Based in Bilthoven, The
Netherlands, NWN provides high performance wireless-to-broadband access point
reference designs. NWN utilizes the PRISM(R) chip set together with its own high
data rate digital controller integrated circuits allowing end users to
wirelessly connect multiple computers and hand-held or Internet appliances to a
wired broadband network. NWN also provides wireless encryption software which
enhances the security of a wireless local area network. Additionally, NWN has
designed a high data rate digital controller integrated circuit, which is a
component we believe will enhance the performance of future generations of our
PRISM(R) chip set. The NWN digital integrated circuit, which we refer to as a
medium access controller, or MAC, is compliant with the IEEE802.11b standard and
can support data rates of up to 54 megabits per second, which is vital for
multi-channel voice and digital video in homes and offices. The acquisition of
NWN added 52 new employees.
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
semiconductors and PRISM(R) wireless local area network chip sets.
<TABLE>
<CAPTION>
END MARKETS APPLICATIONS KEY CUSTOMERS
------------------------ ------------------------------ -------------------
<S> <C> <C> <C>
Communications Wireless local area Wireless local area networks Cisco, Compaq,
networks communications, providing network wireless Dell, IBM, Lucent,
telecommunications access to broadband (cable, Nokia, Nortel,
ethernet, XDSL, ISDN) Samsung, Siemens,
networks, video, wired and Sony, Symbol, 3Com
wireless telephony, home
gateways, networking
Power Management Networking and computing File servers, PC motherboards, Asustek, Compaq,
printers, workstations Dell, IBM, Intel
</TABLE>
Outside of our targeted end markets, our remaining category is industrial
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 years 2000 and 1999, we derived about 60% and 66% respectively,
of our sales from original equipment manufacturer, or OEM, customers through our
global sales organizations and 40% and 34% respectively, of our sales through
distributors. We operate sales organizations in the Americas, Europe and the
Asia/Pacific region. Our sales organizations are supported by logistics
organizations. Product orders flow to our manufacturing facilities or to one of
our foundries, where the product is made. Products are then shipped to the
customer either directly or indirectly via our warehouses in the United States,
Europe and Asia.
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. To serve our customer base, we
maintain 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. 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
36
<PAGE>
complementary items manufactured by others. Manufacturers' representatives do
not maintain a product inventory; instead, their customers place large quantity
orders directly with us and are referred to distributors for smaller orders.
RESEARCH AND DEVELOPMENT
We believe that the continued introduction of new products in our target
markets is essential to our growth. We believe that we must continue to
innovate, enhance and expand our products and services to maintain our
leadership position, and we intend to achieve this through in-house research and
development efforts and selective acquisitions. As of June 30, 2000, we had 571
employees engaged in research and development efforts. Our research and
development efforts are focused on new product development and improvements in
process technology in our growth areas of communications and power management.
For fiscal year 2000, we allocated about 92% of our research and development
investment towards development of products for the integrated communications
market.
Our expenditures for research and development in fiscal years 1998, 1999
and 2000 were $75.1 million, $67.0 million and $78.0 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.
We recently sold our principal assembly and test facility, located in Kuala
Lumpur, Malaysia, to ChipPAC and entered into a multi-year supply agreement with
ChipPAC under which the Malaysian facility became our preferred provider of
semiconductor assembly and test services. 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
at ChipPAC's facility in Kuala Lumpur.
Our wafer fabs 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:
FABRICATION FACILITIES
<TABLE>
<CAPTION>
ANNUAL CAPACITY
LOCATION PRODUCTS/FUNCTIONS WAFER DIAMETER (6" EQUIVALENT WAFERS)
-------- ------------------ -------------- ---------------------------
<S> <C> <C> <C>
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
</TABLE>
37
<PAGE>
Our manufacturing processes use many raw materials, including silicon
wafers 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 $188.5 million at July 3, 1998, $174.0
million at July 2, 1999 and $259.5 million at June 30, 2000. We expect to ship
the backlog at June 30, 2000 within twelve months of that date.
SEASONALITY
A lower percentage of our products is sold to the computer end-user or into
the computer market than is sold by other semiconductor manufacturers. 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. Historically, our first quarter has been the weakest due to model
year changeovers in the automotive industry and summer holiday seasons,
primarily in Europe. Our increasing focus on integrated communications products
has resulted in a higher percentage of our sales coming from the communications
markets in the second half of our fiscal year. Sales made into the
communications market generally experience less seasonality than sales of our
historical mix of products.
COMPETITION
We compete in different markets 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,
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, Linear Technology, Semtech, Texas
Instruments
Discrete Power International Rectifier, STMicroelectronics, Vishay
Wireless Lucent, Philips, Texas Instruments
</TABLE>
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 1,250
patents.
38
<PAGE>
EMPLOYEES
Our worldwide workforce consisted of 2,930 employees (full- and part-time)
as of June 30, 2000 of whom 730 were represented by collective bargaining
arrangements. Of our employees, 1,715 were engaged in manufacturing, 571 were
engaged in engineering, 394 were engaged in marketing and sales, 145 were
engaged in administration and 105 were engaged in operating our management
information systems. Of our employees, 1,786 were employed in the Analog &
Mixed-Signal area; 882 were employed in the Discrete Power area; and 262 were
employed in the Wireless area. We believe that our relations with our employees
are good.
PROPERTIES
In the United States, we lease our corporate headquarters in Irvine,
California. Additional manufacturing, warehouse and office facilities are housed
in about 846,000 square feet, 445,000 square feet and 270,000 square feet of
space in properties owned by us in Palm Bay, Florida, Mountaintop, Pennsylvania
and Findlay, Ohio, respectively.
Our primary engineering activity takes place in Palm Bay, Florida and at
our other manufacturing facilities. In addition, we have engineering activities
taking place in our corporate headquarters and in leased facilities in Durham,
North Carolina (Research Triangle Park), Branchburg, New Jersey, San Antonio,
Texas, Seattle, Washington and Bilthoven, The Netherlands.
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 in the countries in which
we operate that regulate, among other things, air, ground and water emissions at
our manufacturing facilities; the management and disposal of hazardous
substances; and the investigation and remediation of environmental
contamination. 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 requirements. Our costs to comply with environmental
regulations were about $6.3 million, $7.4 million and $4.8 million in each of
fiscal years 1998, 1999 and 2000, respectively.
Our facilities in Findlay, Ohio have ongoing remediation projects to
respond to releases of hazardous substances that occurred prior to 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 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 for
clean-up under the Comprehensive Environmental Response, Compensation and
Liability Act ("Superfund"). Remediation activities are ongoing in Palm Bay in
accordance with consent decrees entered into by Harris with the United States
Environmental Protection Agency. Harris has agreed to indemnify us for the cost
of these projects at all of our facilities, including at Findlay, Ohio,
Mountaintop, Pennsylvania and Palm Bay, Florida and our former facility at Kuala
Lumpur, Malaysia to the extent these costs exceed financial reserve amounts at
the time of our acquisition of the semiconductor business of Harris. 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.
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<PAGE>
In connection with the closure of a waste storage pad at our former Kuala
Lumpur facility in Malaysia, a June 2000 environmental investigation identified
evidence of potential releases to the groundwater of hazardous substances that
were previously stored on the pad. Based on the composition of the groundwater
impacts, it appears that the hazardous substances were those used by Harris or
its predecessors, and not us. Harris has agreed to indemnify us for addressing
environmental conditions created prior to our ownership, and accordingly we put
Harris on notice of the potential environmental claim. We sold the business
which operates out of the Kuala Lumpur, Malaysia facility to ChipPAC in June
2000 (See Business--Manufacturing) and we gave ChipPAC a similar indemnity.
ChipPAC provided us with a claim for indemnification by letter dated August 1,
2000. We do not have adequate information to determine the extent of the impacts
to groundwater, but we do not believe future cleanup costs, if needed, will be
material, even without the Harris 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 business,
financial condition, or results of operations, 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. We are presently co-defendants with Harris in a
suit brought by Ericsson alleging patent infringement, which is pending in the
Sherman Division of the United States District Court for the Eastern District of
Texas. Ericsson alleges infringement of four of its patents relating to
telephone subscriber line interface circuits. The suit was initially directed
against Harris; we were joined as defendants in this action on September 1,
1999. Ericsson seeks an injunction (requiring the co-defendants to stop making,
using or selling telephone subscriber line interface circuits which utilize
Ericsson's patents) 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 for damages 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.
In addition, Harris is a defendant in an action brought by Geisting &
Associates, seeking to recover commissions and receivables allegedly lost as a
result of the termination of Geisting as a sales representative for our PRISM
chip set. The action is pending in the United States District Court for the
Middle District of Florida-Orlando. While Intersil has not been named as a
defendant, we could be liable for any judgment entered against Harris on the
pending claims, and we are conducting the defense of the action. Geisting seeks
damages, including lost profits, and attorneys' fees.
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 or results of operations.
40
<PAGE>
THE TRANSACTIONS
The following contains summaries of the material agreements which we
entered into in connection with the acquisition of the semiconductor business of
Harris. This acquisition was funded in part by the proceeds of the sale of
units, consisting of the 13.25% 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
18.5185 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 (see "Business--Properties"), and Kuala Lumpur,
Malaysia, this facility was subsequently sold (see "Recent Developments"). The
assets purchased by us also included, 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 operated 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
41
<PAGE>
Harris must indemnify us for any damages arising from these excluded
liabilities. The agreement also provides that we must offer to employ all our
employees on substantially the same terms and conditions as they were employed
immediately before the acquisition of the semiconductor business. In addition,
the agreement contains a provision that, subject to some limitations, forbids
Harris for a period of five years after the consummation of the acquisition of
the semiconductor business from engaging in business competing with most of our
products in existence on the date the transactions were consummated.
Under the terms of the Master Transaction Agreement, Harris entered into
with us various agreements, including the Intellectual Property Agreement, the
Patent Assignment and Services Agreement, the License Assignment Agreement, the
Secondary Trademark Assignment and License Agreement, the Harris Trademark
License Agreement, the Royalty Agreement, the Transition Services Agreement, the
Shareholders' Agreement and the Registration Rights Agreement. See "Description
of Capital Stock--Shareholders' Agreement" and "--Registration Rights
Agreement."
INTELLECTUAL PROPERTY AGREEMENT
Under the Intellectual Property Agreement, Harris assigned to us its entire
ownership, right, title and interest in some intangible property rights existing
under laws respecting copyright, maskwork and trade 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 1,300 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
42
<PAGE>
commercially reasonable efforts to provide us the economic benefit of, each
retained license agreement is to occur at the time that all the amounts that are
due, or are to become due under the retained license agreement, have been paid
to Harris. The agreement still further provides that we accept the assignments
or transfers effected under the License Assignment Agreement and assume the
liabilities of Harris to each of the license agreements so assigned or
transferred.
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.
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.
THE ROYALTY AGREEMENT
Under the Royalty Agreement covering PRISM(R) revenues, we agreed to pay
Harris 2% of the revenue generated by the sales of the PRISM(R) chip sets until
August 13, 2004. As of August 31, 2000, we had paid Harris $593,670 in
connection with the Royalty Agreement.
TRANSITION SERVICES AGREEMENT
Under the Transition Services Agreement, Harris agreed to provide a number
of business support services to us to 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. 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.
With the exception of Messrs. Conn, Peeters and Pokelwaldt, who joined as
directors on April 19, 2000, each of our directors has served as director since
our formation on June 2, 1999. Our directors 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 an 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 or until a
successor has been elected and qualified.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Gregory L. Williams....................... 47 Chief Executive Officer, Director
Daniel J. Heneghan........................ 44 Vice President, Chief Financial Officer and
Assistant Secretary
Larry W. Sims............................. 43 Vice President, Marketing and Sales
Lawrence J. Ciaccia....................... 41 Vice President, General Manager, PRISM(R) Wireless
W. Russell Morcom......................... 54 Vice President, General Manager, Discrete Power
Stephen M. Moran.......................... 43 Vice President, General Counsel and Secretary
Julie B. Forbes........................... 43 Vice President, Human Resources
Robert W. Conn............................ 58 Director
Gary E. Gist.............................. 53 Director
Jan Peeters............................... 49 Director
Robert N. Pokelwaldt...................... 64 Director
James A. Urry............................. 45 Director
</TABLE>
Gregory L. Williams, Chief Executive Officer, Director. Mr. Williams is
our Chief Executive Officer and one of our directors. From October 1998 to
August 1999, Mr. Williams was President of the semiconductor business at Harris.
From January 1998 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.
Daniel J. Heneghan, Vice President, Chief Financial Officer and Assistant
Secretary. Mr. Heneghan is our Vice President, Chief Financial Officer and
Assistant Secretary. 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. From 1979 to
1998, Mr. Sims served in various sales management positions at Motorola
Semiconductor.
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.
44
<PAGE>
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.
Julie B. Forbes, Vice President, Human Resources. Ms. Forbes joined our
company as Vice President, Human Resources in August 1999. Prior to joining us,
Ms. Forbes was the Vice President and Director of Human Resources for the
Satellite Communications Group of Motorola from 1998 to 1999. From 1992 until
1998, Ms. Forbes served in various other Human Resources positions in the
Semiconductor Products Sector of Motorola.
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 us, 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.
Robert W. Conn, Director. Dr. Conn is one of our directors. Dr. Conn has
been the Dean of the Jacobs School of Engineering, University of California, San
Diego, and the Walter J. Zable Endowed Chair in Engineering since 1994. Prior to
joining University of California, San Diego, Dr. Conn served as Professor of
Engineering and Applied Sciences and founding Director of the Institute of
Plasma and Fusion Research at the University of California, Los Angeles. Dr.
Conn has been editor of the journal Fusion Engineering and Design, since 1986.
Dr. Conn recently served as a member of the President's Committee of Advisors on
Science and Technology Panel on Energy R&D Policy for the 21st Century, which
service ended in 1998.
Gary E. Gist, Director. Mr. Gist is one of our directors. Mr. Gist has
served as the President and Chief Executive Officer of 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.
Jan Peeters, Director. Mr. Peeters is one of our directors. Mr. Peeters is
the founder, Chairman, President, Chief Executive Officer and a major
shareholder of Olameter Inc., a communications and data management service
provider which he formed in 1998. Mr. Peeters was a founder, Vice-Chairman,
President and Chief Executive Officer of Fonorola Inc. where he held the
position of President and Chief Executive Officer since 1990 and the position of
Vice-Chairman since 1994, until that company was sold to Call-Net Enterprises in
June 1998. Mr. Peeters serves on the Board of Directors of Call-Net Enterprises
and Cogeco, Inc.
Robert N. Pokelwaldt, Director. Mr. Pokelwaldt is one of our directors.
Mr. Pokelwaldt retired as the Chairman and Chief Executive Officer of YORK
International Corporation, an independent supplier of heating, ventilating, air
conditioning, and refrigeration products in the U.S. and internationally in
November 1999. He became President and Chief Executive Officer of YORK in 1991,
and Chairman of YORK in January 1993. Mr. Pokelwaldt joined YORK as President of
Applied Systems Worldwide, a YORK Division, in 1988, and two years later was
appointed President and Chief Operating Officer of YORK International. Mr.
Pokelwaldt serves on the Board of Directors of Mohawk Industries, Susquehanna
Pfaltzgraff, Inc. and Carpenter Technology.
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., Hancor
Holding Corporation, IKS Corporation, Palomar Technological Companies and York
International Corporation.
45
<PAGE>
Our Board of Directors currently consists of six directors, determined as
follows: our chief executive officer, one individual designated by Sterling, up
to two independent directors designated by Sterling (to the extent permitted by
applicable law as determined in Sterling's sole discretion) and, in the event
the Board includes two independent directors designated by Sterling, one
additional individual designated by Sterling. The holders of a majority of the
outstanding shares of Class A Common Stock (including any shares of Class A
Common Stock held by Sterling) have the right to veto the election of any
independent directors designated by Sterling. Under our Shareholders' Agreement,
each of our shareholders prior to the initial public offering (owning in the
aggregate 18,554,703 shares, or approximately 41%, of the outstanding Class A
Common Stock, our only class of voting stock, and 49,746,482 shares, or 100%, of
Class B Common Stock which are convertible into shares of Class A Common Stock
on a one-to-one basis) 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. All other directors
receive cash in the amount of $10,000 per year and $1,500 and $1,000,
respectively, per board and committee meeting attended and non-cash compensation
of a one-time appointment grant of options to purchase 7,500 shares of our Class
A Common Stock and an annual grant of options to purchase 5,000 shares of our
Class A Common Stock. All directors will be reimbursed for travel and other
expenses incurred in attending meetings of the Board of Directors or its
committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; AUDIT COMMITTEE
James A. Urry and Gary E. Gist are the members of our Compensation
Committee. Jan Peeters, Gary E. Gist, and Robert N. Pokelwaldt are the members
of our Audit Committee.
46
<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 years 1999 and 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
AWARDS
ANNUAL COMPENSATION ------------- PAYOUTS
---------------------------------------- SECURITIES ----------
NAME AND FISCAL OTHER ANNUAL UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2)(3) OPTIONS(4) PAYOUTS COMPENSATION(5)
------------------ ------ -------- -------- ------------------ ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gregory L. Williams.. 2000 $399,615 $ 49,559 $430,052 140,000 $ 0 $29,312
Chief Executive 1999 318,615 20,531 6,925 0 0 12,207
Officer
Larry W. Sims........ 2000 239,231 41,698 421,239 63,334 0 6,666
Vice President, 1999 185,769 117,953 47,174 0 0 1,889
Marketing and Sales
George L. Gidzinski.. 2000 190,769 22,173 0 63,334 19,620 10,899
Vice President and 1999 133,269 46,683 3,264 0 28,350 15,128
General Manager,
Analog and
Mixed-Signal
W. Russell Morcom.... 2000 186,923 51,360 0 63,334 49,050 16,099
Vice President and 1999 170,000 113,623 10,798 0 70,875 57,114
General Manager,
Discrete Power
Daniel J. Heneghan... 2000 179,712 44,287 0 63,334 17,249 10,405
Vice President, 1999 121,980 44,121 1,920 0 24,924 23,774
Chief Financial
Officer and
Assistant Secretary
</TABLE>
------------------
(1) This category includes Annual Incentive Plan bonus for all officers and a
sales incentive compensation bonus for Mr. Sims. It also includes a
disruption bonus for Mr. Heneghan in the amount of $25,000 in fiscal year
2000 and a disruption and signing bonus for Mr. Sims in the amount of
$65,000 in fiscal 1999.
(2) Except for Mr. Williams and Mr. Sims, none of the executive officers named
in the Summary Compensation Table received personal benefits in excess of
$50,000 or 10% of annual salary and bonus for fiscal year 2000. Mr.
Williams' and Mr. Sims' personal benefits for fiscal year 2000 included
relocation expenses and applicable taxes associated with their relocation to
the corporate office in Irvine, California.
(3) 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 associated with his relocation to Melbourne, Florida. 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.
(Footnotes continued on next page)
47
<PAGE>
(Footnotes continued from previous page)
(4) All stock options were granted under the Intersil Holding Corporation 1999
Equity Compensation Plan. The stock option grants terminate ten years from
the date of grant and vest over a five year period--20% upon each of the
first five anniversary dates of the grant.
(5) Amounts reported reflect contributions and allocations to defined
contribution retirement plans and the value of insurance premiums for term
life insurance and disability insurance.
The following table provides information concerning stock options granted
to the executive officers named in the Summary Compensation Table during fiscal
year 2000.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES
PERCENTAGE OF OF STOCK
ALL OPTIONS PRICE APPRECIATION
NUMBER OF GRANTED TO FOR OPTION
SECURITIES ALL EMPLOYEES TERM (4)
UNDERLYING IN FISCAL EXERCISE EXPIRATION -----------------------------
NAME OPTIONS (1) YEAR (2) PRICE DATE (3) 5% 10%
---- ----------- ----------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gregory L. Williams............. 140,000 4.4% $25.00 2/24/2010 $2,201,131 $5,578,099
Larry W. Sims................... 63,334 2.0 25.00 2/24/2010 995,760 2,523,452
George L. Gidzinski............. 63,334 2.0 25.00 2/24/2010 995,760 2,523,452
W. Russell Morcom............... 63,334 2.0 25.00 2/24/2010 995,760 2,523,452
Daniel J. Heneghan.............. 63,334 2.0 25.00 2/24/2010 995,760 2,523,452
</TABLE>
------------------
(1) These options vest in twenty-percent increments on the first five
anniversaries of the grant date of February 24, 2000.
(2) A total of 3,177,184 options were granted to Intersil employees under the
Intersil Stock Option Plan in fiscal year 2000.
(3) The options will expire ten years after the grant date of February 24, 2000.
(4) Represents the potential realizable value of the underlying shares of
Intersil common stock at the expiration date based on an assumed annual
appreciation rate of 5% and 10%, set by the Securities and Exchange
Commission. The amounts shown are not intended to forecast future
appreciation in the price of our Class A Common Stock.
The following table sets forth information regarding the number and value
of options held by the executive officers named in the Summary Compensation
Table at the end of fiscal year 2000.
OPTION VALUES AT END OF LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SECURITIES NET VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR-END OPTIONS AT YEAR-END(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gregory L. Williams........................... -- 140,000 -- $4,068,400
Larry W. Sims................................. -- 63,334 -- 1,840,486
George L. Gidzinski........................... -- 63,334 -- 1,840,486
W. Russell Morcom............................. -- 63,334 -- 1,840,486
Daniel J. Heneghan............................ -- 63,334 -- 1,840,486
</TABLE>
------------------
(1) Reflects net pre-tax amounts determined by subtracting the exercise price
from $54.06 per share, the fair market value of common stock at the end of
fiscal year 2000.
48
<PAGE>
EMPLOYMENT AGREEMENTS
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 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 from
August 13, 1999, 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 awards covering up
to 7,500,000 shares of Class A Common Stock to key employees, directors and
consultants of the Company and our subsidiaries. Options to acquire 3,177,184
shares of Class A Common Stock are the only awards which have been granted under
the Plan as of June 30, 2000. 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 for an incentive
stock option will be 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. Options granted will be exercisable at the determination
of the committee. Within any calendar year, an employee may not receive options
to purchase more than 666,667 shares of Class A Common Stock.
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 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 Class A Common Stock of an amount equal to the excess of the fair
market value of 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 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 Class A Common Stock of an amount equal the value of the underlying
Class A Common Stock as of the date of settlement specified in the award or
appreciation in the value of the underlying 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.
49
<PAGE>
Any Class A Common Stock awarded as restricted stock, awarded upon exercise
of an option or 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.
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 and employees of related participating employers such as Choice-
Microsystems, Inc. have an opportunity to purchase up to 1,333,334 shares of our
Class A Common Stock at a discount. All such 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 and no more than 16,667
shares may be purchased by an employee on any purchase date.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Citicorp Mezzanine Partners, L.P. contributed $30.0 million in cash to us
in exchange for the 13.5% Subordinated PIK Note due 2010 and warrants to
purchase 3,703,707 shares of our 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, as a result of early repayment, the number of shares subject to
such warrants was reduced to 2,222,224 shares. We 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, one of our principal shareholders. In connection with the contemplated
secondary offering of our Class A Common Stock, we permitted the partial early
exercise of warrants to purchase the 267,981 shares of our Class A Common Stock
that Citicorp Mezzanine Partners, L.P. is selling in this offering.
Sterling Harris and certain members of our senior management entered into a
Shareholders' Agreement containing certain agreements among the shareholders
regarding our capital stock and corporate governance. We exercised our option
under the Shareholders' Agreement to repurchase from Sterling a total of
1,833,333 shares of Class A Common Stock for an aggregate purchase price of
$137,500 to reissue to our employees. See "Description of Capital
Stock--Shareholders' Agreement."
We purchased from Harris selected portions of the semiconductor business.
Harris entered into with us various agreements, including the Intellectual
Property Agreement, the Patent Assignment and Services Agreement, the License
Assignment Agreement, the Secondary Trademark Assignment and License Agreement,
the Harris Trademark License Agreement and the Royalty Agreement.
o The Intellectual Property Agreement provides for the assignment by Harris
to us of its entire ownership, right, title and interest in some
intangible property rights owned by Harris and specific to the
semiconductor business.
50
<PAGE>
o The Patent Assignment and Services Agreement provides for the assignment
by Harris to us, subject to pre-existing license rights, of about 1,300
patent rights. Harris has 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 has
granted us a worldwide, royalty-free, non-exclusive license to these
patents, without the right to sublicense.
o The License Assignment Agreement provides for the assignment by Harris to
us of certain license agreements that may be assigned without the consent
of third party licensors and licensees and also provides that Harris will
provide us with the economic benefit of certain other material license
agreements that may not be assigned without the consent of third party
licensors and licensees.
o The Secondary Trademark Assignment and License Agreement provides for the
assignment by Harris to us of some trademarks related to products of the
semiconductor business and provides that we grant back to Harris
worldwide, non-exclusive, royalty-free licenses recognizing transitional
use of some visible trademarks assigned by Harris to us.
o The Harris Trademark License Agreement provides for the grant by Harris
to us of 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.
o The Royalty Agreement provides for our payment to Harris of 2% of the
revenue generated by the sales of the PRISM(R)chip sales until August 13,
2004. As of August 31, 2000, we have paid Harris $593,670 in connection
with the Royalty Agreement.
In June 2000, we sold our assembly and test facilities in Malaysia along
with related intellectual property to ChipPAC in exchange for $52.5 million in
cash and preferred stock of ChipPAC that has an aggregate liquidation preference
of $17.5 million. We also assigned to ChipPAC patents, copyrights and technical
information used exclusively in or associated exclusively with our assembly and
test facilities in Malaysia and granted ChipPAC a worldwide, nonexclusive,
royalty-free license under other of our patents, copyrights and technical
information that is also used in or related to the operation of the assembly and
test facilities in Malaysia. Any intellectual property rights in the bonding
diagrams, test programs, mask works and test boards uniquely related to our
products for which ChipPAC will provide packaging and test services under the
supply agreement are licensed to ChipPAC only for use in providing those
services. We also entered into a long term joint services agreement with ChipPAC
in connection with the sale under which each party is required to assist the
other in a smooth transition of each party's operations following the sale.
Under our supply agreement with ChipPAC, we have agreed to continue to use
the Malaysian facility to provide 100% (until June 30, 2003), 90% (from July 1,
2003 to June 30, 2004) and 80% (from July 1, 2004 to June 30, 2005) of our
semiconductor package configuration assembly and test requirements for all
products assembled and tested at the Malaysian facility on the date of the
supply agreement and any new or additional products we may develop after that
date. In addition, ChipPAC will ensure that we are allocated 100% of the
utilized capacity that was in place on the date of the supply agreement.
One of the principal shareholders of ChipPAC is an affiliate of Sterling,
our principal shareholder.
The terms of the agreements listed above were the result of arms-length
negotiations and in our opinion are no less favorable to us than those that
could be obtained from non-affiliated parties.
51
<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 our 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 June 30, 2000. The table does not
include shares of our 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.
Unless otherwise indicated, the address of each person owning more than 5%
of our outstanding shares is c/o Intersil Holding Corporation, 7585 Irvine
Center Drive, Suite 100, Irvine, California 92618.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK (1) COMMON STOCK (2)
-------------------- -------------------- PERCENT OF ALL
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT COMMON STOCK (3)
------------------------ ---------- ------- ---------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Sterling Holding Company, LLC 10,738,026 23.98% 45,214,898 90.89% 59.20%
(4)(5)................................
Harris Corporation (6) ............... 892,806 2.00% 4,531,584 9.11% 5.74%
1025 W. NASA Boulevard
Melbourne, Florida 32919
Gregory L. Williams (7) .............. 2,090,056 4.67% -- -- 2.21%
W. Russell Morcom (8) ................ 573,570 1.28% -- -- *
Larry W. Sims (9)..................... 541,750 1.21% -- -- *
George L. Gidzinski (10) ............. 461,098 1.03% -- -- *
Daniel J. Heneghan (11) .............. 392,685 * -- -- *
Karl McCalley ........................ 285,006 * -- -- *
Ray D. Odom (12) ..................... 357,074 * -- -- *
Julie S. Forbes (13) ................. 277,486 * -- -- *
Lawrence J. Ciaccia (14) ............. 355,238 * -- -- *
Stephen M. Moran ..................... 33,334 * -- -- *
James A. Urry (15) ................... 32,024 * -- -- *
Gary E. Gist (16) .................... 4,708 * -- * *
Robert W. Conn ....................... -- * -- -- *
Jan Peeters .......................... 3,034 * -- -- *
Robert N. Pokelwaldt ................. -- * -- -- *
All directors, officers and other 5,407,063 12.08% -- * 5.72%
management investors as a group (15
persons) .............................
</TABLE>
------------------
* Less than 1%.
(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 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, her or its 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 41,870,193 shares of Class A or Class B Common
Stock. Citicorp Mezzanine Partners, L.P., the general
(Footnotes continued on next page)
52
<PAGE>
(Footnotes continued from previous page)
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.
(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) Includes 2,053,116 shares owned by Gregory L. Williams and Linda H.
Williams. Does not include 66,667 shares owned by the Gregory L. Williams
and Linda H. Williams Trust dated 1/28/00 FBO a family member, 66,667
shares held by the Gregory L. Williams and Linda H. Williams Trust dated
1/28/00 FBO a family member and 26,667 shares owned by the Gregory L.
Williams and Linda H. Williams Trust dated 1/28/00 FBO certain family
members for which Mr. Williams disclaims beneficial ownership. Includes
21,798 shares owned by DLJSC, as Trustee for Gregory L. Williams IRA
Account. Includes currently exercisable options to purchase 15,142 shares
of our Class A Common Stock.
(8) Includes 569,027 shares owned by W. Russell Morcom Revocable Trust. Does
not include 66,667 shares owned by W. Russell Morcom Irrevocable Trust FBO
a family member dated 12/23/99 and 66,667 shares owned by W. Russell Morcom
Irrevocable Trust FBO a family member dated 12/23/99 for which Mr. Morcom
disclaims beneficial ownership. Includes currently exercisable options to
purchase 4,543 shares of our Class A Common Stock.
(9) Includes 437,207 shares owned by Larry W. Sims and Elizabeth Sims, 100,000
shares owned by Lesgrat No. 00-1, a trust holding shares on behalf of its
beneficial owners. Does not include 13,334 shares owned by LS Parents Trust
No. 00-1 and 13,334 shares owned by ES parents Trust No. 00-1 for which Mr.
Sims disclaims beneficial ownership. Includes currently exercisable options
to purchase 4,543 shares of our Class A Common Stock.
(10) Includes currently exercisable options to purchase 4,543 shares of our
Class A Common Stock.
(11) Includes 389,656 shares owned by Daniel J. Heneghan and Barbara Heneghan.
Includes currently exercisable options to purchase 3,029 shares of our
Class A Common Stock.
(12) Does not include 13,334 shares owned by an Irrevocable Trust U/T/D 12/29/99
for the benefit of a family member and 13,334 shares owned by an
Irrevocable Trust U/T/D 12/29/99 for the benefit of a family member for
which Mr. Odom disclaims beneficial ownership. Includes currently
exercisable options to purchase 3,029 shares of our Class A Common Stock.
(13) Includes 126,259 shares owned by Julie B. Forbes Trust D/T/D 3/23/00,
126,258 shares owned by the Peter K. Forbes Trust D/T/D 3/23/00, 9,456
shares owned by the Peter K. Forbes and Julie B. Forbes Trust dated 1/20/00
FBO a family member and 9,456 shares owned by Peter K. Forbes and Julie B.
Forbes Trust dated 1/20/00 FBO a family member. Includes currently
exercisable options to purchase 6,057 shares of our Class A Common Stock.
(14) Includes 288,570 shares owned by Lawrence J. Ciaccia and Marcia R. Ciaccia
and 66,668 shares owned by the Lawrence J. Ciaccia and Marcia R. Ciaccia
Trust daed 1/20/00.
(15) 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 (6) 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.
(16) 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, our principal shareholder, 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.
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DESCRIPTION OF CAPITAL STOCK
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 48,077,057 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 shareholders 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 August 11, 2000, there were 8,900 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 June 30,
2000, 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 shareholder rights plan. A shareholder 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 shareholder rights plan in one or more series, and to fix the
voting powers, designations, preferences, and relative, participating, optional
or other special rights and
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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.
OTHER PROVISIONS OF OUR RESTATED CERTIFICATE OF INCORPORATION
Our Restated Certificate of Incorporation, contains provisions affecting
the rights of our shareholders 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 shareholders 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 shareholder 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 shareholder rights plan can be adopted with the consent of a
majority of our Board of Directors. A shareholder rights plan generally
makes it more difficult for a hostile bidder to take control of a company
by providing existing shareholders 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
shareholder 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 shareholders'
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 shareholders may
replace the entire Board at each annual election.
o Shareholders may act by written consent, without a meeting and without
notice or a vote. This provision enables shareholders to act on matters
subject to a shareholder vote without waiting until the next annual or
special meeting of shareholders.
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 shareholder 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 shareholders 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 any transfer by Sterling or its
affiliates, Sterling and its affiliates together own less than 15% of our
outstanding common stock, then holders of a majority of the Class A
Common Stock can 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.
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WARRANTS RELATING TO THE 13.5% SUBORDINATED HOLDING PIK NOTE
In connection with our issuance of the 13.5% Subordinated Holding PIK Note,
we issued to Citicorp Mezzanine Partners, L.P. warrants to purchase Class A
Common Stock. These warrants are not the warrants covered by this prospectus.
These warrants entitle the holder to purchase up to 2,222,224 shares of our
Class A Common Stock. The exercise period of the warrants begins on August 13,
2001 and ends on August 15, 2009 at an exercise price of $0.0015 per share,
subject to anti-dilution adjustments, except that upon the consummation of the
public offering of our Class A Common Stock referenced in Recent Developments,
Citicorp Mezzanine Partners, L.P. will exercise warrants to purchase 267,981
shares of our Class A Common Stock and may exercise warrants to purchase 43,094
additional shares of our Class A Common Stock in connection with an
overallotment, if any. See "Recent Developments."
SHAREHOLDERS' AGREEMENT
Prior to our initial public offering, the then-existing shareholders of our
company entered into a Securities Purchase and Holders Agreement, which we refer
to as the Shareholders' Agreement, containing agreements among the shareholders
with respect to our capital stock and corporate governance.
The Shareholders' Agreement contains provisions which restrict Citicorp
Venture Capital Ltd., or CVC, and its permitted transferees from effecting a
transfer of 50% or more of the shares of common stock owned by them without
offering the other parties to the Shareholders' Agreement an equal opportunity
to participate in the transaction or transactions. In addition, CVC 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 Shareholders'
Agreement continues to subject some of our executive officers' common stock to a
risk of repurchase by the Company.
REGISTRATION RIGHTS AGREEMENT
In connection with their entry into the Shareholders' Agreement, the
then-existing shareholders of our company also entered into a Registration
Rights Agreement (the "Registration Rights Agreement"). According to the
Registration Rights Agreement, upon the written request of CVC and subject to
our option to defer action for 180 days, we 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 CVC and use our best efforts
to cause such registration statement to become effective. If at any time we file
a registration statement for our common stock because of a request by CVC or
otherwise, we will use our best efforts to allow the other parties to the
Registration Rights Agreement to have their shares of our common stock (or a
portion of their shares under circumstances set forth in the Registration Rights
Agreement) included in the registered offering. We are not bound by this
requirement if we file a registration statement on Form S-8, Form S-4 or any
similar form in connection with an exchange offer or an offering solely to our
employees or existing shareholders, or a registration statement registering a
unit offering consisting of a public offering of our debt and equity securities
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, we do 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 us. We will not pay
expenses relating to underwriting commissions, brokerage fees and transfer taxes
applicable to the shares sold by the shareholders or in certain cases the fees
and expenses of any accountants or other representatives retained by a selling
shareholder.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of Intersil Corporation,
or Intersil, and of Intersil Holding. 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.
NOTES
On August 13, 1999, Intersil and Intersil Holding issued 200,000 units,
each unit consisting of $1,000 principal amount of the Notes of Intersil and one
warrant to purchase 18.5185 shares of Class A Common Stock, 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 us and United States Trust Company of New York, as Trustee. The warrants
were issued under the Warrant Agreement between Intersil Holding and United
States Trust Company of New York, as warrant agent. 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 of
Harris and pay related fees and expenses. 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 113.25% of the principal amount of the Notes, plus accrued and unpaid
interest on the Notes. The amount repaid with the proceeds of our initial public
offering included $70.0 million of the principal amount of the Notes plus a
prepayment premium and accrued and unpaid interest thereon.
The Notes were initially in the principal amount of $200.0 million and
mature on August 15, 2009. Interest on the Notes accrues at 13.25% 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.
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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SENIOR CREDIT FACILITIES
General. Intersil entered into 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.
Intersil has available up to $70.0 million of aggregate borrowing capacity,
consisting of a secured $70.0 million revolving line of credit (the "Revolving
Credit Facility"). Intersil may request, subject to lender approval, that the
amount of the Revolving Credit Facility be increased to an amount not to exceed
$150.0 million.
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 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. Voluntary prepayments may be made in whole or in part without
premium or penalty.
Covenants and Events of Default. The senior credit facilities contain,
among other things, covenants restricting 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 holders of Class A Common Stock.
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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 18.5185 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 became exercisable on August 14, 2000 and expire 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 Shareholders
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 shareholders in respect of any shareholders
meeting for the election of our directors or any other purpose, or to the
exercise of any other rights whatsoever as our shareholders.
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,
60
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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.
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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 August 4,
2000. 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>
Arbitrage Omni/Deutsche Bank................................ 55,253 55,253
Quantum Ind. Partners LDC................................... 22,000 22,000
LA Con Equity Hedge/JP Morgan Securities Inc................ 20,472 20,472
Fidelity Fixed Income Trust/Fidelity High Income Fund....... 16,350 16,350
SG Cowen Securities......................................... 12,870 12,870
Credit Suisse First Boston Corporation...................... 9,085 9,085
Millenco Trading Acct/NIN................................... 7,880 7,880
Lutheran Brotherhood Research Corp.......................... 2,800 2,800
UBK AM Arbitrage Fund....................................... 2,000 2,000
Sattelite Overseas Fund, Ltd................................ 1,968 1,968
Lutheran Brotherhood Research Corp.......................... 1,700 1,700
Eaton Vance Income Fund of Boston........................... 1,250 1,250
Eaton Vance High Income Trust............................... 1,250 1,250
Sattelite Fund II, L.P...................................... 1,208 1,208
Evergreen Investment Services............................... 1,000 1,000
Frank Russell Investment Co................................. 500 500
Sattelite Fund III, L.P..................................... 194 194
Sattelite Fund I, L.P....................................... 130 130
------- -------
Total.................................................. 157,910 157,910
</TABLE>
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LEGAL MATTERS
Certain legal matters regarding the warrants and Warrant Shares offered
hereby will be passed upon for us by Dechert, Philadelphia, Pennsylvania.
Dechert beneficially owns 80,300 shares of our Class A Common Stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the Intersil Holding
Corporation (Successor) consolidated financial statements at June 30, 2000 and
for the 46 weeks then ended and the consolidated financial statements of the
Harris Semiconductor Business (Predecessor) at June 2, 1999, and for each of the
two years in the period ended July 2, 1999 and the six weeks in the period ended
August 13, 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, 7585 Irvine
Center Drive, Suite 100, Irvine, California 92618; the telephone number at that
address is (949) 341-7062.
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INDEX TO FINANCIAL STATEMENTS
INTERSIL HOLDING CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Certified Public Accountants' Report............ F-2
Consolidated Statements of Operations and Comprehensive
Income.................................................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Cash Flows....................... F-5
Consolidated Statement of Shareholders' Equity.............. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
The Board of Directors
Intersil Holding Corporation
We have audited the accompanying consolidated balance sheet of Harris
Semiconductor Business (Semiconductor Business) (Predecessor), which was wholly
owned by Harris Corporation, as of July 2, 1999 and the related statement of
operations, comprehensive income and cash flows for each of the two fiscal years
in the period ended July 2, 1999 and the six weeks ended August 13, 1999,
respectively. We have also audited the accompanying consolidated balance sheet
of Intersil Holding Corporation (Successor) as of June 30, 2000 and the related
statements of operations, comprehensive income, shareholders' equity, and cash
flows for the 46 weeks ended June 30, 2000. 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 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Intersil Holding
Corporation as the Successor and Predecessor companies at June 30, 2000 and July
2, 1999 and the consolidated results of their operations and their cash flows
for each of the two years in the period ended July 2, 1999 and for the six weeks
and 46 weeks ended August 13, 1999 and June 30, 2000, respectively, 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
July 21, 2000
F-2
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
PREDECESSOR PREDECESSOR | SUCCESSOR
--------------------------- --------------- | --------------
FISCAL YEAR ENDED SIX WEEKS ENDED | 46 WEEKS ENDED
--------------------------- --------------- | --------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999 | JUNE 30, 2000
------------ ------------ --------------- | --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
<S> <C> <C> <C> <C>
REVENUE |
Product sales.................................... $576,836 $532,718 $ 57,336 | $596,849
|
COSTS AND EXPENSES |
Cost of product sales............................ 369,332 349,776 39,681 | 352,513
Research and development......................... 75,125 67,079 8,499 | 69,456
Selling, general and administrative.............. 98,184 83,998 10,908 | 97,227
Harris corporate expense allocation.............. 9,962 9,303 1,164 | --
Intangible amortization.......................... 2,292 2,414 326 | 10,686
In-process research and development.............. -- -- -- | 20,239
Other............................................ -- -- -- | 1,178
-------- -------- -------- | --------
Operating income (loss)............................ 21,941 20,148 (3,242) | 45,550
Loss on sale of Malaysian operation.............. -- -- -- | 24,825
Interest expense................................. 43 129 -- | 41,924
Interest income.................................. (957) (1,360) (111) | (3,720)
-------- -------- -------- | --------
Income (loss) before income taxes and |
extraordinary item............................ 22,855 21,379 (3,131) | (17,479)
Income taxes (benefit)........................... 9,944 (6,027) (102) | (289)
-------- -------- -------- | --------
Net income (loss) before extraordinary item...... 12,911 27,406 (3,029) | (17,190)
Extraordinary item--loss on extinguishment of |
debt, net of tax effect....................... -- -- -- | (25,518)
-------- -------- -------- | --------
NET INCOME (LOSS).................................. 12,911 27,406 (3,029) | (42,708)
Preferred dividends................................ -- -- -- | 5,391
-------- -------- -------- | --------
Net income (loss) to common shareholders........... $ 12,911 $ 27,406 $ (3,029) | $(48,099)
======== ======== ======== | ========
BASIC AND DILUTED LOSS PER SHARE: |
Loss before extraordinary item................... | $ (0.30)
Extraordinary item............................... | $ (0.33)
| --------
Net loss......................................... | $ (0.63)
| ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (IN |
MILLIONS): |
Basic and diluted................................ | 76.7
| ========
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR | SUCCESSOR
--------------------------- --------------- | --------------
FISCAL YEAR ENDED SIX WEEKS ENDED | 46 WEEKS ENDED
--------------------------- --------------- | --------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999 | JUNE 30, 2000
------------ ------------ --------------- | --------------
(IN THOUSANDS) |
<S> <C> <C> <C> <C>
Net income (loss).................................. $12,911 $27,406 $(3,029) | $(42,708)
Other comprehensive income (loss): |
Currency translation adjustments................. (1,851) (574) 2,475 | 1,636
------- ------- ------- | --------
Comprehensive income (loss)........................ $11,060 $26,832 $ (554) | $(41,072)
======= ======= ======= | ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PREDECESSOR | SUCCESSOR
------------ | -------------
JULY 2, 1999 | JUNE 30, 2000
------------ | -------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS |
Current Assets |
Cash and cash equivalents................................. $ -- | $211,940
Trade receivables, less allowances for collection loss |
($582 as of July 2, 1999 and $1,341 as of June 30, |
2000)................................................... 100,674 | 111,695
Inventories............................................... 153,822 | 126,481
Prepaid expenses.......................................... 3,725 | 10,645
Income tax receivable..................................... 1,527 | 1,254
Deferred income taxes..................................... 3,476 | 25,768
-------- | --------
Total Current Assets................................. 263,224 | 487,783
Other Assets |
Property, plant and equipment, less allowance for |
depreciation ($582,616 as of July 2, 1999 and $36,699 as |
of June 30, 2000)....................................... 410,530 | 225,484
Intangibles, less accumulated amortization ($19,929 as of |
July 2, 1999 and $10,686 |
as of June 30, 2000).................................... 45,368 | 190,150
Other..................................................... 42,057 | 30,521
-------- | --------
Total Other Assets................................... 497,955 | 446,155
-------- | --------
Total Assets................................................ $761,179 | $933,938
======== | ========
LIABILITIES AND SHAREHOLDERS' EQUITY/BUSINESS EQUITY |
Current Liabilities |
Trade payables............................................ $ 31,068 | $ 36,991
Retirement plan accruals.................................. 13,640 | 6,228
Accrued compensation...................................... 19,283 | 32,398
Accrued interest and sundry taxes......................... 3,193 | 10,512
Other accrued items....................................... 16,418 | 22,734
Distributor reserves...................................... 6,542 | 7,366
Unearned service income................................... 567 | 129
Long-term debt--current portion........................... 360 | 404
-------- | --------
Total Current Liabilities............................ 91,071 | 116,762
Other Liabilities |
Deferred income taxes..................................... 7,022 | 21,992
Long-term debt............................................ 4,207 | 116,188
Shareholders' Equity/Business Equity |
Preferred Stock, $1,000 par value, 100,000 shares |
authorized, no shares issued or outstanding at June 30, |
2000.................................................... -- | --
Class A Common Stock, $.01 par value, voting; 300,000,000 |
shares authorized, 44,773,152 shares issued and |
outstanding at June 30, 2000............................ -- | 448
Class B Common Stock, $.01 par value, non-voting; |
300,000,000 shares authorized, 49,746,482 shares issued |
and outstanding at June 30, 2000........................ -- | 497
Additional paid-in capital................................ -- | 719,123
Business equity........................................... 661,388 | --
Retained deficit.......................................... -- | (42,708)
Accumulated other comprehensive (loss) income............. (2,509) | 1,636
-------- | --------
Total Shareholders' Equity/Business Equity........... 658,879 | 678,996
-------- | --------
Total Liabilities and Shareholders' Equity/Business |
Equity............................................... $761,179 | $933,938
======== | ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR | SUCCESSOR
--------------------------- --------------- | -----------------
FISCAL YEAR ENDED SIX WEEKS ENDED | 46 WEEKS ENDED
--------------------------- --------------- | -----------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999 | JUNE 30, 2000
------------ ------------ --------------- | -----------------
(IN THOUSANDS) |
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES: |
Net income (loss)..................................... $12,911 $ 27,406 $ (3,029) | $ (42,708)
Adjustments to reconcile net income (loss) to net cash |
provided by operating activities |
Depreciation........................................ 65,036 78,217 8,747 | 50,602
Amortization........................................ 2,295 2,414 326 | 10,686
Provisions for inventory obsolescence............... 7,317 3,894 1,919 | 23,906
Write-off of in-process research and development.... -- -- -- | 20,239
Write-off of unearned compensation.................. -- -- -- | 878
Loss on sale of Malaysian operation................. -- -- -- | 24,825
Non-current deferred income taxes................... (461) 1,896 (4,756) | (4,680)
Changes in assets and liabilities: |
Trade receivables................................... 1,270 10,001 14,532 | (24,991)
Inventories......................................... (17,176) 22,516 (3,568) | (5,668)
Prepaid expenses.................................... 506 933 674 | (7,737)
Trade payables and accrued liabilities.............. (14,399) (13,950) (18,705) | 43,036
Unearned service income............................. (32) 319 -- | (437)
Income taxes........................................ (3,866) (4,486) 4,430 | 2,290
Other............................................... (5,070) (17,911) 2,812 | 20,898
------- -------- -------- | ---------
Net cash provided by operating activities......... 48,331 111,249 3,382 | 111,139
INVESTING ACTIVITIES: |
Proceeds from sale of Malaysian operation............... -- -- -- | 52,500
Cash paid for acquired business......................... -- (1,335) -- | --
Property, plant and equipment........................... (90,184) (38,563) (1,887) | (38,813)
------- -------- -------- | ---------
Net cash provided by (used in) investing |
activities..................................... (90,184) (39,898) (1,887) | 13,687
FINANCING ACTIVITIES: |
Proceeds from offering................................ -- -- -- | 513,114
Proceeds from exercise of stock options............... -- -- -- | 1,985
Proceeds from borrowings.............................. 2,750 800 -- | --
Payments of borrowings................................ (83) (302) (32) | (435,204)
Net cash transfer and billings from (to) parent....... 41,844 (67,030) (1,198) | --
------- -------- -------- | ---------
Net cash provided by (used in) financing |
activities..................................... 44,511 (66,532) (1,230) | 79,895
Effect of exchange rates on cash and cash |
equivalents......................................... (2,658) (4,819) 1,177 | (158)
------- -------- -------- | ---------
Net increase in cash and cash equivalents......... -- -- 1,442 | 204,563
Cash and cash equivalents at the beginning of the |
period......................................... -- -- -- | 7,377
------- -------- -------- | ---------
Cash and cash equivalents at the end of the |
period......................................... $ -- $ -- $ 1,442 | $ 211,940
======= ======== ======== | =========
SUPPLEMENTAL DISCLOSURES--NON-CASH ACTIVITIES:
Exchange of preferred stock for common stock......................................................... $ 89,400
=========
Common Stock issued in acquisition of No Wires Needed B.V............................................ $ 111,348
=========
Additional paid-in capital from tax benefit on
exercise of non-qualified stock options............................................................ $ 2,132
=========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
----------------- PAID-IN RETAINED COMPREHENSIVE
CLASS A CLASS B CAPITAL DEFICIT INCOME TOTAL
------- ------- ---------- -------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Initial capitalization at August 14, $158 $509 $ 5,935 $ -- $ -- $ 6,602
1999.....................................
Net (loss)................................. -- -- -- (42,708) -- (42,708)
Shares issued in initial public offering... 220 -- 512,894 -- -- 513,114
Shares issued under Stock Option Plan...... 2 -- 4,115 -- -- 4,117
Shares sold to certain executives and
foreign employees........................ -- -- 878 -- (878) --
Write-off of unearned compensation......... -- -- -- -- 878 878
Shares issued for acquisition of No Wires
Needed B.V............................... 30 -- 111,318 -- -- 111,348
Exchange of preferred stock................ 26 -- 89,374 -- -- 89,400
Exchange of common stock................... 12 (12) -- -- -- --
Preferred dividends........................ -- -- (5,391) -- -- (5,391)
Foreign currency translation............... -- -- -- -- 1,636 1,636
---- ---- -------- -------- ------ --------
Balance at June 30, 2000................... $448 $497 $719,123 $(42,708) $1,636 $678,996
==== ==== ======== ======== ====== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 3, 1998 AND JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND 46 WEEKS ENDED JUNE 30, 2000
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Intersil Holding Corporation (Intersil Holding or Successor) 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) (the acquisition). Intersil Holding currently has no
operations but holds common stock related to its investment in Intersil.
Intersil and its wholly-owned domestic and foreign subsidiaries include the
operations of the Predecessor.
BASIS OF PRESENTATION
The accompanying Successor consolidated financial statements subsequent to
August 13, 1999 include the accounts of Intersil Holding and Intersil
(collectively, the Company). All material intercompany transactions have been
eliminated in consolidation. The consolidated balance sheet as of July 2, 1999
and the consolidated statements of operations, comprehensive income and cash
flows for the fiscal years ended July 3, 1998 and July 2, 1999 and the six weeks
ended August 13, 1999 include the accounts of the 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 were based on a percentage of the
semiconductor business' net sales. Interest expense was 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 are not material.
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
F-7
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998 AND JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND 46 WEEKS ENDED JUNE 30, 2000
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION--(CONTINUED)
through borrowings from the senior credit facilities, the 13.25% 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
values. The fair values 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>
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 semiconductor 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 year 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 that included the termination of the employment
of 372 employees of the semiconductor business. At
F-8
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998 AND JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND 46 WEEKS ENDED JUNE 30, 2000
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>
NO. OF
LOCATION 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 46 weeks ended June 30, 2000, approximately $10.1 million of these
restructuring costs had been paid out. As of June 30, 2000, the restructuring
liability was $0.9 million. Intersil Holding will complete the restructing plan
by the end of August 2000.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR--The 1998 fiscal year includes the 53 weeks ended July 3, 1998;
fiscal year 1999 includes the 52 weeks ended July 2, 1999; and fiscal year 2000
includes the six weeks ended August 13, 1999 and the 46 weeks ended June 30,
2000.
CASH AND CASH EQUIVALENTS--Intersil Holding considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
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.
PROPERTY, 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 agreements which provide the distributors rights of return and price
protection on unsold merchandise they hold. Accordingly, sales are reduced for
estimated returns from distributors and estimated future price reductions of
unsold merchandise held by distributors. Product sales to two distributors for
the fiscal years ended July 3, 1998 and July 2, 1999, and the six weeks ended
August 13, 1999 and 46 weeks ended June 30, 2000 amounted to 19.0%, 16.6%, 29.3%
and 15.7%, 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.
F-9
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998 AND JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND 46 WEEKS ENDED JUNE 30, 2000
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The savings element of the retirement plan is a defined contribution plan,
which is qualified under Internal Revenue Service Code Section 401(k). All
employees of the Company may elect to participate in the 401(k) retirement plan
(the "401(k) plan"). Under the 401(k) plan, participating employees may defer a
portion of their pretax earnings up to certain limits prescribed by the Internal
Revenue Service. The Company provides matching contributions under the
provisions of the plan. Employees fully vest in the Company's matching
contributions upon the completion of 7 years of service.
Retirement benefits also include an unfunded limited healthcare 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 $15.6 million in 1998, $14.8 million in 1999,
$1.4 million for the six weeks ended August 13, 1999 and $10.4 million for the
46 weeks ended June 30, 2000.
INCOME TAXES--For the Predecessor financial statements, the semiconductor
business was included with its parent, Harris, in a consolidated federal income
tax return. Harris required each of its businesses to provide for 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. Intersil Holding follows the liability method of
accounting for income taxes. 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 Intersil Holding's
international subsidiaries are separately classified on the balance sheet.
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 five to 11 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.
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
F-10
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998 AND JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND 46 WEEKS ENDED JUNE 30, 2000
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
agreements that do not qualify as hedges are recognized in operations based on
changes in the fair market value of the currency exchange agreement.
FOREIGN CURRENCY TRANSLATION--The functional currency for the Malaysian
subsidiary was 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 shareholders' equity (Business Equity in the
Predecessor's financial statements). Cumulative translation gains (losses) were
$(0.6) million and $1.6 million at July 2, 1999 and June 30, 2000, 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
46 weeks ended June 30, 2000 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
accounting principles generally accepted in the United States 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.
RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform with current year classifications.
NOTE C--ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. (SFAS) 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133." SFAS 137 amends SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," to defer its effective date to all fiscal
quarters of all fiscal years beginning after June 15, 2000. SFAS 133 establishes
accounting and reporting standards for derivative instruments including
standalone instruments, such as forward currency exchange contracts and interest
rate swaps or embedded derivatives and requires that these instruments be
marked-to-market on an ongoing basis. These market value adjustments are to be
included either in the income statement or shareholders' equity, depending on
the nature of the transaction. The Company is required to adopt SFAS 133 in the
first quarter of its fiscal year 2001. We believe that SFAS 133 will not have a
material adverse effect on the Company's financial position or results of
operations.
In December 1999, the Securities and Exchange Commission issued SAB No.
101. "Revenue Recognition in Financial Statements," which provides guidance on
the recognition, presentation, and disclosures of revenue in financial
statements filed with the SEC. SAB No. 101 outlines the basic criteria that must
be met to recognize revenue and provides guidance for disclosures related to
revenue recognition policies. We believe that SAB No. 101 will not have a
material adverse effect on the Company's financial position or results of
operations.
F-11
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998 AND JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND 46 WEEKS ENDED JUNE 30, 2000
NOTE C--ACCOUNTING PRONOUNCEMENTS--(CONTINUED)
In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25." Among other issues, that
interpretation clarifies the definition of employees for purposes of applying
Opinion No. 25, the criteria for determining whether a plan qualifies as a
non-compensatory plan, the accounting consequence of various modifications to
the terms of a previously fixed stock option or award and the accounting for an
exchange of stock compensation awards in a business combination. This
interpretation is effective July 1, 2000, but certain conclusions in the
interpretation cover specific events that occur after either December 15, 1998
or January 12, 2000. To the extent that this interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effect of applying this
interpretation is recognized on a prospective basis from July 1, 2000. We are
currently reviewing stock grants to determine the impact, if any, that may arise
from implementation of this interpretation, although we do not expect the
impact, if any, to be material to our financial statements.
NOTE D--INVENTORIES
Inventories are summarized below (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
------------- -------------
JULY 2, JUNE 30,
1999 2000
------------- -------------
<S> <C> <C>
Finished products........................................... $ 58,041 $ 45,064
Work in process............................................. 102,457 96,278
Raw materials and supplies.................................. 11,441 7,072
-------- --------
171,939 148,414
Less inventory reserves..................................... 18,117 21,933
-------- --------
$153,822 $126,481
======== ========
</TABLE>
At July 2, 1999 and June 30, 2000 Intersil Holding was committed to
purchase $22.5 million and $24.9 million, respectively of inventory from
suppliers. Management believes the cost of this inventory approximates current
market value.
F-12
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE E--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized below (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
------------- -------------
JULY 2, JUNE 30,
1999 2000
------------- -------------
<S> <C> <C>
Land........................................................ $ 3,966 $ 3,860
Buildings................................................... 266,364 78,940
Machinery and equipment..................................... 722,816 179,383
-------- --------
993,146 262,183
Less allowances for depreciation............................ 582,616 36,699
-------- --------
$410,530 $225,484
======== ========
</TABLE>
NOTE F--INTANGIBLES
Intangibles are summarized below (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
------------- -------------
PERIOD OF JULY 2, JUNE 30,
AMORTIZATION 1999 2000
------------- ------------- -------------
<S> <C> <C> <C>
Developed technology................................ 11 years $ -- $ 56,925
Customer base....................................... 7 years -- 23,482
Assembled workforce................................. 5 years -- 9,606
Goodwill............................................ 5-7 years 65,297 110,823
------- --------
65,297 200,836
Less accumulated amortization....................... 19,929 10,686
------- --------
$45,368 $190,150
======= ========
</TABLE>
F-13
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
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>
JUNE 30, 2000
--------
Numerator:
Net loss available to common shareholders (numerator for
basic and diluted earnings per share).................. $(48,099)
========
Denominator:
Denominator for basic earnings per share-weighted average
common shares.......................................... 76,745
Effect of dilutive securities:
Stock options.......................................... --
Warrants............................................... --
--------
Denominator for diluted earnings per share-adjusted
weighted average shares................................ 76,745
========
Basic and diluted loss per share............................ $ (0.63)
========
</TABLE>
The effect of dilutive securities is not included in the computation for
the 46 weeks ended June 30, 2000 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 2, 1999 JUNE 30, 2000
------------- --------------
<S> <C> <C>
13.25% Senior Subordinated Notes........................... $ -- $112,384
Other...................................................... 4,567 4,208
------ --------
4,567 116,592
Less current portion....................................... 360 404
------ --------
$4,207 $116,188
====== ========
</TABLE>
F-14
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE H--LONG-TERM DEBT--(CONTINUED)
Scheduled future principal payments under Intersil Holding's and Intersil's
indebtedness are as follows (in thousands):
<TABLE>
<S> <C>
2001...................................................... $ 404
2002...................................................... 416
2003...................................................... 429
2004...................................................... 388
2005...................................................... 373
Thereafter................................................ 114,582
--------
$116,592
========
</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 were 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 voting 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.
Extinguishment of Debt
On August 13, 1999, 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
F-15
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE H--LONG-TERM DEBT--(CONTINUED)
credit (the "Revolving Credit Facility"). The Revolving Credit Facility provides
for up to $70.0 million of which no amounts were outstanding as of June 30,
2000.
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 Company'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 consequences will result,
foreign) 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.
Also 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 and issued to Citicorp Mezzanine Partners, L.P. a $30.0
million 13.5% Subordinated Holding PIK Note.
On February 25, 2000, the Company issued 22,000,000 shares of common stock
at a price of $25.00 per share. From the proceeds of the initial public
offering, the Company paid off approximately $419.0 million of debt incurred
through the acquisition of the semiconductor business, including all amounts
then outstanding under the Tranche B Senior Term Facility, the 11.13% Seller
Holding PIK Note and the 13.5% Subordinated PIK Note. In connection with the
early extinguishment of debt, the Company recorded extraordinary charges (net of
tax) of $25.5 million.
Other
The other debt consists of five 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 $4.6 million at July 2, 1999 and $4.2 million at June 30,
2000, respectively. The weighted average interest rate for this debt was 3.0% at
July 2, 1999 and June 30, 2000.
NOTE I--PREFERRED STOCK
Intersil Holding has 100,000 shares of preferred stock authorized, stated
value of $1,000 per share. The rights of holders of preferred stock will be
stipulated at the time of issuance as determined pursuant to the adoption of a
shareholder rights plan. On August 13, 1999, Intersil Holding sold 83,434 shares
of its 12% Series A Cumulative Compounding Preferred Stock to certain buyers,
including Sterling Holding Company, LLC, Harris and certain members of
management. The $83.4 million received from the sale was used as a cash equity
contribution from Intersil Holding to Intersil for the acquisition of the
semiconductor business.
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, and 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.
F-16
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE I--PREFERRED STOCK--(CONTINUED)
Concurrent with the initial public offering, Intersil Holding exchanged all
outstanding shares of its 12% Series A Cumulative Compounding Preferred Stock
plus accrued and unpaid dividends for approximately 2.6 million shares of its
Class A Common Stock. Also, the outstanding options to purchase 766.67 shares of
Series A Preferred Stock were exchanged for options to purchase 40,881 shares of
Class A Common Stock.
NOTE J--LEASE COMMITMENTS
Total rental expense amounted to $6.3 million in fiscal year 1998, $6.3
million in fiscal year 1999, $0.6 million for the six weeks ended August 13,
1999 and $5.0 million for the 46 weeks ended June 30, 2000. Future minimum
rental commitments under noncancelable operating leases, primarily used for land
and office buildings amounted to approximately $11.8 million at June 30, 2000.
These commitments for the years following 2000 (which exclude the estimated
rental expense for annually renewable contracts) are: 2001--$2.4 million,
2002--$1.6 million, 2003--$1.0 million, 2004--$0.6 million, 2005--$0.5 million
and $5.7 million thereafter.
NOTE K--BUSINESS EQUITY
Changes in the business equity of the Predecessor's financial statements
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX WEEKS ENDED
--------------------------- ---------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999
------------ ------------ ---------------
<S> <C> <C> <C>
Balance at beginning of period............................. $646,173 $699,077 $658,879
Net income (loss).......................................... 12,911 27,406 (3,029)
Foreign currency translation adjustments................... (1,851) (574) 2,475
Net cash transfers and billings from (to) Harris
Corporation.............................................. 41,844 (67,030) (1,198)
Purchase price elimination................................. -- -- (657,127)
-------- -------- --------
Balance at end of period................................... $699,077 $658,879 $ --
======== ======== ========
</TABLE>
NOTE L--COMMON STOCK
On February 25, 2000, Intersil Holding completed the filing of a
registration statement with the Securities and Exchange Commission for a public
offering of shares of its Class A Common Stock. Intersil Holding issued
22,000,000 shares of its Class A Common Stock at a price of $25.00 per share.
The net proceeds of this offering, after deducting underwriting discounts and
commissions, were approximately $513.1 million. 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 Stock 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.
F-17
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE L--COMMON STOCK--(CONTINUED)
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 were 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 the 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 its Class A Common Stock
at an exercise price of $.001 per share, subject to certain anti-dilution
adjustments. These warrants may be exercised at any time after August 13, 2001
and expire on August 15, 2009. As Intersil Holding has prepaid in full the 13.5%
Subordinated Holding PIK Note within 24 months after issuance, the number of
shares subject to such warrants was reduced to 2,222,224. The warrants were
valued at $0.3 million and were treated as additional interest related to the
13.5% Subordinated Holding PIK Note.
On May 29, 2000, Intersil Holding acquired 100% of the outstanding capital
stock of Bilthoven, The Netherlands-based No Wires Needed B.V. ("NWN").
Consideration for the acquisition of NWN was 3.35 million shares (which includes
323,493 shares issuable upon the exercise of options) of Intersil Holding Class
A Common Stock valued at $111.3 million at the date of closing. (Note Q)
During the 46 weeks ended June 30, 2000, Intersil Holding recorded $0.9
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. Upon the Company's initial public
offering, the stock sold became fully vested and the unearned compensation was
written off.
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.
In the third quarter of fiscal year 2000, approximately 1.2 million shares
of Class B Common Stock were exchanged for an equivalent number of Class A
Common Stock. The exchanged Class B Common Stock is included in the authorized
and unissued shares.
F-18
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE M--INCOME TAXES
The provisions for income taxes are summarized below (pro forma for
predecessor financial statements) (in thousands):
<TABLE>
<S> <C>
SUCCESSOR (46 WEEKS ENDED JUNE 30, 2000)
Current taxes:
Federal.................................................................. $ --
State.................................................................... --
Foreign.................................................................. 4,391
------
4,391
Deferred taxes:
Federal.................................................................. (4,198)
State.................................................................... (482)
Foreign.................................................................. --
------
(4,680)
------
Income tax benefit................................................................. $ (289)
======
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX WEEKS ENDED
--------------------------- ---------------
PREDECESSOR JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999
------------ ------------ ---------------
<S> <C> <C> <C>
United States (benefit)................................................... $4,221 $ (6,626) $ (399)
International............................................................. 4,910 1,605 352
State and local (benefit)................................................. 813 (1,006) (55)
------ -------- --------
$9,944 $ (6,027) $ (102)
====== ======== ========
</TABLE>
The benefit related to tax deductions for the Company's stock option plans
is recorded as an increase to additional paid in capital when realized. For the
46 weeks ended June 30, 2000, the Company realized tax benefits of approximately
$2.1 million related to its stock option plans.
In the year 2000, the Malaysian taxing authority converted its income tax
system to a self-assessment system. The new self-assessment system requires
Malaysian corporate taxpayers to begin making estimated tax payments in year
2000 based on year 2000 estimated taxable income. Previously, Malaysian
corporate taxpayers submitted 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 was not 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 six weeks ended August 13, 1999 or the 46 weeks ended June
30, 2000.
F-19
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE M--INCOME TAXES--(CONTINUED)
The components of deferred income tax assets (liabilities) are as follows
(in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
--------------------- ----------------------
JULY 2, 1999 JUNE 30, 2000
--------------------- ----------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT
------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Receivables......................................................... $ -- $ -- $ 239 $ --
Inventory........................................................... -- -- 8,664 --
Fixed Assets........................................................ -- -- -- (21,590)
Intangibles......................................................... -- -- -- (14,363)
Accrued Expenses.................................................... -- -- 18,582 --
NOL Carryforward.................................................... -- -- -- 13,961
Depreciation........................................................ -- (7,022) -- --
All other--net...................................................... 3,476 -- (1,717) --
------- ------- -------- ---------
$3,476 $(7,022) $ 25,768 $ (21,992)
======= ======= ======== =========
</TABLE>
A reconciliation of the statutory United States income tax rate to the
Company's effective income tax rate follows:
<TABLE>
<CAPTION>
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
--------------------------- --------------- ---------------
FISCAL YEAR ENDED SIX WEEKS ENDED 46 WEEKS ENDED
--------------------------- --------------- ---------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999 JUNE 30, 2000
------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C>
Statutory U.S. income tax rate.......................... 35.0% 35.0% 35.0% 35.0%
State taxes............................................. 2.3 (3.1) 1.1 1.1
International income.................................... 5.2 (61.9) (29.7) 7.6
Research credits........................................ (2.9) (2.7) 2.2 0.8
In-process research and development..................... -- -- -- (16.5)
Subpart F............................................... -- -- -- (7.6)
Goodwill amortization................................... 3.5 4.0 (4.9) (1.2)
Effect of sale of Malaysian operations.................. -- -- -- (18.0)
Other items............................................. 0.4 0.5 (0.5) (0.5)
------ ------ ----- -----
Effective income tax rate............................... 43.5% (28.2)% 3.2% 0.7%
====== ====== ===== =====
</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 $10.2 million in
fiscal year 1998, $41.9 million in fiscal year 1999, $(1.6) million for the six
weeks ended August 13, 1999 and $21.6 million for the 46 weeks ended June 30,
2000.
Income taxes paid were $14.8 million in fiscal year 1998, $3.4 million in
fiscal year 1999, $0.2 million for the six weeks ended August 13, 1999 and $0.6
million for the 46 weeks ended June 30, 2000.
The Company has a tax year-end of December 31 for federal and state income
tax purposes and has estimated that as of December 31, 1999, it had a cumulative
federal and state operating loss carryforward of $17.0 million. The federal net
operating loss carryforwards will expire in 2020. The state net operating loss
carryforwards will expire in varying amounts beginning in 2005. Calculated as of
June 30, 2000, the
F-20
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE M--INCOME TAXES--(CONTINUED)
Company recorded a deferred tax asset associated with federal and state net
operating loss carryforwards of $14.0 million.
The federal and state net operating loss and tax credit carryforwards could
be subject to limitation if, within any three year period prior to the
expiration of the applicable carryforward period, there is a greater than 50%
change in ownership of the Company.
No valuation allowance has been provided in connection with the net
deferred tax asset as the Company expects to be able to utilize its deferred tax
assets against future taxable income. Based on the Company's projected taxable
income and estimates of future profitability, management has concluded that
operating income will more likely than not be sufficient to give rise to income
tax expense to cover all deferred tax assets.
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 SIX WEEKS ENDED 46 WEEKS ENDED
--------------------------- --------------- ---------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999 JUNE 30, 2000
------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C>
United States operations
Net sales............................................... $563,180 $519,555 $ 54,664 $ 574,867
Long-lived assets....................................... 386,333 371,448 366,386 333,668
International
Net sales............................................... 13,656 13,163 2,672 21,982
Long-lived assets....................................... 122,397 121,330 118,277 112,487
</TABLE>
Export sales included in U.S. operations were, $258.4 million in fiscal
year 1998, $254.8 million in fiscal year 1999, $30.4 million for the six weeks
ended August 13, 1999 and $340.3 million for the 46 weeks ended June 30, 2000.
NOTE O--FINANCIAL INSTRUMENTS
The carrying values of accounts receivable, accounts payable and short-term
debt approximates fair value due to the short-term maturities of these assets
and liabilities. The fair value of long-term debt is based on quoted market
prices or pricing models using prevailing financial market information at the
date of measurement.
Letters of credit are issued by Intersil during the ordinary course of
business through major financial institutions as required by certain vendor
contracts. As of June 30, 2000, Intersil had outstanding letters of credit
totaling $2.7 million.
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.
F-21
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE O--FINANCIAL INSTRUMENTS--(CONTINUED)
In August 1999, Intersil Holding began to use foreign exchange contracts to
hedge anticipated foreign cash flow commitments up to six 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 contracts are recognized in income. Total net gains on foreign exchange
contracts for the 46 weeks ended June 30, 2000 were $3.2 million. At June 30,
2000, open foreign exchange contracts were $30.9 million, all of which were to
hedge anticipated foreign cash flow commitments. For the year ended June 30,
2000, Intersil Holding purchased and sold $87.4 million of foreign exchange
forward contracts.
Prior to August 1999, Intersil Holding used 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. Foreign currency financial instruments were used to reduce
the risks that arise from doing business in international markets. Such
contracts generally had a term of one year or less. At July 2, 1999, open
foreign exchange contracts were $22.0 million, 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 Sheets as other assets and are recorded in operations as part of the
underlying transaction when recognized. At July 2, 1999, Intersil Holding had
deferred foreign exchange contract losses on future commitments of approximately
$28.6 million.
Total open foreign exchange contracts and options at July 2, 1999 and June
30, 2000, are described in the table below:
JULY 2, 1999
COMMITMENTS TO BUY FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
--------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. 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
--------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. 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>
F-22
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE O--FINANCIAL INSTRUMENTS--(CONTINUED)
JUNE 30, 2000
OPTIONS TO SELL FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
--------------------------- MATURITIES
CURRENCY FOREIGN CURRENCY U.S. (IN MONTHS)
-------- ---------------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Euro.................................................................... 3,000 $ 2,883 5-6
</TABLE>
COMMITMENTS TO SELL FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
--------------------------- MATURITIES
CURRENCY FOREIGN CURRENCY U.S. (IN MONTHS)
-------- ---------------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Euro.................................................................... 16,500 $15,697 1-6
British Pound........................................................... 2,300 3,572 1-6
Japanese Yen............................................................ 1,190,000 11,655 1-7
</TABLE>
NOTE P--EMPLOYEE BENEFIT PLANS
Equity Compensation Plan
On November 5, 1999, Intersil Holding adopted the 1999 Equity Compensation
Plan (the "Plan"), which became effective on August 13, 1999, for salaried
officers and key employees. The Plan authorizes the grant of options for up to
7.5 million shares of Intersil Holding Class A Common Stock and can include (i)
options intended to constitute incentive stock options 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 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 46 weeks ended June 30, 2000,
Intersil Holding granted 1,596,793 options to acquire Intersil Holding Class A
Common Stock at a price of $2.25 per share, 1,239,291 options at a price of
$25.00 per share, and 118,100 options at an average price of $45.65 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 46 weeks ended June 30, 2000, 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 $43.7 million for the 46 weeks ended June 30, 2000.
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.
F-23
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE P--EMPLOYEE BENEFIT PLANS--(CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, 2000
-------------
<S> <C>
Expected volatility............................................................ 0.5
Dividend yield................................................................. --
Risk-free interest rate........................................................ 6.25%
Expected life, in years........................................................ 7
</TABLE>
A summary of the status of the Company's stock option plan as of June 30,
2000, and changes during the 46 weeks then ended are presented in the table
below.
<TABLE>
<CAPTION>
JUNE 30, 2000
--------------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
-------------- --------
(IN THOUSANDS)
<S> <C> <C>
Outstanding at beginning of period.................................. -- $ --
Granted............................................................. 3,177 15.41
Exercised........................................................... (194) 10.21
Canceled............................................................ (28) 15.20
------ ------
Outstanding at end of period........................................ 2,955 $15.76
====== ======
Exercisable at end of period........................................ 191 $ 2.25
====== ======
Weighted average fair value of options granted...................... $ 5.07
======
</TABLE>
Information with respect to stock options outstanding and stock options
exercisable at June 30, 2000, 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.............................................. 1,458 9.19 $ 2.25 191 $2.25
$25.00............................................. 1,156 9.65 $ 25.00 -- --
$28.50-$42.13...................................... 208 9.89 $ 36.62 -- --
$42.94-$58.50...................................... 133 9.89 $ 47.40 -- --
</TABLE>
Employee Stock Purchase Plan
In February 2000, Intersil Holding adopted the Employee Stock Purchase
Plan ("the ESPP") whereby eligible employees can purchase shares of Intersil
Holding's common stock. Intersil has reserved 1,333,334 shares of common stock
for issuance under the Plan. The ESPP permits employees to purchase common
stock through payroll deductions, which may not exceed 10% of an employee's
compensation, at a price not less than 85% of the market value of the stock on
specified dates. In no event, may any participant purchase more than $25,000
worth of shares in any calendar year and no more than 16,667 shares may be
F-24
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE P--EMPLOYEE BENEFIT PLANS--(CONTINUED)
purchased by an employee on any purchase date. Unless sooner terminated by the
Board, the ESPP shall terminate upon the earliest of (1) February 28, 2010,
(2) the date on which all shares available for issuance under the ESPP shall
have been sold pursuant to purchase rights exercised under the ESPP, or (3)
the date on which all purchase rights are exercised in connection with a
Corporate Transaction (as defined in the ESPP). As of June 30, 2000, no shares
have been issued under the ESPP.
NOTE Q--ACQUISITION OF NO WIRES NEEDED B.V.
On May 29, 2000, Intersil Holding acquired 100% of the outstanding capital
stock of Bilthoven, The Netherlands-based No Wires Needed B.V. ("NWN").
Consideration for the acquisition of NWN was 3.35 million shares of Intersil
Holding Class A Common Stock valued at $111.3 million at the date of closing.
The NWN acquisition has been accounted for by the purchase method of accounting
and, accordingly, the results of operations of NWN have been included in the
accompanying consolidated financial statements since the acquisition date. The
preliminary purchase price exceeded the fair value of the net tangible assets
acquired by approximately $109.0 million. NWN had completed all in-process
research and development programs prior to its acquisition. Therefore, none of
the preliminary purchase price in excess of the fair value of the net tangible
assets was allocated to purchase in-process research and development. The
preliminary purchase price in excess of fair value of net tangible assets was
allocated to goodwill, which will be amortized on a straight-line basis over
seven years.
The following unaudited pro forma consolidated results of operations are
presented as if the NWN acquisition occurred on August 14, 1999 (in millions,
except per share data):
<TABLE>
<CAPTION>
46 Weeks Ended
June 30, 2000
--------------
<S> <C>
Product sales................................................................ $603.2
Net loss before extraordinary item........................................... (31.7)
Net loss..................................................................... (57.3)
Net loss to common shareholders.............................................. (62.7)
Net loss per basic and diluted share:........................................ (0.79)
</TABLE>
The pro forma results of operations include adjustments to give affect to
additional depreciation and amortization related to the increased value of
acquired assets and identifiable intangibles. The unaudited pro forma
information is not necessarily indicative of the results of operations that
would have occurred had the acquisition actually been made at the beginning of
the period presented or the future results of the combined operations.
NOTE R-- SALE OF INTERSIL'S KUALA LUMPUR, MALAYSIA-BASED SEMICONDUCTOR ASSEMBLY
AND TEST OPERATIONS
On June 30, 2000, Intersil Holding completed the sale of its Kuala Lumpur,
Malaysia-based semiconductor assembly and test operations to ChipPAC, Inc.
("ChipPAC") which, under a multi-year supply agreement, will supply integrated
circuit (IC) assembly and test services to Intersil Holding. Under the terms of
the transaction, ChipPAC acquired all of Intersil's Kuala Lumpur assets,
including a 524,000 square foot semiconductor assembly and test facility,
wireless and analog/mixed-signal capabilities, product distribution center as
well as the operation's management team and approximately 2,900 employees. As
consideration for the sale, Intersil received approximately $52.5 million in
cash and $15.8 million in
F-25
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE R-- SALE OF INTERSIL'S KUALA LUMPUR, MALAYSIA-BASED SEMICONDUCTOR ASSEMBLY
AND TEST OPERATIONS--(CONTINUED)
ChipPAC preferred convertible stock. Intersil Holding recognized a non-recurring
charge of $24.8 million for the loss on sale in connection with the transaction.
NOTE S-- 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 acquisition, Intersil
issued the Notes and entered into the Senior Credit Facilities (Note H), 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 consolidated financial information presented below includes
the Predecessor consolidated balance sheet as of July 2, 1999 and the
Predecessor consolidated statements of operations and cash flows for the fiscal
years ended July 3, 1998, and July 2, 1999, and the six weeks ended August 13,
1999 for the Predecessor Guarantor and Non-Guarantor Subsidiaries. The condensed
consolidated balance sheet as of June 30, 2000 and the condensed consolidated
statements of income operations and cash flows for the 46 weeks ended June 30,
2000 reflect the Parent, Guarantor Subsidiaries and Non-Guarantor Subsidiaries.
F-26
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS 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, general and administrative......... 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>
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, general and administrative......... 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>
F-27
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS 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, general and administrative......... 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>
46 WEEKS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
SUCCESSOR
--------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUE
Product sales..................... $ -- $568,091 $527,695 $(498,937) $596,849
COSTS AND EXPENSES
Cost of product sales............. -- 362,807 499,438 (509,732) 352,513
Research and development.......... -- 69,341 115 -- 69,456
Selling, general and
administrative.................. 123 75,609 21,495 -- 97,227
Harris corporate expense
allocation...................... -- -- -- -- --
Intangible amortization........... -- 9,124 1,562 -- 10,686
In-process research and
development..................... -- 20,239 -- -- 20,239
Other............................. 300 878 -- -- 1,178
-------- -------- -------- --------- --------
Operating income (loss)............. (423) 30,093 5,085 10,795 45,550
Loss on sale of Malaysian
operation....................... -- 24,825 -- -- 24,825
Interest, net..................... 7,855 30,404 (91) 36 38,204
Equity in subsidiary (loss)....... (19,960) -- -- 19,960 --
-------- -------- -------- --------- --------
Income (loss) before income taxes
and extraordinary item.......... 11,682 (25,136) 5,176 (9,201) (17,479)
Income taxes (benefit)............ -- 193 (482) -- (289)
-------- -------- -------- --------- --------
Income (loss) before extraordinary
item............................ 11,682 (25,329) 5,658 (9,201) (17,190)
Extraordinary item--loss on
extinguishment of debt, net of
tax effect...................... (568) (24,950) -- -- (25,518)
-------- -------- -------- --------- --------
Net income (loss)................. 11,114 (50,279) 5,658 (9,201) (42,708)
Preferred dividends............... 5,391 5,391 -- (5,391) 5,391
-------- -------- -------- --------- --------
NET INCOME (LOSS) TO COMMON
SHAREHOLDERS.................... $ 5,723 $(55,670) $ 5,658 $ (3,810) $(48,099)
======== ======== ======== ========= ========
</TABLE>
F-28
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
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
Trade payables.............................. $ 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>
JUNE 30, 2000
<TABLE>
<CAPTION>
SUCCESSOR
--------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents....... $ -- $ 200,237 $ 11,703 $ -- $211,940
Trade receivables, net.......... -- 104,769 6,926 -- 111,695
Intercompany balances........... -- (3,009) 3,009 -- --
Inventories..................... -- 126,313 168 -- 126,481
Other current assets............ -- 37,295 372 -- 37,667
Property, plant and equipment,
net........................... -- 223,852 1,632 -- 225,484
Intangibles, net................ -- 80,888 109,262 -- 190,150
Investment in subsidiaries...... 719,768 323,526 1,370 (1,044,664) --
Other non-current assets........ -- 28,927 1,594 30,521
-------- ---------- -------- ----------- --------
Total Assets.................. $719,768 $1,122,798 $136,036 $(1,044,664) $933,938
======== ========== ======== =========== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Trade payables.................. $ -- $ 32,953 $ 4,038 $ -- $ 36,991
Compensation and benefits....... -- 35,254 3,372 -- 38,626
Other current liabilities....... -- 35,823 5,322 -- 41,145
Long-term debt.................. -- 116,188 -- -- 116,188
Other non-current liabilities... -- 21,992 -- -- 21,992
Common stock.................... 945 -- -- -- 945
Additional paid-in capital...... 718,823 300 -- -- 719,123
Retained deficit................ -- 880,288 121,668 (1,044,664) (42,708)
Accumulated other comprehensive
income........................ -- -- 1,636 -- 1,636
-------- ---------- -------- ----------- --------
Total Liabilities and
Shareholders' Equity........ $719,768 $1,122,798 $136,036 $(1,044,664) $933,938
======== ========== ======== =========== ========
</TABLE>
F-29
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS 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 (used in) operating activities
Depreciation and amortization....................... 51,295 16,036 -- 67,331
Provision for inventory obsolescence................ 7,317 -- -- 7,317
Changes in working capital.......................... (162,132) 12,669 110,235 (39,228)
-------- ------- --------- --------
Net cash provided by (used in) operating
activities...................................... (104,428) 47,123 105,636 48,331
INVESTING ACTIVITIES:
Property, 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 (used in) financing
activities...................................... 154,190 (4,043) (105,636) 44,511
Effect of exchange rates on cash...................... -- (2,658) -- (2,658)
-------- ------- --------- --------
Net increase in cash.................................. -- -- -- --
Cash at the beginning of the period................... -- -- -- --
-------- ------- --------- --------
Cash at the end of the period......................... $ -- $ -- $ -- $ --
======== ======= ========= ========
</TABLE>
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 (used in) operating activities
Depreciation and amortization....................... 59,615 21,016 -- 80,631
Provision for inventory obsolescense................ 3,894 -- -- 3,894
Changes in working capital.......................... 144,087 19,084 (163,853) (682)
--------- --------- -------- --------
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)
Property, 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 (used in) financing
activities...................................... (189,044) (139,639) 262,151 (66,532)
Effect of exchange rates on cash...................... -- (4,819) -- (4,819)
--------- --------- -------- --------
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 STATEMENTS 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 (used in) operating
activities
Depreciation and amortization................. 2,380 6,693 -- 9,073
Provision for inventory obsolescense.......... 1,919 -- -- 1,919
Non-current deferred income taxes............. -- 4,815 (9,571) (4,756)
Changes in working capital.................... 208,945 128,451 (337,221) 175
--------- --------- --------- -------
Net cash provided by (used in) operating
activities............................... 201,782 127,833 (326,233) 3,382
INVESTING ACTIVITIES:
Property, 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................ 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>
46 WEEKS ENDED JUNE 30, 2000
<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)....................... $ 11,114 $ (50,279) $ 5,658 $(9,201) $ (42,708)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities
Depreciation and amortization........... -- 52,500 8,788 -- 61,288
Provision for inventory obsolescense.... -- 23,906 -- -- 23,906
Write-off of in-process research and
development........................... -- 20,239 -- -- 20,239
Write-off of unearned compensation...... 878 -- -- -- 878
Loss on sale of Malaysian operations.... -- -- 24,825 -- 24,825
Non-current deferred income taxes....... -- (4,680) -- -- (4,680)
Changes in working capital.............. (527,091) 622,854 (77,573) 9,201 27,391
--------- --------- -------- ------- ---------
Net cash provided by (used in)
operating activities................ (515,099) 664,540 (38,302) -- 111,139
INVESTING ACTIVITIES:
Sale of Malaysian operation............... -- -- 52,500 -- 52,500
Property, plant and equipment............. -- (35,031) (3,782) -- (38,813)
--------- --------- -------- ------- ---------
Net cash provided by (used in)
investing activities................ -- (35,031) 48,718 -- 13,687
FINANCING ACTIVITIES:
Proceeds from offering.................... 513,114 -- -- -- 513,114
Proceeds from exercise of stock options... 1,985 -- -- -- 1,985
Payments of borrowings.................... -- (435,204) -- -- (435,204)
--------- --------- -------- ------- ---------
Net cash provided by (used in) financing
activities............................ 515,099 (435,204) -- -- 79,895
Effect of exchange rates on cash and cash
equivalents............................. -- -- (158) -- (158)
--------- --------- -------- ------- ---------
Net increase in cash and cash
equivalents............................. -- 194,305 10,258 -- 204,563
Cash at the beginning of the period....... -- 5,932 1,445 -- 7,377
--------- --------- -------- ------- ---------
Cash and cash equivalents at the end of
the period ............................. $ -- $ 200,237 $ 11,703 $ -- $ 211,940
========= ========= ======== ======= =========
</TABLE>
F-31
<PAGE>
NOTE T--QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------
OCTOBER 1, DECEMBER 31, MARCH 31, JUNE 30,
1999 1999 2000 2000
---------- ------------ --------- --------
(IN MILLIONS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................................... $134.0 $158.1 $170.9 $191.2
Gross margin........................................ 48.3 61.7 69.4 82.6
Income (loss) before extraordinary item............. (23.1) (1.7) 2.8 1.8
Extraordinary item.................................. -- -- (25.5) --
------ ------ ------ ------
Net income (loss)................................... $(23.1) $ (1.7) $(22.7) $ 1.8
====== ====== ====== ======
Net income (loss) to common shareholders............ $(24.5) $ (4.2) $(24.2) $ 1.8
Per Share (Basic):
Income (loss) before extraordinary item........... $(0.37) $(0.06) $ 0.02 $ 0.02
Extraordinary item................................ -- -- (0.34) --
------ ------ ------ ------
Net income (loss)................................. $(0.37) $(0.06) $(0.32) $ 0.02
====== ====== ====== ======
Per Share (Diluted):
Income (loss) before extraordinary item........... $(0.37) $(0.06) $ 0.02 $ 0.02
Extraordinary item................................ -- -- (0.34) --
------ ------ ------ ------
Net income (loss)................................. $(0.37) $(0.06) $(0.32) $ 0.02
====== ====== ====== ======
</TABLE>
F-32
<PAGE>
INTERSIL [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....................................... $14,222,000
-----------
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 shareholders 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 shareholders,
(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 13.25% Senior Subordinated Note due 2009 of Intersil with a
principal amount of $1,000 and one Warrant (a "Warrant") to purchase 18.5185
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 hereof.
(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
2000....................................... $ 582 $ 423 $395 $ 59 $ 1,341
1999....................................... $ 571 $ 487 $ -- $ 476 $ 582
1998....................................... $ 1,336 $ 324 $ -- $ 1,089 $ 571
INVENTORY RESERVE
2000....................................... $18,117 $38,074 $573 $34,831 $21,933
1999....................................... $24,482 $ 8,373 $257 $14,995 $18,117
1998....................................... $31,736 $ 9,846 $120 $17,220 $24,482
DISTRIBUTOR RESERVES
2000....................................... $ 6,542 $37,408 $ -- $36,584 $ 7,366
1999....................................... $ 6,189 $52,965 $ -- $52,612 $ 6,542
1998....................................... $11,278 $66,062 $ -- $71,151 $ 6,189
</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. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Irvine, State of California, on the
14th day of September, 2000.
INTERSIL HOLDING CORPORATION
By: DANIEL J. HENEGHAN
------------------------------------
Daniel J. Heneghan
Vice President, Chief Financial
Officer and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 2 to the Registration Statement has been
signed below by the following persons in the capacities indicated on September
14, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chief Executive Officer and Director
----------------------------------------------------- (principal executive officer)
Gregory L. Williams
DANIEL J. HENEGHAN Vice President, Chief Financial Officer
----------------------------------------------------- and Assistant Secretary
Daniel J. Heneghan (principal financial and accounting officer)
* Director
-----------------------------------------------------
James A. Urry
* Director
-----------------------------------------------------
Gary E. Gist
ROBERT W. CONN Director
-----------------------------------------------------
Robert W. Conn
Director
-----------------------------------------------------
Jan Peeters
Director
-----------------------------------------------------
Robert N. Pokelwaldt
*By: DANIEL J. HENEGHAN
-----------------------------------------------
Daniel J. Heneghan
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
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.
2.23* Option Agreement, dated as of August 13, 1999, among
Intersil and Intersil PRISM, LLC.
2.24 Stock Purchase Agreement among ChipPAC Limited, ChipPAC,
Inc., Sapphire Worldwide Investments, Inc. and Intersil
Corporation dated as of June 30, 2000 (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K
previously filed by ChipPAC, Inc. on July 14, 2000
(Commission File No. 333-91641)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
2.25 Share Purchase Agreement dated April 27, 2000 by and among
Holding, Intersil B.V., No Wires Needed B.V., Gilde It Fund
B.V., Parnib B.V., 3Com Corporation, Kennet I L.P., Hans B.
Van Der Hoek and the shareholders named therein
(incorporated by reference to Exhibit 2.25 to the Report on
Form 10-K previously filed by Intersil Holding Corporation
on August 17, 2000 (the "10-K")).
2.26 Amendment No. 1 to the Share Purchase Agreement dated April
27, 2000 by and among Holding, Intersil B.V., No Wires
Needed B.V., Gilde It Fund B.V., Parnib B.V., 3Com
Corporation, Kennet I L.P., Hans B. Van Der Hoek and the
shareholders named therein (incorporated by reference to
Exhibit 2.26 to the 10-K).
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.
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 10.05).
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10.12* Employment Agreement, dated as of August 9, 1999, 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.
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.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
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<S> <C>
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.
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.
10.50 Amendment No. 1, dated as of December 13, 1999, to the
Securities Purchase and Holders Agreement by and among
Holding, Sterling Holding Company, LLC, Manatee Investment
Corporation, Citicorp Mezzanine Partners, L.P. and the
management investors named therein (incorporated by
reference to Exhibit 10.50 to Amendment No. 1 to the
Registration Statement on Form S-1 previously filed by the
Registrant on September 5, 2000 (Registration No.
333-44606).
10.51 Amendment No. 2, dated as of May 31, 2000, to the Securities
Purchase and Holders Agreement, by and among Holding,
Sterling Holding Company, LLC, Manatee Investment
Corporation, Citicorp (incorporated by reference to Exhibit
10.51 to Amendment No. 1 to the Registration Statement on
Form S-1 previously filed by the Registrant on September 5,
2000 (Registration No. 333-44606).
10.52 Supply Agreement entered into as of June 30, 2000 by and
between ChipPAC Limited and Intersil Corporation
(incorporated by reference to Exhibit 10.33 to the
Registration Statement on Form S-1 previously filed by
ChipPAC, Inc. on July 14, 2000 (Registration No.
333-39428)).
10.53 Intellectual Property Agreement entered into as of June 30,
2000 between Intersil Corporation and ChipPAC Limited
(incorporated by reference to Exhibit 10.32 to the
Registration Statement on Form S-1 previously filed by
ChipPAC, Inc. on July 14, 2000 (Registration No.
333-39428)).
10.54 Intersil Holding Corporation 1999 Equity Compensation Plan,
effective as of August 13, 1999 (incorporated by reference
to Exhibit 10.54 to the 10-K).
10.55 The Intersil Holding Corporation Employee Stock Purchase
Plan, effective as of February 25, 2000 (incorporated by
reference to Exhibit 10.55 to the 10-K).
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>
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* Previously filed
